Opinion
02-26-1896
FITZGERALD et al. v. MAXIM POWDER MANUF'G CO. et al.
Frank P. McDermott, for complainants. Warren Dixon, for demurrant
Bill by George Fitzgerald and others against the Maxim Powder Manufacturing Company and others to establish and enforce laborers' liens. A demurrer was interposed by defendant Arthur H. Smith. Overruled.
Frank P. McDermott, for complainants.
Warren Dixon, for demurrant
EMERY, V. C. This case is heard upon the demurrer of Arthur H. Smith, one of the defendants; and the facts stated in the bill material to the decision of the question argued on demurrer are as follows: The complainants are employes of the defendant corporation, the Maxim Powder Manufacturing Company, to whom the company is indebted for services as its laborers. The primary object of the bill is to have the company, which is a foreign corporation, declared insolvent, and to have its assets administered as such, through a receiver, under the statutes relating to corporations, which in this respect are applicable to foreign corporations (Revision 196, § 103). The debts due to the complainants appear by the bill to be for wages due to them, respectively, from the company, for labor performed within two months next preceding the date of filing the bill (September 10, 1894); and they therefore claim that they are within the protection of the act of April 8, 1892 (P. L. 426, c. 273), providing that all such debts are prior liens upon the assets of the company. Part of the property of the company, at the time of filing the bill, consisted of real estate situated in the county of Monmouth; and the defendant Arthur H. Smith, on August 7, 1894, recovered a judgment in the supreme court against the company for $2,088.63, upon which execution was issued and levy made upon these lands, before the filing of the bill. The bill alleges that the complainants' claims for wages are, under the above act, prior to the judgment of Smith; that the company is insolvent; and that Smith threatens to proceed to sell on his judgment and execution. He is therefore made a party defendant, and an injunction is prayed against the sale by him.
The records in this cause subsequent to the filing of the bill show that an ad interim restraining order was issued against sale by the defendant Smith, pending the hearing of the application for decree of insolvency; that, on this hearing, the company was declared insolvent and a receiver appointed; and that the receiver, by consent of the parties, including Smith, sold the property in question, and paid the proceeds of sale into court, where it now remains, subject to the final order of the court. This payment into court is made for the benefit of the persons ultimately entitled to the fund, either as parties to this suit or in the other suits also pending against the company, and referred to in the bill. The present demurrer was filed after the decree in insolvency and order for sale, and presents two objections: First, want of equity (without further specification); and, secondly, multifariousness. The decision upon both points depends upon the complainants' prior lien on the fund in court, under the act of 1892; and as the fund is now in court, and not in the hands of the receiver, the dispute between the complainants and demurrant upon this point may be properly settled in this bill, without requiring other formal proceedings, to which all the persons interested in the fund are to be made parties. But, so far as the rights of any persons to the fund in court is concerned, this decision upon the demurrer is not intended to reach further than to dispose of this single question.
The act of 1892, under which the dispute arises, is as follows:
"An act to secure to laborers and workmen in the employ of corporations a prior lien in cases of insolvency.
"Section 1. Be it enacted by the senate and general assembly of the state of New Jersey, that in case of the insolvency of any corporation the laborers and workmen and all persons doing labor or service of whatever character in the regular employ of such corporation shall have a first and prior lien upon the assets thereof for the amount of wages due to them respectively for all such labor, work and services as may have been done, performed or rendered within two months next preceding the date when proceedings in insolvency shall be actually instituted and begun against such insolvent corporation.
"Sec. 2. Be it enacted, that such lien shall be prior to any and all other liens that can or may be acquired upon or against such assets, except the lien and incumbrance of a chattel mortgage or chattel mortgages thereon, and which mortgage or mortgages shall have been actually given and recorded (or filed for record) more than two months next preceding the date when proceedings in insolvency shall have been actually instituted against such insolvent corporations, and except the lien and incumbrance of such chattel mortgage or chattel mortgages thereon as shall have been actually given within two months next preceding the date when proceedings in insolvency shall have been actually instituted against such insolvent corporation for money loaned or for goods purchased within said period of two months; and also except as against the lien and incumbrance of any and all mortgages given upon the lands and real estate of such insolvent corporation.
