Mercantile Trust Co. v. Kanawha & O. Ry. Co.

• Decision Date: 12 July 1893
• Docket Number: 70.
• Citation: 58 F. 6
• Court: U.S. Court of Appeals — Sixth Circuit
• Parties: MERCANTILE TRUST CO. v. KANAWHA & O. RY. CO. et al., (ADAMS EXP. CO., Intervener.)

58 F. 6

MERCANTILE TRUST CO. v. KANAWHA & O. RY. CO. et al., (ADAMS EXP. CO., Intervener.)

No. 70.

United States Court of Appeals, Sixth Circuit.

July 12, 1893

Statement by TAFT, Circuit Judge:

The principal action in the court below was by the Mercantile Trust Company, as trustee, to foreclose a railroad mortgage against the Kanawha & Ohio Railway Company. The mortgaged road lay partly in Ohio and partly in West Virginia. The decree, which was here appealed from, was based on an intervening petition filed by the Adams Express Company, and declared that certain receiver's certificates held and owned by the intervener were a lien upon the railroad, prior in right to the mortgage of complainant, and directed their payment, with interest, in the sum of about $53,000, out of the proceeds of sale. The road had been bid off at a little more than half of the mortgage debt. The certificates ordered paid had been issued by Thomas R. Sharp, receiver of the part of the railroad lying in West Virginia, appointed by the district court of the United States for West Virginia exercising circuit court powers, in a previous foreclosure suit begun in that court in November, 1883, by the Central Trust Company against the then owner of the railroad, the Ohio Central Railway Company. The result of that suit was the purchase of the railroad at the foreclosure sale by a committee of the then bondholders, and the organization by them of the Kanawha & Ohio Railway Company, the defendant and mortgagor below, as a consolidated corporation of Ohio and West Virginia, to own and operate it. The force of the receiver's certificates held by the appellee, as liens upon the railroad, depended upon the proceedings in the West Virginia suit in which they were issued, and reference must be made to those proceedings in some detail.

As already stated, the West Virginia suit was begun in November 1883, and on the next day Sharp was appointed receiver to take charge of and operate so much of the road as lay in West Virginia. On December 13, 1883, the court entered an order as follows: 'On reading and filing the verified petition of Thomas R. Sharp, receiver of the Ohio Central Railroad, and it appearing therefrom that it is necessary for the protection and preservation of the property of said railroad company that certain bridges should be repaired, and certain portions of roadbed of said railroad be ditched and ballasted, and certain necessary expenses of maintenance repair, and management be provided for, and that a sum not exceeding fifty thousand dollars will be required for the purposes aforesaid, on motion of William H. De Lancy solicitor for said receiver, ordered, that said Thomas R. Sharp, receiver of the Ohio Central Railroad Company, be, and he is hereby, authorized and empowered to issue certificates of indebtedness to an amount not exceeding fifty thousand dollars, and bearing interest at the rate of six per cent. per annum, and payable not exceeding twelve months after date, at the city of New York, for the purposes aforesaid, with power to renew the same; that said certificates shall be a first and paramount lien on so much of the property of the said Ohio Central Railroad Company now in his possession, or which he may hereafter get actual possession of, and the revenues thereof; that the said receiver shall not negotiate said certificates at less than their face value without the further order of the court. And it is further ordered that the said receiver pay said certificates so issued as aforesaid, and the interest thereon, out of the revenues of said railroad company, as received by him from time to time.'

And on March 24, 1884, the court modified the foregoing order as follows: 'On reading and filing the verified petition of Thomas R. Sharp, receiver of the Ohio Central Railroad Company, and it appearing therefrom that the said receiver cannot sell or negotiate the certificates of indebtedness heretofore authorized to be issued by order of this court dated the 13th of December, 1883, without paying a commission for the sale or negotiation of the same. Now, on motion of William H. De Laney, solicitor for said petitioner, it is ordered that said Thomas R. Sharp, receiver of the Ohio Central Railroad Company, be, and he is hereby, authorized, empowered, and directed to sell or negotiate the certificates of indebtedness heretofore authorized to be issued by him by order of this court dated the 13th of December, 1883, upon such terms and at such rates as he may deem proper, and as he may be able to obtain.'

