(31 Or. 137) FALCONIO v. LARSEN.' (Supreme Court of Oregon. May 1, 1897.) INSOLVENCY-WAGES AS PREFERRED CLAIMS-AsSIGNABILITY-SETTLEMENT PENDING SUIT EVIDENCE-INSTRUCTIONS. 1. Act February 20, 1891, provides that claims for wages for labor performed within 90 days next preceding an assignment for creditors shall be preferred; that the laborer shall present a sworn statement of the claim to the assignee within 30 days; and that, if it is contested, claimant shall proceed by verified complaint as in an action at law. Held that, after the sworn statement has been presented by the laborer personally, the claim is assignable, so that the assignee may sue in his own name in case of contest. 2. In a suit under Act February 20, 1891, to enforce, against an estate assigned for creditors, preferred claims for laborers' wages, defendant pleaded a settlement, which was made with plaintiff, as assignee of the claims for collection, without the knowledge of the attorney who had been retained to prosecute the claims, and was alleged to be fraudulent. Held, that a written agreement between plaintiff and the attorney that the former should make no sale nor transfer of the claims, and that the proceeds of the suit should be paid to the assignors under supervision of the attorney, and a notice of attorney's lien, were admissible to show the authority and relations of the plaintiff and the attorney. 3. Where it was shown that defendant knew of the attorney's employment and his supervisory 'control of the proceeds, before making the settlement, it was proper to charge that any settlement made out of court after an action is begun, without the knowledge of plaintiff's attorney, will be viewed with suspicion. Appeal from circuit court, Multnomah county; E. D. Shattuck, Judge. Action by Donny Falconio against E. S. Larsen. Judgment for plaintiff, and defendant appeals. Affirmed. W. S. Perry, for appellant. M. J. MacMahon, for respondent. WOLVERTON, J. The purpose of this action is to establish 98 different and distinct claims, ranging in amount from $1.25 to $100, preferred by certain laborers and employés, against the estate of E. S. Larsen, an insolvent debtor, for labor and services rendered the said Larsen within 90 days prior to the date of his assignment for the benefit of his creditors, and is prosecuted under the provisions of an act entitled "An act to protect employés and laborers in their claims for wages," approved February 20, 1891. Larsen was a contractor for the construction of a ditch for irrigating purposes in Wasco county, and the claimants were laborers, and in that capacity performed work, labor, and services thereon at his special instance and request. Each of them made a statement of his claim under oath, in all respects as required by the statute, and presented the same to the assignee within 30 days after the assignment. Some 20 days later, Larsen filed exceptions thereto, and thereafter they were all assigned by the claimants to Donny Falconio, who brings 1 Rehearing denied. this action, setting forth in his complaint as many different causes of action as there were original claimants. It is alleged that each of said claims was assigned for collection, and that the amount collected is to be paid to the respective claimants. The principal question suggested by the controversy is touching the assignability of claims of laborers, the preferment of which the enactment is designed to promote. No contention is made but that the claimants might each for himself have prosecuted an action in his own name of the nature here adopted to establish his individual claim; but it is insisted that the preference which the law raises is a privilege strictly personal to the claimant, and one which he alone can exercise; that the mode or process by means of which he may avail himself of the privilege is specifically pointed out by statute, and, being a procedure unknown to the common law, it should be strictly followed in the establishment of the preferential right, and, until fully perfected, it is not in any event assignable. The statute, in so far as it concerns the case at bar, is in effect as follows: That hereafter, whenever any assignment for the benefit of creditors shall be made, the debts owing to laborers or employés, which have accrued by reason of their labor or employment, to an amount not exceeding $100 to each employé for work and labor performed within 90 days next preceding the assignment, shall be considered and treated as preferred debts, and such laborers and employés shall be preferred creditors, and shall first be paid in full; but, if there be not sufficient to pay them in full, then the same shall be paid to them pro rata after paying costs. Any such laborer or employé desiring to enforce his claim for wages under sections 1, 2, and 3 of this act, shall present a statement under oath, showing the amount