Case Name: Newport & Cincinnati Bridge Co. v. Douglass, trustee, &c.; Pittsburgh, Cincinnati & St. Louis Railroad Co. v. Same; Pennsylvania R. R. v. Same; J. P. Morton v. Same; J. P. Morton & Co. v. Same; Louisville Bridge Co. v. Same; Western Bank v. Same; Masonic Widows and Orphans' Home v. Same; Farmers Bank of Kentucky v. Same; Masonic Savings Bank v. Same; Stout v. Same; Elliston v. Same; Leary v. Same; Marksbury, &c. v. Same; Cochran, &c. v. Same; Louisville Transfer Co. v. Same; Montgomery & Co. v. Same; Cleveland, Mt. Vernon & Delaware R. Co. v. Same; Harms v. Same; Shea v. Same; Louisville, Cincinnati & Lexington Railroad Co. v. Same; Commonwealth of Kentucky v. Same
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1877-03-06
Citations: 12 Bush 673
Docket Number: 
Parties: Newport & Cincinnati Bridge Co. v. Douglass, trustee, &c. Pittsburgh, Cincinnati & St. Louis Railroad Co. v. Same. Pennsylvania R. R. v. Same. J. P. Morton v. Same. J. P. Morton & Co. v. Same. Louisville Bridge Co. v. Same. Western Bank v. Same. Masonic Widows and Orphans’ Home v. Same. Farmers Bank of Kentucky v. Same. Masonic Savings Bank v. Same. Stout v. Same. Elliston v. Same. Leary v. Same. Marksbury, &c. v. Same. Cochran, &c. v. Same. Louisville Transfer Co. v. Same. Montgomery & Co. v. Same. Cleveland, Mt. Vernon & Delaware R. Co. v. Same. Harms v. Same. Shea v. Same. Louisville, Cincinnati & Lexington Railroad Co. v. Same. Commonwealth of Kentucky v. Same.
Judges: 
Reporter: Kentucky Reports
Volume: 75
Pages: 673–723

Head Matter:
Cases 31-54 — PETITIONS EQUITY
March 6, 1877.
Newport & Cincinnati Bridge Co. v. Douglass, trustee, &c. Pittsburgh, Cincinnati & St. Louis Railroad Co. v. Same. Pennsylvania R. R. v. Same. J. P. Morton v. Same. J. P. Morton & Co. v. Same. Louisville Bridge Co. v. Same. Western Bank v. Same. Masonic Widows and Orphans’ Home v. Same. Farmers Bank of Kentucky v. Same. Masonic Savings Bank v. Same. Stout v. Same. Elliston v. Same. Leary v. Same. Marksbury, &c. v. Same. Cochran, &c. v. Same. Louisville Transfer Co. v. Same. Montgomery & Co. v. Same. Cleveland, Mt. Vernon & Delaware R. Co. v. Same. Harms v. Same. Shea v. Same. Louisville, Cincinnati & Lexington Railroad Co. v. Same. Commonwealth of Kentucky v. Same.
APPEALS PROM LOUISVILLE CHANCERY COURT.
1. Mortgagees having the right to take possession op and operate A railroad in default of payment of interest, and to receive the tolls, incomes, and earnings, must take the necessary steps as prescribed in the mortgage to entitle themselves to such tolls, incomes, and earnings by virtue of the mere, fact that they are mortgagees.
2. A mortgage is a security for the payment of money, or an indemnity against liability.
8. A RECEIVER MAY BE APPOINTED IN AN ACTION TO FORECLOSE A mortgage “where it appears that the mortgaged property is in danger of being lost, removed, or materially injured, or that the condition of the mortgage has not been performed, etc.” (Civil Code, section 329.)
The latter clause of section 329 — “and that the property is probably insufficient to discharge the mortgage debt” — was intended to aid the mortgagee by securing as far as possible out of the thing mortgaged and its rents, profits, and issues, the payment of his claim.
4. The right to appropriate rents, etc., of mortgaged property was a legal incident to the contract of mortgage so long as the mortgagee could have relief at law.; and since his remedy at law has been practically taken away, the statute authorizes courts of equity to treat it as an equitable incident.
5. That equities of third parties may sometimes so far intervene as to estop the mortgagee from claiming the full benefit of this equitable right to the rents (as in the case of Douglass, &c. v. Cline, &c., 12 Bush, 608), does not militate against the conclusion, that as against the mortgagor, the statute provides for the interposition of courts of equity through their receivers.
6. The receiver holds the rents, issues, and profits for the protection of the mortgagee.
The fund in the hands of the receiver can not he disposed of by the mortgagor in any way to the prejudice of the mortgagee.
Nor can creditors of the mortgagor, by attachment or garnishee, secure a more favorable footing than that held by the debtor.
7. The officers of a railroad company hold the earnings and profits as A trust fund for the payment of its debts.
But in the absence of contract liens or rights created by legal proceedings they may exercise a reasonable and proper discretion as to the order in which the debts of the company shall he paid, and this discretion can not he taken from them by notice to the company that a particular creditor intends to demand a preference.
8. Money, etc., belonging to a railroad company can not he attached or brought under a lien by a judgment creditor of the company by a proceeding under section 474 of the Civil Code and a service of summons on the president of the company with notice indorsed thereon of the object of the action, as provided in section 477.
9. The delivery of the summons to the president of the company, he not being a party to the action, was hut service upon the company itself.
10. Obligations relating to the management oe mortgaged property made by tbe mortgagor terminate when he loses power to control the property, although he may be liable to an action on the contract.
11. The purchaser of the L., O. & L. Railroad should not he required to carry out and execute a contract, to be perpetual, between the railroad company and the Newport and Cincinnati Bridge Company, whereby the railroad company guaranteed that the tolls of the bridge over the Ohio River between Newport, Ky., and Cincinnati, O., should amount annually to a sum not less than $75,000.
12. Bonds op the railroad company are not void, because under authority to issue them at “a rate of interest not exceeding eight per cent per annum, and having not more thon thirty years to run,” the company issued bonds with interest payable semi-annually, and contracted that in default of the reasonably prompt payment of the interest as it should accrue, the principal sum might be treated as due and payable.
13. An amendment to the charter was accepted by the company by issuing and selling the bonds and executing the mortgage to secure their payment as authorized by the amendment.
14. The security pledged eor the payment op bonds issued and sold by the company can not he called in question because of the subsequent default of the company in failing to construct a branch road with the proceeds of such bonds.
15. For money borrowed by the company to pay interest on coupon bonds the lender is not entitled to be paid out of funds in the hands of the receiver appointed at the instance of the mortgagees.
16. As the lender is not entitled to be treated as an assignee of the interest coupons taken up with the money loaned by him, he is not entitled to be subrogated to the rights of the holder of such coupons.
17. Subsequent mortgagees have implied notice of the contract rights and statutory remedies of the beneficiaries under the elder mortgagees and deeds of trust, and their claims are subordinate to ■ those elder and superior rights.
18. A SET-OPP CAN NOT BE PLEADED BY THE DEPENDANT in a proceeding by the Commonwealth to enforce the payment of a tax due the state.
A tax is not a mere debt due from the citizen to the government.
19. After suing and recovering judgment for taxes due for certain years the Commonwealth can not maintain another action to recover an alleged balance for those years.
20. The state op Kentucky waived its lien on the Louisville & Frankfort Railroad, if any was retained in the act of March 1, 1847, transferring its interest in the road to the L. & F. R. R. Co., as to subsequent mortgagees by authorizing the company to issue bonds and secure them by mortgages on the road, by enabling acts passed by the legislature containing no intimation that such liens were to be subject to the prior lien of the state.
21. On judgments recovered by the commonwealth in actions prosecuted by the attorney-general two per centum on the amount thereof should be taxed as costs.
If a suit is prosecuted to enforce the satisfaction of such judgments an additional two per centum on the amount therein realized should be taxed as costs.
22. It is not material that the heirs-at-law of some of the deceased trustees in the mortgages and deeds of trust are not before the court.
23. The chancellor can sell the trust property and pass a perfect title to the purchaser, the beneficiaries in the mortgages and deeds of trust being in court by representation.
24. Bonds held as collateral security should be paid by the sale of the mortgaged property by which they are secured to the extent of the debts for which they are held, and no further.
25. The purchasers of bonds sold to satisfy debts for which they were held as collateral are vested with title as owners of such bonds.
.26. Compensation to trustees in mortgages and deeds of trust was properly allowed in this case for the services of themselves and counsel.
The successor of a deceased trustee should be allowed the compensation provided for in the mortgage.
27. The election of the bondholders to treat the default in PAYMENT OF INTEREST AS A FORFEITURE OF THE CONTRACTS SO far as they prescribe the length of time for which the bonds were to run, operated prima fade to cancel all coupons representing installments of interest not then due, and the principal sums, if treated as due in the judgment for the sale of the road, will bear interest at the agreed rate from the date of the election.
28. The purchaser of the railroad should be required, in this case, to execute a bond immediately in the penalty of $20,000, conditioned that he will comply with the terms of sale, etc.
29. An erroneous interlocutory order should be disregarded in making up the final judgment.
30. The validity and effect of railroad mortgages must be determined by their respective charters so far as they supersede the general laws.
But the general laws will be applied to the construction and enforcement of all lawful contracts, unless they are superseded or suspended by special legislation.
81. “An act concerning judicial sales of the property and franchises of railroad and turnpike corporations,” approved March 7, 1876, is not superseded by section 694 of the new Civil Code of Practice.
Action to foreclose railroad company mortgages.
July 25, 1874, George L. Douglass, trustee, etc., filed a petition in the Louisville Chancery Court against the Louisville, Cincinnati & Lexington Railroad Company; Joseph Patterson, James 0. Harrison, and Augustus F. Hawkins, trustees; Norvin Green, trustee; Abram D. Hunt, trustee; the President, Directors, and Company of the Bank of Louisville; the German Bank, and the Masonic Bank of Louisville, to foreclose the mortgage executed April 1, 1870, by said railroad company to said Douglass, trustee, etc.
By amended petition alleging the death of James Guthrie, Virgil McKnight, and Joshua B. Bowles, trustees named in one of the mortgages, and that Bowles survived the other two, the heirs of Bowles were made defendants. It was also therein alleged that Susan P. Lees was the sole devisee of James Lees, deceased, the trustee in one of the mortgages executed by the railroad company, and that she was a nonresident.
On motion of the mortgagees, Douglass and Green, the railroads and the property of the railroad company were placed under the control and management of a receiver appointed by the court.
The employees of the railroad company asserted their right to be paid the wages due them at the time the railroads, etc., were placed in the hands of the receiver, to be paid out of the fund accumulated in his hands from the net earnings. The judgment of the Vice-Chan, ordering the “back pay” due the employees to be paid out of that fund was affirmed in Douglass, &c. v. Cline, &c., ante, p. 608.
At its commencement, and during the progress of the suit, the following classes of lien and non-lien creditors were made parties, and in the final judgment were adjudged to have priorities in the proceeds of the mortgaged property, including the fund accumulated in the hands of the receiver after paying the back pay to the employees, etc., in the following order:
First. Taxes due the state as to the entire property.
Second. Taxes due the city of Louisville as to the property within the city.
Third. The several mortgagees as to the property embraced in each mortgage respectively, in the order in which they were executed.
Fourth. Judgment creditors who had instituted proceedings to enforce satisfaction of their judgments on returns of “no property,” as provided in section 474 of the Civil Code, and by attachments levied upon the property, rights, and franchises of the company, and by garnish nients served upon the officers of the company prior to the commencement of the foreclosure suit and prior to the appointment of the receiver.
Fifth. Judgment creditors, as in the fourth class, who sued out and caused their attachments and garnishments to be levied and served after the railroads and property of the company had been placed in the hands of the receiver.
Sixth. Judgment and non-judgment creditors who sued out attachments and sought to attach the funds accumulated in the hands of the receiver from the net earnings of the road, by causing their attachments to be served on the receiver, etc.
Seventh. Creditors who claimed to have equities superior to those of the mortgagees and all others, by virtue of the peculiar nature of their claims.
The third class as above stated embraces the following:
1. The deed of trust to Harrison & Hawkins, executed May 29,1854, under act of February 11, 1854, by the Lexington & Frankfort Railroad Company, conveyed the property “now held or hereafter to be acquired” by the company, to secure the payment of $130,000 of coupon bonds, $25,000 of which remained unpaid, and for which judgment was rendered with interest and costs; for $1,000 as a compensation for their services as trustees; and also for $1,000 for the expense incurred by the employment of an attorney in this case, to be paid over to him.
2. The mortgage to the city of Louisville, executed November 20, 1854, by the Louisville & Frankfort Railroad Company, conveyed the property of the company “now in use or which may hereafter be acquired” by the company, to secure the payment of $275,000 of coupon bonds, $100,000 of which maturing in 1881 remained unpaid, on account whereof, and unpaid interest thereon, judgment was rendered for various sums amounting to $114,070.
3. The mortgage to James Guthrie, Virgil McKnight, and Joshua B. Bowles as trustees, executed March 12, 1857, by the Louisville & Frankfort Railroad Company, conveyed the property owned, “or which may hereafter be acquired,” to secure certain bonds of the company, on account whereof, and unpaid interest thereon, judgment was rendered for $38,110, with interest and costs, and also for $1,500 as compensation to Joseph Patterson, who represented himself and other beneficiaries, to be paid to the attorneys employed by him for services in this suit.
4. The deed of trust to Norvin Green, executed January 1, 1867, under act of February 2, 1866, by the Louisville & Frankfort Railroad Company and the Lexington & Frankfort Railroad Company, conveyed the railroad “ and all other properties, rights, and franchises now held and hereafter to be acquired” by each of said companies respectively, to secure $3,000,000 of the joint bonds of the two companies and interest thereon, on account whereof, and unpaid interest thereon, judgment was ( rendered for various sums amounting to $3,615,195 and costs, and also' for $5,000 for compensation to the trustee, and also for $5,000 additional compensation to he paid to the attorneys employed by him for services in this case.
5. The mortgage to George L. Douglass, trustee, executed April 1, 1870, under acts of February 9 and March 21, 1870, by the Louisville, Cincinnati & Lexington Bailroad Company, conveyed the railroad from Louisville to Lexington and from the junction near Lagrange to the Cincinnati & Newport Bridge over the Ohio Biver at Newport, Ky., and all the property “ now on hand or acquired hereafter, and generally the property and franchises” of the company, to secure $1,000,000 of thirty-year coupon bonds of the company, on account whereof, and unpaid interest, judgment was rendered for various sums amounting to $1,200,840, with interest and costs, and for $500 as compensation to the trustee, and also for $2,000 additional to be paid to the attorney employed by him for services in this case.
