Talk:Morgan's Company v. Texas Cent Railway Company

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Edition:	Morgan's Company v. Texas Cent Railway Company, under the laws of the state of Louisiana, filed its bill on April 2, 1885, in the circuit court of the United States for the northern district of Texas, against the Texas Central Railway Company, averring that the latter company was originally organized and incorporated under the general laws of Texas, on May 31, 1879, to build and operate a railroad from Ross station, in McLennan county, to the center of Eastland county; that on or about May 12, 1881, its charter was amended so as to authorize it to extend its railway from the latter point to a point on the north boundary line of the state, and to construct branch railways; that the company had built and owned about 228 miles of road, namely, from Ross to Albany, and from Garrett to Roberts, and was also the owner of certain town lots, and of equipment as described; that on or about the 15th of September, 1879, said Texas Company executed to the Farmers' Loan & Trust Company of New York, as trustee, a mortgage to secure the payment of a series of bonds of $1,000 each, covering its railroad, built and to be built, from Ross to the center of Eastland county, payable 30 years after November 1, 1879, with interest payable semi-annually, and bonds to the amount of $2,145,000 had been issued and were outstanding; that on May 16, 1881, the Texas Company executed to the same trust company, as trustee, a mortgage to secure the payment of another series of bonds of $1,000 each, covering its entire main line of railroad, built and to be built, and also its branch lines as described, payable in 30 years, with interest semi-annually, and bonds to the amount of $1,254,000 had been issued and were outstanding under this mortgage; that on October 1, 1884, the Texas Company executed to the Metropolitan Trust Company of New York, as trustee, a mortgage of all its railway and railway lines, whether constructed or to be constructed, to secure an issue of bonds to be known as 'general mortgage bonds' of said railway company, which bonds had been signed and sealed, but not certified, by the trustee, because of delay in recording the trust-deed in all the counties of the state into which the road had been actually built; that the Texas Company, finding itself in great financial embarrassment, and requiring pecuniary assistance, and being already indebted to the Houston & Texas Central Railway Company in a very large amount, obtained further advances from the latter company, making, 'with amounts theretofore loaned to it' by the Houston Company, a total indebtedness from the Texas Company to the Houston Company of $761,99204; that, for the security of 'said advances then and theretofore made by said Houston & Texas Central Railway Company to said Texas Central Railway Company,' the Texas Company, on the 1st of November, 1884, made and executed its 16 certain promissory notes, 15 thereof for the sum of $50,000 each, and 1 thereof for the sum of $11,99204, and for the security of said 16 notes the Texas Company pledged to the Houston Company all the 'general-mortgage bonds' which it was authorized to issue for the length of road already built by it; that all of the notes were dated November 1, 1884, and all due on demand, but the Texas Company, though requested, had refused and failed to pay the same; that in order to make the pledge of the bonds, which were not yet countersigned and certified by the trustee, the Texas Company issued and delivered to the Houston Company its certificates, obligating itself to deliver the bonds as soon as executed and signed by the trustee; that the Houston Company pledged said notes and certificates to complainant, as part security for an indebtedness exceeding $1,000,000 due by the Houston Company to complainant, and complainant is now the holder, as pledgee, of all of the notes and certificates; that the deed of trust, with the certificates, constituted a full, complete, and perfect equitable mortgage and lien upon the railway and the property therein described; that the advances by the Houston Company to the Texas Company were made at various times for taxes, fuel, supplies, labor, repairs, operating and managing expenses, proper equipment, useful improvements, and other necessary expenditures, by which the Texas Company's railway had been kept in running order, and its business and improvements increased, and thereby rendered more beneficial to the bondholders, and to all other creditors of the Texas Company; that the indebtedness was contracted by the defendant upon the consideration of its promise to pay the same out of the earnings of its railway, and the same was and is, in equity and good conscience, a first lien upon the income and property of said railway, but the defendant, instead of paying the debt out of the earnings of said railway, had failed to pay any part of it, and had used a large amount, at least $500,000, of said earnings, during the years 1882, 1883, and 1884, for the payment of coupons upon its first mortgage bonds, although the holders of such coupons were only entitled to receive payment thereof after the defendant had paid the complainant the amounts advanced and expended in the manner and for the purposes in the bill set forth; that