all beyond keeping the line in statu quo as a going concern, the issue of the certificates will not be authorized. Thus in Hand v. R. R. Co., 10 Rich (S. C.), 406, where the purpose of the application was to enable the receiver to build nine new miles of track and a new bridge so as to obtain access to the city of Charleston, a result which the receivers declared absolutely necessary to enable the road to compete successfully with others for the carriage of the mails. The court below granted the applications and authorized the issue of receiver's certificates. But on appeal, the Supreme Court reversed the order, saying: "It cannot be doubted that the court might, under proper circumstances, order a change to be made in the state of the property in its hands for distribution among creditors with a view to increase the value of the fund, but it is clear that the pursuit of speculative advantages would not present a proper case for its exercise. To preserve the property from all causes tending to its depreciation, to render it reasonably productive during the term it remains in the hands of the court, are objects proper for the attention of the court, and its hands should not be too rigidly tied in the pursuit of these objects. On the other hand, for the court to undertake to weigh the merits of projected improvements, and to assume in behalf of the parties in interest that class of experimental risks that appertain to the development of material industries, is both inconsistent with the nature of a court and the objects with which it holds assets for the satisfaction of creditors.

"We are led by these considerations to conclude that before the order in question was made, as affecting the interests of parties not assenting to it, it should have been shown that some necessity existed for the change projected in the location of the line of the R. R., such necessity having relation to the production of the property or business of the road. No such case is presented. The advantages presented to the court, as likely to arise from the change, are of such a nature as to call for the exercise of business foresight and sagacity rather than prudence, for the formation of a judgment in regard to them. This is sufficient for the refusal of the order when objected to." It often occurs that owing to the number of incumbrances upon the property, or the embarrassed state of the railroad company's affairs, the certificates if subsequent in lien to all other incumbrances would furnish little or no security to the lender. In many instances, therefore, they have been expressly ordered by the court to be prior in lien to all other incumbrances, mortgages, judgments and the like. The power of the court to make such an order has not been usually doubted. As a rule all parties in interest, including the various incumbrances, have joined in the application and have, therefore, been willing to submit to the decree of the court in the premises. Where, however, the right to enter such a decree is resisted by one of the incumbrances a very different question arises. In Meyers v. Johnson, 53 Ala. 237, the question received an elaborate consideration, and it was determined that the right existed, if the court saw proper, to postpone the lien of the objecting incumbrances to that of a certificate issued to raise money for the benefit of all interested. The ground upon which this conclusion was reached was substantially that adopted by marine courts in deciding cases on bottomry bonds and respondentia, viz., that he who advances the money which makes the security available for other incumbrances is entitled to priority over them, even though the time of their advances may antedate that of his own. The court also invoked the doctrine that the property, being in the hands of a court of equity, must be managed so as to subserve the interests of all concerned; and if this could, in the sound discretion of the court, be best effected by postponing the lien of mortgages, etc., to that of the certificates, that the powers to so postpone lay with the court. The soundness of this conclusion is open to serious doubt. It is attacked with much vigor in two able articles, one entitled "On Postponing the Priorities of First Mortgage Liens," published in 13 Am. Law Rev. 40; and

the other entitled "Claims and Equities affecting the Priorities of Railroad Mortgages," 12 Am. Law Rev. 660. The current of authority is wholly opposed to it. The principle applicable in maritime cases is not extended to cases at common law. See in Re Regent's Canal Iron Works, L. R., 3 Ch. Div. 411. It has therefore been held that incumbrances placed upon a road to raise money to complete it have in themselves no priority over prior mortgages. Galveston R. R. Co. v. Cowdrey, 11 Wall. 459; and so of mechanic's liens filed for construction of part of a railroad. Dunham v. Cinn., Peru and Chic. R. R. Co., 1 Wall. 524; N. J. Midland R. R. Co. v. Wortendyke, 27 N. J. Eq. 658.

