Gunnison v. Chicago, M. & ST. P. Ry. Co.

Upon this statement of the case, BUNN, District Judge, delivered the opinion of the court. This case was first before the court on demurrer to the bill some four years ago. Several days were consumed in the argument, upon which the demurrer was overruled, and the defendant required to answer. Now it »is here upon the merits. Most of the witnesses who might know about the transactions of 40 years ago are dead. Several of those who have given their testimony have died since the suit was commenced. Much time has been consumed in the oral argument,—I believe some two weeks,—and elaborate briefs have been filed. I have given the case a careful and extended consideration, and the conclusion I have reached is that there is not much equity in the complainants’ case. I think complainants’ counsel have felt the difficulty all the way through of meeting the objections founded upon the great lapse of time since the bonds were issued and since suit might have been brought to enforce relief, with defendants all the time in possession claiming title. There is one consideration, and but one, that makes in favor of the complainants’ case. The $600,000 of bonds were issued by the Minnesota Company in 1864, and not a dollar of principal or interest has ever been paid. That company was of short life, and went out of existence soon after the bonds were issued, so that there was no legal responsibility anywhere for the payment of the bonds. But this fact of itself should have put the bondholders and their trustees on their guard to pursue with all the more vigilance any remedy in equity they might have against the property. They knew that the property was in the hands of the Milwaukee Company under claim of title by virtue of the sale under the Cleveland-James judgment, as against the mortgage in suit. They knew that the Milwaukee Company was making large improvements on the property, and incorporating the road into their general system, and that it was paying off large mortgages that constituted prior liens upon the road. Up to December, 1867, when the appeal, in the James suit was decided by the supreme court (see 6 Wall. 752, 18 L. Ed. 885) adversely to their claim, it may be conceded that they did all that could be done to enforce their claim. But from December, 1867, the fight was practically relinquished, although the suit brought in the United States circuit court for Wisconsin was permitted to remain on the docket of the court for some four years, until 1872, but counsel for the Milwaukee Company was informed that he need not answer the bill unless notified to do so. From the time that suit in 1872 was dismissed nothing has been done by way of asserting any equitable claim under the mortgage. This is certainly a long time to wait, and if the equitable doctrine of laches has any application to this case there is no lack in the one element of time. — 639 — But perhaps the first question, as bearing upon the equities of the case, relates to the amount of bonds actually sold by the Minnesota Company; for it is only these that are entitled to any equitable consideration. The evidence on this subject is very interesting, and at the same time very shadowy. I cannot think it is at all satisfactory as to more than a very few of the bonds. Gunnison and Bright claim to own $500,000 of the $600,000 issued. $350,000 of this $500,000 are the bonds turned over as collateral security to the Philadelphia party. In 1865 the Minnesota Company was in hard straits for money to run the road. Indeed, it never had either money or credit. It had got possession, but it wanted money, and the bonds did not seem to bring money. It borrowed $450,000 of Scott and Thompson, of the Pennsylvania Company, and as part security put up $350,000 of the company’s bonds, together with a majority of its capital stock and certain decretal orders amounting to $300,000. After the Milwaukee Company was put in possession under the James decree, the Philadelphia parties became alarmed, and a settlement was made between them, the Milwaukee Company, and the Minnesota Company, as a result of which Scott and Thompson canceled the indebtedness of the Minnesota Company, and returned to it the 350 bonds, with the capital stock: Aaron S. Bright, as president of the Minnesota Company, receiving and receipting for both stock and bonds. This was in December, 1867. Bright was the president, and Gunnison vice president, of the Minnesota Company. There is no evidence that these bonds were ever sold. Complainant Gunnison testifies that, within a few years after they had been placed in the hands of Scott and Thompson as collateral security, he saw all of them in the hands of Aaron S. Bright, who made the settlement with Scott and Thompson, and that he then exchanged with Bright a half interest in the capital stock, which he claimed to own, for a half interest in the 350 bonds which Bright told him he had purchased from. Scott. This is the rather unsatisfactory way in which Gunnison puts it in his testimony: “We just divided. Being old