Rumsey v. People's Railway Co.

Gantt, C. J. On the sixth day of 'March, 1897, the plaintiff commenced a suit in the circuit court of the city of St. Louis for himself and all other holders of third mortgage bonds to foreclose what is known as the “third mortgage deed of trust,” executed by the People’s Railway Company to C. C. Maffitt, as trustee, to secure certain bonds of said company in said mortgage deed described. In his petition he alleged the incorporation of the People’s Railway Company under the laws of this State; that C. C. Maffitt was the trustee in said “third mortgage deed of trust;” that said mortgage was recorded in book 917, page 27, and following, in the office of the recorder of deeds of the city of St. Louis; that the People’s Railway Company was duly authorized to construct, maintain and operate a street railway in the city of St. Louis, and has constructed said railway, and was engaged in transporting passengers over its line commencing at the intersection of Morgan and Fourth streets, and running south on Fourth to Chouteau avenue west and southwest on — 180 — Chouteau, Carondelet, Park and Mississippi avenues to Lafayette, and thence west to Grand avenue and to Tower Grove Park; and its ownership of various tracts and lots of ground in said city, specifically describing each; and that it had a certain leasehold in block 484 in said city. Plaintiff then alleged that the bonded indebtedness and fixed obligations of the defendant, the People’s Railway Company, amount to the sum of $1,000,000, evidenced as follows: First. By a series of one hundred and twenty-five bonds of the principal sum of $1,000 each, all of them dated May 1, 1882, payable to Julius S. Walsh or bearer (but capable' of being registered), payable twenty years after said date, and bearing interest at the rate of six per cent per annum, evidenced by a series of interest coupons thereto attached, the said railway company having the right to redeem said bonds at any time after May 1, 1892; which said bonds are secured by a mortgage deed of trust upon the roadbed, rolling stock, real estate, franchises and all other properties of the defendant, the People’s Railway Company, hereinafter described, executed by the defendant, the People’s Railway Company, to Thomas E. Tutt and John Jackson, as trustees, which deed of trust is recorded in book 667, at page 469 and following, in the office of the Recorder of Deeds of the city of St. Louis. Second. By a series of seventy-five bonds for $1,000 each, all of them dated May 1, 1886, and payable at all events in sixteen years from the date thereof, and, at the option of the said defendant, the People’s Railway Company, at any time after the first of May, 1896, and bearing interest at the rate of seven per cent per annum, which interest is represented by a series of semi-annual interest coupons attached thereto; which said bonds are secured by a mortgage deed of trust upon said roadbed, real estate, rolling stock, franchises — 181 — and all other properties of the defendant, the People’s Railway Company, hereinafter described, executed by the defendant, the People’s Railway Company, to Julius S. Walsh and John R. Lionberger, trustees, which deed of trust is recorded in book 867 at page 375 and following, in the office of the Recorder of Deeds of the city of St. Louis. Third. By a series of one thousand bonds for the principal sum of $1,000 each (of which series of bonds two hundred have never been issued, but remain in the treasury of said company), bearing date of the tenth of July, 1889, and payable on the first day of July, 1904, or, at the'option of the defendant, the People’s Railway Company, at any time after the first day of July, 1899, and bearing interest at the rate of six per cent per annum, payable on the first day of January and on the first day of July in each, year, which interest is represented by a series of semi-annual coupons attached to each of said bonds; which said bonds are secured by the mortgage deed of trust already spoken of and described as the "third mortgage deed of trust.” That the interest which has accrued on said first and second mortgage bonds has not been entirely paid, but that about $3,000 remain of such interest, due and unpaid. That the defendant, the People’s Railway Company, has also a floating debt, incurred in the purchase of .supplies, in the payment of labor, etc., payable on demand, amounting to the sum of $240,000, which floating debt is largely due, and in large sums, to citizens of other States than the State of Missouri; that the said People’s Railway Company has a capital stock of $1,000,000, divided into twenty thousand shares of $50 each, which 'said shares are scattered among numerous holders to this plaintiff unknown; that the bonded indebtedness of said company, secured by the