Tome v. King

Alvey, C. J., delivered the opinion of the Court. In order to the proper understanding of this case, and the questions raised on the two appeals in the record, it is necessary that we state briefly flow and for what objects the proceedings were commenced, and in what order they were conducted. The People’s Passenger Railway Company of Baltimore City negotiated two different loans, and for their security executed two several mortgages or deeds of trust, of all its property of every kind and description. The first of these instruments was executed to Jacob Tome as trustee, on the 29th of July, 1879, to secure the payment of a loan of $100,000, with interest, for which coupon bonds were issued by the company, the interest payable semi-annually.

And in case of default, for the period of two months, in the payment of either interest or principal, as it should become due, the deed provides that “the said trustee shall, and will, upon the written request of the holders of one-fourth in amount of the said bonds outstanding, and upon which such default to pay the said interest or principal shall have been made, enter upon and talce possession of the railroad, real and personal estate and premises hereby mortgaged, or agreed or intended so to be, and shall and will thereupon himself, or by such agent or agents as he may appoint, operate, manage, control, and use the said railroad, real and personal estate and premises, — possession of which may be so taken, to the best advantage,' — and appropriate the net income and proceeds to be derived therefrom, after deducting expenses, to the payment in full,” first of the interest, and then of the principal of the bonds secured by the mortgage; or the trustee might, iipon request of the holders of one-fourth in amount of the outstanding bonds, proceed under the ¹⁷² order or decree of a Court of equity, to sell the mortgaged property, and apply the proceeds of sale to the payment of the debt and interest. The second mortgage or deed of trust was executed by the company to John A. Hambleton and John C. King as trustees, on the 5th of April, 1880, of all its property of every description, (being' the same embraced in the preceding mortgage to Tome,) to secure a further loan of $75,000, created by the issue of coupon -bonds, the interest payable semi-annually. This mortgage was made, by express terms, subject to the prior mortgage t-o Tome ; and it also provided, that if the company made default for three months after demand of the semi-annual interest due on the bonds, the trustees should, upon request of the holders of one-fourth of the bonds outstanding and in respect to which default had been made, proceed under the order or decree of a Court of equity to sell the mortgaged property, and apply the .proceeds of sale to the payment of interest and principal of such outstanding bonds. In less than three years after the last of these loans had been effected, the company became greatly embarrassed and made default in the payment of the interest due on the second mortgage bonds.

Indeed it was so completely insolvent that it- could not proceed in the operation of its road. In this state of things, the trustees in the second mortgage filed a bill on the 15th of January, 1883, alleging the default in the payment of interest due on the second mortgage bonds, and the insolvent condition of the company. To this bill, while the existence of the first mortgage was alleged, neither the trustee nor the holders of the bonds under that mortgage were made parties, nor was it in respect of any rights of those holding the first mortgage bonds that relief was prayed. The bill charged that the plaintiffs, under the terms of the second mortgage, were entitled to sell the mortgaged property, and to have a decree for such sale, by reason of the default ¹⁷³ made in the payment of the interest due on the second mortgage bonds.

But they charged that, inasmuch as some delay would occur in preparing the case for a decree for sale, the property in the meantime would likely suffer, and they therefore asked for the appointment of receivers to take charge of and care for the property, and, as far as possible, to operate the road under the arrthority of the Court, until the case could be matured for a decree. Answers of the company and several of the other defendants were filed on the same day of the filing of the bill; and immediately thereupon an order was passed appointing T. E. Hambleton and Archibald Stirling, Jr., receivers, with power to take charge of the entire property, and with authority to expend a small amount of money tor the support of the stock. An injunction was also issued to restrain the company or its agents in any attempt to withhold any of the property from the receivers. After this the receivers were authorized by further order of Court to raise and expend money necessary to feed the live stock, and they were also authorized to sell a portion of such stock, which they did.

At this stage of the proceeding Ed. I. Clark, an alleged second mortgage bondholder, intervened and asked that the property be sold at once by the trustees named in the mortgage. But before definite action was had upon this application, Jacob Tome, the trustee in the first mortgage, and on behalf of the first mortgage bondholders, intervened by petition, filed the 12th of March, 1883, and asked to be made a party defendant to the original bill, with leave to defend by answer or cross-bill; proceeding upon the ground,as alleged, that as all the property of the company had been placed in the hands of receivers appointed by the Court, under the bill filed by the trustees in the second mortgage, and thereby his power to enter upon, take charge of and operate the road, under the first mortgage, had been frustrated, he therefore applied to the Court for relief. He was on the ¹⁷⁴ same day, by'order, admitted as a party defendant; and he thereupon, without delay, filed a cross-bill against the parties to the original bill, charging default in the company in the redemption of the interest coupons to the first mortgage bonds; and to avoid delay and unnecessary expense, he prayed that the entire property should be sold and the proceeds distributed according to the rights and priorities of all parties concerned. On the 28th of March, 1883, the Court passed an order making Ed. I. Clark a party defendant to the original bill, and a defendant to the cross-bill of Tome, with leave to make defence to the same.

