82 F. 124 | 8th Cir. | 1897
This is an appeal by the mortgagor and subsequent lienholders from a decree of foreclosure of a iirst mortgage for $1,250,000 upon the property of the Sioux City Terminal Railroad & Warehouse Company of Sioux City, Iowa (hereafter called the “Terminal Company”). The appellants challenge this decree on many grounds. At the threshold of the investigation they meet the complainant with the charge that the court below had no jurisdiction of the case, because some of the defendants were citizens of the same state as the complainant. The complainant was the Trust Company of North America of Philadelphia, Pa. (hereafter called the “Trust Company”), and it was a corporation of the state of Pennsylvania. It was the trustee for the bondholders secured by the first, mortgage made by the Terminal Company, and it brought this suit to foreclose that mortgage on April 17, 1894. The Terminal Company was a corporation of the state of Iowa. The Trust Company made the Terminal Company and a large number of individuals and corporations parties defendant. Among the latter were several banks which had liens upon the mortgaged property subsequent to that of the first mortgage, and which were corporations of the state of Pennsylvania. On June 19, 1894, the Terminal Company and several other defendants demurred to the bill on the ground that the circuit court had no jurisdiction because the Pennsylvania banks were
The general rule in chancery is that all those whose presence is necessary to a determination of the entire controversy must be, and all those who have no interest in the litigation between the immediate parties, but who have an interest in the subject-matter of the litigation, which may be conveniently settled therein, may be, made parties to it. The former are termed the necessary, and the latter the proper, parties to the suit. The limitation of the jurisdiction of the federal courts by the citizenship of the parties, and the inability .of those courts to bring in parties beyond their jurisdiction by publication, has resulted in a modification of this rule, and’a practical division of the possible parties to suits in equity in those courts into indispensable parties and proper parties. An indispensable party is one who has •such an interest in the subject-matter of the controversy that a final decree between the parties before the court cannot be made without affecting his interests, or leaving the controversy in such a situation that its final determination may be inconsistent with equity and good conscience. Every other party wdvo has any interest in the controversy or the subject-matter which is separable from the interest of the parties before the court, so that it will not be immediately affected by a decree which does complete justice between them, is a proper party. Every indispensable party must be brought into court, or the suit will be dismissed. The complainant may join every proper party, and he must join every proper party who would have been a necessary party under the old chancery rule, unless his joinder would oust the jurisdiction of the court as to the parties before if, or unless he is incapable of being made a party by reason of his absence from the jurisdiction of -the court or otherwise. If, however, such a party is incapable of being made a party, or if his joinder -would oust the jurisdiction of the court as to the parties before it, the suit may proceed without him, and the decree will not affect his interests. Rev. St. §§ 737, 728; Equity Rule 47; Chadbourne’s Ex’rs v. Coe, 10 U. S. App. 78, 83, 2 C. C. A. 327, 51 Fed. 479, 480, 481; Shields v. Barrow, 17 How. 130, 139; Ribon v. Railroad Co., 16 Wall. 446, 450; Coiron v. Millaudon, 19 How. 113; Williams v. Bankhead, 19 Wall. 563; Kendig v. Dean, 97 U. S. 423; Alexander v. Horner, 1 McCrary, 634, Fed. Cas. No. 169; Cole Silver Min. Co. v. Virginia & Gold Hill Water Co., 1 Sawy. 685, Fed. Cas. No. 2,990. The Pennsylvania banks held judgment liens upon the mortgaged property later in date than, and inferior in equity to, the lien of the Trust Company’s mortgage.
“In all cases where it shall appear to llie court, that persons, who might otherwise be deemed necessary or proper parties to the suit, cannot be made parties by reason of their being out of the jurisdiction of the court, or incapable otherwise of being made parties, or because their joinder would oust the jurisdiction of the conn as to the parties before the court, the court may in tlieir discretion proceed in the cause without making such persons parties; and in such cases the decree shall be without prejudice to the rights of the absent parties.”
If the complainant bad not joined these banks, the jurisdiction of the court would have been impregnable. Was it destroyed because the Trust Company made (hem parties defendant, and then, with the leave of the court, dismissed them from the suit? In Cameron v. McRoberts, 3 Wheat. 591, McRoberts, a citizen of Kentucky, brought a suit in equity in the district court of the United States for the district of Kentucky, which, then had the jurisdiction of a circuit court, and obtained a final decree. There were three defendants to this suit, one of whom (Cameron) was stated in the bill to be a citizen of the state of Virginia, but the citizenship of the others did not appear. A motion to set aside the decree was made on the ground that the court had no jurisdiction because the two defendants whose citizenship was not stated were in fact citizens of Kentucky. Two of the questions certified to the supreme court were:
“Had the district court jurisdiction of the cause as to the defendant Cameron and the other defendants? If not, had the court jurisdiction as to the defendant Cameron alone?”
