Alabama & Vicksburg Railway Co. v. Thomas

Wtlliamsow, Special Judge,* delivered the opinion of the court. This suit originated in the chancery court of Rankin county, and complainants attack collaterally certain equity proceedings in the federal court by which a certain trust deed upon the property of the Vicksburg & Meridian Railroad Company was foreclosed, and sold to certain individuals who organized the Alabama & Vicksburg Railway Company, and the property passed from the purchasers at the sale into the possession of the last38 named company. At the time the proceedings were commenced in the federal court there existed three separate trust deeds upon the property of the Vicksburg & Meridian Railroad Company; the first having been executed to secure an issue of $1,000,000 of first mortgage bonds; the second trust deed was executed to secure an issue of $1,000,000’of second mortgage bonds; the third was executed to secure an issue of $1,920,000 of third mortgage bonds. These three issues of bonds were made in pursuance of an agreement for the reorganization of the Vicksburg & Meridian Railroad Company, which was the successor to the old Southern Railroad Company. The Farmers’ Loan & Trust Company of Few York was made trustee in each of said trust deeds. In 1861 the Southern Railroad Company issued ninety-eight bonds, of $1,000 each, and secured the same by trust deed upon certain lands in Mississippi and Arkansas. Wm. Vos-burg was trustee in this instrument, and acted as such until 1885, when he resigned, and C. C. Harvey was appointed in his place. Upon the issuance of its third mortgage bonds by the Vicksburg & Meridian Railroad Company, one Obear, who was the owner of the ninety-eight bonds of the old Southern Railroad Company, exchanged said Southern Railroad bonds for one hundred and twenty-seven of the third" mortgage bonds of the Vicksburg & Meridian Railroad Company, with the distinct agreement indorsed upon the said one hundred and twenty-seven bonds that they should be secured by the first lien upon the lands described in the 1861 trust deed executed by the Southern Railroad Company to secure its bonds, and by the third lien upon the other property of the Vicksburg & Meridian Railroad Company. Complainants are the owners of all the one hundred and twenty-seven bonds, 'and also óf a portion of the other third mortgage bonds of the Vicksburg & Meridian Railroad Company. The judicial proceedings attacked by the bill in this suit were commenced by the Alabama, Hew Orleans, Texas & Pacific Junction Railway, Limited, which filed its bill in the federal court in cause Ho. 440 upon the equity side for the purpose of — 39 — establishing certain unsecured indebtedness against the Vicksburg & Meridian Railroad Company, and claimed priority over the bonded indebtedness of the Vicksburg & Meridian Railroad Company, and asked for a receiver. The Vicksburg & Meridian Railroad Company and the Farmers’ Loan & Trust Company were made defendants. The bill was answered, and its equities denied. A receiver was appointed. Thereupon, at the request of the holders of the second mortgage bonds of the Vicksburg & Meridian Railroad Company, the trustee filed its bill in cause FTo. 475 on the docket of the federal court to foreclose the deed of trust securing their bonds. The Vicksburg & Meridian Railroad Company and several other railroads which asserted claims against the Vicksburg & Meridian Railroad Company superior to its mortgage debts were made defendants to this bill. Upon motion made, the two causes, 440 and 475, were consolidated and proceeded with as one cause, under FTo. 475. After consolidation, upon motion of the Vicksburg & Meridian Railroad Company, publication was made for the third mortgage bondholders to appear to take such steps as they may be advised touching the conservation of their interest by redemption or otherwise. This publication was made for four weeks in a public newspaper called the Ledger. This was the only notice to the third mortgage holders in said suit. The original bill was amended by making third mortgage bondholders parties, and two of them, owning $75,000 of the third mortgage bonds, answered, and asked the court to fix the amount due under first mortgage and second mortgage, and claimed the right to redeem. The final decree in the cause fixed the amounts due the second mortgage bondholders and the several claims of the defendant railroads, and condemned the property of the Vicksburg & Meridian Railroad, Company to be sold, subject to the rights and liens of the first mortgage bondholders, and granted the right to the third mortgage bondholders to redeem. The bill recites the history of all these transactions, and charges, upon information and belief, that these proceedings, and the sale of the — 40 — property thereunder, and the purchase at the sale hy Nugent and others, was a fraudulent scheme to hinder, delay, and defraud complainants and other ^third mortgage bondholders in the