50 F. 853 | U.S. Circuit Court for the District of South Carolina | 1892
This bill is filed in behalf of second mortgage bondholders of the South Carolina Railway Company, praying foreclosure of that mortgage. The railroad property of the defendant was purchased at a sale ordered in this court, foreclosing a mortgage of the South Carolina Railroad Company. This property is now covered by several liens. The first is the lien of certain bonds of the Louisville, Cincinnati <& Charleston Railroad Company, (afterwards called the “South Carolina Railroad Company,”) created by statute. This lien is now represented by the claim ol' Henry Thomas Coghlan, which has been reduced to a decree, and at present, with interest, is about $67,000. The next in rank is the lien of a mortgage of tho South Carolina Railroad Company to Walker and others, trustees. Of the bonds secured by this lien there are outstanding, past due, $253,825.31. Next comes the lien of the consolidated first mortgage of the South Carolina Railway Company securing bonds of ihe par value of $5,000,000. The interest on all the bonds secured, by these liens has been paid, except lor the past year. The next lien is that of the second mortgage bonds of the South
At the hearing the first question discussed was that between the trustees of the first consolidated mortgage and the bondholders, their cestuis que trustent, who arraign and antagonize their action in declaring the bonds past due, and seeking a foreclosure of the mortgage. This question was 'argued at length, and with great ability. There can be no doubt that, however large the discretion of trustees may be in the exercise and execution of their trusts, the court never loses its power to review the use of this discretion, and, if need be, to correct any abuse in its exercise. Perry, Trusts, § 511, and cases quoted. Compare Michoud v. Girod, 4 How. 554; Wormley v. Wormley, 8 Wheat. 441; Oliver v. Piaatt, 8 How. 400; Markey v. Langley, 92 U. S. 142; Pray v. Belt, 1 Pet. 670. A trustee, in dealing with his cestui que trust, or in the management of the trust estate, must always show uberrima fides. He must never lose sight of the fact that he is acting for another, who is the real beneficiary; and no thought or hope or purpose of personal advantage can have part in the motive for or in the result of his act. Perry, Trusts, § 427. If discretion be given to him by the instrument creating the trust, “this discretion may be likened to that of judges. It is not arbitrary discretion. It does not include the unrestrained power to do what the trustee pleases. To extend it that far'is to make it a means of destroying the trust which it was-intended to aid and maintain. The trustee, instead of doing merely what in his present circumstances he chooses to do in deference to his interests or'inclinations, is to do that
In the view which we take of the case, the further discussion of this question is unnecessary. The prayer of the cross bill of Walker el al., trustees, and that of Coghlan, are not resisted. They are entitled to their money. As the railroad property is a unit, and is valuable for this reason, it will not be advisable, were it possible, to sell a part of it to satisfy these claims. It is to the interest of all parties that if a sale be had it must be of the whole. If the sale be postponed, such postponement would be in the interest of the holders of a part of the first consolidated mortgage bonds, and against the wishes of the holders of all other securities and of the railway company. The experience of the past three years shows the exercise of great economy and ability by the receiver and his subordinates. With the exception of the current year, the business has been excellent. Yet all the earnings have been needed for the equipment of the road, and for keeping it in proper order and repair. The surplus has, from time to time, been applied to the interest on the oldest securities and the past-due coupons of the first consolidated mortgage. The interest on all these securities is in default one year. No interest whatever has been paid upon the junior securities. It is true that the money expended upon the road has made the whole property much more valuable, and to this extent all the securities are benefited. But primarily the senior securities enjoy the benefit of these expenditures. And it would be inequitable to deprive the junior securities of any advantage which might be derived from an enhanced price at a sale, and a recovery of a part at least of their principal. A postponement of the sale, therefore, may do no good to any but a class of the secured creditors, and may be a great injury to every other class. Where there are two classes of creditors before the court, one of which is safe at all events, and the safety of the other is doubtful, the latter class are entitled to the consideration and care of the court. All parties in interest are before us. A decree will be passed for the sale of all the property covered by the several liens and mortgages ascertained and mentioned, in which provision shall be made declaring all first consolidated mortgage bonds entitled to payment as if past due, which decree shall provide for a sufficient cash payment to meet the costs and expenses of the case, and to liquidate the obligations of the receiver which have been entered into with the sanction of the court.