53 Ala. 237 | Ala. | 1875
In this cause there is a severance, and errors are separately assigned by several of the parties appellant ; and there is a cross-assignment of errors by the appellees, under the rule. The amount involved is large ; the questions discussed are numerous, and some of them very important. They have been argued by eminent counsel, with great ability, and ably discussed in the opinion of the chancellor.
I. We overrule the objection to the jurisdiction of the chancery court of Dallas county to hear and decide this cause, founded on the pendency of the prior suit of Amy and Moran against some of the parties hereto, in the court of the United States. The complainants in this cause are not parties at all to the suit in the Federal court, the plaintiffs in it having voluntarily dismissed their bill as against them, and that court having set aside, and vacated its order appointing receivers. Besides, the trust deed to the complainants in this cause, is more comprehensive than that under which Amy and Moran claim, which operates on a portion only of the property of the defendant corporation, while that to the complainants embraces it all.
II. An important question to be decided at the outset, is this: What effect did the agreement of August 8th, 1866, between the two Georgia railroad companies and the Alabama and Tennessee River Railroad Company, and the acts of Alabama and Georgia authorizing and ratifying that agreement, have upon the Alabama company? Did this company become thereby dissolved, and a new one constituted under the title of the Selma, Rome and Dalton Railroad Company, or, did the Alabama and Tennessee River Railroad Company continue to exist, with privileges enlarged and resources increased perhaps, but still continue to exist, under the new name ?
A correct solution of this question- requires that we somewhat closely examine into the history, condition, and objects of the companies, parties to that agreement, and the circumstances tending to explain it.
By the act of 1848, incorporating the Alabama and Tennessee River Railroad Company, it was authorized to construct a railroad from the Alabama river at Selma,, “to some convenient point on the Tennessee and Coosa railroad.” This latter road was not then in existence, nor has it since been built; but an act of the General Assembly was passed in January, 1844, for the incorporation of a company to build it — between Guntersville, on the Tennessee river, and some point on- the Coosa river, And to this latter point, pre
After this an act of the General Assembly was passed, (February 20, 1866,) authorizing the company to extend its railroad from Blue Mountain, (eastwardly of north,) to “such point on the Georgia State line, as the company might select.” And by the same statute, the object of which was declared to be, “to promote and facilitate as far as practicable, connections between the railroads and system of roads in this State and the railroads and system of roads in adjacent States, constructed and to be constructed,” — the Alabama and Tennessee River Railroad Company, was authorized “to unite and consolidate their railroad, or any portion thereof * * * and their stock and franchise, or any portion thereof, with the road, or roads, and stock and franchise of any other railroad company, or companies, in this or any other State, on such terms as may be agreed on by and with the interested and contracting parties,” — or, “to purchase and own the stock and railroad and appurtenances and franchise, or any portion thereof, of any other company existing in this State or any other State ” * * * “with whose roads, the road of this said company, or any portion thereof * * * may become united or connected, on such terms and conditions as may be agreed on, by and with the interested and contracting parties.” By section 6, it was “further enacted — that said company shall have power to change ” their name “for one less inconvenient in length; * * * and under the new name which may be selected and adopted, shall continue and exist, in all respects with all rights, privileges, liabilities and obligations, as under the present name.” And by section 7, it is enacted, — “that change in the name of said company, should the name be changed as authorized by this act, nor anything in this act contained, shall have the effect to release said company from any legal or equitable obligation whatever, of said company, but all such obligations shall be and remain in full force after as before the passage of this act.”
About three months afterwards, (May, 1866,) in expecta
In the contract of this company, (The Alabama and Tennessee River Railroad Company,) with Mr. Breed, this arrangement with the Georgia companies, then in anticipation only, was spoken of as follows :—
“11. The parties of the first and second parts base their agreement upon the supposition and expectation that the railroad of the party of the first part will be consolidated or united with the railroad, authorized to be constructed in the State of Georgia, by the Georgia and Alabama Railroad Company, of Rome, Georgia, and the Dalton and Jacksonville Railroad Company, of Dalton, in the same State, or with one of them, so as to constitute a continuous and consolidated line of railway from the city of Selma, in Alabama, to Dalton, in Georgia; and that arrangements will be made by the party of the first part, whereby all the chartered rights and privileges of the said Georgia and Alabama Railroad Company, and the said Dalton and Jacksonville Railroad Company, will be transferred to and invested in this company; or that arrangements to this effect will be made with one of said Georgia companies, so that the plan for a consolidated line of road from Selma to Dalton may be carried into effect by the party of the first part; the said Dalton and Jacksonville Railroad Company, which possesses the right under its charter to construct a road from Dalton to the Alabama State line, in the direction of Jacksonville, Alabama, having signified to the party of the first part its willingness to enter into any arrangement with the party of the first part, and desired on the part of the latter to carry into effect the plans' and wishes of the party of the first part, for a consolidated and continuous line of railway from Selma to Dalton, under the ownership and control of the party of the first part.”
The Alabama company had a complete road from Selma to Blue Mountain, 135 miles ; the mason work and grading of ten miles more were completed to Jacksonville, and some
How at this time stood the Georgia companies ? Their charters are not produced, except so much of that of the Dalton and Jacksonville company, as is contained in the amendatory act of the State of Georgia, approved February 23rd, 1866; which shows that it had become, if not dissolved, wholly disorganized; wherefore the act authorized its stockholders to reassemble and elect directors, and also allowed it to unite or consolidate its stock and road and franchises with those of any other railroad company of that or any adjacent State. But neither of these Georgia companies had, (so far as this record shows,) built any part of any railroad at all. It does not appear that they had located any proposed road. There is no evidence that they had any money or property, or that they were indebted — except that one of them owed a debt for $36,000 in Confederate currency, which it had borrowed and executed a mortgage for. Little is known of either of these companies, except that they had been incorporated under the laws of Georgia for the purpose of building railroads from Dalton, or some other point in the western part of that State, to- or toward the Alabama line.
Such were the parties to the agreement of August 8th, 1866. That agreement sets forth that in order “to complete and own and use one continuous railroad from Selma, by way of Rome to Dalton, under the authority and control of one set of officers:” (1st), The three companies are “united together and consolidated into one company, with all the rights, powers, privileges and franchises which now belong to either one, or all of said companies : (2d), “ That all the property, real and personal, and mixed, and all franchises belonging to either one of the parties to the contract,” are vested in the consolidated company : (3rd), “That each and every stockholder in either of said companies-, who had paid
Georgia and Alabama, by a separate act of each, in the same form, and almost the same words, ratified the agreement for the consolidation of the two Georgia companies, by name, with the Alabama and Tennessee River Railroad
Now, what was the substance of all this ? The intended Tennessee and Coosa Railroad not having been built, and there being no prospect of an advantageous connection at Gadsden, in that direction, the Alabama and Tennessee River Railroad Company perceived, and acted upon the idea, that its best policy was to abandon that part of the route, and make a connection with the railroads of northwestern Georgia instead; and it got authority to do this from Alabama, by the act of February 20th, 1866. But it still needed the assent of Georgia to the extension and operation of its railroad into that State, and as Georgia had granted authority to other companies to build railroads between points within her borders, which the Alabama Company desired that its road should occupy, negotiations were opened with them for the acquisition of their franchises, in order to enable it to construct and operate its road in that State. And this acquisition was almost the only result of the proceedings, agreement and enactments, to which we have referred.
The Georgia companies stipulated for the discharge of their debts; for permission to their corporators, who had not paid in their shares of stock, either to retire without doing so, or pay up and become stockholders, in what was called the consolidated company; and for the temporary continuance of their organizations “for the purpose only of preserving and enabling the acting and controlling company,” which was declared in the agreement to be the Alabama company, “to exercise the franchises thereby consolidated or
Everything in the contract of August 8th is consistent with the idea and purpose set forth in the Breed contract,— that the franchises by which the Georgia companies were authorized to build railroads in Georgia, were united with those of the Alabama company .and vested in it, so as to enable it, (called in the contract the consolidated company, because their franchises were consolidated with its,) to continue its road into Georgia, by way of Rome to Dalton.
The organization of the Alabama company continued; none of its corporators were permitted to withdraw; its authority and powers were not in any respect impaired; its charter remained unaltered; it was not deprived of the road it had built; there was no change, so far as is shown, in the list of its stockholders, or, if there was any, it consisted of the addition to it of a few other names, and the object to be accomplished, and which was afterwards accomplished, was one which the Alabama company was, by its charter and the amendment thereto, authorized to carry into effect, so far as Alabama could confer such authority; and to this was now added the chartered authority of Georgia.
