*1 v. TRUST COMPANY. GREGG METROPOLITAN 183 Argument Petitioner. 197 GREGG v. METROPOLITAN THE OP APPEALS POR TO CIRCUIT COURT THE SIXTH CERTIORARI
CIRCUIT.
Argued
6, 1905.
No.
Decided March
January 20,
23,
141.
1905.
supplies
to a railroad
within six
Claims
furnished
months
appointment
any general
of a
before the
receiver are
entitled under
precedence
expressly
by mortgage
over a lien
created
rule
recorded
the contracts
were made.
before
authorizing
certificates
Under the orders
receiver’s
involved in this case
furnishing
six
ties within
months
one
appointment,
which were not used until
and some
after such
proceeds
payment
out of
held not entitled to
therefor
the certificates.
iacts are
in the opinion.
stated
Mr. Harlan Cleveland for petitioner:
n „The diversion of current
for the
earnings
benefit of the first
bondholders was not
condition
mortgage
precedent
claimant
Gregg
supply
out
the proceeds
sale
Central Trust
mortgaged property.
v.
Co.
G.
Tenn.,
Co.,
East
V. & R.
Fed. Rep. 624;
311;
Co.,
v.
106 U. S.
Railway
Burnham
286,
Bowen,
776, 781; Kneeland
U. S.
v. Trust Co.,
Argument
for Petitioner.
This court has never refused to
out
pay
claimants
supply
there
been no diver-
has
corpus,
ground
*2
such,
sion of
and has never
doc-
earnings;
any
formulated
nor have
trine;
its decisions
construed as'
been
formulating
.by
doctrine
the Circuit Court of
except
Appeals
the Sixth
Four other
jurisdiction
Circuit.
courts
equal
(cid:127)
its decisions as
interpreted
being quite
contrary.
in this
in which a
the-
cases
court
only
charge against
has been
are the
.the
corpus
following:
denied
.v
Schall,
235;
Fosdick v.
99 U. S.
Huidekoper
Locomotive
258;
251;
99
S.
Penn v.
St. Louis
Works,
Calhoun,
U.
121 U. S.
658;
R. Cleveland
R.
S.
R.,
&c. R.
v.
&c.
125 U.
Kneeland v.
Co.,
89; Morgan’s
Ameer.Loan
136
S.
v. Texas
U.
Co.
Central
Wilson,
Louisville
v.
171;
137 U. S.
&c. R.
Co.
Ry.,
R.
In
501;
U.
Thomas v. Western Car
There is a Special equity the receiver. and used receivership when it was, these ties by. purchase expecta insolvent and had reasonable knew, hopelessly had on the and after it defaulted therefor, tion óf paying purchase a fraudulent bonds, its interest'due had not been the ties petitioner, would have entitled which would have retaken them, possession redelivery order their court to justified have entitled and Donaldson, therefor. thereof, or default him, 49 Ohio Lyon, v. 631; U. Wimot Farwell, v. Assignee, S. v. Morrow New 162; Ohio St. Henderson, v. St. Talcott METROPOLITAN Argument Respondents. 197 U. S. Stewart, Davis 8 Fed. v.
England Rep. 693; 57 Fed. Stove 29 Fed. Brown, v. Rep. 803; Jaffray special equities entirely This court has recognized apart Cleveland, v. of diversion. St. L. &c. R. R. any question Union Trust Co. 658, 673; Souther, 107 v. Ry., 171, 197. U. Co. v. Tex. Cent. R. S. Morgan’s Maxwell, Herbert Parsons and Mr. Lawrence Jr., Mr. respondents:
Petitioner’s claim not but the receiver’s against corpus R. V. & Coal Co. Cent. R. &c. earnings. A. This not a
355, 365. only labor claim. could paid out of Ihe if it were claim because of diversion paid or because it was bondholders, earnings order to the road concern. It does pay keep a..going *3 not As to fall either class. different position Circuit on see in Courts cases Federal Appeals question brief, cited on A. Reporter Cutting T., O. & petitioner’s Rep. 150, Fed. Niles Works v. Louisville Ry. Co., 61 Tool Dowd, Fed. Illinois Trust Co. v. Ry. Rep. L. & Kansas T. Co. v. Electric L. & P. Rep. 123; Fed. Co., 108 Fed. 702. Rep.
