Court Opinion

ID: 9298673
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:05:11.367405+00
Date Added: 2024-06-11T17:13:35.750638
License: Public Domain

DILLON, Circuit Judge.
Among other security taken by the bondholders was a pledge of the income and earnings of the road, with a provision that the railroad company should remain in possession until default in the payment of interest or principal, and upon default by the company in this respect, that the trustees might take possession and collect and receive the earnings of the road. They never took possession or asked for it, nor did they apply for a receiver at any time prior to the ninth day of September, 1873. He took possession September 15. The decree rendered May 31, 1S73, made no provision as to the income of tile road, or disposition of it. The present controversy respects only the right to. the net income between .the date of the decree and the appointment of a special receiver. The telegraph company claims it by virtue of its seizure on execution by garnishment of the agents of the .railroad company. The plaintiffs claim it by virtue of the mortgages to them as trustees. To this claim on the part of the plaintiff the defendant relies upon two main grounds of objection: 1st. That the decree of foreclosure merges their rights under their mortgages, and now constitutes the measure of their rights; and as this decree did not give them the earnings in the interim between it and the sale,, they cannot now fall back upon their mortgage and claim such earnings under it. But if the plaintiffs may still rest upon the mortgages, the defendant contends that until they take possession under them, or apply *405for and obtain a receiver, tbe income or earnings may be used by the company or seized by its creditors, especially as the mortgage contains no covenant by the company to apply its net earnings to the payment of the mortgage debt.
[NOTE. This decree was affirmed in the supreme court (01 U. S. C03) in an opinion by Mr. Justice Swayne, in which it was held that it is competent for the mortgagee to pursue three remedies at the same time. He may sue on the note or obligation, he may bring an action of ejectment, and he may file a bill for foreclosure and sale. In this case the last-mentioned remedy was adopted, and a final decree made for the sale of the property only. The decree was silent as to possession and earnings in the meantime, and, until the mortgagee took possession, the earnings were the property of the railroad company, and subject to attachment by its judgment creditors.]
If it be conceded that the first position of the telegraph company is not well taken, we would be brought at once to the inquiry, what is the effect of the pledge of the rents and profits, and what must be done to make such pledge effectual''
The cases on the subject in this country are not very numerous, and those in England are controlled by'very special statutory provisions.
The supreme court of the United States has decided that under a mortgage by a railway company of its tolls and income the bondholders or trustees cannot make the railroad company or its assignees accountable therefor, until at least a regular demand has been made upon the company therefor. Galveston R. Co. v. Cowdrey, 11 Wall. [78 U. S.] 450, 482. So in Noyes v. Rich, 52 Me. 115, it was held that a receiver appointed -in a suit to foreclose a railway mortgage could not recover the earnings of the road accruing before his appointment. And see City of Bath v. Miller, 51 Me. 341.
In the Case of the Galveston Railroad, above cited, there was, as here, a mortgage of the tolls and income, with power in the trastees on default to take possession and sell. Mr. Justice Bradley, referring to these provisions in the deed of trust, says: “It seems to us that the latter clause defines and points out the manner in which the pledge of the tolls and income is to be practically carried into effect At all events, until a regular demand was made for the payment of the tolls and income, we do not think, under the language of the deed, that the defendants were bound to account therefor.”
Thei’e is in the case now before us no proof of any demand of the trustees for the income or earnings upon the railroad company before the foreclosure suit against it, or pending the foreclosure suit, until the ninth day of September, when, upon the application of some of the ti-ustees, a special receiver was appointed, unless this suit can be considered such a demand. I do not think it should be so-regarded. This suit was not brought to settle rights between the plaintiffs and the railroad company — those had been settled or were to be settled in the state court which had jurisdiction of that controversy.
Since the railroad company, before and pending the foreclosure, was left in possession of the road, and since no attempt to disturb it was made, no receiver applied for or provision made in the decree as to the earnings between the decree and the sale, I am impressed with the belief that the plaintiffs in the foreclosure suit did not intend to disturb the possession of the company, and that no question would have been made as to these earnings or their application if the telegraph company had not levied its execution.
On the whole, I think the bill ought to be dismissed. Judge LOVE agrees in the conclusion that the net income was subject to garnishment, but is of opinion that the gross income cannot thus be seized.
Decree accordingly.