6. The mortgage to Abram D. Hunt, executed October 1,1872, under act of March 27, 1872, by the Louisville, Cincinnati & Lexington Bail-road Company after it had made the contract for the purchase of the Shelby Bailroad, conveyed the “ Shelby Bailroad, leading from Anchorage to Shelby ville,” and all the other roads and property and “ rights and franchises” of the company, to secure $725,000 Shelby cut-off bonds at thirty years, with interest coupons of the company; and on account of such of these bonds as were disposed of by the company, and unpaid interest thereon, judgment was rendered for various sums amounting to $440,040, with interest and costs.
7. The consolidated mortgage or deed of trust to James Lees, trustee, executed April 1,1873, under act of January 28, 1873, by the Louisville, Cincinnati & Lexington Bailroad Company, conveyed all the railways and property owned by the company, “ and also all the tolls, income, rents, issues, and profits, and alienable franchises” of the company, to secure $10,000,000 of coupon thirty-year bonds which the company proposed to issue and dispose of, to take up all previous bonds and extend the road; but which scheme was not carried into effect. On account of bonds issued under this mortgage and unpaid interest thereon judgment, in favor of Gavin H. Cochran, for himself and as representative for parties holding bonds and coupons, was rendered for various sums amounting to $1,718,475 and interest and costs; and also for $5,000 as compensation to said Cochran, to be paid to the attorney employed by him for services in this case.
The Louisville & Frankfort Bailroad Company, incorporated by act of March 1, 1847, owned the railroad, etc., from Louisville to Frankfort.
The Lexington & Frankfort Bailroad Company, incorporated by the act of February 28, 1848, owned the railroad, etc., from Lexington to Frankfort.
These two railroads were managed and operated as one road from July 30, 1859, until the two companies were consolidated, and while they were so being operated and managed the two companies under act of February 2, 1866, jointly constructed and owned the branch road from the junction near Lagrange to the bridge over the Ohio River at Newport.
The two companies were consolidated under act of March 2, 1869, as the Louisville, Cincinnati & Lexington Railroad Company.
It was adjudged by the chancery court that the mortgagees, in the order of their priorities, were entitled to the fund accumulated and to be accumulated in the hands of the receiver, and that the attaching creditors acquired no lien on that fund by virtue of their attachments.
The various questions raised by the several appellants or classes of appellants are set forth in the points presented in the legal propositions presented by their respective counsel and in the opinion of the court.
J. R. & T. F. Hallam rob appellants the Newport & Cincinnati Bridge Company, the Pittsburgh, Cincinnati & St. Louis Railway Company, the Pennsylvania Company, the Cleveland, Mt. Vernon & Delaware R. R. Co., George R. Harms, and Murty Shea.
First. This court, in Douglass, &e. v. Cline, &c. (12 Bush, 608), intended to establish principles or to vindicate principles which already existed; and in pursuance of those principles the claims of Cline and other operatives were awarded them as a lawful right, and not as a charity.
Second. The claims of these appellants upon the funds in the hands of the receiver are analogous to the claims of Cline, &c.
Third. The bridge from Newport to Cincinnati was indispensably necessary to the performance of the public duties of the L., C. & L. Railroad Company.
Fourth. The receipts of a line of railroad are always a trust-fund, not only in the hands of a receiver, but in the hands of the owners themselves. (Gratz v. Redd, 4 B. Mon. 191; Dudley v. Price’s adm’r, 10 B. Mon. 85; Price v. Emery, 32 N. Hamp.)
If this fund is a trust, there are other cestuis que trust besides the mortgagees. Such being the case, all persons directly contributing to the necessary and proper operations of the road have an interest as beneficiaries “in or to the principal subject out of which those rents or profits arise,” and a receiver appointed, no matter at whose instance, is also for their benefit, and they thereby acquire a lien upon rents and profits which may come to the hands of the receiver. (Beverly v. Brooks, 4 Grattan; Gratz v. Redd, 4 B. Mon. 191; Dudley v. Price’s adm’r, 10 B. Mon. 85; Lexington & Ohio Railroad v. Applegate, 8 Dana, 295; Price v. Emery, 32 N. Hamp.; the Farmers’ Loan and Trust Company v. Hendrickson, 25 Barb. 484.)
In the circumstances of their origin, and in their powers, uses, and duties, railroad corporations are clearly distinguishable from other merely private corporations. (Railroad Commissioners v. P. & O. 0. Railroad Co., 63 Maine, 269.)
The Kentucky cases cited make it plain as to how the public trusts of a railroad company shall be executed — -first, by furnishing traveling • and shipping facilities to the public; and, second (to enable them to do the first), by paying, from any and all funds, the men and the companies without whose assistance this duty could not be done; third, by paying and keeping down the interest out of the profits, not the gross receipts (Gratz v. Redd, 4 B. Mon. 191); fourth, by paying dividends judiciously.
The receiver in this case is not the contract-receiver provided for in the mortgages; he is a general receiver appointed for all proper purposes, and stands in loeo of the directors. (63 Maine, 269; Messenger v. Pennsylvania Railroad Co., 7 Vroom. 406.)
Fifth. It was the duty of the L., C. & L. Railroad Co. to have made the contract with the N. & C. Bridge Co., and to have paid for the privilege of using the bridge.
Public policy is opposed to any infringement of the rights of travel, or of any of the facilities which competition may furnish. (Hartford & New Haven Railroad Co. v. N. Y. & N. H. Railroad Co., 3 Rob. 411; Brice’s Ultra Vires, p. 342.)
Sixth. The trustee under the Douglass mortgage has his alternative relief, either to have a sale or a sequestration — not both. But it is one of the conditions precedent to either relief that he shall have been requested, in writing, by “the holders of a majority of the bonds herein secured.” This written request is neither proven nor alleged.
Douglass can not maintain his action for the sale of the road to pay the principal of his bonds, because the precipitation clause of his mortgage is unlawful. (Green’s Brice’s Ultra Vires, page 610.) As to this provision the mortgage is void — not authorized by the act of Feb.-8, 1870, or the act of March 21, 1870, to amend the charter of the company.
Green’s mortgage is in the same condition as that to Douglass. (Act of Feb. 22, 1866, sec. 2.)
Under Hunt’s mortgage “the written request of the holders of a majority of the said bonds” is requisite before he can take possession or foreclose by suit. (Act of March 27, j.872.)
The word “franchises ” in Lees’s mortgage, executed under the .act of- Jan. 23, 1873 — in “ all the tolls, income, rents, issues, and profits, and alienable franchises” — does not include money, although it may possibly include the right to earn money.
An unrestricted power to pledge the income of a road, if embodied in the charter, would not authorize the company to hamper and trammel itself by pledging more than the profits or excess above expenses. (Green’s Brice’s Ultra Vires, p. 131; Karnes v. Rochester & Genesee Valley Railroad Co., 4 Abbott’s Pr. Rep., 1ST. S.; 4 B. Mon. 184.)
Seventh. The trustee holding the naked legal title is the mere repository of a dry trust, until a forfeiture by the trustee of the possession and management. Then his trust becomes an active one, and, if he takes possession, the former divided trust becomes united in him by the consolidation of the legal title and the possession in him as sole trustee. He is not only the active trustee for the bondholders, but for the stockholders also.
Eighth. An individual contracting in his own right can not make a valid stipulation to pay for suing himself. ' Still less can the directors of a corporation. (Thomasson v. Townsend, 10 Bush, 114.)
Ninth. The contract for the use of the bridge with the N. & C. Bridge Co. is, in effect, a perpetual lease, and should be sold as appurtenant to the road, the purchaser to assume the obligations of this perpetual contract. (The Philadelphia & Erie Railroad Co. v. the Catawissa Railroad Co., 53 Pa. 20; Winslow v. Covington & Lexington Railroad Co., Fayette Circuit Ct., 1859; Gov. & Lex. R. R. Co. v. Bowler’s heirs, &c., 9 Bush, 476.)
Tenth. The Green and Douglass mortgages look to sequestration rather than sale. (Bardstown & Louisville R. R. Co. v. Metcalfe, 4 Met. 211; Winchester Turnpike Co. v. Vimont, 5 B. Mon. 1.)
Eleventh. The mortgagees for their lien debts, the commonwealth and the city of Louisville for their taxes, must exhaust their liens upon the property before pursuing the earnings to which other creditors may resort. (Applegate v. Ernst, 3 Bush, 648; Graves v. Sayre, 5 B. Mon. 390; Swigert v. Bank of Kentucky, 17 B. Mon. 284.)
Twelfth. A lien-holder of any kind, or a creditor who has attached a fund about which there is a controversy in the action, has uniformly been held to be a necessary party to its determination. (Civil Code, secs. 40 and 328; McMahon v. Allen, 12 Howard, H. Y., 39; Johnson v. Chandler, 15 B. Mon. 589.)
Thirteenth. Courts of equity will enforce the specific performance of railway connection and traffic contracts where they are in their nature perpetual and tend to advance the public service in supplying facilities for trade and commerce and cheapen transportation by furnishing competition. (Androscoggin, Kennebec, &e., R. R. Co. v. Androscoggin R. R. Co., 52 Maine, 417; C. P., &c., R. R. v. Indianapolis R. R. Co., 5 McLean, 460; Gt. N. Railway Co. v. Manchester Railway Co., 10 Eng. L. & E. 11; Bartlette v. Norwich & W. R. R. Co., 33 Conn. 560.)
Fourteenth. The tripartite contract in this case, guaranteeing the amount of tolls to the N. & C. Bridge Co., is expressly perpetual, made upon ample legislative authority, hoth in the charter of the railroad company (act of January 27,1830, sec. 19) and bridge company’s charter. (Act of February 26, 1868, see. 2; Russell v. East Anglican Railway Co., 3 McNaughton & Gordon, 144.)
Fifteenth. The railroad company had no power to provide for the alienation of any part of a fund secured by the charter to pay the expenses of the public service to be rendered by it.
Railroad mortgages must be within the limits of legislative authority, • and must be construed as to their validity and effect by the charter rather than the general law. (Phillips v. Winslow, 18 B. Mon. 445; Same v. Cov. & Lex. R. R. Co., January, 1862; Commonwealth v. Smith, 10 Allen; 1 Redfield’s Railway Cases, 579.)
Sixteenth. The “ superior equity ” mentioned in Douglass v. Cline, ante, 608, is manifestly, as to the earnings, not in the mortgagees, but in the operating creditors.
BODLEY, SIMRALL & BODLEY and ALVIN DUVALL dor appellants John P. Morton and John P. Morton & Co.
First. The opinion of this court on the appeal of Douglass, &c. v. Cline, &c. (12 Bush, 608) decides that the mortgagees have no lien on the earnings.
The mortgagees have only a prima fade right to be paid if no better claim appears. (Downing v. Palmateer, 1 Mon. 70; McCann v. Letcher,
8 B. Mon. 331; Graves v. Sayre, 5 B. Mon. 391; 4 Jacob’s Law Diet., “Lien.”)
Second. None of the mortgagees have a lien on the earnings or income in contest.
1. The mortgages create no lien on the earnings by any express words authorized by law.
Except the Lees mortgage none profess to convey earnings.
Property not in being at the time of a conveyance will not pass by it. (Ross v. Wilson, Peter & Co., 7 Bush, 34; Vinson v. Hallowell, 10 Bush, 538; Phillips v. Winslow, 18 B. Mon. 445; Sec. 1, Act of Jan’y 23,1873; 1 Session Acts 1873, p. 117; Angelí & Ames on Corp., sec. 111; Beaty v. Knowler, 4 Peters, 152; Bank U. S. v. Norvell, 2 Marsh. 102; Maddox v. Graham, 2 Met. 73.)
A franchise can not be mortgaged unless by express legislative permission. (Commonwealth v. Smith, 10 Allen, 448-455.)
The public interest in having the road operated prevails over the statute of executions. (Applegate v. Ernst.'3 Bush, 648; 2 Redfield on Railways, sec. 9, p. 310; Taylor v. Salmon, 4 Myl. & Cr. 141, and Or. 619-635; 1 Myl. & Or. 559; Steiner’s Appeal, 27 Pa. St. 313.)
2. No lien on the earnings is incident to or can be implied from the mortgages. (Douglass, &c. v. Cline, &c., 12 Bush, 608.)
As to the covenants in the mortgages for possession by the trustees, they have not been pursued, and are therefore inoperative. (1 Bouvier’s Institutes, 197, etc.)
3. The appointment of a receiver does not give to the mortgagees any lien on the earnings. (Civil Code, secs. 329, 328, 332, 472; Elliott v. U. S. Ins. Co., 7 Gill, 307; High on Receivers, sec. 349, p. 161; Skip v. Harwood, 3 Atk. 564; Wiswall v. Sampson, 14 How. 64; Chase’s Case, 1 Bland Ch. 213; Edwards on Receivers, p. 3; High on Receivers, sec. 666; Post •v. Dorr, 4 Edwards’s Ch. 414.)
A preference is not gained by the appointment of a receiver. (Beverly v. Brooke, 4 Grattan, 208; Daniells’s Ch. PI. & Pr. 1717; Davis v. Duke of Marlborough, 2 Swanstpn, 137.)
Third. The earnings in the hands of the receiver are liable to the attachments herein. (Chennery v. Evans, 11 House of Lords Cases, 134; Williamson v. Wilson, 1 Bland Ch. 421; Elliott v. Woodford, 4 Md. 85; Drake on Attachments, sec. 509 a; Civil Code, sec. 231; Huffman v. Thomas, 2 Duvall, 105.)
Fourth. The equities of appellants are superior to any belonging to the mortgagees. (Story’s Eq., sec. 557.)
Fifth. The taxes due the commonwealth and city of Louisville are bylaw “a lien upon the property assessed” (General Stat., sec. 2, art. 1, chap¡ 92, p. 709, “Revenue and Taxation”), and ought to be adjudged to be paid out of the proceeds of the sale of the property assessed, and not out of the earnings in the hands of the receiver.
BARRET & BROWN rob, appellant The Louisville Bridge & Iron Company.
