REYBl.;RN
v.
CONSUMERS' GAS,
& LIGHT CO.
561
right of intervenor, no opportunity has been given them tOCOl1sult and agree. It may be that theycari do so, more wisely and justly than the court, if opportunity is ,'It is obvious that courts are not, without fullest evidence before them, equal to' the task <if prescribing how railroads should be operated in their minute details, one wHh the other, in the interchange of traffic, or use, of common tracks, depots, etc.' When ditfipultles ,arise, as now, between them are to be determined, of details sho1;lld he left where the leaves it; othonly grel;lt injury and confusion may occur, uut the court be compeUed to'retail? an indefinite, control of the case, to 'meet ever-shifting cc:>ntingencies, as to transportation, new improvements, advancing. trade, etc; ',In my'View ohMs case; the question of compensation between the parties',shohld,not be decided p'ow, but reserved for further "Therel1,re'some minor elements as to the 8tatua of the parties, techriically,which may be worthy of furtl]er consideration, for'be By this is meant the position occupied by the pur"chasing:committee under, the terms of, sale heretofore made. "I' is that I in theforegoing exce}>t,so far 8.8, tJil:l same determines th,e1measure of conlpensatlOn between the pltrtles';iiotthat the rule may 'or may not be, correct, if the corirt, is 'campeBedilnaliy to pass upon the'same, but merely that such action is pre:. matu-re, 'and should be reserved- for further action, if needed. '
Rg1!':BURN 1'. CONsUMERS'
GAS,
FuEL
& LIGHT Co. and others. January 4.1887.)
(Oircuit (Jourt, N. IJ.l11in0i8.
, A receiver was appointed to windup a corporation engaged in the manufacture and supply of gas, ,By the order him he was to t,hll works in operation, tp necessary to 'pay and cMrge ,the debts of employes, and bIlls for supplIes and operatmg materIals contracted within sixty days prior to his appointment. PUrSuant to the orders of t:hecourt; he made improvements and extensions on the gas,.works of the company, part of which was paid by money raised on receiver's certificates, and 'Part out of the earnings of the company Default having been made in the payment of interest on bonds secured by mortgage given prior to his appointment, the trustee in the mortgage intervened, and a decree of foreclosure 'was entered on a cross-bill filed by him,' The property.was sold, and the , proceeds paid into court for distribution. Held,' that meters supplied to the company-weJre not operating or supply-materials, but of the nature of materials used in the constructi,on of the ,works; and, being. supplied more than 60 days prio.r to the appointment of the receiver, the creditors supplying them were net entitled to be paid' out '6f 'the. fund in court, in preference to the bonaholdets, on the ground that,the receiver having. under orders:of the court, applied part of the income of the-company,to the and extension of ,tha works gf the <)ompany, the cl,1tim for the metersl!ho\lld,pe paid out of ptbceeds of the reB. ' " , ' ' ". , I
RiALS"
SALE-;-"OPEBATllm AND SUl'PLY MATECONSTRUED. .
Bill to wind up a. corporation., '" " ,"" ' Grant Brady and Mr. Petit, for Goodwin Gas'stove &:Meter Co. v.29F.no.12-36
p62
REPORTER.
&: Thompson; for Dellrbo1-'Il Foundry Co. F.J., Loeach, for Tube-works. , Mr. Post and R. B. Bacon, for Sheck!'ll, H;arrison & Howard. Peckham &:.Bro:wn, for First,Nat.· B&nk of Chicago. Osborn &: Lynde, for the bondllOl\:lers.
