North Kansas City Bridge & R. Co. v. Leness

• Decision Date: 27 February 1936
• Docket Number: 10311.,No. 10310,10310
• Citation: 82 F.2d 9
• Parties: NORTH KANSAS CITY BRIDGE & R. CO. v. LENESS et al. CHASE NAT. BANK OF CITY OF NEW YORK, et al. v. NORTH KANSAS CITY BRIDGE & R. CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

82 F.2d 9 (1936)

NORTH KANSAS CITY BRIDGE & R. CO. v. LENESS et al.

CHASE NAT. BANK OF CITY OF NEW YORK, et al. v. NORTH KANSAS CITY BRIDGE & R. CO. et al.

Nos. 10310, 10311.

Circuit Court of Appeals, Eighth Circuit.

February 27, 1936.

Henry L. Jost, of Kansas City, Mo. (James S. Simrall, of Kansas City, Mo., on the brief), for North Kansas City Bridge & R. Co.

C. E. Lombardi, of Kansas City, Mo., for Chase Nat. Bank of City of New York and others.

Before GARDNER, SANBORN, and WOODROUGH, Circuit Judges.

SANBORN, Circuit Judge.

These appeals are from a decree fixing the amount of the rentals due from the receiver of the Kansas City, Clay County & St. Joseph Railway Company (hereinafter referred to as the Interurban Company) to the North Kansas City Bridge & Railroad Company (hereinafter called the Bridge Company) for the use by the receiver of its bridge over the Missouri river.

The Interurban Company was organized under the laws of Missouri for the purpose of operating a line of electric railway from Kansas City, Mo., to St. Joseph, Mo., and from Kansas City to Excelsior Springs, Mo. For the purpose of extending its line across the Missouri river and entering Kansas City, it made a contract with the Bridge Company on May 1, 1911, for the use of its bridge, then under construction. By the terms of this contract, the Interurban Company was to pay the Bridge Company $1 for each revenue car which passed over the bridge and a lesser amount for nonrevenue cars. The minimum rental for the first year of operation was to be $25,000, and each year thereafter this minimum was to be increased by $1,000 until it reached $35,000, which was thereafter to be the minimum rental to be paid by the Interurban Company. The contract was for fifty years. It contained no provision expressly giving the Bridge Company any lien upon the property of the Interurban Company as security for rentals, but provided that the rental charge should be an "operating expense" of the Interurban Company.

After the contract was executed, the Bridge Company, in order to provide for the additional burden on the bridge resulting from the heavier cars of the Interurban Company, had the bridge plans redrafted, and at considerable expense to itself increased the strength of the bridge.

Shortly after it had made the rental contract with the Bridge Company, the Interurban Company issued its bonds secured by a first mortgage upon all its assets, including its rights under the contract for the use of the bridge.

For some years thereafter, the Interurban Company prospered, but, like so many similar companies, due to changing methods of transportation attributable to good roads and motor vehicles, it later fell upon evil days. A creditor's bill praying for the appointment of a receiver was filed November 10, 1930, by George J. Leness on behalf of himself and all other creditors, and on November 12, 1930, the allegations of the bill having been admitted, Robert P. Woods was appointed receiver. From the time of his appointment until March 10, 1933, when the court ordered operations discontinued, Mr. Woods was in charge of and managed the property of the Interurban Company as an officer of the court.

Shortly after his appointment, the receiver wrote the Bridge Company, proposing that he continue operations under the terms of the rental contract, without either affirming or disaffirming it, and that the reasonable time within which he should be required to elect whether to affirm or disaffirm the contract should not begin to run until he had notified the Bridge Company or it had notified him to that effect. The Bridge Company, in writing, agreed to this proposal.

Under orders of the court, the receiver paid the contract rentals to the Bridge Company from the time he took over the Interurban Company until December 31, 1930, and from that date to December 31, 1931. These orders expressly provided that they should not be regarded as an affirmation of the contract. From January 1, 1932, to April 1, 1932, the receiver paid to the Bridge Company only $4,371.79, which was the per car passage charge for that period. The pro rata minimum rental for that time was $8,750.

