Galveston Railroad v. Cowdrey

• Decision Date: 01 December 1870
• Citation: 11 Wall. 459,20 L.Ed. 199,78 U.S. 459
• Parties: GALVESTON RAILROAD v. COWDREY
• Court: U.S. Supreme Court

78 U.S. 459

20 L.Ed. 199

11 Wall. 459

GALVESTON RAILROAD v. COWDREY.

December Term, 1870

APPEALS from decrees in the Circuit Court for the Eastern District of Texas on bill and cross-bill.

The bill was filed by Cowdrey and others, citizens of New York, against the Galveston, Houston, and Henderson Railroad Company; another company of the same name (the 'successor company' of the one just mentioned); the Galveston and Houston Junction Railroad Company; one Nichols, and fourteen other persons, all citizens of Texas (except one, who was a citizen of Massachusetts), for the foreclosure and sale of the railroad of the said Galveston, Houston, and Henderson company, with all its appurtenances, and all the property of said company, to pay in due order the several outstanding bonds issued under certain mortgages which it had made, to wit, its first, second, and third mortgages, and to call the defendants to account for the tolls, income, and profits of the said railroad and property whilst in their possession. The bill was filed on the 12th of February, 1867, on behalf, not only of the complainants, who alleged that they were large holders of the said bonds, but of all other holders thereof, who might come in and contribute to the costs and expenses of the suit.

It appeared from the pleadings and proofs that the Galveston, Houston, and Henderson Railroad Company was chartered by an act of the legislature of Texas, on the 7th of February, 1853, for the purpose of constructing and operating a railway from the city of Galveston to the city of Houston, and thence to Henderson,¹ with such branches as they might deem expedient; with power, amongst other things, to take lands by condemnation, and to acquire, by purchase, donation, or in payment of stock, such real estate as the directors should think desirable to aid in the construction or maintenance of said road; and to alienate or mortgage the same for the constructing or maintaining said road; such alienation or mortgage to be signed in the name of the president and countersigned by the treasurer; also, with power to borrow money on their bonds or notes, at such rates as the directors should deem expedient; and, generally, to do and perform all such acts as might be necessary and proper for, or incident to, the fulfilment of their obligations and for the maintenance of their rights. And it was expressly declared by the charter that all conveyances and contracts executed in writing and signed by the president and countersigned by the treasurer, or other officer duly appointed by the directors under the seal of the company and in pursuance of a vote of the directors, should be valid and binding. By virtue of supplements to the charter, and by general laws of the State of Texas, the company became entitled to grants of the public lands of the State, in virtue of which they subsequently acquired land certificates for 512,000 acres of land.

The company was duly organized under its charter and began operations for constructing its road.

On the 1st of December, 1853, the company made an issue of bonds—its first issue—consisting of fifteen hundred bonds, each for 100 sterling, payable in London, at the expiration of ten years, with interest at the rate of 6 per cent. per annum. To secure these bonds the company executed a deed of trust, or mortgage, to trustees, upon its railroad, constructed and to be constructed, from Galveston to Houston, and its privileges, rights, and real estate, owned, or that should thereafter be owned, by the company, in connection with its said railroad; and all tolls, issues, and profits, whenever default should be made in paying the bonds, and all the franchises of the company, and all depots, stations, and buildings, and lands, occupied or to be occupied therefor. The terms of the deed were that it should be held in trust for the bondholders; that so long as no default was made by the company in payment of principal or interest, the property should remain in the company's possession; but if it should be in default for the space of three months in payment of either, and on request in writing by any holder of the bonds, the trustees might take actual possession of the railroad and all the property mortgaged, take the receipts thereof, and, on due notice, sell the same to pay the principal and interest due, after paying expenses of management and all costs and charges incident to the trust.

