Brown v. Pennsylvania R. Co., 2319

CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)
Citation250 F. 513
Docket Number2320.,2319
PartiesBROWN et al. v. PENNSYLVANIA R. CO. PENNSYLVANIA R. CO. v. BROWN et al.
Decision Date01 April 1918

250 F. 513

BROWN et al.
v.
PENNSYLVANIA R. CO.

PENNSYLVANIA R. CO.
v.
BROWN et al.

Nos. 2319, 2320.

United States Court of Appeals, Third Circuit.

April 1, 1918


[250 F. 514]

Thomas Raeburn White and John Cadwalader, Jr., both of Philadelphia, Pa., for plaintiffs.

John Hampton Barnes and Francis I. Gowen, both of Philadelphia, Pa., and Charles Evans Hughes, of New York City, for defendant railroad company.

Before BUFFINGTON, McPHERSON, and WOOLLEY, Circuit Judges.

WOOLLEY, Circuit Judge.

The questions in these cross-appeals arose on the distribution of a fund which was paid under a decree of the District Court (229 F. 444), affirmed by this court (235 F. 669, 149 C.C.A. 89), holding the Pennsylvania Railroad Company liable for the sinking fund of the General Mortgage of the Pennsylvania Canal Company.

The trustee of the mortgage filed a petition showing that the railroad company had paid him $1,923,408.16-- the principal and interest of the amount decreed--and praying instructions as to its distribution. The court referred the matter to a master. The master's findings are substantially as follows:

(1) That there are $1,948,000 bonds outstanding, and $2,590,354.03 unpaid interest coupons outstanding and held exclusively by the Pennsylvania Railroad Company, including coupons detached and purchased and coupons still attached to bonds it owns;

(2) That the fund should be applied to payment of the principal of the bonds in preference to payment of interest coupons;

(3) That of the total number of bonds outstanding, the Pennsylvania Railroad Company validly owns 384, the principal of which, like that of bonds otherwise held, is payable out of the fund before interest;

(4) That no compensation shall be allowed the Committee of bondholders for its services in prosecuting this litigation, but that the sum [250 F. 515] of $3,406.87 be allowed for its expenses, and the sum of $250,000, be allowed plaintiff's counsel as fee for prosecuting the litigation and raising the fund; and

(5) That all bonds participating in the fund (including those held by the railroad company) shall contribute ratably to the payment of these allowances.

On exceptions by both parties, the court affirmed all the master's findings except the allowance for counsel fees, which it reduced to $200,000, and then added a master's fee of $20,000. Both parties appealed from the decree, specifying errors which we shall state as we approach the consideration of the several questions they raise.

Appeal of Alice Frances Brown et al.

As this controversy in its present stage is between the main body of bondholders on the one hand and the Pennsylvania Railroad Company as an individual bondholder on the other, we shall for convenience refer to the former as the general bondholders and to the latter as the railroad company.

The general bondholders assert error in the part of the decree by which the railroad company was allowed to prove its bonds and participate in the fund. They base their charge on the allegation that the bonds proved were given the railroad company in exchange for moneys it had advanced the canal company to pay interest coupons which the railroad company had contracted with the bondholders to purchase on default, and that bonds which the railroad company received in a transaction whereby it prevented a default to escape its liability to purchase, were in effect acquired by a violation of its contract, and are not, therefore, validly provable against the fund.

We need not discuss now whether in thus acquiring bonds the railroad company violated its contract with the bondholders, for the first question is whether the bonds were so acquired. That is a question of fact and on that question the master has found that the facts do not warrant the inference upon which the charge is made. On exception, the court approved the master's finding.

We are bound to sustain this finding, under the familiar rule, unless it appear from the evidence that both master and court have made a clear mistake.

