there is a controversy wholly between petitioners, and the said Nancy A. Edrington, individually and as said executrix, John Matthews, and the children and heirs of James H. Edrington, deceased, which can be fully determined as between them without the presence of the other parties."

been fully paid and discharged. The decree then found the amount due on the trust notes, for principal and interest, and ordered a sale of the trust property, free of all alleged prior incumbrances, to pay what was due. Under this decree, a sale was made and confirmed by the court at the March Term, 1880.

complaint, in which they met all the charges in the bill and, among other things, alleged that the prior incumbrances had been paid. Each answer concluded with a prayer in the usual form, that the respondent be dismissed with his costs. On the 3d of March the defendant, John Matthews, was appointed receiver of the property. At the same time the bill was dismissed The cause was docketed in the District Court as to Crook; and the Washington Fire and Ma- for the Eastern District of Arkansas on the 9th rine Insurance Company, the Planters' Insur- of March, 1877, and on the 13th of March, Mrs. ance Company, J. C. Ward & Co., Appleton Edrington moved to remand the case, on the Noyes & Co., and the North America Tie Com- ground, among others, that the petition for repany, creditors of Edrington and Jefferson and moval was not filed on or before the first Term beneficiaries under the trust were, on motion, at which the cause could have been tried. On admitted as defendants in the suit, and given the 10th of October, 1877, additional grounds for twenty days to file their answers and cross-remanding were presented, but on the 11th of bills. On the 4th of March, 1875, the cause was October the motion was denied. continued by consent of parties until the next At the October Term, 1879, a decree was enTerm. At the September Term, 1875, F. Bank- tered dismissing the original bill of Mrs. Edsmith & Co., and Taylor Brothers, other credit- rington and finding that all the incumbrances ors and beneficiaries, were admitted as defend-upon the property prior to the trust-deed had ants, and they, with the other creditors who had been admitted before were allowed ninety days to answer and file cross-bills. Several orders connected with the administration of the cause were passed at this Term on motion of the different parties. It does not appear from the record that the original complaint was ever amended so as to name the intervening creditors as defendants or to make any charges against them, other than such as were contained in the complaint when the answers of the original defendants, the Jeffersons, were filed. On the 26th of February, 1876, in vacation, the Wash-moval was filed too late, and that the motion ington Fire and Marine Insurance Company and the other creditors, who had been formally admitted as defendants, with some other creditors, also beneficiaries under the trust, filed an answer to the original complaint and a cross-bill. To the cross-bill, all the defendants in the original bill, except Crook, were made defendants, and also the infant children of James H. Edrington and all the creditors of Edrington & Jefferson, beneficiaries under the trust, who were not complainants. The prayer was that the claims of the alleged prior incumbrancers might be discharged or made subordinate to the trust; that the amount due the several creditors might be ascertained; and that the property might be sold to pay what was found due.

From the decree of the October Term, 1879, Mrs. Edrington took this appeal and, among other things, assigns for error the refusal of the court to remand the cause upon her motion. We are of opinion that the petition for re

to remand should have been granted. As Mrs. Edrington was kept in the District Court and forced to a hearing there, she has the right, having saved her point on the record, to have that error corrected here after final decree below. Removal Cases, 100 U. S., 475 [XXV., 600]; R. R. Co. v. Koontz, 104 U. S., 16 [XXVI., 646].

By the laws of Arkansas there were two terms of the State Circuit Court during the year 1875; one beginning on the first Monday in March, and the other on the first Monday in September. There were also two Terms in 1876: one in May and the other in November. All the contesting defendants to the original complaint filed answers and ended the pleadings, so far as they were concerned, on the first of March, 1875. As these answers contained no counterclaim or set-off, the issues were complete, between the original parties at that time, and the plaintiff or the defendants could either of them demand a trial at the next Term, which was in November, 1875. When these answers were filed, John W. Jefferson, the trustee, represented all the creditors who were beneficia

