Carswell v. Farmers' Loan & Trust Co.

• Decision Date: 14 April 1896
• Docket Number: 352.
• Parties: CARSWELL v. FARMERS' LOAN & TRUST CO. OF NEW YORK et al.
• Court: U.S. Court of Appeals — Sixth Circuit

74 F. 88

CARSWELL v. FARMERS' LOAN & TRUST CO. OF NEW YORK et al.

No. 352.

United States Court of Appeals, Sixth Circuit.

April 14, 1896

This case presents a controversy as to the liability of the receiver of the Chattanooga Union Railway Company for the use and occupation by him, as receiver of the railway company, of the property of the Chattanooga Union Depot Company. The facts necessary to be stated are these: The Chattanooga Union Railway Company (hereafter called the 'Railway Company') is a corporation of the state of Tennessee owning and operating a belt line of railway. The Chattanooga Union Depot Company is also a corporation of the state of Tennessee, owning a railway depot and certain railway terminal facilities in the city of Chattanooga, Tenn. On the 30th day of December, 1891, a contract was executed between the railway company and the depot company, which provided that the railway company should have a perpetual right to occupy the property of the depot company 'rent free,' except and subject to the following charges: (1) The railway company agreed to keep the property of the depot company in perpetual repair at its own expense. (2) The railway company agreed to pay all taxes which had or might hereafter accrue against the property of the depot company. (3) The railway company agreed to assume and pay all interest which had accrued or might accrue upon a series of 150 bonds of $1,000 each, bearing date January 1, 1891, and maturing January 1, 1910, with interest payable semi-annually at 6 per cent. (4) The railway company, at the maturity of these bonds, was to assume and pay them off. (5) If the railway company did assume and pay off the said bonds, it should have the option of remaining in possession and use of the depot property, subject only to be continued payment of taxes for so long a period as it saw fit to use and occupy the property. A clause in the aforesaid contract provided that if the railway company should make default in respect of any of the charges or payments assumed by it, and such default should continue for a period of six months, then the depot company might, as its option, declare a forfeiture of the contract, and resume possession of its said property, and hold and occupy the same until the revenues derived therefrom should discharge the payments in default.

Within a few weeks after the railway company had entered into this contract and taken possession of the property of the depot company, a bill was filed in the United States circuit court at Chattanooga against it and other defendants, by one W. S Davis, who alleged that the railway company had mortgaged its property under two or more mortgages to secure two or more distinct series of bonds, and that the Farmers' Loan &amp Trust Company of New York was the trustee under each of said mortgages. Davis claimed to be the owner of a large number of coupons representing interest past due and in default upon the bonds so secured by the mortgages aforesaid. The principal object of his bill was to enforce the mortgages as a security for the payment of the interest so in default. He further alleged that the railway company had entered into a contract with the Chattanooga Union Depot Company, by which it guarantied the payment of the principal and interest of 150 bonds of $1,000 each, made and executed by the said depot company, and secured by mortgage under which the Farmers' Loan & Trust Company was the trustee. Upon grounds not necessary here to mention, the complainant Davis sought to have the said guaranty of the bonds of the said depot company declared fraudulent and void. The court was asked to appoint a receiver to take possession of the property of the railway company, and hold and operate the same for the benefit of the parties entitled, until a final decree of sale should be pronounced. The defendants to this bill, among others, were the Chattanooga Union Railway Company, the Chattanooga Union Depot Company, and the Farmers' Loan & Trust Company. Such proceedings were had under this bill as that on the 4th day of February, 1892. H. S. Chamberlain was appointed receiver, and placed in possession of all of the properties of the railway company, including its rights and interests under the lease aforesaid in the property of the depot company. Subsequently, the Farmers' Loan & Trust Company filed an original independent bill in the same court seeking, as trustee, under the mortgages of the railway company, to foreclose the said mortgages for the benefit of all the beneficiaries thereby secured. The bill was, by order of the court, consolidated with the Davis bill, and the receivership under the Davis bill extended to the latter bill. Afterwards the Farmers' Loan & Trust Company filed another and original bill against the Chattanooga Union Depot Company, for the purpose of foreclosing the mortgage executed by the depot company to secure the issue of bonds heretofore mentioned. Under this latter bill, W. W. Milam was appointed receiver of the property of the depot company, and subsequently, upon his resignation, the appellant, Carswell was appointed his successor. Thereafter, Carswell, as receiver for the depot company, filed his intervening petition in the consolidated cause against the railway company, for the purpose of enforcing against the receiver of the railway company the covenants in the lease under which the railway company had been let into possession of the property of the depot company, and praying that the claim of the depot company for rentals should be adjudged a liability against the property of the railway company superior to the obligation of the bonds of the latter company. This claim was...