Union Trust Co. of Indianapolis v. Curtis

• Decision Date: 12 June 1914
• Docket Number: No. 22426.,22426.
• Citation: 182 Ind. 61,105 N.E. 562
• Parties: UNION TRUST CO. OF INDIANAPOLIS v. CURTIS.
• Court: Indiana Supreme Court

182 Ind. 61

105 N.E. 562

UNION TRUST CO. OF INDIANAPOLIS

v.CURTIS.

No. 22426.

Supreme Court of Indiana.

June 12, 1914.

Appeal from Circuit Court, Huntington County; Samuel E. Cook, Judge.

Suit by the Union Trust Company of Indianapolis against John C. Curtis, receiver. From a judgment in favor of defendant, plaintiff appeals. Reversed, with directions.Addison C. Harris and Charles N. Thompson, both of Indianapolis, for appellant. Lesh & Lesh and Watkins & Butler, all of Huntington, for appellee.

COX, C. J.

The Cincinnati, Bluffton & Chicago Railroad lies between Huntington and Portland, and is a local line about 50 miles in length. When constructed, several miles of track eastward from Huntington was laid upon the right of way of the Erie Railroad. On March 13, 1903, a general creditor brought his action against the company, and, among other things, charged that it was insolvent, and prayed for the immediate appointment of a receiver. On the same day John C. Curtis was appointed receiver, took possession, and has been operating the road at all times since. On May 22, 1908, the receiver filed a petition showing that the road was indebted largely on construction accounts which were, or could be, secured by mechanics' liens; that large sums were due for labor performed within six months prior to his appointment, and there were judgments of foreclosure of mechanics' liens and materialmen about to be enforced; that there were many right of way claims unpaid; that he needed money to pay the current pay roll, to purchase a locomotive and a passenger coach, etc., and to pay them asked the court to direct an issue and sale of receiver's certificates in the sum of $95,000, and that they be made a first lien on the corpus of the property. Such proceedings were had that later the court ordered the issue and sale of certificates to the amount named, and by proper orders made the same a prior lien over an existing mortgage, and superior in priority and right to any certificates that might be issued in the future, or debts created thereafter; the certificates to bear interest at 6 per cent. semiannually, and the principal due one year after the date of issue.

William A. Guthrie purchased the issue, and the same is now held by the Union Trust Company. Nothing has ever been paid thereon except the first semiannual installment of interest. The trustees and bondholders under the mortgage consented to the issue as made. Shortly before the appointment of the receiver the railroad company, to obtain a subsidy from Huntington township, made an agreement with it through the board of county commissioners to the effect that, in consideration of the payment of the subsidy, the railroad would permanently maintain its line of railroad from the city of Portland to the city of Huntington; that it would permanently maintain its shops and terminals at Huntington; and that its freight and passenger rates should not exceed those charged by other roads in Indiana.

In the year of 1910 the Union Trust Company brought its action in the Huntington circuit court against the railroad company, the receiver, trustees, bondholders, and all persons claiming to have any lien upon, or interest in, or claim against, the railroad or the receiver for the enforcement of its lien under the certificates and the sale of the property; and such proceedings were had that a special finding was made and final decree was entered on December 5, 1910, determining and marshaling the amounts of each and every lien and charge, and adjudging that the lien held by the Union Trust Company, after taxes and certain named claims, was the first and prior lien on the corpus of the property, directing the sale, and ordering the proceeds to be distributed among the creditors, who were divided into six classes, in the order of their several priorities, numbered from A to F, inclusive. The first class (A) embraced taxes and certain claims unpaid. The second class (B) included the sums due for labor, material, and supplies furnished to the receiver and his attorneys. The third class (C) embraced only the claim of the Union Trust Company. The subsequent classes embraced the mortgage bonds outstanding as held by many persons, unsecured debts existing at the time of the receivership, and so on. The decree directed the receiver to advertise and to sell the road as an entirety on March 15, 1911, and among the directions given concerning the sale was one to the effect that the receiver should receive no bids for a less sum than $800,000. The receiver was further directed that if no sale was made on the day fixed then he should adjourn the sale from time to time and continue to reoffer the property without further advertisement. This has been done, but no bidder has ever been found to purchase the property at the “upset price,” and the receiver and the court have at all times published and declared that no bid would be received for a less price. A further condition of sale named in the decree was that the sale should be subject to the terms and the conditions of the contract of the company with Huntington township relating to the maintenance of its railroad and shops. The judge and receiver have both openly declared that any purchaser would be required to take the property under an obligation to operate the same with steam power. Some persons inspected the property with a purpose in view to take it over and to incorporate it into an electric railway system, but, on learning of the “upset price,” and also of the requirement as to the use of power, withdrew from the negotiation.

