182
,,',," '"
J'SDERAL, REPOkTER,
\'01..53.
in the return of the marshal to a summons in an action at law 'cannot exhibited' in the return to beftnpea.ched collaterally, the same a SUbpoena in chancery are conclusive against a collateral attack. nor authority would any distinction as to the force and:efl'ect of a return to a sumltwnsin all action at law and tht1 force and effect of a like return toasnbpoena in chancery. The motion must be overruled, and it is so ordered. FARMERS' LOAN & TRUST CO. v. KANSAS, CITY, W. & N. W. R. CO. at aL ,(Circuit Court, D. Kansas.·, November 21, 1892.) 1. ,141L1l0Atl :M:ORTGAGES-FQRECLOSURE-AppOINTMEN'l' OF RECEIVERS. In' the foreclosure of, a railroad 'mortgage the appointment of a receivel' is not, a matter of right" but rests 'In 'the sound discretion of the court, anl1 Is a po'¥er to be, sparlngly, and with great caution. SAQ-PI4mETION OF
aotidnsiatlt:LW' and in suits in equity;,· Whenever'the facts exhibited
a
a receiver ,in a rallr9ad foreclosure suit the court may imppse web ('.onditions as appear to be just and, eqUitable, and the pal'ty 3llldDgfor and accepting the appointment on such conditions will be bound thereby. I,
,:In,:
TEllMS.
8. ,8,A»:.-PuFItRll:NTIAL INDlCBTEDNESS+-DIVERTED EA:RNINGS.
',', III raUroad: prefel'entialidebts, which may beprlqrity on the apl10intment of it receiver, are in thol!e which ha'"t\ tHdM to conserve the property, and have been contracted Within a l'etlSOOlllble time, and there is no fixed l'ule (jontrauted more betore·theappolntment; :nor ,is tl!.e, authorit.v to give priorit:v J.!,.IUl'lcd, to casesln which there has. peell a (l1yersioll of income" BONDHOLDERS. .
(.
In a rllliroad .foreclosure sUit the trustee namecl In mortgage represents th<-bdIufuolders, and, if he acts in good faith, whatever him hiuds them. although. they ,are not'ootwU parties; anll they have no right, therefore, to Qe made .parties to the, snlt,except where the trustee is .not actingip. gcod the protectioIl of their interests.
G. SAllE. . , .... . . . · In ttlmltbrought by II ,trustee 'to, a railroad in Kansas It appeareittlillt there were many 'credltorsentitled un,ler the laws of the state to· Uet1s on .the proPerty, or parts of it; and also other creditors who lUllltlwtij;:ht tosubje,et tho ineome apd earU i U!\8 of the. l'O'Ll1 to Ill,) payllIent of claIms.. a;condit·oll.of a receiver. the eourt required the trUstee to Ml!lmt to the payment of all these claims prior to the slltisfa<,'tion of the bonds, and aooordingly the decree of appointment pro,1ded. !for ,the payment of all debts for ticket and freight balance!'!, for work, labor, materials, machinery, fixtures,and supplies of every kind and character ;furnished in tl!-e construction, extension, repair, equipment, or operation· of the road, and all liabilities incurred.in thetransportatioll of freight and"passengers,lncludingdalD:lg-e to person and property, which had aooruedstnce the execution ot, the mortgage, (January 2,1888.) Helit that this was,lI- propere1ltercise ot the court's discretion to impose ,terms, and thattJ?e trustee's a$8ent :was binding upon the bondholders, and the latter' woUld not be permitted to become parties to the suit for the purpOse ofhavlng this decree vacated.'
In Equity. Bill by the Farmers'; Loan' & Trust Company against the City,Wyandotte & Nortllwestern Railroali,Company to . 'Se,e
end
ot
case.
FARMERS' LOAN cit TRUST CO. V.KANSAS CITY, W. cit N. W. R. CO.
183
foreclose a mortgage. On complainant's application, a receiver was appointed on condition that priority should be given to certain described claims, to which condition the complainant assented. Certain of the bondholders were thereafter, on their own application, allowed to become parties defendant, and they now move to strike from the decree the part awarding priority to such claims. At the same time a motion is made to vacate the order making such bondholders parties. The former motion denied, and the latter granted. Turner, McClure & Rolston and Rossington, Sooth & Dallas, for ,complainant. Wheeler H. Peckham, for intervener. M. Summerfield, for defendant and receiver. CALDWELL, Circuit Judge. On the 2d day of January, 1888, the Kansas City, Wyandotte & Northwestern Railroad. Company executed a mortgage on its railroad and appurtenant property to the Farmers' Loan & Trust Company, of New York, as trustee, to secure the payment of a series of bonds issued by the railroad company, amounting to $3,750,000. On the 21st of March, 1890, the trustee named in the mortgage filed in this court its bill to foreclose the mortgage. 'The bill, amqng other things, alleged that the company was insolvent, .and had made default in the payment of the interest coupons, and that the plaintiff had been requested by the holders of the requisite amount {)f bonds to bring suit to foreclose the mortgage. The bill prayed for the appointment of a receiver. Wlten the motion for receiver was brought on for hearing it appeared that the road had been recently constructed, was probably not then fully completed and equipped, and that the company owed some debts for work done, and for labor, materials, machinery, and supplies furnished, in the construction, extension, equipment, and operation of the road and its branches. These debts, it appeared, were contracted after the execution of the mortgage, and most of them accrued or matured not many months before the filing of the bill. They were contracted to create or conserve the mortgaged property, and were extremely meritorious. The bill alleged, in terms, "that the defendants are financially emba,rrassed, and that they owe a large amount of floating and unsecured debts for labor, material, and supplies, which they are unable to pay:" and "that certain of the creditors of the said defendants, to whom they are indebted for labor and material employed and used in the construction of said roads, are threatening to, and your orator believes will, file liens thereon upon the property of said defendants, and to cause attachments to be issued and levied upon the same, which, if done, will embarrass the operation of said roads, diminish their earnings and income, and impair the value of the property conveyed by said mortgage to your orator, and endanger the security thereunder to the holders of said bonds." It was apparent that these creditors, by proceeding under the local law, in the state courts, could secure and collect all or a portion of their debts. It appeared that some of these creditors were entitled
184
FEDERAL REPORTER,
vol. 53.