While this permitted court sometimes the pay- ment of a current claim out of the of sale without proceeds those proof diversion, exceptional instances. were claim not such one. There is no petitioners reason overrule the why this court should of the court discretion to below in to a this claim. give preference Cases omitting cited on brief can distinguished. petitioner’s In his claim to payment, order entitle petitioner must' were prove that current for the benefit earnings diverted and that there been creditors has no restoration mortgage of the diverted fund. See the cases cited 'on brief. petitioner’s n There is’no claim $3,200 for ties used special equity as a except the receiver claim the receiver but against under the certificates. authorizing «orders. TERM, 1904.
1S6 Opinion Court. delivered the opinion Mr. Justice the coprt. Holmes is a a receiver appointed This petition against proceed- of two railroad for the foreclosure ings mortgages. peti- made on of a contract December tioner, pursuance 1, 1896, Sandusky Railroad Com- Columbus, Hocking railroad delivered ties value of pany, mortgagor, and on June 2 and $4,709.53 May 1, 3, 1897. The receiver on June 1897. After his was there appointed found on hand a the above ties, the value of part ties used in the $3,200, these maintenance of the a railroad as concern. The makes claim petitioner a fund in the receiver’s body hands, these and furnished within six necessary supplies other months, amount- "in all The claim for $6,804.49. ing ties, at least, “a necessary admitted to have been operating expense said railroad and said keeping using preserving fit and condition such.” The in a safe waives a $863.39 the receiver for claim the ties special against re- does 2 and but claim lien for ceived .June ties him on hand and not returned to after the receiver’s appoint- in case his whole claim is not allowed. The Circuit ment, affirmed decree of Court of the Circuit Court Appeals es- a six this claim as months’ claim, tablishing denying body of fund, cer- right go against whereupon this court. 109 tiorari allowed Fed. Rep. 220. 124 Fed. *4 as one in which there has been
The case stands no diversion which the income mortgagees profited, other- main is the and the wise, question general one, whether in such necessary a a claim furnished supplies case within six the receiver was should appointed, months be before charged fund. are no on There corpus special circum- whole, a the claim as anti if it is affecting stances charged if down only by laying can a rule that general are. entitled to precedence claims for supplies over lien 187 y. METROPOLITAN Opinion, of the Court. U. S. created recorded before contracts by mortgage expressly An such a were made. that impression supplies general of this rule was to deduced the decisions court led to of it evidently application England New R. unwilling 54, 75 Fed. Carnegie Co., Co. v. perhaps are of reasons other But we that need no opinion, cases. Loan further' Kneeland v. American & Trust statement, Co., rule the other 89, 97, general way, U. S. has been the other way by court. recognized being relied on for
The case principally giving priority is Miltenberger claim for supplies Logansport Railway while 286. But of some payment pre claims was sanctioned it was case, existing expressly stated that “the of such debts payment stands, prima facie, on a different basis from the of claims under payment arising of such allowance as receivership.” was made ground not merely for the necessary pres ervation of the but that road, payment necessary to the business of the road —a very proposition. In different. character wholly later cases exceptional allow ance is observed and marked. Kneeland v. American Loan 89, 97, & Trust 136 U. S. 98. Thomas v. Western Car U. S. & Alabama 95, 110, 111; Virginia Coal Co. v. Central In Banking Co., Railroad & Union 355, 370. Trust Co. v. Illinois Midland Ry., 434, 465, labor claims within six months before the accruing receiver were allowed without but the special discussion, prin laid in the case down had been ciples repeated and the allowance was judgment said to be in accordance with It would them. seem from St. Louis, Alton &c. R. R. v. Cleveland, Columbus &c. Ry., 125 U. S. 658, 673, 674, that in both those cases there was diversion of earnings. of the road is employes more certain to be order to than keep running the payment other class of incurred debts. previously
