Illinois Trust & Savings Bank v. Pacific Railway Co.

Van Fleet, J.

Plaintiff brought this action to foreclose a mortgage lien claimed by it upon certain street railroad property belonging to the defendant the Los Angeles Cable Railway Company, and consisting of all the franchises, roadbeds, rolling stock, and other property, real and personal, owned by that company, in the city of Los Angeles.

On the twenty-fourth day of August, 1889, the defendant Pacific Railway Company, having acquired a majority of the capital stock of the said defendant Los Angeles Cable Railway Company, and being desirous of securing funds with which to meet certain unsecured obligations of the latter company, and to complete the construction of the system of roads projected by it, and also with a view to the ultimate purchase of all the property of said Los Angeles Cable Railway Company, made an issue of $2,500,000 in bonds, and, as security for the payment of said bonds, executed to plaintiff as trustee a deed of trust intended as a mortgage, covering all the title the grantor then had, and all it might thereafter acquire, to all of the property above mentioned of said Los Angeles Cable Railway Company.

Subsequently, on the ninth day of October, 1889, said Los Angeles Cable Railway Company made a deed to the Pacific Railway Company, intended and purporting to convey to the latter all of said property; and under this deed the possession of the property passed formally into the hands of said Pacific Railway Company.

Thereafter, on July 18, 1890, some question having arisen as to the validity of the trust deed made by the last-named company to plaintiff, the said Los Angeles Cable Railway Company itself made to plaintiff a trust deed or mortgage confirmatory of that of the Pacific Railway Company, indorsing all of its provisions, and covering all of said property—as further security for the payment of said issue of bonds—in which last-mentioned deed the Pacific Railway Company united as a grantor.

It is under these two instruments that plaintiff’s lien was claimed, and under which, default having been made in the payment of the indebtedness thereby secured, a decree was asked for a sale of said property in satisfaction thereof.

Certain third persons claiming liens upon the mortgaged property were made defendants in the action. Of these, William Alvord and Thomas Brown held a trust deed or mortgage, executed to them as trustees by the defendant Los Angeles Cable Railway Company, on September 15,1887, given to secure an issue of $1,500,000 in bonds made by the latter company, and which mortgage had not been satisfied; M. L. Coenan and F. J. Coenan held a judgment lien upon the property under a judgment theretofore secured against the defendant, the Los Angeles Cable Railway Company, in the sum of $18,376.81; and the estate of Joshua Hendy, deceased, held a lien of like character under a judgment theretofore recovered by it against the same company in the sum of $23,017.12.

J. F. Crank was also made a defendant. Prior to the commencement of this action, in another action commenced' in the superior court of Los Angeles county by one E. W. Russell against the Pacific Railway Company and others, the property involved bad been taken from the possession of the Pacific Railway Company, which was then holding and operating the same, and placed by order of the superior court in the hands of said Crank, a receiver appointed in that action; and Crank, while holding said property as such receiver, had, under the orders of that court, issued receivers’ certificates, amounting to $15,200, to secure funds required in its management. These certificates were outstanding and unliquidated at the commencement of this action.

By its findings and decree the court below declared these certificates, so issued by Crank, with certain others-issued by the receiver appointed in the present action, the first lien upon the property, and entitled to priority in payment; the mortgage claim of Alvord and Brown, trustees, amounting to $1,323,353.35, with certain attorneys’ and trustees’ fees, the second lien, and entitled to be next paid; the confirmatory deed or mortgage of the Los Angeles Cable Railway Company to the plaintiff, given to secure the bonds of the Pacific Railway Company, the third lien, in the sum of $1,677,106, together with certain attorneys’ and trustees’ fees; the judgment of'the Coenans the fourth lien; and the judgment of the Hendy estate the fifth lien; and directed the property to be sold and the proceeds applied, after the payment of costs and expenses, etc., to the extinguishment of said several liens in the order named.

