Some months after the sale of a railroad under foreclosure, and
its surrender by the receiver to the corporation organized to
receive it, the sale being made with a provision that the purchaser
should pay all debts adjudged to be superior in equity to the deeds
of trust foreclosed, an order was made giving such priority to the
appellee.
Held that an appeal lay in favor of the
purchaser.
The term "wages of employs," as used in an order directing the
payment of certain classes of debts out of the proceeds of the sale
of a railroad under foreclosure in preference to the secured liens,
does not include the services of counsel employed for special
purposes.
Services of an attorney in securing payment to the receiver of a
railroad of rent due for property of the railroad company and the
return of the property, are entitled to priority of payment over
the secured liens on a sale of the road under foreclosure of a
mortgage upon it.
The other claims of the appellee, not being rendered for the
benefit of the security holders, are not entitled to such
priority.
On the 30th day of December, 1884, Isaac T. Burr filed in the
Circuit Court of the United States for the Southern District
Page 138 U. S. 502
of Illinois his bill of complaint against the Louisville,
Evansville and St. Louis Railway Company, the Mercantile Trust
Company of New York, trustee, Noble C. Butler, trustee, and Robert
A. Watts, trustee. The bill set forth the fact that the complainant
was a judgment creditor of the railway company, and the others,
trustees in deeds of trust given by the company. Subsequently, a
cross-bill was filed by two of the trustees. The original bill
prayed the appointment of a receiver, and on the 3d day of January,
1885, George F. Evans was appointed receiver and took possession of
the railway property. In the order of appointment was this
provision:
"It is further ordered, adjudged and decreed that the said
receiver, out of the income that shall come into his hands from the
operation of the said railway or otherwise, do proceed to pay all
just claims and accounts for labor, material, supplies, salaries of
officers and wages of employees that may have been earned or
furnished within six months prior to January 1, 1885, and all
taxes."
The outcome of the litigation was the sale of the road under a
decree of foreclosure of the deeds of trust. This decree was
entered April 23, 1886. A similar decree of sale was entered in the
Circuit Court of the United States for the District of Indiana, in
which court also foreclosure proceedings were had, the road
extending through both districts. On the 9th of June, 1886, the
property was sold in obedience to these decrees. On the 22d of
July, 1886, this sale was confirmed. On the 8th of October, 1886,
an order was entered in the Circuit Court in the Indiana District
directing the receiver to surrender the possession of the property
sold to the Louisville, Evansville and St. Louis Railroad Company,
a corporation organized by the parties interested in the purchase,
and to which the purchasers had conveyed all their rights under
their purchase. This order was not entered in the Illinois Circuit
Court at that time, but nevertheless, on the 11th of October, 1886,
the receiver surrendered the entire property to the new
corporation. In the order directing this surrender were provisions
for the payment by the new corporation of all claims which might be
adjudged superior in equity to the deeds of trust foreclosed, with
the
Page 138 U. S. 503
right to retake possession of the property if payment was not
made and with the further right to the new corporation to appeal
from any adjudication of such claims. Appellee intervened in the
Illinois circuit court, and on the 10th day of August, 1887, an
order was entered adjudging that he be allowed $7,650. This order
also provided:
"And the court does further order, adjudge, and decree that the
receiver, George F. Evans, forthwith pay the same to the said
petitioner, together with the costs of the proceedings, out of any
money in his hands arising from the operation of the said railway
as such receiver, and, if that is insufficient, then that the same
be paid, prior to the bonded debt, out of the proceeds of the sale
of the mortgaged premises."
On the 29th of August, 1887, the order entered in the Indiana
circuit court on October 8, 1886, was, by the direction of the
circuit judge, entered in the Illinois circuit court as of the date
of October 8, 1886, and on the same day an order was entered
reciting the appearance of the receiver; that he showed to the
court that he had surrendered possession on the 11th of October,
1886; and, in addition, providing,
"in consideration thereof and of the decree herein entered on
August 10, 1887, it is ordered, adjudged, and decreed that the sum
of seven thousand six hundred and fifth dollars, allowed the
intervenor, Bluford Wilson, together with the costs incurred on his
intervention, is a lien and charge upon the earnings of the said
property while in the hands of the receiver, and upon the proceeds
of sale of the mortgaged premises, prior and superior to the deeds
of trust of June 1, 1881, and March 1, 1882, and it is thereupon
adjudged, ordered, and decreed that the Louisville, Evansville and
St. Louis Railroad Company shall, within twenty days from this
date, pay to the said intervenor or into court for him the said sum
of seven thousand six hundred and fifty dollars ($7,650), with
interest from this day, and the costs of the said intervenor upon
this intervention."
The order also gave an appeal to the new corporation, and
granted a supersedeas on the filing of a bond in the penalty of ten
thousand dollars. This bond was filed and the appeal perfected. The
appeal was taken from the order of August 29.
