Dictaphone Sales Corporation v. Powell, 3803.

• Decision Date: 10 June 1935
• Docket Number: No. 3803.,3803.
• Citation: 77 F.2d 795
• Parties: DICTAPHONE SALES CORPORATION v. POWELL et al.
• Court: U.S. Court of Appeals — Fourth Circuit

77 F.2d 795 (1935)

DICTAPHONE SALES CORPORATION v. POWELL et al.

No. 3803.

Circuit Court of Appeals, Fourth Circuit.

June 10, 1935.

Charles S. Grant, of Norfolk, Va. (Henry Bowden, of Norfolk, Va., on the brief), for appellant.

B. P. Holland, Jr., of Norfolk, Va. (W. R. C. Cocke, of Norfolk, Va., and Harold J. Gallagher, of New York City, on the brief), for appellees.

Before PARKER and SOPER, Circuit Judges, and McCLINTIC, District Judge.

McCLINTIC, District Judge.

Receivers were appointed for the Seaboard Air Line Railway Company on the 23d day of December, 1930, by the District Court of the Eastern District of Virginia in an equity cause therein pending.

There is, in the adjudged and controlling cases, a well-known and long-established rule called the "six-months rule," under which certain classes of claims against a railway company which arose for purchases of equipment during the period of six months prior to the appointment of receivers are required to be paid out of current earnings. However, there are many exceptions to the rule, and many controversies arise over these claims. Then again, under special circumstances and equities, a claim is sometimes allowed to be so paid, out of current earnings, which was incurred prior to the beginning of the six months' period.

The controversy for decision here raises the questions:

First. Whether the greater part of the claim here demanded was legally incurred before or after the beginning of the six months' period, and if before, whether there are certain special equities which would require the payment of the claim of the appellant out of current income.

Second. Regardless of the question whether the indebtedness was incurred in or out of the six months' period, was the purchase made upon the personal credit of the buyer?

Third. Likewise, was it a capital investment, or merely a current expense?

After the appointment of such receivers, the appellant filed a claim for the sum of $6,206.18 in such cause, claiming that there was due it the larger part of such sum of money for certain machines called dictaphones, and some equipment therefor, which had been sold and delivered to the railway prior to the appointment of the receivers, and claimed by the receivers to be prior to the beginning of the six months' period, and for the balance of such sum of money for machines sold to the railway after the beginning of the six months' period.

The appellant further claimed that these machines were of such character and had been so delivered under such circumstances and conditions that the amount due therefor should be paid by the receivers out of the earnings of the railway, and that this claim constituted an equitable lien upon such earnings prior to the rights of the bondholders under the various mortgages on the railway.

The receivers denied that there was any liability upon them as such or upon the earnings of the railway in their hands for this particular claim, and then it was referred to a special master, who heard the testimony offered by either side and made a finding of fact and a conclusion of law thereon, which wholly denied the claims of the appellant. Seasonable exceptions were taken to the report of the master, and such exceptions were later heard by the court and were overruled, and the report was confirmed.

From the decree confirming the report, this appeal has been taken.

The findings of fact were that some time prior to the 20th day of May, 1930, the railway company had tested certain dictaphones of appellant, and it had likewise tested certain dictaphone machines of the Ediphone Company, a competitor in the same business, and had decided to purchase the machines of the appellant. It notified the appellant of its decision about the 21st day of May, 1930. The appellant's machines were already stored in a part of the railway's building, and upon the decision of the railway to take the machines of appellant, the machines of the Ediphone Company were removed and the appellant installed its machines in the offices of the railway, commencing to do so on or about the 21st day of May, 1930.

At a meeting of the representatives of appellant and the railway on the 21st day of, May, 1930, the railway agreed to purchase, and the appellant to sell, thirty-five of appellant's machines, and a few days later the railway decided to purchase an additional machine, thus making a total of thirty-six.

The thirty-five machines were installed immediately thereafter, and the thirty-sixth a short time later, and all of them were installed prior to the beginning of the six months' period, which commenced on the 23d day of June, 1930.

When the representatives of the parties met, on the 21st day of May, it was the intention of appellant that the railway should purchase the machines under one of appellant's contracts reserving title thereto as security for the payment of the purchase price. The railway's representative objected to this, and the appellant waived the requirement of such contract and agreed to sell the machines outright and to reserve no lien thereon, and to accept the railway as its debtor upon the railway's own personal credit, and no further or other security was required of the railway.

Later, during the six months' period, before the appointment of the receivers, the railway purchased from the appellant three additional machines upon the same conditions.

There is a dispute as to the date of the first sale. The appellant claimed that in the usual course of business there was no real sale to the railway until its purchasing agent should issue a formal order for the purchase of the machines, and that the sale thereof would not be really completed until this had been done. It is agreed that such order was not actually sent by the purchasing agent to the appellant until the 17th day of July, 1930, and the appellant claims that such date was the actual date of sale of such machines.

The master, in view of the fact that the representatives of each company, who had full authority to arrange the terms of sale, did, on the 21st day of May, 1930, meet and agree upon such terms, found that on that date the appellant did sell and the railway did buy the thirty-five machines, which were already in another part of the railway's building, and in view of the further fact that the appellant began immediately to install the machines and completed such installation within a very few days, found that the contract of sale, and purchase thereof, was duly and fully completed in the month of May, 1930, and that the title of such machines at that time passed to the railway. The same conclusion is reached as to the thirty-sixth machine, which was purchased and delivered a few days later than the other machines.

The railway agreed to pay for these machines at the rate of $413 per month, the first monthly payment to be made on the 1st day of June, 1930, until the total price thereof had been paid in full, and on the 30th day of July, 1930, the...