Northern Central Railway Co. v. Hering

¹⁷⁴ Page, J., delivered the opinion of the Court. 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, a.nd 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 prin ¹⁷⁵ ciple. 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's Extr., 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 ¹⁷⁶ 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 legaf 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. Ia 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 ¹⁷⁷ 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 thé 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 thé ¹⁷⁸ 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 incprporation 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 and 90 Md. 466 . We need