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In re Madison Rys. Co.

March 9, 1939


Appeals from the District Court of the United States for the Western District of Wisconsin; Patrick T. Stone, Judge.

Author: Sparks

Before SPARKS, MAJOR, and TREANOR, Circuit Judges.

SPARKS, Circuit Judge.

This appeal is prosecuted from an order of the District Court in a proceeding, instituted by appellant, the debtor, under Section 77B of the National Bankruptcy Act, 11 U.S.C.A. ยง 207. The order was a partial allowance of appellee's claim for appellant's share of the cost of paving street railway zones, and of removing presently existing rails from certain streets in the City of Madison. The claim was filed September 30, 1936, and was in two parts. The first section of claim 1 related to paving zones, already completed by the city, during the years 1928 and 1929 inclusive, and was for the sum of $4,499.41; the second section of claim 1 related to covering tracks by the city on Capitol Square, at various intersections and on certain main highways, in 1935 and 1936, and was for the sum of $9,417.80. The second claim was for $224,000, which was alleged to be appellant's share of the cost of removing presently existing rails from other streets, and paving the railroad zones. This part of the claim was based on the city engineer's estimate and was made because the debtor was alleged to have discontinued the use of street cars and abandoned the tracks. It was further alleged that the removal of such rails and poles was necessary for the safety and welfare of the city.

The matter was referred to a master who recommended the disallowance of the claim for $4,499.41 because barred by the statute of limitations. This the city concedes to be correct. He further recommended that the claim for $9,417.80 be allowed, and that the claim for $224,000 "be not now allowed in that amount but without prejudice to claimant." He also recommended that appellee "as creditor in definite amount, and as creditor in unliquidated amount * * * be permitted to participate as a creditor in this reorganization proceedings, on the same basis as other creditors, to the end that its rights against Debtor may be preserved." Appellant filed many exceptions to the master's report with respect to findings of fact, conclusions of law and recommendations.

These were overruled and the court rendered its findings of fact and conclusions of law, confirming the master's report, and rendered judgment in accordance therewith. With respect to the unliquidated part of the claim the court ordered: "That the claim of said city in the sum of $224,000 for the estimated cost of the removal of debtor's tracks and repaving of the track zone be disallowed in that amount with the right of the city to recover from the debtor the reasonable expense it may incur if nand when it removes debtor's tracks from its streets."

The pertinent facts disclosed by the record are substantially as follows:

On June 10, 1892, the City of Madison granted to Madison City Railway Company, of which the debtor is the successor, a franchise to construct and operate a street railway system within its limits for a period of forty years. It was granted subject to all applicable general provisions of the Wisconsin Statutes then in force, and to such reasonable rules and regulations respecting streets and highways as the city council might enact. It further provided that the company should keep the space between the rails of each track and for a space of one foot on the outside in proper repair so as not to interfere with travel over it, and should keep it in proper order and cleanliness at its own expense.

In 1919, the legislature enacted what is now known as subsection (2) of section 193.46 of the Wisconsin Statutes (1937), as follows: "(2) Every company owning a street or interurban railway system in this state shall be deemed to have surrendered all existing licenses, permits or franchises and to have accepted in lieu thereof an indeterminate permit pursuant to sections 193.33 to 193.44, unless on or before January 1, 1920, such company filed with the [public service] commission [of Wisconsin] a notice that it elected not to accept an indeterminate permit for its system." The debtor never filed a notice of non-election to accept an indeterminate permit.

On May 8, 1923, the city by ordinance relieved the company of its obligation to pay for the cost of paving the zones referred to in the original franchise, and in lieu thereof required it to pay 25 per cent of such cost. This ordinance contained the following provision:

"This ordinance shall in no manner be so construed as to relieve the madison Railways Company, its successors or assigns from maintaining and keeping in repair that portion of the pavement between the rails of each track and for the space of one foot on the outside of the rails when any street or portion thereof shall have been paved or otherwise permanently improved, it being understood that this area on all streets upon which the railway company is now operating shall be maintained and kept in repair at the expense of the said railway company."

The company operated street cars on its tracks by electricity up to 1928 when it began to operate buses on some lines. After February 23, 1935, it ceased using electric cars and operated buses over all routes formerly serviced by street cars and also on additional routes. There was never any council action authorizing or approving the abandonment of any of these car tracks, except on one line, although the city had knowledge of such abandonment and its officers and representatives seemed to be quite grantified over the fact, and at no time raised any objection thereto. The work was done progressively, and buses were substituted, pursuant to orders of the Wisconsin Public Service Commission. The wires were all taken down in 1935, and the last of the poles were taken down in the spring of 1936.

From August 4, 1933, to October 13, 1936, the Commission entered sixteen different orders relating to the operations of the debtor. The first grew out of a hearing originally involving investigation of rates and fares of the debtor, upon the petition of a number of citizens, which was afterward joined in by appellee. Later, on June 8, 1933, at a hearing on these petitions, the debtor filed with the Commission a proposal to substitute buses as the base service on one of its lines. An order entered August 4, 1933, pursuant to the petition, recites that the company is not earning enough to rebuild the track, and expresses doubt whether the track should be rebuilt or whether other transportation facilities, such as buses, should be installed. Thereupon the Commission ordered the debtor to substitute buses in furnishing base service on that line, using street cars for handling rush hour traffic. Th next order granted appellant's petition to abandon the use of cars as a base service upon another line, and to operate buses instead, upon conditions quite similar to the first order. Subsequently, the Commission entered the other fourteen orders all of which relate to bus routes over the various streets, except one which relates to the requirement of four additional business, and the fixing of the bus fares at five cents. four days after this order car service was wholly discontinued. At all of these hearings, save one relating to a routing, the city appealed and was represented by its attorney.

In June, 1933, when the debtor decided to purchase buses, its general manager so notified the mayor in the presence of the city engineer, attorney, and a member of the water department. the mayor said the city would make no objection. The manager informed them that the debtor would take down the poles and wires, but, as all the money the company earned would be required to purchase buses, he would have to ask the city to assume the responsibility for the tracks. No agreement however, on this subject was arrived at, and the city never authorized such an agreement by corporate action. A similar conversation was had by these same parties in the winter of 1933 and 1934 when a five cent fare was under discussion, with the same result. The city appointed a transportation committee in the summer of 1934, which made its report to the common council recommending a five cent fare but said nothing about the tracks. When this report went to the Public Service ...

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