Hassall v. Wilcox

delivered the opinion of the court.

On the 18th of February, 1879, an act was passed by the State of Texas, (General Laws of 1879, c. 12,) entitled “ An act to protect mechanics, laborers and operatives on railroad's against, the failure of owners, contractors and sub-contractors or agents to pay their wages when due, and provide a lien for such wages,” which provided as follows:

“ Section 1. Be it enacted by the Legislature of the State of Texas, That all mechanics, laborers and operatives who may have performed labor in the construction or repair of any railroad, locomotive, car, or other equipment to a railroad, or who may have performed labor in the operating of a railroad, and

to whom wages are due or owing, shall hereafter have a lien prior to all others upon such railroad and its equipment for such wages as are unpaid.

“ Sec. 2. In all suits for wages due by a railroad company for such labor as heretofore mentioned, upon proof being satisfactorily made that such labor had been performed, either at the instance of said company, a contractor, or sub-contractor, or agent of said company, and that such wages are due, and the lien given by- this act is sought to be enforced, it shall be the duty of the court having jurisdiction to try the same, to render judgment for the amount of wages found to be due, and to adjudge and order said railroad and equipments, or so much thereof as may be necessary, to be sold to satisfy said judgment. In all 'suits of this kind it shall not be necessary for the plaintiff to make other lien-holders defendants thereto, but such lien-holders may intervene and become parties thereto and have their respective rights adjusted and determined by the court.

“Sec. 3. Suits by mechanics, laborers, and operatives, for their wages due by railroad companies, may be instituted and .prosecuted in any county in this state where such labor was performed, or in which the cause of action or part- thereof accrued, or in the county in which the principal office, of such railroad company is situated, and in all such suits service of process may be made in the manner now required by lawi

“ Sec. 4. The lien created by this act shall cease to be operative in twelve months after the creation of the lien, if no step be sooner taken to enforce it.”

On the 15th of May, 1882, the Rio Grande and Pecos Railway Company, a Texas corporation, made a mortgagé to the Mercantile Trust Company of the State of New York, a New York corporation, covering all the property, real and personal, of the Texas corporation, including its franchises, lands, railways, and other property, to secure $600,000 of coupon bonds issued by it, dated June 1, 1882, payable in thirty years and bearing semi-annual interest at the rate of 6 per cent per' annum.

On or prior to the 27th of March, 1884, A. W. Wilcox pre

“ The State of Texas, County of Wébb.

“ To the hon. the district court of Webb county:

“ The petition of A. W. Wilcox, who resides in the county of Webb, and State of Texas, complaining of the Eio Grande and Pecos E. E. Co., a corporation duly incorporated under the laws of the State of Texas, and operating its lines through the county of Webb, where it has its principal offices, represents that heretofore, to wit, on the 12th day of January, 1884, the said defendant, in consideration of the payment of claims for labor on said defendant’s E. E., executed and delivered to your petitioner- a' certain promissory note (see note) for the sum of fifty-five hundred • and' twenty-six dollars, with interest, 10 per cent, whereby defendant promised and became liable to pay your petitioner the sáid note, with interest, according to the tenor thereof. Your petitioner represents that he is the owner and holder of said note, and that defendant has failed and refused to pay the said note, though thereto requested, to petitioner’s damage. Wherefore he prays for judgement for his debt and interest, and damages, and foreclosure of hisTien on defendant’s railroad and equipments.”-

The promissory note referred to in said petition was as follows:

“ Laredo, Texas, Janua/ry 12th, 1884.

“ The Eio Grande and- Pecos Eailway Company, for value received, hereby promises to pay A. W. Wilcox, or bearer, on demand, the sum of fifty-five hundred and twenty-six dollars for services, and for amounts advanced on claims for labor per-, formed in the construction and maintenance of the Eio Grande and Pecos Eailroad, with interest at ten per cent per annum until paid, and upon default-in payment' A. S. McLane is hereby authorized, in the name of-the said Eio Grande and Pecos Eailroad Company, to confess judgment in any court

of competent jurisdiction, hereby waiving citation and service thereof.

“The Rio Grande and Pecos Railway Company,

“ By A. C. Hunt, The President.

