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agreement provided that the parties should jointly apply to the court
"Alfred Short and Sylvester J. Tinthoff, by leave of the court, are to be ap-
The recital of the agreement was that it was “advantageous to the said Erie Lumber Company and its creditors that said business be conducted by receivers of the court of bankruptcy.” All parties at interest represented to the court that it was highly advantageous, both to the Lankrupt and to the creditors, to keep the estate as a going business, and, having been convinced that this was true, on December 21, 1904, by a decree of that date, the agreement was approved and made effective. The order authorizing this policy was carefully considered and was drawn with great care. It attempted to guard the interests of all the creditors, and to provide for every reasonable contingency which could be anticipated. Substantially the full order is as follows:
"It appearing to the court, from the representations of parties at interest, and from the facts agreed upon by the petitioning creditors and the debtor in bankruptcy, the Erie Lumber Company, that it is necessary in the best interests of the estate of the said Erie Lumber Company and of all persons interested therein as creditors or stockholders that the business of the said Erie Lumber Company be conducted by receivers, and that it is absolutely necessary for the preservation of said estate that the property of the said Erie Lumber Company be taken charge of and held by receivers, with full power and authority to conduct and operate its business as a going concern, and that great loss will accrue if the mills and the business of said company should remain idle and shut down during the pendency of bankruptcy proceedings, it is thereupon ordered by the court, that, in lieu of the custodian heretofore appointed by the court to take charge of the property of the said Erie Lumber Company, Alfred Short and Sylvester J. Tinthoff be, and they are hereby, appointed joint receivers of the said Erie Lumber Company: and the said Alfred Short and Sylvester J. Tinthoff as receivers of this court are hereby authorized and directed to carry on the business of the said Erie Lumber Company as a going concern until the further order of the court. And it is ordered that said receivers shall, as early as practicable, put in operation the sawmill, the planing mill, and the veneer mill, and shall continue to operate said mill business, including the purchasing and stocking of said mills with logs, and they also have authority to conduct and carry on in connection with said mills a commissary in the usual way such commissaries are conducted, if they deem it expedient.
"It is ordered that, for the purpose of starting the operation of said mills and the defraying of necessary expenses until such time as moneys shall be coming in from the operation of the business sufficient to defray expenses of operation, and the said receivers shall have authority to borrow money and incur obligations to an amount, however, not to exceed, in the aggregate $3, 000, and for the purpose of prerenting unnecessary expense in the carrying
on of said business, it is by the consent of both parties ordered that the said Sylvester J. Tinthoff, one of said receivers, shall keep and have charge of the books.
And the said Alfred Short shall give his entire time to the business of operating the mills and plant, but this order shall not be construed as in any way limiting the responsibility of both receivers for the proper carrying on of said business, and both receivers shall be consulted and shall act jointly in the operation of the business, and no money obligations shall be incurred except by the joint act of both receivers, and no money shall be paid out except upon check signed by both receivers, provided, however, that the receivers shall borrow no money except upon order of the court after presenting a petition, and making a showing of the necessity therefor. And, in order to the convenient carrying on of said business as a going concern, said receivers are authorized to make deposits and carry a bank account in such bank, located at McRae, Georgia, as they shall select, which bank shall enter into a bond in the sum of fifteen thousand dollars to insure its continued solvency and the safety of the funds intrusted to it; and said receivers shall have authority, upon their joint check, to pay out all necessary operating expenses, not to exceed $7,000 per month without special orders of the court, such operating expenses including pay rolls for labor, purchase of logs and the stock of said mills with logs, the cost of necessary supplies, costs of necessary repairs, purchase of goods for commissary, cost of books and necessary stationery, personal expenses of the receivers, and said receivers shall be entitled to draw monthly on account by way of salary $100.00 each per month during the operation of said mills and the carrying on of said business, until otherwise ordered by the court, which said salary allowance shall be on account against such compensation as may be ultimately fixed by the court for the services of such receivers.
“And, it appearing to the court that upon certain logs at the mills and upon the banks of the river and floating in the river, liens are held and claimed which it will be necessary to pay off and discharge in order that said logs may be used by the receivers without let or hindrance, and that thereby said Erie Lumber Company may save the amount of money already invested by it in said logs, and that, in order to obtain logs in future, it is necessary that the claims of the persons furnishing said logs shall be paid as a part of the operating expenses, it is ordered by the court that the said receivers are hereby given authority to pay to the persons furnishing said logs or holding liens or claims on logs furnished the amount of their respective claims, to the end that said mills may obtain logs without delay, let, or hindrance. And it is ordered by the court that said receivers shall make reports to the court at least once a month of all receipts and disbursements and as accurately as may be the profit or loss in the operation of said mills. And it is ordered further that if at any time it shall appear that said business is unprofitable and is being operated at a loss, said receivers shall report said fact to the court, to the end that proper steps may be taken to discontinue the operation of said business and incurring of further loss.
