Quincy Co v. Humphreys

Decision Date25 April 1892
Citation12 S.Ct. 787,145 U.S. 82,36 L.Ed. 632
PartiesQUINCY, M. & P. R. CO. et al. v. HUMPHREYS et al
CourtU.S. Supreme Court

Bill by the Wabash, Missouri & Pacific Railway Company against the Central Trust Company and others for the appointment of receivers for complainant's property. Solon Humphreys and Thomas E. Tutt, having been appointed accordingly, and having operated the road for some time, intervening petitions were filed against them and the Wabash Company by the Quincy, Missouri & Pacific Railroad Company and Theodore Gilman and Charles H. Bull, as trustees of the mortgage bondholder thereof, claiming certain rentals due on a lease of the latter company's line to the Wabash Company. The petition was denied by a referee, and his report was confirmed by the court. 34 Fed. Rep. 259. Petitioners appeal. Affirmed.

[Syllabus from pages 82-84 intentionally omitted]

STATEMENT BY MR. CHIEF JUSTICE FULLER.

The Quincy, Missouri & Pacific Railroad Company of Missouri owned in 1879 about 77 miles of road extending west ward from West Quincy towards the Missouri river; had issued mortgage bonds to the amount of $2,000,000; and owed, in addition to the principal of said bonds, a large amount of overdue interest accrued thereon. By an indenture made August 21, 1879, the railroad of this company was leased to the Wabash Railway Company for a period of 99 years, with the option to the lessee to renew the same perpetually. By the terms of this contract a majority of the common stock of the Quincy Company was to be transferred to the Wabash Company, so as to give the latter control of the former, and a majority of directors in its board was to be elected in the interest of the Wabash Company. The Wabash Company was to supply $125,000 to the Quincy Company to enable it to complete the construction of its road to Milan, to a connection with the line of the Burlington & Southwestern Railroad, and was itself authorized to extend the road from Milan to its contemplated terminus at Brownville, on the Nebraska state line. A new mortgage was to be made, covering all the property of the Quincy Company, and securing bonds at the rate of $9,000 per mile, which was to be used in retiring the bonds then outstanding, and providing for future construction. Preferred stock of the Quincy Company was also to be issued and used in connection with the new bonds to liquidate its outstanding indebtedness, then estimated to be about $600,000.

The Wabash Company agreed to set aside certain percentages of the gross earnings derived from the operation of the Quincy Company's road, and to apply these percentages—First, to the payment of interest on the new bonds; and, second, of dividends on the stock. The company guarantied to pay interest on the bonds in the event that the said percentage of gross earnings should be insufficient for that purpose; to maintain and operate the railroad of the Quincy Company, keeping the same in good condition and repair for the full term of the lease; and to pay all taxes.

It was further provided that, if the principal of the bonds secured by the mortgage should become due in consequence of default in the payment of interest, the Quincy Company should have the option to forfeit the lease, and re-enter without process of law.

Under date of October 1, 1879, a mortgage was made by the Quincy Company to Humphreys and Browning as trustees, whereby all its property, including leases and leasehold interests, was conveyed to the trustees to secure the payment of bonds to be issued at the rate of $9,000 per mile, and the mortgage provided that a default of six months in the payment of interest might be availed of by the bondholders as a cause for declaring all the bonds forth with due.

November 10, 1879, the Wabash Company was consolidated with other railroad companies, the consolidation forming the Wabash, St. Louis & Pacific Railway Company. This company received possession of the railway of the Quincy Company on July 1, 1880, and by the 1st of July, 1881, had extended the road from Milan to Trenton, a distance of about 31 miles.

On the 27th of May, 1884, the Wabash, St. Louis & Pacific Railway Company filed its bill in equity in the circuit court of the United States for the eastern district of Missouri, stating that it was insolvent; that it had accumulated a floating debt for its maintenance of $4,784,145; that it was about to make default in interest payments; that such default would be ruinous to all parties interested in its maintenance and its revenues; and that the interest of all the creditors and bondholders would be thereby imperiled.

