New York, P. & O.R. Co. v. New York, L.E. & W.R. Co.

• Decision Date: 21 October 1893
• Citation: 58 F. 268
• Parties: NEW YORK, P. & O. R. CO. v. NEW YORK, L. E. & W. R. CO. et al.
• Court: U.S. District Court — Northern District of Ohio

58 F. 268

NEW YORK, P. & O. R. CO. v. NEW YORK, L. E. & W. R. CO. et al.

United States Circuit Court, N.D. Ohio, Eastern Division.

October 21, 1893

Statement by LURTON, Circuit Judge:

This cause came on to be heard at a term of the United States circuit court for the northern district of Ohio, held at Cleveland, October 9, 1893, when, after argument by counsel for complainant and for the defendants, it was ordered that the defendants appear and show cause at chambers in the city of Cincinnati, on the 14th October, 1893:

'(1) Why it should not be adjudged and decreed that the said indenture of lease has not been abrogated or annulled, but continues to exist, and that all the provisions and covenants therein contained have continued and still continue to be obligatory upon the defendant company, its property and franchises, now in possession of this and other courts, in the suit and suits of the said Park, and in which receivers have been appointed.

'(2) Why it should not be ordered that the receivership aforesaid of the property and franchises of the defendant company granted and established by this court in the said suit of the said Trenor Luther Park be granted, extended and established in this suit, and that a suitable person or suitable persons may be appointed receivers of the said property and franchises in this suit.

'(3) Why it should not be ordered and decreed therein that the receivers so appointed do continue to operate the complainant's said leased lines of railroad and property in all respects according to the terms and provisions of the said lease, and perform all the covenants therein contained and specified to be performed by the defendant company; and that the said receivers keep a separate account of all the earnings of the said leased railroads and property, and file such accounts in this court at the end of each month, and the said receivers pay the rent accruing under the said lease when and as it becomes due and payable according to the terms thereof.'

Upon the argument of this rule to show cause the orginal bill and exhibits of the complainant, filed October 8, 1893, and certain affidavits in support of its allegations of fact, were read in behalf of the complainant. In answer to the rule the defendants read the original bill of Trenor Luther Park, filed in the circuit court of the United States for the southern district of New York, and now there pending against the defendant corporation the New York, Lake Erie & Western Railroad Company, and the answer of said corporation to said bill, and the decree appointing the defendants King and McCullough receivers for the property and franchises of said corporation. There was also read the intervening petition of the complainant corporation, filed in that cause, praying for a direction to the said receivers to pay to the complainant company the past-due rents, and the rents which should accrue thereafter under a certain lease for 99 years of the railroad owned or leased by the complainant corporation to the New York, Lake Erie & Western Railroad Company; also the decree of the said court on said petition refusing the relief asked. There were also read certain affidavits controverting many of the allegations of fact contained in the bill of complaint touching breaches of the covenant in said lease concerning the preservation of the property of the lessor company by the lessee company during the continuance of the lease.

From the pleadings in the general cause mentioned and the decrees thereon, and from the affidavits thus submitted, the following facts appeared:

First. That the defendant corporation is a New York corporation, owning a line of railroad extending from Jersey City, in the state of New Jersey, to Salamanca, in the state of New York, with certain branches to Dunkirk and Buffalo. That it also operated under contracts or leases various other lines extending to the coal fields of Pennsylvania; and that it held, controlled, and operated, under a lease for 99 years, the entire line of railroad owned by the complainant company, a corporation of the state of Ohio, extending from Salamanca, in the state of New York, to Marion and Dayton, in the state of Ohio, together with certain other lines in the state of Ohio, leased by the corporations owning them to the complainant corporation. This lease by the Ohio corporation to the New York corporation was made in 1883, and was for a period of 99 years, subject to an annual rental, and subject to forfeiture upon failure to pay the stipulated rents, or upon breach of certain covenants concerning the maintenance and operation of the leased lines.

