Railroad Company v. Howard
| Citation | 19 L.Ed. 117,7 Wall. 392,74 U.S. 392 |
| Parties | RAILROAD COMPANY v. HOWARD |
| Decision Date | 01 December 1868 |
| Court | United States Supreme Court |
APPEAL from the Circuit Court for Iowa. The case was thus:
The Mississippi and Missouri Railroad Company—a company in Iowa, and by the laws of that State, having power to issue its bonds to carry into effect the purposes for which it was created was incumbered by five several mortgages, given to secure bonds which it had executed, amounting, with arrears of interest, to $7,000,000; a sum greatly beyond what the road was worth. The interest was largely in arrears, and the company was insolvent. The Chicago and Rock Island Railroad Company—another company—made overtures for the purchase of the former road, offering to give for it $5,500,000, a sum more than it was worth, though, as just said, much less than what it owed. But the offer was contingent upon getting a title at once. The directors of the insolvent road had power, under its charter, to sell it on payment of its debts, and with the assent of two-thirds of its stockholders; but the only mode to make a satisfactory title which now seemed possible, was by a foreclosure under one of the mortgages; a matter which it was supposed, apparently, that it might be in the power of the stockholders by the interposition of difficulties, to delay. Under these circumstances, a meeting of the holders of the stock and of the various classes of mortgage bonds of the company was called, to determine what should be done with the road. And it was resolved, at this meeting, to sell the road for the $5,500,000 offered; provided, that the purchase-money be distributed among the bondholders and stockholders of the company, according to a plan or 'scale' specified, by which the different classes of bondholders were to be paid certain specified amounts, varying from 100 to 30 per cent. of the amount of their bonds, and the stockholders were to receive 16 per cent. of the par value of their stock, amounting to $552.400. A committee was appointed to arrange the details of the sale, and the mode of payment with the purchasing company; and the committee was instructed 'to make an arrangement with some trust company to receive the bonds and stock of the parties assenting and issue certificates therefor, setting forth what the holder thereof is entitled to receive.'
In pursuance of these resolutions, a written contract was made between the Mississippi and Missouri Railroad Company and the purchasing company, which in its caption was stated to be made 'in pursuance of resolutions passed by the meeting of the bondholders and stockholders' of the former company, by which it was agreed,
1. That the Mississippi and Missouri Company 'will take the proper steps, with all possible despatch, to cause the mortgages upon its line of road,' &c., & c., 'to be foreclosed, and its entire property, real and personal, sold, so that the purchaser shall be able to transfer a perfect and unincumbered title to such incorporated company as the Chicago and Rock Island Railroad Company may designate to become the purchaser and owner thereof.'
2. That the Chicago and Rock Island Company shall cause a company to be incorporated under the general law of Iowa, which shall purchase the said property for $5,500,000; and the Mississippi and Missouri Company agree that the purchaser, at the foreclosure sale, shall sell to such company so to be incorporated, 'for the sum and upon the terms herein stated and set forth.'- The committee appointed at the meeting, to carry into effect the sale of the road, made arrangements as instructed by the resolution appointing them with the Union Trust Company of New York, to act as their agent to receive from the holders of bonds and stock, assenting to the plan agreed on, their bonds and stock certificates, and to give receipts to them therefor. A written agreement was subscribed by the committee, and by each party so depositing bonds or stock, entitled, By this instrument (after reciting the action of the meeting, and the agreement of sale between the two railroad companies, 'in furtherance of' the resolutions of the meeting; and that the committee to effectuate this clearance and sale were about to foreclose the various mortgages, in order subsequently to convey a clear title to the purchaser or purchasers thereof) the subscribing bond and stock holders ratified and confirmed the authority given to the committee by the meeting, and consented to the foreclosure of mortgages, and sale of the Mississippi and Missouri Road thereunder; and to surrender their bonds and stock certificates, on signing the agreement, to the Union Trust Company, as agent of the committee, to be used in carrying out the sale and foreclosure.
The committee agreed to use all diligence in foreclosing; to convey the road, after foreclosure, 'as more fully set forth in the agreement between the two companies for $5,500,000; and to distribute the same among the holders of stock and bonds, according to the following scale, viz.' (specifying the amounts to be paid on the different classes of bonds, and the 16 per cent. to the stockholders, as agreed on at the meeting), the amounts to be paid in the form in which the proceeds of sale were received, and to be either money, or bonds secured as provided in agreement of sale between the railroad companies.
The trust company issued certificates to the depositors of stock, acknowledging the receipt of their old certificates of stock, and declaring them to be held subject to the agreement made by the depositors and other holders of the stock and bonds of the company, with the committee; and that the receipt now issued entitled 'the bearer' to so many dollars in the new bonds to be issued, and interest thereon at the rate of 7 per cent. per annum, from December 1st, 1865, less the excess, if any, of the cost of foreclosure, sale, and other expenses of the committee, &c. over and above $32,164, unappropriated balance of $5,500,000, derived from the sale of said road, and any and all the rights of the said depositor, under and by virtue of the agreement aforesaid.
On the back of the receipt was printed the scheme of distribution, specifying the proportion to be paid on each class of bonds and on the stock.
The holders of the stock and bonds (with unimportant exceptions) became parties to this agreement by depositing their stock and bonds with the trust company, signing the agreement, and taking their receipts as above.
