253 F. 868 | 7th Cir. | 1918
(after stating the facts as above). The questions presented and considered in the exhaustive briefs and arguments arc mainly and in substance: (1) Was the lien of the Metropolitan mortgage extended by virtue of the consolidation agreement of 1894 to any property of the Consolidated Company thereafter acquired? (2) Does the lien of the Metropolitan mortgage attach to any equipment acquired after the consolidation of 1894, apart from the effect to he given specific provisions of the consolidation agreement? (3) In Ihc enumeration of the property to he included in the various parcels to be separately offered for sale, should certain parts have been included with the Coal Railway property which by the decree of sale are not therewith included?
“Ordinarily on the consolidation of two corporations (ho lion of tho mortgage of tho constituent does not spread to the properly contributed by tho other constituent, or to the after-acquired property of the consolidated company” — citing in support New York Security Co. v. Louisville, etc., R. Co. (C. C.) 102 Fed. 382; Hinchman v. Point Defiance R. R. Co., 14 Wash. 349, 44 Pac. 867; Gibert v. Washington City R. R., 33 Grat. (Va.) 586; Compton v. Jesup, 68 Fed. 263, 15 C. C. A. 397.
The dominating influence of these words as bearing upon this question is thus stated in the brief for appellant:
‘‘The determinative question (aside from questions relating to certain equipment and to ..the method of sale decreed) is nothing more, or less than the proper construction and legal effect of 14 words in a written instrument, namely, the articles of consolidation whereby in 1894 the Chicago & Eastern*872 Illinois Railroad Company (itself a consolidated company of Illinois and Indiana) and the Chicago & Indiana Coal Railway Company (an Indiana corporation and also a consolidated company) consolidated to form the Chicago & Eastern Illinois Railroad Company, a corporation of Illinois and Indiana.”
The context of these words is shown in the entire article VII, reproduced as a footnote
If these words must ultimately determine whether or not the lien of the Metropolitan mortgage was extended to property acquired by the company at and after the consolidation of 1894, we must in construing them, consider not only the words themselves, but their relation to other parts of the same instrument, and the situation of the parties and the property as well, and in case of any doubt, such construction, if any, as all concerned gave to them before any controversy arose.
It appears that long before the formal consolidation of 1894 the constituent Chicago & Eastern Illinois Railroad Company was an Illinois corporation, with its lines of railroad practically all in Illinois. It had theretofore acquired all the capital stock of the Coal Railway Company in exchange for its own stock, and it had in addition a 999-year lease of all of the Coal Railway property, and was operating that road as a part of its general system, although the separate corporate existence of the two was being formally maintained. After some years of such management it was deemed advisable that there be a consolidation of the corporation, already under the same ownership and direction, and this was undertaken. Thus managed, there was no occasion for careful weighing of the terms or expressions to be employed in effecting the consolidation. One legal repre
If this is the purpose of the 14 words, they could not in fact have effected this end. Concedcdly neither these nor any other words which the two mortgagors might in the agreement for consolidation have employed could have given the Metropolitan bondholders a first mortgage on the already mortgaged property of the constituent Chicago & Eastern Illinois Company, nor could the Central Trust bondholders have thus secured a first mortgage on the already mortgaged propei'ty of the constituent Coal Railway Company. The stockholders might consolidate the corporations, but they could not consolidate the separate mortgages giveii on the distinct properties of the separate .corporations. By their very terms the 14 words, if purporting to make of each of these mortgages a new first mortgage of the Consolidated Company, would give to each of the mortgagees a first mortgage on all its then existing property, and on all it might thereafter acquire — a result clearly impossible, and which it E not at all likely it was any more intended than it could have been effected.
Nor can it with reason he contended that by these words it was intended that each mortgagee, retaining its lien upon the property mortgaged, was granted a second mortgage on 1he other’s property, subject to the prior lien of the other mortgage. The 14 words do not purport to have such effect, nor is such construction warranted by any other part of the article or the instrument.
