Farmers Loan Trust Company v. Lake Street Elevated Railroad Company

• Decision Date: 26 March 1900
• Docket Number: No. 108,108
• Citation: 44 L.Ed. 667,177 U.S. 51,20 S.Ct. 564
• Court: U.S. Supreme Court
• Parties: FARMERS' LOAN & TRUST COMPANY, Plff. in Err., v. LAKE STREET ELEVATED RAILROAD COMPANY, American Trust & Savings Bank, and Northern Trust Company

177 U.S. 51

20 S.Ct. 564

44 L.Ed. 667

FARMERS' LOAN & TRUST COMPANY, Plff. in Err.,

v LAKE STREET ELEVATED RAILROAD COMPANY, American Trust & Savings Bank, and Northern Trust Company.

No. 108.

Argued January 19, 1900.

Decided March 26, 1900.

The Lake Street Elevated Railroad Company was incorporated under the laws of the State of Illinois in the month of August, 1892, with a capital stock of $5,000,000, which was increased in the month of April, 1893, to $10,000,000 consisting of 100,000 shares of the par value of $100 each.

On April 7, 1893, the company made and delivered a certain mortgage or trust deed to the American Trust & Savings Bank, a corporation of the state of Illinois, and to the Farmers Loan & Trust Company, a corporation of the state of New York, as trustees, to secure the payment of bonds in the aggregate amount of $6,500,000. The said trust companies duly accepted said trust, and the mortgage was afterwards, on May 6, 1893, recorded in the recorder's office of Cook county, Illinois. The amount and number of said bonds were afterwards, in pursuance of provisions contained in the mortgage, increased to 7,574 bonds of the par value of $1,000 each, making the total mortgage indebtedness $7,574,000. The mortgage contained the usual provisions authorizing the trustees, in case of default in payment of the interest coupons for a period of six months, to declare the entire principal debt to have become due and payable, and to proceed by foreclosure or otherwise to enforce the terms of the mortgage.

On January 30, 1896, at ten o'clock and thirty-five minutes A. M., the Farmers' Loan & Trust Company, as a corporation of the state of New York, filed in the circuit court of the United States for the northern district of Illinois a bill of complaint against the Lake Street Elevated Railroad Company, the Union Elevated Railroad Company, the Northwestern Elevated Railroad Company, the West Chicago Street Railroad Company, and the American Trust and Savings Bank, all corporations organized under the laws of the state of Illinois.

The bill alleged that default had been made by the Lake Street Elevated Company in the payment of all interest coupons payable on the 1st day of July, 1895, and on the 1st day of January, 1896; that the Lake Street Elevated Railroad Company had become insolvent, and was unable to pay its debts and obligations; that a foreclosure suit was necessary, and pending the proceeding that it was expedient and necessary to have a receiver appointed. The bill further alleged that the Union Elevated Railroad Company, the West Chicago Street Railroad Company, and the Northwestern Elevated Railroad Company claimed to have acquired some interest, by lease or otherwise, in the mortgaged property, and that the American Trust & Savings Bank, named as cotrustee in the mortgage, had been requested to join with it as complainant in the bill of foreclosure, but had declined and refused so to do or to take any action in the premises, and was therefore made a party defendant. A subpoena was thereupon issued directed to the several defendants, commanding them to appear and answer on the first Monday of March next thereafter.

On the same day, January 30, 1896, shortly after the said bill had been filed and process had issued, the Lake Street Eievated Railroad Company filed in the superior court of Cook county, state of Illinois, a bill of complaint against the Farmers' Loan & Trust Company, the American Trust & Savings Bank, and the Northern Trust Company.

The bill, after setting forth the facts attending the issue of the mortgage, alleged that at the time said mortgage was executed and delivered the Farmers' Loan & Trust Company, being a corporation under the laws of the state of New York, had not, and had not since, complied with the laws of the state of Illinois, which required a deposit with the auditor of public accounts for the benefit of the creditors of said company of the sum of $200,000 in stocks of the United States or municipal bonds of the state of Illinois, or in mortgages on improved and productive real estate of such state, being first liens thereon, and the real estate being worth at least twice the amount loaned thereon; that, at the time of the execution and delivery and acceptance of said trust under said mortgage, the Lake Street Company, the complainant, did not know that the Farmers' Loan & Trust Company had not complied with the laws of the state of Illinois; and that since the acceptance of said trust the Farmers' Loan & Trust Company had been doing business in the state of Illinois, and had appointed one William Burry as its agent to enforce compliance by the Lake Street Elevated Company with the trusts reposed in the Farmers' Loan & Trust Company, under said mortgage or deed of trust, and that said Burry, as such agent, had acted and still was acting by virtue of the authority claimed to be vested in the Farmers' Loan & Trust Company under said mortgage.