The trust deed given by the Pacific Railway Company to plaintiff, and the deed of the Los Angeles Cable Railway Company to the Pacific Railway Company, purporting to convey said property to the latter, were held to be unauthorized and void; but the indebtedness created by the bonds of the Pacific Railway Company was held valid and subsisting, and it was adjudged that, should the proceeds of the sale of the mortgaged property prove insufficient to satisfy said last-named indebtedness, the plaintiff should have a judgment for the deficiency against the Pacific Railway Company.

The only parties dissatisfied with the decree are the representatives of the estate of Hendy, deceased. They alone appeal, and their appeal is from the judgment upon the judgment-roll; the several objections urged being, it is claimed, such as arise upon the face of that record. Certain of these objections, if sustained, appellants contend, would result in preferring the lien of their judgment to other liens to which it was postponed.

1. It is contended that the court erred in declaring the $15,200 in receivers’ certificates issued by Crank in the case of Russell v. Pacific Railway Company et al., a lien upon the mortgaged propertjr, and in directing its payment as a preferred claim over that of appellants, and that in this respect the findings do not sustain the judgment. This contention is based upon the fact that it was found by the court that the deed from the Los Angeles Cable Railway Company to the Pacific Railway Company, purporting to convey the mortgaged property, was void, and that the title never passed to the latter company. The argument of counsel is that, as the court was dealing with the property in that action as that of the Pacific Railway Company alone, while it was in fact the property of the Los Angeles Cable Railway Company, which latter, it is said, was not a party to that action, that the court never had jurisdiction of the property, and consequently had no competent authority to authorize the creation of any obligations against it which are binding upon the property, or valid as against the parties to the present action.

But, in the first place, this proposition is based upon an assumption of facts which the present record does not disclose. The finding upon which the decree rests in this respect is this: “While J. F. Crank was acting as receiver of the Pacific Railway Company, appointed in the case of E. W. Russell v. Pacific Railway Company et al., and while he was operating the street-car lines mentioned in the second amended complaint herein as such receiver, and while D. K. Trask, the receiver appointed in this action, was in possession and operating said street-car lines as such receiver, orders of court were entered in said actions respectively authorizing and directing the issuance of receivers’ certificates, and providing that said certificates should be a lien upon the property in the hands of said receivers, respectively, superior to the liens of the mortgages or trust deeds and judgments therein mentioned. The above-mentioned receivers’ certificates which are now outstanding and unpaid are as follows” (and then follows a statement of these certificates).

This finding does not show, nor does it competently appear anywhere in this record, what the character of the action of Russell v. Pacific Railway Company et al. was, nor who all the parties thereto were; nor does it appear, except inferentially, that the property held by the receiver in that action was held and dealt with solely upon the theory that it was the property of the Pacific Railway Company. For all that appears, one of the very questions in issue in that action may have been the title to this property; and not only the Los Angeles Cable Railway Company, the owner thereof, but these very appellants, may have been parties to that action. The action is simply referred to in the finding as entitled “E. W. Russell v. Pacific Railway Company et al.,” and the finding makes no statement as to who the other parties to the suit were. In fact, there is nothing in this record to show that there was not before the court, in that action, everything in the way of subject matter and parties requisite to give the court jurisdiction to bind the property and parties hereto. In the absence of anything showing the contrary, we will presume that such was the fact. Inferences are never to be indulged to defeat the judgment, but always in support of it, and, if we can imagine a state of facts, not inconsistent with the record before us, which would have authorized the action of the court, those facts will be presumed to have existed.

But, moreover, when a court in a proper case, and under circumstances apparently authorizing such action, takes property into its possession through a receiver, which, as in this instance, is of a character to give the public a right to its continued operation and use, the court acquires a right and assumes the obligation of keeping such property in operation; and, for that purpose, is authorized to incur such expenses and create such obligations against the property as are necessary to keep the same in repair and pay operating expenses. And such expenses and obligations “are burdens necessarily on the property taken possession of, and this, irrespective of the question who may be the ultimate owner, or who may have the preferred lien, or who may invoke the receivership.” (Kneeland v. American Loan etc. Co., 136 U. S. 89; Kneeland v. Bass Foundry etc. Works, 140 U. S. 592.)

