332
FEDERAL REPORTER.
be ascertained? The court might doubtless send the matter to a jury, or permit the plaintiff t(} m.aintain an ordinary action at la.w, holding this case to abide the result oftha:t action, or it may appoint commissioners to assess those damages. I think the latter the true method,one most likely to result in full compensation to the plaintiff, which, of course, it is entitled to receive. I do not mean that the plaintiff is entitled to compensation for; any injury which may result from the mere tact or competition, but there are at least two matters which are clearly proper D:latters of consideration in estimating the plaintiff's damages: Fir8t, ·the inconvenience and annoyance which results from the crossing of plaintiff's tracks .bythe track of the defendant; 8econd, the interruption of access toplaintiff'\'l cars by the track and cars of defendant between its track and Perhaps there. may be other matters, but Ido notnow attempt to determine. I think the matter of damages should be referred to a commission of three gentlemen, one of whom should be a man of experience in the operation of street railroads, one a civil engineer, and the other, so to speak, a representative of the public,-some business man of the city of Omaha. . The decree, therefore, w,ldch ,wnfbe entered, will be for the appointment of such a commission tQ ascertain and report the damages sustained by the ,plaintiff, and conthmingthe case for further order and final decree uutil after the report .of such commission.
CENTRAL TRUST ,Co. and another 'II. WABASH, ST. L. & P. Ry. Co. and others. (In re BONNER and others, Petitioners.)1 (Qi'1'euit (Jourt, E. D. Missouri, March 22, 1887.) 1. RAILROAD GAGE.. .'. AND MATERIAL LIENS-MoR'i" .'
2.
SA.ME-NoN-PAYiNG
Preferred debts for work done$nd materials furnished, incurred in the operation of a' division of a system of railroads owned and operated by a . single corporation, are a lien upon alI the lines of the system, prior in right to bOth local general mortgages · The mere fact that some of the lin es of such a system have been paying and others ndt does not justify a casting of the entire burden of the preferred debt upon the latter. LINES.
8.
SAME-Al'l'ORTIONMENT OF
Where such It system of roads is covered by general mortgages, and some of its branches by local underlying mortgages, and tbe entire system is placed in tht:l bands of receivers in proceedings to foreclose the general mortgages, the earnings of the system sbould, as a rule, be apportioned among tbe different divisions fM'payment of taxes and interest on underlying mortgages upon a mileage basis· The ordinary rules of business should' be observed, however, and It larger Pl'oportion of the earnings may properly be expended upon one division tban upon others, in case it is necessary to the prosperity of tbe system as a whole.
EAR:NINGS.
.£.
SAME.
1
See 29 Fed. Rep. 161, 618.
CENTRAL TRUST CO· . . WABASH, ST. L. &: P. RY. V
co.
883
6.
MQRTGAGE-RIGH'1'S OF
A mortgagor has a right to the absolute control of the income of his prop· erty prior to the institution of proceedings to foreclose. '
FORECLOSURE.,-!NCOME.
8. '1.
JUDICIAL ElALES-PURCBASER'S RIGHTS-DECREE.
A t1urchaser at a judicial sale is entitled to look to judgment or de,cree for the measure ofhiuights. and need look no further. It is his contract with the court, and should not be changed. The,decree under which the property of the Wabash, St. Louis & Pacific Railway Company was sold did not bind the purchasers to pay the underlying mortgage debts before receiving possession, nor did the court reserve power to compel payment of such debts.
ElAME-'I'BE WABASH SALE.
SAME-RIGHTS AFFECTED PItIOR TO DECREE-ESTOPPEL.