Page 138 U. S. 504
MR. JUSTICE BREWER, after stating the facts as above, delivered
the opinion of the Court.
We think the appeal was properly taken. At the time the order of
August 10 was entered, the receiver was not in possession; he had
surrendered the property more than nine months prior thereto. When
he surrendered the property, he closed up his receivership. A
decree against him was not personal, but official. It was not the
contemplation of the court that any personal liability should be
cast upon him. He not only had no railroad funds or property in his
possession out of which to pay this allowance, but he had no right
to retake that which he had surrendered. The reservation made in
the order entered in the Indiana court of the right of the court to
retake possession of the property surrendered conferred no rights
on the receiver; it was simply a reservation to the court, which
might, under that reservation, by the old or a new receiver at any
time retake possession when its allowances within the scope of the
order of surrender were not paid. So the order of August 10 was a
mistake. It neither bound the appellant nor the property which it
had received. It was not a purchaser of the railroad property, and
did not become, until August 29, a party to the record in the
Illinois court. It is true that on August 29, the circuit judge,
directing the entry in the Illinois court of the order made nearly
a year before in the Indiana court, directed that it should be
entered as of October 8, 1886, the date of its entry in the Indiana
circuit court; but such
nunc pro tunc entry, while proper
for the protection of the receiver, could not antedate the
subjection of the new corporation to the orders and decrees of the
Illinois circuit court. It could justly say that it was not a party
to the proceedings in that court until the entry of August 29,
1887. There was no misunderstanding, no misrepresentation, no
deceit, in these matters. Immediately on the
Page 138 U. S. 505
entry of this order of August 29, a transcript of the order from
the Indiana circuit court, a new decree in favor of the intervenor
was entered -- a decree for the first time binding the appellant.
This was not an order in execution, merely, of the former decree,
such as those noticed in the case of
Trust Company v. Grant
Locomotive Works, 135 U. S. 207, but
it was the first order against and binding the appellant. We are
therefore compelled to notice the merits of this allowance.
The allowance to the appellant was for three matters. He does
not sue for services as general counsel of the mortgagor company,
or for salary as an officer of that company. With respect to the
provision in the order of appointment, he claims to come under the
descriptive words therein used, "wages of employees." If that fails
him, then he appeals to the general equity powers of the court to
compensate him as one whose services were beneficial to the
security holders. On the meaning of the words "wages of employees,"
he cites the case of
Gurney v. Atlantic & Great Western
Railway Company, 58 N.Y. 358, in which an order directing the
receiver of a railway company, thereby appointed, to pay debts
"owing to the laborers and employees," for labor and services, was
held broad enough to include a debt due to Hon. Jeremiah S. Black
for professional services as counsel. Without criticizing that
decision or noticing the special circumstances which seemed in the
judgment of that court to justify the inclusion of professional
services within the descriptive words of the appointment, we are of
the opinion that the term "wages of employees," as used in the
order now under consideration, does not include the services of
counsel employed for special purposes.
Vane v. Newcombe,
132 U. S. 220,
132 U. S.
237.
The terms "officers" and "employees" both alike refer to those
in regular and continual service. Within the ordinary acceptation
of the terms, one who is engaged to render service in a particular
transaction is neither an officer nor an employee. They imply
continuity of service, and exclude those employed for a special and
single transaction. An attorney of an individual, retained for a
single suit, is not his employee. It is true, he has engaged to
render services; but his engagement is
Page 138 U. S. 506
rather that of a contractor than that of an employee. The
services of appellee therefore did not come within the order
appointing the receiver. We would not be understood as asserting
even by implication that the terms of an order of appointment of a
receiver vest in all claimants an absolute right as against the
security holders. Such terms may be, and doubtless are, a
protection to the receiver, and what he does and pays within those
terms may be thereafter beyond the challenge of any party
interested in the property. But when he has not acted, and the
question is presented to the court as to the liability of the
property for any claim, the court is not foreclosed by the order of
appointment, but may consider and determine equitably the extent of
liability of the property to such claim, and what its rights of
priority may be. Hence, as the receiver did not pay this claim, the
parties in interest may rightfully challenge its priority, even if
it were within the very letter of the order of appointment of the
receiver.
What were the services for which the appellee made his claim,
and were they so beneficial to the security holders that a court of
equity might justly give them priority? And the question, it will
be borne in mind, is not whether out of the earnings of the road
such claims are payable, but whether, where there are no surplus
earnings, they may be paid out of the corpus of the property in
preference to secured liens.
The first matter is this: prior to the appointment of a
receiver, the railway company leased to the Illinois Midland
Railway Company certain engines. When the latter road passed into
the hands of a receiver, intervenor was employed to get the engines
back and rental for their use. In this service he secured an
allowance against its receiver for $1,500, upon which $1,340.13 was
paid, and paid after the receiver in this case was in possession.
