Toler v. East Tennessee, V. & G. Ry. Co.

• Decision Date: 26 November 1894
• Citation: 67 F. 168
• Parties: TOLER et al. v. EAST TENNESSEE, V. & G. RY. CO. et al.
• Court: U.S. District Court — Eastern District of Tennessee

67 F. 168

TOLER et al. v. EAST TENNESSEE, V. & G. RY. CO. et al.

United States Circuit Court, E.D. Tennessee.

November 26, 1894

The complainant Toler is the holder of 5 bonds of $1,000 each issued by the East Tennessee, Virginia & Georgia Railway Company, the Richmond & Danville Railroad Company joining as co-obligor. These bonds are part of a series of 6,000, each for $1,000, and are known as the 'East Tennessee Virginia & Georgia Railway Company's Extension Five per Cent. Mortgage Bonds. ' They bear date as of February 1 1890, and mature in 50 years, and bear interest at 5 per cent., payable semiannually, for which interest the usual coupons are attached. The bill alleges that the coupons maturing August 1, 1893, February 1, 1894, and August 1 1894, have not been paid; that the total amount of interest in default is $450,000, which sum he alleges is due to the holders of said bonds. To secure these bonds the East Tennessee, Virginia & Georgia Railway Company and the Richmond & Danville Company executed an indenture conveying in trust to the Central Trust Company of New York 112,301 shares of the capital stock of the Alabama Great Southern Railway Company, Limited, and 5,001 shares of the Cincinnati, New Orleans & Texas Pacific Railway Company. Toler's bill was filed for a foreclosure of said mortgage, and is for the equal benefit of all holders of bonds, similarly situated, who may join in the bill as complainants. The defendants to this bill were the two obligated corporations and the Central Trust Company. He charges that both of the said railroad corporations are wholly and utterly insolvent, that neither is now operating any railroad nor engaged in any business, that the most of the property of each company has been sold by judicial foreclosure of mortgages upon their several lines of railroad, and that the remaining assets of the East Tennessee Company are in the hands of receivers of this court, awaiting final decree. He also alleges that the shares held by said trustee are wholly inadequate in value to pay off the said bonds, and that the income upon said shares is wholly insufficient to pay off the arrearages of interest or provide for future installments. He charges that the Central Trust Company has been requested to file a bill for the foreclosure of said trust, and has failed to bring such suit. The two railroad corporations made defendants filed separate answers, confessing the charges of the bill in all particulars. The trust company likewise answered, admitting the trust, the insolvency of the debtor companies, the default in interest, and the inadequacy of the trust to secure the bonds. Subsequently John Greenough, James Swan, and George Coppell and Frederick Taylor, claiming to own or represent more than 2,000 of said bonds, were permitted to join as complainants. After filing its answer the Central Trust Company, by leave of the court, filed a cross bill, making substantially the same allegations as to the trust, the default in interest, the insolvency of the obligors to the bonds, the inadequacy of the shares held by it to pay off and satisfy the principal of the bonds, and praying a foreclosure of the mortgage by sale of the shares assigned for the security of the bondholders. To this cross bill the complainant Toler and the two obligated railroad companies were made defendants. Answers were filed, and the case, as to the parties on the record, stood ready for a decree. At this stage of the cause, Henry A. Taylor, claiming to own and hold more than a majority of the bonds secured by said indenture, filed a petition in the pending case, setting out his interest under the mortgage, and praying to be admitted as a defendant to both the original and cross bill, with leave to answer and file a cross bill. Before this application had been disposed of the complainants and cross complainants each moved for a decree of foreclosure. The application of Taylor and others to be admitted as defendants, and the motion for a decree of foreclosure, came on and were heard together.

Henry Crawford and Humphrey & Davie, for complainants.

Butler, Stillman & Hubbard (A. H. Joline, of counsel), for the Central Trust Co.

Lawrence Maxwell, Mr. Kittridge, and J. M. Dickinson, for Taylor and others.

LURTON Circuit Judge (after stating the facts as above).

