cumstances had intervened. In the present case, there has been no such change of circumstances, and, therefore, it may well be that we should have refused to consider this application at all, and should hold the applicant to his remedy by appeal under the statute, with the consequent further holding that, if the statutory time for an appeal had expired, the applicant had lost his rights if he had any. As, however, the petitioner has now for the first time applied to us formally, we have concluded to allow him to complete the circle made up of the justice of the Supreme Court assigned for this circuit, the district judge for the district of New Hampshire, and myself as the circuit judge who ordinarily attends to such matters in that district as come before the circuit judges. We do this more particularly in order that the petitioner may take out his appeal, if he desires so to do, but with the express statement that no further applications of the character now before us will be entertained by us.

The petition of Henry Edward Moebus, filed July 6, 1906, is denied for want of jurisdiction, and, for that reason, the answer of H. K. W. Scott is adjudged sufficient, and the writ af habeas corpus prayed for is denied.

QUEEN ANNE'S FERRY & EQUIPMENT CO. v. QUEEN ANNE'S R. CO. (Circuit Court, D. Maryland. May 9, 1906.)

1. RAILROADS-FORECLOSURE SALE-CLAIMS ENTITLED TO PRIORITY OVER MORT

GAGE.

A railroad mortgage provided that in case of default the trustee at the request of 50 per cent. of the bondholders should take possession of the road and all the mortgaged property and operate or sell the same as the bondholders might direct. The company became insolvent and was earning insufficient income to pay expenses when a committee was appointed representing practically all of the bondholders and stockholders, and they deposited their bonds and stock. The committee took full charge and management of the property and operated the same until a sale was negotiated, having full authority to vote the stock deposited and to pledge the bonds or stock to secure money for operating expenses, and, in fact, exercised all of the powers which the trustee was given by the mortgage in case of default, which default occurred shortly after its appointment. A sale was negotiated by the committee for the benefit of the bondholders and stockholders, who transferred their bonds and stock to the purchasers to be used in payment, receiving bonds and stock of the new company therefor. Such sale was consummated through a friendly foreclosure suit, and the decree confirming the same required the purchasers, they having knowledge of all the facts, to pay any claims which should be adjudged prior in equity to the mortgage. Held, that the manage ment of the road by such committee was virtually that of the bondholders, and that indebtedness incurred by it for expenses and supplies in operating the road after the bondholders might have taken possession by the trustee was superior in equity to the mortgage debt and entitled to priority of payment from the proceeds of the corpus of the property and therefore to be paid by the purchasers.

2. SAME-OPERATING EXPENSES-ADVERTISING.

Bills for advertising the road, its trains, etc., contracted by the committee while in the management, were for legitimate operating expenses

and are entitled to priority as such, equally as though they had been contracted by the trustee in possession.

Exceptions to master's report upon the claims of creditors of the railroad company asserting an equity against the proceeds of the sale of the corpus of the mortgaged property claimed to be superior to that of the mortgage bondholders.

Taylor & Keech and John C. Rose, for creditors.

Bond & Robinson, for purchasers.

MORRIS, District Judge. The original bill in this case was a general creditors' bill against the Queen Anne's Railroad Company filed February 20, 1904. The bill alleged that the railroad company was largely indebted to the complainant for arrears of rental for three steamboats owned by the complainant and leased to and used by the railroad company in the operation of its road; and alleged that the defendant company was also largely indebted to many other creditors for supplies and materials furnished for the operation and maintenance of its lines of railroad and ferries; and that, if the numerous creditors who were pressing for payment were allowed to enforce their claims by suits, the result would be to deprive the railroad company of the means. of operating its system of railroad and ferries, and to destroy its power to earn revenue and to meet its obligations. The bill alleged that there was secured by a mortgage of the railroad three series of bonds: First, a series of first preference 5 per cent. bonds aggregating $330,000; second, a series of consolidated mortgage bonds, of which $865,000 were outstanding; and, also, a series of income mortgage bonds aggregating $600,000. The bill alleged that the corporation was insolvent, and that, in order to protect the holders of the bonds, as well as all other creditors, it was absolutely essential that the railroad property should be kept and maintained and disposed of as an entirety, and that any other course would result in the utter dissipation and waste of the corporate assets and property. The bill prayed for the appointment of a receiver with power to operate the railroad, ferries, and steamboats, leased, controlled, and operated in conjunction with the railroad, with all the usual powers given to receivers in like cases to continue the business and maintain the integrity of the system of railroads and ferries. On the same day the defendant railroad company answered, admitting the allegations of the bill, and consented to the appointment of a receiver as prayed. On the same day the receiver was appointed as prayed. He was authorized to pay the interest on the $330,000 first preference bonds; to pay all the rentals, taxes, and fixed charges necessary to prevent such defaults as would imperil the integrity of the system of railroads; and to pay the debts for wages, services, materials, and supplies growing out of operation of the railroad within a period not exceeding six months anterior to the date of the decree. The receiver proceeded to execute the powers given to him and operated the railroad and connecting ferries for about 12 months when he delivered possession to the purchaser under the foreclosure sale. On November 26, 1904, the International Trust Company, the trustee named in the mortgage, filed

