Seibert v. Minneapolis & St. Louis Ry. Co.

• Decision Date: 13 January 1893
• Citation: 53 N.W. 1151,52 Minn. 246
• Parties: Henry Seibert v. Minneapolis & St. Louis Ry. Co. et al
• Court: Minnesota Supreme Court

53 N.W. 1151

52 Minn. 246

Henry Seibert v. Minneapolis & St. Louis Ry. Co. et al

Supreme Court of Minnesota

January 13, 1893

Argued December 15, 1892

Appeal by plaintiff, Henry Seibert, trustee, from an order of the District Court of Hennepin County, Lochren, J., made March 9 1892, directing him to pay to Robert Benson and others the interest due on their bonds.

The Minneapolis & St. Louis Railway Company on October 12, 1882 made its mortgage or deed of trust to the Central Trust Company of New York upon all its railway lines and property to secure the payment of four thousand bonds of $ 1,000 each. This was called the improvement and equipment mortgage and was junior and subject to several prior mortgages. One of these prior mortgages was made June 1, 1881, to the said Central Trust Co., upon the branch of its railway known as the Pacific Extension, to secure the payment of six thousand bonds of $ 1,000 each. Henry Seibert was appointed trustee in the improvement and equipment mortgage of October 12, 1882 in place of the Central Trust Co., pursuant to certain provisions in that mortgage. He brought this action June 28 1888, to foreclose this junior mortgage, and on the same day William H. Truesdale was appointed receiver to take possession of the entire property and to manage and operate the railway, keep accounts, pay from the receipts the necessary expenses, and hold the balance subject to the order of the court. Robert Benson and fifty-five others, holders of six hundred and ninety-one of the Pacific Extension bonds, applied September 14, 1889, and were admitted, defendants in the action. On their petition, the court made an order March 9, 1892, directing Truesdale, the receiver, to pay Robert Benson and his associates, out of the net earnings of the Pacific Extension branch of the road, the interest due April 1, 1891, upon their bonds, and interest on the interest after due amounting to $ 43,947.60. The court said: "Had plaintiff's mortgage been strictly subordinate, and had he desired to seize for himself the income and earnings pending his suit to foreclose, he might have done so by omitting to make the prior mortgagees parties, and by alleging and showing inadequacy of security, and having a receiver appointed solely in his own interest. In such case he would hold all income and net earnings so obtained, until some mortgagee, having a prior or better right, should intervene in the suit and claim them thenceforward or seize them in a separate suit. In this case however, because of the peculiarity of plaintiff's mortgage, on which he bases his claim to a superior lien and equity as to certain classes of property over prior mortgages, it was probably necessary that he should make such prior mortgagees parties to his suit at the beginning. Having done so, and had the receiver appointed in their interest as well as his own, they have been from the beginning of the suit, in a position to assert their equities to the income and net earnings, or any money or other property becoming the subject of adjudication. Miltenberger v. Logansport Ry. Co., 106 U.S. 286; Central Trust Co. v. Wabash, St. L. & P. Ry. Co., 30 F. 332; Howell v. Ripley, 10 Paige, 43." From this order plaintiff appeals.

Order affirmed.

Thomas F. Withrow, Julien T. Davies and John M. Shaw, for appellant.

The mortgagee of real estate is not, under the statute of Minnesota, in any case entitled to possession before foreclosure. 1851 R. S. ch. 74, § 11; 1878 G. S. ch. 75, § 29; Lowell v. Doe, 44 Minn. 144; Mack v. Wetzlar, 39 Cal. 253; McMillan v. Richards, 9 Cal. 365; Dutton v. Warschauer, 21 Cal. 609; McGurren v. Garrity, 68 Cal. 568; Johnson v. Sherman, 15 Cal. 287; Carpentier v. Brenham, 40 Cal. 221; Vason v. Ball, 56 Ga. 270; Newton v. McKay, 30 Mich. 380.

A railway in the State of Minnesota, including the rolling stock and all other appurtenant property, for the purposes of a mortgage, is real property. Gue v. Tide Water Canal Co., 24 How. 257; Wilkinson v. Hoffman, 61 Wis. 637; Chicago & Alton R. Co. v. People, 67 Ill. 11; Rice v. St. Paul & P. R. Co., 24 Minn. 464; Rohrback v. Germania Fire Ins. Co., 62 N.Y. 47; Buchner v. Chicago, M. & N. Ry. Co., 60 Wis. 264.

A contract in a mortgage of a railway which attempts to confer upon a mortgagee a right to enter into the possession after default and before foreclosure, is void as against the public policy of the state as to all real property, and especially as to property charged with the performance of public duties. Jones, Mortg. §§ 251, 1039; Teal v. Walker, 111 U.S. 242; Chicago, R. I. & P. Ry. Co. v. Union Pacific Ry. Co., 47 F. 15; Central Transp. Co. v. Pullman's Car Co., 139 U.S. 24; Rochester Ins. Co. v. Martin, 13 Minn. 59, (Gil. 54;) Stewart v. Erie & W. Transp. Co., 17 Minn. 372, (Gil. 348;) Thomas v. Railroad Co., 101 U.S. 71.

