Mobile & O.R. Co. v. Nicholas

• Decision Date: 04 April 1893
• Citation: 98 Ala. 92,12 So. 723
• Parties: MOBILE & O. R. CO. ET AL. v. NICHOLAS ET AL.
• Court: Alabama Supreme Court

12 So. 723

98 Ala. 92

MOBILE & O. R. CO. ET AL. v. NICHOLAS ET AL.

Supreme Court of Alabama

April 4, 1893

Appeal from chancery court, Mobile county; W. H. Tayloe, Chancellor.

Bill by John S. Nicholas and others against the Mobile & Ohio Railroad Company and others for an injunction and other relief. Complainants had decree, and defendants appeal. Reversed.

E. L Russell, R. P. Deshon, R. C. Beckett, Hannis Taylor, E. J Phelps, and F. W. Whitridge, for appellants.

Tompkins & Troy, Gaylord B. Clark, Sullivan & Cromwell, W. J. Curtis and Alfred Jaretzki, for appellees.

COLEMAN J.

The Mobile & Ohio Railroad Company having made default in the payment of coupons attached to its several bonds secured by mortgages, proceedings were instituted in the federal court for the southern district of Alabama, and other courts, which resulted in decrees of foreclosure and orders of sale of the property conveyed by the several mortgages or deeds of trust. In addition to the bonded indebtedness of the railroad company, secured by mortgage, upon which the foreclosure decrees were rendered, there was a large unsecured indebtedness. The total indebtedness largely exceeded the value of the entire railroad property. The railroad company at this time was in the hands of a receiver. Under these conditions an agreement was entered into dated October 1 1876, "between the Mobile and Ohio Railroad Company, of the first part, and the various other parties whose names are subscribed hereto, being creditors of said company, some holding security as hereinafter specified, and others unsecured, each subscriber for himself, and neither for the other, parties of the second part, Wm. H. Hays, of the city of New York, and William S. Pierson of Windsor, state of Connecticut, and T. Haskins Dupuy, of Philadelphia, parties of the third part." The agreement, which is made Exhibit A to the bill, after stating the embarrassed condition of the railroad company, and referring to the bonded creditors of the same, secured by mortgages, the decrees of foreclosure and judgment, and all other creditors proceeds as follows: "And the undersigned, holders of claims of the various classes against said company, as well as these specified in the said schedule hereto annexed, as judgment creditors and unsecured creditors, have agreed to compromise and compound with said company, upon the said company's issuing new securities for all the said indebtedness, in the manner hereinafter agreed upon, to the end that, if practicable, said foreclosure suits may be discontinued, and the property affected thereby restored to the custody and control of the said company under the conditions of this agreement, and the stipulations accompanying the same." The agreement then provides for the issue of $7,000,000 of first mortgage bonds, and then for the issue of $8,650,000 of debentures, of the 1st, 2d, 3d, and 4th series.