due after allowing all just credits and set-offs, the kind of work for which said wages are due, and when performed, to the assignee, within 30 days after the property shall have been placed in the hands of such assignee. (The form of the statement is given, and runs in the first person.) And there upon he shall serve upon the debtor, or upon his assignee where personal service cannot be had, a copy of such claim, and thereafter it shall be the duty of the assignee to report the amount of such claim or claims to the court having jurisdiction, together with a statement of all costs occasioned by the assignment; and such court shall order said claims to be paid after payment of costs and expenses of the assignment, out of the proceeds of sales of the property assigned: provided that any person interested may contest such claim or claims, or any part thereof, by filing in said court exceptions thereto, supported by affidavit; and thereupon the claimant shall be required to establish his or her claim by judgment in such court before any part thereof shall be paid. When any claim is excepted to, the person desiring to establish the same shall file in said court his verified complaint as in an action at law, and serve the same upon the person excepting and the principal debtor, and thereafter the cause shall proceed to final judgment between said parties as an action at law. Section 2 provides for the adjustment of costs and attorney's fees, and section 3 that the assignee shall not be discharged until every claimant presenting his or her claim under the provisions of the act shall have been paid in full or pro rata, or shall have consented to the discharge. The act creates a new right, and prescribes a remedy for its enforcement. In so far as it imposes a burden upon specific property, it should be strictly construed; but, where the right is clearly given, the interpretation should be such as will promote, rather than impede or destroy, the remedy, so as to meet, if reasonably within the terms of the statute, the exigencies which impelled the enactment. In other words, a remedy is the concomitant of a right; and, where a new right is established, its usefulness depends upon the means of its enforcement, so that, when the legislature attempts to prescribe a remedy, it will be presumed that it intended to adopt such a one as will effectuate the purpose, and the interpretation of the remedial enactment will be such as to promote the intendment as fully as the language employed will admit. The undoubted purpose of the act was to constitute the laborer or employé a preferred creditor, as it pertains to the property of his employer seized upon by any process, or passing to a receiver or assignee. Under all the conditions enumerated, the property is placed in custodia legis, and thereafter it is administered in pursuance of law; and the act in question imposes an additional burden upon it, and subjects it, first, after the payment of certain costs, to the payment of the labor claims designated. The enactment does not create a lien, but invests the laborer or employé with all the rights and privileges incident to the relation of preferred creditor, and directs the order of his payment out of a fund which is already in the custody of the law, for the purpose of administration, in subordination to its rules and regulations. The act declares that hereafter, when the property of any person shall be seized, etc., such laborers or employés "shall be preferred creditors, and shall first be paid." Acts 1891, p. 81, § 1. Thus, the legislature has inseparably coupled the preference with the event, which inures instanter upon the happening thereof, to the benefit of the designated classes. It is a substantive right, created by edict, and not the right to acquire it by the doing of certain things or the observance of any conditions. The property is charged, ipso facto the happening of the seizure or the assignment, with the prior payment of the debts of laborers or employés, which have accrued under the conditions contemplated. With the right or preference thus clearly established, it remains to examine the manner of its enforcement, and to determine to what extent the remedy must be pursued as a personal privilege. Manifestly, the statute comprehends only such debts as are owing to the laborers or employés at the date of the seizure or assignment, and these debts are denominated "claims for wages." Now, it is provided that any such person desiring to enforce such a claim shall, in case of an assignment, present a statement, made out and verified in the form and manner prescribed, to the assignee, within 30 days after the property has been placed in his hands, and serve a copy upon the debtor. Such is the method by which a claimant may avail himself of his preference. Thus far it would seem that the privilege is personal to the