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

Decision Date18 July 1912
Docket Number235.
Citation198 F. 778
PartiesPENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO. et al.
CourtU.S. Court of Appeals — Second Circuit

Dexter Osborn & Fleming (Theodore W. Morris, Jr., of counsel), for Ladd, receiver.

Geller Rolston & Horan (Bronson Winthrop and Charles T. Payne, of counsel), for Farmers' Loan & Trust Co.

Benj. S. Catchings, for tort creditors.

Davies Auerbach, Cornell & Barry (Brainerd Tolles and Julien T Davies, of counsel), for Metropolitan St. Ry. Co.

Richard R. Rogers, for New York Rys. Co.

Byrne & Cutcheon (James Byrne and C. M. Travis, of counsel), for Pennsylvania Steel Co.

G. N. Hamlin, Morgan J. O'Brien, and Charles E. Rushmore, for contract creditors.

Masten & Nichols (Arthur H. Masten and William M. Chadbourne, of counsel), for Joline and others, receivers.

Before COXE, WARD, and NOYES, Circuit Judges.

WARD Circuit Judge.

The question in this proceeding is how certain moneys and notes in the hands of the receivers of the New York City Railway Company, paid to them in settlement of a judgment in an action at law recovered against the Metropolitan Securities Company and of a suit in equity by the receivers of the City Company against the Securities Company and individual defendants, who were directors of both the City Company and the Securities Company, are to be apportioned between the two accounts. The judgment in the action at law was for the unpaid balance of a sum of $8,000,000 owed by the Securities Company to the City Company under a contract dated May 22, 1907. The action in equity was to recover the amount of an alleged wrongful diversion of the capital of the City Company to the treasury of the Securities Company. The settlement of both claims being for a lump sum in cash and notes, $5,500,000 cash and four collateral improvement 5 per cent. notes of the Metropolitan Street Railway Company for $1,000,000 each, it remained to determine in what proportion that fund should be applied to the claims respectively. The special master and the court below determined that the cash and notes should be apportioned ratably between the judgment in the action at law (after deducting the amount of security on appeal) and the claim in the equity action. We approve of this conclusion as being as fair a method as any that has been suggested or that has occurred to us.

It is objected that no interest should have been allowed upon the claim in the equity suit, because it was unliquidated. We follow in this circuit the rulings of the Court of Appeals of New York, allowing no interest on unliquidated claims. Stephens v. Phoenix Bridge Co., 139 F. 248, 71 C.C.A. 374. In equity, however, interest, especially in a case of wrongful diversion like this, is a matter of discretion (Lilienthal v. Cartwright, 173 F. 580, 97 C.C.A. 530), and we are unwilling to interfere with that discretion as exercised by the court below.

The liability of the Securities Company to the City Company we have heretofore held to have been absolute, saying:

'It was clearly the intent of the parties to the May, 1907, agreements to provide a fund for paying the debts of the Metropolitan Railway Company and for necessary future construction, aggregating about $8,000,000, which sum the Securities Company undertook to furnish to the City Company absolutely and without condition. ' Metropolitan Securities Co. v. Ladd, 173 F. 269, 272, 97 C.C.A. 435, 438.

It makes no difference how the Securities Company used the eight collateral notes of the Metropolitan Company for $1,000,000, or how it raised the money to pay the City Company, or that the notes subsequently became or now are worthless. It remains true that they, with the accompanying collateral, were the consideration of the Securities Company's liability to pay $8,000,000 to the City Company. The City Company was, under article XV of the lease, bound to apply the funds so collected or to be collected of the Securities Company to permanent betterments upon the Metropolitan Company's property. Article XV, as well as the recitals in the resolution adopted by the boards of the Metropolitan Company and of the City Company May 22, 1907, and the provisions of the agreement between those companies of the same date, show that these moneys were to be so applied. The Metropolitan Company was to give its notes with collateral to the Securities Company in consideration of $8,000,000 to be paid by that company to the City Company as and when called for, and to be applied by the City Company in payment for permanent betterments of the Metropolitan Company's property. We think a court of equity, if applied to, would have prevented the City Company from using the moneys for any other purpose whatever. It follows that so much of the money and notes received by the receivers of the City Company in settlement as is apportionable to the judgment in the action at law (after deducting the expenses of realizing the same) must be applied for the benefit of the Metropolitan Company. The court below, however, rightly held that the receivers of the City Company were first entitled to deduct whatever they or the City Company had paid out on account of this fund of $8,000,000 for permanent betterments of the Metropolitan Company's property, and for any balance not paid out of the cash they were entitled to hold their share of the notes, so far as needed to reimburse them, the notes and any balance of cash not needed for that purpose to be turned over to the receivers of the Metropolitan Company. On the other hand, the share of the notes apportioned to the equity suit may be proved by the receivers of the City Company against the estate of the Metropolitan Company.

The contract requiring the application of this fund to the improvement of the Metropolitan Company's property was made for the protection of that company as lessor, as well as for the protection of the City Company as lessee. Inasmuch as neither of these companies has now any interest whatever in the premises, it would be out of the question to apply the balance of the fund, if any, to the improvement of the property for the benefit of the purchaser at the foreclosure sale. And it would be equally out of the question to permit the City Company to keep such balance, if any, as part of its estate.

So much of the fund as may come into the hands of the receivers of the ...

To continue reading

Request your trial
19 cases
  • Pennsylvania Steel Co. v. New York City Ry. Co.
    • United States
    • U.S. District Court — Southern District of New York
    • September 23, 1913
    ...the action at law and suit in equity therein apportioned, which are not subject to the demands of a particular class of creditors (198 F. 778, 117 C.C.A. 560). It has, in its right to a share in the proceeds of the action at law under the latter decree for expenditures for construction purp......
  • Robertson v. Miller
    • United States
    • U.S. Court of Appeals — Second Circuit
    • December 28, 1922
    ... ... 504] ... Stockton ... & Stockton, of New York City (Chas. W. Stockton and K. E ... Stockton, both of New York City, ... discretion. Penn Steel Co. v. N.Y., etc., R., 198 F ... 778, 117 C.C.A. 560. The trial court ... ...
  • Dresser v. Bates
    • United States
    • U.S. Court of Appeals — First Circuit
    • March 5, 1918
    ... ... the receiver of the National City Bank of Cambridge, brought ... in 1910 under section 24, par. 16, of the ... during this period he was engaged in faro bank gambling in ... New York, and we think it quite within the realm of ... probabilities that, if ... in part. Steel Co. v. New York City ... [250 F. 553] ... R.R., 198 F. 778, 779, 780, ... ...
  • Rogers v. United Grape Products
    • United States
    • U.S. District Court — Western District of New York
    • January 3, 1933
    ...such breach, of the leased premises for the balance of the unexpired term and the total agreed rent. * * *" In Pennsylvania Steel Co. v. N. Y. City Ry. Co. (C. C. A.) 198 F. 778, will be found a comprehensive discussion of rules for the determination of provable claims. This case discloses ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT