Claflin v. South Carolina R. Co.

• Citation: 8 F. 118
• Parties: CLAFLIN and others v. THE SOUTH CAROLINA R. Co. and others.
• Decision Date: 01 January 1880
• Court: U.S. District Court — District of South Carolina

8 F. 118

CLAFLIN and others v. THE SOUTH CAROLINA R. Co. and others.

United States Circuit Court, D. South Carolina.

1880

Mitchell & Smith, (of Charleston,) Chamberlain, Carter & Hornblower and William Stone, (of New York,) for complainants.

James Conner, A. G. Magrath, Lord & Inglesby, De Saussure & Son Simonton & Barber, H. E. Young, B. H. Rutledge, Rutledge &amp Young W. D. Porter, G. R. Walker, Hayne & Ficken, A. T. Smythe, Buist & Buist, T. M. Hanckel, J. N. Nathans, M. P. O'Connor, W. A. Pringle, Joseph W. Barnwell, Charles S. Campbell, Thomas M. Mordecai, Simons & Simons, Edward Magrath, Bryan & Bryan, C. R. Miles, L. C. Northrop, and McCrady & Sons, for respondents.

WAITE Chief Justice.

This is a suit in equity by holders of bonds of the South Carolina Railroad Company, secured by what is known as the second mortgage, to foreclose that mortgage, subject to the lien of prior encumbrances. It naturally divides itself into six parts, which, for convenience, will be considered separately. They are: (1) The first mortgage; (2) the second mortgage; (3) the syndicate; (4) the sales of parts of the mortgaged property; (5) the attachments in Georgia; (6) the wharf property.

1. As to the first mortgage:

The original name of the South Carolina Railroad Company was the Louisville, Cincinnati & Charleston Railroad Company. In that name, and under the authority of an act of the general assembly of South Carolina, passed December 12, 1837, the company issued bonds, payable part in London and part in Charleston, to the amount of 450,000 pounds, which fell due January 1, 1866. The payment of these bonds, principal and interest, was guarantied by the state, and secured by statutory mortgage to the state on all the property and funds of the company in South Carolina. The name of the company was changed in 1843, and thereafter it was known as the South Carolina Railroad Company. In 1865 it became apparent that these bonds could not be met at maturity. Accordingly the general assembly of the state, on the twenty-first of December, 1865, passed another act, petitioned for by the company, authorizing the issue of other sterling bonds for the principal and interest of the first, and to be substituted for them. As the substitution was made the new bonds were to be guarantied by the state, and this guaranty was to have the effect of continuing the original statutory mortgage in force the same as if no change had been made. Some exchanges were effected under this authority, but, on the whole, the scheme was a failure. In addition to the bonds thus put out, the company was in debt for other bonds, issued in 1849, amounting in all to $175,000, which were to fall due, some on the first of January and some on the first of October, 1868. Under these circumstances, after negotiation with the bondholders, it was-- 'Deemed advisable, for the better securing of the said debts, that all the said bonds should be delivered up and cancelled, and new bonds issued in substitution thereof; the payment of said bonds to be secured by a mortgage to trustees of the estate, real and personal, of the * * * company, including therein all the real and personal property * * * situate within the limits of the state of Georgia, and not included in the statutory mortgage created by the act of 1867.'

Thereupon the company--

'Resolved to execute its bonds, payable in London, for an amount not exceeding in the aggregate the sum of 543,500 pounds, * * * to be dated on the first day of January, A.D. 1868, and to be payable to bearer, with interest thereon at the rate of 5 percent. per annum, payable semi-annually, * * * on the presentation of the proper coupons at the office of Messrs. Dent, Palmer & Co., in the city of London, * * * which said bonds shall be substituted for the sterling bonds now outstanding and payable in London.'

The company also--

'Resolved to execute certain other bonds, not exceeding in the aggregate the sum of 76,500 pounds, * * * to be dated on the first day of January, A.D. 1868, and to be payable to bearer, with interest at the rate of 5 per cent. per annum, payable semi-annually, * * * on the presentation of the proper coupons at the office of the * * * company, in the city of Charleston, * * * which said bonds shall be substituted for the sterling bonds * * * payable in Charleston.'

It was also--

'Resolved to substitute for the bonds issued in the year 1849, and payable in currency of the United States, * * * or to apply to the satisfaction of said bonds, upon such terms as may be agreed upon, the sterling bonds to be issued as hereinbefore provided for, so as to retire all the said bonds now payable in currency of the United States.'

