pay one-third of the cost. It is an arbitrary proceeding. The majority of any small distrkt may force the tax: upon the whole count:y. Since the filing of bills the supreme court of Kansas has held this act unconstitutional in the case of Board v. Abbott, 34 Pac. 419. The court in this,case said:
"The act gives a majority of the resident landowners of a special and small taxing. district, established at their instance, the power to subject the land and pel'sonal property within the district, to two-thirds of the cost of improving llny ,county road in the district, according to the benefit to the land and personal property within such taxing district; and, in addition, gives such resident landholder in such special and small district the power to compel all the taxpayers of, the CQunty to pay' one-third of such special taxes and assesslllent\il, wi1;hout having, any, voice, ,either through their own votes or through'the action of any county or other elected officers. * * · Only a' part interested have llny authority. They can, under this statute, impose taxes or, Special assessments on other taxing districts and on the whole county, without any right,of s\lch other taxing districts to vote, or the county as a whole to have any voice in, the proceedings."
I fully concur with the
of the supreme court of Kan·
The act being unconstitutional, what is the standing of the instruments sued :on? "An unconstitutional act is nota law. It confers no rights; it imposes no duties; it affords no protection; it creates no office; it iS,in legal contemplation, as inoperative as though it had'neverbeen passed." Norton v. Shelby Co., 118 U. S. 441, 6 Sup. Ct. 1121. The road commissioners were authorized, by section 6 of the act, to issue certificates for work done or materials furnished. The instruments sued on certify that the county of Wy· andotte is indebted to and, promises. to pay the bearer the sum named in ea,ch' certificate. These certificates all refer to the act, and recite, what they were given for, and are signed by the road commissioners. The act being unconstitutional, it created no authority in the road commissione,rs. They in no way represented the councould nom,orebind the county than the ty, and their signatures of any other of the county. The face of the certificates contained the ,evidence of their invalidity, and were notice to every person receiving them that they were invalid. As there was no law authorizing tlie county, to enter into such contracts, and the instrumellfs sued on not having been executed by any authority that represented the, county, they not be ratified. :Marsh v. Fulton Co., 10 Wall. 677; Risley v. Village of Howell, 57 Fed. 544. 'l'hese certificates cannot be a charge against the county. The demurrers to the answers are overruled.
PUTNAM v. JACKSONVILLE, L. & ST. L. RY. CO. et al. (CirCUit Court, S. D. illinois. December 8, 1893.) Upon bill to foreclose railway mortgage, and for appointment of a. receiver, filed by a bondh()lder, alleging that tlie xqortgagor railway com pany had made default'in the payment of taxes lawfUlly levied and imOF A RECEIVER OF RAILWAY.
PUTNAM'll. JACKSONVILLE, L. & ST. L. RY. 00.
posed upon the railway premises, and that, In certain counties, It suffered and permitted Its railroad to be sold for such taxes, and alleging that the mortgagor is hopelessly insolvent, and unable to pay its present and accruing indebtedness, and that it has failed, neglected, and refused to pay wages and operating expenses, and other obligations and indebtedness, amounting to more than $200,000, and alleging that complainant, upon discovering such facts, applied to the trustee to take action, and that the trustee has failed and neglected to take any steps, held, that a case was made for the appointment of a receiver.
SAME-CLAIM FOR LABOR AND SUPPLIES.
In view of the rnIe of Fosdick v. Schall, 99 U. S. 235, and later cases, givIng claims for labor and supplies a preference over the mortgage debt, a bondholder has a right to apprehend that his interest will suffer In that respect if such claims are allowed to remain in arrears. Intervening petition of persons holding labor claims, which have not been reduced to judgment, held. not to show grounds for appointing a receiver, although such claims are against three railway companies, or one of three railway companies, whose lines are operated together as one line under a common name, and there Is a complication or confusion of accounts between such companies.
SAME-BILL FOR AN ACCOUNTING.
Semble, that a bill for an accounting, under any ordinary circumstances (in this case, by receivers of one of the railway companies whose railways are operated under a single management, and as a single line, for an accounting of such joint management), does not warrant the appointment of a receiver until the account has been adjusted, and a liability established.
