McKenzie v. Bismarck Water Company
| Decision Date | 16 April 1897 |
| Court | North Dakota Supreme Court |
Appeal from District Court, Burleigh County, Winchester, J.
Action by Alexander McKenzie, for himself and others similarly situated, against the Bismarck Water Company, in the nature of a creditor's bill. George A. Hughes and Eber H. Bly and the Central Trust Company of New York as trustee in a mortgage, intervened. There was a judgment declaring the mortgage a superior lien, and an order granting a new trial and the trustee appeals.
Order reversed. Judgment modified.
Order reversed in part, and affirmed in part.
S. L Glaspell, and S. E. Ellsworth, (J. S. T. Waters, of counsel,) for appellants.
The doctrine of preferential liens upon which alone plaintiffs can rely in their attempt to displace the lien of the prior mortgage held by the Central Trust Company is confined to cases involving the operation of railroads and cannot be extended to the case of a water company which operates only in the place of its creation and under the eyes of its owners. Wood v. Guarantee Trust Co., 128 U.S. 416 421; Bound v. Ry. Co., 50 F. 312; Raht v. Attrill, 106 N.Y. 423. It is well settled that debts for construction do not come within the class termed preferential. Wood v. Guarantee Trust Co., 128 U.S. 416; Galveston Ry. Co. v. Cowdrey, 11 Wall. 459; Dunham v. Ry. Co., 1 Wall. 254; Porter v. Pittsburgh, etc. Co., 120 U.S. 649, 671, 122 U.S. 267; Toledo & etc., Ry. Co. v. Hamilton, 134 U.S. 296. Claims for money advanced to pay coupons can in no case take precedence of the mortgage debt. The coupons were extinguished by payment and the persons furnishing the money were not entitled to be subrogated to the rights of the holders. Trust Co. v. Ry. Co., 63 N.Y. 313; Haven v. Ry. Co., 109 Mass. 96; Cameron v. Tonie, 64 Md. 507; Kennedy v. Chapin, 67 Md. 454. Besides the persons who advanced the money and thus averted the interposition of the bondholders were the officers and managers of the mortgagor company, it would seem peculiarly inequitable to recognize any priority in their favor. Morgan's Co. v. Texas C. Ry. Co., 137 U.S. 171-196; Wood v. Guarantee Trust Co., 128 U.S. 416; Ford v. Cent. Trust Co., 70 F. 144. Claims for services can not be preferred. Wells v. So. Minn. Ry. Co., 1 F. 270; Nat. Bank of Augusta v. Corolina, W. & W. Ry. Co., 63 F. 25. These claimants were the officers and not the employees of the water company. Lewis v. Fischer, 80 Md. 139. The judgments offered in evidence by plaintiff were insufficient as against the bondholders and their trustee to show that they were founded upon valid or existing demands. Hassal v. Wilcox, 130 U.S. 493, 503. The receiver was not entitled to a reference for examination and passage of his accounts, because he had not presented a full and definite statement, itemizing the various matters and verifying the account under oath. High on Receivers, § 801; Peo. v. Columbia C. S. Co., 12 Hun. 585; Heffron v. Rice, 40 Ill.App. 244. Receivers accounts should be presented in such shape that interested parties may be fully informed thereby. Hayden v. Chicago Title & Tr. Co., 55 Ill.App. 241; Am. Tr. & S. Bank v. Frankenthal, 55 Ill.App. 400. The person appointed receiver was ineligible because president and a stockholder of the defendant company. Section 5404, Rev. Codes; High on Receivers, § 72; Atkins v. Wabash, etc. Ry. Co., 29 F. 161-173. Finance Co. v. Charleston C. & C. Ry. Co., 45 F. 436; Buck v. Life Ins. Co., 4 F. 849.
Newton & Patterson and Ball, Watson & Maclay, for respondents.
No statement of the case has been proposed or settled, so this appeal is based solely upon the judgment roll, § § 5462, 5630, Rev. Codes. Certain moneys and hydrant rentals are mortgaged to appellant, but such moneys and rentals are not to be the mortgagees, unless the water company should fail to operate the works so as to earn hydrant rentals and the trustee has taken possession under contract in the mortgage. Sage v. M. & L. Ry. Co., 125 U.S. 361, 31 L.Ed. 694; Dow v. Ry. Co., 124 U.S. 652; Galveston, etc. Ry. Co. v. Cowdrey, 11 Wall. 459; Gilman v. Tel. Co., 1 Otto, 603; Am. Bridge Co. v. Heidelbach, 4 Otto, 798. The Central Trust Company intervened in hostility to the plaintiff. The receivership under a creditors bill is an equitable levy in favor of plaintiff and those who join him. Sage v. Ry. Co., 125 U.S. 361. Plaintiff having obtained the appointment of a receiver is entitled to the benefits secured thereby and if appellant claims a better right he must have a receiver appointed for his benefit or the present one extended to cover its interest. Ranney v. Peyser, 83 N.Y. 1; Howell v. Ripley, 10 Paige, 43.
