text:
Galveston Railroad v. Cowdrey

APPEALS from decrees in the Circuit Court for the Eastern District of Texas on bill and cross-bill.

The bill was filed by Cowdrey and others, citizens of New York, against the Galveston, Houston, and Henderson Railroad Company; another company of the same name (the 'successor company' of the one just mentioned); the Galveston and Houston Junction Railroad Company; one Nichols, and fourteen other persons, all citizens of Texas (except one, who was a citizen of Massachusetts), for the foreclosure and sale of the railroad of the said Galveston, Houston, and Henderson company, with all its appurtenances, and all the property of said company, to pay in due order the several outstanding bonds issued under certain mortgages which it had made, to wit, its first, second, and third mortgages, and to call the defendants to account for the tolls, income, and profits of the said railroad and property whilst in their possession. The bill was filed on the 12th of February, 1867, on behalf, not only of the complainants, who alleged that they were large holders of the said bonds, but of all other holders thereof, who might come in and contribute to the costs and expenses of the suit.

It appeared from the pleadings and proofs that the Galveston, Houston, and Henderson Railroad Company was chartered by an act of the legislature of Texas, on the 7th of February, 1853, for the purpose of constructing and operating a railway from the city of Galveston to the city of Houston, and thence to Henderson, with such branches as they might deem expedient; with power, amongst other things, to take lands by condemnation, and to acquire, by purchase, donation, or in payment of stock, such real estate as the directors should think desirable to aid in the construction or maintenance of said road; and to alienate or mortgage the same for the constructing or maintaining said road; such alienation or mortgage to be signed in the name of the president and countersigned by the treasurer; also, with power to borrow money on their bonds or notes, at such rates as the directors should deem expedient; and, generally, to do and perform all such acts as might be necessary and proper for, or incident to, the fulfilment of their obligations and for the maintenance of their rights. And it was expressly declared by the charter that all conveyances and contracts executed in writing and signed by the president and countersigned by the treasurer, or other officer duly appointed by the directors under the seal of the company and in pursuance of a vote of the directors, should be valid and binding. By virtue of supplements to the charter, and by general laws of the State of Texas, the company became entitled to grants of the public lands of the State, in virtue of which they subsequently acquired land certificates for 512,000 acres of land.

The company was duly organized under its charter and began operations for constructing its road.

On the 1st of December, 1853, the company made an issue of bonds-its first issue-consisting of fifteen hundred bonds, each for 100 sterling, payable in London, at the expiration of ten years, with interest at the rate of 6 per cent. per annum. To secure these bonds the company executed a deed of trust, or mortgage, to trustees, upon its railroad, constructed and to be constructed, from Galveston to Houston, and its privileges, rights, and real estate, owned, or that should thereafter be owned, by the company, in connection with its said railroad; and all tolls, issues, and profits, whenever default should be made in paying the bonds, and all the franchises of the company, and all depots, stations, and buildings, and lands, occupied or to be occupied therefor. The terms of the deed were that it should be held in trust for the bondholders; that so long as no default was made by the company in payment of principal or interest, the property should remain in the company's possession; but if it should be in default for the space of three months in payment of either, and on request in writing by any holder of the bonds, the trustees might take actual possession of the railroad and all the property mortgaged, take the receipts thereof, and, on due notice, sell the same to pay the principal and interest due, after paying expenses of management and all costs and charges incident to the trust.

On the 1st of June, 1855, a second issue of bonds was made by the company to the amount of $750,000, payable in ten years, with interest at 10 per cent. per annum, convertible, after three years, into stock of the company, and secured by a second mortgage of similar import to the first, except that it conveyed, 'in addition to what was conveyed by the first mortgage, all the lands which shall or may belong to said company by virtue of any act of the legislature of the State of Texas in connection with said road from Galveston to Houston.' This mortgage contained a declaration that it was 'to take the place of' the former one, which was for an equivalent sum in sterling money, and it had a clause thus:

'And the issue of the bonds referred to in this instrument can take place only by the cancelling of a like amount of the said 6 per cent. sterling bonds, so that this instrument is and shall be a first lien upon all the property donated thereon to the amount of bonds issued.'

On the 8th of October, 1857, a third issue of bonds was made to the amount of $2,625,000, in $100 bonds, payable in 1879, with interest at 8 per cent. per annum; and these bonds were secured by a third mortgage to the same trustees as the last, on the same property as the second mortgage, except that it purports to cover the railroad from Galveston for the full distance of 75 miles. This mortgage declared that it was executed in part 'to take the place of' the preceding one; particulars being stated.

The trustees named in the first mortgage were the Honorable William Kent, of New York, and certain London bankers. These last, however, refused to accept the trust. The trustees under the two later mortgages were Mr. Kent of New York, already named, and Mr. C. B. Haddock, of that city or State. Both these trustees were dead at the time the bill was filed, and there were then no trustees acting under the mortgages.

All the mortgages were executed under the corporate seal, were signed by the president, and countersigned by the treasurer. They did not declare in what place they were executed, but the execution of them was proved in the city of New York, before a commissioner for Texas, it being stated in the affidavit of probate that the president and treasurer resided in that city. The evidence tended also to show that the meetings of the directors, by which the mortgages were authorized to be executed, were held in New York; where the company had an office where its fiscal arrangements chiefly originated and were accomplished.

The bill stated that these bonds were issued to raise money to construct, equip, and supply the railroad; and that the company, by the aid thereof, did complete its road from Galveston to Houston, a distance of 52 miles. It further stated that the company, after the issue thereof, took up and cancelled about 100,000 of the first issue, leaving outstanding only about 50,000, of which the complainants held 32,600, with a large amount of coupons thereon for unpaid interest; that only about $700,000 of the second issue were outstanding, besides the coupons thereon, of which the complainants held $250,000, besides a large amount of unpaid coupons; and that about $2,000,000 of the third issue were outstanding, of which the complainants held a large amount. The bill averred the entire insolvency of the original company.

Upon the filing of the bill and reading divers affidavits, the court below appointed a receiver, who, and a successor since appointed, during the pendency of the suit, carried on the operations of the road and received all the emoluments thereof for the benefit of the parties entitled thereto.

Answers and replications being filed, testimony was taken.

During the examination the complainants produced and scheduled the bonds of the several classes held by them, to the amounts nearly corresponding with those above alleged; the amount of the third issue so produced being $21,800, besides coupons. They were examined as to the manner in which they obtained possession thereof, and proved that they had purchased them of various parties and at various prices, from 30 to 70 per cent. on the par value.

It further appeared that on the 21st of May, 1859, the company executed to one Tucker, as trustee for Robert Pulsford, a fourth deed of trust to secure the payment of 9600 sterling, previously lent to the company by Pulsford on a number of bonds of the third issue, together with other securities, delivered to him to hold as collateral security, and  10,000 advanced at the time of the execution of the deed. This deed covered the same property which was covered by the other trust deeds. It was besides agreed, in a separate article, that Pulsford should have a special lien on a lot of railroad iron which was pledged to him, and which was to be used for completing the track of the railroad between Galveston City and Virginia Point, a distance of about five miles; indicated on the diagram inserted here by a heavier line than the rest of the road.

The bill did not advert to this deed; but Pulsford and his trustee, on their petition for that purpose, were permitted to intervene as defendants, and filed an answer and a cross-bill, claiming a first lien on the portion of road laid with the aforesaid rails. The ground on which Pulsford claimed priority on that portion of the road which was laid with his iron, was that when the mortgages of the complainants were executed that part of the road was not in existence and could not have been conveyed by them, and could only be embraced in them on a principle of equitable estoppel, which was met and paralyzed when it came in conflict with a superior equity; secondly, because the company having become bankrupt and unable to finish the road, the work previously done had become worthless, and the pledge given by the mortgage was without value; and because his iron, applied to the road, saved it, and rendered it capable of being used, which it would not have been otherwise; hence, on the principle adopted by the civil and maritime laws of awarding priority to the last creditor who furnished necessary repairs and supplies to a vessel, that he was entitled to priority in this case. It appeared from vouchers produced on the examination that over $30,000 had been paid to Pulsford on his claim.

It further appeared that on the 6th of March, 1860, the road-bed, track, franchises, chartered rights and privileges of the Galveston, Houston, and Henderson Railroad Company, and the rolling stock thereof, consisting of two locomotives, fourteen platform cars, one passenger car, &c., were sold by the sheriff of Galveston County, under executions issued on a large number of judgments which had been recovered against the company, amounting in all to nearly $120,000. The purchaser was a certain Terry, and the property was bid off for $28,000. Terry and his associates, immediately after the purchase, organized themselves into a new company, and asserting themselves, by virtue of the sheriff's sale and the laws of Texas, to be invested with all the chartered rights and privileges, including the corporate franchises of the Galveston, Houston, and Henderson Railroad Company, organized themselves as such; and they and their successors constituted the present company acting under that name, 'the successor company,' already mentioned. This new organization took possession of the railroad and all its works and property and began to operate it. The last directors of the old company were interested in this purchase and continued in the new company.

