Poland v. Lamoille Valley Railroad

52 Vt. 144

• Court: Supreme Court of Vermont
• Decided: October 15, 1879
• Status: Published

Opinion

The opinion of the court was delivered by

Powers, J.

On the 1st day of May, 1871, the Lamoille Yalley Railroad Company, the Montpelier & St. Johnsbury Railroad Company, and the Essex County Railroad Company, associated together for the purpose of building a railroad from the Connecticut River to Lake Champlain, and known as the Vermont Division of the Portland & Ogdensburg Railroad Company, in order to raise money to construct, complete, and equip their railroad, executed to Luke P. Poland and Abraham T. Lowe, as trustees, a trust deed of their railroad, including all its real and personal property, together with the tolls and income and all their corporate rights and franchises, in trust to secure the payment of $2,300,000 in joint bonds issued by said companies, with semi-annual interest coupons attached. In the habendum it is stipulated that the conveyance is made and accepted upon trusts, and subject to limitations and conditions,

First, to secure the payment of the principal and interest upon the joint bonds ratably and without preference, &c., and further as follows:

Third. Upon trust until default shall have been made by the parties of the first, second, and third parts in payment of the principal or interest of said bonds, or some of them, or until default shall have been made in respect to something herein agreed or required to be done by them, to suffer and permit the said parties of the first, second, and third parts to possess, use, occupy, manage, and operate the said railroad property, franchises, and appurtenances, and to renew, replace, and repair the said property and every part thereof, and take, receive, and use the tolls, rents, issues, incomes, and profits thereof, and apply the same to the payment of the current expenses of the roads, and to the purchase of necessary machinery and equipment, or dispose of the same for the lawful uses of the said parties of the first, second, and third parts, in any manner not inconsistent with this indenture. And the boards of directors of said several companies may likewise distribute and pay any net annual incomes to stockholders, after providing for the interest on any and all bonds which said companies may owe.

Fourth. Upon trust that in case the said parties of the first, second, and third parts shall fail, neglect, omit, or refuse to pay the principal of, or the interest upon, the said bonds or any thereof, as the same shall respectively become due and payable, and such failure, neglect, omission, or refusal shall continue for the period of four months after the payment thereof shall have been demanded in writing, then the said parties of the fourth part, of either of them, upon the refusal of the other or their successors in said trust, may by themselves, or their attorneys, agents, or servants in that behalf, upon the written request of the holders of a majority in amount of such bonds then outstanding in respect whereof there shall have been any such failure, neglect, omission, or refusal, enter into and upon, and take possession of, all, or, in their or his discretion, any part of the said premises and property hereinbefore described, and work and operate the said railroads and receive the income, receipts, and profits thereof, and out of the same pay : 1st. The expenses of running and operating the same, including therein such reasonable compensations as they or he may allow to the several persons employed or engaged in running and superintendence of the same, and all taxes, assessments, charges or liens having priority or preference to the lien of these presents upon the said premises, or any part thereof, and a rea. sonable compensation to the parties of the fourth part, or their successors, or such of them as shall act in the premises, for their or his care, diligence, and responsibility in the premises, and for the services of such attorneys and counsel as may have been by him or them employed, and also the expenses of keeping the said roads and appurtenances, the locomotives, and rolling stock thereof in good and sufficient repair, &c.

