Commonwealth Edison Co. v. Continental Nat. B. & T. Co.

• Citation: 93 F.2d 265
• Decision Date: 15 December 1937
• Docket Number: No. 6198.,6198.
• Parties: COMMONWEALTH EDISON CO. v. CONTINENTAL NAT. BANK & TRUST CO. OF CHICAGO et al.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

93 F.2d 265 (1937)

COMMONWEALTH EDISON CO. v. CONTINENTAL NAT. BANK & TRUST CO. OF CHICAGO et al.

No. 6198.

Circuit Court of Appeals, Seventh Circuit.

December 15, 1937.

J. F. Dammann, Charles Y. Freeman, and Sidney K. Jackson, all of Chicago, Ill. (Wilson & McIlvaine, of Chicago, Ill., of counsel), for appellant.

M. Paul Noyes, David O. Dunbar, Stanley Rich, Louis S. Hardin, Francis X. Busch, Cassius M. Doty, and John C. Slade, all of Chicago, Ill., Hovey C. Clark, of New York City, and Alexander F. Reichmann and Arthur M. Cox, both of Chicago, Ill. (David O. Dunbar, Arthur M. Cox, Stanley Rich, and Cassius M. Doty, all of Chicago, Ill., of counsel), for appellees.

Daniel J. Schuyler, of Chicago, Ill., for Albert A. Sprague, receiver for Chicago Rapid Transit Co.

Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.

SPARKS, Circuit Judge.

This controversy arises out of a preferential claim filed by the Commonwealth Edison Company in an equity receivership proceeding in the District Court. It involves a foreclosure of certain mortgages and trust deeds of the elevated railway properties of the Chicago Rapid Transit Company. The case was submitted upon an agreed statement of the parties under Equity Rule 77, 28 U.S.C.A. following section 723, supplemented by a stipulation of certain facts, and other oral and written testimony.

The claim, totaling $977,819.73, was for electric current furnished by the Edison Company for the operation of the cars, lights and equipment of the Transit Company during the period of six months immediately preceding the receivership. The master found that the power had been delivered and correctly computed pursuant to certain written contracts which were fair and reasonable, and allowed the claim as an ordinary one without preference. The report of the master was approved by the court over appellant's objections and exceptions, and from that order this appeal is prosecuted.

Appellant contends, (1) that its claim is entitled to priority over the claims of the mortgage trustees and bondholders by virtue of the six months' rule of the federal courts, applicable in railroad receiverships, under which certain creditors are allowed preferred claims for labor and supplies, necessary for the operation of the road, furnished during the six months immediately preceding the receivership, and (2) that its claim is entitled to priority over the trustee and bondholders under the First and Refunding Mortgage of the Chicago Rapid Transit Company, pursuant to the provisions of the Illinois Statute pertaining to liens upon railroads, Smith-Hurd Ill.Stats. c. 82, § 49.

The facts, concerning which there is no material controversy, are as follows: On June 28, 1932, the Westinghouse Electric & Manufacturing Company filed its creditors' bill against the Transit Company, and thereupon receivers of the latter's property and assets were appointed and took possession. On May 26, 1933, by leave of court, Continental National Bank & Trust Company of Chicago, as Trustee, filed its bill against the Transit Company in the District Court to foreclose a trust deed of July 1, 1923, executed by the Transit Company to secure certain of its indebtedness. This action was consolidated with the creditors' bill, and the receivership was extended to cover both.

Thereafter, a number of other trustees of mortgages or trust deeds executed by the Transit Company or its corporate predecessors, filed answers and counter-claims asking for foreclosure. A committee representing the holders of the bonds issued by the Transit Company and its corporate predecessors intervened and became a party.

Appellant, during the times herein referred to, was under a contract with the Transit Company, made through the latter's predecessors in 1912, to furnish, and it did furnish to the Transit Company, electric current for the operation of its trains, lights and equipment. For fourteen months immediately preceding the appointment of the receivers, appellant's account for electric current furnished and used by the Transit Company had not been paid. Accordingly, it timely filed its claim for the entire amount due, asking a preference only for that amount which had been furnished within the six months immediately preceding the receivership.

The power so furnished was used by the Transit Company in the operation of its trains, and it was essential to the operation of its road. There was no other source at those times from which that amount of power could have been secured.

