Farmers' Loan & Trust Co. v. Vicksburg & M.R. Co.

• Decision Date: 23 January 1888
• Citation: 33 F. 778
• Parties: FARMERS' LOAN & TRUST CO. v. VICKSBURG & M.R. CO. et al.
• Court: U.S. District Court — Southern District of Mississippi

33 F. 778

FARMERS' LOAN & TRUST CO. v. VICKSBURG & M.R. CO. et al.

United States Circuit Court, S.D. Mississippi.

January 23, 1888

Turner Lee & McClure and Lamar & Mayes, for complainant.

Edward Colston and W. L. Nugent, for all the cross-complainants.

HILL J.

The original bill in this cause was filed by the Alabama, New Orleans & Texas Pacific Junction Railways Company, Limited against the Vicksburg & Meridian Railroad Company, and under it a receiver was appointed to take charge of and manage the road and property connected therewith. The bill was filed and the appointment made, on the twenty-sixth day of October 1885, and the receiver, F. S. Bond, immediately took possession of said railroad, and of the property belonging to and connected therewith, and has ever since operated and managed the same under the orders of this court, having been by consent continued as such receiver upon the filing of the present bill by the Farmers' Loan & Trust Company, on the thirteenth day of August, 1886, for the foreclosure of the mortgage given to secure the payment of the second mortgage bonds hereinafter mentioned. The complainants in the cross-bills had, before that date, filed in the former suit their petitions claiming payment out of the income of said road in hands of the receiver of the claims set forth in the cross-bills; but, by consent, these claims are set out, and the payment thereof demanded in the cross-bills filed by them in this cause on the ninth day of May, 1887, which have been answered by the defendants thereto, issued joined, and proof taken, and the cause, as to all matters therein, is now submitted for the decision of the court, all other matters arising between the parties to this consolidated suit being reserved.

To a proper understanding of the questions presented it is necessary to state the condition of the Vicksburg & Meridian Railroad Company, and the transactions in which the claims set out in the cross-bills arose and were created, as well as the circumstances in which the second series of mortgage bonds, and the mortgage given to secure their payment, were executed. The Vicksburg & Meridian Railroad Company, which had, by different acts of the legislature of this state, been created and consolidated, and had, under that corporate name, operated said railroad from the city of Vicksburg to the city of Meridian, in this state, for a number of years prior to the tenth day of January, 1881, found itself on that date in a very embarrassed financial condition, owing a large indebtedness, partly, upon bonds secured by mortgage and otherwise, and with its road-bed in a very dilapidated condition, the bridges, cross-ties, and trestling decayed and in a very unsafe condition, the rolling stock worn out and unfit for use, with few exceptions. It was ascertained that something had to be done to meet these heavy liabilities, and to repair the road-bed, supply the same with new rails, many of those in the tracks being worn out, supply new cross-ties in place of the rotten ones, repair the bridges and trestling, repair the rolling stock, so far as it could be done, and supply the place of that which could not be repaired with such as might be necessary for the safe operation of the road. To this end a reorganization was effected, a new board of directors was elected by the stockholders, and new officers were chosen and placed in possession of the road, and the property connected with it and used in its operation. The company as thus reorganized issued, under authority vested in it, three series of mortgage bonds, (the first and second having interest coupons attached,) as follows: The first series, known as 'First Six Per cent. Gold Bonds,' to run 40 years, to the amount of $1,000,000; the second series, amounting to $1,100,000, with interest at 3 per cent. for the first two years, at 4 per cent. for the next two years, at 5 per cent. for the next year, and at 6 per cent. for the next 35 years, these bonds to run 40 years; and the third series, amounting to $1,920,000, to bear interest at 7 per cent. per annum, if earned, and known as 'Third Mortgage Income Bonds.' At the same time the reorganized company issued capital stock in lieu of its original stock, and as a means of increasing its capital stock, as follows: stock known as 'Preferred Stock,' to the amount of $1,937,889; and stock known as 'Common Stock,' to the amount of $3,937,189. To raise means to repair the road-bed and bridges, to supply new cross-ties and rails, and to repair and supply rolling stock, etc., a portion of these bonds and stock were sold, and the proceeds so applied.

