Northern Central Ry. Co. v. Hering , 93 Md. 164 ( 1901 )

This suit was instituted by the appellant against certain officials of the State of Maryland for the purpose of obtaining a decree declaring that by the true construction of the Act of 1854, chapter 260, and of the instruments executed and delivered thereunder, the obligation of the appellant to pay to the State $90,000 per annum, was and is extinguishable upon the payment by the appellant into the Treasury of the State of the sum of fifteen hundred thousand dollars, with the arrears, if any, of the annual sum; also for an injunction requiring the appellees to receive said sum, c. The Court below dismissed the bill and the appellant has appealed.

It was contended by the appellant that the transaction under and by virtue of the Act of 1854, ch. 260, was an arrangement made on a past indebtedness, which still remains, and that in consequence thereof there belongs to the appellant the right of redemption upon payment of $1,500,000, the amount of such indebtedness.

As to whether the transaction amounts to the creation of an annuity only, or of a mortgage to secure the payment of a principal sum with the interest thereon, must depend upon the intent of the parties, as ascertained from the words of the mortgage itself, interpreted in the light of all the attending circumstances, which can be properly taken into account.Hinkley v. Wheelwright, 29 Md. 348; Wallace v. Johnston,129 U.S. 58; Gossip v. Wright, 9 Jurist N.S. 594.

There is no legal principle that can operate to restrain the State and the Railroad Company from making a contract by which the principal of a past indebtedness should be released upon a consideration for the payment of an annual sum. Such transactions are not unusual. They involve no legal considerations, other than those which apply to the creation of irredeemable ground rents. Nor can the capacity of the parties to create an annuity upon a new consideration when there is no past indebtedness be questioned. The parties are sui juris, and they undoubtedly have the power to make any contract, which does not violate some established legal principle. Hinkley v. Wheelwright, (supra), 348; Wetter v.Hardesty, 16 Md. 16; Packard v. Corporation, 77 Md. 240;Banks v. Haskie, 45 Md. 207; Perkins v. Emory, 55 Md. 27;Irnham v. Childe, 1 Brown C.C. 93; Robinson v. Cropsey, 2 Ed. Ch. 138.

The question in the present case, therefore, is, was it the intention of the appellant and the State to create and secure by mortgage an annuity only? Or was it intended that the mortgage should secure the payment of the principal sum of $1,500,000, and that the so-called annuity and the clauses referring thereto, are no more than special provisions designed to assure to the State the prompt receipt of interest? It is obvious that if the instruments themselves on their face show that merely the annual payment was to be secured, such a conclusion would follow, unless it was apparent from other evidence, properly to be regarded, that the real purpose of the transaction was to preserve and protect a principal sum. And if, upon all the facts legally applicable, the construction be doubtful, Courts will endeavor to hold the transaction to be such as to preserve the right of redemption. Longuet v. Scawen, 1 Ves. Sr., 406; Lawley v.Hooper, 3 Atk. 278.

If the transaction now under consideration be in fact an annuity, the right to recall the principal sum (assuming for the moment there ever was an indebtedness by the appellant to the State), would be gone forever. In Winter v. Mouseley, 2 B. A. 806, BEST, J., said: "I have always understood the meaning of an annuity to be when the principal is gone forever, and it is satisfied by periodical payments." It is a yearly sum chargeable only on the person of the grantor, 2 Blackstone 40. "It is, however, a necessary ingredient in a mortgage that the mortgagee should have a remedy against the person of the debtor." Conway'sExtr., 7 Cranch 239.

In Hinkley v. Wheelwright (supra), when the form of the deed was sufficient to establish a conditional sale, the Court laid it down that the deed being in fact a mortgage, there existed in the creditor the right to call upon his debtor "to make payments at once, or submit to a foreclosure of the mortgaged premises." In Robinson v. Cropsey, 2 Edw. Ch. R. 144, affirmed in 5th Paige 480, the Court said that the debt having been extinguished at the time of the transaction, the conveyance cannot be treated as a mortgage. So in Goodman v. Grierson, cited in Williams v. Owen, 5 Mylne Craig, 303, the VICE CHANCELLOR said that "a fair criterion by which the Court is to decide whether this deed be a mortgage or not, I apprehend to be this — are the remedies reciprocal? has the defendant all the remedies a mortgagee is entitled to?" DuVigier v. Lee, 2 Hare 326; Verner v. Winstanley, 2 Sch. L. 393; Goodman v.Grierson, 2 Ball B. 275; Montague v. Sewell, 57 Md. 418;The People v. Irwin, 18 Cal. 117; Swetland v. Swetland,3 Mich. 483.

