Union Trust Co. v. Detroit & River St. Clair Railway

Grant, J. (after stating the facts). 1. We think the facts found by tho learned circuit judge are fully sustained by the evidence. It is apparent that the decree is eminently just and equitable in so protecting the rights of all parties that each loses nothing, and obtains full compensation for all labor performed, materials furnished, and moneys invested in the construction of this road. Manifestly, such a decree ought to be sustained, unless it' is in conflict with inflexible rules which control courts of equity as well as of law. The entire trouble has arisen from the fact that the promoters, the original stockholders, of this railway com — 265 — pany, attempted its construction upon nothing more substantial than wind. They paid nothing upon their stock, and did not intend to. Some of the promoters and stockholders formed the construction company, — a company with limited liabilities. What those liabilities were does not appear. It was understood, both by the stockholders of the railway company and by the construction company, that those who should construct and equip the railway should be paid in nothing but stock and bonds. Smith, a man financially irresponsible, was awarded a contract to construct the roadbed, lay the iron, tie and ballast the road. ■ All this was to be done within less than three months. The work was in reality worth about half of the face value of the bonds. Smith expended and incurred liabilities amounting to about $12,770. The bonds he had received were'worth nothing. They had no market value. No one would buy them, or loan money upon them. The construction company failed to pay. The railway company had agreed to pay nothing but its certificates of stock and bonds. In a sentence, the whole enterprise collapsed, with no assets but a right of way over part of the line, and a roadbed which was being washed away by the rains. Affairs continued in this shape for about two years. Meanwhile Smith, in writing, represented the amount he had invested at $12,770. The receiver found no tangible assets; and, unless some way could be devised to provide for the construction of the road, the bonds which had been issued, including those of Smith, were without value. Under the direction and authority of the court, Mr. Stevenson, attorney for the receiver, was allowed to proceed to construct the road by the use of receiver’s certificates. This action alone has made the Smith bonds of any value whatever. That he represented his interest to be $12,770, and that he permitted Mr. Stevenson and the receiver to proceed with that understanding, is established beyond controversy. I think it equally well established that Mr. Mills, when he purchased these bonds, was fully cognizant of the situation, and of — 266 — Mr. Smith’s claims and representations. This being so, both are estopped to claim the face value of the bonds. It is, however, urged that the estbppel is not pleaded in the answer, and therefore cannot now be made available as a defense. All the other bonds which were issued were collateral for loans to, and material furnished for, the construction company. There is testimony from which it' might be properly inferred that Mr. Stevenson understood that Smith held these bonds as collateral to his claim. However that may be, we think the amended answer sufficiently sets forth tho claim of the defendant to admit this defense. While it does not aver in words that Smith, and Mills are estopped, it does set forth the facts upon which the defense is based. If, however, it were necessary, under the circumstances of this case, to amend the answer in order to make this defense available, we should not hesitate to allow it, even on appeal in this court. 2. When the taking of testimony had been nearly concluded, the court, in the commendable desire to secure to the laborers the amounts due them for work performed upon the roadbed for Smith, made the following order: “ In this cause it appears that there are claims for labor, material, etc., aggregating about $5,000, against John A. Smith, same being for labor performed and material furnished in connection with the construction of the railway of the defendant company before the institution of the proceedings herein; and it appearing further that said Smith received on account of the work he performed as contractor fifty-two bonds, of the par value of $26,000, which are a part of the bonds secured by the mortgage being foreclosed herein, and that he has sold such bonds to Merrill B. Mills, and received $5,000 in cash and $7,000 in a note dated Match 16, 1899, payable six months after date, which note is under the control of Frank E. Robson,one of complainant’s solicitors; and it further appearing that, since the appointment of the receiver herein, it became necessary to procure a renewal of certain franchises under which the railway company operates and maintains its road, and it was mado a condition in one or more of such ordinances that certain or all of such claims for labor and material should be said, or such ordinances be sub — 267 — ject to forfeiture; and the court conceiving that, under the facts recited, such claims for labor and material owing by said Smith, which the ordinances referred to required the .payment of, may be chargeable against said