Louisville Trust Co v. Louisville Ry Co

• Decision Date: 22 May 1899
• Docket Number: No. 263,263
• Citation: 174 U.S. 674,19 S.Ct. 827,43 L.Ed. 1130
• Parties: LOUISVILLE TRUST CO. v. LOUISVILLE, N. A. & C. RY. CO. et al
• Court: U.S. Supreme Court

174 U.S. 674

19 S.Ct. 827

43 L.Ed. 1130

LOUISVILLE TRUST CO.

v LOUISVILLE, N. A. & C. RY. CO. et al.

No. 263.

May 22, 1899.

The facts in this case are as follows: The Louisville, New Albany & Chicago Railway Company, hereinafter called the 'New Albany Company,' in 1889 and 1890 placed a guaranty upon $1,185,000 of the first mortgage bonds of a Kentucky railroad corporation. In April, 1890, the New Albany Company, guarantor, commenced a suit in the circuit court of the United States for the district of Kentucky against divers parties claiming to hold such bonds to have the guaranty declared void. In 1894 that court rendered a final decree, sustaining its contention, and adjudging the guaranty ultra vires, and void. 69 Fed. 431. From that decree, the holders of the guaranty bonds appealed to the circuit court of appeals for the Sixth circuit, which, in June, 1896, reversed the decree of cancellation, and held the guaranty binding. 43 U. S. App. 550, 22 C. C. A. 378, and 75 Fed. 433. On application of the New Albany Company, the case was then removed on certiorari to this court, and at the time of the proceedings hereinafter referred to was still undecided. Judgment therein has since been entered sustaining the guaranty. Louisville, N. A. & C. Ry. Co. v. Louisville Trust Co., 174 U. S. 552, 19 Sup. Ct. 817.

After the decision in the circuit court of appeals, and on August 24, 1896, one John T. Mills, Jr., commenced an action in the circuit court of the United States for the district of Indiana, alleging that he was a creditor of the New Albany Company to the amount of $494,911.35. That company appeared and confessed judgment, and an execution was issued and returned unsatisfied. Whereupon Mills filed his bill of complaint in the same court, based upon this unsatisfied execution, and praying the appointment of a receiver. The bill set forth the property belonging to the judgment debtor, the New Albany Company, alleged that its capital stock amounted to $16,000,000, of which $7,000,000 was preferred; that its outstanding funded debt, divided into five classes, amounted to $7,700,000 in 6 per cent. bonds, and $6,100,000 in 5 per cent. bonds. The bill also alleged the existence of a floating debt, amounting to nearly $1,000,000, consisting of outstanding notes and other obligations, held by the complainant and other bona fide creditors. It then set forth the guaranty of the bonds of the Kentucky railroad company, the proceedings in court by which the guaranty had been sustained, and averred that the officers of the defendant company reported a diminution of current earnings by reason of a short wheat crop and lessened traffic, and that it would be impract cable to realize from the earnings after the payment of operating expenses, taxes, and rentals a sum sufficient to pay the shortly accruing mortgage interest. The bill also alleged many matters, among others the fact that the lines of the New Albany Company were in three different states, and subject to the jurisdiction of different courts, which seemed to justify the taking possession of the property by a receiver to prevent its dismemberment or any disturbance of its continued operations as a common carrier. The prayer of the bill was:

'Inasmuch, therefore, as the complainant has no adequate remedy at law for the grievances hereinbefore stated, and can only have relief in equity, he files this bill of complaint in behalf of himself and all others in like relation to the said property, and prays that due process of law issue against the defendant, the Louisville, New Albany & Chicago Railway Company, and that it be summoned to appear in this court, and answer this bill, but without oath, all answers under oath being hereby expressly waived under the rules to stand to and abide by such orders and decrees as the judges of this court may from time to time enter in the premises; that for the purpose of enforcing the rights of complainant and all other creditors of said insolvent corporation according to their due equities and priorities, and to preserve the unity of the said railway system as it has been and now is maintained and operated, and to prevent the disruption thereof by the separate attachments, executions, or levies, this court will forthwith appoint a receiver for the entire railroad; * * * that the court will fully administer the trust fund, in which the complainant is interested as a judgment creditor, and will for such purpose marshal all the assets of said insolvent corporation, and ascertain the several liens and priorities existing upon the said system of railways or any part thereof, and the amount due upon each and every of such liens, whether by mortgage or otherwise, and enforce and decree the rights, liens, and equities of each and all of the creditors of the said Louisville, New Albany & Chicago Railway Company, as the same may be finally ascertained and decreed by the court upon the respective claims and interventions of several of such creditors or lienors in and to, not only the said line of railroad, appurtenances, and equipment, or any part of them, but also to and upon each and every portion of the assets and property of the said insolvent corporation; and that said railroad and all the assets of such corporation shall be sold by proper decree of the court, and the proceeds divided among the different creditors according as their liens and priorities may be decreed by the court; and for such other and further relief as to the court may seem proper, and as may be necessary to further enforce the rights and equities of the complainant and all other creditors of such corporation.'

