632 SUPREME COURT OF ARKANSAS, [37 . Ark. Memphis & L. R. R. R. Co. as . Re-organized, v. The State. MEMPHIS &LR Tt. R. -Co. AS RE7ORGANIZED. V. THE STATE. 1. MORTGAGE: To State, when good v y ithout registering. When a loan is made by the State and a mortgage taken to secure it in • pursuance t6 the provisions of 'a public Statute, all pei-Sons are chargeable with notice of it, and the State will not be prejudiced iby the neglect of her agents to have the : mortgage recorded. 2. SAitE • ForeclOsing. Su6Seguent mortgagees should be parties. A second • mortgagee, Who is not a party to a suit to fOi'ilose first • -mortgage, is • not hound by the decree rendered in, the suit,. but niai-foreclose and sell the equity of redemption, and the purchaser in that sale will be entitled to possession and to redeem from tbe first mortgage. •
37. Ark.] NOVEMBER TERM, .18,81. 633 Memphis & L. R. R. R. Co. as Re-organized, v. The State. APPEAL from Pulaski Chancery Court. ..Hon. D. W. CARLL, Chancellor. t. C. Brown . .and U. 111..4 0..P.Rose, for apPellants. 0. B. Maore, Attorney ; -deneral ,-' and' F: W. Co7riptart, corntra: Hon. W. W. SMITH, Special Judge. The Memphis & Little Rock Railread Company by its - deed, dated May 1, 1860, coneyed its road, rolling stoek, charter, franchiSes and all its property to R. C. Brinkley, Sam. Tate arid Geo. a , Wat-kins, in trust to secure payment of principal and accriting semi-annual interest 'on 'its thirteen hundred bonc16 of that date, each f6r ' one thOusand' dollars, maturing May 1, 1890, and: bearing interest af eight per cent., payable semi-annually, for which interest coupons Were attached to the bonds. The deed provided for sale uPen certain ' clefaUlts, ' but there Was in it no provision that upon any default in payment of interest the principal should become due: This deed was duly a'ocorded in all the counties throiigh which- the road ran and in which any of the proPerty conveyed was situate, -within a short tiine after ifs execution and before ' the first day of September, 1860. By an Aet• approved 3anUary 3, 1861, entitled "An Act to encourage internal iMprovements," the -1.egislatilre of the State of Arkansas appropriated one lnindred ;thousand dollars of the five per cent. ' fimd and lent it to the same : railroad company for ten years at the rate of eight per Cent. per annuM interest, to be paid annUally. On January 10, 1861, the railroad company eXeCuted and delivered tothm State its promissory note for that suna, and on the same day the company exeented and: delivered to ; the State a Mortgage by whiCh it conveyed to the State its road and rolling stock
634 SUPREME COURT OF ARKANSAS, [37 Ark. Memphis & L. R. R. R. Co: as Re-organized, v. The State. to secure payment of the sum so lent and the accruing interest. This deed was never recorded. On March 11, 1867, the General • Assembly, by an Act approved on that day, remitted all interest that had then 'accrued upon said loan. On March 1, 1871, the railroad company executed and issued its certain other bonds, one thousand in number, eacii for one thousand dollars, payable ., January 1, 1901, bearing seven per cent. interest, payable semi-annually, for which coupons were attached, and to secure payment of the principal and accruing interest, by its deed of that date, conveyed its charter, road, franchises and all its other property to Henry F. Vail in trust to convey, upon the default therein mentioned. This deed was duly recorded in all the countiei in which any part of the conveyed property was situate within less than a month after its execution. This conveyance was made expressly subject to the first deed above recited by which the property was conveyed to Brinkley, Tate and Watkins: It was also provided that if default in payment of interest or of any of the coupons was made for sixty days, that the trustee might sell sufficient to pay the amount due; but that "if a majority in nmnber and value of the holdera of the coupons which may remain due and unpaid shall elect to do so they may postpone the sale of the property hereby conveyed for the payment of the said:coupons so due •and unpaid for the period . of twelve months, and at the expiration of the said period the said Henry F. Vail, shall, upon request in writing of a majority in number and value of . the holdCrs of the bonds , and coupons hereby secured, offer for sale and sell all the property hereby conveyed to him." , The default in payment . occurred; the holders of the unpaid coupons postponed the sale for the time provided, and at its expiration . a majority in number and value of the holders of the bonds and coupons secured by this deed, requested a sale
37 Ark.] 'NOVEMBER TERM, 1881. '635 Memphis & L. R. R. R. Co. as Re-organized, v. The State. of the whole conveyed proterty. The . trustee thereupon gave notice according to the provisions of the deed that . he would sell the whole property conveyed to the highest bidder at Hopefield, Arkansas, on March 17, 1873, subject to the lien of the deed to . Brinkley, Watkins and Tate and 'of the bonds thereby secured and "furthermore, subject to all liens of the State of Arkansas, upon said property or any part thereof, previously to the iien arising under said second Mortgage deed of said company." On the day named; the trustee sold. the prOperty to'Stillman Witt, who purchased for himself :and his associates, and the trustee, by his deed dated March 17, 1873, conveyed the whole, property to Witt. On March 29, 1873, Witt, by his deed or declaration, declared that he lad purchased for himself, J. H. Wade, John J. Astor, Robert Lennox Kennedy, A. A. Lo, George T. Adee, William B. Greenlaw, Hu. L. Brinkley and SaM. Tate, holders of the second mortgage bonds of the company secured by the deed to Vail and conVeyed to himself and the others named to hold in the proportions of their ownership of such bonds, the proportibn being stated in the decd. These parties afterwards organized the Memphis & Little Rock Railway ' Company and conveyed the property ti o that company. That company afterwards made a proposition to the' holders of the first mortgage bonds of the company, which was, by part of them conditionally accepted. The proposition and acceptance were in these words: [PROPOSITION.] The Memphis & Little Rock Railway Company propose to the first mortgage bondholders of the Memphis and Little Rock Railroad CemPany to':
036 SUPREME CbURT OF ARIUNSAS, [37 Ark. . Memphis ez , L. R. 11.. IL. Co.. as . Re-organized, v. The State. . Issue first mortgage 8 7 100 currency, thirty-year bond .... ........... . ..... $ .2,600,000 Issue second mortgage 6-100 currency, twenty-five-year bond 1,000,000 Issue , income 7-100 currency,' twenty-year. bond 1,000,000 Issue stock ....... ,..,... 5,000,000 It is proposed: • 1. "To place in the hands of the trustees fer distribution as hereinafter provided for, the following securities: \ , $2,400,000, first mortgage bonds; 360,000, second mortgage bonds; .500,000, income , bonds; 300,000, stock. • 2. "To authorize said trustees to issue'to the , old first mortgage (i. e. bondholders), new. , first mortgage 8-100 bonds for the principal, coupons and , funded interest bonds and coupons thereon, with interest on , said coupons, and ,to hold said old,securities for the specific beiiefit of the new honds • issued therefor until all legal questions are removed . or settled satiSfaCtory to said trustees; but said bonds are te be 50 printed across or defaced as not to he a marketable bond, if said trustees deem it expedient, , 3. '"To authorize said trustees to use, either in settlement of rolling stock debt which is a lien on the property, or to return to the company pro rata, as they pay any, part of said debt, $2,000,000 of said first mortgage eight per cent. bonds. 4. "To authorize said trustees to issue to the holders of Arkansas State bonds, issued to the Memphis and Little Rock Railroad Company, for each bond of $1,000, $250 of first mortgage eight per cent. , bonds; , $250 second mortgage six per'cent. bonds; $250 income bonds, and $250 for stock their face; and for the mature and maturing coupons, ,up to and including April 1, 1875, income bonds for their
37 'Ark.] • NOVEMBER TERM, 1881. 637 Memphis & L. R. R. R. Co. as Re-organized, v. The State. face; provided, said specified, issues of Arkansas State bonds shall be presented on or before the first day, of March, 1874, or at any other date the trustees may deem expedient. If said bonds should not be presented by that time, said trustees are authorized, to issue up to„the limit of $1;200,000 Arkansas bonds for any other bonds of the State issued to said railroad, such amounts .of any of said new Securities in payment .therefor, as, they may deem fit, not exceeding the pro rata; all such Arkansas bonds to be . held in trust by said trustees for the purpose of paying the debt due by the Memphis and Little Rack Railroad Company to the State of Arkansas. 5. "To authorize said trustees to use the coupons on said Arkansas bonds to pay : the interest on the bonds due to the State of Arkansas, that were issued to the Memphis and Little Rock Railroad Company, as it may become due. . 6. "To authorize the said trustees, in case the State of Arkansas shall donate to the , railway any . . State bonds, or other things, on condition of said company retiring the original $1,200,000 ,State bonds, to give to the . parties who may have surrendered State bonds issued to the Memphis and Little Rock Railroad Company, a pro rata , proportion of such new donated bonds, upon their returning to the trustees, for the use of the Railway Company, the income bonds and stock received by them on account of the principal of such surrendered bonds in equal , proportions and amount. 7. "The company agree with the trustees that they will reserve $1,000,000 of stock, subject to their order, to be used in exchange for stock of the Memphis and Little Rock Railroad Company; said stock to be transferred to the Memphis and Little Rock Railway Company, or exchanged, and not to be exchanged at above par for the face of said stock in new stock at its par or face value. 8. "The first mortgage bondholders to fund their inter=
638 SUPREME COURT OF ARKANSAS, [37 Ark. Memphis & L. R. R; R. Co. as Re-organized, v. The State. est on their bonds, and funded interest bonds, up to July 1, 1874, in first mortgage, eight per cent. bonds at par; the new first mortgage bonds to bear interest from first of July, 1874, and first coupons to be paid first of January, 1875. The second mortgage bonds to bear interest from the first of April, 1875, and the first coupons to be paid first of October, 1875; and both classes of bonds to have semi-annual coupons attached, for the interest thereon, payable semi-annually, beginning with the dates aforesaid. 9. "The expenses of executing this proposition to be borne by the Railway Company." [ACCEPTANCE.] "NEW Yoax, October 18, 1873. "We, whos ' e names are hereto subscribed, 'holders of first mortgage bonds of the Memphis and Little Rock Railroad Company, and funded interest bonds of Said company, for the amount of said bonds set opposite our names, 'do hereby accept the above and foregoing proposition of the Memphis and Little Rock Railway Conipany, and asSent to the securities prOposed, and agree to sm-render Our bond& and coupons to the trustees, in accordance With said propoSition, hereby modifying, to' that extent, all former agree-'manta: made on the subject, with the pur3hasers of said road under the second mortgage, only to 'the extent named in the foregoing proposition; provided, that nothing contained in, our assent to this prOposition, shall be construed to deprive us of our rights and security, or cis an aCknowledgment of satisfattion for the i old securities, in, such case to be surrendered to the trustees, until all questiOns, legal or equitable, shall be fully settled as to the legality of the new issUe of bonds, and the mortgage securing th.e same, as being a first lien. This agreement is to be executed so far
37 Ark.] NOVEMBER TERM, 1881. 