UNION TRUST CO. V. MORRISON

• Decision Date: 02 April 1888
• Citation: 125 U. S. 591
• Court: U.S. Supreme Court

Union Trust Company v. Morrison

No. 84

Argued and submitted November 10, 1887

Decided April 2, 1888

125 U.S. 591

APPEAL FROM THE CIRCUIT COURT OF THE UNITED

STATES FOR THE SOUTHERN DISTRICT OF ILLINOIS

Syllabus

The entire rolling stock of a railway company in Illinois was covered, as well as all its other property, by a mortgage to trustees to secure an issue of outstanding bonds. A judgment creditor of the company being about to levy upon some of the rolling stock, the company filed a bill in equity to restrain the levy and to set aside the judgment as obtained by fraud, and an injunction issued restraining the creditor from making the levy, a bond with surety being first filed conditioned to pay the judgment debt if the injunction should be dissolved. The surety in that bond took as security a chattel mortgage of four locomotives. Proceedings were then taken for the foreclosure of the mortgage, and a receiver of all the property covered by the mortgage was appointed. Several suits against the company were then pending in which appeal had been taken and appeal bonds given in order to protect the rolling stock. The receiver then suggested, making special mention of the above recited case, that the sureties should be protected in the event of adverse decisions, and the court authorized him in his discretion to protect such sureties as ought to be protected, by reason of the protection afforded to the property and assets of the company, by the giving of their bonds, and an order was made that all persons having claims or liens against the property or its proceeds should file intervening petitions on or before a day named. The surety in the injunction bond intervened within the time fixed, setting forth the facts, and that judgment had been recorded against him, and asking to be protected from the consequences of signing the bond, as the receiver had not been able to pay the debt of the judgment creditor. The property covered by the mortgage was then sold and purchased by persons representing the bondholders, and it was referred to a master to report upon the intervening claims. The trustee and the receiver objected to the allowance of the claims of the surety on the injunction bond on the ground that the execution in the original suit could not become a lien upon the property as against the mortgage bondholders, and on the further ground that the surety had not paid the judgment debt. The surety then paid the judgment debt, and filed a supplemental petition setting that fact forth and repeating this original application, but the master rejected the claim on the ground that the payment was not made when he filed his original claim, nor until the time had expired for claims to be presented. Held:

Page 125 U. S. 592

(1) That the claim was presented in time, and that although the surety had not paid the judgment when the claim was presented, he was entitled in equity to be protected from making the payment.

(2) That the purchasers at the foreclosure sale, having been represented in the foreclosure proceedings by the trustees of the mortgage were bound by whatever bound the trustees, including the, orders of the court respecting the paramount liens of the intervening claimants.

(3) That as, until the mortgage was enforced by entry or judicial claim, the personal property of the company was subject to its disposal in the ordinary course of its business, and to be seized and taken on execution for its debts, subject, however, to the contentions of the mortgage trustees, the act of the surety on the injunction bond had operated to keep the property together, and to keep up the railroad as a going concern.

(4) That the taking of the chattel mortgage by him showed that he intended to look to the property, and not alone to the personal security of the company.

(5) That the evidence referred to in the opinion showed that the receiver received moneys from which he might have paid the judgment debt.

(6) That the purchasers of the property accepted a deed, executed under order of court, in which they recognized the right of the surety as an intervenor.

The court does not intend, in this case, to decide anything in conflict with Burnham v. Bowen, 111 U. S. 776, and only decides that this claim, being based upon a bona fide effort by the intervenor to preserve the fund from spoliation after the mortgage debt was in arrear and the right to reduce to possession had accrued, the claimant can pursue earnings which had been appropriated to the purchase of property that had been added to the fund.

The action of the intervenor not being taken for the purpose of being subrogated to the questionable rights of a judgment creditor, the Court expresses no opinion upon the rights of an execution creditor, levying on the personal property of a railroad company in Illinois, as against those of a mortgagee.

