Smyths v. Cent. Vermont By. Co.

• Decision Date: 20 May 1914
• Citation: 90 A. 901,88 Vt. 59
• Parties: SMYTHS v. CENTRAL VERMONT BY. CO.
• Court: Vermont Supreme Court

90 A. 901

88 Vt. 59

SMYTHS

v. CENTRAL VERMONT BY. CO.

Supreme Court of Vermont. Franklin.

May 20, 1914.

Appeal from Chancery Court, Franklin County; E. L. Waterman, Chancellor.

Suit by Roland M. Smythe against the Central Vermont Railway Company. A decree pro forma was entered in favor of the orator on the pleadings and the master's report, from which defendant appealed. Reversed and remanded, with directions.

Argued before ROWELL, C. J., and MUNSON, WATSON, HASELTON, and POWERS, JJ.

W. B. C. Stickney, of Rutland, and C. W. Witters, of St. Albans, for appellant. Hollis R. Bailey, of Boston, Mass., and H. Charles Royce, of St. Albans, for appellee.

HASELTON, J. This is a suit in chancery brought by the holder of certain bonds or notes and attached coupons to secure payment thereof through the enforcement of a claimed lien on property held and controlled by the defendant company. The cause was first heard on demurrer to the bill. The demurrer was overruled and the benefit thereof was reserved to the defendant, and the defendant was given leave to make answer. Thereafter the defendant filed its answer and a cross-complaint. In due course the complainant joined issue with the defendant on its answer and filed an answer to the cross-complaint. The cause was referred to and heard by a special master, and after the filing of his report the complainant filed exceptions thereto. In 1912 the cause was brought on for hearing before a chancellor, and a decree in favor of the orator was rendered strictly pro forma, and without prejudice to either party by reason of the pro forma character of the decree. The defendant appealed to this court.

The bonds in question are five in number, each of the face value of $1,000, not including interest coupons, and are numbered 163, 166, 167, 178, and 179 of an issue of "Income and Extension Bonds" so called, dated May 1, 1872, and payable 30 years after date, that is, May 1, 1902. It was shortly after the latter date that this suit was brought.

The pro forma decree in favor of the complainant was for $33,429.73, as of the date of the decree, to secure the payment of which sum a valid and subsisting lien was declared to exist upon property of which the defendant is the present holder and owner, and as a part of the decree an order of foreclosure against such property was made, unless the sum above mentioned should be paid to the complainant within 60 days of the date of the decree.

With respect to the signers of the bonds, the circumstances under which the issue was made, and the rights and obligations thereby arising, the following facts appear:

In 1855 the Vermont & Canada Railroad Company brought a bill of complaint against the Vermont Central Railroad Company in the court of chancery for Franklin county, and thereafter such proceedings were had in the cause that both companies were placed in the hands of receivers, who later were also designated as trustees and managers. During the receivership it was necessary that the receivers, trustees, and managers should, from time to time, borrow money on the security of the property in their possession, and this they did by virtue of authority conferred by various decrees of the court of chancery.

In the spring of 1872 the trustees and managers, being in need of money to meet debts and liabilities already incurred, and to meet current obligations, were authorized by a decree of the court of chancery to issue and dispose of their notes to an amount not exceeding $2,500,000. The time of payment was to be not more than 30 years from date, and the interest was to be payable semiannually. The trustees and managers were to be without personal liability in respect to the issue, and it was ordered and decreed that the notes issued in accordance with the decree should constitute a lien and charge upon the trust property and earnings thereof under the control of the trustees and managers; and it was further provided that, in case the trustees and managers should fail to pay the notes or the interest thereon as it should become due, the holders of the notes, or any of them, might apply to the court of chancery for a realization of his or their securities, or for a summary order for the payment of the amount due out of the property or current earnings of the railroads under the control of the trustees and managers.

Pursuant to the authority conferred by the decree, the trustees and managers executed and issued notes for the full amount authorized. Each note recited that for value received the trustees and managers of the Vermont Central and Vermont & Canada Railroads, as trustees and managers only, and out of the funds and property and securities devoted to that purpose by virtue of the decree, would pay to ——— or bearer a sum named 30 years after date, with interest payable semiannually, at the office of the trustees and managers in Boston, Mass. The decree authorizing the issue was indorsed on the back of each note. The interest was expressed in coupons attached to the bonds. The issue of notes, as they are called in the decree, and as they are, at least in form, were known as "Income and Extension Bonds," and are spoken of indifferently as notes or bonds by the master. They are not under seal; but in accordance with common usage they will hereafter in this opinion be called bonds.

