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

• Decision Date: 11 July 1934
• Docket Number: No. 214.,214.
• Citation: 14 F. Supp. 555
• Court: U.S. District Court — Eastern District of Virginia
• Parties: GUARANTY TRUST CO. OF NEW YORK et al. v. SEABOARD AIR LINE RY. CO. et al.

14 F. Supp. 555

GUARANTY TRUST CO. OF NEW YORK et al. v. SEABOARD AIR LINE RY. CO. et al.

No. 214.

District Court, E. D. Virginia, Norfolk Division.

July 11, 1934, and September 12, 13, 16-18, 1935.

J. Hume Taylor (of Williams, Loyall & Taylor), of Norfolk, Va., and William Booth and Smith, Buchanan, Scott & Gordon, all of Pittsburgh, Pa., for Massey Concrete Products Corporation and Union Switch & Signal Co.

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

J. Hume Taylor (of Williams, Loyall & Taylor), of Norfolk, Va., for Pullman Co.

T. H. Willcox (of Willcox, Cooke & Willcox), of Norfolk, Va., and E. V. Mitchell, of Chicago, Ill., for Continental Casualty Co.

T. H. Willcox (of Willcox, Cooke & Willcox), of Norfolk, Va., for H. E. Gibbons, R. J. McCreary Lumber Co., Maintenance Equipment Co., and Western Fruit Express Co.

John W. Oast, Jr., of Norfolk, Va., for Arms-Yager Ry. Car Co. Braden Vandeventer (of Vandeventer, Eggleston & Black), of Norfolk, Va., for Swift & Co.

J. W. Eggleston (of Vandeventer, Eggleston & Black), of Norfolk, Va., and John M. Daniel, Atty. Gen. of South Carolina, for South Carolina State Highway Department.

T. H. Willcox (of Willcox, Cooke & Willcox), of Norfolk, Va., and Henry T. Stetson, of New York City, for Pintsch Compressing Co.

T. H. Willcox (of Willcox, Cooke & Willcox), of Norfolk, Va., for Woodstock Slag Corporation.

T. H. Willcox (of Willcox, Cooke & Willcox), of Norfolk, Va., and Doggett, McCollum, Howell & Doggett, of Jacksonville, Fla., for A. B. Floyd.

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.

James Elliott Heath, of Norfolk, Va., special master in Seaboard Air Line receivership.

I. In the Matter of the Claim of Massey Concrete Products Corporation.

Upon hearing of exceptions filed by Massey Concrete Products Corporation to that portion of the special master's report denying priority under the six months' rule to certain items of a claim for supplies filed by it with the receivers of the Seaboard Air Line Railway Company. The claim involved several items, and the special master found those which represented supplies for new construction work and those which arose more than six months prior to the appointment of the receivers not to be entitled to priority. Many of the items of the claim found by the master not to be entitled to priority under the six months' rule accrued from two days to as much as ten months before the commencement of the six months immediately preceding the appointment of receivers. Claimant contends that this rule should be so relaxed as to accord priority to these items in view of the proximity of the date of their accrual to the commencement of the six months' period. Affirmed.

WAY, District Judge.

Upon considering the master's report and the evidence returned therewith, I am of the opinion that all the exceptions thereto should be overruled and the report approved and confirmed.

References are made in the stipulation of facts and the argument to the action of the railway in charging certain items to capital account, which the master has found were really operating expenses and entitled to priority if furnished within the six months immediately preceding the appointment of receivers. In that connection, see Continental Trust Co. v. Bonsal & Co. (C.C.A.) 72 F.(2d) 975, at page 980, where it is said: "The principles applicable in determining priority for such claims are entirely different from those which control in matters of bookkeeping. Charges to capital account in the books of the railroads are made for the purpose of determining the amount of investment as a basis of rate making, bond issues, etc. Priority is allowed claims for supplies under the six months' rule, not because the supplies have not added to capital, but because they have been necessary to the continued operation of the road and have been supplied with the expectation that they would be paid for out of current income."

