CENTRAL TRUST CO. V. COXTIXENTAI. TRUST CO.
of the estate, or in not bringing suit upon the demand in the federal court, as it might have done pending administration, the evidence leaves no question. Besides the very great depreciation of the collaterals which tile bank held, exceeding in original value more than the amount of the note, and the changes in their modes of living which the heirs and legatees may be presumed to have adopted in ignorance of so large a demand against the estate,-a consideration of great importance under supposable circumstances,-it is averred in the bill that Mackey, the joint maker of the note, had become totally insolvent, and, the contrary not being shown, the presumption is that the right to compel contribution by him, which but for the delay would have been valuable. had been made worthless. The decree of the circuit court is therefore affirmed.
CENTRAL TRUST CO. et al. v. OONTINENTAL TRUST CO. OF CITY OF NEW YORK et al. (Circuit Court of Appeals, Eighth Circuit. April 4, 1898.) No. 1,008. L ASSIGNMENT OF ERROHS-INCORPORATING IN PETITION-SEPARATE FIT,ING. Where plaintiff In error incorporates the errors complained of Into tbe petition for appeal, and the petition is then filed with tbe clerk, the assignment of errors Is "filed with his petition," as required by rule 11 (21 C. C. A. exll., 78 Fed. cxl!.). 2. SAME-VARIOUS ERRORS-A SINGLE PROPOSITION-SEPARATE ASSIGNMENTS. Where various errors are complained of, presenting a single proposition of law common to all of them, they need not be separately stated as so many distinct propositions. B. PARTIES TO ApPEAL-CORRECTING RECORD. One who joins In the petition for appeal, though not in the appeal bond, which is executed by his co-appellant, is a party to the .appeal; and if, by oversight of the clerk, his name is omitted from the printed record, the error may be corrected by the clerk.
ApPEAl, DURING TERM-CITATION.
When an appeal Is taken and perfected during the term at which the decree is rendered, no citation is necessary.
RAILROAD RECEIVERSHIP-ADOPTION OF LEASE-LIABILITY FOR RENT.
Where a railroad is in the hands of a receiver to be operated, If, after due investigation, the receiver decides that a lease of a portion of the line is Indispensable to the successful operation of the road, and the court, on consideration, so determines, notifies the lessor, and continues the possession under the lease, such acts constitute an adoption of the lease, and carry with It the obligation to pay the rent therein stipulated. When a lease of part of a line of railroad has been adopted by the receiver and court, the rent should be paid as an operating expense; and, where the receiver has been unable to procure money for its payment, it is proper, on final decree, to declare the unpaid rentals a first lien on the property, and direct that the same, with interest, be paid out of the proceeds of the sale, as a preferential lien.
SAME-RENT AS OPERATING EXPENSE-PREFETtENTIAL LIEN.
Appeal from the Circuit Court of the United States for the District of Colorado.
The Colorado Midland Railway Company was organized under the statutes of Colorado In 1883. It constructed a railroad from Colorado Springs, Colo., run· ning in a westerly direction, via Leadville, across the summit of the mountain known a.I!I "Hagerman Pass," to Glenwood Springs, Colo. l!'rom a station
knovVn as' "Busk," .on .the eastern side of the ascent to the. pass, this' road Wl\S constructed through the pass to a station on the western. known ail "Ivanhoe." 'J;'he distance ,between these two points was 9.8 miles. This pass attained a very high elevation, and, on account of tunnels and trestleworks, was very difficult and e;q>ensive of operation. In 1888 the Aspen Short-Line Railway Company was constructed on the west side of this mountaln slope, connecting with the Colorado Midland Railway, and running to the town of Aspen. In 1893 these two roads were consolidated as the Colorado Midland Railroad Company; the MIQIand road succeeding to all the rights and liabilities of the two companIes. On account of the haZards and difficulties in operating the railroad over said pass from Busk to Ivanhoe, the practical owners of the railroad conceived the project of running a tunnel through the mountain from. Busk to Ivanhoe, a distance of about 2.9 miles. To this end they organized a corporation, under. the laws of Colorado, known as the Busk Tunnel Railway Com· pany. In order to raise the necessary money for the construction of this tun· nel, the Busk Tunnel Railway Company (hereinafter,for convenience, called the "Tunnel Company") gave a mortgage deed on the 17th day of June, 1890, to the appellee the Continental Trust Company of the City of New York after called the "Continental Trust Company") to secure 1,500 of its bonds, of the par value of $1,000 each,wi.th Interest at the rate of '7 per cent. per annum. Contemporaneously with the execution of this mortgage, the Tunnel Company, as party of the first part, the saId Midland Railway Company, as party of the second part, and appellee the Continental Trust Company, as party of the third part, entered into a wrItten contract respecting the use of the tunnel, when completed, by the said Midland Railroad Company. It stipulated, inter alia, that the MIdland Company should use the. tunnel on the payment monthly to the trustee, the Continental Trust Company, of 25 cents for each passenger transported through the tunnel, and 25 cents for each ton of freight so transported, which money the trustee was to apply to the payment of taxes, to Interest upon said bonds, and the payment of such suml'! as might be necessary to enable the Tunnel Company to perform Its covenants in said mortgage, and to the payment of a sum not exceeding $5,000 in anyone year to the board of directors of the Tunnel Company, and also to the payment of SUCh, sums as should be required to maintain the tunnel In good order and repair, and to pl'ovide a sinkIng fund for said bonds. The contract required tp.at all passenger and freight cars over said railwayoompany should pass through said tunneL This was followed on the 19th of June,. 1890, by a contract of lease between the 'runnel Company, as lessor, party of the first part, the Colorado Midland Railroad Company, as lessee, party of the second part, and appellee the Continental Trust Company, as party of the third part, running from July 1, 1892, to July, 1935, subject to the conditions of the mortgage and of the agreement of June 17, 1890. Among other things, the Midland Railway Company agreed to take possession of and operate said tunnel road, subject to the conditions of the lease, and to pay all the taxes upon the property, premiums of insurance upon the buildings, Interest upon the bonds of the 'runnel Company secured by said mortgage, the amounts necessary for the creation of said sinking fund, and on or about the 1st of July In each year to pay to the Tunnel Company or the Continental Trust Com· pany a sum not exceeding $5,000 for meeting the administration expenses of the Tunnel Company; and the said Midland Railway Cpmpany further assumed the performance of the conditions of the said deed of trust, and agreed to maintain the tunnel in good order during the existence of the leaSe. The contract of lease gave to the Continental Trust Company the right to enforce the covenants of the lease, either by suit In equity. or at law, or by entry upon the premises. It furt1:ler provided that the trackage agreement of June 17, 1890, should not be deemed to be merged In the lease; and the railway company thereby assumed the observance and performance of the undertakings of the Tunnel Company in the agreement of June 171 1890. Upon the completion of the tunnel, In the latter part of 1893, the Midland Railroad Company, under said agreement of lease, took possession of, and continued to use, said tumiel; abandoning the use of Its track througl:i"said Hagerman Pass, between 'Busk and Ivanhoe. In 1886 said MIdland Rallway Company executed to the appellant the Central Trust Company a mortgage to secure its fii'st mortgage bonds to the amount
CENTRAL TRUST CO. V.
of $6.250,000; and on January 2, 1800, It executed to said Central Trust Com· panya second mortgage on the consolidated road to secure its consolidated mortgage bonds to the amount. of $6,000,000. On the 2d day of February, 1894, the said Central Trust Company, as trustee, filed In the circuit court of the United States for. the district of Colorado Its bill of foreclosure on the second mortgage bonds, on default of the Midland Railway Company to pay its Interest; praying for the appointment of receivers to take charge of and operate said road pen· dente lite. This bill asked that said receivers be appointed to take charge of said Midland Railroad Company,. Its rolling stock, franchises, and property, real, personal, and mixed, belonging to said company "either as owner, lessee, ten· ant, or otherwise." Thereupon t.he court appointed as such receivers Messrs. Reinhart, McCook, and Wilson, who were at that time the receivers of the Atchison, Topeka & Santa Fe Railroad Company, which was operating the Midland Railroad Company under a conventional arrangement between the two roads. The court made the customary order of injunction, restraining all persons from taking possession of or Interfering with said property, and specifically directing the receivers to take possession of all the property described or referred to, "and to continue the operation of said railroad and system, and every part and pOl" tion thereof, and to run, manage, and operate the said railroads, and such other railroads as said defendant railway company holds, controls, or operates under lease, contract, arrangement, or otherwise, and as heretofore run and operated." And it further· authorized the receivers to operate "said system of railroads so under lease, or operated or controlled by, or In the interest of, said Colorado Mid· land Railroad Company, * * * In such a manner as will, in their jUdg. ment, produce the most satisfactory results," etc. On October 11, 1894, the receivers filed a petition In the foreclosure proceedings, which recited, in substance, that by using said tunnel railroad the Midland Railroad Company was enabled to avoid the heavy grades and severe curvatures through Hagerman Pass, and to escape the deep snows Incident thereto, and that by using the tunnel they were "enabled to greatly reduce the expense of operating between said stations," and that in their judgment they should continue to use said tunnel. They also stated that that portion of the Midland RailrOad running from the summit as aforesaid between Busk and Ivanhoe had "become wholly useless, and no longer necessary In the operation of the railroad; that in consequence of such disuse the portion abandoned as aforesaid was greatly out of repair, and by reason of the action of the elements would soon be unsafe to move trains over" the same, -and prayed for authority to remove the rails and other movable structure or property from said abandoned· portion of the line, as the. property so removed could be profitably used upon other portions of the ;Midland Railroad. The Central Trust Company appeared to this petition, and filed answer, stating, in substance, that it represented the bondholders of the l,\fidland Railroad Company, some of whom objected to the proposed abandonment of the track over the sum· mit of said mountain,and to the,dlsmantling thereof, while some of the holders of the consolidated mortgage bonds were favorable thereto, and, declining to sent, asked the court to Institute inquiry Into the advisability of the proposed action,. and for its order In the premises. Judge Caldwell, the circuit judge who had In spe0ial charge the conduct of administration of this receivership, without referring the matter to a master for report, upon consideration granted the prayer of tbls petition, and authorized the removal of