This was a motion by complainant, Henry W. Putnam, a holder of bonds secured by mortgage from the Jacksonville, Louisville & St. Louis Railway Company to the Finance Company of Pennsylvania, upon his sworn bill of foreclosure, for the appointment of a receiver of the railway and premises and property covered by such mortgage; also, application for a receiver, of certain intervening petitioners, employes of the Jacksonville Southeastern Line, of which the defendant railway company was a part; and also the application for a receiver,upon their intervening petition, of the receivers of the Chicago, Peoria & St. Louis Railway Company, which road was also a part of the Jacksonville Southeastern Line.
The Chicago; Peoria & St. Louis Railway Company was owner of about 168 miles of railway, extending from Pekin, Ill.; through Havana, to Jacksonville, m., with a line from Havana to Springfield, and a line of railway from Litchfield to East 8t. Louis, which latter line was disconnected from the former lines. The Jacksonville, Louisville & St. Louis Railway Company was the owner of the line of railway extending from Jacksonville, IlL, through Litchfield, to Centralia,-a distance of about 112 miles. The Litchfield, Carrollton & Western Railway Company was the owner of the line of 52 miles of railway extending from Barnett, Ill., westerly, to Columbiana, on the Illinois river. These lines of railroad were under one management, and were operated together under the name of the Jacksonville Southeastern Line. There appeared to be, however, no express agreement between the companies, providIng for such joint operation, or for the terms thereof. The business was conducted In the name of the Jacksonville Southeastern Line. The employes were employed by the management under this name. Article 2 of the mortgage in question, from the Jacksonville, Louisville & St. Louis Railway Company to the Finance Company of Pennsylvania, provided that ''until default shall be made by said party of the first part, its successors or assigns, in the payment of interest or principal of said bonds, or in the due observance of the covenants and agreements hereinafter contained on the parl and behalf of the said first party of the first part, said party of the
th'st ,P8l'tt !til to reomQilp In.:theactual of saidrallwaY and exercise and rlgJJ.tlt'relating theretp, and to collect,receive, and use profit&tl1ereo, in aJlymanner which will not impair the lien creatl'l4. by these· presenU\," And the mortgagor thereby covenanted that it (the, remlj.lJ:liIli ,I.p the PClssession Clf said railway and premises, shoul4;, QIl would keep. the' said railway In gOCld order, and safe running CQnditlOA"and should ,e.nd:· would. frClUl. time to time, pa,y, !llld discharge all taxes, assessments, and 'gClvernme.Qtal, charges 1ll.wfUllYdmposed upon said railway and premises, so that t;he, ,priority Clf said, mortgage might bed\llyi);reserved, andthatsa,Jd would not do or ljuffer any act or tp.ingwhatever whereby the lien of sai(\ mortgage might ,or, could be imsaid bonds, and all interest thereon, should be fully paid and satisfied. Article 3 of the¢ortgage pr\)vlded that in case default should be made in the payment of any installment ot interest upon said bonds, or any of them, when such interest sp.ould become and be demanded, and such Interest, . or. IlIiy part thereof, should remain unpaid and in arrears for six months,ot: .In case defauitl3UQ1,1ld be in the dlle observance and performa.nce of.'tbe covenant 6t· further assnrance in said mortgage, or in the taxes, a,si!essIllents, Or c>ther governmental charges which might I)e'lll.Wfully levied or Imposed uPQn slild railway or premises, or any part thereof, and either of said defaults shOuld continue for six months, or in case default should be made the payment of the principal of said bonds, orany of them, then it shoUld be lawful for said trustee or enter into and upon the said railway and the same to have, hold, and enjoy, operating $id1-'aUway, making such repairs, and improvements thereto aM the trustee might deem expedient, and to collect and receive all revenues and 'profits, and after deducting expenses and payments for taxes and assessments,or other charges or liens prior to such mortgage, to apply the revenues and profits to the payment of interest as therein provided. Article 5 provided that in case default shouid be made in any installment of interest, and' such interest should remain unpaid and in arrears for six months, the prinCipaL of each and all of said bonds might be declared by said trustee, or by a majority ill interest of the holders of ail of said bOllds outstanding, to be, and should become and be, due and payable immediately. Article 6 prOVided that in case default should be made in the vayment of interest upon any of said' bonds when such interest should become due, and be demanded, and such default should continue for six months,or in case defaultl$hould be made in the payment Clf the principaIof said bonds, it should be the duty of the trustee to take appropriate proceedings, at law Or in l'quity, to enforce the rights of the holders of sp.id bondS, upon a requisition signed by holders of at least one-third in amount of said bonds outstanding. The bill of complaint of Putnam, which was filed December '7, 1893, alleged that said mortgagor railway company had made default in the payment of taxes lawfully leVied upon said railway and premises, and that said default had continued for more than six months prior to December 1, 1893, and still continues; that on May.