St Louis Co v. Spiller

• Decision Date: 16 May 1927
• Docket Number: No. 577,577
• Citation: 47 S.Ct. 635,71 L.Ed. 1060,274 U.S. 304
• Parties: ST. LOUIS & S. F. R. CO. et al. v. SPILLER et al. *
• Court: U.S. Supreme Court

274 U.S. 304

47 S.Ct. 635

71 L.Ed. 1060

ST. LOUIS & S. F. R. CO. et al.

v SPILLER et al.^*

No. 577.

Argued April 12, 1927.

Decided May 16, 1927.

[Syllabus from pages 304-306 intentionally omitted] Messrs. Frederick H. Wood, of New York City, and Edward T. Miller, of St. Louis, Mo., for petitioners.

Messrs. W. H. Saunders, of St. Louis, Mo., and D. A. Murphy, of Kansas City. Mo., for respondents.

Mr. Justice BRANDEIS delivered the opinion of the Court.

In 1913, the federal court for eastern Missouri appointed receivers for the St. Louis & San Francisco Railroad. In 1916, the system was sold on foreclosure, was purchased for the reorganization committee and was conveyed to the St. Louis-San Francisco Railway Company, which has operated it since. In 1920, Spiller recovered in the federal court for western Missouri a judgment against the old company in personam for $30,212.31 and for counsel fees taxed as costs pursuant to section 16 of the Act to Regulate Commerce (Comp. St. § 8584)¹. Thereupon he filed in the receivership suit,² upon leave granted, an intervening petition praying that the judgment be satisfied out of the property so acquired by the new company. The master recommended that the prayers of the petition be granted. The District Court denied Spiller any relief and dismissed the intervening petition, without costs to either party. 288 F. 612. The Circuit Court of Appeals reversed the decree, remanded the case to the lower Spiller in the amount of the judgment, with sipller in the amount of the judgment, with interest, but without counsel fees, declared that the judgment was prior in lien and superior in equity to the mortgages of the old company, and directed that it be enforced against the property conveyed to the new company. 14 F.(2d) 284. This court granted the petition of the two companies for a writ of certiorari. 273 U. S. 680, 47 S. Ct. 111, 71 L. Ed. —.

The judgment which Spiller seeks to enforce through the intervening petition was entered by the trial court in 1916, after the foreclosure sale and before confirmation thereof, was reversed by the Circuit Court of Appeals in 1918, and was reinstated by this court in 1920. Spiller v. Atchison, Topeka & Santa Fe Ry. Co., 253 U. S. 117, 40 S. Ct. 466, 64 L. Ed. 810. It is for overcharges collected by the old company, in 1906, 1907, and 1908 under a freight tariff which had been increased in 1903, and which was held by the Interstate Commerce Commission to be unreasonable in 1905 and again in 1908. Cattle Raisers' Association v. Missouri, Kansas & Texas R. R. Co. et al., 11 Interst. Com. Com'n R. 296; Id., 13 Interst. Com. Com'n R. 418. The action in which the judgment was recovered was begun in 1914, after the appointment of the receivers. The reparation order on which the action was based was entered also after their appointment, but the petition for reparation was filed prior thereto.

The validity of the judgment as against the old company is not challenged in this proceeding. The question here is whether Spiller is entitled to have it satisfied out of the property of the new company. The railroads contend that in nature the claim is one not entitled to preferential payment; and that, in any event, Spiller is barred by laches or otherwise from obtaining any relief in this suit. The Circuit Court of Appeals held that the old company became liable as trustee ex maleficio for overcharges and that this liability is enforceable, as upon a constructive trust, against the property acquired by the new company on foreclosure. It held further that Spiller was not barred by laches or otherwise, because of the provision of the foreclosure decree, by which the purchaser became bound to pay, as a part of the purchase price, any unpaid claims of creditors of the old company which should be adjudged superior in equity to its mortgages, the court reserving to itself jurisdiction to determine the amount and validity of any such claim.

First. The contention that the judgment constitutes a lien or equity upon the property of the new company as upon a constructive trust, rests upon the following argument: The freight rates being unreasonable were unlawful. The shipper was obliged to pay the charges exacted, although they were unlawful, because they were the published rates. As the shipper was obliged to pay the unlawful charges the payment was made under duress. One may be held as trustee ex maleficio of funds obtained by duress as well as of those procured by fraud. The old company by collecting the unlawful charges became trustee ex maleficio of the funds collected. These can be traced and may be followed. They passed to the receivers who took the funds with notice and without paying value. Upon the foreclosure they passed to the new company. It also took them with notice and is subject to the trust, either because the shipper's equitable lien or interest was not cut off by the foreclosure sale, to one with notice, in a suit to which the shipper was not a party, or because the new company agreed to pay pursuant to the foreclosure decree claims prior in lien and superior in equity to the mortgages of the old company.

