Whitman v. Webster

122 F.2d 860, 1941 U.S. App. LEXIS 3091
CourtCourt of Appeals for the Eighth Circuit
DecidedOctober 16, 1941
DocketNo. 12016
StatusPublished
Cited by4 cases

This text of 122 F.2d 860 (Whitman v. Webster) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Whitman v. Webster, 122 F.2d 860, 1941 U.S. App. LEXIS 3091 (8th Cir. 1941).

Opinion

THOMAS, Circuit Judge.

This is an appeal from an order denying two items of a claim filed by the receiver of the Wisconsin Central Railway Company, herein called the Wisconsin Central, against the Minneapolis, St. Paul & Sault Ste. Marie Railway Company, herein called the Soo, now in reorganization under § 77 of the Bankruptcy Act, 11 U. S.C.A. § 205.

The receivership of the Wisconsin Central commenced December 2, 1932; and the reorganization proceeding for the Soo was commenced December 31, 1937.

On April 1, 1909, the Wisconsin Central as lessor entered into a written lease with the Soo as lessee, by the terms of which the lessor demised to the lessee for a term of 99 years all its lines of railway and other property, including after acquired property. The claim in dispute is based upon an alleged breach by the Soo of the provisions of said lease. It is conceded that the lease terminated on December 2, 1932, on the beginning of the receivership, and it is alleged that the breach occurred on that date.

The first item of the claim is an assertion of ownership by the Wisconsin Central of an undivided interest to the extent of $542,976.36 in value of the stock of materials and supplies purchased by the Soo and held in its name for the alleged use of the Soo and of the Wisconsin Central during the period the lease was in effect. It is alleged that the Wisconsin Central turned over to the Soo at the commencement of the term of the lease materials and supplies of the value of $542,976.36, and that the Soo agreed on termination of the lease to return to the Wisconsin Central the same materials and supplies or materials and supplies of an equal value. It is further alleged that the materials and supplies originally turned over to the Soo have since been consumed and are now represented by an undivided interest in the changing stock of the Soo.

The second item of the claim is for a further undivided interest in the Soo’s changing stock of materials and supplies to the extent in value of $500,000 for an advancement in that amount made by the Wisconsin Central to the Soo in 1917 with the alleged understanding that it should be a special deposit used solely to apply on the stock of materials and supplies carried by the Soo for the use of the Wisconsin Central during the remainder of the term of the lease, and with the further alleged understanding that upon the termination of the lease materials and supplies of the [862]*862value of $500,000 should be turned over to the Wisconsin Central by the Soo.

The trustees in the reorganization proceeding of the Soo deny that the receiver for the Wisconsin Central has any title, legal or equitable, in the Soo’s stock of materials and supplies; that the materials and supplies received from the Wisconsin Central by the Soo were used and fully accounted for in accordance with the terms of the lease; and that the $500,-000 advanced to the Soo by the Wisconsin Central in 1917 created only a debt and was not a purchase of any interest in the Soo’s stock of supplies nor an obligation to turn over materials to the Wisconsin Central at the termination of the lease. The trustees further allege (1) that the claim is barred by laches and the six-year statute of limitations, and (2) that mortgages made by the Soo in 1888 and 1899 are liens on its materials and supplies superior to the claim of appellant, if valid.

The Central Hanover Bank and Trust Company, as successor trustee under the first two mortgages on the Soo property, filed an answer claiming that the liens of its mortgages on the Soo’s materials and supplies are superior to the claims of the receiver.

The trial court filed an able and exhaustive opinion, made findings of fact and conclusions of law, and entered an order denying both items of the claim, in all of which it is contended that the court erred.

As to each item of the claim the important question for determination is what were the rights and obligations of the parties to the lease on the date of its termination in reference to the materials and supplies purchased and paid for by the Soo during the period of operation under the lease. The answer to this question depends upon the terms of the lease and the conduct of the parties while it was in force and effect.

We shall first note the pertinent provisions of the lease and then discuss the evidentiary facts in connection with the contentions of the parties with reference to the two items of the claim.

The recitations in the preamble to the lease declare that it is deemed to be for the best interest of the parties that the two systems of railway owned by them should be operated together, while retaining their separate corporate existence. To that end in Article One of the lease the Wisconsin Central demised all its railway lines and all its property to the Soo and conferred upon the Soo full and complete authority to control, operate and manage the two systems as one during the term of the lease.

Article Three provided that the Soo should have “the sole control of all funds and other assets of the Lessor, whether current or accumulated, and also of all earnings * * * and other properties * * * to be used, however, wisely and prudently according to its best judgment” for the purposes set forth in the lease, “provided, however, that the Lessee shall not in any event, commingle said earnings, funds or assets with its own, and that it shall keep and maintain with respect thereto, a separate and complete system of accounting * *

Article Five provided that: “Subject only to the covenant to maintain a separate accounting * * * the Lessee shall have the right to manage, operate and administer all of the railways and other properties covered by this lease * * * as a part of the railway owned and operated by the Lessee * * * Provided * * * that all expense of such management and administration shall be paid out of the earnings of the properties hereby demised.” It was provided that upon the termination of the lease all the demised properties and additions and improvements made thereto should revert -to the Lessor; and the Soo covenanted in Article Twenty-Four that at that time it would “deliver and surrender to the Lessor the said demised railroads and property free from floating indebtedness incurred for maintenance or operating expenses, taxes and fixed charges and in at least as good condition as when delivered to the Lessee * * * reasonable and usual depreciation as to any of said property subject to depreciation alone excepted, and will fully account to the Lessor for all earnings, surplus, and other assets received by the Lessee under the provisions hereof.”

Article Twenty-Five provided that the lease should “not be construed as requiring the Lessee to become financially responsible” “for the expenses of maintenance, operation or improvement of the leased system, “but that all such expenses may be paid by the Lessee out of the earnings of the railways and other properties of the Lessor.”

[863]*863Article Twenty-Six provided, that- the auditors of the parties should make “a complete inventory of all the properties of whatever nature hereby demised, and all of the moneys and current assets of the Lessor to be turned over to the Lessee under the provisions hereof which said inventory shall be * * * considered a part of the lease.”

1. The Claim for $542,976.36 in Value of Materials and Supplies.

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Cite This Page — Counsel Stack

Bluebook (online)
122 F.2d 860, 1941 U.S. App. LEXIS 3091, Counsel Stack Legal Research, https://law.counselstack.com/opinion/whitman-v-webster-ca8-1941.