“ [Corporate Seal of The Rio Grande and Pecos Railway Company.] ”

On the 27th of March; 1884, the District Court rendered the following judgment:

“A. W. Wilcox a v. V 435. “The Rio Grande & Pecos R’y Co. )

“ This day came plaintiff, and the defendant; by attorney-in-fact, A. S. McLane, comes and says that he cannot deny the action of the said A. W. Wilcox, and that he is justly indebted to plaintiff in the sum of fifty-five hundred and twenty-six and iVu dollars, with ten per cent interest thereon from the 12th day of January, 1884, and it appearing to the court that a sufficient power of attorney has been filed in this cause authorizing A. S. McLane, in .default of payment, to confess judgment before any court of competent jurisdiction, and waiving citation and'service, it is therefore ordered, adjudged and decreed, that the'plaintiff A. W. Wilcox, have and recover of the defendant, The Rio Grande and Pecos Railroad Company, the sum of fifty-five hundred and twenty-six dollars, with ten per cent interest thereon from the 12th day of January, 1884, for which • execution may issue. It is further ordered by the court that the plaintiff have a hen on the said Rio Grande and Pecos Railroad-Company and its equipments to secure the payment of this judgment, and that said railroad and its equipments, or so much thereof ás may be necessary, -be sold to satisfy this judgment.”

.On the 14th of April, 1884, 0. B. Wright; a citizén of Penm sylvania and. a holder of $12Í,000 of the bonds; the interest on which, due December 1, 1883, had not been paid, filed a bill

The bill then set forth the making of the bonds and the mortgage, and the interest of the plaintiff in the bonds; that the company had recently incurred a debt of between $20,000 and $40,000, in constructing and equipping the railroad; that, under the laws of Texas, such debt was entitled to a first hen on the road and its franchises and property, in preference to the first-mortgage bondholders, for a period of twelve months after its completion; that long before the expiration of twelve months from such completion, suits were brought upon many, if not upon all, “ of the labor and material claims above mentioned,” and judgment in some instances had been had thereon, on which executions had been issued which were then pending against the company, and under which, unless some relief was afforded by the court in .which the bill'was filed, a large portion-' of the property of the' company would be diverted by 'sales by the sheriff, and the property be thus separated and its aggregate value impaired; that, in addition to such indebtedness, there was outstanding a large unsecured indebtedness, on which suit would shortly be brought, unless the property were put into the hands of a receiver; that the company was insolvent and unable to meet-the interest on its fixed charges or its

The prayer of the bill was, that the rights of the creditors of the company might be’ ascertained and declared; that, as-it was doubtful whether the Mercantile Trust Compjany could,’ under the. laws of Texas, take possession of the mortgaged' property, the court would appoint a receiver to take possession of it, with such power and authority in regard to the preservation and use of it as should seem best adapted to protect the interests of all the persons concerned; and for general relief. The bill was not sworn to.

On the same 14th of April, 1884, the rhilroadt company filed an answer, signed by its president, and which had béen sworn to by him on the 9th of April,-1884, which stated that’ there were outstanding a large number of claims for work and labor done in and about the construction of the railroad-of the company, and judgments had been obtained on some of the claims, on which executions had been issued, and, although sales under them had been put off from timé» to time, portions of the property would be exposed to sale under the executions, unless prevented by the decree of’ the court; and that the property of the company would be irreparably injured by any separation of its coal and railway properties, the two being both necessary for the transaction of its business of mining coal and transporting it to market. The company submitted-itself : to the decree of the court.

On the same 14th of April, 1884, an order, signed by the circuit judge, entitled in- the cause, was filed, which statéd that on the 9th of April, 1884, the case was heard on a motion

On the 11th of June, 1884, the court made an order directing the receiver to prepare certificates in a form given in the order, to an amount not exceeding $25,000, which certificates, together with such further like certificates as might. be thereafter authorized by the court, the order stated should be a first and exclusive lien upon all the property of the company, prior to any other liens thereupon, each certificate to be for $1000, with interest at the rate of eight per cent per annum, and payable out of any surplus money in the hands of the receiver after paying the running expenses of the company; that he might dispose pf the certificates at not more than one per cent discount, and that, after exhausting tl^e receipts of the railroad,' -he should pay out of the proceeds of the certificates (1) the running expenses of the company which had accrued since his appointment as receiver, including the expenses oi the first-mortgage bondholders in obtaining his appointment; and (2) out' of the balance remaining, pay so much of the debts of the company as might\be reported by the master and approved by the. judge, taking an assignment of the claims to himself as receiver

