Cohill v. Chesapeake & Ohio Canal Co.

• Decision Date: 13 December 1939
• Docket Number: 7.
• Citation: 10 A.2d 316,177 Md. 412
• Parties: COHILL v. CHESAPEAKE & OHIO CANAL CO. et al.
• Court: Maryland Court of Appeals

10 A.2d 316

177 Md. 412

COHILL v. CHESAPEAKE & OHIO CANAL CO. et al.

No. 7.

Court of Appeals of Maryland

December 13, 1939

Appeal from Circuit Court, Washington County; Frank G. Wagaman Judge.

Suit between S. Rinehart Cohill and the Chesapeake & Ohio Canal Company and others. From decree overruling exceptions to, and ratifying, an audit, distributing a large sum of money in the hands of the receivers of the Chesapeake & Ohio Canal Company, with certain specific directions and reservations with respect to a part of such fund, S. Rinehart Cohill appeals.

Affirmed.

Leo H Miller, of Hagerstown, and E. A. Howell, of Chester, Pa., for appellant.

William P. Lane, Jr., of Hagerstown, for appellees.

Argued before BOND, C.J., and OFFUTT, PARKE, SLOAN, MITCHELL SHEHAN, JOHNSON, and DELAPLAINE, JJ.

SHEHAN Judge.

The appeal in this case is from an order of the Circuit Court for Washington County overruling exceptions to, and ratifying, an audit, distributing a large sum of money in the hands of the Receivers of the Chesapeake and Ohio Canal Company, with certain specific directions and reservations with respect to a part of this fund.

In this case is presented an exceedingly interesting, historical review of facts and circumstances extending over a period of more than a hundred years; relating to the construction, and financing of the Chesapeake and Ohio Canal, and its relation to the District of Columbia, the States of Maryland and Virginia. In its inception it was one of the greatest enterprises that has ever been inaugurated, sanctioned or promoted by the State of Maryland. It brought to the State, and to many people, financial losses, and disappointments; nevertheless, in its day it served a great and beneficial use. In its conception, and promotion, the plan was to establish a great waterway for transportation, connecting the Chesapeake Bay and the Ohio River. The ultimate design was never perfected, but it did serve a great use in transportation from the far western part of our State to the tidewater country of Maryland.

The Charter of the Chesapeake and Ohio Canal was originally granted by the State of Virginia in 1824, and this Charter was confirmed by the Congress of the United States and the Legislature of Maryland. No express authority, or power, to borrow money was originally granted to the Company, but subsequently the Assembly of Virginia, in 1844, and the General Assembly of Maryland, in 1843, and the Congress of the United States, in 1845, 5 Stat. 722, gave express authority to the Corporation, through its proper officials, to borrow money from time to time, to carry into effect the purposes and powers authorized by the Charter, and to issue bonds, and other evidences of such loan, and to pledge the properties and revenue of the Company for their payment, and the interest accruing thereon, but the prior rights of liens of the State of Maryland were preserved except insofar as they were waived, deferred or postponed by the Legislature to other obligations. After the Company had begun its construction of the canal, through the sale and issuance of stock, of which the State of Maryland became a large holder, it became necessary for it to borrow large additional sums of money for that purpose; it therefore turned to the State of Maryland for further assistance in financing, and completing, its projects. Under the authority of the Act of 1834, Chapter 241, the State of Maryland loaned the Chesapeake and Ohio Canal Company the sum of $2,000,000, to be used in the construction of the canal and took as security therefor a mortgage, dated April 23, 1835, under the terms of which the following property was pledged, 'All and singular the lands and tenements, capital stock, estates and securities, goods and chattels, property and rights, now, or at any time hereafter to be acquired, and the net tolls and revenue of said Company.'

The above sum of money was insufficient to finish the construction of the canal, and under the Act of 1838, Chapter 396, the Company executed another mortgage to the State of Maryland, on the 15th of May, 1839, in the sum of $1,375,000, this being the amount for which the State had issued bonds to raise money with which to pay for its subscription of shares of stock of the Canal Company, which mortgage covered, 'all and singular the lands, tenements, estates and securities, goods and chattels, property rights, now or at any time hereafter to be acquired, and the net tolls and revenues of said Company.'

