Hale v. Nashua & Lowell Railroad

A leading object of the bill is the foreclosure of the mortgage securing the bonds of the Manchester Keene Railroad, and the bill is brought for the benefit of all the bondholders, who join as plaintiffs. Though the interests of the bondholders are several, and not joint or common, they are properly joined as parties. Bell v. Woodward, 42 N.H. 181, 189, 190. The interests of all the parties in the property, and their respective rights relatively, and how those rights may be affected by any decree upon the property, must necessarily be considered. Incident to the leading object of the bill, the claim of the plaintiffs seeking to compel the delivery to two of themselves, Hale and Colony, of $80,000 of the bonds held by one defendant, the N. L. Railroad Co., is a proper demand. The possession of the property mortgaged to secure the creditors of the wrecked railroad would be of little or no value to those creditors, unless their relative rights in the property were first determined. It would not be a recovery of the railroad property by its creditors, to whom it has been pledged for security, if one creditor, through collusion with the debtor or other fraudulent means, could secure to itself an undue share of the security. Under such circumstances, a decree for the possession of the property would be futile to the extent of any bonds so held, and the equitable adjustment to which the parties are entitled would not be accomplished. The bill is not multifarious. Abbot v. Johnson, 32 N.H. 9; Chase v. Searles, 45 N.H. 511; Eastman v. Savings Bank, 58 N.H. 421.

It was not necessary to join Dawe Bonallie as defendants. Their interest in the property sought to be recovered had ceased by assignment. If some of their assignments were not valid against creditors, other assignments covering all the property remaining in their hands are claimed to be valid; and the controversy here is not between the creditors and Dawe Bonallie, but between the creditors of an insolvent and wrecked railroad and the railroad itself, and between each other as to priority of assignments. No advantage could accrue and no rights be affected by making Dawe Bonallie parties.

The transaction by which Dawe, one of the firm of Dawe Bonallie, sold and assigned all that firm's interest in the $80,000 of bonds to the N. L. Railroad, was void. It was void generally, because it was not made within the general scope of the business of the partnership, and was without the knowledge or authority of the other member of the firm. It was void as to all the creditors of the firm because the firm was insolvent, and the N. L. R. had, at the time of the transaction, full knowledge of the insolvency. On both grounds it was void as to the plaintiffs.

The exaction of the deposit of these bonds by the N. L. R. from Dawe Bonallie was without consideration. The N. L. R. contracted with the M. K. R. to loan the latter $40,000 on its notes, and a deposit as collateral security of an equal amount of its bonds. On the credit of this agreement, the M. K. R., by means of a contract with Dawe Bonallie, to a large extent constructed its railroad. Having expended the credit given by a promise of the loan in the actual construction of the road for which the loan was intended, and having given its notes and bonds according to the terms of the agreement, the consideration was complete, and the creditor could not demand further consideration as a condition of paying the money. Having received the consideration agreed upon, it could make no difference that the money was collected by and paid to Dawe Bonallie, the contractors. Having paid the money on a consideration actually agreed upon and received, that consideration was the measure and support of the loan, and the exaction and reception of anything beyond from the same or another party, without other consideration than the loan of $40,000, was upon no consideration.

There was no understanding on the part of the M. K. R. that the N. L. R. should, as a condition of paying the money to Dawe Bonallie, exact and receive a deposit of other bonds from the contractors; either as security for the loan, or for completing the road according to the terms of the contract. When satisfied that the money was applied to the purpose for which the loan was made, to wit, the construction and completion of the road, good faith required that they should advance it on the security originally agreed upon. So far as there was contract and consideration, they were between the M. K. R. and the N. L. R. on the one hand for the loan, and between the M. K. R. and Dawe Bonallie on the other hand for constructing the railroad. No privity of contract, for which the deposit of $80,000 could be a consideration, existed between the N. L. R. and Dawe Bonallie.

The exaction of the bonds was inequitable. The N. L. R. could make no valid claim to hold them for the satisfaction of damages arising from a failure to complete the road within the time contracted for, for the exaction of the bonds was the cause of the failure to complete the road. The contractors could not finish the road within the time agreed upon because they became insolvent, and they became insolvent because of the undue exaction of the bonds. The M. K. R. agreed to pay the contractors in money, bonds, stock, and gratuities assigned. They relied on the money and on the bonds to raise other money, necessary to enable them to fulfil the contract. To realize the money promised by the N. L. R. they were compelled to part with a large amount of the bonds, and so were deprived of the means of raising a sufficiency of funds to complete the road before the whole consideration was exhausted. For the contractors' failure to complete the road within the agreed time, the N. L. R. is responsible by an unwarrantable exaction of the bonds, and they cannot in equity claim to hold them as indemnity for that failure.

The obvious purpose of the N. L. R. appearing from its whole conduct has been to obtain the entire control of the M. K. R. However laudable and lawful this purpose, in view of the local and business connection of the two roads, may have been, the undue acquisition of the bonds and securities of the new railroad by the old one, by an exaction so unreasonable and oppressive as to cause the financial ruin of the contractors and produce a breach of their contract, leaves no equity as a foundation for their claim. Received without consideration and since held by inequitable methods, the N. L. R. cannot now claim to hold the bonds against their assignment to creditors as security for large advances. The N. L. R. must be decreed to deliver the $80,000 of bonds of the M. K. R. to the plaintiffs, Hale and Colony.

The lease of the M. K. R. held by the N. L. R., being subsequent to the mortgage given to secure the bonds, cannot be set up by the lessee to defeat the rights of the bondholders. The lessee has no privity of contract with the bondholders, who are entitled to the whole property as security for the bonds, and the lease is inoperative in any proceeding under the mortgage.

The plaintiffs, who have furnished funds to the receiver to enable him to complete the road and put it in operation, claim a first lien on the property for reimbursement. The appointment of a receiver was necessary for the preservation of the property for the bondholders and others interested, and to secure to the public any benefits it might be entitled to from the grant of the franchise. The neglect or inability of the corporation, and the neglect, inability, or refusal, of any or all the bondholders, by reason of disagreements, controversies, and fear of further loss, to complete and put the road in operation, left the property created by large advances and expenditures unproductive and fast going to ruin. The expenditures of the receiver in saving the property and rendering it productive have been for the benefit of all the bondholders, and it would be inequitable, and a hardship on those who have furnished the means of creating a substantial benefit for all, to bear the whole burden. Reasonable expenditures of this kind made by trustees appointed by the court, in preserving and giving permanent value to property pledged as security for debts, have invariably been allowed and distributed so that all creditors should proportionally share the burden. Cooley v. Brainerd,38 Vt. 394; Blumenthal v. Brainerd, 38 Vt. 402; Meyer v. Johnston, 53 Ala. 237; Stevens v. Davison, 18 Gratt. 819; Ohio Miss. Railroad v. Davis, 23 Ind. 553; Stanton v. Ala. Chat. R. Co., 2 Woods C. C. 506; Kennedy v. St. P. P. R., 2 Dillon 448; Cov. Drawbridge Co. v. Shepherd, 21 How. 112, 124, 125; Jerome v. McCarter, 94 N. S. 734, 737, 738; Fripp v. Chard Railway Co., 21 E. L. Eq. 53. The cases denying priority of a claim for receivers' disbursements are where the expenditures are for the general management of the property, and not for the special purpose of saving the property from destruction under express directions of the court. The reasonable expenditures of the receiver in completing the railroad ready for operation, as they may be allowed, are given priority over other claims against the property.

The power of the court to remove the trustees and appoint others for the purpose of the due execution of the trust, is unmistakable. By the general law of trusts the court has full equity powers in all cases affected by a trust, and that the trust shall survive and be executed so as to effect the purposes for which it is established, the power exists in the court to remove and appoint other trustees. And by G. L., c. 196, s. 8, it is provided that "the supreme court shall have summary power to make all orders and decrees to carry such trusts into effect." The reasons which existed for the appointment of a receiver made a like necessity for a board of trustees, who could act together for the interest of all the bondholders without the embarrassment which came from the official connection of two of the former trustees with one of the defendants. The exception to the removal of the trustees and the appointment of others is overruled.

The trustees should be made parties to the bill. They need not continue longer than the necessity which demanded their appointment requires. To the end that a board of trustees may be chosen according to the provisions of G. L., c. 196, a list of bondholders entitled to act in the matter, with the amount of their bonds respectively, may be prepared, under direction of the court at the trial term, and a meeting of the bondholders called, at which new trustees may be chosen. This done, a decree for foreclosure of the mortgage, according to its provisions, may be entered.

Case discharged.

STANLEY, J., did not sit: the others concurred.