Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/829

 CHAP. XVTI.j LEGAL RELATIONS AMONG CREDITORS. [§ 822. amounts involved are generally large, and the rights of parties oftentimes complicated and conflicting. It rarely happens that a foreclosure is carried through to the end without some con- cessions by some parties from their strict legal rights, in order to receive advantages that could not otherwise be attained, and which it is supposed will operate to the general good of all who are interested. This results almost as a matter of necessity from the peculiar circumstances which surround such litigation. " The business of all railroad companies is done to a larger or less extent on credit. The credit is longer or shorter as the necessities of the case require ; and when companies become pecuniarily embarrassed it frequently happens that debts for labor, equipment, and improvements are permitted to accumu- late, in order that bonded interest may be paid and a disastrous foreclosure postponed, or altogether avoided. In this way the daily and monthly earnings, which ordinarily should go to pay the daily and monthly expenses, are kept from those to whom in equity they belong, and used to pay the mortgage debt. The income out of which the mortgagee is to be paid, is the net income obtained by deducting from the gross earnings what is required for necessary operating and managing ex- penses, proper equipment and useful improvements. Every railroad mortgagee impliedly agrees that the current debts made in the ordinary course of business shall be paid from the current receipts before he has any claim on the income. If, for the convenience of the moment, something is taken from what may not improperly be called the current debt fund, and put into that which belongs to the mortgage creditors, it certainly is not inequitable for the court, when asked by the mortgagees to take possession of the future income, and hold it for their benefit, to require as a condition of such an order, that what is due from the earnings to the current debt shall be paid by the court from the future current receipts before anything derived from that source goes to the mortgagees. 1 1 " So far as current expense cred- itors are concerned, the court should use the income of the receivership in the way the company would have been bound in equity and good con- science to use it if no change in the possession had been made. ... If current earnings are used for the benefit of mortgage creditors before current expenses are paid, the mort- gage security is chargeable in equity with the restoration of the fund 809