It is insisted that the immediately following words of the article further appellant’s contention. They are:
“And shell equally secure the payment of all bonds which have been Issued under either of said mortgages or deeds of trust by the Chicago & Eastern Illinois Railroad Company or the Chicago & Indiana Coal Railway Company, as well as all bonds which may be hereafter issued by this consolidated company, pursuant to and in accordance with the provisions of said mortgage or deed of trust made and entered into on the 1st day of November, in the year A. D. 1887, by and between the Chicago & Eastern Illinois Railroad Company and said Central Trust Company of New York, trustee.”
These words also, taken at their face, show a further want of exactness of expression on the part of the draftsman of the instrument. They purport to secure equally the holders of the bonds of both mortgages. If intending to equally secure the payment of all bonds which have already been issued under both of said mortgages, as well as those
Article VII was evidently not first conceived to meet this particular situation. It follows article VII of an earlier consolidation agreement of the former Chicago & Eastern Illinois Railroad with other ■corporations, and therein are found these significantly similar words:
“Tlie mortgage or deed of trust made and entered into on the 1st day of November, in the year 1887, by and between the Chicago & Eastern Illinois Railroad Company, party of the first part hereto, and the Central Trust Company of New York, a corporation created by and existing under the laws of the state of New York, trustee, shall have the force and effect of a first mortgage executed by the consolidated company, and shall equally secure the payment of all bonds which have been issued under it by the Chicago & Eastern Illinois Railroad Company, as well as pursuant to, and in accordance with its provisions by the Consolidated Company.”
The object of the employment of this language in the earlier instrument of consolidation is to be gathered from a peculiar clause in the Central Trust mortgage which is as follows:
■ “If the railroad company shall hereafter consolidate its property and franchises, by sale or otherwise, with the property and franchises of any other railroad company or companies, the several parties to such consolidation may, by apt words expressed in the agreement, give to this indenture the force and effect of a mortgage conveying to the trustee, above named, or its successor, all of the railroads and appurtenant property of the several parties, at the date of such agreement, and all railroads and appurtenant property which may be thereafter acquired, by construction or otherwise, by such consolidated company, to secure upon terms of equality the bonds which may have then been issued hereunder by the railroad company, as well as all bonds which may be thereafter issued by such consolidated company, in substantial compliance with the provisions hereof. In case such agreement shall be made, bonds issued by such consolidated company, shall be substantially in the forms above set forth, but in the name of the consolidated company, and shall be executed under its corporate seal and attested by the signatures of its president and secretary. It is the intent of this provision to invest such consolidated company with power to issue bonds for the purposes expressed, and subject to the conditions named in this mortgage or deed of trust, to the same extent as they could be issued by the railroad company if no such consolidation had been made, thereby giving to the holders of all bonds issued hereunder, whether by the railroad company ’or its successors, equality and security.”
Under this clause of that mortgage the bondholders ■ agreed that, if future consolidating companies shall provide in their articles of
The agreement between the then consolidating companies thus became a necessary .step to render effective this provision of the mortgage by which the bondholders thereunder were bound respecting equal security of then existing bonds and such as were issued under the same mortgage after the consolidation. That mortgage was the same Central Trust mortgage now under consideration, and when in 1894 the consolidation in question occurred, in order to render effective in this consolidation the same provision in the same mortgage, so it would remain an open mortgage under which the Consolidated Company might raise funds for further extensions, etc., it was properly deemed essential that the agreement of consolidation of 1894 should, as in the prior consolidation, make provision that the Central Trust mortgage he kept open to admit of future bond issues thereunder, with equality of security between all bonds theretofore, and all those subsequently issued thereunder. The agreement to that effect between the consolidators was just as essential in 1894 as it was in 1887, the year of the former consolidation. And so it is not strange that in 1894 practically the same language was employed to this end as was by the same persons employed a few years before, in respect to the same mortgage, to effect the same general purpose.
It being deemed necessary, or at least proper, in 1894 to deal specifically with the Metropolitan Trust mortgage in order that no further bonds should be issued thereunder, the language of the earlier provision was somewhat changed. But we do not regard the general intent and purport to have been different in the one transaction than in the other respecting the mortgage which was to remain the active open mortgage of the Consolidaled Company.
