Hammock v. Loan and Trust Company

APPEAL from the Circuit Court of the United States for the Southern District of Illinois.

To secure the payment of its bonds, aggregating the sum of $660,000, and issued for the purpose of raising money as well for its mining and manufacturing business, as for the complection and maintenance its road, the Chester and Tamaroa Coal and Railroad Company, an Illinois corporation, executed, on the twelfth day of April, 1871, a deed of trust containing such conditions and provisions as are usually inserted in railway mortgages. It embraced the entire road of the grantor, then made or thereafter to be constructed, from Chester, in Randolph County, to Tamaroa, in Perry County, together with the right of way, and all the real and personal property then owned or subsequently acquired, and used or appropriated for railroad purposes; also, its privileges and franchises for holding, operating, and maintaining the road, together with any income derived from the property, not applied to the construction and repair of the road, the conduct of the business of the company, its current expenses, or the purchase of equipments, tools, and machinery. Subsequently, the mortgagor company was consolidated with the Chester and Iron Mountain Railroad Company, the consolidated company taking the name of the Iron Mountain, Chester, and Eastern Railroad Company.

From the first day of October, 1874, until the fifth day of June, 1876, the railroad and other property included in the mortgage was in the possession of D. C. Barber, as receiver, in a creditor's suit instituted by one Maxwell in the Circuit Court of the United States for the Southern District of Illinois. On the last-named day, in conformity with a stipulation signed by the attorneys in that suit, Barber was discharged as receiver, without being required to render an account of his acts, and the bill of Maxwell was dismissed at his costs. The present transcript does not show the grounds upon which Barber was appointed receiver, perhaps for the reason, disclosed in an affidavit, that the bill filed by Maxwell was not to be found among the files of his suit.

On the day succeeding Barber's discharge as receiver, Hammock, assignee of two judgments (aggregating less than $1,000), with returns of no property, against the Iron Mountain, Chester, and Eastern Railroad Company, and suing in behalf of himself and such judgment creditors as might unite with him, presented his bill in equity to the judge of the Circuit Court of Perry County, Illinois, in vacation, 'at Chambers,' in Washington County, Illinois, praying the appointment of a receiver of the railroad company and its effects, with authority to hold and administer the same under the direction of the court, and out of the net income arising therefrom to pay the judgments held by complainant and others. The only grounds assigned in the bill for a receiver are, the indebtedness of the company, the returns against it of nulla bona, its insolvency, and its refusal to pay the judgments outstanding against it. The judge, without notice to the company, appointed Thomas M. Sams receiver, and made an order requiring the railroad company, its officers, servants, and agents, to deliver to him all of its property and effects of every kind, upon his presenting the certificate of the clerk of the court that he, Sams, had filed his bond as receiver, in the penal sum of $15,000, with certain named sureties (Barber, then recently the receiver in Maxwell's suit, being one of them), conditioned that he would account for all property and effects coming to his hands, as receiver, under the order and direction of the court. By the terms of the order, Sams was authorized to use and operate the railroad, and pay all expenses incurred in its operation as far back as Oct. 1, 1874, nearly two years prior to his appointment. The bill of Hammock, with the foregoing order indorsed thereon, was filed in the clerk's office on the 7th of June, 1876, and Sams, having executed the required bond, took possession of the railroad and all the property and effects of the company.

On the thirteenth day of June, 1876, the Farmers' Loan and Trust Company-without knowledge, as we infer from the record, of the suit in the State court-commenced proceedings in the court below for the foreclosure of the beforementioned mentioned mortgage, and to obtain a decree for the sale of all the property embraced by it, in satisfaction of the interest and principal of the bonds thereby secured, the whole amount of which had, under the terms of the mortgage, become due by reason of the continued default of the company in meeting the interest as it matured. The bill (verified under date of June 2, 1876) and the supplemental bill charged that the consolidated company was insolvent; that its entire property was inadequate for the payment of the mortgage debt; that divers persons, by defaults and collusions with Barber, late receiver, had obtained judgments against the company, and had levied, or were about to levy, upon its rolling-stock and other movable property, with the intent to deprive the trustee and those it represented of the benefit of their security; that the company itself was a party to that fraudulent collusion; that the bill of Maxwell had been dismissed, and Barber, as receiver, discharged, to the end that such levies might be made; that these facts had only then come to complainant's knowledge; and that, if time was taken to give notice of an application for an injunction and a receiver, great and irreparable loss would ensue to the trustee, and those whose interests it represented.