A system of railroads,cpyered by general mortgages as well as underlying mortgages, was placed in the hands of receivers, by the mortgagor. Subsequently proceedings were instituted to foreclose the general mortgages, and the foreclosure suits and the 'original suits were consolidated, and the receiversw,e,re,,continued in posllession. and administered the whole system for the benefit of all parties in interest. The holders of ,bonds secured l:)y underlying mortgages wereretlresented by their tru,stees,'and a decree foreclosing the general -mortgages, and ordering a sale, was entered without The entire property wall ,sold pursuant to the decree. and the pl,lrllPasers agreed to pay all preferred debts before receiving possession. and thecQntract c)f 881e was partially executed. Held, that it was too late, aftersU'ch decree and sale, for holders of unQ.erlying mortgage bonds to object to the mannerin which the the system had been applied prior to the decree, and to. proceedings to'foreclose theirtilortgages, and too late for the conn to so alter'the decree as to change the rights of the purchasers. '
In Equity. Henry Crawford and Robert T. Lilncoln. for petitioners. Thomaa H. HUbbard, Wager Swayne, and Wells H. Blodgett, for respondents. BREWER, C. J. There was argued before us, two weeks ago, a petition on behalf of certain bondholders, holding bonds secured by underlying mortgages on lines east of the river, setting forth substantially that, in the operation of the Wabash road, those lines had earned above the operating expenses a large surplus,-some million and a half-dollars; that the receivers had not paid the taxes for those lines; that they had paid no interest on thoEie bonds for t1W last two years; and asking that the court order the receivers to pay those taxes, and appropriate those surplus earnings, alleged to have been diverted to the payment of preferential debts and operating expenses of non-paying branches, to the payment of the interest on these underlying mortgages, and that, if they have .no money in their possession, that then the court order receivers' certificates to be issued, to be a first lien upon the property in their possession, and especially upon certain lines of road covered by no underlying mortgages; or that, in lieu thereof, the court direct the purchasing <lommittee to pay such amount so alleged to be diverted, and make such payment a condition of their obtaining possession. Thearguments in support of and against this petition were protracted through two days, and quite a number of matters were discussed. We have taken time to consider the various questions, and to review the report of the receivers which was presented, and made the basis of those arguments. I
.. C:'· · Y,' '.
-, ll'ltDEUL',
,1
,
, it will necessary td gb baCK to the InCeptIOn of At that time there was a single corporation,-the,Wabl;ijlh, St. Louis & Pacific. It was a cor· in 1879, of various minor corporation:made-'ti!> 'by potations;' 'After the' cortsolidatipnpY' which theWi:tbas.h, St, Louis & Pacific was brought into being, it absorbed still other rOll,ds by consoli· dation, and; took possession of others by lease. It was an insolvent cor_PO!,#ti9n, a,tulWcame into its insolvency, and asking the court to take possession of its entire property, and administer it for the benefit of all concerned. There was then but a single corporation, own· ing manypieces'Ofproperty, having possession of others by l",ase, which separate pieces of. property were, many of them, covered by underlying znortgages. ',', Asa single corporation, it was also in debt to an amount eXceeding'$'3,OOO,OOO of floating indebtedness, and yet of that character - of indebtedness, which, by the of the supreme court, was pre. ferred to all mortgages. Thus-the preferential debts ofthree millions and a priof UPOD ,all tlleroads belonging to the Wabash; not a lien upon one division, and no lien upon another, but a lien upon each anci all of thaIll '" p.rior in righttQ eyery mortgage, general or local, junior ri1ade those obligations were incurred, -whether in theoperation,of,one,lineor another; they were obligations of the single debtor, and enforceable in law against every part of its property. In a case of a complicated railroad system like this ,Wabash, not only were they at law the obligations of role debtor enforceable against all 'Ol!l,t in equity also tOOy'were chargeable ,tip on all of its property. · ,'Much in the argume1?t, about, the main lines paying, and branches not 'paying,'and -somehow the idea seemed·to be that by reason ofthis fact thdpaying lines were under no obligation' to pay these pref. debtstand that in equity, if not at law, the court should saddle thebu'rden ofthemalJ Upon the non·paying lines. 'In apportioning the of corporation among these various divisions, the gen· era} rttleis' to· apportion them upon a mileage basis. The, freight which passes Ii branch'may pass on that branch but Ii short distance, and then', perhaps, a, long distance 'over the main line. ' All that is credited 'ito the branch is the mileage proportion of the freight charges, and yet the business which those branches have thus poured intO the main line :may well the very business which has ·main lines paying libes. , It may hot be possible to determine the amount of 'StI(Jh bu\!iiness. 1 see tables have been prepared indicating that several dollarsdfbusiness has passed overthose branches onto the main lines; andwhibli 'but for thosebranohes might never have touched the ntain 'lines': that aspect th",y,are operated for the banefit of the ;tire property. "::Xs my' Brother THA.YER well stated, in ouri consultation, totreat those branchres'tlsuseless incnmbrances, which should -be cut off, 'wouldl be Ilke damn1ingupthe little branches of the Eiippi, 'b'ecadse:·th'eyare n6t navigable i as' the mighty river into which, they pour.'It'is'the (Jombinati<m oftheirsrtl!Uler currents which makes t'
CENTRAL TRUST 00. ,t'. WABASH, ST. L. &: P.
ny.
