« ForrigeFortsett »
ascertain or to bring into court the assets, | crued, and shall hereafter accrue, from the which are subject to the payment of the said operation of the said railway in the hands debts, and no proceeding has been taken to of the receiver, and that the amount thereof notify or to bring before the court the said be adjudged and declared to be a fund to be general or unsecured creditors." It then set distributed among the general and unsecured forth the filing of the foreclosure bills, the creditors of the said company; and that all entry of the decree of foreclosure, and al- such other and further proceedings be had leged "that prior to the entry of the said for the sale of the assets of the said com30]decree the *holders of the bonds secured by pany and the distribution thereof, according the mortgages to the Farmers' Loan & Trust to law and the rights of the parties." Company and the Central Trust Company On the 9th of March, 1897, its petition was aforesaid, and the holders of the preferred denied. On the 10th of March a sale was and common stock of the said Louisville, made by the master appointed therefor, and New Albany, & Chicago Railway Company, on the same day his report thereof was filed or a part thereof, had entered into an ar- and the sale confirmed. An appeal was rangement or agreement for the purpose of taken by the Louisville Trust Company to procuring the sale of the said property, its the court of appeals of the seventh circuit, purchase by and in behalf of the parties en- which appeal was argued on the 16th day tering into such combination and reorganiza- of November, 1897. On the 5th of January, tion thereof, and the issue of securities to 1898, the decree of the circuit court was afthe said parties, including said stockholders, firmed. 56 U. S. App. 208. Whereupon apwithout the payment of the debts and lia- plication was made to this court, and the bilities of the said company, and for the pur- proceedings were brought before it by cerpose of hindering and delaying the said cred- tiorari. itors and with a view to prevent the collection or enforcement of such debts and liabilities; and that the said decree of sale was obtained by the said company and said complainants in order to carry out such unlawful purpose and to prevent the general or unsecured creditors of the said company from having an opportunity to be heard in matters arising in the said cause."
It is also alleged that the New Albany company was formed by consolidation, and that one of the consolidating companies was a corporation of Illinois and had its property in that state; that it had no power to enter into such consolidation as had been decided by the supreme court of that state, and therefore that the mortgages executed by the New Albany company and which were being foreclosed were not liens upon so much of its property as had belonged to the Illinois corporation and was situated in that state. also claimed that under the provisions in the mortgages there had been no such default as justified a foreclosure, and prayed as fol
Messrs. St. John Boyle and Swagar
Messrs. Adrian H. Joline, Herbert B.
*Mr. Justice Brewer delivered the opin-
of the court:
The questions in this case are novel and important. They arise on the foreclosure of certain railroad mortgages, and suggest to what extent the same rules and considerations obtain in them as in the foreclosures of ordinary mortgages upon real estate. It goes without saying that the proceeding in the foreclosure of an ordinary mortgage on real estate is simple and speedy. No one need be considered except the mortgagor and mortgagee and if they concur in the dispo sition of the foreclosure it is sufficient, and the court may properly enter a decree in accordance therewith. Other parties, although claiming rights in antagonism to both or either mortgagor and mortgagee, may be considered outside the scope of the foreclosure, and whatever rights they may have may properly be relegated to independent suits.
But this court long since recognized the fact that in the present condition of things (and all judicial proceedings must be ad
"Wherefore, your petitioner prays that the decree of foreclosure and sale heretofore entered in this cause be set aside, that the pretended consolidations herein mentioned be adjudged void, and that the said mortgages before mentioned be declared to be invalid; that this cause be referred to a commis-justed to facts as they are) other inquiries sioner to ascertain and report what assets of the said New Albany company are embraced by any liens, and what are not so included, and the amounts and descriptions thereof; and that, among other things, the 681]master be directed to ascertain what portion of the capital stock has not been paid for, and the amounts due thereon; and that the receiver herein be directed to take steps to enforce the collection of any amounts due to the said company; that due and proper advertisement be given for the proof of debts, and that said master be directed to ascertain and report the names of the creditors herein and the amounts of debts due to them; that it be adjudged that the said master ascertain what net earrings have ac
arise in railroad foreclosure proceedings ac-
simply private property, but also an instrument of public service, has ruled that the character of its business, and the public obligations which it assumes, justify a limited displacement of contract and recorded liens in behalf of temporary and unsecured creditors. These conclusions, while they to a certain extent ignored the positive promises of contract and recorded obligations, were enforced in obedience to equitable and public considerations. We refer to these matters, not for the sake of reviewing those decisions, but to note the fact that foreclosure proceedings of mortgages covering extensive railroad properties are not necessarily conducted with the limitations that attend the foreclosures of ordinary real-estate mortgages.
