189 F. 661 | U.S. Circuit Court for the District of Southern New York | 1911
On January 20, 1898, the Second Avenue Railroad Company executed a mortgage of all its real estate, franchises, railroad property, and equipment, then owned or thereafter to be owned, to secure an issue of bonds of which $5,682,000 are actually outstanding. The petitioners are the owners and holders of nearly $4,000,000 of these bonds. At about the same time the Second Avenue Company leased its entire railway system to the Metropolitan Street Railway Company. That company assumed the payment of these bonds in the lease, and by indorsement on the back of each bond before actual issue it guaranteed to the trustee of the mortgage for the benefit of the holders punctual payment of principal and interest “at the time and in the manner specified therein.” In 1902 the Metropolitan leased its entire system to the New York City Railway Company which thereby became a sublessee of the Second Avenue road. The New York City by its lease undertook to pay all rentals and other sums of money (except-principal) which the Metropolitan was obligated 'to pay under any leases or other contracts by which it had acquired possession of the property of the various subsidiary companies which made up its system. On September 24, 1907, receivers of the New York City Company were appointed by this court, and on October 1, 1907, the same individuals were appointed receivers of the Metropolitan. They held the estates of both companies until midnight of July 31, 1908, when a separate receiver of the New York City Company was appointed. The principal of the mortgage debt of the Second Avenue road was to come due February 1, 1948. The instrument contained the usual provisions for declaring principal due upon default in the payment of interest; also the usual provisions for foreclosure.
Being uncertain at first whether or not the Second Avenue road was a valuable part of the system, the receivers paid the coupons which fell due February 1, 1908, but subsequently decided not to accept the lease. They defaulted on the interest due August 1, 1908, and returned the road to its owners. Promptly upon default (in August or September, 1908) the mortgage trustee began a foreclosure suit in the state court, and a receiver of the property of the Second Avenue road was appointed September 19, 1908. There is no suggestion anywhere in this record of any possible defense which the mortgagor might have sustained to the foreclosure suit, nor even of any ostensible defense which might have operated to delay the trustée in performing its duty to collect the amount secured by the mortgage out of the property primarily liable therefor, so far as the same would go. Strange to say, however, the foreclosure suit has not been pressed, no decree has been entered, and of course there has been no sale and no judgment for any deficiency. So far as this record discloses the value of the property enumerated in the mortgage may be greatly in excess of the amount of bonds issued thereon. In February, 1910, in compliance with request of a majority of the bondholders the trustee notified the mortgagor that it elected to declare the entire principal due.
• The record does not show whether or not the bondholders who have filed these claims or a majority of them, are also stockholders of the
It is contended that the Metropolitan Company should pay to the holders of these bpnds the full amount of the principal thereof (less the present value of coupons paid subsequent to October 1, 1907) amounting to $3,979,854.38. It is also contended that New York City Railway should pay all the coupons falling due till February 1, 1948 (with proper rebate for present payment), as if each coupon were its own promissory note due at the future date named therein. This amounts to $3,438,039.07. It is not understood that any preference is insisted on for either of these claims, but it is contended that they are entitled to share in the assets equally with the creditors of these two roads. If it should come to pass, in some way, that these estates could marshal enough assets to pay their debts substantially in full, the Second Avenue bondholders would thus collect the amount of their bonds, principal and future interest, without taking anything from the estate of the Second Avenue road which was the primary security for the loan. Such a result seems most inequitable, but as the special master points out in his careful and exhaustive discussion of the question the documents which regulate and define the rights of respective parties do not lead to any such conclusion.
The' exceptions are overruled, and the report of the special master is confirmed.