The answer was:
“If a joint interest vested in Cameron and the other defendants, the court had no jurisdiction over the cause. If a distinct interest vested in Cameron, so that substantial justice, so far as he was interested, could be done, without affecting the other defendants, tlxe jurisdiction of the court might be exercised as to him alone.”
Courts do not require the performance of idle ceremonies. The Trust Company might have prevented this objection to the jurisdiction of the court by neglecting to join the Pennsylvania banks as defendants. The circuit court could have removed it by permitting the complainant to dismiss this suit, and to commence another against all the defendants except 1he Pennsylvania banks. No reason occurs to us why it might not have obviated it by permitting the com
The mortgage on which this suit is based covers the franchises and all the property of the mortgagor. The appellants insist that the Terminal Company was a quasi public corporation, and that it had no authority to make this mortgage, and they specially urge that it was without power to mortgage its franchises and after-acquired property. The Terminal Company is the creature of the state of Iowa. It was incorporated under the general laws of that state. It has the powers granted to it by those laws, together with those fairly incidental thereto, and it has no others. Omaha Bridge Cases, 10 U. S. App. 98, 174, 2 C. C. A. 174, 230, and 51 Fed. 309, 316. The statutes of Iowa, then, measure the powers of this corporation, and the construction of those statutes by the supreme court of that state, and its determination of the extent of the powers and liabilities of corporations formed under them, are authoritative in this court. When the highest judicial tribunal of a state has determined the extent of the powers and liabilities of corporations created under its laws, that decision is conclusive in the national courts in all cases in which no question of general or commercial law and no question of right under the constitution of the United States is involved. Madden v. County of Lancaster, 27 U. S. App. 528, 536, 12 C. C. A. 566, 570, and 65 Fed. 188, 192; Dempsey v. Township of
“The power to borrow money, execute notes and mortgages, was neither assumed nor prohibited. In the absence of any such prohibitory provision the power to borrow money, execute nptes and mortgages, as evidences of and security for indebtedness created for the necessary and proper purpose of carrying out the objects of the corporation, impliedly exists. For the purpose of effecting the objects of the corporation, its powers are as broad and comprehensive as those of an individual, unless the exercise of the asserted power is expressly prohibited.”
All doubt of the power of the Terminal Company to make this mortgage is, however, dispelled by the provisions of sections 1955, 1965, and 1966 of McClain’s Code. They expressly authorize any corporation organized under the laws of Iowa for the purpose of constructing, and operating a railway to mortgage its franchises and all its property, whether acquired before or after the execution of the mortgage. The Terminal Company was certainly organized to construct and operate a railway, whatever other objects its corporators had in view, and under these provisions it had express authority to make the mortgage in suit. Railroad Co. v. Howard, 7 Wall. 392, 412.
Another position of counsel for the appellants is that this mortgage is void because it violates the rule against perpetuities, which, in Iowa, is embodied in this provision of its statutes:
“Every disposition of property is void, which suspends tire absolute power of controlling the same for a longer period than during the lives of persons then in being and for twenty-one years thereafter.” McClain’s Code Iowa 1888, § 3091.
The argument in support of this position is founded upon this state of facts: On December 14, 1889, the Terminal Company leased to the Sioux City & Northern Bailroad Company of Sioux City, Iowa, all its franchises and property for the term of 100 years, for an annual
But the appellants insist that the mortgage is void because the debt which it secures is in excess of the amount of indebtedness which (he Terminal Company had the power to contract. The law of Iowa under which this corporation was organized provided that the incorporators must, before commencing any business except that of (heir own organization, adopt articles of incorporation, and that “such articles of incorporation must fix the highest amount of indebtedness or liability to which the corporation is at any one time to be subject, which must in no case, except in that of risks of insurance companies, exceed two-thirds of its capital stock,” provided that these provisions shall not apply to certain classes of bonds, among which we concede, for the purpose of this discussion and decision, but do not decide, that the bonds of this corporation do not fall. McClain’s Code, §§ 1010, 1611. The articles of incorporation of the Terminal Company declare that its authorized capital stock is $1,000,000, and that “the highest amount of indebtedness to which this company shall at any time subject itself shall not exceed two-thirds of the paid-up capital stock of said company, aside from the indebtedness secured by mortgage upon the real estate of the company.” Those articles, however, did not enlarge (he powers of the corporation beyond those granted by the statutes under which it ivas created, and, under the concession we have made, they gave it no authority to incur an indebtedness in excess of $060,007. A corporation may not enlarge its powers beyond those granted by the laws under which it was organized by claiming greater powers in its articles of incorporation. 