First Nat Bank of Cleveland, Ohio v. Shedd

Citation30 L.Ed. 877,121 U.S. 74,7 S.Ct. 807
PartiesFIRST NAT. BANK OF CLEVELAND, OHIO, and others v. SHEDD and another, Trustees
Decision Date28 March 1887
CourtUnited States Supreme Court

John Dalzell and R. B. Murray, for appellants.

Geo. T. Bispham, Francis Rawle, and D. T. Watson, for appellees.

WAITE, C. J.

The facts on which these motions rest are as follows: The Shenango & Allegheny Valley Railroad Company is a corporation organized under a charter granted by the state of Pennsylvania to build and operate a railroad from a point of intersection or junction with the Erie & Pittsburgh Railroad, in the township of West Salem, in the county of Mercer, to Bear creek, in the county of Butler. In March, 1869, the directors of the company resolved to issue bonds to the amount of $1,000,000, and secure them by a mortgage or deed of trust to Henry Rawle, trustee, on that portion of its road 'constructed and to be constructed between the western terminus thereof at its junction with the Erie & Pittsburgh Railroad, in West Salem township, Mercer county and a point in Butler county forty miles south-eastwardly from said western terminus, and to be denominated a first mortgage.' Under this authority a mortgage or trust deed was actually executed to Rawle, as trustee, not only on this 40 miles of road, with its rolling stock and appurtenances, but also upon 'any lateral or branch roads, with their appurtenances, that may hereafter be constructed by or come into possession of the company along the line of the aforementioned forty miles of main line or connected therewith, all of which things are hereby declared to be appurtenances and fixtures of the said railroad, and also all franchises connected with or relating to the said railroad, or the construction, maintenance, or use thereof, now held or hereafter acquired by the said party of the first part, [the company,] and all corporate and other franchises which are now or may be hereafter possessed or exercised by the' company. This mortgage was duly recorded, and all the bonds authorized were issued thereunder.

By an act of the legislature of Pennsylvania approved April 14, 1870, the company was authorized 'to so extend their eastern terminus as to connect with the Allegheny Valley Railroad, and to so extend the western terminus as to connect with any other railroad;' and by another act, approved March 7, 1872, 'to construct three branches from their railroad as may be necessary and convenient for the development and transportation of coal, ore, limestn e, and other minerals in the vicinity of their railroad, provided the said branches shall not exceed a distance of ten miles from the main line of said company.' The main line of the road was afterwards extended from its eastern terminus to the Allegheny Valley Railroad on the east side of the Allegheny river, and from its western end to the Atlantic & Great Western Railroad near the town of Greenville, making the entire length of that line 47 miles. The company also built sundry branch roads, and on the first of July, 1877, it executed another mortgage or deed of trust to John H. Devereux, trustee, to secure another proposed issue of $1,000,000 of bonds. This mortgage covered 'the entire railroad, built and to be built, * * * from its junction with the Atlantic & Great Western Railroad * * * to the Allegheny Valley Railroad on the least side of the Allegheny river, together with all its branches, extensions, side tracks, switches, and turn-outs, built and to be built, and also all the lands, rights, franchises, and appurtenances thereto belonging, * * * and also all the corporate rights and franchises of said railroad company;' but it was expressly made 'subject to a previous mortgage on orty miles of the north-western end of the railroad aforesaid and its appurtenafnces executed to Henry Rawle, trustee.'

Under this mortgage $200,000 of bonds were issued, and $175,000 in addition were placed with the following parties as collateral security for the following sums:

(1) First National Bank of Cleveland, Ohio $64,000 to secure $30,000

(2) Second National Bank of Erie, Pennsylvania, 60,000 " 35,000

(3) First National Bank of Greenville, 22,000 " 20,000

(4) Mahoning National Bank of Youngstown, 16,000 " 10,000

(5) Wick Bros. & Co.,.. 5,000. ". 2,500

(6) Thomas H. Wells,... 8,000. ". 5,000

In all -- bonds.......175,000. to secure $102,500

On the fifteenth of March, 1884, Charles L. Young and Henry Tyler, subjects of Great Britain, claiming to be the owners of the $200,000 of bonds issued under the Devereux mortgage, filed their bill against the railroad company in the circuit court of the United States for the Western district of Pennsylvania to have a receiver appointed. This was done on the same day the bill was filed by the appointment of Thomas P. Flower receiver, and he was at once authorized to borrow $100,000 upon his certificates, to be used in the payment of wages, interest, taxes, and other preferred claims. On the first of May, 1884, Devereux, as trustee under the second mortgage, filed his bill against the company in the same court, to foreclose his mortgage and asking the appoint- ment of a receiver. To this the company filed an answer, June 26, 1885, substantially admitting all the averments in the bill, and setting forth the appointment of Flower as receiver in the suit of Young & Tyler. On the sixth of June, 1885, Rawle filed a petition in the suit of Young & Tyler, asking permission to sell under his mortgage, but on the thirty-first of July, 1885, the court, although of opinion that 'an early sale of the railroad as an entirety would undoubtedly conduce to the benefit of its creditors,' postponed the order asked for until a sale could be made under both mortgages, by the two trustees acting conjointly.

On the fifth of September, 1885, Devereux, by leave of the court, filed an amended bill, to which, in addition to the railroad company, he made Rawle, trustee, Flower, the receiver, the British & South Wales Railway Wagon Company, Limited, the Union Rolling-stock Company, Limited, and William A. Adams, defendants. In this amended bill it is averred that the Devereux mortgage is a first lien on all the main line of the company, excepting only 'forty miles of said main line extending south-easterly from its junction with the Erie & Pittsburgh railroad at Shenango,' and 'upon all the lateral branches of said road.' The whole line, including the latera branches, is stated to be 75 miles in length, and the part on which the Devereux mortgage is the first lien 35 miles. The prayer is for an account of the amount due on the bonds outstanding secured by the mortgages to Devereux and Rawle, respectively, the amount due on the receiver's certificates issued by Flower, the expenses of the receivership, and certain car-trust contracts, and also for a determination of the respective priorities of all the incumbrances and charges on the property, and for a sale of the mortgaged premises, free of liens, to pay the amounts found due in the order of their priority. This bill also prays the appointment of a receiver to take charge of the property and manage the business during the pendency of the suit. The British & South Wales Railway Wagon Company, the Union Rolling-stock Company, and William A. Adams answered, setting up certain car-trust contracts, which are imma- terial on the present appeal. Devereux, the trustee, having died pending the suit, John M. Shedd was duly appointed in his place, and substituted for him as complainant, April 16, 1886.

On the eighteenth of May, 1886, the First National Bank of Cleveland, the Second Antional Bank of Erie, the First National Bank of Greenville, the Mahoning National Bank, Wicks Bros. & Co., and Thomas H. Wells appeared in court, and on the tenth of June, 1886, were permitted to intervene in the suit, pro interesse suo, because of averments in their petition that Shedd, the substituted trustee, 'is committed to a course and is acting in a manner which is calculated to injure them in their security, in this, to-wit: that there is on foot a certain scheme for the reorganization of said railroad company, which contemplates a 'united and friendly foreclosure' and sale of the entire road under the two mortgages named in plaintiff's amended bill, and this action now pending is to be used as the means of carrying forward said reorganization scheme in connection with certain proceedings to be instituted upon the mortgage in which Henry Rawle is named as trustee, and mentioned in plaintiff's said bill. That there are certain questions as to the extent of the lien of the said Rawle mortgage, and the number of the bonds outstanding, and the amount that is due thereon, which should be determined in this action, and which the petitioners are informed and believe that the said Shedd, trustee, does not intend to raise, and which petitioners are informed and believe, if raised, will be determined against the validity and amount of a large portion of said bonds, but if left to the claim of the holders thereof and their trustee would amount to over one million dollars, ($1,000,000,) and be made a charge and lien upon said premises superior to that of the bonds held by the petitioners; and there are also disputes as to the extent of the liens of the two mortgages, the said Rawle claiming a first lien upon the entire road, and the petitioners claiming that it is only a lien upon forty (40) miles of the main line, and that theirs is a first lien upon the entire balance. That petitioners are informed and believe that it is a part of said scheme to which said Shedd trustee, is committed, to have the interest in said railroad covered by the conveyance to Devereux sold without a determination of these questions, and by so doing the petitioners say that the value of their security will be greatly diminished—First, by not being able to know the exact extent thereof; and, secondly, by being unable, by reason of the uncertainties existing...

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