Court Opinion

ID: 8832936
Source: CourtListenerOpinion
Date Created: 2022-11-26 16:09:14.625601+00
Date Added: 2024-06-11T17:04:58.613196
License: Public Domain

HOUGH, Circuit Judge
(after stating the facts as above). Facts of the kind that gave rise to this litigation have occurred before and have been presented to the courts of this circuit by a previous insolvency of the New York surface railway system. The receivership of the Metropolitan System, conducted under the title of Pennsylvania Steel Co. v. New York City Railway, presented the same problem of an operating company in insolvency which had carried on a unitary system of transportation by means largely of leased street railway lines. There, as here, the question arose as to what were the rights and/or property of a lessor company whose lease was terminated at and practically by the appointment of receivers. What is locally known as the “Belt Tine Case” is reported in 165 Fed. 473, the Third Avenue Case in 165 Fed. 478, and the Second Avenue Case, 165 Fed. 489. See, also, Guaranty Trust Co. v. Metropolitan, etc., Co. (C. C.) 166 Fed. 569, affirmed 177 Fed. 925, 101 C. C. A. 205. It is asserted that these decisions, made in the administration of the same or a similar railway system, cannot be reconciled with the orders from which the present appeals have been taken.
We do not perceive that inquiries as to the lien of mortgages on after-acquired personal .property, or proving that there never was a sale or formal transfer of any cars, equipment, or the like by the New York Railways Company to the appellees, advances the matter at all. Nor need we discuss the query whether the cars and equipment of a singly operated city railway line can be regarded as a fungible aggregate, and no more do, we consider as vital the assertion that the insolvent lessee never had any intent to allocate to any particular lessor line any especial car or any particular piece of equipment.
The inquiries that lie at the basis of these petitions, of most of the cases above cited, and of other more or less similar causes in other parts of the country (e. g., United States, etc., Co. v. Wabash (C. C.) 38 Fed. 891, and Metropolitan, etc., Co. v. Chicago, 253 Fed. 868, 165 C. C. A. 348), are these: What were the agreements made between lessor and lessee? Were those agreements lawful? Were they lived up to by the parties, and does equity afford any means of carrying out such lawful .agreements ?
The agreement of parties before us is found in’the leases above referred to. Both of them in terms contemplate, and one in terms requires, a change of motive power; i. e., the abandonment' of horse traction and the substitution of electrical propulsion. This means that substantially all the tracks- and most of the personal property of the lessor companies were destined to the scrap heap or the auction block. The leases were made in contemplation of this change, and indeed for the purpose of bringing it about.
The lessee agreed in terms to substitute motive power, cars, and equipment, and in effect to maintain fully equipped railway systems, and to hand over such systems so equipped at the expiration or sooner termination of the leases. But these leases go further, and use words both broader and more particular than any considered in the cases above cited. Not only was there the ‘covenant to equip, re-equip, and maintain a complete system of surface transportation, but there was the *637specific provision (Ninth Avenue lease) that all the cars, etc., which the lessee might “provide, purchase, substitute or supply” for the operation of the demised railroad should revert to and become the property of the lessor.
In the Eighth Avenue lease the lessee in language to the same effect agreed to maintain a fully equipped road, and further upon the expiration or earlier termination of the lease to deliver up to the lessor “all property of every kind used by the said lessee in the maintenance and operation of said demised railway” (with exceptions not here important). We have cited the words which in our judgment determine these appeals; for fuller quotations from the leases reference may be had to the opinion below.
As we read the contract language, lessee agreed to hand over to lessor upon lease termination whatever was used in the operation of the demised railroad at the time. We repeat that it is unprofitable to consider whether there was a sale or transfer or allocation of any particular car, machine or piece of equipment. It is proven' that the lessee did equip, maintain, and operate these railways, and it continued so to do down to the time of termination of lease, which (as held below) was substantially the date of appointing receivers. Therefore it was under an obligation to surrender with the railway and as part thereof what was used thereon.
No such specific covenant, no such careful reservation of right, is found, for instance, in the Belt Line Case, supra. There the court felt compelled to dwell upon the word “substitutes.” and it found no substitutes used by the lessee in the operation of the railroad when the time of separation came. It was there held, and is here admitted, that if there had been a substitution in the sense explained in 165 Fed. at page 474, or if there had been on paper a specific allocation of separate cars, machines, etc., to these petitioning companies, a return of such substitutes would necessarily follow upon termination of the lease.
This is but another way of inquiring whether during and down to the end of the lease period the lessee kept his bargain and fulfilled his covenants. It is not denied, and is not capable of denial, that the agreement to return or surrender substitutes was lawful. Neither in our opinion can any illegality attach to a covenant to give up, return, or surrender that which was used pursuant to agreement on the demised railway when the period of surrender arrived.
 Thus we think that, under a lawful agreement to surrender that which was used on a day reasonably certain, the covenantor kept his agreement by using that which made the railway an operative entity, even though he did not use the same cars and the same machines on the same road all the time. The foregoing answers the queries above propounded, except the question whether equity affords any means of carrying out this lawful agreement.
The exigencies of business, the long continuance of the receivership, and the demands of the public had, when these petitions were presented, made the enforcement of the lessor’s rights somewhat difficult.. But one meaning of the phrase concerning equity following the law is that equity devises the means for enforcing a lawful result *638when legal procedure is inadequate. It having been found that these petitioners were under their leases entitled to that which was normally used on the demised railways for the fulfillment (not the breach) of the contracts of lease, and used by the lessee, we gather from the record and orders below that each petitioner was given what was normally used in and about its operation on or about the day of separation. Of this we approve.'
The use of a car mileage pro rata in respect of equipment capable of delivery in kind is also approved as a convenient and reasonable measure of distribution. It is but a somewhat more specific application of the doctrine in Louisville, etc., Co. v. Cincinnati, etc., Ry. (C. C.) 91 Fed. 699. We have nothing to add to the treatment below of the liens asserted by the mortgage trustees appellant, and we may say the same of the suggestion that by the expenditure of $1,000,000 upon the Eighth Avenue Railway the lessor was discharged from all such other obligations as would be important in this matter.
We cannot, however, agree with the trial judge in respect of his treatment of such machinery or equipment as was incapable of delivery in kind. If there was not used on these petitioning railways or on the whole system operated by the lessee more than (say) one machine of a certain kind, and if that machine was necessary, proper, or even suitable for use on petitioners’ railways alone, then there was a breach of covenant. For such breach, as has been often held, claim may be made and pecuniary compensation demanded upon due proof of damage. But the orders under appeal substantially treat such demands as claims entitled to a preference. This we think is a mistake, and on-the very grounds that lead to affirmance of the main decision, viz. that the lessee was in respect of cars and most equipment guilty of no breach; it complied with its covenant, and the work of equity is merely to enforce compliance with those lawful agreements.
It follows that the orders appealed from should be modified, by eliminating therefrom all direction that any money payments be made by the receiver to the petitioners, and substituting therefor a provision that in respect of all damages claimed for failure to return or surrender machinery, tools, etc., the petitioners be relegated to proof of their claims as general creditors either before the master or in any other suitable way.
As modified, the orders appealed from are affirmed, but without costs.