Shaw v. Bill - 95 U.S. 10 (1877)
U.S. Supreme Court
Shaw v. Bill, 95 U.S. 10 (1877)
Shaw v. Bill
95 U.S. 10
1. The appearance of counsel specially for a corporation, and his moving to dismiss the petition of an individual creditor for the appointment of a receiver of its property, do not preclude him from subsequently appearing for the trustee of the bondholders in proceedings to foreclose mortgages given by the corporation.
2. Upon a supplemental bill in chancery, a subpoena is not required unless new parties are made. A rule upon parties already served to answer the supplemental bill is sufficient.
3. Where a corporation is insolvent and has no funds at the place where its bonds are payable, demand of payment at such place need not be made before suit brought to foreclose its mortgages executed to secure the bonds.
4. A mortgage by a railroad corporation which in terms covers "all the following, present, and in future to be acquired property" of the corporation, naming in the description of such property its engines, cars, and machinery, carries not only the cars, engines, and machinery in existence at the date of the mortgage, but such as take their place or are subsequently added to them by the company and are in existence at the time of the foreclosure.
In 1849, the New Albany & Salem Railroad Company was
incorporated under the laws of Indiana, with power to construct a railroad from New Albany, on the Ohio River, to Michigan City, on Lake Michigan. To enable the company to raise the necessary means to complete and equip the road, it issued at different times a large amount of bonds, secured by mortgages upon its property. There were five issues of bonds, varying in amount from $500,000 to over $2,000,000 and carrying interest from seven to ten percent per annum, payable semiannually. Each issue was secured by a separate mortgage. The first mortgage was executed in February, 1851; the second, in February, 1852; the third, in November, 1853; the fourth, in February, 1855; and the fifth, in December, 1856. They were all made to Douw Williamson, as trustee for the bondholders, the complainant, Charles E. Bill, being named as substitute or successor, in whom the estate and the powers of the trustee were to vest in case of the death, incapacity, or resignation of Williamson.
The several bonds as they matured and the interest stipulated not being paid, the trustee, in August, 1857, filed a bill in the Circuit Court of the United States for the District of Indiana for the foreclosure of the several mortgages. The corporation was served with process of subpoena, appeared to the suit and demurred to the bill. It does not appear from the record what disposition was made of the demurrer, but it is to be inferred from the subsequent proceedings that it was abandoned. At any rate, in December of the following year (1858), a decree was entered in the case by consent of parties -- one not foreclosing the mortgages as prayed in the bill, but declaring the rights and interests of the bondholders and stockholders under the several mortgages -- in accordance with what was termed a basis of adjustment and settlement, proposed to them by the president and directors of the company. The practical effect of the decree was to extinguish all the liens upon the property of the company except such as were created by the first and second mortgages, to provide for a reorganization of the company, and to convert the subsequent bonds into common stock of the reorganized company.
Before this decree was rendered, the bondholders, waiving their priority, had consented to an interlocutory decree, entered
in June, 1858, authorizing the trustee to borrow $200,000 to pay certain unsecured debts, and to hold possession of the mortgaged property until this loan should be repaid with interest. The decree of December, 1858, provided for the prior payment of this sum and also of a mortgage of another company for $175,000 which had been previously assumed.
Nearly ten years afterwards, in August, 1868, the bondholders secured by the first and second mortgages, or at least a large portion of them, demanded that the trustee should take proceedings to foreclose those mortgages. The trustee, acting upon the assumption that the original suit, brought in the circuit court for that purpose in 1857, was ended by the decree of December, 1858, commenced suit for the foreclosure desired in a court of the State of Indiana. That suit proceeded to a final decree, under which the property was sold in May, 1869. The purchasers organized themselves under the law of Indiana into a new company, called the Louisville, New Albany & Chicago Railway Company, which held possession of the property until it was transferred to a receiver, upon the application of the appellant, John S. Shaw. This appellant held a bond of the fourth mortgage issue and some stock of the company issued for bonds surrendered under the decree of December, 1858. Upon his petition, purporting to be filed on the foot of that decree and alleging various irregularities and fraudulent practices on the part of the trustee and the first and second mortgage creditors, a receiver of the property of the company was appointed. His position was that the railroad property was placed under the exclusive wardship of the circuit court of the United States by virtue of the two decrees of June and December, 1858, and that consequently the foreclosure proceedings in the state court were irregular and void. Ultimately, and after protracted litigation, this view of the appellant was sustained by the circuit court. It is unnecessary to detail the various steps taken by the parties upon the petition of Shaw. It is sufficient to mention that they led Charles E. Bill, the successor of the original trustee, to apply for leave to file a supplemental bill for the foreclosure of the mortgages remaining in force, and that his application was granted. It is upon the subsequent proceedings, resulting in a final decree of foreclosure,
from which Shaw and others appealed, that the questions arise for determination here.