CENTRAL
WAnAsIl;:sT.
L. & P. RY.
CO.
'259
.lDep.t by tqlil! between COlpipmil1l:J.llts,and was made under thebelief.that.when the whole, account was stated., ifrany either party $,S il?iprovedy placed, e.lther 'singleitjlJ:P.was amQQg 'Mr. Jillnry's pnvated,ebt{! pr at;nong thpse.,qf thll ditch the matter could be separately inquired into by the court, and the error, if any there was, corrected without a further reference to the master. With regard "the . . matter I am not 'so" clear,'and cannotpbsito , other .' 1', , tively. aeterniine without re-examining at some length the volumes of . I do not feel thatcitis incumbent on me, to make that exL amination, for I thinktherlghts of both parties calil be preserved without any present modificatioDofthat decree. I regard the decree as all ih'terlocutory one. True, on the application of the defendant, I allowedah appeal as though it were a final deoree, for the question whether itls'final or interlocutory is one which the appellate court must finally decide. I feel indntyboundto render every assistance to a'party against whom I rule to enable him to present that adverse ruling! to the supreme court in,sucQ as he deems best. Of course, if iris to be a fiillil'decree, and there was error in finding, as I did, the existence of a contract, the supr,eme court will reverse tbe'decree in toto. If, on the other harid,they sustairimy finding as to the existence of the cbnthlct, but hold that it did not include' these farm mortgages, then the decree will be reversed pro tanto. So, if it should be adjudged, as I think it will, thatthis isa mere interlocutory decree, then, on the coming in of the repbrt' of the masttu,the matter now presented in this applicatibn for a modification can befQJly considered, and a final decree entered according as the factS reqUire; for it is a.bundantly settled that up to the time of the final the case 'is within the control of the court, !tnd an error or mistake in any interlocutory matter or decree can be then corrected. So, without a.ttempting now to decide whether' these farm mortgages were included withiri'the terms of the contract, the application will be overruled. , , ,
TRUST
Co. et al.
fl. WABASH, ST. L. &;P. MAN et al., Intervenors.)
Ry. Co. et 01.
(GIL-
(Oircuit (Jourt, B. D. Missouri, E. D.March 19, 1888.)
1.,
The property of defendant' railway company was made up of the idation of a number of Iines.:someof which were taken by purchase. and some ·. Nearly all of these lines were subject to prior and there was also two general mortgages on the consolidated system. Defendant filed '& 1>ill confessing insolvency, and asking theappoihtmentof toad· ministtlr its assets among its creditors. The lessor companies were made defendants, and an order was made appointing receivers to operate :the entire system. It was also rrovided that lI,ny lessor might at any time,' assert rIght topo'!!session 0 lines'leased by him for unpaid rent. Held. that the taking possession of leased lines by the recei versdid ,not make th em , leaslls, so as to make the rentals due undllrS!1cb. leases prior to the mortgages. ' , .. "
OOMPANIES-INSOLVENCY AND RECEIVERS-LEASED LINES-CLAIMS ,FOR RENT-PRIORITIES.
260
FEDE1U.L
REPORTER.
2. B,um·. On the .petition of the receivers' of ltn' insolvent railway SYstem ,showing that one branch of the systemh&d earned more than operating. expenses, ll.n order was mfl,de that out of the profits of that branch the rental thereon be paid, until otherwise directed. Held, that the lessor had' a right to rely on thlilorder; and the receivers would' be required to pay the rental from tloe time. specified. ! ·.
.In Eq\1ity.' . On exceptiOQs) report. ' . ! " , re petitions of TIwodore Gilman and Charles H. Bull, trusteesjQuUJ.cy, If,ailway COlI,lpanyj George 1. Seney,. trustee, and St. Joseph & St. LouisJtailroad Company· .Hough, ()ve1;aU&- Judson, for Gilman & Bull, trustl;'es,and the Quincy, Missouri & Pacific Railway Con;l.J>any. for George 1. Seney. Pattison &- Orane, for St. Joseph & St. Louis Railroad Company. Well8 H. Blodgett, H. S. Priest,. and Geo. S. Grover, for receivers.
In
THAXER,JJ. Before BREWER BREWER, J. These are .intervening petitions,.in each of which is presented the question of liability for rentals during the receivership. The denied the .exceptions were duly.taken, .and the question is now before us on these exceptions. The first two cases are so nearly alike that the statement. of the facts in one will bling the question clearly before lIS. In August, 1879, the Quincy, Missouri & Pacific Railro.ad Qompany leased its ro.!!-d to the Wabash Railroad Compaqy for a period of. years. By consolidations ,the Wabash Raihyay Company mergediIl,tp the 'Wabash, St. Louis & Pacific' Railway Qpmpany.The latter compllny, of course, succeeded. to the tions of the former. .the coildit,ions of the l,ease material to this inquiry the road in were substantially that thE:l lesseE:l'Y0u1d pay taxes, an<i repair, and also payasrent:).l a,given percentage pf ,the gross guarantying that such should at all times be equal to the interest at 6 per cent. on the bonds of the lessor company issued at the rate of $9,000 per mile. At the begiririingof the receivership the outstanding bonds of the lessor amounted to $1,204,000. Gilman and Bull were the ttusteelHiNhesebonds, and the' intervening petitiollwas filed by them as well as by the Quincy Railway Company. Oli the 29th of May, 1884, Company .filed its bill in this the Wabasl:!,St: court confessing its insolvency, ana praying the appointment of receivers. This bill showed that the complainant's property was a system made up by the consqli<lation of various independent lines, Some of which were taken in by lease and some by purchase; that nearly all of these independent subject to and prior separate mortgages. It also genel;'aln:.ortgages,---.,one on the system. as con· solidated,and the other on terminal facilities, and certain other properties. ' It :ave'tred that the. properties. consisted largely in of the system hitQct j and that to perplit the breaking up of the system by separateforecJosures of these underlying mortgages would largely'iIllpaii'the value dfthe properties. It made the lesso1' compahies
CENTRAL TRUST (,'0. II. WABASH, ST. L. & P. RY. CO.
