1. Assuming that a shipper's claim for moneys collected from him
by a railroad through excessive charges might be entitled to
Page 274 U. S. 305
payment from receivers of the railroad, subsequently appointed,
if the moneys were traced into their hands, they are not so traced
by showing that, for years which elapsed between the time of the
overcharges and the transfer of the railroad property from the
receivership to a new company, the old company and the receivers
had at all times, in banks on which checks for current expenses
were drawn, an aggregate working balance largely exceeding the
claim. P. 274 U. S.
2. The equitable doctrine giving preferential payment out of
operating income accruing during a railroad receivership to debts
previously incurred by the railroad corporation for labor,
supplies, etc., does not apply to liabilities for excess charges
illegally exacted of a shipper which accrued many years before the
receivership began. P. 274 U. S.
3. A claim to recover excess transportation charges which arose
many years before the property of the railroad making them went
into the hands of receivers and passed to a new company cannot be
allowed preferential payment on the ground of public policy. P.
274 U. S.
4. A provision in a decree foreclosing a railway mortgage which
exempted the purchaser from paying claims not already presented in
accordance with orders theretofore made, excepting claims which
might "arise" after entry of the decree, is to be construed as
employing the term "arise" in the sense of "accrue," and a claim
for overcharges against the mortgagor railroad arose in that sense
at least as early as the time when the claimant obtained his
reparation order from the Interstate Commerce Commission, and not
when judgment was recovered upon the order. P. 274 U. S.
5. An unsecured creditor of an insolvent railroad has no
standing to attack a reorganization plan upon the ground that he
was not offered an opportunity to participate, when his exclusion
was due to his own failure to file his claim in the foreclosure
suit within the time limited by an order. P. 274 U. S.
6. In this connection, it is immaterial that the excluded
creditor had no actual knowledge of the order limiting time for
filing claims, notice by publication being legally sufficient; nor
did the fact that his claim was being contested in other litigation
prevent him from filing it on time. P. 274 U. S.
7. Where an unsecured creditor of a railroad prosecuted his
claim diligently in an independent suit before and after the
railroad passed into a receivership and was sold to a new company
pursuant to a plan of reorganization, during which period his suit
Page 274 U. S. 306
resisted by the railroad, the receivers, and counsel for the new
company, successively, and where, having recovered judgment after
the sale, he appeared at the hearing on the order to. confirm the
sale and gave notice to the old company, the receivers, the
reorganization committee, and the new company of his claim and that
the judgment would be a charge on the property in the hands of the
purchaser, notwithstanding which the new company continued
defending his suit and the new securities were issued,
that the creditor was not guilty of laches; that his
failure to file his claim within the time limited in the
foreclosure case, and thus conform to the terms of the
reorganization plan, did not bar him from participating in its
benefits with the other unsecured creditors, if that were still
equitably possible, and that such relief might be had as well upon
an intervening petition as upon an original bill. P. 274 U. S.
14 F.2d 284 reversed in part, affirmed in part.
Certiorari (273 U.S. 680) to a decree of the circuit court of
appeals which reversed a decree of the district court dismissing an
intervening petition in a railroad foreclosure suit.
Page 274 U. S. 307
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
In 1913, the Federal Court for Eastern Missouri appointed
receivers for the St. Louis & San Francisco Railroad. In 1916,
the system was sold on foreclosure, was purchased for the
reorganization committee, and was conveyed to the St. Louis-San
Francisco Railway Company, which has operated it since. In 1920,
Spiller recovered in the Federal Court for Western Missouri a
judgment against the old company in personam
$30,212.31 and for counsel fees taxed as costs pursuant to § 16 of
the Act to Regulate Commerce. [Footnote 1
] Thereupon he filed in the receivership suit,
] upon leave
granted, an intervening petition praying that the judgment be
satisfied out of the property so acquired by the new company. The
master recommended that the prayers of the petition be granted. The
district court denied Spiller any relief and dismissed the
intervening petition, without costs to either party. 288 F. 612.
The circuit court of appeals reversed the decree, remanded the case
to the lower court with directions to enter a decree for Spiller in
the amount of the judgment, with interest but without counsel fees,
declared that the judgment was prior in lien and superior in equity
to the mortgages of the old company, and directed that it be
enforced against the property conveyed to the new company. 14 F.2d
284. This Court granted the petition of the two companies for a
writ of certiorari. 273 U.S. 680.
The judgment which Spiller seeks to enforce through the
intervening petition was entered by the trial court
Page 274 U. S. 308
in 1916, after the foreclosure sale and before confirmation
thereof, was reversed by the circuit court of appeals in 1918, and
was reinstated by this Court in 1920. Spiller v. Atchison,
Topeka & Santa Fe Ry. Co., 253 U.
