George v. St. Louis Cable & W. Ry. Co.

• Decision Date: 23 September 1890
• Citation: 44 F. 117
• Parties: GEORGE et al. v. ST. LOUIS CABLE & W. RY. CO.
• Court: U.S. District Court — Eastern District of Missouri

44 F. 117

GEORGE et al. v. ST. LOUIS CABLE & W. RY. CO.

United States Circuit Court, E.D. Missouri, Eastern Division.

September 23, 1890

On the 17th of October, 1889, three non-resident judgment creditors of the St. Louis Cable & Western Railway Company filed a bill in behalf of themselves and all other judgment creditors against the railway company, to obtain the appointment of a receiver of the judgment debtor's property, and a decree for the sale of the same for the payment of their debts according to the respective rights of the several creditors as they might be adjudged. The bill stated, in substance that the defendant company owned a railroad extending from a point within the city of St. Louis to Florissant, in the adjoining county of St. Louis; that it was largely indebted and insolvent, owing, among other debts, a debt of $1,000,000, which was secured by a mortgage lien on all of the defendant company's rights, property, and franchises that the complainants had no adequate legal remedy to reach and sell the property of the company, because its road was located partly in the city and partly in the county of St. Louis, and, under the laws of the state, could only be sold as an entirety; and that an execution sale, if attempted, would not convey a valid title to a large portion of the property. A receiver was appointed, as prayed for, to take possession of the property on the day the suit was filed. The case was brought to a hearing on bill and answer at the last term of court, and on the 24th of April an interlocutory decree was entered, directing a sale of all the defendant's property, subject to the lien of all existing mortgages thereon, and also 'subject to all liens for taxes. ' By the terms of the decree, judgments to the amount of $255,214.75 were duly established as valid debts of the defendant company; that being the aggregate amount of the claims of all judgment creditors, including the original complainants, who had made themselves parties to the suit prior to the interlocutory decree. The court reserved to itself, however, the power, by further orders or decrees thereafter to be made, to determine all questions of priority, and all questions respecting the distribution of the fund that might be realized by the sale. The sale took place on the 20th of last June, and realized $150,000. After the entry of the interlocutory decree directing a sale, other judgment creditors of the railway company, owning judgments to the amount of about $20,000, filed intervening petitions in the cause, and asked to participate in the proceeds of the sale. Three of the petitions last mentioned were not filed until after the sale, and these represent judgments to the amount of $7,000. In addition to the judgment debts heretofore mentioned, there are now on file a number of unliquidated demands against the defendant company, aggregating something over $5,000. These demands, resting on open accounts against the company, were filed in this court, accompanied by intervening petitions praying an allowance and payment of the same, at various dates, both prior and subsequent to the interlocutory decree. The collector of the revenue for the city of St. Louis, on May 6, 1890, also presented an intervening petition, founded upon two tax-bills against the defendant company, for taxes assessed against it for the year 1889. One bill is for taxes on personal property, and is for the sum of $2,138.82. The other bill is for taxes due on realty, and is for the sum of $1,430.06. Several questions touching the right of these several classes of claimants to participate in the distribution of the fund realized by the sale of the defendant's property have been heretofore argued and are now to be determined.

Lee & Ellis and Smith & Harrison, for complainants.

Laughlin & Kern, for defendant.

Hitchcock & Finkelnburg, S. P. Galt, David Murphy, O. B. Givens, Rassieur & Schnurmacher, and E. C. Kehr, for intervenors.

THAYER J., (after stating the facts as above.)

