68 Ala. 1 | Ala. | 1880
The appellee, suing for himself and all other holders of like bonds of the Selma, Marion and Memphis Railroad Company, on the 6th day of September, 1877, filed his original bill in the Court of Chancery, claiming a lien on the railroad, its equipments, and all other of its property, including its franchises, in the nature of a mortgage, as a security for the payment of the principal and interest of the bonds held by him, and other bonds of the same class. These bonds bear date September 1st, 1869, are for the sum of one thousand dollars each, payable at twenty years, with coupons attached for the payment of interest semi-annually at the rate of eight per cent, per annum, and are endorsed by the Governor in the name of the State. On the face of each bond, it is stated to be a “first mortgage eight per cent, bond, indorsed by the State of Alabama.” In the body it is recited: “This is one of a series of bonds of the same tenor, date and amount, numbered from one upwards, and limited to $16,000 per mile of completed railroad in the State of Alabama, issued jmder the provisions of an act of the General Assembly of Alabama, entitled ‘An act to
The act of the General Assembly approved February 19th, 1867, referred to in the bond, required the Governor, when a railroad company, incorporated by the laws of this State, had finished, completed and equipped twenty continuous miles of its road, in the name of the State to indorse the first mortgage bonds of the company, to the extent of twelve thousand dollars per mile, for the next section, of twenty miles of road; and so on, until the road was completed within the limits of the State The bonds were to be payable in a period of not less than fifteen, nor more than twenty years, bearing interest not exceeding eight per cent., payable semiannually ; and on their face were to recite the fact, that they were first mortgage bonds, issued in accordance with, and upon the conditions in the act prescribed. And the act declared, “Said fit st mortgage, and bonds issued thereon, shall have priority in favor of the State, of any and all other liens whatever." The seventh section of the act reads: “That so soon as the Governor, on the part of the State, shall indorse the bonds of any company, for the first section of any road as aforesaid, and for each. successive section, said indorsement shall constitute a lien upon said section or sections so prepared as aforesaid, including the road-bed, right of way, grading, bridging and masonry, upon all the stock subscribed for in said company, and upon the iron rails, chairs, spikes, and equipments, when purchased and delivered; and the State of Alabama, upon the indorsement of said bonds, and by virtue of the same, shall be invested with said lien or mortgage, without a deed from the company, for the payment by said company of said bonds, with the interest thereon, as the same becomes due ; and when the whole of said road shall be completed, the State of Alabama shall be invested with a lien, without a deed from the company, upon the entire road, including the stock, right of way, grading, bridges, masonry, iron rails, spikes, chairs, and the whole superstructure and equipments, and all the property owned by the company as incident to or necessary for its business, and depots, and depot stations, for the payment of all of said bonds indorsed for the company as provided in this act, and
It was provided by the act, that fifteen days before the interest on the bonds indorsed became due and payable, a sum sufficient to meet it should be deposited with the Comptroller of the State, or he should be furnished with satisfactory evidence that it had been provided for, or paid. If there was default, the Comptroller was required to report it to the Governor, whose duty it was to appoint a receiver to take charge of the road, and apply its rents, issues, profits and dividends, to the liquidation of the unpaid interest; and when that was satisfied from the net profits, it was the duty of the receiver to surrender possession to the company.
The ninth section of the act is as follows : “That if said company shall fail, or refuse, to pay any of said bonds when they fall due, it shall be the duty of the Governor to notify the Attorney-General of the fact, and, through said Attorney-General, shall forthwith file a bill against said company, in the name of the State of Alabama, in the Chancery Court of the district in which is situated the place of business of said company, setting forth the facts ; and thereupon said court shall make all such orders and decrees in such cause as may be deemed necessary by the court, to secure the payment of said bonds, with the interest thereon, and to indemnify the State of Alabama against any loss on account of the indorsement of said bonds, by ordering the said railroad to be placed in the hands of a receiver, ordering the sale of said road, and all the property and assets attached thereto, or belonging to said company, or in such other manner as the court may deem best for the interest of the State.”