639 Memphis & L. R. R. R. Co. as Re-organized, v. The State. as the issuance and delivery to the trustees of the securities received, by the first day of January, next. "We hereby name and appoint as trustees in the foregoing proposition, James Tinker, of the City of New York ; Wm. S. Pierson, of Windsor, Connecticut; R. K. Dow, of Claremont, New Hampshire ; with full power to receive the securities named' therein, and to act as trustees in this agreement, with the usual powers of trustees in. such cases. The said company shall not be entitled to issue and retain the said $200,000 first mortgage bonds until the said $2,400,000 first mortgage bonds shall be delivered to the trustees, and, also, $275,000 of Arkansas State bonds, indorsed by the Memphis and Little Rock Railroad Company have been surrendered to the trustees for exchange on the terms specified. [SIGNED IN DUPLICATE." S. M. SwirrsoN, $81,000, first mortgage bonds ; S. M. SwiNsoN, $45,500, interest bonds; C. W. LAmpsoN & Co., $180,000, first mortgage bonds; C. W. LAMPSON & CO., $28,560, interest bonds; JAMES TINKER, $2,000, interest bonds; F. H. Cossrrr, $100,000, firstmortgage bonds; F. H. Cossirr, $17,000, interest bonds; J. N. PHELPS $20,000, first mortgage bonds; C. Dow, for R K. Dow, $15,000, first mortgage bonds ; R. K. Dow, $10,000, first mortgage bonds; EDWARD MATTHEWS, $322,000, first mortgage bonds; EDWARD MATTHEWS, $84,180, interest funded bonds." In compliance with this proposition, the railway company, by its deed, dated December 1, 1873, conveyed all the said road, franchises and property to the New York Guaranty, and Indemnity Company, to secure payment of 'two million,
640- SUPREME COURT OF ARKANSAS, [37 Ar15. Memphis & L. R. R. R...Co: as Re-organized, v. The State., six hundered thousand. dollars 'of its `..`first'!. mortgage bonds, due January, 1904, bearing seyen per cent. interest, payable semi-annually, •for which coupons were attached: This deed, •provided, that if ,default 'was made \ in payment of the coupons,. or . any of them, : and 'continued for six months,, . that the principal -should become . due, and that sale might be made of the property. It also-provided that the Indemnity Compa.ny: might resign, and y in that case, Willaim S. Pierson, Watson Matthews and R. K. Dow should become trustees of the .deed, with all powers and .rights. Upon this deed . being executed, , those of the holders-. of the 'first _mortgage : bonds 'of the railroad' company, secured by the deed to Brinkley, Tate •and •Watkins, who •had accepted the proposition, surrendered their bonds—not to the railway company, nor to the railroad company (neither of which, as is shown, , ever . • received or ,had possession of them) ;, but to the trustees named in the acceptance of tbe proposition—James S. 'Tinker, 'William . - S. Pierson, and R.' K. Dow, the survivors of- whofn• still hold - 'them. Default ba y ing been 'made, and . continued for Six months, the Indemnity CompanY resigned, • and, thereupon, tbe substituted trustees, on :the tiventy-iiinth' day' of June, 1875, exhibited their bill in-the CircUit Court' Of -United:States for the Eastern Distriet Arka.nsas i 'praying foreclosure of the mortgagt executed . by the' railway company. AftCrwards,.on Noveinber 21, 1876, Brinkley ' and Tate, surviving trustees of the -deed of the railroad el:imps-iv, of May 1, 1860; interVened hi that dduse an.d were,' -on their request made parties cOmplainants, and, bytbeir bill, iirayed foreclosure of the deed of May 10860.. . . Tbe • court ' decreed . foreclosure of bOth mortgages, both being . kept distinct in the decree, the amount due , on each being sepa ra tely a s certa i ned, and ordered sale of the property, first, under the` deed of May, 1, 1860, and, •seCond,
37 Ark.] 1■TOITEMBERTERM, 1881. 641 Meniphis L. R. R. R. Co. as Re-organized, v. The State. under the Mortgage of the railWay company. Separat,e snleS were had, at each the property was purchSsed by Wil-liam S. PiersOn, Wation MattheWs arid R. K. Dow, Separate sums being bid. The sales were reported to the CoUre and confirmed, and, by order Of coUrt, the coMmissioners con: veyed the whole property' to the purchasers, in trust, that they Should convey it to a new company to be' formed by the holders of the bonds. The bondholders, under die Provisions of the charter of the Memphis 'and Little Rock Railroad Company, organized a new company, called the . "Memphis and Little Rock Railroad Company as Re-organized;" and, on the thirtieth (lay of April,' 1877, the purchasers Conveyed the whole Property of eVery kind and description; including the charter, ' and all franchises and privileges, the road, rolling stock, and all appurtenances, to this coingany; which entered • on and took, and has since had and kept,'possessiOn thereof, and is now operating the road. On March 27th, 1875, the State of Arkansas filed her bill in the Chancery Court of Pulaski county, making the Mem-phis and Little Rock Railroad Company, Sam Tate and R. C. Brinkley, surviving trustees of the deed of 'May . 