was staunch and manageable, and could be safely taken out of the danger to which his .act was exposing it. He had no right to try, or negligently to force others to try, such experiments. He knew, or ought to have known, that the boat was approaching in the reasonable expectation that the draw would be opened seasonably; and that a sudden and unexpected necessity for turning the boat about would involve (needlessly) a severe and perhaps unwonted strain upon the boat's machinery. It was, of course, an act of negligence, under the circumstances, to subject the boat to such a test of its powers, and the disastrous result was so plainly a natural consequence that the negligent party ought to have anticipated it, and therefore, under the doctrine of any of the various cases cited in argument, is responsible for the damages. No new and independent cause intervened, which, in itself, caused the injury. Motion overruled, and matter referred to master to assess damages.
UNITED STATES TRUST Co. v.
YORK, W. S. & B. R. Co.
New Jer8ey. December 19,1885.)
Where a railroad company borrows money and gives a mortgage upon all the property it then has or may thereafter acquire, the mortgagees are. en· titled to be protected as against all other and subsequent claims. But the courts, in appointing a receiver to take charge of the affairs of an insolvent company, impose conditions such as they deem just, respecting the payment of claims; and may require that the current earnings be applied to the payment of the running expenses, and the like.
SAME-EQUITABLE LIEN-PAYMENT OUT OF THE EARNINGS OF THE ROAD.
Where a person has a claim against a railroad company for articles furnished to be used in the operating of the road, sold subsequent to the giving of the mortgage, which claim was not secured at the time of the appointment of the receiver, he will not be entitled to a decree of court declaring such claim to be an equitable lien upon the earnings of the road superior to the lien of the mortgagees, and to an order directirlg the receiver to pay same from such earnings.
On Petition of Howard Watch & Clock Company. Mr. Cromwell, Mr. "Hiller, and Mr. Hey, for petitioners. Wm. A. W. 'Stewart, contra, for complainant. NIXON, J. The petitioner in this case has a claim against the defendant corporation, amounting to $1,705.68, for clocks furnished to the company from October 1, 1883, to January 9, 1884, and prays the court to make an order that the said claim shall be decreed to be an equitable lien upon the revenues and property of said company, prior to the complainant's mortgage and all other liens, and shall be paid as soon as practicable out of the revenues of the said 'railway company, as the same may be received, or out of the mortgaged property of the corporation when sold on decree of foreclosure.
UNITED STATES TRUST CO. '11. NEW YORK, W. S. &: B. R. CO.
As 'was remarked by Judge BROWN, of the supreme court of New York, in his opinion filed October 23, 1885: "It is a fact well known to every one connected with the litigation that the income from the operation of the railroad by the receivers has not been sufficient to pay the operating expenses." It hence results that this is practically an application to the court to order the payment of the claim from the corpus of the property, and the simple question to be determined is, to what extent should the court impair and diminish the fund, pledged to the bondholders in the mortgage, in order to satisfy the current debts contracted in operating the road by the receivers, or before their appointment? It is a question new in some of its aspects, and somewhat unsettled, and requires grave consideration. It appears in the case that the New York, West Shore & Buffalo Railway Company, the defendant corporation, by virtue of the authority and power vested in it by its charter of incorporation, on the fifth of August, 1881, executed and delivered to the United States Trust Company, of New York, a mortgage upon all its property, then held or afterwards to be acquired, to secure to the bondholders the payment of fifty millions of dollars, represented by bonds, issued and to be issued to pay its subsisting indebtedness, and to aid in the construction of a railroad from Weehawken, New Jersey, to Buffalo, in the state of New York; It is a fact worthy of notice, in this connection, that in the tenth paragraph of said mortgage the corporation agreed with the persons holding said bonds that, "upon filing of a bill in equit.y, or other commencement of judicial proceedings to enforce the right of the trustee and of the bondholders, · · · the