Case ID: ohio-st_17/html/0590-01.html
Source: Caselaw Access Project
Author: {"author": "\n      White, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Ebenezer Lane et al. v. Joseph Baughman, the Sandusky, Dayton and Cincinnati Railroad Company et al.
    1. An injunction may be allowed restraining the removal and sale on execution, of portions of the mortgaged property of a railroad company, on the application of the mortgagees, when the whole of the property mortgaged is admitted to be inadequate security for the payment of the mortgage debts.
    2. The remedy of the judgment creditor, in such case, is, in equity, to subject the interest of the mortgagor to the payment of his judgment; or where the nature of his claim is such as to entitle him to have it paid out of the earnings of the company, by proceedings to appropriate so much thereof as may be necessary to the payment of the judgment.
    Error to the district court of G-reene county.
    The plaintiffs in error, mortgagees of the Sandusky, Dayton and Cincinnati Railroad Company, formerly the Mad River and Lake Erie Railroad Company, filed their petition in the court of common pleas of G-reene county, asking an injunction to restrain the sale, on execution, of certain personal property in the possession of the company, which is particularly described in the petition, and which had been levied on by the defendants in error, Joseph Baughman and others, to satisfy certain judgments which they hold against the company.
    The petition shows that on the first-of July, 1846, the Sandusky, Dayton and Cincinnati Railroad Company was a corporation duly organized and incorporated under the laws of the State of Ohio; that the company then acting in their corporate capacity under the name of the Mad River and Lake *Erie Railroad Company, being about to issue their bonds to the number of two hundred, -for the sum of one thousand dollars each, payable on the first of July, 1856, with interest at the rate of seven per cent, per annum, payable semi-annually on the first days of July and January, of each .succeeding year thereafter, until the principal should be paid, to secure the principal and interest of said bonds, sold and conveyed to Matthias P. Sawyer, Samuel May, and Ebenezer Lane, as mortgagees and trustees for the benefit of the purchasers of the bonds, all the property of the company, present and future to be acquired, with all the income and resources thereof; the entire railroad of the •company, the lands, rights of way, embankments, tracks, buildings, superstructures, engines, tenders, locomotives, ears, machinery, and personal property of every kind and nature, belonging to the company ; all the rights of the company in or to any property either at law or in equity, as well those which the company then possessed, as those which they might thereafter acquire; together with all the tolls, rents, and income thereof, and all the rights, privileges, and franchises of the company, excepting only so much of the income as might be necessary to pay for the running expenses, repairs, and extension and construction of the road; the conveyance beingin trust for the purchasers of the bonds, or any of them.
    . And it was a condition of the mortgage, that if the company should at any time make default in, or fail to make payment of, the principal or interest of the bonds, or any part thereof, when cither or any part thereof should become due and payable, the company should and would, within three months after such default, upon the demand of the trustees, or a majority of them for the time being, or their attorney authorized in writing, deliver possession of all the property, real and personal, etc., aforesaid; and it was made the duty of the trustees, in case of such default, on the demand of the holders of the sixth part of the bonds, to make such demand and take possession of the road and property, etc. There was a further stipulation in the mortgage that, if the company should at any time omit or neglect, for the space of three months after the same should become due, to pay the interest on the bonds, or any part ^thereof, then the principal sum named in the mortgage should become due and payable. The mortgage then provides for the disposition of the proceeds of the property of the company, in case of sale, under decree and foreclosure, or otherwiser to the payment of the expenses of the trust and the holders of the bonds, and contains a condition of defeasance.
    Two other similar mortgages were executed by the company to-parties different from those to whom the first mortgage was given, and who are also- plaintiffs herein : one on the 1st of February, 1851, to Samuel Henshaw and others; the other on the 1st of February, 1855, to Wm. D. Peckham and others, each securing, bonds of the company to the amount of a million of dollars. These mortgages were all duly recorded.
    - The bonds secured by the mortgages were issued and negotiated to bona fide purchasers shortly after the dates of the respective mortgages; and the aggregate amount of indebtedness owing on-such bonds amounts to $2,226,715.
    On the 17th of December, 1861, the defendants in error recovered against the railroad company, before a justice of the peace, in Greene county, two several- judgments for damages on account of stock killed on the road — one for $38.30, and the other for-$38.45 and costs.
    On the 2d of January, 1862, they caused executions to be issued upon their respective judgments, and levied upon about fifth-eight cords of wood which, before that time, had been purchased by the railroad company for the purpose of being used in running its. locomotives and trains in the operation of the road, and placed at one of its stations- for such use. Defendants in error caused the-wood to be advertised, and were about to remove it from the possession of the company, and cause it to be sold at public auction for the satisfaction of their judgments.
    It appears that the entire indebtedness for which the several mortgages were given is due, and that the mortgages have become absolute. It appears also that the company is insolvent;, that its entire effects and property is insufficient to pay the indebtedness due under these mortgages.
    It is also shown by the petition, that the wood levied on by the defendants, is covered by the mortgages, and is part of *the plaintiffs’s security; that it is necessary for running and operating the road; that in consequence ,of its seizure and detention plaintiff’s security has already suffered from the delay of trains and other embarrassments to the operations of the road; that the plaintiffs have no means to supply the deficiency in their-security which would be caused by the sale of the wood; and that by such levy and threatened sale their security is endangered; that if the sale is permitted it will reduce the value of their security and subject them to irreparable loss and injury; and an injunction is prayed for to restrain the defendants.
    A- temporary injunction was allowed.
    The defendants in error filed a general demurrer to the petition.
    On the hearing of the cause the court overruled the demurrer and entered judgment for the plaintiffs, making the injunction perpetual.
    Defendants then removed the cause, on error, to the district court, where the judgment of the court of common pleas was reversed.
    The object of the present petition in error, is the reversal of the judgment of the district court.
    
