In January, 1889, one Bloom, describing herself as a resident of Lamar county, Tex., brought an action in the district court of that county against the Texas & Pacific Railroad Company and John C. Brown, receiver of said company, claiming damages for personal injuries received while traveling as a passenger on said railroad. The railroad company and Brown, the receiver, respectively filed petitions for the removal of the suit into the circuit court of the United States for the Eastern district of Texas. The district court refused to grant the removal, to which ruling the defendants duly excepted. Pending the making up of the issue, John C. Brown, the receiver, died. The trial resulted in a verdict and judgment in favor of the plaintiff for the sum of $6,000. The cause was then [164 U.S. 636, 637] taken to the supreme court of Texas, where, for error of the district court in refusing the petition for removal, the judgment was reversed, and the cause was remanded. 20 S. W. 133.
In June, 1893, the case came for trial in the circuit court of the United States, and the plaintiff recovered a verdict and judgment for the sum of $8,000, and on a writ of error that judgment was, on January 30, 1894, affirmed by the United States circuit court of appeals for the Fifth circuit. 23 U. S. App. 143, 9 C. C. A. 300, and 60 Fed. 979. The case was then brought on error to this court. The plaintiff, Bloom, having died, Charles Manton entered an appearance as her administrator.
John F. Dillon, Winslow S. Pierce, and David D. Duncan, for plaintiff in error.
James G. Dudley, A. H. Garland, and R. C. Garland, for defendant in error.
Mr. Justice SHIRAS, after stating the facts in the foregoing language, delivered the opinion of the court.
The plaintiff's original petition in the district court of Lamar county disclosed that the injuries complained of were received in August, 1888, while the railroad was in the hands of John C. Brown, receiver, and alleged that the property of the Texas & Pacific Railway Company was placed in the hands of said John C. Brown as receiver, at the instance of the said Railroad company, and for its own benefit, and for the purpose of avoiding its traffic liability in the carrying of passengers and freight. The petition further alleged that the property of the said railroad company was never sold by said receiver to pay its debts, and was never contemplated to be sold, and that the entire earnings and current receipts of the said railroad while in the hands of the receiver, amounting to more than two millions of dollars, were applied to the payment of mortgage debts and in the betterment of the property of the company. It also alleged [164 U.S. 636, 638] that by an order made on January 2, 1889, by the United States circuit court for the Eastern district of Louisiana, John C. Brown was directed to make delivery unto the said Texas & Pacific Railway Company of all property, funds, and assets in his hands as such receiver, and that he be directed to account to said company according to his account filed and approved up to June 1, 1888, and for all receipts and expenditures by him received and made since the said June 1, 1888, such delivery to be made as of October 31, 1888; and it was further ordered that said receiver be discharged on said October 31, 1888, from his receivership, on payment of all costs legally taxed, and thereupon his bond vacated and canceled. The said order, a copy of which was attached as an exhibit to plaintiff's petition, contained the following further provisions:
The first contention on behalf of the plaintiff in error is that, as whatever claim plaintiff acquired by reason of her injury was one not against the defendant company, but against the receiver operating the road at the time under the orders of the court appointing him, and as it was within the power of such court, on terminating the receivership, to make and provide for settlement of all claims of parties against such receiver growing out of his operation of the road, and as, in the present instance, by its order, the circuit court had made such provision by directing that all claims against the receiver should be presented and prosecuted by intervention prior to February 1, 1889, and that, if not so presented by that date, the same be barred, and shall not be a charge on the property of said company; and that, as the plaintiff did not so present or prosecute her claim, she was thereby precluded from maintaining an action against the company.
Undoubtedly, if this were a controversy between a party whose claim originated while a railroad was in the control of a receiver appointed during a foreclosure suit, and a purchaser at a judicial sale decreed under that proceeding, the plaintiff's proposition would be a sound one. If the property sequestrated had gone to sale, and a fund had been thus realized for distribution, then, upon notice appropriate to proceedings in rem, such a claimant would, in the absence of special and unusual circumstances, have been bound by the disposition so made.
But the present case is one in which no judicial sale was [164 U.S. 636, 640] made, and no fund realized for distribution by final decree after notice to and a hearing of those having claims against the fund. It was not the ordinary case of a sale and purchase in which compliance with stipulated conditions forms part of the consideration, and in which the extent of the burdens assumed is defined. Here, the railroad and its appurtenances, whose value was largely enhanced during the pendency of the receivership, were returned to the possession of the railroad company; and while it was proper for the court, in order to protect its receiver, to make an order for those who had claims against him to bring them forward for disposition, it by no means follows that the company took back its property free from all claims that may have originated during the receivership. Such might be the case if the claim originated in some personal delinquency of the receiver, for which he and his bondsmen could be held responsible. But where the claim was incidental to the ordinary management of the railroad, not attributable to personal misconduct of the receiver, and where the court which had appointed the receiver had not been put in possession of a fund by a foreclosure sale, but had, at the request of the company and its mortgage creditors, restored its property to the railroad company, while such a claim was pending, we are unable to concede that an order of the kind that was made in this case precluded the plaintiff from enforcing her claim. There is present no element of estoppel in favor of the railroad company; for the plaintiff's judgment, obtained after a trial in which the company's defense on the merits was fully heard, would have to be paid, and it would be a matter of indifference, so far as the pecuniary result is concerned, whether the claim was satisfied by the action of the court when discharging its receiver, or by remedial proceedings against the company after the foreclosure suit had been abandoned.
