Security Trust Co. v. Bank of Bernice

GRUBB, District Judge (after stating the facts as above). The appeal presents the question of the right of the appellee to be paid its-claim out of tire proceeds of the sale of logs and lumber, which came into the possession of the receivers, and which were disposed of by them. It does not appear from the record whether the mortgage, which was being foreclosed, included such logs or lumber or not. The receivers, under an order of court, claim to have paid the entire proceeds of such sales, and more, in satisfaction of labor claims due from the defendants at the time of the filing of the foreclosure suit, and claim protection under that order against further payment. The intervener claims that its chattel mortgage upon recordation became, by virtue of Act 65 of 1912 of the General Assembly of the state of Louisiana, a lien on the property described in it “superior in rank to any privilege or lien arising subsequently .thereto”; that the unpaid labor claims on December 27, 1913, when the chattel mortgage was given, were enough less in amount than the proceeds of the sale of lumber manufactured prior to that date to leave a surplus in the hands' of the receivers from such proceeds, sufficient, after satisfying all labor claims then unpaid, to more than pay the amount of intervener’s claim secured by its chattel mortgage. The master found this surplus to be sufficient to pay the portion of intervener’s. claim, represented by the value of the amount of lumber, which the master found came into the possession of the receivers, of that covered by the chattel mortgage. [1] We are not satisfied that this was the correct way of determining the respective rights and priorities of the intervener and the appellant. Its effect was to treat the bank’s lien under the chattel mortgage as if it were indistinguishably on the entire mass of lumber and logs that came into the possession of the receivers, when in fact and in truth it covered certain specific lumber described by items and located by piles numerically and readily ascertainable in specie. This being true, we think the respective rights of the parties should have been limited to and worked out through the specific lumber covered by tire chat [669] tel mortgage. The intervener should be charged with whatever prior liens or privileges the lumber covered by the.chattel mortgage was subject to, when the intervener recorded its chattel mortgage on December 27, 1913. It was not chargeable with any lien or privilege, which the balance of the lumber then on the yard (not included in the chattel mortgage) or of logs subsequently manufactured into lumber, was subject to." We, therefore, think that the method of working out the equities of the parties through the mass of logs and lumber that came into the receivers’ possession, instead of confining it to the lumber mortgaged in terms to the intervener was an erroneous one. The intervener lent its money on the security of certain lumber then in existence, described in its chattel mortgage. The question is what liens, if any, were on this specific lumber on December 27, 1913, when intervener took its chattel mortgage. Such, if any, as were, ranked the lien of the chattel mortgage. No subsequent ones could do so, nor could any liens, prior or subsequent, on lumber other than that described in the chattel mortgage. [2] Act 145 of the Acts of the General Assembly of Louisiana of 1888, as amended by Act 52 of 1910, and Act 23 of 1912, confers on all managers, mechanics, or laborers employed by or working in sawmills, planing mills, or shingle mills a lien or privilege on all logs, square timber or lumber, and all material manufactured in such mills, where such managers, mechanics, and laborers are engaged or employed, for the payment of their salaries or wages. Under this legislation, the manufactured lumber covered by intervener’s chattel mortgage was subject to a lien in favor of such managers, mechanics, and laborers as contributed to convert that specific lumber from standing timber into manufactured lumber, at least as soon as the conversion was complete. At the time the intervener’s chattel mortgage was executed and recorded, the timber described in it had been so'converted, and was therefore then subject to such labor liens. The intervener, therefore, took as its security, not the lumber, but the equity in it over and above the labor liens that had theretofore attached to it. [3] It is true that it is not possible to trace the labor of each operative into this particular lumber and fix the separate amount due each such lienholder thereon, and so determine the aggregate. It is, however, possible to ascertain the usual cost of labor at this particular mill a thousand feet for converting timber into lumber, and the amount, so ascertained, applied to the quantity of lumber covered by the chattel mortgage, and which is shown to have come into the possession of the receivers, would give the amount of the labor liens, to which that portion properly was subject when the intervener accepted its chattel mortgage. [4] If the operatives of the Arkansas & Northeastern Railroad Company contributed nothing in the way of labor in converting the standing timber into the mortgaged lumber, then no lien, should be fastened on the lumber on that account. Only such labor as is within the description contained in Act 145 