108 F. 5 | 6th Cir. | 1900
after making the foregoing statement of the case, delivered the opinion of the court.
The attitude of the appellant as a general unsecured creditor of
“We must not be understood as saying that a general, unsecured creditor of an insolvent railroad corporation in the hands of a receiver is entitled to priority over mortgage creditors in the distribution of net earnings simply because that which he furnished to the company prior to the appointment of the receiver was for the preservation of the property and for the benefit of the mortgage securities. That, no doubt, is an important element in the matter. Before, however, such a creditor is accorded a preference over mortgage creditors in the distribution of net earnings in the hands of a receiver of a railroad company, it should reasonably appear from all the circumstances, including the amount involved and the terms of, payment, that the debt was one fairly to be regarded as part of the operating expenses of the railroad incurred in the ordinary course of business, and to be met out of current receipts.”
The same conclusion might be reached upon the ground that it does not appear that there are any funds growing out of the receivership which remain to be applied to debts of the income or upon the mortgage debt. Fosdick v. Schall, 99 U. S. 235, 254, 25 L. Ed. 339. If the demand of the appellant is to be paid at all, it must be paid out of the proceeds of the sale of the mortgaged property of the railroad company at the expense of' the mortgagees. But before this can be done it must be made to appear that there has been a diversion of current earnings, by which this complainant has been deprived of his equitable rights, and that the mortgagees should equitably restore to the fund liable to the payment of debts of the income the fund thus diverted. In International Trust Co. v. T. B. Townsend Brick & Contracting Co., cited above, we had occasion- to consider the circumstances under which the proceeds of the corpus of á mortgaged railroad might, be applied to the payment of an unsecured creditor in preference to the mortgagee, and said:
“But, if there bas been no diversion of the current income, either before or after the appointment of a receiver, and no ‘surplus income’ during the receivership, out of which unpaid debts of the income can be paid, upon what theory can the proceeds of a mortgage foreclosure sale be applied to the payment of such debts against the objection of mortgage creditors? If nothing has been diverted from the ‘current debt fund,’ if there has been no augmentation of the fund applicable primarily to the satisfaction of the mortgage creditors, is there any just or equitable reason for requiring a restoration where nothing has been improperly received? We think in such cases the court has no power to displace contract rights, and neither Fosdick v. Schall nor any of the eases*9 which have followed it afford any sufficient authority, when rightly understood, in opposition to this view. These ‘debts of the income’ are an ‘equitable charge’ only upon the ‘current income’ of the mortgaged railroad. If such debts remain unpaid when the railroad passes into the possession of a court of equity, this ‘equitable charge’ is continued, and attaches to the ‘surplus income’ arising under the receivership. If this surplus income is not applied to the payment of the debts to which it is primarily devoted, but is expended for the benefit of the mortgagee, as in payment of interest, or in the purchase of property which passes under tiie mortgage, or in betterments of the railroad itself, an equity arises, as a consequence of such diversion, which will justify a court of equity in requiring the mortgagees to restore to the income that which has been taken away. The power of the court to displace mortgage liens in favor of such unsecured debts of the mortgagor depends upon the fact that the current income, either before or after the receivership, has been diverted to the benefit of the displaced mortgage; and the extent to which the corpus of the mortgaged property can ho called upon to pay such debts of the income is limited by the amount of the diversion.”
There is nothing in Southern Ry. Co. v. Carnegie Steel Co., cited heretofore, which casts any doubt upon this restoration doctrine as. declared in Fosdick v. Schall, 99 U. S. 295, 25 L. Ed. 339, Burnham v. Bowen, 111 U. S. 77(5, 783, 4 Sup. Ct. 675, 28 L. Ed. 596, and in St. Louis, A. & T. H. R. Co. v. Cleveland, C., C. & I. R. Co., 125 U. S. 658, (573, 8 Sup. Ct. 1011, 31 L. Ed. 832. Upon the contrary, the decree in that case was predicated upon the fact that there had been a diversion of income “in paying interest, sinking fund, and contract debts, and for construction and equipment, which were all for the benefit of mortgage creditors, and which, to the extent necessary, should have been applied in payment of preferential claims, including those of the Carnegie Company.” 176 U. S. 294, 295, 20 Sup. Ct. 362, 44 L. Ed. 474.
The special master, who was directed to take proof and report his finding of facts, reported, among other things, “that no testimony had been offered to show that there has been any diversion of current earnings to the payment of interest, or to the purchasing of equipment, or the making of permanent improvements.” An exception to tliis finding was overruled by the circuit judge. The only assignment of error which bears upon this finding of fact is the first, which is in these words:
“(1) The said circuit court erred in overruling each and every of the several exceptions of the said intervener to the finding and report of the special master, and in approving and confirming the said special master’s findings and report.”
Rule 11 of the rules of this court (31 C. C. A. cxlvi., 91 Fed. cxlyi.) requires that the assignment of errors “shall set out separately and particularly each error asserted and intended to be urged.” Nine separate exceptions were filed to the report of the master. The assignment is bad as including nine separate exceptions in one assignment, none of which are set out in the assignment itself. This finding of facts constitutes, therefore, the facts upon which the decree below was founded, and upon which this court must affirm or dis-affirm that decree. It follow’s that, if there was no diversion of income by which the mortgagees have benefited, which was applicable to the payment of the demand of the appellant, there is no basis for