261
party defendant. It prayed, among other things, "that after paying such claims as were required to be paid in order to prevent a forfeiture of orator's rights and interest in all rolling stock and equipments, the residue or surplus of all incomes, .revenues, and earnings of said railroads, and all other assets coming into their hands as such receivers, be applied to the discharge of all debts, obligations, and liabilities of orator, according to the rights and legal and equitable priorities of all concerned as cred.itors or otherwise, under the direction of the court." The order appointing the receivers directed them to takep6ssession of all these lines of road merged in this one system, and also -as follows: . "It is further ordered that the said receivers, out of the income that shall come into their hands from the operation of said railroad, or otherwise, proceed to pay all balances due or to become due to other railroads or transportation companies on balances growing out of the exchange of trattic, accruing during six months prior thereto. That said receivers also in like manner pay all rentals accrued, or which may hereafter accrue, upon all leased lines of said complainant, and for the use of all terminals 01' track facilities, and all such rentals or installments as may fall due from said complainant for the use of any portion of road or roads or terminal facilities of any other company or companies, and also for all rentals due 01' to become due upon rolling stock heretofore sold to complainant and partially paid for. That said receivers also pay in like manner out of any incomes or other available revenues which may come into their hands, all just claims and accounts for labor, supplies, professional services, salaries of officers and employes, that had been earned or have matured within six months before the of thIS order, It is furtherorderedthat said receivers pay all current expenses in the opel'aUml of said road, collect all the revenues thereof, and all choses in action, accollnts, and credits.due and to become due to tlw company. That such receivers keep such acconntsas may be necessary ,to show the source fromwhicb all such income shalllJe deri ved. with reference to the interest of all parties herein and the expenditures- by them made." In pursuance of this order the receivers took possession of the Quincy road with the other properties. On the 26th of June, 1884, the receivers filed their petition in the court asking its instructions as to how they should dispose of the earnings of certain lines, among them the 'Quiltcy road, which. lines they believed did not earn enough to pay operating expenses and the rental; and on the 28th of June an order Was ehtared as follows: "Third.·lt is further ordered that the receivers herein, until otherwise directed, keep the accounts of all the earnings and incomes from, as well as the accounts of all the operating expenses, costs of maintenance,aild taxes upon the 'following lines or divisions of said property, separately, to-wit." . On the 15th of October, 1884, upon the report of the master recommending that the receivers be directed to pay interest on a certain division, the court, in granting the order, made this announcement: "The Court·. I have stated at an early day, and Junge BREWER has gone over that matter, (and we art' in accord with regard to it,) that I am not going to pay interest to ta,ke the fuoneythat belongs to the underlying branches. If they have got to fail, they lDustfail. Iwill on protect, the undel;Jying .mortgages especially, and they havn 't got enough here
1262 Mr. Smit7J. T,henTasl\:that,tbematter be ',&Ild,':WEli,\\rl,',llJI, duce,testi,mON', ,ah,OWing, th,ll,ac,tua,l, ,ea, In ,three months. Court. ls.the important If this branch is earnillg enough to pay its ow-Ii 'Interest, that Is inquiry; but I am not .goirig,to sit here and' 'order that the earnings that belong ,to lO1ilmt :brllnches in this ;consolidated', system shall be takellto ,pay concerns that do not, pay earning eXpenses. Let them collapse."
