FEDERAl. REPORTER,
vol. 42.
'I'
oftbe bondholders; and that a receiver should be appointed. It further 8verrell'the exepution of a second mortgage by the railway company on September 15, 1883, upon which there had been defaults similar to thffile undE;lr the first mortga.ge. The prayer was for foreclosure of the mortgages and the appointment of a receiver. To this bill a demurrer was fiHidithe principal grqund of demurrer being that the bill did not show any request by a majority of the bondholders for the trustees to declare the principal indebtedness due, and to institute foreclosure proceedings. In an opinion, filed April 8, 1886, (27 Fed. Rep. 146,) the court overruled the demurrer, holding, in effect, that any bondholder was entitled to foreclosure for unpaid interest,although no such demand had been made by a majority of the bondholders as to mature the prinThe was brought at the request of the holders of coupons, but against the wish and protest of a majority of holders of the bonds, who in open court moved that the. suit be dis, Tlle court declined to appoint a receiver at that time. On 2, 1887, the complainant filed an amended and supplemental bill. This bill averred that a meeting of the first mortgage bondholders held in New York August 17, 1886. at which a majority requested the trustee, ,in writing, to declare the principal due, and to take such steps as might ,be necessary for foreclosure and the protection of their iQterests. It also averred the insolvency of the railway com.pany, and that if the operation of the, road should, be suspended the security of the bondholders would be greatly impaired i and it contained averments similar to the averments in the ,original bill as to action taken to mature indebtedness, spd prayed fOreclosure and the appointment the of r,ecei:ver. On Februll.ry' 25, 1889, a decree of foreclosure was enteredj,the amount of principal and interest found due under the first being 88,874,000, and the amount of principal and interest found under the second mortgage, $6,500,000. From this decree an appeal was taken in behalf of the second mortgage bondholders, or filed. Pending the apa portjon of them, and a supersedeas bond peal,on;-the application of the trustee and a so-called "purchasing committee,'1 representing, substantially, all the first mortgage bonds and a large a:mount of the boncls secured by the second mortgage, Volney T. Malott was appointed receiver. This appointment was made May 18, 1889. On July 24, 1889, the rolling stock company filed its petition of intervention, reciting the history oCthe car trust as, above set forth, alleging its ownership of all the car trusthonds ann coupons described in the lease,l;tnd remaining unpaid, default in the payment of principal under the terms of the lease, to immediate and interei;t, and its the cars in question. The petition prayed that the receiver be directed to deliver the cars to the petitioner, within 30 days, at Hegewich, Ill., where, the tracks of the railway company connected with the petitioner's yards. Demllnd was also made upon the receiver for; the cars. On thed;typrevious to the filing of this petition the ra-Ce.iVf;lr presented to ,the a report in which he stated the various uponthepJ;operty in his possession, the history ofJhe \Jar tru\>t,. i
FARMERS' LOAN &: TRUST CO. t1. CtHCAGO &: A. BY. CO.
!)
substantially as above set forth, default oBhe railway company in payment ofrentals; that there was due under the lease in May, 1889, $423,000; that after such default the rolling stock company and the railway company entered into an agreement collateral to the car trust, in which the railway company was to do all the freight business of the rolling stock company to and from the town of Hegewich, and the freight so eal'lled by the railway company, as well as advance charges to connecting lines on such freights, which it agreed til pay, should all be credited upon the amount due under the car-trust agreement; that this agreement was kept by the parties prior to his appointment, and afterwards by him, in part, and that, in addition to the cars of the rolling stock company embraced in the lease, he had in his possession, belonging to the railway company, less than freight-cars. Upon submission of this report the receiver asked the instructions of the court. On Novem'ber4, 1889, the rolling stock company filed its amended and supplemental petition, in which it averred that no part of the equipment had been surrendered to it under, the demand tpade in its orip;inal petition upon the court, or under its demand upon the receiver; that after default in the payment of interest on the first and second mortgage bonds, and fr,om thence to the date of the appointment of the receiver, the railway company continued to make payments on the car-trust bonds, such payments being in cash, and by the application upon the indebtedness of the amounts due the railway company from month to month for freight earned by it in the business of the petitioner; that. since the appointmentof the receiver, payments had been made from time to time by applying thereon amounts due the receiver for freight transported in like manner as before his appointment; that, both before and since the-appointmentof the receiver, such payments had been made, and the cars embraced in the lease had been continuously used, without objection from any of the bondholders or the trustee in either of the mortgages; and that there was due the petitioner on November 1, 1889, including interest, $414,289.74. This petition prayed that an order be entered directing the receiver to pay to the petitioner the amonnt due it on the basis of the car-trust contract, and that snch indebtedness be decreed a prior and paramount lien or charge upon the earnings, as well as the property embraced in the mortgages. It is insisted by the petitioner's counsel that by reason of the matters above stated the receiver, as well as the holders of bonds secured by the mortgages, through their agent, the railway company, converted thecars to their own use, and ratified and affirmed the car-trust .bonds and leases, and thereby became liable to pay the petitioner the entire amount. remaining due and unpaid. In the first petition it was claimed that. the cars covered· by the car-trust agreement were the property of the petitioner, and on that ground their possession was demanded. In thll.t petition it was not claimed that, by reason I)f what had previously 0ccurred, the equipment had been converted by the railway company as the agent of the bondholders. The petitioner was not ignorant of the action of the company, and the non-action of the bondholders and· their
10
J:
J!'E])ERAL _REj>QRTER,;vOl.
