Bosworth v. Terminal R. Ass'n

• Decision Date: 08 June 1897
• Docket Number: 367.
• Citation: 80 F. 969
• Parties: BOSWORTH v. TERMINAL R. ASS'N.
• Court: U.S. Court of Appeals — Seventh Circuit

80 F. 969

BOSWORTH v. TERMINAL R. ASS'N.

No. 367.

United States Court of Appeals, Seventh Circuit.

June 8, 1897

In a suit brought by the Mercantile Trust Company on the 21st day of September, A.D. 1893, to foreclose a mortgage upon the Chicago, Peoria & St. Louis Railway, the court appointed a receiver, with the authority usually conferred upon receivers in the charge and operation of railways and in the general administration of the estate, and required the receiver to pay (1) all past-due taxes; (2) all current operating expenses; (3) all past-due wages; (4) 'all claims for materials and supplies which have been incurred in the operation and maintenance of said property during the six months last past, and all ticket, trackage and traffic balances due from said railroad. ' To this last item the Mercantile Trust Company objected, which objection the court overruled. On the 27th day of May, 1895, the Terminal Railroad Association of St. Louis, the appellee, filed its intervening petition, asserting a claim against the railway company, amounting to $8,162.11, for switching, engine and car repairs, etc., done within six months prior to the date of the order appointing a receiver, and asking for the allowance of the claim as a preferential claim under the order of the court appointing the receiver. An answer was filed to this petition by the receiver, asserting that the facts stated might be true for anything known to the contrary, but, being stranger to the matters, he demanded strict proof, and denying that the petition was entitled to the relief demanded. The intervening petition, under a general order of reference, went to the master, whose report was to the effect that the claim was a just one, and that the amount is a lien upon the property of the railway company prior and superior to the claims of the mortgage bondholders under the order appointing the receiver, and that it should be paid out of the surplus income, or from a sale of the property of the railway company. To this report the receiver filed exceptions, not impugning the finding of the master that the claim was a just one against the company, but to the finding that the claim should be paid from the surplus income, or from a sale of the property of the railway company, 'whereas,' the exception proceeds, 'the said master should have found that the aforesaid amount is due the said petitioner, but is not a lien upon the property of the railway company prior or superior to the lien of the mortgage bondholders. ' Upon hearing, the court, on July 30, 1896, overruled the exceptions, and entered a decree allowing the claim at the amount stated, and declaring that it was a claim of the character embraced in the order appointing the receiver, to be paid as a preferred claim, and directing that the receiver pay to the intervener the amount of the claim 'out of the income of said receivership, if any such income is in his hands, and, in case he has not the funds in hand for this purpose, it is ordered, adjudged, and decreed that the same be paid out of the proceeds of the sale of the mortgaged premises in preference to the mortgage debt and, until paid, the same is hereby declared a lien upon the said mortgaged estate superior to the lien of the mortgage herein. ' To this decree the receiver assigned error, in substance, to the effect that the court erred in adjudging that the claim of the intervening petitioner was entitled to priority to the mortgage debt. The receiver thereupon prayed an appeal, which was allowed.

Bluford Wilson and Philip Barton Warren, for appellant.

Samuel P. Wheeler (Millard T. Watts, of counsel), for appellee.

Before WOODS, JENKINS, and SHOWALTER, Circuit Judges.

JENKINS Circuit Judge (after stating the facts as above).

The contention of the receiver is thus stated in the brief of his counsel:

'The question thus presented to this court for determination is one as to the displacement of vested contract liens by unsecured creditors. There is no controversy as to the labor having been performed or the materials furnished within the six months next prior to the appointment of the receiver of the insolvent corporation, nor as to the value of the same. The only controversy is as to whether or not the appellee is entitled, on its petition and proof made thereunder, to have the vested lien of the mortgage displaced to the extent of his claim.' He insists that the provision in the decree appointing a receiver, providing for the payment of certain claims as preferential, created no vested right; and that, within our ruling in Transportation Co. v. Anderson, 46 U.S.App. 138, 22 C.C.A. 109, and 76 F. 164, the decree is that regard was interlocutory, and is not controlling of the subsequent action of the court; and that, within the doctrine declared in Turner v. Railway Co., 8 Biss. 315, Fed. Cas. No. 14,258; Fosdick v Schall, 99 U.S. 235; 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; Wood v. Deposit Co., 128 U.S. 416, 9 Sup.Ct. 131; Kneeland v. Trust Co., 138 U.S. 509, 11 Sup.Ct. 426; Thomas v. Car Co., 149 U.S. 111, 13 Sup.Ct. 824; Farmers' Loan & Trust Co. v. Green Bay, W. & St. P. Ry. Co., 45 F. 664,-- before a claim can be deemed to be preferential to the mortgage debt, there must be

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