89 F. 235 | U.S. Circuit Court for the Southern District of Iowa | 1898
Upon April 14, 1896, on application of complainant above named, wbo was the trustee in the trust deed given by defendant (the Ottumwa Electric Railway) which is sought to be foreclosed herein, a receiver was by this court appointed for the
To most of the general findings of fact as reported by the master no exceptions are taken. The defendant railway was engaged in a threefold enterprise: (1) Operating an electric railway system; (2) operating an electric lighting plant, supplying the public (city of Ottumwa), and also private consumers; and (3) operating a steam-heating plant. These different ramifications of defendant’s enterprise used, wherever practicable, the same machinery, employés, etc. So that while, in one sense, these several matters were separate, yet they grew on one stalk, and were closely united and related in their entire existence.
In June, 1891, said defendant railway had outstanding, of the bonds secured by the trust deed foreclosed in the main action herein, about $200,000. The railway was unable to pay the semiannual interest thereon due that month, whereupon intervener, Doud, and others, loaned the railway the amount required for such payment, on the agreement that such loan should be repaid to them out of current earnings, and same has been so repaid. At said date, June, 1891, the railway was furnishing the public lighting for the city of Ottumwa, under a contract which by its terms expired in March, 1895. The railway electrical plant was using power furnished by the Iowa Water Company, of said city of Ottumwa, under a contract which by its terms expired the latter part of the year 1891. This latter was, to the railway, a burdensome contract, for whose fulfillment the railway was compelled to pay to the water company annually $6,000. The water company had become insolvent, had passed into the hands of a receiver, and, through causes not here necessary to state, was not able reliably and satisfactorily to furnish the power required by the railway in the operation of its plant and enterprises. A temporary arrangement was, however, made by thef>railway by which the water, company was to continue furnishing power until March, 1895; that being the period when the city lighting contract, held by the railway, would expire. Intervener, Doud, was during this period a director in said railway, and its largest stockholder. The evidence discloses the earnest efforts attempted for providing ways and means to enable the railway to continue its electrical enterprises, and including its electric lighting branch, which the evidence shows, and the master reports, was the most profitable of its different enterprises. Because of the distance — about a half mile — between the water company’s plant and that of the railway, the furnishing of power under the water'company’s contract was recognized by all concerned as being in many respects more expensive than would be the furnishing of such power at the railway plant. There appears no difference of opinion
First, as to said §6,000 used to pay the December, 1894, semiannual installment of interest on bonds under trust deed foreclosed herein: Upon this branch of this intervention, the report of the master, and the reasoning which brings him to a decision against the preferential
Second, as to the amounts furnished by intervener, Doud, and used in paying for material, labor, etc., used in providing the railway with power, etc., facilities: The evidence presented by intervener, Doud, of the indebtedness to him of the railway, is contained in the notes of the railway held by him. That he furnished the money evidenced by these notes is conceded. That all except $6,000 of such money was expended in building the new power house, and providing additional engine, boiler, etc., facilities, is also uncontradicted. The master’s report adopts the decision which this court has heretofore made herein that an electric street railway is of such a quasi public character as that the doctrine of preferential claims may apply if otherwise authorized. This point was expressly decided herein, after full argument had thereon. It is therefore the law of the case for the present hearing. I have no doubt that the same rule may be held to apply to electric lighting companies having, as had defendant, a municipal franchise, with right to use therefor the streets, etc., of the city, and being engaged in furnishing public lighting to the city as well as supplying light for private consumers. Reyburn v. Light Co., 29 Fed. 563.
I.have carefully read the report of the master on this branch of this intervention. His view of the. case is ably elaborated and forcibly presented. With the general legal propositions deduced by him my views aré in substantial accord. In their application to the facts in this case I am compelled to differ with his conclusión. My time is too heavily pressed with official duties to permit the extended consideration I would prefer to give, and which is perhaps due to the"
(1) The evidence convinces me that the erection of a power house— that is, the enlargement and increase of power ability — was an imperative necessity at the time this money was furnished by Doud. The contract with the water company had been unsatisfactory, for two important reasons: It was financially very burdensome, and, in connection with the city contract for lighting, was- a source of loss, and not profit, to the defendant railway; and it was unreliable and insufficient to meet the demands upon the railway, even when added to the power furnished directly from the then existing railway power plant. By special contract, (lie water company had temporarily extended its contract for furnishing of power to March, 1895. Power must be had from some source. The evidence conclusively shows no other source at Ottumwa was then open to the railway. This acquirement — that is, continuance and increase — of power was a necessity to the railway to keep it a going concern in its several departments. The only practicable method, under the evidence, to accomplish this necessity, appears to have been that wdiich was adopted, — • the erection of the building and supplying of this power by the railway.
