846
FEDERAL REFORTER.
the remedy sought, nor as to the jurisdiction of the court, the patriotic phase of the case is not potent enough to affect the action of the court. If, in Massachusetts, Connecticut, New York, Virginia, and other states, municipal corporations are not permitted to encourage and disseminate patriotism and the love of liberty by celebrations, at municipal expense, of the fourth of July, the surrenderof Cornwallis, and other epochs in the history of the country, there would seem to be no reason why this court should hold its hand, and not prevent the city of New Orleans, at the expense of her tax-payers, from advertising the patriotism of her mayor, council, and citizens by appropriate ceremonies and enthusiasm and decoration, in the return of the famous and honored liberty bell to the city of Philadelphia. As was aptly suggested by counsel in argument, municipal corporationsper 8e exhibit the highest patriotitlm in obeying the laws made for their government. Under the circumstances and law of this case it Beems the plain duty of the court to grant the injunction as prayed for; and it is so ordered.
CEN'rRAL TRUST Co.
v.
TEXAS
& ST. L. By. Co.t J nne I, 1885.)
(Circuit Court, E. D. 1. EQUITY PRAC'l'ICE-DELA Y IN FILING ANSWER.
A foreclosure snit baving been instituted against a railroad company upon a mortgage given to secure its bonds, the company appeared and consented to the appointment of a receiver, and assented to all steps thereafter taken in the the case without filing any answer for about a year and a half, and then asked leave to file an answer. Held, that if the defendant had a meritorious defense, an answer stating it, under oath, might be submitted, provided it was shown to the satisfaction of the court by explanatory affidavits that there was a good excuse for the delay. IN PAYMEN'r OF IN1.'EREST-ULAUSE AS TO PlUNCIPALFOHECLOSUItE.
2.
Semble, thl\! where a mortgage is given hya railroad company to secure the payment of bonds and interest coupons thereto attached, the trustee may institute foreclosure proc('eding-s immediately upon default in the payment of intere,t, and that the right so to do is not affected where the mortgage provides that in case the mortgagor" fail to pay the interest on any of the said bonds at any time \'then the same may become due and paYllbJe according to the tenor thereof, and shall continue in default for six months after such payment has been demanded, .. .. * then and thereupon the principal of all the bonds hereby secured shall become immediately due and pUiyable, provided, etc.; and that in such case >II' * * the trustee 'If * >II' may take, with or without entry or foreclosure, actual possession of said road;" and Jails to proVide ex· pressly fO,r immediate fOl'eclosure upon such default.
In Equity. Foreclosure suit. Motion for leave to file an answer. A receiver was appointed in this case, with the consent of the de. o '0 ,
1
Reported by' Benj. F.' Hex, Esq., of the St. Louis bar.
CENTRAL TRUST CO.
V.
&
ST.
L.
RY. CO.
84:7
fendant, January 12, 1884, and all succeeding steps in the case have been taken without any opposition on the defendant's part. No answer has been filed, nor was leave to file answer asked, until May 4, 1885, when the defendant, by its attorney, asked leave to file an answer, claiming that this suit was not instituted by the trustee for the purpose of carrying out and executing the conditions of the mortgage in good faith, but to promote a certain scheme, which parties holding 51 per cent. of the company's bonds had entered into, to foreclose the mortgage for the pnrpose of depriving a minority of their rights in the company, and that the knowledge of this scheme had not reached the defendant uutil April 25, 1885. The defendant claimed in the argument, moreover, that the complainant had no right to foreclose until six months after default in the payment of interest, and that the suit had been instituted before tbat period had elapsed. The mortgage contains the following among other clauses, viz. : "That so long as the party of the first part, or its successors or assigns, shall well and truly perform all and singular the stipulations of the said bonds and coupons and the covenants of this indenture, the s!tiu party of the first part, its successors and assigns, shall be suffered and permitted to possess and enjoy the said mortgaged premises." etc. * * * "That in case the party of the first part, its successors or assigns, shall fail to pay the interest 011 any of the said bonds, at any time when the same may become due and payable, according to the tpnor thereof, and shall continue in such default for six months after such payment has been demanded at its or their :tgency, in the city of St. Louis or New York, then and thereupon the principal of all the bonds hereby secured, shall be and become immediately due and payable: provided, the said trustee gives written notice to the party of the first part, its successors or assigns, of its option to that effect while such default continues; which notice it may give of its own motion, but shall be bound to give, if required, in writing, to do so by the bolders of fifty per centum of said bonds then outstanuillg; and that in such case * * * the said trustee, or its successors in this tru,st, may, in its discretion, anu shall upon the reqnest in writing, of the holder of fifty per centum of said bonds then ontstanding, etc., take, with or without entry or foreclosure, actual possession of said road." "Nothing herein contained shall be construed as limiting the right of the said trustee to apply to the courts for juugment or decree of foreclollure and sale under this indenture."
