Simmons v. Burlington, Cedar Rapids & Minnesota Railway Company/Opinion of the Court

by George Shiras, Jr.

United States Supreme Court

159 U.S. 278

Simmons  v.  Burlington, Cedar Rapids & Minnesota Railway Company

The decisive questions in this case turn on the character and effect of the decree entered on October 30, 1875. Did that decree leave the rights of the second mortgage, known as the 'income and equipment mortgage,' unadjudicated, and thereby subject the purchasers at the sale under the decree to a future inquiry into those rights, or was the decree final as respects the property sold thereunder, and do the purchasers, the Burlington, Cedar Rapids & Northern Railway Company, hold the property free from the lien of the second mortgage?

The answer to these questions must be found in the allegations and proofs upon which the decree was based, as well as in the terms of the decree itself.

The record shows that all the parties to be affected by the decree were before the court,-the Burlington, Cedar Rapids & Minnesota Railway Company as a mortgage debtor in default, and the trustees in the several mortgages. The property against which the proceedings were aimed was a railroad consisting of a main road and several branches. That the railway company was insolvent, and utterly unable to satisfy decrees for the payment of money, was evident.

In such circumstances, what kind of a decree would be probable, and in the natural course of events? Would it not be expected that the proceedings would eventuate in a sale, in such a way as to dispose of the questions raised in the several cases, and to vest in the purchasers an unincumbered title to the entire railway system?

We learn from the pleadings and evidence that such a plan of sale was apparently pursued, and resulted in the organization of a new company, whose mortgage bonds and stock were distributed among the original bondholders upon terms satisfactory to all, including a number of those who likewise held bonds secured by the income mortgage. The sales were reported to the court, and, with the deeds in pursuance thereof, were duly approved. The new company went into possession and management of the railroad and branches, and has increased largely their value by important extensions. The bonds and stock of the new company, it is safe to presume, have gone largely into new hands. The possession and title of the Burlington, Cedar Rapids & Northern Railway Company remained undisturbed and unchallenged till April, 1883,-a period of more than seven years,-when the petition of certain alleged bondholders under the income mortgage was filed, asking leave to file what is termed 'an amended and supplemental cross bill in the nature of a bill of revivor and supplement,' the avowed purpose of which is to have the title of the Burlington, Cedar Rapids & Northern Railway Company declared subject to the lien of the income mortgage, to have the mortgage issued in pursuance of the plan of reorganization declared void as respects the main line, and to hold that company to account for the earnings during the period of its possession.

To constrain a court of equity to grant relief so apparently inconsistent with the previous proceedings, and so destructive of the rights of persons who have since become interested, the case presented should be clear and free from doubt.

What, then, are the reasons urged in favor of the complainant in the amended and supplemental cross bill?

It is claimed, in the first place, that the Farmers' Loan & Trust Company, a party in the cause as trustee named in the income and equipment mortgage, had an equitable right to redeem; and that, as the decree of October, 1875, contained no declaration or recital that said trustee was barred of the equity of redemption, and as no time was given to it to redeem from the first mortgages, the rights of the trustee and of the income bondholders were wholly unaffected by the decree and by the sales in accordance therewith. In other words, the proposition is that in a decree which orders a sale of the property to pay the first mortgage debt, an express order cutting off the equity of redemption of a junior mortgagee, although a party to the suit, is necessary to divest the latter of his lien and of his right of redemption.

We are unwilling to accept this as a sound statement of the law, or, at all events, to concede it as invariably true. Where a junior mortgagee is a party defendant to a foreclosure bill in which, as in the present case, there is a prayer that he be decreed to redeem, and where the priority of the plaintiff's mortgage is found or conceded, and a sale is ordered in default of payment, declaring the right of the debtor to redeem to be forever barred, we do not deem a similar order as to right of redemption by the junior mortgagee to be substantially, or even formally, necessary. He has, of course, a right to redeem, but, if he chooses not to assert such right, and stands by while the sale is made and confirmed, he must, in equity, be deemed to have waived his right.

