Grant v. Winona & S. W. Ry. Co.
| Citation | 89 N.W. 60,85 Minn. 422 |
| Court | Minnesota Supreme Court |
| Decision Date | 14 February 1902 |
| Parties | GRANT v. WINONA & S. W. RY. CO. |
OPINION TEXT STARTS HERE
Appeal from district court, Winona county; Snow, Judge.
Action by Donald W. Grant against the Winona & Southwestern Railway Company. Judgment for defendant, and plaintiff appeals. Affirmed.
The defendant issued its bonds, and secured their payment by a mortgage to a trustee upon its railway. Default was made in the payment of interest. Thereupon the trustee foreclosed the mortgage, declaring the whole mortgage debt due, in an action in the circuit court of the United States, and recovered a personal deficiency judgment against the defendant for the full amount remaining unpaid upon all of the bonds after applying the net proceeds of the mortgaged property in payment thereof. Afterwards the plaintiff, the holder of certain of the bonds, brought this action to recover the balance due thereon. Held:
1. That the circuit courts of the United States in equity have jurisdiction in a foreclosure suit to award a personal deficiency judgment against the defendant.
2. The terms of the mortgage authorized the trustee to represent the bondholders, and bind them by the deficiency judgment. Welsh v. Railroad Co., 25 Minn. 314, distinguished.
3. The recitals and reference to the mortgage in the bonds were sufficient to put all purchasers thereof on inquiry as to all of the powers conferred by the mortgage upon the trustee as to a foreclosure thereof. Guilford v. Railway Co., 51 N. W. 658,31 Am. St. Rep. 694, 48 Minn. 560, limited.
4. The deficiency judgment is valid, binds the plaintiff, and is a bar to this action. Geo. N. Baxter, for appellant.
Brown, Abbott & Somsen, F. H. Thatcher, Mitchell & Mitchell, and Thomas Simpson, for respondent.
This action was commenced March 16, 1900, to recover upon certain bonds and coupons made by the defendant. Two defenses were made: (a) That the bonds and coupons were merged in a former judgment; (b) the statute of limitations. The cause was tried by the court without a jury, resulting in judgment for the defendant upon the merits, from which the plaintiff appealed. The sole question for our decision is whether the facts found by the trial court sustain the judgment. The here material facts are these: April 2, 1888, the defendant duly executed to the Farmers' Loan & Trust Company of New York City, as trustee (hereafter referred to as the ‘Trust Company’), a mortgage, which was duly recorded, upon its railway, for the purpose of securing the payment of a series of coupon bonds which it then proposed to issue. It was provided in the mortgage, among other things, that the bonds were not to exceed $18,500 per mile of the railway which the defendant might construct or acquire; that the bonds should be each for the principal sum of $1,000, payable to bearer on April 1, 1928, which interest at 6 per cent. per annum, payable semiannually on the 1st day of April and October in each year, the interest to be evidenced by coupons; that each of the bonds should bear on its face a statement to the effect that it was one of a series of bonds secured by a duly-recorded mortgage, of even date, on the railway of the mortgagor, to the trust company, as trustee, but that no bond was valid unless certified by the trustee to be one of the bonds so secured; that each coupon should have on its fact a reference, by number, to the bond to which it might be attached, and that upon each bond the trustee should place its certificate to the effect that it was one of the bonds the payment whereof was secured by the mortgage; that the mortgage security should be for the equal pro rata benefit of all bondholders, without preference; and that in default of payment of the interest on the bonds the trustee might elect to declare the bonds immediately due and payable; that in case of such default the trustee might take possession of all of the mortgaged property, and sell it to pay the bonds and interest, this provision to be cumulative to the ordinary remedy by foreclosure in the courts. And it was in the mortgage further stipulated that for the debt, or bonds secured thereby, the defendant should be liable in personam, and that any deficit after exhausting the mortgage security might be enforced against the defendant company or its other property, but not against its stockholders individually. The defendant also covenanted to and with the trustee, for the benefit of the bondholders, that it would pay all interest on the bonds, and also the principal thereof, according to the terms of the bonds and of the mortgage. Subsequently to the execution of this mortgage, and pursuant thereto, the defendant issued its bonds, in the form, containing the indorsements and certificates thereby required, to the number of over 2,000, and of the aggregate value of over $2,000,000. Of these bonds the plaintiff is the bearer of 8, with the unpaid coupons attached, which are the same bonds and coupons described in the complaint. Default was made in the payment of the interest due October 1, 1892, and the default continued for more than six months. Thereupon, and on November 16, 1893, the trustee brought suit in equity in the circuit court of the United States for the district of Minnesota against this defendant, the mortgagor, to foreclose the mortgage. Farmers' Loan & Trust Co. v. Winona & S. W. Ry. Co., 59 Fed. 957. The court had jurisdiction of the parties, and the bill of complaint prayed, among other things, for a deficiency judgment against the defendants. The defendant answered, and such proceedings were had in that action that judgment was entered therein on March 19, 1894, for the full amount of the principal and interest of all of the bonds, including those now held by the plaintiff herein. The judgment recited and found that the trustee had duly declared the principal of all of the bonds to be due, and it accordingly adjudged that unless the amount so due should be paid on or before May 1, 1894, the mortgaged premises be sold for that purpose, and, in case there should be any deficiency after applying the proceeds of the sale in payment of the amount so adjudged to be due, the trustee have judgment for such deficiency, and execution therefor. The election of the trustee to declare the bonds to be due, recited in the judgment, was made previous to March 13, 1894. The mortgaged premises were sold pursuant to such judgment, and the amount of the net proceeds thereof applied upon the payment of all of the bonds, pro rata, leaving a deficiency of $1,972,719, for which sum formal judgment was entered, and execution therefor awarded against the defendant and in favor of the trustee on August 15, 1895. The decree further fixed the percentage of the dividend to be paid to bondholders from the proceeds of sale, and provided that the clerk stamp with stencil each bond and coupon upon which payment was made, to wit: The bonds and coupons of the plaintiff were presented to the clerk, and the dividend due thereon under the decree paid, and the bonds and coupons so stamped by the clerk. Upon the question whether the plaintiff purchased his bonds before or after this indorsement was placed upon them, there is neither evidence nor finding. Neither the plaintiff nor any other bondholder was personally a party to the foreclosure proceedings, or took any actual part therein, other than as here stated. The trial court, as a conclusion of law from these facts, found that the plaintiff's bonds and coupons were merged in the deficiency judgment, and, further, that this action is barred by the statute of limitations. If the trustee did not represent the bondholders so far as to enable it to declare, by reason of the default in the payment of interest, the bonds due, for all purposes, and to bind them by the deficiency judgment, it is clear that this action is not barred. The real question, therefore, is whether the trustee was so authorized, and whether the deficiency judgment is valid and binding upon the plaintiff. It is the contention of the plaintiff that this question must be answered in his favor, for the following reasons:
1. The deficiency judgment is void for the reason that the circuit courts of the United States in equity have not jurisdiction in a foreclosure suit to award a personal judgment for a deficiency in any case. Such was the rule under the old equity practice of the court of chancery, and it was enforced in the federal courts, sitting as courts of equity, until the adoption in 1864 by the supreme court of equity rule 92, which is this: ‘In suits in equity for the foreclosure of mortgages in the circuit courts of the United States, or in any court of the territories having jurisdiction of the same, a decree may be rendered for any balance that may be found due the complainant over and above the proceeds of the sale or sales and execution may issue for the collection of the same, as is provided in the eighth rule of this court regulating the equity practice, when the decree...
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