to liens on the property, or parts olit, and all of them had the right to subject the income and earnings of the road to the payment of their debts by a proper proceeding for that purpose ; for, while the mortgage may in terms give a lien upon the income and earnings of the'foad; it is well settled that, until the mortgagee takes possession, ora receiver is appointed, the income and earnings belong to the company,and any judgment creditor may subject the same to the payment of his judgment. Bridge Co. v. Heidelbach, 94 U. S. 798; Fosdick v., 99 U. S. 235, 253; Dow v. Railroad Co., 124 U. 8. 652, l'i Sup: Ct. Rep. 673; Sage v. Railroad Co., 125 U. S. 361, 8 Sup. Ct. Rep. 887. Under the circumstances, of the case, it was obvious that it would be extremely unjust and Inequitable forthe ,court to deprive these creditors, whose labor and materials had contributed to the creation and preservation of the mortg;:tged property, pf their right to establish their liens and collect their, debts without making some just the ultimate court therefore provision condition of the appointment of a re<lEtiver that the plaintiff .should '<lonsent upon the record ,that these debts should be deprior lien 0;0. the mortgaged property, and paid out of thE;! proceeq.s' (if the foreclosure sale, not so'oner paid out of the earnings ,of ,tile, road. Pro:tlting by its 'eiperience.inprevious cases, the.<lourt declined to act upon the aSsent of couJ1Sel,appearing for the plairltifl',until the plaintiff had been advised of the condition which th,e court,p,"oposed to impose, and expressly instructed its counsel to , assent, thereto. Aftl;lr being advised of its terms, the plaintiff instructe<l its. counsel to .assent to the 'condition, and, thE:l court thereupon appointed a receiver, the order, of appointment containing the following conditions: ," ' order appOInting a this Muse Is made upon this expresS C'.ondititl1l: That the sllid plainti:tr. as trustee and mortgagee repreBe11ting the mortgage bondholders Whose bonds 'are, secured by the said mortgage, consents and agrees that the debts due from the railroad company for.,ticltetand freight balances, and for work, labor, materials, machinery, fixtUres, und supplies of every kind and character, done, performed or furnlsbed til the construction, repair, equipment, or operation of said road and its branches in the state of Kansas, and liabilities incurred by said ,company in the transportation of treight ,and passengers,including damage to person and prQperty, wh1ell have accrued since the exclJlltion of the mortgage set,out in ,the bill of being the 2d day of January, 1888, together ,,1th ali debts and liabiUtles which the said receiver may incur in operating said road, including claims for injury to person and property,shall constitute a lien on said railroad aDd all property appurtenant thereto superior and parumotmt to the lien of the mortgage set out in the bill, and said railroad shall not be rel\lase<1 or discharged from lien until said debts and liabilities are paid. The receiver is ,a'uthorized and directed to pay all such debts and liabilities out of the earnings of the road or out of any funds in his hands applicable to that purpose, and, if not sooner discharged, then the same shall be paid out of the proceed/il of the sale of the roado"
Among the well-settled rules applicable to the appointment of a receiver in a suit for the foreclosure of a mortgage on a railroad are the following: 1. That the appointment of such a receiver is not a matter of right, but rests in the sound discretion of the court, and is a power
FARMERS' LOAN & '1'RUST CO. V. KANSAS CITY,W. & N. W. R. CO.
185
to be exercised sparingly, and with great caution. Railroad Co. v. Howard, 131 u.s. Append. lxxxi; Fosdick v. Schall, 99 U. S. 235, 253; Sage v. Railroad Co., 125U.S. 361, 376, 8 Sup. at. Rep. 887. 2, That the court appointing a reMiver may impose such conditions as appear to be just and equitable, and the party asking for and accepting the appointment of a receiver on the conditions imposed will be bound thereby. In Fosdick v. Schall, supra, Chief Justice Waite, speaking for the court, said: "The mortgagee has his strict rights, which he may enforce·in the ordinary way. If he asks no favors, he need grant mme. But if he calls upon a court of chancery to put forth its extraordinary powers, and grant him purely equitable relief, he may, with propriety, be required to submit to the operation of a rule which always applies in such cases, and do equity in order to get eqnity. The appointmmt of a receiver is not a matter of strict right. Such an application always calls for the exercise of jndicial discretion, and the chancellor should so mold his order that, while favoring one, injustice is not done to another." , .
And see Trust Co. v. Souther, 107 U. S. 591, 2 Sup. Ct. Rep. 295. 3. The trustee in a railroad mortgage represents the bondholders in all, legal proceedings carried on by it to enforce the trust. The bondholders claiming under the mortgage have no interest in the security except that which the trustee holds and represents, and, if the trustee acts in good faith, whatever binds it in any legal proceedings it begins and carries on to enforce the trust, to which they are not actual partifls, binds them. Kerrison v. Stewart, 93 U. S. 155; Corcoran v. Canal Co., 94 U. S. 741, 745; Shaw v. Railroad Co., 100 U. S. 605,611; Richter v. Jerome, 123 U. S. 233, 8 Sup. Ct. Rep. 106. In the case last cited the court say: "Whatever forecloses the trustee, in the absence of fraud or bad faith, forecloses them. This is the undoubted rule." And where the trustee in good faith assents to terms imposed by the court as a condition for appointing a receiver, the bondholders are bound by such assent as fully and absolutely as if it had been given by them in person. In Kneeland v. Luce, 141 U. S. 491, 509, 12 Sup. ct. 32, the trustees consented that receiver's certificates might be issued, and made a prior lien on the mortgaged property. Afterwards the bondholders denied the right of the trustees to give such consent, and contested the validity of the receiver's certificates and the priority of lien given them, and the supreme court said: "The consent of the trustees to the issue of the certificates bound every bondholder. There is nothing to show that the trustees acted corruptly or fraudulently." And see, to the same effect, Kent v. Iron Co., 144 U. S. 75, 12 Sup. Ct. Rep. 650. In the case of Elwell v. Fosdick, 134 U. S. 500, 512, 10 Sup. Ct. Rep. 598, the trustees executed a release of errors, and, their authority to do so being questioned by the bondholders, the supreme court said: "The trustee represented the bondholders, not only in the proceeding which resulted in the entry of the decree so that the bondholders were not necessary parties, but he also bound them by his release of errors." Some timA after the appointment of the receiver, August Wolff, claiming to be the holder of some of the stock and mortgage bonds ()f the company, filed a petition asking to be made a defendant in the suit, and the prayer of his petition was granted by the district judge,
186
n;DERAL REPORTER,
WoUf'iUedno' answer' or (lther pleading in the cause, .and subsequently witlidlJiew .hisa.ppearanee in the case,: and the him to. intervene as a defend8iJlth8Ail been and his petition dismissed. [$1: ofSeptember;..1890, Andrew Haes and ·four others, claiming tUbe i bearel1S ·of. 1,119 ()f the mortgage bonds, filed their petitiott,·tobemade'defendb;nts in' the suit, and the prayer of their pejudgEl,and they afterwards filed an answer in the suit, and a motion to strike out of the order appointing thereaeiverthat portionl'clating to the payment of certain debt!' of the defendant company. 'A motion was filed on the 19th of December, the order. allowing said Haes. ahd. others to intel', Thli;i,'motion has, been continued from time to time,'Mldwillnow be disposed of, together with the motion to vacate that portion of the order appointing the receiver relating to the payment of certain debts of the company. These bondholders do not allege that the trustee acted fraudulently or in,ba;d,fa:iithinagreemgto the conditions upon which the receiver or that the trustee has in any JiP,anner failed or neg· leotedto, discharge i1:6>trust ,intelligently and U\,good faith. No reason shown these bondholders l!lhould be permitted to become' parties .on .the either as plaintiffs or defendants, If bondholdersoould become parties for the asking, we should have as many parties ,to these suits as there: are bondholders, and the court would be cGmpelled to listen in turn to the views of every bondholder on every question arising in the case. This is wholly inadmissible. Unless fraud or bad faith is alleged against the trustee, the individual bondholders 'Will not be ,permitted to intervene, and will not be heard to complain of any action of the court based upon the consent of the trustee acting in good faith. In a cause decided by Mr. Justice Bradley on the circuit Worbes Y. Railroad 00., 2 Woods, 323, 335) he said: is in the disoretionof the court 'whether or not to permit a stockto boooijle at party defendant in any cause where he is not made such by the bill. Anq, 8,S it isbeld to be an extreme remedy, to be admitted by the court with hesitation and caution, I think I ought not to have allowed it in thiS case, and ought now to vacate the order for such allowance. 'Generally speaking,' says Calvert, 'astraDger can take no part at all, and cannot even W heard by c(lUD.8elln a claim of interest in the suit except by consent of par· ties.' Cal.v·. pa,rties. 58."
