A bill in equity for the foreclosure of a mortgage of a railroad
for nonpayment of overdue interest, the principal being payable at
a future day, was taken
pro confesso, the company
appearing but not answering. A sale was made under the decree of
the court, and, it appearing that there was a surplus over and
above what was necessary to pay the overdue interest, costs and
expenses, the court ordered it to be applied to the reduction of
the principal sum due upon the bonds, and entered a decree that the
balance of such principal sum remaining after such application was
due and payable from the company to the holders of the bonds, and
that the trustee recover it for them, with interest until paid.
Held:
(1) That the application of the surplus was properly made.
(2) That the decree, declaring the remainder of the principal
sum due and immediately payable, was irregular and was not
warranted by the pleadings.
The defendant in a bill in equity, taken
pro confesso,
is not precluded from contesting the sufficiency of the bill or
from insisting that the averments contained in it do not justify
the decree.
A decree on a bill taken
pro confesso may be attacked
on appeal if not confined to the matter of the bill.
The 92d Rule in Equity does not authorize a decree to be entered
in a suit in equity for the foreclosure of a mortgage for a balance
due to the complainant over and above the proceeds of the sale, if,
as a matter of fact, such balance has not become payable.
A railroad company, whose road, property and franchises have
been sold under a decree for the foreclosure of a mortgage entered
on a bill taken
pro confesso, may prosecute an appeal from
the final decree distributing the proceeds of the sale and
adjudging a balance still clue the mortgage creditors.
The case, as stated by the court, was as follows:
The Central Trust Company of New York filed its bill on the 7th
day of January, A.D. 1884, in the Circuit Court of the United
States for the Northern District of Ohio against the
Page 133 U. S. 84
Ohio Central Railroad Company alleging the creation prior to
January 1, 1880, of a corporation by that name, and its execution
on January 1, 1880, of three thousand bonds for one thousand
dollars each, bearing that date and payable to bearer on January 1,
1920 at six percent interest, payable semiannually on the first
days of January and July, to secure which it executed and delivered
to the Central Trust Company a deed of trust and mortgage covering
the main line of said Ohio Central Railroad, which mortgage was
duly recorded. The bill also alleged that the original Ohio Central
Railroad Company, subsequently to the first day of January, 1880,
and to the execution and delivery of the bonds and mortgage
thereinbefore described, made and entered into an agreement of
consolidation with a corporation known as the Atlantic and
Northwestern Railroad Company under the name of The Ohio Central
Railroad Company. It further alleged default in the payment of
interest on the said bonds, January 1, 1884; that the coupons were
duly presented and payment was demanded, but refused, and that
about the first of January, 1880, the defendant executed and
delivered a second mortgage on the same property, to the same
trustee, to secure three thousand income bonds for one thousand
dollars each, payable to bearer, which was duly recorded; that the
holders of these income bonds were very numerous and unknown to
complainant, and that their interest and lien and that of
complainant as their trustee accrued subsequently to and subject to
the lien of the first mortgage. The bill set forth the
insufficiency of the mortgaged property to pay the mortgage debts;
that there was a large floating indebtedness; that creditors had
commenced legal or equitable proceedings for the enforcement of
their claims; that complainant had commenced a suit for the
foreclosure of a certain other mortgage upon a portion of the
property not embraced or covered by the two mortgages first
mentioned, in which a receiver had been appointed, and that a
multiplicity of suits, judgments and liens would obstruct the
operation of the road and cause great loss to the holders of the
bonds and sacrifice of property, etc.
The bill prayed for an answer; that an account be had of
Page 133 U. S. 85
the bonds secured by said several mortgages "and of the amount
due on said first mortgage bonds for principal and interest or
either;" that the names of the holders of said bonds might be
ascertained and an account taken of all the liens and encumbrances
according to their priorities; that said first mortgage be decreed
to be a first lien upon all the property described therein; that
the property be sold free from the claims of all parties or all who
were in any manner represented; that the defendant and others
claiming under it be barred and foreclosed;
"that the said judgment or decree may contain such provisions
for the ascertainment of the priorities of the said encumbrances
and of the due application of the proceeds of such sale according
to the rights of the parties as may be just and equitable;"
that a receiver might be appointed, and an injunction issue
pendente lite, and a prayer for general relief. A copy of
the first mortgage, including bond and coupon, was attached to the
bill.
