maintained against him. But we see no reason to rescind the order so far as it affects the property in the hands of the new company. That company took the property under the final order of this court cum onere. The court reserved its jurisdiction to enforce liabilities incurred in the management of the property by its receivers, and to enforce them as liens upon the property. The case of the petitioner is a claim for personal injuries; she has a right, if her claim be well founded, to have it established as a lien upon the railway property. Such is the provision of section 1309 of the code of Iowa.

We can see no good reason to deny this petitioner the right to assert her claim in the only way that seems open to her. The order made at the last term will be so far modified as to require the service of personal notice upon the Central Iowa Railway Company, and rescinded as to receiver Morrill.

MCCRARY, J., concurs.

§ 1521. The appointment of a receiver is a matter within the sound discretion of the court, and the power is exercised in behalf of railway bondholders only in strong cases, and only upon its appearing that the property is insufficient to pay the debt, and that the mortgage creditors are in danger of suffering irreparable loss. Pullan v. Cincinnati & Chicago Air Line R. Co., 4 Biss., 35 (§§ 1203-11).

§ 1522. When earnings not applied to the mortgage and security inadequate.— A receiver may be appointed in case of a mortgage of tolls and income, if the earnings are being so applied as not to reduce or benefit the incumbrance. Inadequacy of security in connection with insolvency is good ground for the interposition of the court. Ruggles v. Southern Minnesota Railroad,* 17 Int. Rev. Rec., 29.

§ 1523. Moneys in the hands of the receiver are not subject to the demands of the company, or any one whose claim is based on the company's rights. North Carolina R. Co. v. Drew,* 3 Woods, 691.

XII. RECEIVERS' DEBTS AND CERTIFICATES.

[See RECEIVERS.]

SUMMARY To complete a road, § 1524.- Debts may be given precedence of mortgage through receivers, § 1525.

§ 1524. A court of equity ought not to authorize a receiver to borrow money to complete an unfinished road, if this can possibly be avoided. Where it was necessary to complete a road before a certain date, in order to prevent a forfeiture of the company's franchises and its land grant, the court, while refusing to allow the receiver to issue debentures, authorized him to complete the road with moneys to be advanced by the parties interested, and afterwards to issue debentures for such moneys. Kennedy v. St. Paul & Pacific R. Co., §§ 15261528.

§ 1525. The court has power through receivers to create claims which take precedence of mortgage liens. Under some circumstances, debts existing at the time of creating the receivership may be given such precedence; such, for instance, as arrears for recent operating expenses, debts due to connecting roads and rents due for leased roads. Miltenberger v. Logansport R'y Co., § 1529-1534.

[NOTES.- See §§ 1535-1537.]

KENNEDY v. ST. PAUL & PACIFIC RAILROAD COMPANY.

(Circuit Court for Minnesota: 5 Dillon, 519–526. 1878.)

STATEMENT OF FACTS.- Application of the receiver for authority to construct unfinished portions of the road, and to issue debentures to raise money for that purpose. A suit was originally instituted by bondholders against the railroad company and others. Afterwards the original trustees were removed, and Wetmore and others were appointed in their place. The new trustees brought a bill to foreclose the mortgage for $15,000,000, dated April 1, 1871. Under a

former order the receiver expended in repairs $100,000. Meanwhile the receiver has preserved the property and operated the road without loss. The completed portions of the road are fragments, and of little value unless the road is finished. The legislature of Minnesota, March 9, 1878, passed an act providing for the forfeiture of the company's franchises and lands, as respects the unfinished lines of road, unless a specific number of miles should be built by August 1, 1878, another part by December 1, 1878, and to St. Vincent by January 1, 1880. The foreclosure cause is not ready for final hearing, and no decree can be made in time to enable purchasers to complete the road and save a forfeiture. The other facts appear in the opinion.

Opinion by DILLON, J.

An application is made by the receiver for authority to complete the unfinished portions of the said railroad, and to issue debentures to raise the means of construction. The situation of the case is peculiar, and even extraordinary. The cause in which the receiver was appointed, as well as the foreclosure cause by the new trustees, is still pending, and it is certain that a final decree cannot be rendered in time to save the forfeitures provided for in the act of the legis lature of Minnesota of March 9, 1878. Unless the road is constructed as required by that act, the rights of the railroad company, as respects the unfinished road, and as respects the lands appertaining thereto, will be forfeited, and the principal security of the bondholders secured by the mortgage will be wholly lost. The fragments of road already completed would, in that event, be comparatively of little value. If the line of the railway is completed, it is clear that the effect will be to make the parts already completed more valuable. The mortgage bonds outstanding greatly exceed the value of the property. Fourfifths of all the bondholders apply for the order. Not a single bondholder has appeared to oppose it. The trustees in the mortgage, representing all the bondholders, ask that the order be made. A commission appointed by the court has examined the railroad and the lands, and ascertained the wishes of the bondholders, and recommend that the desired authority be given by the court. The only parties not consenting are the holders of stock in the St. Paul & Pacific Company and the First Division Company. But the interests of the stockholders and of the bondholders of the St. Paul & Pacific Company are, in the actual situation of the case, antagonistic, and the stock is of no value. Even the mortgage bonds are worth, in the market, but a few cents on the dollar. The First Division Company, itself hopelessly insolvent, and whose road is in the hands of trustees under mortgages, has no substantial interest of value in the matter. The opposition to the order asked for is not of a nature to defeat the application if the order is one which ought otherwise to be made. § 1526. A court of equity ought not to enter upon the work of building or operating a railroad except in case of irresistible necessity.

