City and County of Denver v. Stenger

• Decision Date: 14 January 1924
• Docket Number: 6288,6289.
• Parties: CITY AND COUNTY OF DENVER v. STENGER (two cases). [1]
• Court: U.S. Court of Appeals — Eighth Circuit

295 F. 809

CITY AND COUNTY OF DENVER v. STENGER (two cases). ^[1]

Nos. 6288, 6289.

United States Court of Appeals, Eighth Circuit.

January 14, 1924

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

James A. Marsh, of Denver, Colo. (Ernest Morris, John I. Mullins and Rice W. Means, all of Denver, Colo., on the brief), for appellant.

Gerald Hughes, of Denver, Colo. (Clayton C. Dorsey and Howard S Robertson, both of Denver, Colo., on the brief), for appellee.

Before STONE, Circuit Judge, and VAN VALKENBURGH and KENNEDY, District judges.

STONE Circuit Judge.

These are appeals by the city and county of Denver from an order denying preferential allowance and payment of claims against the receiver of the Denver Tramway Company and dismissing the application therefor. The two appeals are from the same order and will be treated as one. The appellant is successor of the city of Denver and appellee is successor of various tramway companies which have operated in Denver since 1871.

For some years prior to 1906, there had been litigation between the parties concerning the validity and construction of two franchises granted to the predecessors of appellee in 1885 and 1888. In 1906, the parties, expressly without waiving any rights or contentions as to the earlier franchises, agreed upon a franchise which should govern the relations between them for 20 years. One section of that franchise provides as follows:

'Section 2. As a further consideration for this franchise and grant and in lieu of any car licenses now or hereafter during the life of this franchise and grant, assessed, charged or collected by the city and county of Denver, the Denver City Tramway Company shall pay to the city and county of Denver the sum of twelve hundred thousand dollars ($1,200,000.00), payable in equal installments of five thousand dollars ($5,000) each on the first day of each and every calendar month during the life of this franchise. Such consideration and fund shall be known as 'the tramway fund' and shall be paid to the treasurer of the city and county of Denver, and by him kept separately, and shall be used solely for the establishment, improvement and maintenance of the streets, boulevards and parks of the city and county of Denver, to be expended in such manner and in such sums as shall be annually determined by the city council in the annual appropriation bill.'

Appellee made the payments called for by this section from 1906 until September 1, 1920. December 24, 1920, a receiver was appointed for and has since been in possession of the property and conducting the business of appellee. No payments under section 2 have been made by the receiver. On January 17, 1921, the receiver applied for authority to renounce the franchise of 1906 and that matter is yet pending. August 15, 1921, appellant filed its application setting forth the above franchise provision, alleging arrearage thereunder of $60,000 ($20,000 before and $40,000 during the receivership), claiming preference as a tax obligation and praying an order requiring immediate payment of the arrearage and providing for payment of future monthly payments as they became due; also, for general relief. The order of the court was:

'That said petition be and the same is hereby denied and that the petition be and the same is hereby dismissed out of this court at the costs of the petitioner to be taxed.'

Before the merits of the appeals can be reached, we are met with the contention of the appellee that the appeals are premature because, as is claimed, the court still has before it the question of renunciation of the franchise and may in that matter decide these sums to be due and authorize payment thereof. The position of the trial court in this respect is shown in his memorandum opinion, a portion of which is as follows:

'I am unable to find any ground on which a preference right over other creditors of any class could be given to the city's claim in this proceeding, and it has not asked for allowance as a general creditor.

'When the request of the receiver to be permitted to renounce the performance of any obligations under the franchise of May, 1906, and to be relieved of its burdens, comes on to be heard it may be that the court will find that his request should not be granted, that the Tramway Company received valuable rights under that franchise as good and sufficient consideration for the sum that it agreed to pay therefor, that those rights should be retained, and that all installments provided for under section 2 of that franchise ordinance should be met and discharged; but as to what should be done in that regard, and whether the receiver should be ordered to pay installments, cannot now be determined, nor until the court is better informed as to the claim and contention of the receiver in that respect.

