Court Opinion

ID: 8775969
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:01:32.001658+00
Date Added: 2024-06-11T17:02:33.335288
License: Public Domain

On Rehearing.
WARD, Circuit Judge.
We decided this case on the record before us. It is a creditor’s action, asking for the marshaling and distribution of the defendant’s assets among its creditors, in which a receiver was appointed. The parties before the court were the Central Trust Company, trustee under the mortgage of the Third Avenue Railroad Company, the receiver of the Third Avenue Railroad Company, the receiver of the Forty-S.econd Street Railway Company, the defendant, and the receiver of the New York City Railway Company, the claimant. The claim under consideration is that of the New York City Railway Company against the Forty-Second Street Railway Company on a note for $893,433.30 and a balance of open account for $107,830.-54. All parties appeared and were- heard; the trust company and the receivers of the Third Avenue Railroad Company and of the Forty-Second Street Railway Company combining against the claimant.
The special master dismissed the claim on the open account upon the ground that it' was not entitled to any interest, and, the items of interest being deducted, the claimant became a debtor instead of a Creditor of'the Forty-Second Street Railway Company. He dismissed the claim on the note on the ground that the prima facie case made by the production of the note was overcome by the fact that the claimant had the stock control of'the Forty-Second Street Railway Company.
*655On exceptions the. Circuit .Court sustained -the master’s general conclusions, but sent the case back to him so that the claimant might prove so, much of the claim represented by the note as was for “current operating debt incurred in the ordinary course of business.”
Thereupon the master after a further hearing reported that no part of the note represented such debt and dismissed the claim on the merits. The Circuit Court having confirmed the report, appeal was taken from both orders to this court.
We did say in our opinion that the note for $6,491,961'.44 covering advances made by the Third Avenue Railroad Company in most part before the lease, the interest on which had always been paid by the Forty-Second Street Railway Company to the lessee of the Third Avenue Railroad Company, belonged to the New York City Railway Company. That question, however, was not necessarily involved, and what we saidi upon the subject is not to be regarded as binding upon any one, as the parties agree that title to the note is in the Third Avenue Railroad Company.
Upon the record before us the majority of the court are still of opinion: First, that the New York City Railway Company was entitled to interest on the note for $6,491,967.44 held by the trust company, as income of the leased premises as well as by the practice and agreement of the parties. Second, that it was -bound (and its receivers for it, having been called upon to do so) to account to the mortgagee for the note for $893,433.30 and for the balance of open account down to September 24, 1907, when it went into the hands of receivers, so far as it might be needed to pay the bonded debt, the same being indebtedness of a controlled company. Third, that this indebtedness was not subject to the lien of the mortgage nor mentioned in the decree of foreclosure and did not pass by the sale, although it was mentioned in the notice of sale. The right of the Central Trust Company with- reference to it is to enforce the covenant contained in the mortgage as to indebtedness of the controlled companies. Fourth, that between September 24, 1907, and January 12, 1908, when the receiver of the Third Avenue Railroad Company took possession of the leased premises, the receivers of the New York City Railway Company were entitled as officers of the court to claim any balance of open account in their own right. They could not be obliged to account therefor to the mortgagee because they were not bound by the covenant of the mortgagor.
The mortgage contemplated that the Third Avenue Railroad system, the mortgaged premises, should be operated together with the Metropolitan Railway system as a single system, and they have been so operated by the Circuit Court. The first consideration in the case of public service corporations is performance of the duties due the public. For this reason the court’s officers are entitled to use the whole income of the whole system, however derived, in operating and maintaining it. Barton v. Barbour, 104 U. S. 126, 135, 26 L. Ed. 672; International Trust Co. v. Decker Bros., 152 Fed. 78, 83, 81 C. C. A. 302, 11 L. R. A. (N. S.) 152.
*656This complicated and confusing case was remanded for further proceedings in order that any defense not set up because of the special master’s ruling as to the claimant’s prima facie case might be availed of. The record is very loose, even for a dependent proceeding in an equity cause. The only thing in the nature of a pleading is the statement of claim by the receivers of the New York City Railway Company and the objection to it by the Central Trust Company. Still, the rights of the trust company in respect to the claim have with the ‘consent of' all parties been considered, and we think they may be disposed of without the necessity of another independent proceeding. If further testimony is needed for the final disposition of the cause, it can be taken before the special master.