Blair v. St. Louis, H. & K. Ry. Co.

| U.S. Circuit Court for the District of Eastern Missouri | Jan 19, 1885

Tbeat, J.

It may be considered as an established rule of equity that where receivers are appointed the court may determine, under all the facts and circumstances, what demands prior to such appointment may be allowed as prior in right to the mortgage. In this case, Judge Brewee, reviewing the authorities, cursorily intimated that demands which had accrued within six months prior to the appointment of a receiver, if they pertained to betterments, or the Current necessary operations of the road, should be considered as equitable demands prior in right to the mortgage. There are two propositions underlying the rulings of the courts: First. When, under the conditions of a mortgage, the mortgagee, after default, permits the corporation to still operate the road, the operations thereafter must be considered for the benefit of the mortgagee, and all others in interest, especially if betterments accrue therefrom. Second. To prevent the indefinite extension of such claims, the courts limit the time within which such demands may be pursued.

The case before the court presents this condition of affairs, viz.: that under an indefinite contract the intervenors, subsequent to default in the mortgage, continued to furnish materials for the equipment of the road; the account, debit and credit, continuing to the appointment of a reóeiver. The question is not within the narrow rules governing statutes of frauds, but as to the rights of the parties under the equitable principles stated. The mortgagee could have taken possession of the road under default, had he so elected. He preferred that the corporation should still continue to operate the road, certainly as much for his benefit as that of other parties. Why, then, as after-acquired property is to be included within his mortgage, should lio not deal with said betterments according to equitable rules ? True, there should be, as staled by Judge Buisweb, some limit to the enforcement of such alleged obligations, — fixed in this case at six months. But if the contract was a continuous one, to the benefit of all concerned, mortgagee included, and final settlement not made until the appointment of a receiver, should this case fall within the six-months rule? The distinction is an obvious one. Where a person furnishes, from day to day, ordinary supplies to a corporation, ho is, as to the same, a creditor at large. When a default as to a mortgage subsequently occurs, such general demands cannot be treated as prior in right to the mortgage, except under the special circumstances named in adjudged cases, viz., where such demands are current, and essential to maintain the corporation as a going concern, such as continuous labor, etc. This rule pertains to such demands existing prior to the mortgage defaults.

The other class of cases, of which that before the court is one, rests on an additional reason, namely, that If the mortgagee, instead of enforcing his rights, elects to' have the corporation operate the concern, he must he considered in equity as estopped from disputing that such operations were for his benefit, and to he accounted for in the final adjustment of the rights of all concerned. Hence, in this case, it appears that long subsequent to the default, and continuously thereafter down to the intervention of the mortgagee for the appointment of a receiver, the demand in question was progressing for the betterments of the road, without objection from anyone. Ordinarily, demands as to items accruing prior to the time limited (as, in this case, for six months) would be excluded, as heretofore stated. But here the contract was incomplete until the appointment of a receiver, and consequently must be treated as falling within the equitable rule. The exceptions to the report overruled. Report confirmed.