The order granting these bondholders leave to become parties was improYidently made, and will be vacated, and their petition dismissed. The trustee is quite as capable of defending the estate against any un· founded clai.m as these pondholders, and it is apparent that it is acting in good faith in that regard. The contrary is not alleged. When any unfounded or fraudulent claim shall be presented, and the trustee shall fail to· make a proper defense thereto, or whenever it fails in any other respect to discharge its trust honestly and faithfully, it will be time to consider the question of ,making the bondholders parties for their own protection. Itis obvious the real purpose of these persons in having themselves made defendants was to attack that por· tion of the order of the court appointing the receiver relating to the payment of, debts. This condition was .imposed after full considera· tion by the court, upon its own mGtion, and assented to by the trus·
FARMERS' LOAN &
CO. '/!. KANSAS CITY, W. & N. W. R.
co.
187
tee. If that assent had. not. been givl;ID, the receiver would not have been appointed. It was clear to the court then, as it is now, that the condition imposed was equitable and just, and in the interest of all parties. If the creditors whose debts are preferred by the order had been permitted to proceed to enforce. their liens and collect their debts at law, the trust estate would have suffered losses much in excess of the debts which are made a charge upon it by the order appointing the receiver; and the trustee acted wisely and in the interest of the bondholders in assenting to the appointment of the receiver on the conditions imposed by the court. The court declined to appoint the receiver upon any other terms. Preferential debts, it is commonly said, are those which have aided to conserve the property, and have been contracted within some reaS()llableperiod. But just what debts aid to conserve the property, and what length of time will bar them, is not very clear upon the authorities, and depends largely upon the circumstances of each particular case. There is no fixed rule barring preferential debts contracted more than six months before the appointment of the receiver. There is no "six months' rule." In the case of Hale v. Frost, 99 U. S. 389, the supreme court gave priority to a claim for materials furnished 3 years before the appointment of the receiver, and for which a note had been given 16 months before the receiver was appomted. In'the case of Burnham v. Bowen, 111 U. S. 776, 4 Sup. Ct. Rep. 675, the court gave priority to a claim for coal supplied 11 months before the appointment of a receiver. There are cases in the state courts also where priority has been given to debts contracted much more than 6 months before the appointment of the receiver. See note to Blair v. Railway Co., 22 Fed. Rep. 471, 475. In the case of Central Trust Co. v. St. Louis, A. & T. Ry. Co., 41 Fed. ;Rep. 551, the mortgages in suit were executed in 1886 and 1887, and the receiver was appointed in 1889 by Mr. Justice Brewer, then circuit judge; and afterwards, when the question arose as to what debts should have priority, Justice Brewer said: "1 do not understand from the parties making the application for the receiver that there was any desire or thought of cutting off any just claims accruing during the brief period which has elapsed since their mortgage was given, and, if counselor party had any s1,lch idea, they much mistake my jUdgment in the premises."
. The period that elapsed between the giving of the mortgage and the appointment. of the receiver in that case was the same that it is in this. In the case of Central Trust Co. v. Wabash, St. L. & P. Ry. Co., 30 Fed. Rep. 332, 334, the same learned judge said: "As a single corvoration, it was also in debt to an amount exceeding $3,000,000 of floating indebtedness, and yet of that character of indebtedness which, by the decision of the supreme court, was preferred to all mortgages. 'l'hus the preferential debts of three millions and over were a prior lien upon all the roads belonglnj: to the 'Vabash; not a lien upon one division, and no lien upon another, but a lien upon each and all of them, prior in right to every mortgage, general or local, junior or senior."
This was probably the largest amount of preferential debts ever allowed in a single railroad foreclosure., It is worthy of note that the
188
REPORTER,
original bill in was filed by the mortgagor, viz., the Wabash, St. Louis & Pacific Railway Company, and the receiver was appointed, and the order for the payment of preferential debts made, upon its petition,'and not upon a bill ftledby the mortgagees or trustees of the bondholders. The bill alleged the inability of the company to pay its debts,' and prayed for the appointment of a receiver of its property, and contained this allegation: "That your ora:tor also issued, within the last two years, its promissory notes for very large sUIns of money, and, In order to provide means for the meeting of its expenses arid the keeping of its' road in successful· operation, and completing its lines as aforesaid, orator induced a number of pers9ns of high financial to become indorsers of said notes; and by means of a credit given by such indorsements orator was enabled to negotiate said notes for value, and received the proceeds thereof; and orator shows unto your honors th!l't there will be due on·said promissory notes at maturity about the sum of mllUons two hundred thopsand dollars. Orator further shows unto your hQnors that the several persons aforesaid by whom orator's notes were indorsed as aforesaid are partially secured with respect thereto by a pledge of bonds secured by sald collateral trust t<> the nominal amount set forth in Exhibit A, aforesaid, and to that extent said persons have a lien upon all the property embraced j.n said poijateral trust, including the bonds, stocks, rolling stoclt, engines,. aud real estate. specified in said collateral trust, Orator would further show that the moneys derived from the promissory notes as aforesaid, indorsed as aforesaid, were applied to' the payment of interest accruing on bonds secured' by' the mortgages aforesaid, prior and supenor to the bonds 1:)y the general mortgage aforesaid, .and also to the payment of matu$g lnstaIIml'!nts of the purchase of rolling stock necessary and indispensable to the use of orator's road, which payment was nl!cessary in order to prevent the forfeiture of Orator's interest in said rolling stock, and its right to 1)J.e use and possession thereof. And orator would further show that the !;laid ·collateral trust which said Indorsers luLve. aright to rely upon as indemto themembraceE! a large amount of valuable rolling stock necessary to the operation of orator's lines of road,. and ,it alSo embraces very valuable terminal' In the' city of Chicago; and' in the other cities aforesaid, by melina of .which orator is enabled to transact the impo·rtant business in said cities, and without which orator would be unable to maintain its growing trade I,nsald. cities."