It further appeared that Terry and his associates formed themselves into a voluntary company called the Real and Personal Estate Association, for the purpose of raising money to pay some of the pressing claims against the railroad company, which were regarded as assumed by the new company, and for the further purpose of procuring real estate for depots, and rolling stock machinery, and tools needed for the use of the railroad; that in this way they laid out a large sum of money, over $150,000, and leased the property thus acquired to the new railroad company. The rents reserved were stated in the answer of the defendants.

It further appeared that, in order to build a short railroad at the city of Houston, to connect the railroad of the defendants with the Texas Central Railroad, the same persons procured a charter from the legislature, on the 8th of April, 1861, by which they were incorporated as the Galveston and Houston Junction Railroad Company; and were, as such, authorized to construct and operate a railroad to connect the Galveston, Houston, and Henderson Railroad with the Texas Central Railroad. The road was constructed accord-

ingly, and was less than two miles in length, with a bridge over the Buffalo Bayou. (See the diagram above.) The cost of the road was stated to have been about $51,000. The company also purchased $12,000 worth of cars from a yet different railroad company,-the Houston, Trinity, and Tyler Company. These cars were leased to the Galveston, Houston, and Henderson Company at $600 per month.

About the 1st of May, 1865, the Real and Personal Estate Association sold and transferred all its rolling stock, tools, and machinery to the Galveston and Houston Junction Railroad. So that, when the bill in this case was filed, the latter company asserted tiself to be owner of all the rolling stock, tools, and machinery in use on the Galveston road, except the old stock that was in existence in March, 1860; the whole being rented to the Galveston Company for rents, which were charged by the complainants to be exorbitant, and intended to absorb all the earnings of the Galveston Railroad. The evidence showed clearly enough that, by means of the rents paid by the Galveston Company to the Real Estate Association for real estate, depot grounds, &c., and for rolling stock, tools, and machinery, and of similar rents paid to the Junction Company, and of the proportion of the gross receipts retained by said company, the Galveston Company received but a very small portion of the earnings of the works for its share.

It was admitted by the defendants that the stockholders of the new Galveston Railroad Company, the stockholders of the Junction Railroad Company, and the members of the Real and Personal Estate Association were identically the same persons, and that their several interests were proportionally the same in each concern. It was evident, therefore, that the bargains made with the Galveston Railroad Company were bargains made with themselves, and were what they were pleased to make them; and the design manifestly was to make them on such terms that the Galveston Railroad Company should get but a small share of the proceeds. The complainants charged that all this was a fraud; that the tolls and income of the railroad were mortgaged to them, as well as the road-bed itself, and that the individual defendants were bound to account for them.

It was admitted by the defendants that these 'outside companies' were formed because they apprehended difficulty from the creditors of the old company. They did not deem it safe to purchase new property, either real estate or rolling stock, or to construct the connecting road at Houston in the name of the Galveston Railroad Company. The mortgages held by the trustees of the complainants and other claims were clouds hanging over the title of the railroad, and, therefore, they were unwilling to invest their money in the company's name or to invest it with the title to any new property acquired. They urged these circumstances in justification of their mode of proceeding, though they insisted that the rents and the division of the receipts were fair and right.

Among the defences set up, either generally or specifically, by the answer or course of the defendant's testimony, were:

1st. That the mortgages sued on were created without authority by the charter of the railroad company, or by the laws of Texas, and were illegal and void; the argument here being that though the company might have power, under the language of its charter, to mortgage such 'outside' real estate as it was authorized to acquire to subserve to the main design of building its road, yet that there was obviously no express authority, nor any authority by any implication of the particular language in the corporation to mortgage its right of way, track, and franchises; and that without some such power a private railroad corporation could not mortgage these; a point, it was said, determined by numerous State courts, and approved of in this.

2d. That even if such power existed, it could only be exercised through meetings of the directors in proper places, and that all the meetings of this company, including those which authorized these mortgages, were held in the city of New York, where the company was organized; where its office records and seals were kept; where the president and treasurer resided; where probate of the mortgages to enable them to be recorded in Texas was made; all outside of the limits of Texas. The argument here being that a corporation must dwell in the place of its creation, and cannot migrate to another sovereignty; that legislative acts ought to receive a reasonable interpretation, and that it could not be presumed that a legislature authorized an act beyond the reach of its proper jurisdiction; the case of Hiles v. Parrish, in the 14th volume of the New Jersey Chancery Reports, p. 383, with other cases, being here relied on. The case specially named says:

'It is a rule of law that a private corporation, whose charter has been granted by one State cannot hold meetings and pass votes in another State. It exists by force of the law that created it, and where that law ceases to exist and is not obligatory the corporation can have no existence. It appears that the resolutions of the board of directors which authorized the transfer of the stock in question were passed at a meeting held, not in this State, but in the city of Philadelphia. They are therefore void.'

3d. That the bonds sued on had not issued upon a consideration which brought them within the security of the trust-deeds; and that whatever their effect, as bonds or debts of the old company, they were not covered by the lien of those deeds; evidence on this point (not, however, clear) being given, tending (or so alleged by the defendants) to show that the bonds under the second mortgage had been issued, not to take up those under the first, but as a new and independent way of borrowing money; and the argument upon an assumption of that fact, as proved, being, that if a corporation executed a mortgage on its property, on its face, to secure bonds to be issued (only by the cancelling of a like amount of previous bonds), and people bought them without seeing that such like amount had been cancelled, they could not come into equity and claim the security of the mortgage for such second bonds, though they might become bond creditors of the company.

4th. That these complainants could not maintain this bill to foreclose the three mortgages. The casual fact that each of them happened to hold bonds said to have been issued under each of the three mortgages, was not, it was argued, material. This was a suit, it was urged, by four complainants, in behalf of themselves, and all others having a common interest with them. But no one had a common interest with them who did not hold bonds issued under each of the three mortgages, and of the same proportionate amounts as the complainants; and there was no evidence, or any reason even to conjecture that any one did. There was no community of interest between those who held bonds under the several successive mortgages. Each incumbrancer under the second mortgage had a direct interest to show the first invalid, and to reduce the amount secured by it; and so with the third mortgage, in reference to the first and second. There could be no community of interest, and no right of representation, a matter which could exist only by reason of community of interest, where consecutive incumbrances are held by different persons, each of whom has rights adverse to all who precede him. In its foundation and structure, the bill was therefore inconsistent with fundamental principles which govern courts of equity, and it could not be maintained.

The Circuit Court made a decree, amounting in effect to a foreclosure of the three first mortgages, for the sum then found to be due in the aggregate, $5,263.039. The decree included 49,600, issued under the first mortgage, and 41,664 of unpaid coupons, and the whole $750,000 included in the second mortgage and unpaid coupons $675,000.

The decree contained this clause:

'As this decree cannot, on account of the reference hereinafter ordered to a master, be made final as to all matters in controversy, and as certain of the defendants have given notice of their intention to appeal from a final decree, when rendered, the court does not direct a sale of said mortgaged property, but will do so in said final decree; and this decree is without prejudice to the right of the defendants, or any of them, to an appeal, with supersedeas, from this decree and all matters herein, within the time appointed by law, after the final decree which may be made in this cause.'

A reference to a special master (directed by the decree for the information of the court) was had, and documentary and other evidence collected. But there was no reference ordered in this decree for taking the proof of the various bonds that might be produced.

The evidence collected before the master was submitted to the court below, which now made a further or final decree.

By this the original decree was confirmed, so far as related to the foreclosure of all the mortgages, fixing their priorities according to date, and subjecting to their lien the whole road from Galveston to Houston, with the original rolling stock and equipments. But the decree refused any remedy by account, or an enforcement of the lien against any of the property acquired and used in connection with the road since March 6th, 1860, when, as already mentioned, the road-bed, track, franchises, chartered rights, and rolling stock of the company were sold by the sheriff.

The cross-bill of Pulsford for a superior equity was dismissed.

The decree contained this direction:

'And to ascertain more exactly such proportion, and the amount of the several series of bonds and coupons now outstanding, it is hereby ordered that all holders of such bonds or coupons claiming a participation in the distribution of the proceeds of any sale of the property claimed to be mortgaged to secure them in this cause, shall present their bonds and coupons to this court (to be deposited in some National bank to be designated on such presentation, there to remain subject to further order, and to such directions as the court may make to ascertain their genuineness and to classify them), within one year from the date of this decree. And after any such sale, as hereinbefore directed, has been duly made and confirmed, and the amount of the successful bids paid as before stated, the said marshal shall execute in due form a conveyance of the property bought to the purchaser.'

