Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1916-02-09
PR. R. LOSES SUIT
FOR NOT BACKING
CANAL COMPANY
railed to Maintain Sinking
Fund for Subsidiary
u. S. Court Rules
WOMAN is THE VICTOR

n,rion by Judge Dickinson, in the
~ e,otes District Court today. In
Untsu awarded $1,000 with interest from
vn ,oto to Mrs Alice Frances Brown
S guy, ,I,,,depce. r.. l., bondholder in the
o.s,,vania Canal Company, In suit
s feDn fn,st the pennsylvania Railroad Com.
s,, involves sums said by attorneys to
Pe.d Il 900 900. The suit was based on
=. taIlure Of the railroad company to
s,,,ain ui a sinking fund for the canal
nonv a subsidiary, and the cancella'
gan of sinking fund bonds purchased as
An Investment.
o,sor rulings in the opinion bear direct
~ The interests of other bondholders,
~ n will be shown by a decree to fol
~, arc entitled to about Sl,5OO,OOO from
~ railroad, according to Thomas Rae.
S,.r white, the attorney representing Mrs.
p.oyn and intervening plaintiffs, who are
i.,srosted to the extent of more than
100000.
rhs decision of the court is a rap at
.,o,noratons that utilize subsidiary COM
s.res TO further their own aims and
,bsrahv neglect the minority's rights. The
III which has been fought in State and
y
,.Is of high finance and corporation
~ssbods in the alleged manipulation of
.ho assets and affairs of a subsidiary
.hrorqh interlockng directorates and Of
H.ors and agents in the service of both
companies.
The failure of the railroad company to
maintain a sinking fund as provided by
a mortgage to meet the payment of
s,0OO 900 worth of bonds of the canal com
ranv at maturity, and the cancellation of
bonds that had been purchased out of the
sinking fund moneys, resulted in a loss
IA the bondholders of the canal company,
the court finds in its opinion. The bond
holders are entitled to the amounts thus
LOST, Judge Dickinson ruled, and said that
the exact amounts are to be given in
decree to be filed later.
LOSS TO BONDHOLDERS.
That the transactions were consum-
mated to benefit the railroad and to the
damage of the bondholders of the canal
company and that they were executed
in the name of the canal company, but
through the dictation of the railroads
officers and agents, was a ruling of the
court
The railroad company disclaimed re-
sponsibility for any action of the canal
planned, counsel asserting that the rail-
road company had not by any corporate
act had anything to do with the sinking
fund Of the canal company, and contend
Ing that II was not obliged to place in
the sinking fund moneys supplied by the
canal company for that purpose until the
interest had been paid on the coupons of
the bonds.
Judge Dickinson pointed out that the
g tI,.,f
munlty Of interest to further the objects
Of the railroad company. and what the
bondholders lost was gained by the rail-
road
CAN'T SERVE TWO MASTERS"
mo man can serve two masters, and
when he is in the service of two nominal
masters whose interests conflict he is pre-
sunled to have acted for that one who is
found, to have been th= real master" was
the doctrine which Judge Dickinson APP
piled to the relations of the officers and
managers of the canal to the railroad com
pany, and to the bondholders of the canal
company
The railroad company entered several
defenses to the suit the principal of which
were that it was not obliged to apply to
the sinking fund moneys supplied by the
canal company for that purpose until in
terest on the coupons had been paid, and
that under the mortgage, which secured
the bonds, 1t was not compelled to pay the
interest on invested securities
The mortgage covering the bonds pro-
Vlded that $4,000 out of the net earnings
of the canal company should be paid
annually into sinking fund to pay the
principal OF the bonds at maturity. The |
anal company was also required to pay
me interest but, If it could not, the
abroad company, by an agreement in |
lorsed on the mortgage, obligated itself |
o take care of the interest.
Inc mortgage also provided that the |
mixing fund moneys might be invested |
, bonds of other securities, from which |
ne bondholders would get the benefit |
i interest. The trustee of the mortgage, !
mich was made in 1870, securing the |
0hds, which matured in 40 years, has
ways been some one in high standing
the executive department of the rail-
oau company. The present trustee is
ahuel Rea, president of the railroad
ompany.
Juuse Dickinson finds that the bond
o'uers OF the canal company are entitled
, slilklng FUND moneys up to the limit of
HOVo that were yearly diverted to pay
lrerest' and to the loss through the can
,nation of the $l59,O0O worth of canal
'hpahy bonds by the railroad company
escape interest. The amounts to be
"arded will be specified later.
ONCE OWNED BY THE STATE.
The canal was formerly owned by the
ale OF Pennsylvania. After it's acquisi-
VI ny the railroad company, the canal
~ organized into corporation. and the
hroad company floated 100000 worth
ponds, covered by a mortgage on the
opefty' to furnish capital for the canal
hpahy Some of the bonds We're pur-
ased by relatives of Mrs. Brown, and
y obtained her holdings by bequest.
y provided by the mortgage, the canal
mpahy paid both to the sinking fund
interest, but later paid only to the
lAihg FUND because of reduced earn
81 and depended on the railroad COM
ny TO pay the interest. The railroad
upahy' though, paid the interest out
me moneys that should have gone to
sinking fund.