A majority of the stockholders and creditors of a railroad
company which had several mortgages on the road, agreed to sell it
for a price offered and to divide the proceeds among all the
stockholders and creditors in a way settled on by those agreeing to
the plan. Other stockholders and
Page 83 U. S. 447
creditors refusing to agree, in order to get around their
opposition, a sale was effected through the action of the majority,
by an amicable foreclosure of mortgage, the trustees in one of the
mortgages being complainants, and those in other mortgages, with
the corporation whose road was intended to be sold, the defendants.
The dissatisfied stockholders and bondholders then filed a bill
against the purchaser and the railroad corporation whose road had
been sold,
but not making any of the trustees or any of the
consenting stockholders parties, charging collusion in this
sale, and praying that it might be set aside, a resale made, and
the money arising from the sale be applied primarily to their
benefit.
Held that the bill was fatally defective for want
of proper parties.
Ribon and several others, bondholders and stockholders in the
Mississippi & Missouri Railroad Company, filed a bill against
the Chicago, Rock Island & Pacific Railroad Company, to set
aside as collusive and fraudulent a sale which had been made of the
road of the former company (one which had numerous stockholders,
and also numerous bond creditors, secured by five different
mortgages) to the latter company, through means of an amicable
foreclosure and decree, in which certain persons, trustees in one
mortgage given by the latter company, were complainants, and
certain other persons, trustees in four other mortgages given by
the same company, along with the company itself, were
defendants.
The bill alleged an agreement between a company called the
Chicago & Rock Island Railroad Company, and a majority of the
bondholders and stockholders of the Mississippi & Missouri
road, by which this latter road should be sold to the former
company, and the proceeds divided among the bondholders and
stockholders of the latter, in a way fixed upon; that there being
several stockholders and bondholders in the latter company who
dissented from this arrangement, a scheme was devised by the
majority of the stockholders,
to which the different trustees
under the different mortgages were parties, to carry the thing
out in the way above named, and so cut off those who dissented, and
the execution of the scheme through a sale of the Mississippi &
Missouri Railroad to the old Chicago & Rock Island Company,
with a somewhat
Page 83 U. S. 448
different organization, and a name so far changed as to have the
addition of "Pacific."
The bill was filed by the complainants for themselves and such
other dissenting bondholders and stockholders as should choose to
become parties and contribute; and it prayed, as already stated,
that the sale might be set aside; praying further that the property
might be resold under the decree; that the money arising from the
sale be applied, first, to the payment of the bonds of the
complainants and of any dissenters who might come in, and be
afterwards applied upon the stock of the complainants and of any
dissenters who might come in, and praying for other and further
relief.
It made both the Chicago, Rock Island & Pacific company (the
company purchasing), and the Mississippi & Missouri Company
(the company whose road had been sold), defendants;
but it did
not make any of the stockholders through whose assent the trustees
had acted, nor the trustees through whose act the scheme was
charged to have been actually consummated, parties.
For these omissions, as of indispensable parties, the defendants
demurred, and the court below sustained the demurrer and dismissed
the bill. Ribon and his co-complainants appealed.
MR. JUSTICE SWAYNE stated particulars of the case, and delivered
the opinion of the Court.
This is an appeal in equity from the decree of the Circuit Court
of the United States for the District of Iowa. The appellants are
the complainants. A brief statement of the case as presented in the
record will be sufficient for the purposes of this opinion.
The Mississippi & Missouri Railroad Company was incorporated
to construct a railroad from Davenport, on the
Page 83 U. S. 449
Mississippi River, to a point at or near Council Bluffs, on the
Missouri River. It executed five mortgages to secure different sets
of bonds, and issued stock in shares of $100 each, to the amount of
$3,500,000. The company built a part of its roadway, and became
greatly embarrassed. A large majority in interest of the
bondholders and stockholders decided to sell all the property of
the company to the Chicago & Rock Island Railroad Company, or
to such other corporation as that company might designate to
receive the transfer; and in order to pass the title, it was
determined to have the mortgages foreclosed and a sale made under
the decree. The Rock Island company entered into the arrangement,
and agreed to pay $5,500,000 as the consideration of the sale.
