Claim of Metropolitan Street Railway Against New York- City Railway Company.
LACOMBE, Circuit Judge.
This is a claim for damages resulting from breaches of covenants in the Metropolitan-City lease of February 14, 1902. The items of claim will be considered in the order in which they were taken up by the special master, and this opinion will avoid, as far as possible, any restatement of the relations of the parties as set forth in the special master’s opinion; both opinions must be read together for a full understanding of the controversy.
[1] 1. The first item of damage arises from the failure of the City Company, lessee, to keep the track and roadway of the underground electric lines, still in the Metropolitan System, and special work in connection with said lines in a proper condition of repair. The controlling clause of the lease is contained in the fifth paragraph. It reads;
“Upon the expiration or earlier termination of this lease (to) deliver up the said demised railroads and other prqperty and all additions thereto in good order and repair.”
[435]*435The special master held that this meant what it said, viz., that, when the properties were turned back by coming into the hands of the receivers, they should be in good order and repair; also that, in cases where heavier or more expensive rails had been substituted for rails in use when the lease was executed, it was the structure thus improved which was to be delivered up in good order and repair; also that, where such a betterment had not taken place before the termination of the lease, the obligation was merely to keep the existing type of structure in such condition. This construction of the lease is fully concurred in.
[2] The sum claimed is $2,000,531.72, being the total amount expended by the receivers in putting these several tracks and roadways in the condition of good order and repair which the lease provided for by renewing the same. Counsel for claimant states that, vout of a total of over 119 miles, the amount claimed relates to 51.43 miles only; as to the remaining miles of track and roadway no contention is made that renewal was required. The special master held that upon 16.25 miles only should there be any allowance for money actually spent to put the same in good order and repair. These figures are given in claimant’s brief, and, as their accuracy is not challenged in respondent’s brief, they are accepted. The money actually expended by receivers for this purpose may be thus distributed:
September 24, 1007, to October 1, 1908........................ $ 684,351 90
October 1, 1908, to September 30, 1909........................ 288,924 40
October 1, 1909, to September 30, 1910........................ 609,877 61
October 1, 1910, to December 31, 1911......................... 211,935 63
$2,000,531 72
The total amount allowed by the special master is $684,351.90.
When receivers took over the road on September 24, 1907, it was generally understood that the tracks and roadway of very many of the lines which made up the system were in a most deplorable condition; financial exigencies had handicapped the lessee for a long time; everything in the way of expenditure that could be staved off had been passed by, and in consequence there had been great deterioration. Whether reports as to existing conditions came from within or without, from old cmployés, or special technical men retained to investigate, or from inspectors of the Public Service Commission, or from reporters and correspondents vociferous in the newspapers, they were at least unanimous, to the effect that very much was required to put the system as a whole in a decent condition to render proper service to the public. The receivers were grievously harassed with the appreciation that they were confronted with a situation which called for the immediate expenditure of millions and had but a few thousands available. To one, whose recollection of the experiences of that time is still vivid, the proposition that on September 24, 1907, the track and roadway of the underground electric lines embraced in this claim could, by the expenditure of only $684,351.90, be put in “good order and repair” comes as quite a severe shock.
The conclusion of the special master is, of course, predicated on the actual record before him, and that record must be turned to in order to test the accuracy of his conclusion. Substantially the entire record [436]*436is comprised in the testimony of a single witness, Mr. William T. Dougan, now engineer of maintenance of way of the New York Railways Company, who for 11 years was either in charge of electric underground construction for the Metropolitan and City Companies or was their engineer of maintenance of way. This witness testified in the Second Avenue breach of lease proceeding, and there impressed both the special master and this court with the fullness of his knowledge and the fairness of his statements. Countless references to the testimony of this witness are found in the briefs of both sides, but these references have been disregarded, and the court has made a careful and exhaustive study of his whole testimony. The result has been to confirm the court’s original impression and to convince it that on September 24, 1907, very little of these 51.43 miles of track was in good order and repair; portions of it had outlived the normal expectancy of its life, about 10 years, except where wear and tear is exceptionally heavy; the rest was practically on the last lap, presenting a condition over which cars might be run, but uneconomicaliy for the company and to the discomfort of the passenger, very much below the first-class condition in which a road properly cared for should be maintained.