• These are the provisions of that act now material. The amendatory act of September 22d, 1868, referred to, has no provision now material, except'that an indorsement for sections of five miles is authorized, after the completion of the first twenty miles, and the amount is increased from twelve to sixteen thousand dollars per mile. It is also declared, the bonds shall constitute a lien on the whole road, whether lying
It is averred in the bill that, since the first of September, 1872, the company has been in default in payment of interest, and of interest on all the bonds issued by the company, and indorsed by the State, there was an accumulation of more than three hundred thousand dollars; that the company is insolvent, and is misapplying its income, and its property deteriorating in value, and that the State refuses payment of the interest accumulated, or to take charge of the road and other property of the company. The prayer of the bill is, that the statutory lien be enforced for the benefit of the complainant and other bondholders; that a sale be made of the road, its equipments, &o., and the proceeds applied in payment of the interest on the bonds, and for general relief.
1. The principle, upon which the equity of the bill depends, is, that a creditor is entitled to the benefit of all securities or pledges which the surety may receive from the principal debtor, either for the payment of the common debt, or for the indemnity of the surety against loss because of his liability; that all such collateral securities are trusts created for the better protection of the debt — of them the surety is a trustee, and a court of equity is bound to see that they fulfill their design. The. principle is not controverted by the appellants; but they insist it must be accepted with this limitation, that when the security is merely personal to the surety — when, by the terms of its creation, it is confined solely to his indemnity, in opposition to, and excluding the idea of a security for, or the provision of sources and means from which the common debt is to be paid — a trust, enuring absolutely to the benefit of the creditor, is not created; and the only right he can assert is that of subrogation to the place and rights of the surety; and if the latter has not been damnified, or if he is discharged from liability, by subrogation, the creditor cannot acquire rights. And iffit is insisted that the lien or security created by the statutory provisions to which we have referred, for the protection and indemnity of the State against its liability as indorser of the bonds of the railroad company, is a mere particular, personal security to the State, not available to the bondholder. There are several reasons assigned which are supposed to render it unavailable. The first is, that subrogation is. an equity which can be worked out only through the liability of the State ; and as the State is not a party, and is, by constitutional provision, protected from suit, there can be no adjudication of its liability. Another reason is, that the State has not been
The necessities of this case do not require us to consider when a particular security will be regarded as intended for the protection of the debt, enuring to the benefit of the creditor, creating a trust attached to the debt, capable of enforcement in equity, whether- the surety has been damnified or not, and surviving and continuing, though his liability may be discharged, or lost by the laches of the creditor; and when it will be regarded as a mere personal security to the surety, intended alone for his indemnity, rights which the creditor must derive from subrogation. For it seems clear to us, that, by the terms of the creation, the statutory lien is a security for the payment of the bonds; and that to the State, as indorser, protection and'indemnity is afforded by a specific appropriation of the property and rights of property of the railroad company, the principal debtor, on which the lien operates, to the payment of the bonds, whenever the latter should be in default. — Kelly v. Trustees, 58 Ala 489; Colt v. Barnes, at last term.
The railroad company had full capacity to mortgage, or pledge, create trusts, or declare liens on its property, either for the payment of the bonds, or for the mere particular indemnity of the State as its indorser. The State, no constitutional limitation intervening, could enter into contracts with the company, and declare -the terms and conditions upon which it would become the surety, or indorser, or guarantor of the bonds of the company. For itself it could determine whether security for the payment of the debts on which it became liable in either capacity should be given ; or whether the security should be available only when in addition to being dishonored by the default of the company, it must have sustained loss by reason of its answering for that default, excluding all idea of security for the debt. The agreement between the State and the railroad company, must be regarded as expressed in the statute, for that is the only authority for the indorsement of the bonds in the name of the State, and to its terms, conditions, and trusts, the railroad company yielded assent when it procured the indorse-ments. The character of the lien, its operation and effect, and the intention of the (State, and the railroad company in its creation, must be collected therefore from the statute, and enforced so that its purposes will be accomplished. Nor can the construction be varied because the State is a party — nor because the terms of the contract are expressed in a statute, rather than in an instrument of less solemnity to which natural persons alone may. be the parties.
