Farmers' Loan & Trust Co. v. Oregon & C. Ry. Co.

• Decision Date: 03 August 1885
• Parties: FARMERS' LOAN & TRUST CO. v. OREGON & C. RY. CO. (No. 1,112.)
• Court: U.S. District Court — District of Oregon

24 F. 407

FARMERS' LOAN & TRUST CO. v. OREGON & C. RY. CO. (No. 1,112.)

United States Circuit Court, D. Oregon.

August 3, 1885

William B. Gilbert, for plaintiff.

Richard Williams and James K. Kelly, for defendant.

DEADY J.

This suit is brought by the Farmers' Loan & Trust Company, a corporation formed under the laws of New York, against the defendant, a corporation formed under the laws of Oregon, to enforce the lien in two certain mortgages on the property of the defendant, by a sale of the same, and to have the proceeds thereof applied on the several bonds secured thereby, according to their priority. The bill was filed on January 20, 1885, and states, among other things, that on June 1, 1881, the defendant executed and delivered to Henry Villard, Horace White, and Charles Edward Betherton, as trustees, a first mortgage on its property, consisting of about 306 miles of road, running through various counties in the Wallamet and Umpqua valleys, together with the rolling stock, land grants, telegraph lines, and everything pertaining thereto, with the franchise to operate the same and the income and profits thereof, to secure the payment of certain bonds, with the interest thereon, about to be issued by the defendant, at the rate of not more than $20,000 per mile of its road, then and to be constructed, for the purpose of completing the same to the California line; that said trustees accepted said trust, but thereafter, and from time to time, changes were duly made in said trustees, so that on July 7, 1883, the plaintiff became and now is the sole trustee thereof that the defendant issued and disposed of, under said mortgage, and of even date therewith, 9,020 bonds for the sum of $1,000 each, amounting in all to $9,020,000, payable on July 1, 1921, with interest at the rate of 6 per centum per annum, payable half yearly, on January and July 1st of each year,-- all of which bonds at still outstanding and unpaid that in and by said mortgage it was, among other things stipulated and provided as follows: (1) That the defendant will keep its road in good order and repair; (2) that if any interest coupon on any of said bonds shall remain unpaid, after due presentation, for six months, and such default shall not be waived, then the defendant will pay the principal of said bonds; (3) that in case the defendant does not keep its road in good order and repair, or makes default in the payment of any interest coupon for six months, said trustees may take possession of said road and operate the same; and if it is considered necessary to take legal proceedings to 'foreclose' said mortgage, or to obtain possession of said 'premises,' they shall be entitled to a receiver, to be nominated by themselves.

The bill also states that on May 28, 1883, the defendant, having ascertained that the sum of $20,000 per mile would not be sufficient to complete its road, executed and delivered to the plaintiff, as trustee, a second mortgage upon all its property aforesaid, except so much of the land grant as pertained to the completed portions of the road, and subject only to the lien of the first mortgage aforesaid, to secure the payment of additional bonds, with the interest thereon, about to be issued by the defendant, at the rate of not more than $10,000 per mile of its road then and to be constructed, for the purpose of completing the same as aforesaid; that the plaintiff accepted said trust, and thereafter, on November 5, 1883, said second mortgage was duly recorded in the office of the county clerk of Multnomah county, and also in the several offices of the county clerks of the other counties in which said property is situate; that the defendant issued and disposed of, under said mortgage, 2,610 of said bonds, dated April 1,1883, for the sum of $1,000 each, amounting in all to $2,610,000, payable on April 1, 1933, with interest at 7 per centum per annum, payable half yearly, on April and October 1 of each year,-- all of which bonds are still outstanding and unpaid; that in and by said second mortgage it was stipulated and provided as in said first mortgage, as above stated.

The bill then alleged that the defendant 'has failed to keep said road, rolling stock, equipment, and premises in good order and repair, as required by said mortgage,' and has failed to pay the interest falling due on the bonds secured by the first mortgage on January 1, 1885, amounting to $275,000, and on the bonds secured by the second mortgage, on April 1, 1884, and all the interest accruing on either of said bonds since said respective dates; that the defendant is insolvent and wholly unable to pay its debts, and its property is 'a very inadequate security' for the payment of the first mortgage bonds; and that the premises cannot be sold in parcels without great injury to the interests of the beneficiaries in said trusts.

The defendant demurs to the bill, and for cause of demurrer shows: (1) That this suit is prematurely brought, because default in the payment of the coupons on the first mortgage bonds had not been made for six months prior to the filing of the bill herein. (2) The second mortgage is void, because made in violation of the provisions of section 3 of the act of October 20, 1882, commonly called the 'Mortgage Tax Law,' which provides: 'All mortgages, deeds of trust, contracts, or other obligations hereafter executed, whereby land situated in more than one county in this state is made security for the payment of a debt, shall be void.'

In answer to the demurrer to the second cause of suit counsel for the plaintiff maintains that the act of 1882, or this provision of it, is void, because in conflict with section 20 of article 4 of the constitution of the state, which declares: 'Every act shall embrace but one subject, and matters properly connected therewith, which subject shall be expressed in the...