I assent, in the fullest manner, to the proposition that a court of equity ought not to enter upon the work of either operating or building a railway, if this can possibly be avoided without the certain and great sacrifice of the rights and securities of the parties in interest. The original order in this case was made upon this principle and upon the exceptional case which the record presented (Kennedy v. St. Paul & Pac. R. Co., 2 Dill., 448). It is not to be inferred from the report of that case that authority even to complete the building of an unfinished line of railway, and to issue debentures for that purpose, is to be conferred without an overwhelming and irresistible necessity. When such authority is conferred, it ought to be guarded with the utmost care. I have

given to the present application great and even anxious consideration. It is the first step that costs. The work of constructing the unfinished lines had better not be entered upon than to enter upon it and fail, leaving the road still unfinished. That would not improve the security, and would greatly add to the existing embarrassments and complications.

§ 1527. Permission to receiver to issue debentures refused.

Although the commission has recommended debentures as a means of raising the money necessary to complete the road, I have, on consideration, concluded not to authorize their issue, or to permit the receiver to incur any indebtedness whatever for this purpose. What I am willing to authorize the receiver to do, on the conditions and restrictions to be specified in the order, is: Out of moneys to be furnished him by the parties in interest, and not otherwise, to proceed to construct and equip the unfinished portions of the road at the lowest cost in cash; the receiver to be prohibited from contracting any debt or liability under this order in excess of the money actually furnished to and received by him. The parties in interest asking for the order must execute an instrument agreeing to furnish money sufficient to complete the road; and the trustees, for the bondholders, and the bondholders' committee, must also formally assent to this order.

§ 1528. Moneys having been advanced by parties in interest and the road fin ished, the court will direct the receiver to issue debentures for such sums.

When the receiver shall fully complete the road in such a manner as to be accepted by the state of Minnesota, and in accordance with the acts of congress and of the state, so as to secure to the company the lands granted by congress and the state, then the court will direct the receiver to issue debentures for all sums of money advanced to and used by the receiver for the construction and equipment of the road, which debentures, unless the court shall hereafter otherwise order, shall be a first lien on all the lines of road not now completed, and on all lands which the road constructed under this order shall be the means of earning and acquiring. The order must also contain a provision by which any bondholder, at any time before the issue of debentures, or, if the court shall so order, at any time before the sale of the property under the decree, may place himself on the footing of those bondholders who shall advance the money to the receiver under this order. The court will pass an order drawn up in conformity with this opinion.

Ordered accordingly.

MILTENBERGER v. LOGANSPORT RAILWAY COMPANY.

(16 Otto, 286-314. 1882.)

APPEAL from U. S. Circuit Court, District of Indiana.
Opinion by MR. JUSTICE BLATCHFORD.

STATEMENT OF FACTS.- On the 1st of August, 1870, the Logansport, Crawfordsville & Southwestern Railway Company, an Indiana corporation, executed to the Fidelity Insurance, Trust & Safe Deposit Company, a Pennsylvania corporation, located at Philadelphia, as trustee, a mortgage to secure the payment of bonds to the amount of $1,500,000, covering the railway of the mortgagor from Logansport to Rockville, in length about ninety-two miles, with all its franchises and property used in or connected with the operation of said railway, which the mortgagor then owned or might thereafter acquire. The bonds were coupon bonds, payable in gold, in the year 1900, with interest at eight

per cent. per annum, in gold, payable quarterly, on the 1st days of November, February, May and August. The mortgage provided that, in case of default in the payment of the principal or interest of any of the bonds, the mortgagor would, within six months after the default should occur, it still continuing, surrender to the trustee, on its demand, the possession of the mortgaged property, and all management and control thereof; that if possession should be so taken, all expenses of managing and operating the property should be paid from the income, and, if the property should thereafter be sold, from the sale; that the trustee, having taken possession, might manage and operate the road and property, and receive all the income and apply it to pay the interest in default, first paying all expenses of management and all charges on the property; but that the trustee should not demand possession until required in writing to do so by the holders of at least one-half of all the said issue of bonds then unpaid and outstanding. The mortgage also provided that, in case of such default and its continuance, the trustee might, after such entry, or other entry, or without entry, sell the mortgaged property as an entirety, at public auction, having first demanded of the mortgagor payment of all money then in default, and convey title to the franchises and property to the purchaser, and first pay out of the proceeds of sale all advances or liabilities of the trustee in operating and maintaining the railway and property, and managing its business and affairs while in possession, and then apply the proceeds to paying, first, the interest on the bonds, and then the principal, such payment to be made on the bonds whether they should have become due or not at the time of the sale. The mortgage also provided that if there should be a default continuing for six months after demand for the payment of any half-year's interest, the principal of the bonds should immediately become due, and the trustee might so declare and notify the mortgagor, and, on the written request of the holders of a majority of the bonds, should proceed to collect the principal and interest of the bonds by foreclosure and sale of the property or otherwise, as therein provided. Up to and including August 1, 1873, the Logansport Company paid the interest on the bonds. On November 1, 1873, and thereafter, it failed to pay any interest.

