Union Trust Co. v. St. Louis, I. M. & S. Ry. Co.

234 F. 809, 1916 U.S. Dist. LEXIS 1519

• Court: District Court, S.D. New York
• Decided: May 8, 1916
• Status: Published

Opinion

MAYER, District Judge

(after stating the facts as above). The terms and conditions of the unifying and refunding mortgage do not inhibit by implication or otherwise the reimbursement of a receiver of the railroad and property of the Iron Mountain Company by the trustee out of the improvement and equipment fund. In several instances the mortgage provides that, upon the appointment of a receiver, the Iron Mountain Company (or, in effect, its receiver) shall ipso facto lose certain of its rights in the property. Thus in article 4, section 2 (page 46), it is provided that the trustees shall not be entitled to collect the principal or interest of any bonds or other obligations pledged under the mortgage, unless a receiver or the trustees shall have entered into possession of the mortgaged railroad; and in sec-, tion 4 of the same article (page 48) there is a provision that, unless a receiver or the trustees shall have entered into possession, the Iron Mountain Company shall have the right to vote upon the shares of stock pledged under the mortgage. Provisions as to the rights of a receiver are also contained in section 1 of article 6 (page 61) and article 7 (page 73). There is no provision, however, in any way limiting or modifying the right of the Iron Mountain Company (or its receiver) to the improvement and equipment fund, upon the appointment of a receiver, or authorizing the trustees to deal with that fund after such appointment in any other way than was permitted prior thereto.

The fact that in some instances a receiver’s taking possession of the mortgaged property operates to divest specified rights reserved to the Iron Mountain Company does not support the contention that other rights therein were similarly affected. On the contrary, the mortgage contemplates the operation of the railroad by a receiver, and it would seem that it was intended that he should exercise the full rights of the Iron Mountain Company pertaining to its maintenance and operation, which would include the rights to the improvement and equipment fund.

The reason for the clauses terminating, on the appointment of a receiver, rights to receive income, vote stock, etc., evidently is that the exercise of such rights might imperil the security of the mortgage when the company was in the doubtful situation indicated by the appointment of a receiver, and that in such an event it was deemed necessary that the income from the mortgaged securities should no longer be used or dissipated, and the stock should no longer be voted, by the railway company, as it saw fit, as it otherwise had a right to do under the mortgage, but should thereupon be used, and voted, to preserve or enhance the value of the mortgaged premises. On the other hand, the purposes for which expenditures can be made and reimbursement therefor secured out of the improvement and equipment fund are carefully chosen and restricted, and are specifically designated in the mortgage, and reimbursement is made dependent upon the performance of stipulated conditions precedent, with the very object in view of preserving the security of the bondholders. Upon the appointment of a receiver of the mortgaged property, therefore, it is evident that there is no need for any rule for the disposition of that fund, in order to furnish additional safeguards to the bondholders, other than that already in force. Undoubtedly it is for this reason that nothing is found in the mortgage modifying or limiting the disposition of the improvement and equipment fund as it is provided in section 2, article 5 thereof.

It is clear to me that the receiver has the identical rights to the property and contracts which the Iron Mountain Company itself had. It would destroy the very purpose and intention of the parties to the mortgage if the receiver were not able to do precisely what is conceded could have been done by the corporation in connection with necessary betterments and the like. The property is the same, the corporate entity is still alive, and the receiver is merely the instrument • of the court in carrying out, in such manner and within such limitations as the court may deem proper, what the parties intended should be done in this regard. While there is no reported case which covers the precise question here presented, citation of cases involving analogous principles of construction need not be made, because the question must be resolved upon what is found to be the intent of the parties, as gathered from the instrument.

As the receiver is entitled, under the orders of this court, to enforce, for his benefit as receiver, the rights of the Iron Mountain Company in the improvement and equipment fund under the terms of the mortgage, I am of opinion that he is entitled to a decree as prayed for.

As the trustees very properly defended, there will be no costs against them.