1887 [24 Stat. at L. 391, chap. 120], all formance of the covenants in the mortlands which were not forfeited thereby gage and the payment of the bonds were relinquished, granted, conveyed, secured thereby. The recognition of and confirmed to the New Orleans Com- the companies and merger in the pany as assignee of the Baton Rouge Texas & Pacific Company and transCompany by the transfer above stated, fer of the lands granted were all a and title confirmed to [402] approx- part of a scheme to secure from the imately 746,954 acres within the grant to United States the grant for the purpose the Baton Rouge Company. At this time of raising money thereon by mortgages the New Orleans Company was and now and bonds secured thereby to construct is consolidated with and merged into the and equip a transcontinental railway Texas & Pacific Company. from New Orleans to the Pacific, as appears from the act incorporating the Texas & Pacific Company (Act of March 3, 1871). Within six months after the conveyance to it by the Baton Rouge Company the New Orleans Company transferred all of its property to the Texas & Pacific Company, with the object and intention to merge the former with the latter under the latter's name. The land grant acquired by the former company was expressly reserved and its corporate recognition was to be continued and maintained until further authorized corporate action. In addition to the lands patented to the amount of 679,284.64 acres to the New Orleans Company as assignee of the Baton Rouge Company other lands have been patented to it, amounting in 1917 to 1,001,000 acres, and the New Orleans Company has since procured further patents and filed applications for additional lands and still continues to do so. The records of the Secretary of the Interior show that there is a balance still due of more than 1,000,000 acres. By the act incorporating the Texas & Pacific Company (1871) it was provided that the property and franchises acquired from each of the consolidated or purchased railroad company or companies should vest and become absolutely the property of the Texas & Pacific Company, subject, however, to all of the debts and obligations of the acquired company or companies, and that the consolidation should not impair any lien which might exist on any railroads so consolidated. It was provided that there should be no consolidation with any competing road, and that the contracts and obligations of railroads consolidated should be liens upon the Texas & Pacific Company. From about the time of the recognition of the New Orleans Company the Texas & Pacific Company controlled [403] it and still controls it, and by the recited acts and transfers became charged with the lien of the mortgage by Baton Rouge Company to the Union Trust Company (September 4, 1872), and the other obligations of the New Orleans Company, particularly the per The lands patented in the name of the New Orleans Company were appropriated by the Texas & Pacific Company, it continuing the other company in name for the sole purpose of receiving patents, and controlling its corporate books, accounts, and records, the New Orleans Company maintaining no corporate existence and having no officers or directors (this on information and belief), and the Texas & Pacific, in violation of the terms of the covenants of the mortgage by the Baton Rouge Company to the Union Trust Company and the trust thereby created, has diverted the proceeds of the lands granted from the use and purpose of the mortgage and in fraud of complainants and the holders of bonds secured by the mortgage to its own use and to the use of the New Orleans Company, and to other uses not authorized by the deed of trust. The persons to whom the sales of the lands have been made are so many that it is wholly impracticable to enforce the lien of the mortgage, and who have by occupation under the color of title acquired an impregnable title thereto. The Union Trust Company and certain bondholders [404] were made parties defendant in an action brought against the Baton Rouge Company by the trustees under deeds of trust of April 17, 1883, and January 5, 1884, executed by the New Orleans Company, to declare them first liens upon the lands described therein and to secure an issue of bonds authorized thereby, and asked for judgment that hte deed of trust from the Baton Rouge Company to the Union Trust Company (September 4, 1872) not affect or give any lien in or to the lands and that the same be canceled. Α decree pro confesso was entered so declaring and adjudging. did The bondholders were dismissed from the case. The attorneys for the