degrees would be cause for worry, while 110 degrees would cause great anxiety. When these conditions of temperature were indicated, some hatch boards were taken off the forward end of the deck hatch above and two of the boards aft. This, however, was not effective, for after the removal of the two planks the temperature in the lower hold was 100 degrees, and remained at 100 or above for the ensuing 10 days. No attempt was made to shift the cargo, so as to let air down into the hold. The ventilators and hatches were kept as they usually had been. The weather was good on December 22d and for the four days thereafter. No sufficient reason is given for failure during that time to take the upper hatch off and to take the cargo on the lower hatch up to the deck, in order that the lower hatch flooring could be laid in its place, or canvas laid over the opening, in order that the heat in the lower hold could be forced out through the ventilators which ran from that hold. The hot air could have been let out by opening the entire face of the upper hatch when the heating was first discovered, or by taking out the cargo and letting it pass out through the ventilators, making tight the lower hatch floor. It is possible that some damage was caused by heating prior to the time when it was plain that the fertilizer was heated; but, if proper attention had been given when the heat indicated rotting, it is fair to believe the damage would have been of no consequence. It is clear, therefore, that testimony concerning the condition of the hatches became most material, and after careful reading of the whole evidence the most reasonable conclusion is that the proximate cause of the damage was the failure to let out all the hot air possible from the lower hold. [1] We need not consider the question whether the vessel was sent to sea in a seaworthy condition, for we can assume that she was. But upon that assumption there remains the question whether there was negligence on the part of the ship in the care of the cargo during the voyage. In Knott v. Botany Worsted Mills, 179 U. S. 69, 21 Sup. Ct. 30, 45 L. Ed. 90, the Supreme Court ruled that it was not a sufficient compliance with the provisions of section 1 of the Harter Act merely to give proper care, custody, and caution to the loading and stowage of cargo before sailing, but that duty continues throughout the voyage. This rule was laid down in a case where wool was properly stowed in a seaworthy compartment when the vessel started on her voyage, but the wool was damaged on the voyage because of drainage from wet sugar stowed near the wool. The drainage was caused by alteration of the trim of the ship. The court held that the violation of one of the obligations toward the cargo enumerated in section 1 of the Act of Congress (27 Stat. 445), namely, that there must be good stowage of cargo subsequently located, although occurring after the voyage of the injured cargo had started, made the ship liable. The court said: "Since this damage arose through negligence in the particular mode of stowing and changing the loading of cargo, as the primary cause, though that cause became operative through its effect on the trim of the ship, this negligence in loading falls within the first section. The ship and [her] owner must therefore answer for this damage, and the third section is inapplicable." In the later case of The Germanic, 196 U. S. 589, 25 Sup. Ct. 317, 49 L. Ed. 610, the court approved of the rule of Knott v. Botany Worsted Mills, supra, and held that, where the primary purpose is to affect the ballast of the ship, the change is management of the vessel, but, where the primary purpose is to get the cargo ashore, the fact that it also affects the trim of the ship does not make it the less a fault of the class which the first section of the Harter Act removes from the operation of the third section of the act. The court recognized that a case might occur, which in its different aspects would fall within both sections, and said that the question which section is to govern must be determined by the primary nature and object of the acts which cause the loss. Both of these decisions of the Supreme Court were cited by this court in Corsar v. Spreckles Bros. & Co., 141 Fed. 260, 72 C. С. A. 378, where the court considered the question involved under the facts as primarily and essentially one of navigation, and therefore the determination of the master would not make the ship or her owner liable for any incidental damage sustained by the cargo, because of the third section of the Harter Act. In Nam v. The Appalachee, 202 Fed. 826, 121 C. C. A. 130, this court regarded the question there involved as whether the damage done to the merchandise was properly referable to a lack of care on the part of the officers of the ship, or to fault or error on the part of the officers in the management of the ship, and quoted from the Germanic Case, supra. The distinction in the rule applicable was observed by the Court of Appeals of the Second Circuit in The Persiana, 185 Fed. 396, 107 C. C. A. 416, where oil was allowed to accumulate in the bilges, not for the ship's purposes, but because the master intentionally allowed it to accumulate to save it for profit. United States v. New York & O. S. S. Co., Ltd., 216 Fed. 61, 132 C. C. A. 305, also decided by the Court of Appeals of the Second Circuit, seems to have turned upon the particular facts, although some of the comments of the court seem at variance with the rule of the earlier decision in the Persiana Case, supra, not referred to by the court. [2] In the case at bar the navigation of the ship was not affected by the failure to raise the cargo stowed on the hatch, and to put it on the deck and dry it there, closing the hatch and then replacing the cargo; and while doubtless the removal of the upper hatch boards to get the cargo out, and the putting of canvas or additional hatch boards under the cargo in the lower hatch pertained to the management of the ship in an incidental sense, yet the primary purpose would be care of cargo threatened with injury from heat below. We are of opinion, therefore, that the appellees proved their case by the greater weight of evidence, and that the decree should be affirmed. So ordered. (243 Fed. 527) JOHN A. ROEBLING'S SONS CO. OF CALIFORNIA et al. v. IDAHO RY., LIGHT & POWER CO. et al. * (Circuit Court of Appeals, Ninth Circuit. July 16, 1917.) No. 2813. 