LEARNED HAND, District
Judge (after stating the facts as above). [1] Among the creditors of a receiver we see no reason why either the lessors or the certificate holders should enjoy a priority unless some such was established by the court. We are not dealing with a public service corporation (Texas Co. v. Int. & G. North Co., 237 Fed. 921, 150 C. C. A. 571), and unless it appears that the court meant to postpone the certificate holders to the lessors, or vice versa, we can see no reason upon the hare origin of their claims why either should step ahead of the other. We recognize no difference in equity between the rent due, before the insolvency which was secured by the right of re-entry and which the certificates paid, and that due afterwards which was equally secured, and which the lessors forebore to assert by re-entry. Tt is true that under Durand & Co. v. Howard & Co., 216 Fed. 585, 132 C. C. A. 589, L. R. A. 1915B, 998, the claim for rent due before the insolvency was held not to he preferred in distribution, but that case rested upon the waiver of the existing forfeiture involved in asking the court to compel the receiver to exercise his option to affirm or reject. The lessors did [650]*650not do ?o here, and theirs was a claim upon which they could have reentered. The supposition, therefore, that the certificates should be postponed, because their proceeds only went to pay an existing debt of the corporation, is not true in fact assuming it would in any case be a good distinction, which we do not decide. The consideration advanced by each class of creditors, the lessors and the certificate holdérs, was for the essential preservation of the estate, since without it the best asset would have been lost. Each was a debt strictly within the powers of a court of equity which may pledge a part of the assets for the preservation of the rest; each was as much an operating expense as tire other.
[2] As in all such cases, the order authorizing the debt is the most conclusive evidence of the rank which the creditors should hold among other claims on the fund. This has been repeatedly used as the test in cases of receivers’ certificates. Anderson v. Condict, 93 Fed. 349, 35 C. C. A. 335; In re John W. Farley Co., 227 Fed. 378, 142 C. C. A. 74; St. Louis Union Trust Co. v. Texas So. Ry. Co., 59 Tex. Civ. App. 157, 126 S. W. 297; Lewis v. Linden Steel Co., 183 Pa. 248, 38 Ath 606; In re J. B. & J. M. Cornell (D. C.) 201 Fed. 381. The court having the fund in its custody may establish such priorities as it sees fit, at least as against such creditors, as take the credit of the receiver after the order authorizing the earlier debt had once been passed. Every one who deals with a receiver knows that he has the power to charge his estate only as the court may authorize him, and, if a prospective creditor fails to inquire how far the assets may be already incumbered, he takes the risk.
[3] We do not forget that the court is not absolutely bound to recognize the priorities fixed by the order, and that the matter is open to equitable readjustment, however conclusive a protection it may be to the receiver as to payments made under its terms. Louisville Ry. Co. v. Wilson, 138 U. S. 501, 506, 11 Sup. Ct. 405, 34 L. Ed. 1023. But, as we shall show, the orders in this case established no priorities as between the classes, and we are therefore relieved of the necessity of determining in what circumstances we should disregard them. All ■we need assert is that, disregarding the orders, there is no inherent ground for priority between him who lends money to pay accrued rent which is secured and him who allows the use of his propert}'- upon the agreement that the accruing rent shall be paid. Just why it should be taken against the lessor that he thought it profitable to leave the pi-operty at the existing rent, or against the bondholders that they should have thought it profitable to assume the lease, does not appear obvious to us. We therefore proceed to consider the effect of the orders.
[4, 5] The order of November 27, 1912, did not profess to give the certificates any priority except as against the mortgagees and the unsecured creditors. We pass the question whether those words were necessary in any event to give that priority if the order was granted after the mortgagees had become parties to the suit by asking to foreclose. Whether necessary or not, they meant to go no further in establishing priority than to put the certificates ahead of creditors, [651]*651secured and unsecured, of the corporation. As between themselves and other creditors of the receiver the certificate holders stood, so far as we can see, on a parity for tlie reasons given above. Hence it follows that the rule should apply of Lewis v. Linden Steel Co., 183 Pa. 248, 38 All. 606, and In re J. B. & J. M. Cornell (D. C.) 201 Fed. 381, that the creditors of a receiver in the absence of some original marshaling to the contrary, or of some fundamental equity, shall share ratably. Therefore the fund should be brought in hotchpot with all the claims of receiver, and each should share pro rata. In so far as Perrin & Smith Printing Co. v. Cook Hotel & Excursion Co., 118 Mo. App. 44, 93 S. W. 337, gives the lessors greater rights merely as lessors, with deference, we do not follow it. It is to be noted in that ca.se that the lessors had a lien upon all the improvements erected on the locus in quo, which were the source of the fund. The contest seems therefore to have been between a prior lien of the lessor not a party and the lien of the certificates. We need not differ from the decision rendered upon that question.