Cases like Union Trust Co. v. Souther, where *5 TERM, 1904. 188 Opinion of the Court. the receiver authorized him debts pay the order appointing income, furnished within six months out of or supplies for labor theory which has been special developed stand afford no for a on the income, authority charge regard U. Burnham Schall, 235; of the fund. Fosdick v. S. body & Texas Rail 776; Morgan’s Louisiana Bowen, v. Co. v. Texas Central Steamship Ry., road & Coal v. Banking & Alabama Co. Central Railroad & Virginia Ry. Carnegie U. Co. Southern Co., 170 that the have a claim petitioner may It agreed S. 257. if any, the hands earnings, surplus against us is not before here. . that question but (cid:127) the receiver did not appointing go beyond The order mentioned, gave which we distinction he had before. than After right new or higher directing him authority, certain not things, gave him to do did various him author- him, payments. to make gave direct pay employés, “to officials and things, other ity, among claims for materials and wages, services, persons having other become due and out of .unpaid growing due and to railroad of the cur- defendant, operation including vouchers; to settle accounts rent unpaid incurred,in of the railroad of the defendant company; pay operation accrued or any and all any obligations accruing upon equip- trust made the defendant railroad and for ment company; as well as the obli- purpose, purpose such meeting he rolls,” “in his pay authorized, discretion, gations súch sums of money borrow thirty-five thousand But said exceeding ’dollars. purpose,, no claims railway, will the said pay against receiver due more' than six months which have accrued the purposes this order.” whether questionable date-.of than were other for which the borrowed might if trust debts and rolls. even equipment pay paying in the order authorized a on the order charge words claims like that of them pay petitioner, METROPOLITAN Opinion the Court. S.U. *6 it there are none income, certainly. requiring except to for receiver, if, the authority instance, beyond giving of debts to con necessary the previous payments he thought A of strict construction the road. operation tinued decision of the is warranted the same Cir previous decree Trust Co. v. of International T. B. Town cuit Court Appeals Brick & Fed. 850. Contracting Co., send later, A few on June the receiver days 7, 1897, applied to received leave issue certificates “for up $200,000, and car and trusts, matured, the paying maturing pay purpose balances, on terminal traffic and property, interest taxes rolls, created and about the sundry other maintenance obligations within of said railroad six months next operation and preced- the of a receiver herein.” appointment By ing following July 7, $30,000 a further decree on these certificates were for land the- payment bought company, $135,000 applied pay rolls, to car trust current obligations, necessary repairs expenses road, $35,000 the to the operating pay for the The previous April May. rolls petitioner sug- latter' that the decree was a diversion of gested funds in the terms the which, by order the authorizing certificates, he entitled to and that the share, payment was the May labor entitles him to come in April for the on princi- It is not to answer this equality. ples .contention at order the length. original gave petitioner no such as he It would have been a stretch of rights asserts. authority receiver in his discretion apply borrowed money least debt. At he was not bound do to this so. The peti- on which the order was original tion made stated that money was wanted to pay certain “or obligations, so much as may thereof be necessary,” embodying distinction which have drawn we from the We already cases. have intimated that payment railroad hands stand on might stronger than the past if grounds pay- —and it ment was would not be wrong righted by making another, less obviously scope decree. TERM, White, JJ., dissenting.
