Central Trust Co. v. Continental Trust Co.

PHILIPS, District Judge, after stating the case as above, delivered the opinion of the court. The first matter for consideration is the motion ñled by the appellee the Continental Trust Company to dismiss the appeal for the reasons — - first, that there is no proper assignment of errors filed in this cause; second, because the record does not show a joint appeal of the Central' Trust Company and the receiver, George W. Ristine; and, third, because there was no citation issued against the receiver, Ristine. The only assignment of errors is found in the petition for appeal. After reciting the decree, whereby the court declared the rental interest on account of the tunnel track to be a primary lien upon the corpus of the property, this petition stated as follows: “In which order or decree the said complainant and the said receiver say that there was error, in this, to wit: that the court erred in sustaining those certain exceptions of the intervener the Continental Trust Company, filed herein, to those certain respective answers of the said complainant the Central Trust Company and the said receiver, tiled herein, and in making and entering said order or decree.” Rule 11 of this c.oui*( (21 0. C. A. cxii., 78 Fed. cxii.) requires that: “The plaintiff in error, or appellant, shall file with the clerk of the court below, with his petition for writ of error or appeal, an assignment of errors, which shall set out separately and particularly each error asserted and intended to be urged.” Having regard to substance, rather than mere form, it certainly is of no consequence that the assignment of errors is contained in the petition for appeal, instead of being expressed in a separate paper. When the errors are incorporated into the petition for appeal, and the petition is then filed with the clerk, the assignment of errors is necessarily filed with the petition. It is further objected that the specification of errors is too general and indefinite. The object of tbe rule in requiring the errors relied upon to be separately and particularly asserted is to enable the court to understand what questions it is called upon to decide,- so it may not have to go beyond the assignment of errors itself to discover the; blot, and also that the exceptor may be confined to the objections actually — 524 — taken below. Van Gunden v. Iron Co., 3 C. C. A. 294, 52 Fed. 840. Where various errors are relied on, presenting different propositions, they should be separately and distinctly set forth; but where the errors complained of present a single proposition of law, common to all of them, there can be no reasonable objection to assigning error-to the group, as was done in this case. Andrews v. Pipe Works, 22 C. C. A. 110, 76 Fed. 170, 171. The errors complained of in this assignment go solely to the action of the circuit court in overruling the exceptions to the complainant’s answer, and to the final decree, whereby the court ruled that the unpaid interest which represented the rental of the tunnel track should be a lien upon the mortgaged property, to be paid in preference to the mortgage debts. In view of the fact that the court sustained all of the exceptions made to the answer, and the principle of law arising thereon is common to each portion of the answer ruled out, and to the decree as above stated, involving, in effect, but one question, the assignment of errors is reasonably specific. Neither is the objection good that the receiver is not a party to this appeal. He joined in the petition for appeal, and the appeal was granted by the court, although he did not join in executing the appeal bond. The bond, however, was executed by the co-appellant, under order of the court, and was accepted by the court. This was sufficient to perfect the appeal. Brockett v. Brockett, 2 How. 238; 2 Beach, Mod. Eq. Prac. § 958. It seems that in the printed record the name of the receiver as a party to the appeal was omitted by an oversight of the clerk. This was corrected by the clerk, as was not only permissible, but proper, in order to make the mere clerical work conform to the true record. In respect to the objection that no citation on the appeal was issued to the receiver, ids sufficient to say that, as the appeal was taken and perfected in open court during the term at which the decree was rendered, no citation was necessary. Dodge v. Knowles, 114 U. S. 436, 438, 5 Sup. Ct. 1108, 1197; Hewitt v. Filbert, 116 U. S. 142, 6 Sup. Ct. 319; Brown v. McConnell, 124 U. S. 491, 8 Sup. Ct. 559. The motion-to dismiss the appeal is overruled, at the costs of the appellee the Continental Trust Company. This brings us to the consideration of the merits of the appeal. The statement of facts may seem to cover too much of mere detail, but it is-deemed essential to a correct understanding of Judge Caldwell’s various rulings. It is to be conceded to appellant’s contention that the mere order of the court directing the receivers to take charge of the property of the insolvent railroad, including its leased lines, and the taking possession • thereof by the receivers, did not have the effect to either change the title to the property, or right of possession in the property. The receivers thereby became the mere custodians of the property for the court. “If the order of the court under which the receiver acts embraces the leasehold estate, it becomes his duty, of course, to take possession of it. But he does not, by taking such possession, become the assignee of the term, in any proper sense of the word. He holds that as he would hold any other personal property involved, — for and as the hand of the court, and not as assignee of the term.” Gaither — 525 — v. Stockbridge, 67 Md. 224, 9 Atl. 632, and 10 Atl. 309, approved in Railroad Co. v. Humphreys, 145 U. S. 98, 12 Snp. Ct. 787. In respect to leased lines held by the insolvent railroad, the receiver is accorded a reasonable time in which to ascertain the value and importance of the lease, and to make his election as to whether he will surrender or adopt it; but if, after due investigation, the receiver decides that it is best not to sell or surrender the leasehold interest, because it is indispensable to the successful operation of the trust estate, and the court, on consideration, so determines, and notifies the lessor, and thereafter continues the possession, such acts would constitute an adoption of the lease, and, of consequence, carry with it the