Atwood v. Shenandoah Val. E. Co

• Decision Date: 11 April 1889
• Citation: 9 S.E. 748,85 Va. 966
• Parties: Atwood et al. v. Shenandoah Val. E. Co. et al.
• Court: Virginia Supreme Court

9 S.E. 748

(85 Va. 966)

Atwood et al.

v.Shenandoah Val. E. Co. et al.

Supreme Court of Appeals of Virginia.

April 11, 1889.

Railroad Companies—Bonds—Equity—Practice —Depositions.

1. The S. V. Railroad Company had power under its charter to borrow money, issue certificates, and mortgage its property as security therefor. It executed a mortgage to a trustee, conveying all its line of road then and thereafter to be constructed, to be a continuing security without preferences for such bonds, not exceeding $15,000 per mile of road, as should be issued. Bonds were issued and sold to the extent allowed by the mortgage. The company decided afterwards to extend the line, but determined that the expense would exceed $15,000 per mile. Accordingly the stockholders authorized a general mortgage to be made, covering the whole line of road, to secure bonds to an amount not exceeding $25,000 per mile. It was determined to retire the first mortgage bonds, if possible, and cancel the mortgage. The directors were also authorized to continue the issue of bonds under the first mortgage, but the trustee was required to set apart out of the general mortgage bonds an amount equal to the outstanding first mortgage bonds, unless the latter should already have been acquired by exchange, in which event the first mortgage was to be canceled. After the execution of the general mortgage, $1,560, 000 of first mortgage bonds were issued, and deposited with the trustee, that being the amount authorized by the mortgage at $15,000 per each mile of the proposed extension, to be delivered as the extension should be completed. A prospectus was issued, showing that of the general mortgage bonds enough would be retained to retire outstanding bonds, leaving a specified amount, which would be entitled to share in the security of the first mortgage to the extent of $1,500, 000 of bonds deposited with the trustee as collateral to the general mortgage. The bonds were negotiated by means of this prospectus, one of the inducements to purchasers being the security afforded by the deposit of the $1,560, 000 of bonds. Held, that the issue of said last-mentioned bonds was authorized, and did not violate the rights of the holders of the other first mortgage bonds, and that the general mortgage bondholders were entitled to share in the security of the first mortgage to the extent of $1,560, 000.

2. Though the S. V. Co. was first incorporated by the state of Virginia, and its charter afterwards confirmed and similar powers given it in the states of Maryland and West Virginia by legislation of the latter states, it was still a separate corporation in each state, and statutes of the latter two states, limiting the indebtedness of a corporation to the amount of its capital stock, would not render void the bonds in question though issued in excess thereof, if valid in Virginia.

3. Even if the issue of the $1,560, 000 of first mortgage bonds could be considered as causing an indebtedness exceeding the limit of $35,000 per mile, the first mortgage bondholders could not be prejudiced thereby, and the holders of the later bonds could waive the restriction, which was for their sole benefit.

4. Though the $1,560, 000 of bonds were never certified by the trustee as the mortgage provided, they would not be void for that reason, as they need not have been certified for the purpose of affording security for the general mortgage bondholders, and, if necessary, equity could compel the trustee to perform his duty, or could disregard the omission under the rule that " equity will consider that done which in good conscience ought to be done."

5. C. & Co., the financial agents of the S. V. Co., when the general mortgage bonds were placed on the market negotiated them for the company, on commission. The price of the bonds was fixed by the S. V. Co., and they were sold by C. & Co., who used entire good faith. A syndicate with which the members of the firm of C. & Co. were connected purchased a large portion of the bonds. The proceeds were paid to the S. V. Co., and used it the construction of its road. Held, that the fiduciary relationship between C. & Co. and the corporation did not invalidate the purchase made by the syndicate.

6. A supplemental bill seeking no discovery, alleging no new matter, and making no issue save as to the validity of a debt included in a master's report, which could be disposed of by exception, is improper, and should be rejected.

