Maxwell Cattle Co. v. Henderson
| Decision Date | 09 January 1899 |
| Citation | 56 P. 67,12 Colo.App. 425 |
| Parties | MAXWELL CATTLE CO. et al. v. HENDERSON. [1] |
| Court | Colorado Court of Appeals |
Appeal from district court, Las Animas county.
Suit by William Henderson, substituted for John Guthrie Smith against the Maxwell Cattle Company. Interventions were filed which were dismissed, and there was a judgment for plaintiff. Defendant and interveners appeal. Affirmed.
Andrieus A. Jones and Chas. E. Gast, for appellants.
Theodore Sheldon, for appellee.
Under leave, assignment of errors was filed in this appeal by the Maxwell Cattle Company, and by Springer and others, who became complainants by cross bills filed in the foreclosure suit. They were practically abandoned on the argument, and they could in no event be properly considered, because the record preserves as to them no right of review. The controversy which we determine is between the plaintiff in the foreclosure and the interveners, who may be correctly designated as the "reorganization committee," representing certain interests in the Maxwell Land-Grant Company. The matter turns so entirely on the construction and legal effect of the securities, agreements, and acts of the parties representing the various interests that the principal discussion will necessarily be addressed to the ascertainment of what was agreed on, what was done, and the legal consequences flowing therefrom. This necessitates an unusual fullness in the narration, and we will support our conclusions by arguments which will be based almost entirely on the exhibits, pleadings, and the stipulation between the interveners and the complainant, whereon principally the case was heard, and on which the argument to this court has been very largely based. As originally begun, the suit was to foreclose a mortgage executed by the Maxwell Cattle Company. The validity of the deed, either as respects the formalities of its execution, or the powers of the company or of its officers, is not called in question. A statement of what the two corporations were, their rights interests, and purposes, is essential to a clear understanding of the situation. As we approach and pursue the history of the documents involved, we shall in each appropriate connection formulate our construction, and state what controls our judgment.
The Maxwell Land-Grant Company was a joint-stock association, organized under the provisions of the Commercial Code of Law of the Kingdom of Netherlands. Its seat was at Amsterdam, and its life was for 99 years, dated from May, 1880. It became the owner of what was formerly known as the "Beaubien and Miranda Grant," designated in these proceedings as the "Maxwell Grant," covering some 1,714,000 acres, situate partly in Colorado and partly in New Mexico. Its right and title to those lands are not involved. In 1882 or thereabouts the Maxwell Cattle Company was organized, under the laws of New Mexico. The identity of the incorporators is not disclosed, and their personality is not important. After organization, and to further its purposes, this company (which will hereafter, for convenience, be designated as the "Cattle Company," to contradistinguish it from the former, which will be called the "Land-Grant Company") procured from the latter, on the 10th of October, 1881, a lease of all the lands included within the Maxwell land grant, containing 1,714,000 acres, more or less, subject to a few unimportant reservations. The lease was for a term of 38 years, and was on the usual consideration of a specific agreement to keep and perform the covenants and conditions expressed in the instrument, and on the further expressed considerations of one dollar, the payment of one-third of the annual taxes assessed against the land, to be paid as they should accrue and be assessed, the fencing of such portions as might be advisable, and the issue and delivery to the Land-Grant Company of all of its capital stock, 10,000 shares, of the par value of $100, fully paid and nonassessable. It will be observed that by the terms of this agreement the Land-Grant Company thereby became practically the sole and only stockholder of the organization. The importance of this as a factor will be more clearly developed when we reach the discussion of the prior lien gold bonds of the Land-Grant Company. Almost concurrently with the organization of the Cattle Company, it authorized the issue of a series of bonds, 2,000 in number, for pounds sterling100 each, due on the 1st of January, 1901. The specific terms are otherwise unimportant. These bonds were principally floated in the kingdom of Great Britain, the Scotch taking the bulk of them. What was sold passed into the hands of various purchasers, and there were many different owners when the adjustment of the affairs of the two companies began. The whole series was not sold. 1,449 were unissued, and 551 passed into the hands of various bona fide holders. The Cattle Company did not prosper. This business which had been so profitable in the late 70's and early 80's struck a period of depression, and the Cattle Company was unable to earn money to pay its operating expenses and fixed charges. At this juncture the Land-Grant Company evidently felt the effects of the distress which had overtaken the Cattle Company, and the persons interested in it began to cast about for plans which would make their enterprise profitable.
About the time the Netherlands association was organized, it issued what is known as "income bonds," which were payable absolutely 40 years from their date, which would be 2 years after the expiration of the lease to the Cattle Company. They bore no fixed rate of interest. The profits to be derived by the holders of the income bonds must come from the distribution of a certain proportion of the net profits resulting from the operations of the Grant Company. Very little or no interest had been paid on these securities, and very little on the bonds of the Cattle Company. Presumably (although this does not clearly appear) there had been no dividends paid to the stockholders of either company. Business was at a standstill. It could no longer be profitably operated, and neither corporation had a working capital which would enable it to continue operations. Thereupon this scheme was devised. We are not advised as to all the matters which led up to the completion of the arrangement, nor can we wholly discover the motives which prompted the parties to proceed. The result, however was that the Land-Grant Company undertook to issue prior lien gold bonds to the amount of $3,000,000. These bonds were to be made a paramount security on the fee of the land owned by the company, and of all of its rights and interests, of every nature and description. To accomplish this end, it was necessary to get rid of the income bonds, which were liens on sundry of the interests of the company. They were disposed of by the consent of the holders by the provision in the new mortgage that they should be deposited with the trustees under that instrument as further and collateral security for the payment of the prior lien gold bonds. Thus far we have seen no evidences of an intention to look after or care for the Cattle Company's securities. When we reach the instrument securing the gold bonds, we find strong internal evidence of an intention on the part of the Land-Grant Company to protect them. As stated, the mortgage covered the realty, but it also covered 5,000 shares of the capital stock of the Raton Coal & Coke Company, and the 10,000 shares of the capital stock of the Maxwell Cattle Company, and all personal property of every description within the limits of the grant. It further provided that the trustees to whom the conveyance was made should have full power to lease, contract for the sale of, sell, and convey any parcel or parcels of the land mentioned, on such terms as the trustees should designate as fair and reasonable, and conferred on them full authority, on the payment of the consideration by the purchasers, to convey whatever tracts might be bought by good and sufficient deeds, which should include the title of the company, the equitable rights and claims of all the holders of the prior lien bonds and of the income bonds which had been deposited. This transfer, this power, and this grant are totally inconsistent with the theory that the sole purpose of the Land-Grant Company was to protect its own securities, and provide for its own development. The stock of the Cattle Company was of no value if the lease was subject to the outstanding bonded debt; and it could not have been otherwise than to the interest of the Land-Grant Company to protect its bonds, because, if those were paid, the stock which had been pledged as collateral for the gold bonds was thereby enhanced in value, and the holders of the incomes advantaged to the extent, at least, of the interest which would otherwise be payable upon the Cattle Company's securities. The strong reason, however, is found in the grant of power to the trustees in the gold bonds to lease and sell the lands. This would only have been possible on the theory that all the interests of the Land-Grant Company and of the Cattle Company and of the income bondholders had been consolidated in the new security. If the Cattle Company's lease, until the end of its term, 38 years, was still in force, the holders of the Cattle Company's bonds could foreclose, and acquire title, and hold it as against the company, and would have full power to lease, sell, and convey. This argument simply shows the interest which the Land-Grant Company had in protecting the Cattle Company's bonds. The distribution of the funds resulting from the sale of those gold bonds was provided for--First, by the reservation of $275,000 for the payment...
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