Upon this showing the court made the following order: "It the receivers herein shall protect, by their obligation as receivers, the promissory notes of complainant corporation falling due May 31, 1!l$4, amoUilting, in the aggregate, to the sum of $223,333, which notes are secUred by the individual indorsements, and the collateral trust bonds referred to in the original bill of complaint and in the petition filed herein May 30, 1884; also the promissory notes of complainant corporation falling due June 4, 1884, secured as aforesaid, and amounting in the aggregate to the sum of $85,000; also all other like promissory notes of complainant corporation secured by indorsements and bonds as aforesaid, which may mature before any other or different order of the court in this behalf Shall be made."
It will be observed that this order was made ripon the application of the insolvent mortgagor, and without the assent of its mortgagees, and that it covered debts for borrowed money, which accrued "within the last two years." These were a part of the debts, which, in the language of the opinion last cited, were, by the order of the court, made "prior in right to every mortgage, general or local, junior or senior." The mortgagor borrowed money "for the meeting of its expenses, and the keeping of its road in successful operation, and completing its lines," and executed its notes therefor, which were in-
FARMERS' LOAN & TRUST CO. V. KANSAS CITY, W. & N. W. R. CO.
189
dorsed by persons of high financial standing, and these notes were held to be preferential debts. If a debt for money borrowed by the mortgagor within two years, for the purposes named, is a preferential debt, it is not perceived why the debts due to the persons who furnished the labor, materials, and supplies for these very purposes are not entitled to a like preference. It cannot be maintained that a debt due for materials, labor, and supplies is not a preferred debt so long as it is due to the person who furnished the labor, materials, and supplies, but that a note given for borrowed money to pay such debt' at once becomes a preferred debt for the protection of the indorsers. .The equity of the indorser cannot be greater than that of the creditor who furnished the ma.terials. And it is an error to suppose that such debts can only be given priority where there has been a diversion of the income of the road t nor is it true that they can only be paid out of the earnings of the road. and cannot be made a charge on the corpus of the property. A diversion of the income is not essential to give them priority, and they may be made a charge on the corpus of the estate if the earnings are not sufficient to pay them. Miltenberger v. Railway Co., 106 U. S. 286, 311, 312, 1 Sup. Ct. Rep. 140; Union Trust Co. v. lllinois M. Ry. Co., 117 U. S. 434, 457, 463, 6 Sup. Ct. Rep. 809; Thomas v. Railway Co., 36 Fed. Rep. 808. Nor is it essential that the order for the payment of preferentialdebts should be made at the time, and as a condition, of appointing a receiver. The better practice is to do bUt, if such an order is not then made, it may be mooe afterwards. Central Trust Co. v. St. Louis, A. & T. Ry. Co., 41 Fed. Rep. 551; Fosdick v. Schall, supra; Blair v. ltailroad Co., 22 Fed. Rep. 471. It is not to be implied from . what is here said that a mortgagee of a railroad. can escape the pay-· ment of preferential debts bya foreclosure of );rls, mortgage without asking for a receiver. Liabilities of a railroad company which faU within the definition of preferential debts have priority over a mortgage on its road, without. regard to the question of receivership. The order appointing the receiver in this case, by its terms, probably incluqedsome deman,ds not in the category of preferential debts, as that term is usually construed. Some very nice distinctions have been taken between preferential and nonpreferential debts under the·· general rule, and the order was designedly made comprehensive enough to silence contention on that subject. As respects the character of the claims to be preferred, it is the same as the order of the court in the case of Dow v. Railway Co., 20 Fed. Rep. 260, 266, and the order made in that case was held by Mr. Justice Brewel", then circuit judge, not to be "in excess of the proper powers and discretion of a court appointing a receiver." Central Trust Co. of New Yorkv. Texas & St. L. Ry. Co., 22 Fed. Rep. 135. It is believed no claim has been allowed as a preferential debt which is not such under the general rule on the subject; but, if the fact is otherwise, no one can complain, so long as the debts allowed come within the terms of the order. It is due to the trustee to say that it has not at any time shown the slightest disposition to break its faith with the creditors or the eourt in this matter, but, on the contrary, bas at all exhi"Qited t4at high, sense of business integrity and honor
1'90
. ",FEDERAL
M:PORTER,
vol. 53,
alwayscll:!U'aeterilze' those engaged in the managemenll, and etecution of btl'ge fiiuLncilliI trusts. .. , It 'isundol1btedly law the first lien acquired by coDtl'act or by opel'ittioti oUaw has precedence, but that rule never had" a:tly aPtdicatio'n' intlle: 'Maritime law, and eqUity has largely moditieff it' in its applicatbm M sui1B to foreclose railroad mortgages. law, speaking gEmerally, seamen's wages held the first raftk,l'1i bt>ttomry'bond next,f!the claims of material men next, and to person and property are preferred to the lien of a.mortgage,whichholds the: lowest rank. The ground upon which these rules proceed is that M giving preference, to those last aiding to conserve the property·. In Railroad Co. v. Cowdrey, ] 1 Wall. 459, thesllpl'eltLe col1rt said therllle referred to "has never been introdl1!,;ed'into 0111' laws 'except in maritime cases i" and this was un, doubtedlyftI'ne; but that court, in numerous later cases for the foreclosure of railroad mortgages; has recognized the justice and necessity of modifying theconuno1i-law rule as .to the priority of liens, and to aliInited as applicable to suits for the foreclosure of railroad mortgages,someof the principles of the maritime law. This Schall, supra, and that case ·haa been followed; and its' doctrine' applied, in numerous later cases. . railroad' Itlortgages are of modern origin. The courts atfi1'$t failed todistingllish between a mol1lgage on a railroad and a·· m,ortgageoIia house and lot, and receivers were apany provision to pay even the current wages pointed without of the elIlpl9yes of the company,' or to pay for the most essential supplies, ,however recently ,furnished. Experience and observation demonstrated the inequity of this mode of proceeding: Courts of equity were compelle(i to inquire into the nature of railroad property a.nd.raHroadmortgages. It wt18.perceived that, lisa security for a debt, there much more anltl0gy between a railroad and a ship than there was, between a railroad and a house and lot. It was perceived that railroads perf0t'InMon land the same offices that ships did on the They are both 'great and indispensable instruments of coml11ercaTheirchief difi'erence as such instruments is the ehemical composition of the clements upon which they are operated. One moves in the water and the other oli iron rails. It is said of ships that, they are made to plow the seas, and not to rot at the wharfs, and ,railroads are bllilt to be' actually operated in carrying the commerce of the country, and not to rust out. Unless it is kept in operation, a railroad does not fnlfill the purpose of its creation, and is comparatively valueless as a mortgage security; bUt, like a ship, it cannot be operated and made valuable as an instrument of commerce, or for any other purpose, without incurring daily expenses for work, supplies, and These debts are never paid at the time they are contracted. That is impossible from the nature of the business. In the case of solvent companies, the time of payment varies, and it varies with the same company at different times. It is longer or shorter, depending on the financial condition of the company, the length of its line, and other causes. The labor, supplies, and materials are absolutely essential to the operation of the
was
FARMERS' LOAN & TRUST
fl. KA:SSAS CITY,W. & N. W. R. CO.
