Lackawanna Iron Coal Company v. Farmers Loan Trust Company

• Decision Date: 29 January 1900
• Docket Number: No. 22,22
• Citation: 44 L.Ed. 475,176 U.S. 298,20 S.Ct. 363
• Parties: LACKAWANNA IRON & COAL COMPANY et al., Petitioners , v. FARMERS' LOAN & TRUST COMPANY et al
• Court: U.S. Supreme Court

176 U.S. 298

20 S.Ct. 363

44 L.Ed. 475

LACKAWANNA IRON & COAL COMPANY et al., Petitioners,

v FARMERS' LOAN & TRUST COMPANY et al.

No. 22.

Argued March 10, 1899.

Decided January 29, 1900.

The Houston & Texas Central Railway Company, a corporation of Texas, formerly owned and operated in that state several lines of railroad, as follows: From Houston to Denison, a distance of 345 miles, known as the main line; from Hempstead, on the main line, to Austin, a distance of 118 3/4 miles, known as the Western Division; and from Bremond, on the main line, to Ross, a distance of 58 miles, known as the Waco & Northwestern Division. It also owned lands donated by the state in aid of the construction of its roads.

Prior to April 1, 1881, the company had executed various mortgages or deeds of trust, namely: 1. A mortgage dated July 1, 1866, covering the main line and 10 sections of land for each mile, known as the main-line first mortgage, in which Easton and Rintoul were substituted trustees. 2. A mortgage dated December 21, 1870, covering the Western Division and 10 sections of land for each mile thereof, commonly known as the Western Division first mortgage, in which the same persons were substituted trustees. 3. A mortgage dated June 16, 1873, covering the Waco & Northwestern Division (to be hereafter referred to as the Waco Division) and also 6,000 acres of land for each mile thereof, commonly known as the Waco & Northwestern Division first mortgage, in which the Farmers' Loan & Trust Company, a New York corporation, was trustee. 4. A mortgage dated October 1, 1872 covering the main line and Western Division as a second mortgage and 3,840 acres of land per mile of completed road, commonly known as the main line and Western Division consolidated mortgage. 5. A mortgage dated May 1, 1875, commonly known as the Waco & North-western Division consolidated mortgage, and covering the Waco Division and 6,000 acres of land per mile of completed road. 6. A mortgage dated May 7, 1877, commonly known as the income and indemnity mortgage, and covering all the property of the railway company. 7. A mortgage dated April 1, 1881, commonly known as the general mortgage, and covering all the property of the company.

The present suit, designated in the circuit court by the number 227, was brought April 6, 1889, by the Farmers' Loan & Trust Company to obtain a decree of sale of the property covered by the mortgage of June 16, 1873, on the Waco Division. On the same day Charles Dillingham, who was already receiver and in possession of the railway property of the Houston & Texas Central Company, was appointed receiver of all the railway property and property covered by the first mortgage of the Waco Division with power to operate the same, and was directed to keep separate accounts of the expenditures and earnings of that division.

During the progress of the cause the Lackawanna Iron & Coal Company, a Pennsylvania corporation, intervened by petition, asserting an equitable lien, prior to the claims of bondholders, on the mortgaged property for the value of steel rails alleged to have been furnished by it and laid on the Waco Division. Subsequently the Pacific Improvement Company, a California corporation, became the assignee of the claim of the Lackawanna company, and was made a coplaintiff with the latter company.

From a report made January 13, 1896, by a special master appointed to find and report upon the subject-matter of the intervening petition, the following facts appear:

Pursuant to a written contract with the Houston & Texas Central Railway Company, dated December 28, 1882, the Lackawanna company in the year 1883 delivered to the former 5,020 tons of steel rails at the price of $40.40 per ton, in payment for which the Lackawanna company received ten promissory notes of the railway company, payable at six months from their respective dates, amounting with interest to $206,932.16. These notes were all paid either at their maturity or at the maturity of other notes given in renewal thereof.

