500
87
RErORTER.
the amendment thereto, ,is not imputable to the complainants ',' , , , . in this case. allegations of the bill sufficient(yestabOn the merits, wennd lished to warrant the debree appealed from. The mutual mistake alleged in the bilI is in regard to the field notes given in connection with a description of the land. The case shows that while John Y. Hill 'owned a tract ofland irithe county of Harris, 1! miles from the city, of Houston, being the southeast half of the Tierwester survey, he did n'ot own any other land in that county; and that the deed purported to convey 250 acres off the Tierwester survey, while the field notes, set out in the deed call for a tract of land of about 100 acres in aIlbther survey, not then owned or controlled or claimed by Hill; and that, if the field notes in the deed are reversed, they will substantially describe the 250 acres owned by Hill at the time of the conveyance; and that, from the time of the conveyance to Poston down to the present time, Poston arid his grantees have claimed, controlled, and more or leIS,S occupied the 250 acres in the Tierwester surv&y, paying all taxestheI'eon, and as fully possessing the same as the circumstances permitted, while during all this time neither Hill nol' his heirs nor'lother grantees have made any claim whatever to said lands. The CGS(> further shows that, in other deeds made by the said Hill about the time of the deed to Poston, he conveyed other portions of the same tract, reducing his holdings therein to the 250 acres sold to Poston, and in one of the deeds the land sold to Poston is referred to as being in the Tierwester survey. While it is possible that John Y. Hill, while pretending to sell 250 acres of land to Poston for a consideration of $1,500, may have intended in describing the land to insert field notes which did not refer to any land he owned, yet it is not probable nor to be presumed ina court of equity, in the absence of proof. All the circumstances established by the evidence point to the fact that the insertion of such field notes WflS a mistake. The decree of the circuit court seems to be just and equitable, and we see no reason to disturb it. Affirme<L
= LOUlSVILLE& N. R. CO. et 81. v. CENTRAL TRUST CO. OF NEW YORK
et a1. (CIrcuit Court of Appeals, SIxth CirCUit. June 1, 1898.) No.-553.
A claim against a railroad company which is in the bands of a receiver under forecloSure proceedings, fOr rent of track privileges accruing prior to the appointment of the receiver, Is not entitled, as against the mortgage bondholders" to' J}riorlty of payment o,ut ,of the proceeds of sale, where no special equitie!i' are shown,and, It apPE\!trs that the lessor relied for pay, ment upon the'general credit of the lessee and its sublessee. '2.8A'i.IE. ' 1'rack rentals are not in' general recognized as ,of the kind of claims , which may become entitled" on the appointwent ot a. receiver; .00 priority o,er bP-\lds. .
1.
RAILROADS-RECEIVERS-CLAIM8 FOR TRACK RENTALS.
LOUISVILLE & N. R. CO. V. CENTRAL TRUST CO.
501
<If Kentucky,
Appeal from the Circuit Court of the United States for the District
This is a suit upon the Intervening petition of the Louisville & Nashville Hailroad Company and the Kentucky Central Hailroad Company, tiled in the circuit court for the distrIct of Kentucky, in a consolidated suit in equitj' there pending, consisting of two original cases, one being brought by Samuel Thomas, a creditor of the East Tennessee, Virginia & Georgia Railway Company, and the other a suit by the Central Trust Company of New York, for the foreclosure of a mortgage given by the Louisville Southern Railroad Company to secure its bonds. This petition was presented for the purpose of enforcing a preferential claim upon the fund arising from the sale of the mortgaged property. The claim is founded upon the following facts: Prior to January 29, 1890, the Newport News & Mississippi Valley Company was operating a railroad running from the East into Lexington, Ky., and stopping at Merino street, In that city. where It had a station. The Kentucky Central Hailroad Company also had a line of road running Into the city from the north until it reached a point on the west side of Cox street, nearly due west of the station of the Newport News & Mississippi Valley Company. from which point it turned to the east, and extended to the station mentioned. The Louisvllle Southern Railroad Company had built a railroad from Louisville to Lexington which entered the last-named city from the southwest to a point of junction with the Kentucky Central Railroad at the curve near Cox street, where the Kentucky Central Railroad turned east. as above stated. The Louisville Southern Railroad had no station at Lexington, and it desired to form a connection with the Newport News & Mississippi Valley Company's road. Accordingly, It entered into a contract on the 2Uth day of January, 1890, with the Kentucky Central Railroad Company, for the use of that company's track from the point of junction of their lines to the station of the Newport News & Valley Company, and for certain terminal facilities in the Immediate locality. This contract prOVided, among other things not necessary to be mentioned here, that the Louisville Southern Railroad Company should pay for the use of this portion of the Kentucky Central Railroad Company's track at the rate of 75 cents for each of its cars passing over It, and that all sums due under the contract should become payable during the month follOWing that in which the service was rendered. The contract was to last for the period of 25 yeaxs. The Louisvllle Southern Railroad Company began to use the track under this contract in the latter part of March, 1890. Very soon after that a controversy arose as to whether the contract contemplated payment for the trackage for empty cars. The controversy continued, and the monthly payments were. in consequence, not paid. On June 27, 1890, the Loulsvllle Southern Railroad Company