Browning v. Kelly

• Decision Date: 23 December 1899
• Citation: 27 So. 391,124 Ala. 645
• Parties: BROWNING ET AL. v. KELLY ET AL.
• Court: Alabama Supreme Court

27 So. 391

124 Ala. 645

BROWNING ET AL. v. KELLY ET AL.

Supreme Court of Alabama

December 23, 1899

Appeal from chancery court, St. Clair county; J. R. Dowdell Chancellor.

Bill by Edward F. Browning and others against Eugene Kelly and another to have a trust declared on certain railroad property. From a decree declaring that certain receiver's certificates are a first lien on the property, complainants appeal. Modified.

The bill in this case was filed by Edward F. Browning and J. Hull Browning and Amos G. West against Eugene Kelly and John Byrne. West having died pending the litigation, the suit was revived in the name of his administrator; and, Eugene Kelly having died, suit was revived against his executors, and his heirs were also made parties to the bill. The averments of the bill, together with its amendments and the purposes for which the bill was filed, are set forth at length in the report of the case when here on former appeal, and special reference is here made to said report. Kelly v Browning, 113 Ala. 420, 21 So. 928. After the affirmance of the chancellor's decree in overruling the demurrers which were interposed to the bill as amended, the complainants further amended the bill on September 20, 1897 by substituting in lieu of paragraphs 13, 14, and 15, which related especially to the conditions under which the receiver's certificates were to be issued, the following three paragraphs of corresponding numbers: "(13) And these complainants further show: That, by the said orders authorizing the issue of said receiver's certificates, it was required that such issue should be first consented to by the holders of the consolidated bonds hereinbefore mentioned. That thereupon the said Eugene Kelly and John Byrne applied to the complainants Edward F. Browning and John Hull Browning, individually, and as attorney in fact for the said Amos G. West. Being unwilling to consent to the issue of said certificates, by reason of the prior lien to be given to them by the terms of the said recited orders of court, the said Eugene Kelly and John Byrne thereupon demanded of them that they should so consent, as a means of enabling the said Eugene Kelly and John Byrne to avail themselves of the discretion vested in them by said contract, to widen the gauge of said railroad; and thereupon, as a consideration for the giving by them of such consent to the issue of said receiver's certificates, and for and in consideration thereof, the said Eugene Kelly and John Byrne expressly covenanted and agreed that they would indemnify and save harmless the said Edward F. Browning, John Hull Browning, and Amos G. West against any prior lien of any receiver's certificates so to be issued, and that they would at their own expense cause said certificates to be paid off and retired without cost to the said Edward F. Browning, John Hull Browning, and Amos G. West, so that the bonds which they were by the said contract entitled to receive should be a first lien upon the railroad and property covered by said contract; and that thereupon the said Edward F. Browning and John Hull Browning, individually, and as attorneys in fact for the said Amos G. West, for and in consideration of the said covenants and agreements so made by the said Eugene Kelly and John Byrne, did consent, on behalf of the said 966 bonds, to the issue of said receiver's certificates; and that thereupon, and in accordance therewith, the said Eugene Kelly and John Byrne did, as the holders of the said 966 bonds received by them under the contract above set forth consent to the issue of the said receiver's certificates. (14) And complainants further aver that, at the special instance and request of the said Eugene Kelly, the said court, in authorizing the issue of the said receiver's certificates, did further provide and require that the privilege of taking said certificates at par be first offered to the holders of said consolidated bonds in proportion of their holdings thereof; and that thereupon the said Eugene Kelly, assuming to himself, with the acquiescence of the said John Byrne, the right so conferred upon them as owners and holders of the said 966 bonds, under and by the said several contracts and agreements with the said Edward F. Browning John Hull Browning, and Amos G. West, hereinbefore set forth, did obtain for himself from the said receiver the greater part of the said certificates, and so enabled himself to obtain, by subsequently becoming the purchaser of the said railroad, an inequitable advantage over the said Edward F. Browning, John Hull Browning, and Amos G. West, contrary to the terms of his express contract and agreement with them, and as hereinafter set forth. (15) And complainants further show that pursuant to the said orders the said receiver did issue and sell said certificates to the said Eugene Kelly, the American Loan & Trust Company, Drexel, Morgan & Co., De Coffet & Co., and Reuben L. Fox, who were all holders of said bonds, and took said certificates in proportion to their respective holdings thereof; the said Kelly taking much the larger proportion, namely, $620,125.15, by reason of his holding of the said 966 bonds as above shown. And complainants further aver that the moneys received by the said receiver from the sale of the said certificates, to wit, the total sum of $650,000, was thereupon by him used and expended in widening the gauge of the said railroad."