Pursuant to another contract dated April 26, 1883, between the Lackawanna company and the railway company, the former delivered to the latter in the year 1883, 5,009 tons of steel rails at $39.50 per ton, and received in payment therefor the railway company's ten promissory notes dated respectively June 21, 22, and 23, 1883, August 10, 14, and 15, 1883, and September 6, 11, 15, and 20, 1883, each payable six months after date, and aggregating, with interest, $201,346.64—the railway company being entitled, under the contract, to renew the notes at maturity for a further term of six months by paying the interest at 6 per cent or adding the interest to the new notes. As these notes matured, the payment of so much of the debt as was not satisfied at maturity was extended until, in process of settlements and extensions, the railway company, in the satisfaction of the balance due the Lackawanna company under the contract, executed its eight promissory notes payable four months from their respective dates, with 6 per cent interest from maturity. These notes aggregated $118,000. In the engotiations resulting in this settlement the Lackawanna company demanded that the railway company should secure the renewal notes by the hypothecation of collaterals. In compliance with that demand the railway company deposited with the Lackawanna company, when the renewal notes were delivered, 170 first-mortgage bonds of the Galveston, Harrisburg, & San Antonio Railway Company, of the face value of $170,000. At the date of the master's report, January 13, 1896, the value of those bonds was $157,250, or 92 1/2 per cent of their face value. They were in the possession of the Pacific Improvement Company, as assignee of the iron company. No interest on the bonds had been collected by the iron interest had been collected by the Southern interest had been collected by the Southern Development Company. It was agreed before the special master by the parties in interest that the court should consider the 170 bonds as sold for $157,250 on December 23, 1895, and should credit that sum, as of that date, upon the claim of the Iron Company or of the Southern Development Company.

On the 30th day of October, 1883,—nearly six years before the present foreclosure suit was brought,—the Lackawanna company and the railway company made another contract in addition to those above mentioned, under which the former delivered to the latter, during the months of February, March, April, and May, 1884, 8,552 tons of steel rails. That contract was similar in its general terms to those of December, 1882, and April, 1883. It provided for the delivery by the Lackawanna company of 10,000 tons of Bessemer steel rails at $36.60 per ton, as nearly as practicable between February 1, and August 1, 1884, at the rate of 1,500 to 2,000 tons per month. It also provided that upon the delivery of each 500 tons of rails payment should be made therefor either in cash or in the notes of the railway company payable at six months from the average date of delivery, with 6 per cent interest from such date, the purchaser to have the privilege of renewing the notes before their maturity for a further ferm of six months by paying the interest or adding the same to the renewal notes. In March and April, 1884, the auditor of the railway company made a statement or voucher of rails then delivered under the contract. That statement passed into the hands of the treasurer of the railway company with a memorandum that notes were to be issued therefor payable at twelve months from their respective dates. In conformity with that memorandum the railway company executed and sent to the Lackawanna company eight notes, payable twelve (instead of six) months from their respective dates. The latter company thereupon notified the railway company of the error, but the notes as executed were received as a matter of accommodation to the railway company.

Afterwards, in April and May, 1884, the railway company, in settlement of the balance due for the 8,552 tons of rails executed and delivered to the Lackawanna company nine promissory notes payable at six months from their respective dates, with the option in the maker of renewal for a like term. Each of those notes was renewed for six months for like amount as the originals, and their aggregate amount was $327,175.50. This sum, added to the $118,000 above referred to, made $445,175.30, the aggregate principal amount due to the Lackawanna company, not including the $157,250, the amount at which the 170 bonds delivered as collaterals were valued.

All the rails delivered under the first contract, and about one half of those delivered under the second contract, were paid for by the railway company prior to the appointment of any receiver of the property; but the remaining half under the second contract, and the rails furnished under the third contract, had not been paid for when the master's report was filed.

The second contract for rails was made one year and ten months prior to the appointment of the receiver in cause numbered 185 (to be hereafter referred to), about three years and three months prior to the appointment of the receiver in consolidated cause numbered 198 (to be presently referred to), and about six years prior to the appointment of the receiver in this cause. The third contract was made about sixteen months prior to the receivership in cause 185, about two years and nine months prior to the receivership in consolidated cause 198, and about five years and six months prior to the appointment of the receiver in this cause.

About 6.2 miles of the railway of the Waco Division (the part of the railway covered by the mortgage to the Farmers' Loan & Trust Company) was laid with the rails furnished under the first two of the above contracts, but it was not shown what proportion of those rails was furnished under each of the contracts; 30.8 miles of the railway were laid...