In Toulmin v. Hamilton, 7 Ala. 362, this question was first presented to this court. The drawer of several bills of exchange had given to his accommodation acceptor two promissory notes embracing the amount of the bills and a separate indebtedness due the acceptor. These notes having much longer time to fun than the bills, were secured by a deed of trust on lands and slaves. The parties becoming insolvent, the holders of the notes, who seem also to have been holders of the bills, claimed to subject the property covered by the deed of trust to their payment. The court said, after reciting the facts : “The deed of trust, then, is a security, given by the principal debtor, to one who stands to him as a surety, and the question is, whether the holder of the notes has a right in equity to enforce the security for his benefit. Of this, we think there is no doubt.” And throughout the opinion it will be observed the deed of trust was regarded as a trust for the payment of the debts, and the jurisdiction of the court rested upon its power and duty to enforce trusts. The case was soon followed by that of Ohio Life Insurance Co. v. Ledyard, 8 Ala. 866, in which the maker of promissory notes had executed a deed of trust to indemnify the indorsers, and without making payment, he, and the indorser, had become discharged bankrupts. The holders of the notes claimed in equity the enforcement of the deed of trust, as a security for their benefit. “Ormond, J., said in the case of Toulmin v. Hamilton, 7 Ala. 367, which, upon this point, is in principle, identical with this, we had occasion to consider this question. It was there, upon great consideration, held, that when a deed of trust was given to indemnify an accommodation acceptor, the holders of the paper might resort to the trust property for the payment of the paper when dishonored.” That is the precise predicament of this case. The deed of trust was executed to secure' or indemnify Robertson, Beale & Co., as indorsers of certain notes, which it appears by the testimony of Greene, had been previously given to T. & C. Matthews. The rule as established by that case, is, that the creditor is entitled to the benefit of all pledges, or securities given to, or in the hands of the surety, for his indemnity, to be applied to the payment of the debt. It does not in the slightest degree vary the case, that the
In Cullum v. Br. Bank Mobile, 28 Ala. 797, the principal assigned a mortgage to a trustee, upon condition that he should hold the same as security for George Oullum on account of his endorsement of a, promissory note for the principal; and with authority, if the note due by the principal was not paid, to collect the notes secured by the mortgage, and pay the same out of the proceeds. The statute of limitations had perfected a bar of remedies at law on the note. The court says: “As to the trust itself, although it was made for the protection of George Cullum, yet that was not the only object. It was also made for the better protection of the debt, as is evidenced most clearly by the authority given in the assignment to collect the mortgage notes, and out of the proceeds to pay the note of Charles Cullum, on his failure to pay the same; and it certainly requires no authority to show that in such a case, the creditor is entitled to the benefit of the security. This court has sustained the principle, in cases not so strong as the one under consideration.— Toulmin v. Hamilton, 7 Ala. 767; Ohio Life Ins. Co. v. Ledyard, 8 Ala. 866. Nor does it make the slightest difference, that the note is barred by the statute of limitations. So far as George Cullum is concerned, the creditor’s right to the security does not depend upon the liability of the surety to be damnified, but upon the fact that the assignment was made to protect the debt.”