the property from the abandoned line, which was accordingly done. On the 11th day of February, 1895, the appellee the Continental 'rrust Company filed an. Intervening petition in said foreclosure proceeding; setting out the substance of the provisions of said contract of June 17, 1890, the lease of June 19; 1800, and the mortgage of the Tunnel Company to said appellee. This petition alleged default in the payment of interest coupons upon said bonds of the 'runnel Company which had matured on the 1st day of July, 1894, and the 1st day of January, 189f>, and that the receivers bad failed to pay same under said order of February 2, 1884, respecting the payment of trackage service of other railroads, and prayed for an order of the court directing the receivers "to carry out and perform said mortgage agreement, said tracimge agreement. and said contract of lease, and to pay, as an operating charge of the said Colorado Midland Railroad Company,. the defaulted and overdue interest coupons of the Tunnel Company mortgage bonds aforesaid, and the interest on said bonds hereoafter to. accrue." To this petition
the receivers appeared and answered, admitting the allegations or the petition, and united with the Continental Trust Company in the prayer of said petition; asking that an order gl'anting them leave to borrow money with which to pay the tunnel rentals be made. The Central Trust Company also· appeared, and made answer to this Intervening petition, and, among other things, stated that some of the holders of said consolidated bonds were· also holders of the tunnel bonds, and that there was among the holders of the consolidated bonds a difference of opinion as to whether this petition should be granted, and the interest of the tunnel bonds should be made an operating charge, as prayed for, and asked for an inquiry Into the truth of the allegations of the petition, and upon the coming in of the report of the master, or on such hearing as the court might direct, such order betnade as to the oourt seemed just. Judge Caldwell, without referring the matter to a master. considered the facts, and on the 11th day of February, 1895, entered a decree, the essential portions of which are as follows: "Ordered, adjudged, and decreed that said receivers are hereby authorized and directed to carry out and perform the trackage agree· ment of the 17th of June, and the agreement of lease of the 19th of June, 1890, executed between the Busk Tunnel R·ailway Company, the Colorado Midland Railway Company, and the Continental Trust Company of the City of New York, trustee, and to pay, as an operating charge of said Colorado Midland Railroad Company, the rentals and Interest charges prOVided for In said agree· ments, Including all defaulted or overdue interest coupons of the bonds of said Busk Tunne1Railway Company;· said" bonds bearing date of 1st day of Juiy, 1890, and payable on the 1st day of;July, 1935, for the principal sum of one milIion five hundred thousand dollars ($1,500,000), with Interest at the rate of seven per cent. per annum, payable semiannually. And It Is further ordered that the said receivers be, and they hereby are, authorized to borrow, upon the best terms they may be able to secure, such sum or sums of money as may be necessary to make such payments, and upon such loans so made for the pur· pose aforesaid they are hereby authorized to Issue and deliver to the party or parties, bank or banks, corporation or corporations, from whom they may borrow such money or sums of money; their obligations as receivers of the Colorado Midland Rallroad, bearing not more than <;Ix per cent. interest per annum, In such form and for such time or times as may best to them for the interest of their trust; and they are hereby authorized from time to time to renew said loans as they may become due, if they are unable to make payment thereof, and, In case they are not able to renew the same with the parties from whom such loans may be procured, they are hereby authorized to borrow from others such sums, on like terms, as may be necessary to take up such obligations as they mature." The Interest on the tunnel bonds which fell due July 1, 1894, and January 1, 1895, was paid by the receivers In pursuance of this order, con· formably to the requiremerits of the trackage agreement and lease. The said named receivers having been succeeded, under order of court, by one Rlstlne, as receiver, the latter receiver, under the order last aforesaid, paid said Interest falIing due July 1, 1895, and January 1, 1896. On the 11th day of March, 1895, the appellant the Central Trust Company Instituted fI, further suit In said court for the foreclosure of the first mortgage of the Colorado Midland Railway Company; alleging default In the payment of Interest. The bill prayed for the appointment of a receiver for said railroad company for all its property belonging to it "either as owner, lessee, tenant, or otherwise." Whereupon the court appointed the same receivers as theretofore, under like order and direction. On the 16th day of April, 1895, said receivers petitioned the court for authority to·borrow money to pay said rental; reciting the Intervening petition aforesaid of the appellee on the 6th day of February, 1895, and the order aforesaid made thereon by the court, and their inability to pay same out of the income of the road, and asking permission to issue receivers' certificates which might create a preferential lien upon said property. To this petition the Central Trust Company made answer, admitting the allegations contained in the petition to be true, and further stated "that a committee representing a large majority of the first mortgage bonds, and a large amount, it not a majority, of the second mortgage bonds, has instructed complainant that it Is not advisable to oppose the granting of the order prayed for," and submitted Itself to the judgment of the court. On May 2, 1895, the court made an order
CENTRAL TRUST CO. V. CONTINENTAL TRUST CO.
