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that the said decree should have saved, reserved, and excepted the said described lands as the property of the said Hobbs, and that the said decree should have declared that the title of the said Hobbs to the lands described was and is superior to the title conveyed by and held under said mortgage or deed of trust. The said bill prays that the said decree may be reviewed, reversed, and set aside, and that the right of way of the said Decatur, Chesapeake & New Orleans Railway Company through the lands of orator be declared not subject to the lien of said mortgage or deed of trust, but that the title of complainant in and to the same be declared to be superior, etc. On August 5, 1893, the Decatur, Chesapeake & New Orleans Railway Company appeared by its solicitor and moved the court to dismiss the bill of review for want of equity, assigning: (1) It affirmatively appears that the decree of this. honorable court in cause No. 166 now sought to be reviewed is not erroneous. because the said complainant herein, Thomas M. Hobbs, in his answer in said cause No. 166, and in the fifth paragraph thereof, admitted that he severed, removed, and sold the rails on said right of way, and this court has the right to assume that he had thus been fully paid for said right of way. (2) The complainant does not now offer to pay for said rails, or otherwise to do equity. On the 22d day of August, 1893, the State Trust Company, made defendant to the bill of review, appeared and filed an answer, averring the same matters set up by the railway company in its motion to dismiss for want of equity, and further answering that under the decree sought to be reviewed the right of way purchased by the Decatur, Chesapeake & New Orleans Railway Company of the complainant has been sold and conveyed to the Middle Tennessee & Alabama Company, which company is now the owner of said right of way, including all the rights and franchises of the Decatur, Chesapeake & New Orleans Railway Company; and on the same day the said trust company filed a demurrer to the bill of review, and for causes of demurrer assigned: "(1) That it appeareth, by complainant's own showing by said bill, that he is not entitled to the relief prayed by the bill against the defendant in this suit. (2) That it appeareth from the face of said bill that the decree of this court in cause No. 166 on the equity docket thereof is not erroneous, as alleged in the complainant's bill filed herein. (3) That it appeareth from the bill filed herein that the plaintiff does not offer to do equity, in this, that he does not offer to pay the value which in his answer to said original bill in cause No. 166, and in the fifth paragraph thereof, he admits that he severed, removed, and sold from said right of way. (4) The said plaintiff does not now offer to pay for the value of the rails which he severed, removed, and sold from the right of way, as set forth and admitted in his said answer in said cause." Without any further proceedings by way of setting down the demurrer for argument, setting down the cause for hearing on the bill and answer, putting the answer at issue by replication, or by taking any evidence, the cause appears to have been brought before the court and argued, whereupon the court on the 23d day of April, 1894, dismissed the bill.
On this appeal, the errors complained of in the court below are as follows: "(1) In rendering a decree dismissing the bill herein. (2) In not granting complainant the relief prayed for in his bill. (3) In failing to review and reverse the original decree sought to be reviewed and reversed. (4) In failing to declare the lien and right of Thomas M. Hobbs superior to the lien and right of the mortgage or deed of trust sought to be foreclosed by the original bill, in and to the lands described in the paragraph of the bill herein immediately, the prayer of said bill being the last, or fifth, paragraph. In failing to decree that the said lands referred to in said bill, or so much of the right of way, roadbed, track, etc., of said Decatur, Chesapeake & New Orleans Railway Company as ran in and through the property of the said Thomas M. Hobbs, in Limestone county, Ala., should have been saved, reserved, and excepted from the operation of the decree in the original case foreclosing said mortgage or deed of trust. (5) In failing to decree that the title of Thomas M. Hobbs to the lands referred to in the last paragraph (5) of the bill herein was and is superior to the title conveyed by and held under, and sought to be enforced through, the said mortgage or deed of trust sought to be enforced in the original suit. (6) In failing to review and reverse and set aside the decree in the original case foreclosing said mortgage or deed of trust in so far as to declare
the title of Thomas M. Hobbs superior to that of any other defendant or party in said cause."
Wm. Richardson and R. A. McClellan, for appellant.
Before PARDEE and McCORMICK, Circuit Judges.
PARDEE, Circuit Judge, after stating the facts as above, delivered the opinion of the court.
