text:
Ex Parte Bradley

THIS case arose out of a petition by Joseph H. Bradley, Esq., to this court for the writ of mandamus, directed to the Supreme Court of the District of Columbia, to restore him to the office of attorney and counsellor in said court, from which he alleged that he had been wrongfully removed by it on the 9th of November, 1867.

It appeared that the said Supreme Court of the District of Columbia' had issued a rule against Mr. Bradley, reciting certain offensive language which it alleged had been used by Mr. Bradley, at the previous June Term of the criminal court,' to Mr. Justice Fisher, presiding justice, pending a trial there for murder, and for which language the said justice, on the 10th August, entered a judgment ordering the name of Mr. Bradley to 'be stricken from the rolls of attorneys practising in this court.' The rule of the Supreme Court referred, also, to certain alleged conduct of Mr. Bradley at the time that Judge Fisher announced the order disbarring him in the criminal court, and to a certain letter previously delivered to that judge, who had been holding the said court, and it concluded in these words:

'And the said conduct requiring, in our opinion, investigation by this court, it is therefore ordered, that said Joseph H. Bradley show cause, on or before the fourth day of November next, why he should not be punished for contempt of this court by reason of said offensive conduct and language towards one of its members, and relating to the official acts of the said justice.'

To this rule Mr. Bradley made a return, in which, after expressing his satisfaction at the opportunity afforded him by it to present his statement and version of the facts involved in the investigation, and thus 'to purge himself from any intentional disrespect, contumely, or contempt towards the court, or any member thereof, in the transaction referred to,' he set up as one reply, among others, that the Supreme Court had 'no power, authority, or jurisdiction to punish for an alleged contempt committed in another forum.'

It will be seen from this return of Mr. Bradley's to the rule of the Supreme Court of the District issued against him, that his defence turned, so far as respected this point, upon the question whether there was, or was not, a criminal court in the District as distinguished from its Supreme Court; a matter depending on a history and upon statutes which are now set forth:

By an act passed in 1801, there was organized for the District the 'Circuit Court of the District of Columbia, vested with all the powers of the circuit courts of the United States.' It had 'cognizance of all crimes and offences committed within said District, and of all cases in law and equity,' & c.

By act of 1802, it was provided that the chief judge of the District of Columbia should hold a District Court in and for the said District, 'which court shall have and exercise within said District the same powers and jurisdiction which are by law vested in the district courts of the United States.'

Thus stood the jurisdiction, until the passage of an act, July 7, 1838, 'to establish a criminal court in the District of Columbia,' for the trial of all causes and offences committed in the District. This act provided that 'the said criminal court shall have jurisdiction now held by the Circuit Court for the trial and punishment of all crimes and offences, and the recovery of all fines and forfeitures and recognizances.'

It provided also for a writ of error from the Circuit Court, or any judge thereof, in any criminal case wherein final judgment had been pronounced by the 'criminal court' convicting any person of any crime or misdemeanor.

It was further provided, by an amendment of 20th of February, 1839, that the judge of the criminal court 'shall be authorized to make all needful rules of practice, and to provide a seal for said court; and also that in any case where the party might be related to the judge of the criminal court, then the case and the record thereof should be sent to the Circuit Court of the District, to be there tried and determined, as if this act and the act to which it is supplemental had never been passed.'

Thus things stood till the 3d March, 1863, when by act of that date the courts of the District were reorganized.

The first section of that organic act established a court, to be called the Supreme Court of the District of Columbia, which shall have general jurisdiction in law and equity, and consist of four justices, one of which shall be chief justice.

The third section provided that the Supreme Court should possess the same powers and exercise the same jurisdiction as was then possessed and exercised by the Circuit Court of the District of Columbia.

The justices of the court (the act proceeds) shall severally possess and exercise the jurisdiction now possessed and exercised by the judges of the said Circuit Court. Any one of them may hold the District Court of the United States for the District of Columbia, in the manner, and with the same powers and jurisdiction possessed and exercised by other district courts of the United States; and any one of the justices may also hold a criminal court for the trial of all crimes and offences arising within said district, which court shall possess the same powers and exercise the same jurisdiction now possessed and exercised by the criminal court of the District.

