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GREGG v. METROPOLITAN TRUST COMPANY

March 6, 1905

GREGG
v.
METROPOLITAN TRUST COMPANY



CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SIXTH CIRCUIT

Fuller, Harlan, Brewer, Brown, White, Peckham, McKenna, Holmes, Day

Author: Holmes

[ 197 U.S. Page 186]

 MR. JUSTICE HOLMES delivered the opinion of the court.

This is a petition against a receiver appointed in proceedings for the foreclosure of two railroad mortgages. The petitioner, in pursuance of a contract made on December 1, 1896, with the Columbus, Sandusky and Hocking Railroad Company, the mortgagor, delivered railroad ties to the value of $4,709.53 in May and on June 1, 2 and 3, 1897. The receiver was appointed on June 1, 1897. After his appointment there was found on hand a part of the above ties, to the value of $3,200, and these ties were used in the maintenance of the railroad as a going concern. The petitioner makes a claim on the body of the fund in the receiver's hands, for these and other necessary supplies furnished within six months, amounting in all to $6,804.49. The claim for the ties, at least, is admitted to have been "a necessary operating expense in keeping and using said railroad and preserving said property in a fit and safe condition as such." The petitioner waives a special claim against the receiver for $863.39 for the ties received June 2 and 3, but does claim a lien for $3,200 for ties on hand and not returned to him after the receiver's appointment, in case his whole claim is not allowed. The Circuit Court of Appeals affirmed a decree of the Circuit Court establishing this claim as a six months' claim, but denying the right to go against the body of the fund, whereupon a certiorari was allowed by this court. 109 Fed. Rep. 220. 124 Fed. Rep. 721.

The case stands as one in which there has been no diversion of income by which the mortgagees have profited, or otherwise, and the main question is the general one, whether in such a case a claim for necessary supplies furnished within six months before the receiver was appointed, should be charged on the corpus of the fund. There are no special circumstances affecting the claim as a whole, and if it is charged on the corpus it can be only by laying down a general rule that such claims for supplies are entitled to precedence over a lien

[ 197 U.S. Page 187]

     expressly created by a mortgage recorded before the contracts for supplies were made. An impression that such a general rule was to be deduced from the decisions of this court led to an evidently unwilling application of it in New England R. Co. v. Carnegie Steel Co., 75 Fed. Rep. 54, 58, and perhaps in other cases. But we are of opinion, for reasons that need no further statement, Kneeland v. American Loan & Trust Co., 136 U.S. 89, 97, that the general rule is the other way, and has been recognized as being the other way by this court.

The case principally relied on for giving priority to the claim for supplies is Miltenberger v. Logansport &c. Railway Co., 106 U.S. 286. But while the payment of some pre-existing claims was sanctioned in that case, it was expressly stated that "the payment of such debts stands, prima facie, on a different basis from the payment of claims arising under the receivership." The ground of such allowance as was made was not merely that the supplies were necessary for the preservation of the road, but that the payment was necessary to the business of the road -- a very different proposition. In the later cases the wholly exceptional character of the allowance is observed and marked. Kneeland v. American Loan & Trust co., 136 U.S. 89, 97, 98. Thomas v. Western Car Co., 149 U.S. 95 110, 111; Virginia & Alabama Coal Co. v. Central Railroad & Banking Co., 170 U.S. 355, 370. In Union Trust Co. v. Illinois Midland Ry., 117 U.S. 434, 465, labor claims accruing within six months before the appointment of the receiver were allowed without special discussion, but the principles laid down in the Miltenberger case had been repeated in the judgment of the court, and the allowance was said to be in accordance with them. It would seem from St. Louis, Alton &c. R.R. v. Cleveland, Columbus &c. Ry., 125 U.S. 658, 673, 674, that in both those cases there was a diversion of earnings. But the payment of the employes of the road is more certain to be necessary in order to keep it running than the payment of any other class of previously incurred debts.

Cases like Union Trust Co. v. Souther, 107 U.S. 591, where

[ 197 U.S. Page 188]

     the order appointing the receiver authorized him to pay debts for labor or supplies furnished within six months out of income, stand on the special theory which has been developed with regard to income, and afford no authority for a charge on the body of the fund. Fosdick v. Schall, 99 U.S. 235; Burnham v. Bowen, 111 U.S. 776; Morgan's Louisiana & Texas Railroad & Steamship Co. v. Texas Central Ry., 137 U.S. 171; Virginia & Alabama Coal Co. v. Central Railroad & Banking co., 170 U.S. 355; Southern Ry. Co. v. Carnegie Steel Co., 176 U.S. 257. It is agreed that the petitioner may have a claim against surplus earnings, if any, in the hands of the receiver, but that question is not before us here.

The order appointing the receiver did not go beyond the distinction which we have mentioned, and gave the petitioner no new or higher right than he had before. After directing him to do certain things, it gave him authority, but did not direct him, to make various payments. It gave him authority, among other things, "to pay the employes, officials and other persons having claims for wages, services, materials and supplies due and to become due and unpaid growing out of the operation of the railroad of the defendant, including current and unpaid vouchers; to settle accounts incurred in the operation of the railroad of the defendant company; to pay any and all obligations accrued or accruing upon any equipment trust made by the defendant railroad company; and for such purpose, as well as for the purpose of meeting the obligations of the pay rolls," he was authorized, "in his discretion, to borrow such sums of money as may be necessary for such purpose, not exceeding thirty-five thousand dollars. But said receiver will pay no claims against the said railway company which have accrued due more than six months prior to the date of this ...


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