When the mortgage bonds were issued, said reorganized company, to secure the payment thereof, with the interest coupons attached, executed mortgages, which were duly acknowledged and recorded. That to secure the first mortgage bonds, conveyed the road-bed and all the property, real and personal, then owned by the company or thereafter to be acquired, used and employed in the operation of said road, together with the future income of the road and the franchises; certain lands mentioned in the mortgage being excepted. The mortgage executed to secure the payment of the second mortgage bonds, with interest, conveyed the same property, franchises, income, etc., as were embraced in the first mortgage, constituting a second lien, and included, also, the lands mentioned above as not embraced in the first mortgage, upon which the second mortgage constituted a first lien. The mortgage executed to secure the payment of the third series of bonds conveyed the same property, rights, etc., as the former, and constituted a third lien. The holders of the bonds issued by the company and its predecessors, and those holding other indebtedness, received these new bonds in lieu thereof, the old bonds, as well as the certificates issued in place or in payment of the old indebtedness, being surrendered and canceled when the new bonds were delivered.

The purpose of the present bill, filed by the Farmers' Loan & Trust Company, as trustee, is the foreclosure of the second mortgage to pay the indebtedness secured thereby, the debtor company having made default in the payment of the interest thereon, whereby, by the terms of these bonds, the whole of the indebtedness secured thereby is become due and payable. When the reorganization was had, it was agreed that the V. & M.R., as it will designated, was to be operated and run in connection with the Cincinnati, New Orleans & Texas Pacific Railway, the Alabama Great Southern Railroad, which will be designated as the A.G.S.R., and the New Orleans & North-Eastern Railroad, to be designated as the N.O. & N.E.R., and was to be under the management of the same general officers, but that the business, with its income and outlay, was to be kept separately as though no such arrangement existed; each company having its separate secretary and treasurer, book-keeper, and other officers, all, however, subject to the same general officers, who were elected alike and paid for their services by each company; the accounts between these several companies to be settled and balanced at stated periods. It was ascertained that the amount of funds raised by the sale of bonds and stocks, as before stated, was insufficient to pay the cost of the repairs and all that was necessary to be done to put the road-bed, rolling stock, etc., in condition to be operated safely for the transportation of persons and freight, and to make extensions of the road at Vicksburg, including an incline, so as to connect the road with the Mississippi steam-boat transportation, and with the Vicksburg, Shreveport & Pacific Railroad. And it being to the interest of all these railroad companies that the V. & M.R. should be put in a condition to transport persons and freight safely over its line, the companies complainant in the cross-bills continued, from time to time, to furnish the V. & M.R. Co. supplies and money to purchase supplies and to pay for material and labor, and to pay the V. & M. Co.'s proportion of the salaries of the general officers. An when, upon an accounting between the V. & M.R. Co. and the cross-complainant companies, balances were found due from the V. & M. Co. to those companies respectively, payment of such balances was, in order to enable the managers of the V. & M. Co. to apply its income to the payment of these improvements, operating expenses, etc., not demanded or insisted upon. The question of how much was so furnished and paid, including ticket and freight balances, and when it was so furnished, was by consent of all parties referred to J. M. McKee, Esq., as special commissioner, to take proof and report thereon, which he has done, and his report is one file herein, with the evidence upon which it is based; and this report, not being excepted to, has been confirmed by the court, and will be considered as true and correct.

This report shows that after giving credit for all payments and charges made by the V. & M.R. Co. to the other companies, the indebtedness so due to the C.N.O. & T.P. Ry. Co., on the first day on November, 1885, amounted to the sum of $79,373.42, all of which accrued after the thirty-first day of December, 1884, and on the following accounts:

For transportation expenses, --------	$33,878 84
For freight claims balances, --------	8,069 18
For car mileage, --------------------	13,202 64
For loss and damage, ----------------	526 46
For ticket

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