$, 1893, said mortgagor railway company, being in default in the payment ofitstaxes due for the year 1892 in Clinton county, TIl., suffered and permitted .Its road to be sold for such taxes, and the same was sold, as provided by one Keshner, for the sum of $1,302.84; that stild railway company did n,ot pay the ·taxes lawfully levied upon said railand premises in county, Ill., for the year 1892, amounting to '2,538.35; and that, by reason thereof, penalties to the amount of $634.59, costs and interest to the amount of $51.03, had accrued, and that by reasou ot. such failure said railway and premises in said county were forfeited to the .of IlliJlois, and that sllip. taxes, pen!llties, costs, aJild interest in said counties are still due and unpaid, and that in both of counties such default had contiuued for more than six months, and that said mortgagor railway cOOlpany is, ane} for morE' .thanslx months prior to December 1, 1893, has been. in default for taxes lawfully levied and imposed upon such railway and premtses for the years 1890 and '1,891, in variOus .counties in Illinois through which Baid railway extends; that penaities, costs, and interest have accrued upon tbe same; and that the and prewises of said company have, in some ot
PUTNAM V. JACK8QNVIJ,I,E, L. & ST. L. BY. CO.
the counties through which extends, been sold, llnd in others forfeited to the state of lllinois, for and on account of such taxes.' The bill alleged that said mortgagor railway company is hopelessly insolvent, and unable to pay its debts and cUITent and presently accruing indebtedness; that it has failed and refused to pay wages and operating expenses, and other obligations and indebtedness, although the. payment thereof has been duly demanded; that such unpaid indebtedness in arrears amounts to more than $200,000, and that said railway company will be unable to pay the interest upon the bonds secured by said mortgage which will fall due January 1, 1894, amounting to $32,500; and that said railway company has failed and neglected to keep its said railway in good order and safe running condition, but hassuf· fered and allowed the same to become and remain, and It now is, in bad order, and unsafe ruuning condition. The bill further ,alleged that complainant ascertained the facts alleged in saId bill of complaint as to such defaults aae:r.lt December 5, 1892, through hIs solicitor, In Chicago; that thereupon said solicitor advised him of such facts, whereupon, on December 7, 1893, complainant communicated with said trustee in said mortgage, and advised said trustee of said default of said raHway company, and of its insolvency, and of the necessity of action on the behalf of the bondholders for the 11rotection of the lien and security of said Illortgage, and requested said trustee to take proper steps for the protection of the interests of the bondholders represented by it, and to institute legal proceedings for the appointment of a receiver to conserve and protect the interests of said bondholders, and that said trustee has failed and neglected to take any steps in the premises; and that, thereupon, complainant was advised by counsel, and avers, that it Is necessary for the protection of the lien and security under said mortgage, and' of the rights of the holders of said bonds, to apply to a court of equity for relief in the premises, to the end that said property be conserved, and the rights and interests of complainent and other bondholders protected. The intervening petition of the employes stated the amounts owing to them under their employment by the Jacksonville Southeastern Line, but such claims were not in judgment. The petition of the receivers of the Chicago, Peoria & St. Louis Railway Company alleged the joint operation of said lines of railroad under the name of the Jacksonville Southeastern Line; that the books were kept under that name; that moneys belonging to said Chicago, Peoria & St. Louis Railway Company had been used by the management to pay indebtedness of said Jacksonville, Louisville & St. Louis Railway Company; that the books of account of the flscal transactions of said Jacksonville' Southeastern Line had been so conducted as to be misleadins; that the Chicago, Peo· ria & St. Louis Railway Company had been wrongfully charged with divers items, and that the Jacksonville, Louisville & St. Louis Railway Company had not been charged with items for which it was chargeable; that an accounting said companies, and of the affairs of said JacksoJ;lville Southeastern Line, was necessary,-and also alleged the defaults in the payment of taxes, and tax sales and forfeitures, which are alleged in said bill of complaint of said Putnam. Upon bill of complaint of the Mercantile Trust Company, Trustee, v. Chicago, Peoria & St. Louis Railway Company, and upon certain intervening petitions consolidated therewith, the court had previously appointed receivers of the Chicago, Peoria & St. Louis Railway Company, and included in such receivership the Jacksonville, Louisville & St. Louis Railway, and the other railways above mentioned, composing the Jacksonville Southeastern Line; and upon the petition and motion of the Jacksonville. Louisville & St. Louis Railway Company for the release of Its railway from such receivership, and the restoration to it of its property by such receivers, such motion was sustained by the court. But before such restoration was consummated or directed the present application for a receiver of the Jacksonville, Louisville & St. Louis Railway Company was made and heard.