We notice, again, that railroad mortgages, or trust deeds, are ordinarily so large in amount that on foreclosure thereof only the mortgagees, or their representatives, can be considered as probable purchasers. While exceptional cases may occur, yet this is the rule, as shown by the actual facts of foreclosure proceedings, as well as one which might be expected from the value of the property and the amount of the mortgage. We may not shut our eyes to any facts of common knowledge. We may not rightfully say that the contract of mortgage created certain rights, and that when those rights are established they must be sustained in the courts, and no inquiry can be had beyond those technical rights. We must therefore recognize the fact, for it is a fact of common knowledge, that, whatever the legal rights of the parties may be, ordinarily foreclosures of railroad mortgages mean, not the destruction of all interest of the mortgagor and a transfer to the mortgagee alone of the full title, but that such proceedings are carried on in the interests of all parties who have any rights in the mortgaged property whether as mortgagee, creditor, or mortgagor. We do not stop to inquire, because the question is not presented by this record, whether a court is justified in permitting a foreclosure and sale which leaves any interest in the mortgagor, to wit, the railroad company and its stockholders, and ought not always to require an extinction of all the mortgagor's interest and a full transfer to the mortgagee, representing the bondholders. Assuming that foreclosure proceedings may be carried on to some extent at least in the interests and for the benefit of both mortgagee and mortgagor (that is, bondholder and stockholder), we observe that no such proceedings can be rightfully carried to consummation which recognize and preserve any interest in the stockholders without also recognizing and preserving the interests, not merely of the mortgagee, but of every creditor of the corporation. In other words, if the bondholder wishes to foreclose and exclude inferior lienholders or general unsecured creditors and stockholders he may do so, but a foreclosure which attempts to preserve any interest or right of mortgagor in the property after the sale must necessarily secure and preserve the prior rights of general creditors thereof. This is based upon the familiar rule that the stockholder's interest
in the property is subordinate to the rights of creditors; first, of secured, and then of unsecured, creditors. And any arrangement of the parties by which the subordinate rights and interests of the stockholders are attempted to be secured at the expense of the prior rights of either class of creditors comes within judicial denunciation.
Now, the intervening petition of the petitioner, duly verified, directly charged that the foreclosure proceedings were for the benefit alone of bondholder and stockholder and under an agreement between the two for a sale and purchase for both, and with a view of thereby excluding from any interest in the property all unsecured creditors; that this agreement was entered into after and in consequence of the decree of the United States courts of appeals adjudging the New Albany company liable on its guaranty. If that fact be true would it not be, and we quote the language of the court of appeals, “a travesty upon equity proceedings? Can it be that when in a court of law the right of an unsecured creditor is judicially determined and that judicial determination carries with it a right superior to that of the mortgagor, the mortgagor and mortgagee can enter into an agreement by which through the form of equitable proceedings all the right of this unsecured creditor may be wiped out, and the interest of both mortgagor_and_mortgagee in the property preserved and continued? The question carries its own answer. Nothing of the kind can be tolerated.
Beyond the positive and verified statement of the petition of the Louisville Trust Company are many facts appearing in the record which strongly support this allegation. That a corporation whose stock consists of $16,000,000, $7,000,000 of which is preferred stock, all of which must be expected to be wiped out if a mortgage interest of $13,800,000 is fully asserted, hastens into court and confesses judgment on an alleged unsecured *lia-[685) bility; on the same day responds to an application for a receiver and assents thereto; makes no effort during the receivership to prevent default in interest obligations; tacitly, at least, consents to an order made on application of the receiver for the issue of $200,000 worth of receiver's certificates in aid of betterments on the road, when the same sum might have paid the interest and delayed the foreclosure; when foreclosure bills are filed not only makes no denial, but admits all the averments of mortgage obligation and default-in other words, seems a debtor most willing to have all its property destroyed, and this because of one wheat crop; these matters suggest, at least, that there is probable truth in the sworn averment of the petitioner that all was done by virtue of an agreement between mortgagee and mortgagor (bondholder and stockholder) to preserve the relative interests of both, and simply extinguish unsecured indebtedness. When, in addition to this fact, it appears that these proceedings are initiated within a few days after a decree of the circuit court of appeals a decree final unless brought to this court for review in its discretion by cer tiorari; that a large amount of unsecured
indebtedness was by that decree cast upon the mortgagor, we cannot doubt that such a condition of things was presented to the trial court that it ought, in discharge of its obligations to all parties interested in the property, to have made inquiry and ascertained that no such purpose as was alleged in the intervening petition was to be consummated by the foreclosure proceedings.
It is said by the appellee that the Louisville Trust Company was dilatory, and that by reason thereof it was not entitled to consideration in a court of equity. There is some foundation for this contention, and yet there was not such delay as justified the court in refusing to enter upon an inquiry. Indeed it does not appear that either the circuit court or the circuit court of appeals considered the petitioner dilatory or denied its application on the ground of delay. It must be borne in mind that the bill of complaint filed on August 24 by one who had that day become, by consent of the defendant, a judgment creditor, was affirmatively "for the purpose of enforcing the *rights of complainant and all other creditors of said insolvent corporation according to their due equities and priorities," and to "decree the rights, liens, and equities of each and all of the creditors of the said Louisville, New Albany, & Chicago Railway Company as the same may be finally ascertained and decreed by the court upon the respective claims and interventions of several of such creditors or lienors in and to, not only the said line of railroad appurtenances and equipment or any part of them, but also to and upon each and every portion of the assets and property of the said insolvent corporation."
Although this bill was filed in the avowed interest of himself and all other creditors, no action was taken to notify any creditors or to bring them into court to present their several claims. Any creditor might well have waited, even with knowledge of what had taken place, and after an examination of the bill thus filed, until publication or other notice. Whether this petitioner was, in fact, aware of these proceedings is not disclosed. Even if it were, its waiting a reasonable time for what in the ordinary course of procedure all creditors had a right to expect, is not a neglect which destroys its equities. It, and all other creditors, might justly assume that this proceeding was initiated in good faith to subject the property of the common debtor to the payment of all its debts; primarily it may be its secured debts, but also generally all its debts, secured or unsecured, and that whenever it was necessary due notice would be given and all creditors called upon to present their claims. It would not have been justified in treating this proceeding as solely in the interest of the mortgagee and mortgagor, the bondholder and stockholder, and for the purpose of destroying all claims of unsecured credi
It is true that the filing of the bills of foreclosure was notice of an intent to subject the property belonging to the mortgagor to the satisfaction of the mortgage. And for the purposes of the present inquiry it may be
conceded that the intervening petition disclosed no legal defense to the claims of the mortgagees to foreclosure. In other words. for the inquiry we desire to pursue we shall assume without question that the matters referred to in the petition in respect to the property in Illinois, the decison of the su- preme court of that state and the effect of the attempted consolidation, and all other matters stated or suggested, separately or together, constitute no valid defense to the foreclosure bills. But this foreclosure proceeding did not either directly or by sugges tion disclose any purpose to protect the mortgagor, the stockholder, at the expense of unsecured creditors. And, as heretofore stated, this unsecured creditor was not bound to presume that there was any such purpose in the minds of the two parties to the foreclosure. So that its failure to intervene at the first instant cannot be fatal delay or neglect.
It is also true that no evidence was offered
by the petitioner in support of the allegations of its petition, but it is not true that in revising and reversing the final action of the circuit court we are acting on mere suspicion, or disturbing either settled rules or admitted rights. The allegations of this intervening petition as to the wrong intended and being consummated were specific and verified. The delay, under the circumstances, was not such as to deprive the petitioner of a right to be heard. The facts apparent on the face of the record were such as justified inquiry, and upon those facts, supported by the positive and verified allegations of the petitioner, it was the duty of the trial court to have stayed proceedings, and given time to produce evidence in support of the charges. Taking them as a whole, they are very suggestive, independent of positive allegation; so suggestive at least, that, when a distinct and verified charge of wrong was made, the court should have investigated it.
We cannot shut our eyes to the fact that one claiming to be a general creditor for nearly half a million of dollars commences proceedings to establish his right, which, by the consent of the debtor, result on the very day in a judgment, execution, and return thereof unsatisfied, a bill for a receivership and the appointment of a receiver; and yet notwithstanding this was initiated in support of this large claim, as well as for the protection of other unsecured creditors, shortly thereafter foreclosure proceedings are instituted and carried on to completion, which absolutely ignore the rights of this alleged unsecured creditor, and leave as the result of the sale himself the actor who has brought on the possibility of foreclosure stripped of all rights in and to the mortgaged property. Was he a real creditor, and did that real creditor make a generous donation of this large claim? Were ar rangements made with him and the stockholders to protect both, and by virtue of such arrangements was this foreclosure hastened to its close? Questions like these which lie on the surface of these proceedings cannot be put one side on the suggestion that they present only matter of suspicion.
It is no answer to these objections to say that a bondholder may foreclose in his own separate interest, and, after acquiring title to the mortgaged property, may give what interest he pleases to anyone, whether stockholder or not, and so these several mortgagees foreclosing their mortgages, if proceed ing in their own interest, if acquiring title for themselves alone, may donate what interest in the property, acquired by foreclosure they desire. But human nature is something whose action can never be ignored in the courts, and parties who have acquired full and absolute title to property are not as a rule donating any interest therein to strangers. It is one thing for a bondholder who has acquired absolute title by foreclosure to mortgaged property to thereafter give of his interest to others, and an entirely different thing whether such bondholder, to destroy the interest of all unsecured creditors, to secure a waiver of all objections on the part of the stockholder and consummate speedily the foreclosure, may proffer to him an interest in the property after the foreclosure. The former may be beyond the power of the courts to inquire into or condemn. The latter is something which on the face of it deserves the condemnation of every court, and should never be aided by any decree or order thereof. It involves an offer, a temptation, to the mortgagor, the purchase price thereof to be paid, not by the mortga gee, but in fact by the unsecured creditor.
We may observe that a court, assuming in foreclosure proceedings the charge of railroad property by a receiver, can never rightfully become the mere silent registrar of the agreements of mortgagee and mortgagor. It
cannot say that a foreclosure is a purely
the confirmation of sale; to inquire whether it is true as alleged that the foreclosure proceedings were made in pursuance of an agree ment between the bondholder and stockhold. er to preserve the rights of both and destroy the interests of unsecured creditors; and that if it shall appear that such was the agreement between these parties to refuse to permit the confirmation of sale until the interests of unsecured creditors have been preserved, and to take such other and further proceedings as shall be in conformity to law. Decree accordingly.
Mr. Justice Peckham dissented.
UNITED STATES, Appt.,
RIO GRANDE DAM & IRRIGATION COM.
(See S. C. Reporter's ed. 690-710.)
Judicial notice of navigability of river— what is a navigable river—a state cannot destroy the right of the United Statesright of general government to preserve navigability of navigable watercoursesappropriation of water for mining or for arid lands-obstruction prohibited by act of Congress.
The courts can take judicial notice that a river is navigable, but not of the fact at what point between its mouth and its source navigability ceases: that fact is to be determined by evidence unless it is a matter of general knowledge.
The mere fact that logs. poles, and rafts are floated down a stream occasionally and in times of high water does not make it a navigable river.
In the absence of specific authority from Congress a state cannot by its legislation destroy the right of the United States as owner of the lands bordering on a stream to the continued flow of its waters.
The jurisdiction of the general government over interstate commerce and its natural highways vests in that government the right to take all needed measures to preserve the navi gability of the navigable watercourses of the country, even against any state action.
The acts of Congress which permit the appropriation of water in aid of mining industries and for the reclamation of arid lands do not authorize the appropriation of the waters of the source of navigable streams above the point of navigability, to such an extent as to destroy or seriously Injure their navigability.
While not intending any displacement of the ordinary rules or rights of mortgagor and mortgagee in a foreclosure we believe that under the circumstances as presented by this record there was error: that the charge alleged positively, and supported by many circumstances, of collusion between the bondholder and the stockholder, to prevent any beneficial result inuring by virtue of the decree of the circuit court of appeals for the sixth circuit in reference to the guaranty obligations of the New Albany company, was one compelling investigation, and the order will therefore be that the decrees of the Circuit Court and of the Circuit Court of Appeals be reversed, and the case be remanded to the Argued November 7, 8, 1898. Decided May circuit court, with instructions to set aside
The prohibition by the act of Congress of September 19, 1890. against the creation of any obstruction to the navigable capacity of any waters, includes not only an obstruction in the navigable portion of the stream, but also anything, wherever or however done, to destroy the navigable capacity of one of the navigable waters of the United States. [No. 215.]
