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First. “This petition of the Grand Trunk Western Railway Company re spectfully shows:
“(1) That it is a corporation existing under and by virtue of the laws of the states of Michigan and Indiana, created as hereinafter stated; that it is now the owner of the entire railroad and property formerly owned by the Chicago & Grand Trunk Railway Company-one of the defendants in the above-entitled cause—which were embraced in and sold under and pursuant to the decree in said cause; and that it derived its said title through the following deeds of conveyance: (a) By separate deeds for each of the states of Michigan, Indiana, and Illinois, of the portion of said railroad and property lying and being in each of said states, by Walter S. Harsha, special master commissioner, to Charles M. Hays and Elijah W. Meddaugh, tbe purchasers at the sale, made pursuant to said decree, in which deeds said complainant, the Mercantile Trust Company (of New York), trustee, and said defendants, the Chicago & Grand Trunk Railway Company, the Union Trust Company (of Detroit), trustee, and Hugh Paton, trustee, joined. (b) By separate deeds of conveyance, for each of said states, by said Hays and Meddaugh, of that portion of said railroad and property lying and being in the state of Michigan to the Port Huron & Indiana Railway Company; of that portion thereof lying and being in the state of Indiana, to the Indiana & Illinois Railway Company; and of that portion thereof lying and being in the state of Illinois, to the Chicago Lake County Railway Company-each of said railway companies having been organized by said Hays and Meddaugh, pursuant to statutory provisions, for the express purpose of accepting such conveyances.
“(2) That subsequently said Port Huron & Indiana Railway Company and said Indiana & Illinois Railway Company were consolidated, and thereby your petitioner was duly created, pursuant to the statutes of the states of Michigan and Indiana. Afterward your petitioner, having become the owner of the entire capital stock of said Chicago Lake County Railway Company, purchased that part of said railroad and property lying and being in the state of Illinois, and received a deed thereof from said Chicago Lake County Railway Company.
“(3) That by the laws of the states of Michigan and Indiana, under and pursuant to which it was created as aforesaid, your petitioner is expressly made liable for all the debts and obligations of its constituent members, to wit: Said Port Huron & Indiana Railway Company and said Indiana & Illinois Railway Company; and by the laws of the state of Illinois, under and pursuant to which it acquired that part of said railroad and property lying in said state of Illinois as aforesaid, your petitioner is expressly made liable for all the debts and obligations of said Chicago Lake County Railway Company.
"(4) That in each of the several deeds through which your petitioner derived its title to said railroad and property as aforesaid, it is provided, in substance, that the conveyance is expressly made subject to the obligations by said decree imposed upon the purchasers of said railroad and property at said sale thereof by said special master commissioner, and upon their successors and assigns.
"Copies of each of said several deeds of conveyance which constitute petitioner's chain of title to said railroad and property are hereto attached.
"(5) It is provided in said decree, under and by virtue of which said railroad and property were sold to said Hays and Meddaugh as aforesaid, as follows, viz.i 'It is further ordered, adjudged, and decreed that the purchaser or purchasers of said railroad franchises and other property at such sale shall, as part of the consideration and in addition to the price bid, pay and discharge any and all receivers' indebtedness and liabilities that shall not have been paid by the receivers, and any and all claims heretofore filed in this cause, or that may be hereafter filed within four calendar months from the date of entering this decree, but only when and as the court shall allow such claims and adjudge the same to be a lien prior to the mortgage foreclosed in this suit; and shall pay all costs of court, fces of clerks and masters, and any sums awarded by the court to the parties to this suit, and their counsel, or to the receivers in this cause; and, furthermore, shall pay all costs and expenses involved in and incident to the suits instituted in said Circuit Courts of the United States for the District of Indiana and for the Northern District of Illinois in foreclosure of said mortgage of April 10, 1880, and shall abide by and comply with and perform all other orders and decrees that may be made by this court or by said Circuit Courts of the United States for the District of Indiana and for the Northern District of Illinois, or either of them, in the said cases therein pending. Any such purchaser or purchasers, and his or their successors and assigns, shall have the right to enter his or their appearance in this court, or any other court, and he or they, or any of the parties to this suit, shall have the right to contest any claim, demand, and allowance existing at the time of the sale and then undetermined, and any claim or de mand which may arise or be presented thereafter, which would be payable by such purchaser or purchasers, his or their successors or assigns, or which would be chargeable against the property purchased, in addition to the amount bid by such purchaser or purchasers at the sale, and may appeal from any decision relating to any such claim, demand or allowance.'
