62 F. 678 | U.S. Circuit Court for the District of South Carolina | 1894
This case now comes up to he heard upon the cross bill of the cities of Anderson and Greenville and of the counties of Laurens, Spartanburg, Anderson, and Greenville, and the answers thereto. It will be impossible to come to a conclusion upon the principles of law governing this case without a full statement of the facts.
There were in the state of South Carolina several small railroads, Independent of each other, but connecting at a common point, and, in a sense, auxiliary. One of these ivas the Augusta & Knoxville Railroad, some 68 miles in length, and completed from Augusta, Ga., to Greenwood, S. C.; another, the Greenwood, Spartanburg & Lau-rens Railroad, about 66 miles long, having its termini at Spartan-burg and Greenwood, and passing through the town of Laurens ; and yet another, the Greenville & Laurens Railroad, 36⅛ miles long, connecting Laurens and Greenville; another, the Savannah Valiev Railroad, extending from McCormack, S. O., to Anderson, S. 0., some 58½ miles. These five towns (Greenville, Spartanburg, Laurens, Anderson, and Greenwood) are the important trade centers in upper South Carolina; and these roads put them in close con
*682 Tlie Greenwood, Spartanburg & Laurens Railroad, in the sum of.. $600,000
The Savannah Valley Railroad, in the sum of.'. 500,000
The Greenville & Laurens Railroad, in the sum of. 300,000
The Augusta & Knoxville Railroad, in the sum of. 630,000
This agreement baying been recorded, stock was issued in tbe new company, and certificates thereof were delivered, share for share, in lieu of the stock held in the several companies; each of the counties and cities, complainants in the cross bill, surrendering the stock held by it in the several companies, and receiving in lieu thereof the shares in the new company. No one of them availed itself of the provisions of section 1432, Gen. St. S. C. (section 1543, Pub. Laws), providing a mode of relief for stockholders of consolidating companies who may be unwilling to convert their stock into the stock of the consolidated company; a proceeding which must be begun within 30 days after the adoption of the agreement -of consolidation, not after its record. After the consolidation agreement was made, the Port Royal & Western Carolina Railway executed a mortgage of all its property to the Central Trust Company of New York to secure an issue of coupon bonds, payable to bearer, bearing interest at 6 per cent, per annum, payable by coupons, to the amount of $2,500,000, — the mortgage now in question. Of these bonds, $630,000 were to be reserved to retire an equal amount of first mortgage bonds of the Augusta & Knoxville Railroad Company. Of them, an amount of $1,460,000 was used in retiring and satisfying the outstanding bonds of the other companies in the combination, $88,400 in taking up and canceling stock of Augusta & Knoxville Railroad Company, and $321,600 were reserved for the purposes of the Port Royal & Western Carolina Railway Company, in necessary improvements and additions to its property.
The Central Railroad & Banking Company had become the owner of the bonds of all of these roads but the Augusta & Knoxville, and was the principal if not the sole owner of the stock of this last-named railroad. So it became possessed of nearly all of the bonds of the Port Royal & Western Carolina Railway Company which were issued. The trustee still holds the bonds reserved for exchange with the bonds of the Augusta & Knoxville, and a part of the other reserved bonds are still on hand. The Central Railroad & Banking Company of Georgia hypothecated all of its bonds — $1,460,000—with the Central Trust Company of New York, and a number of other securities, as collateral to a loan effected with the trust company. No interest coupons have been paid on these bonds of the Port Royal & Western Carolina Railway Company, and the Central Trust Company, as trustee holding- the mortgage securing them, brought the bill to foreclose the mortgage, to which this cross bill was filed. This trust company holds many of these bonds, as has been stated, as collateral. The bill, however, is filed by it as trustee, and other parties, claiming to be holders, by purchase, of the bonds, have proved them in this suit.
