Murray v. Roberts

• Decision Date: 17 April 1939
• Docket Number: No. 198.,198.
• Citation: 103 F.2d 889
• Parties: MURRAY v. ROBERTS et al.
• Court: U.S. Court of Appeals — Second Circuit

103 F.2d 889 (1939)

MURRAY v. ROBERTS et al.

No. 198.

Circuit Court of Appeals, Second Circuit.

April 17, 1939.

Davies, Auerbach & Cornell, of New York City (Edward Cornell, H. C. McCollom, and Orrin G. Judd, all of New York City, of counsel), for appellant Central Hanover Bank & Trust Co., as trustee.

Wright, Gordon, Zachry & Parlin, of New York City (Boykin C. Wright, Clifton Murphy, and Daniel James, all of New York City, of counsel), for Van S. Merle-Smith et al.

John J. Curtin, of New York City (Joseph H. Choate, Jr., David B. Tolins, and Winfield S. Palmer, all of New York City, of counsel), for Transit Commission, Metropolitan Division, Department of Public Service of the State of New York.

Miller, Owen, Otis & Bailly, of New York City (Carl M. Owen, James L. Quackenbush, Ralph Norton, and Mark F. Hughes, all of New York City, of counsel), for Thomas E. Murray, receiver of Interborough Rapid Transit Co.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City (Edwin S. S. Sunderland, Chester F. Leonard, and Charles H. Willard, all of New York City, of counsel), for Guaranty Trust Co. of New York, J. P. Morgan and others.

Shearman & Sterling, of New York City, for J. Herbert Case and others.

Bigelow & Beatty, of New York City, for Interborough Rapid Transit Co.

Louis Boehm, of New York City (Louis Boehm and Gabriel Rubino, both of New York City, and Hyman Eller, of Brooklyn, N. Y., of counsel), for Norman Johnson and others.

White & Case, of New York City (Jesse E. Waid, of New York City, of counsel), for Bankers Trust Co.

Eppstein & Hirshfield, of New York City (Ira W. Hirshfield, of New York City, of counsel), for Dwight F. Faulkner, Jr., and others.

Hughes, Richards, Hubbard & Ewing, of New York City (Charles E. Hughes, Jr., and Allen S. Hubbard, both of New York City, of counsel), for William Roberts.

Milbank, Tweed & Hope, of New York City (Carl V. Venters, of New York City, of counsel), for Chase Nat. Bank of City of New York.

John B. Doyle, of New York City, (Frank C. Laughlin, of New York City, of counsel), for Harold Palmer and others.

Hodges, Reavis, Pantaleoni & Downey, of New York City, for Nathan L. Amster et al.

Rayford W. Alley, of New York City, for William S. Kies et al.

William C. Chanler, of New York City (William G. Mulligan, Jr., of New York City, of counsel) for City of New York.

Charles Franklin, of New York City (Marcus L. Bell, William V. Hodges, and C. Frank Reavis, all of New York City, of counsel), for Manhattan Ry. Co.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

These appeals are from an order, entered in a general creditors' suit, which directed the receiver of the Interborough Rapid Transit Company to reject a lease, granted by the Manhattan Railway Company of its elevated railroad in the City of New York; but to continue to operate trains over parts of the Interborough tracks, connecting with the Manhattan; and to give free transfers at one intersection of the two roads. The order also directed the receiver to affirm three contracts — Nos. 1, 2 & 3 — between the Interborough and the City, and denied the petition of the City that the Interborough receiver be directed to operate the elevated road, and the petition of the receiver of the Manhattan Railway Company that he affirm the lease. Many parties filed answers, extended hearings were held, and the district court wrote a long opinion, which set out the facts in detail, and summarized the relevant documents. Nobody has questioned the accuracy of this statement with the exception of a single finding of fact; i. e., that the continued operation of the Manhattan would be a burden to the Interborough. Upon the argument only the Manhattan Company — not its receiver — challenged this finding; it asked us to withhold decision until the question can be decided. It is an issue on which the Manhattan should not be heard; it concerns only the internal policy of the creditors and shareholders of the Interborough, in which the Manhattan, as lessor, may not intervene: the determination whether to perform, or to leave the obligee to its remedies, is to be made solely in the interests of the Interborough. It is indeed true that, as lessor, the Manhattan is a creditor, and that, as a creditor, it has an interest in the Interborough's assets, but since the Manhattan is also in the hands of a receiver, he must speak for its creditors. If he thinks it unwise to raise the issue, he cannot be forced to do so except by the court which appointed him, and that too in the Manhattan creditors' suit. No such application has been made in that suit.

