judgment for the defendant. It appears from the verdict itself that so far as it was intended to relate to the agreement of December 16, 1901, the only ground on which it was rendered was that: "In the opinion of the jury the plaintiffs did not make proper effort to agree upon a third arbitrator to appraise and value the sewer pipe sued for, as provided in the agreement on which suit is brought." The jury restricted itself to that ground. But the agreement con- · tained no such provision, and consequently the verdict was erroneous and without justification, and could not support a valid judgment. We lay no special stress upon the fact that, while the agreement provided for arbitration to "adjust and fix the grade of the pipe and fittings," the jury regarded the clause as applying to arbitration "to appraise and value the sewer pipe," as the former possibly may include the latter. But there is another ground fatal to the judgment. It is impossible definitely to gather from the verdict in its peculiar form whether the jury took into consideration the claim made by the plaintiffs for the salt, lumber and oil, not furnished under any agreement providing for arbitration. It fairly may be assumed that the jury did not. The verdict is properly characterized in the next to the last assignment as "inconclusive, indefinite and ineffectual and not covering or disposing of all the issues or questions involved in the case, and submitted to the jury." Under these circumstances both principle and authority exclude all doubt of the invalidity of the judgment in question. It is contended, however, that neither of the two assignments under consideration can be sustained owing to the fact that no exception was taken in the court below to the verdict. It was not necessary to except to it. It was and is part of the record, and an exception cannot be essential where it can add nothing to what appears on the face of the record. F. L. Grant Shoe Co. v. Laird, 212 U. S. 445, 29 Sup. Ct. 332, 53 L. Ed. 591. Consequently any infirmities in the judgment arising from the nature and form of the verdict on which it is based can be reached by an assignment of error. For the above reasons the last two assignments must be sustained and the judgment below reversed, with costs, and with a direction for a venire facias de novo; and it is so ordered. In re VULCAN FOUNDRY & MACHINE CO. Appeal of STRASBURGER et al. (Circuit Court of Appeals, Third Circuit. June 18, 1910.) No. 1,321 1. BANKRUPTCY (8 474*)-EXPENSES OF ADMINISTRATION-CARE OF MORTGAGED PROPERTY. Expense incurred by a trustee in bankruptcy in caring for real estate which is subject to valid mortgages is presumed to be for the protection of the supposed interest of general creditors, and unless the mortgagees For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes expressly or by necessary implication assent to such expenditures they cannot, in general, be charged with them. [Ed. Note.-For other cases, see Bankruptcy, Dec. Dig. § 474.*] 2. BANKRUPTCY (§ 474*)—EXPENSES OF ADMINISTRATION-LIABILITY OF MORT GAGEES. The real estate of a bankrupt corporation was subject to two valid mortgages. By an order of the referee it was directed to be sold subject to the first mortgage, and a further order provided that, in case it was purchased by the second mortgagee, the latter should pay $500 in cash, to be subject to the further orders of the court as to expenses and charges, and might use its mortgage as a credit on the remainder of the purchase price. Under such orders it purchased the property and paid in the $500. Held, that it should not in equity be subjected to the payment of a further large sum to cover expenditures previously made by the trustee in employing a watchman for the property and for insurance, and interest paid on the first mortgage, all of which expenses were incurred without its consent. [Ed. Note. For other cases, see Bankruptcy, Dec. Dig. § 474.*] Appeal from the District Court of the United States for the Western District of Pennsylvania. In the matter of the Vulcan Foundry & Machine Company, bankrupt. From an order of the District Court, S. B. Strasburger and others appeal. Reversed. Thomas Patterson, for appellants. J. Norman Martin, for appellee. Before LANNING, Circuit Judge, and BRADFORD and McPHERSON, District Judges. J. B. MCPHERSON, District Judge. The Vulcan Foundry & Machine Company was adjudged bankrupt in April, 1907, and in the following June a trustee was elected, who took possession of the real and personal property belonging to the estate. A large part of the personalty had already been sold by a receiver appointed by the Circuit Court, and about $4,000 derived from such sale was paid to the trustee by the receiver. Afterwards the trustee realized about $700 more from his own sale of other articles. This sum of $4,700 was, and is, available for the payment of whatever costs and expenses incident to the administration of the estate should be charged against it. The real estate consisted of a manufacturing plant in the city of Newcastle, Lawrence county, Pa. When the adjudication was entered there were several liens against the realty, but only two need special notice. These were both mortgages-the first, for $50,000, bearing interest at 5.4 per cent., which was held by a trustee for the bondholders, and the