12 EASTON
I'EDERAL REPORTER,
vol. 38. (PEMBERTON CO.,
et al.
t1. HOUSTON
& T. C. Ry. Co. et al., tervenor.)
.
In-
March 15, 1889.)
RAILROAD COMPANIES-INSOLVENCY AND RECEIVERS-CARR1ERS-Loss OF GOODS.
claim by the consignee of gOflds against a railroa.d company as a common carrier, for the value of goods lost by fire while in possession of the carrier, and before the road is placed in the hands of a receiver in a foreclosure suit, is not entitled to a priority, before the claims of the bondholders.
In Equity. On exceptions to master's report. Gresham &- Jones, for intervenor. Farrar, JfYna8 &- Kruittschnitt, for receiver. PARDEE, J. This intervention, filed June 29, 1887, is by the PemDerton Company; a corporation created and existing by and under the laws of Massachusetts, and having its domicile at the town of Lawrence ihthat state, against the Houston & Texas Central Railway Company, aS8common cattier, for the -yalueof freight lost while in transit O\'er Hs road. The intervenor seeks to have its claim declared a charge upon the net earnings of the defendant company's road,_ and, if need be, upon the corpUs of its estate in the hands of the receivers appointed in the above cause, superior to the equities of the bondholders, whose contract liens are sought to be enforced· in the above suit; and to that end the said receivers and· the complainants and defendants to the original bill are niade parties to this proceeding, is so far as the assertion of the petitfoner'srights may affect them or·the interests they represent. Intervenor lays its damage at $4,000. The facts, as alleged in the petition, and as reported by the master, are, briefly, as followEj: On the 12th day of September,' 1884, there were shipped, by Robertson & Co., from EnIl.is,Tex., a8tation upon the Houston ,& Texas Central Railway, 100 bales of eotton, the property of the intervenor, the Pemberton Company, the railway company executed to Robertson & Co. a bill of lading for the delivery of the cotton to their order at Lawrence, Mass., which bill of lading, at the time of the shipment of 'the cotton, was by Robertson' & Co., the consignees therein named, indorsed in blank and delivered -to intervenors, the cotton being the latter's property and the. shipment thereof fo'l' its beriefit. OIl. the 14thofSeptember, 1884, and while the cotton:was in transit ovetsaid railway, and in the custody of the railway company, under its contract of carriage, 40 bales thereof wenHlestroyed by' fire; the cotton so burned' being of the aggregate vteigMof20,132 pounds, and Of the value, at the time, ofll cents per . pound, Of, in the aggregate, $2,214.52. 0l1,the23d of FebruarY;'1885, ' Benjamin G. Clarke and Charles Dillingham, under an order made :February 20,1885, in equity cause No. 185, styled "Southern Development Co.et also V. Houston & T. C. Ry. Co.," went into possession of the road and other properties of the said railway company, and so continued until
EASTON tl. HOUSTON & T. C. BY. CO.
13
such properties passed into the custody of the present receiver in this cause under an order of court of date May 26, 1886, where they have since continuously remained. The master finds and reports that intervenor's demand against the defendant railway company accrued within six months prior to February 20,1885; that the earnings from the property of the defendant company in the custody of the court have been, since February 23, 1885, in excess of what has been necessary to defray all expenses incurred during such period in the care, management. and operation thereof, and in cess of what also have been adjudged in said cause equitable charges upon such earnings, superior to the equities of said complainants, to an extent at least equal to intervenor's demand against defendant company; but also finds that there are interventions upon other demands against such company pending in this court, iW.hich, if held to be entitled to equitable priority over complainants, would be more than such excess to a greater amount than intervenor's said demand. The record .in the above cause (No. 198) discloses thec:flict that since the road andotheI' properties ofthe defendant company have been in thectistody and undell the management and control of the receivers. atleast$600.000 of the net during such period have been expended by the said reoeivers in the payment of interest accfuedon the! bonds held:by the said in the erection and completion of costly depot buildings, in fencing right olway, and in otherwise permanently improving and bet;.; tering the said properties. 'I'he master, .upon the foregoing facts. con.. eludes and finds as a matter of law that the said claim of the Pemberton Company is not an indebtedness of such a character as entitles the said intervenor to payment thereof either from the: income or the CO!I'ptl8 of the estate in preference to the contract liens' of complainants, a.nd that :the intervenor is not entitled to the relief sought by it as against the funds .or the properties of the defendant railway company in: the custody of the receivers in this cause; and he recommends that it be decreed accordingly', and that the petition of intervenor be dismissed. . The questions arising upon the exceptions to the master's report are stated by counsel for intervenor as follows: · "First, wIJether or ncit a claim by the consignee. or against an insolvent railroad company as a common.carrier of goods, for the value of frl'ight lost within six months next before the company's road and other properties passed into the possession of =i' receiverappointed in a sllit;for Jore. closure of a mortgage givl;ln to secure the company's bonded ind.ebtedness is enforceable against the net earnings in that officer's hands. as a charge superior to the equity of the bondholders; and. if yea, then. second, whethet such a claim is not enforceable the C01pUS of the- estate in the possession of the receiver, p'rior to the claims of the bondholders', where there are no such funds, or an insufficiency thereof, llyreasQn,Qfthefact that theyhav(l been applied to the payment of interest accrued 011: the mortgage debt, or to the lasting and valuable improvement or betterment,of the mortgaged property." . . .. . ., . It is not considered necessaryto specifically answer either one of fi!.ese questions'; of. a railroad company arising, out. of .the. loss by
14
REPORTEa,
vol. 38; .