Second. In July, 1893, one Trenor Luther Park, a citizen of the state of Vermont, filed his original bill in the circuit court of the United States for the southern district of New York, 'in behalf of himself and all other creditors who should join in the prosecution of his suit,' and who were creditors, with or without security, of the New York, Lake Erie & Western Railroad Company, alleging that he was a creditor of said company, as follows:

(1) Three of said first consolidated mortgage bonds of the par value of $1,000 each, interest upon which will become due September 1, 1893.

(2) One hundred of said second consolidated mortgage bonds of the par value of $1,000 each, interest upon which will become due December 1, 1893.

(3) One hundred of the funded coupon 5 per cent. bonds of 1885 of the par value of $1,000 each, interest upon which will become due December 1, 1893.

(4) The promissory note of said corporation, made December 1, 1892, for $34,000, payable on demand, bearing interest at the rate of 6 per cent. per annum, payment of which note has been demanded and wholly refused, and the same is now wholly due and unpaid.

And that complainant further alleged that the sum of $34,000 for which the note last mentioned was executed and delivered was advanced by him to the said corporation on December 1, 1892, and that the said amount, with other amounts advanced by others at or about the same time, were specially advanced as an emergency fund to meet the immediate and pressing necessities of the said corporation, with the understanding and agreement by said corporation that the said advances should be repaid within a short time thereafter out of the earning and income of said corporation in preference to all other claims whatsoever, and that the said earning and income were and are in effect pledged for the security of such special advances; that the said corporation has not paid any part of said advances, and that it is unable to do so, but that there has been a large amount of net earnings realized, which should have been used to pay said special advances, but the same have been used by the said corporation for other purposes; 'that accordingly the condition of the agreement and pledge upon which said advance was made has been broken, and remains in default, and that the complainant and others who made similar advances are entitled to a lien upon the earnings and income of the said corporation for the amount thereof.'

Said bill so filed by said Park also alleged that the property of the said corporation was subject to a number of mortgages securing several series of negotiable bonds. That, in addition to its bonded debt, a large floating or unsecured debt, aggregating upwards of $5,000,000, had been created, and that many creditors of this class were pressing for immediate payment, and about to bring suit therefor, and levy attachments on the rolling stock, material, and supplies and other property of the said corporation on hand and kept by the said corporation for necessary use in operating its railroad. Among other facts stated in order to secure a receiver and procure the administration of the property of the said company by a court of equity for the benefit of all its creditors, were these:

'That the only means whereby the said New York, Lake Erie & Western Railroad Company can pay the interest upon its mortgage bonds, including that due upon the bonds held by the complainant, or can pay its floating debts and discharge its current obligations, is by the continued maintenance and operation of its railroad system, and by the friendly interchange of business with all connecting roads, and by the prompt collection of the revenues accruing from time to time by the operation of said railroad, and by the uninterrupted use of all its railroads, rolling stock, and property whatsoever; and that any suits or attachments levied upon such revenues and property would seriously embarrass and cripple it, and diminish, if not destroy, its power successfully to operate the said road in the exercise of its railroad franchises.

'That the said New York, Lake Erie & Western Railroad Company is engaged in operating a certain railroad running from Salamanca, in the state of New York, to Marion and Dayton, in the state of Ohio, and forming an important part of its main line, by virtue of a certain lease heretofore executed between the New York, Pennsylvania & Ohio Railroad Company and the said New York, Lake Erie & Western Railroad Company, to which, and the amendments thereof, begs leave to refer for the particulars thereof. That, in order to maintain its rights under the lease, and to continue the use and enjoyment of the said leasehold property, it will be necessary, under the terms of the said lease, for the New York, Lake Erie & Western Railroad Company to make a payment of $240,000, due to the said New York, Pennsylvania & Ohio Railroad Company on the 31st day of August, 1893, and that, unless the said payment is promptly made, it will be a cause of forfeiture of the said lease, whereby the said lessor company can terminate the same, and that the

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