complainants were attorneys for the New The subject-matter of the suit exceeds $3,000 and the complainants are without remedy at law. Orleans Company and the Union Trust | opinion that it was unable "to see how Company. There were false allegations any express trust ever existed in plainin the bill and the Union Trust Com-tiff's favor or in favor of his decedent pany, though in duty bound as trustee to except that created by the mortgage to defend the action and the trust created the Union Trust Company as trustee, the by the mortgage, failed to do so, per- bounds and limitations of which are set mitted the destruction of the lien, and forth in the deed itself," which instrupermitted the New Orleans Company ment, the court said, was "in effect nothand the Texas & Pacific Company to ing more or less than a mortgage, and to appropriate to themselves or to other be treated as such." The mortgage and purposes the proceeds of the sales of debt, therefore, the court said, might be the lands, which were at least worth $5 enforced against the property at the per acre. situs of the latter, but by this suit, the court said further, it was sought to enforce the collection of the debt not from the property mortgaged, but from another corporation now alleged to be personally liable for it. Such liability, the court [406] continued, could only result from some trust ex delicto, to be implied from some state of fact shown, and not upon any direct undertaking by the New Orleans Company or the Texas & Pacific Company to pay the debt of another, to wit, the Baton Rouge Company. Therefore, the court concluded that its decision must turn upon either one or both of the affirmative defenses made by the Texas & Pacific Company; that is, either the Statute of Limitations or laches, or both. Discovery is prayed of the quantity of lands patented, the amount of sales and the proceeds thereof, and that the Union Trust Company and the Texas & Pacific Company account to complainants and to all other bondholders similarly situated for all money and property received from the enjoyment and sales of the lands to the extent of their bonds and coupons, and that they be adjudged to pay complainants the amounts found due them. The answer of the Texas & Pacific Company qualified or denied certain of the averments of the bill and admitted others. It set up the various acts of Congress referred to in the bill and the transactions between the Texas & [405] Pacific Company and the New Orleans Company, but assigned a different cause and effect to them and to the acts of Congress and to what was done under them. Its defenses may be concentrated in four propositions stated by counsel: "1. That the Baton Rouge Company never acquired title to the land grant lands, and that its alleged mortgage of September 4, 1872, never became operative as a lien thereon. "2. That prosecution of the action is barred by the decree of the circuit court of the United States for the eastern district of Louisiana in the suit of Dillon and Alexander against the New Orleans Pacific Railway Company and others. "3. That the Texas & Pacific Railway Company is in no way connected with the land grant or the transactions referred to in the complaint. "4. That the suit is barred by limitations and by the laches of the complain ants." Upon the issues thus formed, if it can be said there are issues upon anything else but the characterization and legal effect of the acts of Congress, the instruments referred to and the transactions detailed, the district court expressed Reciting that the bonds matured September 4, 1902, and this suit was commenced May 7, 1913, the court finally applied the Statute of Limitations of ten years according to the law of New York and Louisiana. It, however, expressed the view that the defense of laches should be sustained, and referred to O'Brien v. Wheelock, 184 U. S. 493, 46 L. ed. 655, 22 Sup. Ct. Rep. 354, and dismissed the bill. The court of appeals affirmed the district court, but rested its decision upon the defense of laches, citing therefor O'Brien v. Wheelock, supra, and saying: "The proposition is somewhat startling that the holder of the obligations of one corporation secured by a mortgage on its property may maintain a suit forty years after the date of such obligation, and based thereon, against another corporation not a party thereto." Mr. Jesse C. Adkins argued the cause and, with Messrs. David Bennett King and W. Russell Osborn, filed a brief for appellants: Appellants were not guilty of laches. 3 Page, Contr. § 1707; Northern P. R. Co. v. Boyd, 228 U. S. 482, 57 L. ed. 931, 33 Sup. Ct. Rep. 554; Galliher v. Cadwell, 145 U. S. 368, 372, 373, 36 L. ed. 738, 740, 12 Sup. Ct. Rep. 873; Halstead v. Grinnan, 152 U. S. 412, 416, 417, 38 L. ed. 495-497, 14 Sup. Ct. Rep. 641; Townsend v. Vanderwerker, 160 U. S. 171, 186, 40 L. ed. 383, 388, 16 Sup. Ct. Rep. 258; Noble v. Gallardo y Seary, 223 U. S. 65, 66, 56 L. ed. 353, 32 Sup. Ct. Rep. 194; London & S. F. Bank v. Dexter Horton & Co. 61 C. C. A. 515, 126 Fed. 593; Hanchett v. Blair, 41 C. C. A. 76, 100 Fed. 817; Stevens v. Grand Central Min. Co. 67 C. C. A. 284, 133 Fed. 28; Wilson v. Plutus Min. Co. 98 C. C. A. 189, 174 Fed. 317; Sullivan v. Ellis, 135 C. C. A. 366, 219 Fed. 694; Wheeling Bridge & Terminal R. Co. v. Reymann Brewing Co. 32 C. C. A. 571, 61 U. S: App. 531, 90 Fed. 189; Old Colony Trust Co. v. Dubuque Light & Traction Co. 89 Fcd. 794; Bogert v. Southern P. Co. 156 C. C. A. 489, 244 Fed. 61; Schwartz v. Loftus, 132 C. C. A. 464, 216 Fed. 320; Richardson v. Green, 9 C. C. A. 565, 15 U. S. App. 488, 61 Fed. 423; Gibbon v. Hoag, 95 Ill. 45, 69; Daggers v. Van Dyck, 37 N. J. Eq. 130; Newman v. Newman, 152 Mo. 415, 54 S. W. 19; Hamilton v. Dooly, 15 Utah, 282, 49 Pac. 769; Wollaston v. Tribe, L. R. 9 Eq. 44, 21 L. T. N. S. 449, 18 Week. Rep. 83. Messrs. William A. Milliken, C. C. Calhoun, and Daniel B. Henderson also filed a brief for appellants. Mr. Thomas J. Freeman argued the cause and filed a brief for appellee: The suit is barred by the laches of the plaintiffs and their testator. Jenkins v. Pye. 12 Pet. 251, 9 L. ed. 1074; Marsh v. Whitmore, 21 Wall. 178, 22 L. ed. 482; Brown v. Buena Vista County, 95 U. S. 157, 24 L. ed. 422; Speidel v. Henrici, 120 U. S. 377, 30 L. ed. 718, 7 Sup. Ct. Rep. 610; Galliher v. Cadwell, 145 U. S. 368, 36 L. ed. 738, 12 Sup. Ct. Rep. 873; Foster v. Mansfield, C. & L. M. R. Co. 146 U. S. 88, 36 L. ed. 899, 13 Sup. Ct. Rep. 28; Patterson v. Hewitt, 195 U. S. 309-317, 49 L. ed. 214, 217, 25 Sup. Ct. Rep. 35; O'Brien v. Wheelock, 184 U. S. 450-493, 46 L. ed. 636-656, 22 Sup. Ct. Rep. 354. Mr. Justice McKenna, after stating the case as above, delivered the opinion of the court: To establish a trust against the Texas & Pacific Company it is argued that the purpose of the Act of Congress [407] of 1871 [16 Stat. at L. 573, chap. 122] was to provide for the construction of a transcontinental railroad from Texas to San Diego, California, and from thence to San Francisco by another company, and that the Baton Rouge Company, the New Orleans Company, and principally the Texas & Pacific Company were instruments of that purpose, and the grant of the Baton Rouge Company, by its mortgage to the Union Trust Company, became charged with a lien for the payment of the bonds issued by the railroad company, which lien followed the conveyance of the lands to the New Orleans Company and to the Texas & Pacific Company; and that besides there was a personal trust first in the Union Trust Company and successively in the other companies. And the argument is attempted to be fortified by § 4 of the Act of Congress of 1871, which authorized the Texas & Pacific Company to acquire other railroad corporations, and was by § 6 to become responsible for the debts or obligations of any company so acquired. To sustain this contention the provisions of the various instruments are adduced and their requirements, especially that the bonds were entitled to the benefit and security of a sinking fund to be set apart for their redemption, whereby the proceeds of all lands granted to the railroad company (the Baton Rouge Comof interest on the bonds and to their repany) were to be applied to the payment demption, and also 1 per cent of the gross earnings of the company. And that the railroad and its equipment were mortgaged for like purposes, and all "the lands and sections of land situated, lying, and being on either side of the said railroad, as the same may be finally located and constructed in accordance with and as granted by the act of Congress" of March 3, 1871. The mortgage to the Union Trust Company was in trust for the purposes expressed above, and it was provided that if default should be made in payment of interest [408] or of any payment to the sinking fund, and continue for the period of six months, or in default of any requirement of the mortgage, all of the bonds outstanding, at the option of the holders of a majority in interest of such outstanding bonds, should forthwith become due and payable. And further, upon written request of the holders of at least 1,000 bonds then outstanding, the trustee should foreclose the equity of redemption of the property embraced in the hypothecation: and at the request of a bondholder might take possession of the road. Sales of the lands were provided for and the disposition of the proceeds, any balance remaining to be appropriated to the purpose of the sinking fund. There to make that company trustee of the was a covenant by the company to pay Baton Rouge Company's mortgage of on June 1, 1880, and on the 1st of June of each succeeding year, a sum which should equal 1 per centum of the gross earnings received by the road from its operation twelve months immediately preceding, which sum should be applied by the Trust Company or its successors to the redemption of the bonds, and that the Trust Company, on the first days of January and July of each and every year, should designate by lot for redemption a number of bonds sufficient to equal, as near as might be, the accumulations of the sinking fund, and cause a notice to be printed of such purpose. 1872, and that §§ 4 and 6 of the act incorporating the Texas & Pacific Company have not the meaning ascribed to them. And further, that the Baton Rouge Company never acquired any lands to which a lien could attach, and that the asserted trust had nothing upon which it could be exercised, neither lands to sell nor railroad to take possession of and operate, both of which-sale of lands and operation of road-were necessary to the execution of the trust; and that it was so determined in a suit against proper parties by the decree of the circuit court of the United States for the eastern district of Louisiana. It is contended that, by reason of these provisions and the facts detailed, a trust To this contention complainants reply: was created that followed the lands to (1) The decree was collusively obtained; whosesoever hands they reached, and each (2) it did not cover the right [410] of possessor of them became a trustee and way and roadbed, which, it is said, bound with respect to the property to the is admitted to have come to the execution of the trust in the same man- Texas and Pacific Company from the ner as the original trustee, the Union New Orleans Company; (3) independTrust Company, was, citing for this re-ently of the deed of trust, and irsult Ketchum v. St. Louis, 101 U. S. 306, 25 L. ed. 999. And by virtue of this principle the New Orleans Company is declared to have been a trustee and the lands granted to it subject to the execution of the trust, and the Texas & Pacific Company has also become a trustee. respective of it, the arrangement between those companies was an attempt to conserve the subordinate rights and interests of the stockholders of the Baton Rouge Company at the expense of its creditors, an attempt, it is insisted, always judicially condemned. Cases are cited, among others, Northern P. R. Co. v. Boyd, 228 U. S. 482, 57 L. ed. 931, 33 Sup. Ct. Rep. 554. In 1872 the Baton Rouge Company executed the instrument the particular trusts of which are now attempted to be enforced. Before that time it had filed a map of general route, but no map of definite location; but after that time the record discloses nothing done by it until 1880, when it conveyed the lands to the New Orleans Company. [409] Another ground of liability is asserted against the latter company. It has been consolidated, the contention The argument to sustain or oppose the is, with the New Orleans Company, respective contentions we need not recite. and the latter has disappeared from They have indication in the pleadings, sight and significance, leaving the Texas, and, it may be, in what we have already & Pacific in sole responsibility. And said. We rest our decision on the deyet the instrument of consolidation ex- fense of laches, which, we think, has been pressly excepts "the lands and the sustained. land grants acquired or to be acquired" by the New Orleans Company from the United States, the state of Louisiana, or the Baton Rouge Company, or from any other source, other than lands necessary or needful for railway purposes. There is an express exemption and exclusion of such from the provisions of the instrument of consolidation. And it was provided that the corporate existence of the New Orleans Company should be maintained and its power to carry out the existing contracts and to mortgage any land grant it had acquired or might acquire from the Baton Rouge Company or otherwise should remain unimpaired. There is, therefore, some ground for the contention of the Texas & Pacific Company that there is a want of that privity of property which, according to the insistence of appellant, is necessary The activities of the New Orleans Company are shown and through and by what struggles it was