Payment was to be made in bonds as specified in the contract. The
majority in interest of the bond and stockholders of the
Mississippi company agreed among themselves as to the distribution
of the fund. Such proceedings were subsequently had that under a
decree in a suit in equity, wherein the trustees in one of the five
mortgages were complainants, and the trustees of the other four and
the Mississippi company were defendants, a sale was made to the
Chicago, Rock Island &
Pacific Railroad Company for
the sum of $2,100,000. Five and a half millions of the bonds of the
purchasing company were nevertheless paid over according to the
prior contract, and have been distributed according to the
agreement among themselves, of the majority in interest of the
stockholders and bondholders of the Mississippi company. The
Chicago, Rock Island & Pacific company is in possession of the
property so sold to them, and operating the finished part of the
road. It is not denied that the proceedings touching the sale are
upon their face regular and valid.
The holders of the bonds of the Mississippi company, to the
amount of $185,000 and of six thousand shares of the stock, refused
to become parties to the arrangements and proceedings of the
majority in interest -- never assented to the sale, and did not
participate in the distribution of the proceeds.
Page 83 U. S. 450
The complainants are dissenting bond and stockholders. They
filed this bill for themselves and such other dissenters as might
choose to become parties and contribute to the costs of the
litigation. The prayer of the bill is that the sale may be declared
fraudulent and void; that the property may be resold under the
decree; that the money arising from the sale be applied, first, to
the payment of the bonds of the complainants and of the other
dissenting bondholders who may become parties, and that the residue
be applied upon the stock of the complainants and of such other
dissenters as may become parties, and for other and further
relief.
The appellees demurred to the bill, and assigned for cause,
among others, the want of indispensable parties. The demurrer was
sustained, and the complainants not electing to amend, the court
dismissed the bill.
The want of parties is the only point we have found it necessary
to consider.
The rule in equity as to parties defendant is that all whose
interests will be affected by the decree sought to be obtained must
be before the court, and if any such persons cannot be reached by
process -- do not voluntarily appear, or from a jurisdictional
objection going to the person in the courts of the United States,
cannot be made parties -- the bill must be dismissed. Where a
decree can be made as to those present, without affecting the
rights of those who are absent, the court will proceed. But if the
interests of those present and of those absent are inseparable, the
obstacle is insuperable. The act of Congress of 1839 and the rule
of this Court upon the subject give no warrant for the idea that
parties whose presence was before indispensable could thereafter be
dispensed with. The subject was fully considered in
Shields v.
Barrow. [
Footnote 1] What
is there said need not be repeated.
The rule that all to be affected by the result must be before
the court is subject to certain exceptions. But they
Page 83 U. S. 451
have no application to the case before us, and need not,
therefore, be considered. The rule, as we have stated it, is well
settled in equity jurisprudence. [
Footnote 2]
In the case before us the two railroad companies were properly
made defendants -- the Mississippi & Missouri company because
it was the mortgagor and the owner of the mortgaged premises up to
the time of the sale, and because if the sale were annulled its
title would be restored; the Chicago, Rock Island & Pacific
company, because it was the purchaser and is in possession of the
property under a claim of title. But the Mississippi & Missouri
company has nothing at stake. It is without means, present or
prospective. It has been stripped of all its property and effects,
and only cumbers the ground.
The trustees in the five mortgages which were foreclosed should
have been made parties. Their presence as such was indispensable.
If the sale should be annulled they might be in the situation of
the plaintiff who collects a judgment which is afterwards reversed.
He may be called upon to refund and compelled to do so. A question
would also arise whether the consideration of the agreement under
which the five and a half millions of bonds were paid had not
failed, and whether all the bondholders and stockholders who
participated in the distribution of the proceeds of the sale should
not be required to refund. If either or both were too numerous for
all to be brought before the court, some might have been made
parties in their own behalf and as the representatives of the
others. [
Footnote 3]
Dodge v. Woolsey, [
Footnote 4] to which our attention was called by the
learned counsel for the appellants, presents no material points of
analogy to the case before us, and affords no support to this bill
in the particular under consideration. The bill in this respect is
fatally defective. We do not deem
Page 83 U. S. 452
it necessary to pursue the subject further. The demurrer was
properly sustained and the bill properly dismissed.
Decree affirmed.
[
Footnote 1]
58 U. S. 17 How.
130.
[
Footnote 2]
Caldwell v.
Taggart, 4 Pet. 190;
Story v.
Livingston, 13 Pet. 359;
Marshall
v. Beverley, 5 Wheat. 313;
Coy v.
Mason, 17 How. 580;
Russell v.
Clark's Ex'rs, 7 Cranch 69.
[
Footnote 3]
Story's Equity Pleadings, 7th ed., §§ 120-121, 128,
131, 132, and notes.
[
Footnote 4]
59 U. S. 18 How.
331.
