In re Penn Central Transportation Company

• Decision Date: 25 October 1974
• Docket Number: No. 70-347.,70-347.
• Citation: 385 F. Supp. 612
• Parties: In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. In re UNITED NEW JERSEY RAILROAD & CANAL COMPANY, Secondary Debtor. Petition of PROLERIZED SCHIABONEU COMPANY to Reclaim Property and For Other Relief.
• Court: U.S. District Court — Eastern District of Pennsylvania

385 F. Supp. 612

In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor In re UNITED NEW JERSEY RAILROAD & CANAL COMPANY, Secondary Debtor Petition of PROLERIZED SCHIABONEU COMPANY to Reclaim Property and For Other Relief.

No. 70-347.

United States District Court, E. D. Pennsylvania.

October 25, 1974.

Eugene E. Anderson, Jr., Philadelphia, Pa., for Trustees, Penn Cent. Transp. Co.

Merritt T. Viscardi, Apruzzese & McDermott, Springfield, N. J., for Prolerized Schiabo-Neu Co.

Mitchell L. Bach, Ewing & Cohen, Philadelphia, Pa., for United New Jersey RR & Canal Co.

MEMORANDUM AND ORDERS Nos. 1702 and 42

FULLAM, District Judge.

Petitioner, Prolerized Schiabo-Neu Company ("Prolerized"), seeks to recover $8,500 deposited with the railroads in connection with its agreement to purchase 6.44 acres of land, located in Greenville Yard, New Jersey. The land to be sold under the agreement was, and still is, owned by the Secondary Debtor and leased to the Debtor for a term of 999 years from July 1, 1871. Because Penn Central's management failed to approve the transaction, as required by the terms of the agreement, the property was never conveyed to Prolerized.

The unsettled issues are whether Prolerized is entitled to reclaim its down payment, and, if not, whether its claim against the estates of the railroads is secured by a vendee's lien. The Trustees of the Debtor take the position that Prolerized's claim is an unsecured prebankruptcy claim for $8,500, and have verified it as such for purposes of the Debtor's proof of claims program.

On May 13, 1970, Prolerized entered into the sale contract now the basis for its $8,500 claim. In language which reflects the casual disregard for the distinct corporate entities of parent and lessor-subsidiaries that existed before reorganization, the agreement began:

"AGREEMENT.

"The United New Jersey Railroad & Canal Company (hereinafter called Grantor) has agreed through C. Nichols, Manager-Real Estate, Penn Central Transportation Company, Lessee, subject to the approval of the management and Board of Directors of Penn Central Transportation Company and of Grantor (if other than Penn Central Transportation Company) and the Public Utility Commission of the State of New Jersey to sell to Prolerized (hereinafter called the Grantee) the land in Grantor's Greenville Yard. . . ."

Other paragraphs of the contract included these terms:

"In the event either management or Board of Directors fails to approve and authorize this transaction . . ., then the sum paid on account will be refunded without interest to Grantee who hereby agrees to accept same, whereupon this writing shall be cancelled and annulled and neither party hereto shall have any claim whatever against the other by reason hereof.

* * * * * *

"Anything herein to the contrary notwithstanding, it is distinctly understood and agreed that this instrument does not constitute a binding agreement or impose any obligation on grantor, Penn Central Transportation Company or their agents (except as provided above in reference to the cost of title report, survey and the return of the down payment) unless and until Manager-Real Estate of Penn Central Transportation Company gives written notification to Grantee to the effect that this transaction has received necessary approval and authorization of management and Board of Directors and that Grantor is legally bound."

On behalf of the the grantor, the contract was signed as follows:

"The United New Jersey Railroad & Canal Company.

"by S/ C. Nichols"

As provided in the agreement, Prolerized made a down payment of $8,500 by its check, dated February 13, 1970, payable to the order of UNJ. (According to the Trustees of the Debtor, the payment was made in advance of the agreement of sale "to bind Prolerized's offer for the property.") The check was endorsed to the Debtor and, on March 16, 1970, deposited by the Debtor in its Master Control Account, an account used for payment of general railroad expenses. The $8,500 deposit was commingled with other monies in the account. No funds were set aside from this or any other account for the purpose of making a refund to Prolerized or UNJ, should that contingent obligation arise. On the Debtor's books, this transaction was reflected by a debit to the Debtor's cash account and a credit to its liability account (the credit entry was described initially as an amount owed to UNJ, but later this was changed to show that the amount was owed to Prolerized).

The approval of the management and Board of Directors of Penn Central Transportation Company, necessary for the conveyance, was never given; instead, on June 18, 1970, the Debtor rejected the transaction. Three days later, and before the $8,500 deposit was refunded to Prolerized, the Debtor filed for reorganization under § 77.

About one year later, Prolerized instituted an action against the UNJ in the Superior Court of New Jersey, Chancery Division, Hudson County, seeking return of its $8,500 deposit (plus certain out-of-pocket expenses said to be due the vendee under the sale agreement), a declaration that it held a vendee's lien on the land in Greenville Yard for that amount, and foreclosure of its asserted lien. The Debtor was joined as a third-party defendant. This action has been stayed by the New Jersey State Court to allow Prolerized to seek relief in the Debtor's reorganization proceedings by way of a reclamation petition, which was filed and which is now before this Court.

In the meantime, the UNJ has entered reorganization as a Secondary Debtor (70-347-A), and Order No. 1 in those proceedings barred the further prosecution of any suits against it. Prolerized now asks that, if its reclamation petition is not granted, it be permitted to continue its New Jersey Superior Court action. Both the Debtor and the Secondary Debtor are opposed to this, arguing that since the Debtor's liability to Prolerized is admitted and verified at the full amount claimed, there would be no useful purpose served by reducing the claim to judgment.

First, it is clear that even if Prolerized is granted leave to continue its pending action, that leave would necessarily be limited to prosecution to judgment, and would not permit execution of judgment. And if, after further litigation in the New Jersey Superior Court,...