First. According to the rule established in Douglass, &c. v. Cline, &e., that “ each claim will rest upon its own peculiar merits, and as the mortgagees have prima fade an equitable claim to the whole fund the onus will be upon each general creditor to establish a superior right on his part,” the Louisville Bridge & Iron Company’s claim for building a substantial and durable bridge over the Kentucky River at Worthville, as part of the railroad’s principal line, must take rank as one of the first, if not the very first, in equity.
Second. The equity of the Louisville Bridge & Iron Company lies in the fact that it actively and efficiently conserved the property and made it available for use and profit to the owner or receiver. But for it the fund now in court would not have been accumulated.
MUIR, BIJUR & DAVIE rob Western Bank, &c.
First. Railroads are public highways. Railroad companies hold their roads and equipments, franchises and earnings, as agents and trustees of the state, and can not sell or mortgage them without authority from the state.
Second. A creditor may, by petition, on return of no property, create a lis pendens lien on the franchise to take tolls and the future earnings of a railroad company, and subject them to the payment of his debt. He may also attach them.
Third. Property and its rents, and especially a railroad and its earnings, are distinct things, and a mortgage of the one does not imply a mortgage of the other. A mortgagor is now considered the owner of the mortgaged property and of its rents or earnings until it is conveyed away from him to a purchaser at the judicial sale in the suit to foreclose the mortgage.
Fourth. A creditor may attach in the hands of a court’s receiver a fund derived from the profits of the debtor’s estate.
Fifth. The appointment of a receiver in a suit to enforce a mortgage lien on property does not divest a previously acquired Us pendens or attachment lien on the unmortgaged rents of the property.
Sixth. The appointment of a receiver in such a suit does not create a lien in favor of the mortgagee on the unmortgaged rents.
Seventh. By filing its bill in equity, on a return of no property against the railroad company, before the receiver was appointed, and specifically describing and asserting a lien upon its road and equipments and its “rights and franchises” and income, tolls, rents, issues, and profits,” the Western Bank acquired a Us pendens lien upon the future net earnings of the road, and the court below should have subjected the net earnings to the payment of the debt of the bank. And by, at the same time, issuing and levying its attachment on the earnings and serving an indorsed notice on the president of the company, as provided for in section 477 of the Code, an attachment lien was also acquired thereon. (Acts 1821, 1828, 1 M. & B. 802, 304; Scott v. McMillen, 1 Littell, 305; Scott v. Coleman, 5 Mon. 75; Spader v. Davis, 5 Johns. Ch. R. 280; Had-den v. Spader, 20 Johns. 554; 32 N. Y. 454; Newdigate v. Lee, 9 Dana, 20; Dudley v. Price, 10 B. Mon. 87; Huffman v. Thomas, 2 Duvall, 105; Edmunston v. Lyde, 1 Paige, 639; Corning v. White, 2 Paige, 567; Gratz v. Redd, 4 B. Mon. 197; 1 Duvall, 206; 1 Bush, 294; Roberts v. Drinkard, 3 Met. 309; Drake on Attachment, sec. 7, 557; Civil Code, secs. 474, 477; Dartmouth College Case, 4 Wheaton, 580; Bank of Louisville v. Barrick, 1 Duvall, 51; 1 Comyn’s Dig., title “Attachment,” C; 3 East’s Rep. 367; Glen v. Boston Co., 7 Md. 287; 27 Ala. 380; 25 Vermont, 141; 6 N. H. 397; 20 Pa. St. 412; 5 Bosworth, 518; Coe v. C. R. R., 10 Ohio St. 393; Winchester Turnpike Co. v. Vimont, 5 B. Mon. 3; Phillips v. Winslow, 18 B. Mon. 448; E. & P. R. R. Co. v. Elizabethtown, 12 Bush, 233.)
The earnings of a railroad company are held by the company as a trust fund for the payment of its debts incurred in operating the public highway; and this trust being in favor of the creditors, can be enforced by any creditor by a petition in equity on return of no property. (Angelí on Highways, p. 54; 1 Redfield on Railways, chap. 11 on “Eminent Domain”; State v. Boston R. R., 25 Vermont, 442; Olcott v. Supervisors, 16 Wallace, 694; Dyer v. Tuscaloosa Co., 2 Porter, 303; Pa. R. R. v. Nat. R. R., 8 C. E. Green, 450; Erie R. R. v. Dél. Co., 6 C. E. Green, 286; Lansing v. Smith, 4 Wend. 21; Young v. Harris, 6 Georgia, 142; Green’s Brice’s Ultra Vires, 278; R. R. Co. v. Applegate, 8 Dana, 295; R. R. Co. v. Campbell, 44 Cal. 91; Camden & Amboy R. R. v. Briggs, 2 Zab. 647; Perrine v. Chesap. Co., 9 How. 184; Beekman v. Saratoga R. R. Co., 3 Paige, 75; Messenger v. Pa. R. R., 7 Vroom, 413; Pierce v. Emery, 32 N. H. 507; Stewart’s Appeal, 56 Pa. St. 422; Green’s Brice’s Ultra Vires, 104; Inh. of Worcester v. Western R. R., 4 Met. (Mass.) 566; Commonwealth v. Smith, 10 Allen, 448; 14 Allen, 381; 27 Pa. St. 313; 9 Smedes & Marsh. 394; 7 C. E. Green, 399; 17 Barb. 601; 32 N. H. 507; 56 Pa. St. 422; 11 Allen, 65; 5 W. & S. 265; Commonwealth v. Wilkinson, 16 Pickering, 175; 9 Watts & Serg. 27; 3 Robinson La. 513; 17 Howard (U. S. S. C.), 39; 24 Howard, 257; 14 Wisconsin, 580; Corry v. Lou. & En. R. Co., 29 Beavan, 263; Lane v. Baugham, 17 Ohio St. 648; Lex. L. E. & M. Ins. Co., &c. v. Page & Richardson, 17 B. Mon. 412; Wheeler v. Wheeler, 2 Met. 477; Whitehead v. Root, 2 Met. 586; Jessup v. Bridge, 11 Iowa, 572; Dunham v. Isett, 15 Iowa, 284; Foster v. Fowler, 60 Pa. St. 31; Seymour v. Mil. Turnpike Co., 10 Ohio, 480; Ludlow v. Heard, 1 Disney (Ohio), 562; 6 Amer. Law Reg. 502; Bryan v. Knickerbocker, 1 Barb. Oh. R. 427; Farnham v. Campbell, 10 Paige, 601; Plymouth R. Co. v. Colwell, 30 Pa. St. 339; Leedom v. Plymouth R. Co., 5 Watts & Serg. 265; Ammant v. Turnpike Co., 13 Watts & Serg. 212; Adley v. Whitestable Co., 17 Vesey, 328.)
Eighth. By suing out an alias attachment after the appointment of the receiver, and garnishing the fund in his hands, the bank acquired a lien, under sections 331 and 246 of the Civil Code, on the fund in his hands, “ at or after the service of the notice on him.” (Civil Code, secs. 476, 477, 231, 233, 245, 246; Field v. Jones, 11 Georgia, 416; Groome v. Lewis, 23 Md. 150; Eyton v. Railway Co., Law Rep., 6 Equity, 16; Vincent v. Parker, 7 Paige, 65; Waring v. Robinson, 1 Hoffman’s Ch. R. 524; Albany Bank v. Schermerhorn, 10 Paige, 265; Adams v. Woods, 9 Cal. 28; Skinner v. Maxwell, 68 N. Car. 404; Rowlet v. Eubank, 1 Bush, 480; Ellis v. Carr, 1 Bush, 529; Johnson v. Gunter, 6 Bush, 534.
Ninth. Douglass, Green, and others, being mortgagees of the road, but not of its earnings, did not impair said first-named liens of the Western Bank, nor acquire a right superior thereto hy subsequently bringing a suit for the foreclosure of their mortgages and having a receiver appointed for said roads, especially as the receiver was appointed on the “hearing together” of the two cases, and on the express condition that the appointment should not impair the rights of any one.
Authority to mortgage the earnings of the road was not conferred on the company by the charter or any act amendatory thereto. (3 Kent, 460; Taylor’s Land, and Ten., secs. 447, 154; Drake on Attachments, sec. 240; Childers v. Smith, 10 B. Mon. 235; Gratz v. Redd, 4 B. Mon. 183; Bank of U. S. v. Huth, 4 B. Mon. 448; Johnson v. City of Lexington, 14 B. Mon. 521; Phillips v. Cov. & Lex. R. R. Co., MS. Opinion, 1862; 18 B. Mon. 444; 16 Wallace, 694; Pulían v. Oin. & Chicago R. R., 4 Bissel, 41; Jessup v. Bridge Co., 11 Iowa, 575; Covington v. Bridge Co., 10 Bush, 77; 2 Redfield on Railways, sec. 235; Green’s Brice’s Ultra Vires, 104, note.)
The court did not, by the appointment of the receiver, impair the lis pendens and attachment liens previously acquired by the Western Bank. (Douglass, &c. v. Cline, &c., 12 Bush, 608; Zeiter v. Bowman, 6 Barb. 133; Syracuse Bank v. Tallman, 31 Barb. 209; Corning v. White, 2 Paige, 567; Albany Bank v. Schermerhorn, 9 Paige, 377; Bank of Ky. v. Vance, 4 Littell, 175; Swigert v. Bank of Ky., 17 B. Mon. 285; Story’s Eq., sec. 499; Hannegan v. Hanna, 7 Blackford, 354; 1 Johns. Ch. R. 409; 1 Brockenborough, 266; 1 Devereux Eq. 137.)
Tenth. By law, as well as by the terms of the chancellor’s order, the appointment of the receiver did not take away or give any rights to the earnings; and while, at the termination of the suit, the court, upon the equitable principle of avoiding future litigation, costs, and circuity of action, might decree the earnings (in the absence of opposing claim) to the mortgagee, as a creditor, rather than to the mortgagor debtor, yet as a legal right and lien had meanwhile been acquired on the fund by third persons by garnishing the receiver, the court could not properly have decreed it in the final decree to the mortgagee who had no lien, but should have adjudged it to those who had acquired such intermediate rights or liens. (4 Kent, 158 and 116; 5 Coke’s Rep. 95, 114; Birch v. Wright, 1 Bos. & Pul. 382; Doe v. Maisey, 8 B. & C. 767; 2 Smith’s Lea. Cases, 666; Howard v. Harris, 1 Vernon, 190; 26 Georgia, 203; Civil Code, secs. 404, 14, 476, 474, 221, 231, 328, 329, 332; Douglass, &c. v. Cline, <ftc., 12 Bush, 608; Brace v. Shaw, 16 B. Mon. 78 ; Waring v. Smith, 2 Barb. Ch. Rep. 135; McMillian v. Richardson, 9 Cal. 411; 49 Mo. 128; 31 Pa. St. 295; Dutton v. Worchester, 21 Cal. 611; 39 Cal. 247; Fletcher v. Holmes, 32 Ind. 512; Ladue v. Detroit R. R., 13 Mich. 395; Breck v. Hume, 4 Littell, 285; 14 Iowa, 173; 12 Mo. 174; 21 Conn. 379; 6 Vt. 602; Walker v. Bell, 2 Maddock, 21; White v. Bishop of Peter-borough, 3 Swanston, 109; 2 Swanston, 147; 3 Vesey, 22; Bank of Ogdensburg v. Arnold, 5 Paige, 43; Post v. Dorr, 4 Edwd. Ob. R. 414; Frisbie v. Bateman, 9 O. E. Green, 29; 2 Halstead’s Ch. 154; 3 Stockton, 39; Graves v. Sayre, 5 B. Mon. 392; Julian v. Pilcher, 2 Duvall, 255; Story’s Equity, sec. 557; High on Receivers, sec. 666; Kerr on Receivers, 49; Dudley v. Price, 10 B. Mon. 87; 32 ST. Y. 32; Jones v. Lusk, 2 Met. 361; 2 Duvall, 91; Kennard v. Adams, 11 B. Mon. 104; 8 B. Mon. 37; German Security Bank v. Jefferson, 10 Bush, 380; Mays-ville & Lex. R. R. Co. v. Punnet, 15 B. Mon. 48; Ellicott v. Ins. Co., 7 Gill, 320; Clason v. Corley, 5 Sandford’s Rep. 447; Mitchell v. Bartlett, 52 Barb. 327; Whalin v. White, 25 N. Y. 466.
MUIR, BIJUR & DAYIE dor appellants the Masonic Widows and Orphans’ Home, the Farmers Bank oe Kentucky, etc.— Additional.
First. Section 329 of the Civil Code is not an attachment law.
Second. There can be no lis pendens lien created In favor of a creditor upon his debtor’s property except by a suit to enforce a pre-existing right to or lien upon said property, or an attachment, or a proceeding on a return of “ no property!”
Third. The creditor’s “superior right” by attachment, on a fund in court belonging to the debtor, overcomes a mere “prima fade equitable claim ” of other creditors on the fund.
That the attaching creditors acquired valid liens on the fund in the hands of the receiver the following additional authorities are cited: Kinney v. Crocker, receiver, 18 Wisconsin, 79; Chautauqua Co. Bank v. Risley, 19 N. Y. 376; Naglee v. Layman, 14 Cal. 456; Southern Law Review, October number, 1876, p. 582.
The mortgages did not give the mortgagees a contract right to the future earnings of the road as an incident of ownership. (Douglass, &c. v. Cline, &c., 12 Bush, 608; Dutton v. Warshchauer, 21 Cal. 611; Fletcher v. Holmes, 32 Ind. 512; Ladue v. Detroit R. R. Co., 13 Mich. 395; Trim v. Marsh, 54 H. Y. 603; Clason v. Corley, 5 Sandford R. 447; Mitchell v. Bartlett, 52 Barb. 327; Whalin v. While, 25 N. Y. 466; Whitney v. Allen, 21 Cal. 236; Dewey v. Latson, 6 Cal. 609; Swigert v. Bank of Ky., 17 B. Mon. 284; Galveston R. R. Co. v. Cowdrey, 11 Wallace, 459.)
