Pennsylvania Transportation Company's Appeal

Mr. Justice Mercur

delivered the opinion of the court, December 30th 1882.

This bill prays for a decree that the Pittsburgh, Titusville & Buffalo Railway Company shall pay to the appellant a certain judgment which the latter holds against the Oil Greek & Allegheny River Railway Company. The claim against the appellee is based mainly on the following facts.

In 1868, under certain agreements and an Act of Assembly, the Farmers’ Railroad Company, the Warren & Franklin Railroad Company, and the Oil Creek Railroad Company were consolidated, and the new corporation took the name of “ Oil Creek & Allegheny River Railway Company.”

In 1874 the mortgage indebtedness of the three several corporations, resting on their property prior to the consolidation aggregated more than two and a half millions of dollars; and the consolidated company had executed a mortgage on the whole property for more than one million of dollars. With this load of indebtedness, exceeding three and a half millions of dollars resting on its property, the Oil Creek & Allegheny River Railway Company on the 1st of May 1874 made default in payment of the interest due on its consolidated mortgage. In July following a receiver was placed in possession of the property of the company. Soon thereafter a bill was filed for a foreclosure of the mortgage, and a decree therefor made. This was afterwards sot aside for want of jurisdiction. In July 1875 a bill was filed in the United States Circuit Court against the Oil Creek and Allegheny River Railway Company for a foreclosure of the consolidated mortgage. In September following upon full hearing of the bill and answer a decree was made for the sale of all the railroad property and its franchises. The sale was made, and in January 1876 was duly confirmed. Afterwards and pursuant to law the persons, for whoso benefit the property was purchased, proceeded and erected themselves into a new corporation under the name of the “ Pittsburgh, Titusville & Buffalo Railway Company,” which is the appellee in this case. The Oil Creek & Allegheny River Railway Company was indebted to the appellant before the decree for a sale of the property was made; but no judgment therefor was recovered until April thereafter. After the sale was decreed, but before it was made, the appellant as a creditor presented its petition to the court and asked to intervene, and that the decree of sale be vacated ; but the court refused to allow the intervention. The master found as a fact that in that petition the appellant “ did set up and charge more fully than in the present bill the fraudulent purpose of the default and sale,” but it was dismissed, and the specific grounds of that judgment are not shown. On the hearing in the present case before the master, it was urged that- the default in the payment of interest on the 1st of May 1874 was not bona fide, but fraudulent, and that the default and sale were brought about with intent to defraud the appellant. The master found “ that these facts are nowhere charged in the bill and are not sufficiently shown by the testimony.” Tie further found that, three months after the default, certain of the bondholders held, p meeting at which it was resolved to take measures to forclose the mortgage and sell the road.

It is conceded that if the sale was. fair and valid, it passed-the property to the purchasers discharged from all claim of the. appellant thereon. The argument is that a certain written; agreement, entered into between the purcbasers before the sale, changed the effect thereof — in substance that it operated as a fraud on the appellant.

It was entered into between the bondholders, all of the stockholders, and by most of the unsecured creditors entitled to sign by the terms of the agreement. It recited the default of the company in paying interest and the threatened sale of its property, and then declared, for the protection of their several and respective interests in the property from great loss and sacrifice, they desired to unite together for the purpose of bidding on the property, should the same he offered for sale, and of purchasing it for and on their respective accounts, as therein more particularly stated, and to organize a new company. It proceeded, inter alia, to classify the parties to the contract according to the nature of their several claims, and stated the” sum each should pay towards the purchase of the property and the character of the bqmds; that the bondholders should be entitled to in the corporation to be formed, and tbe shares of capital stock therein to which each should be entitled.

What then was,there illegal or invalid in so- agreeing ?. It was not to depress the property or cause it to lie sold for a, sum’ less than its value but to enhance it. It has been held that bondholders may unite dor the purchase of the property: Ketchum Duncan, 6 Otto 659; Sage v. R. R. Co., 9 Id. 342. It is a fair and wise course for them to pursue, to. prevent a sacrifice, of their property. If they may so unite, we see no valid reason why stockholders may not unite with them, in a purchase. at a sale made in good faith. They as well as bondholders are interested in protecting their property from sacrifice, and may resort to like lawful” means toprotect it. So, when an agreement was made between a railroad company,dtsbondholders and most of its creditors, whereby the property of the company was to be sold Under judicial process and a new company organised in which the bondholders were to have a like amount of new bonds and the stockholders and general creditors take new stock, in the absence of actual fraud it was held that the new company duly organized took title to the property purchased clear of incumbrances and equities existing against the old company: Smith v. Chicago & North Western R. R. Co., 18 Wis. 17. In that case there was an agreement to sell and work the conversion. In tlie present case the agreement was merely contingent on a sale occurring. The property of the corporation was about to be sold at a judicial sale on a mortgage executed by the consolidated company. The sale was to be subject to prior mortgages aggregating more than two and a half millions of dollars. Any small number of those interested in tlie property might be unable or unwilling to buy property of such value and so incumbered. Why then shall the appellees be denied the privilege of uniting in a legal manner to protect their property by buying at an honest and fair sale? Tlieir agreement was neither hurried nor secret. Its execution extended over more, than one year. The first names were put to it on the 23d November 1874, and the last on the 29th December, 1875. The. appellant had ample knowledge of the sale and an opportunity of bidding thereat. He laid by for nearly three and a half years; without objection permits the new company to be organized, and then files this bill. We fully concur in the conclusion of the learned judge that the whole evidence is insufficient to establish a fraud on the part of the appellees or create a trust in them for the benefit of the appellant. We deem many of the authorities cited by counsel for appellant inapplicable to tbe facts as we understand them. We will therefore not review them, nor answer tbe specifications of error seriatim. We discover no error in dismissing the bill.

Decree affirmed and appeal dismissed at the costs, of the appellant. . ,