consolidating the foreclosure proceedings In saId two cases, and thereupon, In the consolidated cases, recited the resignation of the original receivers, and appointed G orge W. Ristine as sole receiver; and in this same connection the court ordered that all obligations entered into by the former receivers under orders of the court, and all their contracts and liabilities incUl'red in the operation ot said railroad, were confirmed, and their observance and execution were imposed upon said Rlstlne. On the 3d day ot November, 1896. the Central Trust Company filed an amended and supplemental bill of complaint In the consolidated cases, setting forth as among the leasehold interests embraced in the mortgaged property the said lease of the Tunnel Company, and alleged that "the said defendant and the receivers appointed herein have ever since said last-mentioned date (December 16, 1893) continued to hold, use, and enjoy the same under and In pursuance of the terms of said lease." This amended bill further alleged "that the said road leased from said Tunnel Railway Company connects the road of the said defendant on the eastern side of the range of mountains, at a station called 'Busk,' with its road on the western side of said range of moun· tains, at a station called 'Ivanhoe,' and that the defendant has no means of operating its trains between said points of Busk and Ivanhoe, except over said road of the said Busk Tunnel Railway Company." The object of this supplemental bill was to subject to the lien of the mortgages these leasehold estates; and further on it alleged that this Tunnel Railway Company was "absolutely necessary to the proper, profitable, and successful operation of the railways and railway property owned by said defendant company." The bill prayed that this mortgage deed be declared a primary lien upon all the properties acquired by, under, and through said leases, and that the consolidated mortgage be decreed a lien, subject only to the prior lien of the mortgage. On July 3, 1896, the receiver, Ristine, presented his petition to the court, asking to be relieved from the payment of the interest upon the tunnel bonds which fell due July 1, 1896, upon the ground that he was unable to obtain the money with which to pay said Interest Like action was taken after default in payment of Interest of January 1, 1897. None of the parties In interest had notice, or appeared to the petitions. The court, however, made the order suspending payment of this Interest until further order of the court. In this condition of affairs, on May 4, 1897, a final decree of foreclosure was rendered in the consolidated cases. This decree, among other things, recited that the said mortgages were a lien upon all the property and franchises specified in the mortgages and the bill of complaint, including the lease of the Tunnel Company, and directed that the railroad properties be sold as one property, as constituting one system, incapable of severance without injury to the rights of the parties concerned. Upon learning of the action of the court in authorizing the receiver to suspend payment of said rentals until further order of the court, and of the final decree of foreclosure, the Continental TrYst Company, on the 19th day of May, 1897, with leave of court, filed a further Intervening petition in the consolidated cause, reciting the history of the trackage agreement and the contract of lease, and the taking possession of sald tunnel track by the Midland Railroad Company and the receivers, and the said order of the court of February 11, 1895, directing the performance of said trackage agreement and said lease by the receiver, and directing him to pay the interest on the tunnel bonds as of the operating expenses of the road by the receiver, and a failure of the receiver to pay the accrued interest of July 1, 1896, and January 1, 1897, and the said orders of court suspending the payment thereof, and the final decree of foreclosure. The intervener alleged its ignorance of said orders of suspension and the entering of the final decree until after the date of the final decree. The Intervening petitioner prayed the court for an order postponing the foreclosure sale, that the orders suspending the payment of interest upon the tunnel bonds be modified or reformed,as also the decree of foreclosure, in order to protect the trust committed to the petitioner, and for an order directing the receiver to pay said defaulted interest, and for all interest accrUing during the time the receiver shonld continue in possession of the property, and that the same be declared an operating charge of !:be receivership, and further that, upon the failure of the receiver to pay same, said rentals be made a charge and lien upon the corpus of the Midland Railroad, preferable to said mortgages, to be paid out of the proceeds of the sale of the property. To this petition the receiver, the Central
TrusfCOIDpcany, and the fallrolldcompanyrElppeared lind filed answer. As only tbematters stated In the answer of the Oentrlil 'Trust Oompanyare In Issue, It ,:Is only necessary to refer to the substantive matters set up by it. This answer, among other things, pleaded that It was in no wise connected with, nor consented to, the giving of the mortgage oj' the Tunnel Oompany, or to the making of' said trackage' agreement and lease,: nor ,were any of the bondholders parties thereto. The answer then reiterated the substance of Its answer made to the petition upon which the order at February 11, 1895, was marle, and charged that, notwithstanding Its request that a hearing ,be' had upon said tlon, none· was had, and, the order was madellione upon the allegations of the petition, and the answer of ·the receiver. It then alleged that the trackage agreement and contract of lease of June 11 and 19, 1800, were unfair, and inequitable In their terms, to the Midland Railroad Company, and ought not to be enforced against the ,receiver or the trustee, ,the Central Trust Company. It then alleged that, at the time of the execution (If