We think the law was correctly stated by Mr. Justice Matthews in Railroad Co. v. Fosdick, 106 U.S. 68, 1 Sup. Ct. 10, where he said: 'In case the proceeding results finally in a sale of the mortgaged premises, the sale is made free from the equity of redemption of the mortgagee and all holders of junior incumbrances, if made parties to the suit, and is of the whole premises, when necessary to the payment of the amount due, or when the property is not properly divisible, it conveys a clear and absolute title as against all parties to the suit, or their privies, and the proceeds of the sale are distributed, after payment of the amount due for nonpayment of which the sale was ordered, in satisfaction of the unpaid debt remaining, whether due or not.'

So in Lansing v. Goelet, 9 Cow. 346, in which case there was an elaborate examination of the subject, the law was expressed in the following terms: 'A judicial sale of the estate under the decree of the court, if the court has power to make the decree, whether it be in the form of a decree of sale preceded by a formal decree of foreclosure, or in the form of a decree of sale without the formal decree of foreclosure, effectually bars the right of the mortgagor to redeem, and the purchaser will hold it under the title he acquires to it by virtue of the sale and conveyance he receives from the master, free and discharged from the equity of redemption. The purchase money then stands in the place of the estate, and will be applicable, as that was, first, to the satisfaction of the debt of the mortgagee, and the overplus and residue, if any, to the use of the mortgagor.'

In 3 Pom. Eq. Jur. § 1228, it is said that 'the sale under a valid decree immediately cuts off, bars, and forecloses the rights of the mortgagor and of all subsequent grantees, owners, incumbrancers, and other persons interested who were made parties defendant, and of all grantees, owners, and incumbrancers subsequent to a filing of notice of lis pendens, although not made defendant.'

It is contended, in the next place, that the rights of the junior mortgagee were saved by the express terms of the decree. The language relied upon was as follows: 'And this decree is made subject to the rights of any intervening creditors now before this court, and the claim of the Farmers' Loan & Trust Company in the income and equipment mortgage to any of the cars and machinery named in that mortgage is to be submitted to this court in term time or vacation, as soon as counsel can agree on the facts in relation thereto.' And again: 'The court reserves the power to make further orders and directions, and no sale under this decree is to be binding until reported to the court for its approval.'

Reliance is also placed upon the language of a subsequent order of the court, on October 26, 1876, in which, after affirming the sales and conveyances, it is said that said order 'shall in no wise be taken to affect any claim, right, interest, or lien upon or to the property sold and conveyed by said master's deeds, now pending in this court, but that the said claim, rights, interests, and liens are merely reserved, subject to future adjudication; and the said grantees in said deeds take the property hereby conveyed subject thereto.'

The construction sought to be put upon this language, namely, that the court thereby intended to make a future disposition of the claims of the income and equipment mortgage one of the terms of the sale, is an admissible one, and, if it had been urged by timely action, it might properly have been adopted. But, as we have seen, those interested under the income and equipment mortgage not only failed to embrace the opportunity afforded to redeem as against the first mortgages, but suspended all action for a period of more than seven years. The condition of the record as it existed before the filing of the amended and supplemental cross bill disclosed no intention to ask for a redemption, and, even if the condition of the case prior to the sale and the terms of the decree left it a debatable matter whether the court intended to bar any right of redemption on the part of the junior mortgage, we think the contemporaneous and subsequent conduct of those interested in that mortgage deprives them of any right, after so long a period, to demand the assistance of a court of equity as against the purchasers and those who may have become interested with them.