So, to come a little closer to the point at issue, receivers are sometimes directed by the court to pay to employees wages due at the time of the inception of the receivership out of the current income. Douglass v. Cline, 12 Bush, 608; Newport and Conn. Bridge Co. v. Douglass, 12 Bush, 673; and a lien on the personal effects of the company is often conferred by statute on such employees for a certain part of such wages. (See Act of N. J. Feb. 12, 1874; acts 1874, p. 12.) Such acts are never construed, however, so as to impair or postpone the lien of a prior mortgage. Williamson v. N. J. Southern R. R. Co., 28 N. J. Eq. 277. Nor it would seem could any order of the court with reference to such wages give them such an effect. In re Atlantic, Miss. and Ohio R. R. Co., 26 Fin. Chron. 444; Denniston v. Chicago, Alton and St. L. Ry. Co., 4 Biss. 414. See also Ellis v. Bost., Hartf. and Erie R. R. Co., 107 Mass. 1; Iron and Steel Rolling Mill Co. v. Erie Ry. Co., 26 N. Y. Eq. 284. The fact may also be noted in this connection that a judgment recovered against receivers for injuries inflicted upon the plaintiff during their management of the road will have no priority over mortgages and other encumbrances which have been already placed upon it. These cases would seem to tend strongly to show that the decision in Meyers v. Johnson (supra) is not good law.

The question of estoppel raised in even the principal cases is not quite new, having been touched upon in some of the authorities already cited. It has, however, in the cases reported above first received systematic and careful consideration. In conclusion it may be remarked that the power of receivers to issue certificates depends wholly upon the terms of the order authorizing such issue, and that all purchasers of such certificates are bound to take notice of the terms of such order, and of the circumstances under which the certificates were issued. Where, therefore, the right to issue them was given only after the materials for which they were to be paid were furnished, and it appeared that they had been issued without consideration before such materials were furnished, they were held void in the hands of a bona fide purchaser for value.

See further on this whole subject Jones on Railway Securities, Sec. 533, seq., 12 Am. Law Rev. 660, and 13 Am. Law Rev. 40.

STATE OF TENNESSEE

V.

THE EDGEFIELD AND KENTUCKY R. R. Co. ET AL.

(6 Lea's Reports (Tenn.), 353. December Term, 1880.)

Statutory receivers of railroads, to some extent, were public agents, and unless acting within the scope of their authority the State not bound by their acts.

Statutory receivers of railroads have no power to contract debts to be paid otherwise than out of the earnings of the roads.

There was no obligation on the State to continue the receivership until the current indebtedness of the receivership was paid.

The fact that the indebtedness created by the receiver enhanced the value of the property on which the State had a mortgage, cannot add strength to the claim.

A court of chancery, by its inherent powers, may enlarge the power of its receiver, but no such power exists as to a receiver by contract.

APPEAL from the Chancery Court at Nashville. MCHENRY, Sp. Ch.

W. F. COOPER, E. H. EWING and W. B. REESE for complainant. J. P. HELMS for defendants.

J. M. GAUT, Sp. J., delivered the opinion of the court.

Under the act of the General Assembly of the State of Tennessee, passed February 11, 1852, and subsequent acts either amendatory thereof or similar in character, the State of Tennessee extended its aid to the various railroad companies of the State, and among others, to the Nashville and Northwestern R. R. Co., and the Memphis, Clarksville and Louisville R. R. Co., by issuing to them the coupon bonds of the State, having thirty years to run, and bearing six per cent interest, payable semi-annually. One of the conditions of the grant, as fixed by the statutes, was that each company should pay into the State treasury, at least fifteen days before the interest became due, from time to time, upon said bonds, an amount sufficient to pay the interest upon the bonds issued to it, including exchange and commissions, or furnish evidence that such interest had been paid or provided for; and should also pay into the treasury an annual sum in State bonds, as a sinking fund, preparatory to the extinguishment of the principal. To secure the payment of the bonds and interest, a lien was reserved in favor of the State upon the respective roads, superstructures and equipments, both that prepared at the time the bonds were issued and that to be thereafter completed and furnished, which lien was expressly made superior to all others which the companies might create, and superior to all claims existing or to exist against said companies. As further security for the payment of the interest on the bonds, it was provided that, in case any of said companies should fail to pay the interest in accordance with the above stated provision, "the Governor shall immediately appoint some suitable person or persons, at the expense of the company, to take possession and control of said railroad, and all the assets thereof, and manage the same, and receive the rents, issues, profits and dividends thereof, whose duty it shall be to give bond and security to the State of Tennessee, in such penalty as the Governor may require, for the faithful discharge of his or their duty as receiver or receivers, to receive said rents, issues, profits and dividends, and pay over the same, under the direction of the Governor, towards the

liquidations of such unpaid interests," etc., and that "said receiver, so appointed, shall continue in the possession of said road, fixtures and equipments, and run the same, and manage the entire road until a sufficient sum shall be realized, exclusive of the costs and expenses incident to said proceedings, to pay off and discharge the interest, as aforesaid, due on said bonds, which, being done, the receiver shall surrender said road and fixtures and equipments to said company." A like proceeding was also authorized in case of a failure to pay any installment of sinking fund. Both of the above named companies made default in the payment of interest, and were placed in the hands of receivers.

