Commonwealth of Va. v. State

• Decision Date: 20 June 1870
• Citation: 32 Md. 501
• Parties: THE COMMONWEALTH OF VIRGINIA v. THE STATE OF MARYLAND, THE CHESAPEAKE AND OHIO CANAL COMPANY, WILLIAM W. CORCORAN and others, Trustees, and JOHN S. GITTINGS, ALLEN BOWIE DAVIS and others, Bondholders.
• Court: Maryland Court of Appeals

32 Md. 501

THE COMMONWEALTH OF VIRGINIA v. THE STATE OF MARYLAND, THE CHESAPEAKE AND OHIO CANAL COMPANY, WILLIAM W. CORCORAN and others, Trustees, and JOHN S. GITTINGS, ALLEN BOWIE DAVIS and others, Bondholders.

Court of Appeals of Maryland

June 20, 1870

APPEAL from the Circuit Court of Baltimore City.

The bill in this case was filed by the appellant on the 21st of December, 1867, against the Chesapeake and Ohio Canal Company--William W. Corcoran, George W. Riggs, J. B. H Smith, Horatio Allen and J. Philip Roman, trustees of the preferred bondholders, and John S. Gittings, Allen Bowie Davis, Charles H. Carter and Mrs. Isabella Brown bondholders.

Its object was to procure a decree determining the legal and equitable priorities of the holders of the various classes of bonds issued by the Chesapeake and Ohio Canal Company ordering their payment accordingly out of the revenues of the company properly applicable to such payment, and the granting, in the meantime, of an injunction restraining the company from applying its net revenues to any other purpose than the discharge of the prior liens thereon of the complainant, as alleged in her bill. Subsequently, by agreement, William Price and William H. Marbury, holders of certain bonds or certificates issued by the Chesapeake and Ohio Canal Company, in 1836, to the creditors of the old Potomac Company, were made parties defendant.

All the defendants having answered, in June, 1868, the case was heard in the Court below, and fully argued on all the points involved, and in October, 1868, an opinion was filed by his Honor, Judge PINKNEY, in which he sustained an exception to the jurisdiction of the Court, interposed by the Canal Company, on the ground that the State of Maryland was a necessary party to the suit, without whose presence no final decree could be passed. In March, 1869, after further argument, a second opinion was filed by Judge PINKNEY, in which he held that an Act of Assembly was necessary to enable the State to appear to the suit, and an order signed directing the cause to stand over until such Act could be passed. By the Act of 1870, ch. 59, the Attorney General was instructed to appear and answer for the State, and in the event of an appeal, the clerk of the Court from which the appeal should be taken, was required to transmit the original papers to this Court.

Under the authority thus conferred, the Attorney General appeared for the State and filed an answer in her name and on her behalf. All the necessary parties being thus before the Court, and it being considered important and desirable that a speedy and final decision of the questions involved should be rendered, the case was submitted, upon bill, answers exhibits, and an agreed statement of facts, and a pro forma decree was passed, on the 31st of March, 1870 refusing the injunction and dismissing the bill. From this decree the complainant appealed.

A statement of the circumstances which gave rise to the bonded debts of the Chesapeake and Ohio Canal Company, whose priorities are the principal subjects of controversy, will contribute to the understanding of the interesting and important questions presented and determined in this case.

The charter of the Chesapeake and Ohio Canal Company, was in the first instance, granted by the State of Virginia, in the year 1824, and was shortly afterwards confirmed by the Congress of the United States and the Legislatures of Maryland and Pennsylvania. As originally incorporated by this concurrent legislation, the company had no express power to borrow money; but by an Act of the General Assembly of Virginia, passed on the 20th of January, 1844, confirmed by the General Assembly of Maryland, by the Act of 1843, ch. 124, and by Congress on the 7th of February, 1845, express authority was conferred on the President and Directors "to borrow money, from time to time, to carry into effect the objects authorized by the charter, to issue bonds or other evidences of such loans, and to pledge the property and revenues of the company for the payment of the same, and the interest to accrue thereon, in such form and to such extent as they might deem expedient, provided that nothing in said Acts should be construed to impair the prior rights or liens of the State of Maryland under the mortgages executed by the company to her, except in so far as the same might be waived, deferred or postponed by her Legislature."

