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Railroads and the Equity Receivership: An Essay on Institutional Change

Published online by Cambridge University Press:  11 May 2010

Albro Martin
Albro Martin
Affiliation:
The American University
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Extract

“Mr. Jay Gould doth at this hour bestride the narrow Wall Street like a colossus. He is indeed the Autolycus of the western world. No pickpocket, either ancient or modern, has been more successful.” Such florid mixing of metaphors, even in the late Victorian era of railroad chaos, was rare for the financial editor of the staid London Railway Times. He had just read the plan by which the arch “robber baron” proposed to reorganize the wobbly, poorly integrated and ill-financed Wabash, St. Louis and Pacific Railway that Gould had sought to build out of at least two dozen railroads between Kansas City and Detroit. The editor's indignation a few weeks earlier is not recorded, but it was doubtless monumental, for on May 28, 1884 Gould had successfully sent his lieutenants into a United States District Court in St. Louis with a brazen request for appointment of receivers for the Wabash, under a concept of receivership which broke nearly every important precept of this old branch of equity law.

Type
Articles
Information
The Journal of Economic History , Volume 34 , Issue 3 , September 1974 , pp. 685 - 709
Copyright
Copyright © The Economic History Association 1974

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References

The research on which this article is based was financed by a summer research grant for which the author wishes to express his deep appreciation to the faculty and students of The American University. He is also grateful for the comments of Professor Ernest Williams, who read a draft of this article.

1 London Railway Times, July 12, 1884, quoted in New York Herald, July 22, 1884.

2 Chamberlain, D. H., “New-Fashioned Receivership,” Harvard Law Review, X (1896), 145.Google Scholar

3 Beach, Charles F. Jr, Commentaries on the Law of Receivers (New York, 1887), Sec. 327.Google Scholar

4 Lasdon, Oscar, “The Evolution of Railroad Reorganization,” I.C.C. Practitioners' Journal, XXXIX (May-June 1972)Google Scholar [Reprinted from Banking Law Journal, January, 1971], 540–41.

5 Cf. Douglas, William O., “Bankruptcy,” and Berle, A. A. Jr, “Receivership,” Vols. 2 and 13, Encyclopedia of the Social Sciences (1930)Google Scholar; Lasdon, “Evolution of Railroad Reorganization”; Fuller, Warner, “The Background and Techniques of Equity and Bankruptcy Railroad Reorganizations—A Survey,” in Duke University School of Law, Railroad Reorganization (Vol. 7, No. 3 of Law and Contemporary Problems), (Durham, North Carolina, 1940)Google Scholar; Byrne, James, “The Foreclosure of Railroad Mortgages in the U.S. Courts,” in Stetson, Francis L. et al. , Some Legal Phases of Corporate Financing (New York, 1916)Google Scholar; Swain, Henry H., Economic Aspects of Railroad Receiverships, Vol. 3, No. 2 of Proceedings of the American Economic Association (New York, 1898)Google Scholar; and Beach, Commentaries.

6 Douglas, “Bankruptcy,” and Berle, “Receivership”; Lasdon, “Evolution of Railroad Reorganization,” 542–3; Swain, Economic Aspects, pp. 55–57; Byrne, “Foreclosure,” 86–101; Fuller, “Background and Techniques,” 378–382.

7 Swain, Economic Aspects, p. 68.

8 There is no adequate summary of the economic and physical transformation of American railroads in the 1870's and 1880's. A recent study of the fluidity of the situation in this period is Martin, Albro, “The Troubled Subject of Railroad Regulation in the ‘Gilded Age'—A Reassessment,” Journal of American History, LXI (September 1974).Google Scholar

9 For the Kansas Pacific affairs, see summary in Poor's Manual of Railroads for 1884, p. 774. For the Northern Pacific, see the Annual Report of the new company dated September 26, 1876.

10 Commercial and Financial Chronicle (hereafter abbreviated CFC), XVII (Sept. 6, 1873), 324; XVIII (March 14, 1874), 272; XX (Investors’ Supplement, May 29, 1875), iii. Ernest Williams reminds me that the flamboyant doings of Fisk and his ilk should not obscure the fact that the Erie had developed by this time a skilled, professional management which operated the railroad very effectively in the face of such obstacles.

11 Annual Report of H. J. Jewett, Receiver of Erie Railway Co., to Board of Directors for Year Ending September 30, 1876; Berle, A. A. Jr, Power Without Property (New York: Harcourt Brace and World, 1959), pp. 114–15.Google Scholar

12 Poor's Manual of Railroads for. 1884, 159–167; CFC, XXII (May 27, 1876), 521, (June 17, 1876), 590; XXVI (April 27,1878), 419.

13 CFC, XXIII (Nov. 25, 1876), 526; (Dec. 16, 1876), 599; XXIV (March 10, 1877), 227; XXV (Oct. 20, 1877), 381–2; Poor's Manual of Railroads for 1886, 155; Annual Report of John King, Jr., Receiver, 1877–81, and of John M. Douglas, Receiver, 1882, of the Ohio and Mississippi Railroad.

14 CFC, XXII (March 18, 1876), 281; XXIV (March 24, 1877), 275; Poor's Manual of Railroads for 1883, 504–5; by the mid-1880's every mile of iron rail had been replaced with steel.