,
qnA,.pri1l6, after the reports of the receivers in respedt.'t9 lines, the Quincyrqad among them, and after notice to the various parties in.interest, an was entered to this effect: That ,the subdivisional acqountsmullt be kept separately. ·That was !laid the (,lourt, ·passed by Brother TREAT at the very outset of thisreceiver$:hip, in order that the particular equities of each one of thelle , between themselvell. might be itScertained.' Wherea!}y 8ubdivillion ea!!ns a ,surplus over expenses, the rental, or l:l.Qpd.ivisional interest. will hepald to the extent ofthesurplull. an!j.on\y t()tJ:te extent of the 8Urpl1;l8. 'J.'h,i1'd. 'Where a 8ubdivisjoQ.\larns no operwillpe paid. JUhe lessor ating .expenl;l6S,-no rent 01: foreclos;ur,e, he may proorthesubdivisional mortgagee desires ceed atol),ce to assert bil;lrights. Wbile.the court will C9ntinue to operate such aubdivillion until some application be made, yet the right of a lessor or mortgagee, whose rent or interest is unpaid. to insist upon possession or foreclosure, recognized. Fourth. Where a subdivision not only earns no surpIqs" but fails to pay operating expenses, as in the St. Joseph & ,St. Louis branch, theopel'ation of the s,ubdivision will be coptinued; but the extent of Hleoperation will be reduced with an unsparing though a discriminating hand." And on ;T\:11y, 15, 1885, the court,onthe application oOhe trustees, an order directing the receivers to surrender the Gilman &. Quincy road to them, which was done. Asa matter of fact the earnings of the ,Quincy road during the time it was in the hands of the receivers insu,fficient to pay the operating expense!!; an.dat the tiQ'le the receivers took possession of the property, there was due by the company, of floating debts, (which, by the rulings ()fthe supreme court, mortgages,) were preferen.tial debts, and entitled to payment, over $3,OQO.OPO. The gross receipts of the entire syswm during the receivershipwere insufficient to pay the operating expenses, and discharge all oftbisfloating and preferential indebtedness; l+nd ,the purchasers, in addition the sum bid bythem, hav<:l,' as requi'red by the orders of this cQurt,paid the balance of said preferential and fiQating indebtedThe PlIl'chasers have taken possession ofthe PNperty within the 'jurisdiction of this court, though it is true the court, in the order SlIrpOSSession, reserved the to retake,lt, j f the purchasers faded to claims and demands which should be adjudged prior in lien to the. mortgages. The intervenors' claim, of cpurse, is that the rentals duetheo1 are preferential debts, and should', be 'paid prior to the , ,1; believe these facts present the question fully. . , We this fact,that prior to appojntment'of thereceivers, interven,o:r:s':claim was subordinate to that of the mortgagees. It was a claim, of:oourse, good against the income,but not against theco1"pus; at
to
neSs.
CENTRAL TRUST
{)o:
v.
WABASH, ST. 'L. & P. RY. 00.
263
least riot good the cOrpus until after the payment of the lilortgages; alld. the first question ,is whether the action of th,ereceivers in taking possession, or of the court in ordering possession, changed the statu.s, and: gives to intervenors' claim a higher position than it theretofore had. It is strenuously insisted by intervenors that it did; and they say that by taking posllession of this leased property the receivers became virtually the assignees of the lease, and therefore bound. by its terms,and bound to an extent which binds the property in preference to the lien of of citations are made from the text-books the mortgagees. A and decided.cases, to the effect that where a mortgagee institutes foreclosure proceedings;and upon his application a receiver is appointed, and such receiver takes possession of property leased by the mortgagor, such taking of possession is an acceptance of the lease, and binds the receiver as assigllee, alld billds so as to concede a preference to the lessor in respect to his rental.' III other words: If A., a mortgagee, ,colD-, mences foreclosure proceedings against B., a mortgagor, and a receiver, appointed athi!! instance, takes possession of the property of O. "leased by B., such pOl' session of the leased property is an acceptance by the receiver ofthe lease; makes him 'an assignee of the lessee, and binds both him and A., the mortgagee, to the full amount of the mortgaged property, to the payment of the rents. High thus states the rule: "As a rule, receivers are not Hable upon the covenants of the petsonsover whose effects they are appointed, but become liable solely by reason of their own acts; and receivers who have been appointed over a. corporation. and who have accepted the trust and tak;en possession of thl:! assets, do not thereby become liable for the rent of the premises held by the, company under ,a lease; nor can they be held liable until they elect to take possession of tlie'prell'1ises, or until the doing of some act Which would in law be equivalent tosilch an election. But when a receiver enters upon and occupies premises Which bad been leased to a corporation over he is appointed, he therl'by becomes liable for the'rent due under, the lease; 'the liability in ,8uch casesbei;ngthe cominon-law liability of an assignee of a lease, and not for the debt due from the corporation., And in such. case, the facts being undisputed, itis proEer for the court to !iirect the receiv,er to make payment to the lessor without a reterence to determine the matter." High, Rec. (2d Ed.) '§' 273. ' This proposition, fortified' as it is, by ample citations, is conceded; but is it applicable? Thill receivership was upon the applicatiqn, of the m,ortgagor,-a party in possessiqn of various properties,-some owried, some leased, and all subject to various obligations. Could the action of the mortgagor, or the decision of the court upon his applicatiol1,change the: relative rightso! the mortgagee and the lessor? Was it in the power Qfthe court upon the application of the mortgagor alone to charge the mortgagee with obligations to which he never assented? That this bill WtlS filed by the mortgagor is, of course, conceded;;. and' that' of any cr:-ditor's: rights, but tharpf all Its,credrtors, secured and unsecured, IS eVIdent from these extl1\Cts from the bill: ," . . "That aU,or all, of Said mortgages embraced, all rolling stock to be by the companies executing such mortgages;. but that, as Buch original c'6mpanies and' those 'lines of railroad have been graduaHyab-
ita
$64
FE<DEttAL REPORTER.