first, second and third mortgages aforesaid, — 182 — and amounting in the aggregate to the principal sum of $1,000,000, is held by different individuals and corporations scattered throughout the United States and Europe, and the holders of said bonds (except this plaintiff) are unknown to him, and are not discoverable by him; that there is also due to the city of St. Louis and State of Missouri a large amount for public taxes and assessments, state and municipal, lawfully assessed against the property of the defendant, the People’s Railway Company, which taxes are past due and are subject to penalties because of their remaining unpaid, and which taxes are by law a first lien upon the properties of the said defendant. Plaintiff then alleged that in pursuance of said third mortgage deed the People’s Railway Company executed one thousand bonds, numbered from one to one thousand inclusive, aggregating $1,000,000, each bearing date July 10, 1889, payable fifteen years after date. Of this number eight hundred were sold and negotiated, and two hundred were never negotiated, but remain in the treasury; that of the eight hundred bonds so issued plaintiff is the lawful holder of three hundred and forty, aggregating $340,000. Plaintiff then assigns as breaches of the conditions of said mortgage, first, that the said railway has not paid the semiannual interest due July 10, 1896, and January 10, 1897, and that defendant had no funds to pay the interest due July 10, 1897; second, that said company has not paid the public taxes lawfully assessed against the property conveyed by said mortgage deed to the amount of $30,000; third, that it has not performed its covenant to take up and liquidate the. first and second mortgage bonds with the two hundred bonds remaining in the treasury, and the past interest on said bonds, amounting to $3,000, and that the floating debt of said company amounted to $240,000 for materials furnished, — 183 — and the company had no means of paying it. Plaintiff charged that by the terms of the said third mortgage in case of default in the payment of either bonds or coupons for thirty days or failure or neglect to pay said taxes or assessments when due and payable, the holders of said bonds, at their option, might consider said bonds due, though not otherwise due according to their tenor, and might require the said trustee Maffitt, or his successor in said trust, to sell said property, and plaintiff averred he now elected to consider his said bonds due on account of the failure to pay said interest and taxes as aforesaid, and further averred that said trustee could only sell when required by a majority of the holders of the said third mortgage bonds and coupons; that said third mortgage bonds and coupons are widely scattered and in the hands of persons unknown; that, for this reason, a majority of the same can not be collected together for the purpose of requiring the said trustee to proceed to sell the property by advertisement and public sale, as provided in said deed of trust; and that, without the consent of a majority in value of the holders of said bonds and coupons, the said trustee declines to proceed either to advertise and sell the property and franchises conveyed by said deed of trust, or to bring suit to foreclose the said deed of trust; that by reason of the facts herein-before recited, and of the refusal of the defendant, C. C. Maffitt, trustee, to proceed either to advertise and sell the property and franchises conveyed by said deed of trust, or to bring an action to enforce the lien of the same, and in view of the accumulation of public taxes and penalties against said property and of the floating debts against the same, which debts may become chargeable upon the same in advance of the bonds and coupons held by the plaintiff, and in view of the accumulation of unpaid interest under the two prior mortgages upon — 184 — the same, and because the plaintiff has no adequate remedy at law, he brings this suit in equity in behalf of himself and of all other bondholders under the said third mortgage deed of trust, and prays this court: First, that an account may be taken and stated of the sums due to the plaintiff and to each - and every other holder of the bonds and coupons secured by the said third mortgage deed of trust, who elect to come in and prove up their claims; second, that this court will render its judgment or decree that, after due advertisement, the property and franchises of the defendant, the People’s Railway Company, conveyed in said third mortgage deed of trust, shall be sold to enforce the lien of the said third mortgage deed of trust; third, that the proceeds of said sale may be distributed in the payment, first-, of the costs and charges of this proceeding; second, of any public taxes, general or special, whether state or