Miltenberger v. Logansport

• Decision Date: 20 November 1882
• Citation: 1 S.Ct. 140,106 U.S. 286,27 L.Ed. 117
• Parties: MILTENBERGER and others v. LOGANSPORT, C. & S. W. R. Co. and others
• Court: U.S. Supreme Court

106 U.S. 286

1 S.Ct. 140

27 L.Ed. 117

MILTENBERGER and others v. LOGANSPORT, C. & S. W. R. Co. and others.

November 20, 1882.

[Syllabus from pages 286-288 intentionally omitted] Charles M. Osborne, for appellants.

J. G. Williams and W. H. H. Miller, for claimants.

BLATCHFORD, J.

On the first of August, 1870, the Logansport, Crawfordsville & Southwestern Railway Company, an Indiana corporation, executed to the Fidelity Insurance, Trust & Safe Deposit Company, a Pennsylvania corporation, located at Philadelphia, as trustee, a mortgage to secure the payment of bonds to the amount of $1,500,000, covering the railway of the mortgagor from Logansport to Rockville, in length about 92 miles, with all its franchises and property used in or connected with the operation of said railway which the mortgagor then owned or might thereafter acquire. The bonds were coupon bonds, payable in gold in the year 1900, with interest at 8 per cent. per annum, in gold, payable quarterly on the first days of November, February, May, and August. The mortgage provided that in case of default in the payment of the principal or interest of any of the bonds the mortgagor would, within six months after the default should occur, it still continuing, surrender to the trustee, on its demand, the possession of the mortgaged property and all management and control thereof; that if possession should be so taken, all expenses of managing and operating the property should be paid from the income, and if the property should thereafter be sold, from the sale; that the trustee, having taken possession, might manage and operate the road and property, and receive all the income and apply it to pay the interest in default, first paying all expenses of management and all charges on the property; but that the trustee should not demand possession until required in writing to do so by the holders of at least one-half of all the said issue of bonds then unpaid and outstanding. The mortgage also provided that in case of such default, and its continuance, the trustee might, after such entry or other entry, or without entry, sell the mortgaged property as an entirety at public auction, having first demanded of the mortgagor payment of all money then in default, and convey title to the franchises and property to the purchaser, and first pay out of the proceeds of sale all advances or liabilities of the trustee in operating and maintaining the railway and property and managing its business and affairs while in possession, and then apply the proceeds to paying, first, the interest on the bonds, and then the principal; such payment to be made on the bonds whether they should have become due or not at the time of the sale. The mortgage also provided that if there should be a default continuing for six months after demand for the payment of any half year's interest, the principal of the bonds should immediately become due, and the trustee might so declare and notify the mortgagor, and on the written request of the holders of a majority of the bonds, should proceed to collect the principal and interest of the bonds by foreclosure and sale of the property, or otherwise, as therein provided. Up to and including August 1, 1873, the Logansport company paid the interest on the bonds. On November 1, 1873, and thereafter, it failed to pay any interest.

On the first of January, 1873, the Logansport Company executed to the Farmers' Loan & Trust Company, a New York corporation, located at the city of New York, as trustee, a mortgage to secure the payment of bonds to the amount of $500,000, covering the entire railroad of the mortgagor, with all the property which it had or might at any time thereafter acquire in the same, extending from Logansport to Rockville, about 92 miles in length, with all branch roads extending from said main line, built or to be built, with the right of way, and all the property used for operating and maintaining said road and branches, whether then owned or thereafter to be acquired, and all the corporate franchises of the mortgagor. The bonds were coupon bonds, payable in gold, in the year 1903, with interest at 8 per cent. per annum, in gold, payable semi-annually, on the first days of July and January. The mortgage provided that in case of default in the payment of any principal or interest, the mortgagor should, within six months after such default, the default continuing, surrender to the trustee, on its demand, the possession of the mortgaged property, and that the expense of managing the property should, if possession should be taken, be paid from the income, and, if necessary, from the sale of such personal property as the trustee might deem proper. The mortgage also contained a warrant of attorney, by which, in case of default by the mortgagor to pay any principal or interest for six months after the same should become due, it authorized any attorney or solicitor of the state of Indiana, after notice to it as thereinafter provided, to enter its appearance without process in any court of competent jurisdiction, to any bill filed by the trustee to foreclose and sell the mortgaged premises, and, if requested by the trustee, to consent, on behalf of the mortgagor, that a receiver be appointed forthwith, by order of said court, to take possession of said railway or any part thereof, and of all or any of the mortgaged property, on such terms as the court should prescribe, and to consent that a decree forthwith pass for the sale of the whole or any part of the mortgaged property, without appraisement, but under the direction of the court, provided that the trustee should not demand a surrender of possession, or file a bill to foreclose and sell, unless requested in writing by the holders of a majority in interest of the bonds at par. The mortgage also provided that in case of default in the payment of any interest for six months after the demand of payment after due, the whole principal money named in the bonds should become due, and that in case of a sale the proceeds should be applied—First, to paying the trustee all reasonable expenses; second, to paying the principal and interest of the bonds; and, third, to paying the surplus to the stockholders. The mortgage declared that it and its lien were subordinate to the mortgage to the Fidelity Company. The mortgagor did not pay any of the interest which fell due January 1, 1874, and July 1, 1874, respectively.

On the twenty-sixth of August, 1874, the Farmers' Loan Company filed, in the circuit court of the United States for the district of Indiana, a bill for the foreclosure of the second mortgage, making as parties the mortgagor and the Fidelity Company and certain judgment creditors of the mortgagor. The bill set forth that the mortgage to the Fidelity Company covered the same property as the second mortgage, and that the latter was subordinate to the lien of the former. It alleged facts showing that, by the terms of the second mortgage, the entire indebtedness secured by it had become due; that a majority in interest of the holders of the second-mortgage bonds had, in writing, requested the plaintiff to foreclose the mortgage, and it had, more than 30 days before filing the bill, given notice to the mortgagor of its purpose to file the same; that the mortgagor was insolvent and unable to pay its debts; that its entire property and franchises were not equal in value to the amount of the two series of bonds; that its earnings, after paying current expenses and necessary repairs, were inadequate to the payment of interest on the two series of bonds; that the only possibility that it would in the future be able to pay the interest on the mortgage debt depended on its, or some person's, as its representative, being permitted to operate the road untram- meled by the embarrassments under which it labored; that it had a large floating debt, partly in judgment; and that executions had been levied on the property covered by the second mortgage and used by it in the operation of the road, and such property had been carried off by the officers of the law, whereby the operations of the road had been crippled, and the expense of its management increased, while its revenues were diminished. The bill prayed a foreclosure of the rights of the mortgagor and of the judgment creditors, and a sale of the mortgaged property, and the application of the proceeds to the payment of the plaintiff's claims according to law. It also prayed the appointment of a receiver to take into his custody and control the mortgaged property during the pendency of the suit, to operate the railroad, receive its revenues, pay its expenses, make repairs, and manage its entire business, and any surplus revenues, after paying said expenses, to bring into court and pay out, under the order of the court, 'to such persons or corporations as shall be adjudged by the court to be entitled thereto.'

On the day the bill was filed the Logansport Company put in an answer admitting all the material allegations of the bill, and that the plaintiff was entitled to the relief demanded.

On the same day, on the bill and said answer, the court made an order that the Fidelity Company appear, and plead, answer, or demur, to the bill on or before the first Monday of November then next, and that a copy of said order be served on it not less than thirty days prior to that day, and directing that Spencer D. Schuyler be appointed receiver, on filing a bond, to take into his custody and control the mortgaged property, and all the property of the mortgagor of every kind and wherever situate, and empowering him to operate and manage said road, receive its revenues, pay its operating expenses, make repairs, and manage its entire business, and to pay the arrears due for operating expenses for a period in the past not exceeding 90 days, and to pay into the court all revenue over operating expenses.

On the twenty-ninth of August, 1874, a copy of said order was...