Bell's v. St. Johnsbury & Lake Champlain Railroad , 85 Vt. 240 ( 1911 )

Stanton, Superior Judge.

The orators are preferred creditors and their original bill under the provisions of Sec. 102, of Chapter 28, of the General Statutes, was brought to recover for services rendered and material furnished to keep the railroad now owned by the defendant in repair, and to run the same, before and at the time it went into the hands of receivers on October 18, 18-77.

In the opinion handed down when this case was before the Court in 1902, 76 Vt. 42, and in the case of Poland v. The Lamoille Valley R. R. Co. et al., 52 Vt. 144, referred to herein as the Poland case, there is a complete history of all matters connected with this litigation and the issues and questions involved, a repetition of which is unnecessary.

In accord with the opinion of the Court in 76 Vt. 42, a mandate was sent down directing that a proper decree be entered for the orators, save the one whose claim the Court had disallowed, with costs.

A decree was entered by the court of chancery, May 6, 1908, and it was therein adjudged and decreed that the debts of the orators were and are, and until paid shall continue to be, a first and paramount lien upon the net earnings of the railroads while operated by the receivers; that the defendant pay to the clerk of the court for the benefit of the orators on or before July 1, 1908, the sum of $28,986.60 with interest thereon from the 3rd day of December, 1907, being the aggregate amount due the several orators with interest to the last named date, and the costs of the orators, taxed and allowed at the sum of $596.93; that in default of said debts, claims and costs being paid by July 1, 1908, the lien upon the said net earnings of the defendant shall continue until full payment is accomplished, and that the cause shall be kept upon the docket of the court of chancery until said claims are fully paid, with leave to the orators to apply to the court for all necessary and needful orders to effectuate the payment of their several claims.

The case is now here on an appeal by the defendant from this decree of the court of chancery relative to the form and extent of the decree, and the first claim made is that the case is not consolidated with nor is supplementary to the Poland case.

In this the defendant is correct, and it is obvious that it was an. error to state as was stated in the decretal order of 1902, that this case is supplementary to and is consolidated with the Poland case, but the error was perfectly harmless and could not in any degree have influenced the Court in its holdings in the case as reported in the 76th Vt. No attempt has been made to show that it did, or that defendants have been harmed by it, and what is said about it in the decree here appealed from, is only by way of a recital of the decretal order of June, 1902, in the statement of the history of the case, and is not a part of the adjudication in the decree.

It is asserted by the defendant that the orators’ bill does not ask for a lien on defendant’s real estate nor on the net earnings that accumulated while defendant’s railroads were in the hands of the receivers.

The orators’ amended bill filed June 5, 1880, contains a prayer that the court will order and decree that the debts due the orators are a lien on the earnings of the roads in the receivers’ hands; that the bondholders should be restrained from taking possession of the roads or appropriating or diverting any of the net earnings from the payment of the orators’ claims until they should be paid in full and concludes with a general prayer for relief. In orators’ supplemental bill filed December 7, 1880, after stating that orators were not permitted by the Court to intervene in the Poland case, but were allowed to enter their suit as an original action, it is alleged that by foreclosure of the mortgages the defendant was substituted for the original mortgagors, and that then it was its duty to pay the preferred debts of the orators; that the personal property of the railroads, when they went into the hands of the receivers and the earnings of the roads while they were operated by the receivers were more than sufficient to pay all the debts of the roads that were a lien on such property and earnings; that it was the duty of the receivers to have paid all the income of the roads in discharge of such claims as were by the statute given preference, and that as the defendant had taken the road with its improvements they should pay to the lien creditors the amount of the fund illegally converted to their use by the receivers to the amount due the orators on their preferred claims in this suit. The foregoing is in substance the general frame of the orators’ bill and the “general prayer for relief is sufficient to obtain all relief consistent with the general frame of the bill.” Therefore all the relief which is adapted to the case may be granted under this bill and its general prayer for relief, and it is sufficient to uphold this decree and allow equity to follow the net earnings and lay hold of them to enforce their application to the payment of the orators’ claims. Danforth v. Smith, 23 Vt. 247; Eureka Mfg. Co. v. Windsor Mfg. Co., 47 Vt. 430; Coffrin v. Cole, 67 Vt. 226, 31 Atl. 313; Western Union Tel. Co. v. Bullard, 67 Vt. 272, 31 Atl. 286.

In the recital of facts upon which the adjudication in the decree is based it is stated concerning the masters’ report as follows: “That said masters ascertained and reported that the net earnings of the receivership made during its continuance, and subject to the lien of the orators according to the mandate of the Supreme Court in this cause, on the first day of July A. D. 1880, were 839,496.78, subject to such deductions as the Court should adjudge ought to be made therefrom on the facts found and reported by them.” The defendant submits that the words “and subject to the lien of the orators according to the mandate of the Supreme Court in this cause” should be eliminated from the paragraph for that the mandate of 1885 did not authorize that matter to be referred to the masters, and that the finding is entirely outside their powers and of no avail to the orators.- But the statement is immaterial and harmless. To quote it in the decree has not the slightest tendency to injur e-the defendant nor to influence the adjudication in the decree.

