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of a receiver does not prejudice the rights of a prior mortgagee, and then uses this language: "And the constant habit of the court upon such a motion (to appoint a receiver) is not to look at mortgagees farther than to take care that they are not prejudiced." In Redfield on The Law of Railways, vol. 2, p. 363, the proposition is thus distinctly stated: "The appointment of the receiver does not operate to derange the priority of legal or equitable liens. The money in his hands is in the custody of the law, for whoever can make title to it; and when the party entitled to the estate is ascertained, the receiver will be his receiver." The case, therefore, comes down to this: Does the decree of Circuit Justice Bradley, of August 26, 1872, or the decree of foreclosure of January, 1874, establish such liens? And it may be stated thus: Has Justice Bradley departed from a well settled rule of law, to create a lien not essential to running the road, and not necessary for increasing, either directly or consequentially, the rights of the first mortgage bondholders for the protection of whose rights the appointment was made? It is clear that such a lien is not one of the incidents to running a road, nor was its creation necessary to procure traffic and travel; nothing of the kind is intimated in the application for a receiver, and no such view or idea is presented in the order, an analysis of which will make this clear.

The order of the circuit justice recites that the property is deteriorating in value, and being wasted and scattered and destroyed, whereby the security of the first mortgage bondholders, and the interest of all other persons then concerned in said property, are subject to hazard, danger and sacrifice. It then recites the impossibility to dispose of the property in its then present condition without great sacrifice, and the proposal and agreement of the parties . . "that a receiver or receivers shall be appointed in this cause, to take charge of said property and put the same into proper condition for its preservation and disposition for the mutual benefit of all parties interested therein. And whereas, in view of all the evidence and admissions of the parties, the court is satisfied that a receiver or receivers ought to be appointed to take charge of the entire property and manage the same, and to put the same in order and repair to prevent the entire destruction thereof: " Therefore it was ordered that receivers be appointed: 1. To take possession, recover and receive the property covered by the first mortgage. 2. To sue for damages done to it, etc. 3. To put the property in repair, and to complete the road, and to procure rolling stock, etc., necessary to operate it, "and to operate the same to the best advantage, so as to prevent the said property from further deteriorating, and to save and preserve the same for the benefit and interest of the said first mortgage bondholders, and all others having an interest therein."

Then follows the creation of the prior lien, and it is for money raised or advanced "for the purposes aforesaid." The order then in words provides: "That any funds raised by said receivers by loan as aforesaid, or received by them from any other source as such receivers, which may not be employed or required for the purposes above mentioned, or allowed to them by the court for their services as such receivers, shall be paid by them into this court for the use of the said first mortgage bondholders, as their interest or principal shall become due." We here have an explicit declaration that no money is to be used by the receivers except for the purposes above mentioned. Now is it necessary, in order to operate the road, that any man entitled to his action for injuries should have a prior lien on the road for such damages? And is the lien to be created by inference, and on conjecture that the creation of such a lien was necessary

in order to operate the road? As a fact, it is known that almost every railroad in the United States is under mortgage, and that every such one is operated without being subject to a lien for such liabilities. There is not one word in the inducements recited for the appointment of the receivers, or in the purposes named for which they were appointed, which, by the remotest inference, countenances the creation of a prior lien.

The exercise of power by a court to displace liens can only be sustained on the ground of actual necessity, and surely there can be no necessity to append, as an incident to running a railroad, a lien for damages that displaces existing contracts. The party has a right to be paid from the fund remaining, after satisfying prior rights. He has a right to be allowed his claim to be paid from an excess remaining. He has the same right against the property which he could have had if the road had been run by the president and directors when his right accrued, and none other. Turning to the decree of foreclosure of January, 1874, we see how clearly the court viewed the order of the circuit justice in the light presented. It devotes the proceeds of sale, first, to necessary expenses incident to the execution and due prosecution of the trust created in behalf of the mortgage, etc. But it cannot be said that the giving of a prior lien to a traveler for damages is an expense incident to the execution of the trust which was created in behalf of the mortgagees. Such a claim is in fact no "expense" at all, in the proper or ordinary sense of the word. It is a liability resulting secondarily from operating the road, and that is all. The petition must be dismissed.

§ 1569. A claim for advances made to a railroad company to pay for construction does not take precedence of an existing mortgage, though the party made the payment at the company's request, and it resulted to the advantage of the mortgage bondholders. To give him a superior equity, on account of his payment of the company's indebtedness, it must be alleged and shown that he acted under such inducements from the bondholders, and had such dealings with them in the transaction, as estop them to assert their liens against his claim. Before relieving the company by payment of its note, the petitioner could have required from the company and its secured creditors express security of a character at least co-equal with the mortgages, if not superior to them; and in the absence of such security the mortgage liens could only be displaced by such affirmative acts on the part of the bondholders as would in equity operate to estop them from asserting those liens in hostility to him. In re Kelly,* 5 Fed. R., 846, 851.

