United States v. Guaranty Trust Company

• Decision Date: 15 May 1929
• Docket Number: No. 8389.,8389.
• Citation: 33 F.2d 533
• Parties: UNITED STATES v. GUARANTY TRUST COMPANY OF NEW YORK et al.
• Court: U.S. Court of Appeals — Eighth Circuit

33 F.2d 533 (1929)

UNITED STATES v. GUARANTY TRUST COMPANY OF NEW YORK et al.

No. 8389.

Circuit Court of Appeals, Eighth Circuit.

May 15, 1929.

Elmer B. Collins, Sp. Asst. Atty. Gen. (William J. Donovan, Asst. Atty. Gen., on the brief), for the United States.

Warren S. Carter, of St. Paul, Minn., Henry C. Carlson, of Minneapolis, Minn., Charles Bunn, of St. Paul, Minn., and Jesse E. Waid, of New York City (Davis, Polk, Wardwell, Gardiner & Reed, of New York City, Davis, Severance & Morgan, of St. Paul, Minn., Edwin S. S. Sunderland, of New York City, Warren S. Carter, of St. Paul, Minn., Larkin, Rathbone & Perry, of New York City, Frederick G. Ingersoll, of St. Paul, Minn., Henry V. Poor and James L. Banks, Jr., both of New York City, Charles S. Kelly, of Minneapolis, Minn., White & Case, of New York City, Kingman, Cross, Morley & Cant, Norton M. Cross, and Kenneth Taylor, all of Minneapolis, Minn., Alexander & Green, of New York City, Doherty, Rumble, Bunn & Butler, of St. Paul, Minn., James H. McIntosh and Geller, Rolston & Blanc, all of New York City, Boyeson, Otis, Brill & Faricy, of St. Paul, Minn., Edward H. Blanc, of New York City, and James C. Otis, of St. Paul, Minn., on the brief for mortgagees, and Fowler, Carlson, Furber & Johnson, of Minneapolis, Minn., on the brief for priority creditors), for appellees.

Before VAN VALKENBURGH and COTTERAL, Circuit Judges, and SCOTT, District Judge.

VAN VALKENBURGH, Circuit Judge.

The Minneapolis & St. Louis Railroad Company is in the hands of a receiver appointed in the District Court for the District of Minnesota, July 26, 1923, upon the application of certain creditors.

Subsequently actions were instituted for the foreclosure of mortgages, and these actions were consolidated with the suit instituted by the creditors' bill. These mortgages were made at various dates between 1888 and 1912, and are conceded to be valid and subsisting record liens upon the properties of the railroad mortgagor. During the progress of the receivership, not yet closed, it has been developed that there are numerous preferred creditors; that is to say, those whose claims arose as a current expense of ordinary operation of the railroad were necessary for the preservation of the road, and to the business of the road, were contracted with the expectation and intention of the parties that they were to be paid out of the current earnings of the road, and accrued within six months prior to the appointment of the receiver. In addition, there are unsecured and general creditors. This appeal involves the government's claim of priority over all creditors, secured and unsecured, by virtue of the provisions of section 3466, R. S. (31 USCA § 191), to wit:

"Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied; and the priority hereby established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed."

The claims of the United States, appellant, involved herein are four in number, and are thus described:

"Claim 2700.

"Item One. — This item consists of a loan in the principal amount of $1,382,000, from the Secretary of the Treasury to the Minneapolis & St. Louis Railroad Company under section 210, Transportation Act, 1920, as amended, and Certificate No. 81 of the Interstate Commerce Commission, evidenced by a promissory note executed by the Railroad Company on April 1, 1921, due April 1, 1931, with interest at 6 per cent. per annum, payable semiannually.

"Item Three. — This item consists of a principal sum of $625,000 indebtedness of the railroad to the United States, at the termination of Federal control, funded pursuant to the provisions of section 207, Transportation Act, 1920, 41 Stat. 462, evidenced by the Railroad Company's promissory note acquired by the Director General of Railroads, dated May 27, 1922, with interest at 6 per cent. per annum, payable semiannually.

"Item Four. — This item is also in the principal amount of $625,000 representing further indebtedness of the Railroad Company to the United States at the termination of Federal control, funded pursuant to the provisions of section 207, Transportation Act, 1920, and is evidenced by a promissory note executed by the Director General of Railroads, dated April 2, 1923, due on demand with interest at 6 per cent. per annum, payable semiannually.

