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Holmes, the present owners thereof; but this benefit result in wholly destroying the security held by Mas ises C. Unless premises C should sell for enough to p due complainant and the sum secured to Mason ther there is no probability, the selling premises C next would work the greatest injustice to Mason; and ther ple of law or equity which would justify a court in só o of the mortgaged property as to favor Doud and Holn pense of Mason, whose rights and equities, are prior in of the other defendants. If Mason held a blanket mortg premises B, C, and D, to secure the entire sums due h premises C in the manner proposed would cause no in and the same would be true if the rule of selling in the of alienation was followed as to the remaining portions gaged tract. As Mason, however, does not hold a blank covering lot 11, but has a separate mortgage on premises the lien of each being confined to the premises descri mortgage, it is clear that the enforcement of the rule to inverse order of alienation would result in defeating the which Mason is justly entitled; and the court is not blindly follow the letter of the rule when it is apparent t will result in defeating the spirit of the rule, and in se prior established rights and equities. In cases like the consideration, it is within the power of the court to order property to be sold, free from all liens, and to protect the of the parties in interest in the order made for the distribu proceeds; or the court may order a sale of the realty in pai that course promises the best results, and may apportion upon the several parcels, as they rightfully and equitably order that the parties and bidders at the sale may know whɛ rest upon each parcel, and how distribution is to be made c ceeds of such sales. Shepherd v. Pepper, 133 U. S. 626–65 Ct. 438.

For the proper protection of the rights of the several this case, it is necessary that the property covered by comp mortgage should be sold in parcels, and not as an entirety. tween complainant, Seaman, and Mason, the facts require amount due upon the blanket mortgage held by the com should be equitably apportioned among the premises B, C, a proportion of the value thereof. An appraisement should t be had, for the purpose of ascertaining the relative value several parcels. Premises A should be first sold, and, from ceeds thereof, provision should be made for the payment of th the amount of which can be ascertained, at least approxima the master previous to the sale; so that, when sale is made o ises A, it can at once be known, the amount left unpaid up plainant's mortgage, and which is to be apportioned betweer ises B, C, and D, according to the appraised value of each. premises C should be next offered for sale, the master stati amount of the liens thereon, being the apportioned amount

ST. LOUIS & S. F. RY. CO.

601

mortgage, and the amount due to
The proceeds real-
gage thereon.
will be applied-First, to the pay-
due to complainant; second, to the
mortgage upon these premises; and the

court, subject to its further order.
offered for sale, the master stating the
oned amount due complainant and the
gage thereon. The proceeds realized

be applied-First, to the payment
one to the complainant; second, to the
Hason on his mortgage thereon; third,
To L. D. Holmes. Lastly, premises B
The master stating the amount of the liens
med sum due to complainant and the
Is Lortgage; and the proceeds realized
les to the payment-First, of the apportioned
of the amount due upon the Mason
any, will be paid to Herbert A. Doud.
from the sale of the premises A should not be
estimated by the master, the difference
added to the sum due to complainant

15 and the total of these sums must be
To be apportioned upon the several premises
se it seems to the court that the rights and
will be fairly protected. As the several
s offered for sale, the parties interested in
E sam it is necessary to bid in order to pro-
= parcel, without being burdened with liens
The other parcels; and the probable result will

be sold for the largest sum obtainable there-
s of all will be advanced, and their equities will
rast is possible for the court to accomplish that

efore be prepared in which the amount now blanket mortgage should be stated, and also me to Mason upon the separate mortgages held re sale should be ordered, the order of sale ➡h the views herein expressed.

TRUST CO. v. ST. LOUIS & S. F. RY. CO.

ED. Missouri, E. D. January 13, 1896.)

No. 3,768.

-LEASED LINES-DISAFFIRMANCE OF LEASES.