Under the sixth trust specified the trustees were empowered, after a default for six months, and on request of the holders of three fourths in amount of outstanding bonds, to take possession and sell the mortgaged premises at auction. On the 1st day of April, 1874, said companies executed a second mortgage of the same property to the same trustees, to secure the payment of joint bonds to the amount of $1,770,000, and upon the same trusts as those expressed in said first mortgage. About $125,000 only in bonds were issued under this mortgage. On the 1st day of January, 1875, said companies, jointly with the Lamoille Valley Junction Railroad Company and the Maine Division of the Portland and Ogdensburg Railroad Company executed a third, called a consolidated, mortgage of their several railroads to said Poland and Israel Washburn, Jr., and P. H. Brown, as trustees, to secure the joint bonds of all said companies, to the amount of $9,500,000, and upon like trusts to those expressed in said first mortgage. About $80,000 of this class of bonds were isssued. The first named three companies, having expended the proceeds of all said bonds and being insolvent, and said second and said consolidated bonds being unsalable, and the sum of $500,000 in money being necessary to complete their railroad, on the 18th day of July, 1876, executed a fourth, called a preference mortgage of all the property, rights, tolls and income described in said first mortgage to said Poland, trustee, in trust to secure the payment of $500,000 in joint preference bonds, issued by said companies, and upon the other trusts expressed in said first mortgage. And it was provided in said last-named mortgage that no bonds should be issued under it, until the holders of first-mortgage bonds to the amount of' eighteen hundred thousand dollars, should have signed an agreement in writing, in the following words, to wit: “We, whose names are hereto subscribed, holders of bonds of the numbers and amounts set against our respective names, issued under, and secured by, the first mortgage of the Essex County Railroad Company, of the Montpelier and St. Johnsbury Railroad Company, and of the Lamoille Yalley Railroad Company, hereby severally agree that for the purpose of completing and equipping the line of the said several roads to Lake Champlain, in Swanton, Yt., under existing contracts or otherwise, and of paying the interest on the debts, for the payment of which a portion of such bonds are pledged, the said several railroad companies may issue bonds to be denominated preference bonds, in character like the first-mortgage bonds, to the amount of five hundred thousand dollars, secured by a joint mortgage of the several railroads and their equipment like unto the first mortgage thereof, which shall constitute and be a lien on the same prior to the bonds held by us severally, the mortgage and bonds to be made to Hon. Luke P. „ Poland as trustee; said preference bonds to be payable,principal and interest, in gold, in twenty years, and at the option of said companies after five years from the 1st day of May, A. D. 1876, and to bear interest at the rate of six per cent, per annum semiannually. This agreement and consent is not to be binding until the holders of the first mortgage bonds to the amount of eighteen hundred thousand dollars shall execute the same, nor until the trustee in the preference mortgage, being one of the trustees of the first mortgage, shall consent hereto in writing; said preference bonds are not to be pledged or sold for less than their par value without the consent of said trustee, and none of said bonds are to be issued by said trustee until he is fully satisfied that the said companies have made such arrangements and contracts that the issue of said bonds will accomplish the completion of the line to Lake Champlain, and that said companies will pay the interest on the debts for the payment of which the first-mortgage bonds are pledged, for at least two years from the date of the preference bonds.” And the said paper was signed by the holders of first mortgage bonds, stating the numbers and denomination of the bonds held by each, to about the amount of eighteen hundred and seventy thousand dollars. And said Poland gave his consent as trustee thereto in writing, as provided in said agreement. Default in the payment of interest upon the first-mortgage bonds was made in May, 1876, and about that time upon all classes of said bonds, and October 18, 1877, this bill was brought by the trustee under said preference mortgage, asking to have the priorities of said securities ascertained, an account of all said bonds taken, and for a proper decree of foreclosure. The bill also alleged that the roads of said companies were very incomplete, and must soon have a very considerable expenditure of money thereon, to run with safety; that said companies were largely indebted to many persons, who were not secured upon the property, and that if said roads remained in the hands of said companies, all the earnings thereof and all the personal property would be taken for the payment of such debts and diverted from the payment of the interest due to mortgage bondholders; and that the orator, as trustee under said preference mortgage, had wholly declined to take possession of said roads and run them, as trustee, as had the trustees under the first mortgage, and that they regarded it “ as simply impossible for them so to do, without the greatest peril of pecuniary loss and ruin to themselves.” The bill also prayed that the court would appoint some suitable person or persons as receivers to take possession of said roads and property, and operate the same under the order and protection of the court until a final decree should be made in the premises.