The main questions involved in the present litigation, to be first considered, are in respect to the debentures. This plan of adjustment and reorganization was made to depend upon the action of the stockholders; and the bill shows, and it is admitted in argument, that, of the 53,206 shares of the capital stock of the railroad company, 45,454 shares of the capital stock assented to the compromise and adjustment, and executed an irrevocable power of attorney, by which their stock should be voted, until the payment or extinguishment of the debentures as expressed on their face and in the mortgage to secure them, and provision for their payment. All the stockholders who acceded to the terms of compromise and adjustment are denominated "assenting stockholders." Complainants belong to this class. The agreement for the compromise and readjustment is divided into sections, and stated in full as Exhibit A to the bill. We will here state such sections as are most pertinent to the issues presented by the pleadings: "Sec. 14. The said assignees and attorneys shall not be authorized to cancel or surrender any of the existing obligations or evidences of debt of the said corporation, transferred to them under this agreement, unless all the present holders of the mortgage securities of said company shall have become parties to this instrument, and transferred the securities held by them on or before the first day of March, 1877, or at or before such time as the said assignees and attorneys shall have fixed, as in their discretion they may, by successive extensions of not more than sixty days each, nor until said corporations or its stockholders, through legal and proper action of its stockholders, if such action be necessary, or otherwise according to law, shall have entered into an adequate and sufficient arrangement or agreement with said assignees and attorneys, and with the holders of said debentures, enabling the holders of such debentures, or the trustees under said trust deed, to vote at elections for directors of the said company, and irrevocably represent such stock, or a majority thereof, at all stockholders' meetings, until such debentures shall be extinguished; and upon that privilege of representation being acquired by, and vested in, or secured to, the trustees in said trust deed, or to the holders of the said, debentures, by the proper and legal action of such corporation, or its stockholders, and upon all the new mortgages and securities above called for being issued, then such cancellation and surrender may be fully completed and consummated, (except in the contingency provided in paragraph 13 of this agreement,) and the property and management of the corporation may be restored to it, and said foreclosure suits may be discontinued." "Sec. 20. The trust deed hereinabove provided for, whether executed in pursuance of the compromise agreed upon, or by a new corporation or corporations to be created after a foreclosure, shall contain provision for the creation of a sinking fund for the benefit of the holders of the said debentures, in the order in which the interest on such debentures is, as above described payable. Such sinking fund is to consist of the proceeds of all lands owned, and which may hereafter be owned, by said company, with the exception of such as are covered by the above-mentioned first mortgage, and with the exception of the railway, rails, bridges, fences, warehouses, and other fixtures, rights, privileges, and real estate, belonging to the above-mentioned branches, but including all lands not so covered, but conveyed to the Mobile and Ohio Railroad Company by any state or by the United States. The trustees under said trust deeds are to have power of sale over said lands from time to time, and such trust deeds shall contain clauses, properly framed, conveying to trustees under such deed the same powers of sale in respect to the lands conveyed thereby as are possessed by the trustees under the now existing first mortgage; and the first mortgage to be created under this agreement is not to apply to or cover such lands, and the proceeds of sales of such lands are to be free from the lien of said new first mortgage, and are to constitute a fund for the exclusive benefit of the holders of said debentures. But such new trust deed shall also contain a provision by way of covenant, declaration, grant, or otherwise, as said assignees and attorneys may direct, in substance and effect that the amount of the principal and interest payable upon said debentures shall constitute a lien upon the railway property of said existing corporation, or of said new corporation or corporations, as the case may require, to such an extent that in case of a foreclosure of said new first mortgage, and a sale thereunder, the trustees in said trust deed, for the benefit of holders of said debentures according to their order and priority, shall be entitled to the surplus proceeds of such sale next after payment of said new first mortgage, to the amount of the aggregate principal sum due on such debentures, and so that in case any lien upon said railway property, or any part thereof, shall arise, subsequent to the making of said trust deed, by the act or sufferance of such existing or new corporation, and such subsequent lien shall be enforced to the extent of depriving said existing or new corporation of the possession of such railway property, or any part thereof, then the trustees in said trust deed may enter into possession of such part of said railway property, and sell the same, clear of all subsequent liens for the benefit of holders of said debentures, according to their order and priority, or may exact redemption and payment in full of the principal amount of such debentures before surrendering such property to such subsequent lienors; and said trust deed shall also contain proper covenants and securities, for the ascertainment and application of the income of the property of said existing or new corporation and its successors, as the case may require, according to the provisions of this agreement, and there shall also be paid into the sinking fund all the interest accruing on debentures bought for the sinking fund, until all of the debentures shall have been bought, satisfied, or extinguished; and there shall also be paid into the sinking fund a further amount equal to the dividend which may hereafter be declared upon the capital stock now existing, or hereafter to be created, of such company, which dividend shall not be declared or paid, except an amount equal thereto is also paid in at the same time, out of the net revenue, into the sinking fund. The trustees making sales of said lands are to deposit the proceeds thereof in the Bank of the State of New York, in the city of New York, or such other depository as the trustee in said trust deed may select in the said city of New York...