Phila. Tr. Co. v. Northumberland Co. T. Co. et al.
| Decision Date | 22 May 1917 |
| Citation | 258 Pa. 152 |
| Parties | Philadelphia Trust Company, Trustee, <I>v.</I> Northumberland County Traction Company et al. Pennsylvania Steel Company <I>v.</I> The Sunbury and Susquehanna Railway Company. |
| Court | Pennsylvania Supreme Court |
Before BROWN, C. J., MESTREZAT, POTTER, STEWART, MOSCHZISKER, FRAZER and WALLING, JJ. Reversed.
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C. LaRue Munson, of Candor & Munson, with him J. Simpson Kline and George S. Munson, of Townsend, Elliott & Munson, for appellant.—The rights of the bondholders as creditors of the traction company were impaired by the refusal of the court to allow a foreclosure and sale of the property of the traction company: Galey v. Guffey, 248 Pa. 523.
The receivers could not legally be authorized to sell the property of the traction company divested of the plaintiff's first mortgage: Kuebler v. Haines, 229 Pa. 274; Lyons v. Benney, 230 Pa. 117; Lane v. Washington Hotel Co., 190 Pa. 230; Seventh National Bank of Philadelphia et al. v. Shenandoah Iron Co., 35 Fed. Repr. 436; Barclay v. Edlis Barber Supply Co., 39 Pa. Superior Ct. 482; Kneeland v. American Loan & Trust Co., 136 U. S. 89; Thomas v. Western Car Co., 149 U. S. 95; Bibber-White Co. v. White River Valley Electric R. R. Co. et al., 115 Fed. Repr. 786; Maryland Steel Co. v. Gettysburg Electric Ry. Co., 99 Fed. Repr. 150; Auten v. City Electric Street Ry. Co. et al., 104 Fed. Repr. 395; Chesapeake & Ohio Coal & Coke Co. v. Black, Sheridan & Wilson et al., 224 Fed. Repr. 924; Foster v. Barnes, 81 Pa. 377; In re Lebanon Brewing Co., 3 Pa. D. R. 260; Throckmorton's Ex'rs v. Lancaster & Southern St. Ry. Co., 33 Lanc. L. Rev. 233; s. c. 3 Penna. Corp. Rep. 606; s. c. 44 Pa. C. C. 569; Wabash, St. Louis & Pac. Ry. Co. v. Central Trust Co. of N. Y. et al., 22 Fed. Repr. 138; Commonwealth v. Susquehanna & Del. River R. R. Co., 122 Pa. 306; Fidelity Title & Trust Co. v. Schenley Park & Highlands Ry. Co., 189 Pa. 363.
The Public Service Company Law does not require the consent of the Public Service Commission before the plaintiff's mortgage can be foreclosed and a sale had thereunder.
W. L. Hill, of Warren, Knapp, O'Malley & Hill, for Scranton Trust Company, appellant.—The decree of the court deprives the bondholders of the Sunbury & Susquehanna Railway Company of rights guaranteed by the Constitution of the United States and by the Constitution of this Commonwealth: Galey v. Guffey, 248 Pa. 523.
Ellis Ames Ballard, with him J. Fred Schaffer and Boyd Lee Spahr, for appellee.—There is no impairment of the contract because the court directed a foreclosure of the mortgages: Fidelity Title & Trust Co. v. Schenley Park & Highlands Ry. Co., 189 Pa. 363; Old Colony Trust v. Allentown & Bethlehem Rapid Transit Co., 192 Pa. 596; Com. v. Susquehanna & Del. River R. R. Co., 122 Pa. 306; Philadelphia v. Elec. Traction Co., 208 Pa. 157; Hammock v. Farmers' Loan & Tr. Co., 105 U. S. 77; Vulcanite Paving Co. v. Philadelphia Rapid Transit Co., 220 Pa. 603.
The sale of the merged road in its entirety is not an impairment of the appellant's contract obligation: Union Canal Co. v. Gilfillin, 93 Pa. 95; Dalmas v. Philipsburg & Susquehanna Valley R. R. Co., 254 Pa. 9; Shepherd v. Pepper, 133 U. S. 626; Warner v. Grayson, 200 U. S. 257; Red River Valley Natl. Bank v. Craig, 181 U. S. 548; Farmers' Loan & Tr. Co. v. Cape Fear & Yadkin Valley R. R. Co., 82 Fed. Repr. 344; Low et al. v. Blackford et al., 87 Fed. Repr. 392; Union Trust Co. v. Illinois Midland Ry. Co., 117 U. S. 434; First Natl. Bank of Cleveland v. Shedd, 121 U. S. 74; Compton v. Jesup et al., 68 Fed. Repr. 263; Wheeling Bridge & Terminal Ry. Co. et al. v. Reymann Brewing Co., 90 Fed. Repr. 189; Dayton, Xenia & Belpre R. R. Co. et al. v. Lewton, 20 Ohio 401; Guaranty Tr. Co. v. Metropolitan St. Ry. Co., 168 Fed. Repr. 937; Gibert v. Washington City, Va. Midland & Great Southern R. R. Co., 74 Va. 586; Turtle Creek Boro. v. Penna. Water Co., 243 Pa. 401.