BLOPGETT,J. The original,bill'in}hiscase was filed June 30, 1885, and on Jo1y;30, 1885, a supplemeptal bill was filed charging that the defendl;tntcorporation; the Coneurne,rs; Gas, Fuel & Light Company, was insolvent, and; unable to pay its dehts,and asked that the company be wound up,itsproperty sold among "its creditors pursuant to the, provisions of the in such Cl;tse made and proappoiqtment 'of a' i'eceiver to take possessionof vided, and asking for the, ;property pf the corporation ,',ari,d, ,under the orders 6f the court, sell the same, and dis,ttilJute the proceeds to th!'l creditors of t,4e,cqtrlPl;tQ.y,as required by law:,.' Au interlocutory; decree was entered, on the filing ofthissupplemental' bill, (l,ppointing a receiver, and directto, take possession and the, assets of the company, and 'the qn ham:T,to keep tb,ewor}qJ in optp make necessary repairs,aild, and discharge the depts of ?r, suP, an,d; c()n,tra,c,ted,' Wi,thin 60 days prIor to .Ius appomtmen,t. ,Jlnder thIS decree the receIveJ: tQok possession and the works of the company, and, pursuant 'to the orders of the court, made improvements and extensions of the gas-works of the company, part of which' has been paid by money raised on receiver's certificates, and part out of the earnings of the company. of Rrec!"iye.r the c()mpal1Y; had mortgage to secure an issue of $4,000,000 of bonds, of which $2,000,000 had been issued and put iIi circulation, and were in the hands of bona firk holders at the time the receiver was appointed. The mortgage covered all' the' workS, franchises,persooal"property, and retits, issues', anq. ;profl.tll If property, to secure the payrp.e,;lti of the bonds 80 issued; the bonds at the rate of 6 percenti,per annum, payable semi-anon the first day Of of each year. was made in the paymentoftheiJilterestdueOctober 1,,1885, and on March 6, 1886, thetrustee in the mortgage inwrvened in the case, and, by leave ,pf COilrt, filed a cross-bill, a foreclosure of'the mortgage; and this cross-bill a of foreclosure was entered, the property .and the proceeds paid intdGourt for distribution. Parties hlJ,ving :claims against this fund 'in'court :wereduly notified to present them, and IDllkeproof thereof before themastevlto whom the case had been referred. claims 80 following:. " " J,Goodwin Gas Stove & Meter Company of Philadelphia,. $5,71539 Sheckel, Harrison & Howard, 1,032,74 "Dearborn Foundry Company; .. ' .. 3,39369 j'J First National Balik of Chicago, ·· 1,416 50 Pennsylvania Tube-works, 794 87 Ii,
I'J -"
Making a total of . · ' ; . -..
'$12.353 '19
REYBURN V. CON&U){ERS" GAS, FUEL & UGHT CO.
563·
The proofs presented before the master by these· creditors have been returned·by.him into' court; ,arid the question made' upon these'proofsis whether ihese claims,ot nny part of them, are properly chargeable against the proceeds pf, thepropei'ty now in court, either as equitable liens upon the property itself, Or by reason of any diversion of the earnipgs of the property while in the hands of the receiver. The proof shows; without contradiction,that the course of business of the company was to pay its employes every month, and supplies bought on credit during the month were paid for on the first of the succeeding month, so that all debtsforlabor and operating supplies full due within 30 dllys from the timethey were contracted. 'Of the-claim of the Goodwin Gas Stove & Meter Company, $3,000 was contracted between March' and December, 1884, and the remainder was contracted between February and March, 1885; so that all of this claim was eontracted more than 60 days before the appointment of the receiver, anll' the proof shows that this indebtedness is wholly for gas- , meters furnished to the defendant company. It is contended by this creditor that its claim is for supplies furnished the defendant, and that as thepl'oof 'shows that the receiver, under the orders of the court, applied enough ·of the income of the company to the improvement and extension- of the works and plant of the company, therefore this debt should be<:t>aid out of the proceeds of the res; thus replacing for the benefit of supply creditors that which waS diverted; for the time being, from them to the benefit of the mortgaged property. I do not, concur withtheleamerl counsel who appeared for this creditor in: their position that come under the definition of "operating supplies." The debt was wholly contracted for gas-meters, which a part of the gas-Works of the company , and as much required for theoomplete and operativecoDstruction of the works as any other part of the plant or machinery of the It is impossible, as the proofshows,for the gas company to sell gas without meters, with which to mea.srire a.nd distribute it to their customers,and from which the accounts are to be made up and the bills collected. It seems to me that it tequires'lneters to make the worksofagas company complete, as much as pipes and generators, and no gas-works can be said to be in operating condition l1nless they have an adequate supply of meters. The claim, therefore, comes within the definition of aclaini for material furnished for the construction of the works; and from the decision of the supreme court oftheUnited States in Fosdick v. SchaU, 99 U. S. 235, down to the 'present time, I have seen no case which contemplates, except under very peculiar.oircumstances, that general creditors who have furnished mere material for the construction of works of this character are to have a lien, ,asagain!:lt the lien of mortgagees. The doctrine of Fosdick v. SchaU, and the subsElquentcases on the same question, is that t for the purpose of keeping works'ofa public character; within which the works of this company ,may be 'properly included in operation, those who,have given the company credit for the supplies necessary to keep the ill operation-current 'l:lUpplies-are to ha'Vea lien extending back not to exceed six
564
FEDERAL REPORTER.