leased Its railroad and assigned the benefits of the above-stated contract to the East Tennessee, Virginia & Georgia Railway Company, and the latter company immediately went into possession of the leased property, and continued to use the track of the Kentucky Central Railroad Company. The above-stated question of the construction of the contract continued unsettled. Matters went on in this way until September, 1891, when the Kentucky Central Railroad Company sold out all Its property and contract rights to the Louis· ville & Nashville RaHroad Company, including those inuring to it under the contract with the Louisville Southern Railroad Company. The use of the track continued by the lessee of the last-named company, and without any adjustment of the controversy as to the meaning of the contract under which the privilege was enjoyed. Finally, on the 2d day of May, 1892, the Louisville & Nashvllle Railroad Company, together with the Kentucky Central Railroad Company, brought suit against the Louisville Southern Railroad Company and its the East Tennessee, Virginia & Georgia Railway Company, in the circuit court for Fayette county. Ky., to recover for the use of the track from the beginning. This suit remained pending until June 23, 1894, when judgment was rendered for the use of the track by loaded cars against the Louisville Southern Railroad Company during the period prior to the date Of the lease, and against both defendants from the date of the lease to the commence·
502"
FEDERAL REPORTER.
ment of :tbe 'suit, rejecting the claim for empty cars. While this suit waspending, and on the 25th day of June, 1892, the suit of Thomas against the East Tennessee, Virginia & Georgia Railway Company was commenced In the circuit court for the district of Kentucky, and a receiver was appointed, who property and exercised the privileges took possesSion of the railway of the trackage contract. Kot long afterwards the Central Trust Company oj' ::\few York :commenced suit in the same:court against the same company to foreclose a mortgage given by the company to secure its bonds. The two suits were consolidated, new, receivers were appointed, and the former receivers were directed to turn the property over to them. On the 1st day of July, 1893, the East Tennessee, Virginia & Georgia Railway Company failed to pay· the rent due the Louisville Southern Railroad Company, and the latter company made default in the payment of the Interest due on its bonds. On the 3d day of theeame month theOentral 'l'rust Oompanyof New York commenced suit to foreclose a mortgage given by the LQuisvllle Southern Railroad Company to secure the, bouqe, and Incidentally praying that the lease above mentioned might be canceled. Receivers -were -appointed in this tluit,' and the receivers IIi the consolidated causes agahlst the East Tennessee, Virginia & Georgia Railway Company were ordered to turn over to them the property of the Louisville Southern RaIlroad Company, they had theretofore had in their possession, and the new receivers were ordered to pay and be answerable for all just claimllagalnst the receivers for the East Tennessee, Virginia & Georgia Railway Company, growing out of their operation of· the Louisville Southern Railroad. The several receivers above mentioned continued t{) use the connecting track under the contract of January 29, 1890. On November 8, 1894, having obtained their judgment In the Fayette county circuit court as above stated, these petitioners filed their petition of intervention in the court below, reciting the substance of the foregoing statement, stating the situation of the severa! railroads with reference to each other, and the necessity, of the connecting, track in the operation of the Louisville Southern Railroad, and, by amendment of .the petition, the diversion of earnIngs, both before and after the .appolntment of the receivers, to the payment of interest on bonds, and to the purchase of equipment and the betterment of the property; and the petition .prayed for 'payment" out of, the proceeds of the sale of the Louisville Southern Railroad property, of the amount alleged to be due for the use of the petitioners' track during the several periods of such use,-first, by the Louisville SOllthern Railroad Company from the latter part of March, 1890, to June 27, 1890; 'fjecond,' by the East Tennessee, Virginia & Georgia RaIlway Company fromJ,une 27, 1890, to June 25, 1892; and by the receivers after the last-named date. The interveners' claim was referred to the special master, W. O. Harris, to whom all other claims against the fund had already been referred. The master reported, In favor of the interveners, for the use of the track during all the perIods for Which clajm was made, sums amounting, with interest,after deducting some payments, to $5,759.80, upon findings that the trackage was at all times a necessity to the profitable operation of the road, and that there were continuously large diversions of current earnings, mqre than sufficjent to pay all current operating expenses, and that, therefore; the claim was entitled to priority of payment. Exceptions were filed to thelillow.ance of this claim as one entitled to preference over that of the bondholders. At the hearing the court, in effect, sustained the exceptions so fari as they related to, the ,claim for track service prior to the date when the receivers took possession of the Louisville Southern Railroad, June 25, 1892, and overruled them so far aa they related to the use of the track by the receivers after that date. A decree was entered accordingly, and the interveners haV'e appealed from',so'·fiUch of the decree as disallows priority to the claim for truck service While it was used first lJyJheLouisvllle Southern Railroad Company, and, afterwards ;by Its lessee, t,heElJistTennessee, Virginia & Georgia Railway Company. '
.A. P. Humphrey, for app.eUees.' "
for
-'
". BE!f<;ire LUR'!'9N, Circuit J and SEVERENS and CLARK, District Judges;" . '.