"(6) Your petitioner hereby admits itself to be the successor and assigns of said Hays and Meddaugh, within the intent and meaning of said decree, and that it is legally liable for all the obligations imposed by said decree upon the purchasers of said railroad and property at the sale thereunder as aforesaid, and is amenable to all orders and decrees of this court, of the Circuit Court of the United States for the District of Indiana, or the Circuit Court of the United States for the Northern District of Illinois, that may be made in respect thereof; and it hereby submits itself to the jurisdiction of this court and of said courts in respect of any such orders or decrees.
“(7) That your petitioner is desirous of securing immediate possession of said railroad and property, and, to that end, prays an order of the court directing the receivers to at once turn over and deliver the same to your petitioner, together with any money balances, credits, etc., growing out of or connected with the operation of said railroad and property by said receivers, that may be in their possession and control; your petitioner hereby signifying its willingness to accept and assume all outstanding obligations and liabilities of said receivers, and hereby undertaking to fully satisfy and discharge the same as they shall from time to time, within the terms of said decree in that behalf, be allowed and ordered paid by this court, by the Circuit Court of the United States for the District of Indiana, or by the Circuit Court of the United States for the Northern District of Illinois. And your petitioner is willing and hereby agrees to accept the full and final accounting of said receivers, as such accounts shall be rendered by them to petitioner, and consents to the final discharge of said receivers and the cancellation of their bonds as such receivers. Your petitioner prays that it may be permitted to enter its appearance, by its solicitor or attorney, in this cause and in the causes pending in the two other courts aforesaid, to the end that it may be heard respecting any claims that may now be pending or may hereafter be presented either against said Chicago & Grand Trunk Railway Company or against said receivers pursuant to the provisions of said decree.”
Second. Whereupon the following order was entered :
"The foregoing petition being duly considered, and all parties to the suit, by their respective solicitors of record, consenting, it is hereby ordered: That the prayers of the petition be and hereby are granted. The receivers, E. W. Meddaugh and H. B. Joy, are hereby directed to turn over and deliver to said petitioner, on the 1st day of December, 1900, all of the railroad, property, money, accounts, and effects as prayed, and the said receivers are hereby relieved of any further accounting to this court for the administration of their receivership, and their bonds for the faithful performance of the duties of said receivership are hereby canceled, and the surety on said bonds hereby released."
It is then a verred "that in pursuance of said last-mentioned order, entered as aforesaid, said railroad an railroad property and all the improvements and betterments made thereon by said receivers during said receivership, and all money balances, credits, etc., and all other property in the possession of said receivers, as aforesaid, were turned over and delivered to the said defendant, the Grand Trunk Western Railway Company.” And that "hy means of the premises and the petition, orders and decrees, as aforesaid, the said defendant, the Grand Trunk Western Railway Company, became and still is liable to pay to the plaintiff any and all damages sustained by him through the negligence, as aforesaid, of said receivers"; that, though often requested, the defendant has not paid his said damages, but refused to pay the same to his damage of $50,000, "and therefore he brings his suit.”
The demurrer to this amended declaration is in the form of a general demurrer "for want of a sufficient declaration in this behalf," with seven specifications of cause, which are sufficiently referred to in the opinion,
John A. Brown, for plaintiff in error.
