Galveston Railroad v. Cowdrey
78 U.S. 459

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U.S. Supreme Court

Galveston Railroad v. Cowdrey, 78 U.S. 11 Wall. 459 459 (1872)

Galveston Railroad v. Cowdrey

78 U.S. (11 Wall.) 459




1. Bona fide holders of railroad bonds, executed in due form and by the proper officers, cannot be prejudiced by the fact that the mortgage given to secure the same was executed out of the state, or by virtue of a resolution of directors, at a meeting held out of the state. The company and its privies are bound thereby.

2. One who purchases railroad bonds in open market, supposing them to be valid, and having no notice to the contrary, will be deemed a bona fide holder.

3. Where the trustees of it railroad mortgage or deed of trust are dead, a bill of foreclosure and sale may be filed against the company by one or more of the bondholders on behalf of themselves and all other bondholders secured by the same mortgage, or if there be several successive mortgages, the trustees of which are dead, and the complainants hold bonds secured by each mortgage, the bill may be filed on behalf of themselves and all the bondholders under each mortgage.

4. In such case, no injustice could be done because any bondholder not made a party would have a right to intervene and contest the priority of a mortgage earlier in date than that by which his bonds the secured, or the validity of bonds hold by any other bondholder.

A railroad company of Texas made four successive mortgages, in 1853, 1855, 1857, and 1859, and issued bonds under each; the road and its appendages were then sold under judgments in 1860; the purchasers operated the road until 1867, and realized large receipts therefrom. In 1857, after the making of the first three mortgages, the legislature passed a law subjecting the road and chartered rights of all railroad companies to sale for their debts, either under mortgages, deeds of trust, or judgments. Held:

First. That this law enured to the benefit of the three, first mortgages, as well its to that made and its to the judgment recovered after its enactment, and in the order of priority due to each.

Second. That the sale under the judgment did not disturb the priority of the mortgages.

Third. That although the three first mortgages covered and conveyed the tolls, income, and profits, yet the purchasers under the judgment were not accountable for the tolls and income received by them from the road before they received notice to pay them over to the bondholders.

Fourth. That although part of the road was entirely built by the money raised on the fourth mortgage, yet that fact did not give it priority over the first three mortgages, even on that portion of the road, provided it was a part of the chartered route.

Fifth. A railroad mortgage, as against the company and its privies, although given before the road is built, attaches itself thereto as fast as it is built and to all property covered by its terms as fast as it comes into existence as property of the company.

Page 78 U. S. 460

Sixth. The principle applicable to maritime cases, which gives priority of lien to the last creditor furnishing supplies and repairs for the conservation of the ship or voyage, does not apply to railroads. As to them, the common law rule prevails qui prior est in tempore, potior est in jure. Mechanics' lien laws have not been extended to railroads in Texas.

The bill was filed by Cowdrey and others, citizens of New York, against the Galveston, Houston & Henderson Railroad Company; another company of the same name (the "successor company" of the one just mentioned); the Galveston & Houston Junction Railroad Company; one Nichols, and fourteen other persons, all citizens of Texas (except one who was a citizen of Massachusetts), for the foreclosure and sale of the railroad of the said Galveston, Houston & Henderson company, with all its appurtenances, and all the property of said company, to pay in due order the several outstanding bonds issued under certain mortgages which it had made, to-wit, its first, second, and third mortgages, and to call the defendants to account for the tolls, income, and profits of the said railroad and property whilst in their possession. The bill was filed on the 12th of February, 1867, on behalf not only of the complainants, who alleged that they were large holders of the said bonds, but of all other holders thereof, who might come in and contribute to the costs and expenses of the suit.

It appeared from the pleadings and proofs that the Galveston, Houston & Henderson Railroad Company was chartered by an act of the Legislature of Texas on the 7th of February, 1853, for the purpose of constructing and operating a railway from the City of Galveston to the City of Houston and thence to Henderson, [Footnote 1] with such branches as they might deem expedient, with power, amongst other things, to take lands by condemnation and to acquire, by purchase, donation, or in payment of stock, such real estate as the directors should think desirable to aid in the construction

Page 78 U. S. 461

or maintenance of said road; and to alienate or mortgage the same for the constructing or maintaining said road; such alienation or mortgage to be signed in the name of the president and countersigned by the treasurer; also, with power to borrow money on their bonds or notes, at such rates as the directors should deem expedient, and generally to do and perform all such acts as might be necessary and proper for or incident to the fulfillment of their obligations and for the maintenance of their rights. And it was expressly declared by the charter that all conveyances and contracts executed in writing and signed by the president and countersigned by the treasurer or other officer duly appointed by the directors under the seal of the company and in pursuance of a vote of the directors should be valid and binding. By virtue of supplements to the charter and by general laws of the State of Texas, the company became entitled to grants of the public lands of the state, in virtue of which they subsequently acquired land certificates for 512,000 acres of land.

The company was duly organized under its charter and began operations for constructing its road.

On the 1st of December, 1853, the company made an issue of bonds -- its first issue -- consisting of fifteen hundred bonds, each for

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