« ForrigeFortsett »
made by the court below, and no such relief was prayed by the parties. By the decree in each court, and the deed of the masters made in pursuance thereof, the purchaser took title to the part of the railroad in the territorial jurisdiction of that court. It is, of course, convenient to have foreclosure suits which involve a railroad traversing three states proceed together, and the different courts may make their decrees similar, and order a joint sale; but the suits are separate suits, and affect different pieces of property, and the parties to one suit do not, ipso facto, become parties to the other two. Mercantile Trust Co. v. Kanawha & O. Ry. Co., 39 Fed. 337; Toland v. Sprague, 12 Pet.300,327; Northern Indiana R. Co. v. Michigan Cent. R. Co., 15 How. 233, 242. Distributing, therefore, so much of the decree for sale, as it appears in the record, to each of the circuit courts where it belongs and is operative, it may properly be said that the mortgagees under the Indiana divisional mortgages were not parties to this suit in the court below, and are not parties to this appeal. Now, the purchaser at a judicial sale becomes a party to the record, for certain purposes; and he may appeal from a decree of the court below affecting his interests as purchaser, but he cannot dispute the correctness of the decree of sale under which he bought. That binds him conclusively. Blossom v. Railroad Co., 1 Wall. 655; Central Trust Co. v. Grant Locomotive Works, 135 U. S. 207, 10 Sup. Ct. 736; Kneeland v. Trust Co., 136 U. S. 89, 10 Sup. Ct. 950; Swann v. Wright's Ex’rs, 110 U. S. 590, 4 Sup. Ct. 235; Swann V. Clark, 110 U.S. 602, 4 Sup. Ct. 241. The only ground for giving him the position of a party is that he may protect his rights as a purchaser by the decree. If the Indiana mortgagees were not parties to the suit in the court below, it is perfectly obvious that the purchaser under the decree for sale and its confirmation acquired nothing of their rights, as mortgagees or otherwise. Therefore he cannot be heard to assert those rights on this appeal. It is wholly immaterial that in another suit in another court in another jurisdiction he has become the owner or equitable assignee of those Indiana mortgages. In his capacity as purchaser and quasi party in this suit, and on this appeal, he cannot be permitted to assert any rights under them. Second. But suppose that it be admitted that the Indiana mortgagees were parties to the suit in the court below, and that the decree for sale did operate to foreclose their mortgages, so that the purchaser became by the sale the equitable assignee of those mortgages. It still does not follow that the purchaser may assert a different lien from that secured by the mortgage, and arising from an entirely different state of facts, extraneous to the mortgage. The purchaser at the sale below became the equitable assignee of every mortgage or other lien set up, and foreclosed by the decree for sale. Brobst v. Brock, 10 Wall. 519; Childs v. Childs, 10 Ohio St. 339; Stark v. Brown, 12 Wis. 638, 652; Johnson v. Sandhoff, 30 Minn. 197, 14 N. W. 889; Brewer v. Nash, 16 R. I. 462, 17 Atl. 857. The rule is generally applied in cases where, for some reason, the sale is ineffective to carry the whole title to the property. The V.68F. no.2–20
reason for it is best explained by the supreme court of Rhode Island in the opinion in the case last above cited, where, after a reference to all the authorities, the court says: “The grounds of decision are not very fully developed in these cases, but it Seems to us that the true ground is this: That while, ordinarily, a Stranger to the estate, who voluntarily pays off a mortgage thereon, is not entitled to subrogation to the rights of the mortgagee, a purchaser at the mortgagee's sale, even when the sale is void, is not to be regarded as a mere stranger; but that having bid off the estate, in good faith, on the invitation of the mortgagee to do so, when, supposing his bid to have been effectual to invest him with the equitable or executory title, he pays the amount of his bid, and the same is applied to the mortgage debt, he has a most persuasive equity to be Subrogated to at least the rights of the mortgagee Who invited his confidence. In such a case the court does simply what the mortgagee would be bound to do himself, if he could, when it treats the purchaser as the assignee of the mortgagee.” The sole basis for giving effect to such an equitable assignment of liens in favor of a purchaser disappears in a case where a lien, though it exists in favor of a party, is neither set up in the pleadings, nor, by the terms of the decree, foreclosed. Of course, the purchase money paid could not be applied to the payment of such a lien, and in no way could the assignment by estoppel be worked out. It is true that if a party defendant, after being required by prayer of complainant to set up such lien as he claimed, failed to do so, he might be thereafter barred from ever again seeking to enforce it. Hefner v. Insurance Co., 123 U. S. 747, 8 Sup. Ct. 337. But this is quite a different result from a transfer to the purchaser of a right to assert affirmatively such a lien against a third person not a party to the suit. In the one case, the lienholder waives his lien; in the other, when he claims part of the purchase money he enforces it. The waiver is not more to the advantage of the purchaser than of every one else interested in the property. By sharing or claiming a share in the proceeds of sale, he does that which ought, in equity, . to work