From the date of the first meeting of the Port Royal & Western Carolina Railway Company to the present time, the stock in that
The question made by the cross hill is as to the validity of the mortgage which the original bill seeks to foreclose. The cross bill denies that there is, or ever has been, a lawful corporation known as the Port Boyal & Western Carolina Bailway Company, and that all so-called corporate acts alleged to have been performed by it are void. This averment is made on many grounds. They go to fraudulent conduct in getting up the agreement for consolidation, a want of compliance wiih the provisions of the acts of assembly in such case made and provided, and to improper and unlawful conduct of the Central Bailroad & Banking Company, in possessing itself of the bonds issued by the company. It is also denied that the mortgage is valid, because it was executed under a vote of the directors, and not of the corporation. It is claimed with great earnestness that one essential feature of this consolidation — the inducement controlling the count ios and cities--was that the Port Boyal & Augusta Bailroad Company formed a part of it; that the name of this company was inserted in the agreement and in the title of (he new company; and that the failure upon the part of this company to join in the agreement invalidated it, especially as this failure was brought about, by the machinations of the Central Bailroad & Banking Company, the chief promoter of the enterprise, in order to suppress a competitor. Whatever may have been the hopes, expectations, or motives of the parties to this agreement, its validity must be determined by the considerations expressed in it, and not by those dependent on extraneous parol evidence. This agreement expressly provides for the failure of any one of the companies named in it to enter into the agreement, and binds the remaining companies, notwithstanding' such failure, to continue, perfect, and carry out the agreement upon the terms set out. The agreement is the joint agreement of the directors of these several corporations, under the corporate seal of each. If proposes the consolidation of these companies. It proscribes the conditions and terms, and the mode of carrying them into effect. It gives the name of the new corporation, the number and names of the directors and other officers; declares who shall be the first directors and officers, and their places of residence. It gives the number of shares of the capital stock, the amount or par value of each share, the manner of converting the capital stock of each of the companies into that of the new company; that is to say, by the purchase of all of the stock of the Augusta & Knoxville, and by the exchange of the new stock with the old stock, share for share, of the other companies. When if is considered that the Augusta & Knoxville was absolutely necessary to this whole scheme, and
It is further objected that this new mortgage was not submitted to the corporation for approval, hut was the act of its directors, under the law of Mouth Carolina (Gen. St. M. C. §§ 1427, 1428; Pub. Laws M. C. §§ 1538, 1539), it ⅛ provided that upon the consummation of the act of consolidation the rights, privileges, and franchises of each of the corpora lions, parties to the same, shall be taken and deemed io be vested in and transferred to such new corporation, without any further act and deed. Each of these corporations, at the date of the consolidation, had outstanding bonds secured by mortgages under proper authority. The main purpose of the new mortgage was to take up them, and substitute the bonds of the new company. The bonds and mortgage so substituted were authorized and sustained by the same powers. “The directors alone, without (lie vote of the stockholders, may authorize a mortgage to be made; and, even though there is a question as to their authority, the validity of the mortgage, as against (he corporation, is established by its affirmance of it by the issue of bonds under it.” Wood, R. R. p. 1951, § 4 61, quoting McCurdy's Appeal, 65 Pa. St. 290; Hadden v. Railroad Co., 7 Fed. 793. “If the act; authorizing the mortgage requires a concurrence of the majority of stockholders, it is held that this is a requirement in which the public have no interest.” Thomas v. Railroad Co., 104 Ill. 162. The question now under consideration is the validity of this mortgage in the hands of the trustee. Nothing is decided with respect, to the claims of other than bona tide holders of the bonds held under it. With regard to the rights of the Central Railroad & Banking Company, they cannot be passed upon at present, because this corporation is in no sense1 a party hereto. For the same'reason, it cannot be decided how Oar the pledgees of these bonds are affected by the defects in the title of (he Central Railroad & Banking Company, nor can a decision he made as to the misuse of any of these bonds. All these questions can come up, and can he decided, when proof is made, or attempted to be made, of bonds in the hands of holders presenting them. Nor is the case ripe for an opinion how far a decision declaring the"invalidity of bonds under