Butler v. Rahm

• Decision Date: 13 June 1877
• Citation: 46 Md. 541
• Parties: WILLIAM BUTLER v. GEORGE A. RAHM.
• Court: Maryland Court of Appeals

46 Md. 541

WILLIAM BUTLER v. GEORGE A. RAHM.

Court of Appeals of Maryland

June 13, 1877

APPEAL from the Circuit Court for Somerset County, in Equity.

The case is sufficiently stated in the opinion of the Court.

The cause was argued before BARTOL, C.J., MILLER and ALVEY, J.

John W. Crisfield for the appellant.

Henry Page for the appellee.

BARTOL C.J., delivered the opinion of the Court.

This is an appeal from an order of the Circuit Court for Somerset County, continuing an injunction which had been issued at the instance of the appellee, complainant below, restraining the appellant from enforcing an execution upon a judgment recovered by "the National Iron Company" against "the Worcester and Somerset Railroad Company" which had been assigned to the appellant.

The bill alleges that the W. & S. Railroad Co. was duly authorized by its charter (Act of 1867, ch. 322, sec 15,) to issue bonds and pledge the property and profits of the company to secure their payment; that in pursuance of this power, and of the resolution of the board of directors, the railroad company issued its bonds to the amount of $50,000 and to secure their payment with the interest thereon executed the mortgage dated October 25th 1871 to Felton, Franklin and Clarke, trustees. These bonds, it is alleged in the bill, are now held and owned by the appellee.

The proof shows that the railroad company in the latter part of the summer of 1871, contracted with the "National Iron Company" a Pennsylvania corporation, for the purchase of a quantity of iron, for the purpose of constructing its road, amounting to about $45,000. $2000 of which was, by the contract, to be paid in cash, and for the balance the railroad company was to give its promissory notes at twelve and fifteen months, these notes to be secured by an issue of $50,000 in " first mortgage bonds" as collateral security.

The iron was delivered under the contract, and the railroad company paid $10,000 in cash on the 27th day of September 1871, and executed its four promissory notes dated October 1st 1871 as follows: One at forty-five days for $5000, one at ninety days for $5000, and two for $12,500 each, payable one in twelve months, and one in fifteen months. To secure the payment of the last two notes, the railroad company delivered to the National Iron Company its bonds amounting to $50,000, dated October 1st, 1871, secured by the mortgage of October 25th, 1871. It appears from the proof the promissory note for $5000, payable in ninety days, not being paid at maturity, was renewed on the 12th day of February 1872, by a note of that date for the same amount payable in four months. Upon this note suit was instituted by the N. I. Co., and a judgment was confessed thereon by the railroad company on the 18th day of October 1872, for $5104.81.

The N. I. Co. having become bankrupt, this judgment was on the 23d day of July 1874, assigned to the appellant by Andrew H. Dill the assignee in bankruptcy, and a writ of fi. fa. was issued thereon on the 1st day of September 1874 and levied upon the property of the railroad company. To restrain this execution the injunction in the present case was issued; and upon the hearing of the motion to dissolve, on the pleading and proofs, the Circuit Court overruled the motion and continued the injunction. The propriety of the Court's action in this respect, is the only question presented by this appeal. Other judgment creditors were made defendants, and were also enjoined, but their rights are not now involved.

The claim of the appellee to relief is based upon the deed of mortgage to Felton, Franklin and Clarke, and depends mainly upon the solution of the following questions:

1st. Is the deed valid and effectual to secure the holders of the bonds dated October 1st, 1871?

2nd. Are the rights of the appellant as assignee of the judgment to be postponed to the rights of the bond holders?

3rd. Is the appellee a bondholder entitled to relief by injunction?

1st. As to the mortgage, its validity, legal operation and effect. It was executed on the 25th day of October 1871, and the appellant's solicitor construes it as referring to bonds thereafter to be issued, the bonds offered in proof are dated October 1st, 1871. But it clearly appears from the evidence that these are the bonds referred to in the deed and intended to be secured thereby. This appears from an inspection of the papers; the bonds correspond in all respects with those described in the recital in the deed, and declare on their face that they are secured by a first mortgage in which Felton, Franklin and Clarke, are the trustees. There is nothing in the terms of the deed inconsistent with the fact that the bonds had before been executed. But if any doubt or ambiguity could arise on this subject, it is removed by the testimony of Dr. McMasters, the president of the company, that no other bonds were executed or issued except those dated on the first day of October 1871, and these we think are clearly described in the deed.

It has been contended on the part of the appellant that the mortgage evidences no valid or binding contract, that it is a mere voluntary contract on the part of the company without consideration which a Court of equity will not enforce. This objection, in our opinion, is not well founded. It appears to be based on a misconstruction of the deed, taking as the consideration the recital it contains of the resolution of the board authorizing the bonds to be executed, and treating this suit as a proceeding to compel the company to carry out the resolution; whereas the real consideration is a security for the payment of the bonds of the company issued in conformity with the resolution. Though the deed does not state in terms, that the bonds had been executed, such is the plain inference from its provisions, and the fact is shown to be so. The object of the mortgage was to enable the company to dispose of its bonds advantageously in the market, by giving to the holders the security of a pledge of its property and profits. There can be no possible objection to the deed being made to third persons as trustees for the benefit of the bondholders. It is in effect a contract between the company and all persons who might become holders of the bonds thereby secured, and they are entitled to the same benefit as if they were parties to the deed.

Several objections have been made...