W. D. Guthrie and Peck, Miller & Starr, for complainant. C. M. Osborn and L L. Morrison, for defendant. Jacksonville, L. & St. L. Ry. Co. .
McFadon, for defendant Finance Co. of Pennsylvania. for intervening petitioners. and ALLEN, District Judge. Before WOODS, Circuit WOODS, Oircuit Judge (orally, af1;er stating the facts). This case,as n9w presented, rests on of Mr. Putnam, a bondholder, and the intervening petition of labor claimants, and of the receivElrsin the case of '.I;he Mercantile Trust .Company v. Chicago, Peoria & St. Louis Railway Oompany.1 I do not think that the petition of the labore;i.'S, in itself, affords ground for appointing a What I said cOl;lCerning their attitude in the other case is app)ica1:lle here. They are simply creditors of the three com· panies.' There is no obstarle to their enforcing their remedy at law again£ltall the liable, if they can get them all into court at the same time, or against any of them separately; so far as .t4ey are the complications that arise out of the joint liability of the several companies are entirely immaterial. Their relDedy' is direct and easy. The fact remains, however, that, as between the companieS concerned, there is complication or confusion of aCConnts to an extent that needs disentanglement, and there is force in the proposition, as a mere collateral consideration, that 'the existence of these accounts, and their character, lend support to. the application for the appointment of a receiver, though as already said, no legal ground for such action. The ,bill or petition of· the receivers of the other road presents, or would present, if there were necessity to determine the question, a morei;mportant and difficult inquiry. It shows the necessity of an accov,ntihg between t4el;le two companies, growing out of the opera· tion of their roads under the joint arrangement which has heretofore prevailed; ·and I suppose the averments are sufficient to make a case for an accounting in equity. But whether, on such a bill, before any liability has been established, a court of equity ought to appoint a receiver, I think quite doubtful. I am inclined to believe, though not committing myself or the court to the proposition, that a bill for an accounting, under ordinary circumstances, does not warrant 'the appointment of a receiver until the account has been and a liability established. But this, again, it is urged, though not itself lJ. cause for an appointment of a receiver, furnishes strong support for the application, if otherwise well found· ed. If the road is allowed to go out of court as a corporation in the independent control of its own officers, the jurisdiction of this court over the question of an accounting would per· haps be lost. These receivers, in order to enforce any remedy against that.' corporation, would probably have to go into a state court. I suppose there is no doubt of that; and the fact affords a strong motive, though not legal cause, for this court's retaining possession, if it has and ,can hold, or ought to take, the possession. Theoretically, we are asked to take possession. By the order that
· 61 Fed. 372.
JACKSONVILLE, L. & ST. L. BY. CO.