1st, 1860, some persons whom she alleged were holders of bonds seeured . by that deed, and Others whom she alleged were holders .of the second mortgage bonds of . the old railroad company, parties, praying a foreclosure of her mortgage, and that it be declared a prior lien. ; , . After the purchase of, the property by the present defendant, . the Memphis and Little Rock Railroad Company as Re-organized, that company intervened in this cause, was made a defendant, and filed its answer, setting up all the alxive facts—the purchase of the property, by that company, its possession, etc., and contended tbat the mortgage of the old railroad company, dated May 1st, 1860, 37 Ark.-41
642 SUPREME COURT OF ARKANSAS, [37 Ark.. Memphis & L. R. R. R. Co. as Re-organized, v. The State. • was a prior lien upon the property to the . mortgage held by the State ; that so far as the State was concerned, nothing. that had been done between the railroad company and the holders of bonds secured by that deed, affected the lien of the deed of May 1st, 1860, and that consequently the State was a . second incumbrancer, and held nothing but a mortgage of the equity of redemption; that she was only entitled to redeem, etc., etc. The cause was heard, and the chancellor held that dm.. effect of the transaction and agreement of October. 18th, 1873, between the railway company and the holders of the. bonds secured by the deed of 1860, as to all bondhold= ers who had surrendered •their bonds under that agreement, was a novation, and extinguished the .surrendered bonds; that as against all bonds so surrendered, the State bad the prior lien; found the debt to be $202,133 32-100, and ordered sale subject to the lien of the bonds of 1860 not surrendered. From this decree the defendant, the Memphis and. Lit-4.1e Rock Railroad Company as Re-organized, appealed to this court. It is conceded . by the company's counsel that, notwithstand-1. Mortgage to ing the mortgage, to foreclose which this suit. the State: When good with-was brought, was never filed for record, it is yet out registering. a lien upon the equity of redemption, which remained in the original company after the execution of the first, or Brinkley mortgage. This is upon the principle that the loan and stipulated security were in pursuance of a public Statute, of which all persons were required, at their peril, to take. notice, and the State must not be .prejudiced by the neglect of her agents. The State's counsel concede that the chancellor errecb in holding that only $100,000 of the first mortgage bonds are now outstanding, and the only prior lien to that of
37 Ark.] NOVEMBER TERM, 1881, 643 the State. This relieves Us Of the necessity of . inquiry whether the transaction of •Oatober 18th, 1873 1 was a nova-. tion, by which the holders of that series of bonds lost the priority 'which they • once undoubtedly held over the State, a. junior incumbrancer. • Not having been a party to the foreclosure closing: suit in the Federal Court, the interests of the S'ubse-quent mortga-S.tate are in nowise affected by the decree rend-gees should be ered in that proceeding. On the contrary, she . Parties. may foreclose and sell" the equity of ,redemption, and the pur chaser at that sale will be entitled,to . be le . t into possession, and to redeem the first mortgage. The decree below will be reversed, as Upon a concession of error, and a decree will be entered here for a sale of the property, subject to the lien of the deed of May 1st, 1860. The clerk of this court will be ehqrged with the execution of this decree, and if any , surplus . is produced by that sale, after defraying the cOsts , of the 'suit . below, expenses of sale, .and the debt due the " State; it will: belong to the 4emphis and Litile lioick Rai . lr . oad Company ai re-organized, the purchaser under the decree of foreclosure in the Federal Court. The costs of this appeal must be adjudged against the State. *Hon. J. R. EAKIN did not sit in this case.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.