On the 21st of December, 1870, the General Assembly passed an act directing a bill to be filed in the chancery court at Nashville, in behalf of the State, against all the delinquent railroad companies, their respective stockholders, holders of the bonds, creditors, and all persons interested in the roads, to determine all questions which had arisen, or might arise, touching the rights and interests of the State, and also of said defendants, in said roads, with a view to a sale of the State's interest therein. Pursuant to this act, on the 20th of January, 1871, a bill, and on April 15, 1871, an amended bill, was filed by the State against said delinquent railroad companies by name, and by general description, under the rules of chancery practice, against all of their stockholders, bondholders, lien and general creditors, and all other persons having any interest

in the roads.

The bill prays that, after the rights of all parties have been adjudicated, the State's interest in the roads may be sold, or the roads themselves, with all their property and franchises, if found necessary or for the interest of all parties, and expressly or tacitly assented to by such parties.

Under this bill such proceedings were had that, on the 6th day of July, 1871, the cause was finally heard as to the Memphis, Clarksville and Louisville road, and on the 8th of the same month as to the Nashville and Northwestern, when the State's lien was decreed to be superior to all others, the roads were ordered to be sold, and the proceeds applied to the respective debts therein ascertained to be due the State. From this decree no appeal was taken by any of the parties. In the mean time, however, on the 6th of June, 1871, these petitioners presented their petitions, asking to be permitted "to file them as defendants," and upon their application the order taking the bills for confessed was, as to them, set aside, they allowed to file their petitions, and "litigate the questions involved." In the decrees of July 6th and 8th above recited, the petitioners are ordered to file their claims within a given time, the master is ordered to report their amount, all questions of law and fact as to the same are reserved, and a sufficient amount of the proceeds of the sales of the roads to cover

them is ordered to be held subject to the future decree of the

court.

The order of reference was executed, and in July, 1874, the cause was finally heard as to petitioners, upon a motion of the State to dismiss the petitions and a motion of the petitioners to confirm the report, when the chancellor allowed the former motion and disallowed the latter, dismissing the petitions with cost. From this decree petitioners have appealed.

The petitioners filed no answers to the original or amended bill. On the final hearing of the original cause, as above stated, their petitions seem to have been treated as answers, though they do not purport to answer the bills, and in fact allude to only a few of their allegations, and only to these by way of statement of the petitioners' cases.

On the other hand, the State, after treating the petitions as answers, undertook to treat them as bills, and moved to dismiss them, the motion, however, not specifying the ground on which it is based.

The propriety of this pleading and practice might be seriously called in question were it not for the justification which is perhaps furnished by the statute under which the bill was filed, which provides, "that, in the discretion of the court, formal pleadings may be dispensed with by a simple statement on the record of the points or matters relied upon by the parties and sought to be decided by the court." At all events, the argument in this court has invoked a decision on the merits, and we prefer to so dispose of the case.

The petition of A. Birchall and others avers that, under the internal improvement laws, the State had issued to the Nashville and Northwestern R. R. Co. a large amount in State bonds, upon which the railroad company was bound to pay the semi-annual interest as it fell due. That, upon default, the State had the right to appoint a receiver to take charge of the road, run the same, and out of the earnings, after paying the incidental expenses, to pay the interest on the bonds. That the receiver was authorized to employ the necessary labor and purchase the necessary materials. That, under the provisions of these laws, the Governor of the State, in September, 1867, placed the road in the hands of a receiver, and that it continued in the possession of and was run by successive receivers till September, 1869, when it was leased by the stockholders and the State to the Nashville and Chattanooga R. R. Co. That, under contract with said receivers, the petitioners did work and labor on said road, constructing, repairing and running the same, and furnishing cross-ties, wood and other materials necessary to its successful operation, and were to be paid out of the earnings of the road, but that, upon settlement, the receiver failed and refused to pay them for the labor or materials, but gave to some of