suid trustee shall be entitled to the appointment, by any court of competent jurisdiction, of a receiver or receivers of the property hereby mortgaged, and of the earnings, income, rents, issues, and profits thereof pending such proceedings, with such powers as the court making such appointment shall confer." The railway company first defaulted in the payment of the interest due upon the bonds on January 1, 1884, and continued. in default until January 6, 1885, when the trustee, exercising the option conferred by the fifth section of the mortgage, duly elected that the entire principal sum secured thereby should be become due immediately. On the ninth of June, 1884, the trustee for the bondholders had filed a bill in this court for th9 foreclosure of the mortgage, and under its provisions had applied to the court for the appointment of receivers. An order was made of that date, following the supreme court of New York, appointing Horace Russell and Theodore Houston, who at once entered upon the discharge of their duties as receivers, and have since continued to discharge, the same under the direction of this court. A provision was inserted in the order for their appointment to the effect that "the receivers, as speedily as the same can be done without prejudice to the property in their hands, may pay all the debts and balances due to the laborers and other persons heretofore employed by v.25F,no.14-51
the said defendant for labor and services done, or due for necessary supplies furnished in the operation of the said defendant's railway, or in maintaining or keeping the same in repair, since the first day of March, 1884." This is, substantially, an application to the court to enforce an equitable lien against the corpus of the railway property, to secure the payment for necessary supplies furnished to the corporation more than three months before the appointment of the receivers. When the debt was contracted, the mortgage was subsisting and outstanding; the company was operating the road, and the creditor had only the relation of a general creditor. There was no lien upon anything to secure it. Does it legally result, from the mere fact of the appointment of receivers to preserve the property pendente lite, that the character of the debt has changed from an unsecured. to a secured claim? It is sometimes said that when a bill is fillild to foreclose a railway mortgage, and an application is made for receivers to take charge of the mortgaged property, the bondholders, in making such request, are asking a favor of the court, and the court, in granting it, may impose such terms for the payment of existing debts as it deems equitable and just. The reason for the remark is that the receipts from running the road is a fund primarily to be applied to the payment of the necessary operating and managing expenses, and when these receipts come into the hands of a receiver the court should take care that they are thus applied. before the bondholders should derive any benefit therefrom. But in the present case the appointment of receivers wallo not a favor granted to the bondholders, but was a right which had been expressly reserved them in the mortgage, the contract between the parties. It was a matter of discussion, when the appointment was made, as to how far the receivers should be allowed, from the income of the road, or from money received from the sale of their certificates, to pay antecedent debts, and the court, in the order of appointment, gave to them the discretion of going back to the first of March preceding, -about three months,-and the present claim was not paid by them because the debt was contracted before that date. If any income from the road had been left in the hands of the receivers after paying current running expenses, there would be no difficulty about the case. Under the authority of Fosdick v. Schall, 99 U. S. 235, and Burnham v. Bowen, 111 U. S..776, S. C. 4 Sup. Ct. Bep. 675, I should not hesitate to order the payment of the claim out of such income. It would be only equitable to require the receivers to do what the company would have been expected and ordered to do if it had retained the possession of the property, to-wit, to use the current receipts for the payment of current debts. But the receivers have no net income for any purpose; their running expenses have greatly exceeded their current receipts. The court, with much reluctance, authorized the payment of the defi6iency from funds obtained from the sale of the receivers' certificates. It assented to this
UNITED STATES TRUST CO. V. :NEW YORK, W. S. &: B. R. CO.