obligation of the receiver to pay according to the stipulations of the lease. Chief Justice Fuller, in Railroad Co. v. Humphreys, 145 U. S. 99, 12 Sup. Ct. 793, discussing this question, cited approvingly the language of Lord Justice Lindley in Re Oak Pits Colliery Co., 21 Ch. Div. 322, 330: “If (lie liquidator has retained possession for the purpose of winding np, or if he lias used the property for carrying on the comjiany’s business, or lias kept the property in order to sell it, or to do the best he can with it, the landlord will be allowed to distrain for rent which has become due since the winding up. But if he has kept possession by arrangement with the landlord, and for his benefit, as well as for the benefit of the company, and there is no agreement with the liquidator that he shall pay rent, the landlord is not allowed to distrain. * * * When the liquidator retains the property for the purpose of advantageously disposing of it, or when he continues to use it, the rent of it ought to be regarded as a debt contracted for the purpose of winding up the company, and ought to be paid in full, like any other debt or expense properly incurred by the liquidator for the same purpose; and in such a case it appears to ns that the rent for the whole period during which the property is so retained or used ought to bo paid in full, without reference to the amount which could he realized by a distress.” What does the record in this case disclose? When the receivers were appointed, the managing officers of the Midland Railroad Company had, for what they conceived to he the best interests of the road, made a trackage agreement and lease of the Tunnel Company, to run until 1935. They had abandoned the more perilous, and, as they supposed, more expensive, route, over the summit of the mountain between Busk and Ivanhoe, and were using instead thereof the tunnel track. Possession of ¡he tunnel track was taken by the receivers under the order of court made pursuant to the prayer of the bill of foreclosure. So persuaded were the receivers, after due test, that it was to the interest of the estate to continue the use of the tunnel track, ihey presented to the court a petition staling that hv reason of the abandonment of the summit track, and the exposure of the works to the severe storms and elements, the overhead passway had become impractical, and the property impaired, and therefore prayed for an order authorizing them to dismantle this track, and reuse the materials on other portions of the Midland road. While it cannot be said that the appellant assented to this proceeding, its objection was not to the continued use; of the tunnel track, but it made only an advisory suggestion, that its constituents were undecided in opinion as to the advisability of removing the rails, etc., from the summit track. The court, on the hearing, granted the prayer of the receivers. The rails were accordingly removed, and presumptively appellant received the benefit thereof, in the — 526 — improvement of other portions of the mortgaged road. This action of the court was administrative in its character, addressed to the sound discretion and business judgment of the chancellor in the management of the estate, which this court could not now correct, as the injury, if any, is irreparable. Mercantile Trust Co. v. Farmers’ Loan & Trust Co., 49 U. S. App. 402, 26 C. C. A. 383, and 81 Fed. 254. If it was judicial in character, the complainant had its day in court, and failed to appeal from the order. The order was the complete determination of that subject-matter, and, when executed, the book was closed, as to the transaction. This was followed up by the trustee of the lessor intervening in lie cause, claiming that its rentals had not been paid by the receivers, praying for an order directing the receivers “to carry out and perform such trackage and lease agreements.” On this petition was based the decree of February 11, 1895, by which the court “authorized and directed [the receivers] to carry out and perform the trackage agreement of the 17th of June, and the agreement of lease of the 19th of June, 1890, and to pay as an operating charge of the said Colorad®' Midland Railroad Company the rentals and interest charges provided for in said agreements, including all defaulted or overdue interest coupons of the bonds of said Busk Tunnel Railway Company.” If this was not, in effect, an adoption of the terms and obligations of the lease by the court, it must be held that nothing short of words such as “it is ordered that the lease is hereby adopted” would have the effect of an adoption. When the court, after holding the leased track one year, and being advised that it had become so far an integral part of the system that the main line could not well be operated without the leased track, ordered the receiver to carry out and perform the contract of lease, it not only did the act, but entered the apt order evidencing the adoption of the lease. Moreover, this appellant, thereafter, both by expression and implication, recognized the fact. In its supplemental amended bill it recited that the receivers held, used, and employed the tunnel track “under and in pursuance of the terms of said lease”; and, as showing its indispensability to the estate, it alleged that the main road “has no means of operating its trains between said points, Busk and Ivanhoe, except over said road of the said Busk Tunnel Railway Company.” The continuity and operation of the main line being admitted by all the parties to the record to be dependent upon the leased track, coupled with the order of the court that the receivers carry out and perform the contract of lease, are the important things which distinguish this case from all those cited by thé learned counsel in support of their contention that the receivership did not adopt the contract of lease. As the law implies the fact of adoption from the mere refusal of the court to surrender possession to the lessor on his application, how much more conclusive of an adoption when both the trustee and the receiver assert that the possession is indispensable to the estate, and the court not only retains possession, but orders the receiver to keep and perform the contract of lease! Having thus held the leased property, the chancellor, in good conscience, could not do less than he did in the order of February 11, 1895. In this view of the case, it is not essential to say that by the decree of February 11, 1895, the