By the order appointing the receiver to take charge of and operate the roads the mortgagees did not acquire a lien on the future earnings. (Civil Code, secs. 328, 233, 477, 875, 332, 329, 231; General Statutes, p. 417; 4 Grattan, 208; High on Receivers, secs. 666, 668; Story’s Equity, 557; German Security Bank v. Jefferson, 10 Bush, 330; 1 Bush, 480, 529; 6 Bush, 534; Dewey v. Latson, 1 Cal. 609; Childers v. Smith, 10 B. Mon. 237; Bank of Syracuse v. Tallman, 31 Barb. 210; Guy v. Ide, 6 Cal. 99; McMillen v. Richards, 9 Cal. 410 ; Anderson v. State, 23 Miss. 475; Mackreth. v. Symmons, 1 Leading Cases Eq. 374 ; Gilman v. 111. & Miss. Tel. Co., 1 Otto, 603; Fair v. Inman, 6 Heiskell, 13; Bayley v. Greenleaf, 7 Wheaton, 57; Adams v. Woods, 9 Cal. 24; Julian v. Pilcher, 2 Duvall, 254; Allen v. Megguire, 15 Mass. 490.
By filing their petitions to foreclose their mortgages on the road the mortgagees did not acquire a lis pendens lien on the future earnings. (Civil Code, sec. 474; Weatherford v. Myers, 2 Duvall, 91; McKinley v. Combs, 1 Mon. 106; Allen v. Camp, 1 Mon. 232; Anderson v. Bradford,
5 J. J. Mar. 73; Maddox v. Fox, 8 Bush, 403; Bardstown Turnpike Co. v. Caldwell, 8 B. Mon. 37; Dunlevy v. Tallmadge, 32 N. Y. 459; Ocean Bank v. Olcott, 46 N. Y. 18; 1 Wallace, 330; 42 111. 230; 47 Vermont, 313; 32 Ala. 471; 29 Ga. 38; 31 Miss. 454; Covington Drawbridge Co. v. Shepherd, 21 How., U. S., 125; Jones v. Lusk, 2 Met. 859; Pearson v. Keedy, 6 B. Mon. 130; Tyler v. Peat, 30 Mich. 650; Kennard v. Adams, 11 B. Mon. 104; Stone & Warren v. Connelly, &c., 1 Met. 653; Ward v. Robinson, 1 Bush, 294.)
WM. REINECKE nor appellants The Masonic Savings Bank, R. H. Stout, John J. Leary, Martha Marksbury, &c., and Robt. Elliston, sr.
First. The statute of 1876, fixing the credits upon which the road is ordered to be sold, must be followed, or the judgment of sale is nugatory. (Hahn v. Pindell, 1 Bush, 538; Jarboe v. Colvin, 4 Bush, 70.)
Whether the time as fixed is longer or shorter than the lawful credit makes no difference. (Carson v. Robertson, and Robertson v. Glass, MS. Opinions, December, 1857; Cofer v. Miller, 7 Bush, 546; Bethel v. Bethel, 6 Bush, 68.)
Second,. Rents and profits are inseparably connected with the ownership of the property from which they spring.
Third. At common law, as well as in equity, a mortgage is now regarded as a mere chattel interest, as a security only, dependent upon a debt; and until foreclosure and sale the mortgagor holds the legal title, and takes as owner all the advantages incident to ownership. (Douglass, &c. v. Cline, &c., 12 Bush, 608; Civil Code, secs. 403-406.)
This rule is now recognized almost universally over the United States to the full extent to which it obtains in Kentucky. (Burr v. Robinson, 25 Ark. 277; Goodenow v. Ewer, 16 Cal. 467; Dutton v. Warshchauer, 21 Cal. 62; Kidd v. Temple, 22 Cal. 262; City of Norwich v. Hubbard, 22 Conn. 594; Doe & Hall v. Tunnell, 1 Houston, 320; Davis v. Anderson, 1 Kelly, 193; Winter v. Garrard, 7 Ga. 183; Ragland v. The Justices, 10 Ga. 73; Scott, Garhart & Co. v. Warren & Spicer, 21 Ga. 417; Fletcher v. Holmes, 32 Ind. 513; Lucas v. Harris, 20 111. 169; Newman v. DeLorimer, 19 Iowa, 246; Chick v.Willetts, 2 Kansas, 391; Clarke v. Peak, 15 La. Ann. 408; Timms and wife v. Shannon, 19 Md. 314; Ladue v. De troit & Milwaukee R. R. Co. 13 Mich. 394; Berthold v. Holman, 12 Minn. 344; Berthold v. Fox, 13 Minn. 504; Buckley v. Daley, 45 Miss. 345; Woods v. Hildebrand, 46 Mo. 286; Kyger v. Riley, 2 Neb. 28; Webb v. Hoselton, 4 Neb. 318; Trustees of Union College v. Wheeler, 61 N. Y. 118; Trimm v. Marsh, 54 N. Y. 604; Miami Exporting Co. v. Bank of U. S., Wright, 251; Besser v. Hawthorne, 2 Oregon, 133; Wilson v. Shoenberger’s ex’rs, 31 Penn. St. 299; Thayer v. Cramer, 1 McCord’s Ch. R., 397; Whitmore v. Parks, 3 Humph. 95; Mann v. Falcon, 25 Texas, 275; Cooper v. Cole, 38 Vermont, 390; Earp v. Boothe, 24 Grattan, 374; Wood v. Trask, 7 Wisconsin, 572.)
The New York courts gave a receiver to an encumbrancer. (Bank of Ogdensburg v. Arnold, 5 Paige, 43; Post v. Dorr, 4 Edwards’s Ch. R., 414; Syracuse Bank v. Tallman, 31 Barbour, 201.) But in New Jersey the New York decisions were repudiated as a misconception of the old English rule. (Cortleyeu v. Hathaway, 3 Stockton, 40.)
The word lien was never used in England or America with reference to the right of the mortgagees to the rents and profits until the case of Howell v. Ripley (10 Paige, 43.) All the cases preceding it in this country and England awarded the rents and profits to the mortgagee upon the fiction of ownership.
Fourth. It is the office of lis pendens to secure a previously existing right against alienations to persons who, without the constructive notice of the suit, could have acquired a right to the thing higher in dignity than the existing right of the plaintiff in the suit, and the object of the suit is simply to protect a right existing in favor of the plaintiff against the defendant and to secure it against the claims of the rest of the world.
The receiver holds subject to the same equities which could have been asserted against the defendant. (Receivers v. Paterson Gas-light Co., 3 Zabriskie, 392.)
The possession of the receiver is the possession of the court. (Johnson v. Gunter, 6 Bush, 536.) In appointing him the court simply protects the property, but does not decide the ultimate rights. (Blackeney v. Dufour, 15 Beavan, 42; Shelden v. Weeks, 2 Barb. 533; Skip v. Harwood, 3 Atkyns, 567.)
The possession of the receiver is not adverse, or in hostility, to the defendant. (Mays v. Rose, Freeman, Miss., 718.) He is appointed for all parties in interest. (Kaiser v. Keller, 21 Iowa, 96.) He is not the receiver of the complainant, but of all. (Hooper v. Winston, 24 111. 363.) He is an indifferent person between the parties, on behalf of all parties. (Baker v. Backus, 32 111. 95; Booth v. Clark, 17 How. U. S., 331; Corry v. Long, 43 How. Pr. Rep., 498; Green, receiver, v. Bostwick, 1 Sandf. Ch. R., 185.)
A creditor may lawfully obtain a preference while a suit with injunction is pending. (McCredie v. Senior, 4 Paige, 378.)
The possession of the receiver does not change the title, nor does it create any lien. (Ellis v. Boston, Hartford & Erie R. R. Co. 107 Mass. 28; Ellicott v. United States Ins. Co. 7 Gill, Md. 319; In re Rachel Colvin,
3 Md. Ch. 302; Ellicott v. Warford, 4 Md. 85.)
The attorney for the mortgagee can not be the attorney for the receiver on account of diversity of interest. (1 Sandf. Ch. 185.)
When appointed under debentures, although appointed by the mortgagee, the receiver is nevertheless the agent of the mortgagor. (1 Chancery Appeal Cases, 190; 2 Ibid. 641.)
The appointment of a receiver at the instance of the mortgagee does not stop the running of the statute of limitations against the latter. (2 Atkyns, 15.)
The court will rule the mortgagee for interfering with the receiver. (3 Hare, 472.)
If the receiver appointed by the mortgagee embezzles, the loss falls upon the mortgagor. (3 Brown’s Ch. 365.)
GEORGE WEISSINGER and JAMES A. BEATTIE von appellant Cochran, representative qe all persons interested in the BONDS SECURED BY THE LEES MORTGAGE.
First. As none of the mortgagees claiming under the mortgages anterior to the Lees deed have a specific pledge of the “ tolls, income, rents, issues, and profits” of the company, none of them can claim them “as a legal incident to or a legal right growing out of his mortgage.” (Douglass, &c. v. Cline, &c., 12 Bush, 608; Syracuse City Bank v. Tallman, 31 Barb. 201; Kerr on Receivers, by Bispham, 36-7, and cases cited in note.)
In Kentucky, on assignment of the mortgage debt, the mortgage also passes without express transfer as a mere incident to the debt. (Chambers v. Keene, 1 Met. 292; Barnes v. Lee, 1 Bibb, 528; Leacock v. Hall, 13 B. Mon. 211.) As elsewhere, on the death of the mortgagee, the mortgage, like any other chattel, passes not to his heir, but to his personal representative, while the mortgaged land descends on the death of the mortgagor with his other realty, to his heir. (King v. Merch. Ex. Co. 1 Selden, 557; Ladue v. Det. & Milw. R. R. Co. 13 Michigan, 380; Revised Statutes, 1 Stanton, 435, 482, 488; General Statutes, 426, 435; Farmers’ L. & T. Co. v. Cary, 13 Wisconsin, 110; Bondurant v. Owens, 4 Bush, 662.)
A vendor’s lien existed whether a deed had been made or not. (Voorhies v. Instone, 3 Bibb, 354; 3 Bibb, 183; 4 Bibb, 289 and 303; 2 Marsh. 294; 6 Mon. 388; 2 J. J. Mar. 829; 4 Littell, 317; Eubank v. Poston, 5 Mon. 286; Kenny v. Collins, 4 Littell, 290; Stewart v. Hutton, 3 J. J. Mar. 178; Royal v. Miller, 3 Dana, 56; Brown v. East, 5 Monroe, 408; Payne v. Wallace, 6 Monroe, 388.)
It is the security of a purchaser for his advances where the contract or sale is rescinded. (Funk v. McKeoun, 4 J. J. Mar. 169; Griffith v. Depew, 3 Mar. 179; Scott v. Clarkson’s executrix, 1 Bibb, 280; Bibb v. Prather, 1 Bibb, 316; Revised Statutes, 2 Stant. 230; Gen. Stat. 589.)
Second. The Lees or consolidated mortgage contains a valid pledge of the earnings and income of the company. The company was authorized to issue bonds and “to secure the payment of the principal and interest of said bonds by a consolidated mortgage on the property and franchises of the company, including its branches.” (Acts 1873, p. 117.)
At common law it is incident to every corporation aggregate “ to take and grant property, to contract obligations,” etc. (Ang. & Ames on Oorp., secs. 110, 111, 187, 220,191; Com. Dig. Franchises F. 18; Barry v. Merch. Ex. Co., 1 Sandf. Ch. 280; Richards v. Railroad, 44 N. H. 135; Pierce v. Emery, 32 N. H. 503; Allen v. Mont. R. R. Co., 11 Ala. (N. S.) 437; Mobile, &c., R. R. Co. v. Taiman, 15 Ala. (N. S.) 472; Green’s Brice’s Ultra Vires, 66 and note; Bardstown & Louisville R. R. Co. v. Metcalfe, 4 Met. 207.)
Third. A corporation authorized to borrow money may, by mortgage on its property, bind its after-acquired property. (Pennock v. Coe, 23 How. (S. C.), 117; Ludlow v. Hurd, 1 Disney (Ohio), 552; Coopers v. Wolf, 15 Ohio St. 523; Pierce v. Emery, 32 N. H. 485; Pierce v. Milw. & St. P. R. R. Co., 24 Wis. 551; Dunham v. Earle, 2 Redf. Railw. 550; sec. 235, note; Phillips v. Winslow, 18 B. Mon. 431-45; Robinson v. McDonnel, 4 Maul. & Sel. 228; Curtis v. Haber, 1 Jac. & W. 526; Douglas' v. Russell, 4 Sim. 524; S. O., 1 My. & K. 488; Langton v. Horton, 3 Beavan, 464; 1 Hare, 549; Lindsay v. Gibbs, 22 Beavan, 522; 2 Am. Law Reg. (N. S.), 527; 3 Am. Law Reg. (N. S.), 31-33; Story on Sales, secs. 185,186; Benjamin on Sales, page 58; Zeiter v. Bowman, 6 Barb. 133; Astor v. Turner, 11 Paige, 436; Howell v. Ripley, 43; 4 Met. 199; Grinnell v. Trustees S., M. & N. Railway, Ohio Ct. Com. Pleas, 2 Redf. Railway, 530, 235, note; Holroyd v. Marshal, 9 Jurist (N. S.), 213; Jessup v. Bridge, 11 Iowa, 572.)
Fourth. The leigslative authority to make the Lees mortgage, to mortgage “the property and franchises of the company, including its branches,” is ample. (Syracuse Bank v. Tallman, 31 Barbour, 201; 2 Bouvier’s Just. sec. 1686, p. 211; Com. Dig. Franchises, A. 1; Hall v. Sullivan Railway Co., 2 Redf. Railw. 518, sec. 235, note; Peter v. Kendall, 6 B. & C. 703; Com. Dig. Grant, C; 1 Redf. Railw. 4, sec. 51; Ibid. 53, sec. 17, note 4; Bowman v. Wathen, 2 McLean, 393; Steiner’s appeal, ■ 27 Penn. St. 313; 4 Met. 199; Pennock, v. Coe, 2 Ho. S. C., 125; State v. Northern Central R. R. Co., 18 Md. 193; Phil., Wil. & Balt. R. R. Co. v. Woelpper, 64 Penn. St. 366; Garrett v. May, 19 Md. 192; Parkhurst v. Northern C. R. R. Co., 19 Md. 484; Coe v. Col., Piq. & Ind. R. R. Co., 10 Ohio St. 389; 1 Disney, 554; Galveston R. R. Co. v. Cowdrey, 11 Wall. 482; 18 B. Mon. 431; 11 Iowa, 472; 15 Iowa, 285; 3 Md. 311; 26 Illinois, 131; Green’s Brice’s Ultra Vires, 123, note; 1 Sandf. 288; 15 Iowa, 294.)