unless the relief sought is obtained, the certificates which complainant holds, and the bonds when issued, will be greatly depreciated in value, and any effort to foreclose complainant's pledge would result in imposing a debt of $2,286,000 upon said defendant without any adequate relief to complainant, and defendant has no property upon which to levy an execution save and except the properties mortgaged, and the sale of the property would be ineffectual by reason of the uncertainty as to the rights which would be acquired by the purchaser; that the Texas Company is in embarrassed circumstances, the pay-rolls for January and February, 1885, are unpaid, and those for March will not be paid, and the company will default upon the interest of its bonds due May 1; that it has no money in its treasury, and no credit upon which to raise it; that it has no supplies; that many suits are pending against it which will ripen into judgments for large amounts of money; that the receipts have been growing less, and there is no hope of their increase in the immediate future; that the road runs through a new and undeveloped country in which great financial depression exists at the present time, 'and that, unless said railway be administered in such a manner as to maintain it with unimpaired efficiency during this period of depression, its assets will be sacrificed without any adequate benefit to any of its creditors;' that the financial embarrassments of the Texas Company are aggravated by the fact that it was originally built as relying on business connections with the Houston Company; that it has always been managed and operated in connection with the latter; that it has no roundhouses or repair-shops, and its maintenance and transportation business has always, until recently, been conducted entirely by the officers of the operating department of the Houston Company without any additional expense to the Texas Company, but that the Houston Company has lately been placed in the hands of receivers by the order of the United States circuit court for the fifth judicial district and eastern district of Texas in a suit entitled 'The Southern Development Company vs The Houston and Texas Central Railway Company,' and the result of said receivership has been to deprive the Texas Company of its former operating officers, and of the benefit of the harmonious business relations formerly existing with the Houston Company, and the interdependence of said two railways upon each other has been such that it is to the vital interests of both companies that that interdependence should be maintained; that the Houston Company owns over one-third of the capital stock of the Texas Company, and the Houston Company is also obligated for the indebtedness of $761,99204, pledged by it to complainant, and it is of vital importance to both of said roads that the management of the two should be under one common head Complainant prayed for the appointment of one or more receivers of the property of the defendant, and for a decree for the payment and satisfaction of its claims out of the rents, revenues, issues, and profits coming to the receivers Copies of the deeds of trust from the Texas Central Railway Company to the Farmers' Loan & Trust Company of September 15, 1879, and of May 16, 1881, and of that to the Metropolitan Trust Company of October 1, 1884, were attached to the bill On the 4th of April, 1885, the receivers of the Houston Company were appointed receivers of the Texas Company, the Texas Company appearing and submitting the motion for such action of the court as might seem just and equitable On the 2d of May, complainant filed its amended and supplemental bill against the Farmers' Loan & Trust Company, trustee, and the Metropolitan Trust Company, trustee, as well as the Texas Central Railway Company, which recapitulated the averments of the original bill, and insisted that the indebtedness of $762,000 was an equitable lien upon all the property of the railway company, and entitled to be paid, in case of sale, out of the proceeds of such sale, before any money is paid to the holders of the said mortgage bonds; that the indebtedness should have been paid by the railway company out of its annual earnings, which were sufficient for that purpose, but instead of paying the debts incurred for labor, material, betterments, and services necessary to the operation of the railway, and to keep the same in proper condition of repair and running order, the defendant railway company expended its revenues in paying the interest on the mortgage bonds, leaving the complainant and others similarly situated unpaid, and they are entitled, in equity and good conscience, to stand in the place and stead of said mortgage creditors for the amounts the latter have respectively received, and to have their claims satisfied out of the property of the railway company or out of the proceeds of any sale thereof The bill prayed, among other things, for a decree of lien by reason of the certificates, an accounting, a sale of the property if necessary, and the payment of the amounts decreed to be due the complainant, out of the proceeds, in preference to any amounts due on the mortgage bonds, etc .
Source:	Morgan's Company v. Texas Cent Railway Company from http://bulk.resource.org/courts.gov/c/US/137
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