Warren v. King

• Decision Date: 07 May 1883
• Citation: 2 S.Ct. 789,27 L.Ed. 769,108 U.S. 389
• Parties: WARREN and others v. KING and others. *
• Court: U.S. Supreme Court

108 U.S. 389

2 S.Ct. 789

27 L.Ed. 769

WARREN and others v. KING and others.^*

May 7, 1883.

G. P. Lowrey, for appellants.

E. M. Johnson, Benj. Harrison, and W. H. Peckham, for appellees.

BLATCHFORD, J.

In November, 1876, William King and others, holders of second-mortgage bonds and of Springfield Division bonds of the Ohio & Mississippi Railway Company, filed a bill in the circuit court of the United States for the district of Indiana, to foreclose two mortgages on the property of the company subject to a first mortgage. In August, 1877, Allan Campbell, a defendant in that suit and trustee of one of the two mortgages, called the second mortgage, and also of the first mortgage, filed a bill and a cross-bill in the same court to foreclose those two mortgages. In January, 1879, the two suits were consolidated. In December, 1879, George Henry Warren and others, as owners of preferred stock of the company, having been made parties defendant to the consolidated suit, filed a cross-bill. To this cross-bill a general demurrer for want of equity was interposed. The court sustained the demurrer, and entered a decree dismissing the cross-bill for want of equity. King v. Ohio & M. R. Co. 2 Fed. Rep. 36. From this decree the plaintiffs in that bill have appealed to this court.

The sole question involved is whether the preferred stockholders are entitled to have their shares of stock declared to be a lien on the property of the company next after the first mortgage. As the question arises on demurrer, the allegations of the cross-bill are to be taken as true. The Ohio & Mississippi Railroad Company, having been incorporated by Indiana in February, 1848, was incorporated by Ohio in March, 1849, and by Illinois in February, 1851. Under a second mortgage made by it in January, 1854, all the property and franchises of the Illinois company were sold, on a foreclosure of that mortgage, in June, 1862, to the Ohio & Mississippi Railroad Company, an Illinois corporation created in February, 1861, for the purpose of purchasing the property and franchises of the Illinois corporation of February, 1851. The property and franchises of the Indiana and Ohio corporations were sold, under judicial decrees, in January, 1867, subject to certain mortgage debt recited in the decrees, to Allan Campbell and others, 'trustees of creditors and stockholders of said Ohio & Mississippi Railroad Company, (Eastern Division.)' This trust was created by an instrument in writing, dated December 15, 1858, and known as the 'turst agreement of creditors and stockholders of the Ohio & Mississippi Railroad Company of Indiana and Ohio.' By it Allan Campbell and others were created trustees, for the purpose of providing for and protecting claims of judgment creditors and other persons holding liens on the property and franchises of the company, and also certain holders of unliquidated demands against it, and also the interests of the stockholders of the company. Such interests of the creditors and stockholders became vested in the trustees from time to time, so that on the fourteenth of September, 1867, they were the owners, subject to the terms of the trust agreement, of the rights, claims, and interests of all the creditors and stockholders of the company in its property and franchises, except those existing under a first mortgage made in May, 1853. The trustees issued, in exchange for the interests they so acquired, certificates in two classes, preferred and common. Under an amendment, made in April, 1863, to the trust agreement, the trustees purchased, for the benefit of the trust and the persons interested therein under the agreement of December, 1858, all the stock and a portion of the bonds of the Illinois company of 1851, sometimes called the Western Division.

On the fourteenth of September, 1867, the certificate holders, by an instrument known as 'Amendments to the trust agreement of December, 1858,' resolved that the trustees had made the purchase of January, 1867, for the benefit of those interested in the trust agreement of December, 1858, and had, in virtue of the amendment of April, 1863, purchased all the stock and a portion of the bonds of the Illinois company of 1851; that, by such purchases, the whole road from Cincinnati to St. Louis had become the property of the trust, subject only to outstanding mortgages; that it was the intention of all parties interested in the trust to form a new corporation, to which the entire property of the trust might be transferred, in accordance with the original agreement, such property to consist of all the rights and interests in the railroad in the three states; that the capital stock of the new corporation should consist of 35,000 shares of preferred stock and 200,000 shares of common stock, being in all $23,500,000 of stock, which should be issued and distributed to the owners of trustees' certificates registered on the books of the trust, as follows, namely, to owners of prefered certificates, preferred full-paid stock, for the amount of such preferred certificates, at the rate of one share of preferred stock for every $100 of preferred certificates; that it should 'be declared upon the face of said preferred stock that it is to be and remain a first claim upon the property of the corporation after its indebtedness;' that the holders thereof shall be entitled to receive from the net earnings of the company 7 per cent. per annum upon the amount of said stock, payable semi-annually, 'and to have such interest paid in full, for each and every year, before any payment of dividend upon the common stock of said corporation, and that whenever the net earnings of the corporation which shall be applied in payment of interest on the preferred stock and of dividends on the common stock shall be more than sufficient to pay both said interest of 7 per cent. on the preferred stock in full, and 7 per cent. dividend upon the common stock for the year in which said net earnings are so applied, then the excess of such net earnings, after such payments, shall be divided upon the preferred and common stock equally, share by share;' that the common stock should be issued to holders of common certificates at the same rate; that the new corporation should be authorized to create a new mortgage on its entire property, consisting of 340 miles of railroad from Cincinnati to St. Louis, and upon the contemplated improvements thereon, for an amount not exceeding $6,000,000, $4,000,000 whereof should be used exclusively to take up the then outstanding bonds issued under the mortgages theretofore created on said road; that, if a branch should be built to Louisville, the new corporation might increase the preferred stock at the rate of $10,000 for each mile in length of such branch, and the $6,000,000 mortgage to the amount of $15,000 for each mile of such branch; and that holders of the outstanding bonds of the old company, both eastern and western divisions, and holders of bonds to be issued by the new corporation, should be entitled to one vote for each $100 of bonds so held, at all stockholders' meetings, and on all affairs of the corporation.

Under statutes of Indiana and Ohio, Allan Campbell and others, as such trustees, became a corporation in those states by the name of the Ohio & Mississippi Railway Company. Its capital stock was fixed at 35,000 shares, of $100 each, of preferred stock, and 200,000 shares, of $100 each, of common stock, and provision was made, in the certificate of incorporation, for increasing its preferred stock in an amount not exceeding $10,000 a mile for each mile of a branch to Louisville. In November, 1867, the Illinois company and the Indiana and Ohio company were consolidated under the name of the Ohio & Mississippi Railway Company, by articles of consolidation which provided for issuing preferred and common capital stock of the consolidated company to the extent above stated, and that the consolidated corporation should be authorized to create a new mortgage on the road for $6,000,000, of which $4,000,000 should be appropriated and used to take up the then existing mortgage bonds of the property, and should have 'all such further powers and rights as are conferred and contemplated in certain amendments adopted by the certificate-holders at a meeting held by them on the fourteenth day of September, A. D. 1867, of an agreement dated December 15, A. D. 1858, of the creditors and stockholders of the Ohio & Mississippi Railroad Company of Indiana and Ohio, said agreement representing a trust which, at the date of said amendments, embodied the entire ownership of the property of both said companies so consolidated.'

The consolidated company issued preferred stock to the amount of 35,000 shares, upon certificates in the following form:

'OHIO AND MISSISSIPPI RAILWAY COMPANY.

'Reorganized and consolidated 1867

'Preferred Stock.

'This is to certify that _____ is entitled to *05r shares of the preferred capital stock of the Ohio & Mississippi Railway Company, of $100 each, transferable only...