This bill further alleged that the Lake Street Elevated Railroad Company had been unable to earn sufficient money in operating its railroad to pay the interest upon the bonded indebtedness secured by the said mortgage or deed of trust; that, notwithstanding such fact, one William Ziegler, of New York city, conspiring and confederating with various persons, and altogether representing 610 bonds of the total issue of 7,574 bonds, made a demand upon the Farmers' Loan & Trust Company and the American Trust & Savings Bank that they proceed to foreclose said mortgage, and take possession under and by virtue of the powers contained in said mortgage and the authority vested in said trustees, or to file a bill to foreclose such mortgage; that the complainant, the Lake Street Elevated Railroad Company, filed on December 30, 1895, a bill in the circuit court of Cook county, Illinois, against said William Ziegler and others, seeking to enjoin them, and each of them, and the Farmers' Loan & Trust Company and the American Trust & Savings Bank, from instituting any proceedings to foreclose said mortgage, and, for reasons set forth, an injunction immediately and without notice was prayed for.

It appears that such an injunction was issued, but that subsequently said cause was, on petition of Ziegler and other bondholders, removed into the circuit court of the United States for the northern district of Illinois.

The bill in the present case proceeded to allege that no other persons than Ziegler and those associated with him as holders of the 610 bonds were asking or demanding of the Farmers' Loan & Trust Company any action or proceeding, but notwithstanding it proposed and would file a bill to foreclose the said mortgage for failure to pay the interest upon the bonded indebtedness; that the holders of 6,574 bonds, issued under said mortgage, had requested the trustees to take no action whatsoever under said mortgage or trust deed with reference to the failure of said company to provide for or pay the interest due July 1, 1895, and January 1, 1896; that the American Trust & Savings Bank, in compliance with said request, declined and refused on January 28, 1896, to join with the Farmers' Loan & Trust Company in any proceedings whatsoever to enforce the provisions or conditions of said mortgage on account of the failure of the company to pay said interest.

The bill further alleged that it was the wish of the holders of over 6,500 of said bonds that the Farmers' Loan & Trust Company should be removed from its position as trustee under said mortgage, first, for failure to comply with the laws of the state of Illinois, and, second, for assuming to act or take proceedings under said mortgage, contrary to the request of the holders of a majority of the bonds issued under said mortgage. Thereupon the bill proceeded to pray that a new trustee should be appointed by the court to act, under and by virtue of said mortgage, in place and stead of the Farmers' Loan & Trust Company; that an injunction pendente lite should be issued, restraining and enjoining said the Farmers' Loan & Trust Company from taking any proceedings or bringing or prosecuting suit or suits, or acting in any manner whatsoever under and by virtue of the terms, provisions, and conditions of said mortgage or deed of trust, and that, upon final hearing, said injunction should be made perpetual; and for other and further relief. A writ of injunction was forthwith issued and served.

On January 31, 1896, the Farmers' Loan & Trust Company filed, in the superior court of Cook county, its petition to remove said cause into the circuit court of the United States. The petition alleged that the Farmers' Loan & Trust Company was a corporation organized under the laws of the state of New York, and a citizen thereof; that the Lake Street Elevated Railroad Company, the American Trust & Savings Bank and the Northern Trust Company were corporations organized under the laws of the state of Illinois, and citizens thereof; that in said cause there were controversies between citizens of different states, which controversies could be fully determined as between them, and that said controversies were between the petitioner on the one part, and the Lake Street Elevated Railroad Company on the other, and were as follows:

1. A controversy concerning the right of the petitioner to act as trustee under the mortgage. 2. A controversy concerning the removal of the petitioner as trustee under said mortgage. 3. A controversy concerning the enjoining of the petitioner from taking any proceedings or bringing or prosecuting any suits, or acting under and by virtue of the terms, provisions, and conditions of the mortgage.

The petition further alleged that if the controversy in the cause was one and inseparable, then such controversy was wholly between citizens of different states, and could be fully determined between them, and that said controversy was between the petitioner on the one part and the Lake...