a petition praying leave to file a bill of complaint for the foreclosure of its mortgage of the railroad property. Leave was granted and on the same day the bill was filed asking for a decree for sale subject to the $330,000 first mortgage preference bonds. Upon the consent of the Queen Anne's Railroad Company, a decree was entered as prayed. The receivership case and the foreclosure case were consolidated and a sale was made and ratified for the sum of $480,000. The purchasers reported were Henry P. Scott and Nicholas P. Bond. Of the purchase price $30,000 was paid in cash and the purchasers also delivered to the trustee $865,000 of the first mortgage consolidated bonds, being the total amount issued, also $600,000 of the income bonds, and stock, of the railroad company of the par value of $883,300, and the receiver was, by order of court, directed to deliver possession to the purchasers. The decree for sale provided that, in addition to the $30,000 to be paid in cash at the time of the sale, the purchasers should also pay, as the court might direct, such additional sums in cash as might be required to pay all liens or claims prior in equity to said mortgage (except the first mortgage preference gold bonds) to be determined by the court, the balance of the purchase money to be satisfied by the surrender of first consolidated mortgage bonds.

The foreclosure sale and purchase were really the carrying into effect of an agreement which had been already made between the purchasers and the holders of the first consolidated bonds and the holders of the income bonds and the owners of the stock, by which they were all to receive from the purchasers securities in a new transportation company which was to consolidate under one management this railroad and other lines of transportation. The purchasers were fully cognizant of the previous history and management of the road and its securities, and are to be treated as affected by any circumstances which would affect the bondholders themselves. There was no surplus income at any time, and no diversion, as the revenue never, in any one year, was sufficient to pay the running expenses, and if the claims now in controversy are paid, they can only be paid out of the corpus of the mortgaged property.

The solution of the question raised by the exceptions to the master's report depends upon whether or not there are present in this case special circumstances which give rise to a peculiar equity in favor of the claimants. It is quite clear from the facts appearing in the case that the purchasers at the foreclosure sale obtained the bonds with which they propose to pay for the property under such circumstances that whatever equities affected these securities in the hands of those from whom they were obtained, now affect them in the hands of the purchasers.

Since the case of Gregg v. Metropolitan Trust Company, 197 U. S. 183, 25 Sup. Ct. 415, 49 L. Ed. 717, decided by the Supreme Court in March, 1905, it is to be regarded as the rule that supplies furnished. to a railroad are not, where there has been no diversion of income, entitled to precedence over a mortgage lien, recorded before the supplies were furnished, where there are no special circumstances affecting the mortgage bondholders' claim to priority. There having

been no diversion in this case, the inquiry will be addressed to the question whether there were any special circumstances which ought to create an exception to the general rule.

