Milwaukee & Minnesota Railroad Co. and Fleming v. Soutter (69 U.S. 510)

BRONSON and Soutter had filed a bill in the Circuit Court for Wisconsin, against the La Crosse and Milwaukie Railroad Company, to foreclose a mortgage given by the said company to them to secure bonds to the extent of one million of dollars, which that company had put into circulation, and the interest to a large amount on which was due and unpaid. To this bill the Milwaukie and Minnesota Railroad Company-a company which, on a sale under a mortgage junior to that of Bronson and Soutter, was organized, and became, under the laws of Wisconsin, successor in title and interest to the La Crosse and Milwaukie Company, and also three other persons, one named Sebre Howard-were made or became defendants, and opposed the prayer for foreclosure. They alleged that the bonds which the mortgage to Bronson and Soutter had been given to secure, had been sold, transferred or negotiated at grossly inadequate prices, fraudulently in fact, and were not held for full value by these persons, who sought by the foreclosure to recover their par. The court below, being of this opinion, gave a decree in that suit to the extent of but fifty cents on the dollar. Coming here by appeal at the last term, the decree, after an animated, protracted, and very able argument in support of it by Mr. Carpenter, in behalf of numerous parties interested, was reversed, and a decree ordered to be entered below for the full amount, cent for cent. The suit, at the time of the decree here, had been pending for four years. The mandate from this court ran thus:

'It is ordered that this cause be remanded to the Circuit Court of the United States for the District of Wisconsin, with directions to enter a decree for all the interest due and secured by the mortgage, with costs; that the court ascertain the amount of moneys in the hands of the receiver or receivers from the earnings of the road covered by the mortgage, which may be applicable to the discharge of the interest, and apply it to the same; and that if the moneys thus applied are not sufficient to discharge the interest due on the first day of March, 1864, then to ascertain the balance remaining due at that date. And in case such balance is not paid within one year from the date of the order of the court ascertaining it, then an order shall be entered directing a sale of the mortgaged premises.'

Upon the filing of this mandate in the court below, the receiver was ordered to make report of the funds in his hands; from which it appeared that he had some $50,000 to $60,000 applicable to the payment of the interest on the bonds in suit.

The Milwaukie and Minnesota Railroad Company, who, as already stated, was an incumbrancer on the road, junior to Bronson and Soutter, insisted that instead of this small amount, there was really, or ought to be, in the receiver's hands, between $300,000 and $400,000 applicable to the payment of interest; and asked an order of reference to a master, with instructions to hear testimony, and ascertain and report on this claim. The court made the order, and postponed further action in the case, until the succeeding term in September. At that term it was ascertained that the master would be unable to report on the complicated accounts of the receiver, involving several millions of dollars; and the receiver was again ordered to report the funds actually in his hands. From this second report, it appeared, that he had no money properly applicable to the payment of the debt of Bronson and Soutter, and thereupon the court proceeded to ascertain the amount of interest due on the bonds secured by their mortgage, and entered a decree accordingly, giving the defendant a year to pay it, before a sale of the mortgaged premises.

From this decree the Milwaukie and Minnesota Railroad Company, the already mentioned successors in title and interest to the La Crosse and Milwaukie Railroad Company, appealed; the first ground assigned for their appeal being that the decree was a departure from the mandate of the court, because such decree should not have been rendered until the accounts of the receiver were adjusted, and it was judicially ascertained how much of the millions he had received ought now to be applied to the payment of complainants' interest.

But another matter was now presented here.

At the first term of the court below, after the mandate was filed, the Milwaukie and Minnesota Railroad Company proposed to pay all the interest due on the mortgage of Bronson and Soutter, on condition that an order should be made, discharging the receiver, and placing the road and its appurtenances in the possession of them, the Milwaukie Company, just named. Upon the hearing of this petition, the judges of the Circuit Court were divided in opinion, and the application so, necessarily, refused.