The primary question for decision arises upon the application of Henry A. Taylor, who claims to be the owner of a majority of the bonds secured by the mortgage sought to be foreclosed, to be made a defendant to both the original and cross bill. To this application the complainants object, and insist that he ought not to be allowed to intrude himself into the litigation, over their objection. If Taylor sought to become a party complainant for the purpose aiding in the foreclosure, it would be difficult to see how he could be denied, inasmuch as the bill is filed for the benefit of all holders of bonds, 'similarly situated, and who may choose to join herein, and take the benefit of this suit, and contribute to the expenses thereof. ' But this is not the purpose of the petitioner. His object, as declared on the face of his petition, is to resist foreclosure, and to set up rights, as the holder of a majority in amount of said bonds, inconsistent with the relief which the complainants ask. If he is to become an actual party to the suit, it must be as a defendant. That a stranger to a suit will not be permitted, on his own application, and over the objection of the defendant, to become a defendant, is a well-established general rule to which there are but few exceptions. Such a practice is unknown to courts of equity. Shields v. Barrow, 17 How. 145; Stretch v. Stretch, 2 Coop.Ch. 140; Anderson v. Railroad Co., 1 Fed.Cas.p. 842; Chester v. Association, 4 Fed. 489; Ex parte Printup, 87 Ala. 148, 6 So. 418; Fost. Fed. Prac. Sec. 201. In the exceptional cases a defendant can only be added to those named as such in the bill by consent of the complainant, or upon order of the court requiring the bill to be so amended on penalty of dismissal for want of proper parties. Payne v. Parker, 1 Ch.App. 327. When the suit is conducted by some of a class for the benefit of all having identical interests, or by a trustee under a trust or mortgage for the equal security of a number of unnamed beneficiaries, all who have such common interests and rights are parties by representation; and as quasi parties are bound, in the absence of fraud, by the decree rendered in the cause. Where the trustee is vested with the legal title, and is given the usual powers incident to modern railway mortgages, those for whom he holds will be bound by what is done against him as well as by what is done by him. Where such a trustee is made a party to a foreclosure suit by bondholders suing in behalf of themselves and others similarly situated, the bondholders who do not join in the suit are not necessary parties. So, if such trustee files a foreclosure suit, whether it be by an original or a cross bill, it is not necessary that the beneficiaries should be made defendants. Indeed, such a practice would in most cases be absolutely impracticable, by reason of the impossibility of bringing all such holders of bonds before the court. In all such cases, whether the trustee be a complainant or a defendant, he stands for and represents all the beneficiaries who, though not actual parties, will be concluded by the decree, unless it is impeached for fraud or collusion between him and the adverse party. These principles are well settled. Kerrison v. Stewart, 93 U.S. 155; Shaw v. Railroad Co., 5 Gray, 171; Campbell v. Railroad Co., 1 Woods, 376, Fed. Cas. No. 2,366; Campbell v. Watson, 8 Ohio, 500; Shaw v. Railroad Co., 100 U.S. 605; Clyde v. Railroad Co., 55 F. 446; Forbes v. Railroad Co., 2 Woods, 334, Fed. Cas. No. 4,926.

But it must be obvious that one who is a party by representation, and therefore a quasi party, is not a stranger, in the sense of the rule I have stated. If he is to be bound and concluded by the decree, he is not a stranger to the proceedings. What, then, is the rule where one who is a quasi party asks to be made a defendant to a proceeding nominally conducted for his benefit, as one of the common beneficiaries? In Kerrison v. Steward, cited above, Chief Justice Waite, after laying down the general rule that the trustee is in court for and on behalf of all the beneficiaries, and they, though not parties, are bound by the judgment, added:

'Undoubtedly cases may arise in which it would be proper to have before the court the beneficiaries themselves, or some one other than the trustees, to represent their interests. They then become proper parties, and may be brought in or not, as the court, in the exercise of its judicial discretion, may determine.' 93 U.S. 160.

The problem to be solved, then, is to determine under what circumstances such a quasi party should be permitted to actively intervene. Where the purpose is to come in solely to participate in the benefits of the decree, there is little difficulty. Such interveners are admitted, as a matter of course, in all cases where the court has jurisdiction of the res, or where a fund is to be distributed, or where the claims enforced must be proven, or where one beneficiary, to increase his own share, wishes to contest the claim of another upon the fund. Where the suit is by some of a class for the benefit of all similarly situated, and the common trustee is a defendant, or where the suit is by the common trustee, and relates to the mortgage or trust deed, the separate beneficiary or bondholder will not be suffered to intervene for the purpose of defending the common interests unless he alleges and shows that the trustee is incompetent, or for some cause...