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FARMERS' LOAN & TRUST CO. V. CAPE FEAR & Y. V. RY. CO. et al. LASH v. FARMERS' LOAN & TRUST CO. et al. Ex parte LOW et al.

(Circuit Court, E. D. North Carolina. December 20, 1895.) FORECLOSURE PROCEEDINGS-INTERVENTION BY BONDHOLDERS' COMMITTEE.

When, in the course of a proceeding to foreclose a railroad mortgage, it develops that differences of opinion existed between committees representing different bondholders, so that probably no order for sale can be made which will command the consent of the parties in interest, it is proper to allow such committees to be made parties.

Suits by the Farmers' Loan & Trust Company against the Cape Fear & Yadkin Valley Railway Company, the Mercantile Trust & Deposit Company of Baltimore, John W. Fries, as receiver of the North State Improvement Company, and William A. Lash, as trusee, and by William A. Lash against the Farmers' Loan & Trust Company, trustee, the Cape Fear & Yadkin Valley Railway Company, and John Gill, as receiver of such company. Heard on an ex parte petition by C. Adolph Low, George F. Baker, and William E. Strong, committee, asking leave to intervene.

Seward, Guthrie, Marowetz & Steel, for interveners.
Turner, McClure & Rolston, for Farmers' Loan & Trust Co.
Charles Price, for Cape Fear & Y. V. Ry. Co.

Cowen. Cross & Bond, for receiver and Mercantile Trust & Deposit Co.

SIMONTON, Circuit Judge. This is a petition praying leave to intervene and be made parties defendant to the main cause. The Cape Fear & Yadkin Valley Railway has a line having its termini at Wilmington, N. C., and Mt. Airy, in the same state. The road has three divisions, known as "A,” “B," and "C.” Bonds were issued upon each division. The bonds secured by Division A are known as the “A Bonds," those secured by Division B as “B Bonds,” and so with bonds secured by Division C, as “C Bonds." Each class of bonds has the first lien on its own division. The mortgage was executed to the Farmers' Loan & Trust Company, securing all of these bonds, but distinguishing them so that the extent of the prior lien of each class of bonds on its own division was expressed and declared. Default having been made, the complainant, as trustee of all the bonds of every class, filed its bill for foreclosure of the mortgage and the appointment of a receiver. To this bill the railroad company was made a party defendant, with other parties. But all the bondholders were represented by their trustee. A receiver was appointed. Creditors were called in, and all the bonds have been presented to and proved before the special master thereto named. The special master has made his report as to all existing claims, and the cause is nearly, if not quite, ripe for a final decree. Looking to that contingency, the bondholders have been in consultation, and are now endeavoring to agree upon a plan of reorganization. To that end a committee was formed, called hereafter the “Baltimore Committee," of which Messrs. Blackford, Perot, Tompkins, Redwood, Gordon, and Riddendorf are the members. They have formulated

and have presented a plan of reorganization, for the consideration of the bondholders. The petitioners are another committee, representing holders of A bonds, hereafter called the “New York Com. mittee.” Some of these had answered the invitation of the Baltimore committee, but others had not. Those of them who had answered the invitation of the Baltimore committee now withdraw therefrom. It seems that differences of opinion exist between the bondholders represented by the New York committee and those represented by the Baltimore committee as to the rights of A bondhold. ers, and the concessions to be made to the other classes of bonds. So that in all probability no order for sale of the property and distribution of the proceeds will be submitted which will command the consent of all parties in interest, and the settlement of the terms of such order and distribution will devolve on the court. In view of this, this petition is filed. The contention is that the course of proceeding has developed a difference of opinion and of interest among bondholders, all of whom are represented by the same trustee; that in this event the trustee, who owes equal duties to all, cannot vindicate or espouse the claim of one class of bonds against the other. But it must maintain a neutral attitude. Under these circumstances, each class of bondholders deprived of that protection which naturally would be given by the trustee must protect its own interest itself.

There can be no doubt that as a general rule the trustee of a railroad mortgage represents all the bondholders, and that his acts bind them, if done in good faith. Richter v. Jerome, 123 U. S. 246, 8 Sup. Ct. 106, and cases there cited. And, when differences of opinion exist between the bondholders, “it is not improper that he should be governed by the voice of the majority, acting in good faith and without collusion, if what they ask is not inconsistent with the pro-, visions of the trust.” Bank v. Shedd, 121 U. S., at page 86, 7 Sup. Ct. 807. But this decision of the trustee is not final. It is reviewable by the court, and in such review the objecting bondholders have the right to be heard on their own behalf. This follows as a corollary. In the case just quoted, bondholders in person were allowed to intervene and to become parties. In Williams v. Morgan, 111 U.S. 684, 4 Sup. Ct. 638, two bondholders in the foreclosure of a railroad mortgage were allowed to come in and state their own objections to the course of the trustees, and to the distribution of proceeds of sale. In that case Mr. Justice Bradley says:

"We think the position of Williams and Thomson made them quasi parties in the case, and brought them within the reason of the former cases decided by this court, in which persons incidentally interested in some branch of a cause have been allowed to intervene for the purpose of protecting their interest, and even to come into this court, or to be brought bere on appeal."

