Hinds County v. Natchez, J. & C.R. Co.

• Decision Date: 03 April 1905
• Citation: 38 So. 189,85 Miss. 599
• Parties: HINDS AND ADAMS COUNTIES v. NATCHEZ, JACKSON & COLUMBUS RAILROAD COMPANY ET AL
• Court: Mississippi Supreme Court

38 So. 189

85 Miss. 599

HINDS AND ADAMS COUNTIES v. NATCHEZ, JACKSON & COLUMBUS RAILROAD COMPANY ET AL

Supreme Court of Mississippi

April 3, 1905

FROM the chancery court of, first district, Hinds county, HON ROBERT B. MAYES, Chancellor.

Hinds and Adams counties, Mississippi, were the complainants in the court below; the Natchez, Jackson & Columbus Railroad Company; the Louisville, New Orleans & Texas Railway Company the Yazoo & Mississippi Valley Railroad Company; the Farmer's Loan & Trust Company; and the Union Trust Company were defendants there. From a decree in favor of the defendants the complainants appealed to the supreme court.

The charter under which this controversy arises is the act incorporating the Natchez & Jackson Railroad Company. See Laws 1870, p. 221; amended Laws 1872, p. 279, authorizing the name to be changed to Natchez, Jackson & Columbus Railroad Company. In 1871 Adams county subscribed $ 600,000 to the capital stock, paying therefor by county bonds, and thereby acquired 12,000 shares of stock, as against 160 shares held by all other subscribers. By January, 1873, twelve miles of roadbed had been completed, and depot grounds in Natchez donated by the city. The financial panic of 1873 came on, and the board of supervisors of Adams county made so much trouble about the $ 600,000 of aid bonds that a compromise was effected, whereby the county's subscription was reduced to $ 300,000, and all bonds in excess of that amount were surrendered.

The work of construction progressed but slowly. The company had no resources except the Adams county subscriptions, paid in bonds as stated. It borrowed small sums of money on ordinary one-year mortgages from time to time. In 1878 the grading had reached Martin, but the track laying was still eight miles short of that place. In that year Hinds county subscribed $ 200,000, payable in bonds, but required that two directors should be appointed from and by the county and also required the subscription to be used on work in Hinds county; and the road was still nineteen miles from the county line. There was a nineteen-mile chasm to bridge in some way. In March, 1880 a $ 600,000 second mortgage was authorized, of which however, only $ 27,500 was ever negotiated. In June, 1880, a $ 200,000 consolidated first mortgage was authorized, which was to be, and was, used in funding the previous mortgage debts, except the $ 27,500 second mortgage bonds. In 1881 the city of Natchez lent to the company $ 225,000 of the city's bonds, the company agreeing to protect the city against payment of either principal or interest, and depositing as collateral security for that agreement an equal quantity of stock, with voting power, and also the $ 600,000 second mortgage bonds above, less the $ 27,500 of which disposition was otherwise made.

In May 1882, the company still urgently needed $ 150,000 to complete the road to Jackson; but its resources were exhausted. The stock liabilities of the company were as follows:

Adams county, stock issued in 1871

$ 300,000

Hinds county, stock issued in 1882

200,000

City of Natchez, stock issued in 1882

225,000

All other stockholders, issued various times

35,807

Total amount stock

$ 760,807

The company then authorized the sale of $ 1,500,000 of stock at ten cents on the dollar, in order to raise the $ 150,000 needed, with the right reserved to repurchase the same within eight months at the price paid. The stock so sold was to be exchanged for the purchasers' notes, which in turn were to be discounted. In fact, and in effect, the plan was to borrow $ 150,000 of personal notes from friends of the company to meet the emergency and to secure those notes when discounted by $ 1,500,000 of stock as collateral. This plan was carried out, the money raised. The $ 150,000 of notes fell due in June, 1883, and in the meantime railroad securities of every kind depreciated.

And so, in the latter part of 1882, the road got into Jackson. Its bonded and floating debts were then $ 380,286; its interest payments were about $ 53,053 annually, or about $ 17,887 in excess of its net earnings. It was, therefore, getting deeper into debt every year.

A plan was devised for a new consolidated mortgage at a lower rate of interest and in better form; and President Martin was sent, in 1883, to New York to place the bonds. He failed to find purchasers, and only succeeded in making an arrangement in May, by which the company purchased from one J. W. Drexel, on credit, $ 320,000 of mortgage bonds of the New York, West Shore & Buffalo Railroad Company, then worth about 90 cents on the dollar, for which it gave its own notes to the amount of $ 304,000 at 8 per cent interest, due in June, 1884, and pledged as security therefor the same $ 1,500,000 of stock which had been previously pledged for the $ 150,000 loan aforesaid, and also the proposed $ 1,250,000 of new mortgage bonds. Those Lake Shore bonds the company afterwards sold for $ 250,730, and with the proceeds paid off the $ 150,000 loan before mentioned.