      A. Cahill (of Odlin & Cahill) for plaintiffs in error, argued:
    The plaintiffs in error are entitled to the relief prayed for.
    Before condition broken, the railroad company held the property of the road in trust, exclusively for the mortgagees, until the debts secured by the mortgages should be paid. After condition broken, the mortgages became absolute, the right of the company to the possession of the property ceased; their possession became a naked trust without the power to use the property except at the will of the mortgagees. It will scarcely be claimed that the company would be permitted under such circumstances to dispose of the property for any other purpose than the payment of the mortgage debt.' It is peculiarly within the province of a court of equity to prevent such disposition for any other purpose, and the remedy is by injunction. Story’s Eq. Jur., secs. 913-915; Brady v. *Waldron, 2 Johns. Ch. 148; Robinson v. Litton, 3 Atk. 210; Farrant v. Lovel, Id. 723; Garth v. Cotton, Id. 755.
    But if the raidroad company will not be permitted to separate-this property from its uses under the trust created by the mortgages, nor to dispose of it for any other purpose than the payment of the-mortgage debt, how can the defendants in error, who succeed to the rights of the company only by the levy of their executions, be permitted to do so ? They can acquire no right over the property by their levy which the company does not possess.
    The remedy by injunction is the only adequate relief for the* plaintiffs in error. Coe v. Peacock, 14 Ohio St. 187, 191; Buxton 
      v. Lister, 3 Atk. 388; Lady Arundell v. Phipps & Taunton, 10 Ves. 148; Nutbrown v. Thornton, 10 Ves. 160; Ludlow v. Hurd et al., Disney, 552; 6 Am. Law Rep. 493; Cooper & Clark v. Wolf, 15 Ohio St. 523; Winslow, Trustee, etc. v. The Troy Iron and Nail Factory et al., Disney, 230; Phillips & Jordan et al. v. Winslow, Trustee, etc.; Woodward, Survivor, etc. The Same (Kentucky Court of Appeals, 1858), 2 The Weekly Law Gazette, Cincinnati, 4; Farmers’ Loan & Trust Co. et al. v. Hendrickson (Supreme Court of New York, 1858), 2 Weekly Law Gazette, 123.
    
      G. W. Dewey and J. S. Baggott, for defendants in error, Baughman et al:
    The judgment of the district court should be affirmed:
    1. Because the property levied on was personalty, and was in the possession, use, aud enjoyment of the railroad company, and therefore subject to levy by the creditors of the company, as its property. Coe v. The Knox County Bank of Mt. Vernon et al., 10 Ohio St. 412; Coe v. German et al. 14 Ohio St. 187.
    The fact that the property levied on was purchased for the purpose of running the “ engines and trains on the road, and for the purpose of running and operating said road, and is indispensably necessary for that purpose,” does not furnish ground for an injunction to restrain a sale of the property. Ib.
    ^Personal property, acquired subsequently to the execution of a railway mortgage, though comprehended by it, is not ■exempt, while in possession of the corporation, from levy by judgment creditors, of the company. Ib.
    2. The public, by the grant of the right' of way, and other privileges incident to such grant to a railway company, has acquired ..■such an interest in the regular and continued operation of the road -that it becomes a duty, incumbent on the party in control of the ■road, to operate it for the benefit of the public, and the obligation to do this affects the mortgagees as well as the company: as where the entire property is mortgaged, and the company, after condition broken, is permitted by the mortgagees to remain in possession and control of the road, and to operate it for the benefit of. the mortgagees; In such case, -the company is to be regarded as the agent of the mortgagees, who become equally liable with the company for the torts and misfeasances of its employes, engaged in operating •.the road.
   White, J.