In short, the result of all the negotiations and proceedings which have passed under review, was, that by this circumlocutory process, the Georgia companies were dissolved, and their franchises transferred according to the “plan and wishes” explained in the contract with Breed, to the Alabama company; and it was thereby merely authorized, under a new and more appropriate name, to complete and operate its road, already 135 miles long, by way of Rome to Dalton, in Georgia.
If such a mere accession of authority and change of name be allowed to operate a dissolution of one corporation, and the creation of another in its stead, there would be danger that such changes, by a process little different from that of simple development, would become not unfrequent devices,
The fact that the three companies severally executed (as it is said) deeds conveying what belonged to each, to the Selma, Rome and Dalton Railroad Company, does not affect the identity of the latter with the Alabama and Tennessee River Railroad Company. Its deed was a conveyance from itself, by one name, to itself by another name, and so, was an unnecessary ceremony, however useful in allaying apprehensions in regard to titles. And it does not appear that the other companies had any property to be conveyed. The case of McMahon v. Morrison, (16 Indiana, 172) and Clearwater v. Meredith, (1 Wal. 25) arose out of statutes and proceedings which are not set forth in the reports. That of the Philadelphia, Wilmington and Baltimore Railroad Company (10 How.) is wholly unlike the one before us; and neither they nor the other cases referred to on this point, are authorities adverse to our views in this case.
A case that seems to approach it somewhat nearly, in this respect, is that of The Galveston, Houston and Henderson Railroad Company et al v. Cowdrey et al. (11 Wal. 481). But in this, the property of the original company, consisting of a railroad from Galveston to Houston, with its appurtenances, and lands granted to it, was actually sold under judgments and executions against the company, (subject, however, to the prior liens created by its mortgages, or trust deeds) and the company thus deprived of the road, its franchises and equipments. And the purchasers, or their assignees, consisting chiefly of natural pei’sons who were stockholders ip the original company, constituted themselves, by virtue of a special statute of Texas, into a new corporation under the same title (called the successor company) to enable them to operate and employ the property purchased,— and also by another special statute, constituted themselves into the Galveston and Houston Junction Railroad Company, to build and operate a road from Houston, about two miles long, that would connect the original road with the Texas Central Railroad, by a route different from that by which said original road was to have been extended from Houston to Henderson. The original company was thus, by judicial sales, broken down, and its property and estates transferred to others. And the chief question in the case, was whether those others were uot .accountable as trus
The chancellor, therefore, erred in considering the Alabama and Tennessee River Railroad Company defunct, and thus relieved of its obligations and responsibilities, and that another and different company had succeeded to its property and effects. The identical person in law, the same body politic, which under one name, built the road from Selma to Blue Mountain, under another name, and with the chartered assent of Georgia, extended and constructed it by way of Rome to Dalton, .and afterwards owned and operated it from Selma to Dalton, and is now before this court. Railroad Company v. Harris, 12 Wal. 65.
III. The next question presented is, whether or not the deed of the Alabama and Tennessee River Railroad Company, or what purports to be its deed, to Gazaway B. Lamar and Wm. R. Hallett, bearing date July 1st, 1852, in trust to secure the bonds of that company, was validly executed according to its charter. This (appellants insist) was the first mortgage of the company, and the bonds it was made to secure, are called the first mortgage bonds.
On behalf of appellees — complainants below — it is contended that under the amendatory act of February 10th, 1852, this trust deed or first mortgage is not valid, because the president of the company was not present at, and did not participate in, the execution of it, or the passage of the resolution authorizing it. The president, Mr. Lapsley, was then in New York, arranging, for the raising of money for the company, and Mr. Phillips acted in his place as president pro tern.
This amendatory act must be construed in conjunction with the original act of incorporation. They are in pari materia. By the original act, the board of directors consisted of nine persons, including the president, and by section 7 it is expressly provided that “the president and directors, or a majority of them,” shall appoint all officers, engineers, agents, &c., and dismiss them at pleasure, and shall pass all by-laws, &c., and that “said president and directors, ora majority of them, are empowered to borrow money to carry into effect the objects of this act, to issue certificates or other evidences of such loan, and to pledge the of
In the original charter, when speaking of the powers of the directory, the phrase “the president and directors, or a majority of them,” was used and frequently repeated in the body of the statute; and five persons constituted “a majority of them,” the whole number being then nine. In section 2 of the, amendatory act, the expression “a majority of them,” was entirely omitted. And because this might suggest the idea that the board of directors could not act by a less number than the whole, it seems probable that to exclude such a construction, the proviso was added expressly declaring that “six directors” (a majority of the eleven) should compose a quorum. And we concur with the chancellor in the opinion that the words, “including the president,” were added (as they had been used before throughout that section) to indicate that on such occasions he was to be regarded when present as one of the “six directors” necessary to constitute a quorum.
Nowhere else in either of these two acts is any prominence given to the president, or any duty devolved, or authority conferred upon, or mention made of him, except in conjunction with the other directors. All the powers granted are to be exercised by the board of directors, of whom he is mentioned as one. Indeed, it would be difficult to write a charter that should more distinctly preclude the idea that the president was an integral part of the corporation, or had any independent authority therein. In view of these facts, it would be a very strained interpretation, to hold that while six of the directors, if the president be one of them, “shall
IV. We come next to the inquiry, What rights and property does the mortgage or trust deed so executed embrace ? After referring to the original charter of the company of March 4th, 1848, and the act amending it, approved February 10th, 1852, the deed recites .that the company is “now engaged in constructing a railroad in the State of Alabama, on the route authorized by the acts aforesaid, that is to say from the Alabama river at or near the city of Selma, northward through the counties of Dallas, Autauga, Perry, Bibb, Shelby, Talladega, Benton and Cherokee, in the direction of the Tennessee river, the route of which railroad has been surveyed and duly located by the parties of the first part, or their authorized board of directors;” and then, after describing at length the bonds with coupons for interest to be issued by the company, which were made payable July 1st, 1872, the trust deed grants, conveys, transfers and sets over to the trustees and the survivors of them, and their successors in the trust, to secure payment of said bonds, “the railroad constructed and to be constructed by the parties of the first part as aforesaid, with all the appurtenances thereof, including all lands, houses, structures, fixtures, machinery, piers and wharves and franchises, privileges and rights, and all other property real and personal now owned, and" which may hereafter be owned by the parties of the first part, and also all subscriptions to their capital stock, together with all the tolls, income, issues and profits which may accrue from the said railroad or from any other source whatsoever to the parties of the first part, and including also the proceeds and avails of all bonds which may be issued or disposed of by the parties of the first part.” The deed contains also an ample covenant for further assurances.
This deed bears date July 1st, 1852. Its execution was proved by A. M. Goodwin, the secretary of the company and a subscribing witness, September 6th, 1852; and it was recorded the next day in Dallas county, and, immediately afterwards, in all the other counties through which the road was to be built, without the company having before this time in any way parted with the possession of it; and hav
Nevertheless, a corporation being a creature of legislative enactment, has only such powers and capacity as it is endowed with by its charter. Persons who deal with it, are presumed and required to know what its powers and capacities are; and they contract with it in reference to the extent of these, and with the understanding that the language of their contract is be limited and construed accordingly.
1. It is well settled that the mortgage of a railroad to be constructed, and of its appurtenances to be acquired, by the company chartered to build and operate such road, is valid. In the language of the supreme court of the United States, —“Had there been but one deed of trust, and had that been given before a shovel had been put into the ground towards constructing the railroad, yet if it assumed to convey and mortgage the railroad which the company was authorized by law to build, together with its superstructure, appurtenances, fixtures and rolling stock, these several items of property, as they came into existence, would become instantly attached and covered by the deed, and would have fed the estoppel created thereby.” Galveston Railroad v. Cowdrey, 11 Wal. R. 481.
2. In regard to the franchises of the corporation, the instrument under consideration also embraces them so far as necessary to make the other property and effects conveyed by it, productive and profitable. Allen et al. v. Montgomery Railroad Company, 11 Ala. 254; Pollard et al. v. Maddox, 21 Id. 325.
If this were not so — if, for instance, the franchises or privileges of occupying with the railroad covered by such deed, the lands of other persons, over which it was constructed, and of operating thereon over the same lands, the cars and locomotives pertaining to the road, and of taking tolls, fares and freights for transportation of persons and chattels, did not pass with the road and its appurtenances and equipments, to the mortgagee or trustee, the deed would fail of the
When, therefore, as in this case, a railroad corporation is authorized by its charter to borrow money by a sale of its bonds, and for the payment of them, is empowered to “pledge in such form as the board of directors may think proper, by resolution, or mortgage, or deed of trust, or otherwise, “all the means, property and effects of said company, or any part thereof,” — a trust deed of “the railroad constructed and to be constructed, .... with all the appurtenances thereof, including.....structures, fixtures, machinery, .... franchises, . . . tolls, income,” <fcc. — undoubtedly embraces all the franchises of the company necessary to make the security available; and this, without the aid of the subsequent act of February 21, 1860, (p. 223) authorizing railroad corporations “to execute any mortgage, deed of trust, or other security, on its road bed, franchises, income or any other property,” &e.