sorbed in orator's vast system. the rolling stock of said entire system has become so intermingled as to be incapable of division according to the original ownership of the said several lines of road according to said several r'lortgages. And any attempt to control ordistJose of portions of such rolling stock by any court or courts not having jurisdiction of the whole. aud not competent to deal with orator's entire property as a unit, would .pl'Oduce gl'c'at confusionan,d uncertainty, and would result to great loss to all persolls interested in,said rqUing stock. or in orator's property or securities. * * * And 01'ator,avers that the,interest of orator in said road, and of all its creditors aridhol{Jers, of the bonds aforesaid, are greatly imperiled by the existing prospect of the disruption of said road on the happening of the default impending as atoresaid, and the interests of all parties can only be protected by the interposition of a court of chancery. That if said lines of railroad ,are bmken, up, as aforesaid, and the fragments thereof placed in the bands of various reCeiverS, and the rolling sLock, materials, and supplies seized and scattered abroad inthemannerabove indicated, the result will produce irreparable inpersons having any intert'st jury and damage, not merely to orator. but in said lines of road, and the securities thereof:" " , , ; ;' L · '
The idea which underlies this bill is that. which ,underlhisthe action of a voluntary :bankrupt under the bankrup(iaw.Finding himselfinsolvent, hesurren,ders his propertyto the, court, to be disposed of for the benefit of his'varjous creditors,. ,Such action in no manner changes the relative rights of his variousqreditors. Tbeystapd subsequent to this various rights and equities are deaction as they did before, and termined, not by his action in surrendering his property to the custody of thecourt,but by the terms and 'obligations of the contracts fore entered into. Narrow the question in this way:' Suppose A. is the owner "of a,mill and thelessee.'Of Having mortgaged and himself insolvent,' both his mill,and his for: thE' appointmei}t 'ofa receiver to take, he applies to the court by possession qf Ms property and disp.0se of it for the benefit of his creditors, can it be that his action in flUng the bill, or the action of the court ihappointing a'receiver, makes'the claim for rental' an 'unsecured obligation, paramount to the secured lien of the mortgage? The proposition will be startling, if true: It would put it in th,e power of a mortgagor to dispossess the vested lien of the mortgagee, and render such lien sub()rdiriate to unsecured claims. 'It is true that after the appointment of a recehrer the mortgagee came in with an application for a foreclosure; but tbe assertion of his rights to a foreclosnre was not different from that of the assertion of tpe lessor to his claim for rent. Each took what rights were 'given him by his prior contract, and neither by his action waived any of his rights or consented to a subordination of his priority. It is true, also, that the holder of the general mortgage prayed the court to extend the l'eceivership over a part of the property to it asa mortgagee. if that application had been granted,some different question might now arise; but the court expressly decided' against the application, leaving the receivership to stand as it was in the first instance,..:...one granted on the application of the mortgagor, and one whose appointment it was believed would in no manner change the relative rights of any It DilLy be. sliid that the theory of the bill was novel; that sel-
CENTRAL TRUST CO. V. WABASH, ST. L. & P. RY. CO.
265
nom it is that the mortgagor, the debtor, applies for a receivership. This may be true, though this is not the first instance in the judicial history of this country that such an application has been made and sustained. The New York & New England road was upon a like application placed by the circuit court of Connecticut in the hands of a receiver; and in bankrupt cases, though that was specially authorized by statute, such a proceeding was common. But the question is not now upon the propriety of the action of the court in appointing a receiver on the application of the mortgagor, but upon the effect of such action. The propriety of tbis proceeding was long since challenged in this court, and its opinion, with the concurrence of both judges, was in favor of its propriety and validity. That question being settled, it would seem to be logical and necessary that no action of the court at the instance of the gagor, no' action of the receivers in direot obedienccto the orders of the court,.could change the relative rights. of the creditors inter sese. Again, if the action ofthe court in making the appointment, and of the in taking possessio!), did not of itself create a new and legal obligation againRt the mortgagees, are there any equitable reasons why the claim of the lessor should be given priority to that of the mortgagee? The lessor was defendant as well as the mortgagee; eaoh knew