The amount of Bronson and Soutter's debt, above mentioned, exclusive of interest, which the Milwaukie and Minnesota Railroad Company proposed to pay, was one million of dollars; and this, added to twelve hundred thousand dollars of prior mortgages, made two millions two hundred thousand dollars, which the road and its appurtenances would have to be worth, in order to secure the debt of Bronson and Soutter. The road on which the mortgage was a lien is ninety-five miles, and runs from Milwaukie to Portage, besides the depots, rolling stock, and other appurtenances belonging to it. It was in good condition. It constitutes a part of the direct line from Milwaukie to the Mississippi, and is one of the valuable railroads of the United States. The gross earnings from this ninety-five miles for the year preceding the application to discharge the receiver, as shown by his reports, were about eight hundred thousand dollars; though the reports showed a large falling off in the receiver's receipts of later time.

In addition to the opposition made to this motion by Bronson and Soutter, it was opposed by one Sebre Howard, who, with the Milwaukie and Minnesota Railroad Company, had been a defendant to their bill, and on whose motion the receiver had been appointed. Howard objected to the discharge, because, as alleged, he had a judgment of $16,000 against the La Crosse and Milwaukie Railroad Company, which he asserted to be a lien on the road; though whether it was so or not, depended on some questions of fact and law, not perhaps quite clear. This court, assuming a certain state of facts, decided that he had; but it was said that facts had not been well explained to the court.

One Selah Chamberlain, too, opposed it; objecting to the discharge of the receiver, and particularly to delivering the property into possession of appellants, because, as he asserted, he himself was holder of a lien of over $700,000 in the road, and because that lien, according to his view, was secured by a lease which entitled him to the possession of the road. This same Chamberlain had been in possession under his lease for some time prior to the appointment of the receiver, under a contract with the La Crosse and Milwaukie Railroad Company, by which he bound himself to keep down the interest on the various mortgages on the road, including the one on which Bronson and Soutter had filed their bill. This he had failed to do, and he had actually abandoned the possession to the Milwaukie and Minnesota Company, who were in possession at the time the receiver was appointed. His judgment on a suit by the complainants had been assailed, and as it seemed, though counsel denied this view, declared to be fraudulent and void, by a decree of the District Court of the United States; but that question was not finally determined.

A third railroad company, called the Milwaukie and St. Paul Company, a rival company of the Milwaukie and Minnesota, whose relation to it will appear in the diagram below, also opposed the discharge.

This company was an organization created after the litigation already mentioned, as brought about by the proceedings of Bronson and Soutter to foreclose their mortgage, had commenced. It was no party to preceding suits. It owned the western end of the La Crosse and Milwaukie Railroad; that is to say, the road from Portage to La Crosse (one hundred and five miles), and was organized for the purpose of working a road, as its name imports, from Milwaukie to St. Paul; of course, the ownership and control of an eastern end was indispensable to the purpose. This company had procured, in June, 1863, an order from the District Court, that the receiver should deliver to them the eastern end of this road, and all its appurtenances, and they had used them from that day. This court, however, subsequently declared the proceeding of the District Court to have been without jurisdiction, and the order a usurpation of authority. The interest of this third company was, of course, of a strong character, for the necessities of their situation required that they should own an eastern end of the road, to complete their line from Milwaukie, one great terminus of the road to St. Paul.

Mr. Carpenter, for the appellants.

1. The proceedings had in the court below, by which the amount due on the bonds secured by the mortgage to Bronson and Soutter was ascertained and a decree entered, was not according to the direction of the mandate. The decree, indeed, gave the year to pay; but this, and all else that was done, was ordered before and without ascertaining what sum was in the receiver's hands. Now, the authority of the inferior court extends only to executing the mandate sent it. They cannot vary it, or give any other or further relief. Under that mandate the court was bound 'to ascertain the amount of moneys in the hands of the receiver,' and its authority to order a sale arose only 'IF' the amount was not sufficient to discharge the interest.

2. The appellants complain of the denial of their petition to the Circuit Court, since the cause was remanded, for leave to pay into court all the money due the complainants in this cause, and for possession of the mortgaged premises.

It is admitted that this order is not such as might be appealed from before a final decree. But, when an appeal is properly taken from a final decree, as it has been decided that the present one is, the appellant may be relieved from any interlocutory order or proceeding by which he is aggrieved. The continuance of the receivership until the final decree, or until the amount due the complainants is paid into court, is matter of discretion, and not reviewable here. But after the amount due the complainant had been fixed by a final decree, as that also has been this court, and the owner of the equity of redemption offered to pay that amount into court, the discharge of the receiver was demandable as a matter of right; and its refusal was error, which can be reviewed here.