A cross-bill was filed by the trustees under the first mortgage, with like prayer for relief. The bill and cross-bill also contained an allegation that the orator was informed and believed that said companies, in running and operating their roads, jointly became and were indebted for services and supplies furnished for such purpose to various persons who claimed to have some kind of equitable lien on the roads, or the personal property thereon, or the earnings and income thereof, and that George E. Howe of St. Johnsbury, Vt., and Capen, Sprague & Go. of Boston, Mass., claimed to be creditors of that class, and asked that they might be made defendants, to represent their own claims and all others having like claims. Receivers were appointed October 18, 1877, upon the filing of the original bill, who immediately took possession of all said property and still hold it. The original and cross bills were answered by the trustees and sundry bondholders under the consolidated mortgage, and by J. R. Nichols, a first-mortgage bondholder who did not assent to the preference mortgage, and by George E. Howe, Capen, Sprague & Co., unsecured creditors named in said bills. These creditors also filed a cross-bill, claiming a priority upon the personal property described in said mortgages, and upon the earnings of said mortgaged property, for the payment of their claims. This latter cross-bill was answered by the orator in the original bill, and by certain holders of first-mortgage bonds, denying all equity therein. It was also demurred to by sundry other bondholders. A master was appointed to take an account of the several classes of bonds, and an account of the debts of George E. Howe, Capen, Sprague & Co., and other creditors in said last-mentioned cross-bill named, and claiming to be preferred creditors. The cause was heard before a chancellor, at the June Term of the Court of Chancery of Caledonia County, and a pro forma decree entered upon said cross-bill of the trustees under the first mortgage, in favor of said trustees, for a foreclosure against the trustees and bondholders under said sécond and coñsolidated mortgages and said companies. And, in case such decree became absolute, the decree further ordered a foreclosure in favor of said trustee under the preference mortgage against said companies and such holders of first-mortgage bonds as assented to the preference bonds, unless said preference bonds be paid within a time therein limited, and further ordered that said trustee be subrogated to and hold all the right and interest of said assenting bondholders in said first mortgage, or the property covered by the decree of foreclosure upon said first mortgage, and further ordered that the cross-bill of the preferred creditors be dismissed. The trustees under the consolidated mortgage, J. R. Nichols, a non-assenting first-mortgage bondholder, and the preferred creditors appealed.