Fifth. The receiver in this cause is really a receiver for the benefit, not of the parties on whose motion he was appointed, but of the party entitled to the fund. (Howell v. Ripley, 10 Paige, 46; Williamson v. New Albany R. R. Co., 1 Bissel, 198; Syracuse Bank v. Tallman, 31 Barb. 201; 2 Story’s Eq., sec. 829.)
Sixth. The general creditors who are seeking by attachments to subject the accumulated earnings in the receiver’s hands to their demands can not prevail against appellant Cochran’s superior claim under the specific pledge of the tolls and income in his (Lees) mortgage. (Jessup v. Bridge, 11 Iowa, 576; Dunham v. Isett, 15 Iowa, 284; Gal. & Chic. R. R. Co. v. Menzies, 26 Illinois, 121; Pennock v. Coe, 23 How. S. C., 117; Winslow v. Phillips, 18 B. Mon. 431.)
Seventh. It follows, then, that appellant Coehran, having a clear contract right to the income and earnings, is plainly entitled to the fund arising from this source, accrued and accruing, and that the court below should have ordered the profits over and above the operating expenses of the road to he paid to him for the purpose of feeing administered for the benefit of those entitled under his trust deed. (Douglass, &c. v. Cline, &c., 12 Bush, 608; 81 Barbour, 201; Forepaugh v. Appoid, 17 B. Mon. 629; 11 Wall. 459; 1 Chitty’sPl. 3.)
A. B. FONTAINE fob, appellant The Louisville Transfee Co.
The services rendered by the transfer company were necessary and essential to the proper working of the railroad, and therefore the claim for these services should he paid out of the fund in the hands of the receiver. (Douglass, &c. v. Cline, &e., 12 Bush, 608; Duncan, &c. v. Chesapeake & Ohio Railroad Co., Circuit Court, Richmond, Va., Am. Law Reg., July, 1876.)
J. E. HAMILTON and CHARLES EGINTON for appellant A. Montgomery & Co.
Appellant sold and delivered coal to the railroad company between November 3,1873, and February 21, 1874, which was indispensable for operating the road, aided to increase its earnings, and contributed to the convenience of the traveling public. By the terms of the mortgages appellant’s claim for this coal was a charge upon the gross earnings of the road; appellant’s equity was superior to those of the mortgagees.
The fund in the hands of the receiver is not the subject of attachment, hut should he distributed by the court according to the rights of the parties at the date of its accumulation, and to which there can not be any after acquired preference or lien superior to the other creditors. (Douglass, &c. y. Cline, &c., 12 Bush, 608; Phillips v. Cov. & Lex. B. R. Co., MS. Opinion, 1862; Pierce y. Emery, 32 N. H.; Thomasson v. Townsend, 10 Bush, 114; Loudenschlager v. Benton, 3 Grant, 384.)
H. C. PINDELL nor appellees the Kentucky University, James 0. Harrison, survivor, and H. C. Pindell.
First The appeal of the Newport & Cincinnati Bridge Company should be dismissed as against these appellees.
An appeal can only be granted to a party. (Civil Code, sec. 876.)
Appellant was not made a party to the cross-petition of Harrison by being named as such or served with process, nor as the result of the order for the hearing of its action with the cross-petition, nor by the combination of the judgments in the several cases.
Second. Receivers are only appointed for parties’ interest. (Daniell’s Ch. 1407, n. 2, 1408-9; Kerr on Receivers, 7,10; High on Receivers, sec. 1012; Williams v. Wilson, 1 Bland Ch. PI. & Pr. 422-3.)
Third. Receivers are appointed for encumbrancers. (Equitable: Daniell’s Ch. PI. & Pr. 1409-10; Kerr on Receivers, 36-46; Story’s Eq., sec. 837. Legal: Kerr on Receivers, 40; Thomas v. Dawkins, 3 Brown C. O. 58; Eench v. Huston, 19 Wis. 149; Ackland v. Grosvenor, 31 Beav. 484; Brown v. Chase, Walker Ch. 43.)
Fourth. Encumbrancers therefore have rights in income. (Downing v. Palmateer, 1 Mon. 71; McCann v. Letcher, 8 B. Mon. 331; Civil Code, sec. 329; Denniston v. St. L. R. R. Co., 4 Biss. 416.)
1. Prior to appointment of receiver. (Beverly v. Brook, 4 Grat. 210.)
2. Which depend on the nature of his lien. (First, Common law liens: Story’s Eq., secs. 1216 and a, b, c, 1217. Second, Equitable liens: lb. and Kerr on Receivers, 48; Kuch v. Hall, 1 Smith’s L. Ca. 654; Gressly v. Adderly, 1 Swanst. 573; Lewis v. Zouch, 2 Simmons, 388; Smith v. Ld. Effingham, 2 Beav. 232; Bank of Ogdensburg v. Arnold, 5 Paige, 40; Cortleyeu v. Hathaway, 3 Stockton, 42. Third, Mortgage liens: 1 Smith’s L. Ca. 663; Norton & Calhoun v. L. P. & S. W. R. R. Co., U. S. Court.) Give both legal 'and equitable rights. Equitable always recognized and provided for when income in custodia legis. (White v. Peterborough, 3 Swanston, 109; Walker v. Bell, 2 Mad. 353; Kerr on Receivers, 50,161; Daniell’s Ch. PI. & Pr. 1408; Story’s Eq., secs. 837-8; Langton v. Lang-ton, 31 Eng. L. & E. 422; Beverly v. Brook, 4 Grat. 188; Brook v. Great-head, 1 J. & W. 176.) What examination pro interesse suo is. (Daniell’s Oh. PI. & Pr. 1083 et seq.; Wharam v. Broughton, 1 Vesey, 180; Empringham v. Short, 3 Hare, 461.) Above do not conflict with Howell v. Ripley, 10 Paige, 46, nor with the cases in which mortgagees out of possession are held not entitled to income as such. (Thomas v. Briggstocke, 4 Russ, 64; Ellis v. B., H. & E. R. R. Co., 107 Mass. 1.) . • t
Mortgagees’ rights waived till steps taken to enforce them, unless the mortgagor is evicted. (White v. Peterborough and Walker v. Bell, supra; Castleman v. Belt, 2 B. Mon. 159; Moss v. Gillimore, 1 Smith L. Oa. 689 and notes; Patterson v. Carneal, 3 Mar. 613; Snyder v. Hitt, 2 Dana, 204; Crockett v. Lashbrook, 5 Mon. 540; Myers v. Sanders, 8 Dana, 65; Kerr on Receivers, 162.)
Equitable can not depend on possession. (Gratz v. Redd, 4 B. Mon. 184.)
Receiver’s appointment gives no rights. (Story’s Eq. sec. 833; Sharp v. Carter, 3 P. Wms. 379; Tanfield v. Irvine, 2 Russ, 151; Douglass, &c. v. Cline, &c., 12 Bush, 608.)
Fifth. Section 329 of the Civil Code extends rights of legal mortgagees, but does not restrict those of equitable. (Skinner v. Davis, 66 N. C. 45; Battle v. Davis, 76. 252; Penn v. Whitehead, 12 Grat. 74; Smith on Construction, sec. 508.)
Sixth. Mortgagee has exclusively equitable rights and no legal rights under the Civil Code. (Brookover v. Hurst, 1 Met. 666; Brown v. Phillips, 3 Bush, 656; Hudson v. Stone, MS. Opinion.)
Appointment of receiver in discretion of court. (Bouvier’s Law Die., “Discretion.”)
Earnings pendente lite product of the court and of the property.
Payment of employees necessary to retain them and profitably operate the road.
The result is, present attaching claimants must show four things, to recover. Neither shows two of the four.
1. That a portion of the court’s share of the earnings is left.
2. That their payment is necessary to the profitable operation of the road pendente lite.
Must then be entitled to payment under ordinary rulings, and show that something furnished on credit of mortgagees is unpaid, or that mortgagees have received some benefit they have paid no one for. If bound to pay for any thing, only the value of the benefit received, and that after an opportunity to elect.
No foundation for the new heads — of equities of creditors without liens to be paid out of money in court, or of “Floating Equities” to be measured by their height.
THOS. E. MOSS, Attorney-general, and JOHN & J. W. RODMAN EOR APPELLANT THE COMMONWEALTH OE KENTUCKY.
First. An offset can not be pleaded against a claim for taxes due the commonwealth. (Gen’l Statutes, sec. 4, p. 153, sec. 1, p. 740, sec. 17, p. 743, sec. 1, p. 744; Overseers of Amenia v. Overseers of Stanford, 6 Johns. 92-93; 3 S. Car. N. S. 394; 34 Penn. St. 239; 3 Met. 520; 41 Yt. 122; 39 Cal. 389.)
Second. The commonwealth has a vendor’s lien for the payment of •$74,519.50 on the bond executed to the state by the Louisville & Frankfort Railroad Company under section 52 of the act of March 1, 1847. (Fish v. Howland, 1 Paige, 24-30; 1 Hilliard on R. P., p. 492, sec. 9 et seq.; Kleiser v. Scott, 6 Dana, 137; Burk v. Chrisman, 3 B. Mon. 50; Honoré v. Bakewell, 6 B. Mon. 67, 74; Woodward v. Woodward, 7 B. Mon. 116; Harrison, &c. v. Lex. & Ohio R. R. Co., 9 B. Mon. 472; Lou. & Frankfort R. R. Co. v. Brown, 17 B. Mon. 772; Sinking Fund Commissioners v. Northern Bank of Ky., 1 Met. 183; 1 Leading Ca. Eq., pp. 148-281; Cox v. Fenwick, 3 Bibb, 183; Thornton v. Knox’s ex’rs, 6 B. Mon. 74; Stewart v. Hutton, 3 J. J. Mar. 178; Ligón v. Alexander, 7 J. J. Mar. 288; Galloway v. Hamilton, 1 Dana, 576.)
As to the history of the bond to the state, etc. (Acts 1832-3, p. 263; Acts 1837-8, p. 237; Acts 1839-40, p. 208; Acts 1840-41, p. 74; Act 1843, p. 50; Charter of Louisville & Frankfort R. R. Co., Act of March 1,1847; Charter of Lex. & Frankfort R. R. Co., Act of Feb’y 28, 1848.)
Third. The state is not included in acts of the general assembly unless it is so stated in the act or unless it is plainly inferable that such was the intention of the legislature. (Commonwealth v. Cook, &e., 8 Bush, 220 ; Divine v. Harvie, 7 T. B. Mon. 443.)
BARNETT & SPEED nor appellant the Louisville, Cincinnati & Lexington Railroad Company.
First. There are no words of survivorship in the mortgages as among the trustees. The heirs of deceased trustees hold the legal title and are not before the court; they are necessary parties.
A chancellor will not sell a mere equitable title and compel the purchaser to take it. (Debell v. Foxworthy, 9 B. Mon. 231; Thornton v. Knox, 6 B. Mon. 74; Roney v. Bell, 9 Dana, 5.)
Second. One half of the legal title, under the mortgage to Hawkins & Harrison, was in the heirs of Hawkins. Harrison, holding no bonds, had no legal capacity to sue. (B. & L. R. R. Co. v. Metcalfe, 4 Met. 199.)
Third. The compensation provided for to the trustee in the mortgage to Douglass goes to the receiver or trustee, not both.
There is no authority to sell the company’s property under this mortgage, if the past due interest is paid before the day of sale. No such right is reserved in the decree.
Fourth. The Masonic Savings Bank and the Western Bank each held the bonds of the railroad company as collaterals, sold them under decree, and bought them at a nominal price, and thereby increased their debts threefold. These banks should not have been allowed to credit their judgments by the price paid for the bonds, nor allowed the costs incurred in the sale of them.
Fifth. As to the attaching creditors generally and state and dty taxes—
The rights of the company are intangible, and therefore not liable to levy, and are not taxed. Only the property is taxed.
The company’s franchises are — 1. The right of succession; 2. The right to use the writ of ad quod damnum; and 3. The exclusiveness of its right to build and operate a railway between named points. These franchises can not be taken under execution or attachment. Rights and franchises may be alienated in the mode pointed out in the charter, but not otherwise.
Sixth. The returns on the orders of attachment are not sufficient to create liens on any thing, except possibly the fund in court.
Seventh. The earnings in the hands of the receiver since his appointment, and those earned but not collected before that date, were appropriated by the Lees mortgage before any of the attaching creditors had a debt. All earnings are by contract, and to meet the requirements of the public, to be appropriated in operating and repairs of the railway. No one can take any of the earnings while needed for these purposes. (2 Redfield on Railways, 537; G. & C. W. Railway v. Menzies, 26 111. 121.)
Mghth. Attaching creditors have no right to a decree of sale. At best they can only claim a receiver and net earnings. (Winchester & Lex. Turnpike Road Co. v. Yimont, 5 B. Mon. 1; 2 Redfield on Railways, 552, 546, note 23; lb. 553; sec. 235 a.)
Ninth. The sale sought in the decree is not the sale provided for in any of the mortgages, but these are suits for foreclosures and sales depending upon general chancery jurisdiction. This is certainly true as to all the mortgages preceding that to Green, and apparently true as to that and the succeeding ones. Such being the case, there can be no foreclosure or sale. (Bardstown R. R. Co. v. Metcalfe, 4 Met. 199; 2 Redfield, 507.)
Tenth. There is no sufficient description of the property in the pleadings or decree upon which to have a fair sale for value or a valid sale. 1. No intimation is given as to the width of the right of way or the length or number of tracks. 2. There is no attempt at defining the extent or boundary of any tract of land owned, except a few acres at each end, while it is shown that the company does own other lands, such as depot grounds, station-houses, grounds, etc. 3. There is nothing to show where the company has a mere easement and where it owns the fee, either of which may be acquired under its charter. No advertisement can cure these defects, for the decree gives'the basis for the advertisement.
Eleventh. Counsel fees are denounced as penalties. (Garr, &c. v. Louisville Banking Co., 11 Bush, 180; Rilling, &c. v. Thompson, 12 Bush, 310.)
Twelfth. The chancellor has no jurisdiction to decree a sale on longer credits than allowed by law, and both sale and bonds taken would be void. No purchaser could hold his purchase at such a sale, if excepted to (Dunn, &e. v. Salter, &c. 1 Duvall, 347), and such a sale ought not to be allowed to take place, for the exception would certainly come.