CO.
335.
the miglity volume of the Mississippi, and renders it navigable; and; BQ it was' the combination largely of the little currents of business which, Rowed 'fromthose:bl'anchesin upon the main lines which made them paying lines l and no man with the figures before him can now say how much of the business of the main lines is and was due to the fact that these braricheswere kept in operation. So tQat, both, in law and in equity, the obligations of this single consolidated corporation were enforce. , Il.ble against each and every part of its properties; that is, certainly upon each and every part of the properties owned by it. 'l'h.ere may be some difference as, to the leased lines" and some other questio.nsmay arise there·. I do, not mean.to affirm that these preferential ,debts ought to be uted among the different linee upon a mere mileage baais, or that there would be no equities to be considered in appoJ.1,ioning their burden. All I mean to say is that the IJlere .fact that some were payjpg,and others not, would not justify a casting of their entUe·burden upon the Latter., , That was the situa.tionwb.en the receivers took: possession. " There waa a consolidated property, covered by a general junior mortgage, whose various divisions were,IIlflny of them, covered ,by separate senior and mQrtgages, and all burdened witb,this 83»000,000 and ,over of debts. , On the ;thirty-first,day of December last, the time to which "tb1s r&port, ot,the .receivers is brougllt, the amount of the, ascertained unpaid preferential debts was $2,425,000. All this, by the terms of the must pay before they ,get possessiofi of the property' bought. Now, the surplUS of all the lines,--andb;r the surplus I mean, if I may SQ speak', the undistributed .surplus that was not used for the payment of interest, that which is given .as surplus in this report,-the aggregate of the, surplus: of all the lines , eas,'t the river, ;is O,ril,y 62,566,00,0,' l,eaVing .the fraction,'s off; :on1y$141"O,OO,more than the ascerblined unpl,lidpreferential debts. To ,theseunpaid,;ascertained ,preferential debts must added the costs of ,the foreclosure proceedings, and the unascertainEld preferential debts,,two items which will unquestionably amount to at least two or three dollars. Hence when the purchasing pay off this indebtedness, as they must before they get possession, they' pay tln amount in excess of all the existing surplus. As between, therefore, the consolidated corporation as a single debtor and the purchasing committee, there would not be the slightest equity in casting a single dollar's more burden upon them. But suppose there were some equities as between different lines, some equities never known until this report of the reCeivers was presented, and to which" therefore, the. of the courli, was never before drawn, womd the court now ha.ve the power to do. anything of the kind asked for? $uppose,further) that the court, during its administration, has ma4, of fact and wors of law,-would the. court to,.dl!>Y' in the of. the decree ",as.signed and entered, interestpresent.anclnone objectlng,"iwould it, in:Ule face
.mce.
836
"
'
of that decree, have the power to grant the relief sought? It is as old as judicial sales" iterated and reiterated with unvarying and emphatic voice, that a purchaser at a judicial sale looks to the judgment or decree for the measUre of his rights. FIe· does not look back of the decree to questions which might have been presented, or might have been differently betweeh ,the parties; he looks to the decree. and upou thlitalone he rests. That measures his rights. It is his muniment of arid, when he purchases and pays, he has a right to say that that is hiscotitractwith'the eourt, and no court ever did, and no cot;lrt ever oughtfu, change' the' contract which it has made, when by its decree solemoly:.entered persons tobuy,and upon the faith of t.hat invitatlon'p-er80ns do buy and pay· .;' This pur&haSing committee is a ,purchaser. It is true, they represent theoldcorporittiori, its vairious stdckholders"commoriand preferred, and the' genefalmo'rtgage bondholders, but, over and beyond·that, they are called upQn and do pay for this property from two to three million dollars iricash.l:As 'such they are purchasers, ·andentitled to all the rights and the protection of cash purChasers. . \ Now; let usloc:ikat'thatdecree.. Somehow or other there seems to nave been or: suggl:lsted:the idea that under this decree the purchaseJ;'S qid not merely purchase the property subject to prior mortgages, but ,that tiley bound such prior mortgages; or, pernaps; more correctly, 'that, the court reserved therein the power to compel them to pity any, and, if! any, then all, such prior mortgages, principal and interests, before it Slirrendered to them any part of the purchased property. 