« ForrigeFortsett »
ble, wherever found, and also upon the person or persons in possession or charge of said property, if any there be; or where such personal service upon such absent defendant or defendants is not practicable, such order shall be published in such manner as the court may direct, not less than once a week for six consecutive weeks; and in case such absent defendant shall not appear, plead, answer or demur within the time so limited, or within some further time to be allowed by the court, in its discretion, and upon proof of the service or publication of said order, and of the performance of the directions contained in the same, it shall be lawful for the court to entertain jurisdiction and proceed to the hearing and adjudication of such suit in the same manner as if such absent defendant had been served with process within the said district; but said adjudication shall, as regards said absent defendant or defendants without appearance, affect only the property which shall have been the subject of the suit and under the jurisdiction of the court therein, within such district."
The meaning of this statute is not doubtful. It applies to every suit of the kind mentioned in the section provided, only, the circuit court of the United States in which the proceeding is taken has otherwise jurisdiction of it. Whether it be a suit arising under the laws and constitution of the United States, or a suit to which the United States is a party, or a suit in which there is a controversy between citizens of different states, or a suit like the one at bar, of which the circuit court has jurisdiction indispensable and ancillary to its original jurisdiction, if it also satisfies the description of the statute, the process therein provided is available. The case of Brigham V. Luddington, 12 Blatchf. 237, Fed. Cas. No. 1,874, has nothing in it to conflict with this conclusion.
In that case, Circuit Judge Woodruff refused to make an order for substituted process against the owner of the property, because he was a citizen of the same state as the complainant, and his presence as a party would oust the jurisdiction of the court. The bill was an original one, and the jurisdiction could only rest on diverse citizenship. In the suit at bar, Compton's presence as party defendant would not oust the jurisdiction of the court, because, as already shown, it is not dependent on diverse citizenship. The circuit court had jurisdiction of the cause otherwise than by virtue of the section above quoted. The suit was brought to enforce a legal and equitable lien on real estate lying in the district, and to remove the cloud of Compton's lien from the title of the purchaser at the foreclosure sale. Compton was therefore properly brought into court by the substituted or constructive process provided in the section above quoted. Farmers' Loan & Trust Co. v. Houston & T. C. Ry. Co., 44 Fed. 115; Greeley v. Lowe, 155 U. S. 58, 15 Sup. Ct. 24.
Having disposed of the jurisdictional objections to the decree below, we now come to consider the merits of the case. We fully concur with the court below in its holding that the decree in the Tysen or Ham suit in Indiana did not bind Compton, or prevent his pursuing his remedy in the court of Ohio, if he chose to do so. The bill in the Tysen suit only made parties to it those equipment bondholders who chose to come in and contribute to the expenses of it. Compton did not do either. The Ham decree was no bar to Compton's prosecuting the Ohio decree in his favor, for the reasons which
we quote from the opinion of the learned circuit judge in the court below: “First, because he was not a party to that proceeding, and did not appear therein; second, because the Ham suit was not, in its inception, or at the time Compton commenced his action in the State court, Such a class Suit, or so representative in its character, as to bind him without his being or becoming an actual party thereto (Pom. Rem. & Rem. Rights [2d Ed..] 396-399); and, third, because, if the Ham Suit had been So representative in its character as that the decree of the Supreme court therein could or would have concluded said Compton on the question of the lien of the equipment bonds, neither the pendency of said suit, nor the decree of the supreme court was ever interposed by the defendants to his suit in the state courts, either by Way of abatement, or in bar thereof, although ample time and opportunity so to do was afforded them. Grant V. Ludlow, 8 Ohio St. 1; Matthews v. Davis, 39 Ohio St. 55; Dimock v. Copper Co., 117 U. S. 560, 6 Sup. Ct. 855.” We come next to the question whether the Ohio divisional mortgages cover the Toledo terminal property. The facts appear in the statement of the case at length. The propositions of Compton's counsel are as follows: First. No property can be included in an after-acquired property clause in a railroad mortgage, except that which is acquired by the mortgagor or its successor in title by virtue of the franchises under which the mortgagor issued the mortgage. Second. The Toledo terminals were acquired by the Toledo & Wabash Railway Company, which, being a consolidated company of Ohio and Indiana, took them under new franchises, received directly from the state, and not under old franchises, received by assignment from its predecessors in title to the railroad. Therefore the terminals are not included in the after-acquired property clauses of mortgages executed by such predecessors. The extent of the property included in the grant of a mortgage by a railroad company depends on two questions: First, what property had it the power to mortgage? and, second, what