FARMERS' LOAN
&
TRUST CO.
'lI.
GRAPE CREEK COAL co.
481
FARMERS' LOAN & TRUST CO. v. GRAPE CREEK COAL CO. (Circuit OotiJrtlS. D. nUncriB. May 7,1892.) CoRPORATIONS-FORECLOSURE 011' MORTGAGE-RBCEIVER'S CBRTIlI'IOATBS-EQUITT RISDIOTION.
Ju-
In a8uit to foreclose a mortgage on the' property of a coal mining company the court has no power, as against the objection of even 'Ii small minority of the holders of the mortgage bonds, to authorize a receiver appointed in the suit to issue certificates which shall be a first lien on the mortgaged property, in order to enable him to continue the overationof the mines.
In Equity. Bill by the Farmers' Loan & Trust Company against the Grape Creek Coal Company to foreclose a mortgage. A receiver was appointed, and he now asks leave to issue receiver's certificates. Runnell8 & Burry, for Farmers' Loan & Trust Co. W. J. Calhoun,for J. G. English, receiver. Hess & JohnsO'll, for Travellers' Ins. Co. and other objecting bondholders. GRESHAM, Oircuit Judge. The defendant, a private corporation, whose chief business is mining and selling coal, conveyed to the complainant, in trust, lands and two coal mines in Vermilion county, TIl., to secure an issue of bonds amounting to $500,000. An, installment of interest was allowed to remain due for more than six months, and this bill was filed to foreclose the trust deed. Joseph G. English, who was appointed receiver, asks for an order authorizing him to issue receiver's certificates not exceeding in all $24,000, which shall be a first lien upon the trust property. to enable him to pay taxes· now due, amounting to $3,428.64 j take up outstanding certificates amounting to $6,400, which were issued under an order of the Vermilion circuit court, in a suit to foreclose the same trust deed, and to continue the operation of the mines. The receiver represents that, with additional working capital, he could them. The holders of operate the mines ,profitably,and 75 per cent. of the bonds and the corporation join in the receiver's request. The holders of the remaining 25 per cent. resist the application. The corporation is insolvent. It is not claimed that the receiver is without means to pay taxes, and it is chiefly to enable him to continue the operation of the mines for anticipated profits that he desires authority to issue certificates. When it becomes necessary for a court of chancery to take possession of property which is the subject of litigation, by placing it in the hands of a receiver, all expenses incident to its safe-keeping and preservation are properly chargeable against it; and, if there be no income, such expenses will be paid out of the proceeds of the coryus before distribution to lien or other creditors. It does not follow, however, that beclluse property of a private corporation or a natural person may be thus protected and preserved before sale, that, in order to raise money tooperate it for profit,acourt may place a charge upon it in advance of existv.50F.no.7-31
ing liens. Pending a suit to foreclose a mortgage executed by a railroad tiol1,tbe bEl by a receiver; and depts concorporao tracted for labor, supplies, and other necessary purposes before as well as after the a rElcj3j.V\Qr,':,IJ.lay be .mad' a first lien upon income, and, if that is not adequate, upon the COrpU8 of the property. In thel,D;erc!se ofthie ex.oeptional aooexttaordinary JUl'fsdietion ,which .Qf. ..m aking recel-verls certIficates tirst liens on the mortgaged property.; .. ThIs has been not by privatecorporations. A raIlroad corpuration isa quasi ,public institution, charged with the duty of operating its road as.a public highway. If ,bfX)omea.#fi1barmulSedand··!lill.'iable too per[tnn. that duty, the ,peUding,pl;Olleedings fbr.,the:'/llalooof;the'road will operate it by a:teceiver,. and ·.make the expense incidelltthereto '8 first lien. This is done on accoUIitpfrtbe ·,peculiaroharacter of, the It is generally mortgaged tQsecure, persQnswhoinvest in know Jh$lt UHt m'Ortgagerestsupbn prpperty'previously impressed with a public duty. Private corporations owe no duty to the public, and their continued operation is not a matter of public concern. It ,js,(}uly Ilgai!Jst rnUr9_d .mortgageg,that the: supreme court of the ha,s ,s\lstained priority-to'l'eceiver's certifi9!J.1:es ,1',epresentingparti(}\l!:al': indebtedness, and, as, already stated, then only on principles having no applieiltion"t(i) a mortgage executed by a private qoxporatiQn owi"ng no duty 00 "the ,public., F08dickv. Schall. 99
·. el,:![i,' ,: ,In Wood v. T1'u.'lt q>·.the court ,said: ."The ooatrineOf .j.; yatheen applied in any case of a' railroad; ,'J)he.case iays great the consideration that a J;ailroajl is a jl!!cul.",r of a :public nature, and discharging a grl;latpubJicwork, broadd.istinction between such and thatof a We do not to decide thli!question here, butil1lly point it,oilt.". . , ," ' ,"; ;-',; , I , . , ' > '; ,
U $\lp·.Ct.