question of whether or not this rental became' — 527 — an operating charge on (he corpus of the property passed in rem judi-catum. It is sufficient to say that the propriety and necessity of that order pertain so much, at least, to (he administra tire discretion in managing the estate, that, after all the parties have acted upon it, this court ought not to disturb it. Mercantile Trust Co. v. Farmers’ Loan & Trust Co., supra. The only remaining important question is, was the final decree right, in giving a preferential lien for the unpaid rentals which accrued after January 1, 1896? By the order of February 11, 1895, the court had expressly recognized the rental fixed in the contract of lease as an operating expense. At no time thereafter did it notify the lessor or trustee of any recession from this pdsition. It is no answer to this to say that the appellee never demanded possession of the leased property. The receivers and the court had declared (hat its possession and use were essential to the receivership, and the court had ordered the receivers to carry oat and perform the contract. If the lessor was content with this arrangement, it was not essential to fix the adoption that he should go through the empty form of demanding that which the court and the parties had in fact said that they could not concede. Neither is it any answer to say that the complainant did not assent to said order, or that the court made it without reference to a master. The complainant was before the court, and the court was not required to make a reference. It was in possession of the facts, and the complainant offered no countervailing evidence. Neither is it any answer now to say that, inasmuch as the lessor was not able to put the property to any earning use had it been turned over to it, it is inequitable to the estate to charge it with the whole contract rental. If there is any justification in obtaining possession of another’s property, as a dependent lease to an insolvent estate, and then saying to the owner that, a 11 hough the receiver elected to hold it, he should not pay the rental stipulated in the lease, bemuse the property would be comparatively useless if turned over to the owner, what is to be said of its value to the liquidator, who admitted he could not get along without the property? If the lease was adopted, the law fixed the rental specified in the lease as the amount of compensation to be rendered. Again, the complainant, after the order of February 11, 3895, recognized the fact that both the court and the receivers were holding this leased properly on the assumption that the interest rental was to he an operating expense. When the receivers petitioned the court for leave to borrow money to pay this rental, by issuing preferential certificates, to be made a lien on the corpus of the property, the appellant answered that its constituents did not oppose. What matters it, therefore, that the receivership later on was brought into such straits that it could not obtain, even on such primary security, money enough to meet the interest under the leased contract, and that the court thereupon undertook to suspend further operation of the decree of February 11, 1895? This, in effect, was nothing more than a forced loan. As to the Tunnel Company and the trustee, the action -was without notice, and ex parte. It was done at the instance of the receivers, to relieve them from the mandatory order which they were unable to execute. And as a dernier ressort, in so far as it could, the court suspended payment for a time, — 528 — subject to tbe further order of the court; evidently reserving the right to secure the payment thereafter in such method as might be within the compass of a court of equity. Had the claim been for fuel, equipments, or service essential to the operation of the road, which the court at one time directed the receivers to pay out of the money to be obtained on loans to be made a primary lien on the corpus of the property, but, by reason of the inability to effect such loan, the court had made a further order suspending until otherwise ordered, this in no degree would have lessened the equitable obligation, nor diminished the power of the court, in the final decree of foreclosure and distribution, to order a preference in favor of such claims. . In the language of this court in Mercantile Trust Co. v. Farmers’ Loan & Trust Co., 49 U. S. App. 462, 26 C. C. A. 387, and 81 Fed. 258: “If the court below properly accepted and adopted the leases, the rentals reserved under them became an integral part of the operating expenses of the trust estate in the hands of the receivers, the same as wages of hired men, the rent of leased engines or cars, the traffic balances due connecting roads, or any other ordinary expense of. operation; and in this way claims of these rents secured preference in payment over those of all eestuis que trustent out of the proceeds of the railroads, as well as of their earnings during the receivership. The moneys expended and liabilities incurred by the receivers or trustees in the authorized operation, preservation, and management of the property intrusted to them constitute, preferential claims upon the trust estate, which must be paid out of its proceeds before they can be distributed to the beneficiaries of the trust.” It is true that after July 1, 1896, the receiver, Ristine, expressed to the court the opinion that experience in operating the tunnel track under the terms of the lease had proven the impolicy, in an economic view, of abandoning the summit route between Busk and Ivanlioe, and recommended the rehabilitation of the abandoned track, and the surrender of the tunnel track. This, however, was not done during the operation of the road under the receivership, but, on the contrary, the retention and use of the tunnel track were continued to the end as theretofore. The receivers had no money to reconstruct the abandoned summit track, and this complainant did not offer to furnish it, nor did it make any application to the court to surrender the leased lines; but, on the contrary, it left unchanged its allegation in its latest supplemental bill “that the defendant has no means of operating its trains between Busk and Ivanhoe except over said road of said Busk Tunnel Railway Company.” As the questions raised by the answer vcere answered by the law of the case, the exceptions thereto were properly sustained; and, as we find no error in the decree, the same is affirmed.