A decree in equity canceling bonds of one railroad corporation
and a mortgage by a second railroad corporation of its property to
secure their payment, upon a bill filed by the latter against the
former and the trustee under the mortgage, binds all the
bondholders, unless obtained by fraud. And a bill afterwards filed
by bondholders not personally made parties to that suit against
those two corporations and a third railroad corporation alleged to
claim a right in the property, by purchase or otherwise, prior to
the lien of the bondholders, charging fraud and collusion in
obtaining that decree, cannot be maintained without proof of the
charges if the second and third corporations, by pleas and answers
under oath, fully and explicitly deny them and aver that the third
corporation had since purchased the property in good faith and
without knowledge or notice of any fraud or irregularity in
obtaining the decree.
This was a suit in equity by Beals, a citizen of New York,
against the Illinois, Missouri and Texas Railway Company, the Cape
Girardeau and State Line Railroad, and the Cape Girardeau
Southwestern Railway Company, all three corporations of Missouri,
and Thilenius and Blow, trustees of the Cape Girardeau and State
Line Railroad, and Fletcher, all three citizens of Missouri.
The amended bill (which was the only one copied in the
transcript of the record) alleged that in April, 1871, the Cape
Girardeau and State Line Railroad, pursuant to a contract with
Fletcher, executed a deed conveying all its property and franchises
in its road, as then existing or afterwards to be constructed, from
the shore of the Mississippi River in the City of Cape Girardeau in
the Missouri to the boundary line between the states of Missouri
and Arkansas, to Thilenius and Blow in trust, and directing them as
trustees and Thilenius, the president of that company, to join with
the Illinois, Missouri and Texas Railway Company (which had
Page 133 U. S. 291
been organized under the general laws of Missouri for the
purpose of completing the road) in the execution of a mortgage of
all the said property and franchises to secure the payment of bonds
issued by the last named company; that in May, 1871, such a
mortgage, afterwards duly recorded, was executed by those two
companies and by Thilenius and Blow, trustees as aforesaid, to
Winston and Hoadley in trust to secure the payment of 1500 bonds of
$1,000 each of the company last named, which were afterwards
issued; that the plaintiff was the
bona fide owner and
holder for value of sixty-eight of those bonds; that by default in
payment of interest on these bonds there had been a breach of
condition of the mortgage; that most or all of the rest of such
bonds had come into the possession of the defendants, or of one or
more of them, and thereby the defendants had controlled the action
of Winston, the surviving trustee named in the mortgage, to the
prejudice of the plaintiff; that Winston was now dead, and no other
trustee had been appointed; that the Cape Girardeau Southwestern
Railway Company for several years had had the sole use and
possession of the property and franchises, and claimed a right
therein, by purchase or otherwise, prior to the plaintiff's lien;
that a systematic, fraudulent, and continuous effort had been made
by the defendants, or some of them, to prevent the collection of
interest or principal on the plaintiff's bonds; that the judgment
set up in bar in the defendant's plea to the bill of complaint in
this suit, and alleged to have been obtained on or about March 30,
1876, in the Circuit Court of Cape Girardeau County, Missouri, by
the Cape Girardeau and State Line Railroad, one of the defendants
in this cause, was obtained by the said defendants in fraud against
the bondholders, in that Winston was served and appeared in person
only, and not as trustee, and allowed the judgment to be entered by
default, without notice to the bondholders, and by collusion with
Houck, then attorney for the petitioners and now President of the
Cape Girardeau Southwestern Railway Company, both Winston and Houck
knowing that the allegations of the petition were false and
fictitious, and intending to defraud the bondholders, and that the
plaintiff
Page 133 U. S. 292
was not a party to the action and had no knowledge of it until
his counsel examined the record on August 22, 1884.
The bill prayed for answers under oath, an injunction and a
decree declaring the mortgage and the plaintiff's bonds to be
valid, and applying the mortgaged property to the payment of the
bonds, and for further relief.
To the amended bill the three defendant corporations severally
filed pleas, and two of them filed answers under oath in support of
their pleas.
The plea of the Cape Girardeau and State Line Railroad
specifically denied all the allegations of the bill as to fraud and
collusion and alleged that on March 30, 1876, it brought an action
in the Circuit Court of Cape Girardeau County, being a court of
general jurisdiction and possessed of full chancery powers -- the
principal office and place of business of that corporation, as well
as the largest part of the real estate to be affected by that
action, being in that county -- alleging that the conveyance and
the mortgage made in its name were without authority and in fraud
of its stockholders; that the property conveyed to Thilenius and
Blow was reconveyed by them to the plaintiff in December, 1871, and
before the mortgage was recorded, and that the bonds of the
Illinois, Missouri, and Texas Railway Company pretended to be
secured by the mortgage were issued after that time, and were held
by the defendants, but not as purchasers for value, and praying
that the conveyance and mortgage, as well as the bonds, might be
cancelled and declared void; that in that action, said railway
company, Winston, as sole surviving trustee under the mortgage, and
a large number of corporations and individuals claiming to be
holders of bonds secured by the mortgage, as well as all other
persons whose names were unknown, but who might claim to be holders
of such bonds, were made defendants; that said railway company,
Winston, as surviving trustee, and various other defendants
claiming to be holders of bonds, were actually served with process,
and all nonresident bondholders who could be named, together with
all unknown bondholders, were duly served by publication; that said
railway company and Winston, as surviving trustee, as well as
Page 133 U. S. 293
many bondholders, appeared and pleaded, putting in issue the
allegations of the petition; that on January 25, 1878, the court
entered a decree, a certified copy of which was set forth in the
plea, establishing the allegations and granting the prayer of the
petition, which was the same decree described in the amended bill
as a judgment entered March 30, 1876; and that that decree was
obtained on due and legal service of process and after appearance
of the defendants and hearing of proofs, and without any fraud,
covin, or concealment of any kind or any collusion, agreement, or
understanding between Winston and the plaintiff's attorney, and had
never been appealed from, but remained in full force. Wherefore the
Cape Girardeau and State Line Railroad pleaded that decree in bar.