It would seem to follow from this statement of the legal principles that should control this case that the mortgage executed in conformity with the Act of 1854, ch. 260, would not be a security for the payment of a principal sum to the State, if at the time of the transaction such indebtedness did not exist, and was not thereafter created by agreement of the parties. And that if it shall appear from an examination of the terms of the mortgage and all other facts proper to be considered in that connection, that the State has not and never has had any right to demand the payment of such sum, and on failure of the appellant to pay it, to foreclose, then there can be no right of redemption on part of the appellant. In such a case it will be necessary to hold that the mortgage is a security only for the payment of the annuity, at the times and in the manner stated in the instrument.

The circumstances that led up to the transaction, that is the subject of this inquiry, as disclosed by the bill and exhibits, are as follows:

The Baltimore and Susquehanna Railroad Company was incorporated in 1827 for the purpose of building a railroad from the city of Baltimore to some point or points on the Susquehanna river. Under the terms of the Act of incorporation, the State became a subscriber to, and holder of two thousand shares of the capital stock of said company, of the par value of fifty dollars per share. Under the authority of various other Acts, the State also made loans to the company, so that on the twentieth day of June, 1855, the principal of such loans amounted to the sum of $1,884,025.29, with accrued interest of $1,035,980.75. By and in conformity with the provisions of the Act of 1834, chapter 241, the company duly executed and delivered to the State certain mortgages to secure these loans and the interest thereon, copies of which are filed with the bill and appear in the record. They are in the usual form, and contain covenants on the part of the company to pay or cause to be paid to the State, the principal and interest of the loans, and are to become null and void upon such payments being made. By the Act of 1854, chapter 250, passed and approved on the tenth day of March, the Baltimore and Susquehanna Railroad Company was authorized to consolidate with the York and Maryland Line R.R. Company, the York and Cumberland R.R. Company and the Susquehanna R.R. Company, by the name of the Northern Central Railway Company, on the conditions set forth in the Act; and on the third of May following an Act of the Legislature of Pennsylvania authorizing the consolidation was approved. One of the conditions contained in the Maryland Act authorizing the consolidation was, "that existing contracts, engagements and liabilities of the said Baltimore and Susquehanna R. Company, shall continue to bind said company and its property as fully as before authorized, or that the said existing contracts, engagements and liabilities shall be duly adopted and assumed by the consolidated company except as herein expressly altered or rescinded." It is obvious in face of this condition, that the debt to the State from the Baltimore and Susquehanna Company, and the mortgages made to secure them were in no respect impaired by this act. The status of the State's claim remained unaltered, so that any rights the State had before the consolidation continued thereafter against the Baltimore and Susquehanna Company, in the same manner and to the same extent as would have existed had there been no consolidation. On the fourth day of December, following the passage of the act of consolidation, the several railroad companies entered into "Articles of Union." These however, could not affect the rights of the State, for they were determined by the Act authorizing the consolidation. The "Articles of Union" were the conditions precedent to the incorporation of the new company, which owed its existence, and "was in terms created" by the Act of the Legislature. State v. The N.C. Railway Co., 44 Md. 163 and90 Md. 466.

We need therefore make no further reference to the "Articles of Union." The claim of the State, however, was provided for in another Act, approved on the same day on which the Act of consolidation was passed. At that time the Baltimore and Susquehanna was hopelessly insolvent; its debt to the State, including the interest thereon, exceeded the value of all its property, and the stock held by the State was practically worthless. The other companies, with which it was proposed to consolidate, were solvent, and their property "comparatively unencumbered." It was therefore an "essential preliminary" to the proposed union, that some adjustment should be made of the State's claim, and it was with that end in view that the Baltimore and Susquehanna made to the State three alternative propositions. Governor Lowe in his message to the General Assembly of 1854, stated them as follows: "The State was asked to do one of three things: First to retire from its position as a preferred creditor of the Baltimore and Susquehanna R.R. Company, and leave it at perfect liberty to use its credit, to such an extent as may be necessary, with power to confer priority upon its new indebtedness, the State reserving to itself the next place in the obligations of the company, after full provision shall be made for the new creditors. Secondly, that the State should for the whole amount of the company's indebtedness to it, place itself in the relationship of a simple stockholder, which would as in the former case, leave the company in the free use of its credit, and with power to confer priority upon the new indebtedness it may be necessary to incur. Thirdly, that the State should consent to a sale of its interest in the road. The amount to be realized to the State by the proposal was I believe estimated at $1,500,000."