42.
cll.r$ was demanded. Whenthereceiver prese.n1;edhisreport to the before the first petition of inteJ:Yen:tion was, filed, th-e petitionerwasi presept by counsel; and urged rnoobjection it. Thetitle.asserted.by the petitioher tathe equipment. has never beendispnted.Neither the action of the railway compaoy,.the non-actiQnorthe bondholders, nor the actiQnof the receiver, amounted to a, «>nversion oftba property embraced. in the car-trust agreeJiUent. The re.ceiver is the mere officer or instrument of the. court of the property, and any of his ,uQtl'li.thin thesCQpe:Qf the authority conferred by the order appointing ·e.ndnototherwiseauthorized by the' court, do. not the court. didbis full duty in connection with the car-trust property ibJrHsn\)mitting big report to the court and asking .its direction. He was in, possession iofproperty by' the court, his possession was the possession,anQlhe;cpuld not have surrendered the prope.rtyon petitioner without. the, co.urt's consent or authority. It ;doasnot. follow, because the railway company was permitted to coiltinuQ .in ,tbe after default, and waar:thus .enabled to main.; tainlits.bllsiness ,[aoo·: earaing capacity:. that had, ·de-ttmnded,andreceived,iUJ:cars, the railway com,pany;e.ould not haveobtailled equipment elsewhere;' Dor·does itJoUow "(that,> beoause the bondhGlders to exercise, their tight at an earlier ,the principal indebtedness, and in: that connection a receiver, they thereby.constituted"the theitagent for all purposes in the operation of the railway. ,,[the supremeuourthas ·never gone to the extent contended for by the -pltitioner., Neither.before nor after the appointinentof the:receaver ;.was.Jtbe ;petitiouer: prevented from enforcing its undisputed. right to the iequiIllil.ellt;, and, it:canno,t now claim ;that, by permitting the insolvent :ra,i.!wlly,company to continue in the possession and operation of·the propeny" the bondholders, in effect, pledged the mortgaged property as I securitY.,Jor the car rental in advance of, the mortgages;' Indeed,there ,illi nQtbing' in the l1ecord whichjustifielt the petitionerinsaying that the "bbndholders .could have. caused a receiver to be appointed at an earlier :,day. 1800h 'appointments:are always in the discretionofthe court, and on the first application the court refused to appoint a reeeiver. The aB$erte<L, in' the; supplemental petition was obviously an after-
to
Jolaim;for ooaJ furnished to the receiver' was given priority over the first .'m:.ol1gaga.,bonds. ,In Muten;berger v.RailroadOo., l06U. B. 286, 1 Sup. -q."Rep" 1401 a'l'eceiverwas appoinred"in a suit brought to foreclose .' the second mortgage. The holders. of b(mds secured by the first morteffort to foreclose thatdnortgage until more than a yearai't..receiver, ,with full knowledge of the peroperate. theroad,i in91uding a leased line. ' The- cir'Tcult dourtdireoted payment infull ofthe'reritalfor the use of thQ leasedlitie
V·. Bowen, 111 U.S. 776,4 Sup. Ct; Rep.' 675, there:ceiV&Jt ,di:verted· earnings from the pftyment of current expenses; and '11
."
WELLJlB,'
which action was affirmed by the supreme (,(lllrt. Neither: In Union Trust Co. v. ,IUinoi8 Midland Rauway Co., 117 U. S. 479, 6 Sup. Ct. Rep. 809, it was held that car rentals which accrued before a receiver wasappointed were not entitled to. be first paid out of the. corpus of the erty. .';l'he equipment embraced in the car-trust agreement is the property of the petitioner, and on its demand possession will be surrendered within a reasonable time; and, if the amount which the receiver has thus far paid for his use of the equipment is not a fair rental. on a quantum meruit, the court will order further payment on proper showing.
of these cases jUiltify the contention of the petitioner.·
BOOTH
et al.
'/I. WELLES.
N. D. Iowa, E. D. Aprll16,1890.) BANKS AND BANKING-NATIONAL BANKS-INSOLVlI:NCY.
The comptroller having notified a national bank that its capital was impaired, It. was agreed .that it might continue business oli the directors putting in $100.000 in cash; and retiring that amount of objectionable securities. That sum was contril>.. 'Ured; the account being opened with trustees appointed by the directors to manage the fund, with full power, II,s far as the bank was concerned, and to account therefor W the contributors in such manner as to protect the eqUIties of each individual and the bark, in relation to the bank and its legal rights. It was tween. the' trustees and the.examiner that the securities to be retired were to be dE'signa\;Gd by.the .comptroller or examiner,but there was no such understanding witll the comptroller. The amount of objectionable securities had not been S80 . lected and given to tlle trustees when the bank was closed, the receiver taking and proceeding to collect tlle Whole' assets. 'Held, tbat the receiver was not reqUired to account for the balance of the $100,000 as a special fund, but merely as a debt.
In Equity. Bill to enforce the proper application of an alleged trust fund. , . . McC!ehey & O'Donnell, Henderson, Hurd, Daniels & Kiesel, Fouke &: J. H. Shields, R. W. Stewart, and Adams&: Mathew8, for·complainants. Wm. Graham, for defendant. SHIRA8, J. Upon the filing of the opinion of this court in the case of Welle,,, v. Stout; reported Fed. Rep. 807, the present bill in equity wasfiled,.in acCordance with the suggestion therein made; and the question lert undecided in that case is now presented fQrdetermination. The evidence in this causeshows thatthe complainants herein contriblited thesuIn' of $100,000 to' be used. in restoring the solvency Commercial National Bank, which was placed in the bank; being opened upon the books'in the names of J. K:Graves and John R. Waller, trustees. WMh '{llehank closed its doors; in March,' 1888, the account showed a balance in favor of the trustees of $35,811.41,'and it irfelainied.on behalf thatthis balance i bank asu,specialor trust Nridi it did,not form part of the tQ:e1)ank;.Jhat the receivC;lr is chargeable with notice of the natu.re:oHhe