Answers were filed to the cross-bill by some of the persons named as defendants, and at the May Term of the court, after several orders of administration, the cause was continued. After this continuance and in vacation, other answers were filed to the cross-bill. Testimony was taken and filed at the November Term. On the 15th of November, 1876, the complainants in the cross-bill dismissed their bill as to all the defendants therein named, except Mrs. Edring-ries under the trust. His pleading was in law ton, her children and the several alleged prior incumbrancers, and thereupon, on the 16th of November, John W. Jefferson, J. T. Jefferson and the several creditors who had answered the original complaint, filed their petition for the removal of the cause to the Circuit Court of the United States for the Western District of Arkansas. In their petition, they set forth the citizenship of the parties as in different States, and "That said suit cannot and could not be tried at the present Term of this court, as the same is not ready for trial or in a condition to be tried." It is also stated that "In said suit

their pleading and bound them as well as him. Some of the creditors were admitted as defendants, not because they were necessary parties to the suit, but that they might be present to protect their own interests, if necessary. To let them in no amendment of the complaint was needed, because the original allegations against their trustee were in reality allegations against them. They were given twenty days' time to answer for themselves and to file a cross-bill. They failed to avail themselves of this rule and, consequently, were in default at the next Term. The case, therefore, stood for trial at the

1

next Term, with issues joined between the plaintiff and the representative of the creditors on the record. As far as the trustee was concerned, that was the last Term at which he could ask for a removal, whether the pleadings were amended and new issues raised or not. The case stood for trial on its merits, with pleadings completed. Some of the creditors who were beneficiaries had already appeared. Others were admitted at that Term. They made no complaint of the conduct of their representative upon the record. His pleadings were their pleadings, and the issues which he had presented for trial were their issues. The trustee did not see fit to take steps at that time for a removal; neither did they, When the Term ended, the Term at which the cause, as a cause, could be first tried had passed by, and all right of removal under the Act of March 3, 1875, then in force, was gone.

(See S. C., Reporter's ed., 776-783.)

Debts of insolvent railroad, what to be paid by receiver-current expenses for coal-assignment of debt-waiver of claim-mortgage security, when chargeable.

It is true that the creditors got leave to file pleadings within ninety days, and that their answers and cross-bills were in before that time 1. When a court of chancery, in enforcing the expired, but this operated only as an amend- rights of mortgage creditors, takes possession of a ment of the original pleadings and created no mortgaged railroad, it ought to do what the comnew right of removal. As was said in Babbitt pany would have been bound to do if it had remained in possession, that is to say: pay out of what v. Clark, 103 U. S., 612 [XXVI., 508], "The it receives from earnings, all the debts which in Act of Congress does not provide for the re-equity and good conscience, considering the charmoval of a cause at the first term at which a acter of the business, are chargeable upon such earnings. trial can be had on the issues as finally made up 2. A debt for current expenses unprovided for by leave of court or otherwise, but at the first when the receiver took possession, as for coal for term at which the cause, as a cause, could be is a charge in equity on the continuing income locomotives, is payable out of current earnings and tried." which comes into the hands of the court after the receiver was appointed.

Without considering any of the other questions presented by the record, we reverse the decree and remand the cause to the District Court, with instructions to send the case back to the State Court from which it was improperly removed.

True copy. Test:

James H. McKenney, Clerk, Sup. Court, U.S.

ISAAC GREENHOOD ET AL., Partners, Doing
Business as GREENHOOD, BOHм & Co., AND
T. B. WARFIELD, Sheriff, Piffs. in Err.,

v.

WILLIAM H. RANDALL.

(See S. C., Reporter's ed., 775.) When judgment will be affirmed.

Where the record fails entirely to present in proper form any of the questions which have been argued for the plaintiff in error, the judgment will be affirmed.

[No. 814.] Submitted Apr. 9, 1884. Decided May 5, 1884.

IN ERROR to the Su

N ERROR to the Supreme Court of the Ter

The record in this case was incomplete and in a state of confusion. The clerk of the court below only certified that it contained "certain" pleadings, records and proceedings made and had in the case.

with it the right of the original holder to claim pay3. The assignment of a debt of this kind carries ment out of the fund upon which it is charged.

4. The renewal at maturity, for the convenience of the holder, of the business paper which represents the debt, is no waiver of claim on the fund in the receiver's hands.

