American Iron Steel Manufacturing Company v. Seaboard Air Line Railway

• Decision Date: 06 April 1914
• Docket Number: No. 233,233
• Citation: 233 U.S. 261,34 S.Ct. 502,58 L.Ed. 949
• Parties: AMERICAN IRON & STEEL MANUFACTURING COMPANY, v. SEABOARD AIR LINE RAILWAY and S. Davies Warfield, R. Lancaster Williams, and E. C. Duncan, Receivers of the Seaboard Air Line Railway
• Court: U.S. Supreme Court

233 U.S. 261

34 S.Ct. 502

58 L.Ed. 949

AMERICAN IRON & STEEL MANUFACTURING COMPANY,

v SEABOARD AIR LINE RAILWAY and S. Davies Warfield, R. Lancaster Williams, and E. C. Duncan, Receivers of the Seaboard Air Line Railway.

No. 233.

Argued March 6, 1914.

Decided April 6, 1914.

Under the provisions of § 6 of the act of March 3, 1891 (26 Stat. at L. 828, chap. 517, U. S. Comp. Stat. 1901, p. 549), the circuit court of appeals of the fourth circuit certified to this court a question on which it desired instruction, and in that connection made the following statement of facts:

'Upon a bill filed by a railway company alleging its insolvency and consequent inability to maintain itself as a going concern, except through the medium of a receivership, receivers were appointed. The bill alleged that a receivership would enable the property of the railway company to be preserved and maintained as a whole and the sums due and to become due to the bondholders and creditors to be secured and ultimately paid in full.

'The trustee in the first mortgage answered the bill, admitting its allegations, and afterwards filed a cross bill again admitting the allegations of the bill in regard to the insolvency of the company. The suit was not a creditors' suit. The trustee subsequently filed a bill in the same court to foreclose the mortgage, seeking a sale of the equity of redemption, and the two suits were consolidated. No prior encumbrancers were made parties to either suit. Prior to the receivership the claimant furnished supplies to the railway company, for which, shortly after the receivers were appointed, a lien was duly perfected under the statute of Virginia known as the labor and supply lien statute, Code of Va. § 2485. The supplies were sold on a credit of 'thirty days, 1 per cent discount allowed for payment in ten days.' Claimant filed its claim before the special master in the receivership proceedings, relying upon a statutory lien under the statute above mentioned. The special master reported against the allowance of interest on the claim, to which report in that particular claimant excepted.

'Subsequently, on the petition of the railway company, a decree was entered approving 'a plan of adjustment' of the finances of the company, and providing for turning back to the company its property, and for ending the receivership at a certain time. From time to time during the receivership and at the ratification of the plan of adjustment, and as a part thereof, all interest due at the time of the appointment of the receivers and accruing during the receivership on all the funded and many of the floating obligations of the railway company were paid in full. The amount so paid for interest aggregated some millions of dollars.

'The decree approving the plan of adjustment provided that the company should pay in due course of business all its obligations, liabilities, and indebtedness, and reserved the right, in the event of default in that regard, to any claimant aggrieved by such default, to present his petition to the court to have his claim enforced 'to the same extent as though the receivership had continued.'

'After the receivership had been thus terminated, claimant filed its petition in the court, praying that its exceptions to the special master's report should be sustained, and for the enforcement of its claims, including interest thereon during the period of the receivership, and seeking to enforce it not upon the doctrine of an equitable lien, but as a statutory lien. The circuit court refused to allow interest for the period of the receivership, and from that ruling an appeal was taken.

Question.

Is interest recoverable on such a claim for the period of the receivership?

Messrs. George Wayne Anderson and Henry R. Pollard for the American Iron & Steel Manufacturing Company.

Mr. L. L. Lewis for Seabord Air Line Railway et al.

Statement by Mr. Justice Lamar:

Mr. Justice Lamar delivered the opinion of the court:

The statement of facts made by the circuit court of appeals of the fourth circuit shows that supplies were sold to a railway company on thirty days' credit. Before the credit period expired the road, alleged to be insolvent, was, on its own application, placed in the hands of receivers, their appointment being subsequently continued under a bill for foreclosure filed by mortgage trustees. The railway company succeeded in making a readjustment of its bonded indebtedness and the property was returned to the owners. The court, however, retained jurisdiction for the purpose of passing upon the claims of creditors aggrieved by the company's default in paying its obligations. Among those presented was the American Iron & Steel Manufacturing Company's claim for supplies secured by a lien which by statute took priority over mortgages. The matter was referred to a master on pleadings not before us. He made a report (not in the record) and on exceptions thereto the circuit court refused to allow interest. From that statement, in connection with the briefs and arguments of both counsel, we infer that the railway was directed to pay the principal of the claim. The case was then taken to the circuit court of appeals for the fourth circuit which certifies to this court the question, 'is interest recoverable on such a claim for the period of receivership?'

Both parties agree that the matter is controlled by the law in Virginia, but no light is thrown on the subject by the statute of the state, which merely declares that legal interest shall continue to be at the rate of 6 per cent. Pollard's Code, § 2817. No Virginia case directly in point is cited in either of the briefs, and there is a complete disagreement between counsel as to the bearing of the state decisions on the question here involved.

On the part of the railway company it is contended that interest could not have been recovered on this claim even in an action at law. On the authority of Calton v. Bragg, 15 East, 223, 13 Revised Rep. 451, 14 Eng. Rul. Cas. 541; Newton v. Wilson, 3 Hen. & M. 470; Quincy, M. & P. R. Co. v. Humphreys, 145 U. S. 82, 36 L. ed. 632, 12 Sup. Ct. Rep. 787, and other like cases, it is argued that the right to interest is a matter of agreement, and can be recovered as a part of the debt only where it has been reserved in the contract, or where a promise is implied from the character of the note or instrument evidencing the debt. The railway therefore insists that as the intervener sold the supplies, without taking a note and without securing a promise to pay interest, there was no right to recover interest as an incident of the debt, although a jury, as a matter of discretion, might have allowed it by way of damages for unreasonable delay in making payment.

On the other hand, counsel for the ...