§ 1570. Contractor with agreement for possession. Where a contractor undertook to complete the building of a railroad, under an agreement that he should take possession of the road until the company should pay him what might be due for construction, it was held that the contractor having completed the road had an equity superior to an existing mortgage for the amount of his claim. The court presumed that the mortgage bondholders assented to such agreement. Dunham v. Cinn., Peoria & Chicago Railroad,* 9 Pitts. L. J., 90.

§ 1571. Priority not affected because road built by means of the junior mortgage.— The order of priority of two or more railway mortgages is not affected by the fact that a part of the road was wholly built by money raised by means of the junior mortgage. Galveston Railroad v. Cowdrey, 11 Wall., 459 (§§ 1297-1304).

XIV. LIENS AFFECTING PRIORITY OF RAILROAD MORTGAGES.

[See LIENS.]

SUMMARY - Liens under general and special laws in North Carolina, § 1572.— Secretary of a company not a servant or employee, § 1573.

§ 1572. The general lien law of North Carolina does not apply to railroads. Under a special statute of that state, making all debts of a corporation existing at the time of its making a mortgage a first lien upon its property, no lien exists for work performed or debts incurred after the making of a mortgage by a railroad company. Tommey v. Spartanburg & Asheville R. Co., §§ 1574-1576.

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1573. The secretary of a railroad company is not a "servant or employee" of such company within the meaning of a statute directing the payment of unpaid wages of "servants and employees." Wells v. Southern Minnesota R'y Co., § 1577. [NOTES. See §§ 1578-1580.]

TOMMEY v. SPARTANBURG & ASHEVILLE RAILROAD COMPANY.

(Circuit Court for North Carolina: 4 Hughes, 640-645; 7 Federal Reporter, 429. 1881.)

Opinion by BOND, J.

STATEMENT OF FACTS.- This is a bill filed by the mortgage trustees and the bondholders secured by the mortgage against the defendant corporation and others, to wit, creditors of the defendant corporation claiming mechanics' liens and statutory liens for labor done on the Spartanburg & Asheville Railroad, to foreclose the mortgage and sell the road pursuant to the terms of the mortgage. The case is for final hearing upon the pleadings, evidence, report of the special master, and exceptions to his report. The material facts reported by the master are not controverted, and are these:

The Greenville & French Broad Railroad Company was incorporated by the legislature of North Carolina, February 13, 1855, and the Spartanburg & Asheville Railroad Company was incorporated by the legislature of South Carolina, February 20, 1873, and the two companies were consolidated under the name of the Spartanburg & Asheville Railroad Company, July 31, 1874, under the general laws of the two states, and the new company thus formed is clothed with all the rights which were originally conferred upon the separate companies. The defendant company thus organized commenced to build its road from Spartanburg, in South Carolina, to Asheville, in North Carolina, and having expended its assets, the stockholders resolved, on the 9th day of August, 1876, to issue and sell bonds to the amount of $670,000, and to secure their payment and interest on them by a mortgage upon the consolidated road. The mortgage was duly executed by the company on the 1st day of October, 1876, and the bonds to the amount of $642,000 were sold or hypothecated, and came into the hands of the plaintiff holders and others for value bona fide. The third section of the mortgage, which is filed as an exhibit, contains the conditions of it and the powers granted to the trustees, mortgagees thereunder. It was not seriously contended in the argument that the defendant company had not power to make the mortgage, or that the conditions had not been broken at the commencement of this action.

§ 1574. Liens of contractors and laborers for work performed after a mortgage of a railroad.

The master so finds, and his report is hereby confirmed. The defendant creditors claim that they, as contractors and laborers, have a lien upon the road prior and superior to the bondholders, and are first entitled to the proceeds of the sale of the road, if the court should decree a sale. This is the principal question in the case. These claimants are of two classes: First, those who have filed in the proper court "mechanics' and laborers' liens;" second, those who have not filed such liens in the state courts, but claim a lien by statute. Of the first class are Fry & Deal, John Garrison, Rice & Coleman, and T. G. Williamson, whose claims are fully set out in the master's report. These claims, we think, ought not to be allowed, except as postponed to the mortgage debt.

§ 1575. The general lien law of North Carolina does not apply to railroads. It is not necessary, in our opinion, to argue whether or not these lien claims.

are filed under the provision of the state law. In each case the work was done and the lien filed subsequent to the execution of the mortgage; but we think the statute upon which the claims are based does not apply to railroads. Battle's Revisal, ch. 65. No case has been cited where any court in North Carolina has held that such a lien was within the purpose or meaning of that statute, although the statute was passed in 1869-70. The act does not mention railroads as the subject of such liens, and the intimation of the supreme court of North Carolina in Whitaker v. Smith, 81 N. C., 340, is the other way. It was here held that the statute gave a lien to "mechanics and laborers" exclusively, and that an "overseer" was not a laborer, and reference made to 8 Penn. St., 168, where it is held that an engineer is not a "laborer." The first class of claimants filed their liens as contractors. They are not, in our opinion, mechanics and laborers within the meaning of the North Carolina law as held by its supreme court.

§ 1576. Lien under a special law.