3. But we do not agree with the chancellor, that it is settled by the decisions above cited, or by this statute, that among the franchises so transferable, “the franchise to exist as a corporation,” is necessarily comprehended. If it is, and if the chancellor was correct in the idea that the Alabama and Tennessee River Railroad Company has ceased to exist, or exists only in conjunction and consolidation with the other companies mentioned, where would this franchise of the former company now be found ? If, as insisted upon in the argument, it was surrendered to the State, it would be extinguished. If it exists in an union formed with the other companies, by what method of divorce shall it be wrested from them, and committed to the mortgagees, or purchasers, under the first trust deed?
Strictly, “the franchise to exist as a corporation,” is not a corporate franchise, “or franchise of the corporation,” at all. It is a franchise of the individual corporators, of the natural persons who are shareholders of the capital stock, and pertains to them as such corporators; whereby they are endowed with the privilege and capacity of being constituted into, and co-operating together, as a body politic, with power of succession, and without individual liability. And the corporation as such in its collective capacity, or by its board of directors, has no more power to sell this franchise thus pertaining to the corporators individually, than it has to sell their paid up shares of the capital stock. The interest of each of these in this franchise is transferred with his shares of stock, and passes with them from one individual to another ; and this is the proper mode of parting with and ac
A railroad company may continue to exist as a corporation, after its railroad with all its appurtenances has been sold away from it. There may be other property to dispose of, or credits to get in, or obligations to be discharged, or interests to be protected, which require its continued existence, and which may not belong to, or be chargeable upon the persons who were purchasers of its railroad and the franchises necessary for the maintenance and. operation of it. —And on the other hand, those purchasers might not desire to be constituted into a corporation at all. Or, if they did, it might be very inconvenient to find themselves composing the same body politic, whose property had just been sold to them for the payment of some of its debts. For, it would seem that if with the railroad they acquired also the company’s “franchise to be a corporation,” with the same faculties and name, by virtue of and with which the former body existed, they acquired it to be assumed and used, and so must themselves become that corporation, and be bound to perform its obligations.
In the case of Eldridge v. Smith, (34 Verm. 484) the mortgage of a railroad company described the property it conveyed as “the railroad and franchise of said party of the first part,” and it was insisted by counsel “that this mortgage being of the franchise of the corporation, therefore all property owned by them [it], whether connected with the railroad or not, passes under the deed; . . . . that inasmuch as a corporation cannot hold property, except by virtue of, and in the exercise of its franchises, a conveyance of its franchise passes all its right to hold property. To this the court by Poland, C. J., among other things answered: —“If it were held that all the corporate franchises, including the power of corporate existence, were conveyed by the mortgage, the conclusion would seem to be logical, that on breach and foreclosure, the mortgagees would step into the shoes of the company, and merely succeed to their [its] rights of property, and also to their [its] corporate liabilities; a result by no means favorable to their interest. Or, if it were held that the mortgagees did not succeed to the corporate existence and functions of the railroad company, and that they did not remain in the company, then it must operate as a dissolution of the company, and lands taken compulsorily for their road would revert to the owners in fee.”
See also Redf. on Railways, (3d Ed.) 514, and Hall v. Sullivan R. R. Co., note 22, to same.
A few years ago a company known as the United Railroad
Our conception is, that the franchises of a corporation which go with the railroad belonging to it and its appurtenances, upon a sale under a mortgage of them and the franchises of the corporation, are ordinarily those franchises only which are requisite to enable the purchasers, whether a body politic, a wealthy individual, or a company of individuals, to maintain and operate the railroad advantageously for the public, and to take the tolls and fares for transportation for their own use and benefit. Especially would this be the case when the charter, as in this instance, authorizes the company to mortgage only its means, property and effects, without express mention of franchises.
We have not overlooked the case of Pierce v. Emery, (32 N. H. 484) in which views are taken that are apparently in conflict with those above expressed by us. But we do not feel justified in protracting this opinion by further discussing the point under consideration.
Provision is now made by statute, (No. 12) approved December 17, 1873, whereby the purchasers of any railroad may constitute themselves into a body politic, which shall be endowed with all the powers and franchises that belonged to the corporation, whose railroad they have acquired. Acts of 1873, p. 56, and amendatory act of March 20, 1875, p. 132).
V, The question will now be considered, to what extent the Selma, Rome and Dalton Railroad, as now existing, or what part of it, is covered by this first trust deed, that to Lamar and Hallett, made in 1852.
1. The Alabama and Tennessee River Railroad Company was a corporation of this State, chartered originally to build a railroad in Alabama. Without authority both from this State and from Georgia, — from the latter granting to it per
2. But a portion of this railroad, near its northern end in this State, is not constructed upon the line which was first surveyed and defined for its location. And objection is made to that part of the decree of the chancellor which restricts the lien of the deed of 1852, to the first 135 miles of the road, from Selma to Blue Mountain.
From the latter place, a distance of ten miles to Jacksonville, the superstructure was made, not only along the route as first surveyed and located, but over culverts and upon a road bed which had been prepared for it before 1866. Of course, therefore, the Selma, Rome and Dalton Railroad Company, being the same corporation as the Alabama and Tennessee River Railroad Company, the trust deed of 1852 embraces these ten miles to Jacksonville. It is at this place that the deflection from the route, as originally designated, begins.
3. As we have seen before, the southern terminus of the railroad was established at the Alabama river, at or near Selma, which may justly be considered its base. Thence it was to “be extended northwardly, to some convenient point on the Tennessee and Coosa Railroad.” And thus, if both roads had been built, a continuous communication by railroad would have been effected between two great and extensively navigable rivers, one in the southern part of Alabama, and the other in the northern part and in Tennessee. But the projected Tennessee and Coosa Railroad having been
Whether this inference be just or not, it is certain that in the sequel, the company desired and the State consented— since a connection with the Tennessee and Coosa Railroad could not be effected — that the road should be continued in the same general course, east of north, in which it stretched from Selma to Jacksonville, on toward Dalton ; by extension to which latter place, communication would be attained by railroad then existing, with the; Tennessee river, and also with other lines of railroad ramifying throughout the country. The difference was but little between the distance from Jacksonville to Gadsden and from Jacksonville to the State line, in the direction toward Dalton; and the termination either way would be in the county of Cherokee, as it existed in 1852. The change was in fa&t, á' mere change in the direction of the road at the northern end, a deviation from and relinquishment of the old route to Gadsden for a new one toward Dalton. Accordingly, wfe - never afterwards hear of anything being done, or proposed to be done, between Jacksonville and Gadsden. And in the very complete and comprehensive trust deed made in 1867, to the complainants in this cause, by which everything the company owned, or expected to own in the future, is devoted to the payment of its past debts and those to be created in the completion of its road, that road is described with great particularity as extending and to extend from Selma through the counties intervening to the Georgia line, a distance of 172 miles, and then on by way of Rome to Dalton, 63 miles further, and as including also when accomplished, the Ashby Branch, without any mention or allusion whatever being made to the line previously located and worked upon, from Jacksonville to Gadsden.
The chancellor erred in not holding that the lien of the deed of 1852 extended to all of the main line of road lying in Alabama.
The very interesting and well discussed case of Collins et al v. Monroe Railroad Company, (1 Kelly’s R. 457) is not parallel with the one we are considering. If Breed, who constructed the road from Blue Mountain to Dalton, were here a contestant, and having such a contract as the Georgia Railroad Company in that case made with Collins and his associates, there would be a likeness between this case and that, though still a difference. But it would more closely resemble the case of Dunham v. Railway Company (1 Wal. 254) in which the supreme court of the United States emphatically affirmed the right of the prior mortgagee to be superior to that of a contractor,who was in possession under an agreement that he should keep it until the cost of construction was paid. A similar ruling was made in respect to the claim of one Pulsford, in Railway Company v. Cowdrey et al, (11 Wal. 481). However much of reason and equity, there may seem to be in the argument for the contractors against the mortgagees, the decisions of the supreme court of the United States in such cases, (involving “the obligation of contracts”), conclusively determine the law which we must administer.
4. The original line from Jacksonville to Gadsden having been relinquished for that in the direction toward Dalton, forms no part of the company’s property. Having had only a right of way, which is unused, along that route, and the fee in the lands belonging to individuals, the company has nothing there to be sold under its deed. The objection of appellants, that this was not allowed to them, is, therefore, not well taken.
