REINHART V. AUGUSTA MIN. & INV. CO.
901
by the bank. The proof would make a case where the notes were put in the hands of the receiver of the Sheffield & Birmingham Coal, Iron & Railway Company for payment by him, and where, instead of paying the notes, he kept them without right or authority. Inspection of the testimony of the two witnesses, which con· stitutes the entire evidence for the complainant, shows that· he failed to prove the essentials of his bill of complaint. In Railroad Co. v. Bradleys, 10 Wall. 299, it was said: "It is hardly necessary to repeat the axioms in the equity law of procedure that the allegations and proofs must agree, that the· court can consider only what is put in issue by the pleadings, that averments without proofs and proofs without averments are alike unavailing, and that the decree must conform to the scope and object of the prayer, and cannot go beyond them."
The decree appealed from is reversed, and the cause is remanded to said circuit court, with instructions to dismiss the bill.
REINHAR'l' et a!. v. AUGUSTA MIN. & INV. CO. MANHATTAN TRUST CO. v. SAME. VAN VOLKENBURGH et a1. v. PROUT et a1. (Circuit Court of Appeals, Fifth Circuit. No. 734. 1. CORPORATIONS-RECEIVERS-FuND CHARGEABLE WITH EXPENSES.
May 31, 1899.)
n
A receiver was appointed for a mining corporation, upon a bill alleging insolvency of the corporation, and inability to earn its charges and operating expenses. By consent, he was to operate the mines, and was aU" thorized to borrow money, and was directed to pay all debts for labor and supplies incurred by the corporation within the six months preceding his appointment; payment to be made from earnings and income, or from money borrowed. Held, that the expenses of the receivership and the debts for labor and supplies were not payable alone out of the income and revenuesof the corporation, but they might be paid out of the corpus of the estate. SM,IE-MoRTGAGES-PRIORITY. , . The receivership was afterwards extended to a suit to foreclose a mortgage of the mining property, on motion of the trustee of the mortgage; lild a decree was passed, without objection, ordering a sale, and giving the Jebts for labor and supplies, and the expenses of the receivership, priority ?ver the mortgage. A decree of distribution was passed in accordance with the decree of foreclosure, and no appeal was taken therefrom, except by certain of the mortgage bondholders, who had caused the receiver to be appointed. Held, that the mortgage bonds were not entitled to priority over said expenses and debts, since the parties had agreed otherwise.
Appeal from the Circuit Court of the United States for the Northern District of Georgia. On October 12, 1892, Joseph W. Reinhart, Phillip Van Volkenburgh, and others, citizens of the state of New York, tiled their bill in equity in the circuit court of the United States for the Northern district of Georgia. The bill was brought for the complainants named in the bill, and such others as might thereafter be joined as complainants. The bill averred that the Augusta Mining & Investment Company, incorporated under the laws of the state of Virginia, owes the complainants certain promissory notes, due on demand, for motley loaned said corporation to enable it to carryon its business in Polk county, Ga.; that payment of the notes had been refused, the corporation alleging as a reason for the refusal lack of money to pay the notes, or any part of them; that, in
94
addition to said notes, said corporation was largely indebted to other parties, itsIWinclP31rindfbtedness OOing the >Ilum Qf,$400,OOO of first mortgage bonds, tb.e; all.!l by the, complainants; thilt, while said, l1lW,ds. ,w;ere d1,le" ,:believed l\.nd was great danger, 0'I'Vlng to the character aM cO,ndltion of the assets of, the corpoon account ratlorl[!and'lts'ihll.bllity to !:mlperly operate and carryon its of: til'lanci81 ,embarrassments;' 'tbat it would, not be able to pay the bonds when due;. thllct,but recently qejprf; the filing of the.bill the, (1orporation, beIng in need of fUnds tq ,l)ay ·its curreJ;J;texpenses,and to meet its