Central Hanover Bank & Trust Co. v. Callaway

• Decision Date: 05 May 1943
• Docket Number: No. 10585.,10585.
• Citation: 135 F.2d 592
• Parties: CENTRAL HANOVER BANK & TRUST CO. v. CALLAWAY et al.
• Court: U.S. Court of Appeals — Fifth Circuit

135 F.2d 592 (1943)

CENTRAL HANOVER BANK & TRUST CO. v. CALLAWAY et al.

No. 10585.

Circuit Court of Appeals, Fifth Circuit.

May 5, 1943.

Alexander M. Lewis, of New York City, and J. Randolph Anderson, of Savannah, Ga., for appellant.

A. R. Lawton, Jr., and T. M. Cunningham, both of Savannah, Ga., Francis T. P. Plimpton, Andrew Oliver, and Edward W. Bourne, all of New York City, and Henry B. Brennan and R. Basil Morris, both of Savannah, Ga., for appellees.

Before SIBLEY, McCORD, and WALLER, Circuit Judges.

WALLER, Circuit Judge.

This is an appeal from two orders entered on December 23, 1942, and on January 4, 1943, respectively, in a proceeding pending in the District Court below for the reorganization of the Central of Georgia Railway Company (hereinafter called "the Debtor") under Section 77 of the Bankruptcy Act, 49 Stat. 911, as amended, 11 U.S.C.A. § 205. Since the propriety of the lower Court's action turns largely on factual considerations, it is necessary to state the facts in some detail.

The Debtor is a railroad corporation owning a system of railroad lines extending west from Savannah, Georgia, to Atlanta, Georgia, and Birmingham, Alabama, with various branches and extensions to other termini. At Savannah it connects with the Ocean Steamship Company of Savannah (hereinafter called "the Steamship Company" which owns extensive terminals and wharves, and, prior to the entry of the United States into the war, operated a freight and passenger line northward between Savannah, New York, and Boston. Thus the railway runs generally east and west, and the connecting Steamship Company, running north and south, has been regarded as a valuable adjunct to the railway, enabling it to compete with other railways serving eastern and southern markets. The Steamship Company has a bond issue of $1,000,000.00 outstanding which matures on July 1, 1943, but substantially all of its capital stock (19,950 out of 20,000 shares) is owned by the Debtor, subject to the pledge with the Central Hanover Bank and Trust Company, appellant, as part of the collateral under a Collateral Trust Mortgage which the Central Hanover Bank and Trust Company now holds.

A predecessor of the Debtor railroad had executed and delivered to Central Trust Company of New York (now Central Hanover Bank and Trust Company, the appellant herein) its Collateral Trust Mortgage dated May 2, 1887, to secure its Collateral Trust Bonds which were issued in the aggregate principal amount of $5,000,000.00, maturing May 2, 1937, bearing interest at the rate of 5% per annum, payable on May 1 and November 1 of each year, and of which $4,840,000.00 are now outstanding. The Collateral Trust Bonds were secured solely by the pledge of collateral, the most important item of which, as far as this appeal is concerned, is 19,950 (out of 20,000) shares of the capital stock of the Steamship Company.

The Debtor acquired said collateral from its predecessor without having assumed the indebtedness secured by the Collateral Trust Mortgage, but has substantially and regularly contributed toward the payment of interest on the Collateral Trust Bonds, the principal of which is now overdue and unpaid since May 1, 1942. Interest has been paid currently, the last payment being made on or about November 1, 1942. The total amount of interest thus far paid is $2,420,000.00 or 50% of the principal. The income from the collateral has been applied toward the interest payments, but it has been necessary to supplement this income by contributions from the railroad in order to meet the interest requirements as they mature.

Insofar as is material to this appeal, other funded debts secured by liens upon the property of the Debtor include its First Mortgage, securing $7,000,000.00 of bonds now outstanding and constituting a first lien upon the Debtor's main line of railroad from Savannah to Atlanta, Georgia, and also a second lien upon the Steamship Company stock; its Consolidated Mortgage securing $18,500,000.00 of bonds now outstanding and constituting a first lien upon the Debtor's main line of railroad from Birmingham, Alabama, to Americus, Georgia, and also a third lien upon the Steamship Company stock.

On June 19, 1940, while in receivership, the Debtor filed in the Court below its petition under Section 77 of the Bankruptcy Act, supra. The Court entered an order at this time approving such petition as properly filed, authorizing the Receiver to continue to hold possession of and operate the properties of the Debtor pending appointment of a Trustee, and enjoining all persons from interfering with or enforcing liens upon any portion of the assets of the Debtor.

Thereafter Trustees of the property of the Debtor were duly appointed pursuant to Section 77 and Merrel P. Callaway is now the sole Trustee. The Trustee was directed to formulate and present a plan of reorganization not later than June 19, 1943, unless the time is further extended. Much preliminary work necessary to the formulation of such a plan has been, and is being, done.

On September 3, 1942, the appellant filed a petition in the Court below requesting the Court, in effect, either to vacate this injunction which prevents the appellant from exercising its remedies under the Collateral Trust Mortgage or to instruct the Debtor's Trustee to pay the Collateral Trust Bonds. The trustee of the First Mortgage and the Consolidated Mortgage filed petitions or answers thereto seeking payment of interest on the bonds secured by their mortgages.

On December 23, 1942, the Court below entered an order directing payment of certain installments of interest on the two mortgages mentioned above. On January 4, 1943, it entered an order stating: "* * that the said petition shall not be dismissed, and the relief thereunder is not...