Moore

The appellants represent the interests of the mortgagee, and the respondents are the unsecured creditors, of an insolvent railroad company. The general question involved, is when and to what extent the claims of those who in the ordinary course of business furnish labor and supplies for the maintenance and operation of a railroad will, in the distribution of its assets by a court of equity, be preferred to bonds secured by a pre-existing mortgage.

The facts are presented in the form of an agreed statement, accompanied by the decree of the lower court, as provided by general equity rule 77 ( 198 Fed. xli , 115 C. C. A. xli ). It is thereby shown that the Ocean Shore Railway Company was the owner of two short lines of railroad' near the city of San Francisco, Cal., and on November 1, 1905, it executed a trust deed to the Mercantile Trust Company of San Francisco to secure the payment of an issue of bonds aggregating $5,-000,000, the deed covering all of its property, including future acquisitions and income. Substantially all of the bonds were sold and became the valid obligations of the mortgagor. No interest having been paid on account of the installments falling due upon…