Louisville Bridge Co. v. Chicago, I. & L. Ry. Co.

EVAN A. EVANS, Circuit Judge (after stating the facts as above). Two questions are presented for our consideration: (a) Was appellant’s claim entitled to priority over the lien of the mortgages? (b) Were there any net earnings during the receivership ? It is conceded that the appellee stands in no better position than the last three mortgagees, whose mortgages were foreclosed by this suit. Appellee contends that the indebtedness of the Monon road to appellant was not for “current expenses” and such indebtedness was, therefore, not entitled to priority over the lien of the mortgagees, it further contends that even though the consideration for this claim would otherwise have entitled appellant to priority, such priority must be denied because the claim arose more than 6 months prior to the appointment of the receiver. Appellant, on the other hand, contends that as the holder oí a claim for current expenses it is entitled to priority over the lien of the mortgagees so far as the net profits of the company earned during the receivership in suit are concerned; that the 6 months period fixed in some jurisdictions and in some instances, is not an absolute or arbitrary period but must give way to facts showing reasons for its nonapplicability, that such reasons exist in the present case. Appellant also in ■ sists that in the present case the Motion road was a trustee holding amounts collected from passengers and shippers in trust for appellant, the cestui que trust. Questions of asserted priority of claims such as here considered, over liens of mortgages, have frequently been before the courts for determination. It has been uniformly held that not only must the claim be for “current expenses” but the claims must not be stale. In many jurisdictions a time limit of 6 months next preceding the appointment of a receiver is fixed as the period during which the claim must have arisen to entitle it to consideration. Turner v. Indianapolis, B. & W. Ry., Fed. Cas. No. 14,258, 8 Biss. 315; Westinghouse Air Brake Co. v. Kansas City Southern Ry. Co., 137 Fed. 26, 71 C. C. A. 1; Moore v. Donahoo, 217 Fed. 177, 133 C. C. A. 171; Carbon Fuel Co. v. C., C. & L. R. Co., 202 Fed. 172, 120 C. C. A. 460; C. & A. Ry. v. Mexican Trust Co., 225 Fed. 940, 141 C. C. A. 64; Texas Co. v. International & G. N. R. Co., 237 Fed. 921, 150 C. C. A. 571; Crane Co. [634] v. Fidelity Trust Co., 238 Fed. 693, 151 C. C. A. 543; Roebling Sons Co. v. Idaho Ry., L. & P. Co., 243 Fed. 527, 156 C. C. A. 225; Gregg v. Metropolitan Trust Co., 197 U. S. 196, 25 Sup. Ct. 415, 49 L. Ed. 717. Other courts reject the 6 months period as arbitrary and unjustifiable. Northern Pacific Ry. v. Lamont, 69 Fed. 23, 16 C. C. A. 364; Blair v. St. L. H. & K. R. Co. (C. C.) 22 Fed. 471; Wood v. N. Y. & N. E. R. Co. (C. C.) 70 Fed. 741; Hale v. Frost, 99 U. S. 389, 25 L. Ed. 419; Burnham v. Bowen, 111 U. S. 776, 4 Sup. Ct. 675, 28 L. Ed. 596; Beach on Receivers, p. 414. [ 1 ] It is not necessary in this case to adopt any hard and fast period of limitation to dispose of the claims here under consideration; for if we adopt the rule antaounced by the last above cited cases, we are still unable to bring the appellant’s, claims within such a period as will permit of their allowance in advance of the lien of the mortgages. Some of these claims were 6 yeárs old at the time the receiver was appointed, and all of the claims arose more than 16 months prior to such appointment. The presence of the provision in the agreement which gave to the bridge company at any time the right to terminate the contract upon 30 days’ notice for failure of the railroad company to pay the amounts due, affords ample support for this conclusion. As against the mortgagees it would be unjust and inequitable to give petitioner priority of lien when it is apparent that claimant had at all times an effective weapon for the collection of its account. [2] We are also convinced that upon all the facts and circumstances in this case, appellant does not bring its claim within the rule entitling it to priority over the lien of the mortgages, even- though the question of time be waived. The fact that the bridge company reserved the express right to terminate the contract upon failure of the railroad company to promptly pay its indebtedness is equally significant on this phase of the case. Thomas v. Western Car Co., 149 U. S. 95, 13 Sup. Ct. 824, 37 L. Ed. 663. In that case the court said: “Such provision shows that the car company was aware of the existence of the outstanding bonds, and protected itself by other methods than relying upon the possible order of a court which might appoint a receiver.” The contract made by the parties in this case was one of mutual benefit. The bridge company owned a bridge, the value of which in part depended upon the extent of the use to which it was put. The carrier was obviously benefited in that it was not required to construct a bridge itself. In order to secure all the business of the railroad company and to make more certain its fixed income, this agreement was made, the duration of which was in part dependent upon the action of appellant. It extended the time of payment from month to month upon the strength of the credit of the railroad company. The acts and conduct of the parties add strength to this conclusion. The president of the bridge company testified: “The railroad companies using the bridge simply paid on account from, time to time according to their convenience.” As stated in Southern Railway v. Carnegie Steel Co., 176 U. S. 257, 20 Sup. Ct. 347, 44 L. Ed. 458: [635] “Whether the debt was contracted upon the personal credit of the coni' pany, without any reference to Its receipts, is to be determined in each case by the amount of the debt, the time and terms of payment, and a.ll other circumstances attending the transaction.” We conclude the credit was extended upon the strength of the railroad company’s general credit and that the debt was not a “current income debt.” [3] Appellant also contends that it should be entitled to priority because the railroad company held the money received by it from passenger or shipper as a trust fund and the amounts thus collected to the extent of this indebtedness in equity belong to the bridge company, citing Terre Haute & Indianapolis Ry. Co. v. Cox, 102 Fed. 825, 42 C. C. A. 654. The facts in that case are distinguishable from those in the present case. In that case the court said: “The 30 per centum embraced In the order of the court, though mingled with the funds of the Indianapolis Company, never belonged equitably to that company, either in its own right, or in the right of its bondholders. In equity the moneys were always, notwithstanding the intermingling, the moneys of the Peoria Company. In view of those facts, the court clearly had the power, after the appointment of the receivers, to recognize the provisions of the lease, to the extent of restoring these moneys; and, in our opinion, it was the duty oí the court to go at least to that extent.” The agreement expressly provided for a division of the earnings. It is clearly distinguishable from, a case covering an agreement calling for a payment as rent of a sum equal to a certain per cent, of the earnings. In the present case, we conclude that the contract was one calling for the payment of rent and that the amount of the rent was measured in a somewhat unusual manner. The agreement did not, however, have the effect of giving to the bridge company a right to any specific money received by its lessee. [4] In view of this determination of the first question submitted, it becomes unnecessary for us to consider the second question, for unless the appellant’s claim was entitled to priority over the lien of the outstanding mortgages, no right to the net profits accrued in its favor, as against a mortgagee whose lien covered not only the property but the rents and profits derived therefrom. The decree is affirmed.