Dow v. Memphis & Little Rock Railroad

124 U.S. 652 (1888)

DOW
v.
MEMPHIS AND LITTLE ROCK RAILROAD COMPANY.

Supreme Court of United States.

Argued January 9, 1888. Decided February 20, 1888. APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE EASTERN DISTRICT OF ARKANSAS.

Mr. U.M. Rose for appellants.

Mr. Wager Swayne for appellee.

MR. CHIEF JUSTICE WAITE, after stating the case, delivered the opinion of the court.

It is well settled that the mortgagor of a railroad, even though the mortgage covers income, cannot be required to account to the mortgagee for earnings, while the property remains in his possession, until a demand has been made on him therefor, or for a surrender of the possession under the provisions of the mortgage. That is the effect of what was decided by this court in Galveston Railroad v. Cowdrey, 11 Wall. 459, 483.

In the present case a demand was made for the possession by the bringing of this suit, February 12, 1884, and from that time, in our opinion, the company must account. The bill was not filed to foreclose the mortgage, but to enforce a surrender of possession to the trustees in accordance with its terms. The court below decided that the trustees were entitled to the possession when the suit was begun, and from the decree to that effect no appeal has been prosecuted. We must assume, therefore, that the demand was rightfully made, and ought to have been granted. It follows that after the suit was begun the company wrongfully withheld the possession, and under such circumstances equity forbids that it should retain, as against the mortgagee, the fruits of its refusal to do what it ought to have done. It is a matter of no consequence that a receiver was not appointed until April 15, or that an application was not made for such an appointment until March 24. If the surrender of possession had been made, as we must assume it ought to have been, as soon as the suit was begun, a receiver would have been unnecessary. All that was done afterwards in that particular was in aid of the suit and because of the refusal of the company to comply with the demand that had been made. It follows that from the time of the bringing of the suit the company itself is to be treated in all respects as a receiver of the property, holding for the benefit of whomsoever in the end it should be found to concern, and liable to account accordingly. In Galveston Railroad v. Cowdrey, before cited, the controversy was in respect to earnings before suit brought, and the suit was for foreclosure only, the court being careful to say in its opinion that it did not "appear that the complainants or their trustees made any demand for the tolls and income until they filed the present bill," and that "the bill itself did not contain any allegation of such a demand."

It remains only to inquire when the money which is the subject matter of the controversy was actually earned, and we have no hesitation in deciding, upon the evidence, that it must have been after the suit was begun. The admission is that on the 27th of March the amount in the hands of the company was $42,123.68. Between that date and April 15, the company paid out $46,458.16, which was $4334.48 in excess of what it had on hand at the beginning. On the 15th of April it had on hand $32,216.20, thus showing that its earnings from March 27 until then must have been $36,550.68. The fair inference from the evidence is that the receipts were all from the current earnings and the disbursements for the current expenses. The railroad was all the time, before and after the suit, a "going concern," and its receipts and disbursements the subjects of current income account. Applying the disbursements as they were made from the income to the payment of the older liabilities for the expenses, as is the rule in ordinary running accounts, it is clear that, in the absence of proof to the contrary, the money on hand was earned pending the suit.

Under these circumstances, as there are no current expense creditors claiming the fund, we are satisfied that the money is to be treated as income covered by the mortgages, and should be paid to the trustees to be held as part of that security.

The decree of the Circuit Court is

Reversed, and the cause remanded with instructions to enter a decree in accordance with this opinion.