On the 1st of January, 1873, the Logansport Company executed to the Farmers' Loan & Trust Company, a New York corporation, located at the city of New York, as trustee, a mortgage to secure the payment of bonds to the amount of $500,000, covering the entire railroad of the mortgagor, with all the property which it had or might at any time thereafter acquire in the same, extending from Logansport to Rockville, about ninety-two miles in length, with all branch roads extending from said main line, built or to be built, with the right of way, and all the property used for operating and maintaining said road and branches, whether then owned or thereafter to be acquired, and all the corporate franchises of the mortgagor. The bonds were coupon bonds, payable in gold, in the year 1903, with interest at eight per cent. per annum, in gold, payable semi-annually, on the 1st days of July and January. The mortgage provided that, in case of default in the payment of any principal or interest, the mortgagor should, within six months after such default, the default continuing, surrender to the trustee, on its demand, the possession of the mortgaged property, and that the expense of managing the property should, if possession should be taken, be paid from the income, and, if necessary, from the sale of such personal property as the trustee might deem proper. The mortgage also contained a warrant of attorney, by which, in case of default

by the mortgagor to pay any principal or interest for six months after the same should become due, it authorized any attorney or solicitor of the state of Indiana, after notice to it as thereinafter provided, to enter its appearance, without process, in any court of competent jurisdiction, to any bill filed by the trustee to foreclose and sell the mortgaged premises, and, if requested by the trustee, to consent, on behalf of the mortgagor, that a receiver be appointed forthwith, by order of said court, to take possession of said railway or any part thereof, and of all or any of the mortgaged property, on such terms as the court should prescribe, and to consent that a decree forthwith pass for the sale of the whole or any part of the mortgaged property without appraisement, but under the direction of the court, provided that the trustee should not demand a surrender of possession, or file a bill to foreclose and sell, unless requested in writing by the holders of a majority in interest of the bonds at par. The mortgage also provided that, in case of default in the payment of any interest for six months after the demand of payment after due, the whole principal money named in the bonds should become due, and that, in case of a sale, the proceeds should be applied, first, to paying the trustee all reasonable expenses; second, to paying the principal and interest of the bonds; and, third, to paying the surplus to the stockholders. The mortgage declared that it and its lien were subordinate to the mortgage to the Fidelity Company. The mort gagor did not pay any of the interest which fell due January 1, 1874, and July 1, 1874, respectively.

On the 26th of August, 1874, the Farmers' Loan Company filed, in the circuit court of the United States for the district of Indiana, a bill for the foreclosure of the second mortgage, making as parties the mortgagor and the Fidelity Company and certain judgment creditors of the mortgagor. The bill set forth that the mortgage to the Fidelity Company covered the same property as the second mortgage, and that the latter was subordinate to the lien of the former. It alleged facts showing that, by the terms of the second mortgage, the entire indebtedness secured by it had become due; that a majority in interest of the holders of the second mortgage bonds had, in writing, requested the plaintiff to foreclose the mortgage, and it had, more than thirty days before filing the bill, given notice to the mortgagor of its purpose to file the same; that the mortgagor was insolvent and unable to pay its debts; that its entire property and franchises were not equal in value to the amount of the two series of bonds; that its earnings, after paying current expenses and necessary repairs, were inadequate to the payment of interest on the two series of bonds; that the only possibility that it would in the future be able to pay the interest on the mortgage debt depended on its, or some person's, as its representative, being permitted to operate the road untrammeled by the embarrassments under which it labored; that it had a large floating debt, partly in judgment; and that executions had been levied on the property covered by the second mortgage and used by it in the operation of the road, and such property had been carried off by the officers of the law, whereby the operations of the road had been crippled, and the expense of its management increased, whilst its revenues were diminished. The bill prayed a foreclosure of the rights of the mortgagor and of the judgment creditors, and a sale of the mortgaged property, and the application of the proceeds to the payment of the plaintiff's claims according to law. It also prayed the appointment of a receiver to take into his custody and control the mortgaged property during the pendency of the suit, to operate the railroad, receive its revenues, pay its expenses, make repairs, and manage its