191
road, and, as a matter of fact, are in most cases furnished on its credit, in the same sense that the supplies of a ship are furnished on the credit ()f the ship. For these and other like reasons there has been a growing tendency among the collI'tB and legislatures in this country to give such debts of a railroad company priority over the lien of a mortgage. It seems probable that the courts will not have to deal with the question, on general principles of equity, much longer. Some of the states have already passed acts giving all obligations incurred in the construction and operation of a railroad priority over mortgages,and similar statutes will probably soon be passed in other states, unless the practice and decisions of their courts,sha1l ·renderthem unnecessary. Undoubtedly, under the operation of these and'the later and sounder 'practice of courts ,of. equity, aetingindependeiltly of any statute, in requiring as a condition of the appointment of a receiver for a railroad the payment of the class of debts mentioned, the ends of justice have been promoted, 'and a stop put to some practices which were extremely inequitable, and injurious alike to the company, the mortgagee, and the general creditors. It occurs less frequently now than formerly, that railroad receivers are appointed and mortgages foreclosed leaving unpaid in whole or in part those whose labor and materials built the road' and created the securitY,-for railroad mortgages are sometimes executed before a shovelful of earth. has been thrown towards the construction of the road,-or kept it in repair and operation after its construction. When it is known that a misapplication or fraudulent use of the proceeds of the bonds or the earnings of the road cannot be visited upon the innocent persons whose labor and materials build the road or keep it in repair and operation, the mortgagee will see to it that the revenues of the company, derived from' these and all other sources, are expended for legitimate purposes. Honesty and economy in railroad building and management will thus be promoted, and the company, the mortgagee, and the public 'Will alike be benefited. In this case the court enjoined the creditors from proceeding to collect their debts by the customary methods. In compliance with the order of the court, the creditors have presented their claims, and they have been allowed, and proper certificates of indebtedness issued, which have in most cases been assigned to persons who purchased them in good faith, relying upon the order of the court. The creditors and the public had a right to rely upon the court's order. Kneeland v. Luce, 141 U. S. 491, 509, 12 Sup. Ct. Rep. 32. Courts should keep faith with suitors and the public if no one else does. If the question of the obligation of contracts is to be considered, it would seem that the agreement of the trustee with the court, and, through court, with these creditors, constituted a contract of the very highest obligation. This obligation, so far as it relates to the court, is heightened by the consideration that for a breach thereof on the part of the court the law affords the citizen no redress. The Court cannot be made to respond for a breach of its engagements. Only honMt and bona' fide debts of the character named in the order will be allowed and made a charge upon the estate. As stated
1:92
befolle, no. claim has! thus far been allowed which: would not be aI pteferantialdebt by strictest rule' on that subjeot;and nane will which d<Vnot fall clearly within the provisions of the The motion 'to vacate the order of the court relating to the pltyment of debts is denied. l
NOTE.
IUaLnoAD MORTGAGES-FORECLOSURE-RECEIVERS-PREFERENTIAL INDEBTED",,·J!i]llSS. " ' ;;
The theprlncipal case contalns the flrst.v1gorous, protest against the 4isposit1on to put railroads upon' the .same plane a.s other llpecies of prop· erty \\1ili reference to the effect of mortgages upon the rights of third persons; and, whlle the case does not turn upon this reasoning, it demonstrates the fact that,!.f the law Of prece4ent were now as elastic as in the days when the mariot liens was created, railroads ought especially tO,be subjected ro 8'lmilar qoctrines. . Theartalogies drawn by the learned judge who delivered the opinion'are' rendered more forCible when, in connection with the commercial policyoatllned by him, it is borne in mind that the home port of many railroad to which ElDlployes and material men are expected to look, is a 1>0,1'1: QnIY,inname, no more than a favorable for obtaining the least onerollS of corP1ltate charters. In the case of U.S. v. Southern Pac. R; Cp.,' 49 Fed. Rep. 298, It appears from'the opinion of Mr. Ju.stice Harlan that tlleSouthern Pacific Company was It corporation of Kentucky, but that it had no property or in that state, nor any office or agent there, except an a&ji$tant clerk, holding It ,subordinate position, and maintained for the purof that compose of lIreserving the charter of that company under tl1e monwealth. Its property· was all in other states and territories, and Its .general omces were, and for many years had been, in San Francisco, Cal., and its principal executive office:s resided there. This corporation was neither a citizen nor resident of any: one of the states or territories in which its road was ,'l'he same may be said of the Choctaw COal & Railroad Company, 3. railroad corporation incorporated in Minnesota, an of' whose' property and of· fices ,vere ill thell;ldiau Territory or Pennsylvania. See Insurance Co. v, . Cooper, 4 U. S. App. 631, 633, 2 C. C. A. 245, 51 Fed. Rep. 332. It "must dwell in the place of its creation," (Bank v. Earle, 13 Pet. 588,) and cannot be SUed, in, a federal coUrt where its road is operated by a citizen of anotherstat,e.Here tIle home port ,yas a mere sham. And the deluded employe or material man would have found it impracticable to reach anything there, although he was compelled, in order to get a jndgment in the federal courts, ,togo to the state by wh()se laws it was created-to the home port-to sUt! the corporation. Shaw v. Mining Co", 145 U. S. 444, 12 Sup. Ct. Rep. 935, overr:uIingthe decision in U. S'-v. Southern Pac. R. Co., 49 Fed. Rep. 297. See,lliso, Pendleton v. Ru.sseIl, 