5. Nor did the trust deed of 1852 embrace what is known
In Pierce v. Emery, (32 N. H. Rep. 484) which is relied on as authority upon this point in behalf of appellants, the court held, that “the corporation itself was the thing originally mortgaged.” Whence it followed that everything it might acquire must pass with it. But as we dissent from that court in this particular and have decided differently with respect to the trust deed of 1852, that case is not authority in the present cause upon this point.
VI. The trustees, under the deed of 1852, claim as subject to it, the residue, about 375,000 acres, of the lands granted by Congress in 1856, to this State, to be used in aid of the construction of the Alabama and Tennessee River Railroad, and for no other purppse.
In 1858, the State granted these lands, situated mainly along and in the vicinity of the road, to the company. The condition on which thev were granted .by Congress, to wit: that the railroad should be completed in ten years, was not performed. But no proceedings having been taken asserting title on that account in the'United States, the company continued to be sole owner of them ; and an act confirming title to the company, having been lately passed by Congress, they are not now liable to forfeiture. The title of the company dates from 1858.
But when the deed of 1852 was executed; not only did these lands not belong to the company, but it was not then authorized to accept such a grant' from the United States. By the act of that year, amending its charter, and which reenacted in part and in language modified from that of the former act, provisions contained in it, thus restating them with greater precision, the company was empowered to acquire “such quantity and parcels of lands and appurtenances as may be necessary and convenient in accomplishing the purposes of its incorporation and organization; that is to say, such lands as may be required, by the company for the right of way for single or double-track railroad, and such lands and appurtenances as may be required at different places
We do not consider the somewhat loose expressions in the act of 1848, enacted before Congress began to grant lands in aid of the construction of railroads, as conferring on the company a larger capacity to take real estate than the language above quoted allows; but if it be thought they were previously susceptible of a more extensive meaning, the careful limitation of that power in the subsequent statute, operates as a restriction upon such an interpretation. We, therefore, hold that the deed of 1852, did not create a lien on the lands of that grant. The capacity to accept them was derived from the act of this State of January 20th, 1858, turning them over to the company. The case of Seymour v. Canandaigua Railroad Company (25 Barb. 284), referred to by the chancellor, is a direct authority on the question here involved.
VII. In respect to the cars, locomotives, and other personal movable property appertaining to the railroad, the lien of the first trust deed is not restricted to so much only as now remains of what the company owned on the 8th of August, 1866. This would be so, as the chancellor has decreed, if the Alabama and Tennessee River Railroad Company had then ceased to exist instead of having only changed its name and received an accession to its powers. This lien embraces that kind ot property now owned by the company to the same extent to which it embraces the railroad itself, — the same proportion of the one as of the other.
But this decision must not be permitted to interfere with liens upon any such property, given or retained upon the purchase of it, which has been bought by the receivers, under the directions or authority of the chancellor. Property in this condition not having been bought by the company, but under the authority of the court by its officers or agents, the liens created thereon will not be allowed to be superseded by that of any prior mortgage or trust deed.
VIII. It is proper to advert here to some of the other facts of this case. We shall not consume time by going into particulars of it as developed in this large record, of nearly eleven hundred pages.
The defendant company had an extensive and valuable railroad property, which cost several millions of dollars. Men eminent for their virtues and
The first mortgage of the company has been before under consideration. It does not embrace the whole of the property. Another, made in 1855, embraced only the first one hundred miles of the road. One executed in 1865, covered only the lands included in the grant from Congress. All of these were made by the company in its original name of the Alabama and Tennessee River Railroad Company. In 1867, the mortgage to complainants below, was executed to them by the Selma, Rome and Dalton Railroad Company, — of the entire property of the company, to secure payment of bonds to the amount of $5,000,000, of which $2,000,000 were set apart as a trust fund with which to discharge all of the older mortgage debts. Another trust deed was made afterward to one Wallace.*
In December, 1872, Messrs. Amy and Moran, of New York, holders of a large amount of the first mortgage bonds, which had matured in July before, had a bill prepared to be filed in the district court of the United States, at Montgomery, against the Selma, Rome and Dalton, and Alabama and Tennessee River Railroad Companies, and Lamar, trustee in the first mortgage deed, and the complainants in this suit — as to whom it was afterwards dismissed, (on the ground that they could not be sued by Amy and Moran in that court), and against other defendants. It alleged the matters above set forth, or some of them; exhibited the first trust deed under which they claimed; represented that the company was insolvent and without credit, and prayed that a receiver be appointed with full authority to take possession of all the property in Alabama (much of which was not embraced by this first deed) and manage it and operate the railroad, and that the court would settle the order in which the credits should be paid, and have the property sold to pay them.
It was not charged in the bill that the company or those
In this state of things, the circuit judge of the United States tor this circuit, revoked the order appointing a receiver, and restored the property to the company. And this cause being then instituted in the chancery court of the State, at Selma, the chancellor, at the instance of the complainants, trustees under the deed of October, 1867, which embraces the entire property of the company, upon the filing of the bill, appointed a receiver in accordance with a prayer thereof, and subsequently appointed another (associate) receiver, both in vacation. The receivers seem to have been fit persons for the office, and no appeal was taken under section 4422 of the Revised Code (p. 844) from the order appointing them; nor is the appointment of them, assigned in this court as error. They perform also the duties of those who are called managers in the English court of chancery.
On the day after the appointment of the first receiver, he petitioned the chancellor for leave to borrow $90,000, or such other sum as his Honor might prescribe; and the chancellor thereupon, and in vacation, made an order authorizing him to borrow $150,000 on certificates of indebtedness, which should have priority of payment over any other claim, out of the pi’oceeds of sale’s of any property in the receiver’s possession. And the authority thus granted not having been used, the two receivers subsequently petitioned the chancellor-for leave to borrow, instead, $700,000, to be used in purchasing rolling stock, and putting the railroad and its appurtenances in i’epair. The chancellor thereupon made an order authorizing them to do so, directing what portion of the amount should be expended in rolling stock (about $450,000) .prescribing in accordance with sug
IX. Counsel for the first .and other early mortgage creditors, alarmed by this decree, object to and protest against having their liens on the property of the company, existing by virtue of instruments solemnly executed long before the receivers’ certificates were thought of, postponed in favor of charges created by the latter; and they deny that the chancellor has rightfully the power to give such precedence to new creditors. The learned chancellor has not, in his opinion, discussed this question, or adduced any arguments or authorities in support of the disputed power. But this has been ably done by the counsel for the appellees. A claim of very large authority in the courts has been made in argument under this head; and the subject is a very important one, and sufficiently new to require an investigation at some length.
1. “The object sought by the appointment of a receiver,” (says Mr. Kerr, in his work on Receivers), “may be generally described to be to provide for the safety of property, pending the litigation which is to decide the right of litigant parties,” (p. 3.)
“The duty of the court, upon a motion for a receiver, is merely to protect the property in the meantime for the benefit of those persons to whom the court at the hearing of the cause, when it will have before it all evidence and materials for a determination, shall think it properly belongs.” Id : p. 6. Blakeney v. Dunfaur, 15 Beav. 42.
In Gardner v. L. G. & D. Railway Company, (Law Rep. 2 ch. App. 201), an appeal was taken to the “court of appeal in chancery,” from an order of the vice chancellor appointing the general manager and the secretary of the company, on the application of a creditor with a lien, managers and receivers of the company’s “undertaking” or railroad enterprise. The lords justices discharged the orders, saying: “when the court appoints a manager of a business or up
This is stated by his lordship as the rule in such matters. But in addition and pertinently of views to be hereafter presented, he says: “when Parliament, acting for the public interest, authorizes the construction and maintainance of a railway, both as a highway for the public, and as a road on which the company may themselves become carriers, .... it confers powers and imposes duties and responsibilities of the largest and most important kind, .... upon the company which Parliament has before it, and upon no other body of persons......It is impossible to suppose that the court of chancery can make itself, or its officer, without any parliamentary authority, the hand to execute these powers, and all the more impossible when it is obvious there can be no real and correlative responsibility for the consequences of any imperfect management. It is said that the railway company did not object to a manager. This may well be so. But in the view I take of the case, 'the order would be improper, even if made on the express agreement and request of the company.”
