60 F. 794 | 6th Cir. | 1894
(after stating the facts). 1. The first error assigned is in rejecting the amended answer tendered by the Columbia Finance & Trust Company on the 20th day of December, 1892, and in proceeding with the cause without requiring the Ken
The unquestioned general rule as to parties in chancery is that all parties who are interested in the controversy should be made parties to the cause in order that there may be an end of litigation. If the Kentucky Union Land Company, by the payment alleged to have been made by it, as guarantor, became thereby entitled to a lien upon the property of the railway company, through subrogation, then it would have been a proper party, as it would have been interested in the property proceeded against. It would, however, in no sense be an indispensable party, because it would not have been directly affected by a decree enforcing the liens held by the holders of the first and second mortgage bonds. Tbe distinction between a person directly interested in a controversy and directly affected by the decree, and one only indirectly affected by the decree, is well stated by Mr. Justice Bradley in the case of Williams v. Bankhead, 19 Wall. 571. We do not think that the Kentucky Union Land Company was an indispensable, or even a proper, party. It had made, at most, but a partial payment on account of its liability as guarantor. The rights of the. creditor in the mortgaged property had not been extinguished by a payment of the whole debt. The payment of the whole debt for which the surety is liable is essential to subrogation. If the surety, upon making a partial payment, became entitled to subrogation pro tanto, and thereby became entitled to the position of an assignee of the property to the extent of such payment, it would operate to place such surety upon a footing of equality with the holders of the unpaid part of the debt, and, in case the property was insufficient to pay the remainder of the debt for which the guarantor was bound, the loss would logically fall proportionately upon the creditor and upon the surety. Such a result would be grossly inequitable. Yet this is in effect the result of the contention urged. The equity of subrogation does not arise from the mere obligation to pay; it springs alone from payment. The liability of the surety for the remainder of the debt continued as well after as before such payment, and until the entire debt is paid the surety has no such equity as will entitle him to the active aid of a court of equity. Sheld. Subr. § 327; Hollingsworth v. Floyd, 2 Har. & G. 91; Insurance Co. v. Dorsey, 3 Md. Ch. 334.
“And, in order to enable said company to guaranty the punctual payment of the interest and principal of such bonds, it is hereby expressly declared that the guarantors of such bonds shall be entitled to all the benefits of such mortgage or deed of trust made to secure such bonds to the same beneficial extent that the holders of said bonds may be entitled.”
This is no more than a general declaration of the principles of sub-rogation. There is nothing in this provision which can be reasonably construed as placing the guarantor upon an equal footing with a creditor secured by a mortgage as a result of every partial payment. The case of Railroad Co. v. Schutte, 103 U. S. 141, is not controlling. The charter provisions there considered are altogether unlike the provision contained in the charter of the Kentucky Union Railway Company.
2. The second error assigned is that “the court erred in adjudg-. ing that the right, title, and interest acquired by the Kentucky Union Railway Company, under the contract lease of the Passenger & Belt Railroad, was included or covered by the mortgage to the Central Trust Company.” The property embraced by the contract referred to consisted of about five miles of belt railroad around the city of Lexington, Ky., and certain interests in lands adjacent to the right of way and belonging to the Belt Railroad. It 'clearly appears that the Kentucky Union Railway Company constructed its line to the boundary of the city of Lexington in such way as that it had no entrance into the city and no terminal facilities, and no connection with other railway lines entering that city. Its main line terminated at the boundary of the city in view of a purpose to obtain connection with other lines and terminal facilities by means of a contract with the Belt Railroad. This line gave to the Kentucky Union Railway Company connection with several other railway lines entering Lexington, and afforded it terminal facilities in the city. The contract of lease was made after the mortgage to the Central Trust Company', and was, indeed, completed under direction of the circuit court after appointment of receivers; that court being of opinion tha t it was necessary as a means of affording connection with other lines, and proper terminal facilities. That this leasehold passed as after-acquired property by the express terms of the mortgage to the Central Trust Company we have no doubt. The provision in that mortgage describing the property covered by it is as follows:
“AH and singular its line of railroad, built and to be built, beginning at a point in Lexington, Payette county, Kentucky; thence through Fayette and Clark counties to Kentucky Union Junction, on the line of the Eliza-bethtown, Lexington & Big Sandy Kailroad; thence to Clay City; thence*798 via. Three Forks Jackson, in Breathitt county, being a distance of about one hundred miles. And also the lands, real estate, telegraph lines, railroad tracks, side tracks, bridges, viaducts, buildings, depots, station houses, car houses, engine houses, shops, warehouses, turntables, water stations, fences, structures, erections, fixtures, and appurtenances, and all other things of whatever kind belonging or in any wise appertaining, or which have been or may be acquired or provided for use upon or in connection with said railroad, and all the lands acquired, or that shall hereafter be acquired, destined for warehouses and other structures for railroad uses at either terminus, as well as along the line of said railroad; and also all locomotives, engines, ears, and other rolling stock, equipment, machinery, instruments, tools, implements, furniture, and other chattels now or hereafter belonging to or appertaining to said railroad, and all property, both real and personal, of every kind and description, which shall hereafter be acquired for use on said railroad; and all the corporate rights, privilege», franchises, and immunities, and all things in action, contracts, claims, and demands of the said party of the first part, whether now owned or hereafter acquired in connection or relating to the said railroad; together with all and singular the tenements and appurtenances thereunto belonging, and the reversions, remainders, tolls, incomes, rents, issues, and profits thereof; and also all estate, right, title, and interest whatsoever at law, as well as in equity, of said party of the tost part, of, in, and to the same, saving and excepting subscriptions of cash or securities and lands- not to be used in the operation of said railroad or in connection therewith.”
