Jones v. Atlantic & W.R. Co.

• Decision Date: 20 April 1927
• Docket Number: 101.
• Citation: 137 S.E. 706,193 N.C. 590
• Parties: JONES et al. v. ATLANTIC & W. R. CO.
• Court: North Carolina Supreme Court

137 S.E. 706

193 N.C. 590

JONES et al. v. ATLANTIC & W. R. CO.

No. 101.

Supreme Court of North Carolina

April 20, 1927

Appeal from Superior Court, Lee County; Cranmer, Judge.

Suit by John R. Jones, Jr., and another, and all other creditors who may join and contribute to the costs of the action, against the Atlantic & Western Railroad Company. From an order appointing a permanent receiver and authorizing him to take possession of defendant's property and continue the operation of its railroad, defendant appeals. Reversed and remanded, with direction.

Action to recover judgment upon bonds issued by defendant and held by plaintiffs; for the appointment of a receiver for defendant corporation, to the end that its affairs may be would up and its assets equitably distributed amongst the persons entitled thereto; and for the sale of property described in the deed of trust executed by defendant to secure payment of said bonds and of other bonds described therein, and the application of the proceeds of said sale to the payment of defendant's indebtedness in accordance with the rights of the parties hereto.

From order appointing a permanent receiver for defendant, and authorizing, empowering, and directing said receiver to take possession of all its property and to continue the operation of its railroad, defendant appealed to the Supreme Court.

Railroad bondholders held not entitled to sue without alleging trustee's default under trust deed.

Railroad bondholders presumed to seek only relief to which they were entitled.

Hoyle & Hoyle, of Sanford, for appellant.

Seawell & McPherson, of Sanford, for appellees.

CONNOR J.

The defendant herein is a corporation, organized under the laws of the state of North Carolina, and engaged in the operation of a railroad as a common carrier for the transportation of passengers and freight. Its railroad extends from the town of Sanford, in Lee county, to the town of Lillington, in Harnett county, a distance of 25 miles.

On June 5, 1912, the defendant corporation, by deed of trust which has been duly recorded, conveyed to the Fidelity Trust Company, a Maryland corporation, the following described property:

"All the railroad of the Atlantic & Western Railroad Company beginning at the town of Sanford, N. C., in the county of Lee, and running thence eastwardly in the direction of Newton, N. C., through the counties of Lee, Moore, Harnett Wayne, Johnston, Sampson, Montgomery, Stanley, Cabarrus, Lenoir, and Catawba, and all extensions thereto and branches thereof, and all physical property of every description connected therewith, or with the use and occupation thereof, and all other real estate and tangible property now owned or hereafter to be constructed or acquired by the said Railroad Company in the state of North Carolina, or elsewhere, and all of the rights of way and land now or hereafter to be accepted and used in connection with, or for the construction, completion and maintenance of said railroad, or its extensions and branches, and all of its rails, bridges, culverts, side tracks, depot grounds, stations, machine shops, buildings and other structures, locomotives, engines, tenders, cars and other rolling stock and equipment of every kind, and all machinery, wood, coal, fuel, oil or other supplies now owned or hereafter acquired by said railroad, and all the rights, powers, privileges, immunities, and franchises owned by, connected with or hereafter to be acquired by or connected with said Railroad, its branches or extensions, and all grants, leaseholds, leases, terms, trackage, or other agreements, contracts, easements, tenements, hereditaments, and appurtenances now or hereafter held by or appertaining to said railroad, or its branches, or extensions, and all tolls, rents, issues, profits, and any and all income of any and of all of said property, rights and franchises covered by or included in the terms of this mortgage, and all real property and tangible personal property of every name and nature, and any and all rights, franchises, privileges, immunities, and appurtenances which from time to time hereafter may be expressly conveyed, granted, transferred, assigned, mortgaged or delivered and pledged by the railroad or by any person or corporation in its behalf and with its written consent or approval to the trustee hereunder as additional security for the bonds secured by this mortgage."