property did it intend to mortgage? Section 3287 of the Revised Statutes of Ohio, in force at the time of the issuance of the divisional mortgages, permitted railroad companies of Ohio to issue bonds and notes, and to secure them by a pledge of their property and income. It was held by the supreme court of Ohio that the power to mortgage property and income included power to mortgage after-acquired real and personal property. “The pledge is to be all the property and income. The income intended must have been the future income, and was to be produced by property in possession, and to be acquired. If the future product can be conveyed, why not that by which it is credited?” Coe v. Railroad Co., 10 Ohio St. 372-393; Pennock v. Coe, 23 HOW. 117. We have no doubt that under these two decisions a railroad company authorized by its charter to build and operate a railroad between two named points would have the power to mortgage its road then built, or to be built by itself or by any successor in title to the same railroad, whether exercising the mortgagor's franchises, or similar franchises granted by the same sovereign. What is mortgaged is the property, and all accretions to the property possible within the limitations of the then charter; and it does not seem to us material whether the successor in title to the railroad acquires such accretions under the same franchises as those under which the road was first projected and constructed, or under new franchises of the same effect and character. It may be conceded that under the decision of Shields v. Ohio, 95 U. S. 319, and other cases, the consolidated corporation acquired its franchises anew from the state, and not from its predecessors in title; but the acquisition of terminal property at Toledo was as much permitted under the franchises enjoyed by the divisional mortgagors as under those under which it was actually acquired, and such terminal property would have been as properly appurtenant to the Ohio Division as to the consolidated line. The right to mortgage after-acquired property is not neces. sarily dependent on the right to mortgage franchises. There is nothing in the case of Coe v. Railroad Co., or of Pennock v. Coe, to justify such a view. The supreme court of Ohio, as we have seen, based its decision that power existed to mortgage after-acquired property on the provision of the statute that property and income might be pledged. Indeed, under the Ohio statute, it is doubtful whether the company had any right to mortgage its franchises. The decision of the supreme court of the United States in Pennock v. Coe does not deal with the question of franchises, and does not make its conclusion in the case depend thereon. We are of opinion, therefore, that an Ohio railway corporation has the power to mortgage its railroad, and any subsequent accessions or accretions properly appurtenant thereto, acquired either by itself or any successor in title, whether the road be then maintained by virtue of the original franchises, or of franchises newly acquired from the state. The question remains, therefore, what did the mortgagors intend to mortgage? Did they intend to limit the effect of the after-acquired property clauses to that which was acquired under their own franchises, or did they intend to make the clauses cover every addition and accession to the same railroad which they were constructing and operating, whether that railroad passed into the hands of a new company, with new franchises, or continued in operation under the then franchises? There can be no doubt of the intention of the parties upon this point. It was the road of the two mortgagor companies, made and to be made together, with the necessary depot grounds and depot buildings, erected and to be erected. What was the road? It was the road running from Toledo to the west line of Paulding county. No question can be made of its identity. It is not disputed that the Toledo terminal property here in question is a proper part of this railroad which the original Toledo & Illinois Railroad Company and its successors in title had full charter powers to build and operate. It was obviously the intention of each of the mortgagor companies that whatever was added to the railroad at each of the terminal points named for use as part of it should be em. braced by the mortgage. Every person or company acquiring the railroad thus described, or any interest in it, from the mortgagor companies, took title subject to the mortgages thus construed, and, in making additions or accessions within the terms of the mort: gage, was estopped by privity of title with the mortgagor companies to deny that such accretions were subject to the mortgage lien. Railroad Co. v. Cowdrey, 11 Wall. 459–481. The mortgage of the Toledo & Wabash Railroad Company, the Ohio constituent of the Toledo & Wabash Railway Company, expressly recognized that the Toledo & Illinois mortgage—the first Ohio divisional mortgage—was a lien prior in right upon its road, constructed and to be constructed, and its terminal property, acquired and to be acquired; and upon that same property it imposed the lien of its own mortgage, as a second or junior lien to that of the Toledo & Illinois Railroad Company. In this junior mortgage the mortgagor makes reference to the probability of its consolidation with another company, and a few days thereafter, really as part of the same transaction, it made the agreement of consolidation which resulted in the Toledo & Wabash Railway Company. It certainly could not have intended that the afteracquired property clause in its mortgage was to have no effect except during the few