IN THE MATTERS OF HOWARD, 76 U. S. 175 (1869)

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U.S. Supreme Court

In the Matters of Howard, 76 U.S. 9 Wall. 175 175 (1869)

In the Matters of Howard

76 U.S. (9 Wall.) 175


1. Where there is a fund in court to be distributed among different claimants, a decree of distribution will not preclude a claimant not embraced in its provisions, but, having rights similar to those of other claimants who are thus embraced, from asserting by bill or petition, previous to the distribution, his right to share in the fund, and in the prosecution of his suit, he is entitled, upon a proper showing, to all the remedies by injunction, or order, which a court of equity usually exercises to prevent the relief sought from being defeated.

2. The judgment or decree of an inferior court, when affirmed by this Court, is only conclusive as between the parties upon the matters involved. It does not conclude the rights of third parties not before the court or in any respect affect their rights. It acquires no additional efficacy by its affirmance. As an adjudication upon the rights of the parties between themselves, it has the same operation before as after its affirmance.

3. Accordingly where a decree of a circuit court of the United States, affirmed by this Court, had determined that the complainants and certain intervening claimants were entitled to a fund in the hands of the receiver of the court, and ordered the distribution of the fund among them, it was held that it did not preclude third parties from proceeding by bill to assert their claims to share in the fund before its distribution, and to prevent such distribution, before their claims could be considered and determined, they were entitled, upon presenting a prima facie case, to a restraining order or injunction from the court.

These were two motions which were heard together, as they involved a consideration of similar questions and grew out of the same facts. The first motion was for a peremptory

Page 76 U. S. 176

mandamus to the judges of the Circuit Court of the United States for the District of Iowa (the alternative writ having been heretofore issued and returned), commanding them to execute a decree of that court rendered in the case of Howard v. City of Davenport by distributing certain funds in its custody. The second motion was to dismiss the appeal from the final decree rendered in a subsequent suit affecting the distribution of those funds.

The facts out of which these cases arose were substantially as follows:

In 1854, the Legislature of Iowa incorporated a company, styled the Mississippi & Missouri Railroad Company, to construct a railroad from Davenport to Council Bluffs in that state, with a branch to Oskaloosa. To raise the necessary funds for the construction of the road, the company executed, previous to 1861, several mortgages upon its property to secure its bonds, issued at different times, amounting to over six millions of dollars. The company also received, previous to 1861, in payment of subscriptions of stock, bonds to a large amount of certain cities and counties in the state through which the road was located, the payment of which bonds was guaranteed by a special endorsement upon each. With the guaranty of this endorsement it disposed of the bonds to different parties.

In 1865, the company became embarrassed and insolvent, and in February, 1866, a suit was brought in the Circuit Court of the United States for the District of Iowa for the foreclosure of the mortgages upon its property. In May following, the suit resulted in a decree for the sale of the property, and in July of the same year a sale was made under the decree by a master in chancery to the Chicago, Rock Island & Pacific Railroad Company, a corporation created by the State of Iowa. The foreclosure and sale were made pursuant to an arrangement entered into between the stockholders and the greater number, but not all, of the bondholders and other creditors of the company by which it was agreed that the sum of $5,500,000 in bonds of the purchasing company should be given for the property and applied

Page 76 U. S. 177

to the payment of the bonds secured by the different mortgages of the insolvent company, in conformity with a specified scale, with the exception of an amount equal to sixteen percent on the capital stock of that company, namely $552,400, which should go to its stockholders.

Previous to this time, Mark Howard and John Weber had severally recovered judgments against the City of Davenport and also against the Mississippi & Missouri Railroad Company upon certain bonds issued by that city to aid in the construction of the railroad and guaranteed by that company. In the distribution of the proceeds to be received upon the sale of the property of the insolvent company, no provision was made for the payment of these judgments, and on the 9th of July, 1866, the day on which the sale mentioned under the decree of foreclosure was made, Howard and Weber brought a suit in equity in the same court against the parties to the foreclosure suit to obtain payment of their demands out of the proceeds, which, by the arrangement mentioned, were to go to the stockholders. In their bill they set forth the judgments recovered by them against the Mississippi & Missouri Railroad Company; that the company was insolvent; that all its property had been sold under the decree of foreclosure; and that there was no other property out of which these judgments could be made than the $552,400 which was to be received by the stockholders out of the proceeds of the sale.

