190 " . ::r?
RJ);Jl;SAt., REPORTER,
vol. 64. I
.YORK, L. E. & W. R,.,CO. ,et 11,1. (Oiticuit' 'OOUl'tJ, S.D. New York. OctobQ' 31, 1894.)
,:,
j"l 'I:
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'4ol'Vent'r8ililJrQa;d corporation; as to payment of. interest on bonds, it appeared(;14thM (lne !leliesof bonds was issued bY defendant, and secured by a bonds which had JDarket value largely in exceSS .ot 'ttfeamount ot bonds Issued, and produced an income in excess of the ltlteti:lston suchl!iOntls, and Which secured'to defendant control of properties, forming integral" and 'essential pavtS'.: of its system, which wouldbe(los,t if s-nch stocks, etl'..' .were sold undIW 1ioreclosure; (2) that consiste<i firf/lt mortgage bonds, of arolj,d constituting a link. of in' loss of which by foreclosure woulu greatly'depreciate the value of the rest; (3) that an(ltJher seriesconsistetl of llkebond,sof another road, ofgrreat value to de· (4) .that Il,nothel' series consisted of bonds secured by a deposit of f,oW; se.ts coupons of p.efendant's second con· mprtgage bonds, coupons, undel'the terms of that mort· gage,weresuperlor in lien, to coupons of the same bonds subsequently maturing. ' 'lIeld."that the coupons of' each of thesesetles of bonds should be paid by tJ:l.e receiver,olltof any. available funds, before payment of coupons of the sai(j. second consoUdated mortgage ,bonds maturing during the receivership, although such: second consolidated mortgage was prior in date to the aforesaid' mortgages, and notWithstanding there was a question' as to whether the' lien of ',such second consolidated mortgage upon the &tocks fl,nd bonds covel,"edl)y the first-mentioned mortgage was not, &uperlor to the lIell of that mortgage, which question could not be determineq. in thls suit.
This was a pi'oceeding by Trenor Luther against the New York, Lake Erie'& Western Railroad Company for the appointment 'Of receivers and for other relief. John King and John C. McCullough were duly appointed receivers,and in August, 1893, the Farmers'Loan & Trust Company petitioned the court for leave to intervene as a party defendant, and an order was made to that effect. The eause is now before the court on petition by the Farmers' Loan & ,'Trust C()mpany praying for an investigation by the court, and an Qrder respecting the payment of certain demands against the rail· road company by the receivers. Frederic B. Jennings, for receivers. B. Turner and Frederick Geller, for Fal'Iil.ers' L. & T. Co., for motion. James C.Cllrter, for .second consolidated bondholders. Francis L. Stetson, for certain second consolidated bondholders. LACOMBE, Circuit Judge. Receivers of the defendant rail· ;!road company, heretofor(i! in this action appointed, and are now ;';JI,dministering tbeir trust. The defendant trust company is the roortgageeintrui!!t under various mortgages.. covering property of ".:t;l).e defendaJ;lt'railroad company. Among these mortgages iii one ·known as. the: "New Second Coqsolidated Mortgage," dated .5,1878, under,which b()nds to tbElamount of $36,097,400 are outstanding. The coupons falling due on this mortgage since receivers have been appointed have not been paid, the receivers not being in
PARK tI. NEW YOJ.'tK, I·· E. & W. R. CO.
191
receipt of sufficient net income to meet them; but proceedings to foreclose have not been instituted, as the mortgage provides therefor only in the event of default on each ()f six successive coupons. The trust company now presents a petition, accompanied by a letter received from the holders of a large number of these bonds, in which letter it is stated that there is reason to apprehend the payment by the receivers of interest installments soon to grow due upon certain bonds of the defendant company, and companies owned or controlled. by it, which are subsequent and inferior in point of time or of lien, or of both, to the bonds secured by the said second consolidated mortgage. The petition prays that the court will make such in· vestigations as may be proper, and will make such order as to the payment of the various installments of interest as the circumstances may demand. A supplemental petition presents another letter reo ceived from the holders of $27,000,000 of the second consolidated mortgage bonds, .urging the trust company to impress upon the court the importance of instructing the receivers to pay promptly at maturity such interest on bonds of four series therein named, nnd which are secured by mortgages subsequent in date to the said second consolidated. Counsel representing both sets of second consolidated bondholders have been heard on the argument. The receivers, in answer to the petition, set forth certain facts, and also submit the question to the C"ourt with a request for instructions. The bonds upon which it is alreged that installments of interest are about to be paid are these: No. 1. Collateral trust bonds of defendant railroad, $3,344,000, 6%. Mortgage dated November 1, 1882. Coupons due November 1st and ;\Iay 1st. No.2. First mortgage bonds, Chicago & Erie Railroad Company, $12,000,000, 5%. Mortgage dated August 21, 1890, and guara.ntied by defendant railroad. Coupons due November 1st and :\Iay 1st. No.3. First mortgage bonds, New York, Lake Erie & Western Coal & Railroad Company. $3,000,000, 6%. Mortgage dated May 15, 1882, and guaran· tied by defendant railroad. Coupons due November 1st and May 1st. No.4. Income bonds of defendant railroad, $508,008, 6%. Coupons due December 1st and June 1st. No.5. li'unded coupons bonds of 1885, $4,031,000, of defendant railroad, 5%. Mortgage dated November, 1885. Coupons due December 1st and June 1st.
