Vol. IV.] MEYER V. JOHNSTON. [No. 4. hearing aforesaid, be served on the defendants at least ten days before the hearing." "On the 20th of June, 1872, the motion for receivers and for injunction was duly submitted to said circuit court. . . . in open court, and held for order and decree in vacation." But, urgent as the case was, not until the 26th of August and not then until "the parties interested" consented, after an amendment of the bill bearing date August 23d, 1872, withdrawing all offensive imputations, was made- did Mr. Justice Bradley make the order so much relied on in this cause, and which has attracted so much attention from the legal profession. The order recites that the "railroad and connecting works and other property.... are rapidly deteriorating in value, and being wasted, scattered, and destroyed, whereby the security of the first mortgage bond holders, and the interest of all other persons concerned in said property, are subject to great hazard and danger of entire sacrifice." And then the order proceeds as follows: "And whereas, in the present condition of said property, it is impossible, without great sacrifice, to dispose of the same in any manner; and whereas, it has been proposed and agreed by the parties interested, that all further opposition to the proceedings in bankruptcy against said company. . shall be withdrawn, and that the said proceedings shall be affirmed; and that all other proceedings for the appointment of receivers in the several state and district courts shall be discontinued, so that the proceedings in this suit shall have full effect and operation, without undue embarrassment, and that a receiver or receivers shall be appointed in this cause to take charge of said property, and put the same into proper condition for its preservation and disposition, for the mutual benefit of all parties interested therein; " therefore, receivers are appointed and "authorized to put said railroad and other property in repair, and to complete any incompleted portions thereof, and to procure rolling stock, machinery, and other necessary things for operating the same to the best advantage, so as to prevent the said property from deteriorating, and to save and preserve the same for the benefit and interest of the said first mortgage bond holders, and all others having an interest therein. It is further ordered that all moneys which may be raised by said receivers by loan, or which may be advanced by them for the purposes aforesaid, not exceeding the sum of $1,200,000, shall be a first lien, prior to all others, on the said railroad and other property, and to be paid, before the first mortgage bonds, out of the proceeds of said property.' See Stanton v. A. & C. R. R. Co. 2 Woods, 506. It is argued for complainants below (appellees) that the consent spoken of was only to the appointment of receivers, and not to their borrowing of money by giving such liens. This was not, it seems to us, the understanding of Justice Bradley. For in going on, after making the appointment of the receivers, by virtue of the agreement, to specify their duties, it is not to be supposed that he either did not know, or did not regard what was the understanding and agreement of the parties in that respect. And when we note what were the duties they were expected to perform, it is perceived at once that, in order to discharge them, the receivers must have a large amount of money. Under this idea, when he proceeds, in the next paragraph, to speak of the liens to be created, Justice Bradley does not Vol. IV.] MEYER V. JOHNSTON. [No. 4. S er expressly authorize the receivers to raise money, but, assuming that they We have examined and analyzed these cases thus particularly, because the proposition involved in the discussion is of immense importance, and they are understood as establishing it. It will be seen that in all of them first mortgagees were the actors, and that in the one last considered, express consent was given by "the parties interested," or, if not, that it was exacted of the trustees of the first mortgagees; wherefore, this case cannot be relied on as affording support to the proposition. Let us now return to the examination of it upon principle. We presume it may be considered as settled that a railroad company, which has executed a first mortgage of its railroad, constructed and to be constructed, and thereby raised a large amount of money to aid in the building of it, cannot afterwards give a security to another, even to one who is engaged to build an unfinished part, that shall have precedence of the older one. In Dunham v. Railway Company, supra, this question was presented (very favorably, on behalf of a contractor) to the supreme court of the United States. "Authorities are cited," says Justice Clifford, "which seem to favor the supposed distinction, and the argument in support of it was enforced at the bar with great power of illustration; but, suffice it to say that, in the view of this court, the argument is not sound, and we think the weight of judicial determination is greatly the other way." And in Galveston Railroad Co. v. Cowdrey et al. 11 Wall. 480, the same court, by Bradley, J., says: "On the part of Robert Pulsford, it is objected that the decree does not give him a priority on that portion of the road which was laid with his iron. He contends that he is entitled to this, first, because, when the mortgages of complainants were executed, it was not in existence and could not have been conveyed thereby, and can only be embraced therein on the principle of equitable estoppel, which 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 herein before 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 chancellor 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.] MEYER V. JOHNSTON. [No. 4. 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, which 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. Vol. IV.] MEYER V. JOHNSTON. [No. 4. The Matters of this nature are between the court and the receiver. 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 completion 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 |