That order also appointed a master to report upon all claims

On the 24th of June, 1884, under that order, the said A. W. ' Wilcox filed with the-master the following claim: “A judgment of the District Court of Webb County, Texas, rendered March 27th, 1884, in cause No. 435, in favor of the said A. W. Wilcox against the said Rio Grande and Pecos Railway Company, for $5526.78, with ten per cent interest thereon from January 12,1884, and declaring and establishing a lien on said Rio Grande and Pecos Railway and its equipments, to secure the payment of said judgment, and directing the said railway and its equipments, or so much thereof as may be necessary, to bo sold to satisfy the said judgment, as will more fully ' appear by a' duly certified copy of said judgment hereto annexed, marked ‘ Exhibit A,’ and made a part. hereof. The lien declared in said judgment is based upon money due by the said Rio Grande and Pecos Railway Company to mechanics, laborers and operatives who performed labor in the constructing and repairing and operating said railway, and thereby under the laws of Texas acquired a lien prior to all others, and that said claims so constituting a prior lien were bought by the said A. W. Wilcox, and the said Rio Grande and Pecos Railway Company acknowledged the existence thereof, and promised to pay thasame by its obligation and note of date January 12, 1884, upon which obligation and note the said judgment was rendered. The said judgment is unreversed and remains, ’.in full force. And the said A. W. Wilcox claims that his said-lien, established by said judgment Before the institution of this suit'or the appointment of a receiver, is prior to the first-mortgage Bonds, and is entitled to preference of payment .out' of the earnings and proceeds of said railway, and will, apply to. this court for such appropriate orders as will secure prompt payment.” The claim was sworn to by Wilcox on- the 23d- of June, 1884. .

The master filed his report upon the claims, and among them-

It also appears by the report of the master, that Wilcox introduced before the' master, as évidence in support of his claim,' a copy of his petition tó the: District. Court of the county of .Webb, á copy of the promissory note, and a copy of the judgment of March 27, 1884, and that other evidence was put in by the respective parties, Wilcox and. Wright.

The master reported that the note included amounts which were not secured by a lien under the state act 6f 1879, as well as amounts which were. The conclusion of the master' was that Wilcox had a valid claim against the company for $5526.78, with 10 per cent Interest from January 12, 1884; but that he had no lien prior to that of the first-mortgage bondholders. On the 6th of October, 1884, Wilcox filed exceptions to the report.

Although the statute of Texas under which the superior lien of Wilcox is claimed was passed in 1879, prior to the making of the mortgage in 1882, and. although Wilcox brought his suit and obtained his judgment in the state court prior to the filing of the present bill, we do not think it can be held that the trustee under the mortgage or the bondholders were bound by that judgment rendered in a suit to which they were not made parties. Although they had a right to intervene in that suit, they were not obliged to do so, nor was Wright obliged to prosecute the suit which- he brought in the state court. They had a right to come into the Circuit Court of the United States to contest the priority of Wilcox’s lien, and, as his claim originated after the mortgage was made, compel him to prove affirmatively in that court the existence and priority

One of the exceptions taken, b.y Wilcox to the master’s report was, that the master had, by his finding, nullified' the legal force and effect’ of the judgment of the state court. The Circuit Court may have proceeded on that ground, in its' decree. But we do not think that' the proceeding in the state court can be sustained as one m rem. It is essential to such a proceeding that there should at least be constructive notice, by some form of publication or advertisement, to adverse claimants, to appear and maintain their rights before a judgment in such a proceeding can operate even as prima facie evidence: Windsor v. Mc Veigh, 93 U. S. 274 , 278, 279. In the present case, no notice, either personal or constructive, was provided for by the Texas statute, or was given to the other lien-holders.

The claim of Wilcox was presented before the master and the Circuit Court as a claim founded wholly on' his judgment and on the statute of Texas and not as a claim arising on the principle adjudged in Union Trust Co. v. Morrison, 125 U. S. 591 , or that acted on in the case of Fosdick v. Schall, 99 U. S. 235 , and the cases which followed it; and no facts are shown to sustain it as a claim founded on anything but the statute of Texas.

., The appellant claims, that the evidence before the master shows that only. $382.21 of Wilcox’s claim consists of items for which the statute of Texas gives a lien. But, as the master, though saying that the note included amounts for which a

The decree should he reversed, and the case he remanded to the Circuit Court, with a direction to allow a reexa/trwna* Hon of the damn of Wilcox, before a master, on the same and further proofs, if desired / and it is so ordered.