thereto by the fact that this class depend upon their daily labor for their daily food. Afterwards when the court has assumed the administration of the property, and it appearing that there are certain outstanding claims in the hands of persons who furnished equipment materials, supplies, or anything which was necessary to keep the railroad a going concern, then the court administers an equity, and the benefits of this equity inure as well to the original parties keeping up the road a sto their assignees. Union Trust Co. v. Walker, 107 U. S. 596.

Rights of

merchant furnishing

rations.

In the present case, when the complainants made their application for a receiver, the court took into consideration what conditions should be imposed on the grant of their prayer. These conditions were payment of wages due to the employes within 90 days before 10th December, 1890. There are no wages due. The petitioner did not pay them any wages; did not deal with nor credit them. He furnished the company with goods, charged them to the company, and looked to the company only. There is nothing like subrogation here; and, as the employes themselves are paid, not as a matter of right, but as a matter of grace, nothing to be subrogated to. Dealing with the interest of mortgagees in railroad property, we encounter vested rights. They cannot be displaced upon any mere idea of right, or on any refined notions of equity. In managing the property, the court is not the owner, nor can it entertain sentiments of benevolence or humanity in disbursing the funds,-luxuries in which the owner alone can indulge. So much of the petition as prays special priority under the order of 28th February, 1891, is disallowed. The claim comes under the principles laid down in Fosdick v. Schall. We have already passed upon several claims of this character in the intervention of the Pocahontas Coal Co. et. al. in the main cause, (48 Fed. Rep. 188.) Let the claim of the present petitioner be included with those claims to the amount proved, $902.80, and share the same fate.

Rule in Fosdick v. Schall-Payment of Current Expenses During Receivership. See post, Bound v. South Car. R. Co. and note.

SOUTH CAROLINA R. Co. et al. (LACKAWANNA IRON & COAL CO. INTERVENORS.)

(U. S. Circuit Court, D. S. Car., July 20, 1891, 47 Fed. Rep. 30.) Mortgage-Equitable Rights of Material Man-Second Mortgage. A railroad company whose road was covered by two mortgages bought of a manufacturer a large lot of steel rails which were absolutely necessary for the continued operation of the road and gave therefor three notes which the president promised should be paid out of the earnings of the road. Subsequently, on application of the holders of the second mortgage the road was placed in the hands of a receiver. Held that, as against the holders of the second mortgage, the equitable claim of the manufacturer would take preference and he would be entitled to have the earnings of the road in the receiver's hands applied first to the payment of his claim. Same Rights of Holders of First Mortgage. In such a case however, the manufacturer's claim would have no preference over those of the hold ers of the first mortgage. These latter not having invoked the aid of the court, although they filed cross bills in the suit, stand in their legal right.

IN Equity.

Rutledge & Rutledge, for intervenors.

Mitchell & Smith and A. B. Hagood, opposed.

SIMONTON, J.-In April, 1888, the South Carolina Railway Company purchased from the Lackawanna Iron & Coal Company 1,500 tons of steel rails. These rails were abCase stated. solutely necessary for the purposes of the company, and without them the Camden branch-an important part of its road-could not have been kept up. Three notes were given for the rails, aggregating $50,255.93, maturing in November, 1888. When the purchase was made the president of the railway company promised to pay them out of the earnings of the road, and selected the period of maturity with that end in view. When the notes fell due the company could not pay them, and they were extended for 90 days more. The period thus fixed was specially selected because the earnings at that time exceeded the earnings of any other part of the year. One of the notes was paid in September, 1889; the others are still unpaid, aggregating of principal the sum of $35,736.78, interest from March 10, 1889, on $17,784.59, and March 12, 1889, $17,952.19. The South Carolina Railway Company made default of the interest on its second mortgage bonds on April 1, 1888. It made default of the

interest on its first mortgage bonds on April 1, 1889. It went into the hands of the receiver October 7, 1889, in proceedings instituted by a second mortgage bondholder in behalf of himself and others of this class for the foreclosure of the second mortgage. During the entire period from the making to the final dishonor of these notes, the gross earnings of the company exceeded the operating expenses. As we have seen, no interest was paid on second mortgage bonds after the giving of these notes. But it appears that after April, 1888, and while these notes were running to maturity, certain bills payable of the railway company were paid out of the earnings, and that these bills were made in order to raise funds which had been applied, among other things, to the payment of interest on second mortgage bonds. The Lackawanna Company now intervenes, and prays that its claim be paid out of the earnings of the road in the hands of the receiver.

The supreme court has established that a railroad mortgage, so long as the road is kept a going concern, is a peculiar piece of property. The holder of a bond se

rial men.

cured by such a mortgage takes it with notice that Equitable the earnings of the railroad, notwithstanding that He of matethey may have been specially pledged for his debt, must first be applied to the current expenses, labor, supplies, equipment, and such permanent improvements as are absolutely necessary before they can be used for the payment of his interest. And if perchance he be paid, leaving these or any of these unpaid, this would be the diversion of the fund, and a person holding any such exceptional claim has an equity, under certain circumstances, to be reimbursed, by having such diversion corrected out of the income in the hands of the company; and, if in the mean time a receiver has been appointed, out of the earnings in the hands of the receiver. This is an equity founded upon the doctrine that the officers of a railway company are trustees, or, perhaps, we should say the recipients and holders, of a trust fund, applicable first to claims of this character, and after them to the interest on the mortgage debt. The origin and reason for this equity are found in the fact that a going railroad is of public concern, and must be kept up. Those who contribute to keep it up and so subserve the public weal are rewarded. This equity is enforced whenever suit is brought by the mortgagee to enforce his mortgage, and is held superior to the legal lien of the mortgage. This doctrine was first distinctly set out in Fosdick v. Schall, 99 U. S. 235, and is sustained by a current of authority. Miltenberger v. Logansport R. Co., 106 U. S. 286, 12 Am. & Eng. R. Cas. 464; Union Trust Co. z'