While some of the items of this claim come unusually close to the border line of the six months immediately preceding the appointment of receivers, the evidence fails to disclose any special equities pertaining to such items which would justify the court in concluding the master erred in his decision that those items are not entitled to priority. There must be a dead line somewhere, and the decisions have established it in ordinary cases at six months prior to the appointment of receivers. If the court goes a few days beyond that period to allow claims because they are so close to the border, having once broken down the bars, endless confusion as well as inequity will inevitably follow. The sound reasons for this limitation of the time within which such claims must accrue are set forth in Dictaphone Sales Corporation v. Powell et al., Receivers (C.C.A.) 77 F.(2d) 795, 797.

September 16, 1935.

II. In the Matter of the Claim of the Pullman Company.

Claim by the Pullman Company v. L. R. Powell, Jr., and Henry W. Anderson, as Receivers of Seaboard Air Line Railway Company. Upon appointment of receivers on December 23, 1930, claimant filed its claim which arose under a contract dated July 13, 1923, and a supplement thereto dated November 14, 1928, between claimant and the railway company. The receivers, pursuant to authority vested in them by the court, elected to adopt the contract. Claimant contended that the adoption of the contract by the receivers made the receivers liable to it not only for the amounts to become due in the future under the contract, but also for what was already due to it by the railway company under the contract prior to receivership. It also contended that even if such adoption did not have that effect, its claim was entitled to priority under the six months' rule. The receivers and the mortgage trustees denied that the adoption of the contract carried the burdens and denied that the claim was entitled to priority. These contentions were made before a special master to whom said claim was referred, who reported to the court "that by the adoption of the contract of the Pullman Company, the receivers became liable for whatever was due that company under the contract prior to the receivership." The special master reported further that a small portion of the claim did not arise under the contract, was not an ordinary operating expense and did not accrue within six months prior to receivership, and was, therefore, not entitled to priority. Upon hearing of exceptions to the master's report filed by claimant, the receivers, and the mortgage trustees. Affirmed.

Special Master's Report No. 29 in the Matter of the Claim of the Pullman Company.

The claim of the Pullman Company about to be considered arises under a contract dated July 13, 1923, between the railway company and the Pullman Company, subsequently modified by a supplemental agreement dated November 14, 1928. Copies of this contract and of the supplement and also of the stipulation between the parties are attached to and made a part of this report.

The receivers, pursuant to the authority vested in them by the order entered December 23, 1930, and subsequent orders extending the period of six months originally allowed them in which to adopt or reject contracts of the railway company, have elected to adopt this contract, as set forth in the following paragraph taken from the stipulation: "From and after December 23, 1930, The Pullman Company continued to furnish to the Receivers equipment and services under said contracts dated July 13, 1923, (as amended by supplemental agreement dated November 14, 1928) and operations under said contract have ever since been continued and are still continued. The Receivers, pursuant to authority vested in them by the Court, have elected to adopt the aforesaid contract between Seaboard Air Line Railway Company and The Pullman Company, dated July 13th, 1923, as modified by supplemental agreement dated November 14th, 1928, and formal statement of their election has been filed in the offices of the Clerks of the Courts, as provided in the original order appointing the Receivers."

It is the contention of the Pullman Company that this adoption has made the receivers liable to it, not only for what may have become due under the contract on and after December 23, 1930, but also for what was then due thereunder. It also contends that, even if such adoption did not have the effect stated, the various items of its claim are entitled to preferential priority under the six months' rule. On the other hand, both the receivers and the mortgage trustees deny that the adoption of the contract has had the effect attributed to it by the claimant. Further, the mortgage trustees deny that any of the items of the claim in question is entitled to preferential priority, and the receivers, in this respect, associate themselves with the mortgage trustees, except as to the items for lighting cars and cleaning cars set forth on page 1 of the stipulation.

1. I have reached the conclusion that the adoption of the contract did have the effect contended for by claimant. When my Report No. 6 was filed, dealing with the question of the alleged adoption of a contract between the railway company and the Arundel Corporation, I was of the opinion that the adoption of such contract would have had the effect of making the receivers liable for anything that might have been due under it prior to the receivership. Authorities contra have been submitted to me at the...