36 F. 288 | U.S. Circuit Court for the District of Southern New York | 1888
The complainant is the trustee named in a mortgage made by the American Rapid Telegraph Company, bearing date September 1, 1888, to secure $8,000,000 of bonds, for $1,000 each, with interest, payable semi-annually, from March 1, 1884, and maturing September 1, 1893 This mortgage was created by the American Rapid Telegraph Company pursuant to an agreement made August 28, 1888, with the Bankers’ & Merchants’ Telegraph Company It is expressed, in terms, to cover all the existing lines and property o'' the American Rapid Telegraph Company, “together with the lines of telegraph intended to be shortly constructed or acquired for the party of the first part, (the mortgagor,) so as to connect the following points : Buffalo, N. Y., by a northerly route, with Chicago, Ill.; Pittsburgh, Pa., via Columbus, Ohio, Indianapolis, and Torre Haute, Ind., with St. Louis, Mo.; Columbus, Ohio, with Cincinnati, Ohio, and Louisville, Ky.; and Terre Haute, Ind., with Chicago, 111.” .Default having been made in the payment of the interest upon the bonds, the complainant filed a bill for the foreclosure of the mortgage in the circuit court of the United States for the district of Connecticut, the mortgagor being a Connecticut corporation; and an ancillary bill was filed in this court. The present suit is brought in aid of the foreclosure suit, the defendants being in this jurisdiction, to subject to the operation of the decree certain telegraph property to which some of the defendants claim title. Relief is prayed, in substance, that this property be adjudged to be subject to the lien of the mortgage, and, when sold under the decree in the foreclosure suit, that the claims of the defendants be barred and eut off. Relief is also prayed that the defendants be required to convey the property to the complainants.
The Bankers’ & Merchants’ Telegraph Company created a mortgage, bearing date November 24, 1883, to secure bonds to the amount of $10,-000,000, in which the Farmers’ Loan & Trust Company was named as the trustee; and the claim of the defendant the United Lines Telegraph Company to the property in question is founded upon this mortgage, being derived by purchase upon a decree of foreclosure thereof, under which it asserts a title paramount to the complainant’s title. No other defendant sets up any adverse claim or title to the property except the defendant Stokes. He answers jointly with the United Lines Telegraph Company, and his answer alleges that a part of the property in contro
In August, 1883, those who respectively controlled the Rapid Company and the Bankers’ & Merchants’ Company concerted a scheme by which the Bankers’ & Merchants’ Company was to acquire the control and property of the Rapid Company, and the stockholders of the Rapid Company were to transfer their stock to the Bankers’ & Merchants’ Company, and become mortgage bondholders of the Rapid Company, instead of stockholders. At that time the Rapid Company owned and was operating a telegraph-system extending from Boston in the east to Cleveland in the west and Washington in the south, having stations in the more important places between these points. It had been constructing its lines for several years, and stations were established at those points between which the lines were completed. It had a line from New York, through New Haven, Hartford, and Providence, to Boston; one from Hartford to Springfield; one from Albany t'o Buffalo, with branches running to Saratoga and Albany, and to the stockyards at West Albany; one from Buffalo to the Oil regions, and Newcastle to Pittsburgh; one from Newcastle to Cleveland; one from Canton, through Cleveland, to Coshocton; one from Canton to Sherredsville, Ohio; one from Philadelphia, through Harrisburg, to Pittsburgh; one from Harrisburg to Baltimore; and there were several “loop lines.” Its system was incomplete, and those in control of the corporation believed that the ex-tention and 'completion of the system was essential to the prosperity of the company. The company had been doing business at a loss, but its business was increasing. It had no bonded debt, and its property represented an expenditure of between $2,000,000 and $3,000,000. The Bankers’ & Merchants’ Telegraph Company owned and was operating a line from New York to Washington. Its business was profitable, and its stock was selling considerably above par. Those who controlled it contemplated extending its system to the New England states, and in the south and west. It was in a good financial condition, and, with a view of extending its system, had created a mortgage upon its property for $300,000, and was in a position to realize about $1,000,000 by the sale of its unissued capital
In the early part of 1884 a new line of telegraph was built by the Bankers’ & Merchants’ Company, connecting the system of the Rapid Company at Cleveland with Chicago. This line extended from Cleveland to Freeport, and from Freeport to Hammond, near Chicago, until it met an underground telegraph system leading into the city of Chicago. The system of the Rapid Company reached Cleveland from Buffalo by the way of Newcastle, in Pennsylvania, and Streetsboro, in Ohio. The new line from Cleveland to Chicago was built upon rights of way secured in the name of the Bankers’ & Merchants’ Company, or subordinate corporations of which that company was the owner, and through which it acted. Mr. May, who represented the Rapid Company, was requested by the officers of the Bankers’ & Merchants’ Company to supervise the selection of the route, and did so. While the line was in process of construction it was understood by those who represented the Bankers’ & Merchants’ Company and the Rapid Company that it was being built to form a part of the line which was to be a connected system with the Rapid Companj1', at Buffalo, by a northerly route with Chicago. The portion of the new line, which was to extend from Cleveland to Buffalo by a northerly route, was not commenced. The new line from Chicago to Cleveland was inspected and accepted by the Bankers’ & Merchants’ Company, and was connected with the' Rapid system at Cleveland, and the wires run, into the office of the Rapid Company there. As early as in July, 1884, the line was used as an adjunct of the Rapid system. There was no formal transfer or delivery of this line by the Bankers’ & Merchants’ Company to the Rapid Company. The com-
The contemplated new lines for extending the system of the Rapid, Company from Pittsburgh, by way of Indianapolis and Terre Haute, with St. Louis, Columbus with Cincinnati and Louisville, and Terre Haute with Chicago, which, by the August agreement, the Bankers’ & Merchants’ Company promised to build or acquire for the Rapid Company, were not completed. Detached portions of these lines were built, but before the lines were completed the Bankers’ & Merchants’ Company became insolvent, a receiver of its property and effects having been appointed in September, 1884. As has been said, it was not insisted on at the hearing that the $3,000,000 mortgage became a lien upon these uncompleted lines, and it is therefore unnecessary to consider the question whether it did or not; but it is proper to state that there seem to be quite satisfactory reasons why the claim, if urged, could not prevail.