acquaintances, we just divided, and w'ent into the thing. Whatever there was of it, we divided it.” From this and the other testimony it would seem as though Gunnison and Bright looked upon themselves as the Minnesota Company, with full right to divide the stock and bonds' between them. If they appropriated these bonds to their own use without authority of law, what equitable claim have they here after the lapse of 30 years? But it is said we should not look into this question now, but refer the case to a master to take testimony. But no doubt all the testimony is taken that could be on these questions, and more than could be taken now after Gunnison, Bright, and other witnesses have passed away since giving their evidence in this case. Besides, I only refer to the question of title as bearing on the equities of the complainants’ claim. These bonds have never had any market value. The testimony shows that they have always been considered as worthless, and when 146 of them were found among the assets of the Griffiths estate they were not accounted worth inventorying, and were not inventoried or any value set upon them, although the estate was insolvent, and paid but 50 cents on the dollar of its debts. After lying in musty boxes and gar — 640 — .rets for 35 years, if they are now to be brought forth and made the foundation for a foreclosure and sale of the property covered by the mortgage then there should be some good showing as to the sale •of the bonds to furnish an equity. The statement that Bright bought these bonds of Scott and Thompson has no foundation in fact. The ■testimony shows well enough what that transaction was. The bonds were turned over to Scott and Thompson as collateral, and when Scott and Thompson’s claim was paid they were handed back to Bright, as president of the company, with other collaterals, including the capital stock of the company, Bright receiving and receipting for .them as president of the company. I am satisfied that Gunnison and Bright took the bonds without authority, and divided them between them. According to Gunnison’s testimony, when this division was made he took all the 350 bonds, and put them in a safe-deposit vault in New York, where they remained until 1896. Dwight W. Keyes was secretary of the Minnesota Company from its organization, in 1859, until 1865, on a salary, which was never paid, of $500. In April, 1868, he obtained judgment against the company in the circuit •court of Milwaukee county for $3,300 for his services as secretary. He testified that he had known Gunnison well for a long time; that Gunnison, when he (Keyes) signed the bonds in 1864, promised that he would see him paid; that after he obtained his judgment he wrote to Gunnison if he could not find some way of satisfying his claim, and that Gunnison answered that the company had no money, but that they had some bonds and stocks that had been returned from Scott and Thompson, and if he would take some of them in settlement he would talk with Bright about it, and get the company to vote the allowance; that he (Keyes), who resided in Cleveland, was in Milwaukee shortly after, and went to see John W. Cary about it, who advised him that the stock and bonds were worthless and that ■he had better keep his judgment; that he afterwards garnished the Milwaukee Company, but that Cary knocked him out, and he never .■got anything for his services as secretary. The testimony shows that ■these 350 bonds were the only ones in the possession of Gunnison and Bright at the commencement of this suit, notwithstanding the allegations in the bill that they are the lawful owners and holders of 500 •of said 600 bonds of the Minnesota Company. How they came to have these bonds in their possession, as well as the character of their title, has already been seen. Now, as to the other 150 bonds to make up the 500 claimed by •Gunnison and Bright, who were the promoters of this suit, though since deceased. These were sold soon after being issued, prob.ably in 1865, to William R. Griffiths. According to Gunnison’s first •testimony, it was 200 bonds or a little less. Afterwards, when asked -if he knew how many Griffiths did take, he answered, “between 150 .and 175.” This number is shown by the whole'testimony to be an even 150. Griffiths was at that time a man of some means. He lived in New York, and died in 1876. Chas. E. Hackley, one of complainants’ witnesses, testifies that he was sole executor of Griffiths’ •estate; that he returned and appraised everything that Griffiths left ithat could be found; that he found among his effects 146 of these — 641 — bonds, which were appraised at a nominal value; that in 1881 he rendered his final account to the surrogate court, and that these bonds were decreed to be worthless. The estate was insolvent, and paid less than 50 cents on the dollar, the legatees receiving nothing. This bill was filed on March 30, 1897. Hackley testifies that the 146 bonds remained in his possession up to September, 1898, some 18 months after this suit was commenced; this being the only thing, as he says, he