Railroad Credit Corporation v. Hawkins
| Decision Date | 06 January 1936 |
| Docket Number | 3955.,No. 3954,3954 |
| Citation | 80 F.2d 818 |
| Parties | RAILROAD CREDIT CORPORATION v. HAWKINS et al. FRUIT GROWERS EXPRESS CO. v. SAME. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Richard H. Wilmer, of Washington, D. C. (Daniel Willard, Jr., of Washington, D. C., on the brief), for Railroad Credit Corporation.
Carl H. Richmond, of Washington, D. C. (Gardner L. Boothe, of Alexandria, Va., and W. G. Brantley, Jr., of Washington, D. C., on the brief), for Fruit Growers Express Co.
William B. Rodman, of Norfolk, Va. (Claude M. Bain, of Norfolk, Va., on the brief), for receivers, Norfolk Southern R. Co.
Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.
These are two appeals in a controversy which has arisen in the receivership of the Norfolk Southern Railroad Company, with respect to the right to certain dividends on 1,572 shares of stock in the Fruit Growers Express Company, owned by the Norfolk Southern Railroad Company, and pledged by that company as collateral security to the Railroad Credit Corporation to secure a loan. There were four of these dividends, two in 1932 and two in 1933. The court below, affirming the report of a special master, held that the first of these, in the amount of $6,288, was owing to the railroad company and might be set off by the express company against its indebtedness to the railroad company; that the second, in the amount of $9,432, was owing, without interest, to the receivers of the railroad company; and that the third and fourth, in the amount of $6,288 and $3,144, respectively, should be paid, without interest, to the credit corporation.
Both the credit corporation and the express company appealed from the decree of the lower court based on the above holdings. The appeal of the credit corporation complains that the court was without jurisdiction to determine the right to the dividends in question, that the credit corporation was entitled to all four of the dividends, and that it was entitled to interest on the dividends from the dates on which they were respectively payable. The appeal of the express company complains that it was not allowed the right of set-off with respect to the second dividend, as well as the first, and that the credit corporation was held entitled to the third and fourth dividends. Another contention which it raises on the appeal, viz., that the court should have passed upon certain claims which it had filed against the receivers before giving the receivers a judgment against it for the second dividend, becomes immaterial in the view which we take as to the right to the second dividend.
The facts out of which the controversy arises are as follows: On March 28, 1932, the railroad company borrowed from the credit corporation the sum of $290,000, being a part of the fund which that corporation had collected under the marshaling and distributing plan of 1931 as approved by the Interstate Commerce Commission in the Fifteen Per Cent Case, Ex Parte No. 103, 178 I.C.C. 539, 179 I.C.C. 215. To secure this loan, the railroad company executed to the credit corporation its promissory note in this amount, payable September 28, 1933, and bearing interest at the rate of 3 per cent. per annum from date payable semiannually, and pledged with it the 1,572 shares of express company stock, the rents and income under a lease to the Virginia Electric & Power Company, and certain other property. The note contained the following language with respect to the pledge, viz.:
The note contained the following language as to the rights of the credit corporation on default:
As further security for this note, the railroad company executed at the same time an assignment of the rent which it was entitled to receive under a lease of property to the Virginia Electric & Power Company. This assignment contained the following condition:
"And upon the further condition, that until railroad company shall make default in the payment of principal or interest or some part of either principal or interest of said loan, Railroad Company shall be entitled to collect and receive the rents, income and yield from said lease of March 1, 1930, and convert the same to its own use, without accountability to Credit Corporation, and until such default as above set out shall have occurred, Credit Corporation shall not be entitled to collect or receive said rents, income or yield."
On April 4, 1932, the credit corporation wrote a letter to the express company giving notice that the stock of the railroad company had been pledged to it as collateral security; and by letter of April 14th the express company acknowledged receipt of the notice.
On June 30, 1932, the first of the dividends here involved was declared by the express company, payable July 15, 1932. The dividend to which the stock pledged with the credit corporation was entitled under this declaration of dividend was not paid to any one, however; and shortly after it became payable, viz., on July 28, 1932, the railroad company was placed in receivership. On application of the receivers, they were authorized to pay and did pay the installment of interest due September 28, 1932, on the note held by the credit corporation, and thereby prevented a default on that note until March 28, 1933. In the meantime, the second dividend was declared on October 4, 1932, payable December 30, 1932. No further interest was paid on the note and default accordingly occurred with respect to the payment of interest due March 28, 1933. The third and fourth dividends on the stock were declared subsequent to that date; and for that reason the special master and the court below held that the credit corporation was entitled to them, construing the provisions of the note which we have quoted as entitling the pledgee to dividends on the stock pledged only after default.
With respect to the right of set off urged by the express company, the special master found that the railroad company was indebted to the express company at the time of the appointment of the receivers in the sum of $14,894.58, and it is against this indebtedness that the first dividend was set off. An employee in the office of counsel for the express company testified that, shortly after being notified of the pledge of the express company stock by the railroad company to the credit corporation, he made inquiry of some one whom he understood to be treasurer of the credit corporation as to what disposition would be made of dividends on pledged collateral, and was told by him that it was not the intention of the credit corporation at the time to collect dividends until after the default in either principal or interest on the loan, and that, if confirmation of this in writing was desired, he would confirm it. The witness was furnished at the time a blank form of the note used by the credit corporation, but asked no release of dividends on the stock pledged by the railroad company. The treasurer of the credit corporation denied all recollection of any such conversation, and testified that the custom with respect to releasing dividends was to consider each case on its own merits where application for release of dividends was made. There is no evidence that any credit was extended the railroad company by the express company in reliance upon the statement as to dividends, or that the express company paid dividends to the railroad company or to any one else in reliance upon such statement. On the contrary, it is admitted that none of the dividends in question has as yet been paid to any one, although since November 9, 1932, the credit corporation has been demanding that they be paid to it.
On October 26, 1932, both the credit corporation and the express company filed claims with the receivers of the railroad company. The claim of the credit corporation, in addition to setting forth the amount of its claim and the collateral by which it was secured, contained the following statement: "Claim is herewith asserted, as pledgee, to all increases of the pledged property including dividends paid and to be paid, directly or indirectly, to said defendant and/or the receivers." The claim of the express company asked a finding by the court with respect to dividends on the pledged stock in the...
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