Continental & Commercial Trust & Savings Bank v. Muscatine, Burlington & Southern Railroad Co.

• Decision Date: 16 November 1926
• Docket Number: 37561
• Citation: 210 N.W. 787,202 Iowa 579
• Parties: CONTINENTAL & COMMERCIAL TRUST & SAVINGS BANK et al., Appellees, v. MUSCATINE, BURLINGTON & SOUTHERN RAILROAD COMPANY et al., Appellees; CHICAGO, ROCK ISLAND & PACIFIC RAILWAY COMPANY et al., Appellants
• Court: Iowa Supreme Court

210 N.W. 787

202 Iowa 579

CONTINENTAL & COMMERCIAL TRUST & SAVINGS BANK et al., Appellees, v. MUSCATINE, BURLINGTON & SOUTHERN RAILROAD COMPANY et al., Appellees; CHICAGO, ROCK ISLAND & PACIFIC RAILWAY COMPANY et al., Appellants

No. 37561

Supreme Court of Iowa, Des Moines

November 16, 1926

Appeal from Muscatine District Court.--D. V. JACKSON, Judge.

Railroad mortgage foreclosure. Interveners appeal from a decree denying their claim of priority for alleged operating liabilities during receivership over the lien of prior judgments obtained in actions for personal injuries. One of the judgment creditors appeals from denial of priority of lien on the railroad property in counties other than that in which the original judgment was recovered, but in which transcripts of his judgments were docketed.--Affirmed on both appeals.

Affirmed.

J. G Kammerer, J. G. Gamble, A. B. Howland, Hughes, Taylor O'Brien & Faville, and Thompson & Thompson, for appellants.

Clapp Richardson, Elmquist, Briggs & McCartney, H. O. Weaver, Lane & Waterman, J. F. Devitt, and Nichols, Tipton & Tipton, for appellees.

MORLING, J. DE GRAFF, C. J., and EVANS and ALBERT, JJ., concur.

OPINION

MORLING, J.

On July 1, 1916, the defendant railroad company mortgaged its property to the defendant American Trust Company. On July 1, 1919, a mortgage was made to the plaintiff, which, by arrangement between the parties interested, was given priority over the former mortgage. On November 20, 1920, Nellie Guthrie recovered in Louisa County a judgment against the railroad company for personal injuries. On November 27, 1920, Howard Kelly recovered in Louisa County a judgment against the railroad company for personal injuries, and later transcribed it to Muscatine and Des Moines Counties. On October 6, 1921, Cornelius B. Johnson recovered in Muscatine County a judgment against the railroad company for workmen's compensation. On November 30, 1921, P. W. Keefover recovered in Muscatine County a judgment against the railroad company for personal injuries.

On May 20, 1921, in an action brought by J. F. Cullen against the railroad company, a receiver was appointed, and was directed to take possession of all of the railroad company's property and operate the railroad. On October 13, 1921, the present suit was brought, to foreclose the 1919 mortgage. The receiver appointed in the Cullen suit, Cullen, the American Trust Company, and the judgment lien creditors were made defendants. The American Trust Company filed a cross-bill for foreclosure of its mortgage. On May 8, 1923, decree of foreclosure of both mortgages was entered, by which the proceeds of the foreclosure sale were ordered to be applied, first, to payment of unpaid taxes; second, to costs; third, to a fund to make good diversion of current earnings; fourth, to the judgment liens; fifth, and subsequently, to payment of the mortgage indebtedness. Modifications of the decree on petition of various parties were made, but they are immaterial to this discussion. On January 8, 1924, a number of railroad companies filed petitions of intervention in the foreclosure suit, claiming of the receiver balances for inter-line freight collections, per diem car charges, and freight claims, and asked that the same be established as operating liabilities, and as such, given priority of payment out of the proceeds of the sale of the corpus of the estate, superior to the judgment and mortgage liens. The railroad property was located in the three counties named: Muscatine, Louisa, and Des Moines. As a basis for determining the amount applicable to the payment of liens recorded in the respective counties, the court apportioned the fund among the three counties on a basis which is not complained of, and ordered the Johnson and Keefover judgments paid out of the amount apportioned to Muscatine County, and the balance of that amount to be paid to the receiver. The court ordered the amount apportioned to Louisa County to be used in payment first of the Guthrie judgment, and the balance, as far as it would go, on the Kelly judgment. He ordered the balance of the fund, namely, that apportioned to Des Moines County, to be paid to the receiver. The court thus denied to Kelly a lien on account of his transcripts of judgment on the funds in the counties in which the transcripts were filed. This denial is evidently based on Section 11606, Code of 1924, which provides:

"A judgment against any railway * * * for an injury to any person or property, and any claim for compensation under the Workmen's Compensation Act for personal injuries * * * shall be a lien upon the property of such corporation or copartnership within the county where the judgment was recovered or in which occurred the injury for which compensation is due."

