Kansas Loan & Trust Co. v. Electric Ry., Light & Power Co. of Sedalia, Mo.

• Decision Date: 10 May 1901
• Citation: 108 F. 702
• Parties: KANSAS LOAN & TRUST CO. v. ELECTRIC RY., LIGHT & POWER CO. OF SEDALIA, MO., et al. (WESTERN ELECTRICAL SUPPLY CO., Intervener).
• Court: U.S. District Court — Western District of Missouri

108 F. 702

KANSAS LOAN & TRUST CO. v. ELECTRIC RY., LIGHT & POWER CO. OF SEDALIA, MO., et al. (WESTERN ELECTRICAL SUPPLY CO., Intervener).

United States Circuit Court, W.D. Missouri, Central Division.

May 10, 1901

Frank Hagerman, Willard P. Hall, and J. W. S. Peters, for complainant.

Scarrit Griffith & Jones, Fred Fuller, Geo. A. Whitcomb, and W. S Shirk, for defendants.

H. T Williams, for intervener.

PHILIPS District Judge.

This cause has been submitted to the court on exceptions filed to the special master's report allowing the claim of the intervener as a preferred claim, to be paid out of the proceeds of the sale of the mortgaged premises prior to the claim of the mortgagee thereon. The master's report, as submitted to the court, with the other papers in the case presents the matters in controversy in such shape that it is impossible for the court to intelligently understand and pass upon the matters in dispute. As the intervener's right to a preferential claim is dependent upon the fact that there has been a diversion of the net earnings of the mortgaged property over and above the necessary expenditures for operation, and that such diversion has inured to the benefit of the mortgagees (Bank v. Doud (C.C.A.) 105 F. 123), the burden of proof rests upon the intervener to establish this fact. If the net earnings of the operation of the railroad over and above the expenses of operating were in fact diverted into improvements of the mortgaged property, and for its betterment, thereby enhancing the value of the mortgagee's security, to enable the court to determine such fact the master's report should contain a summary of the evidence, showing not only the fact of diversion, but approximately the amount thereof; and if it is claimed that such diversion inured to the benefit of the mortgagee in the way of improvements of the property, or in paying interest on the mortgage debt, or dividends and the like, the master should report and show by the evidence before him into what property the money diverted went, so that the court can see from the facts found whether it went into improvements of the property or its betterment. In other words, the facts found should show what money went in a particular direction, and in what it was invested, so that the court can see from the facts found whether or not the mortgagee received a benefit from the diversion, so as to postpone its lien to that of the claim of the intervener.

The master's report in this case, for instance, finds that 'large sums from current earnings were diverted from the payment of current operating expenses to payment for betterments and improvements during the period from May 1 1898, to February, 1900, when the receivers were appointed; but I am unable to tell how much was diverted. ' The first objection to this statement is that the master has taken a period ranging from May 1,...