the first aM second mortgages by the, Midland Railroad CompanY,itoperated Its road between Busk and Ivanhoe over said Hagerman 'Pass, and that this portion of the road formed a valuable part of the security for said bonds;! that the dIscontinuance of said road through Hagerman Pass was'wlthoutthe request or consent of the complainant or the bondholders; that the petition aforesaid of the receiver to the court for leave to abandon the said road over the summit of the mountain, and to remove the ralls 'and superstructures thereon, as heretofore stated, was objected to by' the complainant as the destruction or Impairment of the security of said mortgages, but, as some of the holders of the consolidated bonds were of opinion that It was: better to run the road through the tunnel, it had asked the court, as hereinbefore stated,to have the matter Investigated by a master, which inqUiry the comt had refused to' make,and, without hearing, had authorized the receiver to dismantle said portioIi,()f the road; that by reason thereof the security given in said mortgages was greatly depreciated, The answer further alleged that the representations .made 'by the receiver and the Midland Railroad Company and Its agents, that It was greatly to the interest of the railroad and bondholders that, in lieu of operating 1h'e road over the summit of the tnountain, the road should be run thronghthe tunnel, Whereby the cost' of operation would be lessened, etc., induced the bondholders :to rely, thereon,. and' failed to Instruct the complainant to prevent the, Midland Company from using and operating the tunnel railway, and that 'tl1eCentral Trust Company was thereby induced to take no other action than!'fhll.tspecltied in its answer to the petition for the abandonment of th<lline' over 'the sn'mmft' of the mountain. The answer then alleged that these representatio!iSiof'thereceiver and others respecting the tUnnel not true, and that by advantage o! 0peratlng the roadthr01.'l$h reason of thIS change great loss had cometa tll.l:!partles 1U interest, Theanswer then averred the ,belief of thecomI'lalntuit 'tblftit would be more advantageous to tlie trust estate to' rehabilitate' a:M Clperi'i'l'e the road' from Busk' to' Ivanhoe over tlIe original track,thanto mainta,maM' opera'tethe h1nIiei line'under the contract and leaBe'.!' It was' then alleged1ltlillft :the receivers had' aJreac1y paid" on this tunnel contract; for intel'est,$17ti,0061'' that' said sum was excessive and unjust; that the earnings of the, t:r\1st''l!st'ate werelnstifficient to enable the receiver to pay the Interest accruing !hpOti the tunnel bortdS. 'Wherefore the CGmpllllnantprayedthat the order of Febt'Uary 11, 1895, be set aside; that a reference ta'the rmaster be had, dr' Maring' before the court, to determine what amount, If any, shotlld be paidMI' the' use of'the tilnnelrfj.ilway during' nie receivership," mgtine; Inl:tlis' answer, 'stated' It as bisdpinlon thnt Compan:yl1nd 'Ure :runnel C6Ilipany the contract between·' the MidlarltfI was improvident, Rnd thaF1t was north'the interest of th:e Midland'Rallroad Company toconthl.lfe' it, and that ·It rWas 'tile wiser 'poliey'to rehabilitate the abandoned track GvelHbe mountain:,' and to abandon the tunnel' trnek., : To the entral· TrnstComplmy," the Continental Trust Oomp!lnyfiled answer of' the exceptions. TheSe: exceptions were i mlliIrly sUstained' by the court. ''And' there1l1'der'aIid sustaining' the' intervening petition of upon the CQurtma(lfu 'tlH:i order 'Of'b'ebruary 1895, the ContlnentaFTrust declar,ing It in fol'Ce durlngtllepend'el1dy of the receivership, and direCted 'the tM' receivership, the rentals' provided receiver to pay;, as' for In the tnick:ige' agreeBient' and !die'lease during the' continuance of thepos>
CENTRAL TRUST, CO. V. CONTHiEK'liAL TRUST CO.
sessIon of snld rond by the. receiver, 'with Interest thereon at· the rate of 6 per cent. from its maturity, and also decreed that, In the event of the receiver's failure to pay same, such unpaid rentals and interest and costs of Intervention should be a lien upon the mortgaged property, and, upon sale under foreclosure, the same should be paid out of the proceeds thereof In preference to either of said mortgages. From the action of the court In sustaining said exceptions, and declaring the unpaid rentals and interest aforesaid to be an operating expense of the receivership, and a first lien on the mortgaged premises, tile Central Trust Company prosecutes this appeal.
Henry T. Rogers (Wm. Allen Butler, John Notman, Adrian H. Joline, Wilhelmus Mynderse, Lucius M. Cuthbert, and Daniel B. Ellis, on brief),. for appellants. Charles W,. Waterman (Edward O. Wolcott, Joel F. Vaile, and Frederic J. Stimson, on brief), for appellee Continental Trust Co. of City of New York. Before SANBORN and THAYER,Circuit Judges, and PHILIPS, District Judge. PHILIPS, District Judge, aftt'rstating the case as above, delivered the opinion of the court. The first matter for consideration is the motion filed by the appellee the Continental Trust Company to dismiss the appeal for the reasonsfirst, that there is no proper assignment of errors filed in this cause; second, beca'use the record does not show a joint appeal of the Central Trust Company and the receiver, George W. Ristine; and, third, becanse there was no citation issued against the receiver, Ristine. The only assignment of errors is found in the· petition for appeal. After reciting the decree, whereby the court declared the rental interest on account of the tunnel track to be a primary lien upon the corpus of the property, this petition stated as follows:
"In which order or decree the snid complainant and the said receiver say that there was error, In this, to wit: that the court erred in sustaining those certain exceptions of the intervener the Continental 'I'rust Company, filed herein, to those certain respective answers of the said complainant the Central Trust Company and the said receiver, filed herein, and in making and entering said order or decree."
