68 F. 263 (6th Cir. 1895), 84, Compton v. Jesup
| Citation | 68 F. 263 |
| Party Name | COMPTON v. JESUP et al. |
| Case Date | April 02, 1895 |
| Court | United States Courts of Appeals, U.S. Court of Appeals — Sixth Circuit |
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This is an appeal from that part of a decree in a railroad mortgage foreclosure suit rendered by the circuit court of the United States for the Northern district of Ohio which fixes the priority of a lien of the appellant, and prescribes the remedy for its enforcement. James Compton, the appellant, was a citizen of the District of Columbia. Holding equipment bonds issued by the Toledo & Wabash Railway Company, which subsequently became one of the constituent companies of the Wabash System, he obtained a decree from the Ohio supreme court (16 N.E. 110, and 18 N.E. 380) declaring them to be a valid lien on that part of the main line of the Wabash System reaching from Toledo west to the Illinois line, and awarding to him, as a means of enforcing the lien, an order for sale of the portion of the line lying in Ohio. Shortly after the entry of this decree by the Ohio supreme court, and before it was executed, upon the prayer of the complainant and a cross complainant in the foreclosure proceeding in the court below, and after the filing of the necessary affidavit, the court entered an order based on section 8 of the act of congress of March 3, 1875,
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directing that Compton be served with subpoena in the District of Columbia, and required to appear and set up his lien in this cause. The order was complied with, and Compton, appearing only for the purpose of objecting to the validity of the service, moved the court to set the service aside, and to dismiss him from the case. The motion was overruled. He then demurred to the jurisdiction on the ground that citizens of the same state appeared on both sides of the controversy. His demurrer was overruled. The amendments to the bill and cross bills concerning Compton denied the validity of his lien, and asserted that he was estopped by matter of record to claim a lien, because of a decree of the supreme court of the United States, to which he was in law privy, in the case of Railway Co. v. Ham, 5 Sup.Ct. 1081, denying the existence of a lien in favor of the equipment bondholders. Compton, in his answers which he filed after his demurrer was overruled, set up his lien as declared by the Ohio supreme court decree, and his right thereunder to have the Ohio Division sold to satisfy it. Compton also claimed in his answer that his bonds were a first lien upon certain terminals of the defendant company at Toledo, on the ground that the Ohio divisional mortgage did not cover this property. The court below adjudged that Compton had a valid lien on the Ohio and Indiana Lines, by virtue of the Ohio decree, but denied his right to a first lien on the Toledo terminals, or to a separate sale of the Ohio Line, and declined to afford him any relief but that of redeeming the four divisional mortgages,-- two on the Ohio Line, and two on the Indiana Line,-- by the payment of about $8,000,000. The sale under the decrees of foreclosure in the court below, against Compton's objection, took place before the validity and character of his lien were determined, and a provision was inserted in the decree saving his rights. Compton contended that the language of this saving clause entitled him to the payment of his lien by the purchaser, or, in default thereof, a resale of the Ohio part of the railroad. At the hearing of the appeal a motion was made to dismiss on the ground that the same decree as that here appealed from was entered by the United States circuit court for Indiana in a case between the same parties. This appeal presents the questions: (1) Had the court jurisdiction of the original bill? (2) Had it power to make Compton party by substituted service? (3) Was Compton estopped to assert a lien for his bonds by a decree of the United States circuit court for Indiana denying it for bonds of the same kind, in what was claimed to be a representative suit? (4) Did the Ohio divisional mortgages not cover certain after-acquired terminal property at Toledo, so that Compton had a first lien thereon? (5) What was the effect of the proviso in the decree of sale upon Compton's rights and remedy? (6) What relief was he entitled to under the Ohio decree? (7) Is Compton estopped to prosecute this appeal by the fact that a decree identical in terms with the one here appealed from was entered in the United States circuit court for Indiana, and has not been appealed from. The facts of the case are quite complicated, and many of them must be stated, for a clear understanding of the issues.
