Adelbert College of Western Reserve University v. Wabash R. Co.

• Decision Date: 13 July 1909
• Docket Number: 1,908.,1,907
• Citation: 171 F. 805
• Parties: ADELBERT COLLEGE OF WESTERN RESERVE UNIVERSITY et al. v. WABASH R. CO. et al. PIERSON et al. v. SAME.
• Court: U.S. Court of Appeals — Sixth Circuit

171 F. 805

ADELBERT COLLEGE OF WESTERN RESERVE UNIVERSITY et al. v. WABASH R. CO. et al.

PIERSON et al. v. SAME.

Nos. 1,907, 1,908.

United States Court of Appeals, Sixth Circuit.

July 13, 1909

The questions here involved arose under intervening petitions filed in the consolidated mortgage foreclosure suits, styled 'Jessup & Knox v. Wabash, St. Louis & Pacific Railway and Others. ' The interveners are the same who prosecuted their claims in the state courts of Ohio to a decree in accordance with their insistence. Upon a writ of error from the Supreme Court of the United States, the decree was reversed for want of jurisdiction in the state court over the roads sought to be subjected; the property being within the exclusive jurisdiction of the court below. Wabash Railway Co. et al. v. Adelbert College et al., 208 U.S. 38, 28 Sup.Ct. 182, 52 L.Ed. 379, and Id., 208 U.S. 609, 28 Sup.Ct 425, 52 L.Ed. 642. After the decision last cited these interventions were filed.

The Toledo & Wabash Railroad Company was a consolidated road organized under the laws of Ohio and Indiana, and included the road of a former Ohio company and the connecting road of a former Indiana company. That consolidated company, in 1862 issued a series of coupon-bearing negotiable notes which aggregated $600,000. They were wholly unsecured and differed from the general unsecured indebtedness of that company only in the fact that under certain circumstances they were, at the option of the holder, convertible into stock. These obligations matured in 1883 and are wholly unpaid, together with interest since 1874. The appellants hold about one-half of the entire issue and now assert that a lien exists in favor of this series of notes against the original Ohio division of the Toledo & Wabash Railroad Company, which is superior to every incumbrance upon that division, by mortgage or otherwise, which is subsequent in date to August 1, 1865.

The lien asserted is claimed to have originated on that date in consequence of a consolidation which was then consummated with three Illinois railway companies, owning connecting lines, which, with the road of the Toledo & Wabash Company formed a continuous line to the Mississippi river. The new company thus organized was known as the 'Toledo, Wabash & Western Railway Company.'

This consolidation was had under the laws of Ohio, Illinois, and Indiana. The Ohio statute then in force was the act of April 10, 1856, and is substantially that embraced in Bates' Ohio statutes, Secs. 3379 to 3384, inclusive. The relevant section (3384) is in these words:

'Upon the election of the first board of directors of the company created by the agreement of consolidation, all and singular the rights, privileges and franchises of each of the companies to the agreement, and all the property, real, personal and mixed, and debts due on account of subscriptions of stock, or other things in action, shall be deemed to be transferred to and vested in such new company, without further act or deed; all property, rights of way, and other interests, shall be as effectually the property of the new company as they were of the companies parties to the agreement; the title to real estate, either by deed, gift, grant, or by appropriations under the laws of this state, shall not be deemed to revert or be impaired by reason of the consolidation; but all rights of creditors and all liens upon the property of either of such companies, shall be preserved unimpaired and the respective companies may be deemed to be in existence to preserve the same; and all debts, liabilities and duties of either of said companies, shall thenceforth attach to the new company, and be enforced against it to the same extent as if such debts, liabilities and duties had been contracted by it.'

The agreement of consolidation, after reciting that the contracting parties had agreed to consolidate their roads, property, and capital stock into one company, set out that: 'The Toledo & Wabash Railway Company enters into said consolidation on the following basis, viz.: That the capital should be $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
	$10,000,000"

It also provided that all the rights, franchises, property, debts, and choses in action of the respective companies should vest in the consolidated company.

