tion to recover anything for such mere use or occupation by the defendant; that is to say, for the time after August, 1885, when, the action at law having been decided, the defendant acknowledged the plaintiff's title and invited her to share in the· possession and management of the property. But while such use and occupation may not be made the direct ground of recovery, it does not follow that it may not be considered in connection with, and made an equitable set-off against, the defendant's claim forrepairs,which, at common law, in the absence of agreement, are likewise not the subject of an action between co-tenants. The same principle which admits one of these claims into the computation opens the door to the other as a set-off against the first. The case of Hyatt v. Cochran, 85 Ind. 231, affords a close analogy. That was an action for rents and profits of real estate under a statute which permitted a recovery for six years only The defendant claimed an allowance for repairs, and the plaintiff was permitted to bring forward in set-off a demand for rents accrued more thatJ. six years before the commencement of the tion. The attitude and conduct of the defendant in the case have shown him throughollt 1Ii determined and persistent litigant, and thEl resulthae shown him to have been in the wrong; but in the judgment of the court, if the subject of bona jidesbewithin the scope of the- present inquiry, there is not such proof of bad faith· on the part of the deftmdant as to exclude his claims from all equitable cognizance. Upon a careful consideration of the case in all its aspects, as presented by counsel, the court is 'not able tO'discover a basis of adjustment different from that adopted by the master, which it could regard as more consonant with equity and good conscience; and the amount reported, reduced by $212.43, that is to say, $3,545.55, to be paid by defendant to complainant, is confirmed, and all exceptions to the report inconsistent with this conclusion are overruled. Decree and judgment accordingly.
&. N. W. R. Co.
(Oz"rouit Oourt, S. D. Ohio, 'Iv. D. August 17.1888.)
RAILROAD 'TIFICATES. AND . TO ISSUE CER.
'The petition of a receiver of an insolvent railroad company for authority to horrow $347.5.77,18, ,and issue his certificates therefor. specified that $111.904 of the amount was to be used in completing a portion of the road aud widening its gauge, $35,000 for purch,asing and laying track over another portion already graded and. bridged at an expense of $49,000; $47.248.18, to pay claims for material furnished. etc., which were not 8 lien on the road; $20,000 .to reimblirse bondholders for advances to meet arrearages of wages and avert a strike; $100,000 to purchase leased rolling stock, for which the coln,panypaid an annual rental of $28,800. the lessors also canceling a claim for $7,000 unpaid rent, if the purchase was made; $4,000 to relay a line of track op. a connecting road, and thus cancel a debt of $8,000 due that road, ll.J;ld secure enough additional business to. pay the cost in three months; and $29,-
INVESTMENT CO. V. OHIO & N. W. R. CO.
430, to mll.ke finll.l payment on a valuable tract of real estate. Holders of $943,000 of first mortgage bonds and $298,000 of second mortgage bonds consented to the issuance of the certificates, the remaining holders of $257,000 first mortgage bonds and $219,000 second mortgage bonds not consenting, and a portion of them, together with other lienholders, objecting. Held that, it being doubtful whether the improvements would add to the selling price of the road, the petition would be denied absolutely as to the items of $35,000 and of $20,000, and as to the item of $47,243.18, except upon consent of all lienholders; but that certificates would be issued for the remaining items, if desired by the consenting bondholders, with leave tbereafterto petition to have the Same made a charge on the non-consenting bondholders.
In Equity. Petition ofreceiver to borrow money and issue his certificates thetefof. Haward G.. Hollister and John G.. Johnson, for complainant. Harmon, Colston, Goldwith &: Hoadly, C" B.' Matthews, and Healy &: Brannan, for respondents. Ramsey, MaxweU &: Ramsey, for receiver. SAGE,J. This'cause is before the court upon the petition of the receiver, for authority to borrow $347,577 .18, and to issue his certificates therefor. "Before referring in detail to the petition, it will be necessary to state the condition of the defendant, .the Ohio & Northwestern Railroad Company; and that of its road, as disclosed by.the bill, the petition, ,and 'by other papers on file. The precise date of the organization of the railroad company does not appear, but it must be within about two years. The first mortgage is dated 13th September, 1886. The capital stock is $3,500,000. There are outstanding $1 ,200,000 first mortgage bonds, and $512,000 second mortgage bonds. The company is hopelessly insolvent, has never paid any interest on its bonded debt, is wholly without credit, , and can raise no money from any source excepting its earnings, which are not, and for. more than six months last past have not been sufficient, to pay its operating expenses. Its line of road is 106 miles in length, extending from, Idlewild, a station on the Oincinnati, Lebanon & Northern Railroad, , about 3 miles from Cincinnati, to Portsmouth, Scioto county, Ohio; but its track is laid only to Sciotoville, 5t miles out from Portsmouth, so that the road does not reach either to Cincinnati or to Portsmouth, the terminal points. It has, however, for some time had, at heavy cost, an entrance to Cincinnati over the tracks of the Little Miami Railroad, from Batavia Junction, a distance of some nine miles; and into Portsmouth, from. Sciotoville, over the tracks of the Scioto Valley .Railroad. It owns no equipment, locomotives, or cars, but is operated by leased rolling stock throughout, at charges for rentaJs too onerous for the company to bear, .or the receiver to pay. A portion of its line, extending eastwardly from Idlewild 43 miles to Sardinia, (perhaps beyond,-the papers on file do not show,)wasoriginally the Cincinnati & Eastern Railroad, a narrow-gauge road, and was purchased at judicial sale made by order of the court of common pleas of Clinton 'county, Ohio. That sale was confirmed. February 3, 1887; the order reserving a first lien for the deferred purchase money, of which $56,099.50 remains unpaid. The track, excepting. six miles upon this portion of the .line, has been widened to v.36F.no.1-4
, FEDERAL REPORTER.