OPINION BY MR. JUSTICE MESTREZAT, May 14, 1917:
These three appeals are from two decrees of the Court of Common Pleas of Northumberland County, sitting in equity, and as the questions raised in all the appeals are practically identical they may be considered and disposed of in one opinion. The facts will be found in detail in the reporter's notes. They are principally of record and none of them, essential to the decision, is in dispute. The Sunbury and Susquehanna Railway Company, herein called the "Merged Company," was formed by an agreement, dated January 16, 1912, merging and consolidating the Northumberland County Traction Company, herein called "Traction Company," the Sunbury and Selinsgrove Electric Street Railway Company, herein called "Selinsgrove Company," the Sunbury, Lewisburg and Milton Railway Company, herein called "Lewisburg Company," and two other railway companies, the merger being made in pursuance of the Act of May 3, 1909, P. L. 408. Prior to the merger, the three specifically named constituent companies independently owned and operated street railways. They each secured an issue of first mortgage bonds by a mortgage or trust deed to a trustee on all the property and franchises then owned or thereafter to be acquired by them respectively, and the bonds are still outstanding and are due and unpaid. The merged company also secured a bond issued by a top mortgage and those bonds are outstanding and default in payment was made. On December 15, 1913, on a creditors' bill filed by the Pennsylvania Steel Company, the merged company was adjudged insolvent and receivers were appointed by the court below. Subsequently, the court declined to permit the Philadelphia Trust Company, trustee in the traction company mortgage, to foreclose its mortgage and sell the mortgaged premises, and granted the receivers an order to sell, as an entirety, the property and franchises of the merged corporation and its constituent corporations, divested of all liens against the consolidated and constituent companies. From these decrees, the Philadelphia Trust Company and the Scranton Trust Company, trustees in two of the underlying mortgages, have taken appeals.
The principal and controlling questions in the appeals are substantially the same, and may be stated as follows: (1) Can a court of equity deny the trustee under the traction company mortgage the right upon default to foreclose and sell the mortgaged property; (2) Can the court decree a sale of the merged road as a unit by the receivers divested of the lien of the underlying mortgages of the constituent companies; (3) Does the Public Service Company Law require consent of its commission to foreclose the underlying traction company mortgage?
The learned judge of the court below refused to permit a separate foreclosure and sale under the traction company mortgage, and the reasons assigned are that it would work irreparable injury to the bondholders of the other constituent companies and the merged company, would be to the manifest injustice of all classes of creditors, would result in imposing additional burdens upon the traveling public and materially inconvenience the public travel upon the railway, would disconnect the roads of the other two constituent companies and compel the receivers to operate them as a unit without any means of connection, would greatly impair the value of the rolling stock which is used on the whole system, would prevent marshalling the assets as between the liens and preferential claims and between the units composing the merged company, and the road would sell for a better price as a whole than if sold in parts.
We are not convinced that these or any other reasons brought to our attention are sufficient, under the facts of these cases, to justify the court in refusing to permit the trustee under the traction company mortgage to enforce its rights and those of the bondholders acquired by and in accordance with the terms of the mortgage. This obligation was given to secure a bond issue and is the contract between the company and its creditors, the holders of its bonds. The mortgage, in specific terms, imposes the obligation to pay the debt and interest of the bonds according to their tenor, and provides remedies, in case of a default in the performance of any covenant or stipulation of the contract, for enforcing the rights and liens of the bondholders. These remedies, as the mortgage discloses, are by a foreclosure or other appropriate proceeding, or by a sale of the mortgaged property by the trustee, and it is declared that "nothing herein contained shall be construed as abridging the power of the trustee to foreclose this indenture by bill in equity at any time after any default shall have been made and shall have continued as above provided." It is stipulated in the mortgage that, in any foreclosure or other sale of the property and franchises of the company in the execution of its provisions, the purchaser may use any of the matured and unpaid bonds and coupons toward payment of the purchase-price. It is conceded, and the court finds, that default was made in payment of interest on the bonds whereby the principal...
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