The property known as the“ Strung Wires ” consists of lines of wire strung by the Bankers’ & Merchants’ Company upon the poles of the Rapid Company, and which were used and employed, in conjunction with the other wires of the two companies, as part of the general system, while the Bankers’ & Merchants’ Company was in control of both companies, and before it became insolvent. As to this property the case involves the question of fact whether a contract was made between the two companies by which each was to have the right to string wires and maintain them on the poles of the other on payment of a rental of four dollars per mile per wire, annually, the wires to become the property of the lessee if not removed within six months after notice to do so. The evidence that such a contract was made consists (1) of an entry in the minute book of the executive committee of each company, as of the date of October 18, 1883, showing that a resolution was that day adopted by the committee to enter into such a contract; (2) an agreement in writing between the two companies embodying the agreement referred to in the minutes of the two committees, which purports to have been made on October 18,1883, and is signed for the Bankers’ & Merchants’ Company by its then president and for the Rapid Company by its then general manager; and (3) a resolution of the board of directors of the Rapid Company, adopted August 14, 1884, ratifying and approving the previous contract. The bill asserts that the .contract was an afterthought, and that the entries in the minute-book of the executive committee of the respective companies were fabricated, and that the written agreement was not executed until it was made in contemplation of the insolvency of the Bankers’ & Merchants’ Company. In support of this theory testimony is given by several of the persons who principally represented the interests of the bondholders of the Rapid Company while the two companies were amalgamated, one of whom was a member of the executive committee of the Rapid Company, to the effect that they did not hear of any such resolution, and had no information about such a contract prior to the meeting of the board oí directors in August, 1884. It will not be profitable
It has been urged against the validity of the mortgage made by the Rapid Company that it was created merely as a device’to enable the Bankers’ & Merchants’ Company to acquire the property of the Rapid Company; that the scheme was a fraud upon the stockholders of the respective companies, and intended to be a fraud upon the public; and that the agreement between the two companies, under which the mortgage was created, was ultra vires as to each corporation. Without considering at present what the effect would be upon the legal rights of the parties if this contention were maintainable upon the proofs, it is proper to consider whether there is any foundation in fact for the charge of bad faith. As has been stated, the $3,000,000 mortgage was doubtless made in order that the Bankers’ & Merchants’ Company could acquire the shares of the stockholders of the Rapid Company in exchange for the bonds. It was intended as an instrumentality to effect that object, and to give the stockholders of the Rapid Company the option of transferring their shares to the Bankers’ & Merchants’ Company, and taking bonds in exchange for their stock. All concerned understood that if the Bankers’ & Merchants’ Company could acquire, all the shares of stock in the Rapid Company, or practically all, it would acquire the control and substantial ownership of the property of that corporation. What the stockholders of the Rapid Cornpany would get for their stock would depend upon the value of the $3,000,000 mortgage as security for the bonds. As a considera
No good reason having been suggested why the mortgage is not valid, and why it should not be enforced, the question as to the rights of the parties in the property in controversy is merely whether it is covered by the lien of the mortgage, or equitably belongs to the complainant, and whether the rights of the complainant therein are paramount to those acquired under the $10,000,000 mortgage. - No satisfactory reason is assigned why the lien of the $3,000,000 mortgage should not include the reconstructed lines. The mortgage was duly recorded before the $10,-000,000 mortgage of the Bankers’ & Merchants’ Company was recorded, and no question arises under the registry act as to the priority of lien of the respective mortgages. If it should be conceded that the money of the Bankers’ & Merchants’ Company was exclusively used in the improvement and reconstruction of these lines, and that the improved value of the property represents nothing except what was put into it by that corporation, there is nothing to distinguish the case from the ordinary one where a mortgagor or his vendee of the mortgaged property makes repairs and improvements of a permanent character. Such improvements as become a part of the realty always inure to the security of the mortgage. Illustrations of the application of the rule in somewhat analogous cases are found in U. S. v. Railroad Co., 12 Wall. 362; Butler v. Page, 7 Metc. 40; and Snedeker v. Warring, 12 N. Y. 170. But the strung wires do not fall under the operation of this rule. Inasmuch as they can be removed without material injury to the structure, they do not lose their character as personalty, and become a part of the realty, if it was the intention and contract of the two companies, at the time they were affixed to the poles of the Rapid Company, that they should retain their original character. With respect to this class of property the'parties in interest may agree that it shall remain personalty, subject to be removed; and such an agreement determines the real character as against an existing mortgage. The effect of such an agreement, where the subject was the annexation of telegraph wires to telegraph poles, was considered in Telegraph Co. v. Railroad Co., 11 Fed. Rep. 1, and it was ruled that the wires did not pass under an existing mortgage. The general doctrine is so well established that it is unnecessary to cite authorities.
The line from Cleveland to Chicago was constructed “to connect Buffalo by a northerly route with Chicago,” pursuant to the agreement of August 28, 1883, and is the same property described and conveyed in the mortgage as one of the lines “to be shortly constructed or acquired” for the Rapid Company. The circumstance that there was no formal delivery or transfer of this property to the Rapid Company by the Bankers’ & Merchants’ Company is not material. Equity regards that as done which ought to have been done; and as soon as the property was acquired by the Bankers’ & Merchants’ Company it became in equity the