laborer or employé, as he may adopt the remedy if he desires within the statutory period, or he may waive it as a debtor may waive his exemptions from seizure upon execution, by not claiming them in due season from the officer having the property in charge. When a claim is thus presented, a duty is devolved upon the assignee to report it to the court, and upon the court to direct its payment first, after the payment of the costs and expenses of the assignment, out of the proceeds of the sale of the property. But it is further provided that any person interested may contest such a claim by filing exceptions thereto, and thereafter it is made incumbent upon the claimant to establish the same by filing a verified complaint, as in an action at law, and that thereafter the cause shall proceed to judgment between the parties. We take it that the matter which is here made the subject of litigation and contest is the debt, and it is the province of the court to determine the nature, and what, if any, such debt has accrued and remains unpaid; but whether or not the claim has been properly made out or verified or presented, and whether within the prescribed time, are purely questions of law, that have necessarily to be passed upon, whether there is a contest or not. So that the purpose of the contest is not to establish the preference, but the claim. The preference is established when the privilege is exercised by a due presentment of the verified statement. Now, it will be conceded that the claim, aside from the preference which may be denominated a "personal privilege," is assignable, and, under the code practice, may be sued upon by the holder in his own name; but, when the privilege is exercised, the preference becomes an incident of the debt, which is thereby constituted a preferred claim, and, when the debt is assigned, the incident accompanies it. So, we see no reason why the assignee of the debt may not file a complaint in his own name to establish the claim, as he might do upon the simple demand, and, if established, the preference abides with it still, as an incident. The question whether statutory liens are assignable, or, if so, whether the action should be prosecuted in the name of the assignor, has but little to do with the present case. It is merely a question here whether a preferred claim of the class created by the enactment is assignable, so as to entitle the assignee to prosecute the action in his own name to establish the debt, its nature and amount, if contested; and we are of the opinion that it is. The right of exercising the privilege in claiming the preference we hold to be personal, but, when exercised by the presentation of the statement, the preference becomes an incident of the debt or claim for wages, and may be assigned; and henceforth the action may be prosecuted in the name of the legal owner and holder of the claim if contested. This interpretation is manifestly in consonance with the spirit of the act. It was designed to protect a deserving class of individuals, who are usually dependent upon their recent earnings for the sustenance of themselves and those dependent upon them, and it was undoubtedly the purpose of the legislature to make the wages of labor speedily available, and the assignment of their preferred claims would more frequently promote the purpose than otherwise. We cite the following authorities as tending to support the view we here entertain: The Victorian Number Two, 26 Or. 194, 41 Pac. 1103; Duncan v. Hawn, 104 Cal. 10, 37 Pac. 626; Murphy v. Adams, 71 Me. 113; Skyrme v. Mining Co., 8 Nev. 220; Railroad Co. v. Sturgis, 44 Mich. 538, 7 N. W. 213; Day v. Vinson, 78 Wis. 198, 47 N. W. 269; Kinney v. Ore Co. (Minn.) 60 N. W. 23; Kerr v. Moore, 54 Miss. 286; Phil. Mech. Liens, § 55. That the claims were assigned for collection does not destroy their validity, nor deter the holder from suing in his own name. Roberts v. Parrish, 17 Or. 583, 22 Pac. 136; Young v. Hudson, 99 Mo. 102, 12 S. W. 632; Allen v. Brown, 44 N. Y. 228; White v. Stanley, 29 Ohio St. 423; Boyd v. Corbitt, 37 Mich. 52. As a defense to the action, the defendant pleads a settlement with the plaintiff touching the claims in question, and full payment and satisfaction in accord therewith. The plaintiff, replying, denied the settlement, but alleged that, if any such was had, it was obtained by fraud and without consideration. After the defendant had given evidence touching the settlement, the plaintiff, for the purpose of showing that, when defendant was attempting to negotiate the settlement, he had full notice and knowledge of the capacity in which plaintiff was acting as touching such claims, offered in evidence an agreement between M. J. MacMahon, the attorney engaged to prosecute the claims, and himself, whereby it was agreed that no assignment, sale, or transfer of any interest in said claims should 48 P.