Branch v. Jesup

Decision Date15 January 1883
Citation1 S.Ct. 495,106 U.S. 468,27 L.Ed. 279
PartiesBRANCH and others v. JESUP, surviving Trustee, and another
CourtU.S. Supreme Court

W. W. Montgomery, for appellants.

W. S. Chisholm and R. Falligant, for appellees.

BRADLEY, J.

This case arises upon a bill filed by Morris K. Jesup, as surviving trustee, for the foreclosure of a deed of trust in the nature of a mortgage, bearing date of December 20, 1867, given by the Atlantic & Gulf Railroad Company of Georgia to said Jesup and one Gardner (since deceased) to secure the payment of certain bonds of the company to the amount of $2,000,000, payable in 1897, with interest. The bill was filed February 15, 1877, and on the nineteenth of the same month receivers were appointed to take charge of the mortgaged property, being the railroad of the company, with its rolling stock and machinery. A supplemental bill was filed on the twentieth of April, 1877. The only defendant named in either bill was the Atlantic & Gulf Railroad Company. The premises sought to be foreclosed and sold were—First, the main line of the company's road, extending from Savannah southwesterly and westerly to Bainbridge, in Georgia, a distance of about 237 miles; secondly, a branch road, extending from Dupont to the Florida line, about 32 miles, connecting, thirdly, with a short road in Florida, extending to Live Oak, in that state, which the company held and operated under a lease; fourthly, a branch road about 58 miles in length, extending from Thomasville, on the main line, northerly to Albany, Georgia; fifthly, two other small branches at Savannah, one connecting the main line with wharves on the Savannah river, and the other connecting it with the Savannah & Charleston Rail- road. The Thomasville branch was purchased from the South Georgia & Florida Railroad Company in 1868 (shortly after the giving of the mortgage in suit) for the purpose of extending the line to Albany; which branch was subject to certain bonds and mortgages issued by the latter company, having a lien paramount to the mortgage in suit. The other branches were, in like manner, severally subject to certain prior mortgages, given for purchase money or construction, and having a paramount lien. The bill conceded the priority of the several liens. The defendant answered, specifying the liens on its property prior to that of the mortgage, and insisting that it would be inequitable to foreclose and sell at that time, although consenting to the appointment of receivers.

On the twenty-second of April, 1878, Branch, Sons & Co. and others, (who are appellants here,) petitioned for and obtained leave to intervene pro interesse suo, claiming to be preferred creditors of tha Atlantic & Gulf Railroad Company, as to the proceeds and earnings of the South Georgia & Florida Railroad; that is, the branch from Thomasville to Albany. By amendment to the petition the South Georgia & Florida Railroad Company was also made a party, and a prayer was added to have declared void the sale of the said branch road and for its restoration to the South Georgia & Florida Railroad Company. By their petition of intervention the appellants insisted that the lien of the mortgage sought to be foreclosed does not cover the branch aforesaid; that the petitioners and others are holders of certificates of special guarantied 7 per cent. stock of the Atlantic & Gulf Railroad Company to the amount of some $300,000, of which the petitioners own $56,100; that these certificates were issued by the Atlantic & Gulf Railroad Company under a contract with the South Georgia & Florida Railroad Company, dated January, 1869, for the construction of its road from Thomasville to Albany; a copy of which contract and certain modifications of it, and a copy of one of the certificates, were annexed to the petition. The petitioners further contended that the earnings of that branch road, if kept by themselves, would be sufficient not only to pay the interest on the preferred bonds of the South Georgia & Florida Railroad Company, but to pay the interest on said certificates; that the guarantied scrip was given for the purchase of the South Georgia & Florida Railroad, and was distributed among the contractors who built it in payment for their labor; that it is in effect the promissory notes of the Atlantic & Gulf Railroad Company, and that the holders could proceed by attachment if the property of that company were not in the hands of receivers; and after making further averments as to the solvency of the South Georgia & Florida Railroad Company, if it stood alone, unconnected with the Atlantic & Gulf Railroad Company, the petitioners prayed for themselves, and the other holders of certificates, to be examined pro interesse suo touching their alleged paramount claim upon the proceeds of the South Georgia & Florida Railroad after payment of interest on its bonds, and for an order directing such examination before the master, and for other directions.

