Source: https://supreme.justia.com/cases/federal/us/244/266/
Timestamp: 2019-04-19 18:21:41+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 244 › Hamer v. New York Railways Co.
the several coupons belonging thereto."
Upon foreclosing the mortgage, the trustee obtained judgment against the guarantor company for a deficiency.
(1) That whether the guaranty were treated as having created an aggregation of as many obligations as there were bonds, each constituting a separate contract between the guarantor and the respective bondholder, or a single obligation for the benefit of the bondholders collectively, in either case there was a merger of the original cause or causes of action in the single judgment recovered by the trustee.
(2) The judgment being held as an unit by the trustee, for the benefit of all the bondholders, a suit to enforce it by a majority of them, though alleged to be on behalf also of all others similarly situated, could not be maintained without joining the trustee as a necessary party.
(3) In such suit, for the purpose of testing the district court's jurisdiction on the basis of diverse citizenship, the trustee, though made a defendant, must be realigned as a plaintiff, no hostility on its part appearing beyond a refusal to institute the action, assignable to no other motive than to aid the federal jurisdiction, and its real attitude being friendly as evinced by its answer.
One corporation, after guaranteeing bonds of another, passed into a receivership in the district court which ended in foreclosure of its own bonds and sale of its property, without reservation in the decree of liens or similar rights or power of the court concerning them. Meanwhile, by independent proceedings in a state court, the bonds of the second company were foreclosed and a deficiency judgment was rendered against the first company on the guaranty, which judgment, being presented as a claim in the district court proceedings, was rejected because the first company's liability to pay it was contingent at the date set for proving claims in that court. Held that a suit brought later in the district court upon the ground that, by its decree, the equities of persons interested in the deficiency judgment were wrongly ignored, and seeking to have that judgment impressed as a lien upon the property so sold, was not within the district court's jurisdiction as a suit ancillary to the foreclosure proceedings in which its decree was rendered.
"FOR VALUE RECEIVED, the Metropolitan Street Railway Company hereby guarantees to the trustee of the within-mentioned mortgage, for the benefit of the holders thereof, punctual payment of the principal of the within bond and the interest thereon at the time and in the manner therein specified and according to the tenor of the several coupons belonging thereto."
the Metropolitan Company on the guaranty. For that purpose, the Metropolitan Company was joined as defendant, and a deficiency judgment for $1,745,344.21 was entered against it on February 20, 1912, in favor of the Trust Company.
The property of the Metropolitan Company had meanwhile been administered by receivers appointed by the District Court of the United States for the Southern District of New York, and the several committees representing its bondholders, stockholders, and creditors had adopted a plan and agreement for the reorganization of that company. Pursuant thereto, its franchise and assets had been, on January 1, 1912, transferred to a new corporation, the New York Railways Company, and the securities and cash issued in exchange therefor were distributed among security holders, creditors, and otherwise, as in the plan provided. No provision was made in the plan for adjusting the liability of the Metropolitan Company arising out of its guaranty of the Crosstown bonds. The district court refused to allow the claim on the deficiency judgment to be proved in the Metropolitan receivership, because the date as of which claims against the property were ordered to be proved was January 15, 1908, and the claim on the guaranty was at that date contingent merely. Consequently neither the committee nor the Trust Company representing the Crosstown bondholders assented to the plan for reorganizing the Metropolitan Company.
"That the defendant Central Trust Company of New York holds the said judgment against the defendant Metropolitan Street Railway Company, amounting to $1,745,344.21, for the benefit of and as the trustee for the plaintiffs and the other holders of said bonds of the Twenty-eighth and Twenty-ninth Streets Crosstown Railroad Company, hereinbefore described, and that the reason why this action is brought by the plaintiffs and why the Central Trust Company of New York is made a party defendant is that the plaintiffs are the lawful owners and holders of said bonds in the amount hereinbefore alleged, and the beneficial and equitable owners of said judgment held by the defendant Central Trust Company of New York, and that the defendant Central Trust Company of New York has refused to bring this action after due demand by the plaintiffs upon said defendant Central Trust Company of New York, although the plaintiffs have offered proper indemnification to the said defendant Central Trust Company of New York, as such trustee, to institute this suit to enforce the rights of the trustee and of the bondholders under said judgment and guaranty made by said defendant Metropolitan Street Railway Company, as aforesaid."