'The city's application for a preference right to the unpaid installments on the grounds claimed is denied, and its petition therefor dismissed.'

While it is fairly inferable from the above language, that the court reserved the right to deal further with this matter in case he denied renunciation of the franchise, yet appellant was asserting a right of preferential allowance and payment of its claim irrespective of the outcome of the renunciation matter. This preference was definitely denied and the application therefor dismissed finally. As to appellant's claim for preference under any and all circumstances, this determination was final and disposed of valuable rights asserted by appellant. The order was of that finality which entitled appellant to have it reviewed and the appeals for that purpose are not premature.

Appellee contends that the appeals should be determined without entering the merits of the order for either of two reasons: that other creditors entitled to preference would have a right to be notified and heard concerning this application, which was not done; and that there was no allegation or showing of funds on hand from which payment might be immediately ordered. The only notice appearing in the record is one to the receiver to the effect that the court would be asked to set the hearing on the application. There is no notice, even to the receiver, of the hearing itself. The record is silent as to any objection made by any one to proceeding at the time of hearing because of lack of any notice. Without determining whether the receiver could raise the question of lack of notice to others, either at the hearing or here, it is enough to say that nothing appearing in the record concerning notice or lack thereof and the court having proceeded and determined the matter, we will presume that he acted upon proper notice, at least so far that the receiver cannot now and here raise this point.

While appellant sought immediate payment of its claim as a preferred claim, yet it might be entitled to allowance and classification of its claim and yet not entitled to immediate payment. The allegation and showing as to available funds would be very material on the question of immediate payment but of no importance as to the allowance. An allowance settles the liability and, usually, the status of a claim. The payment satisfies the claim. Upon this application, even though it sought preferential and immediate payment, the claim might have been properly allowed and also classified as to priority of payment, the payment being left to subsequent order.

With these matters determined, we approach consideration of the merits of the application, in so far as allowance and status are concerned. Because there are differences in the legal considerations governing the character and status of that portion of the claim accruing prior to the receivership and that portion accruing during the receivership, we will examine them separately. The existence of the above quoted franchise provision and nonpayment thereunder, as asserted, are undisputed. That the company was operating under the 1906 franchise during the months immediately preceding the time the receiver was appointed is unchallenged. It enjoyed the benefits thereof and cannot escape the attendant burdens. The amount ($20,000) due during that period is, therefore, a just claim against the company and can be established in the receivership proceeding. What may be its status as to rights of preferential payment is another matter which will be now determined.

Appellant makes several claims as to the nature of this obligation, asserting that under any of them it is entitled to a preference. It claims (1) that this is a tax; (2) that it is 'in the nature of a tax'; (3) that it is an operating charge in the nature of rental; (4) that, in any event, it is money due the sovereign and attended with the rights to preferential payment attaching, under the common law, to debts due the sovereign. It seems unchallenged that, at all times here material, the appellant possessed the power to deny the privilege of special use of its streets or to grant such under terms and compensations agreeable to it; also, that it possessed the further power to tax the exercise of such privileges. The former is a police power and compensation therefor is in the nature of rental. St. Louis v. Western Union Teleg. Co., 148 U.S. 92, 97, 13 Sup.Ct. 485, 37 L.Ed. 380. The latter is a revenue power and exactions thereunder are taxes. St. Louis v. United Railways Co., 210 U.S. 266, 274, 28 Sup.Ct. 630, 52 L.Ed. 1054.

Appellant might, by contract, both grant the right to special privileges in its streets and also deprive itself of the right to tax the exercise thereof. St. Louis v. United Railways Co., 210 U.S. 266, 273, 28 Sup.Ct. 630, 52 L.Ed. 1054. It did both expressly in the franchise of 1906. Part of the consideration moving to appella...