Milwaukee & Minnesota Railroad v. Milwaukee & Western Railroad

20 Wis. 174

Opinion

Cole, J.

It is not at once obvious upon wbat ground tbe plaintiff below is proceeding in tbis action. There are some allegations in tbe complaint which would authorize tbe inference tbat tbe plaintiff company, because it is largely composed of creditors of tbe La Crosse & Milwaukee Raih’oad Company, and has acquired tbe property bid in by tbe trustees at tbe sale under tbe Barnes mortgage, claims to have tbe right to object to and set aside all conveyances, negotiations, sales and transfers which have been made or suffered by tbe La Crosse & Milwaukee company, with intent to defraud its creditors; and more particularly tbat it has tbe right to take advantage of tbe alleged fraudulent acts of Noxon, in procuring tbe deed of release mentioned in tbe ninth paragraph of tbe complaint.

Now, admitting that tbe facts there alleged present a case which would entitle the La Crosse & Milwaukee company to have the release set aside on account of these acts of fraudulent concealment by one of its directors of his interest in the defendant company, and assuming that the further fact appears that this right of action has been assigned by the La Crosse & Milwaukee company to the plaintiff, the question would then arise, whether the release could be avoided on the application of such plaintiff, the La Crosse & Milwaukee company making no complaint of the fraud whatever. In other words, is this mere right to litigate the question, and to set aside the deed of release on account of fraud practiced upon the assignor, a subject of assignment and transfer; and will a court of equity allow the assignee to stand in the shoes of the assignor in respect to the remedies ? On the part of the counsel for the appellants it is insisted, that in whatever light these matters in the complaint are viewed, whether Noxon be charged with actual or constructive fraud, at most they merely show a right of action in the La Crosse & Milwaukee company— one which could be asserted or not at its option, but by no one else claiming as assignee or grantee; and that the principle was so decided in the case of Crocker v. Bellangee, 6 Wis., 645. In that case Bellangee was alleged to have imposed upon and defrauded one Casey in obtaining a conveyance of land. Crocker, as Casey’s subsequent grantee, sought to avoid the former conveyance for the fraud perpetrated upon the grantor; and it was held by this court that the bill could not be maintained. In Prosser v. Edmonds, 1 Younge & Coll., 481, will be foirnd a very interesting and satisfactory discussion of the question, whether the right to file a bill to set aside a legal instrument for fraud committed upon the assignor is assignable; and it is held that it is not. A reference to these authorities is all which probably need be said at this time in regard to the alie- gations aboye cited, and upon tbe point whether the plaintiff company could avoid the release for the alleged fraudulent act of concealment of Noxon, even if this right of action had been assigned to it by the La Crosse & Milwaukee company.

And further, whatever might be the inference drawn from some averments in the complaint, the counsel for the plaintiff company, in the argument filed, does not place its right to recover upon that ground. But he insists, as the legal result of the various matters stated in the complaint, that the plaintiff company has the right to have enforced the various covenants contained in the indenture known as exhibit 8, as against the defendant company. This indenture was entered into on the 24th day of December, 1857, between the La Crosse & Milwaukee Eailroad company, of the first part, and the Madison, Fond du Lac & Michigan Eailroad Company, of the second part. The corporate name of the latter company has been changed by different acts of the legislature, until it has become known as “The Milwaukee & Western Eailroad Company,” the defendant company. By this indenture the La Crosse & Milwaukee company sold and conveyed to the defendant company that portion of its road known as the “ Watertown division,” together with the lands granted by Congress appertaining to that division. At this time there were various liens upon the road of the La Crosse and Milwaukee company, among which was a mortgage for one million dollars covering the division from Milwaukee to Portage City and the “ Watertown Division.” As a part consideration for the conveyance of this last road to the defendant company, the latter assumes the payment of the sum of two hundred and eighty-three thousand dollars of the one million mortgage, with interest thereon, as the same, interest and principal, should mature; and also enters into the covenants and agreements with the party of the first part, which are set out in the foregoing statement of the case, pp. 177-8.