"Claim 4186.

"This claim is in the sum of $292,022.23, together with interest thereon at 6 per cent. per annum from May 28, 1921, representing an overpayment of advances to the Railroad Company under the guaranty provisions of section 209, Transportation Act, 1920 (49 USCA § 77), that amount having been certified by the Interstate Commerce Commission on April 14, 1924, as paid in excess of the amount guaranteed."

The master found against the government as to the preferential status of all four claims. Upon exceptions, the court sustained the master. With respect to each of items 1, 3, and 4, of claim 2700, the following language was used:

"The whole of this amount is allowed as a general claim only, and is ordered to be paid pro rata with other claims of like general status from such funds, if any, in the hands of the court in this cause as may now or hereafter be available for that purpose, without any preference or priority either against the corpus of the mortgaged property or in relation to any other claim or class of claims duly filed in this cause."

Claim 4186 was thus disposed of:

"The claim (Master's No. 4186) of the United States against the Minneapolis & St. Louis Railroad Company as set forth in the report of the special master, is hereby adjudged to have no preferential status, this being the only question relative to said claim submitted for determination."

In as much as these rulings finally dispose of the preferential status of these specific liquidated claims, presented for allowance and ultimate payment as such, this appeal is not premature. An allowance or disallowance usually settles the status of a claim, even though, in any event, it may not be entitled to immediate payment. City & County of Denver v. Stenger (C. C. A. 8) 295 F. 809, 814.

Let us first consider the nature of these governmental claims and the terms of the statute under which the indebtedness accrued. Item 1 of claim 2700, as stated, consists of a loan made by the government to the railroad under the provisions of section 210 of the Transportation Act of 1920 as amended, 41 Stat. 946. Paragraph A of section 210 provides as follows:

"For the purpose of enabling carriers by railroad subject to the Interstate Commerce Act properly to serve the public during the transition period immediately following the termination of Federal control, any such carrier may, at any time after the passage of this Act and before the expiration of two years after the termination of Federal control, make application to the Commission for a loan from the United States, setting forth the amount of the loan and the term for which it is desired, the purpose of the loan and the uses to which it will be applied, the present and prospective ability of the applicant to repay the loan and meet the requirements of its obligations in that regard, the character and value of the security offered, and the extent to which the public convenience and necessity will be served. The application shall be accompanied by statements showing such facts and details as the Commission may require with respect to the physical situation, ownership, capitalization, indebtedness, contract obligations, operation, and earning power of the applicant, together with such other facts relating to the propriety and expediency of granting the loan applied for and the ability of the applicant to make good the obligation, as the Commission may deem pertinent to the inquiry." 41 Stat. 468.

Paragraph B provides that the Commission, after such hearing and investigation, "may certify to the Secretary of the Treasury its findings of fact and its recommendations as to: the amount of the loan which is to be made; the time, not exceeding five years from the making thereof, within which it is to be repaid; the character of the security which is to be offered therefor; and the terms and conditions of the loan."

By paragraph E, $300,000,000 is appropriated to be used as a revolving fund for the purpose of making the loans provided for in this section.

The master details the circumstances under which this claim arose. Six per cent. gold bonds of the Minneapolis & St. Louis Railroad Company, in the amount of $1,382,000, secured by mortgage known as the Pacific Extension Mortgage, matured April 1, 1921. To meet this the United States, under the provisions of section 210, advanced to the railroad $1,382,000, payable in ten years, and on the same date the railroad executed and delivered the promissory note which forms the basis of item one of claim 2700. At the same time $2,377,000 par value of the Minneapolis & St. Louis refunding and extension bonds were deposited as collateral for this loan.

Item 3 of claim 2700 is thus stated in the findings of the master:

"Item 3 (Government's Exhibit No. 1) of this claim is a promissory note for $625,000.00 given to the Director General of Railroads by the Minneapolis & St. Louis Railroad Company, dated May 27, 1922, due March 1, 1930, and with interest at the rate of 6% per annum, payable semiannually on the 1st days of April and October in each calendar year, until payment of said principal sum. This obligation represents indebtedness incurred in the...