Lincoln National Bank v. City of Portland , 82 Me. 99 ( 1889 )

Haskell, J.

The Portland & Ogdensburg Railroad Company issued its mortgage bonds dated November 1, 1871, with interest coupons attached, payable semi-annually at the rate of six per cent per annum, until the bonds should fall due at the end of thirty years.

The mortgage securing these bonds became foreclosed December 15,1885, and under chap. 507, of the private and special laws of that year, these bondholders formed themselves into a corporation under the style of “The Portland & Ogdensburg Railway,” one of the defendants in this cause, and became shareholders therein according to the amounts due on the bonds held by each respectively.

The plaintiffs are holders of these bonds of the par value in the aggregate of $15,000; and the defendant city is the holder of the same of the par value of 81,850,000.

The defendant corporation, on the 21st of December, 1886, voted to issue 24,810 shares to the city of Portland, as its proper proportion of stock, computed from the aggregate of its bonds and interest thereon from the date of their issue, November 1, 1871, amounting to $2,484,000.

The plaintiffs deny that the city is entitled to so much interest upon its bonds as to give it the amount of stock voted to it by the defendant corporation, and therefore, in behalf of themselves and others of like interest, ask an injunction to restrain the threatened issue of stock to the city.

There was no over-issue of bonds under the mortgage, and, if the city be allowed the full number of shares voted to it, the plaintiffs’ proportions in the mortgage debt would not be diminished beyond their respective aliquot parts thereof. Their rights flow from owning a fraction of the whole mortgage debt; and their equity to restrain the threatened issue of shares must arise, if at all, from an unlawful attempt by the defendant company to give the city more shares than it is entitled to under any legal contract or arrangement between the city and railroad company.

It was competent for the city and old corporation to make any agreement that would give the city interest upon its collateral from the date of its issue ; and the question, therefore, is whether such an agreement was made; for, if it was, then the plaintiffs have no equity that calls for relief on that score, inasmuch as no attempt is made to increase the debt beyond the amount specified in the mortgage, of which the plaintiffs are entitled to their proportionate shares only.

Had the attempt been to increase the debt beyond the limit named in the mortgage, the plaintiffs would have been threatened with diminished proportional shares in the mortgaged property, and clearly would have an equity to prevent it; but as that is not the case, their equity must arise from a violation of contract between the defendants; and unless that be shown, they cannot maintain their bill.

By c. 165, of the private and special laws of 1872, the city of Portland was authorized to issue scrip to an amount not exceeding $2,500,000, to aid in the construction of the Portland & Ogdensburg railroad, upon the security ;

First, of a bond of the company “in a suitable penal sum,” conditional to pay the interest and principal of the scrip as the same should fall due, and to save the city harmless on account thereof.

Second, of the mortgage bonds of the company, “issued and bearing date on the first day of November, 1871,” equal to the amount of scrip issued and delivered under the act as collateral security for the penal bond.

Third, of paid up shares of the company, equal in amount to the city scrip received, from time to time, until the whole number of shares authorized by the charter of the company shall have been issued, to be held also as collateral security to the penal bond.

This act, also, provides that, “upon payment by the company of the interest which shall, from time to time, accrue upon said scrip, the city treasurer shall cancel and surrender to the company an amount of interest warrants attached to said mortgage bonds, equal to and corresponding as nearly as may be in date, to tlie amount of interest so paid on said scrip,” and that the shares of the company held as collateral, may be sold and transferred, with the consent of the directors of the company, whenever an exchange thereof can advantageously be made for any of tlie city scrip; and that the scrip so procured shall be cancelled, and that the amount thereof shall be indorsed on the respective bonds of the railroad company given on the issue and delivery of such scrip.

July 12, 1872, the bond of the company in tlie penal sum of $2,700,000 conditioned to save the city harmless as required by the act before referred to was delivered to the city ; and upon the 24th of the same month the city, in exchange for its scrip of the par value of $50,000, received an equal amount of the mortgage bonds of the railroad company with interest coupons attached, payable semi-annually after November 1, 1871, the date of the bonds fixed, by the act before named. One of these coupons upon each of tlie bonds received by the city upon this first exchange of bonds bad been overdue since May 1, and to make the rights of the parties more clear, the city and railroad company entered into an agreement in writing on the same day that provided among other things; “said city may collect so many of the coupons of the mortgage bonds of said railroad company, overdue and as they may become due, and so much of the principal of said mortgage bonds when the principal comes due, as will indemnify the city for all existing defaults, with expenses and costs.”

Under this agreement, exchanges of bonds were made, the city always taking railroad bonds with all the interest coupons upon them, with possibly a trifling exception, until the fall of 1873, when the city availed itself of a stipulation in the bonds allowing their registration, and to accomplish this, cut off all tlie coupons upon its railroad bonds and surrendered them in sheets of sixty coupons each to the railroad company, but retained the bonds as registered bonds.

filie treasurer of the railroad company punched each coupon surrendered by tlie city, and did tlie same thing with all the coupons, as they were cut in sheets from bonds, wben future exchanges were made. He kept a book upon which all the bonds delivered to the city were entered as registered bonds, indicating the exchange of railroad bonds with all coupons on, precisely as had been done before the bonds had been converted into registered bonds.

