Chicago, M. & St. P. Ry. Co. v. Bank
134 U.S. 276 (1890)

Annotate this Case

U.S. Supreme Court

Chicago, M. & St. P. Ry. Co. v. Bank, 134 U.S. 276 (1890)

Chicago, Milwaukee & St. Paul Railway Company

v. Third National Bank of Chicago

No. 174

Argued January 8, 1890

Decided March 17, 1890

134 U.S. 276

Syllabus

A corporation in debt cannot transfer its entire property by lease so as to prevent the application of it at its full value to the satisfaction of the debts of the company, and when such transfer is made under circumstances like those shown in this case, a court of equity will decree the payment of a judgment debt of the lessor by the lessee.

Where, in a court of equity, an apparent legal burden on property is challenged, the court has jurisdiction of a cross-bill to enforce, by its own procedure, such burden.

The court which denies legal remedies may enforce equitable remedies for

Page 134 U. S. 277

the same debt, and an application for the latter is not foreign to a bill for the former.

A cross-bill may be amended so as to work a change in the ground of the relief sought when the proofs which make it necessary are furnished by the original complainant in support of allegations in his bill.

A lessee of a railroad, receiving money to be expended on the leased property and misappropriating it by spending it on another property, cannot, by afterwards spending an equal amount of its own money on the leased property, deprive a creditor of the lessor of an equitable right growing out of the misappropriation.

A misappropriation of money by a corporation being proved, and an equitable claim against the wrongdoer being established, and it appearing that the pleadings raise no issue as to the amount of the misappropriation, and that the officers of the corporation can furnish no information on this point, it is no error to hold that it was in excess of the claim.

In 1865, by a special act of the Legislature of Illinois, the Chicago and Pacific Railroad Company was organized as a body corporate, with authority to construct and operate a railroad from the City of Chicago to the Mississippi River at a point near Savanna, both points being within the State of Illinois. In 1872, it executed a trust deed upon its property to secure $3,000,000 of bonds. On March 9, 1876, judgment was rendered against it in the United States Circuit Court for the Northern District of Illinois for the sum of $3,499.73 in favor of Horace Tabor. Execution was first issued upon this judgment September 9, 1876. On May 27, 1876, suit was brought to foreclose the deed of trust. After a decree in such foreclosure, and on May 1, 1879, the property was sold on an order of sale, for $916,100, to John I. Blair and others. Subsequent to April 2, 1880, but within the year prescribed by statute, the Chicago and Pacific Railroad Company redeemed the property from the sale under the foreclosure decree; the Chicago, Milwaukee and St. Paul Railway Company having advanced the money therefor. On the 19th of February, 1880, which was after the foreclosure sale but before the redemption, the Third National Bank of Chicago brought suit in the same court against the Chicago and Pacific Railroad Company upon notes given by the company to the bank for money loaned. On the 3d of April, 1882, judgment was rendered in that suit in favor of the bank for $36,165.36, and on the

Page 134 U. S. 278

15th of July of the same year execution was issued thereon. On the 25th day of June, 1881, which was after the redemption from the foreclosure sale, the property of the Chicago and Pacific Railroad Company was sold, under an execution issued upon the Tabor judgment, to Albert Keep, to whom the certificate of sale was executed. The property so sold was described as follows:

"All and singular, the railroad of the Chicago and Pacific Railroad Company, as the same is now surveyed, laid out, constructed, and located in the Counties of Cook, Du Page, Kane, De Kalb, Ogle, and Carroll, in the State of Illinois, including the roadbed, stations, or stationhouses, depot grounds, rails, ties, fences, bridges, viaducts, and culverts, and all other buildings and structures, as well as engine houses, machine and other shops, used in connection with said railroad."