On April 1, 1932, the receiver, under his arrangement with the Bridge Company, gave notice to it that the contract for the use of the bridge would be either affirmed or disaffirmed within a reasonable time thereafter. He then filed a petition with the court for instructions as to whether to affirm or disaffirm the contract. The record does not show whether any instructions were given, but from April 1, 1932, to March 10, 1933, he paid only the per car passage charge. The Bridge Company thus received for the year 1932, $15,529.47, and for the period from January 1, 1933, to March 10, 1933, $2,359.80.

The receiver's operation of the property of the Interurban Company resulted in such a large deficit that a loss would have been sustained had no rentals whatever been paid for the bridge during the receivership.

The Bridge Company filed three intervening petitions in the creditors' suit. The first, filed January 28, 1933, requested the court to direct the receiver to pay as rental for the year 1932 the difference between what he had paid and the $35,000 minimum yearly rental, or $19,470.53. The second, filed March 31, 1933, asked the court to direct the payment of $4,414.38 as the balance of rental due from the receiver for the period January 1, 1933, to March 10, 1933, being the difference between what the receiver had paid for that period and $6,774.18, the portion of the $35,000 yearly minimum rental allocable to that period. A third petition was filed claiming $424,644.32 as the present worth of future profits under the contract, but this petition was dismissed, and its dismissal is not assigned as error.

The answer of the receiver to the petitions was that the contract for the use of the bridge had not been affirmed by him, and that the payments which had been made were reasonable and adequate compensation for the use of the bridge.

A committee of the first mortgage bondholders of the Interurban Company then intervened and asked that the petitions of the Bridge Company be denied, and that it be required to restore to the receiver $9,139.27, the difference between the $17,889.27 paid as rentals for the period January 1, 1932, to March 10, 1933, and $8,750 which the committee conceded to be the correct rental for the period January 1, 1932, to April 1, 1932, during which the preliminary arrangement between the receiver and the Bridge Company was in force.

On June 25, 1933, the Chase National Bank of the City of New York and John F. Downing, as trustees, brought suit to foreclose the first mortgage of the Interurban Company, joining the Bridge Company as a defendant, and asserting that any interest of the Bridge Company in the mortgaged property was inferior to the lien of the mortgage. The Bridge Company set up in its answer in the foreclosure proceedings the same claims for rentals which it asserted in the creditors' suit. It also asserted a lien for these rentals superior to the lien of the mortgage.

The issues raised by the petitions of the Bridge Company and the answer of the receiver in the creditors' suit, and those raised by the complaint and the answer of the Bridge Company in the foreclosure suit, were tried together. The court below decided that the Bridge Company was entitled to the minimum rentals provided for in the contract from November 12, 1930, the time of the appointment of the receiver, to April 1, 1932, when the Bridge Company was notified by the receiver that he would affirm or disaffirm the contract within a reasonable time, that being in accordance with the agreement entered into by the Bridge Company and the receiver with the approval of the court. The court also decided that, after April 1, 1932, and until March 10, 1933, when the receiver, by order of court, abandoned operations, the Bridge Company was entitled to receive the fair rental value of its property used by the receiver, and that the per car passage charge already paid was the fair rental value; that the Bridge Company had no equitable mortgage or other lien upon the assets in the hands of the receiver; and that the bondholders' committee was not entitled to have the Bridge Company restore anything to the receiver. The court held that the receiver had not affirmed the contract. Under the decree entered in accordance with the court's decision, the Bridge Company was allowed $4,378.21 as the amount still due for the period from January 1, 1932, to April 1, 1932. The Bridge Company appealed, and the trustees under the mortgage and the bondholders' committee filed a cross-appeal.

The questions which we are to determine are:

1. Was the receiver at any time bound by the contract between the Bridge Company and the Interurban Company?

2. Has the Bridge Company an equitable lien upon or a right to preferential payment of contract rentals out of the property of the Interurban Company superior to the lien of the mortgage?

...