The terms covering after-acquired property are abundantly sufficient to embrace this lease contract. Trust Co. v. Kneeland, 138 U. S. 416, 11 Sup. Ct. 357; Railroad Co. v. Hamilton, 134 U. S. 297, 10 Sup. Ct. 546; Branch v. Jesup, 106 U. S. 468, 1 Sup. Ct. 495.
3. The third error assigned is as to the decree ordering a sale of the interest of the Kentucky Union Railway Company acquired and held by it. under the contract of lease of the property of the Passenger & Belt Railway. By the decree it was ordered that “all right, title, and interest shall pass to and be vested in the purchaser under this decree; subject, however, to all the terms, conditions, and limitations set forth in said contract of lease, as ratified by the circuit court in its decree of April, 1892.” The part of the decree assigned as error follows, and is in these words;
“And tbe purchaser shall assume and perform all the obligations imposed therein upon the Kentucky Union Railway Company; but this provision shall not be held to create any lien for the performance of such obligations upon any of the property herein ordered to be sold, other than the properties acquired under said lease.”
From so much of the decree as is set out above the original complainants, J. Kennedy Todd & Co. and the Central Trust Company, prosecuted a writ of error with supersedeas. That writ of error has been disposed of at a former day of this term upon a stipulation, signed by all of the parties in interest, assenting to a modification of the decree by striking out the paragraph last set out, and the subject of the third assignment of error relied upon by the appellant, the Columbia Finance & Trust Company, is thereby disposed of.
4. The nest assignment of error is as to so much of the decree nisi which ordered a sale of the road unless the decree should ’be satisfied by paying off the sums adjudged to be due within four months. The complaint is that the time for payment in order to save a sale was unreasonably short. The period allowed for pay
5. The fifth assignment of error is that the circuit court ordered a sale without redemption and without appraisement. This road is wholly situated within the state of Kentucky. The insistence is that the railroad is real estate within the meaning of the statute of the state of Kentucky of April 9, 1878 (chapter 63, art. 8, of the General Statutes), which provides as follows:
“(1) That before any real estate shall be hereafter sold, In pursuance of any order or judgment of a court, the commissioner or officer, whose duty it may be to sell the same, shall cause it to be valued, under oath, by two disinterested intelligent housekeepers of the county, not related to either party. If they disagree, the commissioner or officer shall act as umpire. If a part only of a tract of land is sold, the part sold shall, after the sale, be revalued' in like manner. (2) The valuation so made shall be in writing, signed by the persons making it, and returned by such commissioner or officer to the court which made the order or rendered the judgment for the sale of the property, and the same shall be filed among the papers of the cause in which the judgment was rendered or the order made and also spread upon the records of the court. (3) If the real estate which may he sold in pursuance of such judgment or order does not bring two-thirds of such valuation, the defendant and his representatives shall have the right to redeem the same within a year from the day of sale by paying the purchaser or his representatives the original purchase money and ten per centum per annum interest thereon. The defendant redeeming his land shall take receipt from the purchaser and lodge the same with the clerk of the court, and the same shall he entered upon the records of the court. The defendant may tender the redemption to the purchaser, his agent, or attorney, if in the county where the land lies, or in the county in which the judgment is obtained or order of sale made; and if the same is refused, or if the purchaser does not reside in either of said counties, the defendant may, before the expiration of the year, go to the clerk of the court in which the judgment is rendered or the order made and make affidavit of such tender and refusal, or that the purchaser, his agent, or attorney, does not reside in either of said counties. Thereupon he may pay to such clerk the redemption money for the purchaser, and the clerk shall give a receipt therefor and file said affidavit among the papers of the cause. When tile right, of redemption exists the defendant may remain in possession of the property until it expires. Real estate so sold shall not be conveyed to the purchaser until the light to redeem the same has expired, and if the same be redeemed in accordance with the provisions of tills act, such sale thereof, from and after such redemption, or from and after such deposit of the redemption money witli the clerk, be null and void.”