Priority of lien of judgment for personal injuries and workmen's compensation over prior mortgages is given by Section 11607.

The mortgagees have not appealed.

We need not discuss Kelly's appeal, further than to say that interveners urge that no exception was taken by Kelly to the judgment appealed from. The judgment itself shows no exception. Kelly, in amendment to abstract, makes the statement that he did except, but does not claim that any exception was noted on the judgment entry or elsewhere. Interveners deny that any exception was taken, and no record of any exception by Kelly is pointed out to us. His appeal, therefore, cannot be further considered.

On interveners' appeal, it is to be noted that the only parties to the suit in which the receiver was appointed were the plaintiff therein, Cullen, and the defendant railroad company. None of the proceedings in that suit are before us, except the order appointing receiver. The order recites that the cause came on for hearing on the petition of the plaintiff and the answer of the defendant upon application for appointment of receiver. The record does not show that the plaintiff or the cross-petitioner or any other party asked for the appointment of a receiver in the present foreclosure suit, or the continuance of the existing receivership. The judgment lien holders set up their judgments, and asked that they be given priority. They did not ask for a receiver. The railroad company answered by a general admission. The receivership was not referred to in any of the pleadings until the petitions of intervention were filed. The petitions of intervention prayed for the establishment of interveners' claims, and for priority, as has been noted. It will be borne in mind that the intervention was not in the receivership suit, but in the subsequent foreclosure suit. The interveners' resistance to one of the applications for modification of decree asserted that the judgment lien holders were parties to the Cullen case, but this statement is not sustained by the record. It does not appear that any of the lien claimants participated in any wise in the receivership proceedings, or that they had any knowledge of how the receivership was being conducted, or that there was any expectation of a deficiency of operating income, or of making any charge for operating expenses against the corpus of the property.

The railroad company could not by its own act displace the statutory liens held by the judgment creditors. A railroad company, while it retains its franchise, owes to the state and the public the duty of operating its road. This duty should be taken into account by the court on an application for a receivership, and consequently operation of a railroad may be ordered under circumstances in which operation of a purely private enterprise by a receiver would not be ordered. Nevertheless, railroad property is private property, which cannot be subjected to unreasonable requirements or to confiscation. Northern Pac. R. Co. v. North Dakota, 236 U.S. 585 (59 L.Ed. 735, 35 S.Ct. 429). A railroad company cannot be compelled to retain its franchise and to continue to operate at a loss when there is no reasonable prospect of future profitable operation. State ex rel. Brown v. Beaton, 190 Iowa 216, 178 N.W. 1; Bullock v. Florida, 254 U.S. 513 (65 L.Ed. 380, 41 S.Ct. 193), and cases cited; Erie R. Co. v. Board of Public Utility Com., 254 U.S. 394 (65 L.Ed. 322, 41 S.Ct. 169); Brooks-Scanlon Co. v. Railroad Commission, 251 U.S. 396 (64 L.Ed. 323, 40 S.Ct. 183); Colorado v. United States, 271 U.S. 153, 46 S.Ct. 452, 70 L.Ed. 878; Wolff Packing Co. v. Court of Industrial Relations, 262 U.S. 522 (67 L.Ed. 1103, 43 S.Ct. 630).

On an application for a receivership, the court will not require operation at a loss; and if, after operation by a receiver is undertaken, it is shown to be a losing venture, such operation should be discontinued, unless the expenses are guaranteed. Atlantic Tr. Co. v. Chapman, 208 U.S. 360 (52 L.Ed. 528, 28 S.Ct. 406); Farmers' Loan Co. v. Oregon P. R. Co., 31 Ore. 237 (38 L.R.A. 424, 65 Am. St. 822, 48 P. 706); Illinois Steel Co. v. Ramsey, 100 C.C.A. 323 (176 F. 853). Lien holders, by asking for a receivership and operation of the property for their benefit, or for the preservation and benefit of the property, may thereby bind the corpus of the property, as against themselves, for the payment of operating expenses. Kneeland v. American L. & Tr. Co., 136 U.S. 89, 34 L.Ed. 379, 10 S.Ct. 950, and cases below cited.

As said in Kneeland v. American L. & Tr. Co., 136 U.S. 89, 97, 34 L.Ed. 379, 10 S.Ct. 950:

"* * * the appointment of a receiver vests in the court no absolute control over the property, and no general authority to displace vested contract liens."

It is said in Fosdick v. Schall, 99 U.S. 235, 251, 25 L.Ed. 339:

"The possession taken by the receiver is only that of the court,...