ANDERSON v. CONDICT et al., 93 F. 349

JENKINS, Circuit Judge, upon this statement of the case, delivered the opinion of the court. If, as was said at the bar, the decision under review proceeded upon the ground that the petition of the appellant was not timely filed, the holding was erroneous. The time -limited by the decree of July 27, 1897, for the filing of claims had, indeed, expired before the filing of the appellant’s claim. That decree, however, did not provide for publication or notice of its requirement, and the omission was manifestly inadvertent.

It is not to be presumed that the court designed, if it had the power, to cut off remedy without notice. This omission is supplied in the decree confirming the sale, which required notice to be published that all claims against the property alleged to be superior to those decreed to be paid from the proceeds of sale, and all claims against the receiver, should be filed within 60 days from the date of the publication of such notice. By that decree the purchasers are bound. Olcott v. Headrick, 141 U. S. 543, 12 Sup. Ct. 81.

The claims of the petitioner (appellant) — both the one filed December 27, 1897, and the one filed April 23, 1898 — -were so filed within the time limited; notice being first published February 26, 1898. It was therefore erroneous to dismiss this petition upon the ground stated. The claim of the appellant, as first filed, would seem to have been overlooked; for on January 17, 1898, the court directed distribution of the proceeds of sale, without making provision with respect to that claim, and those proceeds were accordingly distributed among the parties adjudged entitled thereto.

However improvident that decree, if there remains no fund or property within the control of the court out of which the claim of the appellant, if and when established, could be satisfied, it would be useless to reinstate the claim or to determine its merits. The appellant is. not without fault. By filing his claim, he became so far a party to the suit that he wms bound to active vigilance with respect to all things necessary to protect his claim. It was his duty to see that the fund then in court was not diverted from its legitimate purpose or improperly distributed.

Failing therein, whether through ignorance or negligence, he is bound by acts done under authority of the decree of the court. The appellant is therefore without remedy, unless his claim is one which by the decrees was imposed upon, and subject to which the purchasers acquired title to, the jmoperty. It is urged that the receiver’s certificates take priority over a claim for personal injury subsequently incurred under the receivership.

The certificates, by the order authorizing their issue, and upon their face, are made a first and prior lien upon the property and its proceeds, and upon all net income derived from the operation of the railway, “after the payment of operating expenses and costs of administration.” The holders of these certificates took them with the knowledge that the railway was in control of and under the operation of the court, through its receiver. It was contemplated that, until sale and delivery of possession thereunder, such operation should continue. Such operation might result in profit or in loss.

The expense of operation should primarily be paid out of the income derived from the operation of the railway; but if, as here, there be no such income, that cost may properly be allowed priority out of the corpus of the property. Union Trust Co. v. Illinois Midland Ry. Co., 117 U. S. 484, 6 Sup. Ct. 809. This is the plain meaning of the language employed in the order authorizing the certificates.

The expression in the order and the certificates, “after the payment of operating expenses and costs of administration,” must be referred to, and limits, the lien declared upon the corpus of the property, and cannot be referred to income; for the term employed in the order is “net income,” and the expression quoted, applied to net income, would be meaningless. It is not presumable that the court would devest itself of the power to pay the expense of operation which it had assumed. That would be

an act of felo de se. It granted to the certificates a lien paramount to that of the trust deed, subject, however, to the payment of operating expenses and costs of administration; and this, we think, comprehends all liability incurred in the operation of the railway.

But it is said that claims for personal injuries happening during the operation of the road by a receiver cannot be allowed, as a cost of administration, in priority to the receiver’s certificates; and this in analogy to the doctrine that claims for personal injuries accruing prior to foreclosure are denied priority to the lien of the trust deed, under the six-months rule. We cannot sustain this contention. The one rests upon an entirely different principle from the other. Union Trust Co. v. Illinois Midland Ry. Co., supra.

In the one case the arbitrary displacement of the lien of the mortgage or trust deed by a certain character of expense of operation is allowed during a certain arbitrary period after default in payment of interest or principal of the mortgage, and before suit to foreclose, and while the mortgagor is in possession, because the railway must be kept a going concern, and damages for personal injury arising during such period of operation are not of the character of cost essential to the operation; but if the mortgagee were in possession, operating the railway, none would doubt liability for personal injuries.

