delivered the opinion of the court.
Thе Peoria, Atlanta and Decatur Railroad Company was incorporated as an Illinois .corporation, in 1869, to construct a railroad from Peoria,,in Tazewell County, in a general southeasterly direction, through Atlanta, in Logan .County, to Deca- - tur, in Macon County. Such of the road as was constructed was built- in 1873 and 1874, from a'point five miles east of Peoria, on what is now the Wabash, St. Louis and Pacific Railroad, to a-place called Maroa, on the Illinois Central Railroad, thirteen miles north' of Decatur. It did not réach either Peoria or Decatur, and the company owned no station grounds or terminal facilities at either place, but used,, by lease, five
The Paris and Decatur Railroad Company was incorporated as an Illinois corporation, in 1861, to construct a railroad from Paris, in Edgar County, westwardly to reach Decatur. This road was constructed, in 1811 and 1872, from Paris to a point
The Paris and Terre Haute Railroad Company was organized as a corporation, under the general railroad laws of Illinois, in 1873, and the road was built' in 1873'and 1874. It runs east-wardly from Paris to Farrington, in Illinois, a point on the St. Louis, Yandalia and Terre Haute Railroad, seven-miles west of , Terre Haute, and the company uses, by lease, the track of the látter road to reach Terre Haute. On the 1st of April, 1874, the company executed a mortgage to the Union Trust Company, covering its franchises and its road and property, constructed and to be constructed, acquired and to be acquired, extending from Paris to the junction with the St. Louis, Yandalia and Terre Haute Railroad, a distance of about fourteen miles, to secure 280 coupon bonds, of $1000 each, payable to bearer, in all $280,000, carrying semi-annual interest at the rate of seven per cent, per annum, and payable April 1, 1894. The mortgage contained like provisions with the Paris and Décatur mortgage as to what might be done after six months’ default in interest, and as to taking possession of the property, and as to the powers of the trustee, and as to foreclosure or sale and disposition of the proceeds. This mortgage was delivered and ■ duly recorded.
On the same day the Paris and Terre Haute Company conveyed by deed/to the Peoria, Atlanta and Decatur Company, in consideration, that the latter company thereby assumed the pаyment of “ all the bonded and floating indebtedness ” of the former company, the railroad then in operation, described as extending from Paris to the line between Indiana and Illinois, “passing into the counties of Edgar and Clark,” including the franchises of the former company, and all its property acquired and to be acquired.
These purchases on these terms were authorized by the stockholders and directors of the purchasing company, and by the respective stockholders and directors of the selling companies, and the deeds ’ were delivered and duly recorded.
On November 2, 1874, the Peoria, Atlanta and Decatur Company, under the provisions of the general law of Illinois, changed its name to that of the “ Illinois Midland Railway Company.” On the 1st of January, 1875, that company executed to the Union Trust Company a mortgage covering all of its property, including that so purchased, to secure 8350 coupon bonds, of $500 each, in all $4-175,000, bearing semi-annual interest at seven per cent, per annum, and payable January 1, 1905. This mortgage was delivered and recorded.
On the 11th of September, 1875, Robert G. Hervey and two other parties filed a bill in equity in the Circuit Court of Edgar County, Illinois, against the Illinois Midland Railway Com: pany. It set forth that Hervey owned a majority of the stock ,of the corporations above named, and that the other plaintiffs were júdgment creditors of the Paris and Decatur Company,
On the same day the Illinois Midland Company appeared to the bill by attorney, and waived notice, and submitted itself to the court for such order in the premises as might in equity be right and propér, and' the judge of the court, at chambers, made an order appointing as receiver George Dole, of Paris, ’ and requiring, him to give a bond for $75,000, with security, -and then to “ forthwith take possession of all the personal, real and mixed property of every kind belonging to or in the possession of said Illinois Midland Railway Company, including the property formerly owned and possessed by the Peoria, Atlanta and Decatur Railroad Company, the Paris and Deca--tur Railroad Company, and the Paris and Terre Haute Railroad Company, and, if necessary, t'o sue for, in the name of said receiver, and recover, all the property of' said company or. companies, whether1 real, personal or mixed, and whether in possession,of in action.” The order also provided as follows,:
“ It is further ordered, adjudged and decreed, that said receiver be, and is hereby, empowered and directed to carry on. the business of said railway .companies until the respective rights of the parties in interest can be fully ascertained and determined, under and subject to the revision and direction of this court, and until otherwise ordered by this court, and to use and employ the property, franchises, rights of way, roadbed, tracks, locomotives, rolling-stock, machinery, fixtures, and' property of whatever kind or. nature; and said receiver shall be, and hereby is, invested with all the rights and franchises vested by law in said railway company or companies, in the execution of the duties and trusts aforesaid. Said receiver shall have authority to employ all necessary and proper agents, attorneys, officers and laborers, and to fix and .alter the compensation of said agents, attorneys, officers and laborers, subject to the revision of this court. Said receiver shall also have authority, subject to the1 revision of this court, to make such •repairs and necessary additions to said railway, -or railroads, ' and property, as may be essential to the interests and safety of . the samé, and proper in his judgment for carrying on said bus-'iness; also to make all contracts that may be necessary in carrying on the business of said company or companies, subject to like supervision of this court; also to collect in his own name, as receiver aforesaid, all debts, claims or demands, of wh'atever kind or nature, owing, or that may become due and owing, to the said company or companies, or to said receiver, from any and all sources. Said receiver is also ordered to make a full, true and correct inventory of all the property that may come into his hands as such receiver. It is further ordered, adjudged and decreed, that, out of the moneys that shall come into the hands of said receiver from the operation of said railway, he shall: First. Pay all current expenses incident to the creation or administration of this trust, and to the operating of said railway ór railroads. Second. Pay all sums-due or to become .due connecting .or intersecting lines of railroads, arising