On June 4, 1882, Albert Keep, the purchaser, assigned the certificate of sale to Alexander Mitchell, the president of the Chicago, Milwaukee and St. Paul Railway Company. The judgment debtor not redeeming within the year, the bank, as judgment creditor, on September 25, 1882, redeemed from the execution sale by the payment to the marshal of the necessary sum, $5,304.20, and this redemption money was paid to and received by Alexander Mitchell. The statute of Illinois with reference to such redemption provides as follows:

"SEC. 20. If such redemption is not made, any decree or judgment creditor, his executors, administrators, or assigns, may, after the expiration of twelve months and within fifteen months after the sale, redeem the premises in the following manner: such creditor, his executors, administrators, or assigns, may sue out an execution upon his judgment or decree, and place the same in the hands of the sheriff, or other proper officer, to execute the same, who shall endorse upon the back thereof a levy of the premises desired to be redeemed, and the person desiring to make such redemption shall pay to such officer the amount for which the premises to be redeemed were sold, with interest thereon at the rate of eight percentum per annum from the date of the sale, for the use of the purchaser of such premises, his executors, administrators, or assigns,

Page 134 U. S. 279

whereupon such officer shall make and file in the office of the recorder of the county in which the premises are situated a certificate of such redemption, and shall advertise and offer the premises for sale under said execution as in other cases of sale on execution."

Starr and Curtiss, Ill.Stat. 1398, c. 77, § 20.

The proceedings had were in conformity with this section, and the marshal advertised the sale accordingly on October 24, 1882. As heretofore stated, the redemption by the Chicago and Pacific Railroad Company was with money advanced by the Chicago, Milwaukee and St. Paul Railway Company. This advancement was made in pursuance of these proceedings. On April 1, 1880, which was subsequent to the commencement of the suit by the bank, resolutions were passed by the stockholders of the Chicago and Pacific Railroad Company authorizing the leasing of its property and franchises to the Chicago, Milwaukee, and St. Paul Railway Company, and also the execution of a new mortgage, and on the next day the first-named company executed its lease to the last-named company, and the two companies executed a joint trust deed upon the same property to secure the payment of $3,000,000 of bonds, payable in thirty years. By the lease, which was for 999 years, the lessor (which will, for convenience, be called the "Pacific Company") not only disabled itself from performing the functions and discharging the duties of its incorporation, but also transferred all its property and franchises to the lessee (hereafter called the "Milwaukee Company"). The consideration of the lease was one dollar and the performance of the covenants of the lease by the lessee. The Pacific Company was largely indebted outside of the amount secured by the trust deed. It therefore surrendered to the Milwaukee Company all the means it had of discharging its indebtedness. Among the recitals in the lease are these:

"Whereas certain other parties to whom the said party of the second part was so as aforesaid indebted have prosecuted their several demands in the Superior and Circuit Courts of Cook County and other courts of the State of Illinois, and have procured divers judgments thereon, which now remain

Page 134 U. S. 280

unpaid and unsatisfied of record, and are a lien upon the property of the said party of the first part, and other of said demands still remain unliquidated, and whereas the said party of the second part, at the request of the said party of the first part, now proposes to aid the party of the first part in procuring a sufficient sum of money to redeem said property from the aforesaid sale and to protect said property from all the aforesaid valid judgment liens, and also to extend and construct the road of said party of the first part to the Mississippi River, . . . and also to pay all taxes, charges, or assessments imposed or assessed, or which may be hereafter imposed or assessed, upon the property or premises of the party of the first part."

And among the covenants of the lessee are these.

"The said party of the second part, in consideration of the said demise and lease so as aforesaid made by the said party of the first part, hereby covenants and agrees that it will take up, pay, cancel, satisfy, and discharge the said three thousand bonds of one thousand dollars each at maturity thereof, and will pay, cancel, and discharge each and every of the coupons or interest warrants attached to the said bonds, and each of them, as the same shall become due and payable, so as aforesaid to be made and issued to the parties of the first and second parts, and will, during the continuance of this lease at all times save the said party of the first par free and harmless therefrom, and from the mortgage so as aforesaid to be executed by the said parties of the first and second parts to the Farmers' Loan and Trust Company, on the second day of April, 1880, . . . and the said party of the second part shall and will, at its own proper cost and expense, preserve and keep the railway and premises hereby demised, and every part of the same, in thorough repair, working order, and condition and supplied with rolling stock and equipment, so that the business of the said demised railway shall be preserved, encouraged, and developed. . . . The said party of the second part hereby covenants, promises, and agrees to and with said party of the first part that at the end of said term or other sooner determination of this said lease, the said party of

Page 134 U. S. 281

the second part shall redeliver and surrender up to the party of the first part, its successors or assigns, the said demised railway and premises in as good order and condition as the same shall be delivered to the said party of the second part under this lease, and with such additions, betterments, and improvements as shall have been made thereto."