v. BarlxruT, 104. U.:S.l26;Miltenbergerv. Railroad 140; Union Trust Co. v. Railroad Co., Sup. (Ot; Rep.809j Wood v.TllU8t··Co., 128 U. S. · .. Eiep·.lalpj Kneq!oll1.d,v.rPr1J,8t Co.; 186.V. S. 89, 10 Sup. Qt. Rep. 91)0j iNorgan(8',·Etc., Co.: V". Texas Cent. By.· Co., 137 U. S. 17l, CQ., 106 U.
.,
In Kneeland. v, Trust, ca" 8Up1'a, in discussing the jurisdiction of the chancellor to displace the lien of a railroad mortgage, the; court Baid: f.actll werbfual'k.fl'r$t. that the appointmeritof a 'receiver "Upon vests in the alJlloJ!Qteicontrot 'over th!'l property, and no au'" tQorityto displac!! liens. Becausedn a few specitiedand liw.ite4 cases" t.his cQurt, It&sdeclared. that uqsecur!'ld cla.ims were entitled to mor'tgage have 9ptained that a court apP\Jlntirtg a receiver power ,to to any general Ana unsecured claims;' It'has beenasslltnedthat a court appointing a receiver cOuld· righllful'lybUrden" the mortgaged property for the payment of I4ny unsecured indebtedness. Indeed, weare advised that some courls have made the a receiver condition",l upon the payment of all un-
secured indebtedness in preference to tIle mortgage liens sought to be enforced. Can anything.. be'"concei"ed which more thoronghly destroys the sacredness of contract obligationsi' One holding a mortgage debt upon a railroad has the same right to demand and expect of respect for his vested and contracted' priority as the holder of a mortgage on a farm or lot. So, when a court appoints a receiver of railroad it has no right to make that receivership conditional on the payment of other than those few unsecllred rulings .ot this court, have been declared to have an equitable pi"iority.' 'No one is bound to sell to railroad company, or to work for it; and whoever has dealings with a company whose property is mortgaged must ,be assumed to have dealt with it the faith of its personal responsibility, and not in expectation of subsequently displacing the Of the mortgage liens·. It is the exception, and not the rule, that such priority of liens can bedispJaced. We emphasize this fact of ness of contract liens for the reason that there seems to be growing an idea that the chancpllor,iil the exercise of hil( equitable powers, has unlimited discretion in tllil1 matter of the displacement of vested liens." And further op in the same opinion· {}lIe court said: "If, at the instance of any party rightfully entitled thereto. a court should appoint a receiver of property, the same being railroad property, and therefore under an obligation to the public of contin ued operation, it. in the administration of such receivership; might rightfully contract debts necessary f\Jr the operation of the road, either for labor, supplies, or rentals. and make such expenses a prior lieu on the property itself." In the language above quoted, there is a plain implication that the limited power which courts may exercise in displacing the liens of railroad mortgages should not and cannot be extended to mortgages executed by private corporations. The court is not asked to subvert the lien of the mortgage on the ground that the trustee or bondholders have got possession of anything which, in equity, belongs to general creditors. It is to enable him to operate the mines for the benefit of bondholders, against the wish of part of them, that the receiver desires to be invested with authority to issue certificates which shall be a prior lien upon the property embraced in the trust deed. Extensive as are the powers of courts of equity, they' do not authorize a chancellor to thus impair the force of solemn obligations and destroy vested rights. Instead of displacing mortgages and other liens upon the property of private corporationsand natural persons, it is the duty of courts to uphold and enforce them against all subsequent incumbrances. It would be dangerous to extend the power which has been recently exercised over railroad mortgages, (sometimes with unwarranted freedom,) on account of their peculiar nature, to all mortgages. The power does not exist, and the application is denied.
