Court Opinion

ID: 8789609
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:46:25.999648+00
Date Added: 2024-06-11T17:03:16.614228
License: Public Domain

LACOMBE, Circuit Judge.
No attempt will be made to restate the extremely complicated series of questions which have been presented in this proceeding. Such of the special master’s conclusions as have been controverted on the argument will be taken up in convenient, although perhaps not in logical sequence.
Claim Against Metropolitan.
1. It is contended that the amount of damages allowed for failure to keep rolling stock, other than the motors and electric equipment in good working order ($81,047.94), should be materially increased. There was a wide discrepancy between the experts as to the cost on November 18, 1908, of thus repairing the closed cars then turned over to claimant. This discrepancy is due in part to different assumptions by the experts as to the condition in which the cars then were. The testimony of the witnesses has been read and I see no reason to find that there was any mnsterial difference in condition between these cars thus turned over and the general run of cars of the same age in use in the system, and concur with the master’s finding that the estimate of the man who had some real knowledge of their condition at that time is the more satisfactory.
2. As to the refusal to allow damages for the loss of the car barn by fire on February 29, 1908, the master’s conclusion that under prior decisions of the Circuit Court of Appeals in these proceedings show such allowance cannot be made is concurred in.
[1] 3. As to the premiums on bonds received by the Metropolitan at par and sold for a higher price, I am clearly of the opinion that under the lease there were specifically provided alternative ways for repaying the Metropolitan for moneys laid out under the clause in question. The lessor might itself sell (or cause to be sold) the bonds and turn over the proceeds, or it might make payment in bonds at their face value. Sometimes one method was followed, sometimes the other, and there seems to be no sound reason for insisting at this late day that the accounting between the parlies shall be recast so as to eliminate the alternative method which the contract expressly provided for. If there be any evidence in the record as to the value of these bonds, It has not been found, but presumably the circumstance that they were salable at a premium was due to the circumstance that the lessee guaranteed their payment.
[21 4. As to the item of interest on moneys advanced by lessee during the period of reconstruction, the argument of claimants is unpersuasive; such interest is usually allowed and nothing is found in the lease, in the record or in authority that requires a different ruling in this case. The master’s disposition of this item is affirmed.
*7765. I think also that the lessee company upon its accounting for these expenditures properly credited itself with accrued interest on bonds sold, because under other clauses in the lease it was obligated to pay the same interest to the holder of each bond on its next coupon date. There are two such items of credit allowed by the master $37,970.29 and $13,185, totalling $51,155.29. Claimant’s brief asserts that the total actual amount of such accrued interest was only $23,850. This court cannot search the record to verify the fact," but if it be a fact the master’s allowance of credits for accrued interest should be reduced to the true amount.
6. As to the item of $6,410.39 construction charges the master’s findings and conclusions are confirmed.
7. The next item is $750,000 (power house contract) credited to Metropolitan against debits for bonds turned over for expenditures in change of motive power and reconstruction. In his first opinion the master thought it unnecessary to pass upon this item. It was used only as a set off or credit against the amount of debits charged against the Metropolitan on bond account. Inasmuch, however, as he found for respondent as to items 3 and 4, supra, there was no excess of debits over other proved credits which made it necessary to consider this setoff. In a supplementary report he did dispose of it; why is not entirely clear, as he did not change his conclusions as to items 3 and 4.
It seems clear enough that under the lease, which expressly provided for change of motive power, the building of a power house was a legitimate part of such change. Instead of building one, a contract was made between the two roads by which in consideration of $750,000 in bonds the Metropolitan agreed not only to furnish power for Second Avenue system from its own power house while the lease lasted, to run the road, which it would have to do anyhow, but also in case the lease should terminate, jand the Second Avenue Company resume possession or' the mortgage should be foreclosed, to continue to furnish power for the system for the unexpired term of the charter of the Second Avenue Company and any renewals thereof. This contract must be tested by conditions existing when it was made, when every one expected the Metropolitan would continue a solvent concern. I agree with the special master that the contract cannot be held fraudulent and void in its inception. If the price was exorbitant equity might scale it down, but if the master’s conclusions were erroneous as to items 3, 4, and 5, the balance against Metropolitan on the bond account would be but $114,930.56 and the power house contract at the time it was made must certainly have been worth that amount.
[3] 8. As to the interest on the cash, practically operating capital, turned over with the road, cars and other personal property under the lease, the clause, which provides that in the event of default and resumption of possession by lessor it shall be deemed to be a loan and shall be returned, does not call for the payment of interest thereon. There was no wrongful withholding of this money during the lease. Moreover, the lease itself expressly states that, like the other personal property it is received by the Metropolitan “as lessee thereof,” language which seems clearly to import that the consideration for its use, like the consideration for the use of the other personal property, is included in the rent stipulated in the lease.
[4] 9. The remaining matter in controversy is the allowance by the master as a set-off of $740,836.41 for expenditures in connection with the electrification of the First Avenue line. When the lease was made certain changes and improvements in the way of electrification of parts of the railroad which had been approved by the State Board of Railroad Commissioners were under way. These, as we have seen, were to be paid for by the issue of bonds se*777cured by a mortgage already executed to the Guaranty Trust Company. There was, o£ course, the possibility that in the future the Metropolitan might iind it desirable to electrify other parts of the road either to improve the operation of the Second Avenue iines or of other parts of the Metropolitan system of which those parts were connecting links. If it should make expenditures for these purposes without any provision as to payment therefor, and tlie lease should subsequently be abrogated and the property be retaken by the Second Avenue Company or its mortgagee, these expenditures, although greatly benefiting the property, would be lost to the Metropolitan, being irremovable additions to leased property placed there by a lessee. In order to meet such a contingency, therefore, the lease expressly provided that such expenditures should be paid for by the Second Avenue with additional bonds to be secured by the making of a new mortgage inferior in lien to the existing mortgage. The clause is quoted in the master’s opinion. The contention that the general provision “this lease is made subject to all debts and liabilities of the party of the first part * * * and such debts * * * are hereby assumed and are to be paid by the party of the second part,” covers these future inferior mortgage bonds is unpersuasive, especially as the parties evidently considered mortgage bonds a sort of liability which called for express provision, since in the same sentence they specifically provided for the Guaranty Trust mortgage bonds.
The exceptions to the report on the claim against Metropolitan Company are overruled and the report confirmed — except possibly as to the $23,850, accrued interest referred to above.
Claim Against City Railway.
Substantially all the propositions involved in the disposition of this claim depend upon the scope and meaning of various prior deliverances of the Court of Appeals in opinions filed upon the decision of appeals taken in other proceedings involved in this receivership. That tribunal would be in no way assisted towards the disposition of the appeal in this proceeding by a statement of the interpretation of those deliverances which seems to this court, to be the correct one or of the reasons which lead to such a conclusion. It knows better than the special master or tito District Court precisely what legal propositions are contained in those opinions. It is enough to say that,, generally, the views of the special master are concurred in.
The exceptions are overruled and the report confirmed.