From this decree the 'successor company' appealed to this court. The complainants, Cowdrey and the other bondholders, took a cross-appeal. Pulsford also prayed an appeal.

In this court the same grounds were taken in behalf of the 'successor company' as in the court below, and were urged at length. It was urged additionally that the original decree-the decree of foreclosure-was erroneous, because there had been no reference to a master to ascertain what parties holding bonds would come in and make themselves parties to the suit; and that only the bonds held by parties so coming in, and those held by the complainants in the bill could be included in the decree of foreclosure nisi. All others were excluded from the benefit of the decree. And though the complainants in such a bill might have made proof at the hearing of some bonds, so as to entitle them, in the opinion of the court, to a decretal order of reference, yet that it was settled on sound reasons and by the highest authority, that the complainants themselves in such a bill, must go before the master and prove their claims.

And it was said that it would be difficult to find a case which demanded more imperatively than did this one the application of this rule of procedure; for that plainly many of the bonds-as appeared by the prices paid for them-had been bought at prices from 30 to 70 per cent. below their par, with notice of the way in which they had been issued; that is to say, with notice of the fact that they had been issued in violation of the provisions of the two later mortgages; a matter, however, it was urged, not regarded in the decree.

The claim of Pulsford for a superior equity was pressed anew with much learning of the Roman law and continental jurists, as well as by some authorities in other courts, including Collins v. The Central Bank, in Georgia.

For Cowdrey and the other bondholders it was argued against the view of the court below (that the defendants being in the position of mortgagors of real estate, were not to be held accountable for the income of the road), that while it was a general rule that the mortgagor, while in possession, with the consent of the mortgagee, was not liable for rents, the rule did not apply here; for here the old company had made a specific mortgage of 'the tolls, incomes, issues, and profits of said railroad, whenever the company should make default in making payment,' and after default in interest for three months, had authorized the trustees to take possession, receive the rents, and apply them in payment of the interest; that it was the duty of the agents of the mortgagors to have applied the income in payment of the interest; that they had not only violated this duty, but had undertaken to set up an adverse title and to defeat the mortgagors' title. And that the general rule did not apply here, for the farther reason that trustees who were authorized to give notice and take possession were dead, and that in such case the persons who intruded themselves into the dead men's estates were bound to account for the whole of the property.

Messrs. B. R. Curtis, C. B. Gooderich, and W. P. Ballinger, for the railroad company; Messrs. Albert Pick and R. W. Johnson, for Pulsford; Messrs. Grant and W. G. Hale, for Cowdrey and others.

Mr. Justice BRADLEY delivered the opinion of the court.

title: Galveston Railroad v. Cowdrey


text:
Page:A short history of social life in England.djvu/61

Rh words, "When I was under the rod." A boy came of age when he could brandish his father's sword and bend his bow, tasks requiring no small amount of skill. But this accomplished, the young warrior was presented with shield and spear, and became a full-fledged citizen. Then the real business of his life began, for England in those days was a world of strife. Every man was a warrior as well as a legislator; every man bore arms alike as a duty and as a privilege. What all had helped to acquire, all demanded equally to share—a point of view somewhat lost sight of in these latter days.

All learnt the use of arms, and attended the local moot with spear and shield, assenting to the suggestions of chief or Ealdorman by the noisy clash of the one upon the other. Thus, it will readily be seen, the moot was in fact composed of the local militia, or "fyrd," just as the Witenagemote was the gathering of those Ealdormen who had not only presided at the local meetings, but had led the men in attendance to battle.

And yet a further strength was added to this early military organisation, involving some of those sterling qualities which characterised our

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


text: Talk:Galveston Railroad v. Cowdrey

title: Talk:Galveston Railroad v. Cowdrey


text:
Galveston Railroad v. Cowdrey/Opinion of the Court

The first objection made by the defendants to the decree is, that the mortgages under which the complainants claim are not valid for want of capacity in the railroad company to make them. It is admitted that the charter authorizes the company to mortgage certain real estate, which it was authorized to acquire for the purpose of aiding in the construction or maintenance of the road. But they insist that this power applies to outside real estate procured as ancillary to the main design of building the road, and does not apply to the right of way and track of the railroad. But we think it is general, and applies to any real estate which the company might acquire in any way. This construction is aided by the other powers conferred by the charter, as that of borrowing money on bond or note, and of doing all acts necessary and proper for or incident to the fulfilment of their obligations. And it is expressly declared that all conveyances and contracts executed in writing, signed by the president and countersigned by the treasurer, or any other officer duly authorized by the directors, under seal of the company, and in pursuance of a vote of the directors, shall be valid and binding. If it were necessary to look into the charter for express power to borrow money and mortgage its property to secure the payment thereof, we think the power is found therein.

But the defendants contend that if the power to mortgage mere real and personal estate be conceded, still there is no power to mortgage, or in any way to assign the railroad as such, or the franchise of operating it and taking tolls, or any other franchise, much less that of exercising corporate powers; and hence the decree is erroneous in authorizing a sale of these rights and franchises under the mortgages.

Without examining how far the operative effect of a mortgage executed by a railroad company upon its road, works, and franchises may extend, per se, without statutory aid, it is sufficient to say that, in our opinion, the legislature of Texas has validated the mortgages, and given them the effect which, by their terms, they were intended to have. By the act of December 19, 1857, section 4912, it is expressly provided that 'The road-bed, track, franchise, and chartered rights and privileges of any railroad company in this State shall be subject to the payment of the debts and legal liabilities of said company, and may be sold in satisfaction of the same, but. . . shall be deemed an entire thing, and must be sold as such; and in case of the sale of the same, whether by virtue of an execution, order of sale, deed of trust, or any other power, the purchaser or purchasers at such sale, and their associates, shall be entitled to have and exercise all the powers, privileges, and franchises granted to said company by its charter, or by virtue of the general laws of this State; and the said purchaser or purchasers and their associates shall be deemed and taken to be the true owners of said charter and corporators under the same, and vested with all the powers, rights, privileges, and benefits thereof, in the same manner and to the same extent as if they were the original corporators of said company.'

'Whenever a sale of the road-bed, track, franchise, and chartered rights and privileges of any railroad company is made by virtue of any deed of trust or power, the same shall be made at the time and place mentioned in the deed of trust or power, and in accordance with the provisions of the same, as to notice and in other respects; and if the same be not specified, such sale shall be made as hereinafter provided for sales under execution or order of sale.'

The following section, 4914, gives the like effect to sales under execution issued upon a judgment. Indeed, it is by virtue of the latter section that the defendants claim to be the present owners of the road and its franchises. This law is not prospective, but general in its operation. It is a remedial law for the benefit of creditors, and should be liberally construed. It should especially be applied to a case in which, by the very terms of the trust-deed, all the franchises and rights of the company are expressly embraced therein. It cannot be claimed, as is done by the defendants, that a sale under one mortgage or judgment, by virtue of this law, nullifies and destroys all prior mortgages. Such a doctrine would work the greatest injustice, and would open the door to the grossest frauds. A sale under a junior security must be subordinate to one that is prior and paramount. Successive sales of the same franchises can no more be deemed incompatible than successive sales of the same property; and we all know that a sale of land under a judgment does not, in the slightest manner, affect a prior mortgage. A subsequent sale of the same land may be made by virtue of the latter.

It is next objected that the mortgages were not properly executed, because the meetings of the directors by which the mortgages were authorized to be executed were held in the city of New York. It is not denied that the mortgages were executed in good faith under the corporate seal, and signed by the president and countersigned by the treasurer of the company, and duly recorded in the proper offices of registry in the State of Texas. Supposing the complainants to be bon a fide holders of the bonds held by them, the question raised by this objection amounts to this: Can a corporation repudiate a mortgage, given to secure its bonds held by bon a fide holders, on the ground that its directors authorized its execution by a resolution passed outside of the limits of the State, the mortgage being, in other respects, executed and recorded in due form of law? Can it take all the benefit of the transaction, get off its bonds on the business community, and then repudiate its mortgage for such a cause? We have not been referred to any case like this. It would seem, at first blush, to be a very hard rule, if such a rule exists. No doubt it may be true, in many cases, that the extra territorial acts of directors would be held void, as in the case cited from the 14th New Jersey Chancery Reports, 383, where a set of directors of a New Jersey corporation met in Philadelphia, against a positive prohibitory statute of New Jersey, and improperly voted themselves certain shares of stock. And other cases might be put where their acts would be held void without a prohibitory statute; and it is generally true that a corporation exists only within the territory of the jurisdiction that created it. But it is well settled that a corporation may, by its agents, make contracts and transact business in another territory, and may sue and be sued therein. It may hold land in another territory so long as the local authorities do not object. And we see no reason why it should not be estopped by the action of its directors in another territory, when that action is the basis of negotiations by which third parties have bon a fide parted with their money and the company has received the benefits of the transaction. A contrary doctrine would authorize a company to take advantage of its own wrong, and would seriously impair the negotiability and value of such securities. Must a person, purchasing railroad bonds in Wall Street or Walnut Street, first send to Illinois, California, or Texas, to see whether the meeting of the directors which authorized the mortgage given to secure the bonds was held in a proper place? Whoever may, under supposable circumstances, raise an objection of this kind, it ought not to lie in the mouth of the company to raise it. And, if the company are estopped, then those who purchase the property of the company at an execution sale must be estopped. It has frequently been held that such a purchaser takes only the right, title, and interest which the debtor had, subject to the equities which existed against the property in his hands when the judgment was recovered.