As to No. 4,-the income bonds,-it appears that no interest upon them has been earned, and that none is to be paid. They are there· fore withdrawn from further consideration. The coupons on Nos. 1, 2, and 3 fall due November 1st, and the court intimated upon the argument that it might not be possible, within the brief time remaining before that day, to examine and dispose of all the points raised with regard to them. Upon investigation, however, it appears that the questions now presented for determination are not at all as comprehensive as was then supposed, and there is no reason why the answers to them should be further delayed. No.1. The Collateral Trust Bonds. In 1882 the defendant railroad, beIng the owner of stocks and bonds of various corporations, pledged them to the United States Trust Company as security for a series of bonds issued by defendant. The various stocks and bonds thus pledged were specifically enumerated in the indenture of
192,
REPORTER,
vol. 64.
gfl;ge,ii-ij,d,theY,were <lelivered to the United etlltes Trnst Oompany, ' tlun:aUrvadreservingthewwer of voting on such stocks and bonds, so lli8 not to its control of thesl,lbsiWllry co,rporations. In case of default in payment of interest on the collateral trust bQndJ!ljitl!.e '{Jnited Stlittes Oompany was authorized to sell the public auction upon months' notice. Tb;e aJIl()1llltofcollateraltrust bonds outstanding is $3,344,000. The pal,'vallle!ofthe stocks and bonds pledged for their payment is about $8,000,0,00, and their actual value. not. less than three times the amount. o!oollateral trust bonds outstanding. The pledged stocks and bQndsare paying interest, annually, in excess of the interest due on the tl'Ustbonds by over $50,000. It appears, moreover, that in some instances such pledged stocks secure to their owner, the control of property which is, and has been for IIlany years,'f,Ul integral part of the Erie Railroad sy$tem. The anthracite coal lands and the bituminous coal lands, frOlU which the road draws a large part of its supply of coal, are owned by corporations, the entire capital stock of Which. isJncluded among the securities thus pledged. It is plain that if, upon default in the payment of the interestfalling due on the collateraltmt!\!t bonds, the trostee should, as the mortgage provides, declare the whole principal due, and sell the pledged securities in the open market to the highef\!t bidder, the value of the property which was placed in the hands of these receivers to be for the benefit. of all the creditors. would be most seriously impaired. Certainly, such a catastrophe should not be allowed to overtake the property w!lile in the hands of the court if it is avoidable. It is that no· disastrous consequence could result urged, from a failure. by the receivers to meet the interest coming due on collateral trust bonds. The second consolidated mortgage, which was made four years before these securities were pledged, enumerates not only :f;hereal estate,' but also the estate, right, title, and interest of the Ene Company in various corporations expressly named, and, in general terms, "all manner of mixed and· personal property, of whatever nature or description the same may be, at the date of these presents owned (jr possessed by said partyof the first part, or that may at any time hereafter, during fhe continuance of this trust, be acquired by said party of the first part." By the terms of the mortgage, these securities, subsequently pledged to the United States Trnst Oompany, were left in the possession of the railroad company, with a power of sale or exchange which is set forth in much detail in article 5 of the indenture. It is contended that the second consolidated mortgage subjected all the securities subsequently transferred to the United States Trnst Company to a lien superior to any obtainable by the latter company as trustee under the collateral trust mortgage. Hence, it is argued that no title, save, perhaps, to an equity subordinate to the consolidated mortgage, could be conveyed by any attempted sale under foreclosure of the collateral trust mortgage. In other words, the question presented is, what are the respective rights of the holders of these two mortgages in the stocks and bonds enumerated in the collateral trust indenture? Manifestly, :that is a question which this court should not now
PARK t!. lS'EW YORK, "L.r J!l, &: W. R. CO.