The evidence, which is not in dispute, is briefly this: Moneys were advanced from time to time by the railroad company to the canal company for a variety of purposes, amounting by the end of 1873 to $1,465,200. Of this sum, $232,000 had been advanced admittedly to aid the canal company in paying interest on its bonds. On the last day of that year, the canal company gave to the railroad company 10,000 shares of the stock of the Susquehanna Coal Company at par and thereby discharged $1,000,000 of this obligation, leaving a balance of $465,200 due the railroad company. As the credit of $1,000,000 was entered generally, it was doubtless applicable to the earliest items of the account, and discharged in part an item of $1,023,200 brought over as a balance from the previous year. This left, on December 31, 1873, a balance of $465,200, which included the $232,000 [250 F. 516] advanced for interest. During 1874, this balance was increased by advances made for different purposes-- but not for interest payments-- until it reached the sum of $681,650. This amount was balanced on December 31, 1874, by an entry of 'By Sundries, $681,650.' The evidence shows that the item of sundries was made up of 3,000 shares of the stock of the Susquehanna Coal Company at par and 449 bonds of the canal company at 85, of which the 384 bonds now proved against the fund were a part. It will be observed that either the stock of the coal company or the bonds of the canal company was greater in value than the interest advances for which either one or the other was a repayment. Here the evidence stops. There is nothing to indicate ever so remotely to what indebtedness, whether for interest advances or for other advances, the coal shares or the canal company bonds were intended to be applied. There being no question that the canal company had a right to borrow money to pay interest and to discharge its obligation therefor by shares of the coal company which it owned, and without determining its right to discharge that obligation with its bonds, the master was of opinion that the controversy narrowed down to a question of how the payment should be applied where neither debtor nor creditor had made an application. He held that in the absence of evidence it should be presumed that both parties did the lawful thing rather than the unlawful thing, and that, accordingly, the coal shares were applied to the liquidation of interest advances and the canal company bonds to the liquidation of advances for other purposes, to which, admittedly, they might lawfully be applied. In the state of the evidence, we do not see what else the master could have done. Whatever the fact was, it was not here shown that the acting parties applied the canal bonds to discharge an indebtedness for interest advances. We, therefore, approve the master's finding that the facts do not sustain the contention that the railroad company's bonds were acquired in exchange for money lent for interest payments, and affirm that part of the decree which sustained this finding.

Appeal of the Pennsylvania Railroad Company.

The railroad company offered to prove before the master $2,590,354.03 interest coupons (a part of which it had purchased under its contract with the bondholders and the remainder it had acquired with its bonds), and claimed, that under the terms of the canal company mortgage, interest coupons have priority over the principal of bonds in the distribution of the sinking fund. The court sustained the master and gave the mortgage just the opposite construction. The railroad company, maintaining that the question of relative priority of interest and principal of the bonds in the distribution of the sinking fund had not been determined and foreclosed by the previous decree of this court (235 F. 669, 149 C.C.A. 89), now raises the question inter alia by its appeal.

When the case was last in this court the principal questions submitted were two (235 F. 669, 676, 149 C.C.A. 89). The first involved a construction of the sinking fund clause of the mortgage and concerned the method of computing annual appropriations to the sinking [250 F. 517] fund from net annual earnings of the canal company. This question turned upon the inclusion or exclusion of annual interest charges on the bonds as a factor of expense before determining net earnings. The second question related to the conduct of the railroad company toward the canal company and to its liability for the canal company's failure annually to make the sinking fund appropriations required by the mortgage. The decision of this court upon these two questions was, that the railroad company was liable for the failure of the canal company to maintain the sinking fund (a phase of the case with which we are no longer concerned) and that net earnings, out of which sinking fund appropriations were to be made, was the difference between gross earnings and operating and other expenses, in calculating which interest on the bonds was not to be included. In thus construing the sinking fund provision with reference to the maintenance of the fund, this court did not construe the provision with reference to its purpose or decide priorities in the distribution of the fund, for, at that time, the sinking fund was not in existence and nothing had been done that called for such construction, although, from the character of the decision the inference that the sinking fund was provided for the payment of principal was inevitably apparent. But now the fund has been created and its distribution has been ordered, and the question of distribution may properly be raised, notwithstanding the inference of the previous decision. We shall discuss the question, therefore, as though it were raised for the first time, at the risk of repeating very much of what we said before, because of the inseparable relation of the question before decided...

