170 F.2d 733 | 5th Cir. | 1948
In a railroad reorganization proceeding under Section 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, the appellees as mortgage trustees for bondholders filed a claim for $1,750,000 principal and about the same amount for past due interest, with an additional sum for interest on over due interest, promised in the bonds and coupons. The claim was resisted as to the interest items by the debtor, Georgia, Florida and Alabama Railroad Company and by its first preferred stockholders, who by reason of default in dividends have come into control of the Company. The stated ground of objection is that ninety percent of the bonds were obtained by the Seaboard Air Line Railroad Company in a reorganization of the Seaboard Air Line Railway Company, and that the original bondholders were paid only $750 for each $1,000 bond with nothing for accrued interest or interest on. interest; and that the purchase of these bonds for less than par was part of a plan to take over and appropriate the debtor’s entire property to the injury of the preferred stockholders. On a hearing the District Court held that the bonds owned by the Seaboard Air Line Railroad Company had been bought in the year 1944 by the receivers of the Seaboard Air Line Railway Company under orders of their court in Virginia in connection with the reorganization of that railroad; that subsequently in 1945 the present debtor asserted in the Vir
Appellants state that their appeal presents but one broad issue: Should the District Court have allowed interest on the bonds under the facts and equities of this case, in view of the decision in Vanston Bondholders Protective Committee v. Green, 329 U.S. 156, 67 S.Ct. 237, 91 L.Ed. 162 ? The equities are asserted to grow out of stipulated facts in connection with the receivership of the Seaboard Air Line Railway Co., which began about Jan. 1, 1931; which Company had a ninety-nine year lease on the Georgia, Florida and Alabama Railroad Company’s railroad, the rental being the only source of income to pay the interest on the bonds of the latter which are now in controversy. Rents and interest were in default, and the trustees in the bond mortgage in 1934 instituted foreclosure proceedings with a receivership. The Seaboard receivers sought to surrender the lease, but the lessor Company had no rolling stock and no capital to run its own railroad, and the Interstate Commerce Commission required the Seaboard receivers to continue to operate it. This was effected by certain agreements, carried into court orders, to which the representatives of both railroads and the mortgage trustees were parties, whereby there should be a division of operating revenues between the two railroads in lieu of rentals. During the great depression the net revenues were small, but with the onset of the late war in 1942 they increased greatly, and a large sum is now due the debtor in this reorganization proceeding, sufficient with the other mortgaged assets to pay the bonds and accrued interest on them. In March, 1943, the first preferred stock of the debtor of the par value of $1,000,000, which had been considered worthless, was purchased entire for $5,000 by W. H. B. Simpson and Edward S. Borer, who because of dividend defaults were entitled to elect and did elect directors of the debtor, and Simpson himself was elected its president. This management filed the present debtor’s petition and is conducting this litigation.
The Vanston case, 329 U.S. 156, 67 S.Ct. 237, 91 L.Ed. 162, here relied on, does not in our opinion propound any new law in respect of interest accruing during receiverships and bankruptcies. It cites with approval the older cases which establish that in court insolvencies interest accruing since the receivership or bankruptcy is in general not computed in distributions when the funds are insufficient for full payment, but that a secured creditor may collect interest if his security yields enough to pay it. Ordinarily all classes of stockholders of an insolvent corporation have no right or equity till all creditors are satisfied. But there may be exceptional cases in which a creditor may have disentitled himself to claim interest, as by delaying and obstructive conduct. Interest on interest has especially met with general disfavor. See 30 Am.Jur., .Interest, Sect. 55, and concurring opinion in the Vanston case. It was such interest that was there held not allowable. That kind of interest is not involved in this appeal. There are no unsecured creditors in this case. The issue is between secured bondholders and the debtor corporation and its stockholders. It has been adjudged that the Seaboard Air Line Railroad Company has good title, free of any equitable' interest on the part of the debtor corporation, to the bonds it bought. These bonds, and the others still held by the
Judgment affirmed.