collection of their debts; that the publication of notice in this case was absolutely void. The bill in this cause was filed October 9, 1901, more than ten years after the sale and the delivery of the property to the Alabama & Vicksburg Railway Company, which the bill avers was on November 25, 1889. The bill further avers that the railroad and property was delivered to the Alabama & Vicksburg Railway Company, and it has continued in possession of the same. The demurrers to the bill raise, among others, two objections: (1) The state court is without jurisdiction, and cannot review or vacate the decree of the United States court; (2) the cause is barred by limitations. If it be true that the federal court had jurisdiction of the subject-matter and of the necessary parties in the suits attacked by the complainants in this cause, the state court is without jurisdiction to entertain this bill. That the federal court had jurisdiction of the matter is not disputed, but the bill charges that there was a total failure to obtain jurisdiction of necessary parties; that publication made for the holders of the third mortgage bonds was void for the reasons that the pleadings in the case were not in proper form to authorize the court to make the order, that proper affidavit was not made to obtain the order, and that the publication was made for four weeks only. . The defects charged in the bill of complaint against the records in the federal court cases amount to irregularities only in the course of the judicial proceedings, and do not render the proceedings void nor the decree open to collateral attack. Irregularities in permitting amendments to the bill for the purpose of bringing in other parties, and the ordering of publication without formal affidavit, and the insufficiency of publication, as charged in complainant’s bill, must be remedied by direct proceedings in the court which tried 'the cause or by appeal to a — 41 — higher court. The record shows there was some notice to the third bondholders, but charges it was not sufficient, because published for four weeks only. This is a collateral attack for irregularity, and cannot be permitted. Hot only did the third bondholders have notice of the pendency of the foreclosure proceedings by this publication, irregular though it may have been, but the pendency of the suit to foreclose the mortgage was constructive notice to all parties of the rights claimed by the complainant in the premises which formed the subject of the proceedings ; and, in addition to this, the third mortgage bondholders were represented in said foreclosure proceedings by the trustee. The bondholders were not necessary parties, though they might have been proper parties. The trustee is the proper party to represent and protect the interests of bondholders under ordinary circumstances; and, in the absence of fraud, beneficiaries are bound by whatever is done by the trustee in litigation over the trust property. The only purpose of making junior mortgagees parties to a foreclosure proceeding commenced by prior mortgagees is to afford them an opportunity to have the court ascertain the correct amount of the first mortgage debt and to assert the right of redemption. There is no charge in the bill of complaint against the validity of the first and second mortgage bonds, and it is positively stated that both constituted a prior lien to complainant’s debt upon the bulk of the property of the Vicksburg & Meridian Railroad Company. It is not denied, but admitted, in the bill, that the.-conditions of the trust deed securing the second mortgage bonds were broken. If each of complainants and other third mortgage bondholders had been personally served with process, and all had entered their appearance to the foreclosure suit in the United States court, their only remedy would have been to discharge the amount ascertained by the court to be due the second mortgage bondholders and to have redeemed the property. That is their only right now. ÜSTothing appears in the record of the federal court to have justified that court in denying the second mortgage bond — 42 — holders the collection of their debts ahead of the third mortgage bondholders, and nothing is charged in the bill that wonld now justify this court in denying them priority over the third mortgage beneficiaries, yet complainants do not offer even to redeem the property by discharging the legitimate debt dne the second mortgage bondholders. The bill is defective in this respect. The fraud charged in the bill of complaint is made npon information and belief, and consists of general allegations that the proceedings in the federal court, the sale of the property, and the organization of the Alabama & Vicksburg Railway Company, and the. transfer of the property to that company, were parts of a scheme to hinder, delay, and defraud complainants and other third mortgage bondholders. Upon critical examination of the bill, we do not find the specific, concrete facts