The only testimony as to the value of such service fixed it at
$300. Part of such service was rendered more than six months prior
to the appointment of a receiver in this case, but apparently the
important part within such time. This recovery inured to the
benefit of the security holders as placing so much more money in
the hands of the receiver for the purpose of discharging
obligations
Page 138 U. S. 507
against the company payable before the bonds. We think it may
fairly be held that the party who takes the benefit of such a
service ought to pay for it, and that equity may properly decree
payment therefor. As justly remarked by Lord Kenyon in
Read v.
Dupper, 6 T.R. 361,
"the principle has long been settled that a party should not run
away with the fruits of a cause without satisfying the legal
demands of his attorney, by whose industry and expense these fruits
were obtained."
In
Renick v. Ludington, 16 W.Va. 392, it is said:
"The lien (even in cases of
quantum meruit) is in the
nature of an equitable lien 3 Cooper's Tenn.Ch. 23, and is based on
the natural equity that the plaintiff ought not to be allowed to
appropriate the whole of a judgment in his favor without paying
thereout for the services of his attorney in obtaining such
judgment."
See also Mahone v. Southern Tel. Co., 33 F. 702, and
In re
Paschall, 10 Wall. 483. We think, therefore, there
was no impropriety in allowing intervenor three hundred dollars for
these services.
The second item of intervenor's claim is this: the railroad
company was not paying operating expenses and interest; it was
running behind. Certain parties interested in and officers of the
road advanced moneys to continue its operation and prevent
foreclosure proceedings. After advancing a considerable sum, they
became anxious to secure their advances, and upon the intervenor's
advice they took assignments of payrolls, so as to bring them
within the scope of the rulings of this Court as to preferential
payment of employees, and on foreclosure these claims, thus
evidenced and secured, were recognized and given equality of right
with the security holders in the reorganization scheme. One of the
witnesses as to the value of these services testified that they
were worth $5,000, adding, "Of course, I mean that such fees should
be paid by the parties benefited." That states the true equities of
the case. The parties who, acting under the intervenor's advice,
took such steps as to secure their advances, and thereby obtained
equity of interest with the lienholders, should pay him. They who
are compelled to let third parties into an equality with themselves
in the matter
Page 138 U. S. 508
of security ought not to be compelled to pay counsel who brought
about such equality. As happily said by counsel for appellant:
"This is taking the funds belonging to a prior mortgagee to pay
counsel to devise a scheme by which the subsequent lender of money
is preferred before him."
The remaining matter is this: the Louisville, Evansville and St.
Louis Railway Company was a corporation made up by the
consolidation of the Louisville, New Albany and St. Louis Railroad
Company and the Evansville, Rockport and Eastern Railway Company.
At the time of the consolidation, there was on the first-named
property a deed of trust of $3,000,000, and on the latter, one of
$900,000. After consolidation, a new deed of trust for $1,000,000
was executed on the entire property. Fearing that the trustee in
the deed of trust on the Evansville, Rockport and Eastern Railway
Company might take possession of that division, intervenor was
employed to prevent such action, and he commenced suits to enjoin
the trustee therefrom. He also successfully negotiated with the
bondholders, and thus preserved the unity of operation and control
until the commencement of the proceedings in this suit, whereby the
entire property was taken possession of and operated by a single
receiver, and subsequently sold and passed into the new
corporation. At the sale, both divisions were sold. The Evansville
division, being sold subject to the deed of trust of $900,000,
brought only $20,000, to be applied on the second lien -- the one
given by the consolidated company. The services thus rendered were
at the instance of the railroad company, and it is not perceived
how services rendered at its instance, to preserve control of that
portion of its road not covered by the first lien, can be
considered as services to the holders of bonds secured by that
lien. The primary object of such services was the benefit of the
railroad company. It was to enable it to retain the control and
receive the earnings of as large an extent of the road as possible.
As such services did not secure any additional interest to the
lienholders -- in fact, they advanced the moneys due for interest
on the Evansville
Page 138 U. S. 509
first mortgage -- it seems inequitable that they should be held
responsible, and be compelled to pay the party employed by the
railroad company. It cannot be that security holders are liable,
either in law or in equity, for the expenses incurred by their
debtor in carrying into effect a scheme which the latter believes
will enable it to pay its interest to them, but which in fact does
not accomplish such result. It was the debtor's act, and if it
failed of accomplishing hoped-for results, the party employed must
look to his employer alone for compensation, and cannot charge the
bondholders therefor on the theory that it was believed that it
might inure to their ultimate benefit. In this matter also, the
allowance to the intervenor, as against the security holders,
represented by the appellant, was unwarranted.
The decree therefore will be reversed and the case remanded,
with instructions to allow the intervenor $300. Costs in this Court
will be divided.