It is alleged in the complaint that the defendant company has failed to keep these several covenants ; and the plaintiff company claims tlie right to have them enforced in its favor; that it be let into the possession of the defendant’s road, and be permitted to proceed and foreclose the rights and interests of the defendant company in the same, as provided in the above stipulations. If the plaintiff company has a right to this relief, it must grow out of the following matters stated in the complaint: In June and August, 1858, the La Crosse & Milwaukee company made a mortgage and supplement, to secure two million dollars of bonds to be issued thereunder, to one Barnes as trustee, whereby the road direct by way of Portage from Milwaukee to La Crosse was conveyed in mortgage, with all its railroad property real and personal and mixed, with its franchises, lands granted for the purpose of completing said road by Congress and the state legislature, and “ also all and singular the stock, railroad or other bonds, bills of exchange, promissory notes, accounts, causes of action, demands and dioses in action of whatsoever nature, which may be owned, or in which the said railroad company may have an interest on such day as the said railroad company may first make default in the payment of the interest or principal, or any part thereof,” which might thereafter become due on the bonds issued under the mortgage. In February, 1859, the La Crosse & Milwaukee company having made default in the payment of a part of the interest due upon the bonds issued under this mortgage, the trustee, under the power of sale in the mortgage, proceeded and foreclosed the same, by selling “allproperty, rights, privileges, franchises, things in action, and other things in said mortgage and supplemental mortgage to him said Barnes described.” It appears that Barnes, no other person or body having made a bid, purchased the property above described for $1,593,333.33 for the benefit of and in trust for the holders of the outstanding bonds secured by the mortgage. Afterwards, on the organization of the plaintiff company, principally by the holders of said bonds, Barnes conveyed to it all the property and things by him “ purchased as aforesaid.” Now although it was expressly stated in tbe Barnes mortgage tbat it was subject, among other liens, to tbe “ amount of one million dollars” secured by a mortgage on tbe eastern division of tbe road, yet, since tbe mortgage to Barnes purported to convey all “ causes of action, demands and cboses in action, of whatsoever nature,” which might be owned by tbe La Crosse & Milwaukee company, or in which it might be interested, it is claimed that by virtue of that language, and the foreclosure of the Barnes mortgage and conveyance by the trustee as above named, the plaintiff company is now the actual and legal owner and equitable assignee of all the covenants in the indenture entered into between the La Crosse & Milwaukee company and the defendant company.

It will be seen, however, that there is no reference whatever in the Barnes mortgage to the indenture existing between the La Crosse company and defendant; and I have very great doubt whether a cause of action growing out of its stipulations in favor of the La Crosse company would pass under the vague and indefinite language there employed. The subjects in this clause are described as being all “ causes of action, demands and cboses in action, of whatever nature, which may be owned, or in which the La Crosse company may have an interest,” on such day as it makes default in paying the principal or interest on the Barnes mortgage. It seems to me that it would be very difficult to tell from this description, upon what this part of the instrument was to operate. What causes of action, demands and cboses in action were actually intended to'be conveyed ? A railroad company, in building and operating two or three hundred miles of road, must necessarily be engaged in a vast variety of business transactions. And can it, in this indefinite, general and uncertain manner, transfer by way of mortgage all such causes of action as may exist or subsequently accrue to it growing out of those transactions ? See Chynoweth v. Tenney, 10 Wis., 397. Assuming that causes of action are proper subjects of a chattel mortgage, will such a general description of them in the mortgage be sufficient to transfer them to the mortgagee ? It may be impracticable to set forth in a chattel mortgage with precision all the articles embraced in it, so that without reference to other evidence or sources of information one could tell by an inspection of the mortgage the property intended to be conveyed. But safety and sound principle would seem to require that the description of the property should be such as to enable third persons to identify it, aided by inquiries which the mortgage itself indicates and directs. Lawrence v. Evarts, 7 Ohio St., 194, lays down this rule ; and it is certainly founded in good sense. In addition to the authorities referred to in the opinion in that case, see Bullock v. Williams, 16 Pick., 33; Barnard v. Eaton, 2 Cushing, 294; Groulding v. Sweet, 13 Gray, 517; Kemp v. Carnley, 3 Duer, 1; Crow v. Ruby, 5 Missouri, 484; Newman v. Tymeson, 13 Wis., 172; Otis v. Sill, 8 Barb., 102; 4 Met., 306. It. would be utterly impossible, by any process of investigation, to tell, at the time the Barnes mortgage was executed, what causes of action might accrue to the La Orosse company, and probably very difficult to ascertain what had already accrued. But the stipulations in the instrument executed by the defendant company might easily have been described in the mortgage, if it had been intended to transfer them.