Rule 11 of this court (21 C. C. A. cxii., 78 Fed. cxii.) requires that:
"The plaintiffin error, 01' appellant, shall file with the clerk of the court below, . with his petition for writ of .ermr or appeal, an assignment of errors, which shall set auf separately and particularly each error asserted and intended to be urged."
Having regard to substance, rather than mere form, it certainly is of no consequence that the assignment of errors is contained in the petition for appeal, instead of being expressed in a separate paper. When the errors are incorporated into the petition for appeal, and the petition is then filed with the clerk, the assignment of errors is necessarily filed with the petition. It is that the specification of errors is too general and indefinite. The object of the rule in requiring the errors relied upon to be separately and particularly asserted is to enable the court to understand what questions it is called upon to decide, so it may not have· to go beyond' the assignment of errors. itself to discover the blot, and also that the exceptor may be confined to the objections actually
takeD below. Van Gunden v. Iron Co" 3 C. C. A. 294,52 Fed. 840; Where. various errors are relied" on, presenting propositions, they should be separately and distinctly set forth; but where the errors complained of present a single proposition of law, common to all of them, there can be no reasonable objection to assigning error to the group, as was done in this case. Andrews v. Pipe Works, 22 C. C. A. 110, 76 Fed. 170, 171. The errors complained of in this assignment go solely to the action of the circuit court in overruling the exceptions to the complainant's answer, and to the final decree, whel'eby the court ruled that the unpaid interest which represented the rental of the tunnel track should be a lien upon the mortgaged property, to be paid in preference to the mortgage debts. ; In view of the fact that the court sustained all of the exceptions made to the answer, and the principle of law arising thereon is common to each portion of the answer ruled out, and to the decree as above stated, involving, in effect, but one question, the assignment of errors is reasonably specific. Neither is the objection good that the receiver is not a party to this appeal. He joined in the petition for appeal, and the appeal was granted by the court, although he did not join in executing the appeal bond. The bond, however, was executed by the co-appellant, under order of the court, and was accepted by the court. This was sufficient to perfect the appeal. Brockett v. Brockett, 2 How. 238; 2 Beach, Mod Eq. Prac. § 958. It seems that in the printed record the name of the receiver as a party to the appeal was omitted by an oversight of the clerk. This was corrected by the clerk, as was not only permissible, but proper; in order to make the mere clerical work conform to the true record. In respect to the objection that no citation on the appeal was issued to the receiver, it is sufficient to say that, as the appeal was taken and perfected in open court during the term at which the decree was rendered, no citation was necessary. Dodge v. Knowles, 114 U. S. 436, 438,5 Sup. Ct. 1108, 1197; Hewitt v. Filbert, 116 U. S. 142, 6 Sup. Ct. 319; Brown v. McConnell, 124 U. S. 491, 8 Sup. Ct. 559. The motion to dismiss the appeal is overruled, at the costs of the appellee the Continental Trust Company. This brings us to the consideration of the merits of the appeal. The statement of facts may seem to cover too much of mere detail, but it is deemed eesential to a correct understanding of Judge Caldwell's various rulings. It is to be conceded to appellant's contention that the mere order of the court directing the receivers to take charge of the property of the insolvent railroad, including its leased lines, and the taking possession thereof by the receivers, did not have the effect to either change the title to the ,property, or right of possession in the property. The reo ceivers thereby became the mere custodians of the property for the court. "If the order of the court under which the receiver acts embraces the leasehold estate, it becomes his duty, of course, to take possession of it. But he does not,by taking such possession, become the assignee of the term, in ,any proper sense of the word. He holdE> that as he would hold any other personal property involved,-for and as the hand of the court, and not as assignee of the term." (Jaither
v. Stockbridge, 67 Md. 224, 9 At!. 632, and 10 Atl. 309, approved in Railroad Co. v. Humphreys, 145 U. S. 98, 12 Sup. Ct. 787. In respect to leased lines held by the insolvent railroad, the receiver is accorded a reasonable time in which to ascertain the value and importance of the lease, and to make his election as to whether he will surrender or adopt it; but if, after due investigation, the receiver decides that it is best not to sell or surrender the leasehold interest, because it is indispensable to the successful operation of the trust estate, and the court, on consideration, so determines, and notifies the lessor, and thereafter continues the possession, such acts would constitute an adoption of the lease, and, of consequence, carry with it the obligation of the receiver to pay according to the stipulations of the lease. Chief Justice Fuller, in Railroad Co. v. Humphreys, 145 U. S. 99, 12 Sup. Ct. 793, discussing this question, cited approvingly the language of Lord Justice Lindley in Re Oak Pits Colliery Co., 21 Ch. Div. 322, 330:
"If the liquidator has retained possession for the purpose of winding up, or If he has used the property for carrying on the company's business, or has kept the property in order to sell it, or to do the best he can with it, the landlord will be allowed to distrain for rent which has become due since the winding up. But if he has kept possession by arrangement with the landlord, and for his benefit, as well as for the benefit of the company, and there is no with the liquidator that he shall pay rent, the landlord is not allowed to distrain. · * * When the liquidator retains the property for the purpose of advanta· geously disposing of it, or when he continues to use it, the rent of it ought to be regarded as a debt contracted for the purpose of winding up the company, and ought to be paid in full, like any other debt or expense properly incurred by the liquidator for the same purpose; and in such a case it appears to us that the rent for the whole period during which the property is so retained or used ought to be paid in full, without reference to the amount which could be realized by a distress."