JOHN ROBERTS dor appellee George L. Douglass, Trustee, and BARR, GOODLOE & HUMPHREY eor appellee Norvin Green, Trustee.
First. The fund in the hands of the receiver is not the subject of an attachment. (High on Receivers, sec. 151; Drake on Attachments, secs. 509 a, 458; Field v. Jones, &c., 11 Ga. 413; Taylor v. Gillean, 23 Texas, 514; Glenn v. Gill, 2 Md. 1; Nelson v. Conner, 6 Robinson (La.), 339; Taylor v. Carryl, 20 How. 584; Bishop of Winchester v. Payne, 11 Yesey, 195; Scott v. McMillen, 1 Littell, 302; Scott v. Coleman, 5 Mon. 73; Thoms v. Southard, 2 Dana, 475; Wickliffe’s ex’rs v. Breckinridge’s ' heirs, 1 Bush, 443; Edgell v. Haywood, 3 Atkyns, 357; Bullett v. Stewart, 3 B. Mon. 115; Parsons v. Meyburg, 1 Duvall, 206; Winchester & Lex. Turnpike Co. v. Vimont, 5 B. Mon. 1; Covington Draw-bridge Co. v. Shepherd, &c., 21 Howard. 112; White Water Valley Canal Co. v. .Vallette, 21 Howard, 414; Civil Code, secs. 328, 329.)
Second. The appellees, the mortgagees, are entitled to the fund in the hands of the receiver, by virtue of their claim to the property from which the earnings were derived, the earnings being preserved for them by the action of the chancellor in appointing the receiver. (Keech v. Hall, 1 Smith’s L. Ca. 654; Kerr on Receivers, 40, 48, 50, 159, 161, 163; High on Receivers, p. 688; Tanfield v. Irvine, 2 Russell, 150; Cortleyeu v. Hathaway, 3 Stockton, 40; Warner v. Gouverneur’s ex’rs,. 1 Barb. S. C. R. 38; Bank of Ogdensburg v. Arnold, 5 Paige, 39; Shotwell v. Smith, 3 Edw. 6h. Rep. 588; Sea Ins. Co. v. Stebbins, 8 Paige, 566; Wiswall v. Sampson, 14 Howard, 64; Chase’s Case, 1 Bland Ch. 213; Post v. Dorr, 4 Edw. Ch. 414; Howell v. Ripley, 10 Paige, 44; Beverly v. Brooke, 4 Grattan, 208; White v. Bishop of Peterborough, 3 Swanston, 109; Davis v. Duke of Marlborough, 2 Swanston, 137; Langton v. Langton, 31 Eng. Law & Eq. 422; Parker v. Calcraft, 6 Maddox Ch. 15; Henshaw v. Wells, 9 Humph. (Tenn.) 568; Lofsky v. Mauger, 3 Sandf. Ch. 69; Brown v. N. Y. & Erie R. R., 19 How. Pr. 85; Denniston v. Chicago, Alton & St. Louis R. R. Co., 4 Bissel, 414; Walker v. Bell, 2 Maddox Ch. 352; Ellis v. Boston, Hartford & Erie R. R. Co., 107 Mass. 1.)
Third. The attachments were unauthorized by law, the property and funds attached being in the hands of the court.
Even if the attachments are valid, being sued out lis pendens, they must await the termination of the principal case, and can only affect such property or funds or such interest therein as the court would otherwise turn over to the railroad company.
Fourth. Irrespective of the preceding propositions, as the appellees have mortgages upon the property which produced the earnings distributed by the judgment, and as the receiver was appointed upon their application and in a suit to which all the lien claimants were parties, both under the rule laid down in New York and that in Virginia and England, and according to the necessary signification of our Civil Code, these earnings must go to those holding claims upon such property, in the order of their priority.
Green, Douglass, and Lees all have a special contract pledge of the earnings.
Fifth. As to the appeals of the Newport & Cincinnati Bridge Co. and the Pittsburgh, Cincinnati & St Louis Railroad Co.
The mortgages or deeds of trust to Green and Douglass embraced all future-to-be-acquired property of the mortgagor.
A railroad company executing a deed of trust or mortgage, under legislative sanction, may include future-to-be-acquired property. (Phillips v. Winslow, 18 B. Mon. 431; Pennock v. Coe, 23 Howard, 127; Dunham v. Railway Co., 1 Wallace, 265; Coe v. Columbus Railway Co., 10 Ohio St. 373.)
The one thousand bonds issued under the Douglass mortgage were authorized by law; five hundred by act of Feb. 8, 1870, and five hundred by act of March 21, 1870.
The act authorizing the company to issue bonds “ bearing a rate of interest not exceeding eight per cent per annum, and having not more than thirty years to run,” did not mean that the interest should be made payable at the maturity of the bonds. (Maddox, &c. v. Graham & Knox, 2 Met. 80; Coe v. Columbus, Piqua & Indiana Railroad Co., 10 Ohio St. 396.)
A provision for the precipitation of a debt bearing interest from the date of the obligation, and not having any future interest added to its face, is not a penalty, is enforceable, and equity does not relieve against it. (Valentine v. Van Wagner, 37 Barb. 60; Rubens v. Prindle, 44 Barb. 337; Ottawa New Plank Road Co. v. Murray, 15 111. 337; Robinson v. Loomis, 51 Pa. 78.)
The contract between the railroad company and the bridge company does not attempt to create a lien on the property of the railroad company to secure the fulfillment of any of its obligations. That contract is not binding on the mortgagees, and the purchaser of the road should not be required to assume its obligations. (Dunham v. Isett, 15 Iowa, 291; Haven, &c. v. Adams, &e., 4 Allen, Mass. 80; Ellis v. Boston & Hartford R. Co., 107 Mass. 1-4.)
Sixth. As to the appellant the Louisville Bridge and Iron Co., its claim for building an iron bridge for the railroad company is not entitled to any preference on the theory of “ conservation.” (Galveston R. R. Co. v. Cowdrey, 11 Wallace, 459; Dunham v. Railway Co., 1 Wallace, 254; Denniston v. Chicago, Alton & St. Louis R. R., 4 Bissel, 414; Brown v. Erie R. R. Co., 19 Howard, 85.)
Seventh. As to the appellant the Western Bank. — The lien the bank acquired by its attachment was subsequent and inferior to that of the mortgages, because all the mortgages were in existence long before the bank sued.
When a mortgagee gives a tenant of the mortgagor notice that he has determined his will as to the collection of the rents by the mortgagor, the tenant must pay over to the mortgagee all rent that has not been paid to the mortgagor, even if it be past due, or to fall due in future for a period of occupancy, part of which has transpired. (Moss v. Gallimore, 1 Douglass, 278; 1 Smith’s L. Ca. 843, and notes; Clark v. Abbott, I Md. Ch. 474; L., 0. & L. R. R. Co. v. Commonwealth, MS. Opinion, Oct. 12, 1875.)
Eighth. The bond for $76,420.25, executed by the Louisville & Frankfort Railroad Co. to the commonwealth, under the act of March 1, 1847 (Acts 1847, p. 41), for the interest of the state in the road, binding said railroad company “ before each and every payment of dividends to the stockholders of said company shall be declared and made, to pay into the treasury” interest at the rate of six per centum per annum on said amount, was in effect simply a certificate of preferred stock in the railroad company. This bond is not secured by any-express lien, nor by a lien raised by implication. If the money was the consideration, then a vendor’s lien existed. If the covenant was the consideration, then the execution of the covenant was considered as payment, and there was no lien for its performance. (1 Smith’s L. C. in Eq., 235, Mackreth v. Symmons; Bucldand v. Pocknell, 36 Eng. Ch. Rep. 406; Dixon v. Gayfere, 21 Beaven, 625; Earl of Jersey v. Britton Ferry Floating Dock Co., L. R. Eq. 409; McCandlish v. Keen, 13 Grattan, 615; Parrott v. Sweetland, 3 Mylne & Keene, 655; 10 Eng. Ch. R. 348; in re Albert Life Assurance L. R., 11 Eq. 178.
Ninth. As to the appeal of the Louisville, Cincinnati & Lexington Bail-road Company.- — The company being hopelessly insolvent, the sole question to be considered is, can the purchaser obtain a good title under the sale ordered by the judgment.
The trustees can represent every interest, and are appointed for that purpose. (Civil Code, secs. 37, 577; General Statutes, p. 586, secs. 13, 14; Cahill v. Bigger, 8 B. Mon. 214; Galveston R. R. Co. v. Cowdrey, II Wall, 460; Griffith v. Burton, 5 Bush, 360.)
As to the objection to the various attorneys’ fees allowed. This is certainly not a case coming within the principles of Thomasson v. Townsend, 10 Bush, 114.
In a railroad trust-deed or mortgage there are three parties — the rail road company, the trustee, and the purchaser of the bonds. The trustee acts for the railroad company, and for the benefit of the bondholders also. Not deriving any benefit from the mortgage, nor from the purchase of the bonds, he has the right to decline to act until provision is made for compensation for his services and expenses incurred,'including reasonable compensation to his counsel, out. of the trust-estate.
Tenth. As to appellant Goehran, the successor of Lees.
1. Conceding that the mortgages to Green and Douglass are plain mortgages of the corpus of the property, and that there is no express pledge in them of the earnings of the railroad before or after the default, yet, by the appointment of the receiver, the possession of the mortgagor was divested in favor of the mortgagee; and no contract of such mortgagor amounting to an assignment of earnings can have the effect thereafter — that is, a mortgagor, after the execution of a mortgage, has no control over the rents or earnings except for such time as he rightfully remains in possession. The right of disposition ceases on the mortgagees taking possession or having a receiver appointed. (The Syracuse Bank v. Tallman, 31 Barb. —; Howell v. Ripley, 10 Paige, 43; Astor v. Turner, 11 Paige, 337; Lofsky v. Mauger, 3 Sandford, 69; New York Life Ins. Co. v. Glass, 50 How. Pr. 88; Finch’s adm’r v. Houghton, 19 Wisconsin, 370.) So also a receiver may be appointed over a tenant of the mortgagor (Keep v. R. R. Co., 6 Chicago Legal News, 101), and that too even where he has paid rent in advance. (Henshaw v. Wells, 9 Humphrey, Tenn. 568.)
The Civil Code gives the mortgagee the right to his receiver. (Sec. 229; Huston, Johnson, &c. v. Stone, MS. Opinion, 1876, and Douglass, &c. v. Cline, &c., 12 Bush, 608.)
The appointment of a receiver by an equitable mortgagee is an equitable ejectment. Douglass, &c. v. Cline, &c., 12 Bush, 608; Hill v. Robertson, 24 Miss. 375.)
A mortgage including tolls amounts to nothing as to such tolls until possession taken, or, at least, demand made. (Galveston R. R. Co. v. Cowdrey, 11 Wallace.)

Opinion:
CHIEF JUSTICE LINDSAY
delivered the opinion oe the court.
Prior to the year 1866 the Lexington & Frankfort Railroad Company had encumbered its property by a conveyance in the nature of a mortgage executed and delivered to Harrison & Hawkins. Of this mortgage indebtedness there remains unpaid $25,000, which has been due since July 1st, 1874. Prior to the same year the Louisville & Frankfort Railroad Company had encumbered its property by a mortgage to secure the payment of the principal and interest of certain municipal bonds loaned it by the city of Louisville. One hundred of these bonds, aggregating $100,000, remain unpaid, and will mature on the 1st day of January, 1881. Said company had also encumbered its property by a subsequent mortgage to Guthrie and others, and of the indebtedness incurred under this mortgage there remains unpaid $35,000, which will mature July 1, 1878.
Pursuant to a legislative grant these two companies undertook to build, and did build, from Lagrange, in Oldham County, to Newport, in Campbell County, a branch railroad, and under the same authority jointly executed and delivered to Norvin Green a deed of trust bearing date January 1, 1867, conveying their joint roads and all their rights of property and franchises, including their right to construct this branch road, and also said road when constructed, to secure the payment of a joint bonded indebtedness then about to be contracted of $3,000,000.
Said companies were afterward consolidated under the name of the Louisville, Cincinnati & Lexington Railroad Company, and in April, 1870, this company mortgaged all its property to George L. Douglass to secure the payment of a bonded indebtedness of $1,000,000 which it then proposed to create.
And on the 1st day of April, 1873, said company mortgaged all its property, real and personal, together with its rights, privileges, and franchises, present and future, " and also all the tolls, income, rents, issues, and profits, and alienable franchises of the party of the first part connected with its railroads, or relating thereto, including its rights and franchises as a corporation which may have been consolidated into the said Louisville, Cincinnati & Lexington Railroad Company, including all the rights and franchises of such several railroad corporations." Only a small number of bonds were sold under this mortgage.
The three deeds to Green, Douglass, and Lees each contained the stipulation that in case of default in the payment of interest on the bonded debt for a specified time the bondholders might elect to treat the principal as due and payable, and the trustee might take possession of and operate the company's roads and receive the tolls, incomes, and earnings. Default was made, and all the necessary preliminary steps having been taken, Douglass, the trustee named in the mortgage bearing date April 1, 1870, instituted his action in the Louisville Chancery Court on the 25th day of July, 1874, and sought to have the mortgaged property sold, and in the meantime to have the roads, rolling stock, etc., placed in the hands of a receiver and operated for the benefit of the mortgage creditors. He made the representatives of the creditors secured by each of the senior mortgages defendants to his action. Green made his answer a cross-petition, and joined with Douglass in his prayer for specific relief.
September 21, 1874, the mortgaged property was placed in the hands of a receiver. Pending the preparation of the cause a considerable sum of money accumulated in his hands, and numerous unsecured creditors of the company, having judgments and returns of nulla bona, instituted their actions in the chancery court and sued out and levied orders of attachment on this fund.
A large number of persons having claims against the insolvent corporation or its property had themselves made parties to the litigation. The cause was finally heard, and from the judgment of the chancellor, rendered on the 1st day of July, 1876, these appeals are prosecuted.
The court preferred the bondholders, secured by the mortgages executed in 1870 and prior to that year, to the attaching creditors in the distribution of the fund in the hands of the receiver, and the complaints of the appellants based on this ruling, will be the first question considered.
