Farmers' Loan & Trust Co. v. Winona & S.W. Ry. Co.

• Decision Date: 20 November 1893
• Citation: 59 F. 957
• Parties: FARMERS' LOAN & TRUST CO. v. WINONA & S.W. RY. CO. et al.
• Court: U.S. District Court — District of Minnesota

59 F. 957

FARMERS' LOAN & TRUST CO. v. WINONA & S.W. RY. CO. et al.

United States Circuit Court, D. Minnesota, Third Division.

November 20, 1893

Lawrence Truesdale & Corriston, for complainant.

C. W Bunn, for defendants.

CALDWELL Circuit Judge.

On the 2d day of April, 1888, the Winona & Southwestern Railway Company executed a mortgage on its railroad and property thereafter to be constructed and acquired, to the plaintiff as trustee, to secure an issue of first mortgage bonds to the amount of $18,500 per mile for each mile of the railway completed. The mortgage contemplated the construction of the road from Winona to a point of connection with the Union Pacific Railway Company at Council Bluffs, Iowa, and the ultimate issue of bonds to the amount of $6,950,000. The bonds were to be issued in installments, as sections of five or more miles of railway were completed. The railway company entered into a contract with the Winona & Southwestern Improvement Company, by which the improvement company agreed 'to build and fully construct and complete and equip' for the railway company its road, from Winona to Council Bluffs, prior to December 1, 1892, for which it was to receive the bonds and stock of the railway company as specified in the contract. Under this contract the improvement company, during the years 1889, 1890, and 1891, constructed the road from Winona to Osage, Iowa, a distance of 117 miles. The road has never been constructed beyond Osage; and on the 30th of June, 1893, the construction contract was, by mutual agreement between the railway company and the improvement company, canceled. To pay for the construction and equipment of the road from Winona to Osage, bonds were issued, from time to time, in the aggregate amount of $1,000,937. The principal of the bonds is payable in 1928, and they draw interest at the rate of 6 per cent., payable semiannually on the 1st days of April and October of each year, for which interest coupons are attached. The railway company made default in the payment of the interest coupons, amounting, in the aggregate, to the sum of $58,110, which fell due the 1st day of October, 1893, and the trustee has filed this bill to foreclose the mortgage for this overdue interest, and prays for the appointment of a receiver. The railway company challenges the right of the complainant to file a bill at this time to foreclose the mortgage for the overdue interest coupons. The mortgage provides that it is given 'in order to secure the due and punctual payment of the principal and interest of the bonds.' The bonds and the interest coupons are payable absolutely and unconditionally on the date of their maturity. Article 1 of the mortgage provides:

'Until default shall be made by the said party of the first part in the payment of principal or interest, or some part of either principal or interest, for six months after demand of such payment in writing by the trustee, the railway company shall be suffered and permitted to possess, manage, operate, use, and enjoy the said property and the said railroad and its equipment, franchises, and appurtenances, and to take and use the rents, incomes, profits, and tolls thereof, as if this indenture had not been made; but, in case default shall be made in the payment of any interest, or any of the aforesaid bonds issued under, and secured by, this instrument, according to the tenor thereof, or of the interest warrants or coupons thereto attached, and if such default shall continue for the period of six months after such demand in writing, it shall be lawful * * *' for the trustee to take possession of the mortgaged property.

Article 2 provides that, when default shall be made as provided in article 1, the trustee after entry, or without entry, may sell the mortgaged property; and it is declared in this article that:

'The above provision is cumulative to the ordinary remedy by foreclosure in the courts; and the trustee herein may at its discretion, and upon the written request of the majority in value of the bonds then unpaid shall, (upon being properly indemnified,) institute proceedings to foreclose in such manner (by sale under the said power or by suit) as the said majority of bondholders may direct. * * *' The contention of the railway company is that the first clause of article 1 operates as a limitation on the right of the holders of the overdue coupons, or the trustee acting for them, to enforce payment of such coupons by a bill in equity to foreclose the mortgage, and that such a bill will not lie until the interest coupons are six months overdue, and the trustee has demanded their payment in writing. This contention is untenable. The provision of the mortgage quoted is a limitation on the power of the trustee to oust the railway company from the possession of the mortgaged property under the powers granted to the trustee by the mortgage deed. The terms upon which the trustee can enter and take possession of the property are prescribed by this article. But the clause in question does not purport to suspend or postpone payment of the

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