Appeal of Columbus, S. & H.R. Co.

• Citation: 109 F. 177
• Decision Date: 07 May 1901
• Docket Number: 907.,861,860,863,864,862,867,908,909,859,870
• Parties: COLUMBUS, S. & H.R. CO. APPEALS. v. MERCANTILE TRUST CO. et al. McCUNE CARLISLE et al. v. SAME (two cases). STEWART v. SAME. LITTLE et al. v. SAME. METROPOLITAN TRUST CO. v. SAME. HALLETT v. SAME. SINKS v. SAME. PARROTT et al. v. SAME. METROPOLITAN TRUST CO. et al. v. SECOND NAT. BANK et al. MERCANTILE TRUST CO. v. SECOND NAT. BANK OF SANDUSKY et al.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

109 F. 177

COLUMBUS, S. & H.R. CO. APPEALS.

CARLISLE et al. v. MERCANTILE TRUST CO. et al. McCUNE v. SAME (two cases). STEWART v. SAME. LITTLE et al. v. SAME. METROPOLITAN TRUST CO. v. SAME. HALLETT v. SAME. SINKS v. SAME. PARROTT et al. v. SAME. METROPOLITAN TRUST CO. et al. v. SECOND NAT. BANK et al. MERCANTILE TRUST CO. v. SECOND NAT. BANK OF SANDUSKY et al.

Nos. 867, 859, 862, 860, 863, 908, 909, 861, 864, 870, 907.

United States Court of Appeals, Sixth Circuit.

May 7, 1901

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

These several appeals are from decrees upon separate interventions filed in a consolidated mortgage foreclosure suit against the Columbus, Sandusky & Hocking Railroad Company. Many questions arise upon this review, which involve the priority of the lien of mortgages under foreclosure. To a proper understanding of these issues, it becomes necessary to here state the origin and history of the mortgagor railroad company, and of the two mortgages under foreclosure. Both were executed by the Columbus, Sandusky & Hocking Railroad Company, a corporation of the state of Ohio. The senior of these bears date November 9, 1895, and was executed to secure an issue of 5 per cent. coupon bonds, aggregating two millions of dollars, known as and called hereafter 'Prior Lien Bonds.' The trustee under this mortgage is the appellee the Mercantile Trust Company, a corporation of the state of New York. Default in payment of interest having occurred, the said trust company filed its foreclosure bill June 2, 1897, and secured the appointment of Samuel A. Felton as receiver. Since that time the railroad has been operated under the orders of the circuit court. The other mortgage under foreclosure bears date November 11, 1895, and was issued to secure an issue of bonds aggregating ten millions of dollars. This mortgage was made to the Metropolitan Trust Company of the city of New York. Default having been made in payment of interest, the trustee filed its dependent foreclosure bill in the court below. The receivership under the bill of the Mercantile Trust Company was extended to the new suit, and both suits were then consolidated under the name of 'The Metropolitan Trust Co. v. The Columbus Sandusky & Hocking Railroad Company and Others.'

The property covered by these mortgages was originally owned by two distinct railroad companies, whose roads connected at Columbus. One of these was known as the Columbus, Shawnee & Hocking Railway Company, and the other as the Sandusky & Columbus Short-Line Railway Company. The property of the first-named constituent company was, while owned by that company, subjected to two mortgages. Under the senior of these, an issue of $3,728,000 in first mortgage bonds was secured. Under its second mortgage an issue of $708,000 in bonds was secured. The second of the original constituent companies subjected its railroad also to two mortgages. Under its first mortgage an issue of $3,000,000 of bonds was secured, and under the second an issue of $150,000 was secured. In December, 1893, these two Ohio railroads were consolidated, thereby forming the Columbus, Sandusky & Hocking Railway Company, which was the immediate predecessor of the present company, the Columbus, Sandusky & Hocking Railway Company. This predecessor consolidated company (hereafter, for brevity, designated as the 'Railway Company') executed a mortgage upon its entire line to secure an issued of $10,000,000, of which only $1,141,000.11 in bonds were, in fact, issued. Thus, prior to the acquisition of the railroad now owned by the Columbus, Sandusky & Hocking Railroad Company (hereafter designated as the 'Railroad Company'), it had been subjected to five distinct mortgages by predecessor corporations, under each of which the Metropolitan Trust Company was the trustee. In addition to these mortgages, the consolidated company, known as the 'Railway Company,' had created or assumed a large 'car trust' and general 'floating debt,' the particulars of which need not now be given.

