Court Opinion

ID: 7989307
Source: CourtListenerOpinion
Date Created: 2022-09-09 01:29:08.733486+00
Date Added: 2024-06-11T16:35:18.351332
License: Public Domain

Whitfield, C. J.,
delivered the opinion, of the court.
We think this case falls squarely within the principles announced in Fosdick v. Schall, 99 U. S., 235 (25 L. ed., 339); Burnham v. Bowen, 111 U. S., 776 (4 Sup. Ct., 675; 28 L. ed., 596); and So. R. Co. v. Carnegie Steel Co., 176 U. S., 257 (20 Sup. Ct., 347; 44 L. ed., 458), all of which relate to railroads; and Drennen & Co. v. Mercantile Trust & Deposit Co., 115 Ala., 592 (23 South. Rep., 164; 39 L. R. A., 623; 67 Am. St. Rep., 72), and Dickinson v. Saunders, 120 Fed. Rep., 16 (63 C. C. A., 666), which relate to private corporations. The supreme court of Alabama, adverting to the distinction sought to be drawn there, as in this case, between the application of the principle to public or quasi public corporations, on the one hand, and private corporations, on the other, said in the case in 115 Ala., 23 South. Rep., 39 L. R. A., 67 Am. St. Rep.: “To state the proposition yet more concretely, the equity arises and is rested upon one or another of the three following categories or states of fact: First, that the gross earnings of the corporation before the receivership, to which its operatives and laborers and persons furnishing necessary supplies are, upon all the authorities, entitled in preference and priority to the bondholders, have been diverted from the payment of their wages.and accounts and paid to the bondholders or are in the hands of the receiver, to be paid to the bondholders, or to be expended by him in the further operation of the corporation’s works for the benefit of the bondholders, or have been expended, either before or after receiver appointed, in the improvement and betterment of the mortgaged property, whereby the security of the bonds is increased, to the obvious advantage and benefit of the bondholders. Or, second, that whether, strictly speaking, there has been any diversion of gross earnings from the employes, directly or indirectly, to the bondholders, or not, the operatives and laborers have performed services and labor in the improvement and betterment of the mortgaged property, so that such labor and services have inured directly to the *643benefit of the bondholders, in the enhancement of the value of their security, and hence of their bonds, they thereby securing, in addition to the property embraced in their mortgages, the value of the services of the company’s operatives and laborers, which value belongs to such operatives and laborers, and would have been paid to them, it is to be assumed, by the corporation, out of its gross earnings, but for the intervention of the bondholders, and the appointment at their instance of the receiver.” The third ground need not be stated. “. . . The fact that the corporation is of a public character does not enter into it, and is not an element of it, any more than such fact would be necessary to a recovery in trover for a horse converted by a corporation. Every element of this equity may exist ,as well against a private as against a public corporation, and against bond creditors of the one as well as the other. The right to be asserted is obviously the same, whatever the character in this respect of the corporation. The wrong done to the employes is the same — the misappropriation of the fund for the payment of their wages. And the remedy for the effectuation of the right and the redress of the wrong is applied upon considerations which take no account of whether the corporation whose earnings have thus been wrongfully diverted from the payment of its employes is a railroad company or a manufacturing company or a mining company. The diversion of the fund being shown and the equity being thus made to appear, the redress is accorded, the equity is declared and effectuated, by courts of chancery, upon the broad and beneficent maxim of equity jurisprudence, which imposes or authorizes the court to impose, upon every suitor asking equitable relief, the duty and burden of doing equity; and we have not heard or seen it suggested that this principle is applicable more to one suitor than another or more to a public than a private corporation. The necessity for the application of this equitable doctrine for giving preference to claims of employes for wages is doubtless more frequent in railroad cases, but that does not argue that the facts which *644authorize it cannot as well exist in other cases.” “We have undertaken to state this doctrine as it has been declared in other jurisdictions, and there applied to railroad property, and to give our reason, on general principles, for the conclusion we have reached — that that limitation of the doctrine is unsound, and that, of consequence, in our opinion, the equity is as salutary and its effectuation is as practicable and necessary against the bondholders of a private as against those of a public corporation. The argument against this wide application of the doctrine which is based upon the supposed fact that such application has not heretofore been made is the same argument which stood in the way of the conclusion in Fosdiclc v. Scholl, and was in that case entirely demolished in respect of railroad corporations and their property — the same argument, indeed, that has had to be met and overthrown in every new application of every new equitable principle, and which, had it been allowed to obtain and control, would have left England and this country without the splendid system of equity jurisprudence which now embellishes the jurisprudence of both countries. It may be, as suggested, that courts have been very stupid or very much at fault in not making an earlier application of these principles to cases like the present one; but, if so, it is the same stupidity which delayed the declaration of the doctrine of Fosdiclc v. Schalí, that in the early ages failed to recognize the equity jurisprudence at all, and which, upon, the eventual establishment of the court of chancery, stood in the way of the immediate development and application of all the principles of equity into a perfect system of equity jurisprudence, which has not even yet been attained. The broader application of the doctrine which we are attempting to justify, on what we regard as very plain and simple and elementary principles of equity, will not lead to, involve, or admit of any of the dire consequences which are suggested, as will be clearly seen upon reference to the limitations which those principles themselves involve, and which we have endeavored to state with care and precision. It will *645not take the place of mechanic’s lien laws and the like nor obviate the necessity or policy of such enactments. It will not in any sense encroach upon vested or contractual securities or right. The principles upon which it rests, in the application of it which we are proposing, in and of themselves, mark a distinct line between the particular corporation cases to which it applies and the ordinary cases of mortgages on property, whether of individuals or corporations, to secure the payment of debts; and under it there is not the slightest danger of the secured creditor, in any case, losing anything which he is entitled to, on recognized principles of equity and good conscience.” All which seems to us eminently true. We prefer, however, resting the jurisdiction on the second ground stated by McClellan, O. J.

Affirmed.