5. If current earnings are used for the benefit of mortgage creditors before current expenses are paid, the mortgage security is chargeable in equity with the restoration of the fund which has been thus improperly applied to their use. [No. 316.] Argued Apr. 10, 1884. Decided May 5, 1884.

APPEAL from the Circuit Court of the United

States for the District of Iowa.

The history and facts of the case appear in the opinion of the court.

Mr. John W. Cary, for appellants. Messrs. James Hagerman, D. B. Henderson and F. B. Daniels, for appellee.

Mr. Chief Justice Waite delivered the opinion of the court:

The facts presented by this appeal are as follows:

No

On the first of June, 1871, the Chicago, Dubuque and Minnesota Railroad Company executed a trust-deed in the nature of a mortgage, conveying all its railroad property and all the revenues and income thereof to John A. Burnham, Stephen V. R. Thayer and James H. Blake, trustees, to secure an issue of bonds amounting in the aggregate to $4,125,000. interest was paid on these bonds, but the company remained in peaceable possession and opWil-erated its road, until the early part of the year 1875, when the Trustees commenced a suit for the foreclosure of the mortgage in the Circuit Mr. Chief Justice Waite delivered the opin- Court of Dubuque County, Iowa, and had a reion of the court: ceiver appointed. In the order appointing the

Messrs. E. W. Toole and John H. Shober, for plaintiffs in error.

Messrs. S. Shellabarger and J. M. son, for defendant in error.

receiver, no special provision was made for the | days. It was also further ordered that the trustpayment of debts owing for current expenses.ees have immediate possession of the mortgaged The receiver took possession on the 13th of January and, from that time, operated the road under the direction of the court.

When the receiver took possession, the company was indebted to the Northern Illinois Coal and Iron Company for coal used in running the locomotives. In the agreed facts, upon which the case was heard below, it is stated that the coal was furnished during the year 1874, but the precise time in the year is not given. From what does appear, however, we are satisfied that, at the time of the appointment of the receiver, this was one of the current debts for operating expenses made in the ordinary course of a continuing business, to be paid out of current earnings, and that the payment would have been made at the time agreed on if the company had remained in possession. The renewed acceptances, given after the receiver was appointed, indicate that the originals were for different amounts, maturing a month apart, thus implying monthly settlements of monthly accounts, with a somewhat extended credit to meet the business requirements of what may have been and probably was, at the time, an embarrassed Railroad Company.

On the 5th of January, 1876, E. H. Bowen, who was then the holder of the acceptances, presented a petition to the state court for the allowance and payment of his claim out of the funds in the receiver's hands. The claim was allowed, but in connection with the allowance the following entry was made:

"This allowance not intended to allow or establish any lien, but simply to allow them (the acceptances) to be presented and determined as to their rights of payment on final hearing.”

After this was done, the cause was removed to the Circuit Court of the United States for the District of Iowa, and docketed there on the 11th of January. The receiver appointed by the state court continued in possession and operated the road until June 23, 1876, when another was put in his place. The net earnings of the road while in the hands of the receivers amounted to more than $25,000.

In 1871 the company purchased lands in Dubuque for its depot and offices and secured the purchase money by a mortgage on the property. This debt being unpaid, a suit for the foreclosure of the mortgage was begun, which resulted in a decree of sale on the 5th of June, 1876, to pay the amount due, being $7,898. By order of the Circuit Court of the United States, this amount was paid from the earnings of the receivership in monthly installments, beginning on the 5th of June and ending on the 4th of September, 1876. In addition to this, $14,897.94 was paid on a judgment rendered against the Company January 8, 1875, for the right of way over certain property in Brownsville. Of this amount, $5,000 was paid June 28, and the remainder, November 1,1876. Other judgments for rights of way, amounting in the aggregate to $3,020.55, were paid, some in 1875 and others in 1876.

On the 28th of October, 1876, a decree was entered in the suit for the foreclosure of the trust mortgage, finding due upon the bonds $5,980,166, and barring the redemption if payment of this amount was not made in ninety 111 U. S. U. S., Book 28.

property from the date of the decree and of the net income from the commencement of the suit. The decree also contained this provision:

"It is further decreed that this cause, with all the matters in controversy between the plaintiffs and all and any of the defendants and interveners and claimants, is continued until the next Term of this court, and such rights and claims and matters in controversy are nowise affected or determined by this decree."