[0] Nor under the order of November 25, 1912, should the certificate holders be preferred as falling,within the class secured by the ten per cent, reserve fund. V.erhally taken, the word “obligations” would, of course, cover them; but we read the phrase rather in its context, and, so read, we believe that it was meant to cover the ordinary expenses which the receiver might have to pay currently as he went and such as he might not have paid when he accounted. Paragraph (c) of the order, on the other hand, does not affirmatively give a priority to rent over such charges as the certificates, because the latter by virtue of their payment of past rent, secured, as we have said, by the right of re-entry, partake enough of those claims to fall within these words of the order, which was passed before the back rent had been paid.
[7-9] The only question remaining is of the allowances to the mortgage trustee and its solicitors. As between them and creditors of the receiver, they have no priority. The court must first pay its debts, the solicitors, must look to their client, and the trustee to its beneficiaries. Petersburg Savings & Insurance Co. v. Dellatorre, 70 Fed. 643, 7 C. C. A. 310. Such services, when performed for the general preservation of the fund, as, for instance, the allowances to the receiver’s attorneys, stand on a different' basis; but, when the solicitor of a party brings a fund into court for administration, he must look to the ultimate share of his client for payment for services rendered to that client, or to his retainer.
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LEARNED HAND, District
Judge (after stating the facts as above). [1] Among the creditors of a receiver we see no reason why either the lessors or the certificate holders should enjoy a priority unless some such was established by the court. We are not dealing with a public service corporation (Texas Co. v. Int. & G. North Co., 237 Fed. 921, 150 C. C. A. 571), and unless it appears that the court meant to postpone the certificate holders to the lessors, or vice versa, we can see no reason upon the hare origin of their claims why either should step ahead of the other. We recognize no difference in equity between the rent due, before the insolvency which was secured by the right of re-entry and which the certificates paid, and that due afterwards which was equally secured, and which the lessors forebore to assert by re-entry. Tt is true that under Durand & Co. v. Howard & Co., 216 Fed. 585, 132 C. C. A. 589, L. R. A. 1915B, 998, the claim for rent due before the insolvency was held not to he preferred in distribution, but that case rested upon the waiver of the existing forfeiture involved in asking the court to compel the receiver to exercise his option to affirm or reject. The lessors did [650]*650not do ?o here, and theirs was a claim upon which they could have reentered. The supposition, therefore, that the certificates should be postponed, because their proceeds only went to pay an existing debt of the corporation, is not true in fact assuming it would in any case be a good distinction, which we do not decide. The consideration advanced by each class of creditors, the lessors and the certificate holdérs, was for the essential preservation of the estate, since without it the best asset would have been lost. Each was a debt strictly within the powers of a court of equity which may pledge a part of the assets for the preservation of the rest; each was as much an operating expense as tire other.
[2] As in all such cases, the order authorizing the debt is the most conclusive evidence of the rank which the creditors should hold among other claims on the fund. This has been repeatedly used as the test in cases of receivers’ certificates. Anderson v. Condict, 93 Fed. 349, 35 C. C. A. 335; In re John W. Farley Co., 227 Fed. 378, 142 C. C. A. 74; St. Louis Union Trust Co. v. Texas So. Ry. Co., 59 Tex. Civ. App. 157, 126 S. W. 297; Lewis v. Linden Steel Co., 183 Pa. 248, 38 Ath 606; In re J. B. & J. M. Cornell (D. C.) 201 Fed. 381. The court having the fund in its custody may establish such priorities as it sees fit, at least as against such creditors, as take the credit of the receiver after the order authorizing the earlier debt had once been passed. Every one who deals with a receiver knows that he has the power to charge his estate only as the court may authorize him, and, if a prospective creditor fails to inquire how far the assets may be already incumbered, he takes the risk.
[3] We do not forget that the court is not absolutely bound to recognize the priorities fixed by the order, and that the matter is open to equitable readjustment, however conclusive a protection it may be to the receiver as to payments made under its terms. Louisville Ry. Co. v. Wilson, 138 U. S. 501, 506, 11 Sup. Ct. 405, 34 L. Ed. 1023. But, as we shall show, the orders in this case established no priorities as between the classes, and we are therefore relieved of the necessity of determining in what circumstances we should disregard them. All ■we need assert is that, disregarding the orders, there is no inherent ground for priority between him who lends money to pay accrued rent which is secured and him who allows the use of his propert}'- upon the agreement that the accruing rent shall be paid. Just why it should be taken against the lessor that he thought it profitable to leave the pi-operty at the existing rent, or against the bondholders that they should have thought it profitable to assume the lease, does not appear obvious to us. We therefore proceed to consider the effect of the orders.
