A railroad company, on the 30th of April, 1850, mortgaged to
trustees a specifically described portion of its road to secure
certain certificates of indebtedness bearing interest at the rate
of ten percent per annum. Subsequent mortgages, covering the entire
line of road, were made. As the work progressed, the company issued
certificates of preferred stock, on which dividends of ten percent
per annum were to be paid. In October, 1852, the company made a
proposition to waive, until Nov. 1, 1870, its right to redeem at
pleasure the portion of its road first mortgaged, provided the
holders of the certificates of indebtedness would, by endorsement
thereon, authorize the trustees, after paying the holders three
percent semiannually on the said certificates, to pay over
semiannually to the treasurer of the company, for its use and
benefit, the balance of the income (for interest) which the
stockholders were then entitled to receive,
viz., two
percent, to be held by him, and appropriated, as far as might be
required, or as the same might go, to the payment of interest to
such preferred stockholders as should surrender their old
certificates and receive new
Page 94 U. S. 807
certificates of preferred stock, bearing three percent interest
or income semiannually in lieu of five percent, as then stipulated.
The company authorized the president to issue such a new
certificates of preferred stock, and to waive the right to redeem.
None of the holders of the preferred stock accepted the proposition
until Sept. 1, 1853. The trustees of the second mortgage
foreclosed; the bondholders formed a new corporation, and have
operated and owned the road since November, 1862. The holders of
the new certificates of preferred stock filed their bill, Feb. 21,
1871, to recover the four percent per annum relinquished under the
first mortgage. On final hearing, the bill was dismissed.
Held:
1. That there is no privity between the complainants and the new
corporation.
2. That there was no privity between the holders of the
certificates under the first mortgage and the preferred
stockholders.
3. That the defense of the statute of limitations not having
been set up by plea or answer, the case in that aspect cannot be
considered.
4. That as the complainants, if they could recover the moneys
claimed, would be entitled to discovery and an account, the
objection that they have a remedy at law is not available. Where
such an objection lies, it is the duty of the court
sua
sponte to take notice of it and give it effect.
5. That it is not necessary, in order to let in a defense that
the claim is stale, that a foundation should be laid by any
averment in the answer. Where the facts disclose laches and neglect
on the part of the complainant, the court will refuse relief.
The facts are stated in the opinion of the Court.
MR. JUSTICE SWAYNE delivered the opinion of the Court.
The Kennebec and Portland Railroad Company was authorized to
build a railroad from Portland to Augusta, both in the State of
Maine.
On the 30th of April, 1850, that portion of the road between
North Yarmouth and Portland, about twelve miles in length, was
mortgaged to Ruel Williams, John Patten, and J. B. Carroll,
trustees, to secure the payment of $202,400 advanced to the company
by the
cestuis que trust. The debt was represented by
certificates bearing interest at the rate of ten percent per
annum.
On the 1st of November, 1850, the company mortgaged the whole
line of the road to the commissioners of the sinking fund to secure
$800,000 lent to the company by other parties.
On the 17th of October, 1851, the road and franchises were
Page 94 U. S. 808
mortgaged to John Patten, Joseph McKeen, and M. S. Hagar, in
trust to secure bonds issued by the company to the amount of
$230,000, known as first mortgage bonds.
On the 15th of October, 1852, the road and franchises were
mortgaged to the same trustees to secure the payment of a further
issue of bonds to the amount of $250,000, known as the second
mortgage bonds.
In the progress of the work on the road, the company issued
certificates of preferred stock, known as old preferred stock, to
the amount of $240,000. On this stock dividends of ten percent per
annum were to be paid. Two hundred thousand dollars of it in amount
is averred to be still outstanding.