The registration did not change or vary the rights of the parties as they existed at the time; nor does it show any intention of new or different rights for the future.

The railroad company had a right to issue bonds bearing interest from November 1, 1871, and by doing so did not invade any rights of the plaintiffs. The case indicates that both defendants understood that all the coupons, originally upon the railroad bonds, should be held by the citj' as collateral for its loan equally with the bonds themselves. The company pledged over #900,000 of these bonds to parties, other than the city of Portland, without regard to overdue coupons upon them. That was a custom of the company, and it strongly shows its intent concerning the city collateral.

The last exchange of bonds was in August, 1875 ; and the company for the last time paid interest upon the city scrip September 1, of that year. Since then the city has paid on the same #81,000 yearly.

The mortgage of November 1,1871, secured bonds of that date amounting to #3,300,000; #800,000 of these were reserved to take up a first mortgage of that amount, but have not been issued. #1,350,000 of them were issued to the city of Portland as collateral for its loan. #108,000 were pledged as collateral for the “Dalton loan” of #51,041.88. #805,000 were pledged to various parties for loans. #213,000 were sold to contractors at par. #19,500 were sold in payment for material and equipment, and #4,500 are unissued.

All of these bonds, except the #1,350,000 delivered to the city and the #232,500 sold, were pledged to secure corporation debts amounting to less than half their face value j and the #805,000, pledged in various places, were finally taken by the pledgees or sold at prices varying from twenty to sixty cents on the dollar.

Five years after the railroad company had defaulted in the payment oí interest upon the city scrip, that during that time had been paid by the city at the rate of $81,000 yearly, the company, on February 19, 1881, voted a proposition “to transfer all mortgage bonds of the Portland & Ogdensburg .Railroad Company now held as collateral, upon the surrender of the stock of the company also held by the city and the discharge of the bond of the company to the city, dated July 12, 1872,” and on the same day, the city council passed an order accepting the proposition, and “authorizing the mayor, city treasurer and city solicitor to carry into efi'ect, in behalf of the city, the terms of said proposition.”

The order of the city council was approved by the mayor on February 21, 1881, and on the same day the city officers, authorized to do so, reported to the city council, “that they have received from said company a transfer to the city of the absolute title of all the mortgage bonds of said Portland & Ogdensburg Railroad Company formerly held as collateral, and have surrendered the stock of said company also held as security by the city, and have discharged the bond of said company to the city, dated July 12, 1872, in accordance with said order,” and on the same day this report was accepted by the city council. By this settlement between the parties, the city took the absolute title to the mortgage bonds with all the coupons on them that had ever been delivered to it, and is entitled to convert them into shares of the new' company so far as they remain outstanding and unpaid.

Coupons amounting to $630, had been cut -from a few of the railroad bonds before they were delivered to the city, and, therefore, never became collateral to the city scrip. This amount must be deducted from the amount of shares voted the city.

Coupons of city scrip amounting to $127,260 were paid by the railroad company as they fell due and were delivered to the city treasurer. The payment of these coupons by the railroad company operated, under the act of the legislature authorizing the loan, as payment of an equal amount of coupons upon the railroad bonds held by the city ; for, by the terms of the act, the city treasurer was required to “cancel and surrender to the company interest warrants” attached to the railroad bonds, equal in amount to the interest coupons on city scrip paid by the company.

Equity holds that to have been done which ought to have been done; and, when coupons upon city scrip were paid by the company and surrendered into the city treasury, it became the duty of the city treasurer to cancel a like amount of coupons upon the railroad bonds in his custody. It was his duty to do it, and equity regards it as done.

The plaintiffs and the city are entitled to be shareholders in the new corporation in the exact proportion of their respective debts against the old railroad company; and, if either should insist upon receiving shares of stock greater in amount than its debt, the legal rights of the other would be invaded exactly so much; for the increase of one fraction correspondingly decreases the remainder of a whole.

The plaintiffs should not complain of any disposal made by the mortgagor of the bonds issued and sold to others, if there be no over-issue of bonds; but they have a right to hold their aliquot shares in the security, computed from the whole amount of bonds issued and outstanding. If none of the bonds issued had been paid, the plaintiffs could not murmur; but when part of them were paid, that liability was extinguished and the security became correspondingly increased.

Payment to the city cancelled so much of its debt; and it is impossible to revive the amount so paid by any arrangement between the city and the railroad company, its debtor, to the prejudice of the plaintiffs and of others of like merit.

Bill sustained. Shares voted to the city of Portland reduced $127,890. Decree accordingly.

Peters, C. J., Walton, Daneorth and Virgin, JJ., concurred, and Emery, J., concurred in the result.