Swann v. Fabyan

Citation28 L.Ed. 252,4 S.Ct. 235,110 U.S. 590
PartiesSWANN v. FABYAN, Surviving Ex'r, etc., and another
Decision Date03 March 1884
CourtUnited States Supreme Court

Samuel F. Rice and David Clopton, for appellant.

P. Hamilton, T. A. Hamilton, and Moorfield Storey, for appellees.

HARLAN, J.

This is an appeal from a final decree dismissing a bill filed by John Swann against the executors of John S. Wright and the Alabama Great Southern Railroad Company, a corporation created under the laws of Alabama. Swann was the assignee of Wilder and McMillen, who were the purchasers at the sale in a foreclosure suit instituted on the thirtieth of May, 1872, by the trustees for the holders of bonds of the Alabama & Chattanooga Railroad Company, secured by a first mortgage upon its road, rights, franchises, and property. With the assent of Wilder and McMillen, Swann was reported as purchaser, and, the sale being confirmed, a deed was made to him. Subsequently he conveyed all his right, title, and interest to the Alabama Great Southern Railroad Company.

The complainant seeks to reopen the long-protracted contest in the foreclosure suit between the first mortgage bondholders and the executors of John S. Wright, as to whether certain claims of the latter were liens upon the mortgage security. Appellees urge as a controlling consideration that the first-mortgage bondholders acquiesce in the allowance of the Wright claims as having priority of lien over them; and they also contend that, in view of the several orders in the foreclosure suit, particularly the decree under which the sale of the mortgage property was had, and under which Swann claimed and received a deed, he has no standing in a court of equity to question the allowance of the Wright claims as superior liens upon the property. This proposition is controverted by appellant.

In order that appellant's relations to the property may be understood, and the questions involved in this appeal clearly comprehended, it is necessary to examine, somewhat in chronological order, the various steps taken in the foreclosure suit.

By an order made in that suit on the twenty-sixth day of August, 1872, Lewis Rice and W. J. Haralson were appointed receivers, with authority to put the Alabama & Chattanooga Railroad and other property embraced in the first mortgage in repair; to complete any uncompleted portions thereof; to procure rolling stock, machinery, and other necessary things for operating the road; and to manage it to the best advantage, so as not only to prevent the property—then in a dilapidated condition, and being recklessly wasted—from further deterioration, but to preserve it for the benefit as well of the first-mortgage bondholders as of all others having an interest in it. It was also ordered that all claims on account of moneys raised through the receivers by loan, or upon advances for the foregoing purposes, not exceeding $1,200,000, 'shall be a first lien, prior to all others, on the said railroad and other property, and to be paid for, before the said first mortgage bondholders, out of the proceeds of said property.' The receivers were directed to issue certificates for moneys so raised, the loan to be made upon such terms as they might deem expedient: 'provided, that said certificates shall not be disposed of for less than ninety cents to the dollar of their face; and also provided, that interest thereon shall not be allowed at a greater rate than eight per cent. per annum, payable half-yearly; and such certificates shall not be issued until the same shall be countersigned by a majority of the trustees for said first mortgage bondholders, without which countersigning they shall not be entitled to the lien and priority aforesaid.'

On the twenty-third day of January, 1874, a decree was passed for a sale of all the mortgage property as an entirety, the purchaser, upon confirmation of the sale and payment of the purchase money, to receive a conveyance in fee-simple of all the right, title, and interest of the company, and of all persons claiming under it, in the railroad, premises, franchises, and property covered by the mortgage, and free from the claim of defendants in that suit. It was further decreed that the proceeds to arise from the sale, and which had arisen or should arise, in the hands of the receivers, from the prosecution of the business of the company, or which had arisen or might arise in any other way from the property, are in law and equity liable to be applied in the following order: First, to the necessary expenses incident to the execution and due preservation of the trust created by the mortgage, including reasonable compensation to trustees and their counsel, and to the receivers, and all legal and necessary expenses then remaining unpaid, which had been properly incurred with the authority of the court, in relation to the property. Second, to the payment of all taxes, charges, assessments, and liens prior in law to the lien of the mortgage; all sums expended in perfecting the title to the right of way, or to any property formerly claimed by the company and then claimed to be embraced by the mortgage; and 'all liabilities incurred by the receives, including such receivers' certificates or other receivers' indebtedness as may be sanctioned or ordered to be paid by this court, in accordance with the provisions hereinbefore contained.' Third, to the payment of such of the first mortgage bonds, with their interest warrants, as may be reported by the master to have been bona fide issued, and to be outstanding and unpaid. Fourth, the residue to be subject to such order and priority in distribution as the court should establish and decree, reserving for future consideration certain described bonds. By the same decree it was declared 'that all moneys which have been raised by said receivers by loan, or which may have been advanced by them for the purposes aforesaid, and which shall be ascertained by the decretal orders of this court to have been expended, or which may be expended, for the purposes contemplated by and in accordance with the said orders of this court, not exceeding the sum of $1,200,000, shall be a first lien, prior to all others, on the said railroad and other property, and to be paid before the said first mortgage bonds out of the proceeds of said property; and nothing in this decree * * * shall impair the claims or rights of the creditors of the receivers appointed under either of said orders, or the owners of certificates issued by said receivers under said orders, or the holders of said certificates under hypothecation to the extent of money loaned and advanced on the same for the purposes aforesaid, with the interest and expense added thereto.' The cause was referred to Joseph W. Burke, as special commissioner, with directions to report all amounts necessary and proper to be paid out of the proceeds of sale as indicated by the decree.

On the twenty-fifth of April, 1874, an order was entered, upon the petition of the bondholders, suspending the sale of the property until the matters involved and under reference should be reported on and settled by the court; and allowing bondholders to appear in their own right before the commissioner and the court; and to contest any and all demands embraced by the order of reference, or that might arise before the court, touching the property to be sold.

The reports of Commissioner Burke, made June 18, 1874, and May 31, 1875, show that among the claims contested before, and allowed by him, were two by John S. Wright,—those already referred to,—one based upon receivers' certificates issued by Rice and Haralson, amounting, principal and interest, to $52,000, and the other, based upon like certificates, aggregating $56,444.44, which had been hypothecated to Wright as security for money advanced, as was alleged, to the receivers. For reasons not disclosed by the record this report was not satisfactory to the parties; and, by an order of June 11, 1875, the court approved and gave effect to a written agreement between the contesting bondholders, the trustees, and the holders of receivers' certificates, whereby it was stipulated that the matters of reference involved in the cause should be referred to some well-known lawyer and thorough business man, with authority to inquire into and settle the same. That agreement provided that such settlement should be final between the parties thereto, when confirmed by the court. Philip Phillips was thereupon appointed a special commissioner, with directions to review and re-examine, so far as the parties desired, the matters theretofore referred. If any of the receivers' certificates were objected to by either party, the commissioner was directed to inquire and report whether they were issued and used in accordance with the orders in the cause, what disposition was made of them, what...

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