LOUISVILLE & N.R. CO. V. CENTRAL TRUsT CO.
503
SEVER-ENS, District Judge, having stlitedthe case as above, delivered the opinion of the court. As will be seen from the foregoing statement. of the facts, the circuit court directed that compensation be made for the use of the track, in accordance with the terms of the contract, during the time when the court had possession of the property. We have, therefore, only to determine whether or not the court was right in disallowing priority to the interveners' claim for the track service from the latter part of March, 1890, to June 27, 1890, that being the period of the Louisville Southern Railroad Company's occupation, and also during the second period, from June 27, 1890, to June 25, 1892, while the track was in use by the East Tennessee, Virginia & Georgia Railway Company. It will .be' noticed from these dates that the use by the first·named company terminated two years prior to the time when the receivers were put in possession. It was found and reported by the master that during this first period, the claim for which we are now considering, the current net earnings were more than sufficient to pay this claim; and it also appears that surplus earnings were paid over to the bondholders for interest, or appropriated to the purchase of equipment and for improvements of the road. Upon such facts it is contended by the counsel for the appellants that the proceeds of the sale of the mortgaged property may be appropriated to the interveners' claim for that period,notwithstandingthe lapse of time intervening between the termination of it and the commencement of the foreclosure proceedil;lgs. But it would be unprecedented for the court, upon these facts merely, to concede the priority of a claim of such a character. There is no proof in the record to show that at the time in question the Louisville Southern Railroad Company was insolvent or approaching or apprehending insolvency. The principal of the bonded debt, by its mortgage, was not due, the interest was being paid,and there was no ground for.any action of the trustee towards foreclosure. There was, therefore, no delay which enabled tM mortgagor to disappoint its creditors. There is nothing to show that the Kentucky Central Railroad Company relied upon, Or had any reasons for upon, the then current earnings as the source from which these track rentals were to be paid, and there was nothing in the nature of an equity which gave it any right to have those earn· ings applied in s'atisfaction of the installments of rent as they fell due. In fact, there was no equitable circumstance which does not exist ,in every case where· Ii debtor applies his current income to the pa;YIUent of one creditor rath,er than another. in order to constitute an equitable claim upon the current income, it must appear that the creditor asserting the claim did, in fact, orpresutnably, rely upon an expectation of being paid out of that In the present caSe it is shown that from the beginning there was a question pending between the Kentucky Central Railroad Company and the Louisville Southern Railroad Company in regard to the construction of the contract on which the amount to be paid under the contract was to be ascertained. The parties took no steps at that time to have tb,e question determined, and appearhy mutual consent to have Jet its determinanon remain in abeyance. This action shows
504 clearly ,e!l:ough that the Kentu(lky, ,Central, Railroad 'Company did not rely upon or expect payment for tIlis track service at the time or out of the current earnings, but must have understood that payment was postponed until some fqtulie time. It is a hopeless proposition, to say that any equitable charge uPQn. tpe current income arOjSe upon facts like tJ;lese. None of the facts uppn which equitable claims have been maintained in suits of this cb,aracter existed. All of the cases, from Fosdick v. Schall, 99, U.8.285, to the present time, in which such claims have been recQgnjzed ll.s having priority, rest upon the fundamental ground that there were peculiar circumstances, out of the ordinary course of business, which, gave rise to special equity, to e,nforce. which it \Val!! the duty of the to ,the claim of ,PP,ority for the track rentals during 1892, whlle tIle East the periodfrQm JUne 27, 1890, to, Tennessee, YirgilUia & Geprgia 'Railway Company was pperating as .of the Louisvil.Ie. SoutheJ;'n RaUrpad Company, many lessee the, lessee of the abov,e and still otherc;onsiderations are company W!!f:l.using thispiece9ftrack for its own ,purIloses, and its It ill true that, in a strictly legal sense, the lessor own continued, to be bound by the obligations of the contract; but, having , assigned its therein to.jhe East