The bill made various persons and corporations parties defendant having interests in the lines of the Wabash Company as lessors, mortgagors, or trustees under deeds of trust covering the lines or portions thereof, including the Central Trust Company and Cheney, trustees in a general mortgage, the trustee in a collateral trust mortgage, the Quincy Company, and others; and prayed the court to appoint successors to trustees deceased, or to make such other order with respect thereto as would cause the respective trusts to be properly represented in the matters of the litigation; and to require the defendants to set up their several interests, so that the same might be fully represented.

The bill alleged that by their terms nearly all, if not quite all, the mortgages and trust deeds, whether executed by complainant or other companies on any portions of the line prior to the time when complainant acquired the same, not only embraced the roads and tangible property of the companies executing the instruments, but also the revenues and incomes to be derived from the use of the parts of the roads so mortgaged; that the bondholders had always insisted upon their right to look to the revenues of the sections of the road upon which their mortgages rested as a means of paying and discharging their bonds; that all, or nearly all, of the mortgages embraced all rolling stock to be thereafter acquired by the companies executing the mortgages; but, as the lines of the original companies had been absorbed into complainant's system, the rolling stock on the entire system had become so intermingled as to be incapable of division according to the ownership of the several lines of road or according to the several mortgages; and that any attempt to control or dispose of portions of such rolling stock by courts not having jurisdiction of the whole and not competent to deal with the entire property as a unit would produce great confusion and uncertainty, and result in great loss to all persons interested in the rolling stock or in complainant's property or securities.

The bill further averred that the complainant's directors and officers had thoroughly considered and already resorted to all proper means for obtaining the funds by which to pay the floating indebtedness of the company and meet the accruing interest falling due at the beginning of the month of June then next, and continuing to mature by installments at very short intervals, but had wholly failed to provide the means with which to discharge the floating indebtedness and meet the interest; and the company was powerless to accomplish such purpose, and was practically insolvent, and it was certain that a default would occur in June, and complainant be also without means of meeting the floating indebtedness.

It was further stated that complainant's interest in the road and the interests of all its creditors and bondholders were greatly imperiled by the existing prospect of the disruption of the road on the happening of the default; and that, if the lines of railroad were broken up, and the fragments thereof placed in the hands of various receivers, and the rolling stock, materials, and supplies seized and scattered abroad, the result would produce irreparable injury and damage, not merely to complainant, but to all persons having any interest in the road and the secrurities thereof. Complainant, therefore, 'to prevent the breaking up of said lines of road, and the scattering abroad of its assets,' and 'in order to the preservation of the interests of large numbers of persons, stockholders, and creditors unknown to orator, and in order to the protection of the interests of all concerned, and to prevent a great multiplicity of suits,' prayed the court to appoint one or more receivers, 'and empower and direct such receiver or receivers to take possession of said entire property, and to preserve, operate, and manage and control the same, collect all indebtedness due or to become due to orator, and otherwise to discharge all the duties ordinarily imposed by courts of equity on the receivers of railroad property by such courts appointed; that on a final hearing of said cause your honors will, under this bill, or under such amendments as may be made thereto, or such supplemental bills as shall be filed herein, or such cross bills as parties in interest may also file, decree the sale of said entire property, whether such decree shall judicially foreclose said general mortgage or any of the other mortgages aforesaid, or whether such decree shall dispose of said property as a trust fund on general equitable principles; that your honors will cause all the liens upon said property, or any part thereof, and all rights, claims, and equities of all persons interested therein to be ascertained, defined, and determined, and that the proceeds arising from the sale of such property, or any part thereof, be applied under the orders and decrees of this court, according to the rights, interests, and equities of parties or persons interested in said fund;' that all persons and all corporations having possession of compainant's property, or any part of it, be directed to surrender the same to such receiver or receivers as might be appointed, or to hold such property or portions of property under such receiver or receivers, if the latter shall elect to pursue such course;...

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