Guaranty Trust Co. v. Seaboard Air Line Ry. Co.

Decision Date10 September 1935
Docket Number228,214,No. 213,229.,213
Citation12 F. Supp. 148
CourtU.S. District Court — Eastern District of Virginia
PartiesGUARANTY TRUST CO. OF NEW YORK et al. v. SEABOARD AIR LINE RY. CO. et al.

Edward Duffy and Carlyle Barton, both of Baltimore, Md., Theodore S. Garnett, of Norfolk, Va., for Continental Trust Company, trustee.

Humes, Buck, Smith & Stowell, of New York City (Baird, White & Lanning, of Norfolk, Va., on the brief), for New York Trust Co. and others, trustees.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City (Hughes, Little & Seawell, of Norfolk, Va., on the brief), for Guaranty Trust Co. of New York and others, trustees.

Carl H. Richmond, W. G. Brantley, and W. G. Brantley, Jr., all of Washington, D. C., David & Fainman, Chapman & Cutler, and Frederick W. Flott, all of Chicago, Ill., Ben C. Dey, George L. Buland, Charles L. Minor, and Kellog, Emery & Inness-Brown, all of New York City, and Vandeventer, Eggleston & Black, William P. Boehmer, Asst. U. S. Atty., T. H. Willcox, and John W. Oast, Jr., all of Norfolk, Va., for various claimants.

W. R. C. Cocke and B. P. Holland, Jr., both of Norfolk, Va., and Harold J. Gallagher, of New York City, for receivers of Seaboard Air Line Ry. Co.

WAY, District Judge.

These cases have been heard on exceptions of claimants, National Car Company, General American Tank Car Corporation, Union Refrigerator Transit Company, Standard Transit Company, Quaker City Tank Line, Liquids Despatch Line, Inc., Fruit Growers Express Company, Western Fruit Express Company, Burlington Refrigerator Express Company, Pacific Fruit Express Company, Southern Agricultural Tank Lines, Swift & Co., Mexican Petroleum Corporation, and Arms-Yaeger Railway Car Company, to report No. 24 of the special master, holding that car mileage and car per diem debts are not entitled to priority.

The court referred to the special master all claims against the railway which arose prior to the receivership, and for which priority is sought. Among the matters included in the reference are the claims of the above-named owners of tank, refrigerator, express, and other special cars for rentals all of which accrued within six months immediately preceding the appointment of receivers.

The evidence and the master's report show that it is the general practice of railroads throughout the country to rent from private owners, rather than own, the special equipment used in the transportation of classes of freight such as oils, meats, and perishable products requiring special treatment. This practice has the approval of the Interstate Commerce Commission, and the rates of compensation paid by the railroad to the private car owners for the use of such equipment are in accordance with published tariffs on file with the Commission. It is to be noted also that the law imposed upon railroads the duty to furnish safe and adequate car service which term expressly includes "special types of equipment." Interstate Commerce Act, USCA, title 49, subsections 10 and 11 of section 1.1

The advantages and saving to the railroad derived from this practice of transient and occasional hiring of special cars are due in large measure to the fact that the movements of some commodities, particularly fruits and vegetables, requiring special types of cars are largely seasonal in each territory so that it is decidedly more economical for a railroad to rent such special equipment when and as needed, since it thereby avoids having the equipment idle for substantial parts of the year. Under this practice an adequate supply of cars is available to meet the seasonal and occasional demands in each territory served by a railroad, which would hardly be the case if each railroad undertook to own the special equipment necessary for it to meet the demands, usual and unusual.

Under existing arrangements, the special cars are moved from place to place throughout the country as needed. The railroad in all the instant cases except one pays rental based on the mileage that the car actually rolls over its lines. The car ordinarily is turned over to the railroad not for any particular period but for a particular trip. Another advantage of this practice is that it saves the railroad making very substantial outlays for cars. The evidence shows that the Seaboard executives after studies of the problem concluded to save the risks and costs incident to ownership of refrigerator cars by renting them from car owners as occasion might require, and there can be little, if any, real doubt under the evidence that for the Seaboard to have undertaken to own the necessary special equipment to carry the special classes of freight would have driven it out of the perishable and special freight business, since the cost of owning such cars in the necessary numbers would have required the railroad to charge prohibitive rates that would have driven away all that business.