It is likewise claimed by the counsel for the defendant company, that in no possible event could the plaintiff company have the benefit of the covenants above cited, since the Barnes mortgage was made expressly subject to the million mortgage. There are no facts or circumstances, it is said, stated in the complaint, to take the case out of the ordinary rule which governs the rights of purchasers of an incumbered estate. And since the Barnes mortgage was made in express terms subject to the million dollar mortgage, this, it is argued, furnishes indubitable proof that it was the intention of the La Crosse company to deprive those claiming under the Barnes mortgage of any equity which might otherwise have sprung from the circum stance that the million mortgage covered the “ Watertown Division,” and the defendant company had entered into a stipulation to pay a portion of it. Whether this position is sound in view of the matters stated in the complaint, or whether indeed the clause in the Barnes mortgage is not too indefinite and uncertain to embrace this covenant, need not now be definitely decided, inasmuch as we think the complaint is bad on another ground.

There is no allegation in the complaint that the covenants in this indenture were sold at the foreclosure of the Barnes mortgage, or that the price which was bid for the property was in any wise dependent on the existence of these covenants. It is averred, to be sure, that the trustee sold at public auction all the property, rights, privileges,- franchises, things in action and other things described in the mortgage. Is it permissible that choses in action, instruments in writing, should thus be exposed for sale and swept away in this loose and uncertain manner ? What purchaser could bid understandingly when property is thus offered for sale, without any designation or des cription ? Obviously a bidder would not know, and would have no means of ascertaining, whether the choses in action were worth a thousand, a hundred thousand, or a million of dollars. The mortgage, being recorded as a real estate and not as a chattel mortgage, would probably not be even constructive notice to third persons as to the property covered by it. No person, therefore, attending the sale could know what price to bid, or how to regulate his judgment, if there was no specific and certain designation of the property offered for sale. In case of default of payment of any part of the interest or principal for fifteen days, the trustee was authorized to take possession of the mortgaged property and to sell it at public auction, after giving the stipulated notice. A sale at auction and upon notice implies that there is some designation of the thing offered to be sold, so that persons whom the law invites to such auction may be able to know where and what is the property they axe about to purchase. In. case of selling a railroad, it might be sufficient to designate the property sold as a railroad between given points, with its rights, privileges and franchises. But it seems to me, if choses in action and legal instruments are to be sold, there ought to be some description or designation of them. Otherwise such sales will be a mere idle ceremony, resulting frequently in great injury to the debtor company, and leading to the most fraudulent speculations. If the covenants in this indenture were actually sold by the trustee, and he bid in reference to them, it should be so averred. If the trustee did not sell them, then clearly the plaintiff company shows no reason why it should have the advantage of them. Eor, conceding that the mortgage embraced them, yet if they have not passed to the plaintiff company by the sale and conveyance of the trustee, then manifestly that company cannot enforce the covenants in its favor. It claims to be the equitable and legal owner of these covenants, but fails to show title.

The demurrer to the complaint was therefore improperly 'overruled.

By the GourL — The order appealed from is reversed, and the cause remanded for further proceedings.

Downer, J., took no part in the decision of this case, having been of counsel respecting matters involved in it.