The foreclosure was effected thus: Some holders of bonds, secured by the last mortgage, being dissatisfied with the above plan, caused a suit to foreclose that mortgage to be commenced in the Circuit Court for Iowa, in the name of the trustees of the mortgage, early in 1866. The Chicago and Rock Island Railroad Company subsequently purchased the bonds of these parties, and obtained the control of the suit, which was then turned over to the committee. Under their direction, cross bills to foreclose the other mortgages were filed, and a final decree of foreclosure of all the mortgages and for a sale of the road was had. A sale under this decree took place soon after, and the road was bid off by a new corporation, which had been organized under the Iowa law, for $2,200,000, which sale was afterwards confirmed, and a deed made in pursuance of it. The new company after the sale was consolidated with the Chicago and Rock Island Company, the consolidated company assuming the name of 'The Chicago, Rock Island and Pacific Railroad Company.' The $5,500,000 of bonds, agreed to be given for the property of the Mississippi and Missouri Company, were distributed as agreed on, except that portion thereof which was to have been divided among the stockholders. In regard to that, new claimants now appeared. These were, Howard, Weber, and numerous other persons, who had obtained judgments against the Mississippi and Missouri Railroad Company, on certain bonds of the cities of Davenport, Muscatine, &c., guarantied by the railroad company, but making no part of the bonds already mentioned, as executed by the Mississippi and Missouri Company, nor secured in any way by the mortgages foreclosed, nor provided for in the transactions above set forth. These creditors, on whose judgments executions had been issued and returned nulla bona, now filed a bill in the court below, to obtain satisfaction of their claims out of the fund of 16 per cent. allotted to the stockholders; making the committee who negotiated matters, all three railroads, and the city of Davenport (against which also they had obtained judgment) defendants. Answers were filed by the members of the committee, and by the Chicago, Rock Island and Pacific Railroad Company. The decree made in the case declared the complainants entitled to the fund, as creditors of the Mississippi and Missouri Railroad Company, directed its payment by the Chicago, Rock Island and Pacific Railroad Company to a receiver, its conversion by him into money, and distribution pro rata among the different creditors; providing also for subrogating the defendants to the rights and remedies of the plaintiffs, against the municipalities issuing the bonds, so far as they were paid out of the fund in controversy. From this decree the committee, and the Chicago, Rock Island and Pacific Railroad Company appealed; and this appeal constituted the present case: the principal question being, whether the court below, in allowing the creditors unprotected by mortgage to take away the 16 per cent. which had been allowed to the stockholders, had decreed rightly. The Mississippi and Missouri Railroad Company did not appeal.
Messrs. Emmot, Cook, and Drury, for the appellants:
1. We submit as a preliminary point that the guaranty made by the Mississippi...
To continue reading
Request your trial
-
Cumberland Valley Railroad Co. v. Gettysburg & Harrisburg Railway Co.
...page 34. Valid contracts made by a corporation survive even its dissolution by voluntary surrender or sale of its franchises: Railroad Co. v. Howard, 7 Wall. 392. general rule is thus stated in 19 Am. & Eng. Ency. of Law, 897: upon the execution of the lease, the lessee becomes bound by all......
-
Phelan v. Middle States Oil Corporation
...validity, to say the least." The holders of those notes were but creditors of UOP's stockholder, MSO. 59 See Mississippi & M. Railroad Company v. Howard, 7 Wall. 392, 19 L.Ed. 117, and the discussion of that case, as affecting the Boyd doctrine, in Frank, Some Realistic Reflections on Some ......
-
Phelan v. Middle States Oil Corporation
...& Gould v. Lebanon Iron & Steel Co., C. C., 151 F. 72, 76, 77. 35 Northern Pacific R. Co. v. Boyd, supra; Chicago, R. I. & P. R. Co. v. Howard, 7 Wall, 392, 19 L.Ed. 117; Louisville Trust Co. v. Louisville, etc., Ry. Co., 174 U.S. 674, 19 S.Ct. 827, 43 L.Ed. 1130; Kansas City Terminal R. Co......
-
State ex Inf. Atty-Gen. v. Long-Bell Lumber Co.
...a matter resting in the sound discretion of the board of directors as the price at which they would be sold. 14a C.J. 742; Chicago Railroad Co. v. Howard, 7 Wall. 392; People's Bank v. Manufacturers' Nat. Bank, 101 U.S. 181; Central Railroad Co. v. Trust Co., 114 Fed. 263; Central Trust Co.......
-
The Alteration of Ex Ante Agreements by the Bankruptcy Code.
...L. REV. 127 (1928) (242) Ayer, supra note 241, at 975. (243) See Case, 308 U.S. at 115-16 (citing Chi., R.I. & P.R. Co. v. Howard, 74 U.S. 392 (1868); Louisville Tr. Co. v. Louisville, N.A. & C. Ry. Co., 174 U.S. 674 (1899), N. Pac. R. Co. v. Boyd, 228 U.S. 482 (1913); Kan. City Ter......
-
The Fraudulent Conveyance Origins of Chapter 11: an Essay on the Unwritten Law of Corporate Reorganizations
...19 (repealed 1803).26. Burd, 4 Dall. at 86-87.27. Id. at 87-88.28. Id. at 93.29. Id. at 89. 30. Id. at 89.31. See R.R. Co. v. Howard, 74 U.S. 392 (1868).32. Id.33. Id.34. Id.35. Id.36. Id.37. Id.38. Id.39. Id. at 415-16. 40. Id.41. The Supreme Court relied in Howard on Wood v. Dummer, 30 F.......
-
Unwritten Law and the Odd Ones Out.
...with each other once the reorganization begins."). (42.) See id. at 16-17 (discussing Chi., Rock Island & Pac. R.R. Co. v. Howard, 74 U.S. 392 (43.) See, e.g., In re World Health Alts., Inc., 344 B.R. 291, 297-300 (Bankr. D. Del. 2006). (44.) To be clear, reorganizers do not accept all ......