"Sec. 3. And be it enacted, that this act shall take effect immediately.
"Approved April 8, 1892."
As to the objections both of want of equity and multifariousness, I think it is clear that if, upon an adjudication of insolvency, the complainants would acquire a lien prior to the defendant's judgment, and relating back to the filing of the bill, then the judgment creditor is a proper party to the bill, and, pending the adjudication, may be enjoined from selling or disposing of the assets. This results from the fact that the complainants' equity, if it exists against the defendant, can be worked out only through the medium of a decree in insolvency and a receiver. On similar equitable grounds, mortgagees or other lien creditors of a companyclaimed to be insolvent, and whose liens are contested upon grounds which, under the insolvent corporation law, would make their liens invalid as against the receiver, and who threaten to proceed to realize upon their liens pending the hearing on the question of insolvency, have regularly been made parties to the bill for insolvency, and enjoined, pending the hearing of that question. Whether, after the decree in insolvency, the jurisdiction of the court, for the settlement of other questions raised in the bill, generally continues, is not now involved or decided. Upon such decree the actual possession of the property usually passes to and remains in the receiver, and the validity of the lien is usually contested by subsequent direct proceedings for that purpose. But in this case, by the orders for sale of the property and the payment of the fund into court, the present bill is to be considered as pending, for the purpose of deciding the question now raised, and, by request of counsel, I so treat it.
This act of 1892, it will be noticed, was not a supplement to the act concerning corporations; and, in considering its interpretation, this must be borne in mind, because the question which arises on its interpretation is whether the words "assets of the corporation" were used in this act in the same sense in which they had been used in the sixty-third section of the corporation act, as amended March 31, 1887 (P. L. 99). This act of 1887, which is a supplement to the corporation act, amends section 63 of the corporation act so as to read as follows: "In case of the insolvency of any corporation, the laborers in the employ thereof, shall have a lien upon the assets thereof, for the amount due to them respectively, which shall be paid prior to any other debt or debts of said company; and the word 'laborers' shall be construed to include all persons doing labor or service of whatever character for or as workmen or employes in the regular employ of such corporations. * * *" Under this sixty-third section, it had always been held that the receiver in insolvency took the property of the company subject to the liens of mortgages and judgments obtained before the adjudication of insolvency. Hinkle v. Trust Co., 47 N. J. Eq. 333, 21 Atl. 861 (Vice Chancellor Pitney affirmed on appeal, 1890); Wright v. Iron Co., 48 N. J. Eq. 29, 21 Atl. 862 (Chancellor McGill, 1891). These decisions were based upon the ground that, under the sixty-third section of the corporation act, the "assets" of the corporation, upon which the laborers had a prior lien, must be held to be the property of the corporation subject to prior legal liens; and my view of this case at the hearing was that the same construction of the word should be adopted under the act of 1892. But, on further reflection, I am satisfied that the same rule cannot be applied without, in effect, declaring that the second section of the act of 1892 has no legal or substantial operation whatever. Such a construction of the act should not be adopted unless no other fair or reasonable construction is possible.
