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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, taking care and preserving the property,
United States marshal, for 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 $4,932.32. This aggregated $56,177.44. Five days later they filed another report, stating the total liabilities as $7,647.98, with total work
ing assets of the same amount. They made to the court the further
"Estimated profit will be $100 per day or $2,400 (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."
"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.
But reliance need not be had merely upon reasoning of this sort. The Supreme Court of the state in Allred v. Haile, 84 Ga. 570, 10 S. E. 1095, has held that the general lien of a laborer is "higher than the lien of ordinary mortgages without respect to their comparative dates"; and in Langston v. Anderson, 69 Ga. 65, that such liens take precedence of mortgages, though the holders thereof may be bona fide and without notice. If, however, the state law were silent or even adverse upon the subject, the uniform system of bankruptcy adopted by Congress would in cases of this character protect the lien of the laborer. Said Collier on Bankruptcy, p. 504 (5th Ed.):
"The bankrupt act not only controls the state law in case of absolute conflict, but by its express regulation of these priorities excludes the state law altogether. Subject to these exceptions, if the state law gives the priority, the same must be recognized in the bankruptcy proceedings"-citing In re Lewis, 4 Am. Bankr. Rep. 53, 99 Fed. 935; In the Matter of Slomka, 122 Fed. 630, 58 C. C. A. 322.
The explicit terms of the bankruptcy law indicate the settled purpose of Congress. Section 64 of the act (Bankr. Act July 1, 1898, c. 541, 30 Stat. 563 [U. S. Comp. St. 1901, p. 3447] provides for the priority of "wages due to workmen, clerks, and servants, which have been earned three months before the date of commencement of proceedings." Happily, however, the wise and politic benevolence of state legislation and state judicial administration avoid any such conflict. In Stonewall, etc., Ass'n v. McGruder, 43 Ga. 9, it is declared:
The law "is intended to give to these dependent people a preference to ordinary debts. And this, as we think, is also a wise public policy. These claims are generally small. They belong, for the most part, to persons who look solely to their daily wages for immediate subsistance, and, if they lose that, they are in want, and in danger of becoming a public charge. * The laborer very properly, in our judgment, is thought by the Legislature to have the highest claim upon the assets of an insolvent debtor."
If, however, there were an entire absence of state legislation upon this subject, the general powers of a court of equity granted by the bankruptcy act would in our judgment protect claims of this class in the administration of the affairs of every insolvent corporation. It is the primary duty of the chancellor to provide for the wages of labor. Rowena Clarke v. Central R. R. (C. C.) 50 Fed. 338, 15 L. R. A. 683. The same power may be exercised here. The claims of these poor laborers, who are scattered in sparsely settled pine lands of the state, who are without representation of counsel, and without ability to secure such representation, but whose labor has created in large part the very values for distribution, nevertheless make strong and cogent appeal to the court for protection. Under the law, then, and under the inherent principles of equity, they are entitled to priority of payment out of the entire fund. These conclusions are intended to apply as well to the laborers whose services were rendered the Erie Lumber Company within three months before bankruptcy, and those who served the receivers appointed by order of the court. Under the bankruptcy law of the United States every laborer who actually labors under the authority of the court for the preservation or enhancement of the fund or property in custodia legis is entitled as to that estate to an equitable lien equiva lent in effect to that of a bona fide purchaser without notice. To ex