his rights; each summoned into court was at liberty to assert his rights; neither was told directly or by implication that would gain aught by the tion of the court in making the appointment. As the mortgagee might coWe in,and did come in, asking foreclosure of his mortgage, so the lessor might come in, ahd many did, demanding the surrender of the leased property for non-payment of rent. These very intervenors after the lapse. of some months came in and asked possession of their property, which was promptly surrendered. Why should the mortgagee be compelledto pay the lessor any more than the lessor be compelled to pay the mortgagee? Each was summoned into court, each was called upon: to make a showing of its claim, and each did so in time and manner that .suited it. Because there were various properties covered by mortgages' all merged in one system, and as such covered by onesubordinate mortgage, is there any equitable reason why the court, seizing upon aU of the properties at the instance of the common debtor, can be said to have created any new and different equities between these various creditors? Did not each stand upon his legal rights,-rights as isted before the receivership,and rights which could be asserted at any time, alld were in fact asserted as soon as each party saw fit? There was certainly nothing in the action of the court or the various orders made by it which gave to any purty the right to expect other than his legal claims. Of course, the order in the first instance was to pay rentals out of the income. and that income, as we have seen, is all exhausted in preferential debts and operating expenses. Early i'n the history of receive1'ship the order of the court was to keep separate accounts of-the earnings 'ot the· different lines, and the clear intimation of all the orders and opinions, as well as the express language of inany, was that the·income iromaily property, 'part of the general system, would be appropri-
26.6
ated, ,to·the specific claims"upon property·. true in railroad: foreclosures that, by the, dlJcisions of the sqp,r;eme .court, certain' clainl.l3have been adjudged and to and ,secured, liens. So far"as these. ru1ipgs have b,eenIllade this court has unhesitatingly followed, them; but i,tcannotbe, thatthe security ofa mortgage deed,even if it to displacement by every unsecured credito,r. Only the, Pl1blic reasons, which been so carefully consid(;red,and welll3tated:bythe,supreme court, justify any. postponement of the of a debt. , So far as beyond the I am,individqally concerqed I am unwilling to go matters and rules II,tid down bythe supreme cou,rt. .As to all outside of those lnatterslbelieve the .sacredness of mortgage obligations should be observed,and that l;1ecured debts should be given the priority the contracting partiesaward,edto them. In that view;the claims of the intervenors in relilpect to the Quincy road and the St. ,Joseph & St. Louis road ,are wHhout foundation, and the exceptions to the master's reportB wiU be overr.uled. ' . ' ". , ;,; Withrespeotito·the, of George I. Seney, the trustee in the gagllupon the: QIa,:imlaBnanch" somewhat different state . of facts ex1884, upon the petition of the receivers and th.e them th",t ,the C,lur:inda,Branch was important tq the systelPj,andhll.d earned more than the masterrecomwhich w:as duly t>y the court, ,as follows; ,!'It until Clt1)efwise bel;ein, from i. p . . ,9.0ffi.1.·Il·g rents..,a.".nd.. profits Of said prope.rt1.after me .. .. such obliga." as they have been dirE:jcted to discharge by the fotrrier orders of thIS court, '. . pay'as the same shall from time to time mature, from 'whatever balance may reIMinh, their hluii:lS, *. * on the 'first da.ys of and August (ol'aslloOntbereafter as practicable) the semi·ann ualinterestat six per cent. per annum, then'due ontwo:hundred and sixty.four (264) bonds of,one thoueach, issued ill Jllly. secured bymQrtgage on the Clarin411·,a,nd St. Railroad, (otherwise known as the Branch.· ) to ,$7,920." .. .., ... ,." . " , . . TlWinterwepor, thoJlgh made a defendant, appear.0. party to the proc!'leding on January 4, 1885. notifiecJ, by the receivers of an application for a new order in respect to the Clarinda Branch, which;wl!.s entered upon April 16th. The rentaLwaa in faot paid to August 1, 181M. . Now, the rental from August 1, 188t"to Apri116, 1885, stands,we think, upon a di,fferent footing. There waf.\aQexpress order of the court in reference wthat branch, avd couche(Un:l!!uch language that the intervenor had a right to rely upon it, payment of his rent,uptil some otper order was made. o.rder is entered after shoWing and petition by the receiverll,it'wpuld as/though the party stood upoua different footing, to assert his rights as lessor to the surrender of the Whatever migl)t· have been the reasons, and hQwthe receivers mayha,ve been,.they acted upon their best :julilgmeJi)t, .and the court see)1Ilsbyth.at order .to have given express Jp, .the intervenQr thl+t thQlnterestof the, sYlltem requjred the ', ..
CENTRAL TRUST.;W;;1t,lW4lUJ1B:,!!'fo;: L. &: P.
RY.