In the absence of the evidence and anything in the findings to show the contrary, we must presume in support of the judgment that there was shown at the trial the existence of every fact in that case which would render proper the action of the court in authorizing the receiver to issue these certificates.

It is said that the court had no power to appoint a receiver in the case of Russell v. Pacific Railway Company et al. But why it had not, counsel does not enlighten us. It is not denied that the superior court has jurisdiction to appoint receivers in proper cases, and, as above suggested, it nowhere appears in any cognizable form what the character of that action was, and the presumption to be indulged, therefore, is that it was one which authorized the appointment of the receiver. This is in the nature of a collateral attack upon the order appointing a receiver in that case (Van Fleet on Collateral Attack, sec. 3); and, as against such an attack, it is well settled that, if the jurisdiction of the court can, in any event, be upheld and its action validated, this will be done, even though the facts showing such jurisdiction are defectively stated, and inferences must be indulged in to support the judgment. (Van Fleet on Collateral Attack, sec. 17.)

2. It is contended that the cross-complaint of Alvord and Brown, under which their mortgage was foreclosed and given priority as a lien over appellants’ judgment, does not state facts sufficient to constitute a cause of action, in that it is not alleged therein that the stockholders of the Los Angeles Cable Bailway Company authorized or consented to the creation of the bonded indebtedness which that mortgage was given to secure, or that they ever authorized the making of said mortgage.

Of a number of answers made in the briefs of respondents to this objection, one at least we deem conclusive against appellants. There is a general allegation in the pleading, in substance, that these bonds were duly issued, and the mortgage in question duly executed by the corporation. There was no demurrer interposed, but the parties apparently went to trial upon the assumption that the pleading was sufficient to raise the issue and authorize proof of the necessary facts; and it was so treated by the court below, since it was there found that “ said Los Angeles Cable Railway Company, by a resolution duly adopted and passed by the unanimous concurrence of its board of directors, and by its stockholders duly assembled, authorized ” to be issued the bonds in question, -and the execution of the mortgage to secure the same. It is w'ell settled that where the parties have proceeded to trial upon a pleading, without objection to its sufficiency to raise a particular issue, and evidence has been received as to the fact, and the issue found upon, the party whose duty it was to object will not be heard in this court to say that the finding is not within the issues. (King v. Davis, 34 Cal. 100; Horton v. Dominguez, 68 Cal. 642; Moore v. Campbell, 72 Cal. 251; Sukeforth v. Lord, 87 Cal. 399.)

If, therefore, it be assumed that it was necessary to specifically allege the consent of the stockholders, it will now be presumed that the pleading was treated by the parties in the court below as alleging that fact.

Moreover, we think the allegations of the pleading were sufficient in themselves to admit proof of the fact.

3. But one other point is made which we deem it essential to notice: The Los Angeles Consolidated Electric Railway Company was one of the defendants in the action, and set up in its answer that while Crank was in possession of the property as receiver in the case of Russell v. Pacific Railway Co. et al., this defendant applied to the court in that action for permission to use jointly with the Pacific Railway Company certain portions of the cable railway tracks, as provided in section 499 of the Civil Code; that it had paid to Crank, as such receiver, one-half the cost of the portions of the track of which it desired to make joint use, and had received a conveyance of a one-half interest therein, and it prayed that its one-half of the portions of track acquired as aforesaid should be exempted from the operation of the judgment of foreclosure to be rendered in the action. There is in the findings no mention of the facts set forth in the answer of this defendant, hut among the conclusions of law is found this declaration:

“ The undivided one-half of the tracks, ties, and appurtenances conveyed under orders of court by J. F. Crank, receiver, to the Los Angeles Consolidated Electric Railway Company [describing the property], is free from the encumbrance of the said mortgage or deed of trust of the Los Angeles Cable Railway Company to Alvord and Brown, trustees, mentioned in their cross-complaint, and from any lien of the indenture marked Exhibit B, all mentioned in the second amended complaint herein; and the said undivided one-half of all the said tracks, ties, and appurtenances is the absolute property of the said Los Angeles Consolidated Electric Railway' Company, and free from encumbrance.”