-45 be made by plaintiff, and that the proceeds, when collected, should be distributed or paid to the assignors under the supervision and control of the attorney, and also another paper, purporting to be a notice of attorney's lien filed in the cause, which were received over the objections of the defendant. Thereafter the court instructed the jury touching the alleged settlement and allegation of fraud in relation thereto as follows: "When parties have gone to law about a matter, they may settle between themselves without the intervention of an attorney on either side, or with an attorney on one side, if they see fit to do so; but after an action is commenced, and the parties appear with an attorney in court, any settlement of the claim out of court without the knowledge or consent of the attorney is to be viewed with suspicion. If there is any fraud in the case, such a settlement may be set aside." This the defendant excepted to, and these constitute the two remaining questions to be disposed of. The agreement and the notice of lien were properly admitted in evidence. The issue was whether the settlement was fraudulent, having been, among other attendant circumstances, negotiated in the absence of the attorney, who was, under the agreement, directly charged with the supervision of the distribution of the proceeds after collection. The agreement tended to show the plaintiff's position and authority in the premises, and it and the notice of lien were pertinent to disclose the relations and interest of the attorney in the transaction. And it appearing that the defendant had knowledge of the existence of these instruments, and even of their contents, prior to the alleged settlement, they were significant in this connection as tending to show an apparent disregard of the rights of interested parties. Nor was the instruction objectionable. In Bussian v. Railway Co., 56 Wis. 335, 14 N. W. 456, Taylor, J., says: "We think that no release obtained from the plaintiff after an action has been commenced and counsel employed, in the absence of the plaintiff's counsel, and without his consent or knowledge, should bind the party, unless the utmost good faith is shown on the part of the defendant in obtaining the same. When a party has employed an attorney to prosecute an action, such attorney ought to be consulted if a compromise of such action be sought, and ordinarily it would be an act of bad faith on the part of the client and the opposite party to compromise the action without the consent of or without consulting such attorney." The language of the instruction is no stronger than this. It is evident the defendant knew of the attorney's employment, and of the supervisory control over the distribution of the proceeds of the collection accorded him under his agreement with the plaintiff; and it seems to us that the language of the learned judge, that "any settlement of the claim out of court. without the knowledge or consent of the attorney is to be viewed with suspicion," was es pecially adapted to the controversy. See, also, Watkins v. Brant, 46 Wis. 419, 1 N. W. 82. Judgment affirmed. (31 Or. 237) FARMERS' LOAN & TRUST CO. v. ORE- Employés of a railroad in the hands of a receiver pending foreclosure have no claim on plaintiff mortgagees for their wages where the income and corpus of the property are insufficient to pay the same, unless such liability on the part of plaintiffs was imposed by the court as a condition to the appointment of the receiver. Appeal from circuit court, Benton county; J. C. Fullerton, Judge. Foreclosure proceedings by the Farmers' Loan & Trust Company, as trustee, against the Oregon Pacific and the Willamette Valley & Coast Railroad Companies. From an order denying the petition of certain employés of the receivers of the first-named company that plaintiff mortgagee be required to pay the wages of petitioners, the latter appeal. Affirmed. This is an appeal from an order of the circuit court of Benton county denying the petition of certain employés of the receivers of the Oregon Pacific Railroad Company for an order requiring the plaintiff in the foreclosure suit in which such receivers were appointed to pay the wages of the petitioners. On October 28, 1890, the Farmers' Loan & Trust Company, as trustee for the bondholders of the Oregon Pacific Railroad Company and the Willamette Valley & Coast Railroad Company, commenced a suit in the circuit court of Benton county to foreclose a mortgage on the franchise and property of the defendant corporations, to secure the payment of the bonded indebtedness thereof, amounting, as alleged, to $15,000,000; and, on its motion, T. Egerton Hogg, the president of the corporations, was appointed receiver, and clothed by the court with authority to operate the railroad, and receive the income and earnings thereof; and, to that end, he was empowered from