Default was made in the payment of the mortgage debt and the property was put into the possession of the trustees by the receivers under the decree of strict foreclosure. Among the property which went into the hands of the Trustees under this decree were the depot and offices in Dubuque, which had been relieved of incumbrance by the payments from the income of the receivership, and the several rights of way also paid for from the same fund.

The original petition of intervention filed in the cause by Bowen, the appellee, for the payment of his acceptances for coal was lost from the files, and on the 18th of October, 1878, on leave of the court, another was substituted in its place, asking that a judgment might be rendered in his favor against the railroad company for the payment of the amount due, "And that such judgment be declared a lien on the property and road of said company in the hands of said Trustees and their grantees." On the 30th of October, 1880, a decree was entered finding due Bowen, on his claim, as of that date, the sum of $6,515.42, and declaring that the mortgaged property in the hands of the Trustees under the decree of foreclosure was equitably bound for the payment thereof, "Said property having passed to said Trustees subject to the rights and equities of said Bowen, intervener, and said Trustees, and all parties holding under them, taking said property subject to such rights and equities on part of said Bowen, intervener." Provision was then made for a sale of the property if the claim was not paid. From this decree the Trustees appealed.

In our opinion the view which the circuit court took of this case was the correct one. The company had never paid its bonded interest. From the very beginning, it was in default in this particular, yet the mortgage Trustees suffered it to keep possession and and manage the property. The maintenance of the road and the prosecution of its business were essential to the preservation of the security of the bondholders. The business of every railroad company is necessarily done more or less on credit. all parties understanding that current expenses are to be paid out of current earnings. Consequently, it almost always happens that the current income is incumbered, to a greater or less extent, with current debts made in the prosecution of the business out of which the income is derived.

As was said in Fosdick v. Schall, 99 U. S., 252 [XXV., 342], “The income (of a railroad company) out of which the mortgagee is to be paid, is the net income obtained by deducting from the gross earnings what is required for necessary operating and managing expenses, proper equipment and useful improvements. Every railroad mortgagee, in accepting his security,

impliedly agrees that the current debts, made in the ordinary course of business shall be paid from the current receipts before he has any claim on the income." Such being the case, when a court of chancery, in enforcing the rights of mortgage creditors, takes possession of a mortgaged railroad and thus deprives the company of the power of receiving any further earnings, it ought to do what the company would have been bound to do if it had remained in possession; that is to say, pay, out of what it receives from earnings all the debts which in equity and good conscience, considering the character of the business, are chargeable upon such earnings. In other words, what may properly be termed the debts of the income should be paid from the income, before it is applied in any way to the use of the mortgagees. The business of a railroad should be treated by a court of equity under such circumstances as a "going concern," not to be embarrassed by any unnecessary interference with the relations of those who are engaged in or affected by it.

In the present case, as we have seen, the debt of Bowen was for current expenses and payable out of current earnings. It does not appear from anything in the case that there was any other liability on account of current expenses unprovided for when the receiver took possession, and there is nothing whatever to indicate that this debt would not have been paid at maturity from the earnings if the court had not interfered at the instance of the Trustees for the protection of the mortgage creditors.

ures, thus increasing the security of the bondholders at the expense of the labor and supply creditors, there was such a diversion of what is denominated in Fosdick v. Schall the "current debt fund," as to make it proper to require the mortgagees to pay it back. So far as current expense creditors are concerned, the court should use the income of the receivership in the way the company would have been bound in equity and good conscience to use it if no change in the possession had been made. This rule is in strict accordance with the decision in Fosdick v. Schall, which we see no reason to modify in any particular.

subject to the charge in favor of the current debt creditor whose money they have got, and that he can insist on a sale of the property for his benefit if they fail to make the payment without. The agreed facts show that $9,897.94 of the income of the receivership was paid on the judgment for the right of way November 1, 1876, which was after the decree of strict foreclosure was entered.

