Union Trust Company v. Souther
107 U.S. 591
SCOTUS
1883
Check Treatment
*594 Mr. Chief Justice Waite,

after stating the case, delivered the opinion of the court.

It sеems to us that the question certified is fully, disposed of by Fosdick v. Schall, 99 U. S. 235, 251, wher,e it was said, “We have no doubt that when a eourt of chancery is asked by railroad mortgagees to appoint a receiver of railroad property, pending proceedings for foreclosure, the cоurt, in the exercise of a sound judicial discretion, may, as a condition of issuing the necessаry order, impose such terms in reference to the payment from the income during the receivership of outstanding ‍‌​​‌‌​‌‌​‌‌​​​​​​​‌​​‌​‌​​​​‌​‌​​‌‌‌​​​​​‌​‌​‌​​‍debts for labor, supplies, equipment, or permanent improvemеnt of the mortgaged property, as may, under the circumstances of the particular сase, appear to be reasonable.” To this we adhere, and, in our opinion, the right to impose ternr does not depend alone on whether current earnings have beеn used to pay the mortgage debt, principal or interest, instead of current expensеs. Miltenberger v. Logansport Railway Company, 106 id. 286. Many other circumstances may make such an order reasonable, and this case furnishes a striking example. The first default in the payment of interest under the mortgage occurred in October, 1873. The bondholders did not see fit to take possession, as they had the right to do, when the default had continued for six months. On the contrary, notwithstanding no payments of interest had been made, they allowed the company to operate the road and incur obligations therefor until December, 1877. This was evidently in the hope that their condition would be improved by the delay; for to effect the forbearance they established an agency and incurred expenses to an amount much larger than the 13,000 reimbursed by the company. Prior to the appоintment of the receiver the gross earnings do not appear to -have been enough to pay expenses, but afterwards they yielded a very considerable surplus. ■ There cannot be a doubt that it was for the interest of the bondholders that the road should be kept in oрeration, and as they did not see fit to take possession while it could only be operated at a loss, it was certainly not an abuse of judicial discretion for the court to ordеr, as a condition of granting their application for a receiver, that debts incurred by the company in thus protecting the security should be paid *595 from the income of the receivership, if, in consequence ‍‌​​‌‌​‌‌​‌‌​​​​​​​‌​​‌​‌​​​​‌​‌​​‌‌‌​​​​​‌​‌​‌​​‍of an increase of revenue, it could be done.

The income of the receivership, instead of being applied in accordance with the order to pay the debts for the supplies and labor, was used, with the consent, and, it may fairly bе inferred, at the request of the bondholders, to buy additional grounds, rolling-stock, &c., and to make permanent improvements, thus- adding to the value of the property, which was afterwards sold. Thеre is nothing whatever to indicate that in thus using the income it was the .intention of the court to revoke the original order. It seems to have been found, in ’’the administration of the cause, that by using the income to add to the value of the fixed property the interests of all parties wоuld be promoted, and so the fund, which in equity belonged to the labor and supply creditors, was fоr the time béing diverted from them and put into improvements and additions, the proceeds ‍‌​​‌‌​‌‌​‌‌​​​​​​​‌​​‌​‌​​​​‌​‌​​‌‌‌​​​​​‌​‌​‌​​‍of which аre now in court. It is not to be presumed that this diversion would have been authorized if the value of the property added to and improved was not to be correspondingly increased. Clearly, therefore, on the face of the transaction, the fund in court represents in equity the income which belongs to the labor and supply creditors as well as the mortgage security, and there was no impropriety in appropriating it as far as necessary to pay the creditors Specially provided for when the receiver was appointеd: Such a practice, under proper circumstances, Avas approved in Fosdick v. Schall, ubi supra, and seems to us eminently just.

There were other questions certified in the case, but as Ave answer the one Avhieh has been рarticularly stated in the affirmative, and nothing more is needed to sustain ■ the decree, the others Avill not' be considered further than has already been done incidentally. Decree affirmed.

Note. — Union Trust Company v. Fitzgerald, appeаl from the Circuit Court of the United States for the Southern District of Uiituis, was submitted ‍‌​​‌‌​‌‌​‌‌​​​​​​​‌​​‌​‌​​​​‌​‌​​‌‌‌​​​​​‌​‌​‌​​‍at the same timo as the preceding case, by the same counsel for the appellant, and by Mr. Thomas C. Fletcher for the appellee.

Mr. Chief Justice Waite

delivered the opinion of the court.

The facts and questions certified in this case are in all material respects like those in Union Trust Company v. Souther, ante, p. 591. It is, therefore, unnecessary to answer the questions ‍‌​​‌‌​‌‌​‌‌​​​​​​​‌​​‌​‌​​​​‌​‌​​‌‌‌​​​​​‌​‌​‌​​‍further than by reference to what was said in that case

Decree affirmed.