Pennsylvania Canal Co. v. Brown

• Decision Date: 10 August 1916
• Docket Number: 2115.,2114
• Parties: PENNSYLVANIA CANAL CO. et al. v. BROWN et al. BROWN et al. v. PENNSYLVANIA CANAL CO. et al.
• Court: U.S. Court of Appeals — Third Circuit

235 F. 669

PENNSYLVANIA CANAL CO. et al. v. BROWN et al.

BROWN et al. v. PENNSYLVANIA CANAL CO. et al.

Nos. 2114, 2115.

United States Court of Appeals, Third Circuit.

August 10, 1916

[Copyrighted Material Omitted]

John Hampton Barnes, of Philadelphia, Pa., for Pennsylvania Canal Co.

Francis I. Gowen and John G. Johnson, both of Philadelphia, Pa., for Pennsylvania R. Co.

Thos Raeburn White and John Cadwalader, Jr., both of Philadelphia Pa., for appellees.

Before BUFFINGTON, McPHERSON, and WOOLLEY, Circuit Judges.

WOOLLEY Circuit Judge.

These are cross-appeals from a decree of the District Court based upon findings for and against the parties on several issues raised by the pleadings. 229 F. 444. The issues on the merits are distinct, and being separately presented, may be separately decided. Preliminary to their consideration, however, it will be necessary to dispose of a defense to the action, extending to all matters involved in both appeals, which challenges the plaintiff's right to maintain her action in the District Court, because, as it is alleged, the matters there presented could have been and therefore should have been determined in a previous action in another court. This defense is one of res adjudicata. We must therefore inquire what issues were involved and decided in the two actions, and whether the controversy in each was between the same parties or their privies. A very brief outline of the two cases will develop the facts.

In 1866, the Pennsylvania Canal Company acquired from the Pennsylvania Railroad Company certain canal properties. In 1870, the Canal Company placed a mortgage on the properties for $5,000,000 to secure bonds for a like amount, of which $3,000,000 were issued. The mortgage provided for an annual appropriation of $20,000 from the net earnings to a sinking fund for the payment of the principal of the bonds, and the bonds bore by endorsement the obligation of the Railroad Company to 'purchase' the coupons in the event of interest default by the Canal Company.

The business of the Canal Company decreased from year to year, and from various causes the canals fell apart and were abandoned. During this transition, the Canal Company sold many of its properties to the Railroad Company, under powers contained in the mortgage, the proceeds being applied in part to the purchase and retirement of its bonds. In 1888, the Canal Company defaulted in interest payments and the Railroad Company thereafter purchased the coupons.

After the mortgage matured in 1910, the trustee filed a bill of foreclosure in the Court of Common Pleas, No. 5, of Philadelphia County, State of Pennsylvania, praying a decree that he be awarded execution of the mortgage and be directed to apply the uninvested proceeds from sales previously made, as well as the proceeds of sales to be made under the decree, to the payment of interest coupons in priority to payment of the principal of the bonds. The Railroad Company was the sole holder of the coupons. The parties to that action when begun were Samuel Rea, trustee under the mortgage, and Pennsylvania Canal Company, mortgagor. John Cadwalader, a bondholder, intervened, and by appropriate pleadings between himself and the original parties, raised the issue that uninvested proceeds of sales were applicable to the payment of the principal of the bonds in priority to the payment of interest. That was the only controverted matter tried in that case. Its decision depended upon the character of the undertaking of the Railroad Company to take up defaulted interest coupons. The trial court found that the undertaking was one of payment and not of purchase. This finding was reversed by the Supreme Court of Pennsylvania, Rea, Trustee, v. Pennsylvania Canal Co., 245 Pa. 589, 91 A. 1053, which held that the contract was one of purchase and not of payment, that having purchased the coupons, the Railroad Company held them with all the rights of bondholders, and that the obligation of the bonds gave priority to interest over principal in the application of proceeds of sales.

That decree was pleaded as res adjudicata of the issues in this action before the District Court, not because the issues there presented had been decided in the action before the State court, but upon the contention that the issues raised in the action in the Federal Court could have been and in legal propriety should have been raised and decided in the action in the State court; and therefore the plaintiff was precluded from maintaining this action in the District Court.