'Well, I'hadsomething to do; with that deCree, and never, until months after, did it enter into mymind that there was any atten1pt charge upon the purchasers the burden of prior mortgages, or that this decree contemplated anything other than the foreclosure of the general junior mortgages, and the sale of the property subject to those prior mortgages. And after all that I have heard, and after all the care that I have taken or can take in studying this decree, I cannot see that which furnishes any reasonable excuse for saying that the court contemplated by this decree to charge upon this purchasing committee, or reserve the' right to charge upon this purchasing committee, .as a condition. of obtaining possession of this property, the payment of 'either principal or interest of any prior mortgage.· And yet that is practically what the petition aims to obtain. In the first place the decreeforedoses the Central Trust Company's mortgage, and the collateral trust mortgage ; finds the amount due thereon,the failure to pay, and orders 8. sale therefor. 'It is thus, in terms, Ii foreclosure of these. twomortgRg$S; It then goes. on to say, as would be proPfli:jti andrdinary foreclosure oh junior mortgage, and a sale subject to prior Iietis; that" this decree', or made thereunder, shall riot in any' wa): I!rejudice or affect the rights of parties toOl' persons in.in mortgages of trust which are thereafter !3pecified;'but" all the rights of such persons and parties are hereby reserved." It enumerates those various mortgages 'and deeds of trust,
CENTRAL TRUST CO. 11. WABASH, ST. L. II: P. RY. CO.
33T
states especially the amounts due under them, and closes by saying that the "statements in this decree of the amount of bonds outstanding, or of interest or rental paid or unpaid on any of the mortgages, deeds of trust, leases, or contracts,· etc., shall not be taken as adjudicating or determining the matters .so stated. Such amounts are so stated in this decree only for the purpose of enabling the parties who may desire to purchase said ptopetty to determine appl'Oximately the amount of prior liens or othe'l'charges upon said property, and· each part thereof." language as that be used if it was in the contemplation of Could the courii)hat these prior liens were being foreClosed, or that the court the power to .compel the payment of them as a condition of obtainJng:possessiori undet'the sale? Then, further, the part of the decree which was specially referred to, after ordering that a conveyance . should be made, goes on to state: "Such cOnveyance or assignment shall not .havethe effect of discharging any part'.()fsaldproperty from the payment, or contribution to the payment, of claims or demands chargeable agaiust the same, whether for costs and expenses, the· expenses of the receivership of said property, and the full payment of all the debts and liabilities of !laid receivers, or upon intervening claims· allowed or to be allowed, or upon any other claims or allowances that bavebeen orlIlay be charged against said property, or any part thereof, or said receiveJ"s." It is true that the word "claims" is a broad word,but;· used in the connecti'on in which it is found, it is obvious to what reference ismade. Besides, the clause simply' affirms that the conveyance was not to have the effect of discharging any of the property from the payment of those Of course it' did. not. Nobody has ever thought of releasing any part of this road from the burden of any prior claim, mortzage or not mortgage, which rested upon it. That same language appears where the court directs the distribution of the proceeds of sale-First, to the payment of costs and so forth; second, to the payment of the inof the receivers, and all other claims which said courts. or some of them, may adjudge to be superior to said bonds." What bonds? Why, all the bonds referred to in the decree. The language, of course, refers to those things which come in in the process of administratio.ri, and not to the underlying mortgages, none of which were be-ing foreclosed. Furthermore, it should be noticed in passing that in one of the circuits in which ancillary administration was had the trustees in the underlying mortgages were dismissed from the suit. There can be no shadow of a doubt but that the decree conteniplated (and thepnrchasers had a right to rely upon that fact) only a foreclosure of the junior mortgages, the general mortgages, and that the purchasers bought the property subject to the existing unforeclosed prior mortgages. That being the case, the court has no moral right, if it had the legal power, to saddle another dollar of burden upon the purchasing committee. I might leave the case right here, but so much was said in the course of the argument in reference to the administration that I am not content to stop. ··Our attention was called to the fact that interest on the'underlying v.30F.no.6-22 .
an
·
l.