From the record we are unable to say on what issue this cause was disposed of in the court below, but as presented in the briefs of counsel (there was no oral argument) the question here is the same as though a general demurrer for want of equity in the bill was sustained; and, further, we notice that in the original decree sought to be reviewed in the present bill of review no question of fact was or is in dispute, and that it is practically conceded that in the original cause the facts were that the Decatur, Chesapeake & New Orleans Railway Company commenced proceedings in the probate court of Limestone county, Ala., for the condemnation of a right of way for its roadbed over and through Hobbs' land, resulting in a jury trial, in which the jury ascertained and assessed Hobbs' damages and compensation for such right of way at the sum of $8,196.33, on which judgment of condemnation was rendered in conformity to the laws of the state; that thereafter, the damages and compensation so as aforesaid assessed not being paid, and the railway company notwithstanding going on with its work, Hobbs filed his bill in the chancery court of Limestone county, Ala., obtaining thereon a preliminary injunction restraining the railway company and its agents from taking the right of way or building the roadbed thereon till such damages had been paid, and thereupon a compromise was made between the railway company and Hobbs, in writing, whereby Hobbs was to convey said right of way for the sum of $2,500 as his compensation and damages in the premises, the same to be paid September 15, 1890; that no part of this $2,500 having been paid, Hobbs brought the compromise before the chancery court of Limestone county, had it enforced by a decree which recognized his vendor's lien in the sum of $2,500 and interest upon the land covered by the right of way, and ordered the same to be sold to pay said sum; and this decree not having been paid off, the register, after legal notice, sold the right of way, with the roadbed, rails, and ties thereon, to the highest bidder for cash, at the courthouse door in Limestone county, Hobbs becoming the purchaser at the amount of such lien, interest, and costs, and taking a deed for the property from the reg ister; and that thereafter Hobbs removed and sold the rails on such right of way for his own account.
The erroneous ruling of law complained of by the appellant Hobbs in the original decree sought to be reviewed is that the decree of the chancery court of Limestone county recognizing appellant's vendor's lien, under which, by regular proceedings, the appellant had become the purchaser and the owner of the right of way across his own land, was treated as absolutely null. That this ruling was er
roneous as a matter of law we do not think can be disputed. The facts, as conceded, do not show that the appellant ever actually parted with the title to the land in controversy, but do show that he opposed at every step the proceedings of the railway company to take his land without previous compensation. If, however, it be taken for granted that by the proceedings of compromise he consented to convey title upon condition that the amount of the compromise should be paid, it seems clear to us that when the amount was not paid he had a right to go into a court of competent jurisdiction, assert his vendor's lien, and have the same foreclosed. When he did this, and at the foreclosure sale became the purchaser, it appears to us that thereby he acquired a full and complete title to the land in controversy, subject to the statutory right of the railway company to redeem. At no stage of the proceedings does it appear that the appellant Hobbs lost or waived his superior vendor's lien on the land, so that the lien of the mortgage granted by the Decatur, Chesapeake & New Orleans Railway Company to the American Loan & Trust Company could attach to his prejudice, even if it is not correct to hold, in view of the whole proceedings, that in equity the appellant never parted with the title, but retained the same from the beginning.
The main argument in this court is to the effect that when the appellant, after he became the purchaser under the decree of sale on the foreclosure of the vendor's lien, sold the rails and ties found on the right of way for his own account, he thereby did something inequitable, which precluded a court of equity from recognizing his legal title to the land in controversy. It does not appear that he was asked to account for, or that any account was taken of, the sum realized for the sale of rails and ties, and all that can be gathered as to the amount so realized is an assertion that the sum was more than the value of the right of way. We are unable to see any force in this argument. When the appellant became the purchaser at the foreclosure sale, he became the owner of the land and its appurtenances, and it would seem that he had the right to deal with them as he saw fit, subject only to a right to redeem under the statute of the state; but whether he had or not, it is clear to us that no liability which he may have subsequently incurred to account to the railway company for rails and ties sold or appropriated by him would operate to defeat his title to the land itself. Counsel for appellees cites authority to the effect that before a bill of review can be filed the decree sought to be reviewed must be first obeyed and performed. Conceding the rule contended for, we fail to see its applicability in the present case. The decree complained of appears to have left nothing for Hobbs (now the complainant in the bill of review) to perform, not even, so far as the record goes, adjudging costs against him.
An attack is also made upon the proceedings in the chancery court, -not that jurisdiction in that court is wholly denied, but the claim is that the proceedings were not regular, in that the amendment by which the compromise was brought before the court was improper, and the proceedings had thereunder were not in accordance with the recognized equity practice in the state of Alabama. We take it
that the chancery court acquired jurisdiction by the bill filed for an injunction, and that thereafter it would naturally have jurisdiction to reject, or to affirm and enforce, any compromise made by the parties therein when brought to its attention. That the trust company, plaintiff in the original suit, was not a party to the proceedings in the chancery court is not suggested; but, even if it were, we are inclined to the opinion that until the title of the railway company attached to the right of way in question the trustee under the mortgage was without interest, and therefore not a necessary party to the proceedings, to say nothing of the fact that the proceedings were instituted in the chancery court before the mortgage to the trust company was recorded in Alabama. The circuit court erred in dismissing the bill of review, and the decree appealed from is reversed, and the cause is remanded to the circuit court, with instructions to overrule the demurrers of the Decatur, Chesapeake & New Orleans Railway Company and of the State Trust Company, and thereafter proceed in conformity with the views expressed herein and as equity may require.
