114 Mich. 494 | Mich. | 1897
In 1879, eight persons, of whom complainant was one, organized the Pontiac, Oxford & Port Austin Railroad Company, with a nominal stock of $1,500,000 in $100 shares. Each of the eight persons subscribed for one-eighth of the shares, and paid in one-eighth of the sum of $2,500, which was all the money ever paid in. The eight persons became the directors. Joseph P. Hale was promoter of said railroad, and was president and chief stockholder of the New York, New England & Western Investment Company, an Illinois corporation. The railroad company made a contract with the investment company by which the railroad was to make a mortgage to the Farmers’ Loan & Trust Company of New York, and turn over the mortgage bonds and the stock to build the railroad. In 1882 the railroad company, in accordance with the stipulation to that effect in the above-named contract, made a mortgage to secure 1,500 $1,000, 30-year, 6 per cent, bonds to the Farmers’ Loan & Trust Company of New York, and authorized the trustee to issue all the certificates of stock and all the bonds of the railroad, and to deliver the same to the investment company, as fast as five-mile sections of the railroad should be completed, at the rate of $15,000 a mile of bonds and $15,000 a mile of stock, nominally full-paid.
Hale made loans to the investment company upon the said stock and bonds as collateral, and, the said company failing and going out of existence, Hale took up the work of construction. Before completion, Hale died, in 1883, and Lucy Ann Hale, his widow, and George W. Debevoise became executors, and finished the work, and, in 1886, 14,985 shares of the stock and all of the bonds came into their ownership and possession. Eight qualifying shares of the stock were held by the original eight directors, and seven shares by their seven successors. The cost of building the road was $1,430,000, or $70,000 less than the amount of the 1,500 $1,000 mortgage bonds received for building, leaving the bonus of 14,985 shares of stock besides in the ownership of the executors, nominally full-paid, but actually paid up only to the extent of $2,500. Complainant, March 6, 1888, took out execution, returnable March 27, 1888, and the same was returned unsatisfied March 28th. Afterwards he levied a pluries execution on all the railroad property, and the levy was duly recorded May 8, 1889. The company having defaulted in payment of interest, the executors called upon the trustee, the Farmers’ Loan & Trust Company, to take possession, and foreclose by advertisement, The trustee did this, and
Complainant filed the creditor’s bill in the present case May 22, 1889, for himself and other creditors, if any, and in aid of execution, and to set aside the mortgage foreclosure, and to assess the stock, setting forth the foregoing, and praying a preliminary and final injunction against the sale, and also prayed the appointment of a receiver, and the sequestration of the stock, and general relief. Application for a preliminary injunction was granted on. condition of filing a bond of $2,000. The complainant decided not to file a bond, and the sale took place. At the time of the sale, which was conducted by Mr. Houston, complainant made a protest, and stated his claim and lien, and forbade the sale. C. H. Stone, son-in-law of Lucy Ann Hale, executrix and defendant, George W. Debevoise, executor and defendant, and Hugh Porter, attorney of the Hale estate, bid the property in, and organized a new company pending this suit, under the general railroad law (article 1, § 2; 1 How. Stat. § 3314), with $1,000,000 capital stock in shares of $100 each, all of which stock was issued to the executors, Mrs. Hale and Debevoise, defendants.
The defendants railroad company and trust company, who are the appellants, answered the bill. The executors, Mrs. Hale and George W. Debevoise (formerly president and superintendent of the railroad and secretary of the investment company), were brought in by publication, and made default. The case was tried in open court, and the relief prayed was granted, and the court decreed that, the bonds and stock being vested in the same persons, to wit, the said executors, the bonds were merged in the stock, in the view of equity, and considered as paid as against the complainant, and that said foreclosure was had in bad faith, and was also void for legal defects, viz., want of publication in the counties through which the railroad passes, not stating amount claimed to be due, nor
It is said that, as the shareholders who would be
The decree will be reversed, and the bill dismissed.