The Wabash, St. Louis & Pacific Railway Company, usually known as the 'Wabash System,' comprised, as its main line, a railroad which ran from Toledo, Ohio, west, through Ohio, Indiana, Illinois, and Missouri, to Kansas City. It was the result of a consolidation of separate railroads,-- one in Ohio, one in Indiana, three or four in Illinois, and one or more in Missouri. First the Ohio and Indiana companies were consolidated, then the companies east of the Mississippi river, and finally, in 1880, all of them were united in the Wabash, St. Louis & Pacific Company. Many of the constituent companies had issued bonds secured by mortgage upon their respective lines, and as consolidations took place the new companies assumed the obligation of the mortgage and bonded debts of their constituents. When the Ohio and Indiana companies were united, in 1858, under the name of the Toledo & Wabash Railway Company, there were two mortgages on the Ohio part,-- one to the Farmers' Loan & Trust Company, trustee, to secure $900,000 of bonds, and a second to E. D. Morgan, trustee, to secure bonds amounting to $1,000,000. There were also two mortgages on the Indiana part,-- one to the Farmers' Loan & Trust Company, trustee, for $2,500,000, and a second to E. D. Morgan, trustee, for $1,500,000. The
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Toledo & Wabash Company, in 1862, issued equipment bonds to the amount of $600,000, but gave no mortgage to secure them. It is $150,000, par value, of the equipment bonds, which is the subject-matter of this appeal. In 1865 the Toledo & Wabash Railway Company united with several Illinois companies, and became the Toledo, Wabash & Western Company, with a line reaching from Toledo to the Mississippi river. It was this consolidation which the supreme court of Ohio held, by virtue of the Ohio statute authorizing it, to have the effect of fastening the equipment bonds as a lien on the property of the Toledo & Wabash Railway Company, which passed to the new company. The articles of agreement contained the following provisions:
'Now, therefore, the said companies, by their respective directors, agree to consolidate their said roads, property, and capital stock into one company, upon the basis and conditions hereinafter specified, to be submitted by the directors of each of said roads, to the stockholders thereof, for ratification, to wit:
'The Toledo and Wabash Railway Company enters into said consolidation on the following basis, viz.:
Its capital is .................. $ 10,000,000
Composed as follows:
First mortgage bonds ............ $ 3,400,000
Second mortgage bonds .............. 2,500,000
Convertible equipment bonds .......... 600,000
Convertible preferred stock ........ 1,000,000
Common stock ....................... 2,500,000
* * * * * * * * * * * * * * * *
'It is further agreed that, on the terms and condition above specified, the four railroad companies hereto do agree, each for itself, severally, that the several companies named shall be, and they hereby are, consolidated into and form one corporation,' etc. ' * * * It is further agreed that the bonds and other debts hereinabove specified, in the manner and to the extent specified, and not otherwise provided for in this agreement, shall, as to the principal and interest thereof, as the same shall respectively fall due be protected by the said consolidated company, according to the true meaning and effect of the instruments or bonds by which such indebtedness of the several consolidating companies may be evidenced.'
The new company, the Toledo, Wabash & Western Railway Company, shortly after the consolidation, issued a mortgage to Knox and Jesup, trustees, upon its entire road, known as the 'Consolidated Mortgage,' with the purpose therein recited of using the proceeds of their sale to take up and refund all previous indebtedness, including the equipment bonds. The purpose was never carried out, but some $2,500,000 of bonds were issued, and the proceeds expended for the use of the company. In the foreclosure of a subsequent mortgage, called the 'Gold-Bond Mortgage,' and the consequent reorganization, the property of the Toledo, Wabash & Western Company passed, subject to all previous mortgages, to a consolidated company of the same three states, called the Wabash Railway Company, which issued bonds amounting to $2,000,000, secured by mortgage on its line, to Humphreys and Lindley, trustees. Then the Wabash Company united with a Missouri company to make the Wabash, St. Louis, & Pacific Company a consolidated company, of Ohio, Indiana, Illinois, and Missouri, with a line of railway extending from Toledo to Kansas City. This company issued bonds amounting to $17,000,000, and secured them by mortgage on its entire line to the Central Trust Company, and James Cheney, of Indiana, as trustees. In 1884 the Wabash, St. Louis & Pacific Railway Company filed a bill in the circuit court for the Eastern district of Missouri against the Central Trust Company, a citizen of New York, and James Cheney, a citizen of Indiana, trustees under the last mortgage, averring its insolvency, praying for the appointment of a receiver, the marshaling of liens upon it, the sale of...
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