We do not find it necessary to determine whether those of the bondholders under the income and equipment mortgage, and who also held first mortgage bonds, estopped themselves from asserting a right of redemption by accepting the new securities issued under the plan of reorganization. If, indeed, those so acting constituted all of the income bondholders, such a determination might be a ready method of disposing of the entire case. But, as there seems to have been some who did not receive the new bonds in payment of first mortgage bonds, and would not, therefore, be brought within the range of the suggested estoppel, we prefer to pass by that question, and consider whether all the holders of bonds under the income and equipment mortgage did not, by their inaction and acquiescence under the decree and sale, lose any right to redeem which they might otherwise have had as against the purchasers.

As we have seen, the Farmers' Loan & Trust Company, in its answer and cross bill as they stood before and at the time of the decree of October 30, 1875, did not assert any right or any intention to redeem, although in the bill an opportunity was afforded it so to do. It restricted its allegations and claims for relief entirely to the engines and box cars. When the cases, as well the case of Frost, trustee, in respect to the foreclosure of the main line, and the other consolidated bills of foreclosure, came on to be heard, there was no assertion of any right or wish to redeem. There was record notice to the said trustee that a plan of sale and reorganization was intended which contemplated the issue of new stock and bonds. Not only was there a tacit acquiescence in the proceedings, but no sign of any intention to disturb the title of the purchasers was given until more than seven years had elapsed, during which period large expenditures were made, and, beyond a doubt, third persons had become interested on the faith of that title.

The principle upon which this ground of defense rests has been so often vindicated and applied by this court that we do not feel it necessary to further enforce it by argument, nor to cite cases so numerous. It is sufficient to refer to Abraham v. Ordway, 158 U.S. 416, 15 Sup. Ct. 894.

The rule is aptly expressed by 2 Pom. Eq. Jur. § 816, as follows: 'Acquiescence is an important factor in determining equitable rights and remedies in obedience to the maxims, 'He who seeks equity must do equity,' and 'He who comes into equity must come with clean hands.' Even when it does not work a true estoppel upon rights of property or of contract, it may operate in analogy to estoppel-may produce a quasi estoppel-upon the rights of remedy.' And in section 965: 'When a party, with full knowledge, or at least with sufficient notice or means of knowledge, of his rights, and of all the material facts, freely does what amounts to a recognition of the transaction as existing, or acts in a manner inconsistent with its repudiation, or lies by for a considerable time, and knowingly permits the other party to deal with the subject-matter under the belief that the transaction has been recognized, or freely abstains for a considerable length of time from impeaching it, so that the other party is thereby reasonably induced to suppose that it is recognized, there is acquiescence; and the transaction, although originally impeachable, becomes unimpeachable in equity. Even where there has been no act nor language properly amounting to an acquiescence, a mere delay, a suffering time to elapse unreasonably, may of itself be a reason why courts of equity refuse to exercise their jurisdiction in cases of actual and constructive fraud, as well as in other instances. It has always been a principle of equity to discourage stale demands. Laches are often a defense wholly independent of the statute of limitations.'

As these views lead to the conclusion that the so-called 'amended and supplemental cross bill,' filed by Simmons, trustee, in April, 1883, cannot be maintained against the Burlington, Cedar Rapids & Northern Railway Company, nor against the trustee named in the new mortgage, it is unnecessary for us to enter into questions that arose affecting the title of alleged bondholders under the income and equipment mortgage, and with respect to which a cross appeal was taken from the decree of the court below.

It may be that whatever questions existed between the Burlington, Cedar Rapids & Minnesota Railway Company and the trustee of the income and equipment mortgage were left open as between them, if, indeed, any property remained to which a decree of foreclosure could apply. As to this we express no opinion. But, so far as the Burlington, Cedar Rapids & Northern Railway Company and the Farmers' Loan & Trust Company, trustee, under the new mortgage, are concerned, the so-called 'amended and supplemental cross bill' should be dismissed.

The decree of the court below under the said amended and supplemental cross bill is therefore reversed, and the record remitted, with directions to enter a decree in accordance with this opinion; the costs in the court below and in this court to be paid by the appellants in No. 11.

Mr. Justice BREWER took no part in the hearing or decision of the case.

Notes