106 F. 565 | U.S. Circuit Court for the District of Eastern Arkansas | 1901
(after stating the facts). This case is but another illustration of the danger incurred by courts when undertaking to manage a railroad after the owners had failed to operate it without great loss; and while the court, as at present constituted, is in no way responsible for this state of affairs (these orders having been made by the former judge of this court, and, it seems, by the consent of all parties in interest), the duty of determining the rights of the parties devolves upon it. The power of the courts to authorize receivers to borrow money and to issue certificates therefor for the purpose of preserving and managing the property, and make them a lien thereon for its repayment, is now well settled. Mr. Justice Bradley, in Wallace v. Loomis, 97 U. S. 146, 24 L. Ed. 895, says;
“The power of a court of equity to appoint managing receivers of such property as a railroad, when taken under its charge as a trust fund for the payment of incumbrances, and to authorize such receivers to raise money necessary for the preservation and management of the property, and make the same chargeable as a lien thereon for its repayment, cannot at this da.y be seriously disputed. It is a part of their jurisdiction, always exercised by the court, by which it is its duty to protect and preserve the trust funds in its hands.”
The power, under certain circumstances, for the court to direct the receiver to pay pre-existing debts of certain classes out of the earnings of the receivership, or even the corpus of the property, also exists; but, as was said by Mr. .Justice Blatchford, in delivering the opinion of the court in Miltenberger v. Railway Co., 106 U. S. 286, 1 Sup. Ct. 140, 27 L. Ed. 117:
“The discretion to do so [meaning the latter] should he' exercised with very great care. The payment of such debts stands, prima facie, on a different*568 basis from tie payment of claims arising under the receivership, while it may be brought within the principle of the latter by special circumstances.”
The order authorizing the issuance of both classes of receiver certificates is silent as to which of them should have priority, or whether they should both be considered of the same class; the order only providing that each of them should have priority over the 'mortgage debt. In determining whether both classes of certificates should share alike, where the property is not sufficient in amount to pay both classes in full, the court cannot overlook the fact that the money for which the certificates in class A were issued was loaned to the court, acting through its receiver, for the purpose of enabling it to operate the railway with safety, while, on the other hand, the debts represented by the certificates of class B were incurred by the railroad company itself, and the credit extended to the railroad company, influenced, no doubt, by the provisions of the Arkansas statutes (section 6251, Sand. & H. Dig.), which prior to the decision of the supreme court of the state in Railway Co. v. Spencer, 65 Ark. 188, 47 S. W. 196, were presumed to give Such debts priority over the mortgage. The certificates in class B, while issued by the receiver under order of the court, cannot be strictly called receiver’s certificates. They were merely certificates issued by the receiver, showing that these amounts were due from the railroad company, and had been adjudged by the court as being a prior lien to that of the mortgage. As the credit for which the certificates in class A were issued was extended solely to the court, acting through its receiver, the holders of these certificates have a right to look to the court for repayment, if there is any fund in the court, realized either from the operation or a sale of the road, out of which they can be paid. In the language of Judge Caldwell In Dow v. Railroad Co. (C. C.) 20 Fed. 260:
“No court should engage in the operation of a railroad without reserving to itself the means of discharging the obligations incurred in the business. In its efforts to coerce a corporation to pay its debts, the court should not contract obligations of its own, and neglect to make provision for their payment. It would be a scandal to do so. Courts should pay their debts, if nobody else does.” 20 Fed. 269.
In Kneeland v. Luce, 141 U. S. 491, 12 Sup. Ct. 32, 35 L. Ed. 830, the court say:
“Where such [receiver’s certificates] are issued, and the court, as In this case, impresses upon them a preferential lien, good faith requires that its promise should be redeemed, unless, perhaps, it be shown that the issue of the certificates was actually fraudulent.” 141 U. S. 508, 12 Sup. Ct. 38, 35 L. Ed. 836.
Acting upon this principle, Judge Sanborn, in delivering the opinion of the circuit court of appeals of this circuit, said:
“The moneys expended and the liability incurred by receivers or trustees in the authorized operation, preservation, and management of the property intrusted to them constitute preferential claims upon the trust estate, which must be paid out of its proceeds before they can be distributed to the beneficiaries of the trust.” Mercantile Trust Co. v. Farmers’ Loan & Trust Co., 26 C. C. A. 383, 81 Fed. 254.
Had the court, at the time the order authorizing the receiver to issue these certificates was made, known that there would not be sufficient money realized from the sale of the property to pay both
“Operating expenses incurred by receivers during their management and control of the property are entitled to preference over the claim of this appellant. [His claim was like that of the parties who hold certificates of class B in this ease.] While the demand of the appellant against the railway company is a meritorious one, we cannot, consistently with established principles, adjudge it priority over claims of higher dignity, and displace liens to which it is subordinate.” 43 C. C. A. 170, 103 Fed. 188.
In the same case, in the claim of the St. Charles Car Company, the court also held that the claim of the car company, having been adjudged by the court to be an indebtedness of the receiver, was entitled to priority over the debts of the corporation, which had been adjudged to be entitled to a preference over the mortgage debt. 43 C. C. A. 175, 103 Fed. 193.
But it is urged that the final decree of foreclosure placed both classes of certificates on an equality, and that the decree, not having been appealed from, is now conclusive. The decree provides that the fund arising from said sale should be applied — First, to the payment of all proper expenses attendant upon said sale,.including the expenses, outlays, and compensation of the master, etc.; second, to the payment of the costs of this suit, and the compensation of the plaintiff herein for its services, charges, and expenses in the execution of its trust under said mortgage so made to it as aforesaid, including its own compensation, commissions, and its disbursements for solicitor's and counsel fees in the execution of said trust, as such