That the special master reached the conclusion that all that was needed to put the tracks and roadway of these lines in good condition was the money expended during the first year of receivership, a sum looked upon at the time as “first aid to the injured,” or, as the special master aptly expressed it in the Second Avenue case, “emergency repairs,” seems to have resulted from giving undue weight to certain considerations which were advanced in opposition to the claim. As to all, or nearly all, of these lines, the witness at one place or another in his testimony said that in September, 1907, the line had not been “marked for renewal,” or that at that time he would not have “thought of re-railing it for two or three years yet,” or something to the same effect. It may be noted, however, that of these very same lines the same witness said that they were not in good order and repair; that there were a “great many low joints,” “number of broken rails,” “quite corrugated rails,” the “tramrail needed renewing,” the “pavement was in bad condition.” There is no real discrepancy between these statements.
The witness was the engineer of maintenance of way of the lessee, who made inspections every fall and designated the portions of track and surface which should be renewed (in place of makeshift repairs) in the ensuing spring'and summer. But naturally he knew perfectly well the policy of his employer, which was to get the very last day of life possible out of every rail and avoid the heavy expense of a renewal, where cars could still be run. Of course cars could be run when tramrails and pavement were in bad condition, so long as the slot rail remained in good shape. It is noticeable that, in nearly every line about which the witness testifies to bad condition of tram and pavement, he says, “The slot rail was all right; there is no claim for that.” Quite possibly with a good slot rail cars could be run over the trams even until the latter were reduced to the traditional “two streaks of rust.” They were not so bad as that, but the testimony seems, to me at least, conclusively to establish the proposition that in all these lines there was such an amount of low joints,-etc., that the running of cars [437]*437over them resulted in constant breaking of trucks and other car damage, not to speak of the discomfort of the passengers who were jolted over a road not in first-class order and repair. The expense of repairing the cars, which were run under such conditions, would be much less than the heavy cost of renewal of tracks and pavement, and therefore, the company, financially embarrassed, would, as a matter of policy, discourage renewals' — a policy which all its employes would thoroughly understand. I find no significance, therefore, in the statements of'"the witness that he would not have marked these portions of the road for renewal in September, 1907, nor in the further circumstance that cars were in fact run on them for two or three .years after September, 1907.
Nor is ¡.here any weight in the circumstance that some of them were not renewed by receivers until two or three or four years after they took possession. It must be remembered that it was not financially possible to do more than emergency work until they could issue and sell the $3,500,000 of receivers’ certificates, more than eight months after their appointment. Claimant also argues that:
“With the engineering force at their command, the receivers could economically renew tlio rails only by taking up tlio lines section by section and spreading the renewal work over a period of two summers (it cannot be done in winter), which would bring it to 1910.”
But there was another more important reason for doing the work in sections. The renewal of tracks and pavement in a street of this city is always the cause of much discomfort, not only to the passengers in the cars, but also to all traffic in the street and to the abutting owners as well. The usual cycle of events is: First, a host of complaints from all quarters as to the condition of the road, and then, as soon as work of renewal is begun, a similar host of complaints as to piling paving blocks, structural iron, etc., on the sidewalks, interference with ac,r cess by vehicle to the houses on the line, interference with traffic, etc. Two or three lines in different parts of the city might be put under renewal at the same time, but if the receivers, with unlimited money at their command, had undertaken to renew these 51 miles all at the same time, the result would have been a vexatious and intolerable nuisance. No one with any decent regard for the convenience of the public would have undertaken to do the work in that way.
In this total claim there are items of expense resulting from an improvement in the renewal, beyond any improvement up to that time installed l>y the lessee; also in portions of die line there may have been a brief period of good life in parts of the old structure. These items may properly be eliminated from the claim. It would seem to be a great waste of time and money to dig these items out of the claim. It is time that the various questions involved in these receiverships were brought to a close, by compromise if not otherwise. From an examination of the records and the careful analysis of the figures given in the briefs, I am satisfied that 15 per cent, of the amount of the claim is a very liberal allowance for these items. The conclusion of the special master is therefore modified by awarding claimant for this part of the claim $1,700,451.97.
[438]*4382. For reasons sufficiently set forth supra, the item claimed for failure to keep the track and roadway of the horse car lines still in the Metropolitan System in good order and repair, $165,376, is allowed to-the extent of 85 per cent., viz., $139,569.60.
3. The next items claimed are for failure'to keep the electric power-plants, substations and transmission lines, lighting and telephone planista good order and repair.
