87 N.J. Eq. 438 | New York Court of Chancery | 1917
There are in this proceeding three separate matters which have been to a large extent heard together. It will be the function of this memorandum to set forth, as briefly as possible, the conclusions which I have reached and state the principal reasons for 'such conclusions.
1. The first case to be considered is presented by the appeal of the Hnited States of Venezuela from the action of the receiver, in disallowing its claim to- a preferred charge amounting to $114,700, and interest to a large amount thereon, under a mortgage alleged to cover the entire fund in the receiver’s lands. I am not certain whether the receiver rejected this claim in toio, ox allowed it as a general claim, but rejected it as a preferred claim under the mortgage referred to. However that may be, the evidence satisfies my mind that the appellant holds one hundred and thirty-nine mortgage coupon bonds of the Coro and La Vela Bailroad and Improvement Company of $1,000 each, and that these bonds constitute valid obligations of this corporation, and that through bankruptcy proceedings in Venezuela $25,300 of this bonded indebtedness was paid, leaving the balance ($114,700) with a large amount of interest due and unpaid and entitled to payment out of the fund in the receiver’s hands, either preferentially or concurrently with the general claims which have been proved.
The only question to be considered in relation to this claim of Venezuela is .whether it stands as an encumbrance upon the fund in the receiver’s hands. My conclusion is that it does not, and the reasons for this conclusion require some statement of the facts.
(1) On December 12th, 1892, the original concession contract for the construction of the Coro and La Vela railroad in Venezuela was granted by the government of Venezuela to “Manases Capriles and to his partners, associates or successors.” This concession or contract does not appear to have been approved
On August 12th, 1895, a month after Naar had acquired the concession from the Capriles syndicate, he assigned it to this New Jersey corporation, the Coro and La Vela Railroad and Improvement Company.
By the tenth article of this original concession it was provided that
“the grantee, his associates or his successors, will have the right to transfer or convey .this concession to another party, or to a national or foreign corporation with the same rights, conditions and obligations that are established, complying with the formalities of the law, and giving due notices to the government.”
There are grounds for arguing, as will' hereinafter appear, that this express provision contemplated the assignment of the concession to a national or foreign corporation or other party capable of carrying out, and intending to carry out, the work of constructing the railroad for the promotion of which the concession was made. The evidence bearing upon this question is in an unsatisfactory condition. I think, however, that we may assume, for present purposes only, that this original concession expressly provided that it might be assigned by way of mortgage to secure money to a foreign corporation not expressly authorized to construct railways in foreign countries, and not intending to engage in such work.
On August 29th, 1895, the Coro and La Vela Railroad and Improvement Company executed in the usual form a mortgage to-the Farmers Loan and Trust Company of New York City, as trustee, to secure an issue of one hundred and fifty thousand
On May 18th, 1896, while the railroad, as I understand the situation, was in process of construction, there was a law or decree passed bjr the government of Venezuela permitting the granting of subsidies under certain conditions, to its concessionaires engaged in the construction of railroads at given rates ■“for every section of ten kilometers finished.” This new law, in article 16,.'provided as follows :
“The concessions cannot be transferred either totally or partly to foreign governments. Transfers between private individuals, syndicates ■or companies must be previously approved by the liational executive in •ordfer to be valid.”
This new law of Venezuela was approved May 27th, 1896.
On May 18th, 1897, the government of Venezuela, pursuant to the provisions of the last-mentioned statute or decree, entertained the application of an.agent of the Coro and La Vela Eailroad and Improvement Company for the “addition of an article” to the concession contract of 1892 “for the construction of a railroad between the port of La Vela and the city of Coro, granting a subvention from the national treasury of twenty thousand bolivars for each kilometer of road,” and thereupon granted such subvention, payment thereof to be made “at the completion of each ten kilometers.” This supplementary concession of 1897 recites that the railroad was then in process of construction. There can be no doubt that this subvention was made to the Coro and La Vela Eailroad and Improvement Company which was then engaged in completing the railroad.