municipal, lawfully assessed against said property, together with the lawful penalties which may have accrued thereon down to the time of said degree and which may then remain unpaid; third, to the payment of any liens which may be established by intervening petitioners upon claims having a priority over the said third mortgage deed of trust; fourth, to the payment of the plaintiff and other holders of bonds and coupons issued under the said third mortgage deed of trust, according as their several claims shall be proved up and established; fifth, and the payment of the residue, if any, to the defendant, the People’s Railway Company. The plaintiff then asked for the appointment of a receiver to take charge of the property and administer it as a trust fund under the order of the court for the benefit of the third mort- ■ gage bondholders and all other creditors having equitable or other liens thereon; that the receiver should take possession and the company be directed to turn — 185 — over its said property to him, and that the trustee be restrained from foreclosing under the power of sale. A summons issued on the tenth day of March, 1897, and was duly served the next day on the company arid the trustee Maffitt. The court appointed Charles Green receiver upon the motion of plaintiff, and he gave bond as required. On April 12, 1897, leave was given certain parties to file an intervening petition, and be made parties to the proceeding, and thereupon said parties filed the following intervening petition: “Now come German-American Bank, a corporation, William Booth, Henry Nennecke, Fred W. Prange, trustee, James Campbell,' James Campbell trustee, John W. Kaiser, Leo Levis, Wernse & Dick-man, Herman A. Haeussler, and Theresa Klein, and leave of court first having been had, file this their intervening petition herein, and pray to be made parties to this proceeding. They state that they are the owners of the bonds described in plaintiff’s petition as ‘ third mortgage bonds ’ of the defendant company, each of the par value of $1,000, with coupons annexed, due January 1st, 1897, and thereafter, as follows: German-American Bank, fifty bonds; William Booth, twenty-eight bonds; Henry Nennecke, eight bonds; Fred W. Prange, trustee, seventy-five bonds; James Campbell, fifteen bonds; James Campbell, trustee, thirty-seven bonds; James W. Kaiser, five; Leo Levis, three; Wernse & Dickman, three; Herman A. Haeussler, seven; Theresa Klein, five; total, two hundred and thirty-one. They admit that the defendant railway company is the owner of the property described in said petition; that it issued its first, second and third mortgage bonds as described in said petition, and that default has been made in the payment of the interest coupons attached to said third mortgage bonds, which — 186 — matured in January, 1897, but deny that default was made in the payment of the interest coupons which matured in July, 1896; deny that the said company is now indebted for a floating indebtedness in the sum of $240,000, or in any other sum, and deny that any portion of said floating' indebtedness is entitled to any priority of lien over said third mortgage bonds as described in said petition; admit that there are now certain taxes and assessments due and owing by said defendant company, but deny that they amount to the sum of thirty thousand dollars.” Mr. Maffitt filed answer and stated upon informa- • tion and belief the petition was true and submitted himself to the jurisdiction of the court and announced his readiness to fulfill his duties as trustee and execute the order of the court. The company in its answer admitted all the allegations except those specifically denied. It denied that its floating debt for supplies, labor, etc., was $240,000, but alleged it was $166,100; denied that it had not paid the interest due July 10, 1896; averred that the interest in arrear for January 10, 1897, was $28,600; denied that its unpaid taxes amounted to $30,000, but stated they amounted to $25,000, and averred .that it had no knowledge, or belief whether any of its floating debt would be held to constitute a lien having priority over the third mortgage deed of trust. Thereupon at the April term, 1897, the circuit court of the city of St. Louis, upon the pleadings alone, entered a decree of foreclosure of said “third mortgage deed of trust.” A writ of error was sued out of this court on the eighteenth of June, 1897, by the railway company, and upon an inspection of the record an order of supersedeas was granted upon the plaintiff in error giving a bond in the penal sum of — 187 — $75,000, which was duly approved and' filed. Upon that record certified to this court, certain errors are assigned and will be noticed and determined in the order of their assignment. I, The railway company asserts that manifest error appears