an assignment of his lien to the purchaser who pays the purchase price. In the case at bar the mortgages of the Indiana mortgagees, of course, passed by equitable assignment in the Indiana suit to the purchaser, because they were there set up and foreclosed, and the purchase money was distributed to both of them. But those mortgagees never set up any lien on the Ohio property by virtue of the consolidation. If they had any such lien, they waived it, and the lien is as if it never was. The waiver is as much in Compton's behalf as in that of the purchaser. It is too late, therefore, for either the purchaser or the Indiana mortgagees, if they are to be considered parties to this appeal, to base on such a lien an objection to Compton’s remedy against the Ohio Division for the enforcement of his lien. Third. But, even if the Indiana mortgagees were present at the bar, they could present no valid objection to Compton's redemption of the Ohio Division. As already explained, the lien which inured to them and to Compton by the merger of the Toledo & Wabash Railway Company in the Toledo, Wabash & Western Railway Company was a lien on the separate and separable equities of redemption
held by that company; and, as it might have separately redeemed, so might they, or either of them, redeem for the benefit of themselves and others similarly situated. Fourth. The Indiana mortgagees have a mortgage lien on the Indiana Division, which they do not waive, but have enforced, and propose to use as a defense against all comers. This is prior to their lien for the same debt on the Ohio and Indiana Divisions We are now considering. If the Indiana Division should sell for enough to pay the mortgage debt, then they could have no subsequent interest in how Compton should enforce his lien. If it should not, and there should be a deficiency, then there would be nothing left out of which to enforce their junior lien for the deficiency, except the Ohio Division. How can they, then, object to Compton's resort to the Ohio Division to enforce his lien, when that is all they propose to leave him by foreclosing their prior mortgage on the Indiana Division? Surely, they cannot prevent Compton from pursuing the only part left of the common security which they themselves divide by appropriation of the other part under a prior mortgage. For these reasons, I think the suggestion that the Indiana mortgagees, or their alleged assignee, the purchaser, may object to this redemption without including the Indiana mortgages, has no weight. In my opinion, the decree of the court below should be modified so as to secure to Compton the right to redeem the Ohio Division alone from the purchaser of the Wabash Railroad Company by paying to it the amount due on the two Ohio divisional mortgages. Finally, it is insisted that it is in conflict with public policy to permit a redemption of part of a consolidated and continuous line of railway. The decree of the court below permitted such a redemption for the consolidated railway extended from Toledo to St. Louis, and redemption was decreed of the road from Toledo to the Illinois state line. But it is said that this was because there was a separate lien on the road from Toledo to the Illinois line. That is true, and the same thing is true here. The divisional mortgages divide the line, by reason of their terms, and every succeeding company which embraced the Ohio Division in its line took subject to those mortgages. The only company which had any interest in the continuity of the line upon which an objection to a redemption of part could be based was the Wabash, St. Louis & Pacific Railway Company, and it is prevented from urging such an objection by the Ohio decree. Clearly, the divisional mortgagees, whose rights depend on the very division of which complaint is made, and who are to be paid in full, have no interest to preserve the continuity of the line. The decree of sale below provided for a separate sale of the Ohio Division, and had Compton been assured of the validity of his lien, as it was subsequently declared, and the decree had contained no saving clause, he could certainly have bid in the Ohio Division alone, by offering a sum exceeding the amount of the Ohio divisional mortgages. Why, then, can he now be prevented from doing what is substantially the equivalent of such a purchase? It remains to inquire how the amount to be paid in redemption of the two divisional mortgages shall be estimated. Of course, the mortgagees are entitled to the principal of their mortgages, with interest to the time of tender; but the more doubtful question is whether the amount thus to be calculated must be reduced by the net earnings of the mortgaged property, i. e. the Ohio Division, since the receivers turned over possession of the road to the purchaser. Compton secures his right to redemption through the original mortgagors. Whatever they would have had to pay to redeem the mortgages, he must pay, -no more, no less. It is the general rule that a mortgagee in possession, when his mortgage is redeemed, must account for the rents and profits during his tenancy. Russell v. Southard, 12 How. 139, 155. The Wabash Railroad Company, as the successor in title of the purchasers at the sale, is to be regarded as the first Ohio mortgagee in possession, and therefore liable to account for the rents and profits or net earnings of the mortgaged property, in ascertaining the amount required to redeem the principal and interest of the mortgages. Our view of the saving clause in the decree for sale makes Compton's attitude with respect to the foreclosure sale quite like that of a junior incumbrancer with respect to a sale in a foreclosure proceeding brought by a senior mortgagee, to which the former was not a party. In such a case the weight of authority is that the purchaser is, with reference to the junior incumbrancer, the assignee of a mortgage in possession, and therefore liable to account for the rents and profits. Jones, Mortg. (5th Ed.) $ 1395; 2 Hil. Mortg. 