McKenna, Harlan is no special that there finally, of opinion, We are on hand and used by ties S3,200 with regard worth-of It is said that the pur after his appointment. the receiver after it had defaulted, railroad chase bonds, of its fraudulent, interest had, entitled to take back the ties but would have been to this of the receiver. answers for the numerous. It does not appear are contention again Farwell, ties was fraudulent. Donaldson v. purchase likely and is not It does not appear, U. S. 631. pay intention the price. the. company bought insolvency. that it concealed its The de It' not appear does of the bonds fact. public Again, interest fault *7 if he had petitioner, whether had speculation is a mere back the He did not have demanded ties. would the right, likely It is that if he of the receiver. quite demand them he would have- taken his whole truth chances. had known the he to have known is the form of likely that is least The thing therefore, it is receiver, and, probably him to wait. should not that encouraged fiction said, as we have him him, because, gave have encouraged receiver used the ties is of no The fact that rights. of the already road, were They property importance. his business to use them. The material point and was when were the time when they used, they time not the were acquired.
Decree affirmed. with whom concur Justice McKenna, Mr. Mr. Justice White, Mr. Justice dissenting. Harlan n opinion to concur and the I am unable justifies involved an expression of the questions importance dissent. my of the ground claim, from a to quote arises from the controversy “for cross ties essential to the re- Appeals, Circuit Court operation current decayed of ties the rail- placement METROPOLITAN TRUST White, JJ., dissenting. McKenna, Harlan were on hand when the receiver A proportion road. large were used him in the maintenance of was appointed, purchased six months They roadway. and under circumstances receivership, before the indicating would be for out of current they paid expectation an meritorious every respect The .claim is highly income. one.” of counsel supplemented stipulation
This description “necessary claim is for operating expenses that the keeping said in a said railroad fit preserving and using , The claim is denied, safe condition.” affirming judg- body out of the of the fund court, payment ment of the lower receiver; why? That decisions of in the hands be construed as of claims may this court extending “An so far is conceded. It is said: for supplies impression such a rule was be deduced from the decisions general of it evidently application of this court led to unwilling Carnegie R. R. Co. v. 75 Fed. England New in other cases.” perhaps hardly concession exhibits the the sanction strength at circuit, and, which the rule has received neither apparently, nor but in the desire only ascertain unwillingly,, willingly * what has decided and to I refer this court follow it. Louis Trust Co. v. decided the Circuit Riley, St. Court of Circuit, 16 C. C. A. Finance Com Appeals Eighth &c. R. in Circuit Court of v. Charleston Appeals pany *8 Circuit, Fourth C. C. A. New York Guaranty & 323; Co. v. Tacoma & M. Indemnity Railway Co., Circuit of of the Ninth Appeals Circuit, Court 83 Fed. Rep. 365. Thomas v. Peoria &c. Ry., See also 36 Fed. Rep. 808; Farmers’ Trust Kansas Loan & Co. v. &c. Railroad Fed. Co., Rep. Farmers’ Loan &c.Trust Co. v. Northern R. R. Pacific Fed. Atlantic Trust Co. v. Rep. Woodbridge Canal & And Fed. even Irrigation Co., the Sixth Circuit, 39. case now from whence the comes. pending Central Trust V. Tennessee, v. East &.G. R. 80 Fed. Company Rep. 624. TERM, White, JJ., McKenna, dissenting. Harlan and at and much circuit, There is this strength agreement as my with but, that was said could quoted advantage, of I court, must be the decisions shall ultimate reliance of to an examination them. immediately proceed 286, v. Milteriberger Logansport Railway it is the important is one of the most cases. Indeed and is carried into and in a number case, approved leading cases. The decisions which precede it, including subsequent I v. S. are understood. Schall, assume, Fosdick 99 U. may, however, be noticed. Loomis, Wallace 97 U. foreclose, a a to on in which railroad, It was suit mortgage a The receivers were authorized appointed. suit a receiver loan to be issued money by by them, (cid:127)to raise certificates “ repair, road and and to property complete any to put thereof, stock, to portions procure rolling uncompleted so road to best operate advantage, and to manage and to deteriorating, further as prevent property same for benefit and interest of the preserve save and an interest bondholders, and others having first mortgage order, and the decree of obeyed, The receivers therein.” due on the receiver’s certifi- amount the court “declared hands lien in their be a thaN property cates to the decree bonds.” This court sustained of the first mortgage as -follows: re- appoint