On February 18th, 1898, the amount of the subsidy which was due from the-government of Venezuela to the Coro and La Vela Eailroad and Improvement Company was ascertained, according, to law, by the proper officers of the Venezuelan government and “liquidated” at the sum of two hundred and seventy thousand
The history of this railroad enterprise in Venezuela for some years after the liquidation of the subsidy in 1898, is very slightly touched upon in the evidence. It is a matter of history that Venezuela became involved in difficulties with foreign governments, and that her custom houses were seized, and that, largely through the intervention of the United States, an adjustment of the financial claims held by citizens of the United States and other countries against Venezuela was effected through a “mixed commission” created by the United'States of America and the Republic of Venezuela. The claim of the Coro and La Vela railroad against Venezuela for the ascertained amount of the subvention had been diligently pressed on behalf of the railroad company by the direction of Mr. Jacob Baiz, who seems to have stood behind the whole enterprise as its chief promoter and chief creditor. Mr. Bright, whose claim to compensation will hereinafter be considered, kept urging this claim through the diplomatic agencies at Washington, under the direction of Mr. Baiz until his death in 1899, and after that under the direction or in the name of his .personal representatives 'or the railroad company itself.
The railroad company at some time before or after the death of Mr. Jacob Baiz—probably some time after—became insolvent, or for some other reason incapable of continuing its business, and the status of its property in Venezuela is only vaguely indicated by the evidence in. this case. It is alleged that the government of Venezuela took possession of all the railroad property and proceeded to operate tire railroad. It may be surmised that whoever held and operated this railroad made no profit thereby.
On May 2d, 1900, the governor of New Jersey by proclamation declared the charter of the Coro and La Vela Railroad and Improvement Company void on account of the non-payment of taxes due the state for the year 1897. Previous to the making of this proclamation the corporation had been enjoined by the court of chancery of New Jersey from the transaction of any ■further business "on account of the non-payment of said taxes. "Whether the directors of the corporation at the time of its dis
In May, 1903—there being a prospect that the “Mixed Commission” might make an award in favor of the claim which Mr. Bright had been urging—the present suit was brought in this court by Emily M. Baiz and others, executors of 'Jacob Baiz, deceased, against the Coro and La Vela Bailroad and Improvement Company and its directors, praying that a receiver be appointed of all the assets of the corporation, and that the directors be enjoined from transferring or in any way interfering with the same, and thereupon such injunction was granted and Mr. William G-. E. See, now deceased, was appointed receiver.
Upon the appointment of Mr. See, as receiver, Mr. Bright, in May, 1903, presented to the proper United States officials, at Washington, a memorial from the receiver setting .forth that the Coro and La Vela Bailroad and Improvement Company had completed the railroad from La Vela to the city of Coro, in accordance with its contract, and.that the amount of the subvention had been liquidated by the Venezuelan officers at two hundred and seventy thousand bolivars, and that no part of this money had been paid. The memorialist prayed that the claim be presented by the agent of the United States to the “Mixed Commission” according to the protocol, &c., and that the agent of the United States be directed to insist- upon payment.
In June, 1903,.the “Mixed Commission” rendered its judgment awarding the sum of $61,104.70 in United States gold coin “in favor of said claimant,” who is referred to as the Coro and La Vela Bailroad and Improvement Company, and directed that the said sum should be paid by the government of Venezuela to the government of the United States of America in accordance with the provisions of the convention under which the award was made. No money was received by the United States on this claim for a number of years owing, mainly, I understand, to the preference which was given to the payment of certain other claims of great magnitude. The entire amount has now been collected from the United States government by a
I have referred to the obscurity in which the evidence leaves the status of the'railroad, which seems to have been to a large extent completed by 1898, during the eight or ten years which followed» The sole ’purpose of the present suit in this court seems to have been to procure the appointment of a receiver through whom the claim for the two hundred and seventy thousand bolivars could be presented to the “Mixed Commission,5'’ and b]r whom any money awarded on account of that claim could be received. The first receiver, Mr. See, appears to have made no effort to discover any assets in Venezuela. In whose possession these assets were in 1903, and thereafter until 1908 we are not definitely informed, although, as I have said, it is alleged that the railroad property in Venezuela had been seized by the government of Venezuela.
Continuing the history of this South American railroad enter
“was not known to the Venezuelan law, could not produce the consequence of creating in favor of the holders of said bonds any liens or special rights over the properties situated in Venezuela as are those that are being sold in this proceeding,”
and that the purchaser would take free from all encumbrances.
