Seymour v. Berg

Mr. Justice Vickers delivered the opinion of the court: The decree in this case is clearly erroneous and must be reversed. Without discussing the question whether the judgment of appellee against the Virginia Livery Company was conclusive, as against appellant, as to the nature of appellee’s claim, in the view we take of this case appellee was not entitled, as against appellant, who was a purchaser in good faith at a mortgage sale, to any preference under the statute relied on. This statute was originally enacted in June, 1887, and it provided that, under the circumstances stated in the statute, “debts owing to laborers or servants, which have accrued by reason of their labor or employment to an amount not exceeding $50 to each employee, for work' or labor performed within six months next preceding the seizure or transfer of such property, shall be considered and treated as preferred debts, and such laborers or employees shall be preferred creditors, and shall be first paid in full.” (Laws of 1887, p. 308.) This act was amended June 21, 1895, by striking out the limitations as to the amount of the labor claim and the time within which the labor should be performed. The present act, under which appellee seeks to maintain this suit, is found on page 2586 of Starr & Curtis’ Annotated Statutes, and is as follows: “Sec. 1. * * * Hereafter, when the business of any person, corporation, company or firm shall be suspended by the action of creditors, or be put into the hands of a receiver or trustee, then in all such cases the debts owing to laborers or servants which have accrued by reason of their labor or employment, shall be considered and treated as preferred claims, and such laborers or employees shall be preferred creditors, and shall be first paid in full, and if there be not sufficient to pay them in full the same shall be paid from the proceeds of the sale of the property seized: Provided, that any person interested may contest any such claim or claims, or any part thereof, by filing exceptions thereto, supported by affidavit, with the officer having the custody of such property, and thereupon the claimant shall be required to reduce his claim to judgment before some court having jurisdiction thereof before any part thereof shall be paid. “Sec. 2. Any such labqrer or servant desiring to enforce his or her claim for wages under this act, shall present a statement under oath showing the amount due, the kind of work for which such wages are due, and when performed, to the officer, person or court charged with such property, within ten (10) days after the seizure thereof on any execution or writ of attachment, or within thirty (30) days after the same may have been placed in the hands of any receiver or trustee, and thereupon it shall be the duty of the person or court receiving such statement to pay the amount •of such claim or claims to the person or persons entitled thereto. “Sec. 3. No claims made under this act shall be paid until after the expiration of the time in which to present such claims. And if the funds realized on the property seized be insufficient to pay the total claims presented, then such funds shall be prorated on such claims.” It will be seen by reference to section 1 of the above statute that it is provided that when the business of any person is suspended by the action of creditors or be put in the hands of a receiver or trustee, the debts owing to laborers or servants shall be preferred claims and the laborers or employees shall be preferred creditors and shall be first paid in full. The clear intent of the legislature was to place debts due to employees for labor in a preferred class, and to require that such preferred claims should be paid in preference to other simple contract creditors who held no record liens. The fund out of which these preferred claims were to be paid is whatever interest the failing debtor has in the property or assets that go into the hands of the receiver or trustee. The court below and the Appellate Court have treated this statute the same as if it created an express statutory lien superior to all other liens, without reference to priority, that might exist against the property of the failing-debtor. This view is not warranted by the language of the statute under consideration, in its original or amended form. The statute merely gives a preference to claims for labor or services,—which is quite a different matter from creating a statutory lien,—upon all of the debtor’s property. If a mortgagee who takes possession for the purpose of foreclosing his lien may be treated as a “receiver or trustee,” within the meaning of section 1 of this statute, certainly he could not be treated as the receiver or trustee except as to any surplus that might remain in his hands after discharging the mortgage debt and the necessary costs and expenses connected with its foreclosure. A receiver or trustee, or an assignee of an insolvent debtor, would only take such interest or title as the failing debtor had and subject to all valid existing liens. (Jack v. Weiennett, 115 Ill. 105; Field v. Ridgely, 116 id. 424; Davis, Cory & Co. v. Chicago Dock Co. 129 id. 180.) In this case, as already shown, the property seized under the chattel mortgage failed to satisfy the mortgage, the deficit being about $1700. There was therefore nothing in the hands of the appellant belonging to the Virginia Livery Company out of which any claim against the livery company, preferred or otherwise, could be paid. But it is contended by appellee, under the authority of Heckman v. Tammen, 184 Ill. 144, that the effect of the act in question is to create a statutory lien in favor of laborers and servants upon the chattel property, and it is conceded that if that case was well decided then it must control here and the contention of appellee be sustained. That case was decided by a divided court, and at a time when there were but few decisions in other States giving a construction to similar statutes and none directly in point in this State. The. decision then made was based upon Reynolds v. Black, 91 Iowa, 1, Bell v. Hiner, 16 Ind. App. 184, (44 N. E. Rep. 576,) Bass v. Doerman, 112 Ind. 390, (14 N. E. Rep. 377,) Buck v. Paine, 50 Miss. 648, and Same v. Same, 52 id. 271. The case of Bass v. Doerman, supra, was correctly decided, but it was not there held that the claim for labor or services was a lien superior to prior