1. It was held by the majority of this court in the late case of Douglass, &c. v. Cline, &c. (12 Bush, 608) that the trustees in the deeds to Green and Douglass did not take the necessary steps to secure to the beneficiaries in those mortgages the earnings, incomes, rents, and profits of the mortgaged property by taking possession of and operating it by themselves, their agents, or special receivers, and for the purposes of these appeals we need not again consider that question.
We are further of opinion that the appellees are not entitled to this fund by virtue of the mere fact that they are mortgagees. When, as under the ancient English rule, the mortgagee was deemed the owner of the mortgaged property, the mortgagor having only the right to redeem or perform the condition of the mortgage at an appointed time, it was naturally held that the mortgagee or owner was entitled to the rents, profits, and issues of his own property. This rigid rule has been gradually relaxed through the persistent encroachments of courts of equity until we have at length reached the point at which the real contract entered into between the parties will be carried out according to its true intent and spirit, and this, by treating it as well at law as in equity as a security for the payment of money, or an indemnity against liability incurred by the mortgagee for the benefit or at the instance of the mortgagor, the conveyance to be void when the stipulated condition shall be performed.
In this state we have never regarded the mortgagee as the owner of the mortgaged property, and it is doubtful whether at any time a court of equity would for his benefit decree a strict foreclosure and bar the mortgagor's equity of redemption without a sale of the property. (2 B. Mon. 205.)
But inasmuch as the deed of mortgage invested the mortgagee with the legal title to the thing pledged, he could recover possession by action at law against the mortgagor after his failure to perform the condition; and hence equity would in many instances interfere to secure for him the rents, profits, and issues of the mortgaged estate, even when he had failed to enforce his legal right to the possession. But whether he entered at law or secured the rents, profits, and issues by-contract or notice to the mortgagor, or his tenants after forfeiture, they were applied to the satisfaction of the mortgage debt, and as soon as that was extinguished the title aud right of possession with all its incidents at once reverted to the mortgagor. "We thus see that the absolute right .to take the rents and profits resulted from and was dependent upon the legal right of the mortgagee to oust the mortgagor from the possession.
This legal right was lost with the adoption of the Civil Code of Practice. The mortgagee can not now prevail in an action at law against the mortgagor who is the real owner of the mortgaged property. To an action at law for possession the mortgagor may answer and rely on the fact that he is the owner of the mortgaged premises, and that his title is merely in pledge for a specific purpose, and on his motion the cause will be transferred to the equity side of the docket, where the security of the complainant can and will be made available for all the purposes of his lien, and the defendant at the same timé be protected against the unnecessary hardships which frequently resulted from the old rule of treating the mere lien-holder as the owner of the estate.
Having no longer the absolute right to possession, the mortgagee does not now have the absolute right to its incidents — the rents, issues, and profits of the thing mortgaged. He may secure these incidents by express contract, but if he fails to do this he must reach them through a proceeding in equity; and the Civil Code of Practice, which so far impaired his remedy at law, gives him in lieu thereof the right, through a receiver in equity, in a proper state of case to have them intercepted and held for his security.
Section 329, Civil Code, provides that " in an action by a mortgagee for the foreclosure of his mortgage and sale of the mortgaged property a receiver may in like manner be appointed where it appears that the mortgaged property is in danger of being lost, removed, or materially injured, or that the condition of the mortgage has not been performed, and that the property is probably insufficient to discharge the mortgage debt."
It is argued by counsel for the attaching creditors that under this section the mortgagee has no other or greater right than a vendor suing to vacate a fraudulent purchase of property, or a creditor seeking to subject specific property or money to his claim, or a partner or joint owner suing his partner or another joint owner, or any other plaintiff having a probable interest in property or a fund in litigation; each and all of whom may have a receiver under section 328, when it is shown that the property or fund is in danger of being lost, removed, or materially injured. There would be much force in this argument if section 329 was not more comprehensive in its terms than the section applicable to such parties. Like them the mortgagee may have a receiver when the mortgaged property is in danger of being lost, removed, or materially injured; but independent of this danger he has the right as against the mortgagor to a receiver when it appears "that the condition of the mortgage has not been performed, and that the property is probably insufficient to discharge the mortgage debt."
It is evident this remedy was not provided for the mere purpose of enabling the lienholder to have the mortgaged property protected and preserved. If this is its only purpose, section 329 is superfluous. It might have been as well accomplished by including mortgagees in section 328.
The latter clause of section 329 meets and provides for a case, in which the condition of the mortgage has been broken and there is a probability the mortgaged property is not sufficient to pay the debt. It was manifestly intended to aid the mortgagee in having his contract carried out according to its true spirit, by securing, as far as possible, out of the thing mortgaged and its rents, profits, and issues, the payment of his claim.
The right thus to appropriate the rents, issues, etc., was a legal incident to the contract of mortgage so long as the mortgagee could have relief at law; and since his remedy at law has been practically taken away, the statute authorizes courts of equity to treat it as an equitable incident, and as between the parties to the mortgage, this incident will be upheld and enforced whenever the mortgagee brings himself within the state of case contemplated by section 329 of the Civil Code.
That equities of third parties may sometimes so far intervene as to estop the mortgagee, in good conscience and fair dealing, to claim the full benefit of this equitable right at the hands of the chancellor (as in the case of Douglass v. Cline), does not militate against the conclusion, that as against the mortgagor, the statute provides for the interposition of courts of equity through their receivers, for the purpose of collecting and holding for the better security of the mortgagee the rents, issues, and profits of the mortgaged property which may accrue pending an action for foreclosure and sale.
The purpose of the mortgage is the security of the full payment of the mortgage debt; and when there is a reasonable probability that such purpose will be defeated if the mortgagor be left in the enjoyment of the property pledged, the power and duty of the chancellor to interfere for the protection of the mortgagee can not, in our opinion, be questioned.
We do not deem it necessary to decide whether the mortgagee who has proceeded under this provision of the Civil Code occupies toward the fund accumulated by the receiver the attitude of a lienholder or of a claimant under a Us pen-dens. It is sufficient that the court, through its officer, holds the fund for his protection, and that it is the duty of the court to apply it, or so much of it as may be necessary, to the satisfaction of his debt in case the mortgaged property proves insufficient for th'a^ purpose; and, for the accomplishment of this end, the mortgagee-.may demand that the fund shall be held against the' mortgagor and all persons claiming under or through him. One of the grounds on -which Douglass rested his motion for the receiver was the probable insufficiency of the' mortgaged property to pay the bondholders claiming under his mortgage after satisfying the amounts due to the elder and superior lienholders.
This ground was established by the facts developed in the record, and the prayer of Douglass that the property should be placed in the hands of a receiver pending the litigation and the earnings, profits, etc., applied as ordered by the court considered in connection with the basis of his motion sufficiently indicated his desire to have these earnings and profits held and applied for the better protection of the bondholders represented by him; and, until these bondholders are fully protected, the attaching creditors are entitled to no portion of the fund accumulated by the receiver. The mortgagor can not sell, assign, or in any way dispose of this fund, to the prejudice of the beneficiaries under the Douglass mortgage, for the purpose of satisfying the claims of his unsecured creditors, nor for any other purpose, nor can those creditors by orders of attachment or garnishee process secure for themselves a more favorable footing than that held by their debtor, and thus appropriate for their benefit a fund beyond his control, even if unembarrassed by their proceedings.
"A fundamental doctrine of garnishment is that the plaintiff does not acquire any greater rights against the garnishee than the defendant himself possesses. When, therefore, the •attachment plaintiff seeks to avail himself of the rights of the defendant against the garnishee, his recourse against the latter must of necessity be limited by the extent of the gar•nishee's liability to the defendant." (Drake on Attachments, sec. 458.)
The garnishee in these actions is the receiver of the chancery court. He holds the fund in contest under the orders of that court for the protection and security of certain mortgage creditors, and he has no right with the consent and active co-operation of the common debtor to do any act calculated to defeat or impair the rights of those creditors; and as the stream can not rise higher than its source, the attaching creditors, who must reach this fund, if at all, through the debtor and the garnishee, can not be assisted to appropriate it to the prejudice of the parties for whose benefit it has been accuiüur lated and is now being held.
A careful examination of the Civil Code of Practice and of the decisions of this court has satisfied us there is no statutory rule of procedure, and no rule of judicial interpretation, in conflict with this conclusion. We need not therefore inquire whether a fund in the hands of the receiver of a court may, without the express consent of such court first obtained, be legally attached.
2. The Western Bank insists that in any event it holds a superior lien upon a portion of the fund in the hands of the receiver. Having a return of "no property found" on a judgment against the railroad company, this bank instituted its action in the chancery court under the provisions of section 474 Civil Code of Practice July 11, 1874, two weeks before the institution by Douglass of his suit, and more than two months before the appointment of the receiver. The marshal made return that he had levied the order of attachment on the company's roads and equipments, rights, and franchises, and on its " income, tolls, rents, issues and profits."
A copy of the process on which was indorsed the object of the action, to wit, to appropriate these "incomes, tolls, rents, issues and profits" to the payment of the plaintiff's judgment, was duly served on the president of the company. A considerable sum of money, earned subsequent to the levy of the attachment and the service of this process or summons, and before the appointment of a receiver, has been collected by that officer. Section 477 of the Civil Code provides that in actions prosecuted under section 474 "a lien shall be created on the property of the defendant by the levy of the attachment or service of the summons, with the object of the action indorsed thereon, on the person holding or controlling his property."
The character of the lien, if any, created by the levy of the order of attachment on the roads, equipments, rights, and franchises of the company we need not decide. It was certainly subordinate to the mortgage liens of Green, Douglass, and Lees, and it gave the bank no claim to the incomes, earnings, profits, and issues of the property. The marshal does not state the manner in which he seized these intangible rights of property, and we suppose he meant only to say that by the service ,i¡j'of the summons he notified the president of the company of s the purpose of the action instituted by the bank. The effect of this notice is therefore the important inquiry in this case.
The officers of a railroad company hold the earnings and profits of its roads as a trust fund for the payment of its debts. But in the absence of contract liens, or rights created by legal proceedings, they may exercise a reasonable and proper discretion as to the order in which the debts shall be paid, and this discretion can not be taken from them by notice to the company that a particular creditor intends to demand a preference. The notice of the Western Bank can not avail for any purpose unless the law imparts to it some extraordinary quality.
By section 474 of the Civil Code the judgment creditor may make defendants to his action, to enforce the satisfaction of his judgment, persons indebted to or holding the money or property of his debtor or the evidences or securities for such money or property; and by section 477, already quoted,he may create a lien on this property or money by serving on the party so made a defendant a summons with the object of the action indorsed thereon. If, in this case, the bank intended to treat the president of the company as a person holding its property or money, it should have made him a party defendant to its action. The delivery of the summons to that officer, he not being a party, was but the service of the process upon the company itself, and there is no section of the Code which provides that an attachment lien on intangible property may be created by the service of any character of process on the judgment defendant alone.
Without expressing an opinion as to whether or not the money of a corporation can be attached in the hands of its officers and servants, we hold in this case that the provisions of the Code were not pursued-, and that no lien on or claim to any moneys that may have passed into the hands of the receiver was created; and we further hold that these moneys should be regarded as having been paid out on the debts due to Cline and the other operatives who were provided for by the order of the chancery court.
3. Some of the attaching creditors attempted to have the order appointing the receiver so far extended and modified as to provide for the payment of their claims. None of these parties made out such a state of case as that presented by Cline and his associates, and we can not say the chancellor did not properly exercise his equitable discretion in refusing to make the extensions and modifications proposed. In view of this fact his refusal does not, according to the doctrine of the case of Douglass and Cline, entitle any of -these appellants to relief at the hands of this court.
4. The Newport & Cincinnati Bridge Company insists upon certain questions not presented by the other appellants. The defendant corporation contracted with that company for the use of its bridge across the Ohio River between the cities of Cincinnati and Newport. This contract fixes the rate of tolls to be paid for tbe various classes of cars, freight, etc., and stipulates that the defendant corporation and the Pittsburgh, Cincinnati & St. Louis Railway Company shall guarantee that these tolls shall amount annually to a sum not less than $75,000. By its own terms this contract was to be perpetual. The bridge company and the other guarantor complain because the judgment of sale does not provide that the purchaser of the mortgaged roads shall be required to carry out and execute the terms of this contract. The liens of all the mortgagees, except Douglass and Lees, are elder, and therefore superior, to any claim that can be asserted by the bridge company, and these elder encumbrancers are in no wise bound or compromised by an arrangement that must, ex necessitate, terminate when their debtor loses the power to control and operate its roads. "The mortgagee coming in by superior title takes the subject of his mortgage clear of all obligations contracted by the mortgagor, whether personal to himself or relating to his management of the property." (Ellis v. Boston & Hartford Railroad Company, 107 Mass. 1.)
And this contract does not impair the rights of Douglass and Lees to the things mortgaged. Its performance was not attempted to be secured by a lien on the property- of the railroad company, and while the non-performance of its terms may entitle the bridge company to insist on the benefits of its guaranty, neither it nor the guarantor can have specific execution against the consent and at the expense of parties who have been prudent enough to secure themselves by contract liens on the property of their debtor.
These appellants and the Pennsylvania Company insist, further, that one half the bonds secured by the Douglass mortgage are. void, because they do not conform in their terms to the provisions of the act under which they were issued, and because the money for which they were sold was not applied as contemplated by that act.
The act of March 21, 1870, provides that "the Louisville, Lexington & Cincinnati Railroad Company shall have power to issue and sell additional capital stock to said county of Scott, to such other counties, to private individuals, or other parties, not exceeding an aggregate additional of $1,000,000, and may issue and sell bonds of said company, in like manner as heretofore authoi'ized, for an amount not exceeding an aggregate additional sum. of $500,000, and secure payment of the same by a mortgage-lien on all the properties and franchises of said company, subject to the precedence of such prior lien as may exist thereon."
The "like manner as heretofore authorized" appears from the provisions of the second section of an act of Feb. 8, 1870, to the effect that certain bonds to be issued under that act should bear "a rate of interest not exceeding eight per cent per annum, and having not more than thirty years to run." It was no violation of this act to make the interest payable semi-annually, and to contract that in default of the reasonably prompt payment of the interest as it should accrue, the principal sum might be treated as due and payable. (Radford v. Southern Mutual Life Ins. Co., 12 Bush, 434.)
