Morris & Whitehead v. East Side Ry. Co.

• Decision Date: 01 October 1900
• Docket Number: 562.
• Citation: 104 F. 409
• Parties: MORRIS & WHITEHEAD v. EAST SIDE RY. CO. et al. MAXWELL v. SAME.
• Court: U.S. Court of Appeals — Ninth Circuit

104 F. 409

MORRIS & WHITEHEAD v. EAST SIDE RY. CO. et al.

MAXWELL v. SAME.

No. 562.

United States Court of Appeals, Ninth Circuit.

October 1, 1900

Ralph E. Moody, Cotton, Teal & Minor, and W. S. Goodfellow, for appellants.

Zera Snow and W. A. Cleland, for appellees.

Before GILBERT and ROSS, Circuit Judges, and HAWLEY, District Judge.

ROSS Circuit Judge.

The defendant East Side Railway Company is a corporation organized by G. A. and James Steel for the purpose of building and operating certain lines of railway and street railway in and about Portland, Or. G. A. Steel became its president and James Steel its vice president, treasurer, and general manager. Each of them was a director of the corporation, the only other director being John B. Cleland who was also its secretary, and who held but one share of the stock of the corporation, and that only to qualify him as director. Indeed, it appears that at all the times herein mentioned the two Steels were the real owners of all of the stock of the railway company, 100 shares of which, however were hypothecated by them as security for an indebtedness to the Bank of British Columbia, and for that purpose stood in the name of George Good as trustee, whose proxy, however James Steel held. It appears that the company built at least some of the lines of railway for which it was organized, and acquired various rights of way, rolling stock, power house and other necessary and appurtenant property. Under resolution of its board of directors, 250 bonds of the par value of $1,000 each were authorized to be issued, secured by a mortgage on its property executed to the Security Savings & Trust Company of Portland as trustee, for the benefit of the holders of the bonds. One hundred and twenty-five only of those bonds were issued, and they were issued and delivered to G. A. and James Steel, who pledged them to the German Savings & Loan Society of San Francisco, Cal., as security for money borrowed by them from that bank at different times, and aggregating about $83,000. The case shows that this money was used by the Steels in and about the building up and operation of the lines of railway mentioned, and that, more money being needed for that purpose, the directors of the company adopted a resolution providing for the issuance of 300 bonds of the par value of $1,000 each, to be secured by a mortgage upon all of the property of the company to the Security Savings & Trust Company of Portland as trustee, to be used in replacing the bonds of the first issue so far as necessary, and the remainder in securing additional money. In pursuance of that resolution, 300 bonds, numbered, respectively, from 1 to 300, both inclusive, were issued on March 1, 1893, secured by a mortgage on all of the property of the company to the Savings & Trust Company as trustee. These bonds were certified by the trustee, and delivered to the railway company. Of them, 125 numbered from 1 to 125, both inclusive, were delivered to James and G. A. Steel in lieu of the 125 bonds of the first issue thereupon surrendered and canceled, and bonds numbered from 131 to 153, both inclusive, were, also for value, delivered to James and G. A. Steel, and bonds numbered 126 to 130, both inclusive, were, for value, delivered to Eva P. Steel, who thereafter authorized James and G. A. Steel, to pledge them to the German Savings & Loan Society of San Francisco, as hereinafter stated. The findings of the court below are to the effect that the remaining bonds of the last-mentioned issue, numbered from 154 to 300, both inclusive, 'were by the East Side Railway Company delivered to James Steel and G. A. Steel, with authority and for the sole purpose of permitting the pledge of the same as security for the loan of $80,000 made in their names for the benefit of the East Side Railway Company. ' By each of the 300 bonds the railway company promised to pay to the bearer, or, in case the bond should be registered, then to the registered owner thereof, the sum of $1,000 in United States gold coin of the then standard weight and fineness, at the office of the trustee in the city of Portland on the 1st day of March, 1923, together with interest thereon at the rate of 6 per cent. per annum, payable semi-annually, in like gold coin, on the 1st days of March and September in each year, on the presentation and surrender of the respective interest coupons annexed to the bonds, and to pay the same at the office of the Security Savings & Trust Company in Portland. The mortgage securing the bonds was duly recorded in the office of the county recorder of the county in which the property was situated. In addition to the then existing indebtedness of $3,000 due from the Steels to the German Savings & Loan Society that banking institution agreed to, and did, on April 1, 1893, loan them $80,000.