The assistant freight traffic manager of the Seaboard testified before the master that he had been connected with the Seaboard many years and was thoroughly familiar with that railroad's freight traffic; that the use of refrigerator cars was necessary in the transportation of perishable fruits and vegetables; and that this traffic was very important to the railway, producing from a revenue standpoint approximately 25 per cent. of its total revenue. This witness testified further that throughout his entire connection with the Seaboard, covering many years, that railroad had been using refrigerator cars which it did not own, under arrangements substantially similar to the arrangements in existence with Fruit Growers Express Company immediately prior to the receivership. It was shown also that this practice is and has for many years been followed not only by the Seaboard but by all railroads serving the same territory, and that it would undoubtedly be most uneconomical and impracticable for the railway to attempt to own the necessary cars of that type.

It appears from the master's report that there are three different kinds of mileage arrangements which are made for the use of special equipment by railroads generally, namely:

1. In some instances the cars are owned by car companies, which are in the business of owning and leasing cars to shippers. In these instances the railway has nothing to do with the arrangements which are made between the owner and the shipper. The cars are loaded by the shipper and delivered loaded to the railroad, which collects the full freight charges for transporting the commodities. Claims of this character are asserted herein by the following car owners: National Car Company, General American Tank Car Corporation, Union Refrigerator Transit Company, Standard Transit Company, Quaker City Tank Line, and the Liquids Despatch Line.

2. Other car owners furnish cars at the request of the railway; that is, the railway notifies the car owner that a specified number of cars will be needed at certain points to move special freight, and the cars are delivered to the railway by the car owner. In such instances the railway places the cars and moves them when loaded, charging the shipper the full freight, and paying to the car owner the amount stipulated by the tariff for each mile the car moves while loaded. Claims of this class involved are those of Fruit Growers Express Company, Western Fruit Express Company, Burlington Refrigerator Express Company, and Pacific Fruit Express Company.

3. Some cars are owned by shippers, who load their cars and deliver them loaded to the railway. The railway collects full freight charges, usually at destination, and pursuant to the published tariff pays to the owner-shipper the amount stipulated by the tariff for each mile the cars move over its line while loaded. Claims of this character are asserted by Southern Agricultural Tank Lines, Swift & Co., and Mexican Petroleum Corporation.

Under each of the methods enumerated under 1, 2, and 3, above, payment of car mileage rentals accruing to the car owner are usually made on the 10th of the second month following the month in which the rentals accrued. For instance, the Seaboard was placed in the hands of receivers on December 23, 1930. Had there been no receivership, in the ordinary and usual course the car company would have received payment for the rentals accruing in November, 1930, on or about January 10, 1931. The delay in payment was occasioned by the necessary auditing of the account, not by an extension of credit to the railroad. In other words, the bills for car rentals were paid currently out of the current receipts of the railway, and so far as that phase of the case is concerned, there can be no real doubt that the car companies expected payment and the railway intended to and prior to the receivership, ordinarily did pay these bills regularly out of current receipts, a practice of long standing.

The Pacific Fruit Express Company, one of the claimants, furnished its cars, claim for the use of which is here made, to the Southern Pacific and other railroads operating in Pacific Coast territory to carry shipments of fruits originating on their lines, to territory served by the Seaboard. It appears that in such instances the entire freight was collected by the Seaboard at destination. Likewise a great percentage of the shipments in refrigerator cars originating on the Seaboard are turned over by the Seaboard at the end of its lines to other railroads which transport the shipments to destination where they collect the entire charges which are later in regular course distributed to those entitled thereto, including the refrigerator car owner. In the Interstate Commerce Commission's report in Atlantic Coast Line R. Co. et al. v. Arcade & Attica R. Corp. et al. (The Citrus Fruit Rates. Divisions Case) 194 I. C. C. 729 et seq., the methods of handling citrus fruits and other perishables from the Florida territory are set forth. In a similar manner, also, tank and other special cars roll over two or more...

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