Morning journal and courier., 1892-06-03
TWO srREAKs OF RUST.

! III that Long Litigation Has Left of a Railroad System-Referee,s Decision in a Remarkable and Very Interest," ing Case.
 Under the above caption the Buffalo Courier of last Friday gives an interesting .eport concerning case which has ex- ,ited much attention in Buffalo and vicinity as we'll as in other sections of that part of the country. The case has an in terest here, az the Mir. Chapman 50 pro- identified in tho proceedings is we'll remembered here and elsewhere in | he having been the contractor l who built the New Haven and Derby rail- | road, and who was atterward prominent | in this state from his connection with the Shepaug railroad. The referee in the case, James M. Townsend, jr, of New York, is 8 son of Hon. James M. Townsend of this city, and brother of Judge William K. Townsend of the United States district court.
 An important decision was filed in the county clerks office yesterday by Messrs. Marcy & Close in action brought by Dan iel B. Wesson against George D. Chapman as receiver of the Lackawanna and Pitts burg Railroad company. The case has been in litigation for some years, and, it is said, shows how railroad wrecking may be accomplished under the sanction of judi cial procedure.
 The Lackawanna and Pittsburg railroad extends from Clean to Angelica, and with it's branches comprises system about 160 miles in length. On the Sth day of Decem- Der, 1884, in an action brought by the peo- &ho of% %ha George D. Chapman was appointed re- ceiver of the road; he was required to give a bond of $5O,OOO, which was accordingly filed; he operated the road down to September 1, 1888, when on account of the running expenses exceeding the income, it was abandoned. On the 18th of January, 1885, he applied to the court and obtained an order for the issuance Of $100, 1000 in reeeiver's certif- cates, and a year later obtained further order for $50, 900 additional. The funds realized from these sources were soon ex- pended, and after contracting all of the debts on open account that was possible, the receiver was finally compelled to cease operating the road.
 At the time of the appointment of the receiver the Mercantile Trust company held mortgage on the railroad to secure $2 ,000, 900 in first mortgage bonds of the road, of which there were outstanding about $1 ,600,O ,O00. The trust company be- gan foreclosure of it's mortgage in 1886, and the railroad was sold under decree of foreclosure on the 11th day of April, 1889.
 The bondholders of the company or ganized new road to be called the Lack awanna and Southwestern, and under an | agreement of reorganization entered into | by the bondholders of the Lackawanna and | Pittsbu-g, the reoperation of the road was l begun in August, 1889, by the Central | Construction company. It was run under this management for a few months, when | the Lackawanna and Southwestern took possession of it's property and ran the road until June, 1890. During this time, through mismanagement, it is alleged, the road did not pay operating expenses, and Chapman, as the story goes, conceived and executed the novel design of reassuming ! possession of the road as receiver. With out obtaining any authority from the
 court, or without consulting the board oi
 directors of the Lackawanna and South
 western road, he assumed possession an6
 actually ran the road for some month hs
 claiming to be acting as receiver of the ole
 company.
 The action in question was brought by
 Daniel B. Wesson, the firearm manufactur
 CT of Springfield, Mass, to have the debts O.
 the receiver marshalled, their p1iorities de
 termined, and the railroad property sold
 The facts developed upon the trial showed
 that the railroad, which once foated $1,
 100000 of bonds, is now being sold in al
 auction to determine the debts of receiv
 ership, and that it is questionable whethe
 the entire railroad property and franchises
 are worth sufficient sum to pay thes,
 debts; the equipment and rolling stool
 have been used up, and the road is so ou
 of repair that it is practically valueless a
 railroad property.
 The referee was James M. Townsend
 jr., of New York city, brother of Justic Townsend of the United States circui
 court. His voluminous report disclose
 that the debts of the receiver which ar l allowed are more than the value of tn ) property. The chief contention was tn question of the priority among claimants ! When the road was sold there was pro vision inserted in the foreclosure decree } in favor of all certificate holders and cred itors of the receiver. Under this provis
 ion the referee holds that they are entitle to an equal participation in the proceed ) trusted the Central Construction compan and the Lackawanna and Southwestern
 company, and the receiver during his re possession of the road, are thrown out c F court. The aggregate of these claims 3 nearly $500, 900, while those of the luck i and favored claims amounts to $160, ,000.
 This is said to be one of the most strik } ing instances on record of the futility C l the courts attempting to manage corpora: property through receiverships. It seem : to be admitted throughout the case ths s the mortgage bondholders will not receiv l dollar on their claims, and it is eve l ~, E.. f the amount of claims which are allowed
 In a lengthy and interesting opinion M f l Townsend writes:
 @ "The operation of this railroad by the receiv,
 at loss for so many years may not have bee
 all to some extent participated in tSince 1884 tl peoples suit has been pending, and the receive is still subject to certain responsibilities, fro which till now no one has sought to relieve hir
 Numerous attempts have been made to reviv
 the corpus, but as each effort failed the ros
 has been abandoned to the tender merci ,, tent with the new order of things, sand and no or or not moved the holders of receiver's % certiicat cat d have allowed their coupons to go unpa n ants have gone on trusting to the possible su
 cess of the agent or power in command, u l chasers have allowed the receiver and others , enter end make efforts at resusicitation and co ,. tract new debts, and strange to say, after sue
 
 70 l tended to the receiver, and the claimants st 10 hope, after the decrees and sale, to obtain lit . l on the corpus for their debts, when the corpl J. | has gone and the receivership is empty nan V | except for the perfunctory duties imposed Y | office which is but 8 name.
 Il "The balancing of equities in this case is
 most difficnlt task. The claimants have so sle1
 upon their rights and taken such chances as
 what the court might ultimately decide as them that the court is left to judge as best t. may, from general view of the situation fro if 1884 to 1891, what claims rise to position whic - entitled them to a lien upon the corpus of tl C 1 estate For six or seven years everyone seen l.. to have hoped that by some one of the mar d devices of fertile brains this property might
 saved. All have come to grief, and the ingeniol j. arguments of able counsel to show superi, l. l equities and inferior negligence are opposed 7. other equities and negligence of equal cons : quence."
 The action bristles with legal question
 but the citation shows the general tren
 of the decision. The interests of tt
 plaintiff were represented by William l
 Marcy of this city, and the receiver WI
 represented by Cecil Campbell Higgins t New York, the Mercantile Trust compan 9 by Alexander & Green, and the gener, ? claimants by various counsel of prominent in New York city.