[4, 5] The order of November 27, 1912, did not profess to give the certificates any priority except as against the mortgagees and the unsecured creditors. We pass the question whether those words were necessary in any event to give that priority if the order was granted after the mortgagees had become parties to the suit by asking to foreclose. Whether necessary or not, they meant to go no further in establishing priority than to put the certificates ahead of creditors, [651]*651secured and unsecured, of the corporation. As between themselves and other creditors of the receiver the certificate holders stood, so far as we can see, on a parity for tlie reasons given above. Hence it follows that the rule should apply of Lewis v. Linden Steel Co., 183 Pa. 248, 38 All. 606, and In re J. B. & J. M. Cornell (D. C.) 201 Fed. 381, that the creditors of a receiver in the absence of some original marshaling to the contrary, or of some fundamental equity, shall share ratably. Therefore the fund should be brought in hotchpot with all the claims of receiver, and each should share pro rata. In so far as Perrin & Smith Printing Co. v. Cook Hotel & Excursion Co., 118 Mo. App. 44, 93 S. W. 337, gives the lessors greater rights merely as lessors, with deference, we do not follow it. It is to be noted in that ca.se that the lessors had a lien upon all the improvements erected on the locus in quo, which were the source of the fund. The contest seems therefore to have been between a prior lien of the lessor not a party and the lien of the certificates. We need not differ from the decision rendered upon that question.
[0] Nor under the order of November 25, 1912, should the certificate holders be preferred as falling,within the class secured by the ten per cent, reserve fund. V.erhally taken, the word “obligations” would, of course, cover them; but we read the phrase rather in its context, and, so read, we believe that it was meant to cover the ordinary expenses which the receiver might have to pay currently as he went and such as he might not have paid when he accounted. Paragraph (c) of the order, on the other hand, does not affirmatively give a priority to rent over such charges as the certificates, because the latter by virtue of their payment of past rent, secured, as we have said, by the right of re-entry, partake enough of those claims to fall within these words of the order, which was passed before the back rent had been paid.
[7-9] The only question remaining is of the allowances to the mortgage trustee and its solicitors. As between them and creditors of the receiver, they have no priority. The court must first pay its debts, the solicitors, must look to their client, and the trustee to its beneficiaries. Petersburg Savings & Insurance Co. v. Dellatorre, 70 Fed. 643, 7 C. C. A. 310. Such services, when performed for the general preservation of the fund, as, for instance, the allowances to the receiver’s attorneys, stand on a different' basis; but, when the solicitor of a party brings a fund into court for administration, he must look to the ultimate share of his client for payment for services rendered to that client, or to his retainer. This would, of course, free the share o'f the certificates as well, except for the language of the order of November 27, 1912, that the lien of the certificates shall be subject to “costs, counsel fees and disbursements.” It is permissible to argue that this affects the lien only qua lien, but we think not. The purpose is pretty clear to give counsel fees priority as against the certificates, and among counsel fees we are disposed to include the allowances to the trustee’s solicitors. The precise point was not argued, and we assume that the certificate holders in any case do not assert a priority over those charges, since they were allowed against them in the court below and no appeal was taken.
[652]*652The net balance in the hands of the receiver will therefore be divided as follows: First, deduct the allowances to the receiver’s attorney and the incidental charges of the receivership; next, divide the balance ratably between the lessors and the certificate holders; last, charge against the dividend of the certificate holders, the allowance to the solicitors of the trustee and to the trustee itself.
[10] We have, of course, assumed throughout that the claim for rent against the receiver was a proper debt of the receiver. This is not contrary to the doctrine of Stokes v. Hoffman House, 167 N. Y. 554, 60 N. E. 667, 53 L. R. A. 870. The very distinguished and learned judge who wrote the prevailing opinion in the case distinctly said that the rule did not apply to a claim by the lessor in the proceedings in which the receiver was appointed, and he specifically reserved such a right from the effect of the decree. .In the case at bar it is evident from the petition of the receiver of November 27, 1912, that his purpose was to preserve the lease for the purpose of assigning it to a corporation which the bondholders at that time expected to organize. This certainly could not have been supposed to be possible unless the fund was charged with the intervening rents.' We need not therefore decide what was the effect of the neutral occupation of the receiver after July 16, 1912, when the lessors were free to re-enter. Quincy, etc., R. Co. v. Humphreys, 145 U. S. 82, 12 Sup. Ct. 787, 36 L. Ed. 632; U. S. Trust Co. v. Wabash Ry. Co., 150 U. S. 287, 14 Sup. Ct. 86, 37 L. Ed. 1085. There can be no doubt that the receiver by his- petition and the order upon it and the payment of the back rents meant to abandon his earlier neutral position, and that he became liable during his subsequent occupation, for all ensuing charges. This is equally true whether or not he had finally elected to assume the lease for all purposes. Any other interpretation of tire proceedings resulting in the issuance of the certificates would make them a fraud upon the lessors, who continued to allow the receiver to remain in possession.
The order is reversed, and the cause remanded for further proceedings consistent with the foregoing.