The defendant, The Ohio Central Railroad Company, having entered
its appearance, and having failed to plead, answer, or demur, the
bill was taken as confessed, and, on the 10th day of December,
1884, a decree for sale was duly entered in the cause. The decree
accorded with the averments of the bill, and adjudged that the
default continued after the commencement of the suit and that two
installments of interest on the first mortgage bonds were due and
unpaid, by reason of the default as to the first of which the
mortgage or deed of trust had become absolute, and the complainant
entitled to a decree for the sale of all the mortgaged property "to
satisfy the principal and interest of said bonds secured by said
main-line first mortgage." The decree directed payment within
thirty days of the amount of the two installments of interest due,
with interest and costs, and in default of such payment ordered the
sale of the mortgaged property and the application of the proceeds
to costs of suit, expenses of sale, trustees' compensation and
expenses; claims having priority over the main-line first mortgage;
coupons due, and to become due before distribution, upon said first
mortgage bonds; the principal of the first mortgage bonds, and the
surplus, if any, to be paid into court
Page 133 U. S. 86
subject to its further order. The sale took place on April 15,
1885, and the mortgaged property was sold to Canda, Opdyke and
Burt, as purchasing trustees, for one million dollars, which sale
was confirmed June 25, 1885, and the mortgaged property was
conveyed to the said purchasers. Prior to the confirmation of sale,
but after the sale had been reported, a reference was had to
ascertain the distributive share of the proceeds of sale due on the
principal of each bond secured by the first mortgage, and what sum
the purchasers should bring into court to pay the distributive
share of whatever bonds tight be found outstanding. A report was
made that after the payment of interest there would be $197.31 2/3
to apply on the principal of each first mortgage bond, and in the
order confirming the sale the report of the special master was
confirmed, payment of compensation and expenses directed, and the
balance ordered to be applied on the principal of said main-line
first mortgage bonds. The last clause of this order of June 25,
1885, was as follows
"And all further questions in respect to the accounts of said
receiver and to judgment for any deficiency herein and all other
questions arising in this cause are reserved until the coming in of
the report of said special master commissioner of his acts and
doings under this order and the filing of said receiver's
account."
On the 22d of June, 1887, the following decree and judgment was
entered by the court:
"This day this cause came on for further hearing, and it
appearing to the court that from the proceeds of the sale of the
property of said defendant company in this cause heretofore made
there had been paid upon each of the three thousand bonds secured
by the first main-line mortgage, in the bill of complaint set
forth, the interest coupons thereon up to and including June 30th,
1885, and the sum of one hundred and ninety-seven and thirty-one
and two-thirds one-hundredths dollars ($197.31 2/3) to be applied
upon the payment of the principal of each of said bonds, said
payment to bear date of June 30th, 1885, and that no other payments
of either principal or interest have been made upon any of said
bonds than as
Page 133 U. S. 87
aforesaid, the court therefore finds that there is due from said
defendant, The Ohio Central Railroad Company, to the complainant,
as trustee for the holders of said bonds secured by said first
main-line mortgage, upon each of said bonds, the sum of eight
hundred and two and sixty-eight and one-third one-hundredths
dollars ($802.68 1/3), which sum should bear interest at the rate
of six percent per annum until paid."
"And the court further finds that no fund has come under the
control of this Court from which any payment can be made upon the
three thousand main-line income bonds in the bill of complaint set
forth, and that no payments of any kind have been made upon any of
said income bonds. Wherefore the court finds that there is due from
the defendant, The Ohio Central Railroad Company, to the
complainant, as trustee of the holders of said income bonds, upon
each of said bonds, the sum of one thousand ($1,000) dollars."
"Wherefore it is ordered, adjudged and decreed that the
complainant, The Central Trust Company of New York, as trustee for
the holders of said three thousand bonds secured by said first
main-line mortgage, have and recover from the defendant, The Ohio
Central Railroad Company, the sum of eight hundred and two and
sixty-eight and one-third one-hundredths dollars ($802.68 1/3) on
each of said bonds, to-wit, the sum of $2,408,050, with six percent
interest per annum from July 1st, 1885, and that the said
complainant, as trustee for the holders of said three thousand
main-line income bonds, have and recover from said defendant, The
Ohio Central Railroad Company, the sum of one thousand dollars
($1,000) on each of said bonds, to-wit, the sum of three million
dollars, and that execution issue therefor."
From this decree, the pending appeal was prosecuted.
Page 133 U. S. 89
MR. CHIEF JUSTICE FULLER, after stating the facts as above,
delivered the opinion of the Court.
These first mortgage bonds matured January 1, 1920, and there
was no provision in them, nor in the mortgage, that they should
become due or could be declared due before that date; nor were
there any allegations in the bill upon which to predicate a finding
or decree to that effect.