5 Tliomp. Corp. § 5990. The indebtedness secured by this mortgage was $1,250,000, and each bond recited that it was one of a series of bonds not exceeding in the aggregate $1,-250,000, and that' it was secured by a first mortgage upon the property of the Terminal Company. This debt was therefore in excess of the statutory limitation. The mortgage was duly recorded in the office of the proper register of deeds at Sioux City on February 27, 1890; and from that record and the terms of the bonds it is a fair inference that the Trust Company and the bondholders had full notice that the indebtedness secured by this mortgage was in excess of the limitation prescribed by the law of its being. On-the other hand, the bonds were sold on the credit of the mortgage for 90 per cent, and 95 per cent, of their par value, and their proceeds were applied by the mortgagor to the payment of its debts, and to the purchase and improvement of its property. Neither the bondholders nor the Trust Company were guilty of any fraud or bad faith in the transaction. The debt was not created nor was the mortgage made or accepted with any intent to defraud any of the existing or subsequent creditors of the corporation. Can the mortgagor, under these circumstances, avail itself of its violation of the statute to defeat the mortgage upon which it has borrowed this money? If not, have its subse
But it is said that the creditors of this mortgagor are entitled to a declaration that this mortgage is void, and that they have rights here superior to the corporation. This contention is made with, special urgency on behalf of the Credits Commutation Company, a corporation of the state of Iowa, whose standing in this respect is certainly as high as that of any of the creditors who have appealed. A brief statement, however, of the transactions out of which its claim lias arisen, will show, we think, that this position of its counsel is untenable. In the latter part of the year 1889 the Terminal Company commenced to issue its promissory note's for $5,000 each, and to negotiate them through the Union Loan & Trust Company of Sioux City, a corporation which indorsed and sold them to banks located in the Eastern states. The proceeds of these notes were used by the Terminal Company to purchase and improve its property. Early in 1890 the aggregate amount, of these1 notes had reached $1,250,000. It will be remembered that the Terminal Company made its lease to the Sioux City & Northern Railroad Company on December 14, 1889, and its first mortgage to the Trust Company on January 1, 1890. The bonds secured by this mortgage, with the exception of 250 of them which were disposed of in 1892, were sold early in the year 1890;
Another objection to the validity of this mortgage is that (he president and secretary of the Terminal Company who executed it on behalf of that corporation had no authority to do so, because some of Ihe provisions of the mortgage are not identical with those contained in the resolution of the board of directors which authorized its execu-iion. Hut the Terminal Company delivered this mortgage to the Trust Company, signed by its president and secretary and sealed with, its corporate1 seal. This was prima facie evidence that it was executed on behalf of flu; corporation bv lawful authority. Union Pac. Ry. Co. v. Chicago, R. I. & P. Ry. Co., 10 U. S. App. 98, 189, 2 C. C. A. 174, 240, and 51 Fed. 309, 327; Burrill v. Bank, 2 Metc. (Mass.) 163, 166; Canandarqua Academy v. McKechnie, 90 N. Y. 618, 629; Wood v. Whelen, 92 Ill. 153, 162; Association v. Bustamente, 52 Cal. 192. The mortgage recited that it was duly authorized by a proper resolution of the board of directors, and each of the bonds recited that it was secured by a mortgage or deed of trust duly made and delivered to the Trust Company, which was a first lien upon all the property of the Terminal Company. Upon these representations the Terminal Company sold these bonds and obtained their proceeds. It is too late now' for this corporation, or for creditors claiming under it through, deeds or liens subsequent to the date of the record of this mortgage, to deny tin1 power of its officers to make it. A corporation which induces lenders or purchasers to loan it money or to buy its bonds by delivering a mortgage, formally executed, which purports to secure them, is thereby estopped from denying its validity on the ground that, in giving its officers authority to make it, it failed to comply with some law or rule of action with which it might have complied, but which it willfullv or carelessly disregarded. Union Pac. Ry. Co. v. Chicago, R. I. & P. Ry. Co., 10 U. S. App. 98, 188, 191, 2 C. C. A. 174, 239, 241, and 51 Fed. 309, 326, 328; Zabriskie v. Railroad Co., 23 How. 381, 397, 400, 401.
Finally, the appellants assail the decree because it directs tin; sale of the mortgaged property as a whole, and does not reserve to the mortgagor and io subsequent lienors the right of redemption from the sale, in accordance with the provisions of the statutes of Iowa relative to sales of real property under execution. McClain’s Code Iowa, §•? 4217, 4221. Hut this statutory right of redemption and right to a sale in separate parcels does not extend to the real estate of a corporation which is mortgaged with its franchise to acquire; hold, and use property for public purposes', and whose chief value depends upon its unity, and its use for and appropriation to those purposes. Hammock v. Trust Co., 105 U. S. 77, 90. The decree below was right, and it: must be affirmed, with costs. It is so ordered.