Pennsylvania Steel Co. v. New York City Ry. Co.

• Decision Date: 19 May 1908
• Docket Number: 265.
• Citation: 163 F. 242
• Parties: PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO. et al. (WATERBURY et al., Interveners). MORTON TRUST CO. v. METROPOLITAN ST. RY. CO. (WATERBURY et al., Interveners). GUARANTY TRUST CO. OF NEW YORK v. SAME.
• Court: U.S. Court of Appeals — Second Circuit

163 F. 242

PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO. et al.

(WATERBURY et al., Interveners). MORTON TRUST CO. v. METROPOLITAN ST. RY. CO. (WATERBURY et al., Interveners).

GUARANTY TRUST CO. OF NEW YORK v. SAME.

No. 265.

Circuit Court, of Appeals. Second Circuit.

May 19, 1908

On Motion to Amend, May 29, 1908.

J Parker Kirlin, for Metropolitan St. Ry. Co.

Bronson Winthrop(L. C. Kranthoff, Frederick Geller, Bronson Winthrop, and C. T. Payne, of counsel), for Morton Trust Co.

Davies Stone & Auerbach(Brainard Tolles, of counsel), for Guaranty Trust Co.

Masten & Nichols(William M. Chadbourne, of counsel), for receivers.

Charles E. Rushmore, for preferred contract creditors.

Byrne &amp Cutcheon, for Pennsylvania Steel Co.

William J. Wallace, for certain creditors.

Before COXE, and WARD, Circuit Judges, and HOLT, District Judge.

WARD Circuit Judge.

This is an appeal from the order of the Circuit Court authorizing the issuance of receivers' certificates to the amount of $3,500,000.The property in the custody of the court consists of a congeries of street railways owned by or leased to the defendant the Metropolitan Street Railway Company, and operated as its lessee, by the defendant the New York City Railway Company, subject to various liens, particularly to a mortgage dated February 1, 1897, to secure the payment of bonds to the amount of $12,500,000 to the Guaranty Trust Company, as trustee, upon a part of the premises, and to a subsequent mortgage March 21, 1902, upon the same property and other property to secure the payment of outstanding bonds amounting to $16,604,000 to the Morton Trust Company, as trustee.Under the lease the New York City Railway Company is bound to maintain the property, pay all taxes, charges, rents, and other expenses, together with a dividend amounting to 7 per cent. on the capital stock of the defendant the Metropolitan Street Railway Company.

September 24, 1907, Adrian H. Joline and Douglas Robinson were appointed receivers of the New York City Railway Company and afterwards, October 1, 1907, receivers of the Metropolitan Street Railway Company.

We have no doubt of the prime importance of continuing the operation of the property as an entirety, and to that end of the necessity of raising funds by means of receivers' certificates, and, as a necessary corollary, of giving the certificates a lien prior to the claims of the general creditors of both companies and to the mortgagees above mentioned, in order to secure their marketability.

The justification of displacing liens is the preservation of the property upon which they exist, and, when but one common debtor is involved, the preference affects only the lien creditors because the debtor, owing all his debts alike, is indifferent to the order in which they are paid.When, however, as here, there is a lessee defendant and an owner defendant, both of whom are insolvent, though it may be proper to displace for the common benefit liens upon both of the properties, still it is also proper to determine whether inter se the debt of the lessee should be imposed upon the lessor or the liens on the lessor's property be displaced for the benefit of strangers to the lien creditors, viz., the lessee and its creditors.

The rights to be adjusted are those of: (a) The lessee's creditors, of whom the four-month creditors claim a preference; (b) the lessee's stockholders; (c) the lessor's lien creditors; (d) the lessor's general creditors; (e) the lessor's stockholders.

We think the difference of the parties can be reconciled by a modification of the order providing that the certificates shall be issued by the receivers in their capacities as receivers of both companies and shall be given a preference out of the net income and property of the lessee and out of the net income of the lessor, in case it shall operate the property, and out of all other property owned or leased by the lessor covered by both mortgages aforesaid, in order to insure the marketability of the certificates.The ascertainment of the rights and priorities inter se of all persons interested in the premises are reserved, to be finally adjudicated, as provided in the order modified by inserting the provisions underlined as follows:

Ordered that the prayer of said petition and supplemental petition be, and it hereby is granted so far as is hereinafter set forth, and the said receivers in their capacities as receivers of each company be, and they hereby are, authorized to issue their certificates of indebtedness to an amount not exceeding $3,500,000 upon the...