Qbligations. which amounted to $75,0()O, issued. debent1,lre bonds for $75,000; the. principal creditors of the corporation' agreeing to take said bonds in payment of their ola,ims",and the complainants hold,as $Uch creditors,a majority of said debenture· bonds, to wit, $40,000; that the interest due on said debenture' bonds was nQi.Illiidby the ,corporation,because of,itBinabllity to pay the same; , that the corporatlon was largely indebted over and above the items of indebtedness above set out; that the corporation was the owner of large quantities. of ore lands situated In the states of Virginia, Alabama, and Georgia; that said ore lands wereivery valua!Jle, if ,the same could be fully equippelland operated, but that the defendant corpo.ratl(ln.was operating only three; of its ore plants. and had equipped another, and was preparing to operate the same; that, while it was true that the above property was valuable, yet that its value was less than the indebtedness of the company,and, if 'permitterl to be brought to a forced sale or placed upon the market, it would be greatly sacrificed, and would not realize' en01,lgh ito (lay'any of its indebtedness; tl1llt not only ,vas this true, but that the Imd ¥ot beeJ;i:able toell,l'n ,its fixed charges and expenses, but said charges and expenses had been allowed to accumulate until the corporation had become insolvent, and,. unless its property and assets wer!.' taken in charge by a court of equity, the complainants and other creditors would not receive payment of theIr debts; 'and that, even under the best management, it was very doubtful if the corporation could meet its liabilities, and eSp'ecially were not . oIiJ. vexatious iitigafi91lRnq'attachmeuts. and other proceedings which were. then threatened agalhst it. tlie\!fi'ect ofwl\'Jch !wOuld. be to elltirely destroy 'all prospects for the paymentofl:M c6mplaina,rits' Claim then the utter l'tlin of the only security WhiGh the cOlI1PUl'inall.ts hold, qeitigfir'Sfmortgage bouds ,and debenture boUds. ,Theeowplainants, In their in)Jebalf of such other credi\ors as lI1ig'N becPlI1e parties to the bill, prayed. that the might be saie,or thl\t if)tsb01,lld be deemed advisi/.l,Jle,o;n,account of the peculiar lultore and ,'of t.he llroPertv; .and on, account 'of the fact that some ofttie'delJts were dlte and sob'lenotdue, that no saie of the property shonld be had, but that the property should be kept together and operated by a r.eceiver, and the profits ,of such business should be applied to the payment of the complainants" mid such' other debt's as' might be dile. and the corpus maintained,lnractfor the payineht ofthe debts not due, then the complainants prayed thatthe cot1rtmlght 'deereeaccordingly. prayed further for the appointmerit o:f! ll.1'ece!Ver to take possession of the property, with the usual powers of receiver'S lhsuc!lcases,with tpe power' to manage and operate all of the ore equiI? and opel'llte hanks then equii)ped and ill operation; arid with power more.if it' should be deemed advisable,and receiveall thr earnings arid income thereof dllTing the' pendency ofth'e suit, and with such other powers as should I seem to the coul't right and propel'. On thellame on which the. above bill of complaint wlisfiled, to wit, on W. Haskins was appointed tenipol'Ur'y receiver. the October 12, defendant corporation consenting to the appointment. The receiver was directed by tMord\lr appojnting)lim,to take possession of all the property of theeorporatiou, 'with power a s for in the bill of. complaint, and to manage, operate., ancll1lij·\ntain the .several Ore, banks, with to employ otlk't'l's, emproperty equipped and in operation,and to col.. pioyes, 'llAt1}v9r;kmen, to .erty over and abO.ve all expenses ie. ct.a.l.l... fro.m ...thepro p !lnd authorized by the order of appointment. The receiver was specially to, pay all ne(?essary and, current in the operation of the ore banks.. ; It ,was .also ordered that, the,d,ebts for labor and for supplies and ma()rf.1,lwished $iuce July 1,18\:)2, be. paid by the receiver. The alJbve
REnmART V. AUGUSTA MIN. & INV. CO.