(2) Proceeding now to the examination of the question whether the mortgage of the Farmers Loan and Trust Company ever was a valid encumbrance upon the original concession contract, there seem to be strong grounds for answering this question adversely to Venezuela. The mortgagor was located in Venezuela. Apart from raising money and purchasing material, there is no evidence that it ever transacted the business of constructing or operating a railroad anywhere else. It was created for the purpose of constructing and operating for forty years this railroad in Venezuela. This New Jersey company not only established itself in business in Venezuela, but accepted a concession contract under Venezuelan law, and that contract expressly permitted its transfer to another party “with the same rights, conditions and obligations that are established, complying with the formalities of the law and giving due notice to the government.” 'Whether the “formalities of the law” were complied with and notice was given to the government when this assignment by way of mortgage was made to the Farmers Loan and Trust Company, are 'matters upon which the evidence gives little, if any, information. The express provision for an -assignment of the concession under conditions seems to imply the exclusion of assignments without those conditions. Moreover, the purpose of the article permitting an assignment seems to have been to permit an assignee to come in and construct and operate . the railroad under the terms of the concession. We are certainly far away from such an assignment when we are presented
In view, however, of the unsettled questions of fact relating to. this branch of our inquiry, and the unsettled questions of Venezuela law pertaining to it, I have concluded to pass this fundamental and possibly fatal objection to the establishment of this mortgage as an encumbrance upon the right of the Coro and La Vela Eailroad and Improvement Company to receive this award of money 'now in the hands of the receiver, which award was based upon a recognition and enforcement of this right.
(3) But we are not dealing with the original concession of May 12tlr, 1892. For present purposes, we may assume the mortgage to have been a valid encumbrance upon all the rights of the Coro and La Vela Eailroad and Improvement Company under that concession. We are dealing with the subsidy granted by what is in effect a supplemental concession in 1897, nearly two years after the mortgage was made to the Farmers Loan and Trust Company to secure this issue, of $150,000 of bonds, and one year after a new law had been passed by the government of Venezuela permitting such subsidies to be granted. When the mortgage was made, not.only was there no subsidy provided for, but there was no law under which any such subsidy could -be granted. It might be argued that the mortgage of the original concession of 1892, especially in view of the words contained in the mortgage with respect to after-acquired property, would operate as an equitable mortgage upon supplementary articles which might be added from time to time by agreement between the contracting parties, Venezuela and the mortgagor. Ulrfortunately for this argument, when we examine the law of Venezuela passed in 1896, permitting subsidies to be provided for in concession contracts like this, we find the above-quoted express provision constituting article 16 of the statute:
1 “The concessions cannot be transferred either totally or partly to foreign governments. Transfers between private individuals, syndicates or companies must be previously approved by the National' Executive in order to be valid.”
In considering the question of the'assignability of the original concession of 1892, and the supplementary concession of 1897, it must be borne in mind that while the original concession was assigned to Abram W. Naar¿ and it does not appear that such assignment was permissible,' or in fact was valid under the laws of Venezuela, or, if valid, was. made in accordance with the express terms of the concession itself, the subsequent assignment 'by Naar to the Coro and La Vela Eailroad and Improvement Company was recognized in the most solemn manner by Venezuela, and the subsidy was made directly to that company. 'It is the transfer of rights under the concession to a trust company in a foreign state' by means of an instrument operating as an equitable mortgage to secure loans of money with which we must deal and to which wé must apply these provisions of the Venezuelan contracts and Venezuelan laws.
In my judgment this mortgage of 1895 purporting to cover the concession of 1892, if valid as to that original concession, could not possibly operate as an equitable mortgage upon the' after-acquired subsidy under the law of 1896, when that law expressly prohibits such a mortgage.
“hereby granted, assigned and conveyed, or intended so to be, with all and singular the reversion, remainders, income, tolls, revenues, rents, issues and profits arising out of or from the operation of said railroad, or any part thereof, and privileges, benefits and appurtenances now or hereafter belonging. 'Or in anywise appertaining thereto.”
' In my opinion the habendum clause, the function of which it .is to define the tenure of the grantee, indicates that the mortgage did not. contemplate the acquisition of a subsidy or subvention under a law which might thereafter be enacted, but only moneys which might be acquired from the construction of the railroad.
(5) -If we assume that the mortgage contains language which should be construed as creating under certain conditions an equitable encumbrance upon this after-acquired right to the subvention, I think that the authorities will not permit the establishment of such an equity in favor of the mortgage under the circumstances proved in this case. In the first place, it should be noted that no attempt has been made to argue that the mortgagee could have taken possession of this sum of two hundred and seventy thousand bolivars if upon the liquidation of the subvention at that sum the money had been paid by Venezuela. The most that has been argued, and as I think can possibly with any show of reason be argued, is that upon the mortgage coming due or default in its covenants being made, the equity of the mortgagee in respect of this money would arise. That the mortgagor before the mortgage fell due could collect the two hundred and seventy thousand bolivars and expend them in any legitimate way cannot be doubted.