stated which constitute the fraud charged. A case of fraud cannot be made in a bill by simply charging fraud generally. The facts which constitute the fraud must be stated. See Weir v. Jones, 84 Miss., 602 (s.c., 36 South. Rep., 533); U. S. v. Atherton, 102 U. S., 372 (36 L. ed., 213); and other authorities cited in the briefs! We think this suit is barred by limitation. More than ten years had elapsed from the time the right to bring the suit accrued and the filing of the bill of complaint. The bill shows that the Alabama & Vicksburg Railway Company took the property under adverse claim of right thereto, and has been continuously claiming the same ever since. Whether viewed as a bill of review, as a bill analogous to a bill of review, as a suit in equity for land, or as a bill to enforce an implied trust, the right, to sue is barred. The bill nowhere shows that complainants were actually ignorant of anything that was done in the federal court in the proceedings set out. It does not state they were ignorant of the decree made, or of the sale before its making, or of the transfer of the property to the possession of the Alabama & Vicksburg Railway Company, or of the claim of ownership by that company. Besides, the taking possession — 43 — of the property and the holding of the same by the Alabama & Vicksburg Railway Company, as stated in the bill, was notice to all concerned of the nature and extent of the claim or right under which such possession was taken and held. This is a well-settled law in Mississippi. Besides, it is averred in the bill that pending the proceedings in the federal court a proposition was made to complainants to reorganize the Vicksburg & Meridian Railroad Company, which proposition was not satisfactory to complainants, and it was not accepted. ISTeither can the bar of the statute be evaded on the ground of concealed fraud. In the first place, no concealment of the fraud is averred in the bill, nor is ignorance of the. fraud alleged to exist at any time, and the fraud that is charged in the bill, if any fraud can be said to be charged, is now, and always was, apparent on the face of the records of the federal court. If the bill shows on its face that the period fixed by the statute stating the bar has elapsed, it must, in order to avoid demurrer, either expressly show that the fraud was concealed, and was not or could not have been discovered-until within the period fixed by the statute, or its averments must substantially show the same fact. We do not think the bill meets this requirement, but if the bill, in this connection, had averred ignorance of the facts of fraud, the fact that the Alabama & Vicksburg Railway Company had actual, adverse possession of the property, and has been holding the same continuously ever since, was sufficient to put complainants on inquiry and notice. We think the demurrers to the bill should be sustained. The Vicksburg & Meridian Railroad Company, the Alabama. & Vicksburg Railway Company, and O. 0. Harvey, trustee, demurred to all the bill of complaint except that portion claiming first lien upon the certain lands described in Exhibits A and B to the bill. To that portion of the bill a plea was filed setting up the pendency of a suit in the chancery court of Rankin county involving the same parties and the same subject-matter. The sufficiency of this plea was, by agreement, submitted to the — 44 — lower court at the same time with the demurrers. The record of said pending suit was offered in evidence at the hearing, hut it does not' appear in the record in this court. The lower court held the plea insufficient, and so decreed. We are unable to determine from the record the correctness of this ruling of the court, but if it be true, as seems to be admitted, that said pending suit was for the purpose of enforcing the rights of the complainants against said lands upon which they held a first mortgage, we think the plea sufficient. The lower court correctly denied the application of complainants for a receiver. Let the demurrers of the defendant to the original bill be sustained, with leave to complainants to amend their bill within thirty days after filing of the mandate to the lower court; else the bill will stand dismissed, except as to the rights of complainants against the lands under the lien securing the one hundred and twenty-seven third mortgage bonds, and as to the parties defendant interested in said lands. 'The sufficiency of the plea may be reheard by the lower court. Motion for receiver will be denied. The motion to consolidate this cause with the pending suit, mentioned in the plea, will be overruled. Let the decree of the lower court be reversed,\ and this cause be remanded to be proceeded with in accordance with this opinion. Footnotes [*] Judge Calhoon, having "been consulted while at the har touching this case, recused himself, and C. M. Williamson, Esq.., a member of the supreme court bar, was appointed and presided in this cause in his place.