144 U. S. 640, 12 Sup. Ct. Rep. 743. All that could lutve l>een in contemplation upon the part of those whose bone and sinew and means kept it It going concern was the property of the company at the ,place Of its location. Anotherreason for holding to a view such as that now under dIscussion is the fact that railroad companies have been treated as exceptional public bodies, Who, private enterprises, were entitled to the exercise of the sovereign prerogative of eminent domain, and who, because of their unique character, were entitled to be totally .relieved from the doctrines of trespass to real estate, which, in tIiecase of individullis and governmental bodies, gave to the true owner thelmprovementsofa bona fide, but illegal, possessor. Ju.stice v. Railroad Co." 87 Pa. St. 28; Jones v. Railroad Co., 70 Ala. 227; Navigation Co. v. Mosier,14 Or. 519, 13 Pac. Rep. 300; Newgass v. Railroad Co., 54 Ark. 140, 146, 15 S. W. ReP. ISS; Railrol;l.d 00. v. Dickson, 63 Miss. 380; State v. Baker, 20 Fla. 616; Cohen v. Itallroad Co., 34 Kan. 158, 8 S. W. Rep. 138; Railway Co. v. Dunlap, 47 Mich. 456, 11 N. W. Rep. 271; Railway Co. v. Goodwin, 111 Ill. 273; Seadv. School District, 133 U. S. 553, 10 Sup. Ct. Rep. 374; Lyon v. Railroad Co., 42 Wis. 538,-with which compare U. S. v. A Certain Tract of l,and, 47 Cat 515; Meigs v. McClung's Lessee. 9 Crancl;1, 11, 18; Price v. Ferry Co:. 31 N. J. Eq: 31; WUcox,v. 13 Pet. 498; Graham v. Railroad 00.,
193
36 Ind. 463; U. S. v. Lee, 106U. S. 196, 1 Sup. Ct. Rep. 240; Hunt v. Iron Co., 97 Mass. 279; Railroad Co. v. Robbins, 35 Ohio St. 531. Railroads are also essentially unique, in this: that while they require a right of way, ralls, stations, machine shops, etc., these are but adjuncts to the running of cars. In its last analysis a railroad consists of trains of cars moving from station to station, from state to state, and, in some instances, from ocean to ocean. It is the operation of these trains which keeps the railroad a going concern,-an operation which, more than ships, requires services and employes. Dow v. Railroad Co., 20 Fed. Rep. 264. One cannot refrain from thinking, in view of these retl.ections, that the supreme court of the United States took too narrow a view (a view they have since not rigorousiy adhered to) when they refused to assimilate the claim for supplies of the material man furnished to a railroad to the lien of the material man in admiralty, as against a mortgagee. Railroad Co. v. Cowdrey, 11 Wall. 459, 482. But the t1.exibility of the law do!:'s not now seem to be equal to the task of stating and enforcing so equitable a rule, on these grounds, without the aid of legislation. In many of the states of the Umon the legislatures have taken up the matter more or less extensively. In Califoruia, Colorado, Connecticut, Dakota, Geor· gia, Idaho, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Mexico, Rhode Island, and Tennessee, the laws, in diverse ways, protect the laborer and material man who furnish labor and mao terial in the construction of a rallroad. In Maine, Mississippi, North Carolina, Vermont, and Wisconsin the lien law seems only to reach the laborer who expends labor in the construction of the road. In Utah and Washington the law lJrotects the laborer and material man who furnish labor or material in construction, equipment, or repairs. etc. In Alabama, Florida, and New Jersey the laborer and employe who expend labor and services in operating the road seem to be protected. In New York the laborer who expends work in the operation of the road seems to be protected. In Ohio, PennsylVania, and Texas the law seems to cover labor expended in construction and operation of the road. In Arizona, lllinois, Indiana, and Virginia the mechanic, laborer, operative, and material man all seem to be protected, as well for work or material in operating as constructing the road. In Iowa the law does not seem to reach the employe, but otherwise is more comprehensive than the states last stated. It goes further in protecting with a lien parties who sustain injuries, and in making the lien of the lien creditor paramount to existing mortgages. Kentucky covers all the ground covered by the law in Arizona, Illinois, Indiana, or Virginia. The law of Arkansas seems to be the most comprehensive and simple of all. Under its provisions the mechanic, laborer, employe, material · man, and the party damaged in person or property have a lien. paramount to any .mortgage, trust deed, lease, or other mode of transfer executed after the act was passed. 2 Jones, Liens, §§ 1634--1673, inclusive. But, outside of lien laws, many courts have found a' way to work out, with more or less dissent, a certain measure of justice to claimants against railroads in preference to the claims of mortgagees. Besides the authorities referred to in the principal case to sustain this contention, the following can be profitably consulted: Dou/l;lass v. Cline, 12 Bush, 608; Duncan v. Trustees, etc., (Va.) 9 Amer. Ry. R. 386; Williamson's Adm'r v. Railroad Co., 33 Grat. 624; Poland v. Railroad Co., 52 Vt. 144, 176, 177; Hervey v. Railroad Co., 28 Fed. Rep. 169; Blair v. Railway Co., 22 Fed. Rep. 471; Id., 23 Fed. Rep. 521; United States Trust Co. v. New York, W. S. & B. Ry. Co., 25 Fed. Rep. 797. Mercantile Trust Co. v. Pittsburgh & W. R. Co., 29 Fed. Rep. 732; Atkins v. Railroad Co., 3 Hughes, (U. S.) 307; Railroad Co. v. Johnston, 59 Pa. St. 290,-with which compare Addison v. Lewis, 75 Va. 701; Coe v. Railway CO.,31 N. J. Eq. 105, 130, et seq.; 1'0rter v. Steel Co., 120 U. S. 649, 7 Sup. Ct. Rep. 1206; Fidelity, etc., Co. v. Shenandoah V. R. Co., (Va.) 9 S. E. Rep. 759; Farmers' Loan & Trust Co. v. Chicago, etc., Ry. Co., 42 Fed. Rep. 6; Jessup v. Railroad Co., 3 Woods, In Fidelity, etc., Co. v. Shenandoah V. R. Co., (Va.) 9 S. E. Rep. 759,763, it was said; "No invariable rule is deducible from the authorities." In Blair v. Railroad Co., 22 Fed. Rep. 471, the right of claimants as against mortgagees was held not to depend upon a condition to that efl'ect in the appointment ot the receiver; and it was alt'lo held, Brewer, J., delivering the opinion, that "the Idea which underlies claims of this nature is that the management of a large 44l.