The mortgage following the usual form provides that until default, &c., the mortgagor should be entitled “to remain in the full possession, use and enjoyment and control” of all the property mortgaged or intended to be mortgaged, and also should be entitled to manage the same and to receive and use the income,” &c., and “all moneys payable and receivable or derivable therefrom.”
The mortgage further provides that in case of default for six months to pay, &c., the mortgagee might take possession of the mortgaged property and conduct “the business operations” of the mortgagor and exercise its franchises and collect the revenues, &c., and after deducting the expenses apply the residue of the money to the payment of the amount due on the bonds.
The mortgage also provided that in case of default, &c., the entire mortgage debt might be declared to be due and thereupon the mortgagee might sell the mortgaged property at public auc
I think under the provisions of this mortgage the most important of which are above set forth, the right of the mortgagee and the bondholders to have this instrument of mortgage enforced as an equitable mortgage upon this subsidy, the right to which did not exist when the mortgage was made, does not appear to have been contemplated as liable to come into existence by the parties to the mortgage, and in fact came into existence two years afterwards—a right pertaining to the construction of the railroad and not to its future operation—can only be asserted after some form of seizure of the subsidy or the property with which it was connected, or the institution of some proceeding to enforce the mortgage. While the mortgagee was standing aside and making no effort in any way whatever to enforce its mortgage .even upon the tangible projierty of the mortgagor, and was leaving the mortgagor, so far as it (the mortgagee) was concerned, in full possession and control of all its property, including this subvention, the mortgagor had full power as against it (the mortgagee) to make or suffer any lawful transfer of this subvention, this right to receive the subsidy. Gilman v. Ill. and Miss. Telegraph Co., 91 U. S. 603; 23 L. Ed. 405; American Bridge Co. v. Heidelbach, 94 U. S. 798; 24 L. Ed. 144; Freedmen's Savings and Trust Co. v. Shepherd, 127 U. S. 494; 32 L. Ed. 163; Zartman v. First National Bank, 189 N. Y. 267; Smith v. Eastern Railway Co., 124 Mass. 154.
In this situation of affairs in 1900 the corporation was enjoined from prosecuting any business, and in 1903 all its assets, so far as the State of New Jersey controlled such assets, were vested in a receiver appointed by a New Jersey court. Moreover, this receiver forthwith proceeded to assert his right as the successor of the Coro and La Vela Railroad and Improvement Company to the only assets which he seems to have noticed, viz., the right, under the subvention from Venezuela and the ascertainment of the amount thereof by the proper Vene
Who in 1903 were the holders of this issue of bonds we are not informed. Venezuela appeared in 1907 as the owner of fourteen-fifteenths of them. Whether or not some time during a period of eight or ten years which preceded the bankruptcy proceedings in Venezuela in 1907 the valuable assets of the railroad .were seized by Venezuela or some other party, we are obliged to infer that the mortgagee and the bondholders did not make the slightest effort to assert any rights under the mortgage in any way whatever. The entire effort to enforce the subvention and collect the amount thereof through the “Mixed Commission”, was mácle by the New 'Jersey receiver without the slightest aid from the mortgagee or the bondholders. This successful operation of the receiver to recover money alleged to have been mortgaged for more than the amount thereof, seems to have been the plainest possible assertion of a’ right in the receiver in derogation of any alleged right or claim of the mortgagee. Except in certain cases a receiver of a dissolved or insolvent corporation administers only the equity of mortgaged properties. It would be a strange result, it seems to me, if this so-called equitable mortgagee could be allowed to stand by, assert no right in any way to this subvention, and their when the receiver primarüy representing the general creditors had effected a recovery of the amount of the subvention, a sum amounting to over $60,000, come into a court of equhy and have its mortgage established as an equitable mortgage upon the $60,000 under the terms of the mortgage relating to after-acquired property.
