101 U.S. 289 (1880), Pacific R.r. v. Ketchum

Citation:101 U.S. 289, 25 L.Ed. 932
Party Name:PACIFIC RAILROAD v. KETCHUM.
Case Date:March 22, 1880
Court:United States Supreme Court
 
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Page 289

101 U.S. 289 (1880)

25 L.Ed. 932

PACIFIC RAILROAD

v.

KETCHUM.  

United States Supreme Court.

March 22, 1880

        OPINION

        APPEAL from the Circuit Court of the United States for the Eastern District of Missouri.

        This case presents the following facts:----

        On the 10th of July, 1875, the Pacific Railroad, a Missouri corporation, mortgaged its road and other property to Henry F. Vail and James D. Fish, trustees, citizens of New York, to secure a proposed issue of bonds amounting, in the aggregate, to $4,000,000.  This mortgage will hereafter be referred to as the 'third mortgage.'  The bonds were to bear date as of May 1, 1875, and become payment twenty years thereafter, with interest at the rate of seven per cent, falling due semi-annually on the first days of May and November in each year.  The principal object of this new issue was to take up by exchange or otherwise outstanding income and improvement bonds of the company, amounting in all to $3,500,000.  The mortgage contained a clause to the effect that, if the company should fail to pay the interest on any of the bonds thereby secured, for six months after the same became due and payable, and demand made therefor, or if the principal of any of the bonds, when payable, should not be paid for six months after demand, the trustees might, on the written request of holders of bonds to the amount of $500,000, the principal or interest of which should then be in arrear and unpaid, sell the mortgaged property at public auction, in the city of St. Louis, giving notice thereof in a manner particularly specified, and execute and deliver conveyances to the purchaser, applying the proceeds of the sale to the payment of the bonds.

        The property mortgaged was covered by other mortgages.  One was to Uriah A. Murdock, James Punnett, and Luther C. Clark, citizens of New York; another, to Edwin D. Morgan and Joseph Seligman, also citizens of New York; another, to Rufus J. Lackland and Dwight Durkee, citizens of Missouri; another, to James Baker, a citizen of Missouri, and Jesse Seligman, a citizen of New York; and all were prior in lien to the third mortgage.

        Default having been made in the payment of the interest falling due Nov. 1, 1875, on the bonds secured by the third mortgage, George E. Ketchum, a citizen of New York, claiming to be the owner and holder of many of the bonds, commenced this

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suit in the court below, on the 11th of November, in behalf of himself and the other bondholders, to foreclose the mortgage.  To this suit the railroad company and the trustees of all the mortgages, including Vail and Fish, were made defendants, their citizenship being fully set forth in the bill.  The superior right of all the prior mortgages was conceded, and it was also admitted that the full amount of their authorized issues was outstanding, but it was alleged that the interest on all except that secured by the third mortgage had been paid promptly as it matured, and that there was then no default.  It was also alleged that the value of the property was greater than the amount of all the prior liens.

        The bill further stated that about $2,000,000 of the income and improvement bonds had been exchanged for the bonds secured by the third mortgage, and that about $300,000 of the last-named bonds had been negotiated otherwise than by exchange, and were then outstanding.  It then alleged the nonpayment of interest falling due Nov. 1, 1875, after due demand made; that there was a large amount of money due for taxes; that the company was without means to pay them and its valid obligations in full as the later became due; that its commercial paper had been protested; that it was liable to actions, suits, and proceedings on account thereof; and that there was great danger that the property covered by the mortgage might be attached or levied upon under execution or other legal process.

        The bill then proceeds as follows: 'Your orator further shows unto your honors that an application has been made by your orator, on behalf of himself and other handers of bonds secured by said mortgage to the defendants Henry F. Vail and Henry D. Fish, to take proceedings to foreclose the aforesaid mortgage, and to protect the interest of your orator and such other holders; but that no such proceedings have been taken, and as your orator is informed and believes, some doubt is expressed whether, under such mortgage, they have the right to institute such proceedings, or any proceedings thereunder, by reason of the non-payment of the interest due Nov. 1, 1875, and for such reason prefer not to take such proceedings; and your orator being apprehensive that his interest and the interests of

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other holders of like bonds may be seriously affected by delay in the institution of proceedings to foreclose said mortgage and to obtain possession of said property, has brought this action in his own behalf, and on behalf of all others similarly situated and holding like bonds secured by said third mortgage, and has made said Vail and Fish parties defendant herein.'

        The prayer was that the mortgaged property might be sold subject to the liens of the prior mortgages, and that, if necessary, an account might be taken.  There was also a prayer in the usual form for the appointment of a receiver.

        Process was duly issued and served on the 13th of December, 1875, on such of the defendants as were citizens of Missouri, and on the 8th of January, 1876, an order was taken for service on the non-resident defendants in the manner required by the rules of the court; but it does...

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