second, for $30,000, held and owned by the appellants as collateral security for indorsements. This amount was afterwards reduced to $18,000, with interest from March 16, 1907, and the two liens may therefore be taken as representing $68,000 at the time the company became a bankrupt. For the respective sums named these two mortgages were valid liens, and by the express provision of section 67, cl. ❝d," of the bankruptcy act,† such liens are not to be affected by proceedings under the statute. Lienholders are therefore the vir For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes U. S. Comp. St. 1901, p. 3450. tual owners of the property pro tanto, and (as a general proposition) this substantial ownership is not to be disturbed without their consent. The Pennsylvania cases also regard the holders of liens as owners of a real, although an equitable, interest in the property, and their rights in that character are carefully guarded. Bausman's Appeal, 90 Pa. 178; Burkholder's Appeal, 94 Pa. 522; Wolf's Appeal, 106 Pa. 545 (where lien creditors of an assignor are spoken of as "substantial owners of his real estate"). It is no doubt true that the federal tribunals support the power of the District Court to sell a bankrupt's real estate discharged of liensand to that extent the position of a lien is undoubtedly affected-but care is always taken to protect the liens by transferring them to the fund produced by the sale, and their virtual ownership of the property is thus effectively admitted. It is also true that in some cases certain expenses have been charged against lienholders, for example, the expense of selling the incumbered property, and such a charge may no doubt be warranted under some conditions. It would certainly be warranted if the lienholders came into the District Court (as they did in several reported cases) and asked that the sale might be made by that tribunal, for otherwise they would themselves be put to a similar expense in proceeding upon their liens in another forum. But where it is sought to charge a lienholder with the cost of preserving and administering the incumbered property, as distinguished from the cost of its sale, it becomes necessary to consider the particular situation with great care, paying due regard to the rights of those who are in equity part owners of the property, for they cannot be deprived of their valuable interest except in strict accordance with legal or equitable rules. Especially is this true when a lienholder stands upon his lawful rights, and does not assent, expressly or by necessary_implication, to the acts for which he is afterwards asked to pay. To make such charges a prior lien upon the fund produced by a sale in effect compels an owner to pay for what he has never ordered-may, indeed, have strenuously opposed-and, under the guise of protecting his interests, may perhaps impair them seriously. Bankruptcy proceedings take place in a court of equity, and it should always be remembered that holders of valid liens have a statutory right to preferred treatment. If the receiver or trustee has a reasonable belief that the property is worth substantially more than the liens, it may no doubt be his duty to preserve this equity for the general creditors. But-speaking generally-since such steps as may be taken for this purpose are in the interest of these creditors, the cost should be paid by them and not by the lienholders, whose debts, indeed, are often perfectly secure, and receive no benefit from such effort as may be made to turn the equity into cash. We do not attempt to lay down a general rule to cover all cases. This would obviously be impracticable, but we think it is safe to say that the holders of liens are ordinarily entitled to judge for themselves what their interests may require, and that these interests cannot be affected without their consent in the effort to benefit persons whose rights are inferior to their own. We agree with the appellants' counsel that there is a plain analogy between 180 F.-43 a situation like this and the cases in which it has been held that mortgage creditors of a private corporation should not have their security displaced by receiver's certificates, unless, perhaps, under extraordinary circumstances. Farmers' Loan & Trust Co. v. Coal Co. (C. C.) 50 Fed. 481, 16 L. R. A. 603; Newton v. Eagle Co. (C. C.) 76 Fed. 418; Doe v. Coal, etc., Co. (C. C.) 78 Fed. 73. Let us apply these general principles to the particular, and in one respect the unusual, facts of the case in hand. Apparently acting upon a belief, which may have been fully justified, that the general creditors might realize something from the equity in the bankrupt's real estate, certain expenses were incurred by the trustee in administering the property. But the effort was not successful, and the principal question to be decided is how far the lienholder who is chiefly affected may be charged with the cost of the experiment. An order of sale was made by the referee, which preserved the lien of the first mortgage, but discharged the liens of the other incumbrances, transferring all divested rights to the proceeds of sale. But before the property was offered the referee made a further order that, if the second mortgagees should become the purchasers, they should pay only $500 in cash, and should then be "allowed to use