enabled to construct the road. The record shows assertion of rights by some of the bondholders, but also shows that the assertion was met by challenge of legality and judicially determined against. During all that time, during all of the notoriety of the transactions detailed, the owner or owners of the bonds in suit made no claim by word or act; and now, over ten years after their ma turity, and forty years after their issue, same as it was in 1881, and that a claim of personal liability is made it has even realized the benefit of the against the Texas & Pacific Company. trust and so far executed it as to pay It is to be borne in mind that the inter- before 1890 most of the bonds. Why est on the bonds has always been in de- those bonds were paid or acquired and fault, certainly since 1876, and there was upon what motive do not appear, and it remedy provided for such default. At cannot be said that a company which has the instance of [411] any holder of been in possession of and operating a the bonds the trustee could have great property for many years, having taken possession of the road, and spent large sums of money upon it, in if of the Baton Rouge Road, then the belief of having a clear and unencuinof its successors in liability, the New bered right, is inequitably unaffected by Orleans and the Texas & Pacific com- a claim against it, asserted as a result of panies; for if they were successors remote transactions with which it had no in a liability they were successively subject to the remedy. If it be said that such remedy was extreme and inconvenient, it had potency as a threat in the hands of a diligent creditor; and, besides, if there was a successive personal liability, it accrued against the New Orleans Company in 1880 and the Texas & Pacific Company in 1883. The delay is attempted to be excused. It is said action for nonpayment of interest could only be taken by the holders of 1,000 or a majority of bonds outstanding, and that it appears the Texas & Pacific Company had acquired 1,183 of the 1,275 bonds which were outstanding. It is hence contended that complainants testate could not have been guilty of laches before his death, and that the present complainants could not act until the maturity of the bonds in 1902. It is further said that complainants filed a bill in 1908 in the United States district court in Louisiana to collect the bonds, and that until the filing of the answer in that case complainants were ignorant of the merger of the New Orleans and the Texas & Pacific companies, or of the suit filed in 1890 to remove the cloud of the asserted lien of the mortgage of the Baton Rouge Company to the Union Trust Company of 1872. connection. And certainly it may be UNION TRUST COMPANY, Petitioner, V. MINNIE KAHN GROSMAN et al. (See S. C. Reporter's ed. 412-418.) Conflict of laws — contracts of married Women - suit in court of domicil. 1. The law of the state of the domicil respecting the power of a married woman to bind her separate property by a continuing guaranty of her husband's note governs an action in a Federal court sitting in that state upon such a guaranty which was executed by the wife while temporarily in another state, in which a different rule may For other cases, see Conflict of Laws, I. b. 5, prevail. in Digest Sup. Ct. 1908.] Husband and wife contracts of married women - guaranty of husband's debt. 2. A married woman may not, in Texas, bind her separate property in order to secure her husband's debts. [For other cases, see Husband and Wife, I. b, 2, b, in Digest Sup. Ct. 1908.] Argued December 20 and 21, 1917. Decided But what complainants' testate knew does not appear, and whether he was an original holder or a purchaser, except that it was thought he owned the bonds for seven or eight years before his death. And the ignorance of complainants is extraordinary in view of their interest, if it was an attentive interest. If we may N WRIT of Certiorari to the United suppose ignorance of records, we cannot suppose, certainly not indulge, an ignorance of the open activities of the companies and the possession and operation of the railroad by the Texas & Pacific Company. [412] It is again said in excuse that it does not appear that the Texas & Pacific Company has changed its position, which, it is said, is the ON States Circuit Court of Appeals for the Fifth Circuit to review a judgment which, reversing in part a judgment of the District Court for the Northern District of Texas, relieved a married woman Note. As to conflict of laws as to capacity of married woman to contract -see note to Union Nat. Bank v. Chapman, 57 L.R.A. 513. |