“It is ordered that the provisions of this order, unless hereafter modified by the court, shall continue of force for the term of six months from this date. It is ordered that said receivers, before entering upon the discharge of their duties, shall individually give bond for the faithful performance of their duties as receiver, in the sum of seven thousand five hundred dollars each.
"It appearing to the court that petitioning creditors and the said debtor in bankruptcy have entered into an agreement as to the necessity of operating said mills by receivers, it is ordered that said agreement be, and the same is hereby approved by the court, and that the same be filed in said cause.”
Short and Tinthoff at once took charge as receivers. Pursuant to the order above set forth, on January 5, 1905, they presented to the court a petition with recitals and prayer, as follows:
"There is an amount due to George F. White, United States marshal, for taking care and preserving the property,
upwards of six hundred dollars; also, that it is necessary, in order to keep labor in their employ,
that an investment of four or five hundred dollars be made for the commis. sary of said company; also, that there is certain logs and timber which it is necessary to have for the mills of said company that will require an additional expenditure immediately of five or six hundred dollars; that the pay roll at the end of the first month, over and above the supplies furnished for the men, will require at least one thousand dollars, and your petitioners pray that they shall have authority to issue obligations for the purpose of carrying on this business and secure the money upon the same to an amount not to exceed three thousand dollars."
This was in the opinion of the court essential to the proper conduct of the business, and was granted. The receivers were "authorized to issue receivers' certificates or obligations to an amount not exceeding three thousand dollars for the purposes in said petition set out, the payment of said certificates or obligations to be provided for by this court in its final order in said cause unless paid by the receivers out of the income of said Erie Lumber Company before the final order."
On February 7, 1905, the receivers presented another petition as follows:
"That the amount due Geo. F. White, United States marshal, for taking care and preserving the property
amounted to over eleven hundred dollars, instead of six hundred dollars, as recited in petition presented January 5, 1905; also, that it was necessary during January, 1905, to invest in logs for said mills by purchase and by stocking same from their own lands the sum of two thousand and forty-eight and 93/100 dollars, instead of five or six hundred dollars as recited in former petition; also, that while as receivers they are shipping lumber and veneers far in excess of daily expense, yet it will be thirty days at least before the returns from said shipments will be received in amounts sufficient to keep up and pay the daily expenses of said property;
that at the present time there are offered to sale to them poplar, cypress, and pine logs upon which the profits will range from five to ten dollars per thousand feet, which they are unable to purchase for want of sufficient funds until they get returns from shipments already made and being made: * *
that a pay roll of about one thousand dollars will be due February 10, and, while they have a much larger amount due them from sales and shipments of lumber and veneers, yet they will be unable to collect same before said pay day, and your petitioners pray that they shall have authority to issue obligations for the purpose of carrying on this business and secure the money upon the same to an additional amount not to exceed two thousand dollars."
Upon consideration of this petition, with the proper showing of proof, the court passed the following order:
The receivers "are hereby authorized to issue and negotiate receivers' certificates in an amount not to exceed $2,000, which shall be a lien upon the property of the Erie Lumber Company and upon the products of the mills of the said company, and to be paid off and discharged as expenses of administration of the estate of the Erie Lumber Company in the hands of the receivers."
It will be observed from the record that the receivers were sedulous to impress the court with the belief that the Erie Lumber Company was now under all the circumstances in a state of singular prosperity. To this end on February 1, 1905, they had filed a report. This reported in their hands as valuable assets, real estate, improvements, and machinery amounting to $51,245.12, and other available assets received amounting to $1,932.32. This aggregated $56,177.44. Five days later they filed another report, stating the
total liabilities as $7,647.98, with total working assets of the same amount. They made to the court the further statement :
“Estimated profit will be $100 per day or $2,100 (for the month). * * Unless we are burned out, we can after pay day February 10, meet every expense and pay all receivers' certificates as they mature. We have contracts for our output at good prices for at least two months ahead. Logs are offered far beyond our ability to buy."