But it is objected that the complainants are not bon a fide holders of the bonds in their possession; that many of the bonds were issued improvidently, and against stipulations contained in the mortgages, to the effect that they should only be issued to retire the previous issue of bonds. If this were true with regard to some of the bonds, it is not pretended to be true with regard to all of them; and the question, what particular bonds were wrongfully issued, if a material question, is properly examinable in the master's office, where all bonds are to be presented and passed upon, if not already done. And the decree will stand only for the benefit of such bonds as appear to be entitled to its benefit; and this benefit will not be confined to the complainants' bonds, but will be extended to all bonds that may be presented by other holders. But it does not appear, so far as we have been able to scrutinize the evidence, that the complainants are not bon a fide holders of their bonds. They have been examined, and have produced their bonds, and have told how they procured them, namely, by purchase, and what they gave for them; and they allege that they purchased them in good faith in the open market, supposing them to be valid obligations of the company, and being told that they were. If such is the fact, and no proof to the contrary occurs to us, we do not see why the complainants must not be held to be bon a fide holders for value of the said bonds.

The next objection we shall notice is, that the complainants have no right to sue for themselves and in behalf of the several classes of bondholders under the different mortgages, because the interests of these classes are antagonistic to each other. They are no more antagonistic to each other than the several bondholders of the same class are. It is the interest of each bondholder to have as few prior claims to his, and as few participants with him as possible. Every co-bondholder is, in one sense, an antagonist. But the objection is entirely without foundation. The complainants do, in fact, hold bonds of the three different classes, and they have a perfect right to state that fact in their bill, and to pray relief suitable to the fact, and no possible harm or inconvenience can arise in their suing in behalf of themselves and all other bondholders in each class according to their several priorities. If any class of bondholders wish to contest the precedency of a prior mortgage, they have a perfect right to intervene in the suit and file a cross-bill setting up the matter of objection. All bondholders, including the complainants themselves, have to establish their claims in the case before it is finally closed, and before a distribution of the assets can be made. And any bondholder proving his claim may contest the claim of any other bondholder. It has even been held that a mortgagee may sue on behalf of himself and all other creditors, notwithstanding he claims a right to prior satisfaction out of the mortgaged property. And Judge Story says that, on principle, it is not easy to see why it might not be sufficient, in a suit by incumbrancers, to file the bill on behalf of all the creditors and incumbrancers; thus making them all, in a sense, parties to the extent of asserting their own rights, or of enabling them to contest the matter before a master. He says that this seems to be the true doctrine inculcated by the more recent authorities. But the case before us is much stronger than this. The complainants must set out their own claims under the different mortgages, and it would be impossible to make all the bondholders of either class parties, for they could not be discovered; and the rights of all are protected by the opportunity given to all to contest the claim of any. We consider the bill as properly conceived, and the objection as untenable.

In connection with this objection it is proper to notice an objection to the original decree, that it undertook to declare and find the amount of bonds outstanding and due under each mortgage before the bonds had been regularly produced and proved. That decree, of course, is not to be regarded as final and conclusive on this point. The remarks of Vice-Chancellor Wigram, in Whitaker v. Wright, are germane to this subject: 'With respect to the form of a decree in a creditor's suit,' says he, 'the court does not treat the decree as conclusive of the debt. It is clear that it is not so treated for all purposes, for any other creditor may challenge the debt, and it is equally clear that in practice the executor himself is allowed to impeach it. If, in a case where the plaintiff sues in behalf of himself and all other creditors, and the defendants, who represent the estate, do not admit assets, it is objected at the hearing that the debt is not well proved, the court tries the question only whether there is sufficient proof upon which to found a decree; and however clearly the debt may be proved in the cause, the decree decides nothing more than that the debt is sufficiently proved to entitle the plaintiff to go into the master's office, and a new case may be made in the master's office, and new evidence may be there tendered.' In this case, it is true, no reference to a master was made in the first decree for taking the proof of the various bonds that might be produced; but the final decree directed that to ascertain the proportion and amount of the several series of bonds and coupons outstanding, all holders thereof claiming participation in the distribution of proceeds of any sale of the property should present their bonds and coupons to the court, to be deposited in some bank to be designated, there to remain subject to further order, and to such directions as the court may make to ascertain their genuineness, and to classify them. This has not yet been done, all proceedings being stayed by the appeal. But the action of the court, as far as it has gone, is substantially correct. It only remains to complete the proceeding in accordance with the proper practice applicable to the case.

On the part of Robert Pulsford it is objected that the decree does not give him a priority on that portion of the road which was laid with his iron. He contends that he is entitled to this, first, because when the mortgages of the complainants were executed it was not in existence, and could not have been conveyed thereby, and can only be embraced therein on a principle of equitable estoppel, which is rebutted when it comes in conflict with a superior equity; secondly, because his capital applied to the road conserved it, and rendered it capable of being operated, which it would not have been otherwise; hence, on the principle adopted by the civil and maritime laws of awarding priority to the last creditor who furnished necessary repairs and supplies to a vessel, he is entitled to priority. The counsel for Pulsford has furnished us with a very ingenious and learned argument on these points; but we cannot yield to their force.

As to the first point, without attempting to review the many authorities on the subject, it is sufficient to state that, in our judgment, the first, second, and third deeds of trust, or mortgages, given by the Galveston Railroad Company to the trustees, estops the company, and all persons claiming under it and in privity with it, from asserting that those deeds do not cover all the property and rights which they profess to cover. Had there been but one deed of trust, and had that been given before a shovel had been put into the ground towards constructing the railroad, yet if it assumed to convey and mortgage the railroad, which the company was authorized by law to build, together with its super structure, appurtenances, fixtures, and rolling stock, thes several items of property, as they came into existence, would become instantly attached to and covered by the deed, and would have fed the estoppel created thereby. No other rational or equitable rule can be adopted for such cases. To hold otherwise would render it necessary for a railroad company to borrow money in small parcels as sections of the read were completed, and trust-deeds could safely be given thereon. The practice of the country and its necessities are in coincidence with the rule. The precise case arose in New Jersey thirty years ago. The Morris Canal Company mortgaged its canal, appurtenances, and chartered rights to secure a loan. When the mortgage was given, one section of the canal, that between Newark and Jersey City, although authorized, was not constructed. It was constructed afterwards. Two other mortgages were given upon that part of the canal, one of which was held by the State of Indiana. A bill of foreclosure was filed on the first mortgage, and after argument by very able counsel, Chancellor Pennington held that the first mortgage took priority. The objection was raised that the company did not own any of the land on which the contested portion was constructed when the mortgage was given. 'Can it be possible,' said he, 'that if on the line of the route at any place it should turn out that a deed was obtained for a piece of land since the execution of the mortgage, that such part of the canal is not embraced within it?' Mr. Pulsford, as holder of the fourth mortgage, is an assignee of the railroad company, claiming under it, with full notice of the other mortgages. He is in privity with the company, and is bound by the estoppel.

As to the other point, giving priority to the last creditor for aiding to conserve the thing, all that is necessary to say is that the rule referred to has never been introduced into our laws except in maritime cases, which stand on a particular reason. We do not understand that it is a part of the general law of Texas. By an act of the Congress of Texas, passed 20th January, 1840, the common law was made the rule of decision, where not inconsistent with the Constitution and acts of Congress. By the common law it is an inflexible rule, that whatever is affixed to the freehold becomes a part of the realty, except certain fixtures erected by tenants, which do not affect the question here. The rails put down on the company's road became a part of the road. The road itself was included in the mortgages of the complainants. Pulsford, by allowing his property to go into or become part of the road, consented to its being covered by the mortgages in question. He acquired no lien which can displace them. In certain States a lien is created by statute in favor of mechanics, called the mechanics' lien, by which a person furnishing materials or work on a building acquires a lien on the property to secure the payment of his claim. But this kind of lien did not exist in Texas in favor of those who supplied materials or money for constructing railroads. We have no hesitation in saying that Pulsford's claim to priority cannot be maintained.

Some other minor points have been made by the defendants which it is not necessary for us to examine in detail. Our conclusion is that the decree, so far as it is in favor of the complainants, must be affirmed.