The two mortgages were unlimited' in the bonds issuable thereunder. But the Metropolitan mortgage contained no such broad authorization as the Central Trust mortgage, whereunder the mortgage might continue effective for the issuance of further bonds by a consolidated corporation if the consolidators should by “apt words” so declare in their articles of consolidation. It was evidently conceived that with the broad authorization and power of that clause, the Central Trust mortgage was belter adapted for future bond issues to provide for growth and extension after the consolidation, than was the Metropolitan mortgage. Tt is evident to us that the consolidators of 1894 appreciated the situation, and that article VII of the consolidation agreement was designed to meet it. It provided not only “apt words” for giving effect to the quoted clause of the Central Trust mortgage, hut it definitely specified that the Metropolitan mortgage should thenceforth be closed, and. that no further bonds be issued thereunder, and that the Central Trust mortgage should remain open so that, further bonds thereunder might be issued to pay for further ex ten
Conceding that in the absence of provisions to the contrary the consolidation would of itself have closed the Metropolitan mortgage and prevented the extension of its lien to further acquired property of the Consolidated Company, appellant’s counsel insist that the provision in article VII with reference to the Metropolitan Company manifested' an intention to malee provision respecting the Metropolitan mortgage different from what would have been the case if it had not been mentioned at all. We do not think that such intention to make some different provision necessarily appears. Draftsmen of instruments frequently express definitely that which, if omitted, would,'through operation of the law have produced the same result, so that the expression is in a sense a redundancy. This is often out of an abundance of caution, and to avoid, so far as possible, leaving the desired conclusion to construction or inference. It is quite probable 'that the' draftsman was not content to leave the matter of the closing of the Metropolitan mortgage to the inferences to be drawn from such cases as New York Security Co. v. Louisville, etc., R. Co., and the others cited supra, but chose rather to express definitely the purpose and intent to close the Metropolitan mortgage and issue no further bonds thereunder in contradistinction to the intended course as to the Central Trust mortgage, viz. to continue it as the mortgage of the Consolidated Company, for the purpose of raising thereunder further funds for the large extensions which evidently were in contemplation.
Another instance in the same consolidation agreement of the distinct expression of that which in any event the law would impose is found in article X, whereby the Consolidated Company assumes all the debts and obligations of the constituent companies. The definite expression of this obligation does not suggest that one should seek in it a significance or meaning beyond or different from the general obligation of a consolidated corporation to discharge the debts of its constituents.
The inclusion of the Metropolitan in article VII had no essential significance beyond the definite recognition by the Consolidated Company of the mortgage as a lien upon part of the property so about to pass to the Consolidated Company, and of the purpose to close the mortgage to the further issue of bonds thereunder.' Under the law as it is stated in the above quotation from brief for appellant,’ the situation of the Metropolitan mortgage is not materially different from what it would have been had all reference to it been omitted from article VII. In such case it would plainly not have been contended that any lien thereunder was extended to any future acquisitions or extensions of the Consolidated Company.
That no further or different obligations or rights as now contended for were created or imposed by article VH was evidently long the view of all of those who had any duty or function concerning these matters. For 20 years following this consolidation important extensions were being made to the lines of the company, and large sums of
The fact that during all these years the Consolidated Company paid the interest, on the Metropolitan bonds does not materially minimize or change the' inference of fact to be drawn from the omission to record the mortgage in the many counties in Illinois into which the lines were extended with the funds raised under the Central Trust and Bankers’ Trust mortgages.
On the part of the consolidators no reason or motive is apparent wherefore they would undertake by the consolidation agreement to extend the lien of the Metropolitan mortgage to property other than that which it covered at the time of the consolidation. The mortgage was to be closed so that no further bonds would he marketed thereunder. The bonds already issued were disposed of, and there appears no reason why the consolidators should have wished to make the Metropolitan bonds more attractive as an investment. But having determined to employ the Central Trust mortgage to raise money for the contemplated extensions, there was every reason why bonds thereunder, to be placed upon the market for raising large sums, should he made as attractive as possible in order to invite investment in them. But the inevitable result of making the Metropolitan bonds a lien upon extensions would have been an impairment of the company’s further borrowing power under the Central Trust mortgage, as well as under the subsequently issued Bankers’ Trust mortgage. It is to be noted that under these mortgages bonds for extensions could be issued for the amount of $18,000 per mile of main track including any prior liens thereon, and that in the many certificates issued for the certification of bonds for extensions, the Metropolitan mortgage was never mentioned as an existing lien.
