New England Water Works Co. v. Farmers' Loan & Trust Co.

• Decision Date: 07 February 1905
• Docket Number: 1,073.
• Citation: 136 F. 521
• Parties: NEW ENGLAND WATER WORKS CO. et al. v. FARMERS' LOAN & TRUST CO. et al.
• Court: U.S. Court of Appeals — Seventh Circuit

136 F. 521

NEW ENGLAND WATER WORKS CO. et al. v. FARMERS' LOAN & TRUST CO. et al.

No. 1,073.

United States Court of Appeals, Seventh Circuit.

February 7, 1905

The bill on which the decree appealed from was based, filed originally in the Circuit Court of Madison County, Illinois is by the Farmers' Loan and Trust Company, trustee, a corporation of New York, against the New England Water Works Company, a corporation of Rhode Island, the Alton Water Works Company, a corporation of Illinois, the American Loan and Trust Company, a corporation of Massachusetts, the United Water Works Company, a corporation of New York, the Boston Water and Light Company, a corporation of Maine, the International Trust Company, trustee, a corporation of Massachusetts, Charles A. Caldwell, trustee, a citizen of Illinois, and Anson A. Lyman, trustee, a citizen of Massachusetts.

The purpose of the bill is to foreclose a deed of trust executed by the Alton Water Works Company to the Farmers' Loan and Trust Company, to secure an issue of two hundred thousand dollars of bonds, one hundred sixty-nine thousand dollars of which were then outstanding, thirty-one thousand dollars being still held to take up the bonds issued under a prior mortgage to Caldwell, trustee. The property mortgaged was the franchises of the Alton Water Works Company, together with the plant, and all after acquired property.

The bill avers that subsequent to the execution of these mortgages, the Alton Water Works Company conveyed its property and franchises to the New England Water Works Company, subject to the mortgages mentioned: that, thereupon, a year later, the New England Water Works Company executed its trust deed to the American Loan and Trust Company of Boston, purporting to cover all its property and franchises, to secure an issue of three hundred thousand dollars of bonds, two hundred thousand of which was to be reserved by the trustee to take up the bonds outstanding under the previous mortgages; that after the making of such mortgage, the mortgaged property was extended and enlarged by the installation of a new pumping station, on the banks of the Mississippi above the town of Alton, and the laying of mains connecting such pumping station with the water works system of Alton; and that such new pumping station and connecting mains were 'after acquired property' within the meaning of the mortgages.

The bill sets forth that the Boston Water and Light Company claims to have an interest in the property described particularly in the new pumping works; that the International Company claims to have an interest as trustee, in a mortgage by the Boston Company, on an issue of bonds by the Boston Company upon the property claimed by it; that the United Water Works Company claims to have a judgment lien for the sum of twenty-five thousand, sixteen dollars, and sixty-five cents, upon the property of the New England Company conveyed and that Lyman claims to have a chattel mortgage lien upon the property conveyed. The bill denies the existence of any of these interests or liens, calls for strict proof thereof, and avers that whatever interests or liens such defendants may have, are subject and subordinate to the lien of the said trust deeds.

The prayer of the bill is, that an accounting be taken of the amount due on the bonds issued under the Farmers' Loan and Trust Company deed; that the amount found to be due may be decreed to be a lien upon the property mortgaged, including all after acquired property; that the equitable ownership of the new pumping works, and connecting water mains, may be ascertained, and the amounts due thereon and paid thereon, provided for; and that it be decreed that after a day fixed for payment of the amount so found due, the property and franchises, including the after acquired property covered by the trust deeds, be foreclosed.

Thereupon, before any other pleadings were filed by it, the Boston Water and Light Company removed the case into the United States Circuit Court, for the Southern District of Illinois, the petition for removal averring that as between the Farmers' Loan and Trust Company, a citizen of New York, and the Boston Water and Light Company, a citizen of Maine, there was a separable controversy growing out of the Farmers' Loan and Trust Company's claim that the trust deed to it covered, in addition to the property specifically mentioned, the new pumping station and connecting water mains already mentioned; and a motion by the Farmers' Loan and Trust Company to remand having been overruled, the case went to hearing in the United States Circuit Court. Answers were filed by the Boston Water and Light Company, the Alton Water Works Company, the New England Water Works Company, the American Loan and Trust Company, the International Trust Company, Lyman and Charles A. Caldwell; and also a cross bill by Charles A. Caldwell, setting up the trust deed executed to him, and asking for its foreclosure. The answers admit the execution of the mortgages, the amount of bonds outstanding thereunder, the default in interest payments thereon; the answers of the Boston Company, the International Company, the Alton Company, Lyman, and the New England Company, denying that the new pumping station, with its connecting mains, are after acquired property within the meaning of the mortgages sought to be foreclosed. On the hearing on the issue thus made, the following facts were brought out:

The original water company in the city of Alton was the Alton Water Works Company. It had a franchise that ran until 1902. On this franchise, together with the plant, the company executed its trust deed to Caldwell, as trustee, to secure an issue of bonds not to exceed seventy-five thousand dollars.

In 1886, of the bonds thus authorized, forty-six thousand had been actually issued. At that time, the stock of the company was purchased by one C. H.

Vennor, who almost immediately caused the company to make the new mortgage in question for two hundred thousand dollars, to the Farmers' Loan and Trust Company, covering its property and franchises, and all extensions and additions thereto, and all after acquired property. In this mortgage it was provided that fifty thousand dollars of the new bonds should be retained by the trustee for future extensions and improvements: that one hundred and four thousand dollars should be issued forthwith to the company; and that forty-six thousand dollars should be retained by the trustee to take up the forty-six thousand dollars outstanding under the Caldwell mortgage.

Under this arrangement the one hundred and four thousand went to Vennor; the fifty thousand, on the sworn certificate of the president and secretary of the company that extensions were to be made, were delivered to Vennor; and fifteen thousand of the Caldwell bonds were taken up by fifteen thousand of the forty-six thousand in the trustee's hands.

In 1893, the Alton Water Works Company conveyed its property and franchises to the New England Water Works Company, subject to the mortgages mentioned. Thereupon, a year later, the New England Company executed its trust deed to the American Loan and Trust Company of Boston, covering all its property and franchises, to secure three hundred thousand of bonds, two hundred thousand to be reserved by the trustee to take up the bonds outstanding under the previous mortgages, and one hundred thousand to be issued to the New England Company. It is said by Vennor in his testimony, that the one hundred thousand thus issued to the company, were sold by him at par.

The property of the Water Works Company at this time consisted of a reservoir, or tank, a pumping station equipped with a Corliss pump, and about twenty-six miles of water mains. Other than a bill of two thousand dollars for current expenses, it is not shown that the earnings of the company did not meet the current expenses. The record traces into the hands of Vennor, as stockholder of the two companies, fifty thousand dollars of bonds issued for extensions, and the one hundred and four thousand issued to the Company. What was done with those bonds, or their avails, is not clearly shown. What is clear, however, is that under any honest financing, these bonds or their proceeds, except such as had already been utilized in improvements and extensions, would have been available for the improvements and extensions that the city was about to demand.

In 1897 the Water Works Company was informed by the city that the water distributed...