The above-described property was conveyed to the trustee named in said deed of trust "for the following uses and purposes, and no other, that is to say, for the equal and proportionate benefit and security, subject to the terms, conditions and provisions hereinafter set forth, of all the present and future holders and owners of the bonds, or interest coupons hereunto belonging, issued and to be issued under and secured by this indenture," etc.

Pursuant to the provisions of said deed of trust, defendant has issued its bonds in the sum of $332,000, which are now outstanding. Each of said bonds is due and payable on the 1st day of May, 1952, with interest thereon at 5 per cent. per annum, payable semiannually on the 1st day of November and the 1st day of May of each year, according to the terms of coupons attached thereto. It is provided on the face of each bond that "this bond is one of a series of coupon bonds of the Atlantic & Western Railroad Company, known as the Atlantic & Western Railroad Company first mortgage 5 per cent. forty-year gold bonds, issued and to be issued to an amount not exceeding $1,500,000 in the aggregate, under and in pursuance of and all equally secured by a mortgage or deed of trust dated May, 1912, duly executed by the Atlantic & Western Railroad Company to the Fidelity Trust Company (Baltimore, Md.), a corporation of the state of Maryland, as trustee, and covering the property and franchises in said mortgage or deed of trust, to which reference is hereby made for a description of said property and franchises, and for a specification of the nature and extent of the security of the rights of the holders or owners of the bonds of said series, and of the terms and conditions under which the same are issued or to be issued, and to be issued subject to the provisions of the said mortgage or deed of trust, to which provisions any and every person taking, holding or claiming an interest in this bond, or in any of the coupons hereto attached, shall be deemed to have assented.

Plaintiffs, John R. Jones, Jr., and L. P. Wilkins, are the holders and owners of bonds of the par value of $140,000, included in the issue of $332,000. All of these bonds are held and owned subject to the provisions, terms, and conditions of the deed of trust by which they are secured. No part of the interest on any of said bonds, including the bonds held and owned by plaintiffs, has been paid since November 1, 1917. Interest on each and all of said bonds since said date is now due, in accordance with the terms and conditions set out in the coupons attached to each of said bonds. There is no provision in said bonds, or in the coupons attached thereto, by which the maturity of the bonds, due, according to their tenor, on May 1, 1952, is accelerated, upon failure of defendant to pay the interest coupons as they shall become due. There is, however, in the deed of trust, a clause in words as follows:

"When Trustee shall Declare Principal Due.--But in the event that default shall be made in the payment of any interest coupon or any bond issued hereunder, and such default shall have continued for a period of 90 days; or in the event default shall be made in the due and punctual payment of the principal of any bond issued and secured under this indenture, and then outstanding, when and as the same shall have become due or shall have been declared due and payable or in the event of default in the due observance or performance of any other covenant, condition or agreement herein required to be kept or performed by the railroad, and such default shall have continued for a period of 90 days after due service upon the president of the railroad of written notice thereof from the trustee or from the holders of at least 25 per cent. in principal amount of all bonds issued and secured by this indenture and then outstanding, specifying such default and requiring same to be remedied; or in the event that an order shall be made by a court of competent jurisdiction appointing a receiver of the railroad or of its property and franchises, or for the liquidation of its affairs or business; then and in each and every case, the trustee may, and upon the written request of the holders of a majority in amount of all the bonds issued and secured hereunder and then outstanding, and upon being furnished reasonable security and indemnity against all costs, expenses, and liabilities to be by it incurred, the trustee shall give notice in writing delivered to the president, secretary or treasurer of the railroad, declare the principal of all bonds issued hereunder and then outstanding to be due and payable forthwith and immediately; and upon such declaration such principal shall thereby be and become forthwith and immediately due and payable, anything contained in this indenture, or in said bonds or coupons to the contrary notwithstanding. But if at any time after such declaration and before any sale of the mortgaged premises shall have been made, all arrears of interest, with interest at the rate of 5 per cent. on overdue installments thereof, and all other amounts (except the principal of the bonds with respect to which the railroad shall then be in default) together with the reasonable charges and expenses of the trustee, its agent and attorneys, shall be paid by the railroad, or collected by the trustee out of

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