v.53F.no.2-13
194
. J'EDERAL REPORTER,
buMneaslike that oftl Mih'oad company cannot be conducted onacasJrbllSls. Temporary credit, in the nature ofthfDgs, is indispensable. Itsemployes caJ1Jl()t:be.paidevery month. It cannot,settle with other,roads ltsttatncbalances'8it the close of everyday., Time to adjust and settle these val.'ious mattersfs'i'indispensable. 'Because, in the ,nature of things, this is so, such temP01'8.17 ,credits must be· :taken as assented to by the mortgagees, because both the mortgagees and the,publicare interested in keeping up the road, and having it preserved as a golnitconcern, and whatever is necessary to accomplish this reSUlt must be taken' as assellted to by the mortgagees," In fixing the tima'priol' to the appd1D.ttn('nt of the receiver that the claim should have been contracted in order toen.titleit to enter the charmed. circle, it was said in the same:ease: "There is no- arbitrary time prescribed, and it should be only suoh reasonable time as, inthenatllre of things, and in the ordinary course of busineils,''Wouldbe suflicient·to have cla1lns settled and paid. Six monilis is the 'lollges't time I have noticed as yet .given, . ·.· · Perhaps, in some large concerns, with extensive lines.' ot .road and a complicated business, ,a. 10ngel·tln1e might beneoel18ary." 22 Fed.· Rep. 474. In that case only claims aCcrUing'six: months before the appointment of the receiver· were allowed. Olaims/for car springs and spirals, which existed tllree years before the appointment.of-a receiver, as Shown in .the principal case, have been allowed by the'Umtcd States supreme court. Hale .v. Frost, 99 U.S. 389. In Atkins v. Railrond'Oo.;·3Hughes,(U. S.) 307, tile clalmwas22 months old at the time of the appointment of tile .recei.er. For otiler periods, see note, 22 Fed. Rep. 478. And the supreme court· of the United States has not departed from its position inHale v. Frost, supra, although it has !I1ot always been consistent in its utterances.Oompare witiltile cases cited by the learned judge in tile principal case, Union Trust 00. v.Illinois M.Ry. 00., 117 U. S. 434,456,457, 6 Sup. Qt. Rep;'809; Dowv. Railroad 00.,124 U. S. 652, 656, 8 Sup. Ot. Rep; 673; Sage v. Railroa<l Co" 125' U. So '361;' 8' Sup. Ot. Rep. 887; Union Trust ,00. v. Morrison, 125U.S; 591, 612,8 Sup. Ot. Rep. 1004; Morgan's, etc.,S. S. 00. v. Texas, etc;" By. 00;, 137 U. S; 171, 197, 11 SUp. Ot. Rep. 61; Railroad 00. v. Humphl!'eYs,l45 U. S. 82. lOa; 12 Sup. Ot. Rep·. 787, Various'rnles are relied upon to sustain the position of. tile courts, which resolve themselves into an elastic rule, depending upon the breadth of mind of the tribunal determining the matter. The old saying about "the chancellor's foot" seems to be highlyappropriate in this connection. . The isupreme court of 'Illinois, in a. very recent and a very well considered opinion,has placed the question upon a .footing which is highly equitable. · and' :runysustains the reputation that court enjoys of being a sound exponent of law. Nowhere else is the question placed upon so sound a footing. In tile oasereferred! to (Insurance 00.. v. Heill8, 31 N. E. Rep. 138) tile record disclosed that Heiss and others had instituted tileirsuit in chancery to recover from the Jacksonville Souilieaste1'll. Railway Oompany damages which they claimed to ha"Vesustained to their .property in 1883 by tile construction ·of the railroad through Oentralia, Ill.; saidclalms being evitlenced by judgments which they had respectively obtained at law. The company had executed mortgages to secure bonds issued by it on July 1, 1882, upon its property, and any future property it might thereafter acqilire. This mortgage was relied upon in the controversy. The mortgage contained tile usual provisions for taking possession upon default of paymelit of interest, etc. The bondholders intervened, set up their rights, and two were made, one of which is that now under discussion. The opinion of tile court upon that question'is as follows: "It is said that appelllUlts, mortgage .bondholders; are Innocent purchasers of the bonds, without notice of any equlties in appellees; iliat the mortgage by which the bonds purchased by ·them are secured is prior both in date of execution and recording to the, judgments of appellees and to the accruing of the damages for which the jUdgments were rendered. It is true, as we have seen, that the mortgage was executed July I, 1882, and that tile road was not con'structed along. the street in question until October, 1883, and that the damage suits were ;not brought until in 1887, and judgments not recovered unillAugUst, 1888. If tilese bondholders were not required to take notice of tile 'right of appellees, and it Is necessary to bring notice home to tilem, evidence tilereof is not wanting in this record. They were notified upon the face of the bond and mortgage that the· bonds were issAed upon an unfiniShed line
T&UST COd'.' KANSAS 'CITY,
'W. & N. W. R. CO.