It wottld in our judgment require more than the construction undertaken to he given these 14 words to warrant the conclusion that the consolidators thereby intended to or did undertake to bind the Consolidated Company, as well as the Central Trust mortgage, to an extension of the lien of the Metropolitan mortgage to the Central Trust security then on hand, and to the lines of the Consolidated Com
It does not appear that through bookkeeping, accounting, marking or in any manner whatever the Consolidated Company ever set apart any of the much larger equipment it acquired after the consolidation, as in replacement of disposed-of Coal Railway equipment, or that any steps whatever were taken to subject to the lien of the closed Metropolitan mortgage any of the subsequently acquired equipment, as in replacement of that disposed of. The most frequent practice of the Consolidated Company was to procure equipment from the makers, who took trust certificates or other obligations, under which they retained the title, or a lien on the equipment, for the price of it, and from time to time the Central Trust Company or the Bankers’ Trust Company would certify bonds in accordance with the provisions of their mortgages not exceeding the value of the equipment, to supply funds with which the company might discharge its obligations therefor to the makers, and thus acquire title from or release of the liens of the makers. To a certain extent also the Consolidated Company bought equipment, and from time to time the Central and Bankers’
This contention for a lien of the Metropolitan rests, not on any covenant for lien on after-acquired property, but on a contractual obligation of the mortgagor to maintain and replace the mortgaged equipment. But the Metropolitan mortgage imposes no such obligation. The usual covenant for maintenance and replacement of equipment is not to be found in this mortgage. The nearest approach is a provision in article VIII empowering the trustees to allow the railway company to dispose in its discretion of such equipment, machinery and the like, as may have, become unfit for use, the company replacing such by new, and. all property acquired to replace “any of the property conveyed under the provisions of this article” to be subject to the lien of the mortgage without other act or conveyance. The evidence does not show any equipment to have been disposed of under the terms of this article. Evidently it was considered that the after-acquired property provisions of the mortgage would sufficiently protect the mortgagee in this regard. But these provisions having under the circumstances become ineffectual to that end, we are not at liberty, in the absence of evidence of fraudulent, mistaken of accidental omission, to import into the mortgage a replacement covenant which the parlies have not included. But if it were there, or if the provisions present were properly to be construed as such a covenant, no lien would attach merely because of the mortgagor’s breach .of the covenant through its failure to maintain and replace the Coal Company equipment of 1894. United States Trust Co. v. Wabash W. Ry. Co. (C. C.) 38 Fed. 891; Fosdick v. Schall, 99 U. S. 235, 25 L. Ed. 339.
Respecting generally the severance and sale of the Coal Railway from the rest of the so-called Chicago & Eastern Illinois system, we are satisfied the decree of the district court was proper. ‘The Metropolitan mortgage covers the Coal Railway only. The Coal Railway does not appear to be essential to the rest of the system, nor the rest of the system to the Coal Railway. It does not appear to us that either materially supplements the other. The master’s report finds the Coal Railway to be a parallel and competing line with the Chicago & Eastern Illinois, and indeed the Coal Railway appears to be in a small way a system in itself. The association and ultimate consolidation of the two was manifestly for the purpose of eliminating competition between them. There appears no such interrelation between these parts as to suggest substantial disadvantage to either from the severance decreed, _ except as is hereinafter indicated and provided against.