In the more recent case of McMullen v. Neal, 60 Ala. 555, a deed of trust was given by the drawer of a bill of exchange for the security of his indorsers, with condition as follows: “Should I make default in paying said bill at maturity, then the trustee may proceed, after giving thirty days notice, to sell to the highest bidder, for cash, the land before described, and with the proceeds pay said bill of exchange, with all costs, damages,” &c. Mr. Justice StoNE, speaking for the court, said: “This deed is a direct security to the holder of
These authorities have settled the principle that any security taken by a surety for his protection or indemnity, if not by the very terms upon which it is._taken_ otherwise ljmTfe37* becomes a trust for the better security of the debt, attaches to and attends the debt into whatever hands it may pass. Although its existence may not be known to the creditor when he purchases or acquires the debt, his assent to it is presumed because it is beneficial to him, and when informed of it, a court of equity will aid him in appropriating it to its proper destination, the payment of the debt, giving ease to the surety, and extinguishing the liability of the principal. The surety as to such securities stands to the creditor and the principal in the relation of a trustee, and a court of equity will compel him to the execution of the trust. Nor is it important whether the surety has been damnified or not, nor whether his liability continues, or is lost by the want of diligence ón the part of the creditor in taking the necessary steps to preserve it, or in consequence of a discharge in bankruptcy. So long as the debt is unextinguished, the trust remains and will be enforced. Of the lien or mortgage, or by whatever name the security may be termed which the statute creates and declares valid and operative, without writing in the form of a deed or otherwise, there is but one event in which its extinguishment is contemplated, and that is the payment of the bonds, principal and interest. Its continuance, so long as they are unpaid, in whole or in part, is intended. And another feature of it is, that it is only after the company has made default in payment, or providing means of payment, that its possession of its property can be disturbed. These features were found in all the securities this court had heretofore declared created trusts for the pay
2. There would be, perhaps, insurmountable difficulties in this cause, because of the absence of the State, as a party,
3. The trustees, Hill, Eort and Coleman, can not be regarded in any other light than as junior incumbrancers. The mortgage to them was executed after the indorsement of the bonds of the State, and on its face expresses its subordination to the lien created by the statute. They would have been proper, but they are not necessary or indispensable parties.—Callum v. Batre, 2 Ala. 415.
4. The rendition of decree in vacation, was authorized at the time of the submission of the cause in October, 1877, and
5. The decree, as we understand it, enforces and forecloses the lien only for the unpaid interest, not for the principal of the bonds, which was not payable for about thirteen years in the future. We agree with the counsel for the appellants, that decrees of-foreclosure depend uporf and must find their warrant in the terms of the mortgage, or other security creating liens. There may be defaults in the payment of debts they are intended to secure which would not authorize a decree of foreclosure, because they, are not the defaults for which the mortgage provides. A debt maybe payable in in-stalments, and’by the terms of a mortgage or other security for its payment, foreclosure may be postponed until there is
6. It is not matter of doubt, that the court which first takes cognizance of a cause lying within its jurisdiction, is entitled to retain exclusive jurisdiction, until it is finally determined. How far the principle can be applied in the present case, and whether it is shown that the Circuit Court of the United States for the Western District of Tennessee had precedence of jurisdiction of the Chancery Court, of the subject matter of this controversy, are enquiries which we do not think the appellants are entitled to make. The pendency of suit against them in the courts of another State is not matter in abatement of a subsequent suit in this State. Humphries v. Dawson, 38 Ala. 204. Whether the court in which that suit is pending acquired'jurisdiction, custody and control of the property, the court of chancery seized and committed to the custody of a receiver of its own appointment, may be matter of inquiry by the receiver of the United States Court, or by any person having an interest in, and authority to control the suit pending in that court. It can not be to a party who stands to each suit in no other relation than that of a defendant. Neither the receiver of the United States Court, nor any party having control of the suit pending in that court, has intervened in this suit, aad claimed to be relieved from th$ conflict of jurisdiction if it exists. No claim to the property in the custody of the court of chancery has been asserted. There has been unbroken acquiescence in the exercise of jurisdiction by the court of chancery, and in the seizure, custody and sale of the property. There is no room for complaint by any other party, than one who is clothed with the right and authority of the United States Court, to assert the priority and exclusiveness of its jurisdic
Without further extending this opinion, we do not find in this record, errors of injury to the appellauts, and the decree must be affirmed.