Here, at the request of the trustee, the court assumed, and, with the knowledge and acquiescence of the holders of the receiver’s certificates, continued, the operation of the railway. They subjected their securities to the expense of operation, —the trustee, by its affirmative act in praying the court to take possession and operate the railway; the holders of the certificates, by the provision of the order authorizing the issuance of the certificates, and which was expressed upon their face, making them subject to the payment of operating'expenses and the cost of administration.

For that purpose, and to that extent, these parties were vicariously in the possession and operation of the railway through the court as their representative. All liabilities of the receiver were imposed upon the'corpus of the property, failing im come, as certainly as a mortgagee would be personally liable if he possessed and operated the railway. Technically, perhaps, payment for personal injury cannot correctly be "denominated cost of operation; but it is an expense incurred in and by reason of the operation, and as such should be allowed in the accounts of the receiver. Klein v. Jewett, 26 N. J. Eq. 474.

That such was the meaning of these decrees seems to us incontestable. Possibly, in the wording of the decrees, there is lacking that precision of statement desirable in documents of such importance.

For example, in the twenty-eighth paragraph it is said that the purchaser should take over the property subject to claims superior in equity to the receiver’s certificates and the mortgage, and also subject to all current liabilities of the receiver incurred, or obligations assumed or imposed by the order of the court, which should thereafter be adjudged to be superior in equity to the mortgage and said receiver’s certificates.

By the thirty-first paragraph the purchaser takes subject to claims which shall be found entitled to priority over the lien of the trust deed, omitting, reference to the receiver’s certificates. But, taken as a whole, we think these decrees are sufficiently explicit.

The decree of sale provides that the proceeds of sale should be applied — First, to the payment of the costs and compensation of certain officers, and to the “costs and charges of the administration of the estate in the hands of the receiver herein, including all charges, compensation, allowances, and disbursements of the receiver and his solicitors and counsel”; second, to the payment of the principal and interest of the receiver’s certificates, series A; and, third, to the payment of the principal and interest of the receiver’s certificates, series B.

Thus, by the very terms of the decree of sale, the expense of the receiver in the administration of the estate was to be paid in priority to the receiver’s certificates; thereby adjudging that such expense was superior in equity.

The decree of confirmation provided for the publication of the notice to file claims against the property which are alleged to be superior to the liens or claims provided by the decree to be paid from tbe proceeds of the sale, and also for all claims against the receiver, thus distinguishing the two classes; and that distinction is recognized in the notice which was approved by the court. It is doubtless true that it was supposed at tbe time of tbe decree that tbe $25,000 required to be paid in cash upon the sale would be sufficient to discharge the liabilities having priority over the receiver’s certificates.

It is not, however, to be supposed, nor does tbe language of the decree imply, that the court limited the amount of claims which should be paid prior to tbe receiver’s certificates to that sum. It was a mere deposit required by the court, that such claims might be presently discharged.

The provision was in tbe interest and for the convenience of the holders of the receiver’s certificates, who, it was supposed, might become the purchasers, and were allowed to pay their bid, except as to tbe sum stated, in the receiver’s certificates; but this was subject to the power reserved to retake and resell the property, if the purchaser should fail to discharge the demands which the court should determine were entitled to priority. Otherwise, the action of the court in distributing this fund of $25,000 prior to any publication of the notice to file claims would be wholly indefensible.

It is clear that that fund was so distributed because tbe court still held control of tbe property to satisfy all lawful claims against the receiver; and this conclusion is fortified by the fact that in the distribution of that fund no provision is made for tbe payment of the receiver’s compensation, or for any expense incurred in the management of the road; and, by a subsequent decree authorizing the issuing of the deed, it was made an express condition of delivery of possession of the property that the purchaser assumed, and agreed to discharge, the stated deficiency arising from the operation of the road to meet obligations incurred by tbe receiver.

We are therefore of opinion that the appellee’s claim, if established, should be charged upon the corpus of the property, and adjudged superior to the right of the purchasers. The decree is reversed, and the cause remanded, with directions to the circuit court to proceed to hear and determine the claim in question, and for further proceedings conformable to this opinion.