because the great body of bondholders represented that their ultimate interests required that the road should be kept in operation even if the expenses and losses should become a charge upon the corpus of the property, and should be treated as a lien superior to their mortgage. The fact that receivers had no net income after the payment of the necessary operating and managing expenses, proper equipments, and usefnl improvements, is decisive of this case. I am sorry that there are no funds for the payment of the honest and undisputed debt of the petitioner. He trusted the corporation and the corporation is insolvent. But I cannot allow my sympathy for the creditor to lead me to the unjustice of taking property, or the proceeds of the sale of property, previously pledged for the payment of the debts of other people, to reimbursE1 him. The note of warning sOftnded by the chief justice, speaking for the whole supreme court, in Burnham v. Bowen, 111 U. S. 776, S. C. 4 Sup. Ct. Rep. 675, is qnite suggestive, in this connection. "We do not hold," he says, "any more than we did. in Fosdick v. Schall or Huidekoper v. Locomotive Work8, 99 U. S. 260, that the income of a railroad in the hands of a receiver for the benefit of mortgage creditors who have. a lien upon it under tneir mortgage can be taken away from them and used to pay the general creditors of the road. All we then decided and all we now decide is that if current earnings are used for the benefit of mortgage creditors before current expenses Bre paid, the mortgage security is chargeable in equity with the restoration of the fund which has been thus improperly applied to their nse." There has been no such use or application in this case, and the claims of the petitioner can only be paid from any surplus that may remain after the full satisfaction of the debts of the mortgage credo itors. The claims being of the same nature and involving the same principle, a like order must be entered in the following cases: (1) Peti· tion of New York Economic Printing Co. (2) Petition of Cleveland City Forge Iron Co. (3) Petition of Maher &; Brayton. (4) Petition oj American Bank Note Co. (5) Petition of Allen W. Swift. (6) Petition of Ros8 Sanford.
FEDERAL REPORTER. UNITED STATES
MCELROY and others.
December 16, 1885.)
MORTGAGE-FORECLOSURE OF-RIGHT OF GOVERNMENT TO REDEEM-STATUTE OF LIMlTA'l'IONS-LACHES. ·
Neither the statute of limitations nor laches will bar the government as to any olaim for relief In So purely governmental matter; but when the government comes as a complainant into a court of equity, asserting the same rights as an individual,-a mere matter of dollars and cents, involving no question of governmental right or duty,-aIthough technically the statute of limitations may not bar, the ordinary rules controlling courts of equity as to laches should be enforced. U. S. v. Beebee, 17 Fed. Rep. 37, followed.
In Equity. W. O. Pen'y and O. F. Ware, for complltinant: J. D. McCleverty, for defendant. BREWER, J. This is a bill brought by the government to redeem. The facts are these: On August 7, 1869, one Moses McElroy was the owner in fee of a lot in Fort Scott. On that day, for value, he executed a mortgage for $3,500 to one Polly Palmer. On the sixteenth day of October, 1869, the present complainant recovered a judgment of $2,000 in the United States district court for this state against said McElroy. On November 6, 1869, execntion was issued on this judgment and levy made upon said lot; said execution was returned unsatisfied for want of bidders at the sale. On a subsequent execution, and on May 30, 1871, said lot was sold at the front door of the courthouse in the city of Fort Scott to the present complainant, and on October 16, 1871, said sale was confirmed and deed ordered made to the complainant. On May 30, 1871, said mortgagee, Polly Palmer, commenced a foreclosure suit in the district court of Bourbon county, and on October 4, 1871, decree of foreclosure was rendered in her favor. Thereafter the property was sold under that foreclosure and on January 4, 1872, the sheriff's deed was executed and deiivered to said mortgagee, Polly Palmer, and duly filed for record in the office of the register of deeds in Bourbon county, Kansas. In that foreclosure proceeding the present plaintiff was not made a party, and indeed could not be without its consent. Both the mortgagor and mortgagee have since deceased, leaving heirs, as against whom this bill to redeem is filed. The bill in this case was filed November 28, 1884, more than 12 years after the sheriff's deed in foreclosure to Polly Palmer, and morQ than 13 years after the sale to the government on the execution. To this bill a demurrer has been filed, and the question presented is whether, by laches or limitation, the plaintiff is barred of any remedy. Unquestionably, if'the plaintiff was a private individual, the statute of limitations would cut off all right to redeem; but it is said that the statute of limitations runs not against the government. This is unquestionably true, and it may also, fol' the purposes of this case, be