Central Trust Co. v. Carter

78 F. 225, 24 C.C.A. 73, 1896 U.S. App. LEXIS 2301

• Court: Court of Appeals for the Fifth Circuit
• Decided: December 15, 1896
• Docket: No. 525
• Status: Published

Opinion

MAXEY, District Judge,

after stating the case, delivered the opinion of the court.

This appeal brings up for review the decree rendered by' the circuit court sustaining the master’s report, and ordering the payment of appellees’ claim out of funds required to be paid into court by the 'purchasers of- the railway. Appellant contends that thé reorganization committee was without power to make with appellees the contract of February 17, 1893, and hence the latter are not entitled to the payment of their claim out of the proceeds of the sale of the railway. The reorganization committee had only such pqwér to contract with appellees as was conferred upon it by the trust ágreément of February 1, 1892, and appellees, in dealing with the committee, were chargeable with notice of the terms and provisions of that agreement. To the trust agreement .there were three parties, — the holders of the first mortgage bonds of the Chattanooga Southern Railway Company; Post, Sage and others, constituting, the reorganization committee; and the Atlantic Trust Company of New York. The first paragraph of the agreement maltes each holder of any of the bonds who shall deposit them with the Atlantic Trust Company a party to the agreement, and by the twenty-third paragraph it is provided:

' “The deposit of securities, and' receipt of certificates issued therefor, Shall have the same effect as if the holders of such certificates had actually subscribed to this agreement.”

The holders of all bonds issued by the railway company, amounting to |1,440,000, had, prior to the decree complained of, deposited their securities with the Mercantile Trust Company, which had become the successor of the Atlantic Trust Company; and they,thus became, by the terms of the first and twenty-third paragraphs, above referred to, parties to the trust agreement. Any contract, therefore, entered into by the reorganization committee in the execution of its trust, and within the scope of its delegated authority, became valid and binding upon the bondholders, upon the familiar principle that the acts of an agent, done and performed within the scope of his agency, bind the principal. Did the committee exceed its authority in negotiating with appellees? An inspection of the trust agreement will disclose the comprehensive powers with which the reorganization committee was invested. It was authorized to procure, by any and all legal means, the sale of the railway, and to assist in the prosecution of, and become a party to, all suits instituted for that purpose; to purchase, as joint tenants for and in behalf of the bondholders, the property, at any sale made under a decree of foreclosure, at a price within its own discretion. The Atlantic Trust Company was instructed by the terms of the agreement to hold the bonds deposited with it, subject to the order and discretion of the committee, or to dispose of the bonds as the committee might direct. The latter was authorized to designate one or more of its members, or any other person, to attend any judicial sale, and ]t)id; off, the property, and was generally empowered to employ such agents or attorneys as it might deem necessary and proper. In the event of a purchase of the railway, the committee was authorized to take possession of the. property and operate it until a new company should be formed, and full power was conferred upon it to do, all acts and things necessary and proper, in its judgment, to execute the, provision^ :of th.e trust- agreement. The committee was further empowered to carry out the plan of reorganization without foreclosure, if it could be lawfully done. Paragraphs 15 and 16 of the agreement are as follows:

“(15) The relations and rights of contractors and of the Chattanooga Construction Company are to be determined by a court or courts of competent jurisdiction, or by the assent of the said parties of the second part, or by arbitration, as the said parties of the second part may determine; and the said parties of the second part are hereby authorized and empowered to negotiate and compound with the holders of claims against the said railway, and to make due provision for the payment and adjustment of the same, upon such terms as they shall find to be reasonable and proper, to the end that the said corporation shall be free and clear from the obligations thereof. (16) The parties of the second part shall have power to borrow such money, not exceeding twenty per cent, of the par value of bonds and coupons deposited hereunder, as may be necessary for the carrying' out of this iigreement, and, as security for the payment of such money, to pledge the said bonds and coupons deposited hereunder, and to contract for the extension of the time of the payment of such loans from time to time.”

The powers conferred upon the committee appear to be as ample and comprehensive as language can make them. Armed with such authority, the committee entered into the compromise agreement of February 17, 1803, by the terms of which appellees and others agreed to transfer and assign to it the claims, which they, respecr tively, held against the railway company and the Chattanooga Construction Company; that of appellees being in the form, of a judgment recovered by them in the superior court of Walker county, Ga. The agreement not only embraced a settlement of the claims of the individuals subscribing it, but further contemplated and provided for the assignment to the committee of the claims held by the Chat tanooga Construction Company against the railway company. Ip consideration of the settlement, and transfer to the committee of the evidences of indebtedness held by the parties, the committee agreed to issue to appellees, in payment of that part of their claim involved in this suit, a negotiable certificate, payable in cash. This method of payment was expressly authorized by the following clause of the agreement: t

“Third. The party of the second part, in payment for the claims hereinbefore transferred, agree to issue to said parties of the first part, respectively, négo-tiable certificates, payable in cash, for one-half in amount of said debts, principal and interest, so transferred, — said certificates to be issued by said committee, and payable within sixty days after decree is entered in the United States circuit court at Atlanta confirming the sale of the Chattanooga Southern Kailway, and pap-able not later than December 1st, 1893, in any event, and to bear six per cent., interest per annum from this date; and said certificates shall recite that they:are secured by the bonds and other securities deposited with said reorganization committee, and held by the Atlantic Trust Company of New York, and shall be couii-tersigned by the said trust company.”

