Case Name: Gibert v. Washington City, Virginia Midland and Great Southern Railroad Company
Court: Supreme Court of Appeals of Virginia
Jurisdiction: Virginia
Decision Date: 1881-01
Citations: 33 Gratt. 645
Docket Number: 
Parties: *Gibert v. Washington City, Virginia Midland and Great Southern Railroad Company.
Judges: Absent Moncure, P.
Reporter: Virginia Reports
Volume: 74
Pages: 557–558

Head Matter:
*Gibert v. Washington City, Virginia Midland and Great Southern Railroad Company.
[1 Am. & Eng. R. Cas. 512.]
January Term, 1881,
Richmond.
Absent Moncure, P.
1. Railroads — Receivers — Insolvency — Priority of Judgment Creditors. —At the time a receiver is appointed at the suit of trust creditors to take possession of a railroad and carry it on, there are a number of executions against the company in the hands of the sheriff; and there are funds derived from income and balances due from employees, in the hands of or due to the company. Held : The execution creditors are entitled to have these funds and balances applied to the satisfaction of their debts in preference to the trust creditors.
2. Same-Same—Same—Same—Rigbts. — If these funds or balances have been applied under the order of the court to other debts, they will be replaced out of the revenues received by the receiver since his appointment.
This is another branch of the case^ of Graham v. The Washington City, Virginia Midland and Great Southern Railroad Company, then pending in the circuit court of the city of Alexandria. Whilst the cause was pending in that court a number of persons -who had recovered judgments and sued out executions against the company before the appointment of a receiver, came into the cause, and claimed that their executions were liens upon the funds in the hands of the company or to which the company had claim at the time of the appointment of the receiver.
By the decree in the cause made on the 25th of September, 1878, the court held that the execution liens, *which existed at the time of the appointment and qualification of the receiver, attached to all funds in hand, and balances outstanding, which belong to the defendant corporation, and that such funds and balances were subject thereto; and that where such balances and funds have been heretofore otherwise appropriated by the receiver under the orders of the court, the same should be made good out of the funds and receipts of the company which have since or may hereafter come into the hands of said receiver, to the extent to which said balances and funds were so appropriated. And the commissioner was directed to report the amount of said funds and balances, and what executions were liens thereon, and their priorities.
The commissioner made his report, showing the amount of said funds and balances at. the time of the appointment of the receiver to be $21,217.90, and he also reported the execution liens and their priorities. And the cause coming on again to be heard on the 30th of May, 1879, the report of the commissioner was confirmed, and the receiver was directed, out of the assets in his hands or to come into his hands, and on account of. the said sum of $21,217.90, to pay to the said execution creditors — naming them — each a certain sum of money. And thereupon Frederick E. Gibert, and one of the mortgage bondholders, applied for and obtained an appeal to this court.
F. E. Smith and W. W. Gordon, for the appellant.
J. Alfred Jones, William FI. Payne, C. M. Blackford and H. R. Garden, for the appel-lees.
See Gibert v. W. C., etc., R. Co., 33 Gratt. 586 and note.

Opinion:
STAPLES, J.,
delivered the opinion of the court.
*In this case a decision was rendered at the last term of the court at Staunton, affirming the decree of the circuit court of the city of Alexandria.
One of the questions presented by the record was not, however, passed upon at that time; this court for reasons perfectly satisfactory to itself, reserving it for future consideration. That question grows out of a controversy between the mortgage creditors on the one hand and certain execution creditors on the other. These latter creditors had placed their executions in the hands of the proper officer prior to the appointment of the receiver. At that time the company had money in bank to its credit, which together with what was due to it from other sources amounted to about twenty-one thousand dollars.
The point now to be decided is to whom does this fund belong—to the mortgage or trust creditors or to the execution creditors ?
The decision of this question has been to some extent foreshadowed in the opinion just delivered. The subject, however, from its importance and novelty in this State, deserves a more extended consideration.