The bonds were sold at ninety-seven cents, and the amount necessary to redeem from the foreclosure sale was about $1,100,000. Out of the proceeds of these bonds, the Milwaukee Company not only completed the construction of the entire road authorized by the charter of the Pacific Company, from Chicago to the Mississippi River, but also constructed a bridge over the Mississippi River, so as to connect this road with its own line in Iowa.

[On * the 18th October, 1882, the two railroad companies filed the original bill in this suit to enjoin the sale on execution under the statute above recited. The bank answered and also filed a cross-bill, in which the relief prayed for was that the judgment in favor of the Third National Bank, together with the amount paid for the redemption from the sale to Albert Keep,

"may be decreed to be a valid and subsisting lien, created in favor of said Third National Bank upon all the property of the said Chicago and Pacific Railroad Company,"

and that "the court should decree that the same creates an equitable lien, and encumbrance upon the property of the said Chicago and Pacific Railroad Company" and also

"that a receiver of said property may be appointed according to the course and practice, with the usual powers of receivers in like cases; that such receiver may be let into and take possession of said Chicago and Pacific Railroad Company, with all its property, depot grounds, fixtures and appurtenances, and all the rents, issues and profits thereof; that he may have power to operate and manage the said road; that he may have power to apply the revenues and all the rents,

Page 134 U. S. 282

issues, and profits thereof to the payment of your orator's said judgment and the amount of redemption money, interest, and costs thereon, paid by it under said sale to Albert Keep;"

also that the said Chicago and Pacific Railroad might be decreed to be sold with its franchises, property, fixtures and appurtenances, under the order and direction of the court, and that out of the proceeds thereof, the cross-complainant might have satisfaction of its said judgment and the amount paid by it for redemption.

To this cross-bill the original complainants and the trustees under the new mortgage were made parties. To this the plaintiff demurred and, the demurrer being overruled, answered. Proofs were taken, after which the defendant filed an amended cross-bill, asking that the prayer for general relief in the cross-bill be amended as follows:

"Or that the said Chicago, Milwaukee, and St. Paul Railway Company may be decreed to pay to your orator the amount paid by your orator upon the redemption of the property of the Chicago and Pacific Railroad Company from the sale made on execution issued on the judgment of Horace Tabor, with interest and costs, and the amount of said judgment recovered by your orator against the said Chicago and Pacific Railroad Company with interest and costs, by a short day to be specified in said decree."

The court in its decree, ordered

"that the Chicago, Milwaukee, and St. Paul Railway Company pay in to the clerk of this court, within thirty days, a sum of money sufficient to satisfy the judgment, costs, and interest rendered in favor of the Third National Bank of Chicago against The Chicago and Pacific Railroad Company, including also the amount, with interest, paid by the Third National Bank of Chicago to the United States Marshal for the Northern District of Illinois, to redeem from the sale to Albert Keep as aforesaid, and it is further ordered, adjudged, and decreed that in case the Chicago, Milwaukee, and St. Paul Railway Company shall fail to pay said sum of money aforesaid within said thirty days, the Third National Bank of Chicago may move the court for the appointment of a receiver, with the usual power of receivers,

Page 134 U. S. 283

to take possession of the said leased property and to operate it until the amount due to the said Third National Bank of Chicago upon its judgment as aforesaid, with costs and interest thereon, and the amount, with interest thereon so paid by the Third National Bank of Chicago to the United States marshal for the Northern District of Illinois, to redeem from said sale to Albert Keep, is paid out of the earnings of said road, and for any other proper relief."

From this decree the Chicago, Milwaukee, and St. Paul Railway Company appealed.]

Page 134 U. S. 285

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