time to time to time to employ and discharge all needful assistants, managers, clerks, servants, agents, and employés, at such salaries and compensation as he might deem advisable. Under this appointment, Hogg operated the road as receiver until March 6, 1893, when he was removed, and one Hadley appointed in his place, who continued the operation thereof until January 6, 1894, when he was also removed, and another receiver appointed. Under the management of Hogg and Hadley, the earnings of the road were wholly insufficient to pay the expenses of the receivership, and, as a consequence, the wages of the employés were allowed to fall greatly in arrear, so that, at the time of Hadley's removal, there was due the petitioners herein a very large sum for wages, and no funds whatever in the hands of the receiver with which to pay it; and we take it (although not directly averred in the petition) that the receiver had exhausted his power to float receiver's certificates. Prior to this time, several unsuccessful attempts had been made to dispose of the road under the decree in the foreclosure suit rendered on the 27th of April, 1891. In this condition of affairs, some of the employés despairing, and with reason, as the sequel showed, of ever being able to obtain payment of their wages from either the earnings or the corpus of the mortgaged property, filed a petition on January 26, 1894, setting out substantially the facts hereinbefore detailed, and praying an order of the court requiring the plaintiff in the foreclosure suit to deposit in court sufficient money for the payment of their wages. This petition was denied, and hence this appeal. G. G. Bingham, for appellants. H. C. Watson, for respondent. This is. BEAN, J. (after stating the facts). so far as we can ascertain, the first recorded instance in the judicial history of railroad receiverships in which the trust fund was insufficient to pay the employés of the receiver engaged in the operation of the road; and hence we are unaided in the determination of the question before us by any judicial decision directly in point. The contention of the petitioners seems to be that a receiver of a railroad appointed in a suit to foreclose a mortgage on the road, and clothed with authority to operate it, is as much the representative of the plaintiff as a sheriff who levies upon property under a writ of attachment, and that the operating expenses incurred by him are costs or fees of the litigation, and, like the fees of the sheriff in the case referred to, are collectible from the plaintiff. But this argument is based upon an entire misapprehension of a railroad receiver's position and duties. He is not, like a sheriff in an attachment action, the agent of the plaintiff in the litigation, nor does the plaintiff have any control or authority over him whatever. He is the agent and executive officer of the court. which, by virtue of its high prerogative powers, lays its judicial hand upon the property which is the subject of controversy, and controls and operates it for the use and benefit. not of either of the parties to the litigation. but for the public and whomsoever in the end it may concern. His acts and possession are the acts and possession of the court. His contracts and liabilities in contemplation of law are the contracts and liabilities of the court. The parties to the litigation have not the least authority over him; nor have they any right to determine what liabilities he may or may not incur. His authority is derived solely from the act of the court appointing him, and he is subject to its order only. "A receiver of a railroad," says Mr. Justice Caldwell, “is a person appointed to receive and preserve the property of a railroad company, and is clothed with authority to operate the railroad and receive the earnings and income therefrom during the pendency of the foreclosure suit. In contemplation of law, the railroad is in the custody of and operated by the court appointing the receiver. The receiver is the agent of the court. He is an officer of the court, and his possession of the property is the possession of the court. He is not the agent of either party to the suit, and neither party is responsible for his contracts or for his malfeasance or misfeasance in office. * * * The liabilities incurred by the receiver in the operation of the road are, strictly speaking, the liabilities of the court appointing the receiver." 