At the very moment of these roseate and deluding statements of these officers, who, as before stated, were agreed upon as receivers by the parties to the litigation, they were not only, in violation of the explicit order of the court
, conducting a losing and ruinous business, but they had entered into contracts largely in excess of the explicit and carefully restricted authority which appears in the decree appointing them. These facts were after a time brought to the attention of the court by the counsel at whose instance they were appointed. Tinthoff and Short were at once removed, and E. P. Willingham was designated and appointed by the court to take over the assets and wind up the business. On March 28, 1905, Mr. Willingham filed his report of the condition of the properties. From this it appeared that under Tinthoff and Short the assets had dwindled from $56,177.44 to $22,207.51, including all accounts due the estate; that there was "owing by the receivers previously appointed by the court, in addition to the $5,000 of receivers' certificates, about $6,700, which said last-mentioned indebtedness” was due and represented “the purchase price due by the receivers for logs, groceries, and other supplies, together with the labor which was necessary for the operation” of the mills; that the receivers had continued to operate the mills, in violation of the court's order, "at a loss of several hundred dollars a month; and that there was no money on hand for the payment of this indebtedness,” the substituted receiver having found only $5.94 in the bank to the credit of the bankrupt or of the two receivers. In the light of these facts, the receiver after running the mills several days closed them down, having determined that with their now inadequate equipment large loss would result to all parties interested, from their further operation.
The case now proceeded regularly in bankruptcy. A trustee was appointed. The assets were finally sold for the sum of $12,805.20, and after the deduction of certain minor expenses there now remains approximately $12,500 for distribution among the different classes of creditors. The contest before the court relates to this distribution. The controversy involving the priority of these claims was referred to the honorable referee in bankruptcy as special master. His report has been filed, and exceptions thereto have been also filed.
The claims may be generally classified as follows: (1) Claims by laboring men for wages for services rendered within three months before bankruptcy, and similar claims for services rendered while the receivership was of force; (2) the claims of the attorneys in the bankruptcy proceedings; (3) the claim of a mortgage creditor without notice of the bankruptcy proceedings; (4) the claim of a mortgage creditor with notice of such proceedings, who accepted benefits thereunder; (5) the holder of receivers' certificates, issued conformably to the orders of the court, for operating expenses; (6) claims for operating expenses
incurred within the terms of the decree authorizing the receivers to carry on the business; (7) general claims for property sold and goods furnished the receivers, not within the terms of such order, and not within the authority of the receivers.
The protection of the wages of labor is a primary duty of society and of government. The wage-earner constitutes an immense proportion of those who labor for the common welfare. So long as he remains helpful and self-sustaining, every prosperous result follows. In those unhappy epochs when the individual laborer is helpless, he and those dependent upon him become a charge upon the public. When labor en masse becomes helpless, when it is no longer possible to earn the means of subsistence, government itself is threatened, and revolution has often followed. It is therefore profoundly and philosophically true that it is the duty of government in every contingency to secure his earnings to the wage-earner. This truth is at the basis of those laws which attempt to accomplish the result upon which the existence of orderly society may itself depend. National and state legislation sedulously attempt to accomplish this, and otherwise to ameliorate the condition of the laboring man. The courts with equal solicitude strive to attain the same end. In his admirable work on Bankruptcy, Mr. Brandenburg declares:
"It may be generally stated that labor claims are entitled to priority and payment in full before the discharge of liens against the estate."
And again: "Where under a state law a lien for wages is given priority over all claims excepting taxes and costs of administration, and the lien has attached before the fund is turned over to the bankruptcy court, and it is not such an one as is avoided by the bankruptcy act, it will be respected.” Brandenburg on Bankr. 663, 665; In re Laird, 109 Fed. 550, 48 C. C. A. 538, 6 Am. Bankr. Rep. 14; In re Tebo (D. C.) 101 Fed. 419, 4 Am. Bankr. Rep. 235; In re Byrne (D. C.) 97 Fed. 762.
On this subject the law of Georgia is in no sense uncertain. Sections 2792 and 2794 of the Civil Code of Georgia 1895 provide:
“Laborers shall have a general lien upon the property of their employers, liable to levy and sale, for their labor, which is hereby declared to be superior to all other liens, except liens for taxes, the special liens of landlords on yearly crops, and such other liens as are declared by law to be superior to them.”
“Liens of laborers shall arise upon the completion of their contract of labor, but shall not exist against bona fide purchasers without notice, until the same are reduced to execution and levied by an officer, and such liens in conflict with each other shall rank according to date, dating each from the completion of the contract of labor."
It is not deemed, however, that the last paragraph quoted is material in view of the issue here involved. Every mortgagee or lienor knew of the general character of the enterprise known as the Erie Lumber Company, and an indispensable element of its success each and all knew to be labor. Each and all knew when they took their mortgages how carefully the state and the nation as well would guard the rights of those who toiled with their hands to make such securities valuable. As to the laborers, it follows that no mortgagor can esteem himself or be regarded as a bona fide purchaser without notice.