The first question presented upon this appeal is, whether the preference bonds are entitled to the priority which the parties concerned in their issue intended they should have. No one of the first-mortgage bondholders who assented to the issue of the preference mortgage by the railroad companies, and who signed the agreement above recited, dated April 7, 1876, is here objecting to the priority now claimed for the preference bonds ; but they stand in court content to have the priority of the preference bonds accorded to them as agreed, and the duty of redeeming their interest in the first mortgage enjoined upon them as ordered by the decree below. The appellant Nichols claims that by the transaction resulting in the preference mortgage, the non-assenting first-mortgage bondholders alone now hold the security of the first mortgage. The trustees under the consolidated mortgage claim substantially the same thing. The bonds issued under the first mortgage share ratably and without preference in the mortgage security. The whole amount issued was $2,300,000. Those assenting to the preference mortgage in round numbers amount to $1,800,000, and the non-assenting to $500,000. The non-assenters, therefore, own five twenty-thirds of the first mortgage. Nothing can advance the fractional share of the non-assenters, except an extinguishment of the bonds of the assenters, or a cancellation of the security pledged for their payment. Neither event has transpired. The bonds are as valid now as before the execution of the agreement and the preference mortgage. The security of the first mortgage is still pledged for their payment, as before. No attempt was made — none could successfully be made — to give a priority to the preference bonds over those of the non-assenters, or, by a kind of tacking, to postpone the consolidated bonds. The assenters undertook to deal with their own bonds and security in a way to improve their value. If the assenters had pledged their bonds to A for collateral security, their ratable share of the first mortgage would go to the assignee. Leave the fact of the preference mortgage itself out of view, and suppose that the assenting first-mortgage bondholders, desiring to raise money to complete the road and thus make their security valuable, had loaned of A $500,000, and pledged theil' interest in the first mortgage as security, by an instrument as informal as the agreement in question ; would not a court of equity, as between the parties, treat the agreement for security as security ? That is precisely the effect of this agreement. The assenters said to the preference bondholders, You lend your money to the companies to enable them to complete their road, and take their mortgage, which, as a lien upon the property, must be subject to all existing incumbrances, and we will give you, as a further security, our interest, or eighteen twenty-thirds of the first mortgage, as collateral. We will encumber that interest with the burden of your debt. We agree that your bonds shall be a prior lien upon the property. Is there anything in this transaction prejudicial to the rights of other parties interested in the property, or anything incapable of practical enforcement in a court of equity ? The preference bondholders did not lend their money upon the mortgage by the companies of a property already hopelessly buried under the load of three existing mortgages, nor on the credit of the insolvent companies. They demanded security, and the assenters undertook to give security. There can be, then, no question as to the purpose of the agreement. The agreement is, that the preference bonds shall be a lien upon the property prior to the bonds held by the assenters — not prior in time, but prior in order of payment. This agreement was incorporated into the bonds themselves and thus made them an equitable mortgage. Jones Railroad Securities, s. 75. A lien upon the property prior to the bonds of the assenters could only be created by subordinating their lien to the new lien, that is, by mortgaging the first as security for the second. There is nothing in the estate of a mortgagee that makes such a mortgage in equity invalid or impossible. Want of form is immaterial. Equity looks only to the substance, and so moulds that into form as to work out the intent of the parties. A mere agreement to give á mortgage is treated in equity as a mortgage. 1 Jones Mortgages, ss. 163, 167 ; Jones Railroad Securities, s. 73 et seq. Even if the agreement undertakes to mortgage a thing not in esse, equity will treat the contract as a mortgage when the thing comes into being, and charge it with a lien in favor of the party in tended. Jones Railroad Securities, s. 122, and numerous cases there cited. When, therefore, the decree in favor of the first-mortgage bondholders becomes absolute, the assenters will hold their interest charged with the lien agreed to be given to the preference bonds. An equitable mortgage will not be upheld which works a wrong to third parties, but where their interests are undisturbed, they are enforced for the purpose of executing the intent of the parties. Miller v. Rutland & Washington Railroad Co. 86 Vt. 452; Jones Railroad Securities, passim. To carry out the intent of the parties in this case works no wrong to the non-assenters, as they stand under the decree precisely as they would if no preference mortgage had been made; nor to the consolidated bondholders, as they must redeem only so much as they voluntarily assumed when they took their mortgage. The invalidity of the agreement is not urged by the party bound by it, and neither of the appellants ought to be heard to question it — much less to profit by it. By what system of logic is it established that this attempt to give security is to be held inoperative to effectuate the purpose intended, but operative to work a forfeiture of eighteen twenty-thirds of the first mortgage ? What has occurred to advance the interest of the non-assenters from five twenty-thirds to twenty-three twenty-thirds of that mortgage ? The transaction amounts to a mortgage, or it is altogether inoperative. By it the interest of the assenters either passed in pledge or did not pass at all. If it did not*pass, it remains where it was lodged before, and the assenters still own their fractional share in the first mortgage. To say that a court of equity shall defeat the purpose of this scheme that was devised, and has been operative to make the first mortgage more valuable — the share of the non-assenters equally with the rest — and at the same time declare that by means of it, the share of the non-assenters, who have paid nothing, has been magnified four-fold, is a novel proposition to advance in a court of equity. All the advantage that the non-assenters can reap from the transaction is found in the increased value of their security.

The questions arising upon the cross-bill of George E. Howe and others are new in this State, but are of easy solution. These orators as a class are seeking to enforce a common right against a common fund which they claim is, in equity, chargeable in their favor. The bill is not multifarious, and these orators have a proper standing in court. They insist that the companies were indebted to them at the time receivers were appointed, for service rendered and supplies furnished to the railroad, and that the seizure of the property by receivers has not defeated their right to charge the chattel property and the net earnings of the receivership with the payment of their claims. They predicate their claim first upon sections 101 and 102, c. 28, Gen. Sts., which read :

“ Section 101. All mortgages of railroad franchises, furniture, cars, engines, and rolling stock of any kind, when properly executed and recorded, shall be effectual to vest in the mortgagee a valid mortgage interest in and lien upon all such property without delivery or change of possession ; and for the purpose of mortgage, all such property shall be deemed part of the realty.