Souther, 107 U. S. 591, 11 Am. & Eng. R. Cas._707; Burnham v. Bowen, 111 U. S. 776, 17 Am. & Eng. R. Cas. 308. It seems to have been shaken in Kneeland v. American Loan & Trust Co., 136 U. S. 87, 43 Am. & Eng. R. Cas. 519, but in Kneeland v. Bass Foundry & Mach. Works, 140 U. S. 592, the court quotes with approval Fosdick v. Schall, and the authorities following it, and reaffirms them. The only qualification laid down is that this equity is put in motion as to such claims only as arose within a reasonable time before the receiver was appointed. The term "a reasonable time" is an unknown, or, perhaps, an uncertain, quantity; at least it depends somewhat on the circumstances of the case and somewhat on the idiosyncracies of the chancellor. See Paine v. Central Vt. R. Co., 118 U. S. 159, 25 Am. & Eng. R. Cas. 37. One of the cases fixes the limit at 90 days. Miltenberger v. Logansport R. Co., 106 U. S. 288, 12 Am. & Eng. R. Cas. 464. In Thomas v. Peoria & R. I. R. Co., 36 Fed. Rep. 817, 36 Am. & Eng. R. Cas. 381, six months is selected as the limit. Judge BREWER, in Blair v. St. Louis N. & K. R. Co., 22 Fed. Rep. 471, says that six months is the longest time within his knowlege that has ever been given. In the present case 18 months elapsed between the purchase of the rails and the appointment of the receiver.

Right of intervenor against second mortgagees.

But, as we have seen, this claim on the part of a material man is protected by an equity. The officers of the company hold the earnings as a trust fund, in which claims of this character have a preference. The payment of interest to bondholders, these material claims being unpaid, is held to be the use of money belonging to them for the benefit of others, and the diversion of the fund entitles them to recoup. It is difficult, under these circumstances, to see how any creditor of this class can be defeated in his applícation for reimbursement, unless in analogy to the statute of limitations, or unless such circumstances exist as will induce the court to treat it as a stale claim, or unless he has lost an opportunity of recovering his debt from the company, or unless his laches has operated some change in the position of the mortgage creditor. At the time this debt was incurred the whole railroad property, present and future, was covered by a statutory lien, by a first mortgage, a second mortgage, and an income mortgage. The rails were absolutely necessary to keep the road a going concern. The Lackawanna Company furnished these rails, trusting to the statement of the president of the railway company that they would be paid out of the earnings. These belonged to the company, (Fosdick v. Schall, supra,) and the president could

so dispose of them. The authorities quoted show that the Lackawanna Company belongs to a class of creditors who had an equity over these earnings even as against bondholdWhen the notes first matured, the railroad company had defaulted on its April and October interest of its second mortgage bonds. No action in the court on the part of the Lackawanna Company could have collected its claim. By pressure on the company it was paid one note. But, as the end of the struggle of the railroad company was inevitable, the Lackawanna Company had the right to rely upon its equity, and to look for payment out of the diverted funds. It seems to me that this claim comes within the principle and the protection of Fosdick v. Schall. The court enforces this equity only as against the parties who seek its aid. He who seeks equity must do equity. So rigidly is this rule applied that when a receiver is appointed at the instance of a judgment creditor the material man has no relief of this character, because as to such creditor there has been no diversion. Kneeland v. American Loan Trust Co., 136 U. S. 90, 43 Am. & Eng. R. Cas. 519. In the present case the receiver was appointed upon the prayer and at the instance of the second mortgage creditors, and as against them the intervenor has an equity to have the moneys diverted to the payment of their interest restored from such portion of the earnings in the hands of the receiver as now or may become applicable to their interest. In case there are not now, and in the future there will not be, such earnings in the hands of the receiver, then the intervenors may be paid out of that part of the proceeds of sale of the mortgage property to be paid hereafter which shall be applicable to the second mortgage. The rails furnished by the Lackawanna Company were not only a necessity, but they were a permanent addition to the value of the road. They were wisely purchased, and were of immediate public benefit. They saved the branch of the road on which they were laid.

Rights

against first mortgagees.

But the intervenor has no equity as against the first mortgage and other liens superior to the second mortgage. These classes of creditors did not of their own volition come into equity, and the rule cannot be applied to them to do equity. They can stand on their legal vested lien. True, in each instance they filed cross bills by leave of the court. They could not have been filed without such leave. Indiana S. R. Co. v. Liverpool, L. & G. Ins. Co., 109 U. S. 168, 14 Am. & Eng. R. Cas. 606. A cross bill is brought either to obtain a discovery of facts in aid of the defense to the original bill, or to obtain full and complete relief to all parties as to the matters charged in