from the interchange of business-, and for track service of other railroads used by said Illinois Midland Railway - Company in the operation of its lines, and all amounts now legally' due from said railway company or companies for taxes. Third. Pay all amounts due to all operatives and employés and attorneys and agents of said company or companies, for any service rendered said company or companies since the 11th day of March, a. d. 1875. Fourth. Pay all amounts due for supplies purchased and used in operating said railway or railroads by said company or companies, for supplies furnished to laborers' and credited against their .labor, since the 11th day of March, a. d. 1875. Fifth. And all amounts due from said railway company for or on account of the rental of rolling-stock; and the money belonging to said railway company, except as heretofore directed, shall be held by said receiver until he is authorized to disburse the same under the order or decree of this court. Sixth. And said receiver is further authorized, in case it is proper in his judgment, with the sanction of the court, to use any balance of funds arising from the operating of said railway or railroads, for the purpose of protecting such of the real or personal property of said corporation or corporations, under lien, sale, pledge, mortgage or contract. It is further ordered, that, upon demand, the- said company or companies, their officers or agents, shall forthwith deliver over to the receiver all the property aforesaid, and that neither said company or companies, nor any officer or agent or employé of said companies, shall interfere with or molest the possession or enjoyment of any of said property in the possession of or placed under the control of said receiver. It is further ordered, that said receiver shall retain possession and' continue to discharge the duties and trusts aforesaid, until the further order of this court in the premises; and that he shall, from time to time, make report of his doings in the premises, and may, from time to time, apply to this court for such other and further order and direction in the premises as he may deem necessary and requisite to a due administration of said trust, v and said receiver is hereby vested, in addition to the powers aforesaid, with all the general powers of receiver in cases of this kind, subject to the supervision of this court.” The bond was given and was approved by the court, and at September Term, 1815, an order was made entering of record the order at chambers, and the receiver’s bond and oath, and directing him to proceed, as before ordered.
On the 16th of October, 1875, an amended bill was filed, the plaintiffs in which were-Hervey, and also William Waring, Henry Waring, and Charles Waring, partners, as Waring Brothers, and thirty-one other persons. ' It set forth that Her-vey then owned 27,500 shares, or $1,375,000, of the 32,000 shares, at $50 each, or $1,600,000, of the capital stock of the Paris and Decatur .Company; and 14,200 shares, or $1,420,000, of the 20,000 shares, at $100 each, or $2,000,000, of the capital stock of the Peoria, Atlanta and Decatur Company; and 4500 .shares, at $10.0 each, or $450,000, being the entire capital stock of the Paris and Terre Haute Company. It also set forth that Waring Brothers then owned one-fourth, or $500,000, of the capital stock of the Hlinois Midland’ Company; and 1543 of the bonds of that company; and 885 others of its bonds, which they had taken in exchange for 885 bonds of the Paris and Decatur Company, ofv like amount. The other plaintiffs were judgment and general creditors of the four corporations, whose debts, were stated at $Í08,112.23, on account of the
The further action of the court in regard to the receiver and his successors, and their proceedings, will be referred to hereafter, as questions in regard to those proceedings shall be considered.
On the 15th of February, 1876, Albert Grant and Maurice •Grant, partners, as Grant Brothers & Co., of London, and also James F. Secor, petitioned and were admitted to be defendants, and on the same day they filed their respective answers to the amended bill.. Grant Brothers & Co. claimed to own 1200, or one-half of the Paris and Decatur bonds, 1200 of the 1300 Peoria, Atlanta and Decatur bonds, and all (280) of the Paris and Terre Haute bonds; and that the lien of their bonds was .superior to- the claims of any of the plaintiffs.
The answer of Secor set, up his mortgage, and alleged that none of the interest due May 1, 1875, on the bonds' of the Peoria, Atlanta and Decatur Compahy, had befen paid, and he had been requested by the holders of a-majority of those .bonds to take steps to protect their interests; and that by the terms of the mortgage hе was entitled to take possession of the road for the benefit of the bondholders. He asked that the court ■ would order the receiver to turn over to him the property covered • by the mortgage of the Peoria, Atlanta and Decatur Company.
On the 4th of October, 1876, the Paris and'Decatur Com-' pahy and the Paris and Terre Haute Company were made defendants to, the bill, and they severally appeared on October 10, 1876, and at thfe March Term, 1877, put in answers.
At September Terna, 1877, the Union Trust Company was, • by order, made a • party defendant in the Hervey suit, “ with all the rights and privileges as though it had been an original defendant,” on its petition setting forth a default. July 1,1875, • in the payment of interest on the Paris and Decatur bonds, and that it had demanded and been refused payment of such interest, and that the principal and interest of the bonds had become, due, and that a^majority of the holders of the-bonds had required it to proceed to foreclose the mortgage ; and that the same was true as to a default October 1, 1875, in the payment of the interest on the Paris and Terre Haute bonds, and as to , a default J uly 1, 1875, in the payment of the interest on the Illinois Midland bonds.
On the 15th of February, 1878, the Union' Trust Company filed a bill in the Circuit Court of the United States for the . Southern District of Illinois, against the Paris and Decatur Company and the Illinois Midland Company, to foreclose the - Paris and Decatur mortgage, alleging a default January 1, 1876, in the payment of interest on the Paris and- Decatur bonds; that the Illinois Midland Company, in issuing its 8350 bonds, intended to exchange them, dollar for dollar, for the bonds of the other three corporations; and that more or less of the Paris and Decatur bonds wеre exchanged, and some were, on exchange, marked cancelled, but the persons who exchanged them claimed that the purchases by the Peoria, Atlanta and Decatur Company of the other two roads were void, and that the bonds issued by the Midland .Company were void, and that the exchange and cancellation of the Paris and .Decatur bonds were void, and that those bonds remained the property of their former owners.