Tennessee, Virginia & Georgia RaUway OOIUpany, with ¥nowledge of the Kentucky Central Railroad Company,followed,pv 'the, recognition by latter company,of the assignment, the leSfloTcompany stoodiu the ,relation of surety for the payment of these charges. , It ,did notcontrol.the operation of the road and had no contJ:ol of the qi,sposition of its earnings. During the foreclosure proceediugs resulting in the sale of the property of the Tennessee, YirgI,llia & Georgia,ltailway Company and the distribution plits asse,ts,. this claim was'not nresepted to the court, nor was any, attempt col,lect it. ' It was known to all parties: that the DositiQll ·oftlJ:e Louisvjlle SOuthern Railroad merw,jV.. "We do not say that the mere Company was that of failu,re to 8;ssert this clll:im against the of the East Tennessee, Virginia & GeorgiaRllilway its windiJ:!.g up would, in to theproSElcution of the samE;,claim against and of itself, be. a the surety if iJ:!.herentlyit w:ere one of.au equitable,fi:1).,aracter, but it is which a court of equity, may properly regard one of the ,as urged in.the present condias havingllOIIj.f;l be:p:illg Btlt beyond aU alld with respect to the claim tion of we the nature of the for claim itself is of a kind ,the general .current of authority upm. the it to a p,ositi()n of priority the mortgage debt. ,It,?ppears to .us .to s1,a,nd,t,tpon no higher or better ground than claims fpr- rentals of rolling stock, which are quite as indispensaa all are jits tracks; and, with ble to the daily operations lIespect to track nmtals for tb,e pef:iod, prior to the accession. of .the .receiver, they <are, not, as a general rule, reqognh:ed as entitled to ,pmority. Tl;lPWll8, ,y. Cal' Co., 149 U. S. 9.5, 13 Sup. Ct.. 824. ,The facts in, the present case clearly. indicate that the Kentucky upon the general credit Central Railroad Gompany placed its. .of ,the Railroad and of the East Teni
NORTHERN ALABAMA BY. CO. V. HOPKINS.
50.5
nessee, Virginia & Georgia Railway Oompany, rather than upon the expectation of displacing the priority of the mortgage lien, to adopt the language of Mr, lustice Shiras, in delivering the opinion of the supreme court in the case of Thomas v. Oar Co.; or, as he elsewhere puts it in the same opinion, "must be regarded as contracting upon the responsibility of the railroad company, and not in reliance upon the interposition of a court of equity." It further remains to be observed that much the larger portion of the interveners' claim is excluded by the operation of the rule in respect to the length of time prior to the appointment of a receiver the court will regard in the adjustment of equities of this sort. But for the reason that, upon the grounds already considered, we think no part of this claim can be given preference, it is not necessary to draw a line of discrimination or to canvass the rule upon this subject. It wM discussed upon this, as well as several other of the aspects of this case, by Judge Lurton in delivering the opinion of this court in the case of Oentral Trust 00. of New York v. East Tennessee, V. & G. Ry. 00., 26 O. O. A. 30, 80 Fed. 624. There is no error in the decree appealed from, and it is affirmed, with costs.
NORTHERN ALABAMA RY. CO. v. IIOPKINS. HOPKINS v. NORTHERN ALABAMA RY. CO. (Circuit Court of Appeals, Fifth Circuit. May 3, 1898.) No. 638. L RECEIVERS- EXPENSEll-EsTOPPEL.
The receiver of a railroad, at the Instigation of the bondholders, made several trips to Europe, In an effort to get the property out of its embarrassed financial condition. Held, that the bondholders were estopped to complain of the allowance of the receiver's expenses for such trips out of the proceeds of the sale of the property under a decree of foreclosure.
2. 8.
SAME.
And the purchasers under the sale had no Interest to contest the allowance. of such expenses. Traveling expenses of a receiver of a railroad, Incurred In going to and from his residence to the railroad property, and elsewhere about the country, In the interests of the property, are properly allowed.
4.
SAME-FINDINGS OF LOWER COURT-REVIEW.
Unless injustice clearly appears, the findings of the. lower court allOWing receiver's expenses and fees will not be disturbed on appeal.
Appeal from the Circuit Court of the United States for the Northern District of Alabama. Exceptions by J. Kennedy Tod, John G. Leiper, and the Northern Alabama Railway Oompany, as purchasers of the property of the Birmingham, Sheffield & Tennessee River Railroad Oompany at foreclosure sale, and by E. A. Hopkins, receiver of said company, to the master;s report, allowing fees and expenses to said receiver. The report was modified, and the Northern Alabama Railway Oompany appealed,and E. A. Hopkins filed a cross appeal.