Westinghouse Electric & Mfg. Co. v. Brooklyn Rapid Transit Co.

• Decision Date: 14 January 1920
• Docket Number: 98.
• Citation: 263 F. 532
• Parties: WESTINGHOUSE ELECTRIC & MFG. CO. v. BROOKLYN RAPID TRANSIT CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

263 F. 532

WESTINGHOUSE ELECTRIC & MFG. CO. v. BROOKLYN RAPID TRANSIT CO. et al.

No. 98.

United States Court of Appeals, Second Circuit.

January 14, 1920

Murray Prentice & Howland, of New York City (Charles A. Collin and Charles P. Howland, both of New York City, of counsel), for appellant.

Collin Wells & Hughes, of New York City, for committee of holders of bonds secured by first mortgage of the Brooklyn Rapid Transit Co.

Larkin & Perry, of New York City (H. V. Poor, John M. Perry, and Francis M. Scott, all of New York City, of counsel), for Central Union Trust Co. of New York, as trustee, etc.

Carl M Owen, of New York City (Carl M. Owen, Lindley M. Garrison and Harold J. Gallagher, all of New York City, of counsel), for receiver.

Before WARD, HOUGH, and MANTON, Circuit Judges.

MANTON Circuit Judge.

The Brooklyn Rapid Transit Company is a New York corporation, and was organized on January 18, 1896, for the purpose of furnishing power and equipment to railroads and other works, or assisting any corporation so to do, and with power to purchase, acquire, hold, and dispose of stocks, bonds, and other obligations of other corporations. Its corporate activity was that of a holding company since its incorporation until its later merger with the Transit Development Company on August 1, 1918. This merger resulted in certain real estate owned by the Transit Development Company, and which was subject to a lien of a first refunding gold mortgage, coming into its possession. By virtue of the pledge under said mortgage, certain obligations secured by the mortgage of the Transit Development Company were vested in the Brooklyn Rapid Transit Company, subject, however, to the first refunding gold mortgage trust. While the Brooklyn Rapid Transit Company existed alone in its financing, it purchased and acquired from time to time securities of other corporations; it also issued its corporate obligations in the form of bonds secured by the mortgages or deeds of trust.

On October 1, 1895, it made, contemporaneously with its incorporation, the mortgage or deed of trust herein considered, and named the Central Trust Company of New York its trustee. Since the Equitable Trust Company of New York has succeeded as such trustee. This mortgage secured $7,000,000, face value, 50-year 5 per cent. gold bonds, of which $6,970,000 are outstanding in the hands of the public, and the balance are pledged for various securities. There are pledged as security for these bonds, and deposited with the trustee under this mortgage, securities, the major portion of which were acquired by the Brooklyn Rapid Transit Company by purchase under the foreclosure sale of the assets and properties of the Long Island Traction Company. This mortgage makes no mention of real estate. The nature of its granting clause indicates a collateral trust of the securities actually pledged and deposited thereunder.

On July 1, 1902, the Brooklyn Rapid Transit Company gave its first refunding gold mortgage, which secured and then authorized $150,000,000 100-year 4 per cent. gold bonds, of which $27,623,000, face value, of the bonds, have been authenticated and delivered; $3,439,000 of these bonds are outstanding in the hands of the public; $10,000,000 are pledged as security under the agreements securing the 6-year and 3-year notes of the Brooklyn Rapid Transit Company; $7,079,000 are pledged as security for bank loans antedating the receivership herein referred to; $5,092,000 are held by the receivers of the Brooklyn Rapid Transit Company; $250,000 are pledged with the Brooklyn City Guaranty Fund; and $1,761,000 are owned by the Nassau Electric Railroad Company, which have been pledged by said company. Many thousands of dollars of par value of stocks, bonds, and certificates of indebtedness of various street railways and other companies have been deposited with the trustee as security for the first refunding bonds of the Brooklyn Rapid Transit Company.

The first refunding gold mortgage was closed by the consolidating and refunding mortgage of the Brooklyn Rapid Transit Company dated June 1, 1918, under which $29,000,000, face value, bonds, were authenticated and delivered, and which were deposited under a note indenture of the Brooklyn Rapid Transit Company dated July 1, 1919, securing an issue of $57,735,000 3-year 7 per cent. gold notes, of which $17,325,000 were held by the War Finance Corporation. This latter consolidated and refunding gold mortgage covers practically all the property of the Brooklyn Rapid Transit Company, subject, however, to the lien of a mortgage referred to, in which the Central Union Trust Company of New York is trustee. While it is said that all the mortgages of the Brooklyn Rapid Transit Company are now in the process of foreclosure, when the Sea Beach bonds were paid, as herein stated, the only pending foreclosure was that brought by the trustee of the consolidated and refunding mortgage.

The Brooklyn Rapid Transit Company reached the stage, on December 31, 1918, where it was unable to meet its obligations, and a receiver was appointed in this action in equity. In the mortgage of October 1, 1895, referred to as its first mortgage, and of which the Equitable Trust Company of New York is the successor trustee, made in order to make payment for the property and assets of the Long Island Traction Company, including the capital stock of the Brooklyn Heights Railroad Company, it was provided to--

' * * * grant, bargain, sell, assign, transfer and set over and deliver unto the trustee * * * all and singular the property and franchises of said Transit Company, whether now owned or hereafter acquired, including particularly the property hereinafter described, and does hereby pledge and hypothecate the same; that is to say: * * * '

The enumeration of the four classes of property 'hereinafter described' are as follows:

'(1) All right, title, and interest which the Transit Company now owns or may hereafter acquire in the stock of Brooklyn Heights Railroad Company.

'(2) All dividends, income, and interest, or increase, to which the Brooklyn Rapid Transit Company now is or may hereafter become entitled by reason of its interest in the stock of the Brooklyn, Queens County & Suburban Railroad Company.

'(3) All net profits in anywise derived or received by the Brooklyn Heights Railroad Company as lessee under that lease.

'(4) All right, title, and interest of the Brooklyn Rapid Transit Company in and to the cost of property, extensions, etc., paid for by the Brooklyn Heights Railroad Company out of its own funds for use of the Brooklyn City Railroad Company, being the Brooklyn City Construction account.'

Article 16 of the mortgage provided that, upon payment or other satisfaction of the principal or interest of all the bonds issued under the mortgage--

' * * * the trustee shall, on demand of the Transit Company and at its cost and expense, forthwith surrender, reassign, retransfer, and deliver to the Transit Company, its successors or assigns, all shares of stock and other property which may be then held by the trustee hereunder.'

This first mortgage was filed as a chattel mortgage on February 5 1896, and the filing was renewed each year thereafter until 1902; the last renewal being on January 22, 1902. It was not otherwise recorded. On September 1, 1916, the Brooklyn Rapid Transit Company acquired...