Upon the filing of the original and supplemental bill the Federal court appointed a receiver, with direction to take possession of the mortgaged property, and, at the same time, issued an injunction against judgment creditors interfering with or taking possession of it. A few days thereafter the Farmers's Loan and Trust Company filed in the office of the clerk of the Perry Circuit Court its petition to be made a party defendant in the suit of Hammock, also its answer and cross-bill therein, and its petition, accompanied by proper bond, for the removal of the suit into the Circuit Court of the United States. An application was subsequently made by the complainant to the judge of the State court, in vacation, to discharge Sams, as receiver, upon the ground, among others, that he was illegally appointed in the vacation of court. That motion was denied; and thereupon the company made an application, based upon the before-mentioned papers, to the judge, in vacation, to be admitted as a party to Hammock's suit. But in reference to that application the judge declined to take action, upon the ground that he could not legally do so in the vacation of his court.

On the nineteenth day of July, 1876, the Farmers' Loan and Trust Company, having filed a certified transcript of the proceedings in the Hammock suit, including copies of all the foregoing papers, moved the Federal court to take jurisdiction of that suit. That motion-Mr. Justice Davis and the district judge concurring-was sustained, and an order made that the Hammock suit proceed in that court as if originally commenced there, and be consolidated with the mortgage suit. It was further ordered that Sams surrender to the receiver of the Federal court all property in his hands, as receiver, and pay over all funds by him in that capacity collected. That order was immediately executed, and thenceforward the mortgaged property was in the actual and exclusive custody of the Federal court by its receiver.

At the November Term, 1876, of the State court a motion was made by Hammock to strike from the files of his suit the answer, cross-bill, and the petition for the removal of the cause, previously filed therein by the Farmers' Loan and Trust Company, upon the ground that they had been so filed without leave of court, and because that company was not a party to the suit. That motion was sustained on the fourth day of May, 1877, and all of those papers were stricken from the files.

Nothing occurred in the progress of the consolidated cause which need be referred to, except that the court, in response to a suggestion by the attorney-general of the State, and by consent of parties (all the judgment creditors interested in Hammock's suit having appeared, in some form, in the consolidated cause, saving, however, all questions as to the jurisdiction of the Federal court), an order was made, under which the receiver surrendered to county collectors the rolling-stock and personal property of the company in his hands to be levied on and sold. It was levied on and sold for State, county, school, and other taxes assessed in Randolph and Perry Counties upon the property in the receiver's hands for the years 1873 to 1876, inclusive. That portion sold in Randolph County brought $6,053.92, which after deducting costs of sale, satisfied in full the taxes due in that county on the real and personal estate of the railroad company, and all of the tax on its capital stock, except $999.93. The sale in Perry County netted the sum of $5,165, which satisfied in full the taxes due and collectible in that county on the company's real and personal estate, and all of the capital-stock tax, except $852.39.

A final decree was made on the eleventh day of January, 1878, for the sale of the mortgaged property, including the franchises of the company, as an entirety, to satisfy the principal and interest due on the bonds, then amounting to $940,625.40. The sale was directed to be made 'without appraisement and without reference, and not subject to any law or laws of Illinois allowing redemption from mortgage sales, but absolutely without redemption.' Henry C. Cole became the purchaser of the entire property at the sum of $50,000. The sale was subsequently confirmed and a deed made to the purchaser, who was let into possession on the twenty-sixth day of April, 1878.

On the seventeenth day of October, 1878, the Wabash, Chester, and Western Railroad Company, an Illinois corporation, to which had been conveyed by Cole, after the confirmation of his purchase, the railroad and other property sold under the foregoing decree, represented to the court below, by petition, that Hammock and other judgment creditors, parties to the consolidated cause, had then recently caused Sams, still pretending to be the legal receiver of the property sold in the foreclosure suit, to advertise the same for sale, without redemption, under an order or decree of the Perry Circuit Court, made in Mammock's suit after the execution of the final decree in the foreclosure suit, to wit, on the eleventh day of May, 1878; and that, unless restrained, such sale would be had in disregard of the decree of the Federal Court. Upon this petition a temporary injunction was issued, and Hammock, Sames, and others were required to show cause why they should not be attached for contempt of court.

Upon final hearing the temporary injunction of Oct. 17, 1878, was, by an order entered on the seventeenth day of Anuary, 1879, perpetuated, and Sams, Hammock, and their associates were enjoined from taking any steps in execution of the decree of the Circuit Court of Perry County, from selling any part of the railroad property theretofore sold under the decree of the court below, and from interfering with it in any manner.

The present transcript embraces two appeals, one from the several orders and the final decree under which the mortgaged property was sold, and the other from the final order or decree of Jan. 17, 1879.

The case was argued by Mr. James K. Edsall for the appellants, and by Mr. Robert E. Williams for the appellees.

MR. JUSTICE HARLAN, after stating the facts, delivered the opinion of the court.