The Court stated the case as follows:

This case grows out of the foreclosure of a mortgage given by the Cairo and St. Louis Railroad Company on the second day of October, 1871, to the Union Trust Company of New York to secure the payment of 2,500 bonds of ,000 each, with interest semiannually. Morrison, the appellee, intervened in the proceedings by petition, claiming a lien on the property mortgaged by reason of having become liable as surety on an injunction bond given to obtain an injunction

Page 125 U. S. 593

to prevent an execution sale of a portion thereof. The court below, by a decree dated May 4, 1884, allowed his claim, amounting to the sum of ,352.19, with interest from May 20, 1882. The purchasers at the foreclosure sale (who purchased on behalf of the bondholders) having transferred the property to the St. Louis and Cairo Railroad Company (organized for that purpose), said company was allowed to become a party to the proceedings for the purpose of appealing from the decree, and did appeal from the same in connection with the Union Trust Company. The case is now before us on that appeal.

The facts necessary to be understood in the determination of the case are as follows:

The Cairo and St. Louis Railroad Company was a corporation of Illinois, owning and operating a railroad in that state, extending from Cairo to a point opposite St. Louis. The mortgage referred to purported to convey and embrace all the property and assets of the company, real, personal, and mixed, then held and owned or thereafter to be acquired, and the tolls, incomes, rents, issues, and profits thereof, and it contained provisions authorizing the mortgage trustee (the Union Trust Company) to take possession of said property and assets in case of default, for a certain period of time, in the payment of interest, or of the installments of a sinking fund provided for, and gave said trustee power on such default to declare the principal due. The railroad company made default in the payment of interest in October, 1873, and at every subsequent period of payment, and never paid any installments of the sinking fund.

Meantime, the company was harassed by suits, and, among others, one Henry Holbrook, on the 26th of November, 1872, recovered a judgment against it in the Circuit Court of St. Clair County. Illinois, for the sum of ,500, besides costs. Execution was issued, but not levied. But in October, 1874, an alias execution was issued, and the Sheriff of St. Clair County threatened to levy upon the rolling stock of the company, a great part of which was in that county, opposite St. Louis. The company, believing the judgment to have been fraudulently

Page 125 U. S. 594

and wrongfully obtained, filed a bill in equity in the St. Clair Circuit Court to enjoin Holbrook from proceeding to its collection. An injunction was granted accordingly on the 30th of December, 1874, but only upon the condition that the company should give an injunction bond, with sureties, for the payment of judgment and costs if the injunction should be dissolved. Morrison, at the request of the company, executed such bond as surety. In February, 1877, the bill for injunction was dismissed, and in June, 1879, the decree of dismissal was affirmed by the Supreme Court of Illinois, and the injunction was definitively dissolved. Thereupon Holbrook sued Morrison on the injunction bond, and on the 30th of September, 1880, recovered judgment against him for the sum of ,965.

Prior to this time, in November, 1877, the trust company declared the principal of the bonds due and filed a bill in the court below to have a receiver appointed and the mortgage foreclosed. Henry W. Smithers was appointed receiver, with power to operate the road and equip it and keep it in repair and to pay all amounts due and owing by the railroad company for labor or supplies that might have accrued in the operation and maintenance of the railroad property within six months immediately preceding. The receiver, on taking possession of the property, found a number of suits against the company pending on appeal, and claims for protection on the part of those who had become sureties on the appeal bonds, and on the 29th of December, 1877, he presented a petition to the court asking its advice and instruction in regard to said bonds and whether he should protect the sureties in the event of adverse decisions in any of the cases. He stated the fact that such appeal bonds were given by some of the officers of said railroad company, with others as sureties, in order to protect the rolling stock or other personal property of said railroad company from levy or sale under execution pending the determination of the appeals, in each of which cases execution on the judgment or decree was either levied on personal property of said railroad company or the levy thereof threatened at the time of taking the appeal and giving the bond. He mentioned the Holbrook case in particular, which was then pending before

Page 125 U. S. 595

the Supreme Court of Illinois on appeal, and called attention to the injunction bond given in that case, and he expressed...