a
HOFFMAN (CCf'cuU Oou'l'll
et 01.
t1. KNOX
ec at. Ma"24, 1899.)
«t JtweaU, FokrQt Otrettit. NOoa.
L
.Il decrae fixing the priQrltyof claiwsagaiust all illBolventcorporation, and directing the 'sale of its property for their 'paymeht, is a final deoree, Within equity rule .ss, relating to rehearings; .' ' '.BILL OF RBVIBW-ApPARENTdERROR. , a deoree fixesthepriorlty Of olalll\s, against an, insolvent corporation un·
DECBu,
e. ,
de,rthEl authority Of an act of, the state legiBlat1,lre,theqnestion of the validity of the aot· not being raised at the'time, a bill of ,revlewwil1 not Ue for apparent error, because the act is llubsequently adjUdged ubconstitutional and void by the state courtll qnthe ground ofa dllllCeotive title.
B.uIE_PII:RIl'ORMANClII Oil'
pribr 1;0 the lien of mortgagebopd'holders llnder authority of an act of the state legislation, (as to, the Validity of Which no qUllstion was raised.) and its property was directed to be sold., o,f the. bondholders became the purchaser, the others months thereafter giVing a bond as security fOt,' 'tHe deferred paym,ents, the state, court declared the ,l1-ct 1,Inconstitutional and vOld because of a defective tItle; whereupon the mortgage bondholders filed a petition for rehearing, (Which was treatea 8S' a. bill for' reView ) praying ,a vacation of so m1,l(lh of the decree as awarded, pTiorityto the Bupplyc1 alms. Held, it not appearing that complainants had performed ,the decree as to deferred payments. nor offered to place the supply olaiIn,creditorlilln the, sam"" positiOn alii ,before t,he decree was entered, and owing to the lapse of time, the petition should have been dillmislled. Knox v. Iron 00., 42 Fed. Rep. 378, reversed.
l:Ii proceedings agaillst all ipsol'veof,eollloration claims,for supplies were adjudged
:PB()REE-:PELAT. '
"
Appeal from: the Circuit Court of the, United States for the Western District of Virginia. ,Re..ersed. StateIXlent by ,FULLER, Circuit Justice: This was abUI filed by Samuel Knox against the Columbia Liberty bon Company, the company had purchased a. large tract of .iron or,e anq,woodlatJd. tor the expressed consideration' ()f $270,000, in 6 percent. first mortp;age bonds to which ,was paid.jn its the amount of $1.50,000, thatotal issue of which was for $219,000, the having been as collaternl security, and in 6 per cent. ,bonds to, ,the amount of $145,OOO;Jthat the mortgages and We.)16 sacured Upon the tract of land, and all the bore the proper.ty of 1pei company of every description, and its corporate franchises. It. ",as further averred that complainant was. the holder of cerof both ,issues; that default had been made tain of said in the interestafterdemandj that complainant had made loans .tEl" the which it had failed aild was unable to pay, and that there were other liabilities represented by promissory notes, open accounts for merchandise and supplies, and for wages and salary; that the company was insolvent, and had not the funds to carry on its ordinary business, although a large income could be derived therefrom, and to avoid the sacrifice of the property, and the disastrous consequences of suspending its business, it was necessary that a court of equity should interpose for the immediate appointment of a receiver, with power to administer the company's affairs. The bill prayed for such appointment, for injunction, and general relief. The company filed its answer, in which it "admitted the truth of the averments, and