Central Trust Co. v. Continental Trust Co. of City of New York, 1,008.

• Decision Date: 04 April 1898
• Docket Number: 1,008.
• Citation: 86 F. 517
• Parties: CENTRAL TRUST CO. et al. v. CONTINENTAL TRUST CO. OF CITY OF NEW YORK et al.
• Court: U.S. Court of Appeals — Eighth Circuit

86 F. 517

CENTRAL TRUST CO. et al. v. CONTINENTAL TRUST CO. OF CITY OF NEW YORK et al.

No. 1,008.

United States Court of Appeals, Eighth Circuit.

April 4, 1898

The Colorado Midland Railway Company was organized under the statutes of Colorado in 1883. It constructed a railroad from Colorado Springs, Colo., running in a westerly direction, via Leadville, across the summit of the mountain known as 'Hagerman Pass,' to Glenwood Springs, Colo. From a station known as 'Busk,' on the eastern side of the ascent to the pass, this road was constructed through the pass to a station on the western descent known as 'Ivanhoe.' The distance between these two points was 9.8 miles. This pass attained a very high elevation, and, on account of tunnels and trestleworks, was very difficult and expensive of operation. In 1888 the Aspen Short-Line Railway Company was constructed on the west side of this mountain slope connecting with the Colorado Midland Railway, and running to the town of Aspen. In 1893 these two roads were consolidated as the Colorado Midland Railroad Company; the Midland road succeeding to all the rights and liabilities of the two companies. On account of the hazards and difficulties in operating the railroad over said pass from Busk to Ivanhoe the practical owners of the railroad conceived the project of running a tunnel through the mountain from Busk to Ivanhoe, a distance of about 2.9 miles. To this end they organized a corporation, under the laws of Colorado, known as the Busk Tunnel Railway Company. In order to raise the necessary money for the construction of this tunnel, the Busk Tunnel Railway Company (hereinafter, for convenience, called the 'Tunnel Company') gave a mortgage deed on the 17th day of June 1890, to the appellee the Continental Trust Company of the City of New York (hereinafter called the 'Continental Trust Company') to secure 1,500 of its bonds, of the par value of $1,000 each, with interest at the rate of 7 per cent. per annum. Contemporaneously with the execution of this mortgage, the Tunnel Company, as party of the first part, the said Midland Railway Company, as party of the second part, and appellee the Continental Trust Company, as party of the third part, entered into a written contract respecting the use of the tunnel, when completed, by the said Midland Railroad Company. It stipulated, inter alia, that the Midland Company should use the tunnel on the payment monthly to the trustee, the Continental Trust Company, of 25 cents for each passenger transported through the tunnel, and 25 cents for each ton of freight so transported, which money the trustees was to apply to the payment of taxes, to interest upon said bonds, and the payment of such sums as might be necessary to enable the Tunnel Company to perform its covenants in said mortgage, and to the payment of a sum not exceeding $5,000 in any one year to the board of directors of the Tunnel Company, and also to the payment of such sums as should be required to maintain the tunnel in good order and repair, and to provide a sinking fund for said bonds. The contract required that all passenger and freight cars over said railway company should pass through said tunnel. This was followed on the 19th of June, 1890, by a contract of lease between the Tunnel Company as lessor, party of the first part, the Colorado Midland Railroad Company, as lessee, party of the second part, and appellee the Continental Trust Company, as party of the third part, running from July 1, 1892, to Jul, 1935, subject to the conditions of the mortgage and of the agreement of July 17, 1890. Among other things, the Midland Railway Company agreed to take possession of and operate said tunnel road, subject to the conditions of the lease, and to pay all the taxes upon the property, premiums of insurance upon the buildings, interest upon the bonds of the Tunnel Company secured by said mortgage, the amounts necessary for the creation of said sinking fund, and on or about the 1st of July in each year to pay to the Tunnel Company or the Continental Trust Company a sum not exceeding $5,000 for meeting the administration expenses of the Tunnel Company; and the said Midland Railway Company further assumed the performance of the conditions of the said deed of trust, and agreed to maintain the tunnel in good order during the existence of the lease. The contract of lease gave to the Continental Trust Company the right to enforce the covenants of the lease, either by suit in equity of at law, or by entry upon the premises. It further provided that the trackage agreement of June 17, 1890, should not be deemed to be merged in the lease; and the railway company thereby assumed the observance and performance of the undertakings of the Tunnel Company in the agreement of June 17, 1890. Upon the completion of the tunnel, in the latter part of 1893, the Midland Railroad Company, under said agreement of lease, took possession of, and continued to use, said tunnel; abandoning the use of its track through said Hagerman Pass, between Busk and Ivanhoe.