The second class of creditors referred to in the master's report do not claim a lien under chapter 65, Battle's Revisal, as the other lien claimants have done, but they do claim that by virtue of chapter 26, sec. 48, Bat. Rev., all debts due them, and all contracts with the corporation at the date of the execution of the mortgage, were liens prior to the mortgage. These debts at the date of the mortgage, October 1, 1876, have been paid, except the sum of $3,316.87, due E. Clayton, with interest from August, 1876, and some smaller sums, all of which are stated in the master's report. We do not think that under that section the claimants have any lien. We are of opinion that the statute contemplates debts already incurred and contracts executed at the time of making the mortgage.

It has been suggested to us by counsel, since the argument, that the case of Brooks v. Railway Co., 101 U. S., 443, has an important bearing upon this case; but we think the supreme court of Iowa held, as we do now, that a railway was not a building, within the meaning of their mechanic's lien law, in Nelson v. The Iowa R'y Co., construing section 1855 of the code of 1860, which resembles the North Carolina statutes, and reversed their judgment after the law was amended. So far as the claim of E. Clayton is concerned, we think the master's report must be confirmed. The land was purchased by him after the commencement of the construction of the railroad, with full knowledge that it was to pass over it, and indeed while he was constructing the railroad over it. He is in a court of equity for relief, and he must do equity. The master reports that he is not damaged and he will be allowed nothing. And the same is true of the land claimed by Rice & Coleman. We see no reason for disturbing any of the findings of the master relating to the claims of W. H. Inman, and his report is confirmed, and a decree will be passed in accordance with this opinion.

WELLS v. SOUTHERN MINNESOTA RAILWAY COMPANY.

(Circuit Court for Minnesota: 1 McCrary, 18-20. 1880.)

Opinion by NELSON, D. J.

STATEMENT OF FACTS.-The defendant company was organized, after foreclosure and sale by the purchasers, under an act of the legislature of the state of Minnesota, approved March 6, 1876.

This act contained the following proviso: "Provided, however, that such

court (the court granting decree) shall provide in such foreclosure decree, or otherwise, that such purchaser or purchasers shall fully pay all sums due and owing by such defaulting and foreclosed railroad company to any servant or employee of such company." In 1872 a suit was commenced to foreclose the Southern Minnesota Railroad Company, as to part of its line, by the trustees, under certain mortgages given to secure the bonds issued by the company. On November 23, 1873, a receiver was appointed, who took possession of the mortgaged property. A decree of foreclosure was entered May 27, 1874, and on December 27, 1876, the decree was modified so as to allow a sale in the interest of second lien holders, subject to the lien of the first mortgage bondholders, and on sale being made, February 10, 1877, the defendant company was organized by the purchasers.

§ 1577. The secretary of a railroad company not a "servant or employee." The plaintiff brings this suit to recover compensation at the rate of $2,500 per annum, as secretary of the old company from June 1, 1874, at which time. he claims he was elected, until June 19, 1876. At the time of his election the mortgaged property, including one hundred and sixty-seven miles of completed railroad, was in possession of the receiver, and the stockholders had no right to select their own agents for the management of the corporation; at least, the mortgaged property. It is urged by the defendant that the act of March 6, 1876, which also contains this proviso, "that nothing herein contained shall be construed to change or impair the force of any decree of foreclosure heretofore made, or any of the terms or provisions thereof," relieves this defendant from the operation of this statute. It is unnecessary to decide this point, as from the view entertained, another objection is fatal to a recovery by the plaintiff. The secretary, under the by-laws, is an officer of the company, and salaries due officers are not the "sums due and owing any servant or employee," which the new organization are required to fully pay. The legislature intended to provide for the unpaid wages due servants or employees; that is, operatives of the grade of servants "who have not a different, proper and distinctive appellation, such as officers and agents of the company." See 37 N. Y. R., and cases cited. The charter of the old company, and the various acts amendatory and relating thereto, as well as the act of March 6, 1876, recognize the distinction between officers and employees, and the latter act refers to the secretary as an officer in the same section which contains the proviso; and it is apparent that when certain persons are in the act designated officers, and are not expressly named in the proviso which requires the payment of sums owing "servants or employees," they are excluded from its operation. The word "employee," following "servant," is descriptive of the persons intended to be paid, and excludes officials to whom are intrusted the management of the corporation business. The officers of the company are its representatives, and, it may be said, are the official masters who direct and control the servants and employees. The former are appointed or elected, and are trustees (see 21 Wall., 624, §§ 1636-40, infra); the latter are hired, and are the subordinates of the former. Judgment ordered for defendant.

§ 1578. The liens of material-men, laborers and others upon railroads must be perfected according to state law in order to obtain preference of payment. Jessup v. Atlantic & Gu!* R. Co., 3 Woods, 441 (S$ 1555-56).

§ 1579. The court might require a receiver to pay certain claims for supplies and wages of workmen, and even to hold the property subject to them; not as a lien on the road, but in the exercise of the equitable discretion of the court in dealing with property which is of a

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