But it is further insisted that, even though the court did err in using the income of the receivership to pay the fixed prior charges on the mortgaged property, and thus increase the security of the bondholders, there is no power now to order a sale of the property in the hands of the trustees to pay back what has thus been diverted. In Fosdick v. Schall, 254 [343], it was said that if in a decree of foreclosure a sale is ordered to pay the mortgage debt, provision may be made for a restoration from the proceeds of the sale of the fund which has been diverted, and this clearly because, in equity, the diversion created a charge on the property for whose benefit it had been made. Here the parties interested preferred a decree of strict foreclosure, which the court gave, but in giving it saved the rights of all interveners and continued the case for the final determination of all such questions. The present appeal is from a decree which grew It is said, however, that as no part of the in- out of this reservation. As the diversion of the come, before the appointment of the receiver, fund created in equity a charge on the property was used to pay mortgage interest or to put per- as security for its restoration, it is clear that if manent improvements on the property or to in- the mortgagees prefer to take the property uncrease the equipment, there was no such diver-der a decree of strict foreclosure, they take it sion of the funds, belonging in equity to the labor and supply creditors, as to make it proper to use the income of the receivership to pay them. The debt due Bowen was incurred to keep the road running, and thus preserve the security of the bond creditors. If the Trustees had taken possession under the mortgage, they would have been subjected to similar expenses to do what the company, with their consent and approbation, was doing for them. There is Lastly it is claimed that the appellee is barred, nothing to show that the receiver was appointed by his laches and because he is the assignee of because of any misappropriation of the earnings the original creditor. It was decided in Union by the company. On the contrary, it is prob- Trust Co. v. Walker, 107 U. S., 596 [XXVII., able, from the fact that the large judgment for 490], that the assignment of a claim of this kind the right of way was obtained about the same carried with it the right of the original holder time the receiver was appointed, that the change to claim payment out of the fund upon which of possession was effected to avoid anticipated it is charged. When the receiver was appointed, embarrassments from that cause. But, how the debt was evidenced by business paper maever that may be, there certainly is no com- turing at a future date. It was no waiver of plaint of a diversion by the company of the any claim on the fund which might come into current earnings from the payment of the cur- the hands of the receiver to renew the paper at rent expenses. So far as anything appears on maturity for the convenience of the holder. It the record, the failure of the company to pay was undoubtedly given originally to enable the the debt to Bowen was due alone to the fact that coal company to use it as commercial paper if the expenses of running the road and preserving occasion required, and the renewal may have the security of the bondholders were greater become desirable on account of the use which than the receipts from the business. Under had been made of it. The original petition of these circumstances, we think the debt was a intervention was not filed until January 5, 1876, charge in equity on the continuing income, as but it was before any application of the income well that which came into the hands of the court of the receivership for the special benefit of the after the receiver was appointed as that before. mortgagees, and before the decree of foreclosWhen, therefore, the court took the earnings of ure was passed, and the rights of the intervener the receivership and applied them to the pay- were saved by that decree. The petition was ment of the fixed charges on the railroad struct-pending from the time it was filed. The loss of

NICKLE V. STUART. KILLIAN V. CLARK. BAINES V. CLARKE.

income of a railroad in the hands of a receiver, AF

for the benefit of mortgage creditors who have
& lien upon it under their mortgage, can be
taken away from them and used to pay the gen-
eral creditors of the road. All we then decid-
ed, and all we now decide is, that if current
earnings are used for the benefit of mortgage
creditors before current expenses are paid, the
mortgage security is chargeable in equity with
the restoration of the fund which has been thus
improperly applied to their use.

The decree of the Circuit Court is affirmed.
True copy. Test:

James H. McKenney, Clerk, Sup. Court, U. S.

there is no allegation of any discovery of new mat- J. D. BAINES, Admr. of JoHN D. LEWIS, Deter since the decree was rendered, the court should

APPEAL from the Circuit Court of the United

States for the District of West Virginia. The bill in this case was filed in the Circuit Court of Kanawha Co., W. Va., by John D.

James H. McKenney, Clerk, Sup. Court, U. S. Lewis, to enforce a vendor's lien claimed by him

The court entered an interlocutory decree, 1. An appeal becomes inoperative by the failure to refusing to rescind the contract and referring