(6) The Republic of Venezuela, through its representative and attorney, as we have seen, instituted the proceedings in bankruptcy against the Coro and La Vela Railroad and Improvement Company in 1907, ignoring the fact, that long before the cor-’ porate existence of the alleged bankrupt had been terminated
The point to be brought out is that Venezuela in 1897 and 1898, in the most solemn manner in her own court, asserted the invalidity of this mortgage as a mortgage of property situate in Venezuela, and procured in that court an adjudication to that effect, and subsequently received ás a general creditor holding one hundred and forty of -the mortgage bonds, the great bulk of the proceeds of the assets of the bankrupt administered in the Venezuela court, which assets were described in and were attempted to be covered by the mortgage; and now having secured this result, Venezuela comes forward in the court of chancery of New Jersey and seeks to establish the validity in New Jersey of this same mortgage, and, have this court enforce the mortgage as an equitable mortgage covering the proceeds of this subvention as after-acquired property. Of course there is no inconsistency in the claim of Venezuela that this mortgage was inoperative upon property in Venezuela under Venezuelan law, but was valid and operative in respect of property situate in New Jersey under New Jersey law. The inconsistency, however, is made manifest when we consider the legal situs of the right of the Coro and La Vela Bailroad and Improvement Company to
It seems to me that it only makes confusion of thought to consider the situs of this money in the hands of the New Jersey receiver. This money was never mortgaged. This money represents an asset of the insolvent corporation which at all times had its situs in Venezuela. The government of the-United States through a treaty with Venezuela procured an award from arbitrators sitting in Europe for the payment of a sum'of money to the United States in satisfaction of the original claim of the Coro and La Vela Eailroad and Improvement Company, which was established and "liquidated” at two hundred and seventy thousand bolivars in 1898 by the officials of Venezuela acting in that state. The mortgage either covered the after-acquired right to a subsidy or it did.not. If the mortgage became equitably extended so as to cover this right to a subsidy, it must have covered that right when ' such right had its situs as property exclusively in Venezuela. If when the amount due under the subvention, was liquidated the obligation of Venezuela to pay that amount created an indebtedness, it still remains that the mortgagor' "acquired” this indebtedness as property while domiciled in Venezuela, such indebtedness being payable in Venezuelan money in the State of Venezuela and by the sovereign state itself, which was and' is located permanently within its territory. . Notwithstanding the rules
The fact that this money has come into the possession of .the New Jersey receiver while giving the New Jersey court full jurisdiction over it, does not affect its relation to’ the mortgage as an equitable mortgage of after-acquired property. The receiver might be a resident of another state or ev.en of Venezuela. Such a thing is legalty possible.
The inconsistency of the claim of Venezuela in this court consists, I think, in the fact that having procured in her own court a decree that this mortgage was absolutely void as to all property covered by it which was situate in Venezuela, she now endeavors to get a decree from this court precisely to the com traiy. It is true counsel for Venezuela has made ¿no argument and presented.no theory 'in regard to the situs of the asset of this insolvent corporation represented by the fund in the receiver’s hands. His argument seems, however, to assume that this fund represents property acquired by the mortgagor after the mortgage was given, situate'in tlie State'of New Jersey, or, at any rate, not situate in Venezuela.
It has not been argued that there has been any change of the situs of the original after-acquired subvention. Until this New Jersey corporation was dissolved by-proclamation and its assets were vested in a receiver, and it was enjoined from acquiring property by the decree of this court, there certainly was no
Tt is evident, I think, that A7enezuela in order to sustain her claim to a preferential payment on account-of this mortgage, must necessarily take the position that the mortgage equitably "covered this indebtedness of two hundred and seventy thousand bolivars, the situs of which was in Arenezuela when the .right to receive it was “acquired” by the Coro and La A7ela Kailroad and In-qrovement Company, notwithstanding -that A7enezuela succeeded in procuring a decree in -her own court that the mortgage as l-> all property situate in Venezuela was invalid.
This rule of equity and equality,, which applies to the case of a creditor who has already received a dividend in foreign bankruptcy proceedings, is in somewhat clumsy language declared and enacted in the present United States Bankrupt act, section 65d.
. 2 Tire appeal of the Republic of Venezuela from the adjudication of the receiver allowing the claim of the Baiz estate, is not sustained. I do not recall that there is any question as to the amount of that claim. If there is such question the matter can be determined upon settlement of the decree. The proof establishes the claim as something over $70,000.
It is unnecessary to consider the status of the five bonds al-' leged to be held by the Baiz estate as collateral to its claim, because of the conclusion which I have reached that the bonds are not equitable liens on the fund but only represent a general indebtedness. These five bonds, therefore, do not increase the claim of the Baiz estate amounting to over $70,000, nor do they give to the Baiz estate any greater right or equity than that which the estate holds as an established general creditor.
3. The claim of Mr. Bright has received so much attention from court and counsel that an extensive discussion of it seems quite unnecessary. This claim was the subject of an oral opinion rendered upon its first presentation some time ago. My conclusion in regard to this claim has virtually been announced and the grounds therefor have been indicated.
I may say briefly that this whole recovery from the Venezuelan government through the “Mixed Commission” is the product of the industry, skill and zeal of this Washington lawyer, Mr.
If theré are any matters overlooked in this somewhat complex mass of litigations disposed of by this memorandum, they may be brought to my attention upon settlement of the decree which will be upon notice.