“The a court of power managing when under its as taken railroad, ceivers encumbrances, a trust fund for as .charge (cid:127) money necessary receivers to raise for the authorize such make the management property, preservation cannot, lien thereon its.repayment, same chargeable is a seriously juris- disputed. part at this day, by. which it is its duty exercised always by. diction, is, in its hands. the trust funds protect preserve caution; to be exercised with power undoubtedly, great consent or the parties if possible, acquiescence the. in the fund/.’ interested
GREGG METROPOLITAN TRUST McKenna, White, JJ., dissenting. Harlan The expressed applied principle' case was The receiver appointed empowered case. four four cars, the court to by purchase engines, passenger certain indebt- cars; adjust and one hundred new coal also and to lines, $10,000, edness connecting exceeding of road and build a $30,000 five miles of expend complete the and to enter into contracts therefor. With required bridge, “as the the of the road were expenditure, earnings charged a first lien encumbrances said road.” prior The of this was of the order contested. legality Speaking court intended authority said: conferred “was the res in the hands of the which was the court, to benefit as covered property, entire both mortgaged mortgages,, , and not of merely of redemption mortgagor make it second And the against mortgagee.” power the court from Loomis as decided, Wallace v. quoting “the covers above, thus observing principle recognized here of objections most urged.” payment due to lines of road for materials and repairs, etc., connecting was also sustained. thus not only appears expendi- made after the but debts appointment tures incurred were directed to be appointment, paid out of the its corpus property. decision, Justifying court said: cannot be that no which accrued before
“(cid:127)It affirmed items of a receiver can'be case. allowed circumstances exist make it Many may may to the business the road and the and indispensable preservation of the receiver debts certain property, to'pay'preexisting of of classes, earnings out or even the receivership, with a under order property, priority lien. Yet the discretion to do so should be exercised with very great care. The stands, such debts payment facie, prima basis claims under the arising different brought while within the receivership, principle latter special circumstances. to see easy pay-
VOL. oxovii—13 TERM, *10 JJ.,
McKenna, White, dissenting. Harlan and for ment of debts accrued within unpaid operating expenses, due a railroad ninety days, suddenly deprived of the due to in its operatives control its property, employ, simultaneously whose work is to cessation from be depre- in both of the and of the cated, the interests property public, limited and amounts due to other paj^ment for lines of road materials and for’un- repairs connecting balances, the outcome of ticket paid freight indispensable where a relations, business continuance of stoppage be a business relations would in case of probable result, such consequence non-payment, largely, also,' general involving and accommodation of travel and the interests traffic, in well such place payments to payments category the. in a sense, main- preserve mortgaged property large good-will enterprise, taining integrity made a first This entitle them to be lien. view of the public a in for use as public interest a railroad as highway is, the maintenance use of its franchises and bearing the hands of a a view to public subject was the of approval convenience, speak- Woods, Mr. Justice Barton v. Barbour, 104 ing through furnish no basis for appellants questioning in respect amounts allowed to the arrears referred any specific to the allowance object but' out. the sale of to, anything for such expenditures. Under all the circum- we of this see no valid case, objection the provi- stances of the orders of.” complained sions is not it is overruled; The case and the distinguished, dis- to be based upon seems the difference between sup- tinction the road and payments preservation necessary plies of the road. business Is not the distinction questionable? be done of a road preservation that is anything Can If for its business?” a can how distinction be made, done to the business must a be? Is not immediate as stream indispensable across “accommoda- bridge travel traffic” as “unpaid ticket and tion bal- freight METROPOLITAN i'J5 dissenting. White, JJ., McKenna, Harlan and _S. 197 U. bar) not “the at replacement case (as