As to fhe channel rail, the witness (Armstrong) testifies very specifically as to its condition in September, 1907, worn down to great thinness with holes in places, liable to buckle and to catch the shoe of the-car plow. As to the feeder system generally he states that what was done was necessary to be done at that time to put it in good working-order, condition, and repair. As to the other items, he does not go into details as to their condition, but the fair interpretation of his testimony is that" the various things that were done were done because existing-conditions required the doing of them. The special master evidently so construed it, because he allowed claims under all of the five subheads, but reduced the totals by the application of the rule that only what was spent by receivers in their first year’s operation should be-allowed. There can be little doubt that the state of general dilapidation into which the whole outfit had been allowed to fall was to be found here, as elsewhere, when receivers took possession. Necessarily some-parts had to be kept up, as the slot rails were, to allow the cars to be run at all.
I do not see why the City Company is not liable under its covenant- or the $15,000 required to put the coal conveyor in proper condition, although, instead of thus treating the old conveyor, they built an entirely new and more efficient one at a cost of $60,000. The same rule should apply to the Front street substation, which was abandoned; the money which would otherwise have gone into its reconstruction being (with a very much larger sum in addition) expended in building a substation to take its place and do its work, in a different but equally convenient and efficient place. The claim is allowed, but in the hope that a compromise discount may save further controversy over these-branches, which involve much testimony and the classification of an infinite amount of detail figures, 15 per cent, may be taken off, as in the case of items 1 and 2, supra. Counsel may figure out the totals and' agree as to necessary amendments to the findings.
4. The special master’s opinion, findings, and conclusions as to damages for failure to keep the rolling stock in repair are fully concurred in.
5. Failure to keep the tracks in buildings in good condition.
[3] Thirteen buildings are referred to in the testimony. Many of' these buildings and the tracks in them were old and presumably already more or less patched up in 1902. But that circumstance is immaterial; the lessee took'the premises in the condition in which it found them, but it covenanted that when the lease terminated, whether-in 999 years or in 5, they should be in good order or repair. These-tracks consisted of rails and appurtenances laid on timber structures — • a method considered to be good engineering when they were built, perhaps so considered even go late as 1902. When the receivers rebuilt" [439]*439them, however, that type was condemned by engineers and its building forbidden by the city of New York on account of risk of fire. Therefore a new type with concrete substructure was substituted. For the increased cost of such improved type, no claim is made. The witness (Potter) expressly states, several times, that his estimate is for rebuilding with timber, not with concrete, also that his estimate for replacing the wooden track provides for the same weight of rail and special work as was there when the track was put in, and does not call for heavier weight of rail. If the evidence establishes as to the tracks in any of these buildings that mere patching up would not put them in the covenanted condition, the witness’ estimate, which is nowhere contradicted, should be allowed. There is no affirmative testimony that they could have been repaired without renewing, or what would be the cost of so doing; the contention is that rebuilding alone would put them in good order and repair. As to some of them, the testimony is not sufficiently specific to warrant this conclusion. I cannot concur, however, in the conclusion of the special master that the rebuilding was in all cases rendered necessary only in order to eliminate the fire risk resulting from timber construction. The testimony as to the building (a) at 4th avenue and 32d street shows that the track was in very poor operating condition. The timbers were old and worn, patched in many places. The slot was rough and out of line, endangering the plows. It was carried on what might be called a patchwork set of posts from the cellar floors, which were old and settled, throwing the car out of line and surface. Joints were spread and uneven and very rough, so that frequently the cars went off the track. To put it in original condition required all new timbers, as the wood was old and rotten, new rails, and new holts. As to (b) the building at 11th avenue and 24th street, the condition was slightly different from the 4th avenue and 32d street car house, because the track was built on the ground floor. The land was originally the shore of the North river, low and damp. The timbers were old and rotted. The whole structure was in very poor condition. As to (c) the building at 8th avenue and 50th street, the tracks were in very poor operating condition, rough, out of line, and dangerous (besides being subject to fires). They had been patched up in numerous places and were pretty far gone, had outlived their usefulness. As to (d) building at Lexington avenue and 99th street, the track, all timber construction, was rotted at many places and unsafe for operating. As to (e) the building at 6th avenue and 50th street, all that is testified to as to existing conditions is that the tracks were in much poorer condition than the building itself. The timbers had become a little oil-soaked, and the greatest objection to them was the danger from fire. As the special master allowed only $28,000 for repairs to the building, which allowance is not excepted to, the testimony does not seem to warrant a conclusion that the tracks could not have been repaired without rebuilding. As to the building (f) at 100th street and Lexington avenue, the track was a very awkward and dangerous platform built on heavy posts, braced and cross-braced, and a network of timbers dangerous, dirty, and inflammable, half worn out five years before. Inasmuch as the witness says of the track on the second floor of the same building that he made no allowance for it in his estimate, [440]*440“for the reason that it was still in good operating condition, except for lack of power,” it is a reasonable inference that the condition of the lower track was such as to require renewal, irrespective of any fire risk. As to the building (g) at 8th avenue and 152d street, which had lain idle and uncared for for years, the wooden ties and stringers rotted and the rails were therefore very much out of line and surface.