months, except under eXtraordinary circumstances; but I do not understand that this rule, has ever been applied to cases ofct'editors who have simply furnished material for the construction· of :the w:orks, in contradistinction to operating material.' ,The material f9rthebuilding or construction of the works,· in theory, at least, is supposed to be paid for out ofthe capital stock, or bOlldssecured the mortgage upon the property. It is from this source that companies of this character raise the money with which to construct their works, and they depend upon the earnings or income after the works are constructed to pay for their operating labor and suppliek, and pay intereat:upon:their bonds, and: dividends to their shareholders. And, recognizing the necessity to the public that prises ·ofthis .kind, exercising franchises of a public character, shall· be kept, in thelahguageof the:cases; IIgoing'concerns," the courts have favored creditors who have furnished labor and supplies to the extent ·of allowing them an equitable lien, eXtending; as a· rule, not further back than six months, but recogniZing, however, the principle that the ext.ent to whiahcredit for this· class ofsupplies is to run back is to be measured. by the usual course of credit l\ud business..of the company in the conduct of its affairs; that ,is, ascertaining from the proof what the usual term of credit these companies have p\l.rchased their supplies, or settled, .asia the oase of railroads,with the\r, cpnnect;:ing lines, this term of credit has been taken as a measure by which to determine the time within which this class of claims shall be protectel,l. This claim for meters did not originate in a claim, for operating supplies, but in a claim for material furnished for the construction of the works,__the outfit. by which the' gas company was able to enter upon and do business., But it is further urged in reference to this claim thatth.e receiver in this case was appointed for the benefit of the general creditors, and therefore, by appointing a receiver,thecourt has appropriated, so to speak, the net earnings of the company beyond ita operating to the general creditors, of which this creditor is one; and tiherefore,inasmucb as the reports of the receiver ,slIow that some of the net earnings been by the receiver in permanent improvements on the property itself, thereby benefiting the mortgagees, therefore Greditors have the right to ask the court to ta'!te from the proceeds of the property a sufficient amount to pay their claims, thereby adjusting the accounts between the parties, and repaying to the account of general. creditors that which has been diverted to the improvement account. The fallacy of this argument oonsists in the assumption that the receiver was appointed 'solely for the benefit of the-general 'Glreditors, The original bill in the .case was in form and substance.' a creditors' bill, filed by Reyburn as a . jUdgment creditor; but the supplemental bill under which the receiver was appointed was'a bill for windihgup the affairs of the corporation the provisions of the Illinois Statutes, .and the receiver was apcredpointed as'much for;the benefit of the lien creditors as. the itors. In fact, it may be said tl:iathe was appointed for theben.efit oJ ;the creditors in the order oftheirpI'i'ority; because the prayer ofth.e bill,
REYBURN
CO.NSUMERS' GAS, FUEL & LIGHT CO.
