Texas Co. v. International & G.N. Ry. Co.

• Decision Date: 15 March 1918
• Docket Number: 3090.
• Citation: 250 F. 742
• Parties: TEXAS CO. v. INTERNATIONAL & G.N. RY. CO. et al.
• Court: U.S. Court of Appeals — Fifth Circuit

250 F. 742

TEXAS CO. v. INTERNATIONAL & G.N. RY. CO. et al.

No. 3090.

United States Court of Appeals, Fifth Circuit.

March 15, 1918

Robert A. John, of Houston, Tex., and Amos L. Beaty, of New York City (T. J. Lawhon, of Houston, Tex., on the brief), for appellant.

William H. Wilson, H. M. Garwood, and Jesse Andrews, all of Houston Tex. (Joline, Larkin & Rathbone, of New York City, and Baker Botts, Parker & Garwood and Wilson, Dabney & King, all of Houston, Tex., on the brief), for appellees.

Before WALKER and BATTS, Circuit Judges, and FOSTER, District Judge.

BATTS Circuit Judge.

The Central Trust Company of New York filed a bill August 7 1914, against the International & Great Northern Railway Company, alleging that it was trustee under a mortgage dated August 1, 1911, to secure first refunding mortgage bonds, executed by the defendant in the amount of $14,791,000. It was alleged that these bonds were subject to outstanding bonds in the sum of $11,291,000, issued by the International & Great Northern Railroad Company, the predecessor of defendant in title to the railroad. In accordance with the prayer of the plaintiff, receivers were appointed.

The Texas Company filed a plea of intervention, alleging that on the 1st of January, 1914, it had entered into a contract with the defendant, whereby it agreed to sell and deliver to the railroad company. and the latter agreed to purchase and receive, a minimum of 1,350,000, or a maximum of 1,650,000, barrels of fuel oil, at the price of 95 cents per barrel. It was alleged that oil to the value of $225,778.52 had been furnished under this contract, for which intervener had not been paid; that there was undelivered upon the minimum amount 1,197,034.22 barrels; that the receivers, after their appointment, declined to adopt the contract, and purchased oil at 67 cents per barrel, which was the market price; that defendant breached the contract, and, as a consequence, intervener had sold the oil covered by the contract at 67 cents; and that, by reason of the facts alleged, defendant became indebted to intervener in the further sum of $335,169.58.

The intervention was referred to a master, who found that within the period of six months beginning February 10, and ending August 10, 1914, the intervener furnished the defendants fuel oil and other material and supplies necessary for the conduct of the business of defendant railway company as a going concern, to the amount of $225,778.52, but that the total should be reduced, as the result of balancing claims and counterclaims, to $225,592.06. The master also found that the amount undelivered upon the minimum named in the contract was as alleged by intervener, and found that intervener had entered into a new contract with the receivers for the sale of oil at 67 cents per barrel, to apply to all deliveries after the receivership.

Upon the trial before the master it was agreed that the intervener's measure of damages would be the difference between the contract price and the market price of the oil at the date of the receivership, unless affected by the fact that the receivers contracted with the intervener for something like 700,000 barrels of oil at 67 cents. The master found that the weight of the evidence was to the effect that, for industrial and other purposes, fuel oil was worth about 75 cents, and that railroads usually got their oil under contracts for considerable quantities at from 2 to 5 cents per barrel less, unless the railroad contract ran over a period of two or three years, in which event the sellers of oil raised the price to provide against contingencies. He concluded that the Texas Company was damaged by the breach of the contract in the difference between 75 cents and 95 cents per barrel, aggregating $239,406.85. The master also found that the net surplus of operating income of defendant railway company from February, 1914, to August, 1914, in excess of its operating expenses, after deducting the surplus for six months' period prior to receivership, was $1,324,173.84, according to reports of the company to the Railroad Commission of Texas, and he found that the net surplus, 'being the difference between the gross income and operating expenses' for the period beginning February 1, 1914, and ending April 30, 1915, as shown by the books of the company, amounted to $609,235.85, this taking into account a deficit in income for the six-months period prior to the receivership of $81,575.80; the 'net surplus' in the operation of the receivers for the months from August, 1914, to April, 1915, being $690,811.65. The report of the master allowed interest on the amount found to be due for supplies furnished within the six-months period from the 1st of January next following.

Exceptions to the report of the master were ruled upon, and a decree entered, wherein interveners were allowed interest from the date each payment on the contract became due. It was held that the corporation was insolvent at the time of the appointment of receivers and at the time of the decree, and that 'interest accruing on the claim of the Texas Company since the appointment of receivers was entitled to no lien or preferential right of payment. ' Interveners were denied damages against the railway company for breach of contract.

The contention of appellant that interest should be paid from the date of the receivership to the time of payment is based principally upon the case of American Iron & Steel Co. v. Seaboard Air Line, 233 U.S. 261, 34 Sup.Ct. 502, 58 L.Ed. 949. This case was referred to in the Pennsylvania Steel Co. Case, 216 F. 471, 132 C.C.A. 531, in a decision by the Circuit Court of Appeals, and this language used:

'The allowance of interest on these claims after the appointment of receivers was refused on the ground that the delay thereafter was that of the court, for which neither the debtor nor the other creditors of the debtor should suffer. In Thomas v. Railroad Co., 149 U.S. 95 (13 Sup.Ct. 824, 37 L.Ed. 663), this was said to be the general rule. In that case interest on a debt incurred during the receivership was refused, as against the mortgagee, out of the corpus of the estate. On the other hand, in Southern Ry. Co. v. Carnegie Steel Co., 176 U.S. 257 (20 Sup.Ct. 347, 44 L.Ed. 458), the court * * * did allow interest as against the mortgagee on the ground of a diversion of income. The point

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