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Hurley v. Atchison, Topeka & Santa Fe Ry. Co., 213 U.S. 126 (1909)

Hurley v. Atchison, Topeka & Santa Fe Railway Company

No. 95

Argued January 26, 27, 1909

Decided April 5, 1909

213 U.S. 126


Coder v. Arts, post, p. 213 U. S. 223, followed as to the jurisdiction of this Court of appeals from the circuit court of appeals in bankruptcy proceedings where the amount in controversy exceeds $2,000 and the question involved is one which might have been taken on writ of error from the highest court of a state to this Court.

Equity looks at substance, and not at form. An advance payment for coal yet to be mined may be a pledge on the coal and, in that event, as in this case, the trustee in bankruptcy takes the mine subject to the obligation to deliver the coal as mined to the extent of the advancement.

153 F. 503 affirmed.

There is practically no controversy in respect to the facts in this case. We take the following statement from the opinion of the circuit court of appeals: in 1896, the Osage Carbon Company and the Cherokee & Pittsburg Coal & Mining Company, as parties of the first part, and Charles J. Devlin, as party of the second part, and the railway company as party of the third part, entered into an agreement whereby the parties of the first part leased to Devlin, for a term of three years, certain coal lands located in the State of Kansas, with the right to mine coal therefrom, and Devlin, the party of the second part, agreed

Page 213 U. S. 127

to sell and deliver to the railway company, and the latter to buy from him daily, all the coal required by it in the operation of certain of its lines of railroad in the State of Kansas at prices stated in the lease, payment to be made by the railway company on the 15th day of each month for all coal delivered to it during the preceding calendar month. Power was conferred upon the railway company to terminate the lease for failure by Devlin to perform any of his undertakings, and the right to assign the lease was made subject to the consent of the railway company. Subsequently, Devlin duly assigned to the Mount Carmel Coal Company all his right under the lease. By two successive agreements, this contract was extended until June, 1906. All the parties continued in the performance of their respective obligations until July, 1905, when the Mount Carmel Company was adjudicated a bankrupt. Receivers were appointed and authorized to conduct the business of the bankrupt in the usual course until trustees should be chosen. The receivers and the subsequently appointed trustees successively continued to operate the mines under the orders of the court, and to deliver the coal as required by the contract. While the receivers were in charge, the railway company and the two coal companies, the original lessors, filed their joint intervening petition, setting forth their relations to the bankrupt under the contract, their rights thereunder, as already stated, and, in substance, that, by an agreement between them and the bankrupt, the contract had been modified to the extent that the railway company had agreed that, without waiting until the 15th day of the month to make its payment for coal theretofore purchased, it would, in order to accommodate the Mount Carmel Coal Company, and enable it to pay off laborers and keep the mines going, make advance payments from time to time when necessary for those purposes. In pursuance of that agreement, and for the purposes stated, it had advanced $57,304.16, with the understanding that it should be repaid by the subsequent delivery of coal; that the intervening bankruptcy proceedings of July 7 and the appointment of receivers by the

Page 213 U. S. 128

court alone prevented the bankrupt from carrying out its agreement and delivering the coal as required by the contract. The petitioners prayed that the lease be declared forfeited and void and the mines delivered back to them, or that the receivers be directed to deliver to the railway company the amount of coal so paid for in advance.

A referee, to whom the intervening petition was referred, reported unfavorably to the granting of any relief. His report was afterwards confirmed by the district court and the petition dismissed. The referee found and reported that the amount claimed by the railway company was as stated in the intervening petition, and was advanced to enable the bankrupt to meet its payrolls, but found that there was no testimony indicating an intention to modify the written lease. The district court, in reviewing the action of the referee, said:

"True, at the time the sums of money were advanced, it was no doubt contemplated and agreed by the parties that the bankrupt would repay the money by furnishing the coal at the price of the coal, measured in money by the terms of the contract, and would furnish such coal in July and August, as claimed; but at the time of the failure of the bankrupt, the coal remained in the ground, unmined."

Both the referee and the district court found that the agreement for the advance of the money was a separate, independent, parol contract, and had nothing to do with the original written contract, as shown by the lease, and that, being such an independent parol contract, there was no lien upon any of the property for its payment.

The circuit court of appeals, 153 F. 503, reversed the judgment of the district court, and held that that court should have directed a surrender of the leased premises, or required the trustees, upon assumption of the lease, to mine and deliver to the railway company sufficient coal to cover its advances, and it further held that, the lease having expired, the assets of the estate, consisting in part of the money received for coal delivered to the railway company, should be subject to the payment of such debt as a preferential claim.

Page 213 U. S. 131

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