6 and 1887 four railroads connecting with the line were leased by separate leases, for long terms, to that time of making the leases, each of the lessor com

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nder date terest as issue of ought to xecution ed to the executed by them fendant djusted amount

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equired f these ctically itself, est due

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panies made an issue of bonds, secured by mortgage, and the leases provided for minimum rentals equivalent to the interest on such bonds, to be paid directly to the bondholders. By the provisions of such leases the S. Ry. Co. also became the owner of practically all the stock of the lessor companies. Subsequently the S. Ry. Co. made a mortgage of all its property, including its interest as lessee in the leased lines and the stock of the lessor companies, to the M. Trust Co., to secure an issue of bonds. The M. Trust Co. covenanted that, in the event of its taking possession of the mortgaged property, it would operate the railroads of the mortgagor, collect its income, and pay therefrom, among other things, all amounts due for principal or interest of any of the bonds or obligations of the S. Ry. Co., and, after such payments, would apply the net income to the interest on the mortgage made to it. The M. Trust Co. afterwards filed a bill for the foreclosure of this mortgage, in which it averred that it was important to hold the system of the S. Ry. Co. as a unit, and prevent the exercise of rights of re-entry by the lessor companies, but the receiver appointed in the foreclosure suit afterwards applied for leave to disaffirm the leases from such lessor companies, which application was opposed by the trustees of the mortgages made by those companies. Upon a reference to a master, it was found that none of the leased lines were earning enough to pay in full the rentals under the leases, but it appeared that this finding was based on the business of an exceptionally bad year, which might be supposed not to be a fair criterion; and it also appeared that the leased lines were valuable feeders to the main line for through business. The master found that equity required the receiver to make good the deficiencies in the earnings of the leased roads from the earnings of the whole line, and that, for the advantage of the trust confided to the receiver, none of the leases should be disaffirmed. Held, that such conclusion was correct, both in consideration of the peculiar facts of the case in regard to the situation of the several roads and because, while the question was one between the trustees for the bondholders of the leased roads and the M. Trust Co., trustee in the mortgage on the whole system, the latter company had agreed, if it should take possession of the road, which it had done indirectly by foreclosure proceedings, to apply the earnings of the whole road to the payment of the interest on the bonds of the leased roads, before payment of the interest on the bonds secured by its mortgage. Quincy, M. & P. R, Co. v. Humphreys, 12 Sup. Ct. 787, 145 U. S. 82, and St. Joseph & St. L. R. Co. v. Humphreys, 12 Sup. Ct. 795, 145 U. S. 105, distinguished.

In the matter of the receivers' petition for authority to disaffirm contracts with certain leased lines. On exceptions to master's report.

Alexander & Green and J. E. McKeighan, for complainant.
E. D. Kenna, for receivers.

Noble & Shields, Gleed, Ware & Gleed, Burrill, Zabriskie & Burrill, and L. F. Parker, for defendant.

ADAMS, District Judge. By the order appointing receivers in this case, made on the 23d day of December, 1893, they were required to take possession of and operate the railroads and properties of the defendant, including such as "it holds, controls, or operates under lease," etc. At that time the defendant held, controlled, and operated under separate leases executed during the years 1886 and 1887, for long terms of 98 or 99 years, among other railroads, the following: The St. Louis, Salem & Arkansas Railway, called the "Salem Branch"; the Kansas City & Southwestern Railroad,

called the "Beaumont Branch"; the St. Louis, Kansas & Southwestern Railroad, called the "Anthony Branch"; and the Kansas Midland Railroad, called the "Midland Branch." By an order made on the 12th day of September, 1894, the receivers were given until the 12th day of December, 1894, within which to determine whether it was to the advantage of the trust committed to them to adopt, among other executory contracts, the leases under which the defendant was operating these several branches. On the 8th day of December, 1894, the receivers presented a petition setting forth in detail the reasons why, in their judgment, the leases of said branches should not be adopted, and recommending that an order be made to that effect. By an order made on that day this petition was referred to George D. Reynolds, Esq. special master, with instructions to hear and determine the same, and report "whether it is to the advantage of the trust confided to the receivers in this cause that such leases should be disaffirmed by them." Before proceeding with the hearing, the master was required to give notice thereof to each of said lessor railroads or branches, and to each trustee in any mortgage executed by them under which there were any outstanding bonds. Like notice was also required to be given to the trustees in any and all other underlying mortgages covering any portion of the system of railways in the possession of the receivers. These notices were all given, and pursuant thereto the complainant, the Mercantile Trust Company, and the trustees in the several mortgages hereinafter referred to, executed by the Salem Branch, the Beaumont Branch, the Anthony Branch, and the Midland Branch, appeared before the master and were heard.