The plea was supported by an answer under oath, denying generally
and specifically all fraud charged in the amended bill.
The Cape Girardeau Southwestern Railway Company, by plea and
answer under oath in support thereof, set up the same defense, and
also, by permission of the court, the further defense that in
August, 1880, the Cape Girardeau and State Line Railroad, claiming
to be the owner and being in full possession of the property,
conveyed it for valuable consideration to Houck by deed duly
recorded; that Houck took the deed in good faith and without any
knowledge or notice of any right of the plaintiff or any other
bondholder or of any encumbrance on the property or defect in the
decree; that afterwards, the Cape Girardeau Southwestern Railway
Company was incorporated and organized under the General Statutes
of Missouri on August 10, 1880, and took from Houck a conveyance of
the property for valuable consideration, in good faith, and without
any knowledge or notice of any fraud or irregularity in obtaining
the decree, and afterwards proceeded to construct the railroad.
The plea of the Illinois, Missouri, and Texas Railway Company
set up the decree of January 25, 1878, by which it was enjoined
from making any claim to the property, and alleged that it had not
since claimed any right in or exercised any control over the
property, or received any income therefrom.
The plaintiff filed a general replication to "the answers"
of
Page 133 U. S. 294
the three corporations. The Cape Girardeau and state Line
Railroad and the Cape Girardeau Southwestern Railway Company moved
the court for
"judgment on the pleas and replication in this cause, for the
reason that the plaintiff has not taken issue on the said pleas,
nor is the alleged replication thereto any reply in law."
No separate ruling or order was made upon this motion. Nor were
any proofs taken in the case. But the case was afterwards submitted
and argued "upon the bill, pleas, answers and replication," and
thereupon the court, being of opinion that the equities were with
the defendants, dismissed the bill. 27 F. 721. The plaintiff
appealed to this Court.
MR. JUSTICE GRAY, after stating the facts as above, delivered
the opinion of the Court.
The irregular form in which the plaintiff's case is presented
need not be dwelt upon because, in any possible aspect of the
controversy between the parties, the result is not doubtful.
The former judgment, upon which the plaintiff anticipated that
the defendants would rely, is not described in the amended bill
otherwise than by reference to a plea to the original bill, neither
of which is made part of the record transmitted to this Court. But
the pleas to the amended bill clearly identify the judgment drawn
in issue.
The plaintiff's replication is, in terms, only to "the answers"
of the three defendant corporations, and not to their pleas,
although each of them had filed a plea, and the only answers in the
cause were those filed by two of them in support of their pleas.
But it is immaterial to consider whether the effect of the
submission of the case to the court "upon the bill, pleas, answers,
and replication," after the defendants had moved for judgment for
insufficiency of the replication, was, so far as the
Page 133 U. S. 295
pleas were concerned, to set down the case for hearing upon the
bill and pleas, or to treat the replication as taking issue on the
pleas as well as on the answers. In the one view, the facts relied
on by the defendants were conclusively admitted to be true; in the
other view, so far as they were responsive to the allegations of
the bill, they were conclusively proved by the answers under oath,
which the plaintiff introduced no evidence to control. Mitford Pl.
(4th ed.) 301, 302; Rules 33 and 38 in Equity;
Farley v.
Kittson, 120 U. S. 303,
120 U. S. 315;
Vigel v. Hopp, 104 U. S. 441.
Upon the facts thus established, no ground is shown for
maintaining the bill. The former judgment was rendered by a court
of competent jurisdiction, to which not only the railroad company
that issued the bonds, but the surviving trustee under the mortgage
made in the name of another company to secure the payment of those
bonds, were made parties. The bondholders were thus fully
represented in that suit, and bound by the decree canceling and
annulling the bonds and mortgage, unless the decree was
fraudulently obtained.
Kerrison v. Stewart, 93 U. S.
155;
Shaw v. Railroad Co., 100 U.
S. 605;
Richter v. Jerome, 123 U.
S. 233;
Knox County v. Harshman, ante,
133 U. S. 152. The
bill alleges that that decree was obtained by fraud and by
collusion between the trustee and second company and Houck, its
attorney, and that the third company claimed a right in the
property, by purchase or otherwise, prior to the plaintiff's
supposed lien. The pleas and answers under oath of both these
companies fully and explicitly deny the fraud and collusion
charged, and those of the third company further aver that, after
the decree, the property was conveyed by the second company to
Houck, and by him to the third company, and that both Houck and the
third company purchased the property in good faith, for valuable
consideration, and without knowledge or notice of any fraud or
irregularity in obtaining the decree.
These averments being directly responsive to the allegations of
the bill, and therefore conclusive in favor of the defendants'
title to the property and against the plaintiff's claim, it is
unnecessary to consider other grounds taken in argument.
Decree affirmed.