Ten years prior to this, the State of Maryland had loaned to the company, under her Act of 1834, ch. 241, $2,000,000, and had obtained from it a mortgage of all its lands, tenements, works, property, rights, net tolls and revenues to secure this loan with the interest to accrue thereon, at the rate of six per cent. per annum. This mortgage was the first lien upon the property and revenues of the company.

By the Act of 1835, chap. 395, the State of Maryland subscribed $3,000,000, and by the Act of 1838, chap. 396, $1,375,000 to the capital stock of the company--exacting, however, as a condition to these subscriptions, a guaranty, after the expiration of three years, of a dividend of six per cent., payable semi-annually out of the profits of the company. This guaranty was duly executed--as to the Act of 1835, ch. 395, on the 21st of September, 1836, and as to the Act of 1838, ch. 396, on the 15th of May, 1839. In payment of these two subscriptions, amounting together to $4,375,000, the State issued her bonds to the company, from time to time, upon which it was a further condition of the subscriptions, that it should pay the interest for the three years ending on the 1st of July, 1842. It failed, however, to meet this engagement, and the State was compelled to provide the sum necessary for the purpose, amounting to $663,611.94. To secure this sum, the company, as required by the Acts of 1838, ch. 386, and 1838, ch. 396, executed on the 15th of May, 1839, mortgages to the State upon its property and revenues, which constituted the second lien upon them.

Before the end of the year 1841, the Canal had reached Dam No. 6, but the means of the company from loans and subscriptions were then exhausted, and the work was still fifty miles east of Cumberland, its destination. From 1841 up to 1845, but little was done beyond using the work as beneficially as possible, from Georgetown to Dam No. 6, but no effort was made from want of the necessary funds to continue its construction from Dam No. 6 to Cumberland. Its receipts were less than its expenses, its treasury empty and its credit exhausted. In this crisis of its existence, application was again and again made to the State for further assistance. Finally the Legislature, on the 10th of March, 1845, passed the Act of 1844, ch. 281. It authorized the company to borrow upon its bonds such sums, not exceeding $1,700,000, as might be required to pay for the completion of the Canal to Cumberland. The bonds were to be made payable in not less than thirty-five years, to bear not more than six per cent. interest, payable semi-annually on the first day of January and July, in each year, and to appear on their face, to be preferred liens on the revenues of the company; said bonds, without any preference or priority over each other on account of date, to be preferred liens on the revenues and tolls that might accrue to the company from the entire and every part of the Canal and its works between Georgetown and Cumberland, which revenues and tolls were pledged and appropriated for their payment, principal and interest.

The State expressly waived, deferred and postponed her prior rights and liens upon the revenues of the company in favor of these bonds, "so as to make them and the interest to accrue upon them preferred and absolute liens on said revenues, according to the provisions of the second section of the Act, until the bonds and interest should be fully paid." The proviso in the second section, subject to which the bonds thus authorized to be issued were to become preferred liens upon the revenues of the company, was, that "the President and Directors were, from time to time, and at all times thereafter, to have the privilege and authority to use and apply such portion of said revenues and tolls as in their opinion might be necessary to put and keep the said canal in good condition and repair for transportation, provide the requisite supply of water, and pay the salaries of officers and agents, and the current expenses of the company."

Authority was given to the company by the sixth section to execute any deed, mortgage or other instrument of writing, that might be deemed necessary or expedient, to give the fullest effect to the Act. The seventh section required the company to execute a new mortgage of its canal, lands, tolls and revenues to the State, subject to the liens and pledges of the Act, as an additional security for the payment of the $2,000,000 loan under the Act of 1834, ch. 241. In pursuance of the provisions of this Act of 1844, ch. 281, the company, in 1848, issued bonds, which are known as "Preferred bonds," to the amount of $1,699,500. Of them, the State of Virginia, under her Act of March 7th, 1847, guaranteed $300,000. The proceeds were exclusively expended in finishing the canal from dam No. 6, west to Cumberland. On the 5th of June, 1848, the company, in pursuance of the sixth section of the Act of 1844, ch. 281, executed a mortgage in fee upon all the revenues and tolls of the entire canal and its works between Georgetown and Cumberland, to Phineas Janney, W. W. Corcoran, Horatio Allen, David Henshaw, and George Morey, trustees of the bondholders, "to secure, after payment of the debts then existing, and that might thereafter be contracted and in arrear for repairs on the canal, and for officers' salaries, first...