What does the record in this case disclose? When the receivers were appointed, the managing officers of the Midland Railroad Company had, for what they conceived to be the best interests of the road, made a trackage agreement and lease of the Tunnel Company, to run until 1935. They had abandoned the more perilous, and, as they supposed, more expensive, route, over the summit of the mountain between Busk and Ivanhoe, and were using instead thereof the tunnel track. Possession of the tunnel track was taken by the receivers under the order of court made pursuant to the prayer of the bill of foreclosure. So persuaded were the receivers, after due test, that it was to the inter<est of the estate to continue the use of the tunnel track, they presented to the court a petition stating that by reason of the abandonment of the summit track, and the exposure of the works to the severe storms and elements, the overhead passway had become impractical, and the property impaired, and therefore prayed for an order authorizing them to dismantle this track, and reuse the materials on other portions of the Midland road. While it cannot be said that the appellant assented to this proceeding, its objection was not to the continued use of the tunnel track, but it made only an advisory suggestion, that its -constituents were undecided in opinion as to the advisability of removing the rails, etc., from the summit track. The court, on the hearing, granted the prayer of the receivers. The rails were accordingly removed, and presumptively appellant received the benefit thereof, in the
86' FEDERAL REPORTER.
of other portions of niortgaged road. This action ,of administl'ative in its character, addressed to the sound disc,retion and business judgment of the cl),ancellor in the m.anagement of the estate, which this court could not now correct, as the injury, if any, is irreparable. Mercantile Tl'ust 00. v. Farmers' Loan & Trust 00.,49 U. S. App. 462, 26 O. C. A. 383, and 81 Fed. 254. If ,it was judicial in character, the complainant had its day in court, and failed to appeal from the order. The order was the complete determination of that subject-matter, and, when executed, the book was closed,as to the transaction. This was followed nP by the trustee of the lessor intervening in the cause, claiming that its rentals had not lJeen paid by the receiversrpraying for an order directing the receivers "to carry out and perform such trackage and lease agreements." On this petition was based the decree Of February 11, 1895,by which the ,cpurt "authol:'ized and directed [the receivers] to carry out and perform the trackage agreementbf the 17th of June, and the agreement of lease of the 19th of June, to pay as an operating cl:¥trge of the said Oolorad<;t Midland Railroad Oompany the rentals 'and interest charges provided for in Sil.'id agreements, including all defaulted or overdue interest qmpons of the bonds of said BuskThnDel Railway Company." , If this was not, in effect, an adoption of the terms and obligations of the 'lease by the court, it must beheld that nothing sbort of words such as "it is ordered that the lease is hereby adopted" would have the effect of an adoption. When the court, a,fter holding the leased track one year, and being advised that it had become so far an integral part of the system that the main line could not well be operated' without the leased track, ordered the receiver to carry out and perform the ,contract of leasej it not only did the act, ,but entered the apt Qrder evidencing the adoption of the leas,e. Moreover, this appellant, there,after, both by expression and implication, recogniZed, the fact. In its supplemental amended bill it recited that the receiyers held, used, and employed the tunnel track "under and in pursuance of the terms. of, said lease"; and, as showing its indispensability to the estate, it alleged thatthe main road no means of operating its trains oetween said points, Busk and Ivanhoe, except over said road Of the said Busk Tunnel Railway Oompany." The continuity and operation of the main line· being admitted by all the parties to. the record to be dependent the leased track, coupled with, the order of the court that the receivers carry out and perform the contract of lease, are the important things which distinguish this case from all those cited by the learned counsel in support of their contention that the receivership did not adopt the contract of lease. As the lllw implies the fact of from the mere refusal of the court to surrender possession to the lessor .. on his application, how much more conClusive of an adoption when both ,the the receiver assert that the possession is indisthe estate, anll the court not only but orders the receiver to keep and perform the contract of ..Raving thus held the leased property, the .i,ngQod conscience, could not do than he did in tlle order of 1895. In this view of the case, it is not essential to say by the of February 11, 1895, the question of whether or not'this rental became
CENTRAL TRUST' CO. V.' CONTINENTAL TRUST CO.