903
order of Octoher 12, 1802, was made on the motion of complainants. On October 19, 1892, the receiver reported to the court that by the order appointing him he was authorized to pay for materials and supplies furnished to the company, and wages for labor, since July 1, 1892, but that on account of extraordinary work done by the company, in building a railroad from the company's property to the East & West Railway, he had not sufficieut funds in hand to pay all these expenses covered by the court's order; and the receiver therefore asked that be be authorized and empowered to borrow not more than $12,000, or such part thereof as might be necessary, upon his note or notes, drawing not more than 8 per cent. interest, and the notes extending fora period not exceeding 12 months,-the receiver to report his action in the premises to the court. Upon this application, the court, on October 19, 1892, with the consent of the complainants, made an order authorizing the receiver to borrow not exceeding $12,000, under the terms and for the purposes set forth in the application. On October 31, 1892, on the motion of the complainants for the appointment of a permanent receiver, the defendant corporation consenting, the court appointed Charles 'V. Haskins as permanent receiver. Amongst other things, the order provided' that: "It is further ordered, in addition to the powers heretofore vested in said receiver by the orders of this court, that he is hereby authorized to pay ont of such fund, as such receiver, that may come into his hands, from the earnings and income of the property, or that he, has been or may be aU,thorized by this court to borrow for such purposes, all the debts due for labor and ,vages and for materials and supplies done and furnished to said defenaa'nt ('orporationfor six months prior to his appointment as receiver. * * * It is fmther ordered that all matters and things setforth in the order appointing said Haskins temporary receiver, and also in the order heretofore granted by the ('OUl't authorizing said receiver to borrow money for the purposes set forth in HaW order, 'be, and the same are hereby, ratified and reaffirmed, and made a part of this order, in so far as they are appropriate and proper." On the 31st of ;\fay, 1893, the ::Uanhattan Trust Company filed its bill of complaint in the rnited States circuit court fol' the Northern district of Georgia. It alleged thllt it was the trustee of a m0l1tgage' executed by the Augusta Mining & Investment Company to secure an issue of $396;000 of first mortgage bonds; that the defendant corporation 'had made default in the payment of interest due upon the bonds; ,that by reason of such default the honds had become due, under the jprms of the mortgage; and that the complainant was entitled to a foreclosure of the same. The lJiII made special'reference to the bill of complaint filed on Oetober 12, 1892, by Joseph 'V. Heinlmrt and others, which has already been stated. Special reference was also l1u\(Je to the ll]Jpoilltment of Haskins as )'eceiver, and to the above-mentioned orders of conrt eoncerning said receiver. 'rhe bill alleged that the earnings of the Augusta :\fining & Investment Company for the past year had been, and still were, grea tly inadequate to meet and discharge the accruing obligations of interest upon its bonded indebtedness, or tltepayment of its current expenses, charges, and indebtedness. 1'lte bill also II verred that said corporation was wholly insolvent. 'l'he bill prayed for, the appointment of a rpceiver to the property of the corporation, and for the foredosure of the mortgage. On May 31, 18Hil, a motion for the appointJm'nt of a recei\'er on the bill of ('olllplaillt of the :\l11nhattan Trust Company, or to extend the receivership in the in which Reinhart and others were complainants, came on to be heard bt'fore the court; and. on the motion of counsel for the :\Ianllllttan Trust Com]Jany, it was orderpd that the receivership of the property of the Augusta Mining &; Investment Company, theretofore made, by the appointment of Haskins as liermanent receiver, be extended to the second cause, and that Haskins be ap· pointed and continued as receiver in the second cause, with all the rights and !Jowers as such reeeiver in the second cause ,vhich were conferred upon hill) nnder the said decrees of the court entered in the suit by Reinhart and others, of date Oetober 12, 18fJ2, and October 31, 1802, respectively. Subsequently, on motion of the attorneys for the complainants in the above causes, the attorneys for tbe defendant consenting, the two causes were consolidated, and it was ngrppd that thp final decree be taken in said causes as consolidated. On January 23, 189fi, the decree of foreclosure was signed. The decree fixed the amount which the defendant corporation should pay into the registry of the court to