The receiver's indebtedness, including the certificates and unpaid taxes, aggregates $287,284.20. Since the decree of sale of date of December 5, 1910, the receiver has from time to time borrowed money and purchased material and supplies and the like, and, under the direction of the court, and without notice to, or knowledge of, the Union Trust Company, issued other receiver's certificates under orders giving them priority over the lien of the Union Trust Company. The subsequent certificates, called sometimes receiver's notes, outstanding exceed in all $65,000.

The equipment as acquired both before and since the receivership and now on hand, is worn out. During the year 1912 the State Railway Commission condemned the passenger cars as unfit for use. Thereupon the receiver bought of the Barber Car Company and put in use three gasoline motor passenger cars which are operated something like a trolley line. The remainder of the equipment consists of 12 secondhand freight cars, some old gravel cars, an old steam shovel, and 4 old locomotives which have been in use for about 20 years. The track is laid mostly with rails of 60 pounds to the yard. During the year 1912 a controversy arose between the receiver and the Erie Railroad which resulted in the latter's throwing the track off of its right of way, and the receiver relaid it for the distance along the Erie property and is using it in an uncompleted condition. The ties are old, many unfit for use, and the whole property is out of repair and going to waste. And so the trust dragged along at a great and continuing loss. With this situation of affairs, the Union Trust Company began its action on December 5, 1912, against the receiver and the holders of the subsequent receiver's certificates for the purpose of having it adjudicated that such certificates were inferior to the lien of the Union Trust Company; to remove the condition of sale requiring the purchaser to comply with the contract with the township and to maintain the shops and to operate the road with steam motive power; and to set aside the direction touching the “upset price”; and to require the property to be sold and the receivership to be wound up and the trust closed. In short, the action was to set aside and remove the obstructions preventing a sale of the property and to enforce the decree of sale and to wind up the receivership, which is being carried on at a great loss, and close the trust with due speed. No demurrers or other pleadings were filed by any of the defendants save only an answer of the receiver as to his operations and indebtedness; and answers by the certificate holders seeking to maintain their several priorities; and some answers by and on behalf of Huntington township seeking to maintain that the road must always be operated by steam. A motion filed by the Union Trust Company at the proper time to change the venue both from the court and the county was overruled. A trial was had beginning on April 23, 1913, during which several stipulations were made, among which was one that the passenger cars are of no value, and that the receiver's indebtedness created since the decree and unpaid as shown by his answer to be $97,319.27, and this sum does not include any interest on the various claims falling under classes A, B, C, and D, on which no interest has been paid.

At the conclusion of the evidence the court rendered judgment against the appellant that it was not entitled to the relief prayed for; that the upset price of $800,000 should not be removed or reduced; that the direction that the receiver should sell on condition that the road should be maintained and operated in accordance with the subsidy contract with steam motive power by any purchaser should not be eliminated nor modified; and that the question of the priority of the receiver's obligations should be deferred to the time of making order for distribution. The correctness of each of these three conclusions of the court is assailed by appellant in this appeal.

[1][2] We are met at the outset by a contention on the part of appellees that appellant's action was in the nature of a motion to modify or change the decree of sale, and that the denial of it bears such a relation to that decree that it must be deemed an appeal therefrom, and that the time for taking such an appeal has long ago expired, except by virtue of...