The complainants have also appealed from the decree because it fails to award them the tolls, income, and profits of the railroad during the time it was operated by the present defendants, and to make the defendants accountable therefor. The complainants claim that nearly all the rolling stock and property, including the junction railroad, claimed by the defendants as their property, were really produced by the earnings of the railroad fraudulently appropriated to themselves by the defendants. This claim raises the question whether a mortgage of the tolls and income makes the mortgagor or his assignees accountable therefor before demand made by the mortgagee. In this case it does not appear that the complainants or their trustees made any demand for the tolls and income until they filed the present bill. The bill itself does not contain any allegation of such a demand. Now what is the language of the deeds of trust? They convey, it is true, with the other premises, the tolls, income, issues, and profits, whenever the company shall be in default of payment; but a subsequent clause provides that in case the company shall at any time for the space of three months be in default in respect to the payment of either interest or principal of said bonds when due and demanded, on request in writing of any of the holders of the bonds, the trustees shall take possession of the railroad and other property, and through the agency of the persons they may appoint, shall collect and receive the tolls, incomes, and profits of the railroad and mortgaged property for the purpose of the security before declared, and may sell the road upon giving due notice, &c. It seems to us that the latter clause defines and points out the manner in which the pledge of the tolls and income is to be practicably carried into effect. At all events until a regular demand were made for the payment of the tolls and income we do not think, under the language of the deed, that the defendants were bound to account therefor. If this be so, it matters not what bargains the defendants made between themselves as to the disposition of said tolls and income.

We are, therefore, of opinion that this part of the decree ought also to be affirmed. The result is that the entire decree of the Circuit Court is

AFFIRMED.


text: Talk:Galveston Railroad v. Cowdrey/Opinion of the Court


text:
Forsyth v. Woods

ERROR to the Circuit Court for the District of Missouri; the case being thus:

Woods, assignee in bankruptcy of the firm of E. P. Tesson & Co. (which was composed of E. P. & E. M. Tesson) sued Forsyth in assumpsit to recover from him a balance in account.

Forsyth pleaded a special plea in bar. The plea averred a joint request made by the individuals who composed the firm of E. P. Tesson & Co. to him, soliciting him to become a surety of one of those individuals in an administration bond. It also averred a joint representation made to him by them, that they intended to make the administration a matter of partnership business, to take into the possession of the partnership all the assets of the intestate, and to share as partners the gains and losses resulting from the administration, so that in signing the bond he would in effect become the surety of the firm, and not merely a surety of the partner to whom the grant of letters of administration might be made. The plea further averred that, moved by the joint request, and relying upon the joint representations aforesaid, he did become a surety in the administration bond, and that afterwards (the partnership having taken possession of all the assets of the deceased intestate, and having become bankrupt), he was compelled to pay to the legal representatives and next of kin of such intestate a large sum of money, in consequence of the default of the administrator. It still further averred, that under similar circumstances, after like request and representations, the defendant became a surety in an administration bond of the other partner, to whom administration of another estate was committed by the probate court, and that he was compelled to pay money for that administrator's default. The plaintiff demurred generally, and the court below sustained the demurrer. The defendant, Forsyth, now brought the case here. Whether the facts pleaded showed a legal liability of the partnership, as such, to repay what the defendant had been compelled to pay in consequence of his suretyship, was the question presented by the record. If they did, the defendant had a setoff to the plaintiff's demand; if they did not, the demurrer to the plea was rightly sustained.

The Bankrupt Act, whose provisions were a good deal discussed in the argument, provides that 'the net proceeds of the joint stock shall be appropriated to pay the creditors of the partnership, and the net proceeds of the separate estate of each partner shall be appropriated to pay his separate creditors.' The joint stock does not go to pay the separate creditors, except when there is a balance of such stock after payment of the joint debtors.

Messrs. T. T. Gantt, J. M. Carlisle, and J. D. McPherson, for the plaintiff in error, argued:

title: Forsyth v. Woods


text: Talk:Forsyth v. Woods

title: Talk:Forsyth v. Woods


text:
Forsyth v. Woods/Opinion of the Court

That the defendant having assumed a liability for and at the express request of the bankrupts, and the defendant having had to pay money in discharge of this liability, the money so paid was in contemplation of law paid for them, and at their request.

That the liability of the firm had occurred before bankruptcy, viz., at the time when the defendant became surety for the partner.

That the payment made by the defendant could be, and ought to be, properly set off in this action.

Mr. S. S. Boyd, contra.

Mr. Justice STRONG delivered the opinion of the court.

If it be conceded that such a joint request as is pleaded, followed by an assumption of obligation and a consequent payment of money in pursuance of it, raised an implied promise on the part of those who joined in the request to reimburse the defendant, it is, perhaps, still not clear that it was a partnership promise, creating a debt of the partnership, and therefore entitled to priority in bankruptcy over private debts of the partners. It is not pleaded that the firm of E. P. Tesson & Co. requested the defendant to assume the obligation he took, though it is averred that the persons who constituted the firm made that request, and it is not certain that a promise by a partnership and a promise by the individual partners collectively have the same effect. If a firm be composed of two persons, associated for the conduct of a particular branch of business, it can hardly be maintained that the joint contract of the two partners, made in their individual names, respecting a matter that has no connection with the firm business, creates a liability of the firm as such. The partnership is a distinct thing from the partners themselves, and it would seem that debts of the firm are different in character from other joint debts of the partners. If it is not so, the rule that sets apart the property of a partnership exclusively, in the first instance, for the payment of its debts may be of little value. That rule presumes that a partnership debt was incurred for the benefit of the partnership, and that its property consists, in whole or in part, of what has been obtained from its creditors. The reason of the rule fails when a debt or liability has not been incurred for the firm as such, even though all the persons who compose the firm may be parties to the contract.

But the substantial fault of the plea in this case is, that, at best, it sets up an illegal contract, which the law will not enforce. The promise, if any, of the firm was to indemnify the defendant for doing an act planned and intended to enable his principal in the administration bond to commit a gross breach of trust. The arrangement was entered into in order that the partnership might obtain the possession of all the effects, goods, chattels, rights, and credits which had belonged to the intestate decedent, and which were assets that the administrator only had the right to hold. It was also a part of it that the administration should be conducted by the firm and not by the person to whom the probate court committed it. To this arrangement the defendant became a party, and he signed the bond in view of it, and in order that it might be carried out. This appears from the plea. It needs no argument to show that the transaction was against the policy of the law and plainly illegal.

Letters of administration are a trust. They are granted by the probate court or ordinary because of confidence reposed in the grantee. They require him to take exclusive charge of the personal property of his intestate and to bring to its administration his own personal attention and judgment. He has no right to allow others to control it or to share in its administration. If he does, he exposes it to unnecessary hazards and subjects it to the disposition of persons in whom the officer of the law has reposed no confidence. To permit a mercantile or a banking firm, of which the administrator is a partner, to take the assets of the decedent's estate into its possession and to share in the disposition of them is to invite what the plea shows happened in this case, misappropriation and loss. It is a gross breach of trust, a violation of legal duty. It must be, therefore, that any contract which has for its object such a faithless abandonment of the duties of an administrator cannot be enforced in a court of law.

It is not to be said that the implied promise of the partners or the firm was only collateral to the illegal arrangement. It was a part of it. The signing of the bond and the promise to indemnify were both not only in view of a contemplated transfer of the administrator's duties to the partnership, but they were means avowedly selected for that end.

It follows that the plea set up no debt to the defendant due from the bankrupt firm which is recoverable at law and which can be made available as a set-off. The demurrer was therefore correctly sustained.

JUDGMENT AFFIRMED.

title: Forsyth v. Woods/Opinion of the Court


text: Talk:Forsyth v. Woods/Opinion of the Court


text:
Eureka Company v. Bailey Company

APPEAL from the Circuit Court for the District of Massachusetts; the case being thus:

The Bailey Company was the owner of a reissued patent for an improved washing and wringing machine, the original of which had been issued to John Allender. There had been several surrenders and reissues of this patent, the last of which were on the 22d July, 1865. The Eureka Company being engaged in the manufacture of clothes-wringing machines under other patents, one S. B. Rindge, its treasurer, professing to act as its agent, entered into two written indentures with the Bailey Company, through its general agent, for the privilege of using their patent.

The execution of the agreements was in the following form:

'In witness whereof the said party of the first part have caused its seal to be hereunto affixed, and this instrument to be signed by S. A. Bailey, its general agent, thereto duly authorized; and the said party of the second part has affixed its seal and caused these presents to be signed by S. P. Rindge, its treasurer, thereunto duly authorized, this day and year first hereinabove written.

'Bailey Washing and Wringing Machine Co.,

'S. A. BAILEY, [SEAL.]

'General Agent.

'Eureka Clothes Wringing Machine Co.,

'By S. B. RINDGE, [SEAL.]

'Treasurer.'

The seals above set were not corporate seals, but mere private seals.