7. Under Code Va. 1873, c. 172, § 86, providing that a deposition in a suit in equity may be read if returned before the hearing, though after an interlocutory decree, if it refers to a matter not adjudged by such interlocutory decree, as well as under the general rules of chancery practice, a master may, in his discretion, take the depositions of witnesses, though he has once closed the taking of testimony, and made up the draft of his report, the case being a complicated one, in which it is impossible to know definitely what testimony is necessary until that fact is developed by the examination of other witnesses.

Hinton, j., dissenting.

Appeal from circuit court of city of Roa-noke; Henry E. Blair, Judge.

The Shenandoah Valley Railroad Company was incorporated under the laws of the state of Virginia, and given general powers to construct a railroad through the state, etc. Subsequently like privileges were conferred by the states of West Virginia and Maryland by different acts of the legislature of each state. Different mortgages were executed by the corporation to secure various bonds, the Fidelity Insurance, Trust & Safe-Deposit company being trustee in all of them, and default being, made in the payment of the bonds the trustee filed this bill for a foreclosure. A receiver was appointed and the cause was referred to a master, who reported. The court held that the bondholders under a general mortgage were entitled to share in the security of the first mortgage to the extent of $1,560, 000, the amount of first mortgage bonds deposited with the trustee as collateral security for the payment of the general mortgage bonds, (the amount so deposited is sometimes erroneously referred to in the record as $1,545, 000, owing to a miscalculation in the number of miles of road built with the proceeds of the general mortgage bonds, as explained in the opinion,) and on the 24th day of December, 1887, decreed a foreclosure, etc. Various bondholders became parties by petition pending the suit, and the first mortgage bondholders appeal. Another decree was rendered in April, 1888, from which other parties appealed, but the questions arising thereon are treated in a separate opinion. Insurance Co. v. Railroad Co., post, 759.

Joseph Leedom, Chas. L. Lamberton, and William W. & B. T. Crump, for appellants. Wm. J. Robertson and John C. Bullitt, for the trustee, appellee. Camm Pat-teson and Williams & Boulware, for the general mortgage bondholders, appellees.

Richardson, J. This is a case of far more than ordinary importance, and in the investigation of the complicated questions involved this court has been favored withelaborate arguments, written and oral, of eminent counsel, at home and from abroad, in which the claims of the respective contestants have all been discussed with consummate skill and ability. In this opinion we have no concern with the questions decided by the court below in its decree of April, 1888, as those questions will be treated and decided in separate opinions. We are therefore restricted in this opinion to the consideration of the questions decided in the decree of the court below of December 24, 1887, by which the 1, 560 first mortgage bonds here in controversy were declared to be valid outstanding obligations of the Shenandoah Valley Railroad Company, issued under and in pursuance of the terms of said company's first mortgage of April 1, 1880, and properly delivered to and now held by the Fidelity Insurance, Trust & Safe-Deposit Company as trustee in said company's general mortgage of April 5, 1881, as collateral security for the bonds issued under and in pursuance of the terms of said general mortgage, and now so held by the appellees, the general mortgage bondholders. But before proceeding to consider this question, we must first dispose of two preliminary questions of practice.

1. It is objected that the circuit court erred in refusing to permit the appellants, the first mortgage bondholders, to file their supplemental bill, which bill was for the first time tendered and leave asked to file it at the term in which the decree complained of was rendered, and just as the argument in the cause was about to commence. From the facts and circumstances disclosed by the record we are clearly of opinion that the objection is without merit. The order of account made in the cause on the 11th of May, 1885, was for the express purpose, as shown on its face, of clearly ascertaining the rights of the respective classes of the creditors of the Shenandoah Valley Railroad Company "to satisfaction out of its property and effects, and the amount due or to become due to said classes respectively." Hence the master was directed to take, among others, an account "of the amounts due or hereafter to become due under the respective trust-deeds or mortgages which have been made by said" Shenandoah Valley Railroad Company, "and which have not been released or satisfied, showing the relative rights and priorities and the property included in or conveyed by said deeds respectively." The taking of testimony under this order was commenced on the 26th of February, 1886, and was continued from time to time until the 12th of March, 1887, the counsel for appellants (first mortgage bondholders) being present and participating on each occasion in the examination of witnesses, and introducing witnesses on behalf of their clients. And, as already stated, in the progress of taking this testimony, counsel for the first mortgage bondholders, the appellants,...