17 F. 753 | U.S. Cir. Ct. | 1883
This is a motion for a preliminary injunction to restrain the defendant the American Loan & Trust Company from delivering $1,000,000 of bonds of the defendant the Consolidated Railroad Company of Vermont to the stockholders of the defendant the Vermont & Canada Railroad Company, and has been heard on bill and answers. According to the bill the property and franchises of the Vermont Central Railroad Company primarily, and those of the Vermont & Canada Railroad Company ultimately, were subject to $5,357,000 of liabilities, which the property of the Canada Company, after exhausting that of the Central Company, was more than sufficient to pay. The Consolidated Railroad Company of Vermont has succeeded to the property, franchises, and liabilities of the Con
The answers set forth that the property and franchises of the Central and Canada Companies are subject to a further liability of $643,-000 to the Central Vermont Bailroad Company; that interest overdue on the $5,357,000 amounted to $2,300,000, making in all $8,300,000, which was more than the value of the property, and subsequently to an annual rent of $240,000 to the Canada Company, of which $2,640,000 was overdue, and that, by way of concession and compromise the security holders had agreed to forego the interest due them, and exchange their securities for these bonds at par, and leave $1,000,000 of the bonds for the Canada stockholders, equal to one-third of the par value of the stock, in place of all claim for rent, past or future; which was agreed to by the Canada Company in its corporate capacity, and stockholders individually, of $2,700,000, out of the $3,000,000 of stock; and that the mortgage of $7,000,000 was as large as the property would bear, and the arrangement advantageous instead of detrimental to the Canada Company and stockholders ; and that a surrender of the stock in exchange for the bonds was an essential requirement for carrying out the compromise, and not any substantial part of its consideration. Those parts of the answers that show the consideration of the bonds and mortgages, their adequacy to the value of the property, and the purposes for which the bonds are intended to be delivered to the stockholders of the Canada Company, are directly responsive to those parts of the bill that charge want of consideration in part, an excess of property belonging to the Canada Company, and a fraudulent purpose towards the interests of that company and the minority of the stockholders, and must be taken to be true upon this motion, while those parts in avoidance are not to be so taken.
The question raised on this motion is not affected in any way by the bonds themselves, for they are the bonds of the Consolidated Company only, and the Canada Company is not a party to them; nor by the mortgage of the Consolidated Company, which covers only its own property, but relates only to the validity of the mortgage of the Canada Company as against the rights of its stockholders as security for this $1,000,000 of bonds intended for them. It is claimed to be invalid on the ground, principally, that it is outside of the corporate
The road of the Canada Company was an extension of the line of the Central Company, and the lease of it to the latter was made before it was completed, and was perpetual, without clause of re-entry for non-payment of the rent. At that time there was no statute dispensing with a stipulation for re-entry in ejectment for non-payment of rent, as there is now first enacted with the General Statutes of 1863. Comp. St. p. 286, § 14; Gen. St. p. 339, § 14; Rev. Laws, § 1259. The lease was held operative and the road passed in perpetuity to the Central Company; and while matters so remained, the Canada Company had nothing in respect to the road but the right to recover the rent of the Centra] Company. Afterwards an agreement was made that, upon defatflt in payment of rent for four months, the Canada Company might enter upon both roads and take the whole income of them until the rent should be paid up, when the Central Company might resume possession. This agreement was held opei'ative to entitle the Canada Company to the income of the roads, but not to their possession, for the payment of its rent, to be reached by receivers of the court. Vermont & C. R. Co. v. Vermont Cent. R. Co. 34 Vt. 1.
Thus, as said by Barrett, L, in the same case, before the court on petition of the receivers to sell the roads to pay the accumulated expenses of the receivership, (50 Vt. 500:)
“Virtually and practically under the lease both roads became a single one, In the permanent and perpetual proprietorship of the Vermont Central Railroad Company, and under the permanent possession and control of the Vermont Central Railroad Company, subject to the first right of the Vermont & Canada to the net income, to pay rent four months and more overdue.”