Eleneiuus Smith, for complainant. Jeff. ChcLndler and Dyer, Lee d; Ellis, for defendant. TREAT, J., (orally.) There is an application to the court for leave
to file an answer in the case of the Central Trust Company against the Texas & St. Louis Railway Company. I have noted the points to be considered in the case. The first order in this case was made by Judge MCCRARY, and recited the express consent of the defendant. This application now before the court is by the defendant itself, which seeks, after this lapse of time, to be permitted to come in to dispute what it expressly assented to and agreed should be recited in the original decree. The question of laches is apparent. No an· swer was filed within the time prescribed,and now this effort is made
84:8
FEDERAL REPOnTER.
so to do. In the mean while this court, under the consent of all the parties, through its receiver, has been administering this property. The thought, in the proposed answer suggested, is that there was no right on the part of the plaintiff in this case to proceed for default of interest until the expiration of six months after the default first ocClured. The court does not so read the mortgages. The party plaintiff had the power to proceed for default of interest in September, when the default occurred. The provisions of the mortgage are that if said default continues for six months, the trustee may declare the principal due; and if he does not at his own discretion so do, a majority of the bondholders may compel him so to do. Therefore the six month!!' clause in the mortgage has nothing to do with the default of interest, on which the right of the trustee to proceed is based. It merely relates to the making of the principal also due. That is but one of the allegations. In the original bill there is a second allegation which is of the same nature as this court has been acting upon in the Wabash Case, to.wit, that this company, with the consent of all concerned, had stated that its condition was such that, without the aid of the court, all parties in interest would be seriously damnified. Hence there are two grounds to the bill: (1) The default in the September interest; (2) the wrecked condition of the road. Experience has shown, in the course of this administration, that the second allegation, unfortunately, is too true; for this court has been occupied for a long period of time in trying to save the rights of the parties by issuing receivers' certificates in some instances, and by controlling the property generally, which was in the most unfortunate condition when the court took possession of it. And it is one of the few cases, so far as my experience goes, in which a receiver has been enabled to rescue a property that was comparatively worthless at the time he took charge of it. Now, if the defendant were a natural instead of an' artificial person, evidently he would be estopped. It has not only expressly consented to all that has been done, but a great deal that has been done, has been done at its instance. It waits for this great length of time, and then, by reason of some outside wrangle between parties, it seeks to upset the whole action of the court, and all that it itself has caused to be done, or that has been done at its express request and instance. But it is stated in the argument that a minority of the bondhold. ers and of the stockholders, to-wit, 10 per cent., did not enter into that corporate action; to which the ready reply is, "Why, tuen, have they waited all this length of time, knowing all these facts?" They have their rights, though in a minority interest, to make their application to the court in due time to prevent any wrong being done to them, if any was contemplated. It must be remarked that the plaintiff in this case is a trustee under two mortgages: the first and the second. It therefore became it, as such trustee, to take such action as would preserve the interests, not of the bondholders under the first