A court of equity in this country may, in certain cases, interpose, and appoint a receiver, when a company receiving-tolls and income more than sufficient to pay the expenses of an economical administration, refuses to apply the surplus to payment of a judgment or mortgage creditor. The Covington Drawbridge Company v. Shepherd (21 How. R. 112) presents an instance of the exercise of this power. The receiver in it was also directed, out of the tolls and inoome of
In Stevens et al. v. Davison et al. (18 Grattan, 819), a board of directors, some of whom “had been concerned in the fraudulent issue of a very large' amount of spurious stock, greatly exceeding in amount the lawful stock of the company,” on the very day when their term of office was to expire, and the annual meeting of the stockholders, which the directors failed to call, should have been regularly held, made a lease of the railroad of which they were directors, for a period of ten years, at an inadequate rent, without authority from the charter to do so, and in violation of a bylaw adopted by the stockholders. Some of the lawful stockholders filed a bill to have the lease declared void and for other relief. And a receiver was appointed to take possession and control of the road and operate it under directions contained in the decree. The court of appeals of Virginia, reviewing the proceedings, said : “while for the reasons assigned in Gardner v. The London, C. & D. Railway Company, (2 Law. Rep. Ch. App, 201), a court of chancery will be reluctant to appoint a receiver, to take charge of and manage a railroad, it is competent to do so, when such a course is indispensable to secure the rights- of the legitimate stockholders, and to prevent a failure of justice. And the court is of opinion that, under the circumstances of this ease, it was proper for the court, to appoint a receiver to take charge of and manage the railroad until it can be ascertained by a proper inquiry' to be made in this cause, who are the legitimate stockholders of said company, to whom the custody and management of said railroad should be committed.”
The foregoing instances have been selected, as illustrative \ of the authority of courts of equity to take the charge and { management of property in litigation. Their interference Í by receivers and managers in such cases and for such pur- ) poses is easily vindicated. In doing so, they put forth a/' power merely incidental and subsidiary to their function of)' ascertaining and enforcing the rights of the persons con-,’ cerned in the subject matter in controversy. They take and,' preserve the property in order to uphold and maintain thev rights of creditors and others therein,and the obligation of cort-¡> tracts. It is in the exercise of the judicial function only that a court obtains jurisdiction between litigant parties, of the cause in which it is authorized to take such control for the preservation of the property involved. , And we are not aware of any principle of law or element of wise policy
The objections to such transactions are, that they are necessarily, to some extent, speculative; that they arbitrarily unsettle interests founded on the most solemn contracts; and that the court in conducting them, abdicates its judicial function, and exercises another more akin to that of a bureau of an Executive Department of the Interior.
2. We have been furnished by the industry of counsel for complainants below, with imperfect manuscript reports of the cases of Southerland, Trustee, &c., v. the Lake Superior Ship Canal Railroad and Iron Company, (before Judge Long-year, United States district judge for the eastern district of Michigan, presiding in the circuit court at Detroit), and Hyde v. the Sodus Point, &c., R. R. Co. (before a judge of the supreme court of New York at Brooklyn). In each of these cases the court seems to have authorized its receiver to raise money by certificates of indebtedness, which should constitute a first lien on the property, and to complete therewith the company’s unfinished work.
In what manner, in the former case, the court obtained jurisdiction of the cause; by whom, for what purpose, and how it was brought before the court, we are not informed. It only appears by a copy of Judge Longyear’s order, of June, 1872, that the receiver, Knox, was appointed .... under the first mortgage, and that after notice to the parties, and counsel for them had been heard, “it being made to appear to the court, that it is for the best interest of all concerned in said ship-canal and said property, real and personal, that the said canal should be finished and made ready for use as speedily as practicable, and that it is necessary and expedient that said receiver should issue certificates of indebtedness for the purpose of said speedy construction;” therefore he was authorized by the court to issue such certificates payable July 1st, 1873, and bearing interest at the rate of ten per cent, a year, to the amount of $500,000, Avhich , should constitute a first lien on said canal and property, and have priority of payment over any debt previously created, and to execute and deliver a mortgage trust deed thereof and of the franchises and rights of the company, to a trustee to secure payment of said certificates, accordingly. It was fur
The only other information which our manuscript of this case contains, is, that the first series of these certificates of indebtedness hot having been paid, the trustees under the receiver’s mortgage trust deed, applied to the court, in 1874, for leave to sell the property to enable him to pay them; that a contest was thereupon inaugurated with other parties interested, and that the judge declined to grant the leave applied for, until the supreme court of the United States should decide a case pending in it, which seemed to him to involve some of the questions on which his decision would depend.
Not having a full report of this case, we do not comment on it further, except to say, that as presented to us, we do not recognize in it any principle which would justify a chancellor of this State in assuming the authority (seemingly absolute) which Judge Longyear exercised on that occasion; and we do not perceive in the result any reason for desiring that a court of equity should be clothed with such authority.
In Hyde v. the Sodus Point Railroad Company et al, a judgment creditor to an amount between $500 and $600, filed his complaint in the nature of a bill, in December, 1873, against that company and the Union Trust Company, on behalf of himself and such other creditors as should join in the proceedings. He set forth, that an execution on his judgment had been returned unsatisfied; that the property of the railroad company was of great value; that it was subject to a first mortgage trust deed executed to the Union Trust Company, as trustee to secure the payment of bonds to the amount of $700,000, which had been issued; that the trustee had not taken possession of the property, as it lawfully might have done; that by reason of disputes among the officers and managers of the company, its property was being wasted and seized for taxes, and various other claims, real or alleged;
With the complaint and in the same cause, were filed affidavits, (sworn to before plaintiff’s complaint was filed), of several persons, holders, and agents of the holders, of first mortgage bonds, to the amount of $649,000 of the $700,000 issued; in which affidavits, affiants say their bonds constitute the first existing lien on the property of the company ; that the interest on them is in arrears and unpaid; that proceedings for a foreclosure have been postponed in the hope that some arrangement might be made which would prevent the sacrifice usually incident to such proceedings, and preserve the rights of the subsequent lienors; that in September, 1873, the Union Trust Company suspended payment, and shortly afterwards a receiver of its effects was appointed, whereby a further difficulty existed in the way of a foreclosure ; that they are advised that the appointment of a receiver would not prejudice the right of the trustee to commence proceedings hereafter to a foreclosure, and that they believe it would be a benefit to all the creditors of the railroad company to have a receiver appointed, for the purposes mentioned in plaintiff’s complaint.
Thereupon it seems (though our manuscript does not contain the order), Sylvanus J. Macy, one of the holders of first mortgage bonds, was appointed receiver. On the 15th to January, 1874, he made a very lucid report of the condition of the property, specifying the bridges and other parts of the road that were wretchedly out of order, and insisting on the importance of making repairs, and of constructing at one terminus, wharves, piers and other fixtures, to facilitate transfer of cargo to and from vessels, and at the other terminus connections with other railroads. A.nd in order to do this work, and other things, he asked for authority to issue certificates of indebtedness to the amount of $125,000, which should constitute a first lien on the property of the company. This authority was on the 16th of January,
It is obvious that the holders of the first mortgage bonds, in their own right, or as agents, representing nearly all of them, got up this case in conjunction with Hyde, a judgment creditor, as plaintiff. And since no one opposed the motion, except (apparently) the Union Trust Company, (trustee in the mortgage deed made for their benefit), and no appeal was taken, it is probable that the opposition was pro forma, rather than real. At any rate, it was obvious to all parties that it would be beneficial to all to have the work completed even on those terms. And if the holders of the first mortgage bonds were willing that the certificates should create a lien prior to their own, it seemed pretty certain that the other creditors would not consider that they had any cause for opposing the transaction. We cannot regard this unreported amicable suit as an authority of weight concerning the jurisdiction of a court of equity to take upon itself the completion of unfinished enterprises, and raise money for the purpose of charging the property with liens that shall have precedence of other and older ones, without consent.
Another case to which our attention has been called on this point, is that of the Alabama and Chattanooga Eailroad. Dilapidated, mismanaged, in litigation in several distinct courts, subject to independent managers deriving authority from different sources, charged with a first mortgage debt of more than $5,000,000, with interest to a large amount unpaid, which debt the entire property upon a sale thereof would not fetch money enough to pay, and daily diminishing in value, while its other large debts were daily growing larger, the trustees under the first mortgage deed, filed their bill in the circuit court of the United States at Mobile against the company and the trustees in the second mortgage deed and several other defendants, and prayed that the court would take jurisdiction of, settle and determine the various matters of dispute, and the rights of all persons concerned, and sell the property, or dispose of the same for their benefit, according to their respective rights therein; and in the meantime, take charge of, preserve, repair and operate the railroad with its appurtenances by receivers, whom it was asked to appoint “with full power to borrow money; and to render effectual the orders and directions of the court .... [and] to cause the property and effects of said corporation to be
This bill with its exhibits and many affidavits in support of it, before being filed, was presented to Justice Bradley of the supreme court of the United States on the 26th of May, 1872, and application made for an injunction and the appointment of receivers according to the prayer of the bill. But he ordered that the application be heard before the circuit court of the United States sitting in equity at Mobile (of which he was circuit justice) on the 20th of June after-wards, and “that a copy of the bill and affidavits and notice of the hearing aforesaid, be served on the defendants at least ten days before' the hearing.”
