Smith v. McCullough (104 U.S. 25)

APPEAL from the Circuit Court of the United States for the Western District of Missouri.

The case here presented is an outgrowth of a suit instituted in the court below for the foreclosure of a mortgage executed on the first day of April, 1872, to the Farmers' Loan and Trust Company, by the Burlington and Southwestern Railway Company, to secure the payment of certain bonds issued by the latter. A decree of foreclosure having passed, Elijah Smith, the receiver in that suit, filed his petition therein (to which Warren McCullough and other persons were made defendants), asserting his right, as such receiver, to certain county bonds of the par value of $40,000 (or their proceeds), constituting the last instalment of an issue of $200,000 by Sullivan County, Missouri, in payment of its subscription made in 1871 in aid of the construction of the Linneus Branch of the Burlington and Southwestern Railway. The entire issue, conformably to the contract of subscription, was originally deposited in the hands of McCullough, as trustee for the county and the railway company, with authority to deliver them in instalments of $40,000, as the work of construction progressed. By the terms of that contract the railway company was entitled to receive the last instalment when the branch road, with the iron and rolling-stock thereon, was completed and paid for by the company. Prior to Smith's appointment as receiver, all the bonds had been delivered except $40,000, which the railway company had not earned, and which, by reason of its insolvency, it had, as is now claimed, become unable to earn.

It appears that in the year 1874 sundry creditors of the railway company, in order to recover the amount of their respective claims, commenced actions against it in the courts of the State, and sued out attachments, which were served upon McCullough, who was summoned in each action as a garnishee. The attaching creditors, in 1876, obtained final judgments for the sale of those bonds, and for the application of the proceeds to satisfy their respective judgments. In some of the cases the garnishee proceedings were brought to a conclusion the day before Smith filed his petition in the foreclosure suit asserting a claim to the bonds as against the creditors of the company. And it may be remarked as to all of those actions that he, although not made a party thereto, was informed of the proceedings by garnishment. But he did not appear in the State courts, although the order appointing him receiver authorized him 'to prosecute and defend all suits, in law or in equity, in which the interests of the property or parties were involved.'

The case made in his pleadings and proofs proceeds mainly upon these grounds: 1. That the mortgage of the railroad company embraced the bonds in question, and that consequently the claims of the creditors of the mortgagor were subordinate to the rights of the mortgagee. 2. That after the railway company had forfeited all right to the remaining bonds, by reason of its failure to complete the branch road within the time prescribed by the contract of subscription, he made an arrangement with the County Court of Sullivan County, whereby, in consideration of the completion by him of the branch road, he, as receiver, became entitled to the $40,000 of bonds remaining in the hands of McCullough. 3. That all the proceedings in the courts of the State under which the bonds were sold were without validity or binding force as against him.

Smith's bill was dismissed, and he thereupon appealed.

Mr. L. T. Hatfield for the appellant.

Mr. John P. Butler and Mr. A. W. Mullins, contra.

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