Carey v. Houston Ry Co

• Decision Date: 02 March 1896
• Docket Number: No. 642,642
• Citation: 16 S.Ct. 537,161 U.S. 115,40 L.Ed. 638
• Parties: CAREY et al. v. HOUSTON & T. C. RY. CO. et al
• Court: U.S. Supreme Court

161 U.S. 115

16 S.Ct. 537

40 L.Ed. 638

CAREY et al.

v HOUSTON & T. C. RY. CO. et al.

No. 642.

March 2, 1896.

This was a bill filed by Carey, a citizen and resident of New Jersey, and seven other persons, citizens and residents of New York and citizens of Great Britain, respectively, as stockholders of the Houston & Texas Central Railway Company, in their own behalf and in behalf of all others similarly situated, in the circuit court of the United States for the Eastern district of Texas, against the Houston & Texas Central Railway Company, No. 1, a corporation created by and existing under the laws of the state of Texas, and a citizen of that state residing in the Eastern district; the Houston & Texas Central Railway Company, No. 2, likewise a citizen of Texas, and a resident of the Eastern district; the Central Trust Company of New York, a citizen of New York; the Farmers' Loan & Trust Company of New York, as trustee, a citizen of New York; Nelson S. Easton and James Rintoul, as trustees, citizens and residents of New York; Benjamin A. Shepherd, trustee, a citizen of Texas; and many other persons and corporations, citizens of New York, Kentucky, Texas, and Louisiana,—to impeach and vacate a certain decree of the circuit court entered in the consolidated cause hereafter mentioned.

The Houston & Texas Central Railway Company was a corporation and citizen of the state of Texas, and a resident of the Eastern district of that state, owning a railway consisting of a main line from Houston to Dennison; a line from Hempstead to Austin, called the Western Division; and a line from Bremond to Ross, known as the Waco & Northwestern Division; and a large quantity of lands acquired from the state. The property of the company was subject to the lien of seven mortgages, known as the 'Main Line First Mort- gage,' 'Western Division First Mortgage,' 'Waco & Northwestern Division First Mortgage,' 'Main Line and Western Division Consolidated Mortgage,' 'Waco & Northwestern Division Consolidated Mortgage,' 'Income and Indemnity Mortgage,' and 'General Mortgage.' The company made default January 1, 1885, in the payment of interest on its Main Line first mortgage bonds and its Western Division first mortgage bonds. On February 11, 1885, Nelson S. Easton and James Rintoul, citizens and residents of the state of New York, trustees under the Main Line first mortgage and Western Division first mortgage, filed their two bills in equity in the circuit court of the United States for the Eastern district of Texas against the Houston & Texas Central Railway Company as a corporation and citizen of the state of Texas, for the purpose of enforcing the trust provided in the mortgages, protecting the trust property, obtaining proceedings for the sale of certain lands covered by the mortgages, and for other relief; and prayed for an accounting, an injunction, a decree of sale of part of the trust property, and for a receiver. These suits were numbered 183 and 184 on the equity docket. The railway company appeared, and answered these bills.

On February 16, 1885, the Southern Development Company, a corporation organized under the laws of California, and a citizen and resident of that state, in its own behalf and in behalf of all other persons similarly situated who might intervene in the suit to protect their own interests, filed its bill of complaint in the circuit court against the railway company as a corporation organized under the laws of Texas, alleging, among other things, that it was a creditor of the defendant for large sums advanced for supplies, labor, operating, and managing expenses, and other necessary expenses, which defendant had promised to pay out of its earnings; that the indebtedness was in equity a charge upon defendant's income and property; that there had been a diversion of the income, and that by reason thereof a lien had resulted in complainant's favor, which it was entitled to have enforced. The bill alleged the absolute insolvency of the railway company, and that loss and injury would be occasioned by a sale of the property in parcels, and prayed for the appointment of receivers, and the payment of complainant's claim out of the rents, revenues, and earnings of the property. The railway company appeared in this suit, which was numbered 185, and on February 20, 1885, an order was made by the circuit court appointing Benjamin G. Clark and Charles Dillingham joint receivers of all the property, real and personal, of said company. On the succeeding 20th of April, the Southern Development Company amended its bill, making Nelson S. Easton and James Rintoul, trustees; the Farmers' Loan & Trust Company, a corporation and citizen of the state of New York; and Benjamin A. Shepherd, trustee, under the Income and Indemnity mortgage, a citizen of Texas, and a resident of the Eastern district of that state,—defendants thereto, and praying that accounts might be taken, liens and incumbrances marshaled, net earnings applied, and, if the amounts realized should not be sufficient for the payment of the claim, that the property should be sold for that purpose. The railway company answered the bill on its merits, and the defendants Easton and Rintoul, trustees, filed demurrers.

