Farmers' Loan & Trust Co. v. San Diego St. Car Co.

• Decision Date: 23 March 1891
• Citation: 45 F. 518
• Court: U.S. District Court — Southern District of California
• Parties: FARMERS' LOAN & TRUST CO v. SAN DIEGO ST. CAR CO.

45 F. 518

FARMERS' LOAN & TRUST CO v. SAN DIEGO ST. CAR CO.

United States Circuit Court, S.D. California.

March 23, 1891

Turner McClure & Rolston and Myrick & Deering, for complainant.

Brunson Wilson & Lamme, for defendant.

F. W Burnett, for intervenor Baines.

N. H Conklin, for intervenor First Nat. Bank of San Diego.

E. W. Hendrick, for intervenors Gautner et al.

O. A. Trippet, for intervenor Fox.

Noah Hodge, for intervenors Howard et al.

Collier & Watson, for intervenor Bidwell.

A. Haines, for intervenor J. G. Capron.

ROSS J.

This is a suit in equity, brought by the Farmers' Loan & Trust Company, a corporation organized and existing under the laws of the state of New York, as trustee, against the San Diego Street-Car Company, a street railroad corporation, organized and existing under the laws of the state of California, to foreclosure a mortgage executed by the defendant company on all of its property and franchises of every kind and description, to secure the payment of 250 of its bonds of $1,000 each, payable to the complainant as trustee or bearer. The bill containing allegations making such action proper, a receiver was duly appointed by the court at the commencement of the suit to take possession of the property involved in it, which has since been and now is in his possession. To the bill the defendant company interposed no defense, but numerous parties, some unsecured creditors, and some claiming to be legal holders of the bonds thus secured, with leave of the court, intervened in the case. A reference was subsequently made to the master to take the evidence in respect to the claims of the respective parties, and to report his findings of fact in the premises, with the names of the holders of the bonds and the respective amounts thereof, together with the character and amount of all claims made against the defendant company. Upon the coming in of the master's report, exceptions were filed by several of the intervenors, all of which were withdrawn at or before the time of the argument on the exceptions, except as to the amount proper to be allowed the attorney of the intervenor Capron, and except as to the exceptions filed by the intervenor Baines. Baines was found by the master to be a general unsecured creditor of the defendant company to the amount of $32,987.81, besides interest, for which he had obtained judgment. That indebtedness was due, as the evidence shows, for work done by the assignor of Baines on the extension of the defendant company's railroad between February and July, 1888. The master also found, among other things, that the bonds and mortgage were executed by the defendant company on the 2d day of April, 1888, to the complainant as trustee; that none of the bonds were ever sold, but that they are all held by various named parties as collateral security for pre-existing indebtedness of the defendant company, and not otherwise; that 10 of said bonds are so held by the First National Bank of San Diego as trustee, 118 by George Sturges, 2 by T. Case, 1 by the San Diego & Coronado Ferry Company, 2 by the San Diego & Coronado Transfer Company, 103 by the Coronado Beach Company, 14 by Spreckles Bros. Commercial Company, and 2 by John G. Capron. The master further found that the giving of the bonds as such collateral security 'was in each case the direct means of securing to the defendant company, the San Diego Street-Car Company, an extension of time in the payment of pre-existing indebtedness of said San Diego Street-Car Company.'

The allegations of the bill in respect to the insolvency of the defendant company at the time of the commencement of the suit not only stands confessed by it, but the master finds that the property covered by the mortgage constitutes very inadequate security for the indebtedness secured by it. The exceptions filed by the intervenor Baines are, in effect, that the master erred in finding that any of the bonds are held by the parties named, or any of them, as collateral security for debts of the defendant company, and in finding, in effect, that the parties named as the holders thereof are entitled to any priority over this intervenor in the distribution of the assets of the corporation; that the evidence shows that none of the bonds were ever issued or pledged, or ever became outstanding obligations of the defendant corporation; and that the evidence particularly shows this in respect to the 124 bonds held by T. Case, the San Diego & Coronado Ferry Company, the San Diego & Coronado Transfer Company, The Coronado Beach Company, Spreckles Bros. Commercial Company, and John G. Capron.

