United States v. Guaranty Trust Co of New York, No. 402

• Court: United States Supreme Court
• Writing for the Court: BRANDEIS
• Citation: 50 S.Ct. 212,280 U.S. 478,74 L.Ed. 556
• Parties: UNITED STATES v. GUARANTY TRUST CO. OF NEW YORK et al
• Docket Number: No. 402
• Decision Date: 24 February 1930

280 U.S. 478 50 S.Ct. 212 74 L.Ed. 556 UNITED STATES

v.

GUARANTY TRUST CO. OF NEW YORK et al.

No. 402. Argued Jan. 6, 7, 1930. Decided Feb. 24, 1930.

Page 479

The Attorney General and Mr. John Lord O'Brian, Asst. to Atty. Gen., for the United States.

Mr. Charles Bunn, of St. Paul, Minn., for respondents mortgage trustees.

[Argument of Counsel from page 479 intentionally omitted]

Page 480

Mr. Henry C. Carlson, of Minneapolis, Minn., for respondents executors of Sheriff's Estate.

Mr. Justice BRANDEIS delivered the opinion of the Court.

On July 26, 1923, the federal court for Minnesota appointed a receiver of the Minneapolis & St. Louis Railroad upon a creditor's bill, which was later consolidated with suits to foreclose its mortgages. The usual order issued for proof of claims. The United States presented four claims arising under title 2 of Transportation Act 1920, February 28, c. 91, 41 Stat. 456, 457-469. As to each claim it asserted that, by section 3466 of the Revised Statutes, U. S. C. tit. 31, § 191 (31 USCA § 191), it was entitled to preference and priority over the claims of all other creditors, secured or unsecured. Opposing creditors conceded that the railroad was insolvent within the meaning of section 3466. United States v. Butterwoth-Judson Corporation, 269 U. S. 504, 46 S. Ct. 179, 70 L. Ed. 380. The insistence that the United States did not have priority was rested, among other grounds, upon the origin and character of its claims. The master and the District Court denied the United States priority over any creditor. The Circuit Court of Appeals affirmed that decree, but limited its decision to a denial of priority over secured creditors and those whose claims were preferred by local law or by the rule of Fosdick v. Schall, 99 U. S. 235, 25 L. Ed. 339. It did not consider the relation of the government's claims to those of general creditors, because it concluded that the estate would not realize more than enough to satisfy the secured and preferred creditors, and because general creditors were not parties to the appeal. 33 F.(2d) 533. A writ of certiorari was granted. 280 U. S. 546, 50 S. Ct. 40, 74 L. Ed. —.

Title 2 of Transportation Act 1920, comprising sections 200 through 211 (41 Stat. 457-469), is headed 'Termination of Federal Control.'

Page 481

Section 207 (41 Stat. pp. 462, 463), provides that the 'indebtedness of each carrier to the United States, which may exist at the termination of Federal control, incurred for additions and betterments made during Federal control and properly chargeable to capital account * * * shall, at the request of the carrier, be funded for a period of ten years from the termination of Federal control, or a shorter period at the option of the carrier'; and also that any other then existing indebtedness to the United States should be evidenced by notes payable in one year from the termination of federal control, or less at the option of the carrier. For both classes of debts, the carrier is to pay interest at the rate of 6 per cent. per annum, and, in the discretion of the President, to give such security as he may require.¹ Two of the claims of the United States here in question are based on promissory notes made pursuant to this section. Each of the two notes is in the amount of $625,000. One is dated May 27, 1922, and is due March 1, 1930, 10 years after termination of federal control; the other is dated April 1, 1923, and is payable on demand. Each bears interest at 6 per cent., payable semiannually, and is secured by a deposit of the company's series A 50-year refunding and extension mortgage bonds, dated January 1, 1912.

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The third claim arose under section 209. That section (41 Stat. at p. 466) authorizes the Secretary of the Treasury, upon certification by the Interstate Commerce Commission, to advance to any carrier, on account of the guaranty of operating income there provided for the six months following the termination of federal control, sums 'necessary to enable it to meet its fixed charges and operating expenses'-the advances to be 'secured in such manner as the Secretary may determine'; and provides for repayment by the carrier of any amount proved to have been paid in excess of the guaranty. Compare Great Northern Ry. Co. v. United States, 277 U. S. 172, 48 S. Ct. 466, 72 L. Ed. 838. The amount claimed by the United States under this section is $292,022.23, which sum the Interstate Commerce Commission certified had been advanced in excess of the guaranteed amount. See Guaranty Settlement With Minneapolis & St. Louis R. R., 86 I. C. C. 691.

The fourth claim arose under section 210 (p. 468). 'For the purpose of enabling carriers * * * properly to serve the public during the transition period immediately following the termination of Federal control,' that section, as amended by Act of June 5, 1920, c. 235, § 5, 41 Stat. 874, 946, authorizes loans by the government to carriers, if a loan is required by a carrier 'to meet its maturing indebtedness, or to provide itself with equipment or other additions and betterments.' The loans are to be made only on security; for a period not...