their mortgage to the extent of $17,500 to apply on the purchase price." And it was further ordered: "That the $500 cash payment as aforesaid be held by the trustee subject to the payment of any expenses or commissions that it may hereafter be determined are a proper charge against the mortgage." But before this order was made the second mortgagees had protested against any sale at which they could not use the mortgage in discharge of their bid, and denied the power of the court to charge any part of the costs or expenses of sale or of the trustee's commissions, so as to reduce in any way the amount of the mortgage. And they appeared before the referee only for the purpose of protesting, declaring that neither the protest nor their appearance "(should) be construed as submitting the question of our rights as lien creditors to the jurisdiction of the referee for determination." Upon the terms referred to a sale was made in March, 1908, to the second mortgagees, who complied with the order and paid $500 in cash to the trustee. Afterwards, however, a demand was made that they should be charged with the whole expense of preserving and administering the property, and, without going into the details of the subsequent procedure it is enough to add that in the end the court ordered them to pay an additional sum of $4,454.11, mainly upon this account. From this decree the present appeal is taken, and in our opinion the principal objections must be sustained. It is unnecessary to decide whether in any event the cost of preserving and administering the estate could be charged against the appellants, who, so far as appears, did not agree, expressly or by necessary implication, that these expenses should be incurred. We need only say that no such charge can be made in fairness under the facts in proof. The appellants accepted and acted upon the referee's order requiring them to pay $500 of their bid in cash, and permitting them to use their mortgage as a credit upon the remainder of the purchase money, and we think they acquired a right thereby of which they should not in equity and good conscience be afterwards deprived against their will. The property was bought under distinct and positive terms, which contained no reference to the possibility of such charges as were afterwards made, and we think the District Court should not in effect have substituted other terms for those which had thus been offered and accepted. Here was the order of a competent tribunal the referee-unmodified and unappealed from, under which the second mortgagees acted in good faith, thereby waiving whatever right they may have had to object to it in toto. Relying upon the order, they bought the property; and, when they ask that the terms in their favor be carried out as well as the terms that affect them adversely, they are met with the statement that a further modification is now to be made. We do not assert that any contract existed between the court and the second mortgagees, but we are clearly of opinion that under the circumstances referred to the decree appealed from should not have been made. The referee and the court seem to have been misled by supposing that the trustee was acting in the interest of the lienholders when he employed a watchman, paid for insurance, and incurred similar expenses. But he had no authority from the lienholders to spend any money on their behalf, and it is abundantly evident that he was solely considering the contingent interest of the general creditors, and was hoping to realize something for them. The experiment was to be for their benefit, and it is only just that they should pay for it. No doubt much of the money paid out by the trustee was of advantage to both mortgagees, but we do not see upon what ground these virtual owners can properly be asked to pay for what they did not authorize expressly or by necessary implication. No doubt they would have been obliged to protect the property at their own expense if it had been abandoned by the trustee, but this situation did not arise and need not be considered. Moreover, it may be remarked in passing that the expenditure benefited both mortgagees, while only one is now being asked to repay the whole amount. The second mortgagees are also charged with the commissions of the referee and the trustee upon the total amount of their bid, as if it had all been paid in cash, and under the facts of this case these fees must be disallowed. There are two items that may need a few further words. Part of the charge against the appellants consists of city and county taxes for 1907 and 1908 upon this plant. They have not been paid by the trustee, and we are at a loss to understand upon what theory the charge can be sustained. If it be contended that by virtue of the Pennsylvania statutes these taxes continue to be liens upon the real estate in spite of the sale under the referee's order, obviously the existence and validity of the liens cannot be determined in this proceeding. If they are still liens, they have no claim upon the fund which the District Court is distributing, but must be questioned or enforced by some other proceeding, perhaps in a state tribunal. But, if the liens were discharged by the sale, and were thereby transferred to the fund, it is the fund to which the taxing authorities must in the first instance look for |