On tbe same day Secor filed a bill in the same Federal court, against tbe Illinois Midland Company, to foreclose tbe Peoria, Atlanta and Decatur mortgage, alleging a default May 1, -1875, in tbe payment of interest on the Peoria, Atlanta and Decatur bonds.
■ On tbe 6th of April, 1878, by an order of the State court, tbe Hervéy suit was, on a petition filed by tbe Union Trust Company, removed into tbe Circuit Court of tbe United States for the Southern District of Illinois.
On tbe 13th of August, 1879, the last two suits brought by the Union Trust Company and tbe suit brought by Secor were consolidated by the Federal court.
On tbe 31st of August, 1881, Abe Freidenberg, on behalf of himself and other holders of Paris and Decatur bonds, filed a bill to foreclose the Paris and Decatur mortgage, in the same Federal court.
The last two suits brought by the Union Trust Company, the suit brought by Secor, the Hervey suit, the Freidenberg suit, and a suit which had been brought in the same Federal court, by the Kansas Rolling-Mill Company, in January Term, 1879, against the Illinois Midland Railway Company and others, were consolidated by ah order made June 23, 1882.
Many of the contested questions in these cases arise out of the -transactions of the receiver originally appointed and his successors, especially in issuing reсeiver’s certificates; and the contest, as presented to this court, is substantially one between ■the Paris and Decatur bondholders on one side, and those, who claim a priority of lien over the bonds on the other.
On the 31st of August,'1876, Richard J. Rees was, by an order made at chambers, by the Judge of the State court, in
On the 18th of April, 1883, the commissioner made a report, as to the matters referred to him, to which exceptions were filed by Freidenberg, by the Union Trust Company and Secor, and by judgment creditors of the Pаris and Decatur Company, and by Adams and Orvis. On the 7th of June, 1884, the commissioner filed a supplemental report. He also reported the testimony taken before him. The cases were brought to a hearing in the Circuit Court before Mr. Justice Harlan, (all1 orders made in them prior to that time, in the Federal court, having been made by the District Judge), and he passed on the various questions raised, in an opinion filed February 29,
,The commissioner made his report on the 15th of January, 1885, accompanied by the additional testimony he had taken. Freidenberg and other holders'of Paris and Decatur bonds filed exceptions to it, as did Waring Brothers and certain judgment creditors of the Paris and Decatur Company and of the Illinois Midland Company. N'
The case was heard in the Circuit Court by Mr. Justice Harlan, and on the -3d of June, 1885, a final decree was en
It will be proper to first consider the question of the receiver’s certificates.
The final decree declares that the lien of the Paris and Decatur bonds is subject to certain receiver’s certificates of the 8th,. 12th, 14th, 16th, 17th and 18th series, which are to have priority in payment to the Paris and Decatur bonds, out of the proceeds of sale of the Paris and Decatur road, and which amount, with interest to January 15, 1885, to $200,408.87.
There are six certificates of $5000 each, of the 8th series, bearing ten per cent, interest. They, were issued undеr an order made October 9, 1876, which states, that the court finds that the entire line from Peoria to Terre Haute is in great need' of immediate repair, and in an unsafe condition to be operated, and'that the line between Paris and Decatur is in a worse condition than anjr of said line, and requires an immediate outlay, for iron, ties, and other materials, ballasting and labor, to put it in a safe condition, of $34,076, and authorizes the receiver to borrow $34,360, to be expended in repairing the Paris and Decatur road, and to issue receiver’s certificates therefor in sums of $5000 each, bearing'ten per cent, interest, and declares that the certificates
“
shall be a first lien on the right of way, iron, ties, bridges and entire rail way property on said portion of the line between Paris and Decatur.” The
■There is one certificate of.the 12th series, for $32,475.20, with ten per cent, interest, issued under two orders, to borrow' money to pay off tax liens, the orders declaring that it should be a lien on the Paris and Decatur line superior to the mortgage and to all prior certificates. It was taken at-par. ’When ' it-was issued the legal rate of interest was eight per cent., ten per cent, having been the legal rate at the time of the first order, and having been the rate specified in that order, and the authority conferred, by the first -order being made pari of the second. The commissioner states that the only dispute was as to the rate of interest; that the money was advanced under the first order, made July 26, 1878, before the issue of the cir-tificate,and at a time when the legal rate of interest was ten per cent.; that that order authorized the sale of the certificate at ninety cents on the dollar; that the mortgagees and bondholders waive any plea of usury, and the corporation itself could not plead usury; and that that defence was made only by the trustee for the holders of surrendered bonds and by judgment creditors. The commissioner reported it ■ as his opinion that the certificate shоuld have effect, as to its amount and lien and rate of interest, as authorized, and according to its purport. ■ The Circuit Court confirmed this view.