What the State agreed to do under these circumstances is clearly shown in the Act of 1854, ch. 260, which, as we have said, became a law on the same day that the Act of consolidation was approved, that is on the tenth day of March, 1854. When it is borne in mind, that the adjustment of the State's claim was necessary for the effectuation of a consolidation, and the character of the overtures made by the company as stated in the message of the Governor are considered, it is clear that the purpose of the State in the passage of this Act was not only to protect its own claim, but also to facilitate the union of the companies and to aid in the extension of the railroad to Sunbury in Pennsylvania. In the fourth section, the latter purpose is clearly expressed; power is there conferred upon the Mayor and City Council of Baltimore City "to give their assent to any proceedings" that may be considered advisable for making, "the stock and debt owned by the city, or any part thereof, available for the completion of the road of said Consolidated Company to Sunbury or to tide water." But the State was not willing to retire from its position as a preferred creditor upon all the portion of the road that was located within the limits of the State, nor to become a "simple stockholder;" but it did desire to do what in its judgment would not hinder, but would aid, the completion of the road of the Consolidated Company to Sunbury in Pennsylvania or to tide water. To effectuate these purposes it released its entire claim to the new company (the appellant), surrendered all its stock in the old company; and in consideration thereof, agreed to accept "a mortgage of the entire line from Baltimore to Sunbury, to secure to the State of Maryland the payment of the annuity hereinafter mentioned," of ninety thousand dollars a year. That this is the effect of the Act of 1854, chapter 260, a brief examination of its provisions will make very plain. It is entitled, "An Act to provide for thesale of the interest of the State of Maryland in the Baltimore and Susquehanna Railroad Company, and for the completion of the Northern Central Railway Company from tide water in the city of Baltimore to Sunbury in the State of Pennsylvania, and for vesting certain powers to that end, in the Mayor and City Council of Baltimore." The three first sections deal entirely with the claims of the State, the fourth to which reference has already been made, to the interests of the city of Baltimore. The first section provides that whenever the corporation authorized to be created by the consolidation of the four roads mentioned, to be called the Northern Central Railway Company, shall have been duly established and shall execute and acknowledge and cause to be recorded in the city of Baltimore and in all the counties of Maryland and Pennsylvania, in which the same may be, a mortgage upon the entire line of the railroad from Baltimore to Sunbury to secure the payment of the annuity, c., the Treasurer of the State is authorized and directed to convey and release "all of the estate and interest" of the State "in the present Baltimore and Susquehanna Company, and in all of its property, whether as stockholder, creditor, or mortgagee or otherwise," provided that,c., "until the delivery of the same to the Treasurer, all the present rights of the State of Maryland shall be maintained in full force." The second section enacts that the annuity shall be of $90,000 a year, subject to be extinguished at any time within ten years hereafter," the company to have the privilege of paying the same in instalments of $100,000 each and "of obtaining a ratable reduction of the annuity, computing the same at six per cent on each payment made." Can it be questioned that this amounts to a sale? To aid the new company and at the same time to protect its own interest, the State releases all of its interest in the old company in consideration of the agreement of the appellant to pay it ninety thousand dollars a year. There is nothing in the contract as evidenced by the provisions of the Act that obliges the appellant to pay any other sum than that which may become due as part of the annuity. The right to extinguish within ten years, is for the benefit of the appellant and there is nothing that can enable the State to demand the payment of the $1,500,000 in extinguishment of the annuity within the ten years or thereafter. The right of extinguishment is limited to the period of ten years, and if not exercised within that time, there is nothing in the contract that confers the right of extinguishment thereafter. By section three, it is provided, that "the mortgage hereinabove required to be given to secure said annuity," shall contain the usual conditions in such deeds, with a clause to authorize a sale of the mortgaged property at any time after three months subsequent "to a defaultto pay the whole amount of the annuity, which may fall due in any one year, c." Here it is expressly stated, as indeed is apparent all through the Act, that only an annuity was intended to be created, and that the mortgage was to be given to secure the annuity only. No principal sum of which the amount of the annuity, was the annual interest, is in any part of the Act contemplated. Nor does the clause providing for a sale of the mortgaged property, include any default, except that which might arise upon the failure of the company to pay the amounts that may fall due in any year, on account of the non-payment of the annuity.

The mortgage executed and delivered by the appellant, is in strict accordance with the provisions of the Act, and its terms fully sustain the position, that the intent of the parties, was to secure only an annuity, and not a principal sum. There is no covenant contained in it, which obliges the appellant to pay to the State $1,500,00, or any other principal sum. It is, in this respect, in striking and significant contrast with the mortgages of 1838 and 1839, executed and delivered to the State by the Baltimore and Susquehanna R.R. Company. In those, the company covenanted to pay the loans, and if these and the interest thereon were paid, the deeds were to become null and void. But in the mortgage of the appellant, the provisions contemplate the payment of the annuity only, and there is no other sum that the appellant covenants or is obliged to pay. We do not think it is necessary to dwell longer upon the provisions of the mortgage. Much of what has been said in reference to the Act authorizing the transaction is applicable to the mortgage. We do not find anything in the provisions of the Act, or of the mortgage, that would justify us in holding that the parties intended to create something other than a mere annuity. It is clear, we think, there is not now and never has been, any sum due from the appellant to the State, other than that accruing from the non-payment of the amounts payable on account of the annuity.

If this be correct, it follows that the appellant is not entitled to the relief sought for by the bill; and inasmuch as the decree below, must be affirmed for the reasons already given, it is not material to decide the other questions, that were raised and discussed at the argument.

Decree affirmed with costs to the appellees.

(Decided March 8th, 1901).