McGourkey v. Toledo & Ohio Central Ry. Co.
146 U.S. 536 (1892)

Annotate this Case

U.S. Supreme Court

McGourkey v. Toledo & Ohio Central Ry. Co., 146 U.S. 536 (1892)

McGourkey v. Toledo and Ohio Central Railway Company

No. 35

Argued November 4, 1892

Decided December 19, 1892

146 U.S. 536

Syllabus

On the 2d of April, 1884, M. flied a petition to intervene in a suit which had been commenced January 2, 1884, for the purpose of foreclosing a mortgage on a railroad. A receiver had been appointed, and was in possession of the road and rolling stock. The intervenor claimed title to a large part of the latter. The petition prayed (1) that the receiver perform all the covenants of the lease, and pay all sums due, etc.; (2) or that he be directed to deliver to petitioner the rolling stock in order that the same might be sold; (3) that he be directed to file a statement of the number of miles run, and of the sums received for the use of such rolling stock; (4) that it be referred to an examiner to take testimony and report the value of the use of such rolling stock while in the custody of the receiver, and that the receiver be directed to pay the amount justly

Page 146 U. S. 537

, etc. On the 10th of December, 1884, a decree of foreclosure and sale of the railroad and after acquired property was entered. On the 9th of June, 1885, a decree was rendered upon the intervening petition ordering the receiver to deliver up to the petitioner certain cars and locomotives to be sold. On the 14th of August, 1886, answers were filed, under leave, to the intervening petition, setting up title in the respondents to the rolling stock. The court found against the intervenor as to most of the stock, and his petition was dismissed. Held that the decree of June 9, 1885, was not a final judgment.

If a court make a decree fixing the rights and liabilities of the parties and thereupon refer the case to a master for a ministerial purpose only, and no further proceedings in court are contemplated, the decree is final; but if it refer the case to him as a subordinate court, and for a judicial purpose, the decree is not final.

The cases respecting final and interlocutory judgments, and the distinction between them, reviewed.

Any arrangement by which directors of a corporation become interested adversely to the corporation in contracts with it, or organize or take stock in companies or associations for the purpose of entering into contracts with the corporation, or become parties to any undertaking to secure to themselves a share in the profits of any transactions to which the corporation is a party, are looked upon with suspicion.

On all the facts in this case as detailed in the opinion of the Court, infra, held:

(1) That the contracts with the trustee for the holders of the car trust certificates was voidable at the election of the corporation.

(2) That it was in law a purchase by the railway of the rolling stock in question.

(3) That the device of the certificates was inoperative to vest the legal title in the petitioner or to prevent the lien of the railway mortgage from attaching to it or to prevent the delivery of the rolling stock to the road.

(4) That being the property of the road, the petitioner was not entitled to rent.

(5) That the leases might be treated as mortgages, and that the petitioner's interest thereunder was subordinate to that of the mortgage bondholders.

(6) That the transaction, though not an actual fraud, was a constructive fraud upon the mortgagees.

These were two intervening petitions filed by McGourkey, as trustee for the holders of certain car trust certificates, to compel the performance by the receiver of the defendant railway company of the covenants of certain leases made by the petitioner with said company or the delivery by the receiver

Page 146 U. S. 538

to the petitioner of a large amount of rolling stock described in these leases, in order that the same might be sold, and for an account and payment of the rental value of such rolling stock while in the custody of such receiver.

On January 7, 1884, the Central Trust Company of New York filed its bill in equity in the Circuit Court of the United States for the Northern District of Ohio for the foreclosure of a certain mortgage for $3,000,000, for nonpayment of interest, the mortgage covering not only the line of the railroad between the terminal points, but the rolling stock,

"together with all the engines, cars, machinery, supplies, tools, and fixtures now or at any time hereafter held, owned, or acquired by the said party of the first part for use in connection with its line of railroad aforesaid."

There was also a covenant for further assurance applicable to

"all such future-acquired depots, grounds, estates, equipments, and property, as it may hereafter from time to time purchase for use in and upon said line of railroad, and intended to be hereby conveyed."

Upon the filing of the bill, the railroad company entered its appearance, waived a subpoena, and consented to the appointment of a receiver, and upon the same day, John E. Martin was appointed receiver, with the usual powers in such cases.