fire of goodswbile in posllession of said railroad company as a common carrier isgenerally,'and as an operating expense; but, when presented against an .insolvent railroad company over fOUf months after the railroad property is placed in the hands of a receiver in aforeclosur.esuit,and urged as a lien upon the income of the property earned bythereceiv'er, it is necessary to discriminate such a debt from debts arising for labor, supplies, equipment furnished for and necessary for keeping up; the railroad as "a going concern." "There is authority for holding-in fact it is pract'icaHy decreed by the supreme court of the United debts contracted by a railroad corporation, as a part of the necessary operating e:Kpense, for labor and supplies, or for necessary equipment or improvement of the mortgaged property, are privileged debts entitled to be paid out of the current income, if the mortgage trustee takes possession, or if a receiver is appointed in a foreclosure suit }'osdick .v. Schall, 99 U. S. 235; Burnham v. Bawen, 111 U. S. 776, 4 Sup. Ct. Rep. 675. And if current earnings are used for the benefit. of mortgage creditors before current expenses are paid, the mortgage security is chargeable in equity with the restoration of the fund, which has thus been improperly applied to their U$e8. General creditors of a railroad corporation, which includes those claiming damages for negligence.in operating the railway, have never been held as having any privilege on the income of the property, * * but there are many cases to the eftectthat no. such privilege or, equity exists. Davenportv. Receivers, 2 Woods, 519; In re Manufactwring 00., 4 Fed. ,Rep. 873; Hiles v. Receiver, 14 Fed. Rep. 141; HerfJey v. Railway Co., 28 Rep. 169; Olyphant v. Steel, Co., ld. 729; Trust Co. v. Railway 00., Ide 871." See Trust 00. V. Railroad Co., 30 F:ed. Rep. 895. In the case of Davenport v. Receive1'8,cited above, Mr. Justice WoODssaid: "It cannot be said that the' givin'g a prior lien to a traveler for damages Is an expense incident to the executiun of the trust which was created in behalf of the mortgagpes. Such a claim Is, in fact, nO'expensll' at all, in the proper or ordinal'Y sense of the word. It is a secondarily from operating the ruad, and thatJs aU." .
*
of
: . Tlle case of Trust Co. v., RnilwQ,y Co., cited above, was a case identical, except in point of time, with. the one now in hand. In all the cases thea,t I have examined, where debts arising before the receivership have been allowed as prior in equity to the claim of the bondholder on the eafhings during the receivership, the underlying principle is that the debt; when incurretl, operllted in a direct way to the advantage of the mortgage holdt:rs; and in all the cases that I have eJra:m.ined debts arising {or damages growing out of the transportation of pllssengers and freight have been classed as general debts, except in relation to traffic balances due ()ther'roadsat the time a receivel' was appointed, and such traffic balances been put upon footing that the payment of the saQ:le operated as a specific to the property. "Many circumstances may exist which may make it necessary and indispensable to the business of the road and the preservation of the. property' for the receiver to
WHELAN 'l1. NEW YORK, L. E. &: W. R. CO.
15
pay'pre-existing debts of classes out of the earnings of the receivership, or even the corp'U8 of t}ie property, .underthe order ofthe court, with a priority of lien. Yet the discretion to do 80.sh()uld be exercised with very great care. The payment of such debts stands prima facie on a different basis from the payment of claims arising under the receivership, while it may be brought within the principle of the latter by special circ.l,lmstances. It is easy to see that the payment of unpaid debts for operating expenses accrued within ninety days, due by a railroad ,compnny sUddenly deprived of the control of its property due to in its employ,whose cessation from work simultaneously is to be cated in the interest both of the property and.of the public, and thepaymentof limited amounts due to other connecting lines of road for rials and repairs, and for unpaid ticket and freight balances, the outcome of indispensable business relations, where a stoppage of the continuance of such l1Usiness relations would be a probable result in the caSe onlOnpayment, the general consequence involving largely also the interests and accommodation of travel and traffi.0, may wen place such payments in the category of payments to preserve the lllortgagedproperty, in a large sense, by maintaining the good will and integrity of the enterprise, arid entitle them to be made a first lien." Miltenberger v. Railroad Co.; 106 U. S. 286, l'Sup. Ct. Rep. 140. The exception to the master's report in this case will be overruled, and the report will be confirmed j the decree to be entered, however, will dismiss the intervention with6ut prejudice to any rights that intervenor may have toproeeed as a general creditQr against the Houston & Texas Central Railway Company. . .
WREJ,.AN
v. NEW
YORK,
L. E.&. W.
R.Co. 19,1889.)
(Oircuit Oourt. N.D. Ohio. E. D. 1.
RAILROAD COMPANIES-AcCIDENTS AT CROSSINGS-GATES.
2.
SAME..
a. 4.
When a gate established by a railroad company at a street crossing is open, a street·card,river may assume that the track is clear and safe, and is not negligent for passing through the gate without stopping to look or listen for a train. .
SAME-STOPPING AFTER PASSING GATE.
Nor is it negligence, after·passingthe gate, to'stop and look and listen before crossing the track, if ordinary prudence or oare be exercised to cross the the track, and avoid injury. In a collision between a railroad train and a.street·car. at a street croBsing, if the railroad seryants are negligent the negligence of the street-cardriver cannot be imputed to a passenger in the street-car. who is injured. 1 . ;" . ';1 ... ,
SAlIE-'-COLLISIOlir WITH STREET-CAR-IMPUTED NEGLIGENCE.
. IOn tM general subject of negligeJlCe imv.utedto a see ltallroad Co. v. (Telr.) 111::). W. Rep. Cooper's Adm'r, (Va.) 9 S. E. Rep, 821; Ral1road CQ. v. , 127; and note;' Shaw v. Oraft, 87 ll'ed.Rep. 317, and note. ". · .. . . .