193
answer. The holders of the collateral trust mortgage are not before us. The court is uninformed as to all the facts, and unenlightened by the arguments of all the parties in interest. All it is necessary or proper to determine now is whether the receivers should default and allow foreclosure of the collateral trust mortgage, on the chance that, when such foreclosure proceedings are instituted, the court before which the main question may come will hold that the holders of such mortgage acquired no right to sell out the 8ecurities enumerated therein, and with the certainty that, should such Court reach an opposite conclusion, the property which was placed in the hands of these receivers to be preserved intact, as far as might be possible, for all the creditors, secured and unsecured, in the proper order of their priorities, would be most seriously impaired. The receivers should take no such risk. To do so upon speculations as to the future decision of some other court would be simple recklessness. The receivers should, if they have the money, pay the interest, and thus secure the pledged stocks and bonds beyond any peradventure, 8S assets valuable in themselves, and still more valuable because they preserve the control of subsidiary railroads, steamboats, coal fields, and other appurtenances essential to the system as a whole. The interests of the second mortgage bondholders themselves, quite as much as those of all other creditors, call for such action. No.2. First Mortgage Bonds Chicago & Erie Railroad. This road is part of the Erie system. It appears from the reports that it is not being operated at a profit. A statement submitted by the receivers seems to indicate that, were it not for the fact that this subsidiary road is charged with a disproportionate share of certain expenditures, that result would not appear. All such questions of bookkeeping, however, may be disregarded. The road in question is 269 miles in length, extending from Marion to Chicago. It is an integral part of the main line of the Erie Railway, and is the line by which it enters Chicago and secures the terminal facilities of that great railroad center. It must be assumed that, in the event of de· fault upon these first mortgage bonds, foreclosure would ensue, and the Chicago & Erie Railroad be sold out to the highest bidder. To allow this to happen, if they have money in hand to prevent it, would be most reprehensible improvidence on the part of the receivers, un· less it can be shown that the depreciation in the value of the whole property consequent upon discarding its present communica· tion with Chicago may be made good in some other way. Upon the argument it was intimated that a reference might be ordered touch· ing these bonds and those of the coal and railroad company, next to be considered, but upon further examination of the papers before the court it seems premature to make any such order. When any facts are presented tending to show that the loss of these 269 miles of road will not impair the value of the property, it will be time enough to send it to a master to take testimony, and report at a hearing where all parties creditor, whether secured or unsecured, may have an opportunity to discuss the question. No.3. New York, Lake Erie & Western Coal & Railroad Company v.64F.no.2-13
194
.'.' 1'EbERAL REPORTER,
vol.
Bonds. Tle'&itllatioIi here is about the same. . The road in question is which connects the Erie system with its coal fields. Over this ,(bie, #ithoutpayment of any freight, itliauls the coal which it uses to'dti1tt!4ts engines on other parts of the system. The same remarklil' apply to' these securities, and the same disposition should be made of them. Untilfurther facts appear, the receivers should pay intere!!!t accruing on both these sets of bonds. No;!>. Funded CoiIpon Bonds of 1885. In the years 1884.a.nd 1885 the defendant· t'allroad defaulted on the payment of four successive coupons of the secondoonsolidated These coupons were deposited by their holders with the Farmers' Loan & Trust Company, as' a trustee, to beheld, "with all the rights, lien, remedies, and security inCident thereto," intrust for the benefit of, and as collatet'al security for, a neW' issue of bonds, known as the ''Funded Coupon Bonds of 1885," a:adtaken by the holders of the coupons in exchange or substitution therefor. The funding coupon indenture, under thesefubded coupon bonds were issued, expressly provides that all the rights;' remedies, lien, and security incident to the coupon shall remain in ·fuHforce for the purpose of obtaining or enforcing pQyment of said funded coupon bonds. The same indebtedness is represented both by coupons and bonds. By the terms of the second consolidated mortgage it is expressly provided that each be paid in full before part payment of any coupon due subsequently maturing. Upon winding·up the affairs. of the defendant railroad company, therefore, these coupons would have to be paid in full before any subsequentinstallment of interest or the principal of the second consolidated bonds; The debt, therefore, represented by these coupons and by the funded coupon bonds, is superior in .point of lien to that represented by subsequent co:upons of the second consolidated bonds, and there is no reason why the receivers should be instructed not to pay them, if there be net income available for that purpose. ant as to the making of certainpil:yments to petitioner. see 57 Fed. 799. :NOTE. For pl'1or hearing on motioJ1 of the New York, Pennsylvania & O)lio Railroad Company, as petitioner. to histruct the receivers of the defend-
PAGE et aI. v. SUN INSURANCE OFFICE.
(CirCUit Court, ,D. Minnesota, Fpurth Division. , I,,}
November IS, 1894.)
LQss.: .... , Where .p,ropetty ,is coveted pY1:loth a specific .and a compound policy, . a provision the company shall not be liable .for a 'greater prop<lrtiidn of Ilny loss than theaI110unt Insured bears to the full amount of the compound avallable for i !.lts due PlIoportion. '
'Aetion by Edward s. Page'and others against the Sun Insurance Omcetma fire policy. . ... ' . ' . In this CllBe plaintiffs, lumber delUers at AnOka, Minn., 'held four policies ot'iJ:nsurance for'$2,500 each,ot' W111Chthe defendant Issued one. on the westerly block of their lumber yards. They also held policies. amounting