Southern Coal Co. v. Martin's Fork Coal Co.

• Decision Date: 19 April 1940
• Citation: 151 S.W.2d 394,286 Ky. 679
• Parties: SOUTHERN COAL CO. v. MARTIN'S FORK COAL CO. et al. and nine other cases.
• Court: Kentucky Court of Appeals

151 S.W.2d 394

286 Ky. 679

SOUTHERN COAL CO.

v.

MARTIN'S FORK COAL CO. et al. and nine other cases.

Court of Appeals of Kentucky

April 19, 1940

As Modified on Denial of Rehearing May 30, 1941.

Appeal from Circuit Court, Harlan County; James M. Gilbert, Judge.

Suit in equity by the Martin's Fork Coal Company against the Sunshine Mining Company, the Southern Coal Company and the Bank of Harlan, to enforce its lien for royalties due under lease of mining property to the defendant Sunshine Mining Company, wherein the other defendants sought to enforce their mortgage liens against the property of the Sunshine Mining Company, and the Sunshine Supply Company and others filed intervening petitions asserting liens against the Sunshine Mining Company's property. From final judgment adjudicating rights of all parties and interveners, the Southern Coal Company appeals and the appeal is consolidated with nine other appeals and cross-appeals.

Judgment affirmed in part and reversed in part.

Andrew Duncan, Jr., of Louisville, and James Sampson, of Harlan, for appellant.

H. H Fuson, J. S. Forester, and J. B. Carter, all of Harlan, for appellee Martin's Fork Coal Co.

J. S Forester and J. B. Carter, both of Harlan, for appellee Bank of Harlan.

John L Williams, of Harlan, for appellee Henry H. Pope.

J. B. Snyder, of Harlan, and W. T. Davis, of Pinevillee, for appellee Sunshine Supply Co.

J. S. Forester and J. B. Carter, both of Harlan, for appellees H. H. Fuson and W. W. Lewis.

E. L. Morgan, of Harlan, for appellee Sunshine Mining Co.

E. L. Morgan and E. H. Johnson, both of Harlan, for appellee George L. Michael.

J. C. Baker, of Harlan, for appellees Coy, Ellis, Hardy, O. S., and Clyde Goforth.

SIMS Commissioner.

These ten appeals and cross-appeals are the result of various creditors attempting to collect their debts from the insolvent Sunshine Mining Company, which was forced into receivership. The cases were consolidated below and on motion they were heard together here and will be disposed of in one opinion.

For convenience the parties will be referred to throughout the opinion as follows: The Southern Coal Company will be called the Company; the Sunshine Mining Company will be called the Mine; the Sunshine Supply Company will be called the Commissary; the Martin Forks Coal Company will be called the Lessor; the Bank of Harlan will be called the Bank; the Electric Service & Supply Company will be called the Electric; and the various labor claimants will be called by their names.

On July 29, 1936, the Mine borrowed $3,000 from the Bank, executing its notes to the Bank due four months after date, secured by a mortgage on certain mining equipment, which debt had been reduced to $2,500 when this litigation started. On Sept. 24, 1936, the Company loaned the Mine $7,000, payable in one year in 12 equal monthly installments, which was secured by a mortgage on certain mining equipment; and on Sept. 29, 1936, the Company sold the Mine a storage battery locomotive for $800 to be paid in one year in equal monthly installments under a conditional sales contract creating a lien on the locomotive.

On Oct. 22, 1936, the Commissary and the Mine entered into a written contract whereby in consideration of a 10% discount on all script received by the Commissary from the Mine's employees, the Mine agreed for a period of 12 months to run all script issued its employees, except that issued for gasoline and amusement, through the Commissary, and to redeem by the 16th of each month, all script taken in by the Commissary during the preceding month. At the time the Mine closed on Jan. 19, 1937, the Commissary held its unredeemed script in the amount of $5,677.29.

The Mine had become in arrears in the sum of $1,759.64 in the payment of royalties due the Lessor and on Jan. 22, 1937, the Lessor filed its petition in equity to enforce its lien for this royalty and made the Mine, the Bank and the Company defendants. The Company and the Bank by appropriate pleadings sought to recover their debts and to enforce their mortgage liens. The Commissary filed an intervening petition seeking recovery for this under deemed script against the Mine on the contract dated Oct. 22, 1936, and sought a general order of attachment. By amended intervening petitions the Commissary pleaded the Mine had breached its contract and was not entitled to the 10% discount on the script; that the Commissary had obtained written assignments from each laborer from whom it had received script and thereby became subrogated to the workmen's liens for wages provided by Ky.Stats. Sec. 2487 et. seq., and alleged facts that brought the labor performed by each person from whom it received script within the terms of these sections of the statute.