The first of the agreements licensed the Eureka Company to use the patent of the Bailey Company during the existence of the patent, and of any renewal thereof, for which the Eureka Company was to pay a royalty of fifty cents for every machine manufactured by it in which the patent should be used. To secure the performance of this, and to prevent any misunderstanding, the Eureka Company furnished a sample of the machines, and agreed that its books should, at all times, be open to the examination of complainants, and that it would make monthly reports and payments; and it covenanted that it would not, directly or indirectly, infringe the reissued patent of the Bailey Company, or violate the conditions of their agreement.

The second agreement was made to arrange the prices at which the machines made by the parties should be sold, so as to prevent injurious competition.

The Eureka Company made a report and payment for one month after the agreement; but would make no more. Thereupon the Bailey Company filed a bill in the court below. The bill set out the covenants. It charged that they were the result of protracted negotiation, in which the original patent, the reissues, and the character of the invention were well considered, and that they were a fair adjustment of the interests of the parties. It then alleged that in the first month five hundred machines were made under the contract and paid for by defendant, but that it continued to make and sell the machines, and refused to account or to pay for them. It then prayed a discovery of the number made, and for an account and decree for the sum due, and for an injunction against the use of the patent until the sum found due should be paid.

The answer of the Eureka Company, which was somewhat vague in its allegation, denied that it had ever executed, or caused to be executed, or ever authorized any one in its name or behalf, to execute the indentures; asserted that ever since its organization the company had a corporate seal, duly adopted and established (an impression of which it affixed in the margin), and that it had never employed any other, or authorized any agent to use or employ any other; it denied the infringement, asserted that the reissued patent was obtained by fraud; that it was a device to cover matter not invented or claimed by Allender, and denied that the machines made by the defendants had anything in them covered by the patent of the complainant.

Replication was put in, and testimony taken. The complainant did not produce any minute from the books of the corporation, directing Rindge to make the covenant which he had undertaken to make. But Rindge's relations and action as agent to the company, and the report and payment for one month, were sufficiently proved.

The machine which the Eureka Company was making was before the court; the purpose of its exhibition being to show that it was not covered by the original patent to Allender; but the patent was not in the record, nor were any of the reissues except the last.

The court below rendered a decree according to the prayer of the bill, and the Eureka Company brought this appeal.

Mr. J. B. Robb, for the appellant; Mr. C. L. Woodbury, contra.

Mr. Justice MILLER delivered the opinion of the court.

title: Eureka Company v. Bailey Company


text: Talk:Eureka Company v. Bailey Company

title: Talk:Eureka Company v. Bailey Company


text:
Eureka Company v. Bailey Company/Opinion of the Court

1. We are satisfied that the agreements set up in the bill are the valid contracts of the defendant. Though the plaintiff was unable to produce any resolution or order in writing by the trustees or board of directors of the defendant corporation, and though the seal used was the private seal of one of its officers, instead of the corporate seal, neither of these is essential to the validity of the contract. We entertain no doubt that Rindge, the agent and one of the directors and treasurer of the Eureka Company, was authorized to execute the agreement, and if any doubt existed on that point, the report and payment for five hundred machines, the first month's use of the patent under that agreement, would remove the doubt. If it did not, it would very clearly amount to a ratification.

2. The defendant company furnished a sample of the machine they were making. That machine is before us. We do not understand that it is seriously contended that this machine does not contain some part of the invention covered by the reissue of the Allender patent. The effort of defendant is to show that it is not covered by the original patent to Allender. This latter point will be noticed presently. After making the agreement in this case, an agreement made on due deliberation, the defendant being engaged in the business of making the machines before it took the license, an agreement manifestly intended to adjust conflicting rights, and after furnishing one of the machines as a sample of what it proposed to do under that agreement, and after having made and sold five hundred of them, there arises a very strong presumption that the denial that anything in those machines is covered by plaintiff's patent is made to support an unwillingness to pay the royalty which it had agreed to pay. And we are not at all satisfied that, in equity, it can be permitted to set up this defence, while it makes no attempt by cross-bill, or even in the answer, to show that the agreements were obtained by fraud, surprise, or imposition.

But if this could be permitted, the testimony does not repel the presumption arising from the making of that contract and the defendant's action under it, that the machines made by it do contain matter covered by the reissued patent of plaintiff.

3. If the defendant means, by the very vague answer to the bill, to set up and to rely on a fraud by which the commissioner was misled and deceived and induced to reissue the patent, and that the plaintiff or its assignors were the guilty parties, that question cannot be raised in this collateral proceeding, and can only be considered in some direct suit to impeach and set aside the patent.

But if it is meant merely to say that, in point of fact, the reissue embraces matter which was no part of Allender's original invention, then there is no evidence in the record by which we can determine that question, for neither the original patent to Allender, or any part of it, or any of the reissues of that patent, except the last, which is the one claimed to be wrongfully reissued, is in the record.

4. Some attempt is made to assail the novelty of Allender's invention, but as no notice was given of any such attempt, or of the witnesses or other evidence by which that charge was to be supported, it cannot be considered in this case.

On the whole case we concur with the Circuit Court, and its

JUDGMENT IS AFFIRMED.


text: Talk:Eureka Company v. Bailey Company/Opinion of the Court


text:
Stewart v. Kahn

ERROR to the Supreme Court of Louisiana; the case being thus:

On the 10th August, 1860, Bloom, Kahn & Co., of which firm one Levy was a member, all parties being resident traders in New Orleans, gave their promissory note to A. T. Stewart & Co., resident traders of New York, payable March 13th, 1861. Payment was refused on demand at maturity. Very soon after this, that is to say, in April, 1861, the late rebellion broke out, and from the 15th of that month, when its existence was announced by proclamation from President Lincoln, until some time after, May 4th, 1862, at which date the government troops took possession of New Orleans, the ordinary course of judicial proceedings was so interrupted by resistance to the laws of the United States, that none of the defendants could have been served with process if suit had been brought on the note against them.

On the 11th of June, 1864, Congress passed this act, entitled 'An act in relation to the limitation of actions in certain cases:'

'That whenever, during the existence of the present rebellion, any action, civil or criminal, shall accrue against any person who by reason of resistance to the execution of the laws of the United States, or the interruption of the ordinary course of judicial proceedings, cannot be served with process for the commencement of such action or arrest of such person—

'Or whenever, after such action, civil or criminal, shall have accrued, such person cannot by reason of such resistance of the laws, or such interruption of judicial proceedings, be served with process for the commencement of the action—

'The time during which such person shall be beyond the reach of judicial process shall not be deemed or taken as any part of the time limited by law for the commencement of such action.'

On the 16th April, 1866, the Federal courts being now re-established in New Orleans, Stewart & Co. sued Bloom, Kahn & Co. on the note. These set up what is called in Louisiana 'the prescription of five years;' equivalent to that which is elsewhere known as a statute of limitation, barring an action after five years. No replication to this plea was put in. The Code of Practice in Louisiana bars replications generally. This code enacts that

'When the defendant in his answer alleges on his part new facts, these shall be considered as denied by the plaintiff; therefore neither replication nor rejoinder shall be admitted;'

And by the settled practice of the State what was embraced in the defendants' answer was open to every 'objection of law and fact the same as if specially pleaded.' The plaintiffs therefore were to be considered as denying the validity of the State statute of prescription which the defendants had set up in their plea, and as declaring that in virtue of the act of Congress above quoted it was suspended by the rebellion.

The court in which the suit was brought gave judgment for the defendants. The plaintiffs then filed a petition in the Supreme Court of Louisiana for a rehearing of the case, and, among other things represented in the petition, that in the court below

'They mainly relied upon the act of Congress entitled 'An act in relation to the limitation of actions in certain cases,' approved June 11th, 1864, as a complete answer to the plea of prescription set up by the defendants.'

The petition for rehearing also declared that the plaintiffs had filed a written brief in the said District Court, which the rules of that court required them to file, setting out the said act of 1864. This petition was inserted in the record.

The Supreme Court of Louisiana affirmed the judgment in the court below, in these words:

'This is an action upon a promissory note. The defendants pleaded the prescription of five years. The note fell due on the 13th of March, 1861, and the citations were served on the 18th day of April, 1866. More than five years having elapsed after the maturity of the note before the citations were served on the defendants, the plea of prescription must be sustained. It is therefore ordered, adjudged, and decreed, that the judgment of the lower court be affirmed, and that the appellant pay the costs of the appeal.'

The plaintiffs now brought the case here.

Prior to the 5th of February, 1867, there was but one enactment on the subject of bringing judgments from the Supreme Courts of States to this court, the well-known 25th section of the Judiciary Act of 1789. On the day first above mentioned, however, Congress passed another act on the subject; following, in most respects, the language of the old act, though changing it in some places and leaving out one whole clause in the old act. The important parts of the two acts are here set out in parallel lines; words in the act of 1789 omitted in the act of 1867 being inclosed in brackets, and words variant in the two enactments being put in italics: Judiciary Act of 1789.

