Farmers' Loan & Trust Co. v. Cape Fear & Y.V. Ry. Co.

• Citation: 82 F. 344
• Court: U.S. District Court — Eastern District of North Carolina
• Decision Date: 31 March 1897
• Parties: FARMERS' LOAN & TRUST CO. v. CAPE FEAR & Y.V. RY. CO. et al.

82 F. 344

FARMERS' LOAN & TRUST CO. v. CAPE FEAR & Y.V. RY. CO. et al.

United States Circuit Court, E.D. North Carolina.

March 31, 1897

Turner McClure and Rolston, for Farmers' Loan & Trust Co.

George Rountree, for Cape Fear & Y. V. Ry. Co.

Watson and Buxton and Robert O. Burton, for North State Imp. Co.

Seward Guthrie, Morawetz & Steele, for New York bondholders' committee.

Cowen Cross & Bond, for Baltimore bondholders' committee.

SIMONTON Circuit Judge.

The case is now ripe for a final decree. Before reaching this point, a question has been made, how shall the property be sold? The purpose of these proceedings is to secure the rights of creditors and of shareholders by realizing the value of the property, and by distributing this among those entitled to it. Before such distribution can be made, this value must be ascertained. How such ascertainment can be had is, therefore, the paramount question, proceeding all others. The court has been aided by arguments of unusual ability from counsel who represent plans adopted by the Baltimore committee and by the New York committee of bondholders. Each of these presents a different plan of reorganization. The presentation of the plans gave an opportunity for a discussion from which the court has derived great benefit information, and assistance. But it would be as improper as it is impossible for the court to adopt either of these plans. They fulfill their office when they have satisfied the court,-- as in fact they do satisfy it-- that there are persons able and willing to purchase the property, and that, therefore, it can safely be brought to a sale. That sale must be at public auction, open to the world. It must not be chilled or impeded by the adoption in advance of any plan of reorganization. The sale and purchase, in point of time as well as in point of law must precede any attempt at reorganization. In order, also, to promote a favorable sale, it is important to know in advance how the proceeds of sale should be distributed among the classes of bonds proved. With this knowledge holders of bonds could determine what course to pursue at the sale. The circumstances of this case are peculiar. We have not to deal with bonds having priority and lien over the whole road. But we deal with bonds of three classes, each of which has a lien of its own on an aliquot part of the railroad property, and a subordinate interest on the other parts of it.

The Cape Fear & Yadkin Valley Railroad Company is the result of earnest and persistent effort upon the part of the citizens of North Carolina to secure a railroad from tide water to the mountains, aided by liberal appropriations and material assistance of the legislature and of the counties interested in the project. The enterprise first took form in the enactment of an act to incorporate a company to construct a railroad from some point on the Cape Fear river at or near Fayetteville to some point in the coal regions hereafter to be determined, ratified 24th December, 1852. Various other acts were passed from time to time having the same object in view. The railroad was first called the Western Railroad Company, but, after consolidation with one or more companies, the name of the company was changed to that of the Cape Fear & Yadkin Valley Railroad Company, and on 14th March, 1881, an act was ratified looking to the completion of the road with Wilmington as one of its termini. In 1883 there was a complete reorganization of the enterprise, by which authority was given to the said railroad company to extend its main line to the city of Wilmington and to the Virginia line. By section 5 of this act of 1883, it is enacted as follows:

'Sec. 5. That the said company so reorganized, shall have full power and authority to make a mortgage upon all of its property, effects and franchises of every kind whatsoever, to secure the payment of its bonds, and to issue bonds in such sums as it may deem proper, bearing interest at the rate of six per cent. per annum, and to run for the period of thirty years from the date thereof, to the amount of fifteen thousand dollars per mile upon each mile of said road already constructed, or which may hereafter be constructed, and of any branch or branches of said road, and that said mortgage and the bonds issued thereunder shall be a first lien, and have priority over every other claim against the company. The said mortgage, when duly executed, shall be registered in the register's office of the county of Cumberland, and registration in said county shall be deemed an effectual and sufficient registration for all purposes, and it shall not be necessary to register the same in any other county, any law to the contrary notwithstanding.'

At this time the road consisted of three divisions, known respectively as Divisions A, B, and C. Division A extended from the city of Greensboro to Fayetteville, and thence to the South Carolina line, and was fully built and equipped. Division B was in the course of construction, and extended from Greensboro westward to Mt. Airy. Division C was in contemplation, and extended from Fayetteville to the city of Wilmington. There were outstanding liens on the Divisions A and B. The company resolved to exercise the power given it by this act of 1883 by the execution of two mortgages upon the entire property and franchises of the company owned or thereafter to be acquired; one of them to be a first mortgage to secure bonds to the amount of $10,000 per mile upon the road then constructed or to be thereafter constructed, and to be divided into such series, and to attach as liens in such manner, as the board of directors may determine; and also a second income mortgage on the same property at $5,000 per mile,-- thus exhausting the power of mortgage given in section 5. On 1st June, 1886, this resolution was carried into action by the execution of a mortgage to the Farmers' Loan & Trust Company of New York by said railway company. This mortgage recited the fact that two other mortgages had been theretofore created in June and October, 1883, securing certain bonds, and covering the property thereafter conveyed, which bonds, in order that the present mortgage should be made, had been surrendered for cancellation. It then, after other recitals, proceeds to mortgage that certain railroad extending from the city of Greensboro to Fayetteville, and from Fayetteville to the boundary line between the states of North Carolina and South Carolina, where it intersects the same; and also that certain line of railroad extending from Fayetteville aforesaid to Wilmington, when the same shall be constructed; and also that certain line of railroad now being constructed, extending from Greensboro aforesaid to the boundary line between the state of North Carolina and the state of Virginia, at a point near Mt. Airy, together with the right of way for said railroad, and also all depots and station grounds and buildings thereon, and also all shops, engine houses, turntables, water stations, warehouses, and lots, gravel pits, stone quarries, and other real estate used in operating said road, or in connection therewith, with all side tracks and any other lands or buildings connected therewith, or which may hereafter be acquired, all rolling stock, equipments, machinery, etc., then owned or afterwards to be owned, together with all corporate rights, privileges, and franchises then possessed or thereafter to be acquired by the railway company, including all tolls, income, rents, etc., then owned or thereafter to be acquired by the railway company. All of these to be held in trust for the holders of the bonds issued thereunder, without preference as to priority in the time of issuing the same, but with a preference and distinction of lien as regards the several series of bonds as thereinbefore specifically set forth. The distinction as to lien herein referred to is as follows: The said bonds shall be divided into three series of bonds,-- that is to say, series A bonds, series B bonds, and series C bonds,-- and they shall attach as liens upon the property hereby mortgaged in the following manner; that is to say: Series A bonds shall be a first lien on that portion of railroad which lies between Greensboro and Fayetteville and Fayetteville and the South Carolina line, together with all station houses, sidings, and other property of whatever nature appurtenant thereto, and a lien in common with series C bonds, but subordinate to series B bonds, upon that portion of the road which is now being constructed between Greensboro and the Virginia line via Mt. Airy, together with the property appurtenant thereto;...