SEAMAN, Circuit Judge (after stating the facts as above). The declaration avers an injury suffered by the plaintiff in error, while engaged in the service of the receivers, under circumstances which would charge the receivers with liability, upon due proof in a suit against them, prosecuted during the term of receivership. Suit was not commenced, however, until after sale of the res under a foreclosure decree, delivery to the defendant in error through a purchase thereunder, and discharge of the receivers, as averred in the amended declaration in question. The foreclosure proceedings referred to were in the Circuit Court of the United States for the Eastern District of Michigan, where the receivers were appointed, with ancillary proceedings and appointment in the Northern District of Illinois and elsewhere; and the plaintiff in error brought the present action, as trespass on the case, in the superior court of Cook county, Ill., against the receivers so appointed (and acting when the injury occurred), impleaded with T. C. Austin Manufacturing Company and Grand Trunk Railway Company, as defendants. More than two years elapsed before the defendant in error, Grand Trunk Western Railway, was impleaded as defendant; and subsequently there was a discontinuance as to the other defendants, with the defendant in error retained as sole defendant. Removal to the trial court ensued, and the declaration, as finally amended to charge liability thereupon, was challenged by demurrer. The inquiry whether it states a cause of action against the defendant in error is the only serious question for review, and its solution is not free from difficulty under the authorities.
Were the question of liability one arising in equity, in proper forum upon timely application, no difficulty would appear in framing the issues and granting the relief which equity affords upon proof of the facts, unless barred by limitation or laches. Instead of such course, with remedy sought at law, not only is the case governed by the rigid rules of that forum, but it has become complicated through mistakes in procedure and failure to bring in proper parties and charge liability within a period of limitation which may bar redress for the alleged cause of action in any forum. Upon demurrer, however, the question of limitation, for which the defendant in error contends, cannot arise under the common-law rules upheld in Illinois (Gebhart v. Adams, 23 Ill. 397, 76 Am. Dec. 702; Gunton v. Hughes, 181 III. 132, 134, 54 N. E. 895, 1 Chitty on Plead. [16th Am. Ed.] 506, 526), and that objection must be disregarded upon review of the ruling against the sufficiency of the declaration.
The matter for which recovery is sought is the injury alleged to be caused by negligence on the part of the receivers in their operation of the railroad property in custodia legis. As the defendant in error had no part or interest in such operation, nor existing interest even in the property, it was plainly not answerable for the alleged negligence when this cause of action accrued; but liability is predicated upon the further averments of subsequent transactions in the purchase of the property, under decrees in the foreclosure proceedings, whereby it assumed obligations incurred by the receivers. In other words, with a cause of action set up against the receivers-neither acknowledged by them nor sued upon within the terms of receivershiprecovery is sought against the purchaser alone, as for an obligation thus assumed through the terms of purchase and circumstances of succession in estate.
The general doctrine which controls the enforcement of remedies in the federal forum has frequently been declared by the Supreme Court, as preserving the distinctions between law and equity, under the constitutional grant of judicial powers, so that "the adoption of the state practice must not be understood as confounding the principles of law and equity, nor as authorizing legal and equitable claims to be blended together in one suit,” in conformity with such state practice. Bennett v. Butterworth, 11 How. 669, 674, 13 L. Ed. 859; 5 Notes U. S. Rep. 60; Lindsay v. Shreveport Bank, 156 U. S. 485, 493, 15 Sup. Ct. 472, 39 L. Ed. 505. With no averments to charge direct or personal common-law liability against the defendant in error, these considerations set up for recovery, through purchase and succession to the railroad property—at least aside from the express assumption of receivership obligations-are not legal obligations at the common law; and as equitable obligations alone they are barred from enforcement at law, under the above-stated doctrine. So, in reference to the alleged assumption of liability, without privity between these parties, the general rule upheld in National Bank v. Grand Lodge, 98 U. S. 123, 125, 25 L. Ed. 75, and Keller v. Ashford, 133 U. S. 610, 620, 10 Sup. Ct. 494, 33 L. Ed. 667, would stand in the way of such enforcement, unless the subsequent opinions in Willard v. Wood, 135 U. S. 309, 313, 10 Sup. Ct. 831, 34 L. Ed. 210, and Union Life Insurance Co. v. Hanford, 143 U. S. 187, 190, 12 Sup. Ct. 437, 36 L. Ed. 118, are applicable to modify the rule.