The principle is that when, for any reason, the trustee cannot fully represent the bondholder, he can himself be heard on his own behalf. Having proved his bonds, he is already a quasi party; that is to say, with a voice in the cause, although not on the record. When he shows a cause of complaint, he has the right to be put in the record, so that complete relief can be given for or against him.

In the pres.

ent case the trustee desires that the petitioners be permitted to represent their bondholders. The discussion at the bar has developed a great difference of opinion between these bondholders and those in their class represented by the Baltimore committee, as well as the bondholders of Classes B and C. As the avowed purpose of the Baltimore committee is to present a plan for sale and reorganization, and as the New York committee differ from them, the court cannot reach a conclusion without hearing both sides. As the conclusion to be reached is subject to review in the appellate court, the final result cannot be reached unless the petitioners are recognized on the record. But both committees must be put on the same footing. It appearing that nearly all the steps pertaining to a final order have been taken, such orders as may be taken in this cause will probably look to this end. It is ordered that the petitioners and the Baltimore committee, also, be recognized as parties to this cause, entitled to be heard therein. And that notices of all motions, except such as relate purely to the administration of the property by the receiver be served upon counsel of each one of the committees, to be designated by them, respectively.

ST. PAUL, M. & M. RY. CO. v. SAGE.
(Circuit Court of Appeals, Eighth Circuit. December 2, 1895.)

• No. 630.

1. RAILROAD AID GRANT-TIME OF TAKING EFFECT.

Lands within the primary limits of a land grant in aid of a railroad are identified, and segregated from the public domain, by the filing with and acceptance by the secretary of the interior of the map of definite location of the line of the railroad in aid of which they are granted, and the grant of these lands then takes effect as of the date of the approval of the act

making the grant. 8. SAME--INDEMNITY LANDS.

Lands within the indemnity limits of such a land grant remain the property of the United States, and subject to disposal by them, until such lands are selected by the beneficiary in lieu of lands lost within the primary limits. Lands within the indemnity limits are not reserved until they are either thus selected, or are withdrawn from market by the sec

retary of the interior, pursuant to the terms of the act. 8. SAME-RESERVATION FROM OPERATION OF GRANT.

Lands within the primary limits of the grant of July 4, 1866 (14 Stat. 87), and within the indemnity limits of the grants of March 3, 1857 (11 Stat. 195), and of March 3, 1865 (13 Stat. 526), which had not been withdrawn from market by the secretary of the interior under the latter acts when the map of the definite location of the line of the Hastings & Dakota Railroad Company was filed with and approved by the secretary of the interior, were not reserved or excepted from the operation of the act of July 4, 1866, granting lands to aid in the construction of the railroad of

that company, but passed under that act. 4 SAME_WITHDRAWAL FROM MARKET.

Act March 3, 1865, increasing the quantity of land granted to the state of Minnesota by Act March 3, 1857, to aid in the construction of a railroad by the First Division of the St. Paul & Pacific Railroad Company, provided that, as soon as the governor of the state should file with the secretary of the interior maps designating the routes of said road and branches, it should be the duty of the secretary of the interior to withdraw such lands from market. Held that the act did not effect such withdrawal in the absence of the filing of a map or any action by the

secretary. 0. SAME.

Nor was it the duty of the secretary to withdraw such lands from market until the governor filed maps as required by the act. 6. SAME.

The fact that in 1857 a map was filed in the land office designating the line of the road was immaterial, the commissioner having refused to accept such designation because the lands were not surveyed, and the

company having acquiesced in such ruling. 7. SAME.

Since Act March 3, 1865, expressly required the filing of maps designating the route of the railroad, and in view of the facts that the commissioner had notified the railroad company in 1857 that no action could be taken as to a part of the line on the map filed in that year until a supplemental map was filed, and the company had notified the commissioner that it intended to change this part of its route, and he consented to such change, a letter written in June, 1865, by the governor of the state to the secretary of the interior, asking whether it was necessary to again file maps of the land pertaining to that part of the route, and stating that, if it was not necessary, he requested the withdrawal of the lands designated upon such map previously filed, could not be cousidered as an adoption by him of this map, nor did it impose on the secretary any duty to withdraw the lands exhibited by it on that part of the

route. 8. SAME-DUTIES OF COMMISSIONER.