The complainant is the trustee in what is known as the "consolidated mortgage," executed by the defendant company under date June 11, 1891, conveying all its property, including its interest as lessee in said branch roads, to secure the payment of an issue of bonds amounting to $50,000,000. This is the mortgage sought to be foreclosed by this suit. Contemporaneous with the execution of the several leases by the branch roads already mentioned to the defendant company, the said branch roads, each for itself, executed mortgages to secure the payment of an issue of bonds made by them respectively. By the covenants of the several leases the defendant company agreed to pay a rental, in semiannual installments, adjusted so as to fall due when the coupons matured on the bonds. The amount of this rent depended upon the gross earnings of the lessor companies, but in no event was it to be less than the amount required to meet the interest on the bonds. By the provisions of these leases, the defendant company became the owner of practically all the capital stock of each lessor company, and obligated itself, in case of default by the lessor companies, to pay the interest due from them on their bonds directly to the trustees of their bondholders, or to the bondholders themselves. There appear to be several other issues of bonds by the defendant company, secured by underlying mortgages on the whole or some parts of its railway, but none of the trustees named in these mortgages appeared

before the master, or took any interest in the matter. The reason for this is obvious from the record. The income of the road is entirely sufficient to insure the payment of their interest as it matures. The real controversy, therefore, is between the Mercantile Trust Company, representing bondholders under the consolidated mortgage of 1891, and the several trustees representing the bondholders under the prior mortgages of the four several branch roads.

The master finds that neither of these branch roads makes net earnings sufficient to pay the interest on their bonded indebtedness, which, as already observed, is the minimum rental reserved in their several leases to the defendant company. He also finds that the net income derived by the receivers from the operation of all the roads of the defendant company in their hands is sufficient to pay the interest on all mortgage bonds (including those of the four branches under consideration) prior in time and right to the bonds issued under the consolidated mortgage, but is not sufficient to pay the interest also on the last-mentioned bonds. The amount requir ed to pay the annual interest on the bonds of the four branch roads is $193,380. The real question for determination, therefore, is whether this last-named sum shall be paid annually to the bondholders of the branch lines, and their roads be kept, managed, and operated by the receivers, or whether these branch roads shall be surrendered by them, this outlay saved, and this amount finally be added to the security of the bondholders under the consolidated mortgage represented by the complainant in this case.

The master, in his report, calls attention to the averments of the pleadings, the language of relevant leases and mortgages, and the orders of court heretofore made in this case (all of which, so far as deemed material, will be hereafter noticed), and, after analyzing and considering the testimony taken by him, reports to the court as follows:

"First. That none of said leased lines are at the present time, even when allowed a fair and reasonable arbitrary division of through rates on traffic, earning in themselves an amount sufficient, after paying operating expenses and taxes, to pay the rental in full under the various leases under which they are operated by the receivers. Second. That equity in the administration of their trust, considering all the facts and circumstances in the case, does require the receivers to make good any deficiency in earnings directly derived from the said four leased lines, necessary to pay operating expenses, taxes, and rental, out of the earnings of the whole line. Third. That in consideration of all the facts in the case as shown by the evidence adduced before me, it is to the advantage of the trust confided to the receivers in this cause by the court that none of such leases should be disaffirmed by them."

In due time the complainant and each of the trustees for the branch bondholders filed exceptions to the master's report. Said trustees, in their exceptions, do not question the conclusion reached by the master, but only the correctness of some of his findings. On the argument their exceptions were practically abandoned. The exceptions of the Mercantile Trust Company challenge the correctness of the conclusion reached by the master. His conclusion of fact that the branch lines do not earn a net amount sufficient to pay

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