267
rental,ahd .that property. tem j so tba.t the order. be that tbee:x:ceptions.t1O thJl of the IDllster'iwillbe partially sustained, and the receivers di:t,'ectedto pay. the rental for ,the time specified with inte-rest. So far as the suhsequerlt rental. is .concerned there is nothing to distinguish this case from .the other two heretofore considered, and the report of the master will be sustained. It is unnecessary to add. more. We have. had these matters under consideration for some months, and have given to the most careful consideration. The arguments and briefs of connsel have ·been most full and elaborate, and the questions presented not easy of sQlution. The Amounts in each case are so large that if our conclusion is erroneouS, a l'eviewmay be had by the supreme court. THAYE;R, J .. , 1 shall only add a few words to what has already been said. .We are as]rerl by the intervenors to make an order in this matter the practical effect of which will be to give an unsecured claim priority over a mortgage debt. As there are no funds at our disposal de.rived from the income oLthe propertylately in the hands of the receivers, if weaHow the claims in the desired form we must enforbe payment out of the mortgaged property by retaking it, unless the parchasers :under the mortgage see fit to discharge the lien which we impose. It is proper, therefore. that we should consider carefully both the legal and equitable grounds upon which, such' action can be predicated. andLjustified.No lawyer would, for it moment, doubt that an assignee in bankruptcy would be liable for reht if he tool>: possession of leasehold premises held by the bankrupt, and used them for the pUl,'pose of administering on the assets in his hands. In that' .event the assignee would be.come personally: bound by the c.ovenauts 0f the lease, so long as he remained. in possession; and the court would be,boundto protect him against the:covenant to pay rent, by allowing him for all rent, disbursements as an expense of administration. In re llf&rrijield. 3N. B. ,R. 98, and People v. !runmJ,nce Ca..; 30 Hun... 142. The same prindple holds good, of course, in its application to public liquidators under the English Winding Up Acts, and, receivel'S of copartnership estates and the like. In re OrJUiery 0rJ., 21 Ch.Div. 330; In re Granite 0rJ., L. R. 6 Ch. 462; and Com. v. Insurance CoI,'1l5 Mass. 278. If such officers use property held under lease for the pose of advllntageouslyadministeringon property committed to. their chal'ge,they must· pay rent· as. stipulated in the .lease,and the. amount paid is an, e.xpense of administration, and is chargeable against the fund undergoingad:mioistration. The rule as applied in such cases has never operated, however, so far aswe can find, to disturb the priority of clahn.s, ..,-tha,t is to say, so as to give an unsecured debt a preference over one that secured. It is also well settled·that if mortgagees, in a proceeding to fOreclose a mortgage, procure· the appointment of receivers, and cause them to takepossessi",):!. of property held under lease by: the gagor, to which their mQrtgage does not extl:(nd, they thereby bind the mortgaged for the. pli.yment of rent that accl'ues, so long as: the. receiver reIUains in ",as the rule applied intllecase' ot'
268 Woodrir'; Railway Co., 93N. Y. 609; Miltenberger v.RauI/My 00., 106 U. S. 286, 1 Sup. Ct. 140. The principle which underlies all of the cases cited appears to be substantially the samejthat is. to say ,if an assignee in bankruptcy, public liquidators, receivers ofinsolvent corporations, or receivers appointed underprocet:dings to foreclose mortgages, take possessiOll ofthe property ofa third party, held under a lease, and use it ostensibly for the purpose of administering advantageously on the assets in their hands, or at the instance of, and for the benefit of, ,mortgagees, full rent must'be paid for the of such property, out,ofany'funds within the control of'thecourt, and that without reference to the quesfon whether the use of the leased premises proves to be beneficial or wise. There is, in fact, no difficulty in deciding what the l\l.w is. The difficulty lies in making a correct application of it to the particular csse undenionsideration;or rather it lies in determining wHether the present proceeding was of such an exceptional character thl\,t the principle invoked to establish the liability in question is 'applicable. . Attention has already been called to the fact that the bill in this case was filed by the'mortgagor, against all persons and corporations, including' the' lessors" who were interested in the various roads forming the complainant's railroad system. As I understand, the bill of cornplaint, thecotlJplninant professed to be acting, not alone iIi' the interest of mortgagees, but in the interest of all the corporations,'whose roads had become an ititegral<part oithe system, whether by lease, consolidation, or otherwise. It was substantially represented by the bill that the affairs ofthe6omplainant had become so complicated, by the various mortgages that had been ,executed , the consolidations that had taken place, and the leases made or assumed, and by the admixture of rolling stock, that the best interests of all parties concerned demanded the appointment of receivers over the whole system, as the only feasible method of working out, the equities appertaining to each. It was on account of such representationsthat the receivers were appointed and ordered to take possesIn other words the receivership was notcresion of the whole ated for the 'benefit or protection of anyone interest, or class of interests, but for· the benefit of all parties to the suit who were in anywise interested in the system. The lessor companies, whose roads went into possession of the receiver, were advised of such facts by the form of the bill, and by· the prayer for . They were at liberty, at any time after it was filed, to show thatthe:eilttension of the receivership over the leased lines was 'not necessary to the protection of any interests of the lessor companies" or that it was detrimental to such interests. If suc'!1 showing had beea made, (and it appears to me thllt the lessor 'companies were cited into'court to confessor deny the averments of the bill in that behitlf,) the leased'lines would unquestionably, have been released at any stage orthe'prooeeding. Intimations to that effect, undof the theory 011 which the court was proceeding, appear to have been 'given during the' progress of. the case from time to time.' But.so long as the lessor companies acquiesced in the averments contained in the bill, and on the faith of which receivers were appointed, it>appears to:rne 'that the te-
use
CENTRAL TRUSTOO;'t. WABASH, ST. L. & P. BY. CO.