'SEC. 25. And be it further enacted, That a final judgment or decree in any suit, in the highest court [of law or equity] of a State in which a decision in the suit could be had, where is drawn in question the validity of a treaty or statute of or an authority exercised under the United States, and the decision is against their validity, or where is drawn in question the validity of a statute of, or an authority exercised under any State, on the ground of their being repugnant to the Constitution, treaties or laws of the United States, and the decision is in favor of such their validity, or where is drawn in question the construction of any clause of the Constitution, or of a treaty, or statute of, or commission held under the United States, and the decision is against the title, right, privilege or exemption specially set up or claimed by either party, under such [clause of the said] Constitution, treaty, statute, or commission, may be re-examined and reversed, or affirmed in the Supreme Court of the United States upon a writ of error,. . . in the same manner and under the same regulations, and the writ shall have the same effect as if the judgment or decree complained of had been rendered or passed in a Circuit Court. [But no other error shall be assigned or regarded as a ground of reversal in any such case as aforesaid, than such as appears on the face of the record, and immediately respects the beforementioned questions of validity or construction of the said Constitution, treaties, statutes, commissions, or authorities in dispute.'] Judiciary Act of 1867.

'SEC. 2. And be it further enacted, That a final judgment or decree in any suit in the highest court of a State in which a decision in the suit could be had, where is drawn in question the validity of a treaty or statute of, or an authority exercised under the United States, and the decision is against their validity, or where is drawn in question the validity of a statute of or an authority exercised under any State, on the ground of their being repugnant to the Constitution, treaties, or laws of the United States, and the decision is in favor of such their validity, or where any title, right, privilege, or immunity is claimed under the Constitution, or any treaty or statute of, or commission held, or authority exercised under the United States, and the decision is against the title, right, privilege, or immunity specially set up or claimed by either party under such Constitution, treaty, statute, commission [or authority], may be re-examined and reversed or affirmed in the Supreme Court of the United States, upon a writ of error. . . in the same manner, and under the same regulations, and the writ shall have the same effect as if the judgment or decree complained of had been rendered or passed in a court of the United States.'

The case being now in this court, two questions were made:

1. Of jurisdiction in this court.

2. Assuming jurisdiction to exist, the correctness of the judgment below.

Mr. E. T. Merrick, for the dismissal, and in support of the ruling below:

It is said in the brief of the opposing counsel, that in the Supreme Court below the plaintiffs set up and insisted upon the act of Congress of 1864, as a bar to the prescription. We remember no such fact. The matter must be decided by the record. Certainly there is nothing of record to show that any question respecting the statute of limitations of the United States of June 11th, 1864, was raised or relied upon before the Supreme Court of Louisiana, as a ground of recovery. Although the act of 1867 is broader than the act of 1789, it must be construed with it; and thus construed there is nothing which contemplates a writ of error for any other matter or thing than that which appears on the face of the record. It was not the intention of Congress by the new act to create any new method of trying cases in error.

A petition to the Supreme Court stating that a particular statute was relied on in the inferior court, does not prove that it was so relied on; still less does it prove that it was relied on in the court above.

Moreover, if the writ is to have the same effect under the act of 1867, 'as if the judgment or decree complained of had been rendered or passed in a court of the United States,' it will not benefit the plaintiffs in error, because if this case had been tried in the Circuit Court of the United States, in the absence of bills of exception, there is nothing on which to base an examination of the question; much less to reverse the judgment of the lower court.

On the merits: The act of Congress of 1864, in relation to the limitation of certain actions, was meant to bind the courts of the United States alone. This is to be inferred, because as will be conceded, there is no grant of power in the Constitution of the United States to Congress, to prescribe rules of property or practice for the government of the courts of the several States, and because as to matters not intrusted to the government of the United States, the State courts are considered as courts of another sovereignty. As Congress cannot create the State courts, as it cannot establish the ordinary rules of property, obligations, and contracts, nor in general, denounce penalties for crimes and offences, in the several States, it cannot prescribe rules of proceeding for such State courts.

On the other hand, there is no inhibition in the Constitution of the United States upon the individual States to pass statutes of limitation even where such statutes of limitation bar the judgments of sister States.

The act suspended the statutes of limitation, in the cases given, both as to crimes and civil actions. This shows that Congress was legislating for the courts and officers of the United States, over which it has jurisdiction; for certainly a State could not bring a writ of error to this court, to reverse a judgment of its own courts, which should hold that a criminal offonce was barred by the statute of limitation, notwithstanding the impossibility of arresting the offender, for the cause assigned in the statute?

If our view of the purpose of Congress is not correct, then we deny the power of Congress to pass such an act. If Louisiana was a State of this Union (and this court has not failed to consider it as such, as is shown by the numerous writs of error which it has allowed to the State court, and considered), Congress could not constitutionally repeal or suspend State laws, or any subject-matter reserved to the States.

Mr. S. M. Johnson, contra:

Under the peculiar practice of Louisiana, it is next to impossible to raise in the pleadings constitutional or legal questions. The plaintiffs had a right to urge any denial whatever to the plea of prescription of the defendants, the same as if it had been set up in replication. The statute of prescription must be pleaded, because the law itself makes it optional to invoke it or not; but the question whether such statute is in force or has been suspended, or whether it exists at all or not, may be raised by the plaintiff, without spreading upon the record his grounds of objection.

The defendants pleaded a law of that State, and it was clearly the duty of the court to decide upon the validity of that law. They did decide that it was valid, when confessedly it was not valid. That was their error, and it was an error which deprived us of essential rights, the enforcement of which we had invoked in the courts of Louisiana, and which we are here to insist upon.

Perhaps, therefore, even under the Judiciary Act of 1789, and even if there were no petition in the record showing that the matter turned on the act of 1864, this court might have jurisdiction.

But the petition which is made part of the record does show specifically 'the before-mentioned question of the validity or construction' of a statute of the United States; to wit, the said statute of 1864. We are thus brought directly within the language even of the act of 1789:

'Where is drawn in question the validity of a statute of any State, &c.,. . . on the ground of their being repugnant to the laws of the United States, and the decision is in favor of such their validity.'

But this proceeding in error is instituted under the act of 1867, which is in addition to and amendatory of the act of 1789. The act of 1867 makes a material change in the law of 1789. All that part of the last-named act which required that the matters involved in the case must have been discussed and decided upon in the lower court, and must appear of record, is omitted in the act of 1867. The requirement, that questions raised shall appear of record under the act of 1789, was intentionally omitted from the act of 1867, to meet the contingency of a case like this, where the State judges manifestly intended to defeat an appeal to this court by refusal to notice the questions raised in the pleadings.

As to the merits, the case is completely settled by Hanger v. Abbott, itself acted upon and in effect affirmed by The Protector.

Mr. Justice SWAYNE delivered the opinion of the court.

title: Stewart v. Kahn


text: Talk:Stewart v. Kahn

title: Talk:Stewart v. Kahn


text:
Stewart v. Kahn/Opinion of the Court

This is a writ of error to the Supreme Court of the State of Louisiana. The record discloses the following case: On the 16th of April, 1866, the plaintiffs in error, citizens and residents of the State of New York, brought suit against the defendants in error in the fourth District Court of New Orleans, upon a promissory note made at New York on the 10th day of August, 1860, by the defendants, under their firm name of Bloom, Kahn & Co., to the plaintiffs, by their firm name of A. T. Stewart & Co., for the sum of $3226.24, payable at the office of A. Levy & Co., in the city of New Orleans, with the current rate of exchange on New York, seven months from date. The plaintiffs, by their petition, claimed also to recover a few dollars for the balance of an account. The note was duly protested at maturity for nonpayment. On the 28th of the same month of April the defendant, Levy, filed his answer, wherein he alleged that he knew nothing of the correctness of the note, or account, and demanded full proof. He also pleaded the statutory prescription of that State of five years as a bar to the action. The other defendants, Bloom, Kahn & Adler, answered subsequently. They denied all the allegations of the petition, and also set up the defence of prescription.

A statute of the State provides, that when 'new facts' are alleged in the answer, 'neither replication nor rejoinder shall be admitted.' The facts are 'considered as denied by the plaintiff.'

Kahn was examined upon interrogatories, and answered that the defendants' firm was constituted as alleged in the plaintiffs' petition, and that their place of business at the date of the note was Clinton, Louisiana. Another witness testified that he had known the defendant, Levy, since the year 1854 or 1855; that Levy had resided in New Orleans since that time, and was there during the period of the rebellion. At the trial the plaintiffs submitted this testimony, and the note and protest, to the court. It does not appear that any evidence was offered touching the account. The court gave judgment for the defendants. Upon what ground it was given is not disclosed in the record.

