Court Opinion

ID: 6236763
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:34:22.028153+00
Date Added: 2024-06-11T08:58:04.348210
License: Public Domain

Mr. Justice Paxson
delivered the opinion of the court, January 3d 1881.
The above appeals being from the same decree, may be considered together. I will discuss them in order.
1. Hart’s Appeal. This appeal has but a single assignment of error that needs to be considered. It is that the court erred in not sustaining the following exception to the auditor’s report: “ That the auditor erred in not allowing the claim of the said committee, contractors for the construction of the Southern Railway Company, for the full amount of their said claim, viz.: $9950.72.” The auditor rejected the whole of this claim, which ruling was affirmed by the court below. It is proper to say that the decree was entered pro forma to enable the parties to have the ease heard at the last term of this court, in the Western District. We are, therefore, without the aid which the opinion of the learned president of the Common Pleas would have given us.
The question arose upon the distribution of the proceeds of a sheriff’s sale of the property and franchises of an insolvent railroad corporation. The appellants had constructed a portion of said road under the following circumstances, as we gather from the auditor’s report: A number of citizens, including the committee referred to, had made subscriptions to the stock of the Pittsburgh Southern Railway Company, amounting to about $7000. These subscribers were interested as property owners in the completion of the road. The subscriptions were made to the company, and by the company turned over to the committee and those with whom they acted. The committee took them, and entered into a written contract with the company, dated December 21st 1877, for the grading, tieing and bridging of a portion of the road therein designated, at a cost not to exceed $3000 per mile ; the subscriptions to be collected by the committee, and if more than sufficient to pay for the work was realized therefrom, the surplus was to be returned to the company. It was further agreed that the company should give either stock or *374transportation notes in payment of materials furnished and work done, to each individual subscriber in proportion to his subscription.
Under this arrangement the committee collected about $6000 of the subscriptions, and have done work under the contract to the amount of $9950.72. Further work was suspended by reason of the insolvency of the company and the sheriff’s sale of its property. The committee claim as creditors and contractors, and ask to be paid out of the proceeds of the sale.
In the distribution of the proceeds of the sale of the property of an insolvent corporation the court acts upon equitable principles. See Price’s Appeal, 29 P. S. Smith 168, and cases there cited. We are, therefore, to ascertain whether these appellants have any equity to come in upon this fund to the exclusion of creditors who put their money into the enterprise in good faith.
Are they stockholders or are they creditors ? In one sense a stockholder is a creditor of a corporation to the amount of his paid up stock. The corporation is his debtor to that extent. But his claim must necessarily be postponed until the general creditors are paid their demands in full. He holds his stock subject to their rights. The appellants are doubtless contractors in the sense of having graded a certain portion of the road at a price agreed upon. To this extent they are also creditors and entitled to be paid in someway. But how? The contract says in stock or transportation notes. The appellants assume they had the right to elect payment in transportation notes. The contract does not say so, and I am not sure but a tender by the company of either stock or transportation notes would have satisfied the covenant. This, however, is not material and is not decided. The appellants’ contention is that inasmuch as the company by reason of its insolvency, and the sale of the road, cannot furnish transportation notes — it is bound to pay in money. As between the appellants and the company this proposition would appear to be correct. But just here the rights of creditors come in, and they say-the appellants if not technically stockholders yet in equity must be treated as such, and be postponed until the general creditors of the company are paid in full.
There is great force in this suggestion. A stockholder is an owner of the property and franchises of a corporation to the extent of his stock. He is entitled in the same proportion to a share of the net earnings. If the appellants are stockholders it is too plain for argument they have no claim upon this fund. Have they any higher claim as holders of or as persons entitled to transportation certificates ? While the status of such certificate-holders is not accurately defined in the books, we deem it clear that in equity they must be treated as part owners of the road. In one respect they have superior advantages over the owner whose title is represented by stock. The latter can receive only a share of the net earnings, while the holder of a transportation certificate is entitled *375to a portion of the gross earnings. The right to participate in the earnings implies ownership to that extent in the thing which produces such earnings. The application of this equitable principle does exact justice in this ease. The appellants had an interest in the completion of this road. They had subscribed with others to its capital stock. Instead of paying in money they paid in work and materials to the amount subscribed, and agreed to take stock or transportation notes for the amount of the contract over and above the amount of said subscriptions. There would be no justice in placing them in a better position than other friends and contributors to the enterprise who paid in money. The form of the transaction is nothing. Equity disregards mere form and looks only to the substance. The claim of the appellants was properly rejected.
2. Bell’s Appeal. There is nothing in this appeal to require discussion. The appellant contracted to furnish 5000 railroad ties to the company to be used in the construction of the road. He now claims that he is a contractor and preferred creditor under the resolution of 1843. If his position be correct, then every storekeeper who furnished a pound of spikes to the company is a contractor for t'he construction of the road. No such absurd result as this was intended by the resolution of 1843.
3. Hopkins’s Appeal. This appeal is sustained upon a single point. The auditor awarded the sum of $371.85 to laborers and workmen employed by contractors for work and labor performed by them in the construction of the road. (See schedule E.) This was error. The joint resolution of the General Assembly of January 21st 1843, Pamph. L. 367, was intended, as its title implies, to protect laborers and contractors employed upon railroads, canals and other public works, and in order to give effect to such intent it declared that all assignments, conveyances, mortgages or other transfers of the property of such corporations should be null and void as against the claims of such persons. But by the very terms of the act its benefits are extended only to such laborers and contractors as have a contract relation with the company. Sub-contractors, and laborers employed by sub-contractors, are not within its protection. The auditor concedes this to be so, but held that the supplement of 4th April 1862, Pamph. L. 235, extended the protection of the resolution of 1843 to all contractors and laborers employed upon the work. It is true the two acts must be treated' in pari materia. But the plain object of the Act of 1862 was to give a remedy to the persons named in the resolution of 1843. The mischief was that in the case of the sale of other transfer of a railroad in violation of the resolution of 1843, the contractors and laborers had a right to pursue the property in the hands of the purchaser, yet there was no adequate remedy to enforce such right. Accordingly the Act of 1862 provided that after obtaining *376a judgment against the company a scire facias mignt issue upon said judgment with notice to the purchaser. This gave the latter his day in court and enabled the creditor to sell and pass a good title. The Act of 1862 did not enlarge the class of persons who are protected by the resolution of 1843. That this is so clearly appears by the remedy therein provided. It authorizes a scire facias to issue upon a judgment recovered against the company. How could a sub-contractor, or a laborer employed by a sub-contractor, get a judgment against the company ? He has no contract relation therewith.
What has been said applies to the case of sub-contractors as well as to the claims of laborers referred to in schedule E. I do not, however, find that the auditor has. allowed the claims of sub-contractors although error has been assigned thereto. If I am mistaken in this, the report must go back to the auditor for correction. If not, the $371.85 in schedule E can be divided among the general creditors without further order.
The decree of the court below is affirmed as to Brit Hart et al., appellants, in No. 271, October and November Term 1880, and also as to Haslett M. Bell, appellant, in No. 273 of the same term, and said appeals are dismissed at the costs of the respective appellants'; and the said decree is reversed as to James H. Hopkins, appellant, in No. 299 of same term, and it is now ordered and decreed that the sum of $371.85, referred to in schedule E of the auditor’s report be added to the fund for distribution among the general creditors, and divided among them pro rata ; that the costs of this last-named appeal be paid by the appellees, and that the said decree in all other respects be affirmed.