In the amended petition the petitoners averred that the original holders of the certificates of preferred stock before mentioned were subscribers to the capital stock of the South Georgia & Florida Railroad Company, and paid their subscriptions by work done on the road, for which they received the said certificates of preferred stock in the Atlantic & Gulf Railroad Company, and that the present holders are bona fide purchasers of said scrip, except in some instances where the original holders have not parted with their scrip; and they alleged that when the contracts between the two companies were executed it was supposed that they had power to enter into the same; but that they are now advised that the contracts were ultra uires and void, and they prayed a rescission and the cancellation thereof; but if the court should decree that the contract only amounted to a lease of the road, (which they conceded would not be ultra vires,) then they prayed that it may be rescinded for non-compliance with its terms, and the inability of the Atlantic & Gulf Railroad Company to comply therewith. But if the court should think there was a valid contract of sale, then they repeated their prayer to be decreed to have a first lien on the proceeds of the road after the mort- gages executed thereon by the South Georgia & Florida Railroad Company, and for a separate sale of that road subject to said mortgages.

The first contract referred to in the petition bore date June 19, 1868, and provided that the South Georgia & Florida Railroad Company should complete its road from Thomasville to Albany, and turn it over in sections, as completed, to the Atlantic & Gulf Railroad Company, and that, when completed to Albany, the stock of the South Georgia & Florida Railroad Company should be incorporated with the stock of the Atlantic & Gulf Railroad Company, and that interest at the rate of 7 per cent. per annum on the actual cost of the road should be paid as well before such incorporation of stock as on said stock after its incorporation; and that, when the stock should be thus incorporated, all the rights, privileges, and franchises of the South Georgia & Florida Railroad Company, so far as related to the road from Thomasville to Albany, should vest in the Atlantic & Gulf Railroad Company, and said road should be a branch of the Atlantic & Gulf Road. This contract was modified by another contract made January 15, 1869, which recited that the legislature of the state had passed an act authorizing the state to indorse the bonds of the South Georgia & Florida Railroad Company, to the amount of $8,000 per mile; and that the Atlantic & Gulf Railroad Company consented to the issue of said bonds, and a first mortgage to secure them, and guarantied their payment; and it was stipulated that the amount of said bonds should be deducted from the amount of preferred stock to be issued to the South Georgia & Florida Railroad Company for the construction of the road. Another agreement, made September 1, 1869, authorized the further issue of bonds by the South Georgia & Florida Railroad Company to the amount of $200,000, to be secured by a second mortgage on the road, and guarantied by the Atlantic & Gulf Railroad Company.

The road appears to have been completed to Albany prior to October, 1870. On the tenth of that month the following resolution was passed by the board of directors of the South Georgia & Florida Railroad Company:

'Whereas, the South Georgia & Florida Railroad Company entered into an agreement with the Atlantic & Gulf Railroad Company, on the nineteenth day of June, 1868, by which a transfer of the said South Georgia & Florida Railroad was to be made (that is, all of said road between Thomasville and Albany) upon certain conditions therein stipulated, all of which will more fully appear by reference to said agreements; and whereas, the South Georgia & Florida Railroad has been completed to East Albany and the same has been turned over to the Atlantic & Gulf Railroad Company, and which is now being operated by said Atlantic & Gulf Railroad Company; and whereas, the president of the Atlantic & Gulf Railroad Company has signified his willingness to receive said road finished to East Albany; and whereas, the South Georgia & Florida Railroad Company have made up the entire cost of said road and made affidavit certificate under oath as prescribed by said agreement,—it is therefore resolved that the president of this road proceed to Savannah, submit his estimates and certificates, and demand and receive the guarantied stock agreed to be given to the South Georgia & Florida Railroad stockholders under said agreements in terms of the several agreements made by the South Georgia & Florida Railroad Company with said Atlantic & Gulf Railroad Company. Resolved, further, that the president be, and he is hereby, authorized to make, execute, and deliver all papers necessary to carry out and fulfill said agreements for a transfer of so much of said South Georgia & Florida Railroad as lies...

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