253 F. 868 (7th Cir. 1918), 2530, Metropolitan Trust Co. of City of New York v. Chicago & E.I.R. Co.

Docket Nº:2530.
Citation:253 F. 868
Party Name:METROPOLITAN TRUST CO. OF CITY OF NEW YORK v. CHICAGO & E.I.R. CO. et al.
Case Date:October 01, 1918
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 868

253 F. 868 (7th Cir. 1918)

METROPOLITAN TRUST CO. OF CITY OF NEW YORK

v.

CHICAGO & E.I.R. CO. et al.

No. 2530.

United States Court of Appeals, Seventh Circuit.

October 1, 1918

Page 869

Under a creditors' bill brought against the Chicago & Eastern Illinois Railroad Company, receivers were appointed who took and retain possession of its property. Bills were then brought in the same court for the foreclosure of mortgages as follows: Chicago & Indiana Coal Railway Company to the Metropolitan Trust Company et al., dated December 1, 1885; Chicago & Eastern Illinois Railroad Company to Central Trust Company, November 1, 1887; Chicago & Eastern Illinois Railroad Company to Bankers' Trust Company, July 1, 1905; Evansville & Terre Haute Railroad Company to Farmers' Loan & Trust Company, April 1, 1892. These suits were all consolidated with the first-named action.

The Chicago & Eastern Illinois Railroad Company is the result of successive consolidations, one of the constituents being a former corporation of

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the same name, itself a consolidated corporation, which was the mortgagor of the Central Trust mortgage. Another constituent was the Chicago & Indiana Coal Railway Company, likewise a consolidated corporation, one of whose constituents by the same name was the mortgagor of the Metropolitan Trust mortgage. The Bankers' Trust mortgage was given by the company as consolidated in 1894. The Farmers' Loan & Trust mortgage was given by the Evansville & Terre Haute Railroad Company, which on July 20, 1911, consolidated with the Chicago & Eastern Illinois under the latter name. June 6, 1894, occurred the consolidation between the former Chicago & Eastern Illinois Railroad Company, an Illinois corporation, having substantially all its property in Illinois, and the said consolidated Chicago & Indiana Coal Railway Company, an Indiana corporation, having all its property in Indiana.

The record sets forth at great length the various steps in the organization, consolidation, etc., eventuating in the present company, and of the giving of the several mortgages by the company or by its constituent corporations. These are sufficiently stated in the statement of facts which precedes the opinion of Judge Carpenter of the District Court, as reported in Railway Steel Springs Co. v. Chicago & E.I.R. Co., 246 F. 338, to which statement we refer in order to avoid repetition.

The appeals are by the Metropolitan Trust Company alone, and are from three decrees, or rather there are three appeals from decrees concerning the same subject-matter; all the appeals having been heard as one.

The first decree of May 22, 1917, found, inter alia, that under the Metropolitan mortgage there were issued and outstanding bonds of the Indiana Coal Railway Company to the amount of $4,626,000, which with accrued interest, constituted a lien on the property of the Coal Railway Company in the mortgage described and by it owned at the time of the consolidation of 1894; that under the Central Trust mortgage there were issued and outstanding bonds to the amount of $21,343,000, which, with accrued interest, were a lien on practically all the property of the company excepting the said Coal Railway property and the Evansville & Terre Haute property; that the Bankers' Trust mortgage, to the amount of the bonds issued thereunder, viz. $18,019,000, with accrued interest, was a lien on the property of the Chicago & Eastern Illinois Company, except the Coal Railway property and the Evansville & Terre Haute property; and that the Farmers' Loan & Trust mortgage, to the extent of the bonds issued thereunder, viz. $3,175,000, was, with accrued interest, a lien on the property formerly owned by the Evansville & Terre Haute Railroad Company. As to the findings respecting the Farmers' Loan & Trust mortgage, no question is raised. It ordered that the property of the company be sold, being first offered in certain parcels as fixed in the decree, and that there be reserved for further adjudication (1) questions of the extent of the liens of the several mortgages as between themselves, and the allocation between the mortgage estates of the expenses of the receivership and the payment of outstanding receiver's certificates; (2) for the benefit of the Metropolitan mortgage bondholders, all questions as to legality and effect of the consolidation agreement of 1894 as affecting the distribution of the proceeds of sale under the decree, and all questions as to the right of the Metropolitan bondholders to share in the proceeds of sale of various parcels decreed to be sold.