·FEDERAL REPORTER· C · . ". . ·
mortgages on t4emainlineliw.estof the river was paid for 1885 and 1886, while interest on those onthe,p1ain line east,wa;s paid only for 1884; and the implication in the a diver· of the earnings of. the lineliiea&t, to the of interest on the lines west, which equitabl,yshouldbe Now, if there has been partiality in the administration of this property by t4is court or these receivers, by which one part of road has been sought to be benefited and another part injured,it ought to be. known, and, if known, to be condemned. . It isa fact that the interest on the main lines east was paid for the year '1884, and then interest payment :liltopped. It is.tL, fact that the interest on the main lines west.was paid for the years 1885 and 1886.' It is a Jactthatthe total paid on those lines west is $1,849,000; on the main lines east, $780,OOO,-8n excess ofinterest paid on the lines west of $1,068,000. It is a fact that the present. surplus of the main lines east is $l,578,000;t):J:atof the main lines west is $766,000; leaving an excess of surplus.credited to the main ·linl)s.east, ,of $812',000; which apparently is an excess of contribution to the payment of these preferred debts; or the operating expenses of thenon.paying branches. . Now, these three things stand out in bold relief; shown by the reports 'of-thereceivers presented for eiKamination;' but it is also'true, as I stated some time ago, that the rule for measuring the earnings of these differept lines was On th!" mileage basis; when freight was .carried. 10 miles on the mll,in line east, and 100 n;ill.eson the main line west, the freight ,charges were apportioned according.to the mileage. That is.thegenerai rule. And the fact is that the mltin lines weE\t have been earning largely ,more, than. the main lines east. 'laking. during the entire :receivership, and the net earpingsof the lines west exceed those of the ,lines east $2,448 per mile, which, multiplied by the mileage of the west lines, 427.5, makes $1,046,000, extra surplus earnings of the west ,line; an. amount exceeding by $234,000 the appa,rent ,excess of contribution which the east lines have made to the payment of preferential de,bts, and which comes within $22,000 of being equal .to the total excess of interest paid on the west lines. So that, in paying up to the present time the interest on the west lines, and in stopping the payment of interest on the east lines in 1889, the receivers simply respected ,the equities which arose from thesQperior mileage earnings of the west side, and that is all. . The apparent discriminat19n and partiality, when you find the .extra mileage earnings of the west eide ,exceed those of the. east lines by sub.Iltantially the amount of extra ,interest paid, disappear, and it is evident .that there has been no partiality.. So that, if there was. any right under ,the decree to make an adjustment between the east and west lines, all .the equities of their earnings· are against any change.. I .do not mean to ,say that in the administration of this vast property, with all the inter.eats which were collected iIdt, the receivers bound to ignore .the ordinary laws of business.. On the contrary, it 'WaS their duty, as fa!' as .possible, to keep the system together. .They had to respect the obliga-
CENTRAL TRUST
'Co.
V,'WABASH, ST.L. &: P. RV. CO.
339
tions Jt business p'aying inonedirection, perhaps, more than in another, for the purpose, as far as they could, of preserving the integrity of the system. Take a single instance. Here is the St. Charles bridge. The interest which they have paid on these bridge bonds is $140,000. It would have been culpable negligence on their part, if they had the money, not to pay that interest, and thereby let the bridge be swept 'out oithe system, and the connection of the Kansas City line broken up. All I mean to say is that,having regard to business necessities such as these, the figures which the receivers return show that they have treated every part of this system, east and west, fairly and impartially. But it is further urged by counsel for these petitioners that if there be a surplus on the main lines west, and therefore no right to charge the surplus oithe main lines east Upon them, there are 485 miles of road burdened by 'no prior mortgages, which the purchasing committee take freefrdm any lien, and the court should therefore tax upon those lines by receivers' certificates, or in some other way, the burden of this surplUs belonging to the main lines east which has been used for the preferentialdebts. There are several reasons why this ought not to be done. The first, one, that I have considered already, is that it is not authorized by the decree. Second; It is as yet unknown whether the east lines will not, on foreclosure, produce both principal and interest of their underlying m()t:tgages. ,These petitioners have no title to the corpUB of the property.: 'They stand simply as lienors upon a particular division or divisions, holdjng underlying and senior mortgages; and