There is one certificate of the 14th series, for $4376- and eight per cent, interest, issued under the before-named order of October 9, 1876, and a subsequent order made January 29, 1881, for money’to repair the Paris and Decatur road, being for the balancé of money authorized' by the first order, the second order declaring the like lien as the first order. -
There is one certificate of the' 16th'series, for $9505 and ■ eight per cent, interest, and th’re.e certificates of the 17th series, two of them for $10,000 each, and one for $5495, all with eight per cent, interest, issued under an order made June 29, 1881,, which set forth that it was necessary to the protection of the railroad property that an outlay should be made forthwith for betterments ; and authorized the receivfer to expend in better-ments on the line between Paris and.Decatur, $35,000, and to
There are four certificates of the'18th series, three of them for $10,000 each, and one for $8,288.98, all at eight per cent interest, issued under another order made June 29, 1881, which set forth that the receiver had expended on the Illinois Midland road, for side tracks and other betterments, $80,031.98, of which $42,664.98 had been expended on the line between Paris and Decatur ; that of the $80,037.98, $63,037.98 had been paid out of the earnings of the line, of which $38,288.98 was expended on the line between Paris and Dеcatur; that the earnings of the whole line had not been sufficient to meet the usual expenses of operation and the ordinary repairs of the permanent way ; and that the receiver had incurred unpaid debts to a larger amount than $63,037.98, in the usual operation of the line and in ordinary repairs of the permanent way. The. order approved and confirmed the appropriation of the $63,-037.98 out of the earnings in payment for betterments; declared that that sum was a special charge and lien on the several portions of the line in proportion to the amounts .expended on the respective portions; and authorized the receiver to issue certificates to the amount of $38,288.98, at eight per cent, interest, as representing so much of the $63,037-98 as was ex1 pended for betterménts on the line between Paris and Decatur, the same to be a special charge and lien on the line and railroad property between Paris and Decatur, superior to all liens and debts except receiver’s debts before declared by order of court to be special - charges and liens on that portion of the railway; and the certificates to be sold at not less than ninety cents on the dollar. The certificates were sold at a discount within that permitted.
When the order of October 9, 1876, 'was made, under which the six certificates of the 8th series were issued, neither the trustee nor any of the bondholders of the Paris and Decatur Company Avere parties to the suit. But before any other order Avas made under which any of the sixteen certificates referred to were issued, the Union Trust Company had become a party to the Hervey suit as trustee in the Paris and Decatur mortgage, and the default in the payment of the interest on the Paris and Decatur bonds had occurred by January 1, 1876.
The certificates of the 8th and 14th series Avere issued 'for necessary repairs; that of the 12th to pay tax liens ; those of the 16th and 17th for betterments; and those of the 18th to replace earnings diverted from paying for operating expenses and ordinary repairs, to pay for betterments, while debts to a larger amount had been incurred for the operating expenses and ordinary repairs.
In regard to the certificates issued for necessary repairs there can be no doubt, either on authority or on principle. In
Wallace
v. Loomis,
Property subject to liens and claims and debts, of various characters and ranks, which is brought within the cognizance of a court of equity for administration, and'conversion into money, and distribution, is a trust fund. It is to be preserved for those entitled to it. This must be done by the hands of the court, through officers. The character of .the property gives character to the particular species of preservation which it requires. Unimproved land may lie idle, with only payment of taxes. Improved property should be rented. Movable property that is not perishable may be locked up and kept; but if perishable, it must be sold, by way of preservation. A railroad, and its appurtenances, is a peculiar species of property. Not only will its structures deteriorate and decay and perish if not cared for and kept up, but its business and good will will pass away if it is not run and kept in good order. Moreover, a railroad is a matter of public concern. The franchises and rights of the
The principle laid down in
Wallace
v.
Loomis,
was applied in
Miltenberger
v.
Logansport Railway Co.,
In allowing the certificates of the 8th and 14th series, for necessary repairs, with priority, the master acted, and we think properly, on the authority of .the cases of Wallace v. Loomis and Miltenberger v. Logansport Railway Co.
In this connection it is objected that in those cases the suits were foreclosure suits brought by trustees'under , mortgages, and that a different rule Should obtain in a case where the trustees or the bondholders do not come into court- initially, asking the aid of equity in the appointment of a. receiver. It is said that the Hervey suit was not such a suit. But the co-
In regard to the fact that neither the Paris and Decatur bondholders nor their trustee were parties to the suit when the order of October 9,1876, was made, the commissioner took the view, which the Circuit Court confirmed, that while they ought to be heard before the order was made conclusive against them, yet, as the objections to the merits of the order would not have been availing if made before it was entered, and the money had been actually and faithfully applied,’ under the order of the court, to the improvement of the mortgaged property, no equitable reason appeared why the bondholders should. keep the benefits and escape the burden.
The certificate of the 14th series was issued not only under the order of October 9, 187,6, but under that of January 29, 1881. The Union Trust Company was admitted, on its own petition, to be a party defendant in the Hervey suit in September, 1877. That petition stated that the interest on the Paris and Decatur bonds had been in default since July 1, 1875. The order of January 29,1881, was made'by the Federal court. The Union Trust Company had removed the Hervey suit into the Federal court in April, 1878, and had filed in that court a foreclosure bill on the Paris and Decatur mortgage as early as December, 1876, and another such bill in February, 1878. The interest on the Paris and Decatur bonds had been in default,
The principles properly applicable to this branch of the case were well expressed by Mr. Justice Harlan in his opinion of February 29,1884, as follows: “ Those who take receiver’s certificates must be deemed to have taken them subject to the rights of parties who have prior liens upon the property, and who have not, but should have been, brought before the court. While the court, under some circumstances, and for some purposes, and in advance of the prior lien-holders being made parties, may have jurisdiction to charge the property with the amount of receiver’s certificates issued by its authority, it cannot, without giving such parties their day- in court, deprive them -of their priority of lien. When such prior lien-holders are brought bеfore the court, they become entitled, upon the plainest principles of justice and equity, to contest the necessity, validity, effect, and amount of all such certificates, as fully as if such questions were then, for the first time, presented for determination. If it appears that they ought not to have been made a charge upon the property, superior to the lien created by the mortgages, then the contract rights of the prior lien-holders must be protected. On the other hand, if it appears that the court did what ought to have been done, even had'the trustee and the bondholders been before it when the certificates were authorized to be issued, the property should not be relieved from' the charge made upon-it, in good faith, for its protection- and preservation. Of these rules or principles the parties who inaugurated this litigation cannot justly, complain.