an operating charge on the corpus of the property passed in rem, judi. catum. It is sufficient to say that the propriety and necessity of that order pertain so much, at least, tQ the administrative discretion in managing the estate, that, after all the parties have acted upon it, this court ought not to disturb it. Mercantile Trust Co. v. Farmers' Loan & Trust Co., supra. The only remaining important question is, was the final decree right; in giving a preferential lien for the unpaid rentals which accrued after January 1, 1896? By the order of February 11, 1895, the court had expressly recognized the rental fixed in the contract of lease as an operating expense. At no time thereafter did it notify the lessor or trustee of any recession from this position. It is no answer to this to say that the appellee never demanded possession of the leased property. The receivers and the court had declared that its possession and use were essential to the receivership, and the court had ordered the receivers to carry out and perform the contract. If the lessor was content with this arrangement, it was not essential to fix the adoption that he should go through the empty form of demanding that which the court and the parties had in fact said that they could not concede. Neither is it any answer to say that the complainant did not assent to said order, or that the court made it without reference to a master. The complainant was before the court, and the court was not required to make a reference. It was in possession of the facts, and the com· plainant offered no countervailing evidence. Neither is it any answer now to say that, inasmuch as tM lessor was not able to put the prop· erty to any earning use had it been turned over to it, it is inequitable to the ,estate to charge it with the whole contract rental. If there is any justification in obtaining possession of another's property, as a dependent lease to an insolvent estate, and then saying to the owner that, although the receiver to hold it, he should not pay the lease, because the property would be compararental stipulated in tively useless if turned over to the owner, what is to be said of its value to the liquidator, who admitted. he could not get along without the property? If the lease was adopted, the law fixed the rental specified in the lease as the amount of compensation to be rendered. Again, the, complainant, after the order of February 11, 1895, recognized the factthat both the CQurt and the receivers were holding this leased proJ)· ertyon'the assumption that the interest rental was tobe an operating When the receivers petitioned the court for leave to borrow 'money to pay this ren'fal, by issuing preferential certificates, to be made a lien on the corpus of the property, the appellant answered that its constituents did not oppose. What matters it, therefore, that the ,receiverl'hip later on was brought into such ,straits that it could not security, enough to meet the interobtain; even on est under the leased contract, and that the court thereupon undertook to suspend further 'operation of the decree of February 11, 1895? This, in effect, was nothing more than a forced loan. As to the Tunnel Company and the trustee, the action was without notice, and ex parte. Ft was" d()ne at the. iD;stance of the receiverEl, fo relieve them ·from :mandatQry order )V unable to execute., '4-ml re dernier res80rt, in so far' as it could, the for ,a :pme,
sUbject to the further order of the court; evidently reserving the right to secure the payment thereafter in such method as might be within the compass of a court of equity. Had the claim been for fuel, equipments, or service essential to the operation of the road, which the court at one time directed the receivers to payout of the money to be obtained on loans to be made a primary lien on the corpus of the property, but, by reason of the inability to effect such loan, the court had made a further order suspending until' otherwise ordered, this in no degree would have lessened the equitable obligation, nor diminished the power of the court, in the final decree of foreclosure and distribution, to order a preference in favor of such claims. In the language of this court in Mercantile Trust Co. v. Farmers' Loan & Trust Co., 49 U. S. App. 462, 260.0. A. 387, and 81 Fed. 258:
"If the court below properly accepted and adopted the leases, the rentals reserved under them became an integral part of the operating expenses of the trust estate in the hands of the receivers, the same as wages of hired men, the rent of leased engines or cars, the traffic balances due connecting roadS, or any other ordinary expense of operation; and in this way claims of these rents secured preference in payment over those of all cestuis que trustent out of the proceeds of the railroads, as well as of their earnings during the receivership. The moneys expended and liabilities incurred by the receivers or trustees in the authorized operation, preservation, and management Of the property intrusted to them constitute preferential claims upon the trust estate, which must be paid out of its proceeds before they can be distributed to the beneficiaries of the trust."
It is true that after July 1, 1896, the receiver, Ristine, expressed to the court the opinion that experience in operating the tunnel track under the terms of the lease had proven the impolicy, in an economic view, of abandoning the summit route between Busk and Ivanhoe, and recommended the rehabilitation of the abandoned track, and the surrender of the tunnel track. This, however, was not done during the operation of the road under the receivership, but, on the contrary, the retention and use of the tunnel track were continued to the end as theretofore. The receivers had no money to reconstruct the abandoned summit track, and this complainant did not offer to furnish it, nor did it make any application to the court to surrender the leased lines; but, on the contrary, it left unchanged its allegation in its latest supplemental bill "that the defendant has no means of operating its trains between Busk and Ivanhoe except over said road of said Busk Tunnel Railway Company." As the questions raised by the answer were answered by the law of the case, the exceptions thereto were properly sustained; and, as we find no error in the decree, the same is affirmed.
POKEGAMA SUGAR-PINE LUMBER CO. v. KLAMATH RIVER LUMBER & IMPROVEMENT CO.
(Circuit Court, N. D. California.
April 18, 1898.)
Where sufficient grounds exist, a court oiequlty has the power to, and wlll, a application, a restrl;linlng order, though mandatory inenect anit Tl!quiring affirmative a c t i o n . · .
01lDER- \lANOATORY IN EFFEOT.