3 High on Receivers (2nd ed.), § 398 (d).

4 Jones on Railroad Securities, § 533 et seq.; Cowdrey v. Galveston etc. R. R. Co. 1 Woods, 331.

5 Shaw v. Railroad Co. 100 U. S. 605, 612; Meyer v. Johnston, 53 Ala. 237, 348

6 Investment Co. v. Ohio etc. R. R. Co. 4 R'y & Corp. Law J. 444; S. C. 36 Fed. Rep. 48.

7 "The Doctrine of Receiver's Certificates," by R. F. Stevens Jr. 28 Cent. Law J. 340, citing Meyer v. Johnston, 53 Ala. 237, 346; Jerome v. McCarter, 94 U. S. 734; Bank of Montreal v. Chicago etc. R. R. Co. 48 Iowa, 518; Barton v. Barbour, 104 U. S. 126; Union Trust Co. v. Chicago etc. R. R. Co. 7 Fed. Rep. 513: Turner v. Peoria etc. R. R. Co. 95 Ill. 134; 35 Am. Rep. 144; Swann v. Clark, 110 U. S. 602.

8 Raht v. Attrill, 106 N. Y. 423, 435; 60 Am. Rep. 456.

§ 750. (b). For operating expenses, equipment and repairs. It is the duty of a receiver of a railway company upon which are devolved, by operation of law, the obligations of a common carrier, to keep the road in a condition suitable and adequate to the safe and rapid transportation of passengers and freight. There is upon this ground a stronger reason for allowing a receiver of property of this sort to expend money upon its maintenance and preservation than exists in favor of such an allowance to any ordinary mortgagee. This reason is grounded in that rule of public economy which requires the public highways to be kept in repair. The public is entitled to protection in the continued use of the railway as a king's highway.' The receiver may, therefore, properly issue certificates to meet operating expenses, in default of sufficient current income; to procure necessary rolling-stock, machinery, and supplies;3 to pay off tax liens upon the property, or to replace earnings diverted from operating expenses and ordinary repairs. So, also, where it was necessary to insure the safety of the trains, that a portion of the track which had been hastily built should be relaid in a substantial man

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ner, the receiver's certificates to meet the expense were approved." And, in another case, where the receivers found, upon taking possession of the property, that several locomotives were in use by the company, under a lease from the maker, for which the rent was unpaid, they were authorized to issue certificates to pay the rent. But when the income of the road is suflicient to meet the expenses of keeping it up in stock and equipments, the court should not permit the receiver to use the income in paying interest to bondholders and then to borrow money to meet current expenses.

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1 Meyer v. Johnston, 53 Ala. 237, 348, where the whole law of receivers' certificates is brought down to 1875. No study of the subject can be complete without a careful reading of this case.

2 Wallace v. Loomis, 97 U. S. 146, 162; Turner v. Peoria etc. R. R. Co. 95 Ill. 131; 5 Am. Rep. 141; Stanton v. Alabama etc. R. R. Co. 2 Woods, 50; Meyer v. Jonnston, 55 Ala. 237, 346; Hoover v. Montclair etc. R. R. Co. 29 N. J. Eq. 4; Swann v. lark, 110 U. S. 602. But see Metropolitan Trust Co. v. Tonawanda Valley etc. R. R. Co. 193 N. Y. 245; Vermont etc. R. R. Co. v. Vermont Central R. R. Co. 50 Vt. 500, 569.

3 Swann v. Clark, 110 U. S. 602; Vilas v. Page, 106 N. Y. 439, 451, 452. But see In re Philadelphia etc. R. R. Co. 14 Phila. 501.

4 Union Trust Co. v. Illinois Midland R'y Co. 117 U. S. 434; Humphrey v. Allen, 101 Ill. 490. Cf. Taylor v. Philadelphia etc. R. R. Co. 7 Fed. Rep. 377.

5 Union Trust Co. v. Illinois Midland R'y Co. 117 U. S. 434.

6 Stanton v. Alabama etc. R. R. Co. 2 Woods, 506; Credit Co (Limited) v. Arkansas Central R. R. Co. 15 Fed. Rep. 46. Cf. Barton v. Barbour, 104 U. S. 123.

7 Coe v New Jersey Midland R. R. Co. 27 N. J. Eq. 37. See also Tur ner v. Peoria etc. R. R. Co. 95 Ill. 134; 35 Am. Rep. 144; Beach on Receivers, § 387.

8 In re Philadelphia etc. R. R. Co. 14 Phila. 501, 502; S. C. sub nom. Taylor v. Philadelphia etc. R. R. Co. 9 Fed. Rep. 1.

§ 751. (c). For the payment of debts due to employees and for material and supplies, incurred prior to the receivership.- here is to be found some authority for the rule that a receiver may be allowed to i sue certificates in payment for labor, materials, supplies and taxes upon the property due

prior to his appointment.' But in New York it is held that a court has no power to authorize a receiver to pay, or to issue his certificates of indebtedness in payment for labor and services in operating the road prior to his receivership, and to make the certificates so issued a lien prior to the mortgage. This, in the absence of a statutory regulation of the matter, it is believed, is the correct rule. There is, however, a statute in New York by which a different relation is established between the receiver of an insolvent railroad corporation and its employees, and under which the receiver is obliged to pay the wages of the employees in preference to all other debts or claims, no distinction being made between wages earned before and those earned after the appointment."