94 FEDERAL REPORTER.
prevent fore<;losu,re, and classifie(p:Ue Same as follows; ."First, a 'Sufficient sum to tbe expenses of, receivership, includIng obligations and ,1&, receiver under, the, order and direction of the court, and the '()f the receiver and his ,counsel, and any other preferential clalmsand dehts fhatmay be allowe': JY the court to ,parties to this cause, and the, court second, the expenses of complainants, including counsel fees; third, the amount of the mortgllge pO,rids., Incase tjlese amounts were not paid, the decree provided that tl1e property be sold, and also provided for the payment of: "First, all, court costs, al1d the costs of the master commissioner in lllaking the sale' un\1er the decree; second, the payment of, the fees of the receiver of the property. his reasoI\able at19rney's fees, to be fixed by the court, and all prqper obligations incurred, by him under the authority of the court, as tbe same shall be determinedapd allowed by, the court." On August 2, 1897, a. master in chancery 'was appointed by the court to report, among other things, upon all debts and claims against the'defendant corporation and the receiver which were alleged to be prior in rank to the bonds secured by the mllrtgage made to the Manhattan, Trust, Company as trustee, The master foUnd and reported that all parties holding receiver's certificates for indebtedness due by the Augusta & tnvestment Company prior to October 12, 1892, have no priority over the mortgage honds, but that all the debts contracted by, the, receiver ,since his appointment are entitled to a preference over the mortgage bonds. Joseph W.Reinhart, Phillip Van Volkenburgh, and othHS, all alleging to be bondholders of the Augusta Mining & Investment Company, excepted to that part o.f the master's report which gave priority over the bonds to t)J.e debts contracted by the receiver since his appointment. The parties whose claims were postponed to the bonds by the master excepted to such postponement. No exceptions were, taken by the )lanhattan Trust Compimy. On February 28, 1898, the court made a decree by which it confirmed the master's report as to the debts which he had found to be prior to the mortgage bonds, but overruling the master as to the debts which he had found to be Inferior to tl1e mortgage bonds. The decree .recited that: "The exceptions filed t() the report of the master overruled, except all hereinafter specified; and t14e r'eport of the master, e:)rcept as so specified, is hereby confirmed, and made tIle judgment and decree of tM court. It appears from the report of the master that certain notes were made by the receiver, under orders of this court entered October 12, and October 19, 1892, in payment of debts against the Augusta Mining & Investment Company for wages of employfls and for materials and s'upplles furn.ished to said company for six. months prior to the appointment of the receiver, which notes are specifically set out in Schedule No.3 of the supplemental report of the master. 'l'he master found in his report that these notes, made under said orders of this court. were not entitled to priority of payment over the. bonds secured by the mortgage to the Manbdttan Trust ComPllllY; and to this finding of the master eiwh one of the parties holding said Ilptes set out In 3, as above mentioned, filed exceptions. It is 01'derM that the exceptions so filed be. and the same are hereby, sustained and lill6wed, and that the holders of said notes tal,e precedence, as receiver's expenses, in the fund arising from the sale of the property described in the mortgage to the said Manhattan Trust Company. It is further ordered and decreed that the fund arising from the sale of the property be distributed according to the priorities set out and fixed in the original decree of foreclosure."
.H. E, W. 1;lallper, for appellants, .· Alex, W. Smith, Alex, C.King, Jack J. Spaulding, and T. A. Arnold, for appell{!es, and SHELBY, Circuit Judges, and PARLANGE, District Judge. . 'PARL-\.NGE,. District Judge (after stating the facts as above). All tIle clahlli3 in dispute in this case are just and proper in themselves, the only contest being as to their rank. The theory upon which the appellants have proceeded, both in the lower court and in tbis liN4.llt,
REINHART V; AUGUSTA MIN. & INV. CO.