Answers were filed to the cross-bill by several of the defendants thereto, but Clark interposed a demurrer, and that does not appear ever to have been disposed of. On the 26th of April, 1883, Tome filed a petition, praying that inasmuch as it was manifest that the property would have to be sold under the decree of the Court, that an order for sale of all the mortgaged property in question, free and clear from all claims and equities of all parties, be passed at once in anticipation of the final decree, and that a trustee, or trustees be appointed to make such sale. But the Court, on the 27th of April, 1883, instead of passing an order of sale such as that prayed for in the petition of Tome, proceeded to pass an order of sale, in which it was stated, that the Court was satisfied that at the final hearing a sale would be decreed of the property in the proceedings mentioned, under the second mortgage, and therefore ordered a sale to be made under that mortgage, by John A. Hambleton, John C. King and A. Stirling, Jr., trustees appointed for that purpose; the sale tobe made, however, subject to all the rights and estate of the parties claiming under the first mortgage. It is clear, therefore, that under that order of sale, nothing but the equity of redemption, which was covered by the second mortgage, could have been sold.

Under this order of sale the property was offered, but there was no bid received; and the trustees so reported. ¹⁷⁵ Then the receivers, Stirling and Hambleton, filed a petition, representing the state of the property as being wholly unproductive, and that a sale thereof was called for at once for the interest of all parties concerned, and they therefore prayed that a sale should be ordered of the entire pi'operty, free and clear of all incumbrances thereon. On this petition an interlocutory order was passed, on the 11th of May, 1883, directing the receivers to make sale of all the property, free, clear and discharged of all claim of the parties to the proceedings, complainants and defendants; the proceeds of sale to bo distributed under the direction of' the Court. The property was offered by the receivers under this last order of sale, and was struck off to a purchaser' at $83,000. The immediate ratification of the report of this sale was asked by Tome, and others, but Clark interposed exceptions, and, on his exceptions, the sale was rejected by the Court.

Tome then renewed his application for an immediate sale of the property, and after some objection interposed, the Court, on the 6th of July, 1883, passed another interlocutory order of sale, at the same time rescinding the previous order of the 11th of May, 1883, and appointed King and Stirling trustees to make the sale, the same to be made free, clear and discharged of both mortgages. These trustees offered the property and received a bid of $106,000, and so reported to the Court; but, upon exception by Clark, and also the purchaser, this sale was also rejected by the Court. After the rejection of the last sale, the receivers applied to the Court, on the 27th of September, 1883, for leave to use the horses, cars, and other property in their hands, in the operation of the road, until a sale could be effected; and such permission was given by the Court. The next move made with a view to effecting a sale of the property, was a petition filed by Tome, on the 22d of December, 1883, setting forth the various attempts that had been made to sell the property, and their failure, and praying that the ¹⁷⁶ property should no longer be offered to be sold free and clear of the first mortgage, and that all previous orders of Court contemplating the sale free and clear of that mortgage should be rescinded, and that any future order or decree of sale should direct the sale to be made subject to the first mortgage.

After this the decree of the 8th of March, 1884, professing to be a final decree, was passed, and by which all previous orders of sale were expressly rescinded; and thereupon the Court proceeded “ to adjudicate and determine the case presented by the bill filed on the 15th of January, 1883, by Hambleton and King, trustees, under the second mortgage from'the defendant companyand, among other things, decreed a sale of the ■ mortgaged property, subject, however, by express provision, to the first mortgage and all debts secured thereby. The decree was passed, as is manifest upon its face, exclusively .with reference to foreclosure, by sale, of the second mortgage, and the relief prayed by the cross-bill filed by Tome was entirely disregarded in the decree, as if there had been no such bill filed in the cause. John A. Hambleton, one of the trustees in the second mortgage, having resigned, Archibald Stirling, Jr., was associated with John C. King, the other trustee, to make the sale. The sale was made under this decree for the sum of $6,000, and was finally ratified by the Court.

After the sale was ratified, the receivers made their report, showing what had been received and what expended during the time the property was in their hands ; and they prayed to be allowed such compensation for their services as the Court might deem proper. Applications for the allowance of counsel fees were also filed; and upon the receivers’ report, and the applications for counsel fees, the Court, by what would appear to have been an order passed without notice to the parties to be affected, ratified the receivers’ report, and directed that there should be allowed and audited certain counsel fees ; and in the next ¹⁷⁷ place, ‘''--that there be allowed to Archibald Stirling, Jr., John C. King and T. Ed. Hambleton, in their respective capacities as receivers and trustees, in lieu of all other commissions to them, or any of them, eight per cent, on the gross amount expended, disbursed or incurred by said receivers, as shown by their report, and as the same may be shown to the auditor by proper vouchers; and eight per cent, upon the sum of $106,000, the amount of the first mortgage debt, and interest thereon, subject to 'which the said property was sold by the trustees under the final decree in this case.” The proceedings are then referred to the auditor, with directions to audit the purchase money to the allowances specified, and that the auditor report the deficiency, if any, the same to be charged to the first mortgage bondholders, and to be paid by them; with the further direction to take testimony to ascertain who were the first mortgage bondholders at the time of the sale, and in what proportions they held the same ; “ the mode of enforcing said payment to be determined by the further order of the Court.” Under this order the auditor proceeded, and by his statements returned into Court, the amount of commissions allowed on the receivers’ disbursements of $16,479.60 is $1,318.36: and on the amount of the first mortgage bonds, principal and interest, $106,000, the amount of commissions is $8,480.00; making a sum total of $9,798.36, for commissions to the receivers and trustees. This amount, together with counsel fees, taxes, costs and charges, and reimbursement to receivers allowed, make an aggregate sum of $19,927.80; and after applying the $6,000, the amount realized from the sale of the property, there remained a deficiency of $13,927.80, to be assessed to the first mortgage bonds, according to the order of the Court. To the report of the auditor, T. Ed. Hambleton, in his own right