On the 7th of October, 1852, a proposition was made by the
company to the following effect:
The company was to waive its existing right to redeem at
pleasure its road from North Yarmouth to Portland, and to make it
irredeemable until Nov. 1, 1870, provided the holders of the
certificates of indebtedness would, by endorsement thereon,
authorize the trustees, after paying the holders three percent
semiannually upon the amounts severally represented by such
certificates,
"to pay over semiannually to the treasurer of the company, for
the use and benefit of the company, the balance of the income [for
interest] which the stockholders are now entitled to receive
[
viz., two percent], to be held by him and appropriated,
as far as may be required, or as the same may go, to the payment of
interest to such preferred stockholders as shall surrender their
old certificates of stock and receive new certificates of preferred
stock bearing three percent interest or income semiannually, in
lieu of five percent, as now stipulated; said payment of three
percent to the holders of said certificates and of the balance
aforesaid to the treasurer by said trustees semiannually, to be in
full of the annual income of ten percent to which said certificate
holders are now entitled."
It was ordered by the company that if the proposed arrangement
should be made with the North Yarmouth certificate holders, the
fund thereby saved should be applied in payment of the dividends
accruing on the new certificates of preferred stock, as also
proposed.
Page 94 U. S. 809
Authority was given to the president of the company to issue
such new certificates of preferred stock, and to waive the right to
redeem the North Yarmouth road until Nov. 1, 1870, the time named
in the proposition.
None of the holders of the preferred stock accepted this
proposition until Sept. 1, 1853. The first new certificate bears
date on that day. The other certificates were issued
subsequently.
On the 16th of December, 1853, the company ordered three percent
to be paid on the 1st of January then next to all the holders of
the new certificates for the preferred stock.
The company became hopelessly insolvent. The trustees of the
second mortgage foreclosed that mortgage. The foreclosure was
perfected and became absolute in May, 1862. In November, 1862, the
bondholders under that mortgage formed a new corporation, by the
name of the Portland and Kennebec Company. The trustees conveyed to
this company. The company went into possession, and has since been
in possession and operated the road, and claimed to own it.
This bill is filed by the complainants as holders of the new
certificates of preferred stock, for themselves and in behalf of
the other holders not before the court.
The claim is to recover the four percent per annum relinquished
by the North Yarmouth holders of certificates of indebtedness,
pursuant to the proposition of the original company, and which
proposition was also to give to the holders of the new certificates
of preferred stock what is claimed by this bill.
The circuit court, properly, as we think, decreed against the
complainants, and dismissed the bill. They have brought the case
before this court for review.
In the argument here, they have insisted that the process
whereby the foreclosure of the second mortgage was effected was
irregular, without warrant of law, and void, and that if this were
not so, the complainants upon the other facts of the case are
entitled to the relief sought.
The first proposition is conclusively negatived by the judgment
of the supreme judicial court of the state.
Kennebec &
Portland Railroad Co. v. Portland & Kennebec Railroad Co.,
59 Me. 20.
Page 94 U. S. 810
Nothing more need be said upon that subject.
There is no privity between the complainants and the new
corporation. The agreement or arrangement relied upon was made with
the Kennebec and Portland Railroad Company. The Portland and
Kennebec Railroad Company was not in existence when it was entered
into.
There is no ground for insisting that the latter succeeded to
this liability of the former. The new company did not take the
property with any such
onus. The liability rested wholly
on the contract of the parties by whom it was made. It did not run
with the property into the hands of those who acquired it by the
foreclosure. They did not assume the liability expressly or by
implication. Hence neither they nor those claiming under them are
in any wise bound. The foundation of the claim as to both is
res inter alios acta.
Nor was there any privity whatever between the North Yarmouth
creditors and the preferred stockholders. Whether the stockholders
did or did not receive what was surrendered by the creditors, did
not affect or concern the latter. The moneys surrendered were to be
paid over "semiannually to the treasurer of this company for the
use and benefit of this company." With such payment, the duties of
the trustees terminated. Thereafter the company was to apply the
fund for the benefit of such of the stockholders as should comply
with the condition prescribed. There were two distinct
propositions. One to the debt-holders, the other to the
stockholders. The latter could get nothing unless the former
accepted. But the acceptance of the former had no relation to the
acceptance of the latter. After the former accepted, the latter
still had the option to accept or refuse. The endorsement required
to be made by the debt-holders upon their certificates did not
refer or relate to the stockholders. When the arrangement between
the old company and the debt-holders was complete, it was equally
effectual and conclusive upon those parties, whether the preferred
stockholders did or did not thereafter take any action. There was
no assignment or transfer of any interest in the mortgage. There
was simply a release and extinguishment of so much of the liability
secured, and, by consequence, of the lien and existence of the
mortgage to that extent.