could do with them, unless he burned them. Then, under the advice of counsel, he refuses to state what he did with them. There are many pages of the record made up of questions on cross-examination put to Gunnison, Bright, and Hackley as to these and the other bonds in suit, with refusals to answer. This may be one way to try cases. But the court in an equity case is desirous of finding the truth, and this mode of examination is not very conducive to such an end. All such questions as these the witnesses refuse, under advice of counsel, to answer: “Was Mr. Gunnison the party who obtained these bonds of you in 1898?” “Who purchased them?” “Did the party who took these bonds from you state that they had been put up as collateral for a loan to him and Aaron S. Bright from Griffiths?” Hackley testified, however, that at the time he disposed of the 146 bonds, in 1898, he did not regard them of any value; for, if he had, he would not have sold them. Afterwards, however, when Dr. Hackley, in 1900, was called to further testify before the special examiner, he testified that on September 16, 1898, he sold the. 146 bonds to Albert C. Gunnison for $500. What title he had or what right to sell them is not apparent, as he had settled the estate, and was no longer administrator. And this about represents the percentage of equity that Gunnison and Bright have in this suit. They have bought $146,000 of bonds for $500, some 18 months after the suit was begun, in the spring of 1897. When suit was commenced, they had no interest whatever. They, after waiting 35 years, have paid $500 on a mere speculative venture, and have got bonds in their possession amounting to $496,-000, with interest at 8 per cent, from 1864: Four of the 150 bonds sold to Griffiths he sold to Dr. Hackley, who still holds them, and these 4 bonds have, no doubt, the best standing of any in this court. Fifty other bonds Gunnison testifies were sold to Troy parties in 1865 for $50,000. This seems somewhat incredible, and I think, considering the rather unsatisfactory nature of Gunnison’s other testimony, may be taken with some grain of allowance. How one block of bonds should be sold for 50 cents on the dollar, and another at about the same time at par, is not very apparent. Gunnison testifies that he does not know what became of the other 100 bonds required to make up the 600. As late as June 2, 1899, he testified that the “about 500” bonds which he and Bright claimed, which included the 350 turned over as collateral to Scott and Thompson, and the Griffiths bonds, were all of the 600 that he knew anything about, and yet it is a significant circumstance that the persons in Troy who, for years, had these bonds in their possession, and from whom the parties who now hold them took them, were relatives and friends of Gunnison. These bonds, amounting to 51, are still in the' hands of par — 642 — ties residing at Troy. The remaining 49 bonds were never negotiated at all. The question naturally arises at this point, without going further into the case, whether a court of equity, after such lapse of time and the great uncertainty of the testimony, will put forth its powers in aid of those who have ventured so small a sum to take the chances on so great a windfall as the foreclosure of this mortgage, with the accumulated interest, would be. In view of the maxims that “he who comes into equity must come with clean hands,” and “he who hath committed iniquity shall not have equity,” it would seem quite clear that there is not any very strong call on the conscience of the court to grant the relief sought. On the contrary, the court is asked to order the sale of property valued at several millions of dollars in order to enable Gunnison and Bright to realize upon a long standing venture of embezzlement and speculation. But the great and controlling interest in the case centers about the question of the effect to be given to the sale under the decree rendered for a sale to satisfy the Cleveland judgment. Was the effect of that foreclosure like that of the foreclosure of a mortgage?' Or when the sale was made had it the effect of a sale on the judgment ? There are no authorities directly in point upon this question. But the supreme court, upon appeal in the James suit, held that the judgment became a lien on the railroad in question from the time of its rendition, and that the sale thereunder passed to the purchaser the whole of the interest which the La Crosse Company had in the road at the time of the rendition of that judgment. I see no reason for thinking there was anything extrajudicial about such language, or that the court did not mean to give full effect to what it said. And if what the court said is true, that the sale took all the title there was in the La Crosse Company at the date of the rendition of the judgment, then it took the title represented by the mortgage in suit. And I see nothing inconsistent in such a doctrine. It is only giving full effect to the judgment. The road could not be sold separate from the franchise. And execution could not issue upon the