Carey v. Houston & T.C. Ry. Co.

• Decision Date: 01 March 1891
• Parties: CAREY et al. v. HOUSTON & T.C. RY. CO. et al.
• Court: U.S. District Court — Eastern District of Texas

45 F. 438

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

United States Circuit Court, E.D. Texas.

March, 1891

Bill by S.W. Carey and others against the Houston & Texas Central Railway and others. Complainant alleged that they were stockholders in defendant railway company, and that the latter had issued several series of bonds, secured by distinct mortgages on its property. Some of these mortgages covered all its property, and some only part. Most of the bonds were owned by the Farmers' Loan & Trust Company and by the Southern Development Company, in which C. P Huntington was a large stockholder, and by the Southern Pacific Railroad Company, of which Huntington is vice-president. The bill further alleged:

'(5) That in none of the said several mortgages is it provided that the failure to pay interest upon any of the bonds shall be taken to precipitate the maturity of the principal, nor do they provide for or permit the sale of the said railway prior to the maturity of the principal of the bonds referred to in the said respective mortgages, or either of them.

'(6) That the main line first mortgage, upon which said bill No 198 was founded and based, provided by its terms that, if default be made in the payment of interest which should become due upon the said bonds, the trustees, at the request of any bondholder, were required to make a demand in writing on the president or secretary of the company for the payment of interest in arrears, and, if the company made default for sixty days after said time, the trustees were empowered to take possession of the road, and use, operate, and work the same, and, after paying the expenses of running and operating the road and for needful and necessary repairs, apply the net profits to the payment and discharge of the interest, when and whereupon the said railway, with its appurtenances, was to be surrendered and delivered back to the said railway company; and it was further provided that, if default be made in the principal at maturity, the trustee should proceed to sell the lands which were conveyed and which remained unsold and, if the proceeds should not be sufficient to pay off the said bonds and interest in full, then the trustees were directed, at the end of six months from the time of the maturity of the bonds, to sell the road to the highest bidder at public auction; to which mortgage, referred to in the decree hereinafter mentioned, complainants beg leave to refer, and make part hereof. The western division first mortgage, upon which said Easton and Rintoul filed their bill No. 199, contains provisions substantially similar in all respects. The general mortgage, executed April 1, 1881 embraced in said consolidated cause, contains substantially similar provisions. The mortgages known as the 'main line and western division consolidated mortgage,' and 'Waco & Northwestern division consolidated mortgage,' provide that in case the company failed to pay the principal or the interest upon bonds as they became due, and for sixty days after demand, the trustees were empowered to enter upon the road, operate and manage the same, and, after paying taxes and counsel fees, and necessary expenses in connection with the operation of the road, and for proper repairs, apply the surplus to the payment of interest or principal due, and assume the management of the road until the principal and interest are paid, or the property sold, as provided in the mortgage; but such sale was to be had only in case default should be made in the principal sum of the bonds at maturity, and proper proceedings were commenced to procure a decree of sale of said premises and property, which proceedings the trustees were required to commence at the request in writing of a majority of the holders of the bonds so in default.

'(7) Complainants further allege that the answer of the railroad company in said suits expressly placed in issue, by denying, that the principal sum of the said bonds had become due or demandable, and averred that the court was not authorized to set aside the terms and provisions of the deed of trust, and decree the principal of the bonds issued under the said deed to be due, when the same were not due until years after the filing of the bill, and that the court had no power to decree that the railways belonging to the said Houston & Texas Central Railway Company should be sold prior to the maturity of the bonds, or sold prior to the sale of all the lands covered by the said deeds of trust; and in the answer it was further averred that if the lands received by grants from the state of Texas were carefully administered and converted into money at a reasonable price by the railroad company, or by the receivers, the proceeds of the sale would so materially reduce the indebtedness of the company that it might reasonably hope to be able to pay the whole of its floating debt and the principal of its bonds upon the dates they become due.

'(8) Complainants further aver, on information and belief, that after the filing of the said answer, and until after the making of the reorganization agreement hereinafter referred to, no testimony was taken in the said suit. That while the suit was in that condition, and on or about December 27 1887, an agreement was entered into, as complainants have since learned, by a majority of the holders of the mortgage bonds (with the possible exception of those upon the Waco & Northwestern division, as to which division a sufficient number of bondholders could not be brought into an agreement for reorganization) and the Southern Pacific Co. and the Central Trust Co., for the reorganization of the said Houston & Texas Central Railway Company, by the terms of which agreement a plan of reorganization was agreed upon between the parties to said instrument, by which they agreed to a foreclosure of the said mortgages, and by which it was further agreed that a new company should be organized, which shall acquire all the property and franchises of the present company designated herein as the 'Houston & Texas Central Ry. Co. No. 1,' and thereafter issue new bonds, equal in amount to the principal of the outstanding consolidated mortgage and general mortgage bonds, in the following proportions: the present holders of the first mortgage bonds were to receive new bonds in equal amount, and, in addition, to be paid the face value, without interest, of the unpaid coupons, up to and including the coupons maturing July 1, 1887, and also a bonus of fifty dollars in cash upon each bond. The interest upon the said bonds was to be guarantied by the Southern Pacific Company. The holders of the consolidated mortgage bonds were to receive new bonds, with interest, at the rate of six per cent., and, in addition, to receive debenture bonds, with interest payable semi-annually at the rate of six per cent., for three-fourths of the face value, without interest, of the unpaid coupons, to and including those maturing October 1, 1887; both the principal...