Court Opinion

ID: 8125153
Source: CourtListenerOpinion
Date Created: 2022-09-09 15:05:17.514312+00
Date Added: 2024-06-11T16:39:11.631538
License: Public Domain

Miller, Justice.
This bill is brought by the trust company, a citizen of Now York, in the circuit court of the United States for the district of Kansas, against the railway company, a citizen of the United States, and others. The primary object of the bill is to obtain the direction of the court in regard to the performance of the duties of complainant, as trustee, under circumstances mentioned in the bill, and it comes before me on the bill, the answer, and cross-bill of the defendant company, and certain exhibits and affidavits.
I have not the time to write out in full the reasons governing my decision, a id in what I have to say must refer to instruments whose construction controls my action, without copying them, or even the material parts of them.
The Union Trust Company is .in possession of the road of the railway company, as trustee under two mortgages, and an agreement in writing concerning that possession, (the agreement of March, 1876.) Tlio possession was delivered under the written agreement and on order of 1 he court in the year 1876, and the road, its finances, and all its affairs have been managed by the trust company ever since. The reason for placing the possession of the road in the hands of the trust company ivas its failure to pay the interest on the mortgages *490of the railway company, in which event those mortgages contained a provision for such transfer of possession. In the actual event, however, the agreement already mentioned as to the nature and duration of the possession so transferred, and the duties and powers of the trust company while in possession, was the more immediate arrangement under which the trust company took charge of the road.
The main purpose of the control and possession of this long line of railroad, extending many hundred miles through several states and the Indian Territory, being placed in the trust company, was to secure the payment of the debts of the company, and especially of the first mortgage bonds, in regard to which the trust company was the trustee. The railway company, which was then much in debt, and had for some time failed to pay its interest, now comes forward and tenders all that is due and unpaid on any of its funded debt, alleges its ability in future to meet all its obligations as they mature, and demands to be restored to the possession and control of its property. If there exists no special reason to the contrary, this would seem to be a reasonable demand, for the principal of the bonds for which the trust company is trustee is not due for more than 20 years, and if the railroad company is ready to pay all the interest that is due, and is in condition to meet its future installments, it is difficult to see why its property should be kept out of its control, and in the hands of another corporation, for these 20 years.
Thq points raised by the trust company are (1) that the provision of the first mortgage, under which they hold, requires this; and (2) that the written agreement, (of March 1, 1876,) under which they, took possession, requires that they should at least hold it for the present.
The mortgage or deed of trust contains two distinct provisions as to the power of the trust company, in case of default of payment by the railroad company, found in articles 12 and 13 of the conditions of the instrument. Article 12 begins as follows:
“In ease default shall be made in payment of any interest upon either of said bonds when the same becomes due and payable, or in payment of any sum or sums of money hereinbefore provided to be made for the creation of said sinking fund, and such default shall continue for six months after the same has been demanded, the whole principal sums mentioned in each and all of said bonds then outstanding shall, at the option of holders of a'majority in interest of said bonds, become forthwith due and payable; -and in such case it shall be lawful for said party of the second part, [the trust company,] its successor or successors, to enter upon all and singular the railroads, property, and premises hereby conveyed, or intended to be conveyed, and to have, hold, use, and operate the same, until the same shall have been sold or otherwise disposed of, ” etc.
The provision as to what the trustees may then do is very full, and the power conferred very great.
But, without elaborating the matter, I am of opinion that the words “in such case,” referring to a state of case in which the power of *491entry and possession depends, mean the case in-which there has been a default in the payment, and on the declaration by the majority of the bondholders that the whole of the sums secured by the bonds and the mortgage has become duo, according to the option, the holders have to do so. Then, and not till then, do all these extraordinary powers in the trustee begin, and the remedy for a mere default in paying interest is found in section 13. It is as follows: “In case default be so made and continued as aforesaid, that is, for six months after demand, the party of the second part, its successor or successors in trust, may also, and upon the written request of the holders of at least one thousand of such bonds then outstanding, amounting to one millions of .dollars, shall foreclose this mortgage by legal proceedings,” or sell or cause it lo be sold at auction in the city of New York, etc. Both these sections contain specific directions for the execution of the powers which they confer; but these powers arise, under the first clause, when there is a default, and a majority of the bondholders declare the whole debt due; and, under the second clause, when there is a default, and the holders of a thousand bonds of a million of dollars in amount may demand foreclosure in court, or by sale of the trustee at public' auction in the city of New York.
Neither of these events has occurred. There has been no exercise, or attempt to exercise, the option of declaring all the bonds to be due, nor lias there been any demand by any of the bondholders or the trustee to foreclose the mortgage by either of the modes mentioned. I can see no right, under this mortgage, in the trust company to take or to hold possession of the road.
As regards the agreement of the parties (of March 1, 1876) under which the actual possession was taken, I cannot recite it here. It was made plainly for I he benefit of the railroad company, to prevent the necessity of a foreclosure of the mortgage by either of the modes pointed out in the instrument, and the period of six years, to which the possession was limited, was intended to give the company that much time to retrieve its condition, and resume payment of its interest. During this time the road was to remain under the control of the trust company, and no foreclosure was to be had if the company’s revenue could pay the reduced rate of interest. If this could not bo done, or if, at the end of six years, the railroad company could not resume them, and maintain the future payments of its interest installments, the parties were remitted to their rights under the original mortgage.
The business of the road has been so conducted that, with the aid of the increase of general prosperity, all the secondary or subsidiary mortgages and claims against the company have been paid or arranged, so that nothing is due and unpaid except parts of the two last installments of interest on the first mortgage bonds. There is in the hands of the trust company a large sum of money (say $300,-000) applicable to this payment, and the company, being now pros*492perous, offers to pay and tenders the balance. Must the trust company keep the possession for two years longer, under these circumstances, or should they accept the money, pay off the coupons, and return the road to the possession of the owners ? I think that the condition being for the benefit of the railroad company, it can waive the remaining two years of the agreement, and, when all- that is due is paid, they are entitled to the possession of their property.
It is suggested that the trust company owes a duty to what is called the second or income bondholders, which requires them to hold the possession. But that instrument has no provision for possession of the road until default, and there has been none here. It only covers the net income, after payment of the expenses and interest on prior mortgages, and its only remedy is that no dividend can be declared until the interest on it is regularly paid. I can see no right of the trust company to hold for these bonds.
It is also said that there is no such security that the railroad company will be able to continue the future payment of its interest as the agreement contemplates. I am of the opinion that in this counsel is mistaken; that the admitted facts, with the written instructions of the advisory board, which was organized under the agreement for the purpose of advising in just such case as this, are sufficient warrant for a surrender of the property.
Let a decree be drawn in accordance with this opinion.