A court of equity may take possession of a mortgaged railway and operate it pending a foreclosure, but this power will be exercised only when the mortgagee is seeking a foreclosure and shows that his security is inadequate, and that the party liable for the mortgage debt is insolvent. Hollenbeck v. Donnell, 94 N.Y. 342; Kountze v. Omaha Hotel Co., 107 U.S. 378; Freedman's Saving Co. v. Shepherd, 127 U.S. 494; Union Trust Co. v. St. Louis, Iron M. & S. Ry. Co., 5 Dill. 1; Astor v. Turner, 11 Paige, 436; Mahon v. Crothers, 28 N.J.Eq. 567; Eslava v. Crampton, 61 Ala. 507.

The plaintiff did not have the receiver appointed in the interest of the defendant as well as his own in such sense as to make the appointment a seizure of the property under their mortgages as well as his own, and attach the lien of their mortgages as well as his own, to the income. De Graff v. Thompson, 24 Minn. 452; American Bridge Co. v. Heidelbach, 94 U.S. 798; Franklin v. Greene, 2 Allen, 519; Landis v. Olds, 9 Minn. 90, (Gil. 79.)

The net profits arising from the operation of a railway follow the possession and must be paid to the party who holds it, or at whose instance or under whose mortgage it is held by the court. Spencer v. Levering, 8 Minn. 461, (Gil. 410;) Adams v. Corriston, 7 Minn. 456, (Gil. 365;) Berthold v. Holman, 12 Minn. 335, (Gil. 221;) Hill v. Edwards, 11 Minn. 22, (Gil. 5;) Greve v. Coffin, 14 Minn. 345, (Gil. 263;) Gale v. Battin, 12 Minn. 287, (Gil. 188;) Johnson v. Lewis, 13 Minn. 364, (Gil. 337;) Everest v. Ferris, 16 Minn. 26, (Gil. 14.)

Woods & Kingman; Keith, Evans, Thompson & Fairchild; Turner, McClure & Rolston; H. C. Truesdale; H. B. Turner; and Lusk, Bunn & Hadley, for respondents.

The receiver was not the plaintiff's receiver, and the earnings in court are not, by the mere fact that plaintiff started the suit, the plaintiff's moneys. The receiver represents all the parties to the suit. No more is he the agent of the plaintiff than of any other party. Wabash, St. L. & P. Ry. Co. v. Central Trust Co., 22 F. 272; Central Trust Co. v. Wabash, St. L. & P. Ry. Co., 23 F. 863; Davis v. Duke of Marlborough, 2 Swanst. 125; 2 Story's Eq. § 829; Williamson v. Gerlach, 41 Ohio St. 682; Miltenberger v. Logansport Ry. Co., 106 U.S. 286; Cortleyeu v. Hathaway, 11 N.J.Eq. 42; Galveston Railroad Co. v. Cowdrey, 11 Wall. 459; Dow v. Memphis & L. R. R. Co., 124 U.S. 652.

We deem it unnecessary to consider what rights a mortgagee of real estate has before foreclosure, or whether a railroad mortgage is a real estate mortgage, or whether a provision that the mortgagee may take possession on default, is void as against public policy.

OPINION

Gilfillan, C. J.

This is an action to foreclose a mortgage executed by the railway company defendant to the Central Trust Company of New York as trustee, (in whose place plaintiff has been substituted as trustee,) to secure bonds issued by the company. The mortgage is junior to eight other mortgages, each covering some portion of the line of railroad, and the franchises and movable property belonging thereto, included in the plaintiff's mortgage. Each of the nine mortgages includes a pledge of the income, rents, issues, and profits of the division or section of railroad and other property mortgaged, and each contains a clause authorizing the trustees named in it, in case of default for four months in the principal or interest of the bonds secured by it, to enter upon the railway and premises thereby mortgaged; to manage and conduct the business of the railway; to collect and receive the tolls, rents, issues, and profits thereof, and apply the net proceeds in payment, first of the interest, and then of the principal, of such bonds. So that, so far as rights conferred by the mortgages are concerned, they all stand as to the property covered by more than one on the same footing, except as affected by priority of execution. Default having been made in plaintiff's mortgage, he brought this action to foreclose it, joining as parties defendants the trustees in the eight prior mortgages. The complaint sets forth all the mortgages; advances a claim to priority of lien in respect to rolling stock and equipments purchased and paid for with the proceeds of bonds secured by plaintiff's mortgage; asks, in effect, for a foreclosure of all the mortgages, and an adjudication as to the order of priorities; and, having alleged that the mortgagor is insolvent, and the plaintiff's security inadequate, that the provisions of the prior mortgages confer on the respective trustees the right, under certain conditions attending defaults, to take possession of the mortgaged property, and there is reason to believe that attempts to take possession will be made unless the court by its receiver assumes control for the benefit of all the parties; asks for the appointment of a receiver pending the action, charged with the duty of taking possession of and operating the...