The mortgage provided that in case of entry by the trustee for
nonpayment of interest or of principal at maturity, the income and
revenue should be applied to the payment of such interest, and the
residue to the payment of the principal, and that, if the property
went to sale, the net proceeds should be applied "to the ratable
payment of principal and the then accrued interest of all the said
bonds, whether the principal be then due or not;" but if, in case
of entry or of proceedings to sell for default, in payment of
interest before the bonds should become due and before the sale
should be made, the interest in arrears should be paid and
satisfied, together with all costs, expenses, etc., that then the
proceedings should be discontinued, and possession of the mortgaged
premises restored, as if default or entry had not occurred. While
therefore the intention is clear that the bonds were not to become
due before the specified date of maturity, the proceeds of sale,
after the satisfaction of the accrued amount, were properly applied
upon the
Page 133 U. S. 90
outstanding liability.
Chicago & Vincennes Railroad Co.
v. Fosdick, 106 U. S. 47,
106 U. S.
68.
Neither in the pleadings nor in the reports of the special
master nor in any part of the record can we discover the basis for
the statement:
"The court therefore finds that there is due from said
defendant, The Ohio Central Railroad Company, to the complainant,
as trustee for the holders of said bonds secured by said first
main-line mortgage, upon each of said bonds, the sum of eight
hundred and two and sixty-eight and one-third one-hundredths
dollars, ($802.68 1/3)."
Certainly, as $197.31 2/3 had been realized on each bond,
$802.68 1/3 remained to be paid, but only according to the tenor of
the bond.
There are no allegations in the bill as to when the income bonds
matured, nor is a copy of the second mortgage given.
The deficiency decree says that
"The court further finds that no fund has come under the control
of this Court from which any payment can be made upon the three
thousand main-line income bonds in the bill of complaint set forth,
and that no payments of any kind have been made upon any of said
income bonds. Wherefore, the court finds that there is due from the
defendant, The Ohio Central Railroad Company, to the complainant,
as trustee of the holders of said income bonds, upon each of said
bonds, the sum of one thousand dollars ($1,000)."
But the conclusion does not follow that because no payment had
been made on the income bonds, therefore they had matured, and
unless they had matured by lapse of time or otherwise, as provided,
the amount could not be decreed to be due.
The bill was taken as confessed, but that fact did not, in
itself, justify giving complainant more than it claimed. In
Thomson v. Wooster, 114 U. S. 104, the
general nature and effect of an order taken on a bill
pro
confesso, and of a decree
pro confesso regularly made
thereon, and of our rules of practice on the subject, are discussed
in the opinion of the court by MR. JUSTICE BRADLEY, and it is there
held that under the rules and practice of this Court in equity,
"a decree
pro confesso is not a decree as of course,
according to the prayer of
Page 133 U. S. 91
the bill, nor merely such as the complainant chooses to take it,
but that it is made, or should be made, by the court according to
what is proper to be decreed upon the statements of the bill,
assumed to be true."
If the allegations are distinct and positive, they may be taken
as true without proof; but if they are indefinite, or the demand of
the complainant is in its nature uncertain, the requisite certainty
must be afforded by proof. But in either event, although the
defendant may not be allowed, on appeal, to question the want of
testimony or the insufficiency or amount of the evidence, he is not
precluded from contesting the sufficiency of the bill or from
insisting that the averments contained in it do not justify the
decree.
Under the 18th rule in equity, where the bill is taken
pro
confesso, the cause is proceeded in
ex parte, "and
the matter of the bill may be decreed by the court," and hence, if
a decree be passed not confined to the matter of the bill, it may
be attacked on appeal for that reason.
By the 92d rule, it is provided that in suits in equity for the
foreclosure of mortgages, "a decree may be rendered for any balance
that may be found due to the complainant over and above the
proceeds of the sale or sales." Assuming that a deficiency decree
might be rendered, in the absence of a specific prayer for that
relief, nevertheless, the case made by the bill must show that the
amount is due, for otherwise it cannot properly be found so. This
rule does not authorize the circuit courts to find a balance due
because partial extinguishment has been effected by a sale, if, as
matter of fact, the indebtedness is not then payable.
The bill here did not seek relief as to the second mortgage,
which is only referred to as a subordinate lien, nor did it claim
that anything except interest was due upon the first mortgage. It
sought the establishment and enforcement of the first mortgage
lien, and the foreclosure of the equity of redemption. The amount
realized paid the outstanding interest and a part of the principal.
Under such circumstances, and upon these pleadings, this deficiency
decree, which is a judgment for the recovery of so much money, with
execution, was improvidently entered.
Page 133 U. S. 92
Without discussing the extent of the franchises authorized to be
sold under the mortgage, we are of opinion that this appeal was
properly taken in the name of the defendant company.
Willamette
Manufacturing Company v. Bank of British Columbia,
119 U. S. 191,
119 U. S. 197;
Memphis & Little Rock Railroad Company v. Railroad
Commissioners, 112 U. S. 609,
112 U. S.
619.
The deficiency decree of June 22, 1887, is reversed at
appellee's costs, and the cause remanded with directions to proceed
therein as may be just and equitable.