In their opening brief appellants treat this as being what it purports to be, a mere conclusion of law, and object to it as not only wholly unsupported by any finding of fact, but as being at variance with the finding that the Pacific Railway Company acquired no title to the mortgaged property by its deed from the Los Angeles Cable Railway Company; that it appearing from this last finding that the Los Angeles Cable Railway Company was the owner of the property at the time of the attempted sale of this interest by the receiver, and that such sale was made in a case to which the latter company was not a party, the sale was wholly void, and passed no title to the purchaser; that consequently, the interest thus reserved from sale remained subject to the lien of appellants’ judgment, and to sale in satisfaction thereof, and that in declaring it free from such lien and withholding it from sale the court below erred to appel-, lants’ injury.’

As to the objection that no title passed because the Los Angeles Cable Railway Company was not a party to the action, the same answer applies which is suggested in the point as to the receivers’ certificates,—that it nowhere appears that said company was not a party to that action. But an inspection of the decree which was entered in this case shows that, notwithstanding the reservation thus made in the court’s conclusions, all of the mortgaged property, including the interest thus declared to have passed to the Los Angeles Consolidated Electric Bailway Company, was ordered to be sold thereunder in satisfaction of the liens established thereby. And, as will hereafter appear, all of said property, without the reservation of any part, was sold thereunder, and the proceeds applied in satisfaction of said liens as therein directed. It thus appears that, whatever might have been the effect of this reservation, had it been carried into the decree, the appellants have not in anywise been injured thereby. The decree gave them the benefit of everything to which they were entitled, and appellants have no cause of complaint.

These considerations having been suggested in the briefs of respondents, appellants in their reply brief have changed front, and now take the ground that what they had theretofore regarded and treated as merely an erroneous conclusion of law was in truth a finding of fact; and that being such, and the decree not being in accord therewith, it must be held to that extent as unsupported by the findings. But if there is any merit in this new claim the objection cannot avail the appellants. There is no want of support in the decree as to any fact affecting appellants’ rights. If there is any error in the particular urged, the appellants have not been injured thereby, and hence it is not a ground of reversal at their instance. The only party injured would be the purchaser, the Los Angeles Consolidated Electric Bail-way Company, and it would seem to rest content.

4. Some further points are made by appellants, involving the rights of the plaintiff and of the Coenans to have their liens preferred to that of appellants. But appellants have rendered the consideration of these questions wholly immaterial. At the submission of the cause in this court the appellants filed herein the following stipulation:

“ It is hereby stipulated and agreed that an order of sale was issued by the superior court upon the decree of foreclosure contained in the transcript in this case, and that the commissioner advertised and sold the property described in the decree as required therein on the fourth day of October, 1893, subject to the receiver’s certificates; that the entire proceeds of the sale were applied by the commissioner to the payment of costs of suit, expenses of sale, allowances to trustees Brown and Alvord, and attorneys for Alvord and Brown, trustees, and to the payment of the sum of money decreed to be due to the holders of the bonds secured by the trust deed to Alvord and Brown, trustees, and the sale produced no more than that amount; and that the commissioner made a report of the sale to the court, which was confirmed.”

The object of this stipulation is not stated, but its effect is to render the remaining objections mere moot questions, the determination of which would be of no material consequence to appellants. The entire property covered by the lien of appellants’ judgment having been sold, and the proceeds absorbed in satisfaction of claims which, it has been determined, "were prior in right to that of appellants, the latter are left no further interest in the controversy which we are called upon to consider.

The judgment is affirmed.

Harrison, J., McFarland, J., Temple, J., and Henshaw, J., concurred.