During the progress of the suit, fourteen other persons appeared and presented claims of a similar character, to an amount exceeding seven hundred thousand dollars, against the same fund. These parties are designated in the proceedings as "intervening claimants joining in the bill." On application of the complainants and these intervening claimants, a receiver was appointed by the court to collect and hold the fund which they were seeking to subject to the payment of their claims. This officer subsequently received from the Chicago, Rock Island & Pacific Railroad Company, the purchasing company, in its first mortgage bonds with interest coupons attached, the amount which was to go to the

Page 76 U. S. 178

stockholders of the insolvent company, and has ever since held that same in his custody, subject to the order of the court.

In May, 1868, a final decree was rendered in the suit adjudging that the complainants and intervening claimants were entitled, as creditors of the Mississippi & Missouri Railroad Company, to so much of the purchase money of its property as was agreed to be reserved for the stockholders, and directing the purchasing company to pay the same, less a small sum allowed for overpayment, in cash or its bonds, to the receiver, and directing the receiver, if paid in bonds, to convert the bonds into money and, after satisfying certain costs, distribute the proceeds to the complainants and intervening claimants pro rata in proportion to the amounts of their respective claims, which were stated. On appeal to this Court, this decree was affirmed and the mandate to the circuit court, issued in pursuance of the judgment of affirmance, commanded

"that such execution and proceedings be had in said cause as according to right and justice and the laws of the United States ought to be had, the said appeal notwithstanding."

Whilst the appeal was pending, Frederick A. Foster presented a petition to the circuit court setting forth that he was a holder of certain bonds of the Mississippi & Missouri Railroad Company, secured by a mortgage on its property, which had never been paid; that he was not a party to the arrangement by which, upon a sale of the property, as already mentioned, a certain portion of the proceeds received were to be paid to the stockholders, and insisting that the fund thus realized was applicable to the payment of these bonds, and praying for an order restraining the distribution of the fund in the hands of the receiver, and directing that upon proper pleadings an issue be joined between the petitioner and other holders of bonds who never assented to the arrangement mentioned, and the complainants and intervenors, to settle the priorities of the parties in an application of the fund.

Subsequently three other parties, McCollum, Bardwell, and

Page 76 U. S. 179

McComb, presented similar petitions to the circuit court setting forth that they were also holders of bonds of the insolvent railroad company, which had never been paid, and asking that the proceeds derived from a sale of its property, in the hands of the receiver, be applied to the payment of these bonds, in preference to the claims of any parties to the suit of Howard and others.

In May, 1869, the court denied the prayer of the petitioners, but allowed them to file their petitions and required them to file a consolidated bill at the next term of the court against all the parties to the suit setting up their respective claims with greater particularity than in the petitions.

In July following, the petitioners, Foster McCollum, Bardwell, and McComb, filed their consolidated bill against Howard and all the other parties to the original suit asserting their claims as mortgage bond holders to the fund in the hands of the receiver. The bonds amounted to about seventy-two thousand dollars, with large arrears of interest, for which they claimed a lien upon the fund in preference to the claims of Howard and others, and if that was not allowed, then they claimed the right, as general creditors, to share with them in the distribution of the fund.

All the defendants answered the bill, denying that the complainants had any lien on the fund as mortgages or any right to the fund as general creditors, and contending that if they were such creditors, the defendants were entitled, as a reward of their superior diligence, to be first paid out of the fund. No objection was made by them that after a final decree, affirmed by this Court, directing a distribution of the fund, it was too late for the complainants to file their bill to reach the fund, or to share in its distribution.

In November, 1869, the circuit court heard the case and rendered a final decree rejecting the claim of McCollum and allowing the claims of the other three complainants, Foster Bardwell, and McComb, to a limited amount as general creditors.

From this decree the complainants appealed, McCollum because his claim was entirely rejected Foster, Bardwell,

Page 76 U. S. 180

and McComb because they were allowed to come in only as general creditors. The appeal was now pending in this Court.

After this appeal was perfected, Howard and others, the complainants and intervening claimants in the original suit, applied to the circuit court for a rule on the receiver to proceed to execute the decree rendered therein by the distribution of the fund in his hands, as provided by the decree in that case, notwithstanding the appeal of Foster and his associates or of any of them, or in case the court should be of opinion that the motion could not be granted in full, that then the receiver should be ordered to proceed to execute the decree, except as to such portion of the fund as to which execution was suspended by order of the court made at the May Term. This motion the circuit court denied.

The same parties then applied to this Court for a writ of mandamus to the judges of that court commanding them forthwith to execute the decree rendered at the May Term 1868, and affirmed by this Court, or to execute the decree by distributing all the fund, excepting sufficient to cover the claims of the appellants. This Court, as is usual in applications for a mandamus, on a prima facie showing, allowed the alternative writ, which being returned, the parties now asked for the peremptory writ. The parties at the same time moved to dismiss the appeal from the final decree in the above suit of Foster and his associates.

Page 76 U. S. 182

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