American Brake Shoe & Foundry Co. v. New York Rys. Co.

Decision Date28 June 1922
Citation293 F. 612
PartiesAMERICAN BRAKE SHOE & FOUNDRY CO. v. NEW YORK RYS. CO. EIGHTH AVE. R. CO. v. NEW YORK RYS. CO. et al. NINTH AVE. R. CO. v. SAME.
CourtU.S. District Court — Southern District of New York

Supplemental Opinion, May 14, 1923. [Copyrighted Material Omitted]

Failure to comply with the conditions of street railway franchises may result in their loss, or subject the owner to other consequences.

These suits were brought by the Eighth Avenue Railroad Company and the Ninth Avenue Railroad Company, respectively, after the properties of these companies, formerly held by the New York Railways Company under lease, had been returned to them by the receiver of the New York Railways Company pursuant to court order. In each suit relief is demanded:

(1) That judgment be rendered against the New York Railways Company for an amount representing the unpaid rental due under the leases at the time of the appointment of the receiver, including taxes.

(2) That the plaintiff be declared to have an equitable lien for the amount of the said rental superior to the lien of the mortgages made by the New York Railways Company.

(3) That the receiver be ordered to return to plaintiff its street surface railroads, together with all other property connected therewith and used or necessary for use in the operation of said street surface railroad not already delivered to plaintiff, including extensions and branches thereof, and that the personal property already delivered to plaintiff with reservation of right of title be determined to be the property of the plaintiff.

The issues and facts in the two suits are so similar that by agreement the same testimony was taken as applicable to each suit. For brevity, the following abbreviations will be used:

N.Y Rwys. Co. for New York Railways Company; 8th Ave. Road for Eighth Avenue Railroad Company; 9th Ave. Road for the Ninth Avenue Railroad Company; Broadway Co. for Broadway &amp Seventh Ave. R.R. Co.; Guaranty Co. for Guaranty Trust Company of New York; Farmers' Co. for the Farmers' Loan & Trust Company; Metropolitan Co. for Metropolitan St. Railway Company; The Belt Line Case for Penn. Steel Co v. N.Y. city Rwy. Co. (C.C.) 165 F. 472; the Second Ave. Case for Morton Trust Co. v. Metropolitan St. Ry. Co. (C.C.) 165 F. 489; the Third Ave. Case for Central Trust Co. v. Third Ave. R.R. Co. (C.C.) 165 F. 479.

Michel Kirtland, of New York City (Morgan J. O'Brien, of New York City, of counsel), for plaintiffs.

Winthrop & Stimson, of New York City (George Roberts and G. Herbert Semler, both of New York City, of counsel), for receiver of New York Rys. Co.

Stetson, Jennings & Russell, of New York City (Edwin S. S. Sunderland, of New York City, of counsel), for defendant Guaranty Trust Co., of New York.

Geller, Rolston & Blanc, of New York City (Mansfield Ferry and Henry N. Flynt, both of New York City, of counsel), for defendant Farmers' Loan & Trust Co.

Loucks, Griffin, Connet & Cullen and Patterson, Eagle, Greenough & Day, all of New York City (William Greenough and William H. Griffin, both of New York City, of counsel), amici curiae.

MAYER, Circuit Judge (after stating the facts as above).

A. On March 12, 1892, 9th Ave. Road let its horse car line to the Houston, West Street & Pavonia Ferry Railroad Company, which later (in December, 1893) merged and consolidated with other companies to form the Metropolitan Co. On November 23, 1895, 8th Ave. Road let its horse car line to Metropolitan Co., which company had previously in May, 1894, and November 13, 1895, absorbed several other railroad companies by further merger and consolidation. Passing by intermediate history, the time came when 9th Ave. Road and 8th Ave. Road were lessors and N.Y. Rwys. Co. was lessee under the leases supra.

On March 20, 1919, this court made its order (in the suit first mentioned in the caption) appointing a receiver of the property of N.Y. Rwys. Co. and on July 1, 1919, and July 14, 1919, orders were made on application respectively of Guaranty Co., as trustee, and of Farmers' Co., as trustee, appointing a receiver of the property covered by certain mortgages infra. On July 15, 1919, an order was made directing the receiver to return to 8th Ave. Road the property in his possession owned by said road, and on October 22, 1919, the court ordered certain additional property to be turned over to the same road. Orders of similar import were made in respect of the 9th Ave. Road on September 26, 1919, and September 30, 1919. When the property of these respective roads was returned to them, there was due to each of them certain sums for rentals including unpaid taxes. Plaintiffs now demand the relief outlined in (1) and (2) supra for these unpaid amounts.