While the case in the State court was pending, Alice Frances Brown brought this action in the District Court of the United States against the Pennsylvania Canal Company, Pennsylvania Railroad Company and others, charging, by original and supplemental bills, three things: First, that the Railroad Company had caused the Canal Company to divert the annual sinking fund appropriations from the sinking fund to the payment of interest coupons, to the relief of its obligation to purchase the same; second, that certain conveyances made by the Canal Company to the Railroad Company were void in that they were made under authority of an invalid enactment; and third, that the considerations for properties otherwise validly sold were inadequate. It is conceded that these matters were not in issue in the State court. This is certain, for the first ground of action was raised in the District Court by a supplemental bill filed after the decree in the State court, and the other two grounds were expressly excluded by the trial judge from his findings.

The District Court found that the plaintiff was not precluded by the judgment of the State court from maintaining this action against the Railroad Company for diverting moneys from the sinking fund to her injury, but that she was precluded by the decree of the State court from urging in this action her claims of invalid conveyances of mortgaged properties and the payment of inadequate considerations for properties purchased.

It is undoubtedly settled law that a judgment of a court of competent jurisdiction, upon a question directly involved in one suit, is conclusive as to that question in another suit between the same parties. But to this operation of the judgment it must appear, either from the face of the record or be shown by extrinsic evidence, that the precise question was raised and determined in the former suit. Russell v. Place, 94 U.S. 606, 608, 24 L.Ed. 214; Cromwell v. County of Sac, 94 U.S. 351, 353, 24 L.Ed. 195; Linton v. National Life Ins. Co., 104 F. 584, 587, 44 C.C.A. 54; Harrison v. Remington Paper Co., 140 F. 385, 400, 72 C.C.A. 405, 3 L.R.A. (N.S.) 954, 5 Ann.Cas. 314. It is admitted that in these cases the precise questions were neither raised nor determined. It is also admitted that the plaintiff in the action before us was at no time a party to the action in the State court, and that the Pennsylvania Railroad Company, the defendant in this action, was not a party to the action in the State court, except after trial, when it was admitted to the record, by consent of counsel, nunc pro tunc, for the purpose of appeal.

In a general way, we may assume as true the position of the defendants that it is a claimant's duty to assert in one action all rights he may have against the defendant, but clearly that duty is limited to the assertion only of those rights which are germain to the matter in controversy and are appropriate to the form of action, and which have been invaded or defeated by the party against whom the action is brought. The action in the State court was one of foreclosure; the parties were the trustee of the mortgage, the mortgagor and an intervening bondholder raising the single question of priority to funds; and the decree was one of foreclosure and distribution. The Pennsylvania Railroad Company was not charged with wrongdoing, and if such a charge had been made, no conceivable decree could have reached it, until it had become a party and presented a defense. But the action in the District Court was against the Pennsylvania Railroad Company and recovery was sought for alleged unlawful conduct in diverting funds from the plaintiff to itself, the cause of action and the remedy being as distinct from and unrelated to the proceeding of foreclosure in the State court as though it were in tort.

We are satisfied that the first ground of the plaintiff's action charging the Railroad Company with responsibility for diverting moneys from the sinking fund was in no sense germain to the action of foreclosure in the State court, and that the District Court committed no error in hearing and determining that issue.

The claim of invalidity of certain conveyances might conceivably have been asserted in the foreclosure proceeding by the trustee or an intervenor in determining what properties were covered by the mortgage, though we are slow to see how the claim of inadequate considerations could have been tried and decided in that form of action. Although the District Court held that the plaintiff was precluded by the decree of the State court from maintaining her action upon the last two grounds, we prefer to pass upon their merits, in view of the importance of the questions presented and amounts involved, rather than dispose of them by what is at best a doubtful legal impediment to their consideration. We, therefore, assume that the plaintiff was not precluded by the decree of the State court from obtaining in this case a determination of these issues, Powers v. Blue Grass B. & L. Ass'n (C.C.), 86 F. 705, and will consider them on the plaintiff's appeal under her assignments charging error to the court for refusing to find the conveyances invalid and the considerations inadequate.

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