“ Section 102. Provided, nothing in the preceding section shall prevent such furniture, cars, engines, and rolling stock, from being attached by any person having a claim against the corporation owning such property, for an injury sustained on the road of said corporation by reason of any neglect of said corporation, or for services rendered or materials furnished for the purpose of keeping said road in repair, or in running the same, or for any liabilities as common carriers, or for the loss of any property while in the possession of said corporation ; and such property, when so attached, may be taken, held, and disposed of in the same manner as it could have been if that section of this chapter had not been passed.”

At the time the several mortgages above described were executed, we had no law in this State authorizing the execution of chattel mortgages, and but for this section (101) such mortgage of chattel property by railroad companies would be invalid as against creditors and purchasers. To obviate this embarrassment section 101 was passed, enabling railroad companies to make a valid mortgage of personal property. But section 102 is a proviso to section 101. , The intent of the section is that such a mortgage shall be inoperative against the liabilities specified. It affirms the right to attach the chattel property, and hold and dispose of it in the same manner it could have been done if that section had not been passed. If that section had not been passed such mortgage, without change of possession, would be void as to creditors.

As against the preferred creditors, the property remains unincumbered by the mortgage. This statute was in force long before the execution of the mortgages hereinbefore described. The bondholders, therefore, took their security with notice of its subordination to the rights of such claimants. In view of the necessity of a change of possession to make such a mortgage effectual, it is clear that no court of equity would undertake by means of a receivership to seize the property and give to the mortgagee a possession that would or could operate, as a substitute for the possession required by the statute, especially upon the ground avowed in this bill, that the trustee cannot afford to take possession, and asks the court to do so to prevent the exercise of this very right of attachment which is accorded to these creditors. Such a proceeding would work a nullification of the statute — it would be an attempted overthrow of a legal right and priority which no court has the power to accomplish. The doctrine is elementary that the .appointment of a receiver alters no existing rights in respect to the property seized. It merely stays the enforcement of rights by the parties in interest for the time being. It operates like an .injunction pendente lite. By the terms of the deed of trust, the trustee, upon default in the payment of interest on the bonds for four months after demand, and on request of a majority of the bondholders, was empowered to take possession of the property, run and operate the road, and take the income. Counsel argue that this entry into possession was accomplished by the creation of the receivership, that the receivers are holding for the mortgagees, that the receivership was the result of a “ race of diligence ” between the bondholders and these creditors, and that the only right accorded the creditors by the statute was the right to attach the property, if by diligence they could reach it before the bondholders seize it. Whatever might be claimed for a possession by receivers, established upon other grounds, it is obvious that in this case they do not hold solely for the mortgagee. The authorized representative of the bondholders declined to take possession under his mortgage right. He implored the court to take possession, not for him nor those he represented, but to prevent these creditors getting in, and asked the court to hold the possession, and operate the road by receivers until a final decree be made in the premises. The receivers hold for whom it may concern. The creditors are made parties defendant to the bill and cross-bill, they are asked to set forth and litigate their right, they have done so upon proper averments and proofs, and upon answer made to their claim. The final decree, therefore, “ which shall be made in the premises’’ will determine the priority to this chattel property, which, among other things, the court is asked to seize. The receivers hold for the contending parties — for the creditors as well as all others interested. Although the statute accords the right of attachment — a right merely to proceed at law — still, this right is to have effect in equity if the creditors standing upon it are summoned to that forum to establish it. It verges upon serious trifling to say to these creditors, you ought to have attached this property, and not slept upon your rights a year or more until the court seized it. It is subjecting the valuable substance to technical mode and form, and enabling crafty vigilance by the aid of the official signature of a chancellor to place that valuable substance beyond the reach of those entitled to it, not by any adjudication that changes the character of the right itself, but a change of venue that renders the statutory remedy technically improper in the new posture given to the property. Section 102 makes the chattel property attachable on a claim for a personal injury on the road. If A receives a severe injury by the gross negligence of the company, could the company screen the property from liability by a “ change of ministry ” ? Could the bondholders wrest the property from liability by securing receivers upon an ex-parte application and hearing, before A had even had time to take out process ? Is this new way of paying old debts to receive the sanction of a court of equity ? The right to attach the chattel property exists now as perfectly as before the appointment of receivers, but the court adjudged that the best interest of all concerned would be subserved by enjoining the exercise of the right, and having so determined, it is not supposable that the court would surrender the property to an attaching officer now, thus ending all occasion for a receivership. The litigation of this question having begun in equity, and the court having assumed the handling and custody of the property, the case will be retained in that court for the final determination of all questions arising under the claim of any party interested. These creditors having a priority of legal right and the creation of a receivership conferring no new rights upon the mortgagees, it is for the court to give effect to this priority in the administration of the property. The receivership is to be made chargeable, as holding the chattel property subject to the prior right of these creditors to have it made answerable to their claim.