The principle recognized in Coe v. The Knox County Bank et al., 10 Ohio St. 412, and in Coe v. Peacock, 14 Ohio St, 190, in the opinion of a majority of the court, is decisive of this case. The ground on which the injunction was denied in the case first named, was that it did not appear that the mortgaged property was insufficient to satisfy both the execution and the mortgage debt.

The facts in Coe v. Peacock were substantially like the facts in the present case; and it was held in that case, that as between an execution creditor levying upon part of the mortgaged property of an insolvent railroad company, and a mortgagee whose mortgage debt exceeded the value of the property covered by the mortgage, the whole equitable interest in the property was in the mortgagee, and that the creditor acquired no substantial interest by his levy. Consequently, it was further held, in that case, that though the mortgagee had, in violation of the terms of the mortgage, recovered in replevin the property levied on, yet the creditor was entitled only to nominal damages.

The right of the execution creditor to make the levy for *the purpose of obtaining a lien as to any interest of the mortgagor, subject to levy, is admitted, Ib. 190; Coe v. C., P. & I. R. Co., 10 Ohio St. 403.

But the operation of these railroad mortgages upon subsequently acquired property, both as against the company and its other creditors, having been settled by repeated decisions, an execution creditor has no right to disconnect, remove, and sell portions of the mortgaged property, when by so doing he would diminish the security of the mortgagee, which is admitted to be already inadequate. And that the mortgagee is entitled, in equity, to be protected against the assertion of such right by the execution creditor, is laid down in the opinion in Coe v. Peacock, page 191, where, in speaking of the rights of the mortgagee as against the execution creditor, Ranney, J., says: “ There is no doubt that, upon the facts stated in the record, that all the property mortgaged was largely insufficient to pay the debts incurred by it, and that the company was insolvent, he might have successfully invoked the interposition of a court of equity to prevent further proceedings upon the executions. •’

And in Coe v. The Piqua and Indiana Railroad Co., 10 Ohio St. 402, in speaking of liens by levy, it is said by G-holson, J.: “ When those liens are sought to be enforced by a removal of the property,, he [the mortgagee] might justly complain if his security was thereby endangered.” ■

But the mortgages in this case contain an express reservation of “ so much of the income as might be necessary to pay for the running expenses, repairs,” etc. We do not question that the liability of the company for which these judgments were rendered ought to-be regarded as included in the necessary expenses, and to be paid as such; or, perhaps, even without such express reservation, they ought to be regarded as incidental liabilities incurred by the company in operating the road, and to be deducted from the earnings-before the net income covered by the mortgages could be properly ascertained. *

But in this view the remedy of the judgment creditor would be, in equity, to charge the earnings of the company as a fund, and to-subject so much thereof as might be ^necessary to the payment of the judgment; not to remove and sell, by execution, disconnected portions of the mortgaged property, thus stopping the operation of the road, and depriving the mortgagee of his security.

Nor do we intend to deny the right of the defendants, in equity, either by answer in the nature of a cross-petition, or by original petition, to have the interest of the mortgagor ascertained and subjected, in such mode as may be consistent with the rights of the prior incumbrancers, to the payment of their judgments.

We are not unaware of the harships and difficulties frequently experienced by certain classes of creditors (especially those whose-claims are so small as not to justify expensive litigation for collection) of insolvent railroad companies whose property is mortgaged for more than it is worth, but who are, notwithstanding their default on the mortgages, allowed by the mortgagees to continue in, the use and operation of their roads. These inconveniences result in part from the magnitude and character of the business, and the-comprehensive operation, now firmly established by repeated decisions, given to this description 'of mortgages. The difficulties referred to could in a great measure be obviated by appropriate legislation, which we should be glad to see provided.

Judgment of the district court reversed, and that of the common pleas affirmed.

Day, C. J., and Welch, J., concurred.

Scott and Brinkerhoee, JJ., dissented.