A preliminary objection is made to the right of the intervenor Baines to be heard in support of the exceptions filed by him, first, upon the ground that the exceptions are insufficient in form, and, next, because the petition in intervention of the intervenor Baines contains no allegations in respect to the invalidity of the pledging of the bonds. It is a sufficient answer to the latter objection to say that the bill contains no averment in regard to the pledging of the bonds, nor as to who were the owners or holders of them. The bill alleges the outstanding of more than the number of bonds necessary to bring the case within that provision of the mortgage authorizing the complainant, as trustee, to commence suit to foreclosure the mortgage, upon request in writing made by the owners and holders of 124 of them, and in default of payment of interest thereon for a certain time; but it neither alleges the exact number of bonds issued and outstanding, nor the holders or owners of any of them. All of this was left to be ascertained by proof before the master under the order of reference. To hold that the petition in intervention should contain allegations respecting a matter about which the intervenor could know nothing in advance of the making of proof would be altogether unreasonable. As a general creditor, the intervenor Baines has had equitable lien upon the property of the defendant company, and therefore the right to contest the question of priority of other asserted liens. Richardson's Ex'rs. v. Green, 133 U.S. 30, 10 S.Ct. 280; Daniel, Ch. Pr. (5th Amer. Ed.) pp. 1173, 1312. The exceptions, I think, are sufficient in form to entitle the intervenor to be heard. In respect to the merits, the case shows that on the 7th of February, 1888, the following resolution was unanimously adopted by the stockholders of the defendant corporation present at the meeting, and representing more than two-thirds of the capital stock of the company:

'Whereas, it is necessary, for the purpose of extending and constructing the street railroad of this company in the city and county of San Diego beyond where it is now constructed, and for the purpose of providing means for furnishing the necessary rolling stock and equipments therefor, and to pay for labor done and to be done in the construction, maintenance, and operation of the said road, that the company shall incur a bonded indebtedness, and issue and sell its bonds in the sum of $250,000, to be secured by first mortgage on all of the property and franchises of said company of every kind and description: therefore, be it resolved, for the purposes above set forth, that the board of directors of this company be, and they are hereby, authorized and directed to cause to be prepared and issued the corporate bonds of this company, bearing interest at the rate of six per cent. per annum, payable semi-annually, not to exceed in number 250, for the sum of $1,000 each, having twenty years to run; time, terms, and manner of issuing, disposing of, and method of redemption left to the discretion of said board of directors. And that said board of directors shall cause to be prepared and properly executed, for the purpose of fully securing the payment of said bonds, principal and interest, according to their tenor, a first mortgage on all the property and franchises of said company of every kind and description.'

Pursuant to this resolution of the stockholders, the board of directors of the defendant corporation, at a meeting held March 6, 1888, unanimously adopted the following resolutions:

'Resolved, first, that the president of this company be, and he is hereby, authorized and directed to cause to be prepared, and to be duly executed under the corporate seal of this company, attested by the signatures of himself and the secretary of this company, two hundred and fifth bonds of this company. Each of said bonds shall be for the principal sum of one thousand dollars, numbered from one to two hundred and fifty, both inclusive, the aggregate amount of all of said bonds being two hundred and fifty thousand dollars. They shall be dates as of April 2, 1888, and be payable, as to principal, twenty years after date. They shall bear interest at the rate of six per centum per annum, payable semi-annually on the second days of October and April each year, coupons for which interest shall be annexed. They shall be made payable at the office of the Farmers' Loan and Trust Company, in the city of New York, in the state of New York.

'Resolved, second, that for the purpose of securing to the holders of all of said bonds the payment of both principal and interest, without any priority or preference, the president of this company is authorized and directed to be caused to be prepared, and to be executed under the corporate seal of the company, and duly acknowledged, a mortgage to the Farmers' Loan and Trust Company of the city of New York, as trustee for the holders of said bonds, upon all the property and franchises of the company now owned, or that may be hereafter acquired by it, for the uses and purposes of its railway. Said mortgage shall contain a

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