It is within the powers and duties of the commissioner of the land office to determine whether the railroad was located in good faith on as direct a line as the topography of the country would permit, or was un

necessarily deflected to increase the land grant. 9. SAME-ACQUIESCENCE IN COMMISSIONER'S DECISION.

A company which accepts a ruling rejecting its map of definite location, and' 6 years later agrees with the otticers of the land department that its line is not definitely fixed by the filing of the rejected map, and receives permission to relocate its line and change its terminus on that account, without legislation, cannot, after its own and conflicting land grants have been administered with this view for more than 20 years, insist that its line was definitely fixed by the filing of its rejected map, on the ground that the error of the commissioner could not affect its rights.

Appeal from the Circuit Court of the United States for the District of Minnesota.

M. D. Grover and George B. Young (T. R. Benton was with them on the brief), for appellant.

J. M. Gilman (Owen Morris was with him on the brief), for appellee. Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN, Circuit Judge. This is an appeal from a decree which dismissed a bill brought by the St. Paul, Minneapolis & Manitoba Railway Company to establish its equitable title to, and to obtain a conveyance of, about 26,000 acres of land in the state of Minnesota, the legal title to which is held by Russell Sage, the appellee, as trustee. The title of the appellee is derived from the act of congress of July 4, 1866 (14 Stat. 87), by which there was granted to the state of Minnesota, for a railroad from Hastings, through the counties of Dakota, Scott, Carver, and McLeod, to such point on the western

boundary of the state as the legislature of the state might determine, every alternate section of land, designated by odd numbers, to the amount of five alternate sections per mile on each side of said road, together with the right to select indemnity lands within 20 miles of the line of the road. The lands in dispute are within the place limits of this grant. The Hastings & Dakota Railway Company built the railroad for which this grant was made, and, through acts of the legislature of Minnesota, acquired the right to all the lands and privileges bestowed upon that state to aid in its construction. On Jan. uary 4, 1867, this railway company filed a map of the definite location of its line of railroad with the secretary of the interior, and on June 26, 1867, he approved it. The appellee has succeeded to all the title to these lands which this railway company acquired. It is conceded that these lands were identified and segregated from the public domain by the filing and approval of this map of the definite location of this line of railroad, that the nt then took effect as of the date of the act, and that both the legal and equitable title to them passed to the appellee, unless they were excepted from the grant by the last proviso of section 1 of the act, which reads:

“And provided further, that any and all lands heretofore reserved to the United States by any act of congress, or in any other manner by competent authority, for the purpose of aiding in any object of internal improvement, or other purpose whatever, be, and the same are hereby, reserved and excepted from the operation of this act, except so far as it may be found necessary to locate the route of said road through such reserved lands, in which case the right of way shall be granted provided the United States has yet in possession the title thereto." 14 Stat. 87.

The claim of the appellant is that, at the date of this grant, these lands had been reserved to the United States for one of the bene. ficiaries of the acts of congress of March 3, 1857 (11 Stat. 195), and March 3, 1865 (13 Stat. 526), and that it has succeeded to the rights of that beneficiary. This claim presents two questions, viz.: First. Were these lands so reserved on July 4, 1866, or at any time prior to June 26, 1867, when the line of the Hastings & Dakota Railway Company was definitely fixed? Second. If they were so reserved, has the appellee succeeded to the right to them then held by the beneficiary under the acts of 1857 and 1865? It is obvious that if the first question must be answered in the negative, that answer will be decisive of this case, and we will accordingly first consider it. The act of March 3, 1857, provides:

“That there be and is hereby granted to the territory of Minnesota, for the purpose of aiding in the construction of railroads, from Stillwater, by way of Saint Paul and Saint Anthony, to a point between the foot of Big Stone Lake and the mouth of Sioux Wood river, with a branch via Saint Cloud and Crow Wing to the navigable waters of the Red River of the North, at such point as the legislature of said territory may determine,

every alternate section of land, designated by odd numbers, for six sections in width on each side of each of said roads and branches; but in case it shall appear that the United States have, when the lines or routes of said roads and branches are definitely fixed, sold any sections, or any parts thereof, granted as aforesaid, or that the right of pre-emption has attached to the same, then it shall be lawful for any agent, or agents, to be appointed by the governor of said territory or future state to select, subject to the approval of the secretary of the interior, from the lands of the United

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