52 N.Y.S. 116 | N.Y. App. Div. | 1898
This was an application by the petitioners, as receivers of the Philadelphia and Reading Coal and Iron Company, to direct James 3L O. Sherwood, receiver, in an action to foreclose a mortgage on the road of the Philadelphia, Reading and New England Railroad Company, to pay them for coal sold and delivered to,the last-named company during the three months preceding Sherwood’s appointment. The order appointing the receiver in the foreclosure suit contains the following clause: “ Out of the moneys and income coming into his hands from the said property, the receiver may pay all taxes * * * and he may also pay indebtedness of the said defendant heretofore incurred for current expenses of operation during the three months next preceding the date of this order.” Upon Sherwood’s appointment as receiver the company turned over to him $27,187.90 in cash. The application was referred to a referee to take proof and report his opinion thereon. The referee reported that the claim was established and should be paid. The Special Term upheld the claim against the company, but decided that it. was not entitled to payment from the receiver. The court directed the receiver to pay the expenses of the reference. From the order entered on this decision all parties have appealed.
I cannot find a case reported in the courts of this State where the-receiver of a railroad company has been directed to pay any unse-. cured debts, of whatever character, incurred prior to his appointment as receiver; debts incurred by a receiver, of course, stand on an entirely different footing. In Farmers’ Loan & Trust Co. v. Bankers & Merchants' Telegraph Co. (148 N. Y. 315), the last case upon the subject, the most the court says on the question is: “ The-
The courts have given certain unsecured claims a preference over the bondholders on two general grounds: First, that income which should have been appropriated to the current operating expenses has been diverted to the bondholders or to the improvement of the corjms of the mortgaged estate; second,• that, for the purpose of continuing the operation of the -railroad, the company should have credit for its operating expenses, a credit which could not be maintained were it to be subjected to the hazard of the general financial condition of the company. The claim of the petitioners
The defendant was organized in July, 1892, by a consolidation of certain railroad companies. On August 1, 1892, it entered into a very voluminous and somewhat complicated agreement with the Philadelphia and Reading Railroad Company. The agreement recites that the Philadelphia and Reading Railroad Company owned and controlled corporations engaged in the mining and production of coal, and also railroads connecting with that of the defendant company ; that it was desirous of further extending its lines for the transportation of coal and for other freight and passenger traffic; that in April, 1892, it had entered into an agreement with the stockholders of certain of the companies merged into the defendant company, and with the committee of the security holders of the other companies, whereby it obtained a majority of the cajfital stock of those companies, and in consideration therefor assured certain payments. For the purpose of carrying out those agreements the Philadelphia and Reading Railroad Company covenanted to pay the first mortgage bonds, which it had guaranteed, and to pay to the defendant company any deficiency which might exist in its income on the payment of interest, taxes, rentals and operating expenses. It further agreed that the management and operation of the defendant company should be such as to most inure to its benefit, and that the Philadelphia and Reading Railroad Company would use its controlling interest in the stock to accomplish that end. This agreement for the operation of the defendant’s railroad was peculiar, and necessarily so. In addition to the first mortgage bonds guaranteed by the Philadelphia and Reading Railroad Company, there were several series of income bonds not guaranteed, the interest on which was payable out of the net earnings of the defendant’s road. • It was, therefore, necessary that the accounts of the operation of the defend
If the coal had heen furnished by the Philadelphia and Reading Railroad Company no one would urge the validity of its claim, for the company had contracted to pay any deficiency in the operating expenses of the defendant’s road. But it is contended that the receivers of the railroad company were not bound by the contract of the company. This is doubtless true. The receivers might adopt or repudiate the contract as they deemed advantageous. (U. S. Trust Co. v. Wabash Railway, 150 U. S. 287; Woodruff v. Erie Railway Co., 93 N. Y. 609.) But if the receivers adopted it they were bound by its obligations. The evidence of the action of the receivers is very meagre, but, such as it is, the letter of appointment already referred to, it tends to show an adoption of the contract. There is no evidence whatever to show that they disclaimed it. It may be that the receivers found it advantageous to their two estates
The receiver appeals from so much of the order of the Special Term as directs him to pay the fees and disbursements of the referee. As the petitioners failed in their application they should bear these expenses, and so much of the order as directs the receiver to reimburse them was erroneous, and should be reversed. The plaintiff appeals from the foregoing provision and also from so much of the order of the Special Term as declares that the defendant is indebted to the petitioners for coal sold and delivered. We cannot see that
All concurred.
On appeal of petitioners, order of the Spcial Term affirmed, with ten dollars costs and disbursements to the receiver. On appeal of the receiver, order directing him to pay referee’s fees reversed. Appeals of the plaintiff and defendant dismissed.