To the bill as last amended the defendants, as executors of Eugene Kelly, on October 8, 1897, filed an amended answer, in which they admit the organization of the East & West Railroad and the issue of the bonds as alleged, and admit that on the 11th of May, 1888, their testator and the firm of Eugene Kelly &amp Co. owned 110 of the bonds, but deny that their testator desired to secure the control of the property, and allege that he and the firm of Eugene Kelly & Co. acquired their bonds by having, in good faith, made loans on these bonds as collateral, and were compelled to take them in satisfaction of their debts. They aver that prior to the 11th of May, 1888, several attempts had been made by the complainants, with the aid of the defendant Byrne, to reorganize the East & West Railroad, and several plans of reorganization had been prepared by John Byrne, all of which failed, and after these failures their testator had consented to the agreement of May 11, 1888, for the purpose of effecting a reorganization of the railroad, if possible, whereby some value might be given to the bonds, which at that time had no market value whatever. It is admitted that the bill was filed by Schley and a receiver appointed as alleged. The execution of the agreement of May 11, 1888, is admitted, but it is denied that it was executed on the application of their testator. Paragraph 6 of the bill, alleging certain contemporary oral agreements between their testator and the complainants in regard to the subject-matter of the contract of May 11, 1888, is expressly denied. It is admitted that the bonds were delivered to the American Loan & Trust Company as alleged, but it is denied that the defendant Eugene Kelly availed himself of either the stock or bonds for the benefit of himself or John Byrne, or that he ever converted the property, or any part of it, to his own use, or that he ever derived any benefit therefrom. It is admitted that a demand was made and the foreclosure suit was brought by the American Loan & Trust Company at the time alleged, and that afterwards the suit of Grant Bros. was brought, and that the complainants and defendants were both parties to this suit of Grant Bros., and that this suit, as well as that of Schley, was consolidated with the foreclosure suit. It is admitted that no part of the 966 bonds have ever been adjudged invalid. It is admitted that a reference was held in the foreclosure suit, at which John Byrne produced and proved in the name of himself and Eugene Kelly and 966 bonds, and it is alleged that this was done with the complainants' consent. It is also admitted that their testator produced and proved on behalf of himself and the firm of Eugene Kelly & Co. 119 of the consolidated bonds. It is admitted that the master reported that the value of the railroad at the time he was directed to ascertain the same was $1,400,000, but it is denied that the value of the railroad since that time has been $1,400,000, or any sum greater than the amount of the receiver's certificates, with interest thereon and advances. It is expressly denied that the respondents or their testator ever applied for the issue of receiver's certificates, and the facts under which they were issued are set up in the answer, and show that, prior to the filing of the bill for the foreclosure of the mortgage in the United States circuit court, an order, on the petition of John Postell, the receiver appointed in the Schley suit, directed a reference to ascertain whether the issue of receiver's certificates was necessary to maintain the railroad; that a reference was held and all the evidence was taken prior to the 11th day of May, 1888, and before the foreclosure suit was begun; that on the 14th day of May, 1888, the special master to whom the petition of the receiver was referred made a report in which it was ascertained that it was essential and necessary for the maintenance of the property that receiver's certificates should be issued, and he recommended that Postell, the receiver, should be allowed to issue $350,000 of certificates. A copy of this petition is attached as Exhibit 1 to the answer. It is then shown that the bill for foreclosure was filed by the trust company, and Postell removed, and Charles P. Ball appointed receiver, and it was made a condition of the appointment of Ball that the report made on the petition of...