An order of a circuit court of the United States in a suit in
equity for the foreclosure of a mortgage upon the property of a
railroad company that the receiver of the mortgaged property may
borrow money and issue certificates therefor to be a first lien
upon it, made after final decree of foreclosure and after appeal
therefrom to this Court and after the filing of a supersedeas bond,
establishes, if unreversed, the right of the holder of the
certificates to a priority of payment over the mortgage
bondholders, and is a final decree from which an appeal may be
taken to this Court.
This was a petition for a writ of mandamus. The motion for leave
to file the petition was presented October 22, 1888,
Page 129 U. S. 207
and was granted that day and a rule to show cause issued,
returnable on the 3d Monday of the next November. The return was
filed on the 26th of November, and argument was had on the 17th and
18th of December. The case is stated as follows by the Court in its
opinion.
At the request of the Farmers' Loan & Trust Company, a rule
was granted in the early part of the present term of this Court on
the judges of the Circuit Court of the United States for the
Northern District of Texas to show cause why a mandamus should not
issue requiring them to allow an appeal and to approve a bond upon
such appeal from an order of that court made in the case of that
company against the Texas Central Railway Company.
The litigation to which this matter relates was commenced in
that court by a bill filed by Morgan's Louisiana and Texas Railroad
and Steamship Company against the Texas Central Railway Company,
for the appointment of a receiver and for the sale of the property
of the railway company to enforce an alleged lien. The Farmers'
Loan and Trust Company afterwards became a party also, and set up,
by cross-bill and otherwise, a mortgage against the railway company
prior to the lien of the Morgan Company. Receivers were appointed
in the progress of that suit, and a final decree rendered by the
court in 1887, ordering a sale of the property and recognizing the
paramount lien of the trust company to the extent of $4,000,000 and
over, and holding that the claim of the original complainant was
subordinate to that. Appeals were taken, accompanied by
supersedeas, from the decree of foreclosure, both by the original
complainant, the Morgan Company, and the railway company, which
appeals are now pending in this Court on the docket.
A motion was filed here at the last term to advance the cause,
but it was denied. On February 15, 1888, and after said decree of
foreclosure and sale was made and after the appeal in the case from
that decree was taken to this Court and a supersedeas bond filed,
the receivers of the railway company presented their petition to
the Circuit Court for an order
Page 129 U. S. 208
authorizing them to borrow the sum of $120,000 on certificates,
the same to be a first lien on the property. The making of this
order was opposed by the trust company. The matter was referred to
a master to report, and on the coming in of his report, which was
in favor of the petition of the receivers, their request was
granted and an order was made authorizing them to expend that sum
on the railway and to borrow money for this purpose, for which they
were to issue certificates that should be a first lien on the
entire property of the railway company, except as to $20,000 of
certificates which had already been issued under another order.
The trust company, believing that this order would work a great
injustice to the bondholders whom they represented, and who had the
first lien on the property of the railway company, applied
successively to the circuit judge and the circuit justice for the
allowance of an appeal, and the approval of a bond to operate as a
supersedeas which they offered, and the sufficiency of which has
not been controverted.
After argument on the subject before both of these judges, they
declined to either allow the appeal or approve the bond.
Application was then made to this Court for a rule upon them to
show cause why this appeal should not be allowed and the bond
approved. The rule was granted, and the return thereto made by the
circuit judge is now before us, giving the reasons why he does not
think the appeal should be allowed. The question now before us is
on the sufficiency of this return.
Page 129 U. S. 213
MR. JUSTICE MILLER delivered the opinion of the Court.
The reasons why the judges declined to allow this appeal may be
substantially divided into two. The first and most important of
these is that the order from which the appeal is asked is not a
final decree within the meaning of the act of Congress on that
subject, but is a mere ancillary proceeding for the protection of
the property pending an appeal from the principal decree now before
this Court. But the doctrine that, after a decree which disposes of
a principal subject of litigation and settles the rights of the
parties in regard to that matter, there may subsequently arise
important matters requiring the judicial action of the court in
relation to the same property, and some of the same rights
litigated in the main suit, making necessary substantive and
important orders and decrees in which the most material rights of
the parties may be passed upon by the court, and which, when they
partake of the nature of final decisions of those rights, may be
appealed from, is well established by the decisions of this Court.
Blossom v. Milwaukee &c.
Railroad Co., 1 Wall. 655;
Forgay v.
Conrad, 6 How. 201;
Fosdick v. Schall,
99 U. S. 235;
Williams v. Morgan, 111 U. S. 684;
Burnham v. Bowen, 111 U. S. 776.
