# St. Joseph & St. Louis Railroad Company v. Humphreys/Opinion of the Court

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United States Supreme Court
145 U.S. 105
St. Joseph & St. Louis Railroad Company v. Humphreys
We have already seen that the theory of this bill was that an insolvent railroad corporation may, in the public interest, and for the benefit of all its various creditors, surrender its property to a court of equity, to be preserved and kept in operation until it can be disposed of according to the several private rights concerned. Under such circumstances, before receivers can be held to have adopted outstanding leases, reasonable time is required to ascertain the situation, in order that the court may determine intelligently the proper course to be pursued. In this case, as to many of the lines involved, it was presently known that they were not self-supporting, and that fact was brought to the attention of the court, which announced that such roads could not share in the earnings of those which had a surplus, but that they might apply for possession. But as to the St. Joseph road a somewhat longer time was necessarily taken to arrive at results in that regard. The court, however, from the first had permitted no doubt to be entertained as to its position in the premises. The order of appointment directed payment out of income only, and required accounts to be kept of the source of income with reference to expenditure. The receivers, after ascertaining the earnings, expenses, and cost of running the St. Joseph road, so as to be enabled to form a sufficiently correct judgment upon the matter, gave that company official notice that rental would not be paid. A loss was incurred by the operation of the road from May 29 to November 30, 1884, of more than $50,000. The master found that its operation was a burden to the rest of the property; that its expenses exceeded its earnings; that it was of no benefit to the system, and neither necessary nor valuable to it as a feeder; that the deficit June 30, 1885, was $71,207.36; and that the deficit continued until the road was surrendered by the receivers. This being so, the court was not bound to direct the receivers to adopt the lease and inflict a loss on the other roads, not of whose money or property alone these rentals could be paid.
We think the notice given by the receivers that they could not pay, if any notice were required, was given within a reasonable time; and that the St. Joseph Company has little cause to complain of any action taken in the premises. The Wabash Company was insolvent, and the St. Joseph could not get its rental because of that insolvency; but we are unable to perceive why that business loss should be made good to that company out of property in which others had superior rights. This is what in different forms constitutes petitioner's claim, namely, that either upon the ground of an election to adopt, or of equitable lien, or that the rentals were part of the receiver's expenses, petitioner should be given a preference upon the corpus of the property.
We are of opinion in this case, as in No. 223, (Railroad Co. v. Humphreys, supra,) that these receivers did not become bound upon this lease by an election or because of any act of their own or of any order of court. We find here, as there, no reason to doubt that, if petitioner had applied for the possession of this property earlier than it did, it would have obtained it. We do not agree to the view that the St. Joseph Company could lie idly by while the Wabash system was in the throes of dissolution, utterly insolvent, and hopeless of recovery, and say that its inactivity was in reliance on an expectation held out by the receivers that the rental would be paid, no matter what became of the rights of other parties. What fund was there, what assets were there, from which this rental could be paid? There was a preferential debt of more than four and a half millions, and at the time the St. Joseph Company retook its road the entire net earnings of the whole Wabash system from May 29, 1884, to April 24, 1886, had not sufficed to extinguish that indebtedness by a million and a half, while the mortgaged property brought far less than the incumbrances.
What the court did was to allow lessors and mortgagees to get what they could out of their own property, and we find no assent by the mortgagees to the allowance of this claim as against them. It is true that in the answer of the Central Trust Company and James Cheney, trustees, to one of the intervening petitions, it is said that the receivers took possession of the property demised, and that 'they have since that time held, used, and operated said road in and by said lease demised, and under and by virtue thereof,' but the action of the receivers or the orders of the court do not justify the conclusion, as we have said, that the lease was adopted, but the contrary. It is also true that some days after the receivers were appointed the Iron Mountain road appeared, and assented to the appointment; but we do not regard that as materially affecting the situation.
Without more, what we have said in the preceding case is sufficient to dispose of this, and the decree of the circuit court is affirmed.

## Notes

This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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