(2) The railway was compelled to supply the electric lighting to the inhabitants of the city. It could maintain itself — it could retain its municipal franchise — only by maintaining such equipment as was necessary to perform this lighting. Intimately connected with this was that of furnishing electrical lighting for the city. Except as related to the power part of the plant, the railway was equipped to do the city lighting as well as furnish lighting for private consumers. The city had been supplied with the overhead equipment, which became largely, if not in this respect entirely, unremunerative to the railway, if it ceased to supply the city with lighting. The evidence shows that the electrical lighting was the largest source of income to the railway of any of its departments. A contract with the city -was within reach, which, if carried out, would turn what had been a loss to the railway into a source of profit, — a desirable difference of some 84,000 in the profit and loss results. I do not say that: the mere fact that this new contract was advantageous to the railway would of itself justify the declaring of a preferential lien herein. Only because it was so related to the other facts is that fact of large importance here. As I view the matter, the retention of the city’s lighting was a necessity to the defendant railway. Without that, it could not maintain itself as a going plant.; that is, a plant meeting its necessary expenses, unavoidable under the circumstances disclosed by the evidence. So that, in my judgment, the building and machinery come under the head of necessities to the plant itself. The evidence fails to disclose how, without this enlargement and increase of power, the plant could remain in operation as a plant in its several departments.
(3) Failure on the part of ihe railway to do that: which depended on the power sought to be derived, and which was derived, from this building and machinery, would necessarily endanger the valuable
(4) The provisions of the trust deed — articles second and third— compelled the railway to obtain this power. If it had failed tó do that which alone could supply this power, one of the conditions of the trust deed would have been broken, and a foreclosure might have been had therefor.
(5) It may be said additionally that a failure to supply the city lights would have thereby imperiled the property interests of the railway, in poles, wires, etc., already in the streets of the city, and thus have wrought large pecuniary damage to the corporation, and thereby to the bondholders under this trust deed.
Objection is urged that the additions were unnecessarily large,— a smaller expenditure might have been sufficient. The present holders of the bonds of defendant, railway, and who alone are peculiarly interested in defeating intervener’s (Doud’s) preferential claim, do not appear to have then so regarded it. They are residents of the city where these additions were placed, and were then either bondholders or stockholders of the corporation. The evidence shows that they had knowledge of this contemplated and secured enlargement of power, and steps taken to secure same, and made no complaint. While it may be true, under the evidence as applied to past facts, that a smaller expenditure might have sufficed, yet we must not forget that what are now to us known facts then lay wholly in the future. There was the necessity of making proper allowances for temporary breakdowns in machinery, boilers, etc., and the necessity of some provision to meet same. The railway could not shut down for repairs, like a private corporation operating a sawmill or a factory. What would justify this shutting down in the latter might fall far short of justifying it in defendant railway. Its public and private lighting, the operation of its street-railway lines, and the furnishing of its heating facilities, demanded whatever precautions were reasonably necessary as to reserve ability to supply same and provide for accidents .reasonably to be anticipated. Whether a prudent' exercise of foresight in these matters would have actually required the full horse power in engine and capacity in boiler which were here added I will not undertake to decide. But the evidence fully satisfies me that there was no large, if any, expenditure of funds in the erection of building and purchase of machinery, beyond what general business prudence might properly have regarded as justifiably necessary under the circumstances then existing. The conclusion reached by
That intervener, Doud, was a stockholder and bondholder of defendant railway should not work refusal of his claim, if otherwise it would be allowed. lie furnished the money in good faith. Of this the evidence leaves no room for doubt. lie furnished it upon the express agreement of the railway that he should be repaid out of the net current earnings. While there was no specific source of earnings named, the master correctly finds from the evidence that such agreement was made, and that Doud relied upon it. The evidence does not show that Ihe present: bondholders gave any express assent to this agreement. But the evidence does show such a knowledge thereof on their part, and such silent acquiescence by them while Doud was furnishing the money, as that it would be inequitable to now compel Doud to lose the money so advanced by him, and which went into the plant they hid in. so that they have the benefit thereof either in the -plant itself or in the amount to be distributed to bondholders, and was a necessity to its being properly kept as a going concern (which, according to the uncontradicted proof, added to the value of the plant a dollar for every dollar thus advanced by Doud therefor), and particularly when the foreclosure was brought: on by them, by their demand on the trustee, before the current saving’s had reimbursed Doud. while a delay in the foreclosure of a very brief period would have resulted in his being entirely repaid, $2,500 having been already paid to him. On the whole, I am of the opinion that intervener, Doud, is entitled to be allowed herein, as a preferential claim, so much of the money advanced by him therefor as went into the building and power supply, and remains unpaid.
What amount, then, thus remains? In all, intervener, Doud, furnished $13,500. Of this amount, $6,000 was with his assent paid to discharge 'interest falling due, and is disallowed as a preferential
Let order be entered overruling intervener’s (Doud’s) exceptions to the disallowance by the master as a preferential claim of the $8,000 applied to payment of interest, and sustaining the exceptions to intervener’s claim for the remainder of the amount furnished by Doud (and included in his claim), which was applied to erection of building and procuring machinery, etc., for power supply, less the $2,500 payment. Counsel for intervener, Doud, will draft the necessary record entries, and submit same to opposing counsel; to all of which plaintiff and defendant and intervener, Doud, severally except.