269
ceivership continued to stand for their protection, and for the protection of the interests of all persons and corporations who were parties to the proceeding; and that, so16iig as that state ofaffairs existed, the relative rights of the parties were not changed, and that the mere possession by the receivers of the leased lines did not have the effect of making the rentals a charge on the body of the mortgaged property, superior in rank to the Inortgagedebt. The case, as I conceive,bears some analogy to the case of the Bridge Watet Engineering COi, 12 Ch.Div. 181, where, inasmuch as a public liquidator had retained possession of ises' for the mixed accommodation or benefit of ilie landlord and the liquidator, the chancellor refused to allow the rentsns a part of the cost of administration. The question before Us should not be determinedi in my opinion, with anyrefer :lCe to the question whether it was in fact necessary for the protection of the interests of' the·1essor'companies to ex.. tend' the receivership over the leased lines, although, if we were at erty tel' consider that matter, it seemS probable, in view of the condition of one ofthe leased rO!lds, that if it had flotheen taken in hand by the receivers it would have suspended operations, for a time at ,least,and put the 'public to great loss and inconvenience; even if it had not incurred a forfeiture of its franchises; But, be' this asit maY,thequestion is not to be determhied by considering whether the repl'esentations 'Of thebiU were erroneous in 80 far as tbeJeased· lines wereeoncerned. We, must consider what the bill did in fact allege; upon what theory it was drawn; and for what purpose the court appointed receivers, and for whose benefit; and whether, in the light of such facts, and the subsequE'nt acquiescence of the lessor companies, they can now legally or equitably insist that, because the receivQrs took of thei,r road under an order of court, the rentals which accrued during the period of such possession must perforce take precedence over the debts, although such leased lines during the period in question did not payoperatirig expenses. In my opinion, this question must be answered in the negative. The case to estabHsH is so exceptional .in its ,character that the the liability in question, in my is not appHcable. In the course of the argument something was said about thereceilVers having exercised an election to take possession of the leased line'l. Od the one hand it was argued that, lL';l theyelectefl tP.)rlil they became personally bound as assignees of the lease by all its covenants. 911 the other hand it was argued that they acted uilder the the court, and ex.ercisedno electipnor di:$cretion. It'appears to, tPe that the receivers did notelect.totake the leased lines in the sense in which Hiat term ieused iothe books, but at tbe same Ido the question as to.whether their action was. voluntary Qr,;'enforced, !J,s,lIJ all 11laterial.' They had possession of the leased ,lines,and'operatKld,them. If the court ordered them to take possession otth'e satne for 'the 'bimefit of any particular interest or class of interests. involved, and without any reference to the protectiOu·"of Cbmpanitsselves, then those interests for whose advantage ,the leased Hhes Were taken and operated by the stand theexpanae 6f·'the
wpqld. be ,bQumiljo mora,; .usaoJ;)e.person's: prQPe.rty; for thy; ;6;7 cluaive. benefit .paying;forits ·. ;:&utfrom the rec.,. Qrd'.'.pr.ooeedings ;itdoEts;nQt me 1;hat any prop; erty WlIiSiSO tp.k¢n" and. uS0<k The entire Was taken in hand at tbeinamnee of ,tJ;1e general owner. to ,protect the interests of all conoe,roecll.The court, through its that line of pDliCy.Which to pe to the' best interests of all paxtieslas,then foreseen. :4mongother tj:ti:J)gs done for the·. protectionpf alLpartieato 'thelitigatiou,atan·eaJ;ly:d!1Y itmade an order to prevent the earnings of the numerous road!'! oomposing the l\ystem from becom" dog confuse'd. It appelU"sto ,me that such order,' so far as it related. to. the leased.lilies, wag a l'iIlQ.St eJtplioit. tivowal that the conrt did not the rentals.thatfrom· time;tQ as an expense of administration,andthat.itdid nott6gll.J'dthe receivership as. having been ,cre1ited for orllPy.particUlal' class of creditors,but Qoncerned, the lessor for the mU,tl1alJld:vantage .de all included.:,.... .;. . In conclusionl will ill any lightin which I have beep able to view the CJ"ut)$tion, to tbat the r!lport of the master should' be conflJ.med in in the. main decision,/lnd ordet $lre/loqy 4l.nnQunced. I accordingly concur in ! .
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An appbC!1tlOn for a·relieahng must bedemed wl:iel'e It is based s01e1yoII> evidence alreadj·before'the'court,and passed upon adversely to applicant on rehearing before. anothel'::tudj{e" and no manifest error,iuh()wn. " PATEN'l'S, OF M4STEa...,...SUFFICIENCY OF
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to'find: nuiIlber 'ttndel"& :patent 'on whieb!r.oYalties shpuld. be paid; the decree . master ans,,<;conn,to,f 1\11 qans r,naqlol and s,old by, defendants 'silJ:ce Jan: uaryl.1808.(to whIch date royaltIes had been paid,) "which embody or'make use of'the . Jp'lttElDted.:"..·;The.. 'tiJ.Rstet C.lilled for. an accotJnt. . cana:mad.e and. sold, by,defendants SInce 1,)88S;'VhI¢P purpl>rt,tp ,0,88 ,,Defendants furnisheq such stating that hicl1ided a\I' made by them under 'tbeir-1ice'Il'ile, and onwIiich·:tliey bad' Paid 'royaltI8s down'to Janllllryi. 1883, Held;thM oD, whiCh tob;lUle totli.. . .. . ..... '
