Opinion
12-19-1899
CITY OF CAPE MAY v. CAPE MAY, D. B. & S. P. R. CO. et al.
S. Spicer Learning and Robert McCarter, for complainant. Thomas E. French, for defendant Cape May Transp. Co. L. M. Garrison, for defendant Cape May, D. B. & S. P. R. Co.
Suit by the city of Cape May against the Cape May, Delaware Bay & Sewell's Point Rairoad Company and others. Appointment of receiver denied.
S. Spicer Learning and Robert McCarter, for complainant.
Thomas E. French, for defendant Cape May Transp. Co.
L. M. Garrison, for defendant Cape May, D. B. & S. P. R. Co.
REED, V. C. The Cape May, Delaware Bay & Sewell's Point Railroad Company is a corporation formed by the consolidation of three railroads. Since January 19, 1893, it has been operated as a trolley road from Cape May Foint to Sewell's Point, running through the city of Cape May. Upon the road is a mortgage securing bonds to the amount of $150,000. The Cape May, Delaware Bay & Sewell's Point Railroad Company on March 30, 1896, leased the railroad to the Cape May Transportation Company for the term of five years from February 1, 1896; the latter company agreeing to pay all taxes, charges, assessments for the franchise or property, whether national, state, county, or municipal, and to pay each January and July 25th the sum of $3,750 to the New Jersey Camden Trust & Safe-Deposit Company, to be applied in payment of coupons upon bonds secured by the $150,000 mortgage, and to pay $100 to maintain the corporate existence of the lessor. The Cape May Transportation Company has a capital of $1,000, or 10 shares of $100 each, of which J. Henry Edmunds held 8; Mr. Stephens, its secretary, 1; and Mr. Thompson, its president, the other 1. The company is obviously managed and controlled by Mr. Edmunds. The bill is filed by the complainant, as a creditor of these companies, to have a receiver appointed to take charge of them, as insolvent corporations. The complainant claims that there are taxes due, as well as license fees for the running of their cars through the city of Cape May. Mr. Nixon, as the holder of stock and bonds of the Cape May, Delaware Bay & Sewell's Point Railroad Company, has, upon petition, been made a party complainant. He owns 113 shares of stock, and 8 bonds, of the value of $500 each. The allegations of insolvency are that the company owes the city of Cape May the franchise tax for three years, amounting to $1,554.29; that it owes local taxes to Cape May City; that the coupons of the bonds of the above company are unpaid for 1897, 1899, and only partly paid for 1898. The franchise tax due to the state of New Jersey, I think, has been paid since the filing of the bill. $1,875 has also been paid, which it is claimed is one-half year's rent, as such rental was reduced by an arrangement with the lessors for the year 1897.
The position of affairs, then, is this: The Cape May, Delaware Bay & Sewell's Point Railroad Company has leased its property by an agreement which, so far as appears, is legal, for a term ending in 1901. By the terms of the lease, it was to receive a rental sufficient to pay all its obligations, by way of taxes, assessments, and the interest upon the issue of $150,000 of bonds. For the payment of this rental it holds the obligations of the Cape May Transportation Company and of J. Henry Edmunds, who is surety for the performance by the Cape May Transportation Company of its covenants contained in the lease. There is nothing to show that this asset was not good, and it appears that, if good, the former company is not insolvent. But concede that a part of the rental has been legally remitted, and that the amount of rental presently received is insufficient to pay the coupons in full; how does the matter stand as to the Cape May, Delaware Bay & Sewell's Point Railroad Company? I do not see how a stockholder, as such, can be benefited by the appointment of a receiver. Such an officer would take the profit of the company subject to a mortgage of $150,000 as a first lien. Nor do I see how the bondholder is to be benefited by such an appointment, so long as there is no mismanagement by the directors. Themortgage to secure the bonds is, as I have already remarked, a first lien upon the property; and a sale by the receiver would be, as a sale under a foreclosure of the mortgage would not be, subject to the outstanding lien. All the receiver could do would be to collect the rents from the Cape May Transportation Company. Besides, the Cape May, Delaware Bay & Sewell's Point Railroad Company claimed, and, it appears to me, justly claimed, that it has not been brought in properly to answer this rule, and the appearance of counsel for it was a special appearance made to object to its being called upon to answer the rule. This, in itself, would seem to afford an obstacle in the way of making an appointment.
Secondly, in respect to the Cape May Transportation Company, it is said that the only assets it has is the term which it holds from the former company, and it is obvious that the income from the leased property is not sufficient to pay the rental. From the refusal of the treasurer of the company, when before the master, to testify as to its receipts, it is probable that this is so. But the query is suggested, can one of these roads be declared insolvent, and put in the charge of a receiver, while the other is permitted to continue its business as a solvent corporation? The only feature of the case that would justify an application for the appointment of a receiver for two distinct corporations is the fact that they are tied together by a lease, and that the creditors are so concerned in the fact that one is lessor and the other is lessee as to make the application in a single bill proper, as a matter of correct pleading. Again, the company has no assets but the remnant of the term; and, if it be true that the road cannot be run at a profit, there is no value in the lease, and there are no assets to be administered, or to pay the expense of litigation. The indemnity of Mr. Edmunds can be utilized, certainly, as well without as with the appointment of a receiver. Taking into consideration the interest of the creditors, I do not think that a receiver should be appointed on this rule. But, as the testimony taken before the master was incomplete, I will reserve the right to the complainant to bring in the defendants by subpoena, and have the suit proceed in an orderly manner to final hearing.