The propriety of the allowance of the certificate of the 12th' series for tax liens needs no argument, and we think the interest, as allowed, was proper.
As to the $35,000 of certificates of the 16th and'17th series, issued to pay for betterments, the present holders, who bought them directly from the receiver, had no connection with the case or with the parties. A question was made before .the commissioner that the receiver did not faithfully apply the money as directed by the court. He held, and the Circuit Court sustained him, that these purchasers were not bound to see to the application of the proceeds, citing the decision to that effect by Mr. Justice Woods, in
Stanton
v.
Alabama & Chattanooga Railroad
Co.,
It was also contended before the commissioner, that all that the holders of these certificates were equitably entitled to was the money they paid, and without interest, and not the face of the certificates and interest. The view taken by the commissioner and confirmed by the Circuit Court, was that, as the certificates were issued for debts contracted by the court, when it had jurisdiction of the parties and of the subject matter, to persons who in good faith invested their money for the benefit of the property in the possession of the court, the certificates should be paid according to their tenor, as authorized.' We concur in these views. It may be added that, as the order of June 29, 1881, authorized the certificates to be sold at not
In regard to what the order calls “ betterments,” it appears from the petition of the receiver, on which the order was made, that the $35,000 were tó be expended for ties, rails, new turntable and foundations, bridges and fences, on the existing line of road, and not for any new extent of road. An affidavit annexed to the petition, made by the roadmaster of the Illinois Midland Company,' states that, in order to place the railway in a suitable condition for the safe transportation of business, the expenditure contemplated was absolutely necessary. The commissioner finds that the money was expended in substantial compliance with the order of the court, and that the improvements made by the receiver no more than made up for the deterioration of the road, especially in view of its imperfect construction and inferior material from the beginning. This finding was approved by the Circuit Court.
As to the certificates of the 18th series issued to replace earnings diverted from paying for operating expenses and ordinary repairs, to pay for betterments, while debts to a large amount had been .incurred for the operating expenses and ordinary repairs, it appears by the petition of the receiver and the affidavit of the roadmaster annexed to it, on which the order .of June 29, 1881, under which the certificates were issued, was made, that the expenditures for new side tracks and better-ments so paid for out of earnings consisted principally of expenditures for road-bed, bridges, iron and ties, which were in a worn out and insufficient condition.
The commissioner and the Circuit Court rested the allowance of these certificates on what was said by this court in the case of
Fosdick
v. Schall
The general principles hereinbefore stated, on which the receiver’s certificates referred to are allowed, are those sanctioned in
Meyer
v. Johnston,
The strenuous contention on the part of the Paris and Decatur bondholders is, that a court of chancery had no *power, by a receiver, and, without their consent, to create, on the
corpus
of the property, any lien taking priority over the mortgage' lien. But these bondholders were represented by their trustee, the Union Trust Company. It filed a bill in the Federal court as early as December, <1876, to foreclose the Paris and Decatur mortgage, and it was made a party, on its own petition, to the suit in the State court, in September, 1877. The Paris and Decatur mortgage provided, that, in case of default for six months in paying interest on the bonds, (and such default occurred at latest on- January 1, 1876, and the six months expired July 1, 1876, more than three months before any order was made on which any of the certificates were issued), all the bonds should become due and the lien might be enforced, and the trustee might enter on the property, and operate it till sold, and make all needful repairs and replacements, and such useful alterations, additions, and improvements to the road as might be necessary for its proper working, and pay for them out of the income; and, also, that, in case of a default so continuing, the trustee might foreclose the mortgage by legal proceedings or sell the property by public auction, and should, in case of such sale, deduct from the proceeds all expenses incurred in operating, managing, or maintaining the road, or in managing its business, and thereafter apply the proceeds to pay the bonds. In the face of these provisions of the mortgage under which the bonds are held, and of the facts before recited as to the negligence of the trustee all the while the property was in the hands of the court, it does not at all comport with the principles of equity for the bondholders now to insist that the want of
The appellants Borg and. others also complain of provisions in the final decree, giving priority over the Paris and Decátur bonds to just and equitable proportions of the following items: (1) amount of wages due employes of ¡receivers Dole, Rees and Genis, as shown by schedulеs .1 and IÍ of the report of the commissioner,'the total amount being $76,820.90; (2) the indebtedness due from the receivership to railroad companies, as shown by schedule L of the report, amounting to $84,616.21; (3) the general indebtedness of the receivership, as shown by schedule M of the report, under the head of supplies, amounting, to $67,-787.76, and under the head of “ damages,” amounting to $5871.-04, and forty-four items under the head of “miscellaneous,” amounting to $32,937.49 ; (4) seven claims theretofore allowed and ordered to be paid by the court, amounting to $1493.18 ; (5) four claims on intervening petitions, allowed at $11,642.29; (6) amount of wages due employes of the Illinois Midland Company within six months immediately preceding the appointment of the first receiver, as shown by schedule II of the report; such equitable proportions of the receiver’s indebtedness and of the six months’ labor claims to be ascertained in the manner provided by the decree.