Smith, and be deducted from the amount remaining unpaid on said $7,000 note; and it being necessary, before a final decree can be made in this cause covering the subjects referred to, that all parties in interest be brought into this cause: “It is ordered that Monday, July 17, A. D. 1899, at 10 o’clock a. m., be fixed as the time, and the circuit court room in the city of Port Huron the place, for any and all persons who have claims, or are interested in the presentation-of claims, for such labor and material, to appear, present, and prove their claims, under the provisions of such ordinances; and, further, in order that all parties interested in the final determination of matters in controversy in this cause may be formally before the court, it is ordered that Merrill B. Mills, John A. Smith, Elliott Gf. Stevenson, and the River St. Clair Construction Company, Limited, appear in this cause, and file any petition or answer deemed necessary or proper to frame a proper issue for the final disposition and settlement of all matters involved herein, within ten days from this day, and -that any of such parties be permitted to offer any additional proofs relating to the matters in controversy at the hearing above fixed for July 17,1899; and that until such hearing all matters involved in this litigation remain in statu quo; and that the further hearing of the above-entitled cause be continued until July 17, 1899, at 10 o’clock a. m. “ It is further ordered that notice of such hearing be published once in each week for the two weeks preceding such hearing in each of the following newspapers published in the counties of St. Clair and Macomb: The Port Huron Weekly Times, the Marine City Globe, the Algonac Courier, and the Era of New Baltimore; and that a copy of this order be served on the River St. Clair Construction Company, Limited, eight days before such hearing, and also upon the Detroit National Bank, Abram Smith, Angus Smith, Samuel L. Smith, Jefferson T. Wing, Frank E. Robson; and that leave be and is hereby granted them and each of them to intervene and assert any claim they may have in or to said $7,000 note, or the proceeds thereof; and that any party or parties above named who desire to intervene and assert any claim or present any matter for consideration of the court in — 268 — connection with any of the matters referred to, file their answers and serve copies on solicitors for complainant and defendant railway company. “This order is made on the application of the Detroit & River St. Clair Railway Company, and is opposed by Frank E. Robson, one of complainant’s solicitors, and Alfred Lucking, of counsel for Merrill B. Mills.” This order was made against the protest of complainant. . The most of these claims were held at that time by Swift, Reilly, and Tucker, for the benefit of Stevenson. They were the personal obligations of Mr. Smith. Stevenson, under his contract of sale to Swift and Reilly, had agreed to take care of all debts, claims, and liens against the railway company. It is now urged that the proceeding taken to bring - in these claims is unknown to chancery practice, and that complainant could not be compelled, against its will, to bring in as defendants strangers to the suit. Counsel cite and rely upon 1 Daniell, Ch. Prac. 287; Renfro v. Goetter, 78 Ala. 311; Harper v. Manufacturing Co., 100 Ill. 225; Shields v. Barrow, 17 How. 137; Coleman v. Martin, 6 Blatchf. 119 (Fed. Cas. No. 2,985). There is much force in this contention. Ordinarily, a complainant is entitled to his choice as to parties defendant. If he fails to bring in a necessary party, so that the rights of all may be litigated, he will suffer the penalty by having his bill dismissed. The responsibility usually rests upon him. To this general -rule there may be two exceptions: (1) Where there are relations of trust, or a trust fund to be administered; (2) where a fund is before the court, in which a person not a party is entitled to share. Ex parte Printup; 87 Ala. 148 (6 South. 418); Story, Eq. Pl. § 208. In such cases the parties claiming an interest in the fund usually are allowed to intervene by petition. This note is neither a trust fund, nor one in which the creditors of the defendant company, or of the construction company, or of Smith have any interest. They have no more interest in it than they have in any other credit or property of Smith which might be gar — 269 — nislied in the hands of third parties. Smith owned the bonds, sold them, and took a note in part payment. In a foreclosure suit by Mills, or his trustee for Mills’ benefit, a court of equity has no power to order Smith’s or Mills’ creditors to be made parties to the suit, and to impound the note for their benefit. There was no agreement between Smith and the defendant company, or between him and Stevenson, that these labor claims should be paid out of the proceeds of the money received from Mills on the sale of the bonds. 3. The learned circuit judge was familiar with the services rendered by the complainant and its solicitors, and we see no occasion to disturb the allowance made for their services. We also think that complainant was entitied to interest upon the amount found due upon the bonds. The decree will be modified in accordance with this opinion, with costs to the complainant The other Justices concurred.