1. The first question in order is whether the state should be allowed a priority for either or both of the tax-bills? It seems to be the law in Missouri that for taxes assessed on personal property the state has no lien on the property until an actual levy has been made under the tax-bill. A sale made by an owner of personal property after taxes have been assessed against the same, and prior to a levy, passes a good title to the vendee, unincumbered by a tax-lien. State v. Goodnow, 80 Mo. 271; Greeley v. Bank, 98 Mo. 460, 11 S.W.Rep. 980. Such being the local law with respect to taxation, it follows that the provision of the interlocutory decree directing a sale to be made 'subject to all liens for taxes' is no obstacle in the way of allowing the state a priority as to the tax-bill against personalty, for as to such property there was no lien at the time of the sale; and, because the purchaser took the personal property unincumbered by a tax-lien, the state in all probability will lose the bill, unless the court directs its payment out of the proceeds of the sale. Inasmuch as the receiver appointed in this case had possession of the property on account of which the tax was imposed during the period within which the collector might have made, and probably would have made, a levy but for the existence of the receivership, it is plainly the duty of the court to see that the tax-bill against personalty is paid in preference to all other demands. The appointment of a receiver and sale of property by a decree of this court, in a case of this character, will not be allowed to interfere with or to defeat the collection of the public revenue. The bill against personal property will therefore be paid.

The tax-bill against real estate, as to which the state has a lien paramount to all other liens, stands on a very different footing. The property was sold on the express condition stated in the decree,-- that purchasers would take 'subject to all tax-liens.' Bids were no doubt made with reference to that provision of the decree, and an order made at this time, directing the payment of the tax-bill in question out of the proceeds of the sale, would, in effect, change the terms of the sale. The proceedings of this court have not interfered with the collection of the bill by the state, or in any manner impaired its security for the same, which is still ample to insure payment. Under the circumstances, no obligation rests on the court to direct the payment of the tax-bill against realty out of the proceeds of the sale, and the collector will accordingly be left to enforce the lien of the state for that bill by the usual remedy.

2. The next question to be answered is whether persons who have intervened on open accounts against the railway company, either prior or subsequent to the interlocutory decree, are entitled to participate in the distribution of the proceeds of sale, the fund being inadequate to pay even the judgment creditors in full. The bill in this case must be classified as a judgment creditors' bill, to reach property that either could not be reached by execution at law, or that could not be seized and sold under such process, so as to realize the full value of the judgment debtors' interest. The fund in court, therefore, is not such a fund as is technically termed 'equitable assets,' and as to which the maxim applies that 'equality is equity.' Trust Co. v. Earle, 110 U.S. 710-717, 4 S.Ct. 226.

I understand the doctrine to be well settled that the holder of an unliquidated legal demand-- that is to say, a demand not reduced to judgment--cannot maintain such a bill as this, and cannot properly intervene in such a proceeding until his demand is reduced to judgment. A court of equity requires the validity and amount of a purely legal demand to be established by a suit at law, before lending its aid to reach property of the debtor, that cannot be effectually reached by execution or attachment. Martin v. Michael, 23 Mo. 50; Dunlevy v. Tallmadge, 32 N.Y. 459; Turner v. Adams, 46 Mo. 95; Webster v. Clark, 25 Me. 314; Dodd v. Levy, 10 Mo.App. 122, 123; McDermutt v. Strong, 4 Johns.Ch. 687.

There are one or two exceptions to the rule, covering cases where a creditor for any reason cannot sue at law; but the exceptions to the rule are unimportant so far as the case at bar is concerned.

It is not apparent to the court that the claims now under consideration derive any support from the doctrine announced by the supreme court of the United States in a series of cases beginning with Fosdick v. Schall, 99 U.S. 253, and ending with Kneeland v. Trust Co., 136 U.S. 89, 10 S.Ct. 950. As already appears, this is not a bill by bondholders to foreclose a mortgage covering the entire property of a railroad company, and all of its future acquisitions of property, as well as the net income of the company. The case shows no application of earnings by the defendant company to the payment of claims of judgment creditors, that should of right have been otherwise applied to the payment of the unliquidated demands now on file. There has been no diversion of funds, such as a court of equity can remedy by using the funds in its hands to pay such demands. The fact seems to be that all the claimants stand on the same plane, save that some have been more expeditions in reducing their claims to judgment. All the demands-- those that are liquidated and those that are unliquidated-- are for money or materials supplied to the railway company to enable it to operate its road and discharge its duties to the public.

In cases like the one at bar, where the aid of a court of equity is sought by judgment creditors to reach property that cannot be reached by execution, the court does not proceed, when the property is in its...