| N.J. | Mar 15, 1876
The opinion of the court was delivered by
The controversy in this cause arises between the receiver of the New Jersey West Line Railroad Company, an insolvent •corporation, and the trustees named in a mortgage given by the company, on their property and franchises, to secure the payment of bonds amounting to $3,000,000. A bill by the trustees, to foreclose the mortgage, and the bill to declare the •company insolvent, and for the appointment of a receiver, •were filed about the same time.
The appellants object to this order, first, because it directs the receiver to sell free of the lien of their mortgage, and .second, because it denies to the trustees the right to take possession of and manage the mortgaged premises. It is insisted, on behalf of the trustees, that the drder to sell clear of encumbrances is unauthorized by any statute existing at the time of the making and recording of the mortgage. If such authority «exists, it must be found in the supplement to; the act to prevent frauds by incorporated companies, approved March 13th, 1866, taken in connection with the twentieth section of the ■original act, (Nix. Dig. 409,) both of which are re-enacted, substantially in the same language, in the revision of 1875, being sections 84 and 85 of the act concerning corporations. The supplement of 1866 proyides that where' the property of an insolvent corporation, in the hands of a receiver, is encumbered with mortgages or other liens, the legality of which is brought into question, and the property. is of a character ■materially to deteriorate in value pending .the litigation, the Court of Chancery may order the receiver to sell the same
The power to order a sale clear of encumbrances, depends-upon two pre-requisites specified in the statute. The legality of the lien roust be brought in question, and the property must be of a character materially to deteriorate in value pending the litigation. The counsel for the trustees would give-to the phrase, “ legality of the mortgage,” a narrow and limited signification, entirely inconsistent with a liberal construction of the act, and totally destructive of its beneficent provisions.. They seek to confine its operation to cases only where legal objections are raised to the validity of the mortgage itself, and to exclude all questions in relation to the equities arising as-to the extent of the lien created by it, and its relative priority as to other encumbrances. A mortgage may be a legal lien upon the mortgaged premises; its legality, so far as the mortgagor is concerned, may be undoubted, but as against other-parties, in a court of equity, it may be wholly inoperative, and may be entirely frustrated by equities arising in favor of subsequent liens.
The object of the legislature was the prevention of loss by the depreciation in value of the property,, pending protracted litigation. The mischief and the- remedy proposed are plainly apparent upon the- face of the- act. It was not intended to* confine the remedy to- mischief arising from litigation of any particular character-,, but to< all litigation between encum
’ It is farther urged that the franchises of.the company are not within the words of the act; that they are not’ property, and cannot legally be sold by virtue of this order. All the elementary writers treat, of franchises as r^al property, though incorporeal in their nature. Chancellor Kent, in his commentaries, says that an estate in a franchise .-.and an estate in land rest upon the same principles. Although, technically speaking, franchises are property, they are property of a peculiar character, arising only from legislative grant, and are not, in ordinary cases, subject to execution or to sale and transfer, even in payment of the-debts -of the corporation, without the assent or authority of the legislature. If the act of 1866 stood alone, there might.be great, .hesitation in defining property'to include corporate rights and privileges, but it is to be construed in connection with the original act to which it is a supplement. Section 20 of that act authorizes the sale of the principal work for the construction of which the company -was incorporated, together with- all the chartered rights, privileges, and franchises of the company, appertaining to such principal work. The suppleinent was intended to extend and enlarge the remedy, and to give the Chancellor power to order the sale to be made clear of encumbrances. The principles of construction above mentioned are 'equally applicable here, and lead to the same result. "We. must hold that the order in question comes within the.spirit and meaning of the act, and that the Chancellor has a discretionary power in this and similar cases, to order a sale, both of the property and franchises of the company, clear of encumbrances.
■. The further point was taken by the counsel of the appellants, that the act of 1866 was repealed in the revision of 1875; that by the repeal, its provisions ceased to operate, and that the re-enactment, in the revision,, of the same provisions, cannot affect their rights and remedies under a preexisting mortgage. In other words, they hsk this court to
There only remains for consideration the second ground of appeal, viz., the denial to the appellants of their right to take possession of the premises, as trustees under the mortgage. It appears, by the case, that in the opinion of the receiver, the probable value of all the property and estate of the company does not. exceed $1,200,000, and that the amount now due in gold for principal and interest of bonds actually issued by the company, and secured by the mortgage in question, exceeds $2,200,000. A suit by the trustees, for the foreclosure of the mortgage, is now pending in the Court of Chancery, and they, by their petition, ask that the property may be sold under the foreclosure proceedings, and that, in the meantime, they may have possession of and operate the road for the benefit of the bond-holders, as provided in the mortgage. The debt now being due, they are entitled, as first mortgagees, to the possession of the mortgaged property, and to apply the income, if any, to the reduction of their debt, and a court of equity will not interfere with such legal right, unless the rights and equities of other1 parties are prejudiced by its. exercise. Here no other creditor can be injured. The mortgage is claimed to be the first lien on all the property and franchises of the company, excepting the land under water at Jersey City. The mortgage debt very largely exceeds the value of the property. The appellants claim that the interests of the bond-holders can be better protected by a sale under the mortgage than in any other way. In the
On the hearing before the Chancellor, this part of the case was presented in a very different aspect. Counsel, alleged to represent the holders of almost all the bonds, were there present, asking for the sale by the" receiver, and, under such circumstances, there could be no objection to the order. But it is now alleged that such counsel' -were mistaken as to the ..extent of their authority, or as to the wishes of the bondholders. They certainly do not apppar here to resist the appeal or to sustain the order. Ho one is before this court except the receiver, who may be said to represent a single bondholder, and the trustees under the mortgage, whom we must hold, in the absence of proof to the contrary, to be the representatives of all the other bond-holders.
Upon this last ground alone, the order of the Chancellor .should be reversed, but without costs, and the record remitted to the court below, with directions that the prayer of the petition of the appellants be granted; that they be let into the possession of the railroad, its property ánd appurtenances, .and be permitted to operate the same, and to proceed in the suit for the foreclosure of their mortgage, leaving the question as to the mode and manner of sale to be settled -at the determination of those proceedings.
Order unanimously reversed.