Ellis v. Vernon Ice Co.

The assets of the Vernon Ice, Light, and Water Company, a private corporation, chartered for the purposes indicated by its name, were, on the 19th day of December, 1891, upon the application of J.B. Lockett, a creditor without judgment or lien, placed in the hands of a receiver. In February following, at a regular term of the District Court, upon the motion of Clower, Harris Co., judgment and lien creditors who had intervened in the suit, the receivership was by order of the court continued in force. About the same time, the First National Bank of Vernon filed its plea of intervention, also praying for the continuance of the receivership. In June following, D.A. Turner and others intervened.

In July, appellant Ellis, the holder of the bonded indebtedness of the said company, amounting to about $18,000, secured by the first and only mortgage on its entire plant and assets, filed his plea of intervention, containing a general demurrer to the petitions of plaintiff and the other intervenors, a general denial, and a special plea setting up his ownership of the bonds and mortgage with power of sale; alleging default in the payment of interest, and praying a foreclosure of his prior lien, and that the sale be made through himself as trustee, or through such other person as the court might select. He also alleged a title to the lots upon which the water works plant was in part situated, derived from an execution sale made under one of the judgments in favor of Clower, Harris Co., foreclosing an attachment lien created subsequent to the deed of trust.

There was a trial without the intervention of a jury, and the record contains the court's conclusions of fact methodically stated, but no statement of facts. Our conclusions will therefore rest upon these findings of fact. Conclusions of Law. — 1. The first assignment, that there was error in overruling the general exception of appellant to the pleadings of the other parties, can not be sustained. If any one of these pleas was good for any purpose, which must be admitted, the general demurrer was properly overruled. 79 Tex. 543; 15 L.R.A., (Ga.), 637. Besides, the assignment is very general, and no proposition is submitted under it.

2. The second and third assignments complain of the court's conclusions, (1) that the appointment of a receiver at the instance of a simple contract creditor of an insolvent corporation was authorized by the third subdivision of article 1461 of the Revised Statutes; (2) that if there was error in such appointment, the same was cured by the subsequent confirmation of the appointment at the instance of Clower, Harris Co., who were judgment and attachment lien creditors. We are of opinion, that the findings on this issue should not be disturbed, if for no other reason, because appellant failed to take any steps in the trial court to vacate the receivership. We fail to find in the record any motion or prayer on his part for such relief, and the only assault made upon the receivership by his pleadings in the court below, which we have been able to find, consisted of the following statement, incidentally made in parenthesis, "not admitting, but denying, the legality of the receivership proceedings herein." The rest of his plea seems to have contemplated the continuance of the receivership, which was supplemented by an agreed judgment to that effect, and we think he must be held to have acquiesced therein.

3. The fourth assignment, in the language of appellant, "goes to the right of the court in any case, other than a railway receivership, to fix upon the corpus of the property a lien prior to the first mortgage bonds," which right is denied by him. This position seems to us to be arbitrary, and without support in reason or authority. The ground upon which this right was denied in case of a navigation company (Bound's case, 50 Federal Reporter, 312), relied upon by appellant, would seem to require that the doctrine should be held as applicable to the water works of a city or town as to a railway. In the one case, as in the other, the interposition of sovereign power is required to secure the land upon which it is constructed. It is there laid down, that this exercise of the right of eminent domain is bestowed by the sovereign in consideration of the continued public use, which public use, as there defined, arises when the sovereign power is essential to the enterprise, and is exercised because of such use. The bondholder lends his money with the knowledge of this condition. Rev. Stats., art. 478; see also, Karn Hickson v. Rorer Iron Co., 86 Va. 754. This question is placed beyond controversy, so far as debts and liabilities arising during the receivership are concerned, by the Act of 1889, amending article 1466 of the Revised Statutes. Sayles' Add., art. 1466. This conclusion overrules the seventh assignment also, which reads, "The court erred in finding and decreeing that the cost, expenses, salary, etc., including receiver's certificates, should be paid out of the proceeds arising from the sale of the property as preference liens."

4. We are of opinion, however, that the sixth assignment, reading, "The court erred in finding and decreeing that the $2404.55 of the earnings of the defendant were diverted to such purpose as gave the intervenors and plaintiff a right to be paid to that extent out of the proceeds arising from a sale of the property itself," must be sustained. These claims all originated long before the receivership. It appears that there were no net earnings from the operation of the plant pending the receivership; nor does it appear that the revenues previously expended upon the improvement and extension of the plant enhanced its value; nor that the holders of these claims had been in any way prevented from collecting the same by proceedings at law; nor that the company had been allowed by the mortgage bondholder to remain in possession and operate the plant after insolvency and default; nor that it had been suddenly deprived of the control of its property, or the like.

This record presents the case of the appointment of a receiver, not at the instance of bondholders or officers of a corporation, to the incidental detriment of the favored class of unsecured creditors, but upon the application of holders of unsecured claims for supplies furnished and money advanced, who had neglected to proceed at law to collect their debts, alleging the recent insolvency of the corporation as the sole ground for appointing the receiver, and seeking thereby to acquire a preference lien. To give such claims, under the circumstances disclosed by the record, a preference lien on the corpus of the estate, it seems to us, would be to go further than any case has yet gone in subordinating a fixed lien to a floating debt. McIlhenny v. Benz, 80 Tex. 13; Railway v. Humphries,145 U.S. 103, and cases there quoted from.

We are strengthened in this conclusion by the legislation had on the subject of receiverships just prior to the transactions involved, which seems to have made more certain the very flexible rules governing receiverships as administered in courts of equity. By the Acts of 1887 and 1889, amending and enlarging the statute on that subject, the only claims made liens on the property in the hands of the receiver superior to the mortgage lien are judgments rendered for causes of action arising duringthe receivership. Sayles' Add., art. 1466. Claims arising prior thereto are limited to a preference lien on the moneys coming into the hands of the receiver as the earnings of the property in his hands, and are last in the order of preference. Sayles' Civ. Stats., arts. 1470d, 1470e, Add., 1466. Without net earnings, therefore, no provision is made for their payment. The lien therein repeatedly declared to be superior to the mortgage lien on the corpus of the property is invariably limited to claims or causes of action arising during the receivership. The only provision for the payment of antecedent floating debts out of the proceeds of the sale of the mortgaged property in preference to the debt secured by the mortgage, is where the receiver has spent current earnings coming into his hands as such in improving the property, whereby its value has been increased, and then only to the extent of the value of such improvements. Sayles' Civ. Stats., art. 1470d.

We think the Legislature must have meant something by the minute and full treatment of the subject which these acts manifest, and that the courts should be governed by their provisions. This conclusion sustains also the eighth, thirteenth, fourteenth, sixteenth, seventeenth, and eightteenth assignments, and leads to a reversal of the judgment in so far as it gave these claims a preference lien. The other assignments are not believed to be well taken, being, in effect, either disposed of or rendered unimportant by the conclusions already reached.

Judgment will be here rendered in favor of appellant, directing the payment of his bonds out of the proceeds of the sale of the property mortgaged, in preference to the claims of plaintiff and the other intervenors in the court below, but following in other respects the decree there entered; the costs of this appeal to be taxed against said appellees.

Reformed and rendered.

A motion for rehearing was denied.

Publication of this case was delayed because of an application for writ of error to the Supreme Court, which was refused on written opinion.