Southern Ry. Co. v. Chapman Jack Co.

SIMONTON, Circuit Judge (after stating the facts as above). The questions in this case naturally divide themselves. i. As to the claim against the Richmond & Danville Railroad Company for the articles charged to it in its own name. The articles were in the class of supplies necessary in operating a railroad, and those claims come within the very terms of the order of June 15, 1892, appointing the receivers and stating their duties. They are instructed “from- time to time, out of the funds coming into their hands from the operation of the property, to pay and discharge all the current and unpaid pay rolls and vouchers and supply accounts incurred [426] in the operation of the said railroad system at any time within six months prior hereto.” These are supply accounts, incurred February 16, 1892, $216, and April 16,, 1892, $108. Both are within the six months provided in the order, and must be paid. In this respect we concur fully with the court below, and on this point its decree is affirmed. 2. The claim for supplies furnished for the use of the Central Railroad & Banking Company stands on a different footing. In one very material point they were not incurred within the six months of the order appointing receivers, bearing date June, 1892. They bear date July 20, 1891, and August 22, 1891. Besides this, they°were ordered by the Richmond & Danville Railroad Company, and are a debt of that company. But they were ordered for supplies furnished to the Central Railroad & Banking Company of Georgia, property not included in the mortgage foreclosed in the main cause, over which the receivers had no control, which never came into their possession, from which they derived no revenue. The debt was incurred by the Richmond & Danville Railroad Company, to meet an obligation of the Georgia Pacific Railway Company, which obligation the Richmond & Danville Railroad Company had assumed. The doctrine has been established beyond controversy that holders of bonds of a railroad company, secured by mortgage, take them subject to this condition that the earnings of the company shall first be applied to keeping thh railroad property a going concern, and that debts incurred for labbr or materials, needed to keep the mortgaged property a going concern, must be paid before the earnings can be applied to the mortgage debt. And if the mortgagees proceed on their security and obtain the appointment of a receiver, the earnings in the hands of the receiver must be applied to the liquidation of unpaid debts for operating expenses accrued within a limited period, due by a railroad suddenly deprived of its property, the payment of laborers, and of balances due to other roads, and debts of like character (Virginia & A. Coal Co. v. Central R. & Banking Co., 170 U. S. 367, 18 Sup. Ct. 657, 42 L. Ed. 1068), or, as expressed by Judge Morris, speaking for this court, in Bound v. South Carolina R. Co., 7 C. C. A. 322, 58 Fed. 473, 8 U. S. App. 472, “to those ordinary and current expenses of operating a railroad, contracted but a short time before a receivership, which by the sudden action of the court in appointing a receiver were left unpaid.” But, except as against this small and limited class of claims, the lien of the mortgage is paramount and must be protected. This debt of the Richmond & Danville Railroad Company, incurred in carrying out the obligation of another company, is surely not one of those ordinary and current expenses incurred in its operation which the mortgage creditor could expect and for which he must waive his lien. The claimant, as to these items, comes under the head of a general creditor, having no special equity on the earnings in the hands of the receivers.' The claimant relied upon the personal credit of the Richmond & Dan-ville Railroad, and its claim is in that category. In this respect this claim resembles that of the Ensign Manufacturing Company, decided at this term (117 Fed. 417), and our conclusion is the same with regard to both claims. [427] So much of the decree of the circuit court as allows payment of the two accounts of the Chapman Jack Company against the Central Railroad & Banking Company—that is to say, one of $84 and the other of $24, in all $108—is reversed. In all other respects, the decree below is affirmed. Modified.