Many claimants filed intervening petitions asserting labor liens against the Mine's property. The Electric asked that it be adjudged a labor lien, also a materialman's lien in the sum of $9,911.88; and M. F. Sizemore asked to be adjudged a labor lien and also a materialman's lien in the sum of $806.62. All of the intervening petitioners pleaded that the work was done within the six months preceding, and such petitions were filed within sixty days from the time the mines closed. All pleadings were controverted of record. It was ordered that separate appraisals be made of the property covered by the liens of the Company, the Bank and the Lessor, and that all the property of the Mine, including the lease, be sold separately on Feb. 20, 1937, and immediately thereafter sold as a whole, and the sale bringing the highest price be accepted. The report of the appraisers shows the property was appraised as a whole at $10,000; and the report of sale shows W. W. Lewis became the purchaser of the entire property for $13,750, but fails to show the bids on the separate portions of the property offered for sale. However, the master commissioner who made the sale testified that the Company bid $6,000 on the property upon which it held a lien, and the Bank bid the amount of its debt, interest and cost on the property mortgaged to it.

The cause was referred to Hon. J. B. Walls, special commissioner, to hear proof and to report on claims. Certain of the litigants filed exceptions to his report which were passed on by the chancellor who rendered one final judgment adjudicating the rights of all parties and intervenors, and these various appeals and cross-appeals are prosecuted from that judgment. To keep this opinion within reasonable limits we must forego a discussion of many of the questions raised by counsel on the various appeals and cross-appeals and confine ourselves to those which are decisive.

The special commissioner was of the opinion that the Commissary was not entitled to a labor lien on the $5,677.29 in script which it had received from miners purchasing its goods. The chancellor sustained exceptions to this ruling of the commissioner and adjudged the Commissary was entitled to a labor lien in this sum. Under the facts shown by the record we must agree with the commissioner and disagree with the chancellor. It is clear the Commissary accepted this script under the contract it had with the Mine and that in so doing it had no intention of becoming subrogated to the wage lien which Section 2487 of the statutes gives the miner, but that the Commissary relied solely upon the terms of the contract obligating the Mine to redeem the script. The contention of the Commissary that it should be subrogated to the lien the statutes gives the miner is, in our judgment, an afterthought.

After the Commissary had acquired this script from the laborers, the obligation of the Mine to redeem same was not under any contract it had with the laborers, but was under the contract it made with the Commissary whereby it agreed to pay the Commissary in cash 90% of the value of the script. When the Commissary bought the script from the laborers, the claims of the latter were extinguished and a new demand for a different amount in favor of the Commissary against the Mine came into existence. No lien existed before the receivership and there were no liens in favor of the laborers after the receivership because they no longer owned the script. The attempt of the laborers to assign their script for wages to the Commissary, after the latter had bought the script from the former, and after the receivership, was vain and ineffective. As the laborers' debts for wages were extinguished, they had no liens to assign. J. C. Stewart & Co. v. McLeod, 5 Cir., 222 F. 253; Cairo & V. R. Co. v. Fackney, 78 Ill. 116; Texas & St. L. R. Co. v. McCaughey, 62 Tex. 271; Bell v. Arledge, 5 Cir., 192 F. 837.

The effect of the contract between the Mine and the Commissary was that the latter would furnish goods to pay the former's laborers, and the Commissary was no more entitled to a lien for so doing than if it had made the Mine a loan of money to meet its pay-roll. It could hardly be argued that a monetary loan for pay-roll purposes would entitle the lender to a lien under § 2487 of the statute. The general rule is that one who lends money to an employer to pay laborers, who if their wages had remained unpaid would be entitled to a lien therefor, is not entitled to be subrogated to the laborers' liens merely by virtue of making the loan to the employer. The loan must be made in expectation of being subrogated and under an agreement to that effect. Lovingood v. Butler Construction Co., 100 Fla. 1252 131 So. 126, 74 A.L.R. 513; Sweet v. Fresno Hotel Co., 174 Cal. 789, 164 P. 788, Ann.Cas. 1918D, 346; In re North River Const. Co., 38 N.J.Eq. 433. See annotation 74 A.L.R. 522. To allow such a claim as is here asserted by the Commissary as a laborer lien might in many instances jeopardize...