1 Humphreys v. Allen, 101 Ill. 490; Taylor v. Philadelphia etc. R. R. Co. 7 Fed. Rep. 377.

2 Metropolitan Trust Co. v. Tonawanda Valley etc. R. R. Co. 103 N. Y. 215 (1820), 8. C. 1 R'y & Corp. Law J. 65, reversing S. C. 40 Hun, 80; Raht v. Attrill, 42 Hun, 414, 418; S. C. 106 N Y. 423; 60 Am. Rep. 456, citing Burnham v. Bowen, 111 U. S. 776, 782; Beach on Receivers, § 588.

3 N. Y, Laws of 1885, ch. 376.

§ 752. (d). For completing an unfinished road. There are circumstances under which the court may authorize its receiver to issue certificates for the purpose of completing an unfinished railway; as, for example, to prevent the lapse of a grant of land conditioned upon its completion, which is a material part of the bondholders' security.1 In Iowa the court of last resort has approved of the issue of certificates by a receiver for the purpose of completing and building certain portions of the road in his hands, at the rate of $8,000 per mile upon the whole road completed and to be completed, making

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the outlay a first lien upon the property. But, except under very extraordinary circumstances, the power of the court ought never to be e ercised to enable the trustees, where the road is unfinished, to borrow money by means of a receiver's certificate, which creates a paramount lien upon the property, in order to complete the work." For it is no part of the duty of a court of chancery to build railroads, and the assent of all parties interested in the property cannot make it one. Even in cases where the necessity is so great as to warrant such unusual action, the better course is to obtain, if possible, the consent of prior mortgagees, if any there be.5 The power has, however, been exercised, without such consent first obtained, upon a showing that the success of the road depended upon its operation and completion. It is plain that an unlimited exercise of power by the court in this direction would amount to improving the mortgagor out of his property. Accordingly the court will construe strictly an authority granted to the receiver to construct a road, and a mere authority to borrow money to build will not authorize the receiv. r to contract for municipal aid in the work. And an issue of certificates for such a purpose in excess of the amount authorized, is beyond the power of the receiver, and the certificates are void.9

1 Kennedy v. St. Paul etc. R. R. Co. 2 Dill. 448; S. C. 5 Dill. 519. The form of the order in this case may well be consulted. It is said by Mr. Jones to be most carefully drawn": Jones on Railroad Securities. § 535, n. See, also, Jerome v. McCarter, 94 U. S. 734. Acc, Jerome v. McCarter, 91 U. S. 731, 738 (a canal case).

2 Bank of Montreal v. Chicago etc. R. R. Co. 43 Iowa, 518. Acc. Gibert v. Washington etc. R. R. Co. 33 Gratt. 586, 645; Southerland etc. v. Lake Superior cte. Co. (U. S. Dist. Ct. Mich. E. D), MS., cited in Meyer v. Johnston, 53 Ala. 237, 338; Hyde v. Sodus Point etc. R. R. Co. (N. Y. Sup. Ct.), MS.

3 Shaw v. Railroad Co. 100 U. S. 605, 612. In South Carolina it has

been held that the question of the necessity for building or finishing a road should be referred to a master for investigation and determ nation": Hand v. Ra. way Co. 10 S. C. 406; S. C. sub nom. Hand v. Savannahı etc. R. R. Co. 17 S. C. 219.

4 Credit Co. v. Arkansas Central R. R Co 15 Fed. Rep 46. To the same effect see Vermont etc. R. R. Co. v. Vermont Central R. R. Co. 30 Vt. 500, 569; S. C. 46 Vt. 792. Cf. Secor v. Toledo R. R. Co. 7 Biss. 513.

5 Meyer v. Johnston, 53 Ala. 237.

6 Miltenberger v. Logansport R. R. Co. 106 U. S. 286; Bank of Montreal v. Chicago, Clinton etc. R. R. Co. 48 Iowa, 518.

7 Sandon v. Hooper, 6 Beav. 256; 2 Jones on Mortgages, § 1126.

8 Smith v. McCullough, 104 U. S. 25, 59.

9 Newbold v. Peoria etc. R. R. Co. 5 Bradw. 367; Beach on Receivers, § 391.

§ 753. The priority of the lien created by the certificates.-Receivers' certificates are, as a rule, expressly declared, by the order of the court under which they are issued, to be a first lien upon the entire property, income and franchises of the road. There has been, therefore, but little litigation thus far upon this point. The theory of the matter is this: The expenditure is necessary to preserve the property; the mortgagee assents to the expenditure; the court orders it to be made; it is, therefore, properly a lien prior to the mortgage, and must be paid first. These facts, or some others equivalent thereto, and the order of the court declaring the lien, are usually recited in the body of the certificate itself. The power of a court of equity to authorize the issue of certificates by the receiver, and to make them a first lien upon the property, payable before the first mortgage bonds, is not questioned in any of the cases in our State or federal reports. It has been expressly upheld in many leading cases.' We find, therefore, that the courts do not hesitate to create these liens upon mortgaged property, and that the legality and validity of receivers' certificate, as first liens, are not disputed in the reported cases.2