Page 94 U. S. 811
Thereafter the liability and the mortgage were as if they had
never been for anything more. The new company acquired the
ownership of the road, and its entire income, subject only to the
preexisting mortgages. The source whence the fund in question was
to flow was destroyed by the foreclosure. When the latter was
complete the former ceased to exist, and thenceforward was as if it
had never been.
The defense of the statute of limitations is not set up by plea
nor in the answers. We cannot, therefore, consider the case in that
aspect.
Wilson v. Anthony, 19 Ark. 16.
The objection that there is a remedy at law is only available
where such remedy is as plain, adequate, and effectual as the
remedy in equity.
Boyce's Executors v.
Grundy, 3 Pet. 215. Here, if the complainants could
recover the moneys claimed, they would be entitled also to
discovery and an account.
Where this objection lies, it is the duty of the court,
sua
sponte, to take notice of it and give it effect. There is, in
such cases, a constitutional right to a trial by jury.
Parker v. Woolen
Company, 2 Black 545.
The charges of fraud and conspiracy in the bill are wholly
unsupported by the proofs.
To let in the defense that the claim is stale and that the bill
cannot, therefore, be supported, it is not necessary that a
foundation shall be laid by any averment in the answer of the
defendants. If the case, as it appears at the hearing, is liable to
the objection by reason of the laches of the complainants, the
court will, upon that ground, be passive, and refuse relief. Every
case is governed chiefly by its own circumstances; sometimes the
analogy of the statute of limitations is applied; sometimes a
longer period than that prescribed by the statute is required; in
some cases a shorter time is sufficient; and sometimes the rule is
applied where there is no statutable bar. It is competent for the
court to apply the inherent principles of its own system of
jurisprudence, and to decide accordingly.
Wilson v.
Anthony, 19 Barber (Ark.) 16;
Taylor v. Adams, 14
id. 62;
Johnson v. Johnson, 5 Ala. 90;
Ferson
v. Sanger, 2 Ware 256;
Fisher v. Boody, 1 Curtis 219;
Cholmondly v. Clinton, 2 Jac. & Walk. 141; 2 Story's
Eq., sec. 1520
a.
"A court of equity, which is never active in giving relief
Page 94 U. S. 812
against conscience or public convenience, has always refused its
aid to stale demands where a party has slept upon his rights, and
acquiesced for a great length of time. Nothing can call forth this
court into activity but conscience, good faith, and reasonable
diligence. Where these are wanting, the court is passive, and does
nothing. Laches and neglect are always discountenanced, and
therefore, from the beginning of this jurisdiction there was always
a limitation to suits in this court."
Smith v. Clay, Ambler 645.
If the complainants had severally sought to enforce their claim
in an action at law,
ex delicto or
ex contractu,
the bar of the statute of limitations would have been complete
after the lapse of six years. Rev.Stat. of 1857, p. 510.
This bill was filed on the 21st of February, 1871.
The complainants were supine and silent for more than seventeen
years. In the meantime, the Kennebec and Portland company became
hopelessly and finally insolvent, and its affairs a wreck.
Proceedings were instituted to foreclose the second mortgage, and
brought to a close. The company lost all its property, and has
since existed only in name. A new corporation has come into
existence, and acquired and owns all the property and effects lost
by the old one. This transfer occurred more than seven years before
the first step was taken in the present case. This long delay thus
characterized is unaccounted for. The facts are amply sufficient to
warrant the application of the rule of laches, and to give it the
fullest effect.
Decree affirmed.