On the 1st of June, 1855, a second issue of bonds was made by the company to the amount of $750,000, payable in ten years, with interest at 10 per cent. per annum, convertible, after three years, into stock of the company, and secured by a second mortgage of similar import to the first, except that it conveyed, 'in addition to what was conveyed by the first mortgage, all the lands which shall or may belong to said company by virtue of any act of the legislature of the State of Texas in connection with said road from Galveston to Houston.' This mortgage contained a declaration that it was 'to take the place of' the former one, which was for an equivalent sum in sterling money, and it had a clause thus:

'And the issue of the bonds referred to in this instrument can take place only by the cancelling of a like amount of the said 6 per cent. sterling bonds, so that this instrument is and shall be a first lien upon all the property donated thereon to the amount of bonds issued.'

On the 8th of October, 1857, a third issue of bonds was made to the amount of $2,625,000, in $100 bonds, payable in 1879, with interest at 8 per cent. per annum; and these bonds were secured by a third mortgage to the same trustees as the last, on the same property as the second mortgage, except that it purports to cover the railroad from Galveston for the full distance of 75 miles. This mortgage declared that it was executed in part 'to take the place of' the preceding one; particulars being stated.

The trustees named in the first mortgage were the Honorable William Kent, of New York, and certain London bankers. These last, however, refused to accept the trust. The trustees under the two later mortgages were Mr. Kent of New York, already named, and Mr. C. B. Haddock, of that city or State. Both these trustees were dead at the time the bill was filed, and there were then no trustees acting under the mortgages.

All the mortgages were executed under the corporate seal, were signed by the president, and countersigned by the treasurer. They did not declare in what place they were executed, but the execution of them was proved in the city of New York, before a commissioner for Texas, it being stated in the affidavit of probate that the president and treasurer resided in that city. The evidence tended also to show that the meetings of the directors, by which the mortgages were authorized to be executed, were held in New York; where the company had an office where its fiscal arrangements chiefly originated and were accomplished.

The bill stated that these bonds were issued to raise money to construct, equip, and supply the railroad; and that the company, by the aid thereof, did complete its road from Galveston to Houston, a distance of 52 miles. It further stated that the company, after the issue thereof, took up and cancelled about 100,000 of the first issue, leaving outstanding only about 50,000, of which the complainants held 32,600, with a large amount of coupons thereon for unpaid interest; that only about $700,000 of the second issue were outstanding, besides the coupons thereon, of which the complainants held $250,000, besides a large amount of unpaid coupons; and that about $2,000,000 of the third issue were outstanding, of which the complainants held a large amount. The bill averred the entire insolvency of the original company.

Upon the filing of the bill and reading divers affidavits, the court below appointed a receiver, who, and a successor since appointed, during the pendency of the suit, carried on the operations of the road and received all the emoluments thereof for the benefit of the parties entitled thereto.

Answers and replications being filed, testimony was taken.

During the examination the complainants produced and scheduled the bonds of the several classes held by them, to the amounts nearly corresponding with those above alleged; the amount of the third issue so produced being $21,800, besides coupons. They were examined as to the manner in which they obtained possession thereof, and proved that they had purchased them of various parties and at various prices, from 30 to 70 per cent. on the par value.

It further appeared that on the 21st of May, 1859, the company executed to one Tucker, as trustee for Robert Pulsford, a fourth deed of trust to secure the payment of 9600 sterling, previously lent to the company by Pulsford on a number of bonds of the third issue, together with other securities, delivered to him to hold as collateral security, and 10,000 advanced at the time of the execution of the deed. This deed covered the same property which was covered by the other trust deeds. It was besides agreed, in a separate article, that Pulsford should have a special lien on a lot of railroad iron which was pledged to him, and which was to be used for completing the track of the railroad between Galveston City and Virginia Point, a distance of about five miles; indicated on the diagram inserted here by a heavier line than the rest of the road.

The bill did not advert to this deed; but Pulsford and his trustee, on their petition for that purpose, were permitted to intervene as defendants, and filed an answer and a cross-bill, claiming a first lien on the portion of road laid with the aforesaid rails. The ground on which Pulsford claimed priority on that portion of the road which was laid with his iron, was that when the mortgages of the complainants were executed that part of the road was not in existence and could not have been conveyed by them, and could only be...