195
of' road; that they were to be issued at the rate' of $10,000 a mile, as· the pro., jected line of railroad was completed. The mortgage executed to secure these bonlls was made to cover. not only the small portion of the road then constructed, but the franchise and property of the railroad company then owned or thereafter to be acquired, and the projected line of road as it be.completedthrough the city of Centralia. It was apparent on the face of the security that the railroad and property of the companY then 1ti eXistence was not intended as the sole security for these bonds, but the secnrlty was to be appreciated and perfected by the acts of the railroad company in the building and completion of the railroad.. · · The railroad company was, in a sense, agent of the bondholders to perfect their secUrity, and the latter must be held bound by the acts of the company in respect of the completion. of the road, so far, at least, as such acts can be held to have been clearly within the contemplation of the parties in appreciating and perfecting the security." la. 144.. It will be observed that the damages referred to had occnrred in 1883, and that the uarties did not attempt to recover therefor until 1887, and that the mortgage referred to was executed in 1882. What is there said ls equally as applicable to the maintenance of the railroad. A railroad quickl, goes to ruiJ,l without the services of those who keep it up and operate it, and its pnbUc functions are as much (if not more) subserved thereby as by the mortgage debt; and that operation is likely to entail hurt to others under circnmstances which involve more blame to mortgagees than the injured parties, and such injured parties stand on as equitable a footing as the injured parties in the cases just cited. A reference to the' authorities shows that it was an old doctrine that prop· erty not in existence was not at law covered by a mortgage which attempted to embrace after-acquired property, and courts of equity only gradually duced the doctrine of enforclng such mortgages. Even in this regard complete unanimity does not exist. But courts of equity could not have intended, in enforcing this equitable doctrine as against legal doctrines, to cover such afteracquired property in favor of such a mortgage, at the expense of those who created suCh property, and who could only look to it and that which it benefited for compensation. And they certainly never could have contemplated that this equitable doctrine (which washardIy as equitable as the prior law doctrine as against third persons) should be invoked in an application for a receiver at the inception of a cause, or at any interlocutory stage of a cause, at the expense of innumerable claimants who would thus be deprived of redress for work done and injuries received. It is extremely difficult to reconcile with established principles of equity and justice the doctrine that one who takes a mortgage upon a railroad to be thereafter built has in equity a lien on the road, after it is built, superior to that of the man who is damaged by its construction. or who furnished the labor and materials to build it. With the equity doctrine thus inclining towards the protection of claimants against railroad property; with the courts leaning against the injustice of seizing a railroad at the expense of a host of elaimallts, whose bone, sinew, money, and material went to form a thing which had no similar existence at the time the deed of trust was executed; with public policy leaning towards the protection of those who had kept the milroad going, to carry out its public purposes, (the purposes for which it enjoyed the sovereign prerogative of eminent domain, and an exemption from doctrines of tresPllss applying to others,)-what is a Chancellor compelled to do, when an application is made to him to take into custody and run a railroad by means of his receiver? In cases where a receiver is asked for to operate and construct a railroad a court ought to have the privilege of saying, "No." The running and building of a railroad is serious business, involving large obligations and credit, and much time, and ordinarily the parties ought to be understood to contract without intending that the court should do any such thing. See 19 Amer. Law Rev. pp. 400,406; Pom. Spec. Perf. Cont. § 312. And when a court is asked to assume this responsibility it ought to have the right to say: "Before I will appoint a receiver, you must agree to pay claims which have helped to keep the concern going, have put and kept it in its present state, have made it useful, and such claims as have grown up within a period to be fixed for damages to persons and property." That is the position taken by the learned court In the
196
J'EDEBAL REPORTER,
voL 53.
principal oase, and, It seems to us, In this regard the court's posltlon Is invulnerable. When a court Is called on to restraln the collection of taxes, It requires, as a condition precedent, that the legal taxes should be first paid. 1 High, Inj. (3d Ed.) § 497; 1,Pom.Eq. JUl'. (2d Ed.) § 898. When a: court of chancery is called on to set aside a usurious contract, It requires as a condition that the legal interest shall be tendered. He who seeks equity must do equity. 1 Pom. Eq. Jur. (2d Ed.) · 891. It would be marvelous, Indeed, if chancery courts, when caUt'd npon to do so revolutiona17 a thing as to appoint a receiver of a railroad, (this was the term used to dmomlnate the act In State v. Railroad Co., 15 Fla. 286,) did not have-the right to prescribe conditions which, by the consensus of aU the "ases, without exception, are equitable and just. That the appointment of a receiver is discretionary Is too well settled to ad· mit of dispute. Verplank v. Caines, 1 Johus. Ch.,57; Chicago, etc., Co. v. United States, etc., Co., 57 Pa. St. 83; H:lmburgh Manuf'g Co. v. Edsall, S N. J. Eq. 141; Nichols v. ArmCo., U N, J. Eq. 126; Denikev. Lime, etc., Co., 80 N. Y. 599, 609; Mays v. Rose, Freem. Ch. (MIss.) 703; Leavitt v. Yates, 4 Edw. Ch. 162; Smith v. Railroad Co., 12 Onto App. 288; Owen v. Homan, 8 1\1acn. & G. 378,4 H. L. Cas. 997; I:lanna v. Hanna, 89 N. C. 68; Railroad Co. v. Souther, 2 Wall 510; Overton v. RaIlroad Co., 10 Fed. Rep. 866; Williamson v. Railroad Co., 1 Biss. 198; Sage v. Railroad Co., 18 Fed. Rep. 574; Mercantile Trust Co. v. Missouri, R. & T. Ry. Co., 36 Fed. Rep. 221; Credit Co. v. Arkansas Cent. R. Co., 15 Fed. Rep. 46, 49; Farmers' l.oan & Trust Co. v. Chicago & A. Ry. Co., 27, Fed. Rell. 146; Beecher v. Bininger, 7 Blatchf. 170;Vose v. Reed, 1 Woods, 04:7; Pull:lD v. Railroad Co., 4 Biss. 35, 47; Morrison v. Buckner, Hemp. 442. And the right to make· equitableCQndl.tions must follow as of course. See, besides the principal case, Turne): ,V'. Railroad Co., 8 Biss. 315, :318; Dow v· .Ralboad Co., 20 Fed. Rep. 260;FQSdI.ck v. SChall, 99 U. S. 235; Morgan's, etc., S. S. Co., v. Texas, etc., Ry. Co., 137 U. S. 197,U Sup. Ct. Rep. 61; Railroad Co. v; Humphreys, 145 U; S. 108, Ct. Rep. 781. Also the decision of Brewer, ;r., referred toln the pt'ql.clpal case. The orders of the learned judge In the principal case were wise and correct; far more so than the shifting, vague, and uncertain doctrines uttered .by other courts. Preceding, as. they do, the appointment of the receiver, they establish 8rlear nlle. The re;flUlll1 to consent to such conditions may none the less make the mortgages .amenable tQ;IlilUch, If not aU,ot what Is so provided; and the only effect ot such a refusal w1l1 be to oblige the parties to go forward With foreclosure without a receiver. The principlll case Is taken out of the field ot dei:)ate by the fact that the parties In Interest consented in advance to the conditions the learned judge Imposed. But the result would have been the samelf the order had said nothing about the trustee's assent to Its terms; tor when a plaintiff applies for the appointment ota receiver, and the court makes the appointment upon terms, the plaintiff as much bound by,..the terms as If he had expressly assented thereto. If 'lecllnes to accept·the receiver On the terms Imposed, he must withdraw 1.._ _",.plication for a recetver. Little Rock. .MORRIS M. COHN.
RIOHMOND & D. R. CO. v. TRAMMEL et al., Ranroad Commlsslonera. (Circuit Court, N. D. Georgia. November 4, 1892.)
L
CoNSTITUTIOIiAL LAW-RAILROAD COMMISSIONS BLENES8.
FIxmG RATES -
RIUSONA.·
A state statute empowering railroad commissions to establish just and reasonable rates, and making the order ot the commissioners fixing ratetl conclusive evidence of their reasOnableness, would be repugnant to the constitution ot the United States,as depriving the railroads of due process of law; for the reB/lonableness ot any rates fixed by the commission ifI a question for judicial determination, Bccording to the methods of investigation appertal.nl.ng to courts of justice. Chicago, M. & St. P. lQ'. Co. Y. Minnesota, 10 SUp. at. Rep. 462, 102, 184 U. S. 418, followe4.