The New Albany Company appeared by its general solicitor, filed its answer, admitting the material allegations of the bill, and interposing no objections; whereupon the court made an order appointing as receiver a gentleman who was the vice president of the company and its general manager. The order of appointment was in the ordinary form of such orders.

All of these proceedings, including the filing of the original complaint, the confession of judgment, the issue and return of the execution, the filing of the bill, and the appointment of a receiver, took place on the same day, to wit, August 24th. Up to this time there had been no default in any of the interest due on the several series of bonds. On November 12, 1896, the trustees in one of the mortgages (one executed May 1, 1890) filed a bill of foreclosure, alleging default in the payment of interest on November 1, 1896. On the same day the trustee in another mortgage, dated January 1, 1896, filed a similar bill, alleging default on October 1, 1896. On November 24, 1896, the court, on appl cation of the receiver, entered an order authorizing the receiver to borrow $200,000 on receiver's certificates, payable out of the earnings, and expend the same in the construction of new bridges, the repair of freight cars and engines, and ballasting and making new alignment of track, and the equipment of engines and cars with air brakes and automatic couplers. What action was taken under this order is not disclosed in the record, although the final decree provided for payment in advance of the bonds 'of any indebtedness of said receiver which has not been or shall not be paid out of the earnings and income of the property coming into the hands of said receiver.' On the 14th day of December, 1896, the trustee in a mortgage executed September 1, 1894, commenced foreclosure, alleging default on December 1, 1896. On the 21st of December, 1896, an order of consolidation was made of these several foreclosure suits.

On the 23d of January, 1897, the petitioner, the Louisville Trust Company, filed its petition, asking generally to be admitted to appear in the suit, and to take such steps and proceedings in its own behalf as it might deem necessary, which petition was sustained, and leave granted accordingly. This petition alleged the indorsement heretofore referred to of the bonds of the Kentucky railway company by the New Albany Company, that it (the petitioner) was the holder of $125,000 of those bonds, and had obtained a decree adjudging the validity of the guaranty.

On the same day the various parties to the foreclosure suits having all appeared and filed, so far as was necessary, answers admitting the allegations of the bills, a decree was entered foreclosing the three mortgages in suit, and directing a sale of the property.

On February 27, 1897, the Louisville Trust Company filed a full intervening petition, verified by affidavit, setting forth the guaranty of the Kentucky bonds, its ownership of $125,000 of them, the decree of the court of appeals and the certiorari obtained from this court by the New Albany Company, the proceedings in the action instituted by John T. Mills, Jr., in respect to which it alleged that 'the said J. T. Mills, Jr., claimed to be a creditor to the amount of $494,911.35, but did not disclose or discover to the court in his proceedings that he was not a general creditor, but he was at the time, if a creditor at all, secured with collateral securities, the value whereof is unknown to your petitioner. And the petitioner charges that the proceedings in behalf of the said John T. Mills, Jr., were procured by the said New Albany Company for the purpose of hindering and delaying the general or unsecured creditors of the said company in the enforcement of their debts, and that since the entry of the said order of appointment no step has been taken in the said cause either to ascertain or to bring into court the assets which are subject to the payment of the said debts, and no proceeding has been taken to notify or to bring before the court the said general or unsecured creditors.' It then set forth the filing of the foreclosure bills, the entry of the decree of foreclosure, and alleged 'that prior to the entry of the said decree the holders of the bonds secured by the mortgages to the Farmers'...