if, upon the foreiiIQ8ure of those m6rtgages,-:...a foreclosure which they have already lines pay them their principal and intercaused to be est,it is no concern oftheil'f! what becomes of the west line, or any other property. Third. It would not be right, because the mortgagor has by the settled law of this country absolute control of the income of his properly priOr, to the legal proceedings instituted by the mortgagee. It is true that this receivership was instituted by the mortgagor; that the re'ceiverswere appointed to manage this property for the benefit of all concerned; and it may be true, as counsel for petitioners say, that they had a right to rely upon that,and were not bound to come in and make personal application for the appropriation of such income. Concede all that, but it is trne th,at they were represented in court by their trustees. They were here when the decree was signed. If they did not formally consent, there was certainly no objection from one of them. At the time the decree was signed the court-room was full of connsel representing the various interests in this Wabash matter, and it was publicly announced that all parties consented. Again, the relief prayed for is not warranted by any orders made pending during this administration. 'And here T wish to refer to sOme things that have taken place during thisad'ministration. 'At an early day the court directed that separate aCQol}OtB $e kept of the earnings and expenses of the different lines, and said 'tlla:f the time might COllIe when there would have to be an adjustment of the equities between these different roads. What was to be adjustedf Whatwaelthe .th'ingwhich runs orders and
840 opinions? We had taken possession, and found a burden of three or four millions of floating indebtedness,-preferential debts. No man could then foresee whether by sale ·or by the earnings of the road, or otherwise, that amount of preferential indebtedness would be paid, and some distribution might have to be made of this burden. We took every precaution that we thought of at the time to have. the accounts kept with such fullness and detail that, when the time came to the closing up of this administration, any party could find on the books of the receivers all the evidence of his exact rights and equities, and could say: "There are .the figures which. lay the foundation of my claim." You, gentlemen,· are here to-day. resting upon a report based upon a system ofaccounts. which the court ordered to be kept, so that at any time any equities existing in favor of anybody might be considered and determined.. Happily, by the sale which has been effected, this burden of preferential indebtedness is takep off. from this property, and taken off from all of it. There is not a line or division east or west which will not be, when the final payment ill free from every dollar of preferential debt, every dollar of court indebtedness, every dollar of anything except the prior mortgl;tge indebtedness. At another titne we ordered payment of rent out of the earnings of a leased line, s.nd, in the course of an opinion which I then delivered, I said that, those surplus, earnipgs belonged to those different lines, they should be used in payment p£. their obligations. But, if you will read the orders of the courUhl1t were entered, and the opinions that were announced, you will find no attempt to set asid,e the orders made by the court, at the; inception of the' receivership, that the .preferential debts should be fi.rstpaid. Those orders stood like warrants drawn upon a treasurer to be paid out of funds not hereinbefore appropriated. Finally, the petition ought not to be granted by reason of the action of these petitioners. When this decree was entered, the sale made and confirmed,' and the money paid,.there was a single administration covering the entire property. Relying upon the uniform course of procedure in aU the federal courts of this country, the purchasers had a just right to expect that, when they complied with the terms of the sale, they would receive· possession .of the entire property. Through the action instituted by these petitioners, that expectation no longer exists. There has been a disruption of this receivership at their instance, and it leaves an uncertainty about the future which forbids any present adjustment. The purchasing committee have bought thil:l entire property east and west, and, according to the uecisions of the supreme court, they now have the legal title to it. Who can say that that new administration which has been undertaken acrossth,e river will work out a surplusor leave a deficit? What equity would there be in turning over a million and odd dolla.rs to the payment of claims upon property which the purchasing committee cannot to-day get possession of, and which, when they do get possession of, may be fOl,lnd burdened with a million dollars or more of expenses incurred under the new management? for it must be remembered that this court can give them possession of only a part
CO. V.
WABASH, ST.
L. &: P.
RY.