Agreeably to the stipulation of the parties, the claims were duly assigned to the committee. Appellees completely performed their part of the contract, and, notwithstanding the acceptance by the committee of the claims so assigned to it, there was an utter failure on its part to issue to appellees the negotiable cash certificate required by the terms of the agreement. The committee is passive, and not complaining of the decree. But the contention is advanced by appellant that the committee, in negotiating with appellees, ex? ceeded its authority, and its acts are therefore not binding upon the bondholders. Appellant insists that the authority of the committee was limited- to the settlement of claims against the railway company, and only such as were entitled to priority of payment over the bondholders. And it maintains that the claim of appel-lees was against the Chattanooga Construction Company, and that such a demand, although for work done and materials furnished .in the construction of the railway, did not operate as a lien upon the property of the railway company. Whether appellees, as contractors, in their effort to fix a lien upon the railway, conformed to the requirements of the Georgia laws, and whether the judgment recovered by them in the superior court of Walker county, Ga,, may be held to be a lien superior or inferior in rank to that of the mortgage under which the bondholders claim, are questions which we do not deem it necessary to determine. It is nevertheless true that the judgment, upon its face, recites the existence of a contractor’s special lien upon the road and other property of the Chattanooga Southern Railway Company, and that the court ordered a sale of the property to satisfy the decree. Hence the question’Of the existence of the lien was necessarily involved in some doubt and obscurity, the solution of which was remitted to the judgment and determination of the reorganization committee, by the terms of its power of appointment. The settlement with appellees might therefore be easily sustained on the ground that the discretion vested in the committee justified it in the compromise of a claim of doubtful validity. Market Co. v. Kelly, 113 U. S. 199, 5 Sup. Ct. 422; Llano Imp. & Furnace Co. v. Pacific Imp. Co., 13 C. C. A. 625, 66 Fed. 526; Brooks v. Dick, 135 N. Y. 652, 32 N. E. 230. The authority with which the committee was clothed in reference to all matters touching the settlement of claims against the railway company, and in perfecting the scheme of reorgani-sation, was practically unlimited; and why the authority should 'not embrace within its scope the settlement of appellees’ indebtedness, we are at a loss to understand. The answer of appellant to the intervening petition of appellees contains no charge or intimation of fraud or bad faith on the part either of the committee ¡or appellees, and the settlement effected, being plainly within the limit of the authority delegated to the committee, should not be disturbed.

In the contract of settlement with appellees, as already stated, the committee agreed to issue them a certificate, payable in cash, for one-half of their indebtedness, and, further, that such certificate should recite that it was secured by the bonds and securities deposited with the committee. The certificate not being issued to appellees as required by the agreement, upon well-recognized and established equitable principles the agreement should be upheld ánd enforced as a mortgage upon the bonds. Thus, in Morrow v. Turney’s Adm’r, it is said by Mr. Chief Justice Walker, as the organ of the court:

1 “The*'bill shows that there was an agreement; and if it was an agreement to give a"-mortgage, predicated upon the consideration of a debt contracted on the faith oí the agreement, it will be upheld and enforced, between the parties and their representatives, as a mortgage, upon the principle that equity will consider that as done which ought to have been done.” 35 Ala. 137; Glover v. McGilvray, 63 Ala. 508; Riddle v. Norris, 46 Mo. App. 512; Riddle v. Hudgins, 7 C. C. A. 335, 58 Fed. 490; 13 Am. & Eng. Enc. Law, p. 608; 1 Jones, Liens, § 27.

The only question remaining for consideration is whether the court erred in entertaining the intervening petition of appellees, and decreeing payment of their claim out of the proceeds of the* sale of the railway. It will be observed that when the petition was filed the original foreclosure suit was pending in the circuit court. That court had foreclosed the mortgage,, and decreed the sale of the railway, and was, at the time the master’s report was confirmed, engaged in administering the fund arising from the sate. Appellees were claiming a. mortgage lien on the bonds, and the holders of those bonds were entitled to the proceeds of the sale of the road, after the payment of preferential claims. The claim of appellees should be held to constitute an equitable charge upon so much of the proceeds oí: sale as was directed by the court to be ultimately distributed among the holders of bonds. And what court was more competent than that to adjust and settle the con-iiiefing claims to the fund in its custody? “It is well settled,” says the supreme court, “that, where property is in the actual possession of a court, this draws to it the right to decide upon conflicting claims to its ultimate possession and control (Minnesota Co. v. St. Paul Co., 2 Wall. 609, Morgan’s L. & T. R. & S. S. Co. v. Texas Cent. Ry. Co., 137 U. S. 171, 201, 11 Sup. Ct. 61), and that, when assets are in the course of administration, all persons entitled to participate may come in, under the jurisdiction acquired between the original parties, by ancillary or supplemental proceedings, even though jurisdiction would be lacking if such proceedings had been originally and independently prosecuted.” Rouse v. Letcher, 156 U. S. 49, 50, 15 Sup. Ct. 266; Williams v. Morgan, 111 U. S. 684, 4 Sup. Ct. 638. We find no error in the decree of the circuit court, and it is therefore aflirmed.