The company did accept this amendment to its charter by issuing and selling these bonds and by the execution of the mortgage to secure their payment; and if it be conceded the legislature intended-that out of their proceeds branch roads should be constructed into Seott and other counties, and that this intention has been defeated by the failure of the company to construct these- roads, still the duty of the company to pay the bonds, and the duty of -the chancellor to subject to their payment the security pledged for that purpose, can not be called in question because of the subsequent default of the company in the performance of a public duty.
We have carefully looked into the record before us, hoping to find facts upon which to base the conclusion that the in terest in arrear might be paid up, and the forfeitures of the various mortgages thus redeemed within a period of time sufficiently reasonable to authorize the chancellor to decline to proceed further with the proceedings for foreclosure and sale, but the facts disclosed do not justify that belief, and we perceive no reason why the mortgagees may not, in equity and good conscience, insist on the enforcement of their contract rights.
5. The ground on which the Louisville Transfer Company was preferred for any portion of its claim is not very clearly made out, and we feel no hesitancy in holding it has no right to complain that the preference was not carried further.
6. If it be true that the money borrowed from the Masonic Bank was used in the payment of interest due on the mortgage debts of the company, that fact does not entitle the bank to be paid out of the funds in the hands of the receiver. It does not hold the interest-coupons taken up with the money, and its loans were not made on the agreement or understanding that it was to be treated as the assignee of the holders of these coupons, nor under circumstances entitling it to be subrogated to their rights.
7. By the mortgage of April 1,1873, the company conveyed and set over to Lees, among other things, "all the tolls, income, rents, issues, and profits, and alienable franchises of the party of the first part, connected with its railroads or relating thereto, including its rights and franchises as a corporation, or connected with or appertaining to any of the several railroad corporations which have been consolidated into the said Louisville, Cincinnati & Lexington Railroad Company, including all the rights and franchises of such several railroad corporations." It is claimed this specific pledge of the tolls, incomes, rents, issues, and profits entitles the beneficiaries under this mortgage to the fund raised by the receiver, to the exclusion of the parties at whose instance and for whose benefit he was appointed. One of the conditions of the mortgage to Lees is that the company shall keep paid up the interest as it accrues on the bonds secured by the prior mortgages, and also pay off and discharge said mortgages at maturity or whenever it shall be necessary to protect the security then being created; and upon the failure of the company to keep this or any other condition, the mortgagee, after taking certain preliminary steps, and upon the request of a certain number of the holders of the mortgage bonds, was to have the right to take possession and operate the mortgaged roads. But should he exercise this right, he was bound out of their incomes and earnings, after the payment of the operating expenses, to pay all taxes and assessments and then the "interest on prior mortgages."
These stipulations are perfectly consistent with the idea that in no contingency were the earnings and incomes of the roads to be applied for the immediate benefit of the holders of bonds issued under the Lees mortgage so long as there should remain outstanding and unpaid accrued interest on any of the prior mortgage debts. There is nothing in the Lees mortgage indicating an intention to interfere with the contract rights of prior mortgagees or to prejudice them in the enforcement of the equitable remedy provided for the benefit of mortgagees by the 329th section of the Civil Code. The holders of the bonds intended to be secured by-the mortgage to Lees purchased with implied notice of the contract rights and statutory remedies of the beneficiaries under the elder mortgages and deeds of trust, and they have no right to complain that the chancellor subordinated their claims to these elder and superior rights.
8. The commonwealth of Kentucky upon its appeal presents questions differing from those we have thus far been considering.
(a) The superior dignity of the claims of the commonwealth for taxes due on the encumbered property is not denied by any of the lienholders. But the chancellor refused to enforce the tax lien for the full amount of taxes due in the year 1875, because of an alleged indebtedness of the commonwealth to the receiver for services rendered by him in his official character in the transportation of troops and material upon the order of the governor. We do not question the correctness or the justice of the receiver's claim. He can not set it off against the taxes levied by the state for the support of government. In the imposition of taxes the state acts in its sovereign character; and where it finds it necessary or convenient to resort to the courts to enforce the performance of the public duty, or the satisfaction of the public burden resting on the tax-payer, it can not be met and defeated by an ordinary plea of set-off. This public duty is absolute and imperative. The tax is not a mere debt due from the citizen to the government, and the courts have no power to treat it as a debt without the express sanction of the legislature. It was therefore error to allow the appellees credits by the amount of this claim.
(b) The claims for taxes against the two old companies— the Louisville & Frankfort and the Lexington & Frankfort railroad companies — on account of a yearly balance not included in the assessments from 1865 to 1873 inclusive, were properly rejected. The amount of taxes due from those companies for the years mentioned was once the subject of litigation. The commonwealth may have adopted a mistaken basis of assessment, but it has once had its day in court; and so long as the judgment heretofore rendered in its favor remains in force it can not have a re-trial of the issues once litigated, nor of issues which, according to the established rules of procedure, ought to have been litigated.
(e) The claim based on the provisions of section 52 of the act of March 1, 1847, incorporating the Louisville & Frankfort Railroad Company, and the bond executed pursuant thereto, was to some extent considered by this court in the case of The Railroad Company v. The Commonwealth (MS. opinion, Oct. 12, 1875).
The statute and the bond provide that the company shall pay into the treasury of the commonwealth, for the use of the sinking fund, interest at the rate of six per centum per annum on the sum of $74,519.50 from and after the completion of the road from Louisville to Frankfort, before each and every payment of dividends to the stockholders shall be declared and made.
The consideration for this bond was the transfer by the state of its interest in the railroad then being constructed between Louisville and Frankfort.
The question involved in the case decided in October, 1875, was as to the right of the state to recover for installments of interest then past due and in arrears, and this court divided equally as to whether this interest was to be paid at the end of each year, regardless of whether a dividend should or not be declared; but it was unanimously of opinion that, before any dividend could be paid to the stockholders, the company was bound to pay to the commonwealth an amount equal to all the interest in arrear. There was no division of opinion as to the fact that the interest was all the while accruing. The difference was as to the time at which the creditor could demand its payment.
(d) The Commonwealth claims also that it has a vendor's lien to secure the payment of the bond, principal as well as interest; and as all the property of the debtor is about to be sold, and its corporate existence destroyed, that it may now demand the enforcement of its lien; and in this view this court concurs. But this right will not be enforced to the prejudice of the holders of the bonds of the company. , The mortgages and deeds of trust under which these bonds were issued and sold were each executed pursuant to express authority from the commonwealth, and none of the enabling acts contains an intimation that the contemplated pledge is to be held subject to the lien of the state.
In the case of Mosely v. Garrett (1 J. J. Marshall, 216) the vendor had not conveyed the legal title, and yet, because he stood by and permitted the estate to be mortgaged without objection, the court postponed his vendor's lien to that of the mortgagee upon the theory that " if a person having a right to an estate encourage or even permit a purchaser to buy it of another the purchaser will hold against the person who has the right." (3 Littell, 55.) Here the commonwealth expressly authorized, and in effect invited the mortgagees to accept the various conveyances, and the holders' of the mortgage bonds are no more affected by their implied notice of its Hen than was the mortgagee by his constructive notice of the vendor's lien in the case supra of Mosely v. Garrett.
(e) The exact nature of the claim for damages awarded on the affirmance of the judgment of the Franklin Circuit Court by this court is not very clearly stated. But we are satisfied it does not constitute a Hen against the property of the company. It is secured, if at all, by the sureties in the supersedeas bond.
(/) It is provided by sec. 4, art. 5, chap. 5 of the General Statutes that in addition to the salary of the attorney-general there shall be added to all judgments rendered in the fiscal courts in favor of the commonwealth two per centum upon the amount thereof, except as to damages awarded, which shall be collected by the collecting officers; and this sum, when paid into the treasury shall, upon the warrant of the auditor, be paid to the attorney-general for services rendered. The additional two per cent is to be treated as costs, and is part of the sum to be recovered by the commonwealth.
The auditor may institute actions in any circuit court, or any court of similar jurisdiction, ordinary or equitable, to col lect the public revenues or other demand or penalty due the commonwealth, " or to have satisfaction made of judgments in the name of the commonwealth." (Sec. 17, art. 11, chap. 92 General Statutes, and sec. 28, chap. 21, ibid.)
And for the purposes of these particular actions such courts are to be deemed fiscal courts, and the attorney-general, in case he prosecutes the action, is to receive his legal fees, which are to be recovered as costs by the commonwealth. (Sec. 17, art. 11, chap. 92.)
The attorney-general represented the commonwealth in this case, and it has the right to have the two per centum to which he is entitled for his services added to the sum adjudged in its favor, and also to have its superior lien enforced to insure the collection of the judgments so made up.
It seems, however, the two per centum adjudged to the commonwealth as fees for the attorney-general for prosecuting the actions in the Franklin Circuit Court in which the three judgments in personam for the sums respectively of $19,200, $14,594.38, and $28,994.34 were recovered, has already been paid. The company will have credit by this payment, but this credit will not affect the right, of the commonwealth to recover an additional two per centum on the unpaid balance to compensate the attorney-general for services rendered in prosecuting its claims in this action.
9 (a) It is not material that the heirs-at-law of some of the deceased trustees in the various mortgages and deeds of trust are not before the court. We will not inquire whether persons representing in full the legal title are in court. The person or persons who held the legal title held it in naked trust. The personal duties imposed on them in certain named' contingencies did not pass to the heirs-at-law of such of them as may have died. And in any event the chancellor can sell the trust property and pass a perfect title to the purchaser.
It was provided by the Revised Statutes — and the section was continued in force by the General Statutes — that liens by deed or mortgage may be discharged by an entry of satisfaction on the margin of the record by the holder of the lien debt or his personal representative properly attested, and in the case of a deed of trust or mortgage this entry re-invests the mortgagee or the person entitled thereto with the title to the property. The statute was not intended to change the law theretofore in existence, if no such entry shall be made. By the pre-existing law the payment of the mortgage debt extinguishes the mortgage. It ceases to operate, and the whole title is at once re-vested in the mortgagor. (Hilliard on Mortgages, 4th ed., vol. 1, p. 473; Hawkins's heirs v. King, 2 Marshall, 109.)
In this case the beneficiaries in the various mortgages are each and all properly in court by representation. If the mortgaged property shall sell for a sum sufficient to satisfy all their claims, that satisfaction will re-vest the legal title in the mortgagor, and under the judgment of the chancellor it will pass at once to the purchaser. On the other hand, if the proceeds of the sale fail to pay the mortgage debts, still the judgment of the chancellor will as effectually release the lien of the beneficiaries under the several mortgages and deeds of trust, and as completely invest the title in the purchaser, who will be " the person entitled thereto," as if said beneficiaries, had entered satisfaction on the margins of the record books.
(b) Some of the bonds issued under the later mortgages are in pledge to certain of the company's creditors. These bonds should be paid to the extent necessary to satisfy the debts for which they are held as collateral security, and no further.
(c) The Masonic Savings Bank and the Western Bank held certain bonds as collaterals. They proceeded in equity and had them sold by the judgment of the chancellor. At the judicial sales they became the purchasers of the securities held by them respectively. These purchases invested them with title to the bonds, and the chancellor did not err in recognizing and enforcing their rights as owners for value.
(d) We will not determine whether the levy of orders of attachment on the property of a railroad corporation creates an enforceable lien. The levies in this case have no practical effect except in settling the priorities of the attaching creditors, and of this none of these creditors complain. The entire property of the railroad company, including all its vendible rights, franchises, and immunities, must be sold to satisfy the claims of the encumbrancers. They have the right to have it sold as an entirety. If a surplus fund remains after the payment of their debts, it must be paid to the unsecured creditors, and the company has no substantial interest in the distribution of this fund further than that it shall be paid to its creditors, and this the judgment provides for.
(e) It was not error to allow the trustees compensation for the services of themselves and counsel. They are not creditors. They represent the debtors as well as the creditors, and in the the institution and prosecution of the actions resulting in the judgment appealed from they discharged duties imposed on them as the agents of the parties in interest, including the railroad company.
(/) The chancellor properly permitted Cochran to act as trustee for the holders of bonds issued under the mortgage to Lees. Equity would not permit the trust to fail for the want of a trustee; and having ratified the selection of Cochran by the parties in interest, it was proper that the chancellor should allow him the compensation provided for in the mortgage.
(g) The election of the bondholders to treat the default in the payment of interest as a. forfeiture of the contracts, so far as they prescribe the length of time for which the bonds were to run, operated, prima faeie, to cancel all coupons representing installments of interest not then due; and unless the mortgaged property shall be sold subject to some one or more of the elder mortgages this election should be regarded as having precipitated the payment of the principal sums, and they will bear interest at the agreed rate per annum. (Radford v. Southern Mutual L. Ins. Co., 12 Bush, 434.)
In entering up the judgments the chancellor will provide that the coupons not due at the date of the respective elections by the bondholders of such of the mortgages as shall not be left in full force by the marshal's sale shall be disregarded, and interest allowed them from that time forward, as hereinbefore indicated.
(/i) The judgment requires the purchaser to pay immediately to the marshal the sum of $20,000, to be held by the court as an earnest of the good faith of the purchaser, which sum is to be returned to him as soon as he complies with the terms of the sale. The propriety of thus providing against annoyance from fictitious .bidders we do not question, but it seems to this court that it would accord better with the spirit' of our statutes regulating judicial sales to require the immediate execution of a bond for a similar sum, conditioned that the purchaser shall comply with the terms of the sale or indemnify the parties by the payment of the costs and damages resulting from default on his part.
(i) The railroads and their appurtenances are sufficiently described in the judgment.
(J) The terms of the sale comply literally with the act of March 7, 1876. (Session Acts 1876, page 39.)
Upon the appeals of the-Newport & Cincinnati Bridge Co., the Pittsburgh, Cincinnati & St. Louis Railway Co., the Pennsylvania Co., John P. Morton, John P. Morton & Co., the Louisville Bridge Co., the Western Bank, the Masonic Widows ¡and Orphans' Home, the Farmers Bank of Kentucky, the Masonic Bank, Robert Elliston, John J. Leary, Martha Marks-bury, &c., R. H. Stout, A. Montgomery & Co., George R. Harms, Gavin H. Cochran, the Mt. Vernon, Cleveland & Del aware B. Co., Murty Shea, and the Louisville Transfer Co. the judgment is affirmed.
But on the appeals of the Commonwealth of Kentucky and the Louisville, Cincinnati & Lexington Railroad Company the judgment is reversed, for the reasons and to the extent indicated by this opinion, and the cause is remanded for a judgment conforming to the principles herein announced.