The second decree, bearing same date, merely fixed a time for the sale to take place.

The third decree, entered July 2, 1917, so far as it concerns the Metropolitan bondholders, disposed of the questions reserved by the first decree for further adjudication, and found that the Metropolitan mortgage was not a lien on any other property of the Consolidated Company than that owned by the Coal Railway at the time of the consolidation of 1894, and denied the petition of the Metropolitan Trust Company, which asked the court to set apart certain of the equipment for the benefit of its bondholders, and to decree that the lien of the Metropolitan mortgage be extended to such equipment, and found that no party to the actions was in position to dispute the validity of the consolidation of 1894, and that the Metropolitan bonds were a valid debt of the company.

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Charles Evans Hughes, of New York City, and Frank H. Scott, of Chicago, Ill., for appellant.

Arthur H. Van Brunt, of New York City, for Central Trust Co.

Roberts Walker, of Scarsdale, N.Y., and Samuel Adams and Mitchell D. Follansbee, both of Chicago, Ill., for Bankers' Trust Co.

John S. Miller, of Chicago, Ill., for appellees.

Before ALSCHULER and EVANS, Circuit Judges.

ALSCHULER, Circuit Judge (after stating the facts as above).

The questions presented and considered in the exhaustive briefs and arguments are mainly and in substance: (1) Was the lien of the Metropolitan mortgage extended by virtue of the consolidation agreement of 1894 to any property of the Consolidated Company thereafter acquired? (2) Does the lien of the Metropolitan mortgage attach to any equipment acquired after the consolidation of 1894, apart from the effect to be given specific provisions of the consolidation agreement? (3) In the enumeration of the property to be included in the various parcels to be separately offered for sale, should certain parts have been included with the Coal Railway property which by the decree of sale are not therewith included?

Preceding the consideration of the first and main question we may state as a legal principle, applicable to railroad mortgages having the usual after-acquired provisions, the following from the first brief filed for appellant, that--

'Ordinarily on the consolidation of two corporations the lien of the mortgage of the constituent does not spread to the property contributed by the other constituent, or to the after-acquired property of the consolidated company'--citing in support New York Security Co. v. Louisville, etc., R. Co. (C.C.) 102 F. 382; Hinchman v. Point Defiance R.R. Co., 14 Wash. 349, 44 P. 867; Gibert v. Washington City R.R., 33 Grat. (Va.) 586; Compton v. Jesup, 68 F. 263, 15 C.C.A. 397.

To maintain that the Metropolitan mortgage lien was extended to all the property thus passing to and afterwards acquired by the Consolidated Company, there must therefore appear conditions effective to that end, aside from the mere fact of the consolidation itself. Appellant's counsel assume to find ample authority for the contention in 14 words of article VII of the consolidation agreement of 1894, which words are, referring to the Metropolitan and the Central Trust mortgages: 'Shall have the force and effect of first mortgages executed by this consolidated company. ' It is contended that these words constituted the Metropolitan mortgage for all intents and purposes the mortgage of the Consolidated Company, and under the after-acquired property provisions of that mortgage subjected to its lien all the property of the Consolidated Company then or at any time thereafter owned or acquired.

The dominating influence of these words as bearing upon this question is thus stated in the brief for appellant:

'The determinative question (aside from questions relating to certain equipment and to the method of sale decreed) is nothing more or less than the proper construction and legal effect of 14 words in a written instrument, namely, the articles of consolidation whereby in 1894 the Chicago & Eastern

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Illinois Railroad Company (itself a consolidated company of Illinois and Indiana) and the Chicago & Indiana Coal Railway Company (an Indiana corporation and also a consolidated company) consolidated to form the Chicago & Eastern Illinois Railroad Company, a corporation of Illinois and Indiana.'

The context of these words is shown in the entire article VII, reproduced as a footnote 1 with the fourteen words italicized.

If these words must ultimately determine whether or not the lien of the Metropolitan mortgage was extended to property acquired by the company at and after the consolidation of 1894, we must in construing them, consider not only the words themselves, but their relation to other parts of the same instrument, and the situation of the parties and the property as well, and in case of any doubt, such construction, if any, as all concerned gave to them before any controversy arose.

It appears that long before the formal consolidation of 1894 the constituent Chicago & Eastern Illinois Railroad Company was an Illinois corporation, with its lines of railroad practically all in...

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