days before it should be consolidated into the Toledo & Wabash Railway Company. Manifestly it intended that its mortgage should cover all the property acquired by the newly-consolidated company which would have been a legitimate accession to the railroad it proposed to contribute to the new company, had no consolidation taken place. It is immaterial what construction would have been put upon the first divisional mortgage (that of the Toledo & Illinois Railroad Company), standing alone. The second divisional mortgage expressly recognizes the lien of the first mortgage as covering the same property, acquired and to be acquired, which the second divisional mortgage covers. As the second divisional mortgage was necessarily intended to cover property acquired by the Toledo & Wabash Railway Company, the successors in title to the railroad are estopped to deny, by the recitals of the second mortgage, that the first mortgage did not cover the same property as the second. Hence our conclusion is that both divisional mortgages were intended to cover the legitimate accretions to the railroad running from Toledo to the Indiana line, properly appurtenant thereto. It is conceded that the Toledo terminals come within this description. We next come to the form of relief to which Compton's decree entitled him in the court below. Whether the decree established in his favor an indivisible lien on the railroad extending from Toledo to the Illinois state line, or a lien on the Ohio Division only, it is certain that it was junior to the Ohio divisional mortgages, and also to the Indiana divisional mortgages, if it extended to Indiana. As Compton was properly made a party to the action of foreclosure by the divisional mortgagees, a sale in such a proceeding would ordinarily pass to the purchaser a title clear from Compton's lien, which would be transferred to the proceeds of sale, and would be satisfied out of what should remain after the satisfaction of the prior divisional mortgages. If the amount realized by the sale was not sufficient to pay the prior mortgages, Compton’s lien would entitle him to nothing, but the railroad in the hands of the purchaser would nevertheless be forever discharged from its incumbrance. The record discloses that the amount realized at the sale from the Ohio Division was not more than enough to pay the divisional mortgages, while the Indiana Division did not bring enough to pay in full its second divisional mortgage. Unless there was something in the decree for sale which held the railroad in the hands of the purchaser still subject to Compton's lien, his lien was foreclosed, and his remedies were exhausted by the sale. This brings us to the proper construction of the so-called “saving clause” in the decree. At the time the mortgagees were pressing the court below to order a sale, in March, 1889, it had just decided that Compton was properly brought into court, and that he must answer. The averments of the bill and cross bills which he was required to answer attacked the validity of his Ohio decree and the lien thereby declared, and the prayer was that he might be forever barred from enforcing either. The proposed decree for sale fixed the amount due on, and the priority of, every mortgage set up in the cause. The purchasing committee of reorganizing bondholders had, we may infer from the schedule of bonds afterwards deposited by them, as well as from their purchase of the road under the previous foreclosure, bonds of every class to enable them safely to make bids of large amounts, and to protect the interests of those whom they represented. Compton was an outsider, and, presumably, was not in the scheme of reorganization. He had no mortgage bonds with which to pay a substantial part of the purchase price. He must raise at least $2,500,000 in cash before he could bid even on the Ohio Division, and he could not save his lien except by a bid of $350,000 more. If his lien was invalid, he would have involved himself to the extent of $3,000,000 for no especial or certain benefit to himself. The purchasing committee, representing nearly all the bonds, with a plan of reorganization in which all bonds, of every class, would be represented, might make its bid low enough to exclude any proceeds available for Compton, and yet not injure the bondholders under mortgages subsequent to Compton's lien. It was necessary for him to bid to save anything, and yet he did not know that he had anything to save. Considering the great disadvantage that he would have been under in bidding to protect himself against so powerful a combination of bondholders, without certainty as to the validity of his own lien, it is not surprising that his counsel vigorously objected to a sale before his rights in the property should be determined. On the other hand, it was, of course, greatly for the advantage of the bondholders to have the road sold, and the expenses of the litigation and receivership ended. The court overruled Compton's objection, and ordered the sale; but to prevent the palpable injustice to Compton, which the circumstances would otherwise cause, the court inserted in the decree the saving clause under discussion. It may be conceded that it was within the legal discretion of the court below to order a sale before fixing all priorities, or settling the validity and place of any particular lien, and that, too, without any saving clause such as the one we have here. Bank v. Shedd, 121 U. S. 74, 7 Sup. Ct. 807; Mellen v. Iron Works, 131 U. S. 352, 9 Sup. Ct. 781. But, looking to the hardship to which Compton would be subjected by such an early sale, the court, while V.68F. no.2-19