Sharp, the receiver, issued 10 certificates to the Adams Express Company, all like the following:

'Ohio Central Railroad Co., Receiver's Office, April 16, 1884.

'In pursuance of an order of the district court of the United States for the district of West Virginia, this is to certify that Thomas R. Sharp, as receiver of the Ohio Central Railroad Company, will pay to Adams Express Company, or order, one day after date, the sum of fourteen thousand three hundred dollars, with interest at the rate of six per cent. per annum. This certificate is a first and paramount lien on the property and revenue of the Ohio Central Railroad Company in possession of Thomas R. Sharp, receiver, is transferable by indorsement, and payable at 50 Broadway, New York city.

'Thos. R. Sharp,

'Receiver Ohio Central Railroad Co.'

The amounts of the ten certificates varied. The first three were issued on the 16th of April, 1884, and the last one April 3, 1885, and they aggregated $35,535.39. The money received by Sharp from the Adams Express Company was not used for the purpose specified in the order of December 13, 1883, or for any other purpose of the receiver, or for the benefit of the property held therein or of the parties to the cause. Neither the district court of West Virginia, nor the purchasers, nor the Mercantile Trust Company, nor the Kanawha & Ohio Railway Company, knew of the existence of said certificates until three years after they were issued, and until two years after the cause in which their issue had been authorized had been finally adjudicated, and had completely passed from the jurisdiction of the court. The Adams Express Company never demanded of the Kanawha & Ohio Railway Company payment of the certificates, nor in any way, until the filing of its intervening petition in the action below, did it seek to enforce the lien which it claimed on the railroad property. On May 26, 1885, the decree of the foreclosure was entered in the action in the West Virginia district court. The decree of sale provided for the payment of $50,000 of the purchase money in cash, and for the payment of the remainder in bonds and coupons, to be taken at such value as the holders would be entitled to receive on distribution if the entire purchase price had been paid in money. The decree further provided: 'But, so far as the purchaser shall pay the purchase money in bonds and coupons, such payments shall not be final until the same is reported to, and shall be supervised and approved by, the court. It is further ordered, adjudged, and decreed that the funds arising from said sale shall remain subject to the further order of the court, and that all questions touching said fund and the distribution thereof, not disposed of by the foregoing decree, are reversed.'

The property was sold to Davis, Gallup, and Homans, purchasing trustees for the bondholders, for $600,000, and $50,000 was deposited, as required by the decree. The purchasing trustees also transferred to the depository of the court 5,103 of the mortgage bonds secured by the mortgage which was foreclosed. The sale was confirmed, but the decree of confirmation provided that, because it appeared that the portion of said purchase price necessary to be paid in cash could not be fully ascertained and determined until the coming in of the report thereinafter ordered and the action of the court thereon, the conveyance which the commissioners were ordered to execute to the purchasers should be made subject to the payment of any sums which the court might thereafter direct to be paid in cash on account of said purchase money, and that a vendor's lien should be reserved in said deed on the property and premises thereby conveyed for the security of such payment, with the right to resell on rule said property and premises, or any part thereof, if such payment should not be made within 30 days from the order of the court to that effect. The decree further appointed Joseph Ruffner a commissioner to ascertain and report to the court the amount of indebtedness due from the said receivers, or either of them, and he was ordered to file his report at or before the special term to be held in the month of January, 1886. The two receivers referred to were Sharp, appointed in West Virginia, and another appointed by the circuit court for the southern district of Ohio in an ancillary suit to sell in foreclosure the Ohio part of the road. The same decrees and orders of sale and confirmation were entered concurrently in both courts.

On the 19th of December, 1885, the special commissioners conveyed the railroad to the purchasing trustees, and the conveyance contained this qualifying clause: 'This conveyance is made subject to the payment of any sums which either of said courts may direct to be paid in cash on account of the purchase money, and a vendor's lien is hereby reserved upon the property and premises hereby conveyed, for the security of such payment, with the right reserved to either of said courts to resell on rule said property and premises, or any part thereof, if any such payment shall not be made within thirty days after the order of either of said courts to that effect.'

The purchasing trustees conveyed the West...