In re McDavid Lumber Co.

• Decision Date: 25 September 1911
• Citation: 190 F. 97
• Court: U.S. District Court — Northern District of Florida
• Parties: In re McDAVID LUMBER CO.

190 F. 97

In re McDAVID LUMBER CO.

United States District Court, N.D. Florida.

September 25, 1911

Pattillo Campbell, for petitioner.

Blount Blount & Carter, for export company.

SHEPPARD District Judge.

This cause comes here for consideration on petition of Wm. F. Lee for review of the ruling of C. L. Shine, Esq., referee in bankruptcy, and involves the question of priority of liens attaching to the lumber and other product of a sawmill plant in due course of administration in a court of bankruptcy.

The McDavid Lumber Company, bankrupt, was lately engaged in manufacturing lumber and operated a large plant when proceedings in bankruptcy were begun. The company was adjudicated a bankrupt in June, 1910. Wm. F. Lee was employed as bookkeeper for the company, and by his petition before the referee sought to declare his lien on the stock of lumber and fixtures of the company for wages due him for the month of April and a part of May, 1910, at the rate of $115 per month. It is disclosed by the petition that the stock of lumber, the greater portion of which was produced during Lee's employment, comprised the principal assets of the company. Three months prior to Lee's employment, to wit, on January 10, 1910, the McDavid Lumber Company executed a chattel mortgage, based upon the present consideration of $1 to the Hayward Export Company, embracing all the lumber and timber of whatsoever kind which should be manufactured at the mill of said company from the 1st of January, 1910, to the 1st of January, 1911; this mortgage provided that the export company should advance 80 per cent. of the value of the output of the mill each month, and further stipulated that the export company should be the selling agent of the lumber company for all its product, excepting interior stock. The advances to the extent of 80 per cent. were secured by a mortgage based upon the whole output, and included all the lumber and timber stored upon the yards of the company during the existence of the mortgage.

The further point is made by Lee's petition that the mortgage of the export company was not recorded until the 15th of April, 1910, 15 days after Lee's employment by the McDavid Lumber Company; but actual notice of its existence is nowhere negatived by the petition, although, as will later appear, notice of the mortgage is not material in view of the determination of the question certified to this court. Lee by his petition seeks to have his claim for wages declared a preference over the mortgage of the export company on the proceeds of the product embraced in the mortgage, and that the export company which has disposed of the lumber be required to pay his claim for wages.

The Hayward Export Company interposed a demurrer to Lee's petition, the first ground of which is only necessary to be considered at this time, viz.:

'(1) The allegations of the petition show that the rights of the Hayward Export Company under its mortgage and contract of sale are superior to the rights of petitioner in the proceeds of the lumber.' The referee upon the hearing before him sustained the demurrer, and it is this order which is certified here on petition of Lee for review.

The contest seems to have waged so far over the priority of the respective liens of contestants, the mortgage of the export company, and the statutory lien of the laborer as created by section 2198, Gen. St. Florida 1906, which provides:

'That liens prior in dignity to all others accruing thereafter shall exist in favor of bookkeepers, clerks, etc., upon the stock and fixtures and other property of merchants and corporations.'

Whether the statutory lien in favor of Lee should be declared superior to the mortgage of the Hayward Export Company, which antedated the performance of any labor by Lee, was the question before the referee, and was decided by him in favor of the mortgage lien. If the question were to be settled by state statute and without reference to the order of distribution of the estates of bankrupts provided by the federal bankruptcy act, the referee may have decided rightly. It will be conceded that the bankrupt act (section 67d) recognizes liens generally in the priority precisely as the state law fixes them, when the bankruptcy act is silent, or where by its terms priority is left for state regulation. When, however, the lien of the laborer for his wages earned within three months of his employer's bankruptcy is given preference in the distribution of the assets of the...