standard gauge by relaying the narrow-gauge rails, which areold, rapidly wearing out, and of too light weight for use with heavy freight engines; trestles need strengthening, and generally the track is in so bad a ,§onditioll as to be unsafe. Other particulars relating to the condition ,of the road will be referred to in considering the receiver's petition. The receiver itemizes his petition as follows: (1) $111,904 to meet the expense, of purchasing and laying steel rails of sufficient weight, of miles of narrow gauge to standard gauge, and of strengthening trestles, between Idlewild and Sardinia. (2) $35,000 for rails and ties, and for laying the track between Sciotoville and Portsmouth. All the other work, including grading and bridging, has been done at an expense of $49,000. Unless completed, the right of way of this portion 'of the line will be forfeited, and the labor and material already expended will be lost to the company; whereas upon its completion' the company will receive, under an arrangement already made" $3,000 per annum from the Scioto Valley Railroad' Company, for its joint use, and will have free access to certainfire-btick works, from which the company now derives a large' share of its business, but is compelled' to pay 40 per cent. ofits freight rate from Scioto\tille to Cincinnati fOfuse of track between Sciotoville and Portsmouth, and from $2 to $2.50 switching charges per car for all busineSs' out of Portsmouth proper. (3) The receiver asks for $47,243.18 wherewith to ca.sh a list of unpaid vouchers for claims against the company, noneof which are liens upon the toad. ' Twenty thousand dollars of these claims are timber and ties furnished the compimy by parties who were induced by promises of payment to omit the steps necessa.ry to secure statutory liens. The residue of the c1nimsare in large . part in favor of regular .shippers, whose good-willis valuable, whose hostility would be injurious to the road. (4) $20,000 to reimburse 'large bondholders, who advanced that sum td meet arrearages of wages to employes,An December, 1887, and January, 1888, when a. strike was threatened, and immediate payment was an absolute necessity. '(5) $100,000 for the purchase of the locomotives and cars now used by the , receiver in operating the road, and constituting its entire eqUipment. The annual rental of this equipment is $28,800. Allowing 6 per cent. interestonthElpurchase price, which is actual cost and interest, the saving to the company would be $22,800 per annum. The lessors arewilling also to their claims .for unpaid rentals amounting, approximately, to 87,000. (6)$4,000 toeover the cost ohelayi.ngon the line of the Columbus & Maysville Railroad, whieh gives 'tathe Ohio & Northwestern a connection with and traffic from Hillsboro, the perfect 42pound rail taken up from the track of the Ohio &; The result will be to cancel a debt of $8,000 due to the Columbus & Maysville Company-, and give the Ohio & Northwestern Railroad Company enough additional business to pay the cost l>fthe· work in three months. (7) $29,430, the price of a piece of land at Red Bank, on the line of defendant company's road, six: miles from Idlewild, purchased by the company; the cash payment of $9,810 for which witS advanced -to· the company, and its note therefor taken·. The company's line passes Over this
INVESTMENT CO. tI. OHIO & N·.W. R. CO.