The master’s report shows that the chattel property, when taken by the receivers, was worth enough to satisfy these preferred claims. It has been used in the operation of the road, and, consequently, some of it has been consumed and destroyed, and all of it much worn and depreciated in value. Other property of like kind has to some extent been supplied in its place, but this is not all available to these creditors. The property taken by the receivers was ample security for the payment of these creditors. The receivership must be made debtor accordingly, and held to respond from such resources as it has, properly applicable' for that purpose. The ground of the application for the receivership was, the danger that these creditors would attach the chattel property, and that all its earnings and the earnings of the road would be taken to pay the unsecured creditors. This application could have been fully answered by an injunction. In that case, security for consequential damages would be furnished by bond, and the property would have remained in the custody of the mortgagor, pending the proceedings to foreclose. The receivership without bond of indemnity cannot be permitted to operate differently upon the claims, rights, and interests of the unsecured creditors from an injunction, nor work a greater embarrassment upon the assertion and realization of such claims, rights, and interests.

We have thus far considered the equity of these creditors to have this chattel property made available to them, as flowing from the priority given them by the statute in question. But there is another ground, equally tenable, upon which the receivership is equitably bound to respond by applying the net income of the railroad property in payment of these debts. As we have seen, this mortgage is made upon the trust that until default made in the payment of interest, the mortgagor shall remain in possession, operate the road, take the tolls, rents and income, and apply the same to the payment of the current expenses of the road, or dispose of the same for the lawful uses of the mortgagor. The mortgagees took their security burdened with this trust. The claims of these creditors are “ current expenses of the road.” They should have been paid by the mortgagor out of earnings. If the earnings had been kept intact, and, oh the appointment of receivers, had been delivered to them in cash, would not a court of equity order that they be first applied in satisfaction of all back arrearages of expenses incurred by the mortgagor in the operation of the road ? The mortgagees could not object, because they agreed that these earnings should be so applied. The receivership altered no rights in this respect, unless the doctrine that the “ race of diligence ” gives to the mortgagees earnings that they have agreed belong to other parties, can be upheld. The mortgage of the tolls and income does not give these • earnings to the mortgagee — all that passes under such a mortgage is net income. Income means what is left after paying the expenses of earning income. The trustee declines to take possession, and asks the court to exercise an unusual and extraordinary jurisdiction in appointing receivers. Seeking equity, he must do equity. The court might at the outset make it a condition in the appointment of receivers that these debts should be paid, or require security for them to be furnished, or the order can be made at any later stage of the proceedings. Fosdick v. Schall, 9 Otto, 235 ; Ellis v. Boston, Hartford & Erie Railroad Co. 107 Mass. 1; Douglass v. Cline, 12 Bush. 608; Duncan v. Ches. Ohio Railroad Co. 15 Am. Law Reg., N. s. 428, and many other cases. No case has been cited to the contrary, and probably, none can be found. By the terms of the mortgage, the mortgagor was bound to pay these debts from current earnings. The mortgaged estate is now equitably indebted for the same. It would be highly inequitable for the receivers to take the estate, relieved of this equitable burden. Until the mortgagee takes possession of the road he has no right to its earnings superior to the mortgagor. The earnings follow the possession. Whoever holds possession of the thing that makes earnings, takes the earnings made. Here the receivers hold possession for all parties in interest. The parties in interest are the mortgagees, the mortgagors, and these preferred creditors, and the receivers must distribute net earnings among these parties, as their respective equities may appear. A large amount of net earnings has already been expended in making new road, thus enhancing the value of the property as a security for the.bonded debt. This chattel property, upon which these creditors have a claim paramount to the mortgagees, has been used and much of it worn out in making this net income so expended. After default in payment of interest, the mortgagor was suffered to remain in possession, and incur the debts of these creditors in repairing the road and in running it in the fulfillment of its duties to the public. Can it be said that the mortgagees shall now be permitted to say that they have a superior equity to take the benefits of these services, take the use of this chattel property, and take the increased value of their security, without obligation to do equity ? Can they return the chattel property in its depreciated condition in full satisfaction of the claims of these creditors upon it ? The mortgagor has no equity to the net earnings. The question, then, is limited to the relative rights of the mortgagee and these creditors. As between these parties, under the circumstances of the case, it is beyond question that the receivership is bound to apply its net income first to the discharge of these claims. It is to be noted that this application of net income is merely paying an obligation that equitably rested upon a portion of the property seized by the receivers, and which has been largely consumed to the advantage of the mortgagee, and thus consumed upon the mortgagee’s express request, and that net income is the .only resource in the first instance that is properly applicable to the discharge of any debt of the receivership except expense of operation. The Supreme and Circuit Courts of the United States have repeatedly promulgated this doctrine, and the highest courts of many of the States have concurred in it. See cases supra. ■ If any case denies the doctrine, it has not been shown to us.