we made the other day for the surrender of this line by the reo ceivers in the other case, the property is theoretically in the hands of the company, though actually yet in the custody of the court; and it is a question now of retaking possession by appointing a receiver in this case. This brings us to the bill of the complainant, Putnam. On its face, this bill is sufficient, we think, to justify the appointment of a receiver. By the terms of the mortgage which the complainant, as one of the bondholders, seeks to enforce, the mortgagor was bound to pay taxes, and save the railroad company from default in that respect. It is alleged that such defaults have occurred. In respect to two counties, the details and the amounts involved are stated; and it is averred, in general terms, that in the other counties through which the road runs similar defaults have occurred. I agree with counsel that it was competent for-and, under the circumstances, the burden was fairJy thrown on-the respondent to show that there were no such defaults as are generally alleged, or that they were of slight significance, or for small amounts, if such are the facts. n is further alleged in the bill that the company is insolvent, the averment being of an indebtedness exceeding $200,000, of which the answ:er admits as much as $90,000; and it appears that within a short time there will be an installment of interest due on the bonded or mortgage debt amounting to about $40,000. It is further averred that. labor claims are unpaid, the showing in that respect being of a liability to the amount of $45,000. This company is liable for that amount, though its share of the debt, if equitably distributed between it and the other companies, is only 30 per cent. of that sum. Do these facts establish such insolvency as to justify the appointment of a receiver? The default in respect to taxes, and the significance of such defaults, have been strongly presented; and, to men familiar with affairs, such· delinquencies are necessarily significant. The penalties that arise from failure to pay taxes; the enormous interest in the form of penalties,-imply that the failure to discharge the liability came from a stress of circumstances practically impossible to be overcome. There is another phase of this growing indebtedness of the company in which the mortgagees or bondholders are interested. By the law, as it has grown up under the case of Fosdick v. Schall, 99 U. S. 235, and later cases, establishing what is known in this circuit as the "six-months rule," claims for labor and supplies, if not otherwise provided for, become entitled to preference over the mortgage debt. They, perhaps, do not constitute-I do not think they constitute-a lien on the property, such as to entitle the holders of them to apply for a receivership without first having established their demands. If such claims constituted a fixed or certain lien, their holders might be entitled to have receivers appointed to take care of their interests. But while there is not, strictly speaking, a lien, there is a preferential right, which may be enforced against the mort· gaged property, if there be no other means of payment; and consequently, to the extent that such demands are permitted to accumulate, the rights of the mortgagee are liable to be postponed. This
tMthis'interest will reSpectjand:.e'Venif the 'deli,nquent taxes were paid, ,as it has been suggested they might be, that eleJIlent of danger to his rigli.ts'would not be eliminated. I con"\"iction that practically this roap. is insolvent, and to'sliehadegree as to require the interference of the edurt. .' Tliete is force in the suggestion of counsel that tAe'troubles of 'the company have come frbm the general financial stress. But it is,frotPfinancial stress peculiar to the business generaIlt, that insolvency is wont to happen; "an,d, looking at the situation of the country as it is, there is no present promise or clear prospect of a recurrence of good times, and there :may be ground for apprehending yet worse before the coming of better conditions. On the whole case, it is evident that it is better for all interests that the matters in dispute be kept within the control, and that the adjustment of the liabilities between these companies should be settled under the supervision, of one court. The case is in such shape that we may assert jurisdiction, and I believe the best interests of all parties, as well as of the public, will be promoted by the ex,ercise of o'l1ranthority. WE> will tllerefore grant this petition. , Thert: is another fact, somewhat aside, but important. It appears, that tb(" existing receivership, thus far, has been beneficial. Under the prior management, there had been default in the payment of current expenses for three or four months, amounting to about $140,000. One hundred thousand of that has been extinguished, and current expenses since the receivership ha"\"e been paid j so that in less than three ,months the earnings of the road under the receivers have been. 'sufficient to pay the operating expenses for nearly six months, and,with continued prosperity and successful management, the receivers, after a little while, may be discharged, and the roads returned to their owners. I think the proposition of separate'receivers for the two roads is the right one.
TOWLE et al. v. AMERICAN BLDG., LOAN & INV. SOO. (Circuit Court" N. D. lllinois. March 10, 1894.)
BUiLDING AND .LOAN ASSOCIATIONS-DISSOLUTION IN EQ,UITy-ACCOUNTING.
Where a building and loan association, organized under a statute which declares that borrowers may repay their loans at any time, and be entitled to a credit of one-eighth of the premium for each of the unexpired years of the association's eight-year period, is dissolVed by a 'court of equity before the of the eight-year period because it is, losing money, the court called .in all the loans, and distributed the proceeds among the stockholders, giving the borrowers credit for the unearned part of their premiums, as. though they had voluntarily paid up, but ,gave them no credit on their loans for assessments and fines paid by them, all. the stockholders are aUke responsible for the losses of the . association.
Suit by Marcus Towle and others against the American Building, Loan & Investment Society. 'A receiver was appointed to take charge of the defendant's business, and he applies to the court for instructions.