Gregg v. Metropolitan Trust Co.

1905-03-06

Headline: Court limits suppliers’ ability to take money from a railroad mortgage fund, holding that pre-receivership ties and similar supplies cannot be charged to the mortgage corpus and are only six-month claims.

Holding: The Court affirmed that a company supplying railroad ties cannot charge the main mortgage fund for ties bought within six months before a court-appointed manager took over and may only claim against surplus earnings.

Real World Impact:

Suppliers cannot force payment from the mortgage corpus for pre-receivership supplies.
Such claims are limited to surplus earnings or treated as six-month claims.
Receivers may use on-hand materials without creating an automatic supplier lien.

Topics: railroad maintenance, receivership and creditors, supplier payments, creditor priorities

Summary

Background

A company that sold and delivered railroad ties to the Columbus, Sandusky and Hocking Railroad during May and early June 1897 sued after a court-appointed receiver took over the railroad on June 1, 1897. The supplier delivered ties worth $4,709.53, and about $3,200 worth remained on hand and were used by the receiver. The supplier claimed $6,804.49 in all, waived a small separate claim, and asked to be paid out of the main mortgage fund held by the receiver rather than only from later earnings.

Reasoning

The central question was whether necessary supplies furnished within six months before a receiver’s appointment can be charged against the main mortgage fund (the corpus). The majority, led by Justice Holmes, said no general rule gives such pre-receivership supplier claims priority over a previously recorded mortgage. The Court held the supplier may press a six-month claim and may share in surplus earnings if any exist, but the receiver’s fund that represents the mortgage corpus cannot be charged under the decree as interpreted by the Court. The decree and the receiver’s orders gave the receiver discretion to pay certain operating expenses and to issue certificates, but did not require or create a lien in favor of the supplier against the corpus.

Real world impact

The decision means suppliers who furnished materials shortly before a receivership generally cannot force payment out of mortgage property itself; they may only seek payment as six-month claims or from surplus earnings if available. Receivers may use on-hand materials in operating the railroad without creating an automatic lien for the supplier. The question of recovery from surplus earnings was left open and could be decided differently in other circumstances.

Dissents or concurrances

Justice McKenna (joined by two others) dissented, arguing the ties were necessary to keep the railroad running, were on hand and used by the receiver, and under prior cases such claims deserved priority and payment from the fund.