A state law conferring a right of redemption after a sale by execution, or under a decree to enforce a lien or mortgage, is obligatory upon federal courts sitting in equity as to lands within said state, and decrees of sale should be made so as to conform to the laws of the state so far as may be necessary to give full effect to the right. Brine v. Insurance Co., 96 U. S. 627; Orvis v. Powell, 98 U. S. 176; Parker v. Dacres, 130 U. S. 43, 9 Sup. Ct. 433. If the statute of Kentucky, above cited, applies to a railroad situated within the state, then the decree does not conform to the law of the state. A like question was decided by the supreme court of the United States in Hammock v. Trust Co., 105 U. S. 77. The question in that case arose under the redemption statutes of the
Phillips v. Winslow, supra, was a case where a trustee under second mortgage made to secure an issue of bonds, and covering all the property of the company then in existence, as well as all after-acquired property, filed a bill to enjoin certain proceedings at law by judgment creditors, one of whom had levied on certain movable property and was about to sell, while the other had seized and sold, and bought at his own sale under execution, certain cars,car wheels, firewood, and stone coal, being supplies for the operation
“Tlie right conferred on each shareholder is unquestionably an incorporeal hereditament. It is a right of perpetual duration; and, though it springs out of the use of personalty, as well as lands and houses, this matters not. It is a franchise which has ever been classed in that class of real estate denominated an incorporeal hereditament. An annuity, though only chargeable upon the person of the grantor, is an incorporeal hereditament; and, though the owner’s security is merely personal, yet he may have a real estate in it. 2 Bl. Comm. 40. Much less can it be doubted that a franchise*802 created by act of incorporation, unlimited in duration, and springing out of the combined use of lands and personalty, should be denominated and classed as real estate.”
These cases do not preclude us from considering the inherent nature of the several kinds of property which constitute that great public work called a railroad. Neither do they serve to throw any valuable light in determining whether such a property, when lawfully mortgaged as an entirety, is “real estate” within the intent of the Kentucky statute conferring the right to redeem real estate when sold to foreclose a mortgage. That statute, in our judgment, did not contemplate either the severance of a railroad, when sold, into its constituent elements, in order that that part which savored of realty might be redeemable; nor did it contemplate that so peculiar and composite a property should be embraced within the term “real estate” as used in that statute. The value of such a property consists in its maintenance as a unit. This unit the state provided might be mortgaged. It would be unprofitable to consider whether an individual, or a group of individuals, could own and operate a railroad without express authority. The franchise to be a railway, to exercise the great power of eminent domain, and to exact tolls for freight and passengers, was a franchise of value, and this, too, the legislature has permitted this company to embrace within its mortgage. Upon it credit has been extended. This is a part of the entirety which the creditors secured by this mortgage, and have a right to bring it to sale, along with the tangible property which it secures and renders valuable. That franchise is not real estate, and is not leviable at law. The controlling reasons which induced the decision in Hammock v. Trust Co. sprang from a consideration of the unity of a railroad property. These reasons are as masterful, when we come to construe this Kentucky statute, as they were in the case from Illinois. The distinction between the two statutes, and differences in the general law of Illinois and Kentucky, are not sufficiently marked to justify, certainly not to demand, that this case shall be distinguished from Hammock v. Trust Co.
We are the better satisfied with our conclusion when we look at the state of the law of Kentucky at the time the circuit court was called upon to construe this redemption statute: (1) In 1871, long antecedent to this mortgage, the legislature of Kentucky, manifestly induced thereto by the case of Price v. Price’s Heirs, and the case of Copeland v. Copeland, cited above, passed an act declaring railway shares personal property. (2) By section 212 of the new constitution of Kentucky, adopted in 1891, and in force when this decree was entered, it was enacted that the rolling stock of a railroad should “be considered personal property, and liable to execution and sale in the same manner as the personal property of individuals.” Clearly this constitutional recognition of the movable property of a railroad as personal property disabled the court from, holding that the personal property of this road should be redeemable as “real estate.” It would therefore follow that, if any right of redemption exists in the case of the sale of a railroad, it must be limited to so much of the railroad property as was real .property