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18 practice notes
  • Mitchell v. Whitman, No. 10799.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • February 15, 1938
    ...F. 420, 421; In re Medina Quarry Co., 191 F. 815, 816. Third Circuit: — In re Starrett Corp., 92 F.2d 375; Brown v. Pennsylvania R. Co., 250 F. 513, 524, certiorari denied 248 U.S. 558, 39 S.Ct. 6, 63 L.Ed. 420; Haehnlen v. Drayton, 192 F. 300, 306. Fourth Circuit: — Buford v. Tobacco Growe......
  • Grant v. Fletcher, 4003.
    • United States
    • United States District Courts. 6th Circuit. United States District Court (Eastern District of Michigan)
    • July 1, 1922
    ...from defendant on the theory that he is incidentally interested in the fund that has been recovered from him. Brown v. P.R. Co. (C.C.A.3d) 250 F. 513, 524, 162 C.C.A. 529. Plaintiff relies on Geer v. Finn, 196 Mich. 738, 163 N.W. 20, and Perrin v. Lepper, 72 Mich. 454, 40 N.W. 859. Neither ......
  • Tucker v. Brown, 29087.
    • United States
    • United States State Supreme Court of Washington
    • June 8, 1944
    ...that the amount allowed as attorney's fees was twice what it should be, and reduced it one-half. In Brown v. Pennsylvania R. Co., 3 Cir., 250 F. 513, the master had been allowed $20,000 and the attorneys $20,000, and the appellate court reduced the master's fee one-half and made the same ho......
  • In re Fox West Coast Theatres, No. 8210.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • February 23, 1937
    ...re Rieger, Kapner & Altmark (D.C.) 157 F. 609; Brown v. Pennsylvania Canal Co. (C.C.A.) 235 F. 669; Brown v. Pennsylvania R. Co. (C. C.A.) 250 F. 513; Industrial Research Corp. v. General Motors Corp. (D.C.) 29 F.(2d) 623, 625; Central Republic Bank & Trust Co. v. Caldwell (C.C.A.) 58 F. (2......
  • Request a trial to view additional results
18 cases
  • Mitchell v. Whitman, No. 10799.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • February 15, 1938
    ...F. 420, 421; In re Medina Quarry Co., 191 F. 815, 816. Third Circuit: — In re Starrett Corp., 92 F.2d 375; Brown v. Pennsylvania R. Co., 250 F. 513, 524, certiorari denied 248 U.S. 558, 39 S.Ct. 6, 63 L.Ed. 420; Haehnlen v. Drayton, 192 F. 300, 306. Fourth Circuit: — Buford v. Tobacco Growe......
  • Grant v. Fletcher, 4003.
    • United States
    • United States District Courts. 6th Circuit. United States District Court (Eastern District of Michigan)
    • July 1, 1922
    ...from defendant on the theory that he is incidentally interested in the fund that has been recovered from him. Brown v. P.R. Co. (C.C.A.3d) 250 F. 513, 524, 162 C.C.A. 529. Plaintiff relies on Geer v. Finn, 196 Mich. 738, 163 N.W. 20, and Perrin v. Lepper, 72 Mich. 454, 40 N.W. 859. Neither ......
  • Tucker v. Brown, 29087.
    • United States
    • United States State Supreme Court of Washington
    • June 8, 1944
    ...that the amount allowed as attorney's fees was twice what it should be, and reduced it one-half. In Brown v. Pennsylvania R. Co., 3 Cir., 250 F. 513, the master had been allowed $20,000 and the attorneys $20,000, and the appellate court reduced the master's fee one-half and made the same ho......
  • In re Fox West Coast Theatres, No. 8210.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • February 23, 1937
    ...re Rieger, Kapner & Altmark (D.C.) 157 F. 609; Brown v. Pennsylvania Canal Co. (C.C.A.) 235 F. 669; Brown v. Pennsylvania R. Co. (C. C.A.) 250 F. 513; Industrial Research Corp. v. General Motors Corp. (D.C.) 29 F.(2d) 623, 625; Central Republic Bank & Trust Co. v. Caldwell (C.C.A.) 58 F. (2......
  • Request a trial to view additional results

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