judgment for the sale of the franchise, which is an incorporeal hereditament. The judgment was worthless unless equity would overcome this technical rule of the common law, and allow a sale to satisfy the judgment. But equity does not do things by halves. When it steps in to do justice because of some imperfection or too great generalty of the common law, it gives a full measure of relief, according to the nature of the case. But full measure in this case would mean that the judgment creditor should have what his judgment would give him if the law allowed a fieri facias. If it be equitable for a court to order a sale, why should it not afford a full measure of relief, and give the judgment creditor the full benefit of the principle of finality attaching to all judgments? When the sale takes place it is like a sale on the judgment with the like effect. There would seem to be no reason why, if equity will interfere at all to allow a sale, that when it is made it should be considered as a sale on an ordinary foreclosure of a mortgage. That would not give the measure of relief which equity always intends, but would convert the lien of the judgment into — 643 — something equivalent to the lien of a mortgage which has not the quality of finality attaching to judgment liens. Probably the supreme court meant all this when it said by Mr. Justice Nelson in the James Case that, “by the statute law of Wisconsin, judgments are liens on real estate, and we do not doubt but that this judgment became a lien on the road from the time of its rendition, and that a sale under a decree in chancery, and conveyance in pursuance thereof, confirmed by the court, passed the whole of the interest of the company existing at the time of its rendition to the purchaser.” Railroad Co. v. James, 6 Wall. 750, 18 L. Ed. 854. And this was evidently the view taken by Judge Dyer when the question of the effect of the sale on the James decree came before him, in Howard v. Railroad Co., 7 Biss. 73, Fed. Cas. No. 6,761. By the whole of the interest which the Ea Crosse Company had in the road at the time of the rendition of the judgment, no doubt the supreme court intended not alone the roadbed, rails, and right of way, but the right to maintain and operate the road. This franchise was inseparable from the ownership of the road, and without it a railroad would be of no value. Morgan v. Louisiana, 93 U. S. 217, 23 L. Ed. 860. This incorporeal right or franchise could not be sold upon a common-law fieri facias. Equity, therefore, stepped in and removed this technical objection in order to do justice, and allowed the franchise to run the road as well as the road itself to be sold to satisfy the judgment; so that the only equity that the Minnesota Company or any subsequent incumbrancer had after sale was to redeem from that sale. This there was never any attempt to do, although some 35 years have elapsed. Besides this, so far as the principal claimants, Gunnison and Bright, are concerned, it seems quite evident that they are bound by the decision of the supreme court in the James suit. They were stockholders in the Minnesota Company, and as such prayed and were allowed an appeal in the name of the company. They litigated in the supreme court the right of the Ea Crosse & Milwaukee Company to the possession and ownership of this road under the decree and marshal’s deed in the James suit. They were defeated in that litigation. Now, as bondholders after over 30 years of delay on their part and adverse possession on the part of the defendants, they propose to contest the company’s right to the road. This, I think, they are estopped from doing. Railroad Co. v. U. S., 168 U. S. 1, 18 Sup. Ct. 18, 42 L. Ed. 355; Jackson v. Lodge, 36 Cal. 28. The evidence, I think, also discloses at least two other complete defenses to this suit, both founded upon the delay which is so obvious a feature in this case. One of these defenses is founded upon the statutes of limitation, the other upon laches, and may be considered together. The Wisconsin 10-year statute of limitations seems to me applicable to the case. That statute is as follows (Rev. St. 1898, § 4211): “Where the occupant, or those under whom he claims, entered into the possession of any premises under elaim of title, exclusive of any other right, founding such claim upon some written instrument, as being a conveyance of the premises in question, or upon the judgment of some competent- court,. — 644 — and there has been a continual occupation and possession of the premises, included in such instrument or judgment under such claim, for ten years, the premises shall he deemed to have been held adversely.” It is difficult to see wherein the evidence in this case fails to satisfy every _ condition and requirement of this statute. The defendants went into possession under the decree of the United States circuit court for Wisconsin, and the marshal’s deed made on the sale, on hi arch 5, 1867, claiming title as against the complainants and all the world, subject to the several prior mortgages on the property, and