We shall not repeat the facts so carefully stated by the district court; we presuppose a familiarity with them. We may start with the assumption that, except for any obligations to the City, the performance of which would prevent his doing so, the Interborough receiver would be free to reject the Manhattan lease as his interest might dictate. That is perhaps not perfectly evident; the City's consent was necessary to the acquisition of the term in 1903, and it might be argued that that consent was also necessary to a divorce of the two systems. Broad River Power Co. v. South Carolina, 281 U.S. 537, 50 S.Ct. 401, 74 L.Ed. 1023; American Brake Shoe Company v. New York City Railways, unreported (S.D.N.Y. February 11, 1925). But the point has not been made, and we pass it: the first question for us is whether the Interborough entered into any covenants, express or implied, with the City which stand in the way of a rejection of the lease. At the outset we say that we see no substantial difference between the rights conferred by the documents of March, 1913, and franchises, stricti juris. Those granted by Contract No. 3 were leases, it is true, but during the term conveyed they included the right to occupy, and make use of, public streets, and that is in substance a franchise. The "Extensions Certificate" was in terms a franchise, though not in perpetuity; the "Joint Trackage Agreement" was at least a license; and the "Third Trackage Agreement" was also a franchise, though granted to the Manhattan, and, like the "Extensions Certificate", not in perpetuity. As to all these the considerations determining the City's rights of regulation and control, are the same as in the case of any other franchises.

The Interborough's only covenant to operate any part of the elevated lines, or to operate through trains over both the elevated and the subway, is to be found in Article IX of the "Extensions Certificate"; and that is limited to operation over the joint tracks and the "Extensions", although this was to be "to the end that through service may be provided" over the Manhattan as well. Article IX declares at its end that the "Joint Trackage Agreement" will specify in detail how this covenant shall be performed, and Article First of the "Joint Trackage Agreement" contains a variant of the concluding phrase, just quoted, which is as follows: "to the end that through service may be provided over such portions" (the joint tracks) "over such Railroads" (the "Extensions") "and, so long as the Grantee its successors or assigns shall operate the Manhattan Railroad, over such Manhattan Railroad". We must first decide whether this "so long as" clause limits the covenant in Article IX to the period during which the Interborough remains able to meet all its claims to its creditors; i. e. to its solvency. Article First of the "Joint Trackage Agreement" is only a grant; it contains no covenant of the Interborough except as lessee of the tracks, to itself, as grantee of the joint track privilege — which is no covenant at all. The change was deliberately interpolated into it after the first draft was made, and it was not interpolated into Article IX of the "Extensions Certificate." This enables us to fix its purpose with some certainty: it was to insure against the Interborough's retention of the grant after it had for any reason ceased to operate the Manhattan; but it has nothing whatever to do with the duration of the covenant of Article IX of the "Extensions Certificate". If that had been intended it would have appeared in the text of that covenant. The contrast is conclusive. Moreover, even were it less clear, we should hesitate long before construing the language as giving the Interborough an option to end its obligation upon insolvency. It is in fact still able to operate the Manhattan, though the bargain has become onerous, has indeed become a very bad bargain. Yet it is a far cry from that to hold that the City meant, when granting new franchises, then supposed to be of great value, to allow the grantee to repudiate the consideration and disrupt the newly achieved transportation system, as soon as it was forced to peel off some of the junior claims against it. We hold therefore that the covenant to operate over the "Extensions" and the joint tracks is not limited to the period during which the Interborough may find it desirable to keep the lease, but that it bound the road during the existence of the "Extensions Certificate" and the "Joint Trackage Agreement."

Article IX does not, however, require the Interborough to operate trains over the Manhattan. Again, the words must prevail, and this interpretation is confirmed by Article XII of the "Extensions Certificate", which provides for a new division of profits, "if and when the Interborough Company ceases to operate the Railroads" (the "Extensions") "in conjunction with the Manhattan Railroads." Although this does indeed show that the covenant may last beyond the lease, there is no indication that performance is to change while the obligation continues: yet, if performance includes operation over the Manhattan, it must change in case the roads ever become separated. We do not forget the curious result of so interpreting Article IX, subjecting the Interborough, as that does, to the apparently futile duty of running trains...