'To secure the true and punctual payment of the said bonds, * * * the company * * * resolved to pledge and mortgage to the (trustees named) all the real estate, wherever situate, which is now owned or may hereafter be acquired by the said company, and all the rolling stock and other personal property used, or necessary, in the operating of said railway.'

In accordance with this scheme, bonds, with a mortgage to secure them, to the full amount of 620,000 pounds, were executed by the company, and certified by the mortgage trustees. Provision was made in the mortgage for a substitution of bonds 'payable in lawful money of the United States, with interest not exceeding 7 per cent. per annum,' for the new sterling bonds provided for, 'upon terms to be agreed upon by and between said company and the bondholders desiring such substitution;' but the pound sterling on all payments of sterling bonds, or the interest thereon made in Charleston, was 'to be estimated at four dollars and forty-four and four-ninths cents.' All the old issues of bonds have been taken up by exchange or otherwise, and cancelled, except--

(1) Guarantied Louisville, Cincinnati & Charleston

sterling

bonds, - ............................................ >

16,050

(2) Guarantied South Carolina sterling bonds, ............. >

8,000

(3) Bonds of 1849, Nos. 191, 192, 193, ................................. $1,500

(4) Guarantied South Carolina sterling bonds, pledged to

E. L.

Trenholm in 1870, ................................... >

5,400

(5) One other bond of same character,(No. 463,)........... >

600

Against this the receiver now holds bonds originally put

into

the hands of the London agents for exchange, and

which

have not been used for that purpose, ................ >

24,450

Currency bonds in the possession of and owned by the

company

when this suit was begun, ........................................ $2,000

It is conceded that there are now outstanding in the hands of bona fide holders, and entitled to the benefit of the mortgage security--

New sterling bonds, .. > 309,550

New currency bonds, ................... $1,114,000

The same is true of items 1, 2, and 3 in the statement above, showing the unretired bonds of the old issues.

It is also conceded that 620,000 pounds was more than the old debt. If all the old bonds had been out when the new were issued, their aggregate, principal and interest, would not have reached this sum. They were not, however, all out. Some had been taken up by the company before that time; and it is apparent, from the evidence, that an issue of the whole amount of 620,000 pounds would leave a surplus of $400,000 and more, after fully providing for what were left outstanding. All the bonds of the new issue are now outstanding except such as are held by the receiver. No questions are raised as to any save the following:

(1) Amount pledged to several creditors of the company as security

for moneys loaned, outstanding in the hands of the pledgees,

October 1, 1872, when the second mortgage was made, ........... $114,000

(2) Amount pledged to C. H. Manson as security, January 19, 1877, .... $20,000

(3) Amount pledged to B. F. Moise, agent, January 15, 1874, ............ 4,500

(4) Amount of sterling bonds pledged to George W. Williams as

security, May 14, 1874, .....................................

Sterlin-

g>>

18,000

(5) Amount of loose coupons cut from bonds pledged to George W.

Williams, and past due when the bonds were sold under the

pledge, ......................................................... $3,675

(6) Nine guarantied South Carolina Railroad bonds, of

> 600 each, issued under the act of 1865,

and pledged to E. L. Trenholm as security

for money loaned, April 2, 1870, ............................

Sterlin-

g>>

5,400

(7) One bond of same character, being No. 463, pledged to the

syndicate

Sterlin-

g>> 600 The date of the second mortgage is October 1, 1872.

Upon this state of facts several questions are raised which will now be considered. And, first, it is insisted that the company could not issue under this mortgage any bonds not actually used in taking up or retiring the old ones. The argument is, that the mortgage is in legal effect a contract between the company and the bondholders, by which it was agreed that no bonds were to have the benefit of the security thus created, except such as were substantially 'substituted' for the earlier issues. I am unable to discover any such contract. The mortgage purports to be made to secure bonds of certain descriptions, not exceeding in the aggregate 620,000 pounds. It recites other bond indebtedness secured by prior liens, and that the new bonds were to be substituted for the old. This may, and I think does, confine the lien of the new mortgage to an amount which, added to the prior specified encumbrances, shall not exceed the limit fixed, but that is all. Every bondholder can insist that the entire issue shall not exceed this...