As to items (1) (2) (3) (4) and (5), while it is admitted that these debts were incurred for the ordinary expenses of the receivers in operating the road, it is contended that they are entitled to priority only out of the income, of the road, and not out of the proceeds of the property itself. Of course, such items are payable out of income, if any, before the
corpus
is resorted to, but that may be resorted to when the items are proper ones to be
It is contended, however, that, in the order of September 11, 1875, appointing Dole receiver, while authority was given to him- to carry bn the business of the road, and to make repairs and additions essential to its interests and safety, it was provided, that, out of the moneys he should receive from its operation, he should pay for the expenses of operation; that, he was not authorized by that, order to contract any debt which the receipts of.the road would not pay; that the terms of the order wеre such as to exclude the payment of any of the ex-. penses embraced in the six items above named out of any fund other than the receipts from the operation of the road; and that the orders appointing Rees and Genis were equally limited. But we think this view is not correct. The terms of these orders do not impair or exclude the ample authority which the court would otherwise have, and otherwise has, to. order the claims in question to be paid out of the property itself, with priority.
The claims' embraced in the six items have been carefully scrutinized and reported on favorably by the commissioner, apd allowed by the Circuit Court, within and in accordance with the principles above laid down, and we think that all of them, including the “ six months’ labor claims ” were properly* allowed.
The appellants Borg and others also complain that the final decree declares that the just and equitable proportion of the floating indebtedness of the receivership, and of the six months’ labor claims, so made liens prior to the bonds, shall be borne by and imposed upon the three several railroad properties, on the basis of the relative lengths of the roads, being for the-Paris and Decatur 67 miles, the Peoria, Atlanta and Decatur 60J, and the Paris and Terre Haute 13|-. It is urged that, in the total amount of debt to be thus apportioned among the several roads, there are included debts which, as against the Paris and Decatur bondholders, belong distinctively to the
In opposition to these considerations it is urged that, while they may properly apply among the companies which were parties to the sales and purchases, they do not apply to the holders of unsurrendered and unexchanged Paris and Decatur bonds, on the ground that they had nothing to do with the conduct of a joint enterprise, and could derive no benefit therefrom ; and that they denied, in the pleadings of their trustee, and now deny, the validity of the sales, and did not acquiesce in any act of union of the roads.
An argument is made that there was no affirmative legislative authority for the purchase and sale of the Paris and Decatur road. This question -was considered by the Circuit Court in its opinion, and it said that, while the question was by no means free from difficulty, it was inclined to think that the warrant for the purchase was found in the charter of the purchasing company ; and that, as the effect of the arrangement was to establish a continuous line from Peoria
vid
Decatur to Terre Haute, to be operated under a common management, and as there was nothing in the charters of the selling com-' panies expressly forbidding the arrangements they made with the purchasing company, and as what was done was fully executed, and its validity had never been questioned in a direct proceeding by the State or by those interested in the selling companies, it was not disposed to make the rights of the parties in this litigation depend upon the inquiry whether the contracts were technically valid or not. Its conclusion wаs
It is further contended, on behalf of Borg and others, that all of the receiver’s debt should be borne primarily by the Peoria, Atlanta and Decatur Company, in exoneration of the Paris and Decatur mortgage, on the ground that, by the terms of the conveyance from the Paris and Decatur Company to the purchasing company, the latter assumed “ all the bonded and floating indebtedness ” of the selling company. It is contended that, both from the contract and by general principles, the purchasing company is bound to bear alone all expenses that will impair the security of the Paris and Decatur mortgage, and especially the expenses of running the road as a public servitude; and that the court and the receivers are bound by the same limitation. The idea underlying this view is, that the receiver appointed by the court is merely the agent, of the purchasing company, and his management of the purchased road is merely a continuation of the management of the purchasing company. The view taken by the commissioner, and confirmed by the Circuit Court, was, that the receiver, as an executive officer of the court, was entrusted with all the properties committed to his charge, to use and preserve them, under the direction of the court, for the benefit of all parties in interest; that the receiver sustained the same relation to the bondholders of each of the constituent companies; that, as the property of each of them has been used and preserved for the benefit of its bondholders, it is equitable that each property should contribute its just proportion towards defraying the necessary expenses; that, as the Peoria, Atlanta and Decatur mortgage was executed more than two years before the purchase of the Paris and Decatur road, and as the obligation of operating the latter road, assumed by the purchasing company, was an ordinary liability and an unsecured obligation, the equities of the' Peoria, Atlanta and Decatur
Borg and others complain of the following part of the final decree:
“
That'Waring Brothers hold nine hundred and ninety-' four (994) bonds of the Paris and Decatur Railroad Company, from which the first five coupons have been detached, the numbers of which bonds are given in £ Schedule P — Exchanged Paris and Decatur bonds,’ attached to said special commissioner’s last mentioned report,” (filed January 15, 1885); “ that there is now due on said 994 bonds the principal sum of $497,000, with interest thereon as provided in said bonds and the coupons thereto attached, the principal and interest to this date amounting to the sum of $859,589.13 ; and that said Waring Brothers are entitled to the full benefit and advantage of said 994 bonds, the same as if said bonds had not been exchanged for those of the Illinois Midland Railway Company, and as if there had been no cancellation or attempted cancellation of thе same; and it is ordered by the court, that, upon the surrender into court, for cancellation, by said Waring Brothers, of bonds of the Illinois Midland Company to an amount equal to the said 994 bonds of the Paris and Decatur Railroad Company, then the said 994 bonds of the Paris and Decatur Railroad Company shall be held, and are hereby declared to be, in full force and unsatisfied, in the hands of said Waring Brothers, the same and with like effect as the other said valid outstanding bonds of the said Paris and Decatur Railroad Company, any exchange or cancellation thereof to the contrary notwithstandingand the special commissioner hereinafter appointed is directed to hold for cancellation-such.