FIDELITY INSURANCE, TRUST & SAFE-DEPOSIT CO. v. ROANOKE IRON CO.
(Circuit Court, W. D. Virginia. March 18, 1895.)
A court of equity has no power, without the consent of all lien creditors, to authorize the receiver of an insolvent private corporation, whose business is not affected with any public interest, to issue certificates which will be a paramount lien upon its property, for the purpose of carrying on its business, unless it be necessary to do so in order to preserve the existence of the property or franchises.
This was a suit by the Fidelity Insurance, Trust & Safe-Deposit Company against the Roanoke Iron Company for the foreclosure of a mortgage. The receiver of the property of the defendant company petitioned for leave to issue receiver's certificates, for the purpose of carrying on the business of the company. Denied.
Watts, Robertson & Robertson and Penn & Cocke, for petitioner. J. W. St. Clair and Griffin & Glasgow, for some of the lien creditors opposing.
PAUL, District Judge. The receiver in this cause has presented a petition to the court praying for authority to issue receiver's certificates to the amount of $100,000, for the purpose of recommencing and carrying on the business of producing iron from the ore at the works of the defendant company. He has submitted to the court an itemized estimate, upon which he claims that, if authorized to issue the certificates as prayed for, he can make iron at the defendant company's works for $7.11 per ton, including all items of the cost of production. He further claims that such iron can be sold at the works at $7.85 per ton, making a profit of 74 cents per ton on the iron produced. He states that the output of the furnace for the last year of its operation was 47,037 tons; that there is no
reason why the furnace should not do equally as well; and claims that the profits would therefore be: For pig iron, $34,800; for rolling mill, $10,000; to which he adds what he denominates "store profits," amounting to $2,500, and "rents," $1,200,-making an aggregate of net profits amounting to $48,500. The petition of the receiver is opposed by a considerable number of the creditors of the defendant company holding first-mortgage bonds and supply liens on the property, who resist the issuance of receiver's certificates to have priority over their liens.
It is not necessary to discuss the facts as presented in the receiver's statement. The court is confronted by the very important question as to its authority to issue receiver's certificates, without the consent of all the lien creditors, to enable the receiver of a private corporation to carry on the business of the insolvent company. This is a question which has not heretofore been discussed or decided in the circuit court of this district. As there are now a number of private corporations in this district in the hands of receivers, the question is one of great importance, and the court will consider it with a view to its settlement, so far, at least, as this court is concerned.
Receiver's certificates must necessarily have priority over all the liens of other creditors, thus displacing all prior liens to the extent of the amount of such certificates issued. The authority of a court of equity to issue receiver's certificates for the purpose of carrying on the business of a corporation of whose property the court has taken control is of very recent origin, and is the outgrowth of the necessity of keeping in active operation a railroad corporation that has been brought into the possession and control of a court of equity by the appointment of a receiver. As applied to railroad corporations, no question can be raised, in view of the numerous decisions of the supreme and other federal courts of the United States. It has received full and ample discussion in the leading cases, and the conclusion of this doctrine, as stated by Mr. Justice Bradley, in Wallace v. Loomis, 97 U. S. 146, is that: "The power of a court of equity to appoint managing receivers of such property as a railroad, when taken under its charge as a trust fund for the payment of incumbrances, and to authorize such receivers to raise money necessary for the preservation and management of the property, and make the same chargeable as a lien thereon for its repayment, cannot, at this day, be seriously disputed. It is a part of that jurisdiction, always exercised by the courts, by which it is its duty to protect and preserve the trust fund in its hands. is undoubtedly a power to be exercised with great caution, and, if possible, with the consent or acquiescence of the parties interested in the fund." See, also, Fosdick v. Schall, 99 U. S. 235; Barton v. Barbour, 104 U. S. 126; Miltenberger v. Railroad Co., 106 U. S. 286, 1 Sup. Ct. 140; Trust Co. v. Souther, 107 U. S. 591, 2 Sup. Ct. 295; Burnham v. Bowen, 111 U. S. 776, 4 Sup. Ct. 675; Union Trust Co. v. Illinois M. Ry. Co., 117 U. S. 434, 6 Sup. Ct. 809. But, even in regard to a railroad property in the hands of a court of equity, as was said by Chief Justice Waite in Shaw v. Railroad Co., 100 U. S. 612: