Court Opinion

ID: 9305371
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:16:30.740082+00
Date Added: 2024-06-11T17:13:52.759664
License: Public Domain

Shiras, J.,
(dissenting.) At a prior term of this court it was held in this cause, in substance, that by the proceedings in the original foreclosure suits based upon the first mortgages executed by the Burlington, Cedar Rapids & Minnesota Railway Company, and the decree rendered October 30, *1875, the second mortgage, known as the “Income and Equipment Mortgage,” had not been foreclosed, nor had the rights of the parties holding bonds secured thereby been finally adjudicated, and, therefore, that it was still open to such parties upon the present cross-bill to establish the amounts due to them upon the bonds secured by such second mortgage, and to enter a decree foreclosing the mortgage; and upon the assumption that the property included in the prior mortgage was of such a nature that the second mortgagees had an undoubted right of redemption therein, which equity would continue until it was barred by proper decree, and in view of the fact that the decree of October 30, 1875, did not purport to foreclose the second mortgage, but reserved for future ad-' judication the issues arising on the cross-bill, it was held that, as incident to the right to now enter a decree foreclosing such second mortgage, there existed the right to redeem the property which had been sold- under the decree of October 30, 1875, and which had passed into the possession of the Burlington, Cedar Rapids & Northern Railroad Company; and in the opinion so holding I concurred. Upon the entry of the interlocutory decree the cause was sent to the master, and upen the exceptions to his report counsel have fully argued the case, not only upon the special matters arising upon the master’s report, but also upon the question whether the bondholders under the income and equipment mortgage have a right of redemption upon which to base their claim to. call the present owners of the property to an account therefor. In reconsidering this question, in the light cast thereon by the arguments of counsel, I have reached the conclusion that in the original opinion filed in the cause we were in error in holding that the right of redemption still existed in behalf the holders of the bonds secured by the income and equipment mortgage. It is unquestionably true that in the prior proceedings the income and equipment mortgage has not been foreclosed; but the question whether the right of redemption still exists in behalf of the bondholders thereunder does not depend upon the fact of the foreclosure of that mortgage, but upon the effect of the decree foreclosing the prior mortgages, and the sales had in pursuance thereof. In other words, the question is, what title passed to the purchaser at the foreclosure sales had under the decree of October 30, 1875? and in deciding this question regard must be had to the terms of the decree, the parties bound thereby, and the nature of the property to be sold, all of which matters must be considered in determining whether the property, when it was conveyed to the purchaser at the foreclosure sale, was still subject to the lien of the income and equipment mortgage, thus giving a foundation for the right of redemption now sought to be asserted, or whether it passed to the purchaser free from all liens or equities held by the parties to the suit, except such as were specially reserved in the decree?
The relief sought by the amended cross-bill is based upon the theory *693that there existed in favor of the bondholders secured by the income and equipment mortgage an equity of redemption which was not cut off by the sale based upon the foreclosure decree of October 30. 1875, and which is not yet barred by the lapse of time. Under the decisions of the supreme court of Iowa it is held that, as to realty, a junior lien-holder has an equitable right to redeem from a mortgage debt, even though there has been a foreclosure thereof, and a sale had of the property, unless the junior lienholder was made a party defendant to the foreclosure suit. Button-Hole, etc., Co. v. Association, 61 Iowa, 464, 16 N. W. Rep. 527, According to the rule recognized by the state supreme court, there exists in favor of the junior lienholder the statutory right to redeem from the sale, which right must be exercised within the time limited in the statute, and an equitable rightof redemption from the mortgage, which continues in favor of the junior lienholder until the same is barred by decree or by lapse of time sufficient to raise an equitable bar to the exercise of the right. The supreme court of the United States, on the contrary, holds that in cases wherein a foreclosure is had, and a sale of the property based thereon, there is not left in any one any common law or equitable right of redemption. In Parker v. Dacres, 9 Sup. Ct. Rep. 433, this question is discussed, and It is therein held that, where foreclosure proceedings are brought in court, and a decree entered finding the amount due, ordering it to be paid within a fixed time, in default of which a sale is decreed, such sale terminates the equitable right of redemption, leaving only such right as may be secured by statute. In that case the right to redeem was claimed on behalf of the mortgagor, and it may be said that the court was not considering the equities of junior mortgagees. The court held, however, that the sale barred all equitable right of redemption on part of the mortgagor. The conclusion is not based upon the provisions of the decree, but upon the effect of the sale; and, if it be true that the sale bars all equitable right of redemption on part of the mortgagor, why should it not have the same effect upon a subsequent mortgagee, who is made a party to the foreclosure proceedings? To the bills brought for the foreclosure of the prior mortgages executed by the Burlington, Cedar Rapids & Minnesota Railway Company, that company as mortgagor, and the Farmers’ Loan & Trust Company as trustee, in the income and equipment mortgage were both made defendants. The decree found the amount due on the prior mortgages, ordered the payment thereof within a fixed period, and in default thereof ordered a sale to be had of the property, the same to be made without redemption. Clearly, under the doctrine laid down in Parker v. Dacres, when the sales were had pursuant to the decree of October 30, 1875, there was not left in the Burlington, Cedar Rapids & Minnesota Railway Company any common-law or equitable right of redemption. Upon what ground can it be successfully claimed that such right of redemption was continued in the Farmers’ Loan & Trust Company, as trustee, in the income and equipment mortgage? Certainly the effect of the sale upon the rights of both these defendants must be held to be the same, unless there is *694found in the decree some reservation or modification of its provisions in favor of the income and equipment mortgage, intended to secure to the bondholders thereunder a continuing right to redeem, notwithstanding the sale. Thé provisions of the decree in this respect will be hereafter considered.
So far the case has been viewed upon the assumption that the property was of such a nature that there existed relative thereto the same rights of redemption that pertain to ordinary realty. The property, however, included in the foreclosure sale, and now sought to be redeemed, was a line of railway, its franchises and appurtenances, consisting of a combination of realty and personalty, which, from its public uses and peculiar nature, require to be sold as an entirety. In ordering a judicial sale of a railway and its appurtenances a court is compelled to have regard to the peéuliar character of the property, and cannot ordinarily treat it' as composed of items of realty and personalty, separable from each other, and salable under the distinct rules that usually govern sales of such differing classes of property. Thus, in Hammock v. Trust Co., 105 U. S. 77, the supreme court held that the provisions of the statute of Illinois governing the sale oí realty on judicial process, and securing to the debtor, and also to judgment creditors, the right of redemption, were not applicable to sales of a railway and its appurtenances, for the reason that, if the same were held applicable, then the personalty and the franchise would have to be sold without redemption, while the realty would be subject to redemption, which -would result in the practical destruction of the value of the whole; and-upon considerations of public policy as well as of private right the court reached the conclusion that the real estate, franchises, rolling stock, and other property of a railroad corporation, mortgaged as an entirety, may be sold as an entirety, under the decree of a court of equity, without any right of redemption in the mortgagor or in judgment creditors as to such real estate.'-' The reasoning of the court in that case demonstrates the fact that a decree for a sale subject to a right of redemption of the realty, or in fact of the whole property, would be deemed by that court an improvident and improper decree. Under the provisions of the statutes of Iowa, if it should be held that the property of a railway company, in cases of mortgage foreclosures, was resolvable into its primary elements of realty and personalty, the purchaser at the sale would be entitled to the immediate possession of the personalty, but the railway company would be entitled to the possession of the realty until the expiration of the year of redemption. During that period neither the purchaser nor the railway company could operate the road, as neither would have in possession the necessary means to that end-. These considerations show the wisdom of the conclusion reached by the supreme court, that the rules ordinarily governing judicial sales of real and personal property cannot be applied without modification to foreclosure sales of railways, and that it is the duty of the court, when decreeing a foreclosure, to provide for a sale, as an entirety, of the property covered by the mortgage,-so that *695the realty, the personalty, and the franchises, which, combined, form the railway, shall not be separated, and by separation be destroyed in their practical use and value.
Having in mind, then, the peculiar character of the property with which the court was dealing when the decree of October 30, 1875, was entered, what is the construction to be placed thereon? There was then before the court, as parties complainant in the suits, the trustees in the several mortgages sought to be foreclosed, and as defendants, inter alios, the Burlington, Cedar Rapids & Minnesota Railway Company, the grantor in such several mortgages, and the Farmers’ Loan & Trust Company, the trustee in the income and equipment mortgage. This trustee had answered complainants’ bill, and had also filed a cross-bill. Leaving the cross-bill unnoticed for the present, the issues were those arising on the bill, and the answers of the railway company and the Farmers’ Loan & Trust Company as the trustee representing the interests of those holding bonds covered by the second mortgage, otherwise called the “Income and Equipment Mortgage.” The final decree shows that the railway company withdrew its answer, having no just defense to the first mortgages sought to be foreclosed. On the part of the Farmers’ Loan & Trust Company its answer admitted the execution of the mortgages declared on; admitted the priority of the lien thereof on the first, second, and third divisions of the railway; but averred that the lien of the income mortgage was superior upon certain named engines and cars. The issues tendered in the answer did not affect the question of the right of sale, nor of the mode of sale, but were confined to the matter of priority of lien, a matter which could be disposed of after the sale was had, when the court was called upon to make distribution of the proceeds of the sale. These being the issues upon the bills for the foreclosure of the first mortgages, the court granted the decree'of October 30,1875, finding that the railway company was in default; that the first mortgages should be foreclosed; that the property should be sold; and expressly directing that the sales should be without redemption or appraisement. This decree certainly bound the parties who were then before the court; and, as already stated, the trustee in the income and equipment mortgage was a party defendant to these suits, and was bound by the decree. When, therefore, the sales took place under the provisions of this decree, the purchaser thereat had a right to rely upon this decree as the source of his rights and title. As already shown, the court had the right to order the property to be sold as an entirety, without redemption. The decree provides that it should be so sold. The purchaser at the sales received an absolute conveyance of the property under the order of the court confirming the sale, and certainly it does not now lie in the mouth of the Farmers’ Loan & Trust Company, of of the present trustee appointed in its place, to question the absolute title thus conveyed to the purchaser at such sales, unless it can be shown that there, was upon the record an express reservation of the right of redemption of such a character as to charge the purchaser with knowledge thereof.
*696Turning now to the cross-bill, we find that it does not contain any assertion of the existence of a right of redemption, nor does iit assert any' fact nor claim any right inconsistent with the theory of the decree that the sales, when made, should be without redemption. The cross-bill avers certain facts as the basis of the claim that the lien of the income mortgage was superior to that of the other mortgages upon certain engines and cars, avers that the mortgage to the Farmers’ Loan & Trust Company is the prior lien upon the Pacific Division, asks an equitable distribution of the earnings in the hands of the receiver, and prays for further relief. The cross-bill does not seek the foreclosure of the income and equipment mortgage. It avers the execution thereof; the issuance of 1,200 bonds under it; that it is a paramount lien on certain cars and engines; and prays that “ your orator have a decree declaring its lien upon said two engines 80 and 31 and said 130 box-cars under said mortgage, (Exhibit B,) to be prior and paramount to any held by any of said trustees and parties.” Process by subpoena is then prayed against Clews, Calhoun, West, Bliss, and Butterfield, and no others. The Burlington, Cedar Rapids & Minnesota Railway Company is not made a party to the cross-bill. It is not asked that the mortgage be declared due, and the amount due upon the bonds be ascertained,'and be ordered paid, and, in default, that the property be sold. As the mortgagor was not made a party to the cross-bill, and as there is no prayer for the foreclosure of the income mortgage, nor any apt averments as a basis for such relief, it cannot be claimed that the cross-bill was filed for the purpose of foreclosing the income mortgage. On the contrary, the averments in the cross-bill, so far as they are based upon the income mortgage, were simply intended to present the question of the priority of its lien upon the specific rolling stock named in the cross-bill. Had the court, before entering the decree of October 30, 1875, heard the parties upon this issue, and decreed that the income mortgage was not, as claimed, a prior lien upon the named rolling stock, it would thereby have disposed of the only issue in the cross-bill based upon that mortgage. That issue being disposed of, there would be nothing left in the cross-bill affecting or limiting the force of the decree entered for the purpose of foreclosing the prior mortgages, or the effect of the sales based thereon. Instead, however, of hearing this sole issue presented by the cross-bill before entering the decree of foreclosure, the court reserved the same for future hearing,' and granted the decree of October 30, 1875. Therefore, notwithstanding that decree, it was still open to the Farmers’ Loan & Trust Company, as the trustee in the income mortgage, to establish the truth of the averment that this mortgage was the paramount lien upon the specific rolling stock named in the cross-bill. The decree reserved this right under the cross-bill, but no other. The cross-bill does not ask that it be declared a second lien upon the railway and its appurtenances, nor that the sale be made subject to redemption on part, of such second and inferior mortgage. Aside from the named rolling stock, and the assertion of a prior lien thereon, the cross-bill sought no relief, nor asserted any other rights, as against the prior mortgages, than were presented by its answer; *697and in neither answer nor cross-bill is there found any issue tendered, or fact asserted, that even tends to show that there existed on behalf of said income mortgage an equitable right of redemption in the property, which would continue to exist after the sales had in pursuance of the decree then sought on behalf of the prior mortgagees. In fact, the question of the right of redemption on behalf of the income mortgage is not dependent upon the cross-bill or the action of the court thereon, for, as we have already seen, it was not filed for the purpose of securing or asserting a right of redemption after a sale had upon the foreclosure of the prior mortgages.
The question at issue, i. e., whether the property purchased at the foreclosure sales, and now in possession of the Burlington, Cedar Rapids & Northern Railway Company, passed to that company burdened with an equitable right of redemption in favor of the bondholders secured by the income and equipment mortgage, is to be determined by a consideration of the effect of the decree based upon the prior mortgages, unaffected by the question whether there was or was not entered a decree foreclosing the income mortgage. No set form of words is necessary to be used to cut off or bar a right of redemption. Admitting, for the sake of the argument, that the parties in interest had the same rights and equities in the property that they would have had in case the property had been an ordinary farm, and that the state rule governs the case, to-wit, that the parties have a statutory and equitable right of redemption in the property, what is the effect of the decree as rendered? As the trustee in the income mortgage was made a party defendant to the bill as well as the mortgagor, tbe decree is binding upon the bondholders under the income mortgage. The decree of October 80,1875, finds the amounts due upon the prior mortgages, orders the same to be paid by a fixed future day; in default thereof orders a sale of the property, the same to be without appraisement and without redemption; and directs the execution of a conveyance absolute to be made to the purchaser at such sales. If the decree had provided that from and after the date of the sale had pursuant to its terms all equity and right of redemption on behalf of the defendants should be absolutely barred and foreclosed, would there be any doubt as to the meaning of the decree? Such a decree, under the rule of the supreme court of Iowa, would have left to the parties defendant the statutory right of redemption from the sale, but would have effectually barred the equitable right. The decree, as entered, declares exactly the same thing, in providing that unless the parties make redemption before the sale the property shall be sold without redemption, and the purchaser shall take an absolute title. The terms of the decree cannot be fulfilled and still leave existing an equitable right of redemption on behalf of any of the defendants thereto. If it can be successfully claimed that this decree does not bar the equitable right of redemption on behalf of the income mortgage, would it not equally follow that the same right of equitable redemption exists in favor of the mortgagor, the Burlington, Cedar Rapids & Minnesota Railway Company? If the terms of the decree are sufficient to bar the rights and equities of the mortgagor, are *698they not equally efficacious as against the second mortgagee? Fairly construed, it must be held that it was the intent of the decree to cut off, by the sales had in pursuance, thereof, all right of redemption on behalf of all the defendants. That this is the true reading of the decree is admitted by the present complainants, for in the amended cross-bill it is expressly averred that the special masters were directed by the decree to advertise and sell the property, “the same to be sold without redemption or appraisement, after notice given as required by said decree.” If it be true that under the modern method of foreclosing mortgages by entering a decree ascertaining the amount due, ordering payment to be made at a fixed future date, and, in default thereof, ordering a sale of the property, there remains, after such sale takes place, only the statutory right of redemption, as appears to be the doctrine of Parker v. Da-cres, supra, then, applying that principle to this case, it follows that the sales made in pursuance of the decree of October 80, 1875, barred all equitable right of redemption on part of both mortgagor and the second mortgage lienholders. If it be true that a railway and its appurtenances are of such a peculiar nature that the statutory right of redemption cannot be held applicable thereto, as is held in Hammock v. Trust Co., supra, it follows, for the same reasons, that there cannot exist an equitable right to redeem such property when the same has been sold by order of a court directing the same to be sold as an entirety without appraisement or redemption, the parties claiming the equitable right having been parties to the foreclosure proceedings and decree. If it be true that in cases wherein the equitable right of redemption exists such right may be barred by making the possessor of the right a party defendant to the proceedings brought to foreclose the prior lien or mortgage, and by the decree barring such equity, then it must follow that, granting the existence of an equitable right of redemption on behalf of the income mortgage, such right was barred by the foreclosure decree of October 30, 1875, for the reason that the trustee in the income mortgage was made a party defendant to the foreclosure suit, appeared therein, answered the bill, and is bound by the decree, which, by its terms, fair’y construed, cut off.the equity of redemption of all parties to the suit, in that it provides that the property shall be sold without appraisement or redemption, and that conveyances absolute should be executed to the purchasers.
In whatever light the case may be viewed, it thus appears that when the amended cross-bill was filed there did not exist in behalf of the income mortgage bondholders any equitable right to redeem the property sold under the decree of October 30, 1875. If they ever possessed a statutory right of redemption from such sales, this had been terminated by the failure to exercise it within the statutory period. Moreover, it is well settled that courts of equity, independently of the provisions of the statute of limitations, should refuse aid to those who have unreasonably delayed in invoking its assistance. Richards v. Mackall, 124 U. S. 183, 8 Sup. Ct. Rep. 437; Parker v. Dacres, supra. This is a principle especially applicable to cases like the present, wherein the parties now s'eek-ing the aid of the court have remained quiet for years, knowing that the *699present company, in the belief that it was tlie absolute owner of the railway, was building extensions and branches to the main line, the value of which would be largely destroyed if redemption of the main line was enforced, thus causing groat loss to the present company, and to those advancing money upon the faith of the securities based upon such branches and extensions. The parties now seeking to enforce a right of redemption base their claim largely upon the cross-bill originally filed in the foreclosure proceedings. The evidence show’s that after the sale was had the further prosecution of the cross-bill was abandoned, and the confirmation of the sales was had upon the assumption that no further claim was asserted under the same. Having thus induced the purchasers at the sale to believe that all claim under the cross-bill and income mortgage was abandoned, the bondholders should not now be allowed to assert that their rights were not barred by the decree and sales had thereunder. It is doubtless true, as it was held in the opinion hereinbefore given, and upon which the interlocutory decree was based, that it is still open to the bondholders under the income mortgage to foreclose that mortgage by proper proceedings in case there is still in existence any property upon which the mortgage continues to be a lien. But, as the record now stands, even if it should appear that there w'as property still subject to the lien of the mortgage, a decree of foreclosure could not be properly granted. As already stated, the mortgagor, the Burlington, Cedar Rapids & Minnesota Railway Company, was not made party to the original cross-bill. In the amended cross-bill the company is named as a party defendant, and process by subpoena is prayed against it, but it does not appear that service was ever had on the company of such process, and no appearance for the company has been entered. In other words, the mortgagor, against whom a foreclosure of the income mortgage is sought, is not a party to the proceeding. Furthermore, in the amended cross-bill two new parties are brought in, to-wit, the Burlington, Cedar Rapids & Northern Railway Company, and the Farmers’ Loan & Trust Company, as the trustee in a mortgage executed by the Burlington, Cedar Rapids & Northern Railwray Company after the date of the decree of October 30, 1875. Contrary to the rule obtaining in many of the states, it is the rule in this court, as settled by the supreme court of the .United States, that new parties cannot be brought into a cause upon a cross-bill filed by a defendant to the original bill. It is so expressly held in Shields v. Barrow, 17 How. 130; Bank v. Railroad 11 Wall. 624. By a cross-bill properly framed, brought by the trustee in the income mortgage against the mortgagor, the Burlington, Cedar Rapids & Minnesota Railway Company, a decree foreclosing the income mortgage might be had, but to a cross-bill for such purpose the mortgagor is an essential party. If, however, the purpose is to call the Burlington, Cedar Rapids & Northern Railway Company to an accounting, and to compel a redemption of the property in its hands, the remedy is not by a cross-bill in the original foreclosure proceedings, but by an original bill for that purpose. For these reasons I am compelled to dissent from the opinion of the court in this cause.