The Company, in 1844, had developed a plan to complete the canal from Dam No. 6 to Cumberland, and for this purpose the Legislature of Maryland, by the Act of 1844, Chapter 281, authorized it to borrow money and issue its bonds to the amount of $1,700,000. These obligations are known as the bonds of 1844. In order to add additional security for the bonds, and to facilitate their sale, the State of Maryland waived and deferred the pre-existing lien of the State in favor of the bonds so authorized to be issued, but this Act required the Company to execute to the State a further mortgage upon the said canal, its lands, tolls and revenues, subject to the liens and pledges created and declared by the Act. The mortgage was duly made and executed on the 8th day of January, 1846, but was not recorded until May 1, 1848. This mortgage covered, 'all and singular the lands and tenements now owned, or that may hereafter be acquired by the said Company, and all interest that the said Company now has, or may hereafter have, in and to any lands, tenements, estates and securities.' This seems to have ended the financial assistance and relations of the State and the Company for a number of years; but in 1878, the canal having been seriously damaged by a flood or freshet, it became necessary for the State to come to it's aid, and the State of Maryland, in this emergency, waived its liens in favor of a loan for that purpose, and gave authority to the Company to issue preferred bonds to the extent of $500,000. This transaction was authorized by the Act of 1878, Chapter 58, and these obligations are known as bonds of 1878, and were secured by a mortgage of the tolls and revenues, and also of all the property and franchises of the Company and were, 'to be paid and discharged in preference to any other claims and liens upon the Company, or its lands and property, and in preference to any bonds which may be subsequently issued by the Company.'

In 1890 this litigation was begun, at which time it is stated that considerable indebtedness had been incurred to various persons for labor performed, and materials provided for the Company, and the State of Maryland further waived and released its liens upon the property of the Company, and upon its tolls and revenues, infavor of such persons who furnished labor and materials during the period between January 1 1877, and January 1, 1890, and also in favor of judgment creditors, whose judgments were valid and subsisting on January 1, 1890, provided such claims were authenticated in the manner provided in the Act of 1896, Chapter 136 1/2, which Act contained the provisions and effectuated the purposes above recited. All such claims were required by the Act to be filed on or before September 1, 1896, in the Circuit Court for Washington County, but a number of persons had filed their claims with Charles A. Little, Auditor, appointed by the Governor of the State, believing that they were complying with the provisions of the Act of 1896, but the Act of 1900, Chapter 270, undertook to, and did, remedy this error by providing that those persons filing with the Auditor should have the same rights as those filed with the Circuit Court. The obligations, above recited, were outstanding and unpaid and most of them had been so for many years. The Chesapeake and Ohio Canal Company had met with many reverses and its operation was discontinued in the year 1923. The Company had, for many years, been in the hands of Receivers. In 1938 new Receivers were appointed at the instance of the Baltimore and Ohio Railroad Company, a creditor of the Canal Company, holding large obligations by assignment. These Receivers were authorized to negotiate the sale of the entire assets of the Canal Company and the sale was made and for which $2,100,000, was paid by the United States. This sum the Receivers reported to the Court on August 13, 1938, and the sale was finally ratified and confirmed. It now became the duty of the Receivers to distribute the proceeds of the sale to creditors according to their rights, preferences and priorities. Due notice was given to creditors, by the Auditor, to whom the matter had been referred, to file their claims, properly authenticated, with the Clerk of the Court. The appellant filed his claims in due course. The Auditor's report, and account, was filed on September 30, 1938, exceptions thereto were filed by the Appellant on October 13, 1938, and after hearing was had, the Exceptions were overruled, 'without prejudice to him but reserving to him the right to prove what claim, if any, he may have before the Auditor of this Court in connection with the further distribution of funds in this cause,' and the account was ratified by the Court. The appellant's claims are in the form of five promissory notes of the Chesapeake and Ohio Canal Company, in the aggregate amount of $1,605, all dated September 13, 1842, with interest from that date, and also upon a judgment recovered in 1850 for the amount of $315, with large accruals of interest, upon which judgment a sci fa was issued to the August Term of said Court in 1853. The exceptions filed to the audit raise questions as to the rights, preferences and priorities of various creditors of the Chesapeake and Ohio Canal Company. ...