Low v. Blackford

• Citation: 87 F. 392
• Decision Date: 03 May 1898
• Docket Number: 246.
• Parties: LOW et al. v. BLACKFORD et al.
• Court: U.S. Court of Appeals — Fourth Circuit

87 F. 392

LOW et al. v. BLACKFORD et al.

No. 246.

United States Court of Appeals, Fourth Circuit.

May 3, 1898

Charles Steele, for appellants.

Cowen Cross & Bond, for appellees Wm. H. Blackford and others.

Turner McClure & Rolston, for appellee Farmers' Loan & Trust Co.

R. O Burton and Watson & Buxton, for appellee John W. Fries.

George Rountree, for appellee W. A. Lash.

Before GOFF, Circuit Judge, and BRAWLEY and PURNELL, District Judges.

GOFF Circuit Judge.

The Farmers' Loan & Trust Company, trustee, instituted this suit in the circuit court of the United States for the Eastern district of North Carolina in March, 1894, for the purpose of foreclosing the first mortgage, dated June 1 1886, executed by the Cape Fear & Yadkin Valley Railroad Company. The Mercantile Trust Company of Baltimore, the trustee in the second mortgage, known as the 'consolidated mortgage,' dated October 1, 1889, was made a party defendant, and subsequently, when it resigned its trust, William A. Lash was substituted as trustee under the mortgage and as defendant in the suit. A cross bill was filed by said Lash as trustee of the second or consolidated mortgage, in which he prayed that it also might be foreclosed. The first mortgage covers all of the railroad lines except the branches, while the second or consolidated mortgage embraces all of the lines in the first, and also includes the branch lines. The first mortgage is given to secure three separate series of bonds, designated, respectively, as 'Series A,' 'Series B,' and 'Series C' bonds. Each series of bonds has a first lien upon a certain designated division of the railroad and a second lien upon the other two divisions. The main line from Wilmington to Mt. Airy is 248 1/4 miles long. Division A is that portion of the road which lies between Greensboro and Fayetteville and Fayetteville and the South Carolina line, about 144 miles in all, of which 46 3/4 miles is made up of the line from Fayetteville to the South Carolina line. On this division Series A bonds are a first lien, and they are also a lien in common with Series C bonds, but subordinate to Series B bonds, upon that portion of the road situated between Greensboro and Mt. Airy, and also a lien in common with Series B bonds, but subordinate to Series C bonds, on that portion of the road between Fayetteville and Wilmington. Division C is that portion of the road between Fayetteville and Wilmington, about 81 miles in length. On this division Series C bonds are a first lien, and they are also a lien in common with Series B bonds, but subordinate to Series A bonds, on that portion which lies between Greensboro and Fayetteville and Fayetteville and the South Carolina line, and also a lien in common with Series A bonds, but subordinate to Series B bonds, on that portion of the road located between Greensboro and Mt. Airy.