In 1886 said Midland Railway Company executed to the appellant the Central Trust Company a mortgage to secure its first mortgage bonds to the amount of $6,250,000; and on January 2, 1890, it executed to said Central Trust Company a second mortgage on the consolidated road to secure its consolidated mortgage bonds to the amount of $6,000,000. On the 2d day of February, 1894, the said Central Trust Company, as trustee, filed in the circuit court of the United States for the district of Colorado its bill of foreclosure on the second mortgage bonds, on default of the Midland Railway Company to pay its interest; praying for the appointment of receivers to take charge of and operate said road pendente lite. This bill asked that said receivers be appointed to take charge of said Midland Railroad Company, its rolling stock, franchises, and property, real, persona, and mixed, belonging to said company 'either as owner, lessee, tenant, or otherwise. ' Thereupon the court appointed as such receivers Messrs. Reinhart, McCook, and Wilson, who were at that time the receivers of the Atchison, Topeka & Santa Fe Railroad Company, which was operating the Midland Railroad Company under a conventional arrangement between the two roads. The court made the customary order of injunction, restraining all persons from taking possession of or interfering with said property, and specifically directing the receivers to take possession of all the property described or referred to, 'and to continue the operation of said railroad and system, and every part and portion thereof, and to run, manage, and operate the said railroads, and such other railroads as said defendant railway company holds, controls, or operates under lease, contract, arrangement, or otherwise, and as heretofore run and operated. ' And it further authorized the receivers to operate 'said system of railroads so under lease, or operated or controlled by, or in the interest of, said Colorado Midland Railroad Company, * * * in such a manner as will, in their judgment, produce the most satisfactory results,' etc. On October 11, 1894, the receivers filed a petition in the foreclosure proceedings, which recited, in substance that by using said tunnel railroad the Midland Railroad Company was enabled to avoid the heavy grades and severe curvatures through Hagerman Pass, and to escape the deep snows incident thereto, and that by using the tunnel they were 'enabled to greatly reduce the expense of operating between said stations,' and that in their judgment they should continue to use said tunnel. They also stated that that portion of the Midland Railroad running from the summit as aforesaid between Busk and Ivanhoe had 'become wholly useless, and no longer necessary in the operation of the railroad; that in consequence of such disuse the portion abandoned as aforesaid was greatly out of repair, and by reason of the action of the elements would soon be unsafe to move trains over' the same,-- and prayed for authority to remove the rails and other movable structure or property from said abandoned portion of the line, as the property so removed could be profitably used upon other portions of the Midland Railroad. The Central Trust Company appeared to this petition, and filed answer, stating in substance, that it represented the bondholders of the Midland Railroad Company, some of who objected to the proposed abandonment of the track over the summit of said mountain, and to the dismantling thereof, while some of the holders of the consolidated mortgage bonds were favorable thereto, and, declining to consent, asked the court to institute inquiry into the advisability of the proposed action, and for its order in the premises. Judge Caldwell, the circuit judge who had in special charge the conduct of administration of this receivership, without referring the matter to a master for report, upon consideration granted the prayer of this petition, and authorized the removal of the property from the abandoned line, which was accordingly done. On the 11th day of February, 1895, the appellee the Continental Trust Company filed an intervening petition in said foreclosure proceeding; setting out the substance of the provisions of said contract of June 17, 1890, the lease of June 19, 1890, and the mortgage of the Tunnel Company to said appellee. This petition alleged default in the payment of interest coupons upon said bonds of the Tunnel Company which had matured on the 1st day of July, 1894, and the 1st day of January, 1895, and that the receivers had failed to pay same under said order of February 2, 1894, respecting the payment of trackage service of other railroads, and prayed for an order of the court directing the receivers 'to carry out and...