It is settled in this circuit that claims for rent such as here presented are not entitled to any preference. Pennsylvania Steel Co. et al. v. New York City Ry. Co. et al. (D.C.) 208 F. 168, at page 171, affirmed 216 F. 458, at page 473, 132 C.C.A. 518. This rule is amply supported by similar decisions in many cases. Thomas v. Western Car Co., 149 U.S. 95, 13 Sup.Ct. 824, 37 L.Ed. 663; Central Trust Co. of New York v. Charlotte, C. & A.R. Co. (C.C.) 65 F. 264; Stevenson v. Marble (C.C.) 84 F. 23; Louisville & N.R. Co. et al. v. Central Trust Co. of New York, 87 F. 500, 31 C.C.A. 89; Gregg v. Mercantile Trust Co., 109 F. 220, 48 C.C.A. 318; St. Louis Merchants' Bridge Terminal Ry. Co. v. Continental Trust Co., 111 F. 671, 49 C.C.A. 529.

Plaintiffs insist that prior to the receivership there was a diversion of the general funds of the N.Y. Rwys. Co. by virtue of the payment of mortgage interest, instead of rentals, and Fosdick v. Schall, 99 U.S. 235, 25 L.Ed. 339, is cited in support of their present contention that they are now entitled to the judgment prayed for or to the declaration of an equitable lien superior to the lien of the mortgages. That well-known and frequently cited case is authority, inter alia, for the payment of current debts for labor and supplies, but does not at all support the contention of plaintiffs. Indeed (99 U.S.at page 255, 25 L.Ed. 339), its holding is to the contrary.

The result is that plaintiffs are not entitled to the relief (1) and (2) supra as prayed for. Plaintiffs, however, may have appropriate orders authorizing the filing of their claims nunc pro tunc as of June 16, 1919, and, as appears from the brief submitted on behalf of the receiver, there should be no difficulty in ascertaining the correct amount and thereupon allowing these claims.

Interest will be allowed in accordance with American Iron Co. v. Seaboard Air Line, 233 U.S. 261, 34 Sup.Ct. 502, 58 L.Ed. 949, Penn. Steel Co. v. N.Y. City Ry. Co., 216 F. 458, at page 471, 132 C.C.A. 518, and Pintsch Compressing Co. v. Buffalo Gas Co., 280 F. 830; C.C.A. Second Circuit, decided April 3, 1922.

B. Paragraph (3) of the relief prayed for, supra, so far as affects cars, tools, and other equipment.

The most satisfactory approach to the consideration of the questions involved under this head will be to ascertain, first, the rights of the parties, i.e., lessor and lessee, as between themselves; secondly, the rights of the mortgagees and thirdly, the rights of creditors.

9th Ave. Road Lease.-- At the date of the execution of the lease the 9th Ave. Road was a horse car line. As appears by the provisions of the lease itself, the parties contemplated that there might come a time when cable traction, electricity, or some other system of motive power would be substituted for the horse-drawn method. An appreciation of the importance of this expectation in the minds of the parties will be helpful in construing the lease. It was provided in one of the paragraphs (called for brevity 'Par. I,' infra):

'But it is mutually understood and agreed that if, at any time during the term of this lease, the party of the second part, its successors or assigns, shall desire to dispense with the use of animal power for the operation of the railroad hereby demised, or any extension or branch thereof, and shall elect to substitute a cable traction, electricity, or any motive power other than locomotive steam power, for the propulsion of the cars to be run on the railroad hereby demised or any extension or branch thereof, the said party of the second part after taking such proceedings as may be prescribed by law to authorize and effect such change of motive power, may substitute any power, other than locomotive steam power, for the propulsion of the cars run or to be run on the railroad hereby demised or any branch or extension thereof. And in case of any such change of motive power, any of the horses, cars, harness, equipments or other personal property then belonging to the railroad hereby demised, which shall thereby become useless or unnecessary for the purposes of the railroad hereby demised, may be sold and disposed of by the party hereto of the second part, its successors or assigns, provided that the machinery, new cars and equipments which the party of the second part may supply and provides for the operation of said railroad by such substituted motive power shall be of greater value than the said horses, cars, harness and other equipments so to be sold or disposed of; it being expressly understood and agreed that any new equipments, cars, horses, motors, machinery, fixtures, tools, implements, or equipments of any and every kind which the party of the second part, its successors or assigns may provide, purchase, substitute or supply for the operation of the railroad hereby demised, or any branches or extensions thereof, and also any new rails, tracks, betterments or improvements, of any and every kind, which may be constructed, made, laid, supplied or provided by the party of the
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