SIMMONS
V. TAYLOR.
849
mortgage alone, but of all. It has so attempted to do. The result is, in order that the party may become of record, and have his alleged right adjudicated formally, instead of having in the exercise of discretion his right to become of record refused, that leave will be granted to him to submit an answer under oath, with explanatory affidavits, showing why this long delay while this course of proceeding has been going on. That answer will have to be presented within 10 days; and if allowed to be filed, the plaintiff will have leave to file a replication forthwith, so that this proceeding shall not be indefinitely prolonged in this court. If defendant has any meritorious defense, it can present it within that time. That answer, however, will have to be submitted to the court in order that the conrt may see whether it is confined to the real issues of the case, instead of being filled with immatef'ial issues, as the proposed answer is. The court has nothing to determine but the real controversy here, and the wranglings among outside parties are utterly immaterial to the question whether this mortgage shall be foreclosed and the property sold. Of course, when the order of foreclosure is made, if it ever shall be, the court will take care that the minority are as thoroughly protected as the majority; but in this stage of the controversy, where only the rights of the parties are to be determined in reference to the foreclosure, the court has nothing to do with that incidental question. Therefore the application as now made, that is, the answer submitted to the court, is denied; but leave is given on the terms expressed to submit a proper answer under oath, with affidavits showing why these parties have for some 15 months or more lain by and assented to everything, and now come in and wish to go back on their own express assents before the court.
SIMMONS, Successor, etc., v. TAYLOR, Successor, etc., and others. (Cross-Bill.) 1 (Circuit Court, S. D. Iowa, C. D. !Iay 12,1885.) 1. RA.ILROAD MORTGAGES-FoRECLOSURE PROCEEDING-EQUIPMF;XT AND INCOME MOR'rGAGE-BUHLINGTON, OEDAR H.A.PIDS &; MINNESOTA RAILBOAD OOMPANY.
On examination of the proceedings heretofore had in this case,lleld, that the second, or income and equipment, mortgage was not foreclosed, and the rights of the holders of bonds secured thereby cut off by the decrees and sales, and that the bondholders were not estopped from asserting their rights under such second mortgage. 2. SAMIC-Es'roPPEL.
A pltrty is not estopped for remaining silent or inactive when he is under no obligation, legal or moral, to speak or act.
In Equity. Prior to 1875 the Burlington, Cedar Rapids & Minnesota Railroad Company had constructed a main line and three branches, the latter known, respectively, as the Milwaukee Division, the Muscatine Divis1 See
8 Sup. ct. Rep. 58, Sub nom Burlington, C. R. & N. Ry. CO.
T.
Simmons.
v.23F,no.l6-54
850
FEDERAL REPORTER.
ion, and the Pacific Division. Upon tha main line and upon each of its branches, separately, it had placed a first mortgage. The trustee in the mortgage on the Pacific branch was the Farmers' Loan & Trust Company. All these mortgages were executed prior to the first of June, 1874. On that day it executed to said Farmers' Loan & Trust Company, as trustee, a second mortgage covering the road and all its branches, and given to secure what it denominated income, equipment, and convertible bonds. This mortgage purported to be a first lien upon the entire net income, upon 130 box cars, being those numbered by all even numbers from 882 to 1,140, and upon engines numbered 30 and 31, as well as a second lien upon all the property covered by the various first mortgages herein before referred to. Defaulting in the payment of interest on these several on the fifteenth of" May, 1875, a bill of foreclosure of the first mortgage on the main line was filed in the circuit court of the United States for the district of Iowa. At first the only party defendant was the Burlington, Cedar Rapids & Minnesota Railway Company, but on July 5, 1875, by amendment, the Farmers'Loan & Trust Company, trustee in the second, the income and equipment, mortgage was also made a party defendant. A demurrer to this bill was filed by the defendants. Similar bills of foreclosure were filed to foreclose the mortgages on the several divisions. In that to foreclose the mortgage on the Pacific Division the Parmers' Loan & Trust Company, trustee, set up not merely its first mortgage on that division, but its income and equipment mortgage, or second mortgage, upon all the divisions .. Matters stood in this condition until the thirtieth day of October, 1875. On that day decrees were entered. In the Pacific Division {Jase, the decree, after finding the amount due on the bonds and {Joupons secured by the first mortgage to the Farmers' Loan & Trust Company, ordered the payment of that amount within 10 days by the railway company to the mortgagee, and in default thereof that the property described i.n and conveyed by said mor.tgage be sold by a special master, "appointed to execute this decree, and make such bale as herein directe4 to satisfy said bouds, coupons, costs, fees, and expenses of this suit remaining unpaid," and that, after approval of the sale, the master executed a deed to the purchaser, and also awarded a general execution against the railway company for any deficiency which might exist after such sale. The only reference ill the decree io the income and equipment mortgage is found in these words: "That portion of complainant's bill relating to the income and equipment mortgage, so called, is ordered to be consolidated with the canses pending in this court against some respondents, wherein said Frost, Taylor, and others are, respectively, complainants."
The three other first mortgage cases were consolidated and ODe general decree entered. That decree contains the o.f cOWloEda·
SIMMONS V. TAYLOR.
851
Hon; then, after reciting that the defendant, the railway company, withdraws its demurrers, pleas, etc., and urges nothing in bar of the relief sought by the several complainants, goes on to find the amounts due upon said three first mortgages, directs the payment of such several amounts by the railway company within 10 days; "or, in deiault thereof, that its equity of redemption is barred," and, in further default thereof, orders sale of the respective properties mortgaged. It provides for a report of the sales, confirmation, and deeds by the master. In reference to the Farmers' Loan & Trust Company, and its income and equipment mortgage. and after the order made in respect to each first mortgage, appears this language: "And this decree is made snbject to the rights of any intervening creditors now before this court. And the cliLim of the Farmers' Loan & Trnst Company on the income and equipment mortgage to any of the cars or machinery named in the same is to be submitted to this court in term time, or vacation, as soon as counsel can agree on the facts in relation thereto. Any dispute among the holders of the four mortgages foreclosed. including the Pacific Division, as to cars and machinery, if not settled by themselves, is to be determined by the court at the next term. And the receiver now in posses'sion is required to operate and preserve said property for the benefit of the bondholders seeking to foreclose this mortgage; and he is required to make a report, and adjust his accounts of receipts. expenditures, and contracts made by him up to the date of said sale; and any residue in his hands is to be paid to the master and credited to the mortgage debt up to that date; and if said property shall not sell for snliicient to pay said debt, interest. and costs. the said plaintiff may have a general execution 1'01' the residue against the said Burlington. Cedar Rapids f;;, Minnesota Railway Company." And at the close of the decree is this general reservation: "The, court reserves the power to make further orders and directions; and no sale under this decree is to be binding until repJrted to the court for its approval." This is the entire reference made in this decree to this income and equipment mortgage and to the claim of the Farmers' Loan & Trust Company, and the only language therein which can bear npon or affect the questions to be hereafter considered. 1)1 this consolidated case, on the day of the decree, October 30, 1875, there was filed an answer and cross-bill by the Farmers' Loan & Trust Company, and on November 22, 1875, the complainants filed a replication to such answer, and an answer to Buch cross-bill. In these pleadings of the Farmers' Loan & Trust Company, the executionol the second mortgage above referred to iB set forth, and it is alleged that $1,200 of the bonds secured thereby have been sold and disposed of, thatthe interest thereon has not been paid, and that the entire Bum, principal and interest, is declared to be due. It does not appear that there was ever any agreement of counsel, any submission to the court, or any action taken by the court as to the specific mat- . ter reserved in tbe decree in the consolidated cases as to the claim of the Farmers' lJOan & Trust COmpanjT to cars or ,machinery. Nor
859
was there any order or decree ever entered upon the cross-bill, and the answer thereto, or any action appearing of record taken by the court in respect to these later pleadings, or the issues presented by them. In pursuance of those decrees in the summer of 1876, the masters, after due advertisement, sold the main line and the several branches to a committee of the bondholders. Those sales were reported to the court with a proposed plan of reorganization, which sales were confirmed and deeds made in pursuance thereof. The proposed plan of reorganization contemplated a distribution of the stock and the bonds of a new company, to be known as the "Burlington, Cedar Rapids & Northern Railway Company," according to certain specified proportions, to the holders of the first mortgage bonds on the main line and several divisions. No reference was made in this plan to the income and equipment mortgage, or the bonds secured thereby. All of that matter was simply ignored. The sales having been confirmed and the deeds passed, the reorganization was perfected, the stock and bonds issued, distributed according to the proposed plan, and put upon the market for sale; This was in the year 1876. It further ap· pears that most, if not all, the holders of these income and equipment bonds, secured by the second mortgage, were owners