of the Acts of 1888, and which in fact contributed in some way to the conversion from standing timber to manufactured lumber of the mortgaged property, should be considered. [670] The receivers have paid all labor claims which were owing when they were appointed. The controversy is now between the Security Trust Company, as trustee under the mortgage sought to be foreclosed, and the intervener, as holder of the chattel mortgage. The impossibility of fastening a laborer’s lien in favor of each laborer and in specific amounts, as between these contestants, is unimportant. The intervener should not be deprived of the security it bargained for, which was the equity in the mortgaged lumber, after satisfying the labor claims properly attributable to the lumber covered by its mortgage. -The Security Trust Company should not cast on the intervener the burden of labor claims on the lumber other than that covered by the chattel mortgage, because the receivers were directed to pay all labor claims. [5] We think that the order directing such payment was intended only to affect the interest of the Security Trust Company, it being the sole party to the record when the master reported recommending that the receivers make such payment, and that the court did not have in contemplation the claim of the intervener under the chattel mortgage to the lumber therein described, when it confirmed the master’s report and directed the receivers to pay labor claims. The Security Trust Company, as trustee for the bondholders, had an interest in the payment of labor claims, in order to preserve the corpus of the estate and to keep it a going concern, that was wanting in the intervener. The order was made at its instance and for its benefit, and it would have been forced to pay the labor claims, even if there had been no lumber to resort to for that purpose. ' • [6] The effect of the order of the court, made upon the intervention* of the Bank of Bernice, was to establish its- claim and the chattel mortgage securing it and to postpone for future determination the relative rank and priority of its mortgage. We do not think that either or both of these orders precluded the intervener from asserting what rights, if any, it had to the lumber covered by its chattel mortgage, upon the hearing of tire rule to show cause. The situation of the defendant’s (the Summit Lumber Company’s) plant at the time the foreclosure suit was filed and the receivers appointed was such as to have made it necessary for the receivers to pay the past-due wages, even if there had been no fund other than the corpus to resort to for that purpose. The defendant had abandoned the plant, leaving the laborers on the premises three months in arrears, demanding payment, and threatening the destruction of the plant, if it was denied them. The plaintiff, representing the bondholders, applied for the appointment of receivers to take over the property and to operate it. It was absolutely necessary for the preservation, as well as for the future operation, of the plant to pay past-due wages. If there had been no lumber on hand subject to labor liens, the necessity would have been the same. In that event, it would have been proper for the District Court to have ordered their payment out of the corpus or out of the future earnings of the receivership, if there were any, by authorizing the issue of certificates to produce the ready money. This was, in fact, done, to anticipate the sale of the lumber, and the re [671] ceivers now claim to have paid labor claims largely in excess of the amount realized from the subsequent sale of the lumber. Under these circumstances it was clearly proper for the court to have ordered the payment of all past-due wages, regardless of the sufficiency of the fund to be realized from the sale of lumber for that purpose, and although the corpus of the mortgaged estate would have to be resorted to in order to make such payments. The bondholders, through their trustee, could not ask for a receivership, and the operation of the property under it, without providing for the wage claims, first out of the proceeds of the lumber, and when they were exhausted, then out of the mortgaged estate. As it was proper and necessary for the receivers to have taken care of the wage claims, regardless of the insufficiency of the proceeds of lumber sales to that end, it seems unimportant whether it was primarily the duty of the receivers or of the intervener to bring such insufficiency, taking into consideration intervener’s claim on part of the lumber, to the attention of the court. In any event, it would have been the duty of the receivers, under the order of the court, to have paid all the wage claims, relying for reimbursement on the proceeds of lumber sales, as far as they-were available, and upon the corpus, in the event that the proceeds of the lumber sales fell short. For the reasons assigned, the decree appealed from is reversed, and the cause remanded to the District Court, with directions that it be recommitted to the master to ascertain and report the amount due the intervener and to be paid to it by preference by the receivers, in pursuance of the rule herein prescribed, and for further proceedings in conformity herewith. Footnotes [1] <®s;3For other eases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes [2] <§ss>For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes