Milwaukee Railway Company v. Brooks Locomotive Works/Opinion of the Court

The Brooks Locomotive Works on Nobember 30, 1875, recovered a judgment against the Milwaukee & Northern Railway Company for the sum of $15,368.72, with interest and costs, in the circuit court of the United States for the Eastern district of Wisconsin. Execution thereon having been returned not satisfied, and the judgment being otherwise unpaid and still in force, on July 7, 1879, the plaintiff below filed what, under the laws of Wisconsin regulating the practice such cases, is called, an affidavit of garnishment; in which it was alleged that the defendant the Milwaukee & Northern Railway Company had not property liable to execution sufficient to satisfy the plaintiff's demand, and that the Wisconsin Central Railroad Company, a corporation of the state of Wisconsin, and Charles L. Colby, Edwin H. Abbot, and John A. Stewart, were indebted to or had property, real or personal, in their possession or under their control, belonging to the defendant in said execution. Summons was accordingly issued, pursuant to said affidavit, against the garnishees, and served on the Wisconsin Central Railroad Company, C. L. Colby, and Ed win H. Abbot, as well as upon the defendant the Milwaukee & Northern Railway Company. The defendants filed answers, Edwin H. Abbot answering under oath for himself and John A. Stewart, a citizen of New York, jointly. In this answer, Stewart and Abbot set out particularly the circumstances under which they allege that they hold the sum of $28,258.44 as an amount due from them as trustees for the mortgage bondholders of the Wisconsin Central Railroad Company, for the use and occupation of the railroad of the Milwaukee & Northern Railway Company while operated by them as such trustees; and, being in doubt as to whether the facts stated cast any liability upon them as garnishees, sumbit the question of their liability to the court. The other garnishees in their answers deny any indebtedness to the Milwaukee & Northern Railway Company.

The cause, having come on for trial upon these issues, was submitted to the court, the intervention of a jury being duly waived. The findings of fact and conclusions of law are as follows:

'First. That on the thirtieth day of November, 1875, the     plaintiff above named duly recovered a judgment in this court      against the Milwaukee & Northern Railway Company, defendant      herein, for the sum of $15,368.72, damages and costs; that      said judgment is still full force, and wholly unpaid and      unsatisfied; that there is now due thereon, from said defendant the Milwaukee & Northern Railway Company, to said      plaintiff, the said sum of $15,368,72, with interest at the      rate of seven per cent. per annum from the thirtieth day of     November, 1875, amounting at this date to the sum of      $23,410.40, and that said judgment was rendered upon certain      promissory notes given by said company to the plaintiff upon      the sale of an engine furnished for its railroad on the sixth      day of September, 1873; that an alias execution was duly      issued out of and under the seal of this court to the marshal      of the Eastern district of Wisconsin upon said judgment on      the seventh day of July, 1879, and while the same was in the      hands of the said marshal, and wholly unsatisfied, and before      the return-day thereof, to-wit, on the seventh day of July,      1879, this action was commenced, by due service of the      garnishee affidavit and summons herein, upon the said      defendant, and upon the garnishees named in the title of this      cause.

'Second. That the Wisconsin Central Railroad Company was, at     said lastnamed date, and for many years prior thereto had      been, and at all times hereinafter mentioned was, a      corporation created by and under the laws of the state of      Wisconsin, and owned and operated a railroad from Menasha, in      the state of Wisconsin, to Ashland, on Lake Superior, in said      state; that the defendant the Milwaukee & Northern Railway      Company way during said times a corporation created by and      under the laws of the state of Wisconsin, and owned a certain      main line of railway extending from the city of Milwaukee, in      the state of Wisconsin, to the city of Green Bay, in said      state, and a spur line from Hilbert Junction, on said main      line, to Menasha aforesaid; that the said Wisconsin Central      Railroad Company, on the first day of July, 1871, mortgaged      its line of railway aforesaid to secure certain bonds therein      mentioned, which mortgage was in the usual form of railway      mortgages, and authorized the trustees, upon default, to take      possession of said railway, and that at all times hereinafter      mentioned the defendants John A. Stewart and Edwin H. Abbot      were the trustees under said mortgage.

'Third. That the Milwaukee & Northern Railway Company, prior     to the times hereinafter mentioned, had duly mortgaged its said line of railway to secure its bonds, in the      usual form of railway mortgages, with authority upon the part      of the trustees in said mortgage named to take possession of      said railway upon default in the payment of the principal or      interest of the bonds thereby secured, and that at the times      hereinafter mentioned Jesse Hoyt and A. Warren Greenleaf were      the trustees in said mortgage named, a copy of which mortgage      is hereto annexed, marked 'Exhibit A.'

'Fourth. That on the ninth day of November, 1873, the     Milwaukee & Northern Railway Company leased to the Wisconsin      Central Railroad Company its line of railway and      appurtenances, motive power and rolling stock, railroad      materials and supplies of every description, for the term of      999 years from and after November 30, 1873, a copy of which      lease is hereto annexed, marked 'Exhibit B;' that by      supplemental agreements to said lease, of which 'Exhibit C      and D,' hereto annexed, are copies, Jesse Hoyt was      substituted as trustee in the place of the Wisconsin Marine &      Fire Insurance Company Bank, and that said lease was on or      about January 8, 1878, by said Milwaukee & Northern Railway      Company assigned to Jesse Hoyt and A. Warren Greenleaf,      trustees under said mortgage, of which the Wisconsin Central      Railway Company had notice, copies of which assignment and      notice are hereto annexed, marked 'Exhibits E and F;' that      the Wisconsin Central Railway Company entered into possession      of said road under said lease, and continued therein until      the garnishees herein, Stewart and Abbot, took possession of      said railway in January, 1879, and said company paid rent      under said lease.

'Fifth. That, at the times herein mentioned, Jesse Hoyt was     the president of the Milwaukee & Northern Railway Company,      and Angus Smith was the vice-president thereof.

'Sixth. That on the ninth day of January, 1875, a foreclosure     of the mortgage made by the Milwaukee & Northern Railway      Company was commenced in this court by Jesse Hoyt, surviving      trustee, against the Milwaukee & Northern Railway Company and      the Wisconsin Central Railway Company, defendants, but that      no receiver was appointed therein until the twenty-eighth day of April, 1879, on which day the said      court, by consent of the parties t  said suit, made an order      annulling such lease, and appointing James C. Spencer      receiver, who qualified as such receiver on the fifth day of      May, 1879, a copy of which order is hereto annexed, marked      'Exhibit G,' and that said trustees had never taken      possession of said railroad and property under said mortgage,      nor claimed so to do, until the appointment of said receiver.

'Seventh. That on the twelfth day of October, 1875, one James     Ludington recovered a judgment at law, in the circuit court      of the state of Wisconsin for the county of Milwaukee,      against the Milwaukee & Northern Railway Company, and on the      fifteenth day of November, 1875, caused an execution to be      issued thereon, which was returned nulla bona on the      eighteenth day of January, 1876, which judgment was rendered      upon default, and without any appearance of the defendant      therein, and the process commencing said action was served      only upon Guido Pfister, a director of said company, and upon      no other officer or person.

'Eighth. That on the seventeenth day of November, 1875, the     said James Ludington filed a bill in equity in said circuit      court for the county of Milwaukee founded upon his said      judgment at law, and on the twenty-seventh day of December,      1875, obtained a decree therein, directing the sale of the      railroad of the Milwaukee & Northern Railway Company      thereunder; that on the fourth day of March, 1876, under said      decree, the sheriff of the county of Milwaukee sold said      railroad to Guido Pfister, and on the twenty-ninth day of      March, 1876, executed a deed thereof to him, but did not make      a report of the sale to the court until January 30, 1880, and      said sale was confirmed by the court on the ninth day of      February, 1880, and that the sheriff's deed to Guido Pfister,      was recorded in the office of the register of deeds of the      county of Milwaukee on the twenty-sixth day of February,      1880, but said Pfister never took or claimed possession under      said deed.

'Ninth. On the fourth day of January, 1879, the defendants     John A. Stewart and Edwin H. Abbot, as trustees under the      mortgage of the Wisconsin Central Railroad Company, said company having theretofore made default under said mortgage,      and then being so in default, duly took possession of said      Wisconsin Central Railroad under the said mortgage, and also      took possession of the Milwaukee & Northern Railway, and      thereupon notified the Milwaukee & Northern Railway Company      and Jesse Hoyt, trustee of the mortgage of said company, and      trustee under its said lease to the Wisconsin Central      Railroad Company, and as assignee of said lease, of the      taking of such possession of the Milwaukee & Northern      Railway, and notifying that they declined to assume, affirm,      or in any way ratify the lease thereof to the Wisconsin      Central Railroad Company, and notifying that, unless said      parties notified should otherwise elect, they would continue      to operate said Milwaukee & Northern Railway temporarily, and      for such compensation as that sevice might fairly be worth,      and requesting a personal interview to ascertain their      wishes, and with a view to a more permanent arrangement, and      offering to submit to the parties in interest any proposition      which could be jointly recommended with reference to the      future possession of said railway, of which notice Exhibit H,      hereto annexed, is a copy; that the said Milwaukee & Northern      Railway Company, or Jesse Hoyt, as president or as trustee,      or as assignee of said lease, did not, nor did either of      them, in any way object to the possession of said railroad by      said Stewart and Abbot, or give any attention to said notice      until the commencement of negotiations in March, 1879, but      said Stewart and Abbot continued to use and operate the      Milwaukee & Northern Railway without further arrangement or      agreement, and without any objection by any of the parties to      this proceeding, and with the acquiescence of the Wisconsin      Central Railroad Company, but without any assignment of the      lease, until the first day of May, 1879, and until the lease      r om the receiver as hereinafter found; and said Milwaukee &      Northern Railway Company and said Jesse Hoyt, shortly before      the first day of May, 1879, in the presence and with the      concurrence of all others interested, including the Wisconsin      Central Railroad Company, had negotiations with them which      culminated in an arrangement by which a receiver of the Milwaukee & Northern Railway was appointed in the      foreclosure suit, as hereinbefore found; that said Stewart      and Abbot then entered into a lease with said receiver of      said Milwaukee & Northern Railway for a certain term      commencing on the first day of May, 1879; that on or about      the twenty-third day of July, 1879, after the service of the      garnishee affidavit and summons herein, it was arranged and      agreed between said Stewart and Abbot, trustees, on the one      part, and Jesse Hoyt, as trustee and assignee, upon the other      part, that the sum of $28,258.44 was the amount properly      payable by the said Stewart and Abbot as trustees to the      party lawfully entitled to receive the same out of the moneys      received by said trustees from the operation of the Milwaukee      & Northern Railway from January 3, 1879, to May 1, 1879, and      for the use thereof, which amount was a less sum than would      have been coming by the terms of the lease to the Wisconsin      Central Railroad, and that thereupon said Stewart and Abbot      paid to said Jesse Hoyt, as such trustee and assignee, the      said sum of money upon receiving a bond of indemnity executed      by Ephraim Mariner, Guido Pfister, and Angus Smith,      indemnifying them against this suit by reason of such      payment, copies of which agreement of accounting and bond of      indemnity are hereto annexed, marked 'Exhibits I and J.'

'Tenth. That on the eighth day of March, 1880, an order was     made in the foreclosure suit of the mortgage of the Milwaukee      & Northern Railway Company for the sale of said railroad,      which sale took place on the fifth day of June, 1880, and was      sold to Ephraim Mariner and Guido Pfister as trustees for the      holders of the bonds under said mortgage; that on the ninth      day of June the report of said sale was filed, and was      confirmed by the court, and that thereafter, on the third day      of July, 1880, the final report of the receiver was filed,      asking for a discharge, and said report was confirmed on the      fifth day of July, 1880.

'Eleventh. That from January 3, 1879, to May 1, 1879, the     said Stewart and Abbot were not in possession of or operating      said Milwaukee & Northern Railway under any lease whatever between them and James C. Spencer as receiver of the      Milwaukee & Northern Railway, as claimed in the answer of the      principal defendant herein, nor was the indebtedness of said      garnishees for the use and occupation of said railroad during      said period owing by them to said James C. Spencer, receiver.

'CONCLUSIONS OF LAW.

'The contention in this case being as to who was entitled to     the sum of $28,258.44, agreed upon as the fair compensation      for the use of the Milwaukee & Northern Railway from January      3 to May 1, 1879, we find:

'First. That it did not belong to, and cannot be rightfully     claimed by, the receiver appointed in the foreclosure suit of      the mortgage on the Milwaukee & Northern Railway, for the      reason that he was not qualified as receiver until a      subsequent date, and had never reduced the property to      possession, and was only receiver of the mortgaged property.

'Second. That said fund did not belong to the Wisconsin     Central Railroad Company, because such occupation and      operation of the road by Stewart and Abbot, trustees, were      with its acquiesoence, and it is upon record in this cause as      denying all indebtedness to the principal defendant herein,      and makes no claim to said fund.

'Third. That said fund did not belong to Jesse Hoyt as     trustee under said mortgage, because said trustee had not      taken possession of said railroad, and was not entitled to      the income thereof; that it did not belong to said Jesse Hoyt      as trustee under said lease, or as assigne  of said lease,      because the occupation and operation of said road by Stewart      and Abbot, trustees, was not under said lease, but in      defiance thereof and in opposition thereto.

'Fourth. That said sum was, at the time of the garnishee     proceedings herein, the property of the Milwaukee & Northern      Railway Company, and was liable to be taken and attached for      the debts due by said company; that the plaintiff, by virtue      of the garnishee proceedings herein upon Stewart and Abbot,      trustees, acquired a lawful claim and lien upon said fund to the extent of the plaintiff's judgment and debt against said      company, and that at the time of said garnishment the said      John A. Stewart and Edwin H. Abbot had in their hands      belonging to the defendant, the Milwaukee & Northern Railway      Company, and were indebted to and owed said company for the      use and occupation by said Stewart and Abbot of the railway      of said company from January 3 to May 1, 1879, the sum of      $28,258.44, and that the plaintiff is entitled to judgment      against said Stewart and Abbott for the said amount due upon      its judgment, to-wit, the sum of $23,410.40; that, as to the      garnishees the Wisconsin Central Railroad Company and Charles      L. Colby, this action should be dismissed.

'Let judgment be entered herein in favor of the plaintiff     against John A. Stewart and Edwin H. Abbot for the sum of      $23,410.40, with costs to be taxed.

'Dated May 21, 1883.

JOHN M. HARLAN, Circuit Justice.

'CHAS. E. DYER, Dist. Judge.'

Judgment having been entered for the plaintiff below, separate writs of error have been prosecuted by the Milwaukee & Northern Railway Company and by Stewart and Abbot.

The main contest in the case is between the plaintiff and Jesse Hoyt. If the fund in the hands of the garnishees Stewart and Abbot, belongs to the Milwaukee & Northern Railway Company, the plaintiff is entitled to subject it to the payment of his judgment; otherwise not. Hoyt's claim is that Stewart and Abbot, as trustees of the Wisconsin Central Railroad Company, were in possession of the Milwaukee & Northern Railway under a lease of that road to the Wisconsin Central Railroad Company, and are indebted to him, as trustee under that lease and as assignee of the lease, for the rent accruing under it, represented by the fund in their hands. The lease was executed on November 8, 1873, and was for the term of 999 years from that date. It stipulated that the Wisconsin Central Railroad Company, the lessee, should pay as rent a certain proportion of the gross earnings received from the demised road, installments of which were to be paid months to such trustee as should be, from time to time, jointly selected by the parties, 'upon the trust to keep the same until the next installment of interest is due upon the bonds issued by the first party under their first mortgage, and then to apply the same, or so much thereof as shall be necessary, to the payment of said interest when and as payable, and, if any surplus remain after payment of said interest, to pay the same to the first party, its successors and assigns, unless said surplus, or some part thereof, is due to the second party for advances, as is hereinafter provided, made to or for the benefit of the first party to pay said interest, and if said surplus, or any part thereof, is so due, then to said second party, as hereinafter provided, so much as is due for said advances and interest.'

The Wisconsin Marine & Fire Insurance Company Bank was appointed trustee under the lease. By a supplemental agreement, made June 1, 1875, between the parties, the lease was modified so that the rent reserved for the three years from June 1, 1875, should be 40 per cent. of the gross earnings received from the demised premises, and after that so much as was necessary to pay the interest coupons of the Milwaukee & Northern Railroad Company, not to exceed 40 per cent. of the gross earnings. Under that modified lease, Jesse Hoyt was appointed temporary trustee, in place of the Wisconsin a rine & Fire Insurance Company Bank, for the period of 12 months, which appointment was continued by a further agreement made October 10, 1876.

On January 7, 1878, the Milwaukee & Northern Railway Company made a written assignment to Jesse Hoyt, and A. Warren Greenleaf, trustees of the mortgage given to secure its bonds, of the lease of the Milwaukee & Northern Railway to the Wisconsin Central Railroad Company, and of all the covenants therein contained, and of all moneys due or to grow due thereon, upon the same trusts, however, as were expressed in the trust deed executed by the Milwaukee & Northern Railway Company to Hoyt and Greenleaf as security for the first mortgage bonds of said company. On the following day a written notice, signed by Hoyt and Greenleaf, was served upon the Wisconsin Central Railroad Company of the fact of such assignment, and directing that company to pay the rent to Jesse Hoyt as theretofore; 'such assignment being intended merely as further security for said bonds, and not to disturb the relations of the parties to such lease and modifications.' In the mean time, as appears by the sixth finding of facts, Jesse Hoyt, as surviving trustee under the mortgage made by the Milwaukee & Northern Railway Company, had commenced proceedings to foreclose the mortgage, the Wisconsin Central Railroad Company being a defendant thereto, which proceedings were pending when the garnishees Stewart and Abbot, as trustees under the mortgage of the Wisconsin Central Railroad Company, entered into possession of the property of that company, and also took possession of and operated the Milwaukee & Northern Railroad, under the circumstances stated in the ninth finding of facts.

It is now contended, in opposition to the third conclusion of law drawn by the circuit court, that, upon the facts found, the garnishees Stewart and Abbot took possession of the Milwaukee & Northern Railway under the lease of that road to the Wisconsin Central Railroad Company, and became bound thereby to pay rent therefor to Hoyt, as trustee under said lease, or as assignee of said lease. Hoyt is not a party to this proceeding, but it is competent for Stewart and Abbot, as garnishees, to represent his rights in their own defense; for, if in law they are liable to Hoyt, they are not liable to the present defendant in error, and in protecting their own interests it is proper for them to assert the right of Hoyt if they are in law liable to him.

There are, however, two answers to the claim put forward on behalf of Hoyt. If the rent of the Milwaukee & Northern Railway is payable to him, either as trustee under the lease or as assignee of the lease, it is not due to him in his own right, but merely for the purposes and upon the trusts expressed either in the lease or in the assignment. Those purposes and trusts were to apply the rents to be received by him to the payment of the interest coupons, as they became due, upon the mortgage bonds of the Milwaukee & Northern Railway Company secured by the mortgage to him; but it nowhere appears in the record that there are any coupons in arrears to which this rent could be applied, and in that event the rent is payable to the Milwaukee & Northern Railway Company as lessor beneficially interested. It in fact appears by the tenth finding that pending this suit, and before its trial, the Milwaukee & Northern Railway was sold under the proceedings to foreclose the mortgage of which Hoyt was the surviving trustee, to trustees for the holders of the bonds under that mortgage, which sale has been duly confirmed by the court. It does not, therefore, appear but that, at the time of the trial of this case, all the bonds, with the interest thereon, of the Milwaukee & Northern Railway Company secured by the mortgage of which Hoyt was trustee, had been fully paid and satisfied. If so, Hoyt had no further interest under the lease, either as trustee or assignee, which entitles him to receive the fund in the hands of the garnishees for any puro se.

In the second place, however, it does not follow as a conclusion of law, from the ninth finding of facts, taken in connection with the other facts found, that Stewart and Abbot entered into possession of the railroad of the Milwaukee & Northern Railway Company under the lease of that road to the Wisconsin Central Railroad Company, and thereby became bound to pay the rent reserved therein. They were not assignees of the term of the Wisconsin Central Railroad Company under that lease. They were trustees of the mortgage given by the Wisconsin Central Railroad Company to them to secure its bonds, and entered into possession of its railroad by a title antedating the lease to it by the Milwaukee & Northern Railway Company. They were not, therefore, bound by the terms of that lease, and were under no obligations to undertake its burdens. They were not bound to take possession of the Milwaukee & Northern Railway. They did so merely as a matter of convenience to the parties interested in that road, and for their benefit. On doing so they gave explicit notice of the character of their possession. That notice, dated January 11, 1879, was addressed to Jesse Hoyt, as president of the Milwaukee & Northern Railway Company, and surviving trustee under its first mortgage and bonds, and trustee under the lease of its railroad to the Wisconsin Central Railroad Company, and assignee of said lease. In it they say:

'We beg to inform you that, on the third day of January current, we, trustees under and by virtue of the provisions of the first mortgage of the Wisconsin Central Railroad Company, entered upon and took possession of the property covered by that mortgage, and are now operating the Wisconsin Central Railroad. We find that the said company was operating the Milwaukee & Northern Railway under a lease. We are not sufficiently informed upon the subject to warrant us in assuming any obligation under that lease. We therefore notify you that we decline to assume, affirm, or in any way ratify that lease. We wish, however, not to interfere in any way with the welfare of that railway, and, unless you otherwise elect, will continue for the present to operate the same temporarily for such compensation as that service may be fairly worth, and as far as is necessary, but not in excess of its earnings, to repair the same as the Wisconsin Central Railroad Company was doing, and also to permit the business of the Wisconsin Central Railroad Company to be done as heretofore over that railway. We suggest that you arrange for an early personal interview with us, at which you will make known to us your wishes, and confer with a view to a more permanent arrangement. We are ready to submit to the parties in interest any proposition which yourself and we are jointly able to recommend.'

To this notice no answer appears to have been made, and Hoyt's silence, under the circumstances, may fairly be taken to be an acquiescence in the arrangement proposed by Stewart and Abbot. The proceedings on the part of Hoyt, as trustee under his mortgage, to foreclose that mortgage, were then pending, and the Wisconsin Central Railroad Company was a party to that suit. If Hoyt was not willing to accede to the terms proposed by Stewart and Abbot in that notice, in respect to the nature of their occupation and operation of the Milwaukee & Northern Railway, it was open to him to apply for the appointment of a receiver, as he subsequently did on May 5, 1879, or otherwise to take possession of the Milwaukee & Northern Rail way as trustee under the mortgage. The legitimate inference from his conduct is that which was drawn by the court below, which held, as matter of law deduced from the facts found, that the garnishees were not in possession of the Milwaukee & Northern Railway under the terms of the lease to the Wisconsin Central Railroad Company, and for the value of its use and occupation were not bound tate between Hoyt and them. Their obligation to pay for that use and occupation was to the cm pany that owned the road.

It is argued by the attorney for the plaintiff in error that there is another alternative by which it may be shown that the garnishees do not owe this fund to the Milwaukee & Northern Railway Company; that is, that Stewart and Abbot entered into possession of the Milwaukee & Northern Railway as subtenants thereof under the Wisconsin Central Railroad Company, the lessee, and are bound to pay rent as such to the latter company. But, as we have already seen, Stewart and Abbot entered into possession of the property of the Wisconsin Central Railroad Company itself adversely to it, as trustees under its mortgage, by a title antecedent to the date of the lease. Stewart and Abbot in no sense could be considered as accountable to the Wisconsin Central Railroad Company as tenants.

We find no error in the judgmant of the circuit court, and it is therefore affirmed.