and holders of first mortgage bonds, and participated in the reorganization to the extent of surrendering such first mortgage bonds and taking bonds in the new company. The trustee in the mortgage issued by the new company was the Farmers' Loan & Trust Company, the trustee in this income and equipment mortgage. It accepted the trust conferred by this new mortgage, and took no further action in reference to the income and equipment mortgage, or in enforcing the rights, if any there were remaining to the holders of the bonds secured thereby. Matters remained in this condition until April, 1883, when certain holders of those bonds presented in this court a petition for the appointment of Charles E. Simmons as trustee in said mortgage, in place of the Farmers' Loan & Trust Company, which petition was granted, and thereupon the said trustee filed his amended cross-bill setting forth the various proceedings heretofore stated, and praying for the finding of the amount due upon the income and equipment mortgage, and the redemption of the property from said master's sales. It further appears that all of said income and equipment mortgage bonds, or at least nearly all, were issued to the various holders thereof simply as security for debts owing by the mortgagor company. Hubbard <f Olark, for complainants in cross-bill. Ransom, Bral <£ Withrow, for defendants in cross-bill. BREWER, J. The first question is whether this second mortgage, this income and equipment mortgage, was foreclosed, and the rights of the holders of bonds secured thereby, cut off by tho decrees and sales. Obviously not. In the Pacific Division mortgage case, the
858
claim of the second mortgage was, by the term of the decree, transferred to the consolidated cases. While the Farmers' Loan & Trust Company was the trustee in both the second mortgage and the first mortgage on the Pacific Division, yet, so far as that decree is con· cerned, it stands as though there were not only two separate mortgages, but two separate trustees. The first mortgage was foreclosed; the second mortgage, and all claims thereunder, transferred to another case. There was no decree barring the claim of the second mortgagee; there was no finding of the amount due on such second mortgage; there was no order of sale to satisfy said mortgage. In brief, the only reference to such second mortgage was the transfer of it, and all claims thereunder, to another suit. Upon what, then, can it be pretended that so far as this income and equipment mortgage was a second lien upon the Pacific Division, it was foreclosed, and the rights of the holders of the bonds secured thereby cut off by this decree? Turning now to the decree in the consolidated cases, there affirmativelyappears a waiver by the railroad company, the mortgagor, of all defenses, and a decree barring its equity of redemption in default of the payment of the mortgaged sum within 10 days after the decree, a finding of the amount due under these three first mortgages, an order requiring the payment of such sums within 10 days, and an order for a general execution for any balance of such sums not realized upon the sales ordered; in short, everything to show a foreclosure of those prior mortgages, and an omission of all of those matters in respect to this second mortgage. There is no finding of the amount due under this second mortgage; no order that the mortgagor pay any such amount; no order for an execution for any balance of such amount not realized upon sale; no order barring the second mortgage of its equities in the matter; no decree of foreclosure against it; in fact, no other reference to this second mortgage than in the simple reservation for future determination by the court of so much of its claim as asserted a first lien upon certain specific personal property. Now, at the time of this decree there was pending before the court an answer and cross-bill of this second mortgagee by which all its rights were presented. The decree ignores them except as to a little matter of alleged priority in respect to some personal property. Did the parties understand that this second mortgage was foreclosed, that the rights of such second mortgagee were cut off by this decree? Obviously not. Beyond the silence of the decree itself is the fact that within a month the complainants filed answer to its cross-bill and replication to its answer. Obviously they understood that there was pending for adjudication the claim of a second mortgage. Counsel in this case has argued strongly that there is such a difference between the old proceedings for strict foreclosure and the ordinary proceedings of to-day for foreclosure by sale that a sale cuts off all rights of every party to the suit. That proposition is too broad.
854:
I agree that every right presented and adjudicated for or against any mortgagee or mortgagor, is determined by the decree, but I cannot agree that a right presented by bill or cross-bill and unnoticed in the decree, and not absolutely necessary for determination in the decree, is determined uy the simple fact that the party presenting it is in court. The rights of the various parties to a foreclosure suit are determined by the nature of the llecree entered. And nothing is determined which is not expressly determined, or which is not impliedly settled by the terms of the decree in fact entered. Other matters emphasize this conclusion. A certain minor claim in this second mortgage was reserved for consideration upon facts to be thereafter found or agreed upon. This indicates that the existence of this second mortgage was known to the court at the time, and that the crossbill setting it up was also known, and that by the rules of equity pleadings no determination of this claim could be had at that time without consent, and that the parties, not consentiug, in respect to the general claim, had arranged in reference to this specific minor matter. Obviously, then, all parties understood that the general claim for a second lien was open for further consideration. Again, its claim is stated along-side of the claims of intervenors, as though in respect to priority its claim to certain engines and cars stood upon the same footing as tbat of an intervenor, and that its second mortgage lien was not intended to be settled by this decree. Further, in the title of the cases in this consolidated case, no reference is made to the complainant in the cross-bill; nothing to indicate that such cross-bill was by consent, or otherwise, before the court for hearing and decree. If I am at liberty to go outside of the record and turn to the oral testimony which is presented, it is equally obvious that at the time of this decree all parties interested regarded the second mortgage as of little moment. All thought that the first mortgages were so large as to sweep the entire property and leave large balances for general execution, and that hence a foreclosure of the second mortgage was a maHer of little or no moment. The only thing deemed worth noticing was this claim to a priority as to a few cars and engines. Hence, testing the question by either the record itself alone, or also by the extrinsic facts, I am clear in the opinion that this second mortgage was not in fact foreclosed, and was not intended to be foreclosed at the time of and by this decree. Doubtless there was gross carelessness on the part of counsel for complainants in not having the second mortgage and the claims thereunder adj udicated, determined, and foreclosed, but their obvious carelessness does not change the fact as to wllat was clone or intended to be done at the time. Now, if the decrees themselves contain no foreclosure of this second mortgage, how can the sales, and the confirmation of such sales, cut off such second mortgage, or the rights of the bondholders thereunder? The sale goes not beyond the decree. It takes nothing and
855
carries no rights which the decree does not det.ermine and prescribe; so I have little doubt that when the sale was consummated all that was accomplished was a foreclosure of the first mortgage, leaving all rights secured by the second mortgage undetermined and unfol'eclosed. . The second question presented is this: Conceding that, as a matter of strict law, this second mortgage was not foreclosed, nor the rights of the holders of bonds secured thereby cut of, yet it is claimed that there is an equitable estoppel against any present assertion by sucb bo,ndholders. A most elaborate and able argument has been :r;r6sented by counsel upon this matter of estoppel. I think these propositions answer his argument: :First, a party is not estopped by remaining silent when he is under no legal or moral obligations to speak. Estoppel implies that the party has done, or omitted to do, that which, under the circumstances, he was legally or morally bound to do, or omit doing. If the party is under no obligations to speak, no estoppel can spring from bis silence. If he is under no obligations to act, his failure to act conoludes none of his rights. Now, I understand it to be accepted law that a second mortgagee is not bound to insist upon a foreclosure of his mortgage. It matters not whether the first mortgagee forecloses or not. The second mortgagee owes no duty to anybody to act. If tbe first mortgagee wishes to cut off his equity of redemption, it is the duty of such first mortagee to make him a party and to take a decree against him; and if he fails to do that the second mortgagee is not concluded. The mere fact that he is made a party casts no obligations upon him. He may remain silent, and if no decree is taken against him, his rights remain as though he had not been made a party. No one would pretend that if not made a party his rights are cut off by his mere failure to come into court and ask to be made a party. In other words, in all proceedings by the first mortgagee, the second mortgagee stands on the defensive. His rights are perfect of the first mortgagee they are affirmatively cut unless at the off, or lost through the running of the statute of limitations. Now, in this catle the second mortgagee is a party. He sets up his mortgage. The first mortgagee takes a decree for the sale of the property to satisfy his mortgage, a decree barring the mortgagor, but not barring the second mortgagee; takes no foreclosure of such second mortgage; no finding of the amount due under such mortgage, and no order for the sale of tbe property to satisfy such second mortgage. Is the second mortgagee guilty of any wrong in not insisting upon a foreclosure of his mortgage? Is it not time enough for him to act when the first mortgagee demands some adjudication against him? May be not remain silent until such prior mortgagee asks foreclosure? That seems a clear statement of his rights, and I do not understand that any of the many cases cited by the learned counsel go so far as to hold that a party is estopped for remaining silent or in-
856
REPORTER.