On April 2, 1884, the petitioner, George J. McGourkey, intervened by leave of the court and filed two petitions, based upon three car trust leases, known as "Lease A," "Lease B No. 1," and "Lease B No. 2." The first petition represented that the agreement known as "Lease A" was entered into on August 20, 1880, whereby the railroad company agreed to hire from petitioner, as trustee, 800 coal cars and 14 locomotives for a period of ten years from the date of their delivery to the company, the company agreeing to pay as rent $100,000 on their delivery, and, in addition thereto, $40,000 per year, with interest at the rate of eight percent. That in case of default in payment of rent, petitioner might, at his option, remove such locomotives and cars, sell them at public or private sale, apply the proceeds to the payment of any installment of rent and interest not theretofore paid, for the whole term, whether such

Page 146 U. S. 539

installment was due or not, the surplus to be paid to the company; but if the proceeds should not be sufficient to pay the expense of removal and sale, together with the rent and interest, the company was to pay the petitioner the difference. That under this agreement he delivered 14 locomotives, marked "Ohio Central Car Trust," numbered 17 to 30, inclusive; also 800 coal cars, bearing the same marks. That the company defaulted in the payment of interest, and that petitioner demanded possession of the cars and locomotives, and was placed in possession of the same, but they afterwards passed into the possession of the receiver, who refused to deliver them up without the authority of the court. There were other covenants in the lease, a copy of which was annexed to the petition as an exhibit, not necessary now to be mentioned.

The second intervening petition was based upon car trust Leases B No. 1 and B No. 2, copies of which were attached to the petition as exhibits. Lease B No. 1 bore date March 1, 1881, and embraced 1,400 coal cars. Lease B No. 2 bore date March 1, 1882, and embraced 2,500 coal cars, including the 1,400 covered by Lease B No. 1; also 340 box cars and 13 locomotives. The two leases attached to this petition were not substantially different from Lease A in their general provisions. Both provided for the leasing of equipment not then in existence, bearing the numbers set out in the schedule thereto attached, to be delivered "as per the contract of the said McGourkey with the said makers." Leases A and B No. 1 provided that the railroad company might, for convenience, make the contract for the rolling stock directly with the makers. Lease B No. 2 also provided that the railroad company might, for convenience,

"make the contracts for delivery direct with the makers of said locomotives and cars, but so as in no way to affect the title of said party of the first part to said equipment."

All the leases provided that at all times, the name, number, and plate, or other signs of ownership of the said trustee, viz.,

"'Ohio Central Car Trust,' or the initials, to-wit, 'O.C.C.T.,' shall be affixed and retained upon each of the cars aforesaid for the purpose of making the ownership known, and in the event of any such marks or sign being

Page 146 U. S. 540

destroyed, the Ohio Central Railroad Company will immediately restore the same, and that such other things shall be done as by the counsel of said trustee shall be deemed necessary and expedient for he full and complete protection of the rights of said trustee as the owner of said cars for the benefit of the holders of said obligations."

Neither of these leases was ever recorded.

On December 10, 1884, a decree of foreclosure and sale was entered describing the property mortgaged as composed of the railroad between the specific termini, together with the after-acquired property, in the language in which the same was described in the mortgage. The property was bid in by a committee of the bondholders, who, with some of the stockholders, proceeded to reorganize the road under the name of the Toledo and Ohio Central Railway Company, the real defendant in this proceeding.

On June 9, 1885, a decree was rendered upon the intervening petitions of McGourkey, purporting to be after due proof of service of notice upon the Central Trust Company, the Ohio Central Railroad, and the receiver. By this decree, the receiver was ordered to deliver up to McGourkey the cars and locomotives described in said Lease A and said Leases B at convenient points to be designated by petitioner, being in all 27 locomotives, 340 box cars, and 3,300 coal cars. The equipment was delivered to McGourkey in pursuance of this order, and was by him, after leases of portions to the Baltimore and Ohio and the Toledo and Ohio Central Railway Companies, respectively, all sold at public auction for the benefit of his fiduciaries in December, 1885.

On August 14, 1886, the Toledo and Ohio Central Railway Company, and on the 1st of October, 1886, the Central Trust Company, answered, under leave of the court, the intervening petitions of McGourkey, averring that the locomotives and cars were sold and were paid for by the Ohio Central Railway Company, and passed under and became subject to its mortgage; that they were sold under the decree of foreclosure, and duly conveyed to the purchasing trustees, and thereby the leases from McGourkey became inoperative and of no effect;

Page 146 U. S. 541

that the purchasing trustees afterwards transferred all their right, title, and interest in the same to the Toledo and Ohio Central Railway Company, and that the same are now the property of such company. The answer closed with a prayer that both said leases and agreements be declared null and void, that McGourkey might be decreed to have no title or interest in said rolling stock, and that the railway company be put in possession thereof. The answer or the railway company was much more specific in its details, setting forth particularly how the same had been purchased and paid for.

On June 7, 1887, the special master filed his report, to which exceptions were filed by McGourkey to the amount allowed, and by the Toledo and Ohio Central Railway Company and the receiver to the special findings of facts, and also to the amount allowed.

The case subsequently came before the court upon exceptions to the report of the special master. The court found against the title of McGourkey to most of the property, and that, so far as he had established any right to or lien upon the rolling stock, it appeared that he had already been paid therefor by the company and the receiver more than he was entitled to, and his exceptions were therefore overruled, and his petitions dismissed. 36 F. 520. McGourkey thereupon appealed to this Court. The material facts are fully stated in the opinion of the Court.

Page 146 U. S. 544

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