30 Am. Law Rev. 161. And in Railroad Co. v. Humphreys, 145 U. S. 82, 12 Sup. Ct. 787, the court, speaking of the Wabash receivers, said: "They were ministerial officers, appointed by the court of chancery to take possession of and preserve, pendente lite, the fund or property in litigation; mere custodians, coming within the rules stated in Union Bank of Chicago v. Kansas City Bank, 136 U. S. 223, 236, 10 Sup. Ct. 1013, where this court said: 'A receiver derives his authority from the act of the court appointing him, and not from the act of the parties at whose suggestion or by whose consent he is appointed; and the utmost effect of his appointment is to put the property from that time into his custody as an officer of the court, for the benefit of the party ultimately proved to be entitled, but not to change the title or even the right of possession in the property.'" So, also, in the case of New York, P. & O. R. Co. v. New York, L. E. & W. R. Co., 58 Fed. 268, it is said: "Receivers are but officers and agents of the court. While, necessarily, much is committed to their judgment and discretion, yet their power depends upon the decrees and directions of the courts appointing them. Receiverships of railroad properties are in a large part peculiar appointments. Railroads, as public carriers, are charged with great public duties, and the public are interested that their operation shall be continuous. Creditors are likewise interested that there shall be no suspension in their maintenance as a going concern, because their value as property depends upon the active use of the line. These considerations have developed the present well-settled proposition that such receivers are the mere custodians of the property, and hold for and as mere agents of the court. Speaking of the character of such trustees, and the effect of such holding upon the interests procuring the appointment, Chief Justice Waite said: "The possession taken by the receiver is only that of the court, whose officer he is, and adds nothing to the previously existing title of the mortgagees. He holds pending the litigation for the benefit of whomsoever, in the end, it shall be found to concern; and in the meantime the court proceeds to determine the rights of the parties upon the same principles it would if no change of pos session had taken place.' Fosdick v. Schall, 99 U. S. 251; Railroad Co. v. Humphreys, 145 U. S. 82, 12 Sup. Ct. 787 et seq. A receiver represents no particular interest or class of interests. He holds for the benefit of all who may ultimately show an interest in the property. He stands no more for the creditor than the owner. They are not assignees, and the principles of common law applicable to assignees do not define or determine the character of a receiver's possession, or its effects upon the rights of those interested in the property in their possession. Receivers ought not to be appointed to represent the peculiar interests of one class." To the same effect, see Railroad Co. v. Rust, 17 Fed. 275; Central Trust Co. v. Wabash, St. L. & P. Ry. Co., 23 Fed. 863; Ames v. Union Pac. Ry. Co., 60 Fed. 966; and Union Trust Co. v. Illinois M. Ry. Co., 117 U. S. 455, 6 Sup. Ct. 809. A railroad receiver is therefore more than a mere custodian of the property, like a sheriff holding under a writ of attachment or execution. He is, in effect, the hand of the court, which holds the property while it operates the road pending the litigation for the benefit of the general public, as well as the creditors of the insolvent corporation. It is for this reason that the expenses of the receivership are chargeable as a lien upon the property superior to all other liens. The plaintiff, at whose instance the receiver is appointed, thereby consents to the absolute control and management of the mortgaged property by the court and its agents, and to the priority of claims for the expenses incurred in its operation and management; but it is not perceived upon what ground it can be claimed that, because the expenses of the receivership are allowed without any fault of his to exceed the value of the mortgaged property, thus entirely destroying his security, he must, in addition to the loss of his debt, be compelled to make good the deficit, unless the order of appointment was made upon that condition. He has no control over the acts of the receiver, and if, without his consent, he is to be held responsible therefor, he is liable to absolute bankruptcy and ruin. Such a rule would render the plaintiff's position so uncertain and precarious as practically to preclude him from any protection whatever through the appointment of a receiver pending the foreclosure suit. But the inquiry is made, shall not a railroad mortgagee who applies for and obtains the appointment of a receiver, with authority to operate the road, be held responsible for the liabilities incurred by such officer when they cannot be made out of the property itself? We think not, unless such responsibility was imposed as a condition to the appointment or the continuance of the receiver in office. The appointment of a receiver in a suit to foreclose a railroad mortgage is not a matter of strict right, but rests in the sound judicial discretion of the court; and it may, as a condition to issuing the necessary order, impose such terms as |