Under the evidence the master found that the Coal Railway division was being and for some time had operated at considerable loss. Ordinarily this of itself would not be a sufficient cause for “sloughing off” branches, or disrupting a railroad system. While deliberate purpose to run down and make unprofitable the Coal Railway division of this system is suggested, no evidence appears to connect the trustees or bondholders of the Central Trust mortgage with any such purpose. That mortgage was given before the consolidation, and if it be true that the Coal Railway can be operated only at a loss, it would, diminish the security of the Central Trust mortgage if the more remunerative property upon which it is secured, could be sold on foreclosure only in connection with the losing Coal Railway. In any view of this record, we see no impropriety in the decree in permitting severance and separate sale of the Coal Railway under tire foreclosure of these mortgages. ■
With the Momence-State Line road the situation is quite different. This was built before the consolidation, by the Chicago & Eastern Illinois, but after a community of interest had been established between the two lines, to join a line built about the same time by the Coal Railway from Percy Junction, Ind., to the state line. The two form a line about 40 miles long (about 29 miles in Indiana and about 11 miles in Illinois) running in a northwesterly direction towards Chicago and constituting the most advantageous and logical connection of the Coal Railway for its traffic with Chicago, which is the principal market for the coal and other commodities carried by the Coal Railway. It serves to form a continuous line from Momence through Percy Junction and thence in the. same general southerly direction about 100 miles further to the south terminus of the Coal Railway. That this Momence-State Line bit of road was by the Consolidated Company regarded as really a part of the general Coal Railway property is indicated in a description of it in the Bankers’ Trust mortgage, where in connection with the Coal Railway from the state line to its southern terminus it was described as “a main line of railroad extending from Momence, 111., by way of Goodland, Ind., to Brazil, Ind.” There are no stations of any importance between Momence and Percy Junction, and it seems plain that severance arbitrarily at the state line would leave the Illinois stub end of practically
As to the railroad from Momence to the state line, and equipment for the Coal Railway, the decree of sale should be modified so as to provide that the railway, from its junction with the Chicago & Eastern Illinois main tracks at Momence to the Indiana state line, and all right of way, stations, depots, structures, telegraph and other appurtenance thereto, be, under the direction of the district court, fairly appraised, and that under same direction there be set apart from the equipment found in the decree to be subject to the Central Trust mortgage lien, an amount thereof reasonably necessary and suitable for the operation of the Coal Railway as a going operating road, having reference also to the operating needs of all the divisions now being served by all of such equipment; and that under the direction of the court the equipment so set apart for the Coal Railway be appraised at its fair market value; that thereupon within a time to be fixed in the decree, appellant indicate as the district 'court may direct, whether or not the Momence-State Line road, or the equipment set apart, or both are acceptable at such appraised values, and if acceptable, they or such as is acceptable, be accordingly included and offered for sale with said Coal, Railway; and upon the sale thereof, before any part of
The cause is remanded with instructions to so modify the decree of foreclosure as to make it-conform hereto. In the other respects the decrees are affirmed. Two-thirds of the costs of the appeals shall be paid by appellant, and one-third by appellees.
On the argument Judge KOHLSAAT sat with the court, but he died before the opinion was prepared.
“Article VII.
“The mortgage or deed of trust made and entered into on the 1st day of November, in the year A. D. 1887, by and between the Chicago & Eastern Illinois Railroad Company and the. Central Trust Company of New York, a corporation created by and existing under the laws of the state of New York, trustee, also the mortgage or deed of trust made and entered into on the 1st day of December, in the year A. D. 1885, by and between the Chicago & Indiana C'oal Railway Company and the Metropolitan Trust Company of the City of New York, a corporation created and existing under the laws of the state of New York, and R. B. F. Pierce, of Crawfordsville, in the state of Indiana, trustees, shall have the force and effect of first mortgages executed by this consolidated comyatvy, and shall equally secure the payment of all bonds which have been issued under either of said mortgages or deeds of trust by the Chicago & Eastern Illinois Railroad Company, as well as all bonds which may be hereafter issued by this consolidated company, pursuant to and in accordance with the provisions of said mortgage or deed of trust made and entered into on the 1st day of November, in the year A. D. 1887, by and between the Chicago & Eastern Illinois Railroad Company and said Central Trust Company of New York, trustee.
“No bonds shall be hereafter issued under or pursuant to said mortgage or deed of trust made and entered into on the 1st day of December, in the year A. D. 1885, by and between the Chicago & Indiana Coal Railway Company and said Metropolitan Trust Company of the City of New York and said R. B. F. Pierce, trustees; but nothing in this article contained shall be construed in such manner as to limit or restrict the powers of this consolidated company to execute other mortgages or deeds of trust* conveying its property, or any part, thereof, to secure, the principal or interest of any other debt or debts which ‘it may create.”