APPEAL from a decree of the Supreme Court of the Territory of New Mexico ffirming the decree of the District Court of he Third Judicial District of New Mexico n a suit in equity brought by the United States to restrain the Rio Grande Dam & Irigation Company from constructing a dain cross the Rio Grande River in the terriory of New Mexico, and from appropriating the waters of that stream for the purposes of irrigation, determining that the Rio Grande River is not navigable within the territory of Mexico, and that the United States is not entitled to the relief asked for, that the complaint is without equity, and that the temporary injunction be dissolved. Reversed, and case remanded, with instructions to set aside the decree of dismissa! and to make inquiry as to whether the construction of the dam and appropriating of the said waters would diminish the navigability of the Rio Grande, and, if so, to enter a decree restraining such act.
See same case below, 9 N. M. -, 51 Pac. 674.
Statement by Mr. Justice Brewer:
On May 24, 1897, the United States, by their Attorney General, filed their bill of complaint in the district court of the third judicial district of New Mexico against the Rio Grande Dam & Irrigation Company, the purpose of which was to restrain the defendant from constructing a dam across the Rio Grande river in the territory of New Mexico, and appropriating the waters of that stream, for the purposes of irrigation. A temporary injunction was issued on the filing of the bill. Thereafter, and on the 10th day of June, 1897, an amended bill was filed, making the Rio Grande Irrigation & Land Company, Limited, an additional defendant, the scope and purpose of the amended bill being similar to that of the original. The amended bill stated that the original defendant was a corporation organized under the laws of the territory of New Mexico, and ]the new defendant a corporation *organized under the laws of Great Britain. It was averred that the purpose of the original defendant, as set forth in its articles of incorporation and as avowed by it, was to construct dams across the Rio Grande river in the territory of New Mexico at such points as might be necessary, and thereby "to accumulate and impound waters from said river in unlimited quantities in said dams and reservoirs, and distribute the same through said canals, ditches, and pipe tines." The new defendant was charged to have become interested as lessee of or contractor with the original defendant. The bill further set forth that the new defendant "has attempted to exercise and has claimed the right to exercise all the rights, privileges, and franchises of the said original defendant, and has given out as its objects as said agent, lessee, or assignee, as aforesaid, to construct said dams, reservoirs, ditches, and pipe lines, and take and impound the water of said river, and thereby to create the largest artificial lake in the world, and to obtain control of the entire flow of the said Rio Grande and 174 U. S. U. S.. Book 43.
divert and use the same for the purposes of irrigating large bodies of land, and to supply water for cities and towns, and for domestic and municipal purposes, and for milling and mechanical power;" "that the Rio Grande receives no addition to its volume of water between the projected dam and the mouth of the Conchos river, about three hundred miles below, and that the said Rio Grande, from the point of said projected dam to the mouth of the Conchos river, throughout almost its entire course from the latter part to its mouth, flows through an exceedingly porous soil, and that the atmosphere of the section of the country through which said river flows, from the point above the dam to the Gulf of Mexico is so dry that the evaporation proceeds with great rapidity and that the impounding of the waters will greatly increase the evaporation, and that from these causes but little water, after it is distributed over the surface of the earth, would be returned to the river." The bill also averred that the Rio Grande river was navigable and had bean navigable by steamboats from its mouth three hundred and fifty miles up to the town of Roma, in the state of Texas; that it was susceptible of navigation above 692] Roma to a point about three hundred and fifty miles below El Paso, in Texas, and then, after stating that there were certain rapids or falls which there interfered with navigation, it alleged navigability from El Paso to La Joya, about one hundred miles above Elephant Butte, the place at which it was proposed to erect the principal dam, and that it had been used between those points for the floating and transportation of rafts, logs, and poles. The bill further alleged "that the impounding of the waters of said river by the construction of said dam and reservoir at said point, called Elephant Butte, about one hundred and twenty-five miles above the city of El Paso, said point being in the territory of New Mexico, and the diversion of the said waters and the use of the same for the purposes hereinbefore mentioned, will so deplete and prevent the flow of water through the channel of said river below said dam, when so constructed, as to seriously obstruct the navigable capacity of the said river throughout its entire course from said point at Elephant Butte to its mouth." Then, after denying that any authority had been given by the United States for the construction of said dam, it set forth the treaty stipulations between the United States and the Republic of Mexico in reference to the navigability of the Rio Grande, so far as it remained a boundary between the two nations.
To this amended bill the defendants filed their joint and several pleas and answer. The pleas were principally to the effect that the site of the proposed dam was wholly within the territory of New Mexico, and within its arid region; that in pursuance of several acts of Congress the Secretary of the Interior and the officers of the Geological Survey had located and segregated from the public domain a reservoir site called "38" on the river just above Elephant Butte, and another called "39" just below that point; that