These Drexel notes were afterwards extended, from time to time, the interest being paid in part only, until the 1st of June, 1885, under an agreement that if not paid then, Drexel was to become absolute owner of the company bonds and stock pledged as security, upon the further payment by Drexel of about $ 425,000 needed to pay off prior liens and debts.

In January, 1887, the Drexel notes were still unpaid, time having been further extended under the above agreement. The city of Natchez then demanded a settlement; and in February, 1887, the company borrowed from Drexel a further sum of $ 226,050 on a note due April 7, 1887, with which to pay off the $ 225,000 Natchez bonds and interest due on them, according to its original agreement with the city set forth above. To secure this loan the company pledged to Mr. Drexel the same $ 572,500 of mortgage bonds unsold out of the once proposed $ 600,000 issue, which had been pledged to the city, as above stated. In other words, Drexel paid off the city bonds for the company, and was subrogated to the city's security. The city's stock in the company was also delivered to him as collateral.

In April, 1887, Mr. Drexel called for a settlement, and the company directors authorized the president to issue $ 1,500,000 of stock to his order when he should surrender the stock certificates and evidences of debt following: The $ 304,000 note of the year 1883; the $ 226,050 note of February, 1887; bonds of the first mortgage of 1880 amounting to $ 174,400; all company bonds of the proposed $ 600,000 mortgage held as collateral (including the $ 27,500 thereof which had been actually sold); the $ 1,500,000 of company stock previously pledged as collateral as shown above.

Those surrenders were made, and Mr. Drexel thereby became the owner of the company's $ 1,250,000 consolidated (and only unsatisfied) mortgage, and $ 1,500,000 of stock out of a total issue of $ 2,035,800 (of which Adams county held $ 300,000 and Hinds county $ 200,000). Such stock and bonds, so acquired by him, cost Mr. Drexel in cash and in unpaid accrued interest due him about $ 758,750, which, it is claimed by appellees, was a full value for the road in its then condition.

A new manager of the road was then appointed--Mr. T. J. Nichol--and in January, 1888, a new board of thirteen directors was elected, by unanimous vote, of whom six had served on the previous boards as constituted by the votes of the two counties.

In March, 1889, Mr. Drexel had died, and his stock and bonds were sold to the Financial Improvement Company for $ 800,000 of the first mortgage bonds of the Louisville, New Orleans & Texas Railway Company, the railroad of which had been constructed by the Financial Improvement Company, and paid for to that company by Louisville, New Orleans & Texas Railway Company bonds, of which the said $ 800,000 constituted a part. This Financial Improvement Company was owned by C. P. Huntington and by R. T. Wilson & Co., in the proportions, respectively, of 60 per cent and 40 per cent of the whole. The $ 1,250,000 of bonds of the Natchez, Jackson & Columbus Railroad Company, which they so acquired, were by them placed as collaterals for the entire issue of first and second mortgage bonds of the Louisville, New Orleans & Texas Railway Company.

In September, 1889, the new holders set about making the, gauge of the road of standard width and adapting the road to an effective interchange of cars with the Louisville, New Orleans & Texas Railway Company. In January, 1890, at the annual meeting of stockholders, new directors were elected, all again unanimously, of whom a majority were connected officially with either the Louisville, New Orleans & Texas Railway Company or with the Financial Improvement Company.

Still the company continued to lose money each year, and in 1890 it sold its road to the Louisville, New Orleans & Texas Railway Company by a deed and by authority of an act of the legislature, approved February 19, 1890; the consideration expressed in the deed was $ 180,000, the sale being subject to the $ 1,250,000 mortgage. The road was thus converted into a part of the Louisville, New Orleans & Texas Railway system.

In February, 1892, an entire change in the ownership of the Louisville, New Orleans & Texas Railway Company's stock and bonds, formerly held by the Financial Improvement Company, occurred; and in October following the Louisville, New Orleans & Texas Railway Company and the Yazoo & Mississippi Valley Railroad Company were consolidated under the name of the latter company, which succeeded to all the rights and liabilities of the Louisville, New Orleans & Texas Railway Company.

The bill of complaint in this cause was filed in 1899 by Hinds county, ...