active where he is under no obligations, legal or moral, to speak or act. Again, counsel spoke in argument, and have in brief, about the ambiguity of this decree, and of the consequent obligation on the second mortgage arising from such ambiguity. The entire record is a matter of public knowledge. Taking such record in its entirety, and I cannot doubt as to what is disclosed thereby, I cannot see that that ambiguity exists of which counsel speak. Neither mortgagor nor mortgagee, first or second, had any peculiar means of knowledge. The record was there and spoke for itself, and everybody was bound to take notice of what it disclosed. It did not show a foreclosure of this second mortgage. It does not purport to do so. lt disclosed a cross-bill filed on the day of the decree with an answer thereto filed nearly a month thereafter. Who examining such a record can say that he was misled? The other matter of estoppel is this. The holders of some of these second mortgage bonds, as appears, were also holders of first mortgage bonds, surrendered such first mortgage bonds, and received bonds and stock in the reorganized company. But upon this, what estoppel arises? It is not pretended that they represented to anybody that they did not have these second mortgage bonds, or that they waived any claim by reason thereof, when they surrendered the first mortgage bonds. They may have thought, as others seem to have thought, that the property was worth so much less than the first mortgage bonds that nobady would ever think of the second mortgage. They had a legal right to surrender the first mortgage bonds, and take their interest in the new company; and when they said nothing, or did nothing, and exercised a plain legal right, how can it be said that some other legal right which they possessed, they abandoned? How does estoppel arise under these facts? I am clearly of the opinion that all this trouble has arisen from the gross negligence of counsel, tvIessrs. Grant & Smith, and much as I should like to sustain this claim of. an estoppel, I am unable to see any legal grounds therefor, and must hold that this second mortgage stands to-day unforeclosed, and the bondholders not estopped from asserting their rights. The question then arises whether this second mortgagee has an absolute right of redemption, and that is what is prayed. I think not. Neither a first or second mortgagee holds title or has absolute right ofredemption as against the other mortgagee. The mortgagor alone has that right. When it makes a voluntary conveyance,.or when its title is conveyed by judicial sale, the purchaser may succeed to snch right of redemption. Regarding the foreclosure proceedings as completing mere execution sales, it would seem that the present holders have succeeded to the redemption right of the mortgagor. Whether that be universally and absolutely true or not, I think the right of redemption is one which a court of equity may award. It cannot be that the sec-
SIMMONS V. TA.YLOR.
857
ond mortgagee has a settled legal and indisputable right thereto. Under the modern idea of mortgages, the mortgagee takes no title,-simply a lien. If he gets his money, all that he has a legal right to is secured. In this case it would seem that equity requires that the present holders of the title obtained by this foreclosure sale should have the right of redeeming from the lien of this second mortgage; and so the order should be that when the amount due under this second mortgage is ascertained, it is to be declared a lien upon the properties mortgaged, and that if not paid within a certain time the properties be sold to satisfy such lien. Such a decree would preserve the rights of the first mortas well as all rights secured by any parties subsequently obtaining interest in the property. One further question requires notice. Obviously most, if not all, of the bonds secured by this second mortgage were issued as collateral security for certain debts of the mortgagor. Should such bonds today be treated as valid obligations for their face and interest, or as binding only to the extent of the debts secured thereby? I think the latter. Take the bonds held by the Lackawanna Iron Company, for instance. They were given as a collateral security only, and the present holder took them under such circumstances as to charge him with notice. Instead of being a debt for their face, all that the present property should be held liable for is the amount of the debt due to the iron company secured by these bonds. So in respect to others. The order therefore should be that the matters be referred to the master of this court, to state-First, which of those bonds secured by this second mortgage were issued simply as collateral security for debts of the mortgagor; second, the present value of the debts secured and, third, if any of those bonds have been transferred from the holders of such debts, under what circums:ances, and for what consideration they passed to the present holders. Upon the coming in of such report of the master, and finding of the amount whICh is properly secured by this second mortgage, a decree will be entered directing the sale of the mortgaged property within 60 days to pay Buch amount. Costs will follow this cross-bill, and be oharged upon the property.
FEDERAL
CENTRAL TRUST Co. and another v. WABASH, ST. L. & P. R. Co. and others. l WABASH, ST. L. & P. R. Co. V.CENTRAL TRUST Co. and others. l (Gir(}uit Oourt, E. lJ. Ml:SS0U1·i.
April 28, 1885.)
A., a railroad company, having joined in the execution of a mortgage from B. to V., to secure the payment of bonds issued by B., and having guarantied the paymeut of said bonds, and 2,700 of said bonds being in the hands ofa special receiver of this court appointed in the above-entitled case, andA. being under the control of the parties by whose privity said mortgage and guaranty were procured, D., a !ltockholder in A., asks leave to intervene here, or sue, in some otht:r court having jurisdiction, said receiver, and the parties by whose privit.y said Illortp;age and guaranty were procnred to be executed, for the purpose of having said guamnty, etc.,annulled, and the further negotiation of said bonds enjoined, etc., on tbe ground tbat the exeeution of said mortgage and guaranty hy A. was ultra and illegal, and authorized by a board of directors not legldly dected. Held, (1) that said receiver is a proper party to a suit for the purposes aforesaid, to the extent, and only to the extent, of his interest in said hands; (2) that this court will not permit said receiver to be sued outside of its jurisdiction; (3) that the petitioner may intervene uponsbowing that A. will not move in the matter. 2. VORPOHATIONS-AcTS OF DE FACTO BOAllD. Semble, that the acts of a de/acto hoard of direct ors nre valid, whether all the members of the board are eligible and have been legally elected or not.
Consolidated Cases. In equity. Application of Henry B. Plant for leave to sue the receiver. The petitioner states that he is a stockholder in tbe St. Louis, Iron Mountain & Southern Railroad Company, and has lately been advised of the terms and conditions of a lease by the Wabash, St. Louis & Pacific Railroad Companyof its property to the St. Louis, Iron Mountain & Southern Railroad Company, and of the existence, terms, und conditions of a certaiil paper purporting to be a mortgage of theWahash Company's property to the Mercantile Trust Company, and to be executed by thy said St. Louis, Iron Mountain & Southern Railroad Company, as party of the third part, to secure $10,000,000 of bonds executed by said mortgagor, and the payment of the principal and interest of which purport to be guarantied by the said St. Louis, Iron Mountain & Southern Railroad Company; that as such shareholder he desires to institute the proper legal proceedings in this court, by intervening herein, or in some other court having jurisdiction of the Rubject-mattel' and the parties, against all the parties to said lease, mortgage, and guaranty, and against the persons by whose privity the same were procured to be executed, for the purpose of having the same and each thereof judicially annulled, and further proceedings thereunder or any negotiations thereof enjoined, and to recover from such persons in· dividually the moneys which your petitioner believes were by them mis. 1 Reported
by Benj. F. Hex, Esq., of the St. Louis hal'.