We need not consider whether, in the absence of legislation, charges illegally exacted by a carrier may be recovered under the doctrine of a constructive trust, or whether the alleged equitable remedy is applicable to overcharges subject to the Interstate Commerce Act, which provides a different remedy,³ or whether the equitable remedy, if any, has been lost by proceeding to judgment at law; for even if the overcharges, when collected, were subject to a constructive trust in favor of the shipper, the contention that the money exacted by the old company in 1906, 1907, and 1908 can be traced into the hands of the receivers is unfounded. The money was not earmarked. It was mingled when collected with other money received from operation. And no special account was kept of it. The latest exaction occurred five years before the appointment of the receivers. The assertion that the money collected can be traced into the receiver's hands is confessedly without any support except the stipulated fact that, throughout the ten years which elapsed between the earliest exaction and the transfer of the properties to the new company, the old one and the receivers had, at all times, in the several banks on which checks for current expenses were drawn, a working balance, in the aggregate, largely in excess of Spiller's claim. Such a showing fails to bring the present case within the rule by which, when trust funds are mingled with others, the cestui may assert an equitable lien upon the mingled mass to the extent of his contribution thereto.⁴ American Can Co. v. Williams (C. C. A.) 178 F. 420, 423; In re A. D. Matthews' Sons (C. C. A.) 238 F. 785, 787. An illegal exaction does not impress an indelible trust upon all funds which the wrongdoer and his successors may thereafter have on deposit in their banks. For aught that appears, all the money illegally exacted may have been spent for current operating expenses.

Second. Spiller contends that he was entitled to preferential payment of his judgment for the excess charges, out of operating income accruing during the receivership, on the doctrine of Fosdick v. Schall, 99 U. S. 235, 251-255, 25 L. Ed. 339. See New York Dock Co. v. The Poznan, No. 229, 274 U. S. 117, 47 S. Ct. 482, 71 L. Ed. 955, decided April 11, 1927. It is argued that the test of this equity is the nature of the claim; that a liability for excess charges unlawfully exacted by the carrier before the receivership is an expense of operation like a debt incurred for labor, supplies, equipment or improvements; and that, as such, it is entitled to priority over bondholders. We need not determine whether the noncontractual claim here in suit is in its nature within the class of debts entitled to preferential payment under the doctrine of Fosdick v. Schall. For, by long established practice, the doctrine has been applied only to unpaid expenses incurred within six months prior to the appointment of the receivers. See Lackawanna Coal Co. v. Trust Co. 176 U. S. 298, 316, 20 S. Ct. 363, 44 L. Ed. 475. Compare Gregg v. Metropolitan Trust Co., 197 U. S. 183, 25 S. Ct. 415, 49 L. Ed. 717. The cases in which this time limit was not observed are few in number and exceptional in character. See Burnham v. Bowen, 111 U. S. 776, 780-783, 4 S. Ct. 675, 28 L. Ed. 596; Union Trust Co. v. Morrison, 125 U. S. 591, 8 S. Ct. 1004, 31 L. Ed. 825. In no case which has come to our attention has the doctrine been applied to liabilities which, like those here in question, accrued many years before the receivership began.

Third. Preferential payment is urged also on the ground of public policy. The argument is that the carrier is invested through its franchise with a part of the sovereign power; that in the exercise of the power conferred the old company exacted illegal rates which the shipper was obliged by law to pay; that when the old company's property passed into the hands of the court it was augmented by the illegal exactions; that it became the court's duty to make restitution; and that, having failed to do so while the property was in its hands, the court may require payment from the new company. It may be assumed that this claim for overcharges is meritorious in character; but the fact that it arose many years before the appointment of the receivers is conclusive against including it among those entitled to preferential payment.

Fourth. In order to establish as against the new company either the alleged equity or a right to preferential payment, it was moreover assumed to be necessary that the claim should be one of those which the purchaser, under the decree of foreclosure, agreed to pay, as part of the purchase price. The decree provided that the purchaser would not be required to pay any 'claim or demand which has not been presented in this cause in...