. It is for overcharges collected by the old
company in 1906, 1907, and 1908 under a freight tariff which had
been increased in 1903, and which was held by the Interstate
Commerce Commission to be unreasonable in 1905 and again in 1908.
Cattle Raisers' Association v. Missouri, Kansas & Texas R. Co.
11 I.C.C. 296; 13 I.C.C. 418. The action in which
the judgment was recovered was begun in 1914, after the appointment
of the receivers. The reparation order on which the action was
based was entered also after their appointment, but the petition
for reparation was filed prior thereto.
The validity of the judgment as against the old company is not
challenged in this proceeding. The question here is whether Spiller
is entitled to have it satisfied out of the property of the new
company. The railroads contend that, in nature, the claim is one
not entitled to preferential payment, and that, in any event,
Spiller is barred by laches or otherwise from obtaining any relief
in this suit. The circuit court of appeals held that the old
company became liable as trustee ex maleficio
overcharges, and that this liability is enforceable, as upon a
constructive trust, against the property acquired by the new
company on foreclosure. It held further that Spiller was not barred
by laches or otherwise because of the provision of the foreclosure
decree by which the purchaser became bound to pay, as a part of the
purchase price, any unpaid claims of creditors of the old company
which should be adjudged superior in equity to its mortgages, the
court reserving to itself jurisdiction to determine the amount and
validity of any such claim.
The contention that the judgment constitutes a
lien or equity upon the property of the new company,
Page 274 U. S. 309
as upon a constructive trust, rests upon the following argument:
the freight rates, being unreasonable, were unlawful. The shipper
was obliged to pay the charges exacted, although they were
unlawful, because they were the published rates. As the shipper was
obliged to pay the unlawful charges. the payment was made under
duress. One may be held as trustee ex maleficio
obtained by duress as well as of those procured by fraud. The old
company, by collecting the unlawful charges, became trustee ex
of the funds collected. These can be traced and may
be followed. They passed to the receivers, who took the funds with
notice and without paying value. Upon the foreclosure, they passed
to the new company. It also took them with notice, and is subject
to the trust either because the shipper's equitable lien or
interest was not cut off by the foreclosure sale, to one with
notice, in a suit to which the shipper was not a party, or because
the new company agreed to pay pursuant to the foreclosure decree
claims prior in lien and superior in equity to the mortgages of the
We need not consider whether, in the absence of legislation,
charges illegally exacted by a carrier may be recovered under the
doctrine of a constructive trust, or whether the alleged equitable
remedy is applicable to overcharges subject to the Interstate
Commerce Act, which provides a different remedy, [Footnote 3
] or whether the equitable remedy,
if any, has been lost by proceeding to judgment at law; for even if
the overcharges, when collected, were subject to a constructive
trust in favor of the shipper, the contention that the money
Page 274 U. S. 310
the old company in 1906, 1907, and 1908 can be traced into the
hands of the receivers is unfounded. The money was not earmarked.
It was mingled when collected with other money received from
operation. And no special account was kept of it. The latest
exaction occurred five years before the appointment of the
receivers. The assertion that the money collected can be traced
into the receiver's hands is confessedly without any support except
the stipulated fact that, throughout the ten years which elapsed
between the earliest exaction and the transfer of the properties to
the new company, the old one and the receivers had at all times, in
the several banks on which checks for current expenses were drawn,
a working balance, in the aggregate, largely in excess of Spiller's
claim. Such a showing fails to bring the present case within the
rule by which, when trust funds are mingled with others, the
may assert an equitable lien upon the mingled mass
to the extent of his contribution thereto. [Footnote 4
] American Can Co. v. Williams,
F. 420, 423; In re A.D. Matthews' Sons,
238 F. 785, 787.
An illegal exaction does not impress an indelible trust upon all
funds which the wrongdoer and his successors may thereafter have on
deposit in their banks. For aught that appears, all the money
illegally exacted may have been spent for current operating
Spiller contends that he was entitled to
preferential payment of his judgment for the excess charges, out of
operating income accruing during the receivership, on the doctrine
of Fosdick v. Schall, 99 U. S. 235
99 U. S.
-255. See New York Dock Co. v. S.S.
Page 274 U. S.
p. 274 U. S. 117
is argued that the test of this equity is the nature of the claim;
that a liability for excess charges unlawfully exacted by the
carrier before the receivership is an expense of operation like a
debt incurred for labor, supplies, equipment or improvements, and
that, as such, it is entitled to priority over bondholders. We need
not determine whether the noncontractual claim here in suit is in
its nature within the class of debts entitled to preferential
payment under the doctrine of Fosdick v. Schall.
long established practice, the doctrine has been applied only to
unpaid expenses incurred within six months prior to the appointment
of the receivers. See Lackawanna Coal Co. v. Trust Co.,
176 U. S. 298
176 U. S. 316
Compare Gregg v. Metropolitan Trust Co., 197 U.
