202 Iowa 579 | Iowa | 1926
-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 fox-foreclosure of its mortgage. On May 8, 1923, "decree of foreclosure of both mortgages was entered, by which the proceeds of
“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 copart-nership within the county where the judgment was recóvéred 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.
■On interveners’ appeal, it is to be noted that the only parties to the suit.in which the receiver ivas 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 asir for a receiyer. 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 uronerty, ■: ■
' - 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
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); Farmers’ Loan Co. v. Oregon P. R. Co., 31 Ore. 237 (38 L. R. A. 424, 65 Am. St. 822, 48 Pac. 706) ; Illinois Steel Co. v. Ramsey, 100 C. C. A. 323 (176 Fed. 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, and cases below cited.
As said in Kneeland v. American L. & Tr. Co., 136 U. S. 89, 97:
“* * * 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. Scholl, 99 U. S. 235, 251:
“The possession taken by the receiver is only that of the court, whose officer he is, and adds nothing to the previously existing title of the mortgagees. He holds, ■ pending the litigation, for the benefit of whomsoever in the end it shall be found
It is said by Judge (now Mr. Justice) Sanford, in Mercantile Trust Co. v. Tennessee Cent. R. Co., 291 Fed. 462, 467:
“A court of equity administering railroad property either in a mortgage foreclosure case or in a creditors ’ suit, is charged with the duty of conserving and operating the property, so. far as can practically be done, for the benefit of. both public and private interests, and in' the exercise of this'duty of conservation and operation .may, in a proper case, make such repairs, replacements, and betterments and incur such operating, expenses as are purely essential to such results, and make the certificates issued for money borrowed by the receivers for such purposes a lien upon, the corpus Of the property, ■ and, so far as necessary, prior to existing liens. * * * The .authority to disturb existing liens for the purpose of securing receivers' certificates should, however, be exercised with great caution and ‘carried no' further than actually .necessary to attain the desired result.’. American Brake Co. v. Pere Marquette Railroad, supra, 205 Fed., at page 19, 123 C. C. A. 322. It does not, it is true,.depend .upon.consent or prior notice, where the circumstances are, judicially equivalent to
The power of-the coui’t to authorize receivers to raise money necessary for the preservation and management of the property and charge it as a lien on the corpus in preference to prior liens “is, undoubtedly, a'power to be .exercised with great caution; and, if possible, with the consent or acquiescence of the parties interested in the fund.” Wallace v. Loomis, 97 U. S. 146, at 163. See, also, Illinois Steel Co. v. Ramsey, 100 C. C. A. 323 (176 Fed. 853) ; Birmingham Tr. & Sav. Co. v. Atlanta, B. & A. R. Co., 300 Fed. 173. While a court of equity, talcing possession of and operating railroad property through a receiver, in a sense undertakes tha.t operating debts shall be paid, this implied undertaking is not without its limitations. The court should, in the first place, as has been shown, make the determination final only after hearing those whose prior rights may be prejudiced by its action. It should be careful to ascertain whether operation will pay ex-X>enses and will be in the interest of conservation, rather than conducive to dissipation of the property.- The end in view in appointing a receiver is the conservation of the property and the rights of the persons interested therein and in the income therefrom, and expenditures for any other purpose or end is, as to owners or lien holders not parties to the- suit or not estopped, beyond the power of the court. Persons dealing with the receive? must, at their peril, take notice of his authority and the jurisdiction of the court. Knickerbocker Tr. Co. v. Oneonta, C. & R. S. R. Co., 201 N. Y. 379 (94 N. E. 871). In this case, the interveners allowed the receiver to collect inter-line freight balances, apparently to considerable amounts, and to use the proceeds in defraying operating costs. In effect, the receiver, without any authority from the court, unless it was the implied authority to conduct the business according to the.custom of the company, appropriated inter-line freight balances to paying operating expenses; or, to state it otherwise, by that means raised funds to conduct operations. The only evidence as to the nature of the claims is the testimony of the receiver that it was “inter-line freight balances and per diem and freight claims,” including items paid for damages to freight chargeable to re: ceiver. .It is not shown that the interveners made any inquiry into the authority of the receiver, or relied upon any action by
The hearing on the petitions of intervention in this suit is not the equivalent of prior notice. It does not appear that any resistance was made to receivership operation, or that the parties then before the court were interested in making resistance. The receiver testified that at no”time were there sufficient funds to pay operating expenses. The interveners’ claims in large part are the equivalent of claims for payment for their money used in operation. If opportunity had been given to lien holders, we cannot assume that they would not have successfully resisted the application for operation by receiver. If the application had been to borrow money for operating expenses, that of itself would have been a warning of possible loss. It is clear that a hearing on an application to charge to the corpus the loss after it has been fully sustained, does not serve the purpose of opportunity to resist in advance the incurring of the loss. Union Tr. Co. v. Illinois Midland R. Co., 117 U. S. 434.
The fact that two of the judgments were rendered after the receiver was appointed, is not made the subject of discussion.