The plaintiffs appealed to the Supreme Court of the State. In that court they insisted that the act of Congress of June 11, 1864, entitled 'An act in relation to the limitation of actions in certain cases,' interrupted the running of the prescription, and entitled them to recover. The Supreme Court affirmed the judgment of the District Court. The record shows they held that 'more than five years having elapsed after the maturity of the note before the citations were served on the defendants, the plea of prescription must be sustained.' It is clear that the judgment was given solely upon this ground. The case would have been more satisfactorily presented if a bill of exceptions had been taken at the proper time, and the material facts in that way placed upon the record. But enough is shown to develop clearly the action of the Supreme Court of the State, and the point we are called upon to review. There is no controversy as to the facts. Under the circumstances, a refusal on our part to exercise the jurisdiction invoked would involve a sacrifice of substance to form and unwarrantably defeat the ends of justice.

Our attention has been called to the second section of the act of Congress of February 5, 1867, amending the Judiciary Act of 1789. That section is to a great extent a transcript of the 25th section of the prior act. There are several alterations of phraseology which are not material. A change of language in a revised statute will not change the law from what it was before, unless it be apparent that such was the intention of the legislature. But at the close of the second section there is a substantial addition and omission. The addition in no wise concerns this case, and need not be remarked upon. The omission is of these words in the 25th section of the original act: 'But no other error shall be regarded as a ground of reversal in any such case, as aforesaid, than such as appears on the face of the record, and immediately respects the before-mentioned questions of validity or construction of the said Constitution, treaties, statutes, commissions, or authorities in dispute.'

It is a rule of law that where a revising statute, or one enacted for another, omits provisions contained in the original act, the parts omitted cannot be kept in force by construction, but are annulled.

Whether the 25th section of the original act is superseded by the second section of the amendatory act is a point not necessary in this case to be determined; for, conceding the negative, the question before us is within the omitted category, is presented by the record, and is the only one we are called upon to consider. It is alike within the section in question of the original and of the amendatory act. In either view there is no jurisdictional difficulty.

In Hanger v. Abbott, this court held that the time during which the courts in the States lately in rebellion were closed to the citizens of the loyal States is, in suits since brought, to be deducted from the time prescribed by the statutes of limitations of those States respectively, although the statutes themselves contain no such exception, and this independently of the act of Congress of 1864. In the case of The Protector, the same rule was applied to the acts of Congress of 1798 and 1803, fixing the time within which appeals shall be taken from the inferior Federal tribunals to this court. The case before us was decided prior to the decision of this court in Hanger v. Abbott, with which is in direct conflict. But apart from the act of 1864, it would present no ground of Federal jurisdiction. Hanger v. Abbott came into this court under the 22d section of the Judiciary Act of 1789, or if that section is superseded, under the second section of the amendatory act of 1867. Its determination, therefore, depends necessarily upon the construction and effect to be given to the act of 1864.

The note upon which the suit is founded matured upon the 13th of March, 1861. The prescription of five years expired on the 13th of March, 1866. This action was commenced on the 16th of April, 1866, one month and three days after the period of limitation had elapsed.

The act of 1864 consists of a single section containing two distinct clauses. The first relates to cases where the cause of action accrued subsequent to the passage of the act. The second to cases where the cause of action accrued before its passage. The case before us belongs to the latter class. The first clause of the statute may, therefore, be laid out of view. The second enacts that 'whenever, after such action-civil or criminal such have accrued, and such person cannot, by reason of such resistance of the laws, or such interruption of judicial proceedings, be arrested or served with process for the commencement of the action, the time during which such person shall be beyond the reach of legal process shall not be deemed or taken as any part of the time limited by law for the commencement of such action.'

A severe and literal construction of the language employed might conduct us to the conclusion, as has been insisted in another case before us, that this clause was intended to be made wholly prospective as to the period to be deducted, and that it has no application where the action was barred at the time of its passage. Such, we are satisfied, was not the intention of Congress. A case may be within the meaning of a statute and not within its letter, and within its letter and not within its meaning. The intention of the law-maker constitutes the law. The statute is a remedial one and should be construed liberally to carry out the wise and salutary purposes of its enactment. The construction contended for would deny all relief to the inhabitants of the loyal States having causes of action against parties in the rebel States if the prescription had matured when the statute took effect, although the occlusion of the courts there to such parties might have been complete from the beginning of the war down to that time. The same remarks would apply to crimes of every grade if the offenders were called to account under like circumstances. It is not to be supposed that Congress intended such results. There is no prohibition in the Constitution against retrospective legislation of this character. We are of the opinion that the meaning of the statute is, that the time which elapsed while the plaintiff could not prosecute his suit, by reason of the rebellion, whether before or after the passage of the act, is to be deducted. Considering the evils which existed, the remedy prescribed, the object to be accomplished, and the considerations by which the law-makers were governed-lights which every court must hold up for its guidance when seeking the meaning of a statute which requires construction-we cannot doubt the soundness of the conclusion at which we have arrived.

On the 15th of April, 1861, President Lincoln issued his proclamation announcing the existence of the rebellion, and calling for volunteers to the number of 75,000 to suppress it. On the 19th of the same month he issued a further proclamation, announcing the blockade of Louisiana and other States in rebellion. By a proclamation of the 16th of August, 1861, he declared that the States named in it, Louisiana being one of them, were in a state of insurrection against the United States, and forbade all commercial intercourse between them and the other States of the Union. This proclamation was authorized by the 5th section of the act of July 13, 1861. The authority of the United States was excluded from the entire State of Louisiana from the date of the first proclamation down to the month of May, 1862, when the city of New Orleans and a small strip of adjacent territory lying along the Mississippi River below that city was reclaimed from the dominion of the rebels by the military forces of the United States. Even then no court there, State or Federal, was open to the plaintiffs. Levy was there, but the other defendants were elsewhere in the State whither the arms of the United States had not penetrated. But, without pursuing the subject further, here was a period of more than a year to be deducted, according to the act of Congress, from the time necessary, under the State law, to create a bar, and this defeated the prescription relied upon by the defendants.

But it has been insisted that the act of 1864 was intended to be administered only in the Federal courts, and that it has no application to cases pending in the courts of the States.

The language is general. There is nothing in it which requires or will warrant so narrow a construction. It lays down a rule as to the subject, and has no reference to the tribunals by which it is to be applied. A different interpretation would defeat, to a large extent, the object of its enactment. All those who could not sue in the courts of the United States, including the loyal men who were driven out by the insurrection and returned after it ceased, and those of the same class who remained at home during the war, would be deprived of its benefits. The judicial anomaly would be presented of one rule of property in the Federal courts, and another and a different one in the courts of the State, and debts could be recovered in the former which would be barred in the latter. This would be contrary to the uniform spirit of the National jurisprudence from the adoption of the Judiciary Act of 1789 down to the present time.

The act thus construed, it is argued, is unwarranted by the Constitution of the United States, and therefore void.

The Constitution gives to Congress the power to declare war, to grant letters of marque and reprisal, and to make rules concerning captures on land and water; to raise and support armies, to provide and maintain a navy, and to provide for calling forth the militia to execute the laws of the Union, suppress insurrections, and repel invasions.

The President is the commander-in-chief of the army and navy, and of the militia of the several States, when called into the service of the United States, and it is made his duty to take care that the laws are faithfully executed. Congress is authorized to make all laws necessary and proper to carry into effect the granted powers. The measures to be taken in carrying on war and to suppress insurrection are not defined. The decision of all such questions rests wholly in the discretion of those to whom the substantial powers involved are confided by the Constitution.

In the latter case the power is not limited to victories in the field and the dispersion of the insurgent forces. It carries with it inherently the power to guard against the immediate renewal of the conflict, and to remedy the evils which have arisen from its rise and progress. This act falls within the latter category. The power to pass it is necessarily implied from the powers to make war and suppress insurrections. It is a beneficent exercise of this authority. It only applies coercively the principle of law of nations, which ought to work the same results in the courts of all the rebellious States without the intervention of this enactment. It promotes justice and honesty, and has nothing penal or in the nature of confiscation in its character. It would be a strange result if those in rebellion, by protracting the conflict, could thus rid themselves of their debts, and Congress, which had the power to wage war and suppress the insurrection, had no power to remedy such an evil, which is one of its consequences. What is clearly implied in a written instrument, is as effectual as what is expressed. The war power and the treaty-making power, each carries with it authority to acquire territory. Louisiana, Florida, and Alaska were acquired under the latter, and California under both. The act is within the canons of construction laid down by Chief Justice Marshall

This objection to the statute is untenable.

The judgment of the Supreme Court of the State is REVERSED. The cause will be remanded to that court, with directions to overrule the plea of prescription, and to proceed in the case.

IN CONFORMITY TO LAW.

title: Stewart v. Kahn/Opinion of the Court


text: Talk:Stewart v. Kahn/Opinion of the Court