tract, which is mortgaged: for the deferred payments; The land is especially valuable because of its containing a deposit of gravel available, not only for the uses of the road, but for sale. The receiver advantages and benefits which, in his opinion, will result to the company anu its creditors, by way of curtailing expenses, increasing business, enlarging receipts, and accumulating good-will; but it is unnecessary to particularize them. The receiver files with his petition the consent to the issue of the certificates asked for of the holders of $943,000 of the first mortgage bonds, and of $293,000 second mortgage bonds; leaving $257,000 first mortgage bonds and $219,000 second mortgage bonds for which no consents are filed. No consents of lienhqlders other than bondholdere are filed, and it does not appear from the bill or petition whether there are any E\uch. The petition; was filed Saturday, August 3d, and presented for allowance Wednesday, August 8th, to me, at Asheville,N. C. How many of the non-consentinK bondholders, or of other lienholders had notice, does not appear, hut none of them were present Jin person or by counsel. On the evening of the day when the application was presented, the Mercantile Trust Company of New York city, trustee of the first mortgage, telegraphed that it had been advised by telegram .of the application, and that it objected to any order which should affect rights of bondholders not joining in the petition. Letters aldo were one dated at Cincinnati, August 6th, from counsel representing pllrties there resident holding $47,500 first mortgage bonds and $9i ,000 second mortgage bonds, who object to the issuing of certiticates. They complain that they only learned incidentally, the evening of the day previous, the time and place of the application, to which they object viKOrpusly, stating that "the object of the application seems to be to enter upon a general plan or scheme of enlargement of the property," and that "the only part of the application that could by any possibility be an exception to the above objection taken by us is for the laying of new railsbetweeu Sardinia and Batavia Junction." There is also presented on behalf of contractors for building a part of the company's line of road, whQ.object to the issue of certificates, ;l.nd who claim to have a statutory lien for a portion oJ the amount due them for work done, an affidadt dated August 11th, setting forth, among other things, that $2,000,000 only of stock have been issued; that not a dollar has been received on etock sQbscriptions; and that the entire issue was out between the president and board of directors, ",hopaid nothing for it,and who. still h9ld it. Whatever the fact may be, it be allowed to prejudice bondholders or claimants who it is not even suggested were pflrties to .it. . The condition ofthe company and of the road, which pas been only outlined in this opinion, from papers on file, strongly indicates, however, that, if th.e stock subscriptions have. been paid, neither the moneyderived:6:om that source, nor that from the 8aleor hypothe. pation of bonds, halll: been applied to the road, or to the proper purposes oHhe, cOD,lpapytoiltny greater extent than it was possible to avoid, . . .The.' po:wer: of :u, nited·· States COUJ·ts to authori2ie the. issue of certificates" them a :charge upOI;l: railroads!\nd
erty, superior to the lien of mortgages and statutory liens, has been so frequently affirmed by the supreme court of the United States that it is not open to be questioned. But, as was said by the supreme court in Wallace v. Loomis, 97 U. S. 146: "It is undoubtedly a power to be exercised with great caution, and, if possible, with the consent or acquiescence of the parties interested in the funds." In some instances certifihave been authorized. In Kennedy v. Rail·cates for very large road Co., 2 Dill. 448, the receiver was authorized to horrow $.5,000,000, and issue certificates therefor, which were made the first lien on the road and lands of the company. But that was done at the instance of bondholders, to enable the receiver to complete the unfinished portion of the road, and prevent a valuable land grant to the company, which was the principal security to the bondholders, from lapsing. The total length of the line of the road was 700 miles, the land grant was of 10 sections tothe mile, and it was admitted or shown that the average value of the lands was six dollars per acre. That Was a case where there was a morally certain outcome for the road upon its completion. But what .have we in the case before the court? A wrecked road, irretrieva bly insolvent. Its business is altogether local; and its future, even if it be put in cop1plete running order, and furnished with an equipment of its own, altogether problematical. No certain prediction can be made. Apparently, the only thing to be done for the interest of the bondholders, whose rights are vested, and to be fully protected by the court, is to sell the road, and distribute the proceeds. If the court authorizes certificates to be issued and made a lien upon the railroad superior to the mortgages j for the purchase and laying of steel rails, for the purchase of equipment, and for the cOHipletion of the road, the result may be to cause those things to be done at the expense and to the detriment of the bond and lien holders, and for the benefit of the purchasers, or of a syndicate holding a majority in amount of the bonds and liens, having peculiar advantages as bidders, and intending to become purchasers at the sale; for it rarely occurs that improvements and betterments add to the salable value of the road anything near their cost. In this case the court cannot say that they would at all increase the bids at the sale, which, in the condition of the railroad company and of the road, is the proper test. The showing in favor Of the second item of the receiver's petition, relating to the completion of the road between Sciotoville and Portsmouth, made a strong impression, at the time, upon my mind, that for that purpose certificates ought to be hlsued; but subsequent examination led to the conclusion that it was extremely doubtful whether, if that work were done, it would add a dollar to the selling price of the road. Moreover, objectionhas been made to that item since the presentation of the petition, upon the ground that the Scioto extension is entirely problematical, and that there is no certainty that the Scioto Valley Railroad Company will rent the property. That company's road is now in the possession of a receiver, who; it is reported, has taken possession oHhat property. The fourth item oithe receiver's petition is altogether inadmissible. The receiver has no interest in it. It is his business to represent all the bond..
INVESTMENT CO.V. OHIO & N. W. R. CO.