—And by Redfield, J., in Langdon v. Vermont & C. R. Co. 54 Vt. 593:
“ The Vermont & Canada Railroad and the Vermont Central, each having its corporate entity and franchise, were so bound together by mutual and perpetual covenant that they had become one road. The Vermont Central road was the owner of the whole line including the two roads, subject to certain rights and interests in the property of its mortgage bondholders, and the rent claims of the Vermont & Canada road. The Vermont & Canada Railroad held and owned the right to a fixed annual rent as a first charge on the income arising from the use of said line of roads, and a right to compel the application of such income to the extinguishment of such vents in case they were in arrear. The property of the Vermont Central Railroad was, its roads and incidents, subject to certain fixed burdens. The property of the Vermont & Canada was a leasehold estate, and susceptible of valuation and alienation like other property.”
On questions like these, touching rights of property under the laws of the state, those laws, and the decisions of the state courts construing them, are of binding force, and govern in the federal courts. Rev. St. § 721; Nichols v. Levy, 5 Wall. 433. Under these
Again, power for this purpose- may be found in another direction. When the Canada Company was in danger of losing its charter, by failure to comply with its conditions, the legislature made provisions for its continuance, but provided, also, that the original charter, and all its amendments, should be subject to the control of the general assembly, and might be altered, amended, or repealed as the public good might require, and for the acceptance of this act. Laws Vt. 1859, p. 85, § 3. The company proceeded under the act and became subject to it, as it did to -the law authorizing leases of railroads, passed after the charter was granted, under which this lease was held valid. Vermont & C. R. Co. v. Vermont Cent. R. Co. 34 Vt. 1. This brought the company within the reach of the act of 1882, which provides that “when two railroads are incumbered by a lien or liens upon the two roads, the company owning either road may issue . bonds” “for the purpose of extinguishing such lien or liens and compromising disputes, ” secured by mortgage or mortgages of both roads; “by vote of the stockholders of the companies owning 'said roads.” Laws Vt. 1882, p. 46, § 2. The rent of the Canada Company was a lien upon the income of both roads, which incumbered the roads themselves. It was due to the company as trustee for the, stock
When the rent is extinguished this property represented by the stock will be practically extinguished, as before alluded to, so far as railroad interests will be concerned. Its transfer to the Consolidated Company would not transfer the corporate powers of the Canada Company over any railroad to that company, nor extend or curtail the control of the franchises of either, and is not within the principle that one railroad company cannot extend its franchises and privileges by purchasing the stock of another and controlling it. " The stock of the Canada Company represents a moneyed security of the roads; the bonds are to extinguish the securities as such, and not for the purchase of the stock as such. The original lease provided for an absolute grant and release of the road in perpetuity at any time after 20 years, subsequently changed to 50, upon payment of an amount sufficient to pay to such stockholder the par value of his stock. The plan now sought to be carried out is in lino with this provisions, and not a new scheme to crush out any rights of a minority of the stockholders. The corporate powers of the company should be exercised with due regard to the just rights of all the stockholders, and not for the purpose of sacrificing the interests of the minority for the advantage of the majority. This plan does not appear to he prosecuted for any such purpose, hut presents the aspect of an honest and fair endeavor to save to these stockholders a remnant of their property, as mentioned by Judge Bedeledd to be so desirable in Langdon v. Vermont & C. R. Co., before cited. When this scheme for settlement was begun there were, besides the holders of this debt'of $5,357,-000, of which $4,357,000 was bonded, and $1,600,000 was floating, and the Central 'Vermont’s receiver’s claim of $643,000, and the Canada stock already mentioned, the first-mortgage bondholders to the amount of, originally, $2,000,000, and second-mortgage bondholders to the amount of, originally, $1,500,000 of bonds, on all of which the interest had long remained unpaid, and each class was contending for priority. In the plan some concessions were made by all, and some provision was made for all. That it was at largo just and fair is shown by its general acceptance. The considerations for its acceptance by each was its acceptance by the others. When the orator commenced proceedings, the Consolidated Company had been formed by the mortgage bondholders, the Canada rent had been reduced to a nominal sum, the mortgages had been made and delivered, and the bonds had been delivered to the loan and trust company and some of them to the security holders entitled to them, so that tho scheme could not be abandoned and the status restored. The Vermont & Canada stockholders all stood together in interest, with the advantage over bondholders and single creditors of having
The motion is denied.