Garrett v. May

Goldsborougii,- J., delivered the opinion of this Oonrt: On the 8th day of May 1841, the General Assembly of the State of Ohio passed an Act incorporating the Central Ohio Railroad with perpetual succession, and with authority to construct a Railroad, commencing at or near the city of Columbus, and extending eastward' to such point on the Ohio river as the directors might select. By the 14th section of said Act, the company was empowered to borrow money on its credit, and to make and execute such bonds, promissory notes and other evidences of debt, payable, transferable and redeemable at such times and places and in such form as might be therein designated. By the 15th section, it is provided, “that for the security of the payment of such monies so borrowed, and the interest thereon, said directors may pledge, by mortgage or otherwise, their entire road, franchises, fixtures and equipments, with the income and resources thereof, together with the capital stock.” In pursuance of this authority, the company proceeded to construct the Railroad; and, with a view of obtaining funds, executed a first and second mortgage, the provisions of which are not involved in this suit. After the execution of the above mortgages, the Railroad Company issued certain bonds, denominated “income bonds.” The material part of which is as follows: “Eor the punctual payment of the interest and principal of said obligations, and of others of like tenor, issued or to be issued, in preference to the payment of dividends on the capital stock of said company, the income arising from the road and. its appurtenances is hereby specifically pledged. ’ ’ A portion of these bonds were entrusted to the appellants, •Robert Garrett, Henry S. Garrett and John S. Garrett, for sale or hypothecation.

The appellee, Henry May, by his agent, Henry Oelrichs, purchased five of these bonds,' on the 24th day of March ¹⁹³ 1855, for which he paid, through his agent, the consideration money to the appellants, the Garretts. Josiah Lee & Go. also purchased fifty of these bonds. The Railroad Company executed a third deed of mortgage on the first day of March 1855, in favor of the appellants, Thomas Swann, Johns Hopkins and Gustav W. Lurman, as mortgagees and trustees. The purpose of which deed was “to provide for the funding of the floating debt, and to raise money therefor, by loan, to an amount not exceeding $850,000.

The appellees, Henry May and Josiah Lee & Co., feeling themselves aggrieved "by the conduct of the Railroad Company, in executing this third mortgage, filed their hill of complaint in the Superior Court of Baltimore city, on the 29th day of .February 1856, and this bill was so filed in behalf of themselves and all other creditors of the Railroad Company. The complainants prayed for an injunction to restrain the appellants, the Garretts, from selling the bonds issued in pursuance of the power conferred by the third deed of mortgage. By an agreement of the parties, filed on the 6th of February 1858, “the original complainants constituting the firm of Josiah Lee & Co., and all allegations relating thereto, are to be stricken out of said bill of complaint. The bill is to be considered as the bill of complaint of Henry May, Bonus Barnum, William Carstangan, Daniel W. Warneken, Edward Boninger and Robert Letor, tbe last two trading as Boninger Brothers.” Tbe grounds on which relief is sought, are, that the five “income bonds” of the appellee, May, were bought by him from the appellants, the Garretts, who had been for a long time previously the agents of the Railroad Company, and, as agents, entrusted with the custody and disposal of these “income bonds,” and of others of like tenor and effect, and, with a view to bettor negotiation of them, the company, as ¹⁹⁴ well as its agents, especially John S. Garrett, did declare and affirm that the said “income bonds” were to be secured or provided for by a deed of mortgage, then about to be executed by the company, on all its imoperty and effects, subject to two preceding mortgages; and that the manner in which the “income bonds” were to be secured or provided for, in the third deed of mortgage, was by converting the “income bonds” into bonds secured by the third mortgage.

That similar representations were made to others than the appellant, May. That when this mortgage was executed, no provision was made for the better securing the “income bonds,” as the company was bound to do. ' That the company, being insolvent, delivered to the Garretts all, or nearly all, the bonds secured by the third mortgage, and that they then held them either as agents of the company, to raise money thereon, or as collateral security for, or in satisfaction and discharge of, the company’s indebtedness to them or others; but that, in either case, these “third mortgage bonds” are liable, in the hand's of the holders, to the equitable lien thereon of the