in the decree because it finds that “intervenors, the German-American Bank et al., are the owners of two hundred and thirty-one of said mortgage bonds,” because the decree affirmatively shows upon' its face that it was rendered entirely upon the pleadings, and the ownership of said two hundred and thirty-one bonds was not alleged in the petition no r admitted in the answer. If the plaintiff’s petition and the company’s answer were the only pleadings we think this should be held to be error, but when we consider that the intervenors obtained leave to file an intervening petition, and in their said petition aver their ownership of two hundred and thirty-one of the “third mortgage bonds,” and that petition was filed before the company filed its answer, and in its answer it does not deny their ownership, and as the plaintiff sued not only for himself but “all other third mortgage bondholders,” we do not think the court exceeded the admissions in the pleadings in finding, the intervening petitioners were the owners of two hundred and thirty-one of said bonds. But there was no averment even in the intervening petition ivliat particular bonds of said series were owned by the intervenors, and inasmuch as it conclusively appears no evidence was heard, there is no foundation for the finding of the court “that of the eight hundred bonds so issued, the said intervening bondholders herein, the said German-American Bank et al., are the lawful holders of two hundred and thirty-one of said bonds, aggregating the principal sum of two hundred and thirty-one thousand — 188 — dollars; “said bonds being numbered respectively as follows: 326, 343, 401, 413 inclusive, 563, 564, 570, 571, 584, 593 inclusive, 595, 599 inclusive, 619, 634 inclusive, 376, 400 inclusive, 451, 500 inclusive, 85, 308, 307, 355, 356, 444, 520, 537, 523, 789, 790, 791, 792, 795, 303, 304, 305, 434, 435, 436, 532, 535, 572, 573, 574, 564, 339, 346, 347, 348, 349, 350, 521, 522, 516, 517, 518, 528, 533, 524, 525, 526, 547, 549, 301, 306, 341, 342, 506, 575, 576, 316, 325 inclusive, 775-783 inclusive, 340, 344, 345, 440, 799, 438, 51, 52, 53, 54, 752, 786, 442, 510, 511, 512, 513, 515, 79, 80, 81, 600 to 605 inclusive, 443, 445, 501 to 505 inclusive.” It is apparent that the ownership of the bonds is a most material fact to be determined in this foreclosure proceeding. If allowed to stand, this finding becomes conclusive, and can never be controverted as between the parties, notwithstanding it may turn out hereafter that the identical bonds described in the decree were not the property of said intervenors, but of third parties who were not parties to this suit. The decree is not responsive to the intervening petition, In that the said petition avers a separate ownership of the different petitioners of certain bonds, whereas from the decree it would seem they were all joint owners of the whole two hundred and thirty-one. If a sale should occur under such a loose finding as this how could the commissioner making the sale, or the sheriff, distribute the proceeds. We agree with the plaintiffs in error that the finding as to the numbers of the bonds belonging to intervenors is rendered unintelligible by the promiscuous use of the word “inclusive,” some eight times, and it is not at all clear whether this word has reference to the last bond which precedes it in each case, or to the two bonds which last precede, and all the numbers which intervene between said two numbers. As already said in a direct proceeding like — 189 — this it must be held erroneous when so vital a matter as the ownership of the bonds for which the foreclosure is allowed, is rendered so indefinite that those whose duty it will be to distribute the fund derived from the proposed sale will be utterly unable to determine who are entitled to it. II. Again it is assigned as error that, whereas it is charged in the petition and admitted in the answer that “the interest which has accrued on said first and second mortgage bonds has not been entirely paid, but about $3,000 of said interest remains due and unpaid,” the decree, having been rendered without the hearing of any evidence, finds that the interest in arrear on the first and second mortgage bonds amounts to $10', 990. Defendants in error concede that this point is well taken under the well settled doctrine that a court can not base a decree upon a state of facts not set up in the pleadings. Paddock v. Lance, 94 Mo. 283; Bank v. Franklin Co., 65 Mo. 110. In this case as the court was restricted to the pleadings there can be no presumption that the court heard evidence, or that the parties waived the pleading of the necessary facts, and there is no room to indulge the presumption in favor of the finding, as the reason, upon which it is usually based, falls in the light of the record to the contrary. It