"That the interests of the plaintiffs, and all other security holders, and the interests of said defendant Central Trust Company of New York, are identical and in all respects similar to the interests of the plaintiffs, and all other owners or holders of bonds secured by the mortgage . . . ; that the parties to this action should be realigned by the court, and placed according to their interests in the subject matter of this suit, and for the reasons hereinbefore alleged, and for divers other reasons appearing on the face of the bill upon the trial of this action, this defendant alleges that this Court is without jurisdiction to entertain this complaint, or to give judgment for the relief demanded therein."
of jurisdiction. Before discussing whether the Trust Company has an interest, and, if so, its character and effect, the nature of this suit should be considered.
of their respective interests that the Trust Company be a party to the litigation, the minority bondholders so that they may share ratably in the proceeds, the railway companies in order that they may, upon paying the amount of the judgment, be discharged from the possibility of further liability. The judgment is a unit, and the relief sought on it is necessarily for the benefit of all. Blacklock v. Small, 127 U. S. 96, 127 U. S. 104. But a suit by some bondholders does not, by the allegation that it is in behalf of all others similarly situated, become a class suit, binding on all. Wabash R. Co. v. Adelbert College, 208 U. S. 38, 208 U. S. 57. And, for the protection of the Trust Company itself, joinder as a party is essential in order that, upon distribution of any proceeds, it may be discharged from obligations to its beneficiaries.
like that against the Crosstown Company, and the property transferred by the mortgage, is held by the Trust Company as trustee for all the bondholders. [Footnote 2] That, under such circumstances, the trustee is a necessary party to this suit is clear.
by plaintiffs are likewise citizens and residents of New York.
"were sold to the purchasers and to the New York Railways Company, free and clear of any lien, claims, or interest in any party outstanding, except the interests"
of those expressly provided for in the plan of reorganization, and that the proceedings resulting in the deficiency judgment against the Metropolitan Company here sued on "did not constitute a claim against, or a lien on, or an interest in, any of the property rights or estate of the Metropolitan Street Railway Company." Furthermore, the bill in the instant case does not purport to be ancillary to the Metropolitan Company foreclosure proceedings. Plaintiffs here seek merely to establish an equity against the property of the New York Company, on the theory that the rights of the Crosstown bondholders have been improperly ignored. They set up a wholly independent cause of action.
"If there be any one principle of law settled beyond all question, it is this, that, whensoever a cause of action, in the language of the law, transit in rem judicatam, and the judgment thereupon remains in full force unreversed, the original cause of action is merged and gone forever."
United States v. Leffler, 11 Pet. 86, 36 U. S. 100-101. See also Mason v. Eldred, 6 Wall. 231; Gaines v. Miller, 111 U. S. 395, 111 U. S. 399.
See Knapp v. Railroad Co., 20 Wall. 117, 87 U. S. 123; Richter v. Jerome, 123 U. S. 233, 123 U. S. 246.
Venner v. Great Northern Ry. Co., 209 U. S. 24; Doctor v. Harrington, 196 U. S. 579; Kelly v. Mississippi River Coaling Co., 175 F. 482; Groel v. United Electric Co., 132 F. 252.
Blacklock v. Small, 127 U. S. 96, 127 U. S. 104; Harter v. Kernochan, 103 U. S. 562; Pacific Railroad v. Ketchum, 101 U. S. 289; Allen-West Commission Co. v. Brashear, 176 F. 119; Shipp v. Williams, 62 F. 4.

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