The mortgage foreclosed is dated March 1, 1901. It provides that if the railroad shall fail to pay any semi-annual installment of interest, or fail to keep the property free from all taxes and other liens, then the trustee may take possession of all the mortgaged property. and if requested in writing by 20 per cent. of any series of bonds and indemnified against liability, shall be bound to take possession subject to the right of a majority in amount of the outstanding bonds to countermand such action. Also it is provided that, in case of such default, on the written request of 50 per cent. of all the bonds outstanding, the trustee shall take possession of the railroad and property, and all books, records, papers, accounts, and money of the railroad, and all management and control thereof, and manage and operate the same and receive the income thereof and apply the same, first to the management of the railroad and to making such repairs thereon as may be needed to keep the same in good working order, next to the payment of the interest and principal of the bonds, or, on written request of 50 per cent. of the bonds in default, to sell all the property. It is also provided that, in every case of default, the duty of the trustee should be subject to the right and power of the majority in amount of the bonds to direct and control the trustee's action, or to order more effectual remedies, and also that 50 per cent. or more of the bonds outstanding might, at any time, remove the trustee and appoint a new one.

It was the summer excursion business of the railroad and its steamers which was depended upon for revenue. It was found, however, after the summer of 1902, that there had accumulated a large floating debt, and that the financial condition of the railroad was altogether bad. The holders of the first consolidated mortgage bonds and the income bonds were driven to act in order to keep the railroad a going concern until they could get a purchaser for it. The owners of the bonds were very largely also the owners of the stock, and practically they were the owners of the road subject to the $330,000 of preference bonds. The semi-annual interest coupons on the bonds due September 1, 1902, were paid, but it was certain that default would be made in the payment of the coupons falling due March 1, 1903, and something had to be done to preserve the credit of the railroad and keep it going. To attain this end the holders of the first consolidated. mortgage bonds, the holders of the income bonds, and the holders of the stock united together and on November 29, 1902, appointed a committee which became known as the "Securities Committee." This committee from the first represented 75 per cent. of the bondholders and stockholders, and during its active existence all the bondholders and substantially all the stockhoiders made themseves parties to the agreement by which the committee was appointed. This committee of five entered upon the duty of preserving and maintaining the railroad as a going concern. They held their first meeting on December 6, 1902, and, as appears from their minute book, between that date and Feb

ruary 21, 1904, when the receiver was appointed by this court they held 42 meetings. During that time the directors of the company held but one meeting and the stockholders one meeting. It is to be seen, from their minutes and from what they actually did, that the committee, in exercising the powers given it by the agreement under which it was appointed, exercised supreme control over the railroad and its property and directed everything that concerned it and gave to it the credit which kept it going. By the terms of their appointment, the depositors of the securities gave to the committee the power to represent the depositors in any measure or action of any kind necessary or proper to accomplish the purposes of their appointment, to superintend the operation of the railroad by its officers and directors, and to confer with them as to the management and operation of the road with same powers as the depositors might have, to vote all shares of the capital stock in order to enforce official action on the part of the directors, and to select and elect directors in accordance with the opinion of the committee, and, finally, to negotiate a sale of the securities and property and franchise of the company, a sale, however, before consummated to be submitted to a meeting of the security holders. The committee, for the purpose of raising money to operate the road most effectually and to provide new equipment and additions, were authorized to pledge the securities deposited, and, if unable to sell the property, were authorized to form a new company to take it over, also to institute proceedings to foreclose the mortgage or to postpone such proceedings. As the committee had all the powers that the bondholders had and all the powers of the stockholders, with the power to change the trustee designated by the bondholders' mortgage, and to change the directors, and, as the purpose of their appointment was to keep the road running until a reorganization or sale could be effected, it is quite clear that they could, in substance, do whatever any or all of the interest they represented could do.

When we examine the minutes of the meetings of the committee and the testimony to see what they really did do, I think it becomes. apparent that they, in fact, managed the railroad as persons having absolute control and possession would manage it. The committee authorized the purchase of additional passenger coaches and a locomotive; they negotiated with and employed a new general manager, and when his management proved disappointing to them they discharged him; they took in charge matters connected with the terminals at Queenstown and Love Point and authorized contracts with regard to them; they authorized the purchase of new railroad ties; they investigated the causes of an accident to the steamer Queen Anne, and directed the painting of the steamer Caroline; they authorized the compromise of disputed bills of the Dry Dock Company; they authorized contracts to be made for the supplies of coal; they authorized the purchase of a barge and additional engines, and the building of a new station; they gave orders for a plan for lighting certain piers and for the erection of a derrick. Finally, after the committee had been thus in control of the property from January, 1903, for over a year, they negotiated with the present purchasers for a sale to them upon an