is also conceded that the decree is fatally defective on appeal or writ of error because it does not find the amount due on each account so that the defendant may know just what it must pay to avoid a sale of its property. It is clearly the duty of the court to specify the amount due the plaintiff and whereas in this case there are intervening plaintiffs with separate claims, the exact amount due each should be settled by the decree and not leave it to be found or computed by others. Railroad v. Fosdick, 106 U. S. 47; 5 — 190 — Am. and Eng. Ency. of Law, p. 376; Boone on Mort., sec. 189. We agree with counsel that in this respect the decree is clearly erroneous. III. Perhaps the most important question raised by the assignments is this. The defendant insists the decree is erroneous because the court did not fix a short day for redemption before sale, upon the payment of the amount found to be due with costs. We think there can be little doubt that this is the practice in the Federal courts in equity. Judge Miller in Howell v. Railroad, 94 U. S. 463, said: “We are of opinion, then, that there is due from the railroad company to plaintiff the amount of his over due and unpaid coupons. For this sum, whatever it may be, he has a right to decree nisi according to the chancery practice — a decree which will ascertain the sum so due, and give the company a reasonable time to pay it, say ninety days or six months or until the next term of the court, in the discretion of that court. If this sum is not paid, the court must then order a sale of the mortgaged property, with a foreclosure of all rights subordinate to the mortgage with directions to bring the purchase money into court.” Obviously it is the above rule which defendant now invokes. Does such a practice now obtain in Missouri? Is it reversible error to order a sale under foreclosure proceedings without first fixing a day for redemption by the mortgagor? We answer that a court of equity has a broad latitude in framing its decrees so as to do justice. It is perhaps discretionary with a court of chancery to name a day previous to which a foreclosure sale should not occur, but we unhesitatingly say -that it is not only not erroneous under the established practice in this State, to fail, to fix a short day for redemption in foreclosures by bills in equity before ordering a sale, but it would be a most unusual proceeding. The practice of thus fixing a d ay — 191 — has become obsolete in this State.' No sound reason can be given , why a plaintiff, to whom m oneys are secured by a mortgage, should be delayed in obtaining his decree of sale beyond the day of final hearing of the cause. Chancellor Kent in Perine v. Dunn, 4 Johns. Ch. 143, says: “The rule and the practice apply only to cases of strict foreclosure where by the decree, the equity of redemption, is barred, and the complete title is vested in the mortgagee. The rule does not apply to cases of decrees for the sale of the mortgaged premises according to our usual practice. The mortgagor in such cases is not subjected to a severe and absolute forfeiture of all his right, but he has the chance of the surplus moneys arising from the sale, and is placed upon the same footing of equality with debtors against whom judgments are rendered and execution awarded at law.” Without doubt the general practice in Missouri conforms to the Chancellor’s statement of the rule in New York. Moreover .under our statute an execution may issue at once upon any judgment or decree. R. S. 1889, sec. 4895. If, as contended by defendant, the circuit court is bound to set a day certain three months or six months ahead according to the old English practice before entering its final decree of foreclosure and sale, then it is obvious that a mortgagee would be placed in a worse condition than any other creditor. No such distinction can be maintained upon principle and none such was in our opinion intended by the legislature. In the language of the Supreme Court of Alabama, “It would be incompatible with justice and calculated to disturb the harmony of the law, and as the reason of it has ceased, we can not give it our sanction.” Mussina v. Bartlett, 8 Porter (Ala.), 277; Higgins v. West, 5 Ohio, 554. This objection must be and is ruled against the defendant. Equally unsubstantial is the point that the circuit — 192 — court erred in not providing for a redemption after sale in the event of a purchase by the cestuis que trust or some one of them. Section 7079, Revised Statutes 1889, by its terms has no application whatever to a sale under a final decree of foreclosure and the language of that section will not be extended by judicial construction. For the errors noted the decree is reversed and the cause remanded for a new trial. Sherwood, Burgess, Robinson, Brace, Williams and Marshall, JJ., concur.