905
is that the expenses of the receivership, and the debts for labor and supplies incurred by the Augusta Mining & Investment Company during the six months which preceded the appointment of the receiver under the Reinhart bill, should be paid out of the income and revenues of the corporation, and not out of the corpus, and also that the mortgage bonds are entitled to a priority over all such expenses and debts. 'rhe appellants are bondholders of the corporation, who llave undertaken to proceed independently of the trustee of their bonds, and, it would seem, in opposition to the trustee's views of the correctness of the decree appealed from. These appellants are, in the main, the same parties who instituted or joined in the Reinhart bill, under which the receivership was inaugurated. The bill which they filed to obtain from the court the appointment of a receiver shows that the corporation was insolvent, and that it was even unable to earn its charges and expenses. If we are to believe the appellants, they asked the lower court to do an apparently impossible thing, and the court undertook to do it. The appellants' contention amounts to saying that the court, looking solely to the income and revenues of a corporation which was shown to be insolvent, and even unable to meet its charges and expenses, engaged in the task of maintaining and carrying on the business of the corporation, and of paying, not only its running expenses, but also its debts for labor and supplies incurred during the six months which preceded the appoIntment of the receiver. The Reinhart bill even prayed that the ceiver beempowered to equip and operate other ore banks than those which were then being operated. It could not be contended seriously that, if the orders of the lower court had borne only on such revenues as might be expected from a corporation in the ruinous condition in which the Reinhart bill alleged that the Augusta Mining & Investment Company was, anyone could have been found to lend money to the receiver. It may then be fairly said that Reinhart and others are attempting to show that they asked the court to undertake the receivership under impossible conditions. There were no limitations placed upon the temporary receiver as to payment out of revenues, in the order authorizing him to borrow money. This order was specially consented to by Reinhart and others. They then applied for the appointment of a permanent receiver, and upon that application the temporary receiver was appointed as permanent receiver, the previous order authorizing the temporary receiver to borrow money was affirmed, and the permanent receiver was directed to pay all debts for labor and supplies incurred during the six months preceding his appointment, not only from earnings and income, but also from. such moneys as he was or might be authorized by the conrt to borrow for the purpose. Subsequently the }[anhattan Trust Company, trustee of the mortgage, caused the receivership to be extended to the foreclosnre suit, and it is plain that the trustee adopted all prior proceedings and orders. The decree of foreclosure again made it evident that the debts and expenses paid by the receiver were to outrank the mortgage. The appellants did not complain of the decree; and it should be specially noticed that the hattan Trust Company, which, as trustee of the mortgage, represents
94 FEDERAL,REPORTER.
as well as ,all ot;b,er bondholders, has never complainedotthe&c,tio:u of the 10w(jI:court in postponing the mortgage to the expenses paid by the receiver. T'he trustee did not complain of the foreclosure decree, nor did it except to, the master's report, nor has it appealed from the decree of February 28, 1898. It is not even intimated that the trustee has been derelict in its duty to protect the interest of the bonc;lholders. It is plain that the trustee has a;cquiesced in the correctness of the decree appealed from. Fosdick v. Schall, 99 U. S. 235, and other cases, have been cited to us by appellants' cOUJ;lsel, who urge that, under the doctrine of thosecaEles, the lower court had no power to postpone the mortgage to the debts and eXNuses paid by the receiver. T'he, case before Ul!l is not one in which, the principles of the cited cases come into play. The present case is lrlmp:ly one in which the matters complained of have been consented to. by the parties. There is no error in the decree appealed from, and· it is therefore affirmed.
_
v.
PAC. R. CO. et al.
:.(C'ltcuit .Court of Appeals, . Ninth Circuit. ·May' 2, 1899.)
No. 48L ' 'I'··
;<\ ()n, y.p.surveyed Rublic lands, ,a.t, the time a railroad grant attached by the ..definite location of the line of .road,!lad In no waf Indicated the 'bouridatWs of his d8.im, cannot, by thetehfter extending his'impi'Oveilil!nts 6veti tra'Ct which, he had not lit1hat .timeclalmed or and which· );>ty' .'the subsequent· was shown to be within granted to the ralJroad. comllany, \lc\lulre any claim or rights there.t? the rai,lr;oad .', ,
Cr,;AIMS,
' :
Appeftl"frotn the Oircuit' Courto! the United States f6r tM -North ern Diistl'Mt of CalifOl·Ma. " ". .: ., " i:, ; i ' ; ' It i (It,' .·,u. IS. Atty. , '(Jr. ,OVm., f()r , and District,Jmlge., " . ; ii . . " " ' 'i i j ,'. I , ,,;
i
,i ! o
District Juc;lge. Tbjssuit is brought to,' cancelapat to the Central 'Rl\ilr9ad Oompa,ny, i1'l11CceSSOr to .the, &;" O!:'egQ'n. ,Railroall ,on January to -k of N. E. i .of. section 33, range, 4E.,.M.D.M., on. the ground that it was issued ,'ftb.,?ou.gh error." Tbe la:ud in controversy,fa witbin land grant, made to the 8/;. Oregon Railroad"Company under the act of congress ofJuly 25i:1866 (14 Stat. 239). This act grantedi to the railr.oad company 10 odd sections of land on eMh side. of tlle railroad line, not "granted, sold, reserved, occupied by bomestead'j;l,nttlers, pre-empted,or otherwise .disposed of." The map of the.defiuite,Jo.cation.of the. road Watl filed in the, office of