The Cape Fear & Yadkin Valley Railway Company is the successor to the Western Railroad Company, a corporation created by the act of December 24, 1852, passed by the general assembly of North Carolina. That portion of the Cape Fear & Yadkin Valley Railway now known as 'Division A' had been constructed and operated by the Western Railroad Company. Those parts of the road now called Divisions B and C were built by the Cape Fear & Yadkin Valley Railway Company, whose corporate existence dates from March 1, 1879. It also constructed a number of branch lines in aid of both its local and through business, now known as the 'Factory Branch,' the 'Madison Branch,' the 'Granite Branch,' the 'Furnace Branch,' the 'Aldrich Quarry Branch,' and the 'Buff Quarry Branch.' The South Carolina Pacific Railway, which is 10 1/2 miles long, running from Bennettsville to the North Carolina line, has been leased, and is not operated by the Cape Fear & Yadkin Valley Railroad Company. On the day that the bill was filed in the court below, John Gill was appointed receiver of the Cape Fear & Yadkin Valley Railway Company, and he has been in the custody and control of all its property, under the orders of the court, from that date. On the 2d day of May, 1894, the answer of said railway company was filed, in which all of the allegations of the bill were admitted to be true. William A. Lash, the substituted trustee under the consolidated mortgage of October 1, 1889, filed his answer to the bill on the 28th day of September, 1894. The receiver of the North State & Improvement Company filed his answer on the 28th of September, 1894, by which it appears that said company is the owner of $1,608,000 par value of the stock of the Cape Fear & Yadkin Valley Railway Company, and also of $1,848,000 of the bonds of said railway company executed on the 1st day of October, 1889, and secured by the second or consolidated mortgage. It is claimed by the receiver that the bonds so held are secured by a first lien upon several of the branch lines of the railroad company, and by a second lien upon all the property of said company, subject only to the lien of the first mortgage. The appellants Charles Adolphe Low, George F. Baker, and William E. Strong, claiming to be a committee of Series A bondholders, asked permission of the court below to intervene, and their request was granted on the 20th of December, 1895. These petitioners were known as the 'New York Committee.' The appellees William H. Blackford, William H. Perot, John A. Tompkins, Frank T. Redwood, Basil B. Gordon, and J. W. Middendorf, claiming to be a committed of holders of the bonds of the three different series, asked like permission to intervene, and their petition was also favorably passed upon by the court. They are called the 'Baltimore Committee.' The contention of the New York committee was and is that the railroad should be offered for sale, both by divisions and as an entirety, and the most advantageous offer accepted; while the claim of the Baltimore committee was and is that it should be sold as an entirety. The case, having been duly matured, came on to be finally heard, when the court below directed that the Cape Fear & Yadkin Valley Railway, it appearing that it was in default and insolvent, should be sold at public auction as an entirety, and that the proceeds of sale should be apportioned among the bonds as follows: To Division A, 55 per cent.; to Division B, 19 per cent; to Division C, 19.4 per cent.; and to the bonds having the first lien on the branches, 6.6 per cent. This method of division was found by the court below from the master's report and from the testimony of a number of experts filed therewith, who had carefully examined the road, its reports, receipts, and disbursements. So far as the questions raised on this appeal are concerned, it is not deemed necessary to refer to the other provisions of the decree of sale, which bears date March 31, 1897, and from which the appeal we are now considering is prosecuted.

The first assignment of error is in these words:

'Because in and by said decree of March 31, 1897, the proceeds of the sale of the premises covered by the first mortgage of June 1, 1886, therein directed, are ordered to be distributed first to the payment of the coupon interest of the several series of bonds mentioned in the said decree in preference and priority to the principal of said bonds.' The part of the decree which this assignment is based, provided that the portion of the proceeds of sale allotted to Series A bonds should be distributed as follows:

'First, to the payment of the coupon interest, which may be due on each of said outstanding Series A bonds (including interest on said coupons), if said amount be sufficient to pay the same, or, if not sufficient, then to the payment of the same pro rate; and after the full and complete payment of said coupon interest as aforesaid, then to the payment of the principal of said Series A bonds, if sufficient to pay the same in full, and, if not sufficient to pay the same in full, then to the payment of the same pro rata.'

The decree also in like manner provides for the distribution of the allotment made to the Series B bonds and to the Series C bonds, directing in each case that the principal of the bonds shall be paid only after the coupon interest, with the interest thereon, has been paid in full. The mortgage provides that the proceeds of the trust fund in case of a sale of the railroad shall be applied first to the payment of interest, and then to the payment of the principal of the bonds. No such provision is found in the recitals of the bonds, and the claim of the appellants in this regard is that the terms of the bonds must control, and that they are not to be affected by inconsistent statements found in the mortgage. As a matter of fact, is there anything found in the mortgage inconsistent with or contradictory of the provisions of the bonds? We think not. The provisions found in the mortgage, not included in the bonds, are not contradictory of the latter, but supplemental thereto. And it is well established that in cases of this character the bonds, coupons, and mortgages are to be read together, and construed as constituting one contract; and if the bond refers to the mortgage, as in this case, then the holder of the bond will be presumed to be aware of the terms of the mortgage. Thomp. Corp. Secs. 6075, 6110; Manufacturing Co. v. Howard, 28 F. 741; Gregory v. Marks, 8 Biss. 44, Fed. Cas. No. 5,802; Stanton v. Railroad Co., 2 Woods, 523, Fed. Cas. No. 13,297; Skiddy v. Railroad Co., 3 Hughes, 320, Fed. Cas. No. 12,922; Caylus v. Railroad Co., 10 Hun, 295, affirmed 76 N.Y. 609; McMurray v. Moran, 134 U.S. 150, 10 Sup.Ct. 427. Each of the bonds secured by the mortgage referred to in this case contains the following, differing only as to the series to which they respectively belong:

'This bond is one

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