The important feature of this agreement was in these words:

'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 thereon, as the same shall respectively fall due, be protected by the said consolidated company according to the true meaning or effect of the instruments or bonds by which such indebtedness of the several consolidating companies may be evidenced.'

The convertible equipment bonds referred to in this agreement are the series of negotiable coupon-bearing notes, for which a lien is now asserted in this proceeding.

After this consolidation other consolidations, not necessary to here mention, occurred, and mortgages, securing large issues of bonds, were from time to time made by one or another of the successive consolidated corporations.

Finally, defaults occurring, foreclosure suits were filed in the Circuit Courts of Indiana, Illinois, and Ohio. On March 13, 1899, an identical decree of sale was made in the several Circuit Courts, under which the roads of the several constituent or consolidated companies were sold. The decree under which the Ohio division of the then last consolidated company, the Wabash, St. Louis & Pacific Railway Company, was sold, was made in a case styled 'Jessup & Knox v. Wabash, St. Louis & Pacific Railway Company. ' Under that decree the consolidated roads were sold as a whole to a purchasing committee representing mortgage creditors. This purchasing committee organized the Wabash Railway Company, and turned the entire property over to it, and that company has ever since been in possession and is one of the appellees here.

The sale was free from the lien of the foreclosed mortgages, but was made subject to the debts and liabilities of the receivership and to all other claims which might be established against the property, or allowed in that cause, with the right reserved to the court to retake possession and resell it if any claim adjudicated by the court should not be paid by the purchasers.

At the time of this decree there had been asserted in that case a claim by James Compton to a lien under a decree in his favor by the Supreme Court of Ohio, as a holder of a part of the series of convertible equipment bonds issued by the Toledo & Wabash Railway Company. The opinion of the Ohio court as to Compton's lien may be seen in 45 Ohio St. 592, 16 N.E. 110, 18 N.E. 380.

His rights, not having been determined at the date of the decree of sale, were reserved in terms which were subsequently construed by the Supreme Court as imposing an obligation payable next after the two senior mortgages upon the Ohio division. The history, character, and place of this Compton judgment is set out in detail in the case of Compton v. Jessup, 167 U.S. 1, 17 Sup.Ct. 795, 42 L.Ed. 55, and reference is here made to that opinion. According to the mandate in that case, a decree was entered in the court below, requiring an accounting by the Wabash Railway Company of the net earnings of the Ohio division of its said railway for the purpose of ascertaining the balance, if any, due to it under the mortgages upon that division superior to the lien under Compton's decree, and the case was pending under that accounting, when, on June 9, 1908, these appellants filed intervening petitions, wherein they asserted a lien identical with that of Compton and a right to share with him in the proceeds of the sale of the Ohio division after the lien of the two mortgages had been discharged. To these petitions the purchasers, the Wabash Railway Company and Ellen Compton, as executrix of James Compton, demurred. The demurrers were sustained, and the intervening petitions dismissed.

Lawrence Maxwell and Murray Seasongood, for appellants.

J. G. Milburn and Rush Taggart, for appellees.

Before LURTON and SEVERENS, Circuit Judges, and KNAPPEN, District judge.

LURTON Circuit Judge (after stating the facts as above).

It must be conceded that Compton's claim to a lien upon the Ohio division of the Toledo & Wabash Railway, when asserted by him in the suit of Jessup & Knox v. Wabash, St. Louis & Pacific Railway Company, stood upon a very different footing from that of the appellants, who now assert a lien against the same division. That the appellants are holders of some of the same class of bonds as those upon which Compton's original claim rested is true; but Compton's claim of lien was adjudicated in his individual suit by the Supreme Court of Ohio. See Compton v. Railway Company, 45 Ohio St. 592, 16 N.E. 110, 18 N.E. 380. That court adjudged that he had a lien and accorded him a decree for the sale of that division, subject only to the prior divisional mortgage thereon. That was his status when brought into the general foreclosure case conducted by the very mortgagees who had been defendants to his action in the Ohio court. When so brought into that court, he, by proper pleading asserted the adjudicated lien and the right to a sale accorded him by the Ohio court. His lien was denied by the other lienors proceeding in that case. Before the issue thus made was determined, the court...