have remained in possession continuously ever since. It was 30 years from the time defendants went into possession, in March, 1867, to the commencement of this suit, in March, 1897, and I think the evidence shows that the defendants have held the premises adversely all that time. There is every element of adverse possession in the case. The bondholders were not made parties to the bill in equity for a decree to sell on the judgment, because it was not considered necessary. The Milwaukee Company went into possession under the marshal’s deed, claiming title as against the mortgagees. The supreme court affirmed its right by an affirmance of the James decree. That company has shown its good faith in its claim of title by paying off several millions of mortgage and judgment liens that were prior to its decree and prior to the claim of these mortgagees, by vastly improving the property, and incorporating it into its general system of railroads, constituting one of the great railroad systems of the country. The company has never paid any interest on the bonds in suit nor in any way recognized the existence of the mortgage as a claim against the property. Under these circumstances, to lie by and make no sign or claim for 30 years estops the bondholders from making the claim now. Allowing for the moment that the sale under the James judgment did not take all the title of the L,a Crosse Company in the road from the day of its rendition, in 1867, as the supreme court said it did, still this is the claim that the company made when it went into possession, and has always made, and this was well known to Gunnison and Bright and Griffiths, and all who made any claim under the Minnesota Company. The appeal to the supreme court was taken to contest that claim. The suit by Scribner, brought by Mr. Stark in the United States court for Wisconsin in 1868, after the James decree was made by that court, was brought to contest the same claim of the Milwaukee Company. If there had been any intention to press the claim under the mortgage in suit after the decision of the supreme court in the James suit, it should not have been abandoned, but that suit in Milwaukee should have been pressed to hearing. But the case was allowed to remain on the calendar of the court for nearly four years, Mr. Cary, the counsel for the Milwaukee Company, being told that he need not answer unless required by notice to do so, until finally, in 1872, the suit was dismissed. After the dismissal of that suit, with the defendants in possession making valuable improvements and paying off prior liens, it was negligence for the bondholders to lie by for 25 years without pressing their claims. The fact, quite apparent from all the circumstances, is that, when the suit — 645 — in Milwaukee was dismissed by Mr. Stark, the Gunnison and_ Bright parties gave up the fight. They had been beaten at every point, and they were ready to throw up the sponge. There is a bit of testimony by Mr. Stark, who had been the attorney for the Minnesota Company, and was the attorney for Gunnison and Bright in the litigation in Milwaukee and in the supreme court, that is quite significant. Speaking of the appeal in the James suit and in another case, he says: “As those appeals resulted adversely to the Milwaukee and Minnesota Company, and resulted in the establishment of the title to the Eastern Division of the road which the Milwaukee and St. Paul Company claimed under the foreclosure of the Cleveland judgment in the James suit, it was very disconcerting to the parties interested.” This is, no doubt, the way his clients also felt, and no doubt furnishes a clue to the reason for not pressing the Scribner suit. If the decision of the supreme court in the James suit was disconcerting in 1867, it is perhaps quite as disconcerting now, after the lapse of 35 years. A point has been made that there is not sufficient evidence that Joshua Stark had written authority from the trustees of the bondholders to commence that suit. But the presumption is strong that he had proper authority. He was then, and still is, an able and responsible attorney in high standing. The presumption is strong, and is not shaken by anything in the testimony, that he had authority. After instituting the suit at the instance of Gunnison and Bright, he wrote and telegraphed for written authority from the trustees. He thinks he had it, though after the lapse of 35 years he cannot find it amongst his papers, which is no great wonder. I think the above-named statute began to run on the complainants’ claim when the Milwaukee Company went into possession, in March, 1867, and from that time the company has held the property adversely. See Barnes v. Railway Co., 122 U. S. 1, 7 Sup. Ct. 1043, 30 L. Ed. 1128, where the supreme court, by Chief Justice Waite, says.: “Under this decree the property was sold and conveyed to the St. Paul Company, March 2, 1867, for $100,920.94, and from that time that company has been in possession claiming title adversely to the Minnesota Company and to the Barnes mortgage.” North v. Hammer, 34 Wis. 