Ellis v. Vernon Ice, Light & Water Co.

• Decision Date: 26 October 1893
• Docket Number: (No. 111.)
• Parties: ELLIS v. VERNON ICE, LIGHT & WATER CO.
• Court: Texas Supreme Court

23 S.W. 858

ELLIS v. VERNON ICE, LIGHT & WATER CO.

(No. 111.)

Supreme Court of Texas.

October 26, 1893.

Proceedings in the matter of the receivership of the Vernon Ice, Light & Water Company. W. O. Ellis, a lien claimant, and other lien claimants against the property of the company, intervened. From a judgment giving a certain lien priority to his, Ellis appealed to the court of civil appeals. The latter court affirmed the judgment in part, and reversed it in part, and he applies for a writ of error. Denied.

Williams & Evans, for petitioner.

GAINES, J.

At the suit of an unsecured creditor, the Vernon Ice, Light & Water Company, a corporation, was placed in the hands of a receiver, upon the ground that it was insolvent. Subsequently, other creditors having liens upon its property intervened, and, among them, the present applicant for the writ of error. The ground of Ellis' intervention was that he was the holder of the bonds of the corporation amounting, in the aggregate, to $18,000, which were secured by a mortgage upon its property prior to all other liens. The decree of the district court gave the plaintiff and interveners a judgment against the company for their respective claims, ordered a sale of the property, and directed that out of the proceeds of such sale there should be paid (1) the costs of the proceedings, including commissions, and expenses of making the sale; (2) receiver's certificates, amounting to $600; (3) $200 to the master in chancery; (4) all expenses incurred by the receiver not thereinbefore provided for; (5) the sum of $2,404.55, which was to be appropriated to the payment in full of the judgment of the interveners Claver, Harris & Co., the balance of that sum to be distributed among other creditors, — not including, however, the intervener Ellis; and (6) that the remaining proceeds of the sale should be paid upon the judgment of the last-named creditor. The sheriff of Wilbarger county was ordered to make the sale. In his plea of intervention, Ellis also claimed title to the lots upon which the waterworks were situated, by virtue of a judgment, execution, and levy made before the appointment of the receiver, and a constable's sale, by virtue of such levy, made after the appointment. The court gave judgment against him upon this claim. The applicant having appealed to the court of civil appeals, that court reversed the judgment of the trial court, in so far as it gave a priority over applicant's debt to the claims of creditors which accrued before the appointment of the receiver, and, in effect, affirmed the judgment in all other respects. The applicant here complains of the judgment in three particulars: (1) In decreeing that the receiver's certificates, the expenses of administering the property, and the costs of the proceedings, should be paid out of the proceeds of the corpus of the property, in preference to the mortgage bonds; (2) in directing a sale of the property by the sheriff; and (3) in adjudging that the title to the lots did not pass by the sale under execution.

As we understand it, the receiver's certificates were issued by authority of the court for the purpose of keeping the company's works in operation. The property yielded no net income during the receiver's administration. On the contrary, it is to be inferred that the works were operated at a loss, at least to the amount of the certificates outstanding at the time of the trial. Now, it is urged in support of the first ground of the application that a court of equity has no right, in any case other than the receivership of the property of a railway company, to authorize a receiver to create an indebtedness, and to make it a charge upon the corpus of the estate, with priority over a pre-existing mortgage. While we have no doubt that the power to authorize a receiver appointed by a court of equity to create debts is liable to great abuse, and are of opinion that in every case it should be exercised, if at all, with extreme caution, we know of no rule or principle that would restrict the power to railway cases, only In the latter cases, it has been too often recognized in the courts of this country to be called in question at this time. Fosdick v. Schall, 99 U. S. 235; McIlhenny v. Binz, 80 Tex. 4, 13 S. W. Rep. 655. In fact, counsel for applicant do not question the power, when applied to railway receiverships. But the contention is that in such cases the authority grows out of the necessity of the situation; that railway corporations are organized for public purposes, with power to condemn private property; and that they owe a public duty, which can only be discharged by the continuous operation of their roads. It is insisted that this applies in no other case. The authority granted to receivers in railway cases to create debts, and to make them a charge upon the corpus of the property of the company, is usually justified upon this ground, and yet it seems that there may be grave doubt whether it affords a solid foundation for the doctrine. It is not clearly seen that the courts have the power to appropriate any part of the property subject to a mortgage in the interest of the public, or to impair the mortgagee's security, and the obligation of his contract, in order to discharge a duty the mortgagor owes to the public. But when a court has taken the control of property from its owners, and has placed it in the hands of its receiver, it is its duty to direct its management so as to preserve its value for the benefit of all parties at interest. This may be best accomplished by a continuation of the business, although such continued operation may involve the danger of some loss. While, as we have said, such a power should be exercised with the greatest caution, yet it cannot be said that the power does not exist. In the exercise of such authority, the court should have the right to make the expense chargeable upon the corpus of the property, in the event the income may not prove sufficient to pay the expense. The conduct of a business that has proved insolvent is not likely to yield a net income; and, if the creditors of the receiver could only look to such income for the satisfaction of their claims, he would be unable to obtain credit, and the operation of the works would be impracticable. Accordingly, the rule is that the expense of administering and preserving the property is to be charged first upon the net income, and, if that be not sufficient, then upon the property itself, or its proceeds upon sale. McLane v. Railroad Co., 66 Cal. 606, 6 Pac. Rep. 748; Meyer v. Johnston, 53 Ala. 237. Nor, while the circumstances which justify the appointment of a receiver, with authority to incur indebtedness in order to keep the property and business "a going concern" until the rights of all parties can be adjusted, and a sale effected, do not ordinarily arise, except in cases of railroad companies, no reason is seen why the same rules should not apply in other cases, under like circumstances. Whether the power to appoint a receiver over the property of a railroad company, and to authorize him to operate the road, and, as an incident thereto, to issue certificates of indebtedness, which are to be a prior charge upon the property in his hands, be maintained upon the ground of the interest of the public in the continued operation of the business, or upon that of the necessity of preserving the property, we apprehend that the action of the district court in this case must be justified upon either principle. If the public have an interest in the continued operation of a railroad, so have they in that of waterworks constructed for the purpose of supplying water to the inhabitants of a city. So, also, if the property of a water company be...