In the view we have taken of this case as disclosed by the record, we shall refer only to certain features of the case which, in our opinion, are decisive of the result in this court. The action was brought by Alexander McKenzie, a judgment creditor, for himself and others who might come in as co-plaintiffs later, to subject the assets of the Bismarck Water Company, including its franchises and earnings, to the payment of such judgments, and, incidentally, to have a receiver appointed of such assets, franchises, and earnings and for the purpose of conducting the business of said Bismarck Water Company pending the litigation, and with the ulterior purpose of subjecting the assets, property, and earnings of said company to the payment of said judgments. Upon the summons and complaint, and upon motion of plaintiff's attorneys, an order to show cause why such receiver should not be appointed was served on the defendant, the Bismarck Water Company, on the 7th day of February, 1894, and said order was made returnable on the next day, and upon said return day said defendant made appearance by its attorneys in response to said order to show cause, whereupon the court, on the 8th day of February, 1894, appointed one Clarence B. Little, president and manager of the defendant, as receiver of the assets, franchises, earnings, and property of the defendant, and in its order of appointment clothed the said receiver with full power and authority to take possession of all of the defendant's property, earnings, and franchises; and said receiver did, under such order, take such possession, and has ever since been in such possession, and has in all respects carried on and administered the business and received the rents and earnings of the said defendant, and said defendant has, under the control of said receiver, ever since such appointment, been engaged in its business of furnishing a water supply to the City of Bismarck and its inhabitants. Subsequently, and before the trial of said action, George A. Hughes, and Eber H. Bly, who had obtained judgments against the Bismarck Water Company, were permitted to come in as interveners upon complaints setting out substantially the same facts as those contained in the complaint of Alexander McKenzie. It further appears that long prior to the commencement of this action, and prior to the rendition of any of said judgments against the Bismarck Water Company, and on or about the 1st day of August, 1887, said company executed and delivered its mortgages to the Central Trust Company of New York upon its said premises, property, franchises, and earnings to secure the payment of 150 bonds of $ 1,000 each of even date with said mortgage, bearing interest at the rate of 6 per cent. per annum, and payable semi-annually on the 1st days of February and August of each year for 20 years, and to become due on the first day of August 1907, or upon default in the payment of any installment of interest for six months, or in the payment of taxes; that 115 of said bonds have been executed and delivered; that said Central Trust Company accepted said trust, and duly qualified as trustee, and has ever since been acting as such. The mortgage was properly filed for record, and recorded in the office of register of deeds of Burleigh county on the 14th day of June, 1887. It further appears that on petition to the District Court leave was granted to the Central Trust Company to come into said action as a party, and on the 2d day of March, 1894, said Central Trust Company filed its complaint in intervention. Upon the issues joined in the action a trial thereof was had in the month of April, 1896, in the District Court, Judge Willian B. McConnell presiding at said trial, he having been called in to try the case by W. H. Winchester, the judge of the District Court in which said action was pending. At the conclusion of said trial the District Court (having determined the issues in favor of the Central Trust Company) made and filed its findings of fact and conclusions of law, and thereupon entered its judgment upon the issues involved, whereby it was adjudged, among other things, that there was a total indebtedness of $ 136,000.92 due the bondholders, and secured by said mortgage, and the judgment directed that said mortgage be foreclosed, and said premises be sold to satisfy and pay said indebtedness, and further adjudged and held that the plaintiff's said judgments, and all of them, were junior and inferior liens to the lien of said mortgage, and that said mortgage debt was prior in time and superior in equity to the said judgments, and all of them. The record also discloses the fact that prior to and at the time of the trial of said action certain motions had been noticed in the District Court, and were then pending therein, touching the receivership aforesaid; and the Central Trust Company, at or about the time of the trial of the action, sought to have said motions taken up and determined, but said William B. McConnell, the presiding judge, declined to take up said...
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