Central Trust Co. v. Wabash, St. L. & P. Ry. Co.

• Decision Date: 16 April 1885
• Citation: 23 F. 863
• Parties: CENTRAL TRUST CO. and another v. WABASH, ST. L. & P. RY. CO. and others. [1] WABASH, ST. L. & P. RY. CO. v. CENTRAL TRUST CO. and others. (FN1)
• Court: U.S. District Court — Eastern District of Missouri

23 F. 863

CENTRAL TRUST CO. and another v. WABASH, ST. L. & P. RY. CO. and others. ^[1]

WABASH, ST. L. & P. RY. CO. v. CENTRAL TRUST CO. and others. (FN1)

United States Circuit Court, E.D. Missouri.

April 16, 1885

Wells H. Blodgett, for receivers.

Wager Swayne, Burnett & Humphreys, and H. T. Kent, for the Wabash.

Butler Stillman & Hubbard and Phillips & Stewart, for the Central Trust Co.

James Tausig, Pattison & Crane, J. E. McKeighan, C. B. Adams Hough, Overall & Judson, John D. Davis, W. H. Bliss, James Hagerman, W. B. Sheldon, Foster & Thompson, McDonald, Butler & Mason, Motter & Judson, and D. H. Chamberlain, for lessors bondholders, etc.

BREWER J., (orally).

Several questions have been presented to us the last few days concerning which we have come to a conclusion, and perhaps we had better dispose of those before proceeding with the hearing of other matters. * * *

Now, recurring to the general questions that are presented, we name some half dozen matters, which, we think, should be passed in the form of an order or orders; and let me preface them with a brief statement.

This Wabash road is composed of many subdivisions. While it is a single corporation to-day, yet into it have passed many corporations, and many separate railroad properties. In administering such a consolidated property the court must look at, not merely the interest of the mortgagee in this general mortgage, or of the mortgagor as a single entity or corporation, but also the separate and sometimes conflicting interests of the various subdivisions and their respective incumbrances; and, back of all that, the duty which every railroad corporation owes to the public. For underlying the rule which the supreme court has laid down in respect to the payment, by receivers when they take possession of railroad property, of prior unsecured debts recently accrued, runs the thought, as expressed by the supreme court, that a railroad corporation owes a duty to the public which has given it its franchise and enabled it to construct its road; the duty of operating that road for the benefit of the public. While that may not be what you may call an absolute duty, enforceable under all circumstances, it is still a duty to be regarded and enforced by the courts when they take possession of railroads through their officers. And that duty is not limited to the operation of merely that particular fragment of a road which is pecuniarily profitable in its operations, but it extends to the road as an entirety, and to all its branches-- all its parts; differing in that particular from the duty which would rest upon the court if it had simply taken possession of property used for private purposes, manufacturing or otherwise, where the single question might well be said to be one of pecuniary profit. This Wabash road, as a system, was in operation, a going concern, from one end to the other; discharging its duties as best it could to its various creditors. This court, at the instance of the corporation, and to preserve the integrity of this system, took possession of it by its receivers. It took possession of it as a going concern, and, so far as is reasonable and practicable, it should continue it as a going concern until it surrenders it to whoever may be the purchasers or future holders of it.

With that preface, and calling these separate branches which have passed into this consolidated road, subdivisions, since some have passed in by way of lease and others by way of consolidation, subject to separate mortgages, we pass orders substantially as follows:

The first is one which has already been entered, and we simply emphasize by repeating it, that subdivisional accounts must be kept separately. That was an order passed by Brother TREAT at the very outset of this receivership, in order that the particular equities of each one of these divisions, as between themselves, might be ascertained.

2. Where any subdivision earns a surplus over expenses, the rental or subdivisional interest will be paid to the extent of the surplus, and only to the extent of the surplus. Any past diversion of such surplus for general operating expenses will be made good at once, and, if need be, by the issue of receivers' certificates. Thus, for illustration, this Toledo, Peoria & Western Railroad appears by the report to have been earning a surplus over its operating expenses. That surplus is not the full rental price, yet even that has not been paid to the lessor, having been used for general operating expenses. Any net earnings should be paid over to the lessor, or, if there be a subdivisional mortgage, to the mortgagee, and any such diversion as that should be made good, and good at once. At the inception of this receivership an order was passed authorizing the issue of $2,000,000 receivers' certificates for the payment of such amount of prior debts for labor and material. Those have been partially paid, and without the issue of all of the certificates authorized, only a half a million having been issued. The receivers, hoping, doubtless, that the business of the road would continue to be such that they need not issue more than half a million receivers' certificates, have diverted funds, which should be applied to the payment of these rents, to the payment partially of this past indebtedness. To that extent the diversion should be restored.

3. Where a subdivision earns no surplus, simply pays operating expenses, no rental or subdivisional interest will be paid. If the lessor or the subdivisional mortgagee desires possession or foreclosure, he may proceed at once to assert his rights. While the court will continue to operate such subdivision until...