“On the 20th of June, 1872, the motion for receivers and for injunction was duly submitted to said circuit court . . . in open court, and held for order and decree in vacation.” But urgent as the case was, not until the 26th of August— and not then, until “the parties interested” consented — after an amendment of the bill bearing date August 23d, 1872, withdrawing all offensive imputations, was made — did Justice Bradley make the order so much relied on in this cause, and which has attracted so much attention from the legal profession.
The order recites, that the “railroad and connecting works and other property .... are rapidly deteriorating in value and being wasted, scattered and destroyed, whereby the security of the first mortgage bondholders, and the interest of all other persons concerned in said property are subject to great hazard and danger of entire sacrifice.” And then the order proceeds as follows: “And whereas in the present condition of said property, it is impossible without great sacrifice, to dispose of the same in any manner; and whereas it has been proposed and agreed by the parties interested that all further opposition to the proceedings in bankruptcy against said company .... shall be withdrawn, and that the said proceedings shall be affirmed; and that all other proceedings for the appointment of receivers in the several State and district courts shall be discontinued, so that the proceedings in this suit shall have full effect and operation, without undue embarrassment, and that a receiver or receivers shall be appointed in this cause to take charge of said property, and put the same into proper condition for its preservation and disposition, for the mutual benefit of all parties interested therein:” Therefore, receivers are appointed
“It is further ordered that all moneys which may be raised by said receivers by loan, or which may be advanced by them for the purposes aforesaid, not exceeding the sum of $1,200,-000, shajl be a first lien, prior to all others, on the said railroad and other property, and to be paid before the first mortgage bonds out of the proceeds of said property.”
It is argued for complainants below (appellees) that the consent spoken of, was only to the appointment of receivers, and not to their borrowing of money by giving such liens. This was not (it seems to us) the understanding of Justice Bradley. For in going on, after making the appointment of the receivers by virtue of the agreement, to specify their duties, it is not to be supposed that he either did not know, or did not regard what was the understanding and agreement of the parties in that respect. And when we note what were the duties they were expected to perform, it is perceived at once that in order to discharge them, the receivers must have a large amount of money. Under this idea himself, when he proceeds in the next paragraph to speak of the liens to be created, Justice B. does not expressly authorize the receivers to raise money, but assuming that they would, of course, have that to do, he say's: “all moneys which may be raised by said receivers by loan, or which may be advanced by them,” .... “not exceeding,” &c., “shall be a first lien,” &c. The language seems to imply that having once said that the appointment was made by agreement of “the parties interested,” the - learned justice did not think it important to repeat this consent in the several successive paragraphs in which he spoke of what the receivers were to do.
Besides, the prayer of the bill was for receivers “with full power to borrow money,” to have the property improved, &c. And the parties, consenting to their appointment, must be understood as consenting to their being appointed “with full power to borrow money,” according to the application : which obviously could not be done for an insolvent corporation, except by creating liens on its property that should have precedence of the first mortgage.
But, however this may be, Justice Bradley took care not
We have examined and analyzed these cases so particularly, because the proposition involved in the discussion is of immense importance, and they are understood as establishing it. It will be seen that in all of them, first mortgagees were the actors, and that in the one last considered, express consent was given by “the parties interested,” or, if not, that it was exacted of the trustees of the first mortgagees: wherefore, this case affords no support to the proposition. Let us now return to the examination of it upon principle.
3. We presume it may be considered as settled that a railroad company which has executed a first mortgage of its railroad constructed and to be constructed, and thereby raised a large amount of money to aid in the building of it, cannot afterwards, give a security to another, even to one who is engaged to build an unfinished part of it, that shall have precedence of the older one.
In Dunham v. Railway Company, supra, this question was presented, very favorably, on behalf of a contractor, to the supreme court of the United States. “Authorities are cited,” says Judge Clifford, “which seem to favor the supposed distinction, and the argument in support of it was enforced at the bar with great power of illustration, but suffice it to say that in view of this court, the argument is not sound, and we think the weight of judicial determination is greatly the other way.”
And in Galveston Railway Company v. Cowdrey et al, (11 Wall. 480), the same court (by Bradley J.) says: “on the part of Robert Pulsford it is objected that the decree does not give him a priority on that portion of the road which was laid with his iron. He contends that he is entitled to this, first, because when the mortgages oí complainants were executed, it was not in existence and could not have been conveyed thereby, and can only be embraced therein on the principle of equitable estoppel, which is rebutted when it comes in conflict with a superior equity; secondly, his capital applied to the road,, conserved it and ren
If the railroad company itself, the corporation created by the State to build, equip and operate a work useful to the public, though belonging to the-company, cannot, when its enterprise is about to fail, and its labor and expenditures to be lost, give to those who shall then come to its aid,and help to complete it, obligations which, like those given by the master of a vessel abroad and in distress, shall have priority over others previously contracted, — what prerogative of a court of equity entitles the chancellor to step in, and do so instead of the company ?
The company may not do so, because, holding that contracts should be inviolable, the law will not permit the obligation of them to be impaired. The constitution of the United States inhibits even a State from doing an act which shall have that effect. And certainly, a court which is a portion of the government of a State, can not have a power which is denied to the State in convention assembled. If, therefore, the action of a chancellor in this cause goes to the extent of taking the property of the defendant corporation into his hands for the purpose, through his appointees, of completing an unfinished work, or of enlarging or improving a finished one, beyond what is necessary for its preservation, and to that end — of raising money by charging the railroad, and its appurtenances with
Nor can we conceive how a mortgagor, by anything that might be inserted in a second or other subsequent mortgage, (as is that to complainants in this cause), could confer on a court or chancellor, the power to supersede rights created by an earlier mortgage. We may suppose that by a provision in a first, or any mortgage, it might be stipulated that upon the happening of a certain default or delinquency, the mortgagees should be entitled to apply to a court of equity and have persons, denominated receivers, appointed to manage a business, or undertaking, or to carry a work to completion under its direction. Yet how could this, though ever so amply expressed, impose on the cpurt the duty, or clothe it, as a court, with the capacity to do so? It is within its province, in aid of its judicial function, to exercise an “interim management” of a “going concern,” with a view to the sale of it as such, during the pendency of a controversy, in which the rights therein, of conflicting claimants are to be determined. But it is no part of the office of a court to take upon itself the execution simply of schemes or projects of either private or public utility. The provision supposed might, doubtless, create interests in the mortgagees which a court of equity would perhaps take cognizance of and protect. The persons, though, appointed by it, in consequence of such stipulation, to manage the business or undertaking, or to carry the work forward to completion, no matter by what name called, whether receivers or something else, would (we apprehend) be properly not officers of the court, acting only under its direction, but trustees for the parties having such powers and duties as were legally created by the contract, and as are recognized and imposed by the law relating to trustees.
X. But does it, therefore, follow that a chancellor, who takes property in litigation, by his receivers and managers, under the charge of the court, is incompetent to raise money ■•■/hen necessary for the expense of its custody and preservation by issuing certificates of indebtedness, that shall con:titute first liens ? This is a question not by any means "dentical with that above examined.
Of course, property, in that condition, must be taken care of by the court, and the expense of this must be paid. Generally, this is done out of the income. But if there be
The-receiver may also be authorized by the court to borrow money, if necessary, in anticipation of the sale, to be reimbursed with interest out of the proceeds of the property when sold. And wo suppose a receiver of approved integrity and responsibility would have little difficulty in borrowing money to a moderate amount, in such a case, upon his note or due bill, as receiver. Or if a receiver has, under the direction of the court, taken moneys and used them in the performance of his duties as receiver, that should not have been so taken, and were not subject to the claim of complainants, but belonged to other parties, the court, afterwards ruling that these moneys should not have been so taken and applied, will, for rectification of the error, order the amount with interest to be returned to the parties entitled thereto, out of the proceeds of the sale of the property with which it has been identified, with priority of payment, over the oldest mortgage debt. This 'was done by Justice SWAYNE, in Cowdrey v. Railway Company, in the circuit court of the United States, at Galveston, in respect to moneys which the district judge had erroneously ordered that the receiver should take and use, — according to a manuscript copy furnished to us, of Justice Swayne’s opinion.