As to items (a), (b), (c), (d), (f), and (g) the estimate of Potter will be allowed; as to item (e) above and all the other tracks in buildings, the conclusions of the special master are affirmed.
6. Damages for failure, to replace cars and motors destroyed by fire. The opinion of the special master is concurred in and his conclusions affirmed.
7. Damages for failure to keep buildings in good condition; the same disposition.
8. For rentals and charges in the nature of rentals, including taxes, the conclusions of the special master allowing only such as accrued on October 1, 1907, is affirmed. The later decisions of the Court of Appeals seem to require such a disposition of 'them.
9. Miscellaneous items (expenses in connection with franchise tax litigation, clearing away ruins of a fire, alleged overpayment to Degnon Company) are similarly disposed of by affirmance.
[4] 10. Claims for failure to comply with covenants of the City lease respecting property of Metropolitan lessor lines which went out of the system during receivership. Of these the Second Avenue line is a type. This line was leased to the Metropolitan before the whole system was leased to the City Company. The Court of Appeals has held that by these two leases the relations established were: Lessor, Second Avenue Company; lessee, Metropolitan; assignee, City Company.- That court also held that' the lessor was entitled to judgment in the amount of nearly $850,00.0 against both lessee and assignee, and could collect the amount out of either or both. Under s'uch circumstances, the assignee is primarily liable to the lessor, and the lessee is suréty for the discharge of the assignee’s obligation. If both defendants were solvent, and the lessor collected the judgment from the assignee, that would end the matter; if it collected the $850,000 from the lessee (the surety), the latter could recover over against the assignee; if it collected $425,000 out of each, the lessee could recover the $425,-000 which it thus paid from the assignee. In other words, the surety would recover from the assignee only what the lessor had taken from it. It is thought that the insolvency of both lessee and assignee does not alter the situation. Out of the estate of the assignee, the lessor will collect what it can. Of the balance still due, it will collect what it can out of the estate of the lessee. For the amount thus taken from the estate of the surety, such estate will have a claim against the estate of the principal. It is suggested that a contrary ruling was made in the decisions of this court and the Court of Appeals touching a judgment obtained by the city of New York against the Central Park Company for paving. Apparently such ruling was made by affirming findings and conclusions of the special master, but the point was not discussed in the opinions; the amount involved was quite small; and., it ■is thought now that the true rule is the one above set forth. Although [441]*441the amount be not “certain,” it may be mathematically made certain. The claims in this item are allowed at the amounts which the estate of Metropolitan will pay to lessors on final settlement. In all other respects the findings on these items are affirmed.
11. The special master’s allowance of $63,821.78, as a set-off, being the amount expended by the City Company prior to September 24, 1907, in restoring buildings destroyed by fire, is overruled. The allowance of the Metropolitan’s claim on such buildings is only for restoring them from the condition they were in on that date. The expenditure of the sum named has reduced the amount of the claim. To allow the same sum as a set-off would be a double payment.
12. I fully concur in the special master’s opinion, findings, and conclusion as to set-off of the improvement notes of the Metropolitan Company. Also in his disposition of the application for a ruling as to the rights of the Farmers’ Loan & Trust Company to receive or share in the proceeds of the present claim.
Inter-Receivership Accounting.
On exceptions to report of special master in the matter of petition of the receiver of City Railway Company for an accounting by the receiver of Metropolitan Street Railway Company for cash and other property.
I,ACOMBE, Circuit Judge.
As the decision of this application is of interest only to parties interested, who are already familiar with the details of the situation, this court will merely indicate briefly the disposition made of the various objections to the report, which have been argued here.
1. As to the two items of scrap (conclusions of law Nos. 6 and 7 in the report), the master’s conclusion as to the first item is affirmed. The property that was sold, scrap from a demolished building belonging to the Metropolitan, belonged also to the Metropolitan. Destruction of the building did not divest the title. When the City Company sold the scrap, it sold property of the Metropolitan and should account to the owner for the proceeds. As to No. 7, the copper wire scrap recovered from the ruins of the car barn at 146th street and Lenox avenue, which was destroyed by fire. It is thought that the mere circumstance that the lease required the lessee (City Company) to rebuild in the event of destruction by fire would not divest the title to what was left of the res. The lessee did not restore the building. Receivers expended a large sum of money in doing so. I am not sufficiently familiar with the details of construction to concede the contention that this wire was personal property of the City Company, not a fixture and not a part of the building. There is no testimony that the wire belongs to the City Company. It may well be assumed, in the absence of proof, that it was an essential part of the structure, necessary to its operation as a car barn, and installed there when the Metropolitan originally constructed the building. There seems to be no sound distinction between these two varieties of scrap. Conclusion 7 of the report is reversed.