What creditors under the statute have this preferred right to attach this chattel property ? It is clear that construction expenses are excluded in section 102. It is clear that general creditors are excluded. The statute (section 101) makes the mortgage valid against all'creditors, except those especially enumerated in section 102. Every liability specified in section 102 grows out of the actual operation of the road. It is a matter of general notoriety that the construction and operation of railroads give rise to great conflicts of interest between security-holders, which portend imminent peril to the wages of employes. This statute was intended as a protection to them. It was the purpose of the Legislature to protect a class of employes who could not protect themselves. The protection afforded, however, is in derogation of the rights of other creditors, and therefore cannot be extended by construction beyond the class of creditors specified. Lehigh Coal Navigation Co. v. Central Railroad Co., 2 Stewart, 252 ; Pennsylvania Delaware Railroad Co. v. Leuffer, 84 Pa. St. 168. In nearly all the States, statutes of similar import exist, all having the same object of giving protection to a class of operatives, who, scattered along the line of a railway, are engaged in a service that precludes sharp watchfulness over the solvency and honesty of their employers, and lack the means and opportunity of guarding their own interests. The master has made a list of claims for services rendered and materials furnished in repairing and operating the road. Some of the claimants named in this list might, from the duties they are generally understood to perform, be properly excluded from the preference accorded by the statute, such as the cashier and paymaster, and perhaps some others. But the difficulty is, that although the mortgagees interested to defeat the allowance of these claims, appeared before the master by counsel, and made specific objection to many claims, yet, so far as appears, they made no objection to any claim enumerated in this list. No exception to the report raising any question upon this list of claims has been filed. No suggestion is made, in brief or argument, by any of the numerous counsel who have been heard, that this list of claims'included any claimants not entitled to share in the privilege given by the statute. It is not the business of the court to purge a list of claims that the parties do not question, but we are to treat it as the parties treat it, namely, as conceded to be correct. Some of the claimants have taken promissory notes for the amount of their debts. Taking a note for an antecedent debt is in this State presumably a payment of the debt; but the question is one of intent. If the debt is one that carries a security or priority, it is not to be presumed that a mere change in the form of the indebtedness was intended to defeat its priority, when the debtor is confessedly insolvent. The statute must be construed in a way to carry out the intent of the Legislature. When, therefore, it accords a priority to claims for “ services rendered or materials furnished for the purpose of keeping said road in repair or in running the same,” it is not to be extended beyond the obvious import of the language used. Services rendered in keeping the road in repair might be construed so as to include the officials of the road, but it was the intent of the Legislature to include only such persons as were engaged in manual labor in making repairs. Services rendered in running the road includes the same class of operatives and employes. The dividing line is between services rendered in the official and executive management and authority over the work of making repairs and running the road, and such laborers and employes as do this work. The employers are excluded, the employes included. Such is the rule adopted in other states having similar statutes. Thus directors are excluded. The superintendent, who is an employe in his relation to the corporation, is an employer in his relation to the work of repairing and running the road. He is the alter ego of the corporation itself. He is not within the privilege of the statute. Jones Railroad Securities, s. 580. Nor is the civil engineer. Pennsylvania & Delaware Railroad Co. v. Leuffer, supra; Brockway v. Innes, 89 Mich.; Jones Railroad Securities, s. 580. Nor heads of departments, general agents, and attorneys, Jones Railroad Securities, supra, and as the latter claimants cannot gain a priority over general creditors for their services, they cannot gain it for rent of offices and stationery used, or telegraphing ordered by them. Such expenses are usual and proper in the operation of a railroad, so are the services of directors and attorneys, but they are general debts of the corporation. It is said that the charges for printing tickets, bill-heads, posters, time-tables, &c., ought to be treated as materials furnished in running the road. It would be rather difficult to classify such supplies as materials furnished for keeping the road in repair. The word materials has substantially the same meaning when used in connection with the work of repairing, that it does in the work of running the road, and means such supplies as are indispensable in making repairs upon the road or its equipment, and are annexed to the property and become part of it, or are consumed by it, in its use, such as iron, ties, lumber, wood, coal, oil, &c. The same word is used in the statute giving a lien upon buildings, steamboats, mills, factories, machinery, &c., to mechanics and material-men. The statute creating mechanics’ liens belongs to the same class of legislation as the statute in question. It has the same general object, applies to the same class of persons, and works out substantially the same relief. The mechanic has a lien by law, provided he follows it by his attachment of the property. The railroad employe has a lien by law, if he first makes attachment and thereby creates it. In the latter case, a lien upon the road-bed and superstructure would be of little value to the creditor, and hence the right to acquire it by attachment is limited to such property as can be made practically available.

