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Vol. IV.)

Meyer v. Johnston.

[No. 4

is rebutted when it comes in conflict with a superior equity ; secondly, his capital, applied to the road, conserved it and rendered it capable of being operated, which it would not have been otherwise ; hence, on the principle adopted by the civil and maritime laws, of awarding priority to the last creditor who furnishes necessary repairs and supplies to a vessel, he is entitled to priority. The counsel for Pulsford has furnished us with a very ingenious and learned argument on these points, but we cannot yield to their force.” Then follows, on the first point, what we have hereinbefore quoted from this opinion, on the operation of a mortgage upon a railroad to be constructed, after which Justice Bradley says : “ As to the other point, giving priority to the last creditor for aiding to conserve the thing, all that it is necessary to say is, that the rule referred to never has been introduced into our laws, except in maritime cases, which stand on a particular reason." A ship far from home, in distress, and without resource, must perish, and perhaps her crew with her, if a bottomry bond, then given for repairs and supplies, shall not have precedence of other liens upon the vessel. But the court does not consider a railroad on terra firma so beyond the reach of help from those who own or are concerned in it as to justify the adoption, in such a case, of the rule relating to a ship abroad and about to perish.

If the railroad company itself, the corporation created by the state to build, equip, and operate a work useful to the public, though belonging to the company, cannot, when its enterprise is about to fail, and its labor and expenditures to be lost, give to those who shall then come to its aid, and help to complete it, obligations which, like those given by the master of a vessel abroad and in distress, shall have priority over others previously contracted, what prerogative of a court of equity entitles the chan. cellor to step in and do so, instead of the company ?

The company may not do so, because, holding that contracts should be inviolable, the law will not permit the obligation of them to be impaired. The Constitution of the United States inhibits even a state from doing an act which shall have that effect. And certainly a court, which is a portion only of the government of a state, cannot have power which is denied to the state in convention assembled. If, therefore, the action of the chancellor in this cause goes to the extent of taking the property of the defendant corporation into his hands for the purpose, through his appointees, of completing an unfinished work, or of enlarging or improving a finished one, beyond what is necessary for its preservation, and, to that end, of raising money by charging the railroad and its appurtenances with liens which are to have priority over older ones without the consent of the holders of these, he has passed beyond the boundaries of a chancellor's jurisdiction. In our opinion, no such power is vested or resides in any judicial tribunal.

Nor can we conceive how a mortgagor, by anything that might be inserted in a second or other subsequent mortgage (as is that upon which complainants rely), could confer on a court or chancellor the power to supersede rights created by an earlier mortgage. We may suppose that, by a provision in a first or any mortgage, it might be stipulated that, upon the happening of a certain default or delinquency, the mortgagees should be entitled to apply to a court of equity, and have persons, de

Vol. IV.)


(No. 4.

is income and present liens? Thiamined.

nominated receivers, appointed to manage a business or undertaking, or to carry a work on to completion, under its direction. Yet how could this, though ever so amply expressed, impose on the court the duty, or clothe it as a court with the capacity to do so? It is within its province, in aid of its judicial functions, to exercise "an interim management” of a “going concern,” with a view to the sale thereof, or during the pendency of a controversy in which the rights of conflicting claimants are to be determined. It cannot take upon itself the execution simply of schemes or projects of either private or public utility. The provision supposed would, perhaps, create interests in the mortgagees which a court of equity might take cognizance of and protect. The persons, though appointed by it, in consequence of the stipulation, to manage the business or undertaking, or to carry the work forward to completion, no matter by what name called, whether receivers or something else, would (we apprehend) be, properly, not officers of the court acting only under its direction, but trustees for the parties, having such powers and duties as are legally created by the contract, and as are recognized and imposed by the law relating to trustees.

But does it, therefore, follow that a chancellor, who takes property in litigation, by his receivers and managers, under the charge of the court, is incompetent to raise money, when necessary for the expense of its custody and preservation, by issuing certificates of indebtedness, which shall constitute first liens ? This is a question not by any means identical with the one we have just examined.