158; Vanderkemp v. Skelton, 11 Paige, 28; Walsh v. Insurance Co., 13 Abb. Prac. 33; Van Duyne V. Shann, 39 N. J. Eq. 6; Bunce v. West, 62 Iowa, 80, 17 N. W. 179; Spurgin v. Adamson, 62 Iowa, 661, 18 N. W. 293; Ten Eyck v. Casad, 15 Iowa, 524; Murdock v. Ford, 17 Ind. 52. In two cases a different view has been taken. Catterlin v. Armstrong, 79 Ind. 514; Renard v. Brown, 7 Neb. 449; 2 Jones, Mortg. (5th Ed.) $1118a. The theory upon which the last-mentioned cases go is that, by the defective sale, not only the mortgage passed to the purchaser by assignment, but also the equity of redemption, and the purchaser must be presumed to be holding the property as owner of the equity, rather than as mortgagee, and therefore not to be accountable for the rents and profits. If the purchaser becomes the possessor of the property by the payment of anything substantial over and above the foreclosed mortgage debt, the argument is a strong one that the rents and profits should be used to recompense him for such an outlay in securing the possession of the property. Gray v. Nelson, 77 Iowa, 63, 41 N. W. 566. But where, as in the case at bar, the purchase price is equal only to the amount due on the first two mortgages, it would not seem consistent with equity to permit such a purchaser to maintain, against a junior incumbrancer seeking to redeem, that he is receiving the rents and profits as the owner of the equity, rather than as the owner of the mortgages which are galvanized into life to meet and defeat the otherwise good claim of the junior incumbrancer to a first lien. When the sale in this case took place, the mortgaged property was in the hands of receivers,—that is, the mortgagees were in possession,— and the rents and profits were applicable to the mortgages in the order of their priority. Howell v. Ripley, 10 Paige, 43; Miltenberger v. Railway Co., 106 U. S. 286, 1 Sup. Ct. 140. If, as to Compton, the sale merely operated as an assignment of the various interests of the parties, the purchaser, as the assignee of the prior mortgages in possession, would seem to have derived his possession, and to maintain it, through the mortgagees, rather than from the owner of the equity of redemption. For these reasons, I think that Compton is entitled to an account of the net earnings of the Ohio Division of the Wabash Railroad Company over and above all operating expenses, including reasonable and necessary repairs, and that this sum should be deducted from the principal and interest due on the two mortgages. Of course, the railroad company is entitled to credit for all taxes paid by it, and for the cash advanced by it, in lieu of the bonds under the first mortgages, to pay receiver's obligations and other expenses properly chargeable as liens against the corpus of the road prior in right to the mortgages. The last point to be noticed in this long discussion of a troublesome and complicated case is that presented by the motion to dismiss on the ground that the same decree as that appealed from was entered in Indiana, and was not appealed from. This is said to estop appellant from proceeding here. The question in the Indiana case was what remedy Compton could have for the enforcement of his lien against the Indiana property, not the lien against the Ohio property. The prayer in the Indiana court was confined to Indiana property as the prayer in the Ohio court was confined to Ohio property. Obviously, the question whether, under that decree, Compton could appropriate the Ohio Division to pay his lien was very different from the point which he made in the Indiana suit, namely, that by virtue of the decree, and otherwise, he could appropriate the Indiana Division alone to the payment of his lien. The validity of Compton's lien was upheld in each court. The question was as to the remedy. Certainly, a decree of an Ohio court which directed the sale of Ohio property to satisfy a lien would not be conclusive, in an Indiana court, of the right of the same plaintiff, under Indiana law, to appropriate Indiana property to the satisfaction of the same lien. It follows that as the points decided in the two cases were not the same, and as the subject-matter was not the same, the decree in the one court does not work an estoppel in the other to prevent an appeal. Judge LURTON and I differ upon the following questions, which will be certified to the supreme court on the statement of facts set forth at the beginning of this opinion: First. Had Compton the right, under the saving clause of the decree for sale, to a decree for the redemption of the Ohio Division only? Second. In fixing the amount to be paid in redemption, is he entitled to have the principal and interest of the mortgages to be redeemed reduced by the net earnings received by the purchaser? Third. Is the decree of the circuit court of the United States for the district of Indiana between the same parties, and unappealed from, res judicata upon the foregoing questions in this court? It is ordered that all proceedings of the cause be stayed until the instructions of the supreme court upon these questions shall be received by this court.