The old indebtedness was on that day evidenced by a new note executed by G. A. and James Steel for $83,000, with interest thereon at the rate of 7 per cent. per annum, payable monthly; and for the additional loan of $80,000, at like interest, they also executed their promissory note, bearing the same rate of interest. As security for the payment of these notes, both of which were made payable in San Francisco, Cal., the Steels by instruments in writing, pledged all of the 300 bonds issued by the East Side Railway Company. The findings of the court below are to the effect that the intention of the parties was that the bonds numbered from 1 to 153, both inclusive, should be given and held as security for the $83,000 note, and that the bonds numbered from 154 to 300, both inclusive, should be given and held as security for the $80,000 note, but that by mutual mistake of the parties the reverse occurred. Each of the contracts of pledge appointed the Savings & Loan Society attorney in fact of the pledgor, with power of substitution, and the pledgee was thereby instructed, directed, and authorized to sell at any time, with or without notice, at its option, and without any demand upon the debtor for payment or increase of security, the whole or any part of the security, and to sell the same either at public or private sale, at its discretion, and to deliver the same to the purchaser or purchasers thereof; but the findings are to the effect that there was no express authority given by the East Side Railway Company to the Steels to insert those provisions in the contract of the pledge. In November, 1893, the railway company was indebted to the Northwest General Electric Company in the sum of $37,639.95 for goods, wares, and machinery sold and delivered, for which, on the 9th day of that month, the railway company executed to the electric company its promissory note for the sum mentioned, with interest; and on the same day the railway company executed to the Commercial National Bank of Portland, Or., its promissory note for $29,289.37, with interest, for money theretofore loaned by that bank to it. On the same day the railway company executed to the electric company a mortgage upon all of its property for the security of the two last-mentioned notes and for the purpose of securing payment to the electric company of 'any and all sums of money which might thereafter become due to it from the said railway company, not exceeding $25,000 in all, for apparatus, machinery, equipment, materials, and supplies ' which the electric company might thereafter furnish to the railway company. The railway company was also indebted to various other persons and firms in various sums of money, upon some of which claims suits were thereafter brought, and the property of the railway company attached. Thereupon, and on the 8th day of December, 1893, the electric company commenced the present suit for the foreclosure of the second mortgage upon the property in question, namely, the mortgage executed November 9, 1893, making parties defendant thereto the East Side Railway Company and the unsecured creditors mentioned, but not making a party thereto the first mortgagee, namely, the Security Savings & Trust Company of Portland. Upon the commencement of the suit the court appointed a receiver of all of the property of the defendant railway company, who qualified as such receiver, and took possession of the property, and continued to hold and operate it. Being without means to defray the expense of doing so, the receiver was, by an order of the court, authorized to issue receiver's certificates for the necessary money, which was done from time to time, and which were made a lien upon the property paramount to the lien of the mortgage. For some time the Steels paid the interest upon the eighty-three and the eighty thousand dollar notes, respectively, executed by them to the German Savings & Loan Society, and received a surrender of the appropriate interest coupons attached to the respective bonds. After a while they became unable to pay the interest, and the German Savings & Loan Society wanted the payment of both principal and interest. The Steels were making efforts in several directions to raise the money. Among others, they asked, in July, 1897, the banking corporation of Morris & Whitehead, of Portland, to purchase the bonds of the East Side Railway Company; and at the time they furnished them a detailed statement of the company's affairs, its earnings, expenses, and business plans. The company's property was still in the hands of the receiver appointed in the suit instituted by the electric company to foreclose the second mortgage upon it. One of the Steels suggested to Morris the purchase by his firm of the electric company's mortgage. Morris looked the property over, and talked favorably in respect to the proposition made to him by the Steels, but, without consummating any arrangement with them, Morris...