The ground and reason of giving to a creditor who has furuished materials for repairing, erecting, or operating a factory a lien upon it or its machinery, is, that such supplies have been incorporated into the building, and thus not only lost their identity, as chattels, but have increased the value of the principal thing to which they are annexed. Stout v. Sawyer, 37 Mich. 313 ; Grosz v. Jackson, 6 Daly 463. Phillips Liens, passim. If a printer who supplied posters and tickets to officials running a steamboat or a theater, could fasten a mechanic’s lien upon the boat or building, upon the theory that he had furnished materials for such structures within the meaning of the statute, he could gain a like priority in this case. Such is not, however, the construction given to this word as used in the statute relating to mechanics’ liens, and it ought not to be so construed in the statute in question. The word made use of (materials), looked at in connection with the general purpose of the statute, clearly refers to supplies of a different nature from printers’ bills or printed matter.

The decree below, dismissing the cross-bill of the preferred creditors, must be reversed, and such of them as have brought themselves within the statute, are entitled to relief.

In view of the condition of the road and its duties to the public and its security holders, a reasonable time should be allowed to the parties in interest to provide for the payment of these claims without serious embarrassment to the operation of the road, and failing to make such provision, the chattel property named in the statute should be sold under the order of the court, and the proceeds ratably applied in payment of these claims, and if any part thereof then remains unsatisfied, the net earnings of thé receivership must be applied to extinguish the same.

The cause is remanded, with mandate embodying the views herein expressed.