425. I also think that laches commenced to run from a time soon after the Scribner suit was begun at Milwaukee. All the relief could have been had in that suit which could be had in this, and it was great negligence, if they desired to make any further claim to the property after the decision, of the supreme court, to allow the suit in the United States circuit court at Milwaukee to remain unmoved for four years, and then to- have it dismissed. By the discontinuance of that suit the Milwaukee Company had grounds for believing that the trustees and bondholders had decided to acquiesce in the decision of the supreme court in the James suit, and make no further claim that the title of that company was subject to their mortgage. The Scribner bill attacked the Cleveland judgment, and the title which the St. Paul Company claimed under the sale and marshal’s deed, averring that the judgment was never a lien upon the railroad and — 646 — franchises of the Ea Crosse Company, and that the mortgage in suit was not lawfully subject to the judgment thereof. The appeal in the James suit was pending in the supreme court when the Scribner bill was filed, and within two months the decision of the court was announced affirming the decree and the right of the Milwaukee Company to the road and franchise under the sale. The most natural thing to have done after that decree was rendered was to discontinue the Scribner suit, but instead of that the attorney advised Mr. Cary, counsel for the Milwaukee Company, that he need not answer the bill unless they gave him timely notice to do so, but kept the suit in court without further proceedings for nearly four years, when in 1872 the bill was voluntarily dismissed by complainants. Again, at the time the Scribner bill was filed the Minnesota Company was in default for nonpayment of interest, aggregating $144,000, and when the bill was dismissed the defaulted interest amounted to $336,000; that is, supposing bonds were issued and sold as claimed by the complainants. A foreclosure may have been begun for default in the payment of interest, which might have resulted in the sale of the road. No such suit, however, was ever commenced. See Toler v. Railroad Co. (C. C.) 67 Fed. 181; Railroad Co. v. Fosdick, 106 U. S. 47, 27 L. Ed. 47; Howell v. Railroad Co., 94 U. S. 463, 24 L. Ed. 254. The doctrine in regard to laches is very clearly laid down by the supreme court in Halsted v. Grinnan, 152 U. S. 412; and by the same judge in Naddo v. Bardon, 2 C. C. A. 335, 51 Fed. 493, 14 Sup. Ct. 641, 38 L. Ed. 495; and by Chief Justice Fuller in Hammond v. Hopkins, 143 U. S. 224, 12 Sup. Ct. 418, 36 L. Ed. 134; 2 Pom. Eq. Jur. § 816; Simmons v. Railroad Co., 159 U. S. 278, 16 Sup. Ct. 1, 40 L. Ed. 150. Furthermore, it seems a matter of much doubt whether the usual 20-year statute applicable to actions upon sealed instruments does not apply to this case. Though the principal of the bonds, by their terms, was not due until 1884, the Minnesota Company went out of existence as early as 1872; so that the only remedy the bondholders had was in equity against the property. That company surrendered its franchise to the state in 1872, or prior to that time, which surrender was accepted by the state, which surrender and acceptance constituted a dissolution of the corporation. The allegations of the bill in this case show that the company was dissolved more than 25 years prior to the filing of the bill, and, aside from the pleadings, the evidence shows a dissolution as early as 1869-72. The Milwaukee Company went into' possession on March 6, 1867, under the sale upon the Cleveland judgment and James decree, and has remained in undisturbed possession ever since. There being no legal remedy of which the bondholders could avail themselves, it would seem a reasonable proposition that their remedy, whatever it was, against the property should be pressed within the 20 years from the time the cause of action in equity arose, without reference to the time the bonds fell due by their terms. But I am satisfied to place the decision of this case upon the grounds already discussed: (1) That the sale under the James decree took the entire title of the Ea Crosse — 647 — & Milwaukee Company which it had at the date of the rendition of the judgment on October 7, 1857, long before the Minnesota Company was formed or the bonds in suit issued; (2) that the 10-year statute of limitations provided by the laws of Wisconsin had run upon the claim long before the suit was begun, to wit, on or about March 6, 1877; (3) that the gross laches of the trustees and bondholders in not pressing the claim sooner, after full knowledge that the Milwaukee Company had gone into possession of the property under claim of title which was adverse to their interest, making large and valuable improvements, and paying off some $3,000,000 of prior liens, are such as make a foreclosure at this late day unjust and inequitable. The. bill of complaint is dismissed for want of equity, with costs. Footnotes [¶] 2. See Adverse Possession, vol. 1, Cent. Dig. § 444.