341
of the property which they bought, and, before it finally surrenders the control of that, it is exacting from then::. the full payment of all the receivers' debts, and of all preferential debts of the entire Wabash road. My judgment is that the petition of the petitioners must be denied. In all this discussion I have assumed, as was done in the argument, that the figures and accounts given in this report of the receivers are correct. Of course, any party has a right to challenge the correctness of that report; and while this petition will be denied, it will be denied without prejudice to the rights of these petitioners, or other parties, to come into court at ahy time, and challenge the correctness of this or any report of the receivers. In reference to the further disposition of this property. On the thirof December the court ordered the purchasing committee to pay $1,000,000 in cash or receivers' certificates into the registry of this court, and give a' bond in the 'penal sum of $1,000,000, conditioned for the payment ()f such further Bums as should be ordered paid, and to take possession of the property. They have complied with the order so far as to pay the million dollars into the registry of this QOurt. They desire to take possession of the property, and suggest' to the court that the court take, in lieu of this bond of a milliondoUars with personal se· curity, the bond of the new corporation which has heen organized, and to which the property has been transferred, with certain conditions. It appears there is outstanding to-day $459,000 receivers',certificates, $254,000, more than half, of which will be due at the close of this month, the balance maturing through the coming year. There is probably half ,a million more of indebtedness outside of that. In the decree, and in the orders of confirmation, and subsequent orders running along this line, it has been expressly stated that any delivery or possession would be subject to the right of the court to retake the corpus of the property upon a non-compliance with any of its orders in respect to the payment ·of claims. Of course, the property thus retaken and subject to resale is .ample security for the amount of unpaid claims, and yet it is fair to the holders of the unoerlying mortgages on the west side of the river ,that they shOUld not be exposed to the risk of having their property retaken and. resold. Inasmuch as the court, by virtue of the proceedings across the river, is ,not now able to give possession of the entire property, Brother TREAT and I last December, and my Brother THAYER and I now think, that a personal bond of $1,000,OQO or its equivalent should be required. The objection which was made to the giving of a bond was that persons -did not like to go on an obligation of that kind, and pledge their personalcredit in something which would run on indefinitely. But the .court did not contemplate such a bond. All that it. contemplated was a bond'for the payment of the first million dollars that should be or,dered, This bond may recite on its face that every payment made in ,compliance with the order of the court is to be credited upon and oper,ate as a reduction of liability pro tanto thereonjso there will be no con-
I
,FEDEnAL REPORTER.
tinuingand indefinite liability thereon. It was stated to the court that the :purchasing committee-had money in bank, and hence the recei¥ers' certificates which are dne this month should be paid, and then the bond need be only $750,000. There is 6n additional matter in regard to the surrender of possession. There will pass into the hands of the purchasing committee, not merely this real estate and tangible property in our grasp, but a large amount of convertible assets, personal property, stock, bonds, etc., which are in the Mercantile Trust Company's possession. They will get possession of these, and may d@ what they please with them; so that, in view of this fact, as well as the others named, we have concluded to order that they pay the receivers' certificates due this month, and then give bond in the sum of 8750,000, conditioned as above stated. The purchasing committee, or the new corporation to whom the property is turned over, will be required to designate some counsel here upon whom notice of any matter can be served. At the end of every 90 days they will be required to pay the various amounts which shall have been allowed during the interval, as well as certificates maturing therein, and at such time they will ·be credited on the bond in just the amount they so pay. Further, we shall want them to take possession at the close of this month. THAnR, J. Concurring fully in what has been said by the circuit judge, I shall add but one or two suggestions. An insuperable objection to granting the prayer of the petltioners, in my judgment, lies in the fact that· such action would materially modify the terms of the decree undenvhich the purchasing committee have bought, and, in effect, compel the committee to take the property on different terms than were proposed at the time of the sale, and this after the contract of sale has been partially executed. There are no reservations in the decree, when fairly construed with reference to the main purpose had in view by the court when the decree was entered, to protect the obligations assumed by the receivers, or created by them in the course of their management, which are broad enough to authorize' us at this time to issue receivers' certificates for surplus earnings of the main line east, and compel the purohasing committee to pay the same, or give bond for their payment, or take the property purchased subject to such new obligations. This feature of the Case has already been sufficiently alluded to, however. I merely emphasize the point that we have no legal right at this time, the decree having been settled after mature deliberation, and with full opportunity to all parties to be heaM, to modify its provisions, or take any action that would in effect change the terms of the sale. But, taking a different vieW of the matter,-looking at the case purely from an equitable stand-poil1t; and as if we were free to act in this matter,---1cannot see-that any ineqnitable result is liable to follow from refusing the prayer of the petitioners: If the outcome of these complicated .foreclosure proceedings could have been foreseen,-if it had been possible, from the outset, to withhold all interest payments on underlying mortgages without causing the total disruption and wreck of the H
CENTRAl, TRUST,CO' V. WABASH, ST. L. & P. RY. CO.