The question in such cases is not whether the order complained
of is of a character decisive of questions that the parties are
entitled to have reviewed in the appellate court, but whether the
order or decree is of that final nature which alone can be brought
to this Court on appeal. It is upon this ground mainly that the
right of appeal is resisted in the present
Page 129 U. S. 214
case, but we are of opinion that within the true principles
which establish the finality of a decree of the circuit court in
reference to the allowance of an appeal, this order is a final
decree.
If the order is executed, the first thing to be done under it
will be to borrow money to the extent authorized therein, and then
the receivers will issue the certificates contemplated in it. It is
not necessary to hold here what the position of the holders of such
certificates would be if the order contained no provision that they
should be the first lien upon the property of the company. It might
be, but it is not necessary to decide that question here, that such
an order would not be conclusive of the right of the holders of
such certificates to priority of payment out of the proceeds of the
sale of the railway. It is one of the arguments used before us that
upon a final sale and an order by the court for the distribution of
its proceeds, such certificates would not necessarily be held to
have such priority, but that, issued under this order and
containing on their face the provision authorized by it, they would
constitute a first lien upon the property of the railway company to
be sold under the final decree is, we think, very clear. Such order
standing unrepealed, we do not think that the court in a subsequent
stage of the same litigation, in the same case and in regard to the
same subject matter, could be permitted to say that the holders of
these certificates must establish their right to priority of
payment; but we are of opinion that such holders, under the decree
of this Court that they should have priority standing unreversed,
would be entitled to such first lien.
These views we do not propose to elaborate further than to say
that if this order does not give the lender of the money such prior
lien upon the proceeds of the property of the company, it is
because the court had no authority to make it, and as it would be a
fraud upon such lender, justice could only be done by enforcing it.
If this view of the subject be correct, of which we entertain no
doubt, the order is a final one. It is a decree fixing upon the
property, on which the trust company now has a first lien, another
lien of $120,000, and making
Page 129 U. S. 215
it paramount to that. It changes the relation of that company to
this property, displaces its rights as settled by a decree now
pending in this Court, and if that decree is affirmed it in effect
modifies it, although this Court may say that it should stand and
be enforced. This order comes within all the elements of finality
which we can imagine to belong to a decree of the circuit court. It
establishes certain rights of the parties to the injury, as
petitioners believe, of their interests in the property.
We need not refer to cases on the subject of finality, for they
are numerous and the principles on which they have been decided
apply to widely varying circumstances. But while we are not aware
of any case precisely in point to the one before us, we are
satisfied that it is within the purpose of the statute and the
principles by which it is to be construed.
The other reason given why the appeal should not be granted is
that the action of the circuit court in the case is one within its
discretion. All we have to say upon this subject is that if it be
an authority vested in the judges of the circuit court, it must be
exercised and governed by the principles of a judicial discretion,
and the very point to be decided upon an appeal here is whether
they had such discretion and whether they exercised it in a manner
that cannot be reviewed in this Court.
The question is one which in its nature must be a subject of
appeal. Whether the court below can exercise any such power at all
after the case has been removed from its jurisdiction into this
Court by an appeal accompanied by a supersedeas is itself a proper
matter of review, and still more whether, in the exercise of what
the court asserts to be its discretionary power, it has invaded
established rights of the petitioners in this case, contrary to
law, in such a manner that they can have no relief except by an
appeal to this Court. This is a matter eminently proper to be
inquired into upon an appeal from such an order. Upon the hearing
of that appeal, this Court may be of opinion that the order was one
proper to be made, in which case it will be affirmed. If, however,
it believes that it was an improper one and will seriously
prejudice the rights of the petitioners, it will be reversed and
set aside,
Page 129 U. S. 216
as it should be. In granting the appeal, this Court, of course,
does not undertake to decide whether the order was rightfully made,
if the court had the requisite power, but can only do that upon the
hearing of the appeal.
For the same reasons, this Court cannot consider on this motion
the urgent appeals made to it in regard to the necessity of this
order for the preservation of the railway from destruction during
the pendency of the appeal on the main case. That is a matter only
fit to be considered on the hearing of the appeal, which we think
should be granted.
The writ of mandamus, directing the judges of the circuit
court to allow the appeal and to approve a sufficient bond, is
granted.
MR. JUSTICE BRADLEY said:
I concur in the judgment of the Court, but for a different
reason from that given in the opinion. I think that after appeal
from a final decree in a foreclosure suit and after the case cones
here, a supersedeas bond having been given, the control of the fund
in dispute belongs to this Court, subject to the management of the
property by the court below. In such management, that court is the
agent of this Court, and all its acts in that respect are subject
to review and supervision here when properly brought before us. In
the present case, the order complained of being final in the matter
to which it relates, and being made since the final decree in the
cause, and not reviewable on the appeal from that decree, it may be
as well reviewed here by appeal as in any other way. For that
reason, I concur in the decision made by the Court.