1. APPEAL AND ERROR 907(1) -PRESUMPTIONS-FACTS NOT SHOWN BY REC ORD. On appeal from a decree denying claims for material sold a railway, light, and power company, shortly before the appointment of a receiver, priority over mortgage bondholders, where a part of one of the claims was for materials furnished for "service extensions," and there is no record evidence making it clear what the precise items were for, the District Court's finding that the materials were not an operating expense will be adopted. 2. RECEIVERS 158(2) -PRIORITY OF CLAIMS-CLAIMS FOR MATERIALS. That parties selling materials to a railway, light, and power company, shortly before the appointment of a receiver, expected payment of their bills out of the company's current income, did not entitle them to preference over mortgage creditors, unless all parties agreed that their claims should be first paid out of current earnings. 3. STIPULATIONS MENT OF FACTS. 14(10)-CONSTRUCTION AND OPERATION-AGREED STATE Where the enlargement and improvements of a power plant of a railway, light, and power company was to put the company in a condition to better serve its customers, and to supply the increasing demand for electric current, and machinery was furnished the company by a claimant for the purpose of generating increased power to be transmitted over new transmission lines, a stipulation, in an agreed statement of facts, that the machinery was necessary to the continued operation of the company's system, and that without it it could not perform its duties to the public, was not an agreement that the machinery, prior to its installation, was necessary to the continued operation of the system, or that the company could not, prior to such installation, perform its duties to the public. 4. RECEIVERS 158(3) -PRIORITIES-UNSECURED CLAIMS FOR MATERIALS. Such machinery being for work of new construction, it was furnished in the enlargement, and not for the repair or maintenance, of the company's plant, as respected the claimant's right of priority over mortgage creditors. 5. RECEIVERS 158(2) -PRIORITY OF CLAIMS-CLAIMS FOR MATERIALS. The diversion of a railway, light, and power company's income to the payment of interest on bonds of a subsidiary company did not entitle parties furnishing material to the principal company, shortly before its receivership, to priority over its mortgage bondholders, where the mortgage securing their bonds did not cover the property of the subsidiary company, and the payment of such interest did not inure to their benefit. 6. RECEIVERS 158(2) -PRIORITY OF CLAIMS-CLAIMS FOR MATERIALS. The payment of interest by a corporation on its bonds, at a time when nothing was due on a claim for materials furnished it shortly before its receivership, was not a diversion of its earnings entitling such claim to priority over the mortgage bondholders. 7. RECEIVERS 158(3) -PRIORITY OF CLAIMS-CLAIMS FOR MATERIALS. Materials furnished a corporation within six months before its receivership, for new construction and extraordinary improvements in its plant, were not payable as current operating expenses in preference to the claims of mortgage bondholders. Gilbert, Circuit Judge, dissenting. For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes 156 C.C.A.-15 *Rehearing denied October 8, 1917. Appeal from the District Court of the United States for the Southern Division of the District of Idaho; Frank S. Dietrich, Judge. Suit by the Westinghouse Electric & Manufacturing Company against the Idaho Railway, Light & Power Company and others, in which John A. Roebling's Sons Company of California and another intervened. From a decree denying their claims for preference, the interveners appeal. Affirmed. See, also, 228 Fed. 972. Appeal from a decree of the District Court of Idaho denying certain claims for preference asserted by appellants, Roebling's Sons Company and I. P. Morris Company, for materials and supplies furnished to the appellee, Idaho Railway, Light & Power Company, before the appointment of a receiver for the corporation. The Westinghouse Electric Manufacturing Company, a general creditor of the Idaho Railway, Light & Power Company, to be called the Railway Company, brought suit on December 23, 1913, against the Railway Company, alleging that it owed large sums which it was unable to pay, and praying for the appointment of a receiver. The Railway Company was in the general business of generating and distributing electricity and operating electric railway lines in many places in Idaho, the power and the traction properties operated by the Railway Company being under one control and management. After the Railway Company admitted the indebtedness sued upon and that a receiver was necessary, the court appointed as receiver O. G. F. Markhus, who had been general manager of the Railway Company. After the receiver was appointed, the Guarantee Trust Company of New York, as trustee, sued the Railway Company to foreclose a trust deed given by the Railway Company to secure payment of a bond issue of $30,000,000 of which approximately $9,000,000 were outstanding. The mortgage covered all the property of the Railway Company, including property that might thereafter be acquired by it, and all income and profits of all properties which were subject to the mortgage. In March, 1914, Roebling's Sons Company and I. P. Morris Company, respectively, intervened, and by cross-bill asserted priority of claims over the mortgage creditors. In due time foreclosure was decreed, and the property was sold under foreclosure to the Electric Investment Company for a sum sufficient to pay only $534.15 on each $1,000 bond outstanding under the mortgage. Thereafter the District Court denied the claims of preference of Roebling's Sons Company and Morris Company, and they have appealed. From an agreed statement of facts it appears that between the 18th of March and the 30th of