March 18, 1885, the Farmers' Loan & Trust Company, a corporation and citizen of New York, filed its bill in equity in the circuit court against the railway company, which was numbered 188 on the equity docket, alleging that it was the trustee under the Waco & Northwestern Division first and consolidated mortgages, and the Main Line and Western Division consolidated mortgages; that the mortgagors had violated many of their agreements, and that default had been made in the payment of interest; that the company was insolvent; that the suits hereinbefore mentioned were pending; that the trust property was in jeopardy; and it prayed for an accounting, injunction, and a decree of sale of part of the trust property, and for a receiver of all the property of every description of the railway company, with the usual powers. The railway company answered this bill on the merits, June 22, 1885.

The circuit court made three orders on May 7, 1885, in these cases: In No. 185, as to sales of lands and their proceeds, and directing the receivers to account; in Nos. 183 and 184 making that order applicable to those cases; and in No. 188 making the same order as to that case.

January 21, 1886, Easton and Rintoul, trustees in the two mortgages involved in Nos. 183 and 184, citizens of the state of New York, filed two other bills in equity for the foreclosure and sale of the railway property covered by those mortgages. That to foreclose the Main Line first mortgage was numbered 198, and that to foreclose the Western Division first mortgage was numbered 199. In No. 198 complainants made the Houston & Texas Contral Railway Company and Benjamin A. Shepherd, a citizen and resident of Texas, and trustee under the Income and Indemnity mortgage, defendants, and as to the Farmers' Loan & Trust Company averred that, as trustees under the mortgages or deeds of trust 'hereinafter described, that company would be found benefited by, and it is to their advantage that, the judgment and relief hereinafter prayed for, or some part thereof, should be granted to your orators. That said property covered by the said first mortgage on said main line, as well as all the other property, assets, and effects of said railway company, being now in the hands of this court, by the receivership existing in respect of the same, and your orators thereby being required by law to institute this action in this court and to come before this tribunal in order to reach the property in its possession, and to obtain its rights concerning the same, and all the parties interested in the property covered by said mortgage on the main line, as well as all the other mortgages and property of said railway company, being now before the court in said actions hereinbefore described as Nos. 183, 184, 185, and 188 on the equity docket of this court, the said Farmers' Loan & Trust Company may and should be made a party defendant in this cause, irrespective of its citizenship; and said corporation should be brought in as a defendant herein by the order and direction of this court, and should be bound by the judgment and proceedings herein.'

The record does not show that this company was made a defendant or appeared at this stage of the proceedings.

In No. 199 the same parties were joined as defendants, and a like averment made as to the Farmers' Loan & Trust Company. Process was issued under both of these bills against the railway company and Shepherd, trustee, and duly served upon them. Thereafter, and on April 24, 1886, the Farmers' Loan & Trust Company filed a bill in equity in the circuit court for the foreclosure of the general mortgage, which was numbered 201. The railway company was made sole party defendant, and the bill prayed for a sale of all the property of the railway company to satisfy the mortgage dobt. Process was issued and served.

On May 26, 1886, an order was entered by Mr. Justice Woods and the circuit judge in the six suits upon the mortgages, whereby it was ordered, adjudged, and decreed that no further proceedings should be taken in causes Nos. 183, 184, and 188 without notice to the railway company, and that causes Nos. 198, 199, and 201 should be consolidated under No. 198, under the name and style of 'Nelson S. Easton and James Rintoul, Trustees, and the Farmers' Loan and Trust Company, Trustee, against the Houston and Texas Central Railway Company and Benjamin Shepherd, Trustee, Consolidated Cause'; that in said cause Easton and Rintoul should stand as complainants, as trustees under the mortgages made by the defendant railway company, dated, respectively, July 1, 1866, and December 21, 1870; that the Farmers' Loan & Trust Company, expressly assenting thereto, should stand as complainant, as truste...