The argument on the part of Waring Brothers, to sustain the above provisions of the decree in regard to the 994 bonds, is, that the Illinois Midland bonds, amounting to $4,175,000, were intended to be largely used in retiring, by exchange, the bonds of the three sectional roads, amounting to $2,780,000; that, in the agreements made between Hervey and Grant Brothers
&
Co., and between Hervey and Waring Brothers, and between Waring Brothers and Grant Brothers & Co., in regard to the issuing of Illinois Midland bonds, and the exchange of the bonds of the sectional roads for them, the underlying contract was that the three sectional companies should be legally consolidated, so as to make the new Illinois Midland mortgage to be issued a fir'st lien on the entire property; that the three parties above named owned, among them, all but a few of the Peoria, Atlanta and Decatur bonds, and all of the Paris and Terre Haute bonds, and a large portion of the Paris and Decatur bonds; that the agreement was, as understood by all parties, that the sectional bonds should be exchanged for the new Illinois Midlаnd bonds, dollar for dollar, and that, as to such of the Paris and Decatur bonds as should not be retired by exchange, an equal amount of the new Illinois Midland bonds should be destroyed; that, under this arrangement, Grant Brothers & Co. and Waring Brothers would surrender their sectional bonds, secured by sectional first mortgages, and accept in lieu thereof Illinois Midland bonds, secured by what would be a first mortgage on the three roads, subject to the unexchanged Paris and Decatur bonds; that the written contracts on the subject stipulated that the three railroads should be “ consolidated into one company under the name of the Illinois Midland Railroad Company;” that the purchases and fusion which took place were not a consolidation, within the meaning of the contracts; and that what was contracted for
' We are unable to concur in this view, and' are of opinion that what was done was a substantial compliance with the contracts. What Hervey did in procuring the sales of the roads, and the change of the name of the purchasing com- ' pany, and in making the new mortgage and bonds, was done with the concurrence of Grant Brothers
& Go:
and Waring Brothers. The exchanges made of the Paris and Decatur bonds for the Midland bonds were not isolated transactions, but followed ns parts of one transaction,'• by which the roads were united and the new bonds created and exchanged. The transaction contemplated by the contracts was fully performed, and the Paris and Decatur bonds, which Waring Brothers surrendered, were exchanged and surrendered specifically for can- ' cellation. In the contract of July 4, 1874, between Waring Brothers and Grant Brothers
&
Co., it was provided that 907 Paris and Decatur bonds held by Waring Brothers should be exchanged for 907 of the new bonds of the Illinois Midland Company, and cancelled. The evidence and the written contracts show that it was contemplated by the parties, including Waring Brothers, that such of the Paris and Decatur bonds as should not be surrendered and exchanged should retain their precedence over the Illinois Midland bonds, and their priority of lien on the Paris and Decatur property. In the contract between Hervey and Grant Brothers
&
Co., of July 4, 1874, it was agreed that the latter should retain in their hands Illinois Midland bonds equal in amount to any Paris and Decatur bonds which should be outstanding, and should cancel and return to Hervey all Paris and Decatur bonds which should' be exchanged by their holders for Illinois Midland bonds, and that if, after July 1, 1876, there should be any outstanding unexchanged Paris and Decatur bonds, Grant Brothers & Co., should cancel and return to Hervey an amount of Illinois Midland bonds equal to the amount of the then outstanding unex-
“ LONDON, February 17, 1875.
“ Received from Messrs. Waring Brothers, 885 bonds of Paris and Decatur Railroad Co., as per attached list, in exchange for a like number of Illinois Midland bonds, in fulfilment of first' clause of our agreement of July 4th, 1874, the difference'between' ' 885 bonds and 907 bonds mentioned in agreement having been 'drawn and cancelled between date of agreement and the present time, which 885 bonds of Paris and Decatur Railroad Co, are to be cancelled forthwith, in accordance with said agreement.
Geant Brothers & Co.”
In the agreement made as late as May 4, 1877, between Grant Brothers & Co. and Waring Brothers, it was agreed that the former should use their best exertions “ to obtain the' exchange of the outstanding Paris and Decatur bonds which have not yet been exchanged for Illinois Midland bonds, so as to complete the amalgamation.”
The exchange and surrender of the 885 bonds was a completed transaction. No surrender of any of the Paris and Decatur bonds by any one was made dependent on the surrender of any others of them or of the whole. Each person who surrendered gave up his lien under the. Paris and Decatur mortgage, and took one under the Illinois Midland mortgage, as it was,- and took the risk of its value. He left those who did not surrender to hold under the Paris and Decatur mortgage.
In regard to the other 109 Paris and Decatur bonds (to make up the 994 exchanged bonds now presented by Waring Brothers, as holders), each of them is stamped with the word “ cancelled,” and each has a hole punched through the signature of - the president of the company. In 1872, Waring Brothers purchased from Grant Brothers & Co. 928 Paris and Decatur bonds. . July 4, 1874, they still held 907 of them. February 17,- 1875, they had only 885. Afterwards Genis, acting- for them and for Grant Brothers & Co., brought Avith him from London to the United States-all the Paris and Decatur bonds Avhich had been surrendered by any one and cancelled, receiving them from the custody of Grant Brothers & Co. These bonds included not only the 885, but undoubtedly the 22 others mentioned in the receipt, and 87 more necessary,to make up the 994.' All of the 109 bonds being marked cancelled, and the evidence as to the entire 994 being what it is, it must be held that the 109, as well as the 885, were exchanged, surrendered and cancelled, and that the decree is erroneous and must be reversed in regard to-all of the 994.
