188
I'EDElU.L REPORTER,
vol. 48.
Belves, and by the rules established by the supreme court. This court J8 invested by la'W with authority to make such rules. In all these respects they are unaffected by state legislation." Neves v. Scott, 13 How. 270; Boyle v. Tumer, 6 Pet. 658; .Robinson T. Oampbell, 3 Wheat. 223. It therefore, that to obtain the' benefit of her averments, and of the prayers set out in the answer seeking affirmative action against the plaintiff, the respondent shol'ild have filed a cross-bill in accordance with the rule. Railroad Cb. v. Bradley8, 10 Wall. 299. Let order be taken in accordance with this' holding.
FINANCE Co·.OF PENNSYLVANIA ". CHARLESTON, C.
&: C. R. Co.
(emmCt Court, D. South CaroMna. November 19, 1891.) RAILBOAD OOuPAlIfiES-FoRECLOSURB 011' MORTGAGE-LIENS II'OR BUPPLIEII-PRIORITIJlS.
Persons who furniSh labor, supplies, and materials to a railroad, in order to keep it. a going-concern, .are entitled to payment out of the earnings thereof before the pay. ment of any interest on the mortgage bonds; and if, in a suit to foreclose, it appears that money 'due upon claims of thIs nature has been paid out as interest on the bonds, or for permanent improvemllntt, whereby the. bondholders have been benefited, thecoilrt will order an amount equal to the sum so diverted to be paid upon such .claims out of any earnings ill tll.abandll of the receiver, or, failinK these, out of th& proceeii_ oftha sale. "
In Equity. SuH by, ,tqe,Fi;naJ;lce Com.Pl\nY9fPennsylvania against the Charleston, Cincinnatl&. Qhi'cago RailrqadCompany to foreclose a mortgage. Mr. P. H. Chamberla:i.n waso,ppointedpermanent receiver of the road Feb· ruary ,18-91. ; See 45 Fed; Rep. 436. The hearing is. now upon in. terventiolls1by,thePocahontasCanal Company, Atlanta Rubber Company, CQlnpIlIly,fairbanks, & Co., Smith & Courtney', ,ij;Elrwailn Baruch, the Meckle!1burg Ice Company, Wm. Bird & Co., andbthers, claiming superior liens for supplies, etc., furnished prior to the receivership. B. A. Hagood, A. M.Lee, ;Huger G. Sinkler, and BuiBt &:BuiBt, for ela.imant.':'· ' ..,.;. . '. Samuel lbrd, for defendant. all interventions in the main ·. Each them isfqr and 'tnawrials, necessary for the of 8. railrolld. ;W;ithvery few exceptions, the supplies and materials were furnished within the six months preceding ,theappointnientof the receiver. of the income of the it is in the hands of the receiver, and" failing this, that they may 'be paid out of the proceed!3 qf th,e saIEl. when it is made,in priority: theIJ;lortgage de1;>t, nowbe issuedtqtherilin pay,. mente 1 '
ot
I'INANOE 00. OF PENNSYLVANIA 'C. CHARLESTON, C. & C. R. 00.
189
This doctrine seems to be established in the decisions of the supreme court, and laid down in those of the circuit courts of the United States: Railroad property, when the railroad is a going concern, differs from all other property, in this: If the mortgage creditors ask the aid of the court in foreclosing their lien, they can be put upon terms. Before the property,i$ taken out of the hands of the owner and put into that of a receiver, provision must be made for the payment of balances due to connecting lines, and for the satisfaction of certain favored claims, such as wages for laborers, employes, and the like, accruing within a certain time before the application fora receiver. This condition seems to be imposed within the discretion, and to rest only in the discretion, of the court. ·'lhornas v. Railway Co., 36 Fed. Rep. 817. And ifin the course of investigation it shall appear that there are still unpaid creditors who furnishedsupplies and materials necessary for running the road, and that interest has been paid on mortgage bonds, or permanent improvements made, out of the earnings during the period when such debts were contracted, the court which has appointed the receiver will order the amount so used for interest or improvements to be brought in for the benefit of this class of creditors, either from earnings in the hands of the receiver, or, failing these, from the CorpU8 of the property. F08dick v. Schall, 99 U. S. 235; Thomas v. RaiJJway Co., supra, 818,819, where all the authorities are collected. The principle is this: A railroad is of puhlic concern. It is operated and kept in operation for the benefit ofstockholders, mortgage bondholders, and the public. All of them are deeply interested in keeping it It going concern. This is the object for which it was chartered, was 'clothed with great privileges,and was finally constructed. Those whocentributed to keeping it a going concern frequently continue their contributions when ordinary enterprises would lose all credit. They deserVe and receive all the assistance the courts can give them without violating the essential right of property. So, when made a going concern a,railroad earns an income; that income must first be applied to the expenditure,s nedeSl:!ary to keep it going. After these are paid, and not before, the earnings; may· be applied for the benefit of the mortgage cred. itorsbyway;ofinterest on their bonds, or by enhancing their security by permanent improvements on the property, and.to the payment of dividends to stockholders. This is the normal and just disposition of the earnings of a railroad company. Notwithstanding this, if the company be not declared insolvent, or if no application be made in its behalf for the assistance of a court of equity, the persons holding claims for labor and necessary supplies and materials have no position superior to any general creditor. They have no lien or claim upon the earnings, and if they seek payment, and it be refused, are put to their suit at law as an ordinary creditor. But if the 'ailroad company come into or is brought into court, and it appears that within a reasonable time before this the normal and just disposition of its earnings has been disturbed, and that the mortgage bondholders have received interest from these earnings, or that, in part or in whole, these earnings have been used for their advantage, or for that of stockholders, leaving laborers, material-
,190
":,
FEDERAL REPORTJ!)R,
vol. 4.8.