The statements in the decree that the several debts of the-orators named in the masters’ report should continue to be a first and paramount hen upon the net earnings of the railroads, while they were operated by the receivers, on so much thereof as may be necessary to pay the debts of the orators, and if the-net earnings are not sufficient to pay the debts in full with costs, of this suit then it should be applied pro rata to such payment, is in accord with the law of the case and is a relief to which • the orators are entitled as it is consistent with the form of the orators’ bill and the power of a court of equity.

The masters’ report is full authority for the assertion in the decree that “The receivers expended all their income in. running and improving the road except the sum of $6,922.18 of cash on hand and due from agents which was turned over to defendant,” and therefore the defendant’s objections to the statement of facts as to the disposition of the net earnings is not well founded.

The defendant’s special objections numbered six to eleven inclusive are answered by the facts found by the masters and the law of the case, and in considering these objections and with especial reference to the last four we hold that the decree conforms to the mandate, and that there is no clause in the decree that is vital to its existence but is warranted by the established facts in the case and the holdings of the Court.

It is urged by the defendant in its objections to the chancellor’s decree that before any decree is made creating a lien on its real estate the present bondholders or mortgagees should be cited in and heard. These bondholders took their holdings after the final decree in the Poland case and the taking over of the property by the defendant. They took their securities with the knowledge that orators’ case was pending and the claim that was thereby made. They are not entitled to notice and hearing now, for their interest is subject to the case that was pending when they came to have an interest in the property. They secured their holdings after the bill in this case was brought, and while this litigation was pending. The maxim “pendente lite nihil innovetur” applies, and there has been no change so far as these orators’ rights are concerned and they stand as they stood when their original bill was filed.

As the right of the orators to maintain this bill to reach the net earnings has been heretofore adjudged and determined in this very case, the only question now open for consideration is whether the decree appealed from is according to the mandate sent down when the case was last here, 76 Vt. 42, 56 Atl. 105. That mandate was that a “proper” decree be entered for the orators, without stating what would be a proper decree.

In addition to what has already been said as to what is contained in the decree it, in effect, besides ordering that the debts of the orators are a lien on the net earnings, adjudges and decrees-that as those earnings were used by the receivers in making permanent improvements on the roads or were passed over to the defendant when it took possession of the roads, whereby it took and had the benefit of said net earnings in the improved condition of the property and in the cash and accounts and other personal property passed over to it — the defendant must restore said net earnings, or so much thereof as is necessary to pay the orators at the time named in the decree, in default of which the lien on the net earnings is to continue until payment is made.

The decree is proper and adequate in all respects except that it should have charged the defendant first with the sum of $6,922.18 the cash and agents’ accounts that were turned over to it by the receivers, it being the amount remaining of the net earnings of the receivership, after deducting the sum paid out of the same for running and improving the roads; and second the decree should have charged the mortgage security with the restoration of so much of the net earnings as is needed to complete the payment of orators’ claim in full, out of the fund that was diverted from the payment of said claims and devoted to t.he expense of improving and running the road, and thus improving the mortgage security, for that fund is chargeable therewith in equity.

This has often been held by the Supreme Court of the United States, as is shown by Southern Railway Co. v. Carnegie Steel Co., 176 U. S. 257, 285, 20 Sup. Ct. 347, 358, 44 L. ed. 458, which reviews the former decisions of that Court, and states the law to be that, “when current earnings are used for the benefit of mortgage creditors before current expenses are paid, the mortgage security is chargeable in euqity with the restoration of any funds thus improperly diverted from their primary use. ”

This case comes fully within that principle, for the defendant was organized in the interest of the bondholders that were secured by the Poland mortgage, and in that interest took possession of the mortgaged property under the decree of foreclosure, and is still in possession, management and control thereof for all purposes of this case.

The amount of net earnings under the receivership as established by the Court, was $35,563.50 and of this $28,641.32 was used by the receivers in running and improving the road, and thereby enhanced the mortgage security, and the balance -of $6,922.18 was paid directly to the defendant in cash and agents’ accounts.

Cause remanded with direction that the decree he so altered us to charge the defendant with the payment to orators of the amount of cash and agents’ accounts that were turned over to it at the time it took possession of the road at the termination of the receivership, ■and that the decree he further altered so as to charge the property that constituted the mortgage security with the restoration' of so much of the net earnings as is needed to complete full payment ■of orators’ aggregate claims with interest thereon. In all other .respects the decreed is affirmed. Let new time of payment he fixed.