The Milwaukie and Minnesota Railroad Company was owner of the equity of redemption. As such, it had the right to redeem all prior incumbrances, and the foreclosure under which it was organized extinguished all liens of a date subsequent to that of the mortgage, on the foreclosure of which it came into existence. It was, therefore, entitled to possession, unless some other person could show better right thereto.

Howard's lien was declared by this court to be extinguished. The language of the Supreme Court is this:

'Now it appears that each of these judgments were recovered after the date of the mortgage on the La Crosse and Milwaukie Company, upon the foreclosure of which the Milwaukie and Minnesota Company was formed. The liens of these judgments were cut off by its foreclosure; indeed, the judgment of Howard, of November, 1858, and the last judgment of Graham and Scott, which was recovered in 1860, never were liens upon any interest in the road of the La Crosse and Milwaukie Railroad Company.'

It will be said that this opinion was delivered under a mistake of fact. Perhaps it was so, and perhaps, in a proper proceeding in his case, it may be found that Howard has a valid subsisting lien; but, on this motion, we must consider the presumption to be the other way, and act accordingly.

Chamberlain's opposition demands more respect. He claimed possession under his lease and judgment, which, the case shows, had been vacated by the decree of the District Court. This decree may be erroneous, but cannot be questioned collaterally. It was rendered in a cause in which the complainant, as a judgment creditor, sought to vacate the lease and judgment.

The opposition of the Milwaukie and St. Paul Railroad has no foundation except in selfish interest. The motives of that company to keep the road out of the hands of its true owners, and in the hands of a receiver, interested in his commissions chiefly, are obvious when the topographical position of the rival companies is seen. It is a case where pecuniary motive is as strong as better reasons are weak.

Messrs. Cary and Carlisle, contra.

1. The mandate has been as well observed as in the nature of the difficulties it could be. The obligation of an inferior court to obey the order sent it, is not to be followed to the extent of sacrificing the spirit of the order to its letter.

The denying the appellant's motion to have the receiver pay the money in his hands into court, to discharge him, and to hand the road over to the Milwaukie and Minnesota Company, is so clearly a matter pertaining to the practice of the court below, and so entirely within the discretion of that court, that we have been surprised to hear counsel of Mr. Carpenter's ability, and regard to what positions he asserts, insist upon his right to appeal from it. Such matters must be left to discretion, if such a think as discretion is to exist in an inferior court at all. But if this court will consider a matter in which, from the nature of the case, we think it has no good opportunity to form a judgment, then we say that both the judgment of Howard and the claim of Chamberlain should control the question. The receiver was appointed on Howard's motion. This court has, indeed, said that his lien was discharged. Undoubtedly this idea proceeds on a misapprehension of fact. Howard's judgment in the State court against the La Crosse Company was recovered on the 1st day of May, 1858, and became a lien prior to the mortgage under which the Milwaukie and Minnesota Company sprung. This judgment was 'sued over' in the Federal court, and judgment obtained there November 28th, 1859; but the record, of course, discloses the original lien of his judgment. The opinion of this court mentions the Howard judgment in the Federal court, but makes no mention of the judgment in the State court upon which the judgment of the Federal court was founded. Suing over in the Federal court did not extinguish its lien.

Chamberlain or Howard-if anybody but the present receiver should have the road. Chamberlain was a judgment creditor and a lessee of the road. Counsel insist that the effect of that decree in the District Court was to vacate and annul the judgment and lease as to all the world, and that they are now of no force or effect, as between the parties thereto. But such, we apprehend, is not the effect in law. The effect of that decree was but to postpone the lease to the judgment of another party. The Milwaukie and Minnesota Company can claim no advantage from it.

The attack on the Milwaukie and St. Paul Railroad Company is gratuitous wholly. Legal rights are not to be denied it, merely because the granting of those rights are necessary to its interests and would greatly promote them. Yet this, in effect, is the argument of the other side.

Mr. Justice MILLER delivered the opinion of the court.