At the close of business on December 27, 1931, the Transit Company had in the bank, available for whatever purposes it desired, exclusive of working funds and those set aside for specific purposes, the sum of $667,254.19. The operating revenues and expenses of the Transit Company, including appellant's accruals of power bills, for the six months preceding the receivership, were as follows:

                     1932                 Revenues       Expenses          Net
                  January .............. $1,270,444.39   $996,729.74  $  273,714.65
                  February .............  1,200,408.81    954,436.24     245,972.57
                  March ................  1,300,437.57    995,062.52     305,375.05
                  April ................  1,217,108.80    912,033.88     305,074.92
                  May ..................  1,159,464.36    902,008.83     257,455.53
                  June (to and including
                   the 28th)              1,015,229.08    745,978.74     268,250.34
                                                                      _____________
                                                                      $1,656,842.66
                

During the same six months' period, payments were made by the Transit Company for interest on various bonded indebtedness and for sinking fund requirements to retire funded debt the following amounts:

                                                        Interest       Sinking
                                                                       Fund
                  January 1, 1932................   $  350,431.02    $ 53,394.00
                  January 1, 1932................      191,865.00      40,167.50
                  February 1, 1932...............      200,500.00
                  January 1, 1932................       88,920.00
                  March 1, 1932..................      239,475.00      78,225.00
                  April 1, 1932..................       99,050.00
                  May 1, 1932....................       10,175.00
                                                    _____________    ___________
                                                    $1,176,416.02    $171,786.50
                

At the close of business on June 27, 1932, the balance of cash on hand available for use by the Transit Company's treasurer, exclusive of working funds and those set aside for specific purposes, amounted to the sum of $612,036.38. The equity receivers took over from the Transit Company when they were appointed, materials and supplies of the value of $601,327.70 and other quick assets of the approximate value of $2,000,000. On the day the receivers were appointed the Continental Bank took over and applied on their unsecured loans the amount of the Transit Company's deposit balance in the sum of $527,107.41.

The master's report contains the following findings which seem not to be controverted:

"The stipulation * * * indicates that, for more than twenty years the Edison Company has been the dominant factor in the finances and operation of the Chicago Rapid Transit Company and its constituent companies.

"The Rapid Transit Company system is composed of the lines of the following companies, which prior to 1924 were operated independently by those companies; Metropolitan West Side Elevated Railroad Company, Northwestern Elevated Railroad Company, South Side Elevated Railroad Company, and Lake Street Elevated Railroad Company. * * * Prior to 1912 the Edison Company furnished a comparatively small part of the power used by the Metropolitan and Northwestern Lines, and none of that used by the South Side lines. * * * In 1911, a plan of reorganization was promulgated involving unification of three of the four lines, that is to say, all of them except the Lake Street Line, through the formation of a common law trust known as Chicago Elevated Railways, which acquired the capital stock of such companies. * * * This plan was apparently fostered by the Edison Company, which executed a $6,000,000 guaranty that the contemplated consolidation would be completed by July 1, 1914. * * * In February, 1912, shortly after the above unification plan was undertaken, Edison Company secured 25-year power contracts with the lines involved, and ever since, under those contracts, has been furnishing all the power required by the lines. * * *

"The consolidation not having become effective prior to June, 1914, the Edison Company satisfied its guaranty by paying approximately $7,000,000 for 207,966 shares of common participating certificates of the trust and $1,250,000 par value 6% debentures of the trust. * * * Subsequently, as part of the consideration for the extension of $14,000,000 of Chicago Elevated Railways 5% Gold Notes maturing July 1, 1916, to July, 1919, the Edison Company assigned to the trustee under said issue all claims against the three lines above referred to for power furnished prior to July 1, 1916, and also all sums thereafter to become due for power furnished until such time as the notes as extended should become due. * * * The amount of the power claims so assigned does not appear, but the subsequent reorganization plan dated July 14, 1923, discloses that the claims must have exceeded two million dollars. * * *

"In July, 1923, a plan of reorganization of Chicago Elevated Railways was promulgated, pursuant to which the Trust (Chicago Elevated Railways) above referred to was terminated, and the Metropolitan, Northwestern and South Side companies were consolidated into Chicago Rapid Transit Company, the defendant in this cause. In January, 1924, in furtherance of said plan, Chicago Rapid Transit Company acquired the properties of * * * Lake Street Elevated by judicial sale. * * * For some time prior to the acquisition of...