All the deeds executed by the company upon the road, embrace also the tolls, income, and earnings derived therefrom. Some of these deeds provided that upon default made in the payment of interest, the trustees on request of the bondholders, may take possession of, and manage the road, and after paying the necessary expenses of op erating the same, pay over the proceeds to the creditors secured; or they may sell the property upon request of at least one-half the bondholders.
Nothwithstanding the long continued default of the company in paying the interest accruing from time to time, the trustees never took possession of the road, and it is asserted in the bill, they were unable to do so *in consequence of the conflicting claims and liens of the various trust creditors. Nor is it pretended that any demand was ever made upon the company for tolls and earnings, until the bill was filed in the present case.
Notwithstanding a few decisions to the contrary, it is now well settled that so long as the mortgagor is permitted to remain in possession by the property, he is entitled to receive and apply to his own use, the income and profits, of the mortgaged estate. And this is true although the mortgage by its terms covers the rents and profits, and although the creditor is authorized to take possession upon default made in the payment of the debt. As was said by Lord Mansfield, in Chewning v. Black, 3 Dougl. R. 391, until the mortgagee takes possession, the mortgagor is owner to all the world, and is entitled to all the profits made. These principles apply with greater force to mortgages of railroad property, than to any other class of securities. It is universally understood that so long as the company continues in possession, it must have the unlimited use and control of the earnings of the road, 'for the -purpose of meeting its current expenses. Such earnings are indispensable for the work of repair and replacement, the purchase of supplies, and material and equipments, and for the payment of wages arid salaries due to agents and employees.
Whilst it may be the duty of the company after payment of its current expenses to apply the income to the liquidation of interest due upon its bonds, it has been properly said—-This obligation of its own force, no more carries title to the particular money received, as income, to the bondholders or trustees, than does the obligation to pay a debt, in ordinary cases, carry title to the creditors of the money in the debtor's pocket. Whether we call the earnings of the road *net income, or gross income, they constitute but onei fund in the treasury of the company, the control and disposition of which are inconsistent with the supposed title of the trustees to any part of it.
In the case of Gilman v. Illinois and Mississippi Telegraph Company, 91 U. S. R. 603, this precise question arose under a deed of trust very similar in its provisions to the deeds here. Mr. Justice Swayne delivering the opinion of the court, said: "Possession draws after it the right to receive and apply the income. Without this the road could not be operated, and no profits could be made. Mere possession would have been useless to all concerned. The right to apply' enough of the income to operate the road, will not be questioned. The amount directed to be so applied was within the discretion of the company. The same discretion should extend to the surplus. It was for the company to. decide what should be done with it. In this condition of things the whole fund belonged to the company and was subject to its control. It was therefore liable to the creditors of the company as if the mortgages did not exist! They in no wise affected it. If the mortgagees were not satisfied, they had the remedy in their own hands, and could at any moment invoke the aid of the law, or interpose themselves without it."
These doctrines thus explicitly announced by the supreme court of the United States, had been previously declared in Galveston Railroad Company v. Cowdly, 11 Wall. U. S. R. 459; and they have been since reaffirmed in American Bridge Company v. Hudlebach, 4 Otto R. 798. They are fully sustained by the current of authority elsewhere. See cases cited in Jones on Railroad Securities, sec. 114 to 119, inclusive, and the cases cited.
*It has been already stated, that in some of the deeds no provision is made for the trustees to enter and take possession of the road; but a mere power of sale is conferred upon default made in paying the mortgage debts. Under these deeds there can be no pretence of any claims by the trust creditors to any part of the earnings so long as the company is permitted to remain in possession. The power of sale only contemplates an appropriation of the proceeds of sale of the premises to the payment of the debts, but not the earnings of the road, at least until demand made by the trustees for such earnings.
For these reasons, we are of opinion that the execution creditors are entitled to the fund in controversy, and the circuit court of Alexandria did not err in so decreeing. The decree of that court upon this branch of the case must therefore be affirmed.
Decree affirmed.