If the parties interested wish .
holders and all the lienholders, and not one or two against the others. have that claim considered, they will have to apply for leave to file an intervening petition. The third item, relating to unpaid vouchers, aQd 8mounting to $47,243.18, is one for which the court will not, without the consent of all the bond and lienholders, allow certificates. Two vouchers of the list will be rejected absolutely, as the court is at present advised. They amount to $.2,241.42, ahd are for the services and expenses of the president of the Ohio & Northwestern Railroad Company, up to June 14, 1888. As for all the remaining items, under existing circumstances, the presentation of the petition having been practically ex parte, some bondholders and lienholders and the trustee under the first mortgage objecting, others not noLified, and none present, or having had sufficient opportunity to be heard, the application for leave to borrow money and issue certificates to be made a charge upon the road is denied. This is the conclusion of the court upon the merits also; but, inasmuch as the holders of $943,000 first mortgage bonds, and of 8293,000 second mortgage bonds, have by their consents on file signified their confidence that the granting of the receiver's petition will be advantag;eous to the bond and lien holders,lhe court will, if they desire it,authorize the issue of certificates, excepting the second item, and the two vouchers of thefourthitem, which have been specified as absolutely rejected, and make them payable as prayed in the petition, excepting that they shall not be a charge upon the interest, or affect the lien of the non-consenting bond and lien holders. The consents on file are not sufficient; but upon the filing of consents to the issue of certificates, as above suggested, the order will be made. The court will also reserve to the consenting bondholders the right hereafter, when the books of the company shaH be accessible for thorough in· vestigation, and all interested shall have due notice and opportunity t<; be heard, to move to enlarge the order so as to charge also the non-consenting bond and lien holders. But that there may be no misapprehension, it is to be distinctly understood that the showing must be so strong as to make it quite clear tathe court that the salable value of the road is so increased by the improvements and betterments as to make it equitable to require the non-consenting bond and lien holders to pay their .ratable proportion of the cost.
C. & H. V. R. CO.' et ale
.(O';rcuit Court, 8. D. Ohw, W. D. August 28, 188S.) 1.
CORPORATIONS-8'rOCKHOLDERB-LUBILITY TO CREDITORS-FRAUD.
Defendant R., being the owner of a railroad. organized a company to whose stock he was the only actual subscriber, some shares .bein/!," issued to others at his instance, and sold his road to the company at a price about 15 times its value, taking in payment the stock and bonds of the company. To pay II debt he owed complainants, R. sold them a portion of the bonds, amounting to about three times the value of the road, upon which bonds jud/!,"ment was rendered against the company. Complainants had refused to receive the road itself, or the capital stock, in payment of their debt, and the sole objeet of the organization of the company was to make use of the road in the r.ayment of the debt; hut whether complainants knew that fact was doubtfu. Held, that the stockholders were liable, respectively, for the payment of said judgment, to the amount of their subscriptions, in spite of a provision in said bonds that no stockholder should be individually liable therefor.
Evidence that an alleged indebtedness was a balance resulting from deal.ings on the bonrd of trade in margins 011 wheat is Ilotsuflicient to prove the .transaction a gamblinA' one. .
In Equity; Creditors' bill against stockholders. ,... :aill ill equity by Josiah W. Preston and others against the Cincinnati, Columbus & Hocking Valley Railway Company, and E. L. Harper and stockhplders of said company, to compel the payment by the stockholders, of their subscrilltions, and to apply the same to the satisfaction of a judgment in favor of the complainants against said company. Francis A. Riddle, Boyce ac Boyd, Paxton ac Warrington, and Otto Gresham. for complainants. . Jordan ac Jordan and 'l'aft ac J"loyd, for respondents. SAGE, J. This is a creditors', bill to subject the amount due to thedefepdant railway company from the defendant E. L. Harper and his codefendants upon their subscriptions to the capital stock of said company. wthe payment ofcomplainants'judgments against said company, amounting to .255,938A8. The railway company was incorporated and orga-. nized in the latter part of the year 1881. On the 10th of December of that year defendant E. L. Harper subscribed for 2,500 shares of its capital stock of the par value of $100 each, and caused eight co-defendants -as he states in his answer-to subscribe for one share each, to enable them to become directors. Subsequently certificates representing 3,000 shares of the capital stock were issued by the company to defendant W. D. Lee, at the special instance and request of defendant E. L. Harper, and for his use and benefit. No money was paid upon any of the subscriptions, nor for the 3,000 shares issued to Lee for account of Harper, but they were regarded by him and by the company as fully paid for in the manner following: At the date of the organization of the company Harper was the owner of a narrow-gauge railroad which had been bought hcm an insolvent railroad company by who sold it to him, as he testifies, for" about scrap-iron price." It was some 20 miles in