1. Of course property, in that condition, must be taken care of by the court, and the expense of this must be paid. Generally, this is done out of the income. But, if there be no income, or it is inadequate, and it be necessary for the conservation of the subject matter of the suit, that money be used, the expenses thus incurred must then fall on the corpus of the property. This often happens when, after possession taken by the court, the property is sold and becomes a money fund, to be distributed among creditors, wbich is then itself the corpus of the estate. The receiver may also be authorized by the court to borrow money, if necessary, in anticipation of the sale, to be reimbursed with interest out of the proceeds of the property when sold. And we suppose a receiver of approved integrity and responsibility would have little trouble in borrowing money, to a moderate amount, in such a case, upon his note or due-bill as a receiver. Or if a receiver has, under the direction of the court, taken moneys and used them in the performance of his duties as a receiver, which moneys should not have been so taken, and were not subject to the claim of complainants, but belonged to other parties, the court, afterwards ruling that these moneys should not have been so taken and applied, will, for rectification of the error, order the amount, with interest, to be returned to the parties entitled thereto, out of the proceeds of the sale of the property with which it has been identified, with priority of payment over the oldest mortgage debt. This was done by Justice Swayne in Cowdrey v. Railroad Company, in the circuit court of the United States at Galveston, in respect to moneys which the district judge had erroneously ordered that the receiver should take and use, according to a manuscript copy furnished us of Justice Swayne's opinion.

But, if this must bet10n; must be taken

Vol. IV.)

MEYER v. Johnston.

[No. 4.

Matters of this nature are between the court and the receiver. The transactions are founded on the property in the hands of the court to be sold, and which will not be allowed to pass out of its power without being sold, except on a compromise between the parties, by which all the expenses chargeable thereon shall be paid. And in reference to the expenses, the parties have an opportunity of canvassing and objecting to any that are improper, either, when the accounts of the receiver are passed upon, or, if previously authorized by the court, when the application for such authority was heard and acted on. For they are entitled to be heard in respect to them.

Is this the limit beyond which a court of chancery may not go in such a matter in any case? It was not necessary, perhaps, that the question of the power of a court to authorize the issue of first lien certificates of indebtedness, to enable a receiver to raise the money he might need, should be decided before the introduction of railroads. But these properties, with their appurtenances, vast in extent and value, yet very perishable if unused and neglected, existing as the estates of private individuals associated into corporations, but essentially public works, in whose operations the public at large and the state are concerned, when drawn into litigation, must be dealt with by the courts according to the nature and circumstances of the subject. And any one can understand that the best and cheapest mode of conserving a railroad may be by operating trains on it, and keeping it in repair for their use. If it were not for the public quality belonging to it, for the injury that would be done to the interests of whole communities that have become dependent on a railroad for accommodation in a thousand things, the chancellor might say to the parties most interested: Unless you furnish means for the protection of this property, which does not itself afford an adequate income for the purpose, it may become a dilapidated and useless wreck. But the inconvenience and loss, which this would inflict on the population of large districts, coupled with the benefit to parties who, perhaps, could not take care of themselves, of preventing the rapid diminution of value, and derangement and disorganization that would otherwise result, seem to require (not for the eompletion of an unfinished work, or the improvement, beyond what is necessary for its preservation, of an existing one — but to keep it up, to conserve it as a railroad property, if the court has been obliged to take possession of it) that the court should borrow money for that purpose, if it cannot otherwise do so in sufficiently large sums, by causing negotiable certificates of indebtedness to be issued constituting a first lien on the proceeds of the property, and redeemable when it is sold or disposed of by the court.

2. Weighty objections, we know, may be alleged against such a transaction. It may be said : The property does not belong to the court or the receiver; it is in their hands only while proceedings are pending to determine the respective rights of parties litigant; what title can any instrument made by them transfer in that which belongs to others? Perhaps the correct reply would be : True, the property is in the keeping of the chancellor to be taken care of, but also to be sold ; and out of the proceeds the expenses of taking care of it must be paid. The certificates may not follow the property out of the court. But they constitute a charge upon it in the particular cause enforcible in this court, and must

Vol. IV.)


No. 4.

ought into ought to be of litigation V. Backusonit of a re

be satisfied or provided for before the property, or the proceeds of it after the sale, shall pass out of its control. The certificates are not debts of the company, but of the receivers, backed by the pledged faith of the court that the property, on the proceeds of which they are charged, is in its possession, subject to be, and that it will be, disposed of by it for the payment of them. This results from the fact that they are but a substitute for common methods by which money is raised for the use of a receiver in a particular cause, a mode of appropriating, in advance, a portion of the value of the property, in order to enable the court to save a greater value thereof from destruction. Hence no chancellor should permit them to be issued without the utmost circumspection; and as they are used for urgent present needs, and are to be redeemed when the litigation is ended, they should not be issued in excess of the need, nor — although made negotiable that they may be more available — be sent out of the country for circulation abroad like mortgage bonds. Such a limited scope is all that is necessary for the certificates to have. By enlarging it, the character which their origin should stamp upon them would be changed, and it will become impossible to preserve the value of older securities.

