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THE

AMERICAN LAW REVIEW.

MARCH-APRIL, 1896.

RAILROAD RECEIVERSHIPS IN THE FEDERAL

COURTS."

My remarks will be confined to a brief consideration of some of the rules of law and practice applicable to railroad receiverships in the Federal courts.

The appointment of a receiver of a railroad in a suit to foreclose a mortgage on the road is not a matter of right, but rests in the sound judicial discretion of the court, and, in the language of the Supreme Court of the United States, is a power to be exercised sparingly and with great caution. This salutary rule must never be overlooked, because it not only prevents the appointment of a receiver for a railroad when none ought to be appointed, but, as we shall see, it puts it in the power of the court to attach appropriate equitable conditions to the appointment when one is made.

A receiver of a railroad is a person appointed to receive and preserve the property of a railroad company, and is clothed with authority to operate the railroad and receive the earnings and

1 An address delivered before the > Railroad Co. 0. Howard, 131 U. Greenleaf Law Club of St. Louis, by S. Append. LXXXI; Fosdick v. Schall, Hon. HENKY CLAY CALDWELL, Presi 99 U. S. 235, 253; Sage 0. R. R. Co., dent of the United States Circuit Court 125 U. 8. 361, 376; Farmers' Loan & of Appeals for the Eighth Circuit, and Trust Co. o. K. C. W.&N. W. R. Co., revised for republication bere. See 53 Fed. Rep. 182, our department of “ Notes" in this number. VOL. XXX.

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income therefrom during the pendency of the foreclosure suit. In contemplation of law the railroad is in the custody of, and operated by, the court appointing the receiver. The receiver is the agent of the court. He is an officer of the court and his possession of the property is the possession of the court. He is not the agent of either party to the suit and neither party is responsible for his contracts or for his malfeasance or misfeasance in office. 1

The railroad company is not, therefore, liable for the negligence of the receiver or his servants during the time the road is operated by the receiver. For all torts of the receiver and his servants as well as for all liabilities incurred upon contracts made by the receiver with the approval of the court, the receiver is responsible, not personally, but in his official capacity.

The liabilities incurred by the receiver in the operation of the road are, strictly speaking, the liabilities of the court appointing the receiver. No court, therefore, should engage in the operation of a railroad without reserving to itself the power and the means of discharging the obligations incurred in the business.

It was at one time earnestly contended that the property and fund in the possession of the court in a railroad receivership could not be subjected to the payment of liabilities and obligations incurred by the negligence of the receiver or his agents in the operation of the road. At an early day in the history of railroad receiverships the prevailing idea was that the principal object of such receiverships was to relieve the railroad company from its debts and liabilities incurred in the operation of the road, and to have it operated by a court for whose torts and negligence the trust fund would not be liable. Under the early practice, a railroad receivership was a very desirable thing for the railroad company and its bondholders. It may be useful to refer to some of the benefits and advantages that accrued to the railroad company and its mortgage bondholders from a railroad receivership under the early practice, and to note the respects in which the former practice has been changed.

1 Dow o. Memphis & Little Rock R. Co., 20 Fed. Rep. 260.

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I. SUING THE RECEIVER WITHOUT LEAVE OF THE COURT APPOINTING HIM.

The general rule that the receiver being an officer of the court could not be sued without leave of the court appointing him, was rigidly applied to railroad receivers. Leave to sue a railroad receiver in a court of law was rarely given. The result of this rule was that all the litigation growing out of the operation of a railroad, which might be bundreds of miles in length, was concentrated in the court appointing the receiver and on the equity side of that court where the suitor was denied a trial by jury, although his demand was purely a legal one. This was the practice : One having a demand against a railroad receiver was required to assert it by filing a petition of intervention in the suit in which the receiver was appointed. This petition was referred to the master of the court, who heard and took down the evidence and made his report upon the claim. One party always, and sometimes both, excepted to the findings of the master. The master's report and the exceptions thereto would at some time come up for consideration by the court. This mode of proceeding was attended with great delay, costs and inconvenience to the claimant. On the other hand, it was found extremely convenient and profitable to the railroad company and its bondholders to have the litigation growing out of the operation of the road carried on in a chancery court far removed from the locality where the cause of action arose and the claimant and his witnesses resided.

Several years ago one of the circuit courts in this circuit adopted a rule of court providing that receivers of railroads appointed by that court might be sued in any court of competent jurisdiction without the leave of the court previously obtained, and declaring that the service of process on any station agent of the receiver within the territorial jurisdiction of the court issuing the process, should be equivalent to personal service of such process on the receiver. The reasons for adopting this rule were thus stated by the court at the time :

" The general license to sue the receiver is given because it is desirable that the right of the citizen to sue in the local State

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| Barton v. Barbour, 104 U. S. 126.

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