men,7perlions whohll.v,efurnished necessn-ry then the courts. create an equity, in favofoftbis ,latter class. 'They follow the sums 80 diverted Jromthe just and ,n01'lrial mode of distribution. They order it restored, primarily, out of such earnings as the receiver may have. If these prove deficient,the restoration is madeoutofthecoryus, which hasi been improved or made productive by the diversion. Necessarily this equity springs out of, depends entirely on, the diversion. Were it not for this diversion,...;..this taking of the money justly applicable to one class and using it for the benefit of another,__theequity could not exist. 'If there be no earnings, or if the earninl(sareinsufficient to pay expenses, and there be no permanent improvements made, aHd no interest whatever paid, upon no principle of law or equity could the bondholder ,be made to payout of his own property the debts of the common debtor. :rhis would be not only" thoroughdisregard,ofthesnnctity of a contract (Kneeland v. Trust 00., 136 S.97, 10 Sup. Ct. Rep. 950,) it would be confiscation of property. So allthese conditions must concur before thei equity will be applied. The railroad company must have ,been kept a going concern· .The creditor must have aided with necessary material, !supplies, or equipment in so keeping it a going concern. 'It ,must have made earnings. These earnings must have been used, in:whole or in part, in the payment of interest, orin making permanent,improvements, or ·for the benefit in some way 'of the mortgage creditors or stockholders. See Burnham v. Bowen, 111: U. S. 782,4 Sup. Ct. Rep. 675. When all these concur, a court of equity, which is called upon to foreclose the mortgage or to the affairs of the company, will see to it that all earnings which may have been diverted from their proper disposition will be restored from eamingsin the hand!! of the receiver, and, these failing, from the CorytUl. In the present cases there was ·developed at the hearinK great difference aB,to.certain facts. Let G.W. Dingle, special master, inquire whether the Charleston, Cincinnati & Chicago Railroad ever earned any income. Was any portion of it, and when, applied to the payment ofinterest, or to any permanent improvement of the property, or in any way for the benefit of the bondholders? How much? him report this with all convenient speed. I
"
JOHNSON STEEL STREET·BAIL 00. fJ. NOR'.l'R BRANCH STEEL 00.
191
JOHNSON STEEL STREET-RAIL
Co.
ft. NORm BRAiliCR STEEL
(Circutt' Oourt, W. D. Pen'l't81l1JVan1a. November 12, 18111.)
1.
Wben, under 'the 67th rule in equity, a court has appointed a special examiner to take testimony 'in another district, a subpama duces tecum may issue from the q1erj{',aoffice of the latter district in the usual way,without a direct order of court, and 'the court of'that district has power to punish a disobedience thereof. Rev. St. U. H. 5869, requiring an order of court for tbe iBBuance of,such a subpcena, does not apPly, atttt. is restricted to the taking ofdepositions de bene essc> or in pf!TPetuam rel and, under a ded1.mUll potestatem, according to the proviSIons of sections and certain drawings, must be obeyed, although the papers relate to a valuable secret method of pl'Oducing a manufactured a r t i c l e . ' " III a suitfor, iIiffinlring a patent upon steel rails, where the defense is want of in. OP THB EVXDBNOB-SUIT POR INPRINGBII1IN'J' OP PATBNT.
])vORS TEOOM-SPEOIAL, EnmNBR8.
..
2. BAHE-DISCWBURE8 APPEOTING PRIVATB BU8INEss. Asubpalna duces tecum, requiring a witness not a party to the suit to produce
,
vention,in viewoftlle prior state of the art; and that rails of the kind patented were in public use more than two years before the application, and it appears that rails of that general character were manufactured by a certain company for several years prior thereto, it is prima/acle material to inquire into the exact shape of Bl,lCb rails, and, a ,ubpama Wuce, tecum will issue to compel the production Of,drawings de8criptive thereof. ' A ,'ubpama tecum can only be used to require the production of docu. ments, aDd a' piece of metal in 'the nature of a form or model is not the Bubject thereof. ' ' Waf.T, APPLIOABLE-MoDELS-FoRHS.
.. &ul:E-To
In Equity. Bill by tbe, Johnson Steel Street·Rail Company against the North Branch Steel Company for infringement of a patent. Heard upon a rule for attachment of John Fulton for contempt in refusing to obeyatmbpwna ducestecwm. John ,R. Bcnneu, for rule. Ceo. J. Harding and P. C. Knox, opposed.
REED,J. A bill in equity for infringement of certain letters patent having been filed ill the circuit court for the eastern district of vania, and the defendant having answered, Samuel Bell, Esq., wasappointed by that court as a special examiner, upon tbe application of the defendant, to take testimony in this district. John Fulton, whods-the general ,manager of the Cambria Iron Company, a corporation, not a party to the suit, was duly sewed with a subpama duces tecum,directing him to produce at tbe hearing before tbe examiner certain drawings and templates. Mr. Fulton,refused to produce them, although appearing at the hearing in person in obedience to tbe subpoona. 'Upon the argument of the rule taken by the delendant's counsel to show cause why an attachment for contempt should not issue, counsel for Mr. Fulton appeared, and tbe sevetalpositions taken in opposition to the rule will be con", , , It was argued that the 8ubpoona had improperly issued from the clerk's office; tbata subpwna duces tecwm, in sucb a case as tbe present, could onlyqeissued by order of coun,uponpetition or application of one of the parties. A circuit coullt. in one district hlllJ power, under the 67th.