. The cases in which this time limit was not
observed are few in number and exceptional in character. See
Burnham v. Bowen, 111 U. S. 776
111 U. S.
-783; Union Trust Co. v. Morrison,
125 U. S. 591
no case which has come to our attention has the doctrine been
applied to liabilities which, like those here in question, accrued
many years before the receivership began.
Preferential payment is urged also on the ground
of public policy. The argument is that the carrier is invested
through its franchise with a part of the sovereign power; that, in
the exercise of the power conferred, the old company exacted
illegal rates which the shipper was obliged by law to pay; that,
when the old company's property passed into the hands of the court,
it was augmented by the illegal exactions; that it became the
court's duty to make restitution, and that, having failed to do so
while the property was in its hands, the court may require payment
from the new company. It may be assumed that this claim for
overcharges is meritorious in character, but the fact that it arose
Page 274 U. S. 312
years before the appointment of the receivers is conclusive
against including it among those entitled to preferential
In order to establish as against the new
company either the alleged equity or a right to preferential
payment, it was moreover assumed to be necessary that the claim
should be one of those which the purchaser, under the decree of
foreclosure, agreed to pay as part of the purchase price. The
decree provided that the purchaser would not be required to pay any
"claim or demand which has not been presented in this cause in
accordance with the orders, heretofore made, requiring presentation
thereof" unless it be "a claim or demand which may arise after the
entry of this decree." An interlocutory decree had ordered that all
claims be presented before February 1, 1916, or be barred of
enforcement against the property in the hands of the receivers or
the proceeds thereof. Due notice of the order had been given by
publication. Spiller did not file his claim within the time
limited. He contends that the time limit has no application to his
claim, because it arose after entry of the decree.
The argument is that, while the claim accrued in 1914, when the
reparation order was entered, or earlier when the overcharges were
illegally collected, it did not "arise" until 1920, when this
Court, reversing the circuit court of appeals, reinstated the
judgment sought to be enforced by the intervening petition; that,
in this connection, the term "arise" must have been used by the
district court in a sense different from "accrues." For, knowing
through its receivers, that their counsel were, at the time of the
entry of the decree of foreclosure, hotly contesting Spiller's
claim, and that he was asserting that it was superior in equity to
the mortgages to be foreclosed, and knowing also that the claim had
not been filed in the receivership suit, the court must have
intended that, if
Page 274 U. S. 313
Spiller ultimately prevailed, his claim should be satisfied by
the new company. Unless so construed, the provision for claims
which may "arise" after the decree would be practically
inoperative. The argument is not persuasive. We are of opinion that
the term "arise" was used in the decree as the equivalent of
"accrue;" that Spiller's claim arose at least as early as 1914,
when the reparation order was entered, not when the judgment was
recovered, and that the new company did not assume to pay it.
See Phillips v. Grand Trunk Ry. Co., 236 U.
, 236 U. S. 666
Moreover, while the barring clause of the final decree excepted
claims arising after entry thereof, the clause stating the
liability of the purchaser included only claims against the old
company which should be adjudged prior in equity to the old
company's mortgages. We have already decided that the claims in
question are not of such a character.
Spiller contends also that he is entitled, under
the doctrine of Northern Pacific Ry. Co. v. Boyd,
228 U. S. 482
require the new company to satisfy in full his judgment against the
old. The argument is that, under the reorganization plan,
stockholders of the old company were allowed to participate in the
new, but that he, a creditor, was not offered an opportunity to do
so. There is no evidence in the record which supports the assertion
that Spiller was not afforded an opportunity of participating in
the reorganization. The contrary appears. The order confirming the
foreclosure recites that "a fair and timely offer of cash . . . or
participation" was made to those unsecured creditors who had filed
claims. Spiller did not file his claim. The fact that he did not
have actual knowledge of the order limiting the time for filing
claims is not material in this connection. Notice by publication
was legally sufficient. The mere fact that his claim was contested
did not exclude him from the scope of the order. He might have
Page 274 U. S. 314
filed it although he was litigation elsewhere. He cannot bring
himself within the doctrine of the Boyd
case by showing
that no offer was made to him personally. For aught that appears,
an offer would have been made, or his rights otherwise preserved,
if he had filed his claim. There is no occasion to consider whether
a petition for intervention filed in the receivership proceedings
four years after confirmation of the foreclosure sale is an
appropriate method of enforcing the claim on this theory.
While the circuit court of appeals erred in
granting the specific relief prayed in the petition for
intervention, it does not follow that Spiller must be denied all
remedy. He was guilty of a serious inadvertence in not filing his
claim in the receivership suit within the time limited by the
interlocutory order. But it is clear that he has not been guilty of
laches. Southern Pacific Co. v. Bogert, 250 U.
, 250 U. S.
-490. And it does not appear that his inadvertence
misled in any way the court, the receivers, the reorganization
committee, or the new company. He had prosecuted his claim with
vigor for years before the receivers were appointed. His diligence
does not appear to have slackened either during the receivership or
after the foreclosure sale. Throughout the whole period, the claim
appears to have been resisted with equal vigor. After the old
company ceased to function, counsel for the receivers conducted the
defense. After the receivers ceased to function, counsel for the
new company conducted the defense. It is clear that neither the
receivers nor the new company considered the failure to file the
claim in the receivership a bar to the relief.
Before Spiller recovered judgment in the trial court, the sale
on foreclosure was had, but the hearing on the order to confirm the
sale was yet to be held. At that hearing, Spiller gave, before the
confirmation of the sale, notice in open court and otherwise to the
old company, the receivers, to the reorganization committee,
Page 274 U. S. 315
to the new company, that he had recovered judgment 14 days
before. He notified them that he claimed that the purchaser would
take the property subject to all his rights, and that these
included a charge upon the property in the hands of the purchaser
for full payment of the judgment. With knowledge of Spiller's
claims, the reorganization committee and the new company took over
the property. Later, the new company assumed the further defense to
the action in which the judgment had been recovered. The issue of
the securities of the new company and the distribution of its stock
among stockholders in the old occurred after these notices of
Spiller's claim had been given. Under such circumstances, neither
the long delay nor the failure to file claims as required by the
interlocutory and final decrees should operate to prevent the
appropriate relief, [Footnote
] and the district court had jurisdiction to grant it.
Compare Julian v. Central Trust Co., 193 U. S.
; Wabash Railroad v. Adelbert College,
208 U. S. 38
208 U. S.
The new company contends that, since the shipper's claim was not
filed within the time limited by the interlocutory decree, it was
among those declared barred by the terms of the final decree, and
that, by intervening, he estopped himself from obtaining any
relief. [Footnote 6
] No good
reason is shown why relief may not be had as well upon an
intervening petition as upon an original bill. As this may be done,
he should be put, as nearly as may be consistently with the rights
of others, into the position which he would have occupied had he
filed his claim in the
Page 274 U. S. 316
receivership proceedings in the proper time. It does not appear
that it is not possible for the new company to give him the benefit
now of the offer which was made by the reorganization committee to
the other unsecured creditors of the old company, nor that such a
course would be inequitable to others in interest. The
ascertainment of the relevant facts and the precise form of the
relief must be left to the district court. The decree of the
circuit court of appeals is affirmed insofar as it reversed the
decree of the district court dismissing the intervening petition,
and is reversed insofar as it directed that the judgment is a prior
lien enforceable for the full amount exclusive of counsel fees
against the property of the new company.
Decree affirmed in part and reversed in part.
The intervening petition and the decree cover also another
judgment for $3,652.97 in favor of Spiller and others.
There were in fact four suits, two brought by unsecured
creditors and two by the trustees of mortgages under which the
foreclosure was had. All the suits were consolidated in May,
§§ 8, 16(1), and 16(2), of the Interstate Commerce
Act as it stood at the time of the overcharges in question, Act of
Feb. 4, 1887, c. 104, 24 Stat. 379, 382, 384, as amended by the Act
of June 29, 1906, c. 3591, 34 Stat. 584, 590. See also Texas
& Pacific Ry. Co. v. Abilene Cotton Oil Co., 204 U.
Compare National Bank v. Insurance Co., 104 U. S.
, 104 U. S. 63
Schuyler v. Littlefield, 232 U. S. 707
232 U. S. 710
United States v. Leary, 245 U. S. 1
245 U. S. 5
Cunningham v. Brown, 265 U. S. 1
265 U. S. 11
Southern Cotton Oil Co. v. Elliote,
218 F. 567, 570-571;
In re A. Bolognesi & Co.,
254 F. 770; Knatchbull
13 Ch.Div. 696.
See Williams v.
17 How. 239, 58 U. S.
-257; Part v. New York, L. E. & W. R.
140 F. 799; Employers' Assur. Corp. v. Mahogany
6 F.2d 945. Compare Farmers' Trust Co. v. Chicago,
etc., R. Co.,
118 F. 204; Western N.Y. etc., Ry. Co. v.
Penn Refining Co.,
137 F. 343.
Compare Swift v. Black Panther Gas Co.,
244 F. 20;
Commercial Electrical Supply Co. v. Curtis,