The act of 1892, it will be observed, was passed after the decisions above referred to concerning the sixty-third section of the corporation act, in view of the state of the law, as established by those decisions, and, so far as any presumption of purpose can be made, for the purpose of changing the existing law in reference to the lien of the laborers. The act, moreover, was, as was held by Vice Chancellor Van Fleet in Mersereau v. Mersereau Co., 51 N. J. Eq. 382, 385, 26 Atl. 682, intended to supersede and repeal all prior provisions of law on this subject of priority of laborers of insolvent corporations. And, inasmuch as the act was not a supplement to the corporation act, but an independent act the precise construction of the word "assets," as used in the corporation act, should not be considered as adopted in the act of 1892, if, on the fair construction of the whole of the act, the word appears clearly to have been used in a different sense. As both acts, however, relate to the same subject-matter, a different construction of the same word used in the two acts should not be adopted, unless such construction is clearly necessary, in order to give effect to the later act. In the first section of the act of 1892, considered by itself, there is nothing to indicate that the assets of the corporation therein referred to as subjected to a first and prior lien are not the same as the assets referred to in the sixty-third section of the corporation act, i. e. the property of the corporation remaining after exhausting liens thereon accruing prior to the insolvency. This construction of the word would thus leave the property of the corporation which came to the possession of the receiver subject to all prior mortgages, whether real or chattel, and subject also to other prior liens thereon, by judgment or otherwise. In the second section, however, the legislature specially and expressly declare that this lien intended to be given by the first section for two months' wages shall be prior to any and all other liens that can or may be acquired against the assets of the corporation, except as against real-estate mortgages and against chattel mortgages recorded before said period of two months, or for money actually advanced or goods actually purchased within said two months. These mortgages thus specially validated were already, under the section 63, as construed by the courts before the passage of the act of 1892, valid liens on the assets of the corporation, and prior to the laborers' liens, equally with all other bona fide mortgages and judgments obtained at any time prior to insolvency. This priority of all prior mortgages resulted from the construction of the word "assets" in the sixty-third section as meaning the property of the corporation applicable to its debts, and subject to existing liens. If the word is held to be used in this same sense in the act of1892, the exception in the second section of this act, validating certain prior existing liens, has no legislative force whatever, as applying to the existing law. With this construction, the whole second section also fails of legislative effect, and the whole act has no further force on existing legislation than to lessen the amount for which the laborer previously had a lien and preference, without giving any compensatory advantage by way of preferring his claim. If, however, by the assets of the corporation the legislature, in this act of 1892, intended to describe and refer to the property of the corporation in the sense of the actual property which came to the receiver to be administered, and without reference to whether it was or was not incumbered by liens, then, construed as meaning the "property" or "assets" of the corporation in this sense, the whole act has a clear meaning and application. By the first section, the lien of laborers' wages, which had previously been preferred without limit as to the time of creation, was cut down to the wages due for the two months preceding insolvency; and, by the second section, the entire assets or property of the corporation which came to the receiver for administration, whether incumbered by previous liens or not, was, with certain exceptions, charged with the prior payment of these debts due to laborers. This construction of the word gives a clear and intelligible legislative result and effect to the whole act, and should be adopted. Stating the result in another form, I may say that the word "assets" as used in the act of 1892, seems to have been used in the ordinary or usual business sense of the word, as intended to include all the property which would come to the receiver's possession, whether subject to liens or not, rather than in the technical or legal sense applied to the word under the sixty-third section of the corporation act, where it was held to mean only the company's ultimate rights in the property. There was in the corporation act nothing to indicate that the legislature intended to affect prior liens, but such intention is manifest in the act of 1892; and, as this latter act is an independent act, I do not, in construing it, consider myself bound to apply the word in the technical or legal sense in which it is used in the corporation act, where it fairly and reasonably appears that the other and ordinary use of the word is intended, and such use is the only one which will give the act the practical operation and effect intended. The act construed in this sense is valid as against all debts contracted after its passage, and no point was made, either in the specifications of demurrer or on the argument, of any failure of the bill to allege that Smith's debt was contracted after 1892. As the company appears to have been incorporated after this date, the fact that it was subsequently contracted, perhaps, sufficiently appears by inference.
I conclude, therefore, that the complainants' liens in case of insolvency would be prior to Smith's judgment, and that, therefore, their bill discloses an equity to have a sale stayed pending hearing on the bill against the company for insolvency, in order that the receiver taking possession of the property may protect and complete the preferred lien given by the statute to the complainants. The demurrer is therefore over ruled.