May, 1913, Roebling's Sons Company sold and delivered to the Railway Company, then a going concern, certain supplies and material for which the Railway Company agreed to pay; that it was to be a cash transaction, payment to be made by the Railway Company on bills as rendered within 30 days from the delivery of the various items; that before the receiver was appointed there was a payment of $17,519.80 on account, and that the balance due was $21,057.37 with interest; that the material and supplies were sold on open account under a belief on the part of the seller that the moneys to be due therefor should be paid out of current operating income; that, during the time when the supplies were furnished, the Railway Company was setting up reserves from its earnings and from the proceeds of sale of its bonds to pay bond interest; that the interest accruing on the bonds of the Railway Company on June 1, 1913, was $165,750; that the bond interest reserves in the six months preceding June 1, 1913, amounted to $135,750; that the Railway Company borrowed on the note of the company the balance required to meet the interest; that, in addition to the foregoing interest reserves, the Railway Company on April 1, 1913, paid from its earnings the interest on its underlying bonds of the Boise & Interurban Railway Company, amounting to $26,825, and on June 1st the interest on the bonds of the Boise Railroad Company, amounting to $9,725; that of the foregoing interest reserves about $79,000 was obtained from the earnings of the company during the period mentioned, and $56,750 from the proceeds of the sale of bonds; that when the supplies and material were furnished the Railway Company was constructing a transmission line about 30 miles long, from its central station in Swan Falls, Idaho, to a pumping plant of the Gem Irrigation District, with a four-mile branch extension from a point on its line to the Guffey pumping station; that, before constructing this line, the Railway Company had generated power at its Swan Falls plant and had a transmission line running to certain mining districts in Owyhee county, Idaho, and another transmission line to places in Ada county, Idaho; that during the fall of 1912 and the winter of 1913 the Railway Company was enlarging the capacity of its Swan Falls plant by replacing generating units, and that one of its lines then under construction was to several irrigation districts with which contracts had been made; that when the Gem line was under construction the Railway Company owned a controlling interest in the stock and bonds of the Idaho-Oregon Light & Power Company, which stock and bonds were included in the trust security to the Guarantee Trust Company; that the Oregon Light & Power Company defaulted in paying interest on its bonds, April 1, 1913, and that the Railway Company had offered to the bondholders of the Idaho-Oregon Company a plan of reorganization under which the Idaho-Oregon Company should be maintained as a going concern; that the Idaho-Oregon Company had made various contracts for irrigation, involving the construction of extensions; that the material for such extensions was bought by the Railway Company and furnished to the Idaho-Oregon Company under an equipment trust agreement by which the Railway Company retained title to the supplies and material until the same should be paid for; that the material and supplies furnished by the Roebling's Sons Company was principally copper wire for extensions for the installation of new or replacement units, and that the wire and material delivered had been put to use by the Railway Company in its system, and contributed to the earnings and value of the properties and the security of the bonds, and that the material is and was necessary to the continued maintenance and operation of the respective parts of said property for which the same was supplied and in which it is used. The claim of the I. P. Morris Company was for furnishing and installing certain power machinery for the electric plants of the company; the supplies havIng been received by the Railway Company prior to the first of June, 1913, but the installation was not completed or the work accepted until December, 1913, within six months of the appointment of the receiver. The Railway Company paid to the Morris Company $21,200.66, and gave two promissory notes for the balance due, one due in three months, the other in six months, from date. It appears from a stipulation of facts that between November 1, 1912, and December 23, 1913, the Railway Company paid from its earnings in interest on the bonds of the Boise & Interurban Railway Company, one of its constituent traction companies, on April 1, 1913, $26,825, and on October 1, 1913, $26,825; that it paid interest on the bonds of the Boise Railroad Company, Limited, another of its constituent companies, on December 1, 1912, $9,725, on June 1, 1913, $9,725, and on December 1, 1913, $9,725; that for the benefit of the sinking fund of the bonds issued by the Boise Railroad Company it paid on December 1, 1912, $5,000, and on December 1, 1913, $5,000; that on December 1, 1912, it paid, as interest on the bonds of the railway company, $146,075, and on June 1, 1913, $165,750, and in addition thereto has paid out large sums for permanent improvements and equipment, adding to the value of the property securing the bonds of the Railway Company issued under the trust deed to the Guarantee Trust Company; that the material and machinery furnished were necessary to the continued operation of the Railway Company's system, and that, without it, it could not perform its duties to the public, and that the Morris Company sold the material to the Railway Company in the belief and intention that, unless otherwise provided for, payment would be out of the operating or current income of the Railway Company. Beverly L. Hodghead, of San Francisco, Cal., for appellants. John F. MacLane, of Salt Lake City, Utah (Henry Root Stern, of New York City, of counsel), for appellees, Idaho Ry., Light & Power Co., O. G. F. Markhus, receiver, etc., Guarantee Trust Co., and Electric Inv. Co. Before GILBERT, MORROW, and HUNT, Circuit Judges. |