15 Railway Age, Jan. 3, 1878 and Jan. 2, 1879; CFC, XXIII (July 29, 1876), 112; Poor's Manual of Railroads for 1893, 206.

16 CFC, XXII (Jan. 29, 1876), 110; (May 20, 1876), 495; XXVII (Investors' Supplement, June 28,1879), xvi; 99 U.S. 334.

17 Poor's Manual of Railroads for 1893, 198, 762; CFC XXVII (Sept 7, 1878), 251.

18 Swain, Economic Aspects, p. 57, noted that although there was no applicable federal statute in this period, the initiative of the federal courts was encouraged by generous appropriations for conduct of the court system. Many states, especially in the west, have never had a railroad receivership case in their courts.

19 Swain, Economic Aspects, pp. 68,70–71.

20 Bradstreet's, IX (May 10, 1884), 301; (May 17, 1884), 305; (May 31, 1884), 344; Rendigs Fels, American Business Cycles, 1865–1897 (Chapel Hill: University of North Carolina Press, 1959), passim.Google Scholar

21 Grodinsky, Julius, Jay Gould, His Business Career (Philadelphia: University of Pennsylvania Press, 1957), pp. 414–16.Google Scholar

22 Judge Treat explained his actions in a statement appended to one of the cases arising out of the Wabash receivership, decided by Judge Brewer in 29 Fed. Rep. 618. Circuit Judge Walter Q. Gresham reviewed the chronology of the case in his conflicting decision, 29 Fed. Rep. 161.

23 22 Fed. Rep. 138,139–40.

24 29 Fed. Rep. 618, 627. When Judge Treat retired in March, 1887, testimonials to his nearly 40 years of service were printed and bound as a preface to Vol. 29 of the Federal Reporter, 29 Fed. Rep. iii–viii, an unprecedented tribute.

25 CFC, XXXVIII (June 29, 1884), 720, 731; (June 28, 1884), 756; (Aug. 16, 1884), 183.

26 CFC XXXIX (Aug. 9,1884), 149.

27 CFC, XXXIX (Aug; 2, 1884), 117; Poor's Manual of Railroads for 1888, 543–550; 29 Fed. Rep. 161.

28 29 Fed. Rep. 161, 161–2.

29 Bradstreet's, XI (Dec. 11, 1886), 369; 29 Fed. Rep. 618, 621; First Annual Report of the Wabash Railroad Company for the Year Ending June 30, 1890; Poor's Manual of Railroads for 1888.

30 Report of Henry Fink, Receiver, East Tennessee, Virginia and Georgia Railroad, for Year Ending June 30, 1886; Poor's Manual of Railroads for 1890, 417.

31 Schlegel, Marvin W., Ruler of the Reading: The Life of Franklin B. Gowen, 1836–1889 (Harrisburg, Pa.: Archives Publishing Co. of Pa., 1947), passimGoogle Scholar; Martin, Albro, “Crisis of Rugged Individualism: The West Shore—South Pennsylvania Railroad Affair, 1880–1885,” Pennsylvania Magazine of History and Biography, XCIII (April 1969), 218–243.Google Scholar

32 Poor's Manual of Railroads for 1882, 725–6; for 1893, 291; Moody's Transportation Securities, 1971.

33 poor's Manual of Railroads for 1884, 850; for 1892, 515.

34 Poor's Manual of Railroads for 1884, 183; for 1882, 725–6; for 1886, 577–78.

35 Martin, Albro, “The Troubled Subject of Railroad Regulation in the ‘Gilded Age'—A Reappraisal,” disputes the revisionist view that the Act of 1887 strengthened the railroads' hand (Journal of American History, XLI (September 1974)Google Scholar, as this view is held by Kolko, Gabriel, Railroads and Regulation (Princeton: Princeton University Press, 1965)Google Scholar, and MacAvoy, Paul, Economic Effects of Regulation: The Trunk-Line Railroad Cartels and the l.C.C. before 1900 (Cambridge, Mass.: MIT Press, 1965).Google Scholar

30 Swain, Economic Aspects, p. 68; Campbell, Edward G., The Reorganization of the American Railroad System, 1893–1900 (New York: Columbia University Press, 1938)Google Scholar is little more than an introduction to one of the most important events in the evolution of the American economic structure in the twentieth century.

37 Meade, Edward Sherwood, “The Reorganization of Railroads,” Annals of the American Academy of Political and Social Science, XVII (March 1901), 205–209, 233.Google Scholar

38 Meade, “Reorganization of Railroads,” 62–3.

39 Beach, Charles F. Jr, Commentaries on the Law of Receivers (New York, 1887), pp. 2634Google Scholar; text unchanged in the second edition, 1897.

40 145 U.S. 82, Quincy, Missouri and Pacific Railroad versus Humphreys, decided April 25, 1892, 95–6.

41 208 U.S. 90, Re Metropolitan Railway Receivership, decided January 13, 1908, 91.

42 The opening sentence of Sec. 77 of the Bankruptcy Act of 1933 (47 U.S. Statutes at Large 1474), reads, “Any railroad corporation may file a petition stating that the railroad corporation is insolvent or unable to meet its debts as they mature and that it desires to effect a plan of reorganization.”

43 For a good example of the realization that the railroad was bringing fundamental changes in its wake, see CFC, XXIX (Oct. 4, 1879), 344–45, and XXXIV (March 18, 1882), 304–5.