843
whole system,-perhaps the course to have pursued wQuld have heen to limit the disbursements by the receivers to current operating expenses" and to the indebtedness, for past operating expenses existing when the receivers took charge, which was clearly a first lien and charge on all the. property of the consolidated company,' treating it as a unit. I sa,y ,.perhaps that would have been the wiser courSe, because no one can say with certainty what the result might have been on the interests of all concerned, whether for the, better or the worse. Suppose,however, that such course had been pursued. Availing myself of the report which has been used on both sides by counsel pending this argument, which I suppose is substantially correct, it appears that tHe- net earnings of the lines east and west, exclusively of interest .disbursements, have been, in round numbers, in the neighborhood of 83,850,000; that the total tlf preferred c1aitne{deducting available assets outstanding when the receivers took charge)' were' in the neighborhood of $3.047 ,OOO,-showing that, ifno interest charges on underlying mortgages had been paid, the sum of about &800,000 would now be available to be distributed, on some equitll.ble basis, in interest payments on bonds upon the lines east and west. Now, the report shows that there has been paid out for interest on the sum of about. 8700,000. It is fair to assert that on no basis of distribution would the lines east be entitled to $700,000 for interest, if,the surplus of $800,'000 applicable to that purpose was now on haridfordistribution,and if no interest disbursements whatever had thus far been made. If out of the gross earnings of the property in the receivers' hands money' has in fact been taken to, pay interest on underlying Illorf,gages which might more properly have been applied to that Class of claims, aggregating over $3,000,000, as before stated, that were a prior lien on all the property of the consolidated company, the result has simply been that such prior lien claims are now outstanding and unpaid totheamountofabout $2,200,000; and it is that the purchasing committee are required, under the decree, to liquidate or secure, as a condition of being let into possessioa of the property purchased. And I may further add that under the decree the court holds the lines w('st, being the only ones now within its actual custody, as security for such payment. The fact is obvious, however, that the lines east (now out of the court's actual custody) have had more than their share of the total surplus earnings that would have been applicable to interest if the total net earnings of the consolidated company had been .applied, asthey might legally and equitably, and, as I think, they might more properly, have been appl).ed, solely to the payment of what was copfessedly a charge against its entire property, superior to the petitioners' incumbrance. ·In view of the consideration last mentioned. that the lines east have received ,more than their ratable proportion of the. net surplus applicabltl to interest charges, if interest on all the lines had heretofore been withheld,and in view of the fact that we have no assurance that thepropert)' ,ofthe)ines east is sufficient to bon<:ls and
344
FEDERAL -REPORTER.
accrued interest iIi full, and in view of the fact that. the trustees in tbe mortgages represented by petitioners have been parties to this suit, and have hitherto taken no exceptions to'the application of surplus earnings as heretofore made by the receivers, I am clearly of the opinion that it would be the duty of the court to deny the pra.yer of the petitioners, even if we felt it to be fairly within our power under the decree to grant the same. I accOrdingly concur in the order dismissing the petition.
Co. and anot1:lerv.
ST.
others. (ELMS, Intervenor.) E · .D. Y£'ao"!Jrl. March
L. & P. By. Co. and
((Jiroui{
24, 1887 l
1.
RAILROAD COMPANIEs-KILLING STocx-'-DoUBLE DAMAGE ACT-NORTH MISSOURI RAILROAD COMPANY.
The MiS/ilouri double damage act i/il not applicable to the successor of the North M:issouri Railroad Company. '
2. COURTS.:.-FEDERAL AND STATE-CONSTRUOTION OF STATUTES-POLICE REGVLATIONS.
A local double damage ,act is a police regulation; and a decision of the state supreme court as to whether !luch a state, statute is applicable to a particular corporation, in view of its,charter, should be followed by the federal tribunals. '
SAME-RECEIVERSHIP.
Where, but tor the existence of a receivership, the l'ights of an intervenor would be determined by the laws of the state In which he resides. as interpreteq, by its supreme court. the fact that a receivership has been instituted should not be allowed to operate to increase his rights.
In Equity. Ford &: Payne, for intervenor. George J. Grover, for receivers. BREWER, :r., (orally.) The intervening petition of James C. Elms in the Waba8h (hse was filed under the double damage act. 'The supreme, court of this state in Daniels v. St. Louis, K. O. &: N. By. Co., 62 Mo. . 43, held that that act was not applicable to the North Missouri road, or any road· which succeede<;l to its rights. Unless we disregard that decision, the exceptions to the master's report must be overruled. Counsel for the petitioner insisted very strenuously that we ought not to, follow that decision, claiming that it was not well considered, and that it was not a proper construction of the local damage act as applied to the Missouri charter. We think w.e ought to follow it. It is a construction placed by the supreme court of the state upon one of the police regulations of the state. There is no matter of contract in this case. There is certainly no natural right on the part of anyone to be paid twice for the value of property which is destroyed. This is not a question which arises between: citizens of two states) for the intervenor is a