We think the order in question, fairly interpreted, meant that the court, when about to release the receiver and his bondsmen by a determination of the foreclosure proceedings and a discharge of the receiver, gave an opportunity to those who had claims to present them; but that, after February 1, [164 U.S. 636, 641] 1889, those who had not intervened would cease to be entitled to resort to the circuit court in the equity suit, and would be remitted to such other remedies as might be within their reach.
Such was the view of the nature of this order that was taken by this court in the case of Railway Co. v. Johnson, 151 U.S. 81 , 14 Sup. Ct. 250, which was a case involving the same proceedings which are now under consideration.
It was indisputably shown at the trial, by the testimony of the receiver himself, that the earnings of the railroad while operated by him largely exceeded the expenses, and that a very large sum was applied by him to improvements and new equipments, so that 'the road was turned over to the company in far better condition and more valuable by far than when placed in the hands of the receiver.'
Such a state of facts certainly discloses an equitable claim against the railroad on behalf of the plaintiff below.
But the very fact that the claim is an equitable one is made the basis of another contention by the plaintiff in error, and which is thus expressed in the second assignment of error:
In sustaining this assignment, the counsel for the plaintiff [164 U.S. 636, 642] in error complain of what is called a 'misapprehension' by the circuit court of appeals of the case of Railway Co. v. Johnson, 151 U.S. 81 , 14 Sup. Ct. 250, and they seek to distinguish that from the present case by calling attention to the fact that the former case came here by way of a writ of error to the supreme court of the state of Texas, and to the other fact that there was evidence in the Johnson Case tending to show that the receiver was appointed at the instigation of the railway company, and in order to enable it to improve its property by making repairs to its track and additions to its rolling stock by using therefor the earnings of the company during the receivership.
It is true that, in meeting the argument that a personal judgment could not be rendered against the railway company because it was not liable for acts committed by the receiver, this court said, in the Johnson Case, that such a question was 'one of general law, and for the state court to pass upon.' Nevertheless, this court, in reviewing the decision of the state court, said:
But although this court, in the Johnson Case, chose to rest its decision upon the well-settled ground that the decisions of the state court in the construction of state statutes are binding on this court, no disapproval was suggested or implied of the reasoning of the state court. And with a similar question now before us, in a case brought from a circuit court of the United States, we see no reason to reach a different conclusion.
It will be observed that in this branch of the case the plaintiff in error is conceding that the plaintiff below had a good cause of action against the receiver; that she was not bound to prosecute her claim as part of the foreclosure proceedings; and that the earnings of the railroad, to an amount largely exceeding the claim, had been diverted by the receiver to betterments. But the contention is that the plaintiff's remedy, in such circumstances, was by proceedings in equity. This contention is founded on the proposition that the plaintiff's right to a remedy is solely upon the ground that the income of the road while in the hands of the receiver had been applied to the improvement of the road, and it is argued that such a remedy cannot go beyond the amount of the income so applied, and that the plaintiff must, therefore, follow the fund in equity, and is not entitled to sue and obtain a personal judgment against the holder of the fund; that is, the railroad company in possession of the railroad increased in value by the betterments.
There is a general principle that a party having a right to resort to a fund in the hands of a receiver or trustee may have the aid of a court of equity in following that fund, where it has been improperly mingled with other funds, or has been invested in property in which third persons have an interest. That is a rule devised for the benefit of the party invoking it, but cannot be applied, as we understand the facts of this case, to the detriment of the defendant in error. The railroad [164 U.S. 636, 644] company did not, at the trial, pretend that the amount of the benefits received by reason of the betterments did not reach the amount of the plaintiff's claim,-indeed, the receiver's testimony showed that the betterments amounted to several hundred thousands of dollars,-but the company claimed then, as they do now, that the plaintiff's only remedy was in equity. It is obvious that the only right or advantage that would accrue to the railroad company, if the plaintiff was compelled to resort to an equitable proceeding, would be the opportunity to show that the betterments received were less than the amount of the claim. The conduct of the railroad company in procuring, or, at least, in acquiescing in the withdrawal of, the receivership, and in the discharge of the receiver and the cancellation of his bond, and in accepting the restoration of its road, largely increased in value by the betterments, well affords ground to charge an assumpsit of such valid claims against the receiver as were not satisfied by him or by the court which discharged him. The company might, even in such circumstances, have a right to show that the claims exceeded the amount of the betterments, and have the aid of a court of equity to restrict its liability to that amount. But, as we have seen, it is not pretended that there is any such equity in the present case.
The judgment of the circuit court of appeals is affirmed.