The New Orleans bulletin. [volume] (New Orleans [La.]) 1874-1876, 1875-08-01
NEW ORLEANS BULLETIN
Ezw ORLEANS, AUGUST !. 1875.
LIABILITIES OF CORPORATIONS.

decision has been given in the United
States District Court of Northern Illinois, IN
which was involved the right of foreign bond
holders to recover against corporation.
The facts alleged and admitted are, that, on
She 7th day of September 1854, the Joliet
and Northern Indiana Railroad Company was
engaged in the construction of its line of
railroad from the city of Joliet northeasterly
10 point where the same intersects with tbs
railroad of the Michigan Central Railroad
Company, distance of about forty -four and
one-half miles, and, in order to raise funds
for the prosecution and completion of said
railroad, said company made trust-deed OF
mortgage to the complainant, julius Wads-
worth, and Theodore Sedgwick, as trustees,
conveying to said trustees all its railroad then
constructed and thereafter to be constructed,
together with its rights, franchises, real estate
and property of every description, to secure
she payment of 800 bonds of $1,000 each, bear
ing date on the 10th day Of July, 1854, and
payable in twenty years from date. with inter.
est thereon at the rate of s per cent per an
mum, payable semi-annually, on the 10th days
of July and January, "until the said princi-
pal sum should be paid"
About the same time the company leased
sheir road at an annual rental OF $4,000 per
mile to the Michigan Central Company, Civ
ing net annual rent Of $4,000, which was
pledged to the holders of the $500, 900 in
bonds for the payment of interest at per
cent and for accumulation of sinking fund
for the payment of the bonds at maturity.
The bonds matured July 10, 1874. Meantime
Che two companies were virtually merged in
one. The rental Of the road, after payment OF
interest on the bonds, was diverted to the pay
ment of dividends on stock.
The NJ. G. Company offered to compromise
With the bondholders by giving them new
8 per cen. bond in place Of their per
cent bonds matured, otherwise to foreclose
their mortgage, by which they would only
have AL miles Of naked railway. The bond
holders, accepting neither proposition, insist |
apon the lease being continued, the rental to |
be paid to q receiver and applied to the iqui-
dalton Of the bonded debt. The decision OF
she Court concludes as follows:
The only remedy, it seems to me, that these
bondholders have, is the right to receive the
tinguishment OF their bonds. The company has
no property except this fixed income in perpetu-
ity. and the only right Of these bondholders as
against the Michigan Central Railroad Company
is TO have the rental applied to the payment OF
their bonds. instead OF its being applied simply
30 the interest OF the bonds, and allow the
balance to go to the payment of dividends upon
the stock In TACT, it may be seriously questioned
whe her there was not breach Of faith ON the
part of the Joliet and Northern Indiana and the
Michigan Central railroad Companies in apply
dividends upon the stock, as it would seem that
with those bonds maturing, and this rent being
the only fund from which they could be paid,
good faith required that the money should have
been applied from the beginning to sinking
fund which would ut mately retire the bonds,
The companies have, however, applied the ex-
cess of the rental to the payment OF dividends, ,
and the bondholders now stand with no remedy
except to ask that hereafter the writ should be
applied upon their bonds, and for this purpose =
they SAX the appointment of o Receiver. l am
Df the opinion that the case made is q strcng c
Dne, appealing to equitable jurisdiction of the
Court, and Receiver will accordingly be APP
pointed. 1 have selected Henry f. Eames, Presi- Q
lent of the Commercial National Bank, and he
will be appointed Receiver, with authority to c
,ollect the rental from the Michigan Central t
Road and apply it the Court shall direct. His O
bond will be fixed at 500, 900. 7
In oil probability the theory involved in I.
his case will apply to the bonds of munich I
,al corporation, which, unlike State, is sub 3
ect to suit for public debt and the seizure e
nd application of its revenues and property
o the extinguishment of its debt. l