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·27J LACOMBE. J. The elaborate and exhaustive argument of defendants' counsel may be grouped,tmder'twohen.ds. He first seeks to secure a rehearing of the case, and a determination thereon different from that rendered on final hearing. 'With the exception, however,' 'of testimony touching the kind of oil-can manufactured since January 27, 188o, no new facts were proved before the master. The evidence as to what kind of cans were made sUbsequent to January 27,1885, is, however, immaterial,as the complainant abandoned all claim for roy-alties thereon, -and thElm,aster has not included them in: his report. The facts upon which set forth before JUdgeWm:ELlm, (see his opinion,March 28, 1887; 30 Fed. Rep. 525,) and were again consideredbyhim upon a inotion'for reargument April 9, 1887, (Id.53!.) Subsequently another motion for rehearing was made before the same judge, who, in September, 1887, denied the motion, with thestatelllent that the 'whole subject had been fully considered. The present appHcationbeing based solely upon evidence already before the court, and three passed upon adversely to the defendants, must be denied; no sllch manifest error being shown as would warrant the disturbance of thejudp;mant atftnalhearing, which must ther.efore be taken as settling the law of the -'MBe.· . . . In 'the second· place. defendantsllttack themaster'8 report 'l:l;S-to -the numberdf(Jfins on which royaltieS sh'ould· be paid, claiming that no manufactul'e or sale bydefendantsdf<lans such a'S are contemplated by the order deCree is shown. The' decree ditected the master to take the "aceountofall incased glass vessels'manufMtured and sold by the -de-fendl'u1iS from the 1st day of January,' 1883,' (down to which date ,royalpaid,) which: embody or make use of the improvements patelited,"et'C. The mltater called upon the defendants'to produee an accbU1'ltd{ll.U glass vessels nianufacttirediand .gold by them from January 1, 1883',-to'the date of the decree, which 'purport to use the letters patent. furnished 'such an account, and upon the statemenLs of'qrlaniity therein contained the master's report is based. Asro the khid of (JRnscovered by this account the defendants therein stated-that they were "all similar to defendants' Exhibit No. 1." This exhibit was i:lefore the oourt on final hearing,and testified to as a sample of the Cans made by :defendants under their license, and apon which they paid rGY'ft,lties down to January 1, 1883. Inasmuch as the' decree under which the master acted was directed to ascertaining what license fees were unpaid, there was certainly before him, by defendants' own concession, suffiCiintt·filcts on which to base '. The exceptions Rre overruled, the- master's report confirmed,andjudg. lOen! diteCted for complainant for amount found· :due.
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272
FEDERAL BEFORTEB.
CoUSlNERY
SCHELL.
(Oirouit Oou,rt, 8. D. New York. December 21. 1887.) CuSTOMS' DUTIES-AoTIONSTO RECOVER PAYMENT-VALUATIONS rn DEPRECIATED CURRENCy-FAILURE TO SHOW PRODUCTION OF CONSULAR CERTIFI. CATE·
. In an action to recover an excess of duty paid on an importation valued in .<ieprecia.ted foreign curreI\cy. whereJt appears that a bon.d was given by the under. authority ofthe treasury regulations of February 1,1857, I:i 226. for the production of the consular certificate of its valuation in Spanish or United States silver ,dollars, the .plaintiff cannot. recovet if. he fails to' show was produced within the time prescribtld in said bond.
At Law. ' Action to recover back customs duties·. The ,plaintiff's firm QfF. Cousinery& Co" on March 27, 1860, by the ship:Pace, and on April 17; 18130, by the shipUnion,imported into the portQi New York from Trieste,Austria, certain This merchandise was subject to ad valorem duty , and was invoiced in preciated Austrian paper w,hich were issued and circulated under the authority of the government, and whose value was not fiXiedrb}'any law of the United ,States. Augustus Schell, the defendant's testator, as collector of customs,' converted these florins United States money&tthe rate of 48! exacted duty on the merchandjse,in question' .pasis of valuatioI}. of the. florin on the days of ita im,pQ,))wtion, Against this valua,tion the plain. th act pf February 26, 1845, (5 U. ,S. tiff's·J}rmmade protests St. at Large t 727;) claiming that the true. value ill United States money of such florin was less than48t cents, and as certifllilc;l. in f\hecertifioate oftheJJnHed States.consulatT,rieste, attached to theirin:vqices of this merchandise, and that they .entitled to recover the duty. exacted on the diflerence between· the yalue of the florin as taken at 48! cents and its value as certified by the , cqnsul. Thereafter, on April 13, 1861, plaintiff's firm brought this: su,it to recover the duty claimed by them in theirpl'otests. Thela;ws and treasury regulations ,ill force at the time .of these importationswereas 2 oUhe act of March 3,1801, (2 U. S.St. at Large, 121,) which provided .that "the invoices of all irnporte.dinto the United f?tates, and subject to a duty ad valorem, shall be made out in the CUrrel)cy of the place or country from which the im.portation shall be made," elc; sectton 61 of the actot' March 2, 1799, (1 ,q. at Large, 67jih) which· besides othl'lJ,' things, "that it shall be lawful for 'the! pl.'esident of the Vnited' States!iQ t;:ause to be established fit and proper regulations for estimating the duties on the goods, wares, and merchandise, imported into the United States in respect to which original invoice shall be exhibited in a depreciated currency issued and circulated under the authority of any foreign government;" paragraphs 216, 226,714,715, and 716 of treasury regulations, issued February 1, 1857, which provided that: