VI. Parties, notice, and hearing, 171. VII. Miscellaneous, 174.

1. Introduction.

Generally as to continuance of business by receiver at loss, see annotation in 12 A.L.R. 292. Attention is called to the cases cited in this annotation on pages 292, 293, to the effect that the rule that a receiver should not continue to operate a business at a loss has been applied in the case of a receiver of a common carrier whose continuance of the business serves the public interests.

The question of priority of claims. for damages from operation of railroad during receivership is treated in annotation in 3 A.L.R. 1470. Cases of this kind are excluded from the present annotation.

As to preference of wages over lien creditors of corporations in hands of receiver, in absence of statutory provisions therefor, see annotation in 5 A.L.R. 690.

And as to rights in receivership proceeding as between mortgagee and creditor furnishing supplies required or used for operation, maintenance, and upkeep of railroad or street railway, where there has been diversion of current earnings to benefit of mortgagee, see annotation in 40 A.L.R. 8. Attention is called also to the annotation in 10 A.L.R. 1055, on liability of receiver in his official capacity for torts or negligence of receivership employees.

The question as to what constitutes operating expenses which are entitled to a preference extends beyond the scope of the annotation, since the same may arise as a question of preference payable out of income and not corpus, and may also be involved in cases where the expenses were incurred before the receiver's appointment. It should be observed, also, that cases involving expenses of the receivership, as such, as distinguished from expenses for operation or maintenance, as for the compensation of the receiver and counsel fees, are not included in the annotation. For example, see Central Trust Co. v. Thurman (1894) 94 Ga. 735, 20 S. E. 141, in which the rule is laid down that, where a railroad is

operated by a receiver, all of his legitimate expenses, including the fees of his counsel, are chargeable upon the fund produced by a sale of the railroad made under a decree rendered in the case, if there is no other fund under the control of the court out of which the expenses can be paid; that income is chargeable before corpus, but that, as a last resort, the charge will fall on the latter.

In a number of cases a distinction has been made on the present question, between railroads or other public or quasi public corporations and private corporations generally. The question whether such a distinction is justifiable is not within the scope of the annotation. But decisions which make the distinction may be of value on the present subject, at least in the same jurisdiction, because of their approval of the rule existing in the case of railroad receiverships. For this reason, attention is called to the following cases, among possibly others. of the kind, making the distinction above indicated, and approving, at least by way of dictum, the general rule noted under II., infra, in case of receiverships of railroads:

United States. Farmers' Loan & T. Co. v. Grape Creek Coal Co. (1892; C. C.) 16 L.R.A. 603, 50 Fed. 481; Fidelity Ins. Trust & S. D. Co. v. Roanoke Iron Co. (1895; C. C.) 68 Fed. 623; Doe V. Northwestern Coal & Transp. Co. (1896; C. C.) 78 Fed. 62; Baltimore Bldg. & L. Asso. v. Alderson (1898) 32 C. C. A. 542, 61 U. S. App. 636, 90 Fed. 142; International Trust Co. v. Decker Bros. (1907) 11 L.R.A. (N.S.) 152, 81 C. C. A. 302, 152 Fed. 78.

As to power of receiver of private corporation to issue receivers' certificates, see annotation in 40 A.L.R. 244. It will be observed that in some of the cases cited in this annotation the distinction is pointed out between private and public or quasi public corporations, with regard to the issuance of receivers' certificates which would displace existing liens.

In Farmers' Loan & T. Co. v. Grape Creek Coal Co. (Fed.) supra, in holding that as to a coal company the court could not authorize the issuance of a receiver's certificate which should be a first lien on the property of the company, in preference to a mortgage, in a suit to foreclose the mortgage, the court said that, pending suit to foreclose a mortgage executed by a railroad corporation, the road may be operated by a receiver, and debts contracted for labor, supplies, and other necessary purposes, before as well as after the appointment of a receiver, may be made a first lien upon income, and, if that is not adequate, upon the corpus of the property; that in the exercise of this exceptional and extraordinary jurisdiction, which is of comparatively recent origin, courts have entered orders making receivers' certificates first liens on the mortgaged property, but that this has been done on grounds not applicable to mortgages executed by private corporations; that a railroad corporation is charged with the duty of operating its road as a public highway, and, if it becomes embarrassed and unable to perform that duty, the courts, pending proceedings for the sale of the road, will operate it by a receiver and make

the expense incident thereto a first lien, this being done on account of the peculiar character of the property, which the mortgagee knows is impressed with a public duty.

In Craver v. Greer (1915) 107 Tex. 356, 179 S. W. 862, it is said that where a court takes charge of railroads or other corporations affected with a public use, and undertakes to operate them through a receiver, the necessary debts of such operation may, as against all parties to the suit, be made a prior lien on the income, and, if that is insufficient, on the property itself; that, on the other hand, the conduct of the business of an insolvent private corporation or of an insolvent person is no part of the duty of a court of equity, and the authority, if it exists, for the displacement in such receiverships of a vested lien for indebtedness incurred through operation of the business by the court must be found in an estoppel enforceable against the lienor. And, among possibly other cases of the kind, attention is called to the statement in Van Valkenburgh v. Ford (Tex.) supra, that, in the operation of a quasi public corporation, the court may, in the exercise of a sound discretion, issue certificates for operating expenses, even to the displacement of prior mortgage liens; but that it cannot do this if the corporation in receivership is a private one, except under the doctrine of estoppel.

However, as above indicated, the question whether the general rule applicable to the displacement of prior liens in the case of railroad receiverships is limited to this class of corporations is not within the scope of the annotation. And attention is called to Knickerbocker v. McKindley Coal & Min. Co. (1898) 172 III. 535, 64 Am. St. Rep. 54, 50 N. E. 330, in which the court, after laying down the rule that expenses of a receiver in continuing a business may be made chargeable on the corpus of the property if the income is not sufficient to pay the same, observed that, although this authority of a receiver to incur indebtedness in order to keep the business a going concern until the rights of the parties are adjusted and a sale is ef

fected ordinarily arises only in cases of railroad companies, yet the same rule may be applied to other cases under like circumstances.

See also Makeel v. Hotchkiss (1901) 190 Ill. 311, 83 Am. St. Rep. 131, 60 N. E. 524, in which the court, speaking with reference to the power of a court of equity, in taking possession of property by a receiver and carrying on the business through the receiver pending litigation, to make the expenses of the receivership a lien on the property superior to prior liens, said that courts of equity exercise such power to a limited extent in the control and operation of railroads and of other property and business impressed with a public interest, which power cannot be questioned; and that it seems, also, that the same doctrine has been applied in some cases to property of a different character used in the business of private individuals or corporations, where the expenses of receivership appeared necessary to preserve the property from destruction or waste.

And in Fleming v. Anderson (1921) 220 Ill. App. 570, the court, after recognizing the power to continue a business in the hands of a receiver, and to charge the expenses thereof on the corpus of the property, said that authorizing the receiver to issue receivers' certificates to carry on the business was formerly confined to receivers for railroads and semipublic corporations, but that, according to the later authorities, the power of a court to grant such authority to receivers for industrial corporations is conceded.

That the power of a court of equity to authorize a receiver to create an indebtedness, and to make it a charge upon the corpus of the estate, with priority over the pre-existing mortgage, is not restricted to railway receiverships, see also Ellis v. Vernon Ice, Light & Water Co. (1893) 86 Tex. 109, 23 S. W. 858.

II. Powers of court of equity to displace existing liens.

The general rule is well settled that, if the income of a railroad in the hands of a receiver is insufficient to

pay operating expenses and necessary expenditures for repairs and maintenance, the same may be made a charge on the corpus of the property, paramount to existing liens. The power of a court of equity in this regard, in a proper case, in the administration of railroad property through its receiver, is supported by many cases (as to parties, notice, and hearing, see VI., infra).

United States.

Wallace v. Loomis (1878) 97 U. S. 146, 24 L. ed. 895; Miltenberger v. Logansport, C. & S. W. R. Co. (1882) 106 U. S. 286, 27 L. ed. 117, 1 Sup. Ct. Rep. 140; Union Trust Co. v. Illinois Midland R. Co. (1886) 117 U. S. 434, 29 L. ed. 963, 6 Sup. Ct. Rep. 809; Kneeland v. American Loan & T. Co. (1890) 136 U. S. 89, 34 L. ed. 379, 10 Sup. Ct. Rep. 950, subsequent proceedings in (1891) 138 U. S. 509, 34 L. ed. 1052, 11 Sup. Ct. Rep. 426; Kneeland v. Bass Foundry & Mach. Works (1891) 140 U. S. 592, 35 L. ed. 543, 11 Sup. Ct. Rep. 857; Thomas v. Western Car Co. (1893) 149 U. S. 95, 37 L. ed. 663, 13 Sup. Ct. Rep. 824; Stanton v. Alabama & C. R. Co. (1875) 2 Woods, 506, Fed. Cas. No. 13,296; Credit Co. v. Arkansas C. R. Co. (1882) 5 McCrary, 23, 15 Fed. 46, appeal dismissed in (1888) 128 U. S. 258, 32 L. ed. 448, 9 Sup. Ct. Rep. 107 (recognizing rule); Farmers' Loan & T. Co. v. Grape Creek Coal Co. (1892; C. C.) 16 L.R.A. 603, 50 Fed. 481 (dictum); Ames v. Union P. R. Co. (1896; C. C.) 74 Fed. 335; Mercantile Trust Co. v. Farmers' Loan & T. Co. (1897) 26 C. C. A. 383, 49 U. S. App. 462, 81 Fed. 254, writ of certiorari denied in (1897) 168 U. S. 710, 42 L. ed. 1213, 18 Sup. Ct. Rep. 944; Central Trust Co. v. Continental Trust Co. (1898) 30 C. C. A. 235, 58 U. S. App. 604, 86 Fed. 517; Pennsylvania Co. v. Jacksonville, T. & K. W. R. Co. (1899) 35 C. C. A. 202, 93 Fed. 60; New York Secur. & T. Co. v. Louisville, E. & St. L. Consol. R. Co. (1900; C. C.) 102 Fed. 382 (recognizing rule); First Nat. Bank v. Ewing (1900) 43 C. C. A. 150, 103 Fed. 168, writ of certiorari denied in (1900) 179 U. S. 686, 45 L. ed. 386, 21 Sup. Ct. Rep. 919; Royal Trust Co. v. Washburn, B. & I. River R. Co. (1902) 57

C. C. A. 31, 120 Fed. 11; International Trust Co. v. Decker Bros. (1907) 11 L.R.A. (N.S.) 152, 81 C. C. A. 302, 152 Fed. 78 (dictum); Merchants' Loan & T. Co. v. Chicago R. Co. (1907) 86 C. C. A. 87, 158 Fed. 923; Pennsylvania Steel Co. v. New York City R. Co. (1908; C. C.) 161 Fed. 787; Pennsylvania Steel Co. v. New York City R. Co. (1908) 90 C. C. A. 188, 163 Fed. 242; Finance Co. v. Trenton & N. B. R. Co. (1911; C. C.) 189 Fed. 282; Pennsylvania Steel Co. v. New York City R. Co. (1911; C. C.) 190 Fed. 609, modified on other grounds in (1912) 117 C. C. A. 503, 198 Fed. 721; American Brake Shoe & Foundry Co. v. Pere Marquette R. Co. (1913) 123 C. C. A. 322, 205 Fed. 14, writ of certiorari denied in (1913) 229 U. S. 624, 57 L. ed. 1356, 33 Sup. Ct. Rep. 1051; New York Trust Co. v. Detroit, I. & I. R. Co. (1918) 163 C. C. A. 508, 251 Fed. 514; Union Trust & Sav. Bank v. Southern Traction Co. (1921; C. C. A. 7th) 283 Fed. 50, petition for writ of certiorari denied in (1922) 260 U. S. 744, 67 L. ed. 492, 43 Sup. Ct. Rep. 166; Mercantile Trust Co. v. Tennessee C. R. Co. (1921; D. C.) 291 Fed. 462; Denver v. Stenger (1924; C. C. A. 8th) 295 Fed. 809; Birmingham Trust & Sav. Co. v. Atlanta, B. & A. R. Co. (1924; D. C.) 300 Fed. 173. See also Barton v. Barbour (1881) 104 U. S. 126, 26 L. ed. 672; Clarke v. Central R. & Bkg. Co. (1893; C. C.) 54 Fed. 556; Manhattan Trust Co. v. Sioux City Cable R. Co. (1896; C. C.) 76 Fed. 658; Savannah, F. & W. R. Co. v. Jacksonville, T. & K. W. R. Co. (1897) 24 C. C. A. 439, 52 U. S. App. 51, 79 Fed. 35.

Alabama. Meyer v. Johnston (1875) 53 Ala. 237; Mercantile Trust & D. Co. v. Southern Iron Car Line (1896) 113 Ala. 543, 21 So. 373.

64 Pac. 212 (recognizing rule). See also First Nat. Bank v. Wyman (1901) 16 Colo. App. 468, 66 Pac. 456.

Delaware. See Central Trust & Sav. Co. v. Chester County Electric Co. (1911) 9 Del. Ch. 247, 80 Atl. 801 (electric company).

Georgia. Lane v. Macon & A. R. Co. (1895) 96 Ga. 630, 24 S. E. 157. See also Central Trust Co. v. Thurman (1894) 94 Ga. 735, 20 S. E. 141. Illinois. Equitable Trust Co. v. Chicago, P. & St. L. R. Co. (1921) 223 Ill. App. 445. See also Knickerbocker v. McKindley Coal & Min. Co. (1898) 172 Ill. 535, 64 Am. St. Rep. 54, 50 N. E. 330 (recognizing rule); Makeel v. Hotchkiss (1901) 190 Ill. 311, 83 Am. St. Rep. 131, 60 N. E. 524 (same); Fleming v. Anderson (1921) 220 Ill. App. 570 (same).

Indiana. See Blythe v. Gibbons (1893) 141 Ind. 332, 35 N. E. 557 (private corporation).

See CONTINENTAL & C. TRUST & SAV. BANK V. MUSCATINE, B. & S. R. Co. (reported herewith) ante, 139 (recognizing power).

New Hampshire.

Hale v. Nashua & L. R. Co. (1880) 60 N. H. 333. New Jersey. & G. L. R. Co.

Hoover v. Montclair (1878) 29 N. J. Eq. 4. Vilas v. Page (1887)

New York. 106 N. Y. 439, 13 N. E. 743; Knickerbocker Trust Co. v. Oneonta, C. & R. S. R. Co. (1911) 201 N. Y. 379, 94 N. E. 871 (recognizing rule); Central Trust Co. v. Pittsburgh, S. & N. R. Co. (1918) 223 N. Y. 347, 119 N. E. 565, later appeal in (1920) 229 N. Y. 68, 128 N. E. 114; Central Trust Co. v. Tappan (1889) 25 N. Y. S. R. 635, 6 N. Y. Supp. 918; Rochester Trust & S. D. Co. v. Rochester & I. R. Co. (1899) 29 Misc. 222, 60 N. Y. Supp. 409 (recognizing rule); Townsend v. Oneonta, C. & R. S. R. Co. (1903) 88 App. Div. 208, 84 N. Y. Supp. 427 (same); Wiggins v. Neversink Light & P. Co. (1905) 47 Misc. 315, 93 N. Y. Supp. 853; Weaver v. Pacific Improv. Co. (1921) 198 App. Div. 825, 191 N. Y. Supp. 3, 541, 542, affirmed in (1923) 234 N. Y. 418, 138 N. E. 42, reargument denied in (1923) 236 N. Y. 506, 142 N. E. 261 (acquiescence of mortgagee).

Oregon. See United States Invest.

Texas. McIlhenny v. Binz (1890) 80 Tex. 1, 26 Am. St. Rep. 705, 13 S. W. 655; Kampmann v. Sullivan (1901) 26 Tex. Civ. App. 308, 63 S. W. 173; International & G. N. R. Co. v. Coolidge (1901) 26 Tex. Civ. App. 595, 62 S. W. 1097, writ of error dismissed in (1901) 95 Tex. 92, 65 S. W. 181; St. Louis Union Trust Co. v. Texas Southern R. Co. (1910) 59 Tex. Civ. App. 157, 126 S. W. 296. See also Ellis v. Vernon Ice, Light & Water Co. (1893) 86 Tex. 109, 23 S. W. 858 (power not limited to railroad receiverships); Missouri, K. & T. R. Co. v. McFadden Bros. (1896) 89 Tex. 138, 33 S. W. 854 (recognizing rule); Craver v. Greer (1915) 107 Tex. 356, 179 S. W. 862 (distinguishing between quasi public and private corporations); Gulf Pipe Line Co. v. Lasater (1917) Tex. Civ. App. —, 193 S. W. 773 (receivership of power company). Vermont. Westinghouse Electric Mfg. Co. v. Barre & M. Traction & P. Co. (1924) 98 Vt. 130, 126 Atl. 594. Washington. See Bellingham Bay See Bellingham Bay Improv. Co. v. Fairhaven & N. W. R. Co. (1897) 17 Wash. 371, 49 Pac. 514 (expense incurred prior to receivership).

England. Greenwood v. Algesiras (Gibraltar) R. Co. [1894] 2 Ch. 205 C. A.

Equity jurisdiction to charge debts essential to the operation of a railroad through a receiver, as a first lien on the property, appertains to the power of the court to appoint receivers, and is now firmly established. Vilas v. Page (1887) 106 N. Y. 439, 13 N. E. 743.

In Wallace v. Loomis (1878) 97 U. S. 146, 24 L. ed. 895, where the order of the court appointing receivers of a railroad company provided that, to en

able them to perform their duties, they might raise money to an amount limited in the order, by loan, if necessary, on certificates to be issued by them, which should be a first lien on the property, the court, in holding that this was a proper order, said: "The only other material objection made by the appellant to the decree, not already disposed of, is that it declared the amount due on the receivers' certificates to be a lien on the property in their hands prior to that of the firstmortgage bonds. . . . The receivers were authorized, by the order appointing them, amongst other things, to put the road in repair and operate the same, and to procure such rolling stock as might be necessary; and, for these purposes, to raise money by loan to an amount named in the order, and issue their certificates of indebtedness therefor; and the order declared that such loan should be a first lien on the property, payable before the firstmortgage bonds. The power of a court of equity to appoint managing receivers of such property as a railroad, when taken under its charge as a trust fund for the payment of encumbrances, and to authorize such receivers to raise money necessary for the preservation and management of the property, and make the same chargeable as a lien thereon for its repayment, cannot, at this day, be seriously disputed. It is a part of that jurisdiction, always exercised by the court, by which it is its duty to protect and preserve the trust funds in its hands."

The above rule seems implied in Barton v. Barbour (1881) 104 U. S. 126, 26 L. ed. 672, in which the court said that it was settled law that a court of equity may, and in most cases ought to, authorize its receiver of railroad property to keep it in repair, and to manage and to use it in the ordinary way until it can be sold to the best advantage of all interested; and that the power to do this was expressly recognized in Wallace v. Loomis (U. S.) supra.

While the ordinary expenses of a receiver in operating a railroad are first payable out of income, if any, the corpus may be resorted to when the items