Under the first-mentioned doctrine, it has long been the rule of the federal jurisdiction—both before and since the general enactment of 1872 (Act 1872, c. 255, § 5, 17 Stat. 197; section 914, Rev. St. [1 U. S. Comp. St. 1901, p. 681]), adopting “the practice, pleadings, and forms and modes of proceeding" of the states respectively-in cominon-law civil cases, that equitable claims and defenses are not enforceable at law in the federal court, notwithstanding such authorization in the courts of the state. Lindsay v. Shreveport Bank, supra. Without plain sanction, either for departure from that rule or for the exercise of jurisdiction at law under conditions and in precedents applicable to these averments, the present suit would not appear to be maintainable, and demurrer to the declaration was rightly sustained. On the other hand, if the later decisions of the Supreme Court establish a rule--whether by way of modification of such doctrine or otherwise—which authorizes the remedy thus sought, they are to be observed as controlling.
Expressions in the opinions in the above-mentioned cases of Willard v. Wood and Union Life Insurance Co. v. Hanford may not appear in harmony with the view that no claim purely equitable can be enforced at law under the sanction of the state practice. In each of these cases, speaking in reference to the enforcement by a mortgagee of a covenant between his mortgagor and a grantee of the latter for payment of the mortgage indebtedness, it is stated (without qualification) that:
"The question whether the remedy of the mortgagee against the grantee is at law and in his own right, or in equity and in the right of the mortgagor only, is *
to be determined by the law of the place where the suit is brought.”
In neither case, however, can these remarks be accepted as decisive of the present inquiry, under our understanding of the issues there involved. The issue in Willard v. Wood was whether such obligation was enforceable in a suit at law by the mortgagee against the grantee, without privity between the parties; and the denial rests, as stated in the opinion, on the authority of National Bank v. Grand Lodge, supra, and Keller v. Ashford, supra, upholding the commonlaw rule. The remarks upon remedy, as "governed by the lex fori, the law of the District of Columbia, where the action was brought," were made arguendo, in answer to the contention that the plaintiff was entitled to the benefit of the rule in New York (where the property and conveyance were located), which authorized such suit “either in equity or at law.” Whether there was any provision or rule in New York fixing the nature of the obligation was not there considered. That the rule of practice referred to could not fix the form of remedy in another forum was decided in conformity with the citations in the opinion, and the comment must be read in that view. In Union Life Insurance Co. v. Hanford, the suit was in equity for foreclosure of a mortgage, in the federal court, sitting in Illinois, and issue arose upon claim of a deficiency judgment against the mortgagor. The defense was that his personal liability was discharged by an extension of time granted by the mortgagee to a grantee of the mortgagor who had assumed payment of the debt; and, the fact being undisputed, the sole test of liability was whether the grantee became directly and primarily obligated in favor of the mortgagee, so that his relation to the mortgagor became that of principal with the latter as mere surety for the debt. Under the law of Illinois, the opinion states that such was the well-established nature of the liability; and, thus applying the law of the contract, the defense was sustained. By way of premise for this conclusion, the opinion refers to the “remedy of the mortgagee against the grantee” as determined by the law of the place where suit is brought (in the language above quoted), with the remark, "as was adjudged in Willard v. Wood.” But the decision, upon our understanding of its import, rests on the interpretation of the agreement in question as creating direct (legal) liability, in conformity with the local law, for which remedy at law was proper.