Matters of this nature are between the court and the receiver and the parties to the suit. The transactions are founded on the property in the hands of the court to be sold, and which will not be allowed to pass out of its power without being so sold, except upon a compromise between the parties by which all the expenses chargeable thereon, shall be paid. And in reference to the expenses, the parties have an opportunity of canvassing and objecting to any that are improper, either when the accounts of the receiver are passed upon, or if previously authorized by the court, when the application for such authority was heard and acted on. For they are entitled to be heard in respect to'them.
Is this the limit beyond which a court of chancery may not go in such matters in any case ? It was not necessary that the question of the power of á court to authorize .the issue of first lien certificates of indebtedness to enable a receiver to raise the money he might need, should be decided
Weighty objections, we know, may be alleged against such a transaction. It may be said : the property does not belong to the court or the receiver. It is in their hands only while proceedings are pending to determine the respective rights of parties litigant. What title can any instrument made by them transfer in that which belongs to others ? Perhaps the correct reply would be : true the property is in the keeping of the court to be taken care of, but also to be sold ; and out of the proceeds the expenses of taking care of it must be paid. The certificates may not follow the property out of the court. But they constitute a charge upon it in the particular cause enforceable in this court and
It may also be said: such a power will be abused. Bash or facile chancellors may be persuaded to issue more certificates than are necessary for the mere conservation of the property ; and when out they must all be redeemed: — else, the whole scheme of raising money in this manner fails and the court is brought into disrepute. All power may be abused. But in the first place, no receiver ought to be appointed, in any such case, except to “prevent fraud, save the subject of litigation from material injury, or rescue it from threatened destruction.” Baker v. Backus, 32 Ill. R. 79; Voshell v. Hynson, 26 Md. 92.
Nor should the appointment of a receiver be made except upon a bill filed praying it, and after answer thereto, “unless the necessity be of most stringent character.” Leddell v. Starr, 4 C. E. Green (N. J.) 159 ; Voshell v. Hynson, supra; Sanford v. Sinclair, 8 Paige, 372; Gibson v. Martin, Id. 481; Blondham v. Moore, 11 Md. Rep. 365.
The issue of negotiable certificates of indebtedness, is a matter of hardly any less importance, than the appointment of receivers, and should not be authorized by the court, except after full notice to the parties interested, when this can be given,- and ample opportunity for them to be heard. The urgency for the issue of such certificates can rarely be so
Finally, the case, in our opinion, ought to be one of great urgency, in which a court should appoint a receiver to manage and operate a railroad at all. It might, instead, be sometimes expedient to require the earnings of the road to be paid over to, and to be disbursed by a receiver of its appointment, and to prevent by injunction any interference of others with the management, in the meantime.
Upon the whole,however,it seems necessarily to result from the nature of such property, and the capacity and duty of courts of equity to “adapt their decrees to all varieties of circumstances which can arise, and adjust them to all the peculiar rights of all parties in interest,” that if a railroad and its appurtenances are in the hands of a receiver to be preserved and operated, the court having charge thereof, must possess the power, after the notice to and hearing of the parties interested, to allow the issue even of negotiable certificates of indebtedness creating a first lien, when this is necessary to raise money for the economical management and conservation of the property, until it shall be disposed of. The pressure upon the courts in various portions of the country, to exercise such authority, and the consent or acquiescence of first mortgagees and others in the exercise of it, are persuasive that the power must exist.
XI. The order authorizing the issue of these certificates, in this cause, was made without notice to some of the parties, and without sufficient notice to any of those representing cieditors, except complainants, and was otherwise irregular, The proper mode of objecting to it, ivas by application to the chancellor to vacate and set it aside, — the same practice that should be followed in case of like irregularity in the appointment of a receiver. (See Gibson v. Martin, 8 Paige, , 480.) That not having been done, the parties may, when the cause goes back to the chancellor, have a reference to a mas
This mode of discharging the certificates of indebtedness, will secure repayment to the lenders out of the property, and effect justice, as nearly as the facts of the case and the rules by which courts must be guided, will allow.
XII. We advert here to another matter which has been assigned as error. The chancellor by his order, provides that the certificates of indebtedness shall bear interest at the rate of eight per cent, a year, and may be sold at a discount of ten per cent, or for ninety cents to the dollar. By what authority can a judicial tribunal of the State disregard a statute which prohibits the charging of a higher rate of interest than eight per centum a year, under the penalty that the lender shall forfeit all interest for doing so ? The legislature may and often does authorize a railroad company to dispose of its mortgage bonds, for what it is willing to take for them, to enable it to do its work; which is a suspension of the law against usury, as to that transaction. But this order was not made under any such statute; and the railroad charged, was already built at a cost probably seven or
XIII. The objection to the chancellor’s decree, because he did not order a separate sale, under the second mortgage, of the first one hundred miles of the railroad, is [not sustained. We agree with the supreme court of Georgia, that “To allow the road tobe cutup into fragments, and separate portions sold at different sales .... would not only sacrifice the rights and interests of creditors, but defeat the objects and intentions of the legislature in granting the charter.” Macon and W. R. R. Co. v. Parker, (9 Kelly, 378).
XIV. The sixteen hundred bonds of one thousand dollars each ($1,600,000) that were deposited with Uriel A. Murdock as special trustee, a portion of the $5,000,000, provided for by the trust deed of October 1st, 1867, were to be used in retiring those secured by prior mortgages on the property covered by that trust deed. In the language of the deed, those “sixteen hundred of said bonds so set apart shall be held and applied exclusively for the purpose of relieving and discharging the premises hereby conveyed from the aforesaid prior liens.” The object was to put all the debts of the company on the same footing, and not to furnish additional security for those already provided for. The claim of appellants to have their fund for the payment of the debts to them increased by means of those bonds, is without foundation, and such of said bonds deposited with Mr. Murdock, as were not used in retiring debts with older liens, should be delivered up and cancelled.
XV. The claim of complainants below, for the value of the improvements made by Breed on the railroad from Selma to Blue Mountain, is equally without just foundation. It would be a case of charging a mortgagee with the improvements put on the moi'tgaged property by the mortgagor; which is wholly inadmissible.
XVI. Upon application of the receivers they were authorized by an order of June 2d, 1873, to buy a large quantity of rolling stock; and their purchase of the same was
This last proposition cannot be maintained, unless the rolling stock becomes when put upon the road, fixtures thereof, and real estate, like the iron rails when they are laid down.
Although in The Farmer’s Loan Company v. Hendrickson, (25 Barb. 484) — with which some other cases seem to agree —that view appears to have been taken by the court, the question arose between mortgagees and a judgment creditor whose judgment was obtained after the execution of the mortgage, and the point, therefore, was not material. If a railroad company which has executed, several successive mortgages on its railroad, equipments and appurtenances, purchase and put on its road rolling stock which is then free from all liens, doubtless this so appertains to the road as to become subject to the mortgages; and the liens of these have priority according to the age of the instruments. But the rolling stock is not thereby transmuted into realty. It continues to be from its very nature, chattels personal;(Hoyle v. Plattsburgh Railroad Company, 54 N.Y. 314), else how could the Pullman sleeping and palace cars, now on all the large roads in the country, belong to the Pullman company, and the respective railroad companies have no property therein ? Iron rails on the contrary, when laid and fastened upon a road, are an essential part of, and become incorporated with it, and ceasing to be chattels personal, are subjected as a part of the road to the older mortgages thereon; unless perhaps, by virtue of a special agreement, and notice to the mortgagees, they are put separately from other rails, on a particular part of the road, under a contract that they may be afterwards removed therefrom. See Haven v. Emery, (33 N. H. 66). Rolling stock, therefore, as personal chattels not identified with the realty, does not become released from the liens under which "the company acquires it. They remain binding upon it and superior to those of the mortgages of the company.
XYII. It is also insisted for appellants that the receivers
But as the allowances mentioned in this and the foregoing-paragraph were made without notice, and in vacation, upon the application of the receivers, upon the reference of their accounts for confirmation, or upon a special reference to be thereupon made on the petition of defendants, they may charge the receivers with so much thereof as may be shown by evidence of the facts, not to have been justly payable out of the funds in their hands. And the ownership of said rolling-stock and other things purchased by the receivers and the liens thereupon and values — are not, nor are any of them to be considered as concluded by said orders óf June, 1873; but the same are opened to .permit the inquiries herein authorized to be made,'so that the pax-ties interested may take part in the contestation. And in this inquix-y, axxd also in that respecting the receiver’s certificates, the burden of proof must be as much on the receivers as if said orders had not been made.
XVIII. The chancellor adjudged that “the costs to be taxed in this cause, including the costs, commissions axid expenses of the sales, the expenses incurred and to be incurred by the. receivers in operating said railroad and in the performance of their duties as such receivers, shall be a charge upon the gross proceeds of the sale of all the property herein authorized to be sold and the balance shall be divided and distributed to the several classes of creditors in the order
In regard to the receivers’ expenditures in so managing the property as most economically to preserve it, until it shall be disposed of by the final decree of the court — we have already directed how they shall be charged; and we presume it is not expected that there will be any expenses of that sort exceeding the amount of the certificates of indebtedness to be paid.