recorded liens. The case of Bell v. Hiner, supra, relied on in the Tammen case, is an authority that lends some support to the conclusion announced by this court in the Tammen case, but that case, and also Small v. Hammes, 156 Ind. 556, (60 N. E. Rep. 342,) are expressly overruled by the Supreme Court of Indiana in the later case of McDaniel v. Osborne, 75 N. E. Rep. 647, where a statute in substance the same as the one under consideration was before the court, and it was there said: “There is no intent manifest in the title, or from any language employed in the body of .the statute under consideration, that an employee should have or could acquire a lien upon all the property of his employer on account of general manual or mechanical labor. It provides, only, that when the property of the debtor passes into the hands of an assignee or receiver in the interest of creditors, and the estate is reduced to cash and ready for distribution, the laborer shall be so preferred as to receive payment of his claim first in point of time, and to the full amount, as against the claims of general creditors. As a general rule, an assignee or receiver cannot acquire or exercise any greater title or rights in and to the property committed to his control than the insolvent or embarrassed debtor had and could enforce. An assignor cannot transfer to his assignee a greater right than he holds himself, and, as against a bona fide and valid encumbrance upon his property, his assignment passes only his equity of redemption in the property covered by the lien. The equity of redemption is all that the assignee or receiver may ordinarily sell and administer upon, and by the sale of such equity, and^any other property in his hands, the fund is created for distribution -out of which the assignee or receiver is directed by this statute to pay labor claims first and in full after the payment of his own legitimate costs and expenses.” It thus appears that whatever may have been the construction of this statute by the earlier Indiana cases, the rule now adhered to in that jurisdiction is directly opposed to the views expressed in the Tammen case. Buck v. Paine, 50 Miss. 648, and 52 id. 271, are not authorities in point. These decisions were rendered under a statute of Mississippi which gave “a first lien, in law, upon all agricultural products to secure the payment of the wages of the laborer,” and it was specifically provided in this statute that “this lien should operate against the landlord and all other persons interested in such agricultural products.” It was held by the Supreme Court of Mississippi in the cases above cited that this statute gave a specific lien, which the employer could not defeat by a mortgage executed upon the crops to be grown. The only remaining authority that was relied upon in the Tammcn case is Reynolds v. Black, 91 Iowa, 1. This case gave a construction to an Iowa statute similar to the statute that was before this court in the Tammen case, and the construction there given to the Iowa statute is the same as that given by this court in the Tammen case. So far as we have been able to find, this is the only decision that has not been reversed in the State wherein it was rendered that supports the Tammen case, and soon after the rendition of the decision in 91 Iowa the legislature of that State so amended its statute as to nullify the decision in the Reynolds-Black case, and that decision is no longer law in Iowa. Code of Iowa, secs. 4019, 4020; Wells v. Kelly, 121 Iowa, 577; 96 N. W. Rep. 1104.) On the other hand, Indiana, Missouri and New Jersey have decided directly the other way. Fitzgerald v. Meyer, 65 Mo. App. 665; Hinkle v. Camden Safe Deposit and Trust Co. 47 N. J. Eq. 333; McDaniel v. Osborne, supra. In Schwartz v. Messenger, 167 Ill. 474, this court, in effect, passed on the question involved here, although the statute then before the court was a section of the Insolvent Debtors’ act, which provided “that all claims for the wages of any laborer or servant which have been earned within the term of three months next preceding the making of such assignment * * * shall, after the payment of the costs, commissions and expenses of assignment, be preferred and first paid to the exclusion of all other demands and claims.” Mr. Justice Baker, speaking for the court, there said: “The statute makes the claims of laborers preferred claims as against the general creditors, and not as against a bona Ude purchaser for value. The funds referred to by the statute, and out of which said claims are to be paid, are funds properly in the hands of the assignee, and not funds to which he .is not entitled as against one claiming adversely to him. The money in question did not belong to the assignee, but to appellee.” In the above case the distinction between a statute which creates a lien and one which merely gives a preference between creditors is clearly recognized. This distinction seems to have been overlooked in the Tammen case, and in so far as it is there held that the statute in question creates a lien superior to a pre-existing valid mortgage the same is disapproved. Statutes intended to secure wage earners against loss of their earnings from insolvency of employers are based upon a sound public policy and should be liberally construed in order to accomplish the purpose of their enactment. But this rule cannot be invoked for the purpose of supporting a decision not based upon the letter or spirit of the legislative enactment. Up to this time the legislature has not created any such lien, but has made debts due for labor preferred claims against the property of the debtor and made claimants for wages preferred creditors and provided that they shall be first paid, which, as we have already seen, is quite a different thing from the creation of a statutory lien. In the view we take of this case appellee has no right whatever, either in law or equity, to compel appellant to, satisfy her claim against the Virginia Livery Company out of the property which he bought in good faith at a sale under a chattel mortgage, given for a bona fide debt long before any part of her claim accrued. This view makes it unnecessary to consider other errors assigned on the record. The decree of the superior court of Cook county, and the judgment of the Appellate Court affirming the same, are erroneous and must be reversed. Judgment reversed. Hand, C. J., and Carter, J., dissenting.