In June, 1895, the Railway Company was hopelessly insolvent. In this state of affairs, a foreclosure being inevitable, an agreement for united action by the bondholders and stockholders was proposed for the protection of their own interests by the purchase of the property at the foreclosure sale by a new company to be organized by such bondholders and stockholders as should agree to the plan for a reorganization. As this plan or agreement is of supreme importance in the determination of the greater part of the questions here to be considered, it is set out here in full, as follows:

'Columbus, Ohio, June 11, 1895.

'Whereas, on or about July 1, 1895, it is proposed to incorporate and organize the Columbus, Sandusky & Hocking Railroad Company with a capital stock which shall be, at its organization, or shall be increased to, not exceeding eleven million six hundred thousand dollars ($11,600,000), of which capital stock not to exceed four million one hundred thousand dollars ($4,100,000) thereof shall be noncumulative four per cent. (4 per cent.) preferred stock, and the remainder common stock.

'Preferred Stock.

Authorized amount . . . . . . . . . . . . . . . . . . $4,100,000 For purchase present C., S. & H. preferred stock . . . 4,041,067

Surplus preferred stock in treasury . . . . . . . $ 58,933

'Common Stock.

Authorized . . . . . . . . . . . . . . . . . . . . . $7,500,000 For purchase present C., S. & H. common stock . . . . 3,347,985

Surplus common stock in treasury . . . . . . . . . $4,152,015 The fixed interest charge of the present company

is annually . . . . . . . . . . . . . . . . . . . . $577,130 New company fixed interest charge first two years

would be . . . . . . . . . . . . . . . . . . . . . . $302,390 New company fixed interest charge third and fourth

years would be . . . . . . . . . . . . . . . . . . . $339,400 New company fixed interest charge fifth year and

thereafter . . . . . . . . . . . . . . . . . . . . . $400,000 New company interest charged on income bonds, if

earned annually . . . . . . . . . . . . . . . . . . . $60,560

'This plan leaves the bondholders and stockholders of the present company in the same relative position in the new company. The amount provided for the improvement of road and equipment will place it in first-class condition, reducing the percentage of cost of operation during the next few years. With the present business prospects, the road, relieved from payment of car trust notes and floating debt. can, for the ensuing year, earn and pay the interest on $1,000,000 prior lien bonds and on the outstanding general mortgage bonds, and, when good business conditions have brought back the coal tonnage handled by the old company in 1892 (962,000 tons), upon present rates it can earn an additional amount sufficient to pay the increased interest on its general mortgage and income bonds. That there will be a restoration to prosperous times in the near future is inevitable. Whether it will come next year, or later, no one can predict; but it is safe to assume that it will come within a few years, and with it not only a restoration of the old coal tonnage handled, but, with the present improved facilities, a large business than the company has ever handled in its best years. With this plan carried out, and the company freed from floating debt and car trusts, and with a lower fixed charge ($302,390) for the next two years than any Ohio coal road, the property can be safely carried to such times as will bring a fair return to other securities.

'Exhibit B.

'Columbus, Ohio, June 11, 1895.

'Whereas, on or about July 1, 1895, it is proposed to incorporate and organize the Columbus, Sandusky & Hocking Railroad Company with a capital stock which shall be at its organization, or shall be increased to, not exceeding eleven million six hundred thousand dollars ($11,600,000), of which capital stock not to exceed four million one hundred thousand dollars ($4,100,000) thereof shall be noncumulative four per cent. (4 per cent.) preferred stock, and the remainder common stock: It is also agreed that said company shall prepare and cause to be issued in accordance with law two million dollars ($2,000,000) of five per cent. (5 per cent.) five (5) year prior lien gold bonds, interest payable on October 1st and April 1st of each year. Also ten million dollars ($10,000,000) of fifth (50) year general mortgage gold bonds, which bonds shall bear interest as follows, to wit: Two and one-half per cent, (2 1/2 per cent.) for the years 1896 and 1897, three per cent. (3 per cent.) for the years 1898 and 1899, and four per cent. (4 per cent.) thereafter until paid; interest payable on July 1st and January 1st of each year. Also one million five hundred and fourteen thousand dollars ($1,514,000) of four per cent. (4 per cent.) noncumulative fifty (50) year income gold bonds, interest payable on August 1st and February 1st of each year. All of said bonds to be a lien in the order stated upon the property of said railroad company owned at its organization, or at any time thereafter acquired. It is further agreed that said railroad company shall, in conformity with the laws of the state of Ohio, purchase and acquire all and singular the property now owned or hereafter prior to the conveyance be owned by the Columbus, Sandusky & Hocking Railway Company, and shall pay thereafter as follows, to wit:

'First. It will assume and pay the floating debt of said the Columbus, Sandusky & Hocking Railway Company, whatever the same may be, at the time of transfer of said property; assuming also the improvement of said property and equipment, not exceeding one hundred and eighty thousand dollars ($180,000), the cost and expense

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