Obligations issued by receivers without personal liability, but constituting a lien on property, are not strictly negotiable instruments chiefly because there is no certainty as to the payor. Union Trust Co. v. Chicago, etc., R. Co. (C. C.) 7 Fed. 513, and cases cited; Union Trust Co. v. Illinois, etc., Co., 117 U. S. 434, 456, 6 Sup. Ct. 809, 29 L. Ed. 963; Turner v. Peoria, etc., R. Co., 95 Ill. 134, 35 Am. Rep. 144. But they are evidences of indebtedness authorized by the court, and, as here the court of chancery undertook to authorize the issue of these receivers' notes as negotiable paper, it seems that they should be accorded the usual attributes of negotiable paper. In fact this court has said of this very issue of securities, and of other like issues, "the bonds were negotiable in form, and have been sold and transferred like other negotiable paper;" and this court has accorded to these obligations the character of negotiable instruments, though pointing out that they were in fact "just what they purported to be—obligations of receivers and managers." Langdon v. Railroad Co., 53 Vt. 228, 272.

The obvious intent was to give these receivers' notes the negotiability of corporate notes and bonds so far as that could be done without comflicting with the doctrine of lis pendens, and the character of corporate notes and bonds as negotiable instruments, whether or not they are under seal, is well settled. Ide v. Conn. & Pass. Rivers Railroad Co., 32 Vt. 297; Morris Canal, etc., Co. v. Fisher, 9 N. J. Eq. 667, 64 Am. Dec. 432, and note; National, etc., Bank v. Hartford, etc., R. Co., 8 R. I. 375, 91 Am. Dec. 237, 5 Am. Rep. 582; Mercer County v. Hackett, 1 Wall. 83, 17 L. Ed. 548; White v. Vermont, etc., R. Co., 21 How. 575, 579, 16 L. Ed. 221; Marion County v. Clark, 94 U. S. 278, 24 L. Ed. 59.

In the spring of 1873 the receivers, trustees, and managers of the Vermont Central Railroad Company, who had issued the bonds in question, went out of office, and were succeeded as receivers, trustees, and managers by the Central Vermont Railroad Company incorporated in 1872. A majority of the former receivers who had personally managed the railroads were directors and officials of the Central Vermont Railroad Company, and as such directors and officials continued to give the same attention as formerly to the management and control of the property. Meanwhile, that is, in the fall of 1872, the floating debt of the receivers, trustees, and managers, amounting to nearly $2,800,000, had gone to protest, and immediately thereafter there was litigation involving, among other things, the validity and priority of the indebtedness created by the receivers, trustees, and managers, and especially the question of whether such indebtedness was binding upon the property of the Vermont & Canada Railroad Company. The master reports that the litigation referred to is that which was decided by the Supreme Court of Vermont in 1882, and reported under the title of Langdon v. Vermont & Canada Railroad, 54 Vt. 593. The construction of that decision the master properly submits to the court.

The character of the indebtedness incurred by the receivership was a matter of discussion; but in Langdon v. Railroad Co., 54 Vt. 593, decided in 1882, which was but a continuation of the proceedings reported in the case of the same name in 53 Vt. 228 it was held, Judge Redfield delivering the opinion of the court, that the property had been in the custody of receivers and managers as officers of the court continuously from 1861 to the date of the decision, 1882, and that the bonds negotiable and outstanding were receivers' obligations which were, or might be declared, a charge in the nature of an equitable mortgage on the property, the subject of the trust, and a decree was made looking to the settlement of the accounts of the receivers and the winding up of the receivership.

It appears from Langdon v. Railroad Co., 53 Vt. 228, 260, that there were issued, negotiated, and outstanding of the various issues of receivership bonds $4,357,000, that, of the authorized issue of income and extension bonds of $2,500,000, there were issued, negotiated, and outstanding $680,900, which had been exchanged for a previous issue of bonds, and in addition $1,008,600, making in all the issued, negotiated, and outstanding income and extension bonds $1,689,500, and leaving of the authorized issue $810,500 not appearing to the court to be both issued and outstanding, and not treated by it as such; and since the court was passing upon the whole situation necessarily declared to be not outstanding, and as a simple...