It may also be said, such a power will be abused. · Rash or facile chancellors may be persuaded to issue more certificates than are necessary for the mere conservation of the property, and, when out, they must all be redeemed; else the whole scheme of raising money in this manner fails, and the court is brought into disrepute. All power may be abused. But in the first place, no receiver ought to be appointed, in any such case, except to "prevent fraud, save the subject of litigation from material injury, or rescue it from threatened destruction.” Baker v. Backus, 32 Ill. 79; Voshell v. Hynson, 26 Md. 92. Nor should the appointment of a receiver be made except upon a bill filed praying it, and after answer thereto, “ unless the necessity be of most stringent character.” Leddel v. Starr, 4 C. E. Green (N. J.), 159; Voshell v. Hynson, supra; Sanford v. Sinclair, 8 Paige, 372; Gibson v. Martin, Ib. 481; Blondheim v. Moore, 11 Md. 365.

The issue of negotiable certificates of indebtedness is a matter hardly less important than the appointment of receivers, and should not be authorized by the court, except after full notice to the parties interested, when this can be given, and ample opportunity allowed for them to be heard. The urgency for the issue of such certificates can rarely be so great, as is that for the appointment of a receiver. A detailed statement ought also to be made out specifying the sums needed, and for what they are needed, and proof be adduced of the correctness of such statement, and of the necessity that the money be raised. A receiver is required, in presenting his accounts to be passed, to state clearly the items. And in like manner, when he asks authority to create, in advance, a large debt against the property by which money is to be put into his hands, he ought to show the particulars constituting the sum before he is allowed to raise it as well as be held to acoount for its proper application. A disregard of these rules might lead to intolerable abuse. Finally, the case, in our opinion, ought to be one of great urgency, in which the court should appoint a receiver to manage and operate a railroad.

3. Upon the whole, however, it seems necessarily to result, from the Vol. IV.]

Hentz v. THE IDAHO.

[No. 4

nature of such property, and the capacity and duty of courts of equity to “ adapt their decrees to all varieties of circumstances which can arise, and adjust them to all the peculiar rights of all parties in interest," that if a large railroad and its appurtenances are in the hands of a receiver to be preserved and operated, the court having charge thereof must possess the power, after notice to and hearing of the parties interested, to allow the issue, even of negotiable certificates of indebtedness creating a first lien, when this is necessary to raise money for the economical management and conservation of the property, until it shall be disposed of. The pressure upon the courts in various portions of the country to exercise such authority, and the consent or acquiescence of first mortgagees and others in its exercise, are persuasive that the power must exist.

Reversed and remanded for further proceedings, in accordance with this opinion.


[JANUARY, 1877.]




A common carrier may show, as an excuse for non-delivery of goods pursuant to his bill

of lading, that he has delivered the goods upon demand to the true owner.

MR. JUSTICE STRONG delivered the opinion of the court.

The libellants claim damages against the steamer for the non-delivery of one hundred and sixty-five bales of cotton, part of a shipment of two hundred bales for Liverpool, made by Thomas W. Mann, and consigned to the order of James Finlay & Company. After the shipment the libellants purchased the cotton from Mann, and the ship's bill of lading therefor was indorsed by him over to them. On the arrival of the steamer at Liverpool thirty-five bales were delivered to Finlay & Company, but the remaining one hundred and sixty-five were delivered to Baring Brothers & Company, in pursuance of an order from William J. Porter & Company, of New York. Such a delivery was not in accordance with the stipulations of the bill of lading, but it is attempted to be justified for the reason that Porter & Company were the true owners of the cotton, and as such had a right, superior to that of the shippers, to control its delivery. In considering the worth of this defence it is necessary to inquire whether the law permits a common carrier to show, as an excuse for non-delivery pursuant to his bill of lading, that he has delivered the goods upon demand to the true owner. Upon this subject there has been much debate in courts of law and some contrariety of decision.

In Rolle's Abridgment, 606, title Detinue, it is said, “ if the bailee O. goods deliver them to him who has the right to them, he is, notwithstand

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