On the subject of costs, Mr. Daniel (Chan. PL and Pr., p. 1390 of 4th Amer. Ed.) says: “The mortgagee is entitled to the payment of his costs before the subsequent mortgagees receive any part of their principal, interest, or costs; the practice of the court being to direct each mortgagee to be paid his principal, interest and costs, according to priority. But it has been held that where a mortgagee commences or adopts a suit for the administration, and sale of the mortgagor’s estate, he does not rest exclusively on his contract, but seeks something beyond it; and the costs of the suit are the first charge if the estate prove deficient.....So, where a mortgagee sets up an unfounded claim, or an unjust defense .... he will be deprived of his costs.” We quote so much only as to show the principle upon which courts of equity determine such matters.
Now, Amy and Moran, holders of a large amount of the first mortgage bonds, brought a suit in the federal court, in which Lamar, trustee, in the trust deed, afterwards joined as plaintiff with them — in which they claimed as subject to that deed, much more than it embraced, and this adversely to the complainants below in this cause, against whom, and Uriel A. Murdock, they dismissed their suit on the ground that they could not sue them in that court. And the complainants in this cause, on the other hand, trustees under the deed of 1867, in their bill denied that the first mortgage bondholders had any lien whatever, and sought to invalidate the trust deed in their favor, which was mentioned and recognized in the very deed under which they themselves claimed.
It will thus be seen that the contest was chiefly between these parties. But by operation of the chancellor’s decree the costs and expenses would probably fall most heavily on the second mortgage creditors, who have not produced the litigation, and whose lien is a second one on only the first one hundred miles of the railroad. It seems to us more just, and we therefore order, that one-half of the costs and ex
XIX. Except as hereinbefore otherwise explained as indicated, we concur in the conclusion of the chancellor expressed in his deci’ee in respect to the liens and rights of the parties to this cause.
By Act No. 92 of the General Assembly, approved March 17, 1875, it seems that the-property when ordered to be sold must be sold by the register of the court.
The costs of the appeal in this court and in the court below must be paid by the appellees, trustees in the mortgage trust deed of October 1, 1867, to be reimbursed to them out of the trust fund going to them as such trustees; and their cross appeal is dismissed at their costs, to be reimbursed out of the same fund.
Note by Reporter. — At a subsequent day of the term Messrs. Brooks, Haralson & Roy applied for a rehearing. The application did not come into the reporter’s hands.
The following response was made:
We have attentively considered the vigorous argument for appellees, and the authorities cited to sustain it, on behalf of a rehearing, in respect to that part of the opinion and ruling of this court, which holds that the first trust deed embraces that portion of the Selma, Rome and Dalton Railroad, which lies between Jacksonville and the Georgia State line.
The point chiefly elaborated is, that when there is no ambiguity in the terms of a deed decribing the subject matter of it, they cannot be varied by evidence aliwncle; that (in the language of Tindal, C. J.), “in such case, evidence deAors the instrument for the purpose of explaining it according to the surmised or alleged intention of the parties to the
Numerous authorities forcibly expressed are cited in support of this argument. They all relate to transfers of specific existing things — generally of real estate — of determinate portions of the solid, immovable earth. Do not counsel perceive a difference between a mortgage deed of subjects such as these, and a mortgage deed of a great railroad to be constructed, executed as a security to persons who are solicited to lend their money for the purpose of aiding the mortgagors to build it ?
The railroad in such a case is not yet in existence. Although there be a portiop of the line which may be considered the base of the work, — (and usually the termini are designated,) — whereby its identity is established, yet until actually constructed, the railroad may be conceived of as, to some extent, (in the law sense of the word), ambulatory: its situs is not definitively fixed; the route for its location though, surveyed and marked, and supposed to be determined, is subject to such change as progress in the work may show to be expedient. What then? Do these deviations though for many miles, from a line previously selected, destroy the identity of the road? And does the mortgage of the road become, thereupon, inoperative and valueless ?
We cannot suppose that counsel for appellees would themselves insist on such conclusions from the premises, if the deviation from the previously adopted route designated in the mortgage were in the middle part, instead of at one end of the road. Yet, if they admit that in such a case, the mortgage might embrace the railroad thus constructed on a different line from that specified in the mortgage, they retire from the position first assumed, and concede that their authorities do not entirely cover and maintain it.
We do not controvert these authorities. The rulé they enunciate is a sound one. The error is in-the application of it, and arises from failing to recognize the different nature of the subjects of the deeds, in the óne casé and in the others. What was the principal subject of the trust deed now under consideration ? It was not a prescribed strip of land extending through all the counties named, with its present and
The nature of the transaction is well explained by Judge Barrett, in his able opinion concurred in by all the six judges, in the thoroughly argued case of Miller v. R. & W. R. R. Co. et al, (36 Vermont, 452.) “At the time the transaction took place,” (he says) “a road had been located between the two termini and put under contract and was in the process of construction, but was in no part completed as a railroad ready for use........It is too plain to require discussion, that it was the design of the parties that the mortgage should take effect upon the road in its completed condition, proper and ready for use in running over it, in the ordinary manner of that kind of business, and such is the legitimate import and force of the term as used.
“It was not a road, viz: a railroad in the condition it was in at the time of -making the mortgage. It was a mere roadway in the process of being wrought into a road. The mortgage is not of a roadway, right of a roadway, or of a roadway in the process of being wrought into a road, — but of ‘their road.’
. “It also seems plain that the mortgage was designed to take effect upon the road as it should exist under the rights of the corporation, at the time the mortgagees should succeed to the rights of the corporation by virtue of the due enforcement of the mortgage.
“It may be taken as granted, that in fact the location of the road was changed at different points, from the place fixed upon in the original location, after the mortgage took effect, and that it has been located and constructed beyond one terminus of its location and survey, as it was at that time. Still if it is the railroad of the corporation under its charter, the whole becomes, in our apprehension, subject to the mortgage. No other view is practicable without impeaching both parties of a very inadequate comprehension of the subject they are dealing with.
“The value of the security depended entirely on its capability of being used as a railroad. Only by reason of its being so used, would either the corporation or the mortgagees hold any right in reference to it; for the abandonment of such use would subject the rights to a forfeiture, and the land covered by the road, to a reverter to the owners of the fee. This fact seems conclusive as to what was the intent of
“So too, in respect to the addition to one end of the road the same rule applies. The idea that two miles, more or less, of a railroad continuous between two fixed limits, constructed in the same right and as a part of the same road, was to be severed and held by the corporation, as against the effect and operation of the mortgage, if it exists at all, must have had its origin at a period much more recent than the mortgage now in question.” (pp. 494-5).
The railroad cases to which we have been referred, are either those in which there was a disregard of the limits assigned by the charter for the road, and hence a violation of State statutes was involved, or those in which subscribers for stock defended against the payment of their subscriptions, on account of material alterations made without their consent. They are not suits between the corporation which made the change and was the debtor-partyand its mortgage creditors.
In this case there is no violation of a State law, for what was done was authorized by law; and there is no subscriber for stock resisting payment, but a mortgage creditor seeking payment; which is resisted on the ground that the company by changing the direction of the road at the upper end, with the consent of the State, has itself effected a release of its railroad from the mortgage.
It is to be remembered that this road extended 135 miles from its base upon the navigable Alabama river at Selma, and was reaching forth for a connection — which was a main object from the beginning and necessary for its success— with other great lines of communication northward. This was found to be unattainable in the direction first taken toward Gadsden : and afterwards with a view to the accomplishment of the same main object, the legislature allowed the company to continue its road to the State line, in the same general course rvhicli it kept from Selma, instead of turning at right angles and going to Gadsden ; and this the company chose to do.
Too much weight vve think is attached to the fact that this was done by a legislative alteration of a charter which did not at first permit it. If the charter as originally written had, as some other charters have, permitted a large enough scope at the upper end in seeking for the best connection, and after starting upon the course first selected, the
It is now of no moment that the company was permitted under the amended charter, if it should so choose, to construct a road from Jacksonville to Gadsden. The company did not choose to do so, but it proceeded with alacrity, as all their acts, as well as said trust deed, show, to build the road along the new route and make this their main line — the railroad, (by way of eminence) of the company. Even a road from Jacksonville to Gadsden would now be but a branch from the main trunk, and not pass by the mortgage — which covers only the one main road which the company was established to build.
We adhere to the opinion and reasoning heretofore expressed on the subject under consideration. The application for a rehearing is denied.