The decree provides that the special commissioner,.charged with its execution as to a sale, shall first offer the three railroad properties for sаle each separately, and four locomotive engines (on which there is a specific lien) separately, and all other property acquired by the receivers otherwise than from said railroad companies separately, and, after having so offered said properties,'shall then offer the whole of them for sale
en masse;
and, if the highest bid received by him for the entire properties shall exceed the aggregate amount of the several highest bids for them Avhen offered separately, then the whole shall be struck off and sold as an entirety to the person making the bid, and the proceeds be divided into five parts, in proportion to the amounts bid separately, on the five constituent parts, and distributed to the lienholders and bondholders in the
Borg and others object to that provision, and claim that the holders of the unexchanged Paris and Decatur bonds are entitled to have a separate sale of the property covered by the Paris and Decatur mortgage. We have considered the views urged in opposition to the above clause, but are of opinion that under it, taken in connection with all the other provisions of the decree, 'the rights of the Paris and Decatur bondholders are sufficiently secured and that they have substantially the benefit of a separate sale. No one of all parties can get less by the sale in gross.
The appeal of the Union Trust Company does not cover any thing not embraced in the appeal.of Borg and others.
The appeal of Waring Brothers is next to be considered. They object that certain claims of theirs under the head of “ Miscellaneous ” in- schedule M to the commissioner’s report, part of the receiver’s indebtedness, aré by the decree declared to be subordinate to the mortgages and bonds of the three sectional roads, namely:
•• $30,322.09. Claim assigned by Terre Haute and Indianapolis Railroad Company.
$14,140.67. Terminal facilities at west end; assigned by Toledo, Peoria аnd Warsaw Railroad Company.
$54,900. Loan accountallowed by order of court, June 11, 1884.
$32,000. Loan account; allowed by order of court, June 11, 1884.
$29,064.84. Rees’ notes ; allowed by order of court, June 11, 1884.”
As to the $30,322.09, Waring Brothers bought the claim in August, 1877, from the Terre Haute and Indianapolis Company. The receivership owed that amount to that company for rent of track, materials supplied and traffic balances. The $14,140.67 was a claim bought by Waring Brothers, in September, 1877, from the receiver of the Toledo, Peoria and War
As to the items of $54,900 and $32,000, “ Loan Account,” tl}e commissioner, in his first report, made this statement: “ The Loan Account. Receiver Genis borrowed of the First National Bank of Terre Ilaute the sum of $57,400 for the current expenses of the road, upon which he paid $2500, leaving a balance due the bank of $54,900. He bad also a running loan account with McKeen & Co., another banking-house in Terre Haute, for moneys borrowed for the use of the road, upon which there is a balance due the bank of $32,000. These moneys were borrowed by the receiver as such, but the greater part thereof was further secured by the personal obligations of Mr. Genis or Waring Brothers. The transactions are, therefore, characterized by Mr. Freidenberg’s counsel, as the personal accounts of those parties, and not the accounts of the receiver as such. But, even if it were true that these moneys were those of Mr. Genis individually, < yet, if it were further true that Mr. Genis was authoi’ized to make the expenditures for the protection, reparation or safety of the trust estate, and if he advanced his own moneys for that purpose, he could, I think, on principle, have a lien on the trust estate for moneys so advanced.
New
v. Nicoll,
As to the item of $29,064.84, it consists of eight notes given by receiver- Rees, in May and December, 1878, as shown by
Waring Brothers also object because the final decree orders that_the “rents due Waring Brothers, for use of rolling-stock, as shown by Schedules U and W of ” thé final “ report of the special commissioner,” and “the sum of $21,099.43 due Waring Brothers for extraordinary depreciation of rolling-stock,” be subordinated to the mortgage bonds of the three sectional
Waring Brothers also object because the court did not, in the final decree, specifically allow ten claims of theirs, amounting to $67,488.81, set forth under the head of “Right of way claims and outstanding titles,” in Schedule I to' the second report of the commissioner,- and give- them priority to the mortgage bonds, and because that decree remitted the holders of those claims to such suits as they might “ properly bring in any court of competent jurisdiction against the company alleged to be liable thereon, or against the purchaser or purchasers” at the sale to be made under the decree. We see no error in the decree in this respect; nor in its failure to allow interest on the items of $4500, $9100 and $17,001.47; npr in jts failure to allow more to Waring Brothers for right of way, . land, buildings and mechanics’ liens, or to make any different provision from that made in regard to the use of any claims by them in payment of the railroad property, if they should purchase it; nor in its failure to give precedence over, the mortgage bonds to the claims of Waring Brothers, called “six months’ supply claims.
We come now to the appeal of S. A. Fletcher & Co. They are the holders of the three certificates of the 17th series, and the four certificates of the 18th series, before mentioned, and allowed with priority, and of seven other receiver’s certificates named in Schedule N to the commissioner’s second report, and allowed with priority, seven of the entire fourteen having been issued under one of the two orders before mentioned, each dated June 29, 1881, and the other seven under the other of those two orders. The Circuit Court, in its final decree, reserved for future determination all questions of the relative priorities and equities among those who were given liens prior to the mortgage bonds, in case the respective properties should not sell for amounts in excess respectively of the liens to which precedence was given over the mortgage
It results that the deerees are reversed so far as they allovi to Waring Brothers the benefit of the 994 Paris and Decatur bonds as unexchanged and tmcancelled bonds, and so far as they deny priority over the Paris and Decatur bonds to . the items of $80,322.09 and $14,140.67, and so far as they fail to provide that there shall be no priority or preference {with the exception above stated) among the debts and ■ claims, whether receiver’s certificates or other debts, which are allowed precedence over the mortgage bonds of any road; and the causes are remanded to' the Circuit Court, with a. direction to make those modifications in the decrees; and in all other respects the' decrees are affirmed. No costs are allowed in this court for or against any party, and the expense of printing the record is to be borne egually by Borg and others and Waring Brothers.