[442]*4422. As to payments made to receivers by the so-called “controlled companies,” conclusions 9, 10, and 11 of the report.
(A) The Forty-Second Street Company made three payments to receivers :
September 25, 1907.............................................. $125,000
November 29, 1907.................................. 19,094
January 17, 1908'................................................. 25,000
$109,694
The special master allowed the claim of the City Company for this full amount.
The payment of September 25, 1907, was made without any specific directions as to the application of it by the debtor, merely “on account.” At this time the receivers had inter alia three things to do: To collect moneys due to the City Company, to collect moneys due to the Metropolitan Company, and to run all the roads in the system, including the controlled roads. To keep the controlled roads running called for continual advances to them of materials, labor, and power; without such advances a controlled road was at any time likely to cease rendering service to the public. At this time receivers were in great straits for money with which to provide such advances, and it was right and proper for them to apply any money, which came to them from a controlled road, without designation by the debtor of its application, to their reimbursement for materials, etc., which they, as operating receivers, had furnished in order to keep such controlled road in public service. Indeed, it might well be held that it was their duty to make such application. Had they at the time made an entry in the books to the effect that they appropriated this payment by a company, which was debtor both to themselves as operating receivers and also to the estate of the City Company in their hands as receivers, to the latter’s estate, a very strong argument might be advanced for disregarding such appropriation pf páyment, as being one which they should not have made. ’However, that argument need not now be considered, so far as the evidence shows no such appropriation to any debt due the estate of the City Company was made at the time, it was merely credited on the cash book to the open account of receivers with the Forty-Second Company. That being so, no subsequent bookkeeping, alteration of entries, or filing of claims would change the situation.
It is not intended, however, to apply this reasoning to anything, except existing indebtedness, although in the past the controlled company had sometimes paid in advance for. materials, power, etc., to be thereafter furnished. So much, therefore, of this $125,000 as represents indebtedness for materials, power, etc., advanced by the operating receivers from their appointment to the date of payment, should not be allowed to the City Company. For the balance only the special master’s conclusion is affirmed.
The payment of January 27, 1908, $25,000, to “Joline and Robinson, receivers of New York City Railway Company.” The special master interprets this phrase as an instruction by the debtor to appropriate the money, otherwise than in payment of obligations due direct to the receivers. This gives undue weight to the word “City,” which is of no [443]*443more significance than the word “receivers.” “Receivers of the New York City Company” was the usual short and convenient title by which the receivers were identified. No one at that time was particular, in speech or writiug, to set forth the dual capacity in which, from the outset, the court indicated they should act. Whatever they were called, they acted as receivers of the estates of both companies and as operating receivers as well. If, at the time this payment was made, the Forty-Second Street Company owed receivers as much as $25,000 for materials, labor, and power, the allowance of any part of this item to the City Company is reversed. If it owed less, the conclusion will be modified accordingly.
The payment of November 29, 1907, was made by the debtor expressly for payment of accrued interest on the notes held by the City Company. As to that $19,694.40, the conclusion in the report is affirmed.
(B) In accordance with the views above expressed, the special, master’s allowance to the City Company of the $6,530.67 paid by the Dry Dock Company is allowed.
(C) And the allowances of the payments of $55,000 by Union Railway Company are disallowed.
3. As to the allowance to the City Company of the $14,901 collected from tlie Bridge Operating Company, the conclusion should be reversed, if it were shown by competent proof that such sum was included in the settlement of April 30, 1907, between the Metropolitan and City Companies. But the proof is not persuasive, except as to $500 of it. Conclusion No. 8 of the report is therefore affirmed, except as to such $500.
4. The reduction of the item (conclusion No. 15) for payments to employés from $127,980.10 to $120,980.10 is reversed. The items making up the difference, salaries, physician’s fees as witnesses, etc., while not technically “pay roll” payments, come fairly within the sound discretion, which in cases such as this, involving many complications, must be accorded to receivers.
Some of the items originally discussed in the briefs have since been disposed of by mutual concessions. As to all the others, the conclusions of the special master are áffirmed.