anees?” Or as the indispensable current operation” decayed of ties labor claims It is conceded that of laborers? Ry., in Union Trust Co. v. Illinois Midland to be paid decreed not the other? What distinction why Then U. S. 434. many be in expenditures can there in principle concern? railroad keep which are things sub are declared subordinate Let expenditures how can and it mortgage, understood. sequent value be made- in and preferential payment can a distinction indispensable things?' between equally *11 and the later cases observed however, It is said, the character of allowance” wholly exceptional marked “the case, The Kneeland U. S. Miltenberger in case. made the and & Alabama Coal Virginia case, Thomas & are cited. Banking Railroad Co. v. Central If meant the in- may be made. it is Two deductions not at concerned with I am exceptional, present stances were Iwas, If it meant cannot assent. principle it. in is one to care application principle Admonition its the Milten- another; overthrow principle thing, been & Virginia case has never overthrown. berger Alabama Railroad & Co. the other Banking explains Coal Co. v. Central cases. It involved the for coal before supplied two aof receiver. There was income appointment surplus the point under in the receivership, discussion during directly at bar was not there were some presented. case which are of They made value. observations remove diver- of income as an elemerit of sion decision confusion. It was immaterial declared to be invoked the claim equity whether there had been income the company diversion before of the receiver or appointment afterwards - only and it necessary to consider whether the was confined I think was equity surplus that it earnings. There not so confined. were surplus the prin- earnings, which them was alone established contested ciple equity TERM, dissenting. White; JJ., McKenna, Harlan was alone to be decided. The decision made a review and an carefully upon estimate cases. the Kneéland case and the case admonitions of Thomas and in connection them, overlooked. Regarding from, case was and not them, quoted it, left and from as well only undisturbed, approved, .as deduced the cases, from other which was principle ap- And that has its foundation principle plied judgment. A railroad, from its nature and public public interests. This is the must concern. responsibilities, kept necessity, affords test invoked supreme the claims for It cannot supplies. depend upon diversion of income. of income or existence cannot be con- upon contracted during receivership. may fined to debts debts contracted before the extend to that there be some receiver. But limitation must recognizing have fixed six months the period the courts time, claims accrue. And there is in- preferential Their interests are rights mortgagees. fringement are, by the railroad in served, public as those keeping limitations the rule dependent operation. are furnished are under which expressed conditions Alabama Coal Co. Central Railroad Bank- Virginia & & Ry. Southern Co. v. Carnegie ing supra, *12 U. S. 257. controversy claim in is within the manifestly rule. crops we “for ties essential to the seen, replacement is, In current other used decayed operation.” words, of ties the business the comes even road, in and ..implies fnay the limitation the court be on put There is another consideration which the. case. in addition to or independently urged general of the value were used receiver by rule. Ties his circumstance summarily This is too .appointment. after “The material it is is,” from consideration. point dismissed said; when when they used, “not the time .time DAVIDSON.
CARO Syllabus. TJ. S. A and seems to make declaration, broad they were acquired.” receivership non-preferential. claims before the accruing the remark and not intended, extending This is not probably we the sub- is not of use if far, important regard so the time that we are It must not be overlooked stance things? be said What would considerations. dealing equitable of an the receiver for to displace decaying ties expenditure by ones if those furnished not been at hand? had it to have not, Was at for a court least, competent equity restored the ties application petitioner? upon is mere if he “It would have- said, however, speculation demanded back the ties.” He was not given opportunity. “he have taken chance?” suppose would his Of what what assurance? Certainly upon assurance, addition to his that a court of would general equity, not his deliberately use its the re- officer, through the business of ceiver, road, interest whose affairs not find in its powers means administering, to order right used. property so CARO v. DAVIDSON. TO THE SUPREME COURT OF THE STATE OF ERROR FLORIDA. March
No. 196. Submitted January 23, 13, 1905. 1905.Decided title, right, privilege immunity, or specially Where the record discloses up Constitution, States, or set claimed under law of the United decision, nor,any which was denied of an assertion infraction of any provision Constitution, right- review this court is based on the validity contention that under the Constitution of a necessarily question sustained, state statute is drawn .the writ validity will dismissed a definite unless issue as to the of such statute distinctly appears deducible from the record and judgment grounds involving not could have rested its validity.