565
and tlie·general scope of the proceeding, indicate that the purpose of the complainant, and the purpose of the court in making the interlocutory, decree appointing the receiver, was a sale of the. property, and a diBtri..· bution of t,hep:r:oceeds among the creditors in the order of their priority. The counsel for this creditor has also overlooked the fact that the mortgage, in express terms, conveyed to the trustee for the security. of the bonds, not only the works, franchises, and real estate of the corporation, but all its personal property, including, of course, its operating material, implements, tools on hand, and the rents, issues, and profits of such property. From the time that the receiver took possession of this property he was, as it seems to me, as much a receiver of the bondholders as he was of the general creditors, and the court, in the exercise of its discretion, should give such direction to the expenditure of the earnings o{.the wQ.rks during the time of the receivership as the equities of the respective parties require. The income having been pledged to secure the"payment of the bonds, the oourt might, under its equitable powers, have directed the ,receiver to pay the net income to the bondholders, as having a vested first lien upon it, or, with the consent or of the bondholders or their trustee; such income could be applied to the improvement of the property. In other words, the vested lien, of holders of the bonds of the company was8uperior to that of any general creditor, and, if the court diverted the earnings fromthe creditors secured under the mortgage, no one but such secured creditor can complain. This creditor having no vested lien against this propand havingno equitable lien under the decision of the cou.rt, 1 can see no groupd upon which the proceeds of the property can now be taken from the bondholders towhom they belong, and applied to the payment of this debt. The mere fact that, dwing theadrhinistration of the, receiver, the,courtsawnt to allow the net earnings, or a portion of them, to be applied to the extension and improvement of the property, -does not create an equitable lien upon the fund now in court in favor of who never had any lien either upon the property itself, or this .any fundi:n ,cou.rt. The proof also shows that the claims of Bheckel, Harrison & Haward, the Pennsylvania Tube-works, the Dearborn Foundry Company, and the First National Bank of Chicago, are all for con,strliction material furDishedto the company more than 60 days prior tothe appointment of the receiver,andwhat I have said in regard to the claim of the Goodwin Gas Stove & Meter Company applies with equal force to the other Claims which were disallowed by the receiver. As already stated, the proof shows the usual term of credit of this company for supplies was only 30 -days; but, asa matter of precaution, the court allowed the receiver to pay any indebtedness of the company for supplies and labor contracted within,60 days from the day the receiver Wl\S appointed. It seems to me, from. the facts of the case, that is as far back as the court should -e:il.:tend the liel;l.of the supply and labor claim upon the:proceeds of the under that rule these in.tervenors would none of them be titled topaymentj and satisfactory reason to
566
my mind why these claims should 'not be allowed is that none of'them are operating and supply claims. They are all for construction material, suoh as meters,pipes, and other material, which was used in the construction of the works, and not in their operation after they are COIlstructed. All these claims are therefore disallowed.
LYON
and others .". COUNCIT, BLUFFS SAV. BANK and others. D. IO'UJa:
w: D.September Term, 1886.) SroOK IN TRADE MORT-
Flu.UDULENT CONVEYANOES GA.GOR IN POSSESSION·
CHATTEL, MORTGAGE -
. In' August,'l884, P., a merchant, mortgaged to defendant bank, to secure the payment of three notes due in September, 'October, and November for $8,500, his goods then in stock, and that might thereafter be added thereto, together with the furniture and tlxtures, and all notes, book-accounts. and evidences of indebtedness owned by P. The mortgage, by its terms, permitted P. to sell the property in the usual course of trade. It was delivered to the bank at the tIme, of Its execution, but not recorded till March, 1885, seven months after. The notes were not paid when due. In September, 1884, P. purchased 0, f plaintiff, on credit, goods of the value of $8,704.56, which were' added to the mortgaged stock. Plaintiff, at the time of the sale. was igno,rant of the mortgage, and, made.the sale in the belief that the stock was unincumbered. The bank had a $5,000 mortgage on P.'s homestead, which was , exempt from, ex,ecution. It a,PP1"ied$2,OOO deposit,ed with it by P., proceeds of the saleo,f this stock of goods, in part payment of this mortgage. Plain· tiffrecQvered judgment against P. for his claim, attached the goods, and sued to set 'aside the mortgage. Held, that the chattel mortgage was void 8S against plaintiff;, because it, and the transactions under it, ,operated as a fraud on him. "
In Bill to set aside chattel mortgage. Mills &: Keeler and Wright, Baldwin &: Haldane, for complaina.nts. ,D. a. Bloomer, for defendant. SHIRAS, J. In the year 1884 one James Porterfield was engaged in business'at Council Bluffs, Iowa,as a retail dealer in dry goods, and on the thirtieth of August of that year he borrowed or:the Council Bluffs Savings Bank the sum of $3,500, for which he executed his three promissory notes, maturing September 29, October 29, and November 28, 1884, and to secure the payment thereof he also executed a chattel mortgage dated August 30, 1884, and covering ".aUrny certain stock of dry goods, notions; hosiery, cloaks, arid all other goods that are now ill stock, or may hereafter be added thereto', owned and kept by me in a certain store, **: ,:jC: togeth'er with all furniture and, fixtures thereunto belonging; also all notes, and other evidences of indebted-' ness now owned by ine." The mortgage, by its terms; permitted the' mortgagor to sell the property in the ordinary course of trade. This