The fifth section provided that general terms of the said Supreme Court should be held at the same times at which terms of the Circuit Court of the District of Columbia were then required to be held, and at the same place; and that district courts and criminal courts should also be held by one of said justices at the several times when such courts were then required to be held, and at the same place.

The sixth section provided that the Supreme Court might establish such rules as it might deem necessary for the regulation of the practice of the several courts organized by the act.

The thirteenth, that all suits and proceedings which, at the time the act should take effect, should be pending in any of the courts thereby abolished, should be transferred to the courts to be established under the provisions of the act, and might be prosecuted therein with the same effect as they might have been in the court in which the same were commenced.

The sixteenth, that the circuit, district, and criminal courts of the District of Columbia were thereby abolished, and that all laws and parts of laws relating to said courts, so far as the same were applicable to the courts created by this act, were thereby continued in force in respect to such courts, &c.

The Supreme Court of the District, having heard argument in support of the return made by Mr. Dradley, entered its final order to its rule as follows: IN THE MATTER OF JOSEPH H. BRADLEY, SR. Contempt of Court.

'Mr. Bradley having filed his answer to the rule of the court served on him, and having been heard at the bar in support of his answer, it is by the court ordered that, for the causes set forth in said rule, the name of Mr. Bradley be stricken from the roll of attorneys, solicitors, &c., authorized to practice in this court.'

After the order thus made, this court (the Supreme Court of the United States), on the petition of Mr. Bradley and motion of Mr. Carlisle, granted a rule on the Supreme Court of the District requiring them to show cause why a mandamus should not issue for Mr. Bradley's restoration.

To the last-mentioned rule of this court, the Supreme Court of the District made return—

1. 'That on the 10th of August, 1867, while Judge Fisher, one of the justices of the Supreme Court, was holding a criminal court in this district, the relator had been guilty of contemptuous language towards the said judge in the progress of a trial therein, and for which the said justice disbarred him from the privileges of attorney and counsellor of the Supreme Court.'

title: Ex Parte Bradley


text: Talk:Ex Parte Bradley

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title: Talk:Ex Parte Bradley


text:
Ex Parte Bradley/Opinion of the Court

'At the time the contempt was given, Judge Fisher was holding a Supreme Court, and exercising its criminal jurisdiction as such Supreme Court. There is no criminal court in this district; there is, therefore, no judge of a criminal court in this District. The act of 3d March, 1863, abolished both the circuit and criminal courts of the District of Columbia, and transferred all their several powers and jurisdictions to the Supreme Court created to take their place. It prescribes in what manner said Supreme Court shall exercise those powers and jurisdictions. One of the justices shall hold a criminal court, another a circuit court, a third the special term, and a fourth a district court. Or any one of the justices may, at the same time, hold two or more of these courts. But these several justices, when holding courts in this manner, have no authority or jurisdiction of their own, for the law has given them none. Their powers and jurisdiction are those of the 'Supreme Court;' and these it is which make a court. The court where the powers and jurisdiction of the Supreme Court of the District of Columbia are exercised, is that court. The Supreme Court of the District holds the criminal court, and the law makes one judge the court for that purpose. The contempt in question was, therefore, a contempt of the authority of the Supreme Court.'

2. That 'the conduct of Mr. Bradley was not merely a contempt of the authority of the Supreme Court of this district, but was also gross misbehavior in his office of attorney, and that for this reason also, his offence was cognizable by the court in general term, irrespective of the doctrine of contempts.'

'It is true that the rule to show cause, ordered against him by the court in general term, ignored the order made by Judge Fisher, and called upon him to answer for the specified acts as a contempt; yet, after his return was made, the court, as it had the right to do, considered his offence in both these aspects, and 'ordered, that for the causes set forth in said rule, the name of Mr. Bradley be stricken from the roll of attorneys, solicitors, &c., authorized to practice in this court."

3. 'Because Mr. Bradley was removed only after due notice had been served upon him, and he had been heard in defence, and after mature consideration by the court. That the said order of the court was a judgment of the court in regard to a matter within its own exclusive jurisdiction, and not subject to review in any other court; and especially not in this form of proceeding.'

''The case was elaborately argued by Mr. P. Phillips (with whom was Mr. Carlisle) for the relator. No counsel appeared in behalf of the Supreme Court of the District'', which rested on its return; a document in form argumentative.

Mr. Justice NELSON delivered the opinion of the court.

One of the grounds set up in the return to the rule to show cause is, that on the 10th of August, 1867, while Judge Fisher, one of the justices of the Supreme Court, was holding a criminal court in this district, the relator had been guilty of contemptuous language towards the said judge in the progress of a trial therein, and for which the said justice disbarred him from the privileges of attorney and counsellor of the Supreme Court. That, at the time of the committing of the contempt, Judge Fisher was holding, not a criminal, but a Supreme Court, and exercising its criminal jurisdiction as such; that there is no criminal court in this district, and, therefore, no judge of a criminal court; and that the contempt committed before the judge was a contempt of the Supreme Court. That the act of March 3d, 1863, abolished both the circuit and criminal courts of the district, and conferred all their powers and jurisdiction upon the Supreme Court created by the act.

We think a reference to this act of March 3d, 1863, reorganizing the courts in this district, will show that this is an erroneous construction. It will be seen, by reference to this organic act, that the new Supreme Court of this district has conferred upon it only the same powers and jurisdiction as was possessed by the circuit court just abolished. This circuit court possessed, at the time, no original criminal jurisdiction whatever, nor had it, since the 7th of July, 1838; for an act of that date established a criminal court, upon which was conferred all the criminal jurisdiction of the district.

A writ of error lies from the circuit court to this criminal court, and, doubtless, does from the present Supreme Court to the criminal court of the district.

The circuit court had originally been invested with all the powers of a district court of the United States; but these were taken from it in 1802, and a district court established within the district, to be held by the chief justice of the circuit court. These courts, the district and criminal, are preserved by the act of 1863 reorganizing the courts, and are to be held in the same manner, and with the same powers and jurisdiction,-the one as possessed by the district courts of the United States, and the other as possessed by the old criminal court of the district. The only change made is, that instead of each court having a judge or judges appointed to hold it, any justice of the Supreme Court may hold the same. Under the old law, 20th of February, 1839, in case of the inability of the judge of the criminal court to hold the same, one of the judges of the circuit was authorized to hold it.

It is plain, therefore, that, according to a true construction of the act of 1863, reorganizing the courts of this district, the Supreme Court not only possesses no jurisdiction in criminal cases, except in an appellate form, but that there is established a separate and independent court, invested with all the criminal jurisdiction, to hear and punish crimes and offences within the district. And, hence, one of the grounds, if not the principal one, upon which the return places the right and power to disbar the relator, fails; for we do not understand the judges of the court below as contending that, if Judge Fisher, at the time of the conduct and words spoken by the relator before him, or in his presence, was not holding the Supreme Court of the district, but was holding a court distinct from the Supreme Court, that they possessed any power or jurisdiction over the subject of this contempt as complained of, otherwise the case would present the anomalous proceeding of one court taking cognizance of an alleged contempt committed before and against another court, which possessed ample powers, itself to take care of its own dignity and punish the offender. Under such circumstances, and in this posture of the case, it is plain that no authority or power existed in the Supreme Court to punish for the contempt thus committed, even without reference to the act of Congress of 1831, which in express terms restricts the power, except for 'misbehavior in the presence of said courts, or so near thereto as to obstruct the administration of justice.'

Another ground relied on in the return for disbarring the relator is, that his conduct was not merely a contempt of the authority of the Supreme Court, but was, also, gross misbehavior in his office as an attorney generally, and that, for this reason also, his offence was cognizable by the court in general term, and punishable irrespective of the doctrine of contempts. The judges admit that the rule to show cause ordered against him at the general term, ignored the order made by Judge Fisher disbarring the relator, and called upon him to answer simply for the act and conduct specified as for a contempt; yet they insist that, after the return of the relator to the rule in answering the contempt, they had a right, in considering the answer, if any other offence appeared therein cognizable by the court, it was competent to take notice of it, and inflict punishment accordingly.

We cannot assent to this view. It assumes the broad proposition, that the attorney may be called upon to answer an offence specified, and, when the answer comes in, without any further notice or opportunity of defence or explanation, punish him for another and distinct offence. Certainly no argument can be necessary to refute such a proposition. It violates the commonest and most familiar principles of criminal jurisprudence. It is true, where a contempt is committed in the presence of the court, no other notice is usually necessary; but a proceeding to punish an attorney generally for misbehavior in his office, or for any particular instance of misbehavior, stands on very different ground. The rule to show cause is in the record. After reciting the offensive language and conduct complained of (all of which occurred before Judge Fisher), it concludes in these words: 'And said conduct and language requiring, in our opinion, investigation by this court, it is therefore ordered, that said Joseph H. Bradley show cause, on or before the fourth day of November next, why he should not be punished for contempt of this court by reason of said offensive conduct and language towards one of its members, and relating to the official acts of the said justice.' It will be seen that the offence charged against the relator, and for which he was called upon to answer, was direct and specific, one well known to the law and the proceedings of courts,-a contempt of the Supreme Court. And the offence being thus specified, he was fully advised of the matters against which he was called upon to defend, and enabled to prepare his defence accordingly. That the relator so understood the charge is apparent from his answer, in which he expresses his satisfaction at the opportunity afforded him to present to the court his account of the facts involved in the case, and 'to purge himself from any intentional disrespect, contumely, or contempt towards the court, or any member thereof, in the transactions referred to.'

The order entered on the minutes of the court, after the answer to the rule to show cause, inflicting the punishment, confirms this view. It is found in the record, and is headed as follows:

'In the matter of Joseph H. Bradley, Sr.-Contempt of court.'

'Mr. Bradley having filed his answer to the rule of court served on him, and having been heard at the bar in support of his answer, it is by the court ordered, that for the causes set forth in said rule, the name of Mr. Bradley be stricken from the roll of attorneys, solicitors, &c., authorized to practice in this court.'

The order, or judgment, seems to be in strict conformity to the offence charged in the rule to show cause, namely, for contempt of court.

We do not doubt the power of the court to punish attorneys as officers of the same, for misbehavior in the practice of the profession. This power has been recognized and enforced ever since the organization of courts, and the admission of attorneys to practice therein. If guilty of fraud against their clients, or of stirring up litigation by corrupt devices, or using the forms of law to further the ends of injustice; in fine, for the commission of any other act of official or personal dishonesty and oppression, they become subject to the summary jurisdiction of the court. Indeed, in every instance where an attorney is charged by affidavit with fraud or malpractice in his profession, contrary to the principles of justice and common honesty, the court, on motion, will order him to appear and answer, and deal with him according as the facts may appear in the case. But, this is a distinct head of proceeding from that of contempt of court, or of the members thereof, committed in open court, or in immediate view and presence, tending to interrupt its proceedings, or to impair the respect due to its authority. This distinction is recognized in the act of 1831, already referred to, which, after providing for personal contempt in presence of the court, authorizes attachments to issue, and summary punishment to be inflicted, for 'the misbehavior of the officers of said courts in their official transactions.'

Without pursuing this branch of the case further, our conclusion is—

First. That the judges of the court below exceeded their authority in punishing the relator for a contempt of that court on account of contemptuous conduct and language before the Criminal Court of the District, or in the presence of the judge of the same.

Second. That they possessed no power to punish him, upon an ex parte proceeding, without notice or opportunity of defence or explanation for misbehavior, or for any particular instance of the same generally in his office as attorney of the court, as claimed in the words of the return, 'irrespective of the doctrine of contempts.'

The only remaining question is, whether or not a writ of mandamus from this court is the appropriate remedy for the wrong complained of. This question has already been answered by Chief Justice Marshall, who delivered the opinion of the court in Ex parte Crane. That was an application for a mandamus to the Circuit Court of the United States for the Southern District of New York, commanding the court to review the settlement of several bills of exceptions. The learned Chief Justice observes: 'A doubt has been suggested respecting the power of the court to issue the writ. The question was not discussed at the bar, but has been considered by the judges. It is proper,' he observes, 'that it should be settled, and the opinion of the court announced. We have determined that the power exists.' He then refers to the definition and office of the writ as known to the common law in England, and to the language of Blackstone in speaking of it, as follows: 'That it issues to the judges of any inferior court, commanding them to do justice, according to the powers of their office, whenever the same is delayed. For it is the peculiar business of the Court of King's Bench to superintend all other inferior tribunals, and therein to enforce the due exercise of those judicial or ministerial powers with which the crown or the legislature have invested them; and this, not only by restraining their excesses, but also by quickening their negligence, and obviating the denial of justice.' The Chief Justice then refers to the 13th section of the judicial act, which enacts that the Supreme Court shall have power to issue writs of prohibition to the District Courts when proceeding as courts of admiralty and maritime jurisdiction; and writs of mandamus, in cases warranted by the principles and usages of law, to any courts appointed or persons holding offices under the authority of the United States. 'A mandamus to an officer,' he observes, 'is held to be the exercise of original jurisdiction; but a mandamus to an inferior court of the United States is in the nature of appellate jurisdiction.'

Two of the judges dissented, and one of them, Mr. Justice Baldwin, delivered an elaborate opinion adverse to the decision, in which every objection to the jurisdiction is very forcibly stated. Since this decision the question has been regarded at rest, as will be seen from many cases in our reports, to some of which we have referred.

This writ is applicable only in the supervision of the proceedings of inferior courts, in cases where there is a legal right, without any existing legal remedy. It is upon this ground that the remedy has been applied from an early day, indeed, since the organization of courts and the admission of attorneys to practice therein down to the present time, to correct the abuses of the inferior courts in summary proceedings against their officers, and especially against the attorneys and counsellors of the courts. The order disbarring them, or subjecting them to fine or imprisonment, is not reviewable by writ of error, it not being a judgment in the sense of the law for which this writ will lie. Without, therefore, the use of the writ of mandamus, however flagrant the wrong committed against these officers, they would be destitute of any redress. The attorney or counsellor, disbarred from caprice, prejudice, or passion, and thus suddenly deprived of the only means of an honorable support of himself and family, upon the contrary doctrine contended for, would be utterly remediless.

It is true that this remedy, even, when liberally expounded, affords a far less effectual security to the occupation of attorney than is extended to that of every other class in the community. For we agree that this writ does not lie to control the judicial discretion of the judge or court; and hence, where the act complained of rested in the exercise of this discretion, the remedy fails.

But this discretion is not unlimited, for if it be exercised with manifest injustice, the Court of King's Bench will command its due exercise. It must be a sound discretion, and according to law. As said by Chief Justice Taney, in Ex parte Secombe, 'The power, however, is not an arbitrary and despotic one, to be exercised at the pleasure of the court, or from passion, prejudice, or personal hostility.' And by Chief Justice Marshall, in Ex parte Burr: 'The court is not inclined to interpose, unless it were in a case where the conduct of the Circuit or District Court was irregular, or was flagrantly improper.'

We are not concerned, however, to examine in the present case how far this court would inquire into any irregularities or excesses of the court below in the exercise of its discretion in making the order against the relator, as our decision is not at all dependent upon that question. Whatever views may be entertained concerning it, they are wholly immaterial and unimportant here. The ground of our decision upon this branch of the case is, that the court below had no jurisdiction to disbar the relator for a contempt committed before another court. The contrary must be maintained before this order can be upheld and the writ of mandamus denied. No amount of judicial discretion of a court can supply a defect or want of jurisdiction in the case. The subject-matter is not before it; the proceeding is coram non judice and void. Now, this want of jurisdiction of the inferior court in a summary proceeding to remove an officer of the court, or disbar an attorney or counsellor, is one of the specific cases in which this writ is the appropriate remedy. We have already seen, from the definition and office of it, that it is issued to the inferior courts 'to enforce the due exercise of those judicial or ministerial powers with which the crown or legislature have invested them; and this, not only by restraining their excesses, but also by quickening their negligence and obviating their denial of justice.' The same principle is also found stated with more fulness in Bacon's Abridgment, title 'Mandamus,' 'to restrain them (inferior courts) within their bounds, and compel them to execute their jurisdiction, whether such jurisdiction arises by charter, &c., being in subsidium justiciae.'

The same principle is also stated by Chief Justice Marshall in Ex parte Burr. 'There is then,' he observes, 'no irregularity in the mode of proceeding which would justify the interposition of this court. It could only interpose on the ground that the Circuit Court had clearly exceeded its powers, or, had decided erroneously on the testimony.' The case of Burr was malpractice and stirring up litigation, to the disturbance and oppression of the community. The jurisdiction was unquestionable. So in Ex parte Secombe, Chief Justice Taney, after showing that the question was one of judicial discretion, observes, 'We are not aware of any case where a mandamus has issued to an inferior tribunal, commanding it to reverse or amend its decision, when the decision was in its nature a judicial act, and within the scope of its jurisdiction and discretion.' The case of Secombe was for a contempt in open court, and the jurisdiction undoubted. So was the case of Tillinghast v. Conkling, referred to by the Chief Justice in his opinion. This writ has been issued in numerous cases by the King's Bench, in England, to inferior courts to restore attorneys wrongfully removed. The cases are collected by Mr. Tapping. One of them was the case of an attorney suspended from practicing in the courts of the county palatine of Chester. The reason given for issuing this writ is, that the office is of public concern, and regards the administration of justice; and because there is no other remedy.

Cases are found also in many of the courts of the States. Among the more recent are three cases in California; in New York; in Pennsylvania, Virginia, and Alabama. In several of the cases the remedy failed, as in Ex parte Burr, Secombe, and Tillinghast, the court having held, in the cases, that the questions involved were of judicial discretion. But the proceeding is admitted to be the recognized remedy when the case is outside of the exercise of this discretion, and is one of irregularity, or against law, or of flagrant injustice, or without jurisdiction.

It will be seen that this opinion is wholly irrespective of the merits of this unhappy controversy between the relator and Judge Fisher, as the view we have taken of the case does not in any respect involve this question. We can only regret the controversy, as between gentlemen of the highest respectability and honor, and express the hope that reflection, forbearance, and the generous impulses that eminently belong to the members of their profession, may lead to their natural fruits,-reconciliation and mutual and fraternal regard.

Our conclusion is, that a peremptory writ of

MANDAMUS MUST ISSUE.

Mr. Justice SWAYNE, not having heard the argument, took no part in the judgment.

title: Ex Parte Bradley/Opinion of the Court


text: Talk:Ex Parte Bradley/Opinion of the Court


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40 Saint-Domingue; the clashing of whose conflicting aspirations was destined to hurl them one against the other. After irrigating the Haitian soil with their sweat, "affranchis," slaves, and maroons firmly united, would lavish their blood on it in order to root out forever the shameful institution of slavery.


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Riddlesbarger v. Hartford Insurance Company

ERROR to the Circuit Court for Missouri.

This was an action against the Hartford Insurance Company, upon a policy of insurance in the sum of five thousand dollars, issued by the said company, a corporation created under the laws of Connecticut, to the plaintiff, upon a brick building, belonging to him, situated in Kansas City, in the State of Missouri. The policy bore date on the first of June, 1861, and was for one year. The building was destroyed by fire in March, 1862, and in June following the plaintiff brought an action for the loss sustained in the Kansas City Court of Common Pleas, in the county of Jackson in that State. To this action the defendant appeared and answered to the merits, and the cause continued in that court until June, 1864, when it was dismissed by the plaintiff. Within one year after this dismissal the present action was commenced in the Court of Common Pleas in the County of St. Louis, from which it was transferred to the Circuit Court of the United States for the District of Missouri.

The policy contained the following condition:

'That no suit or action of any kind against said company for the recovery of any claim upon, under, or by virtue of the said policy shall be sustainable in any court of law or chancery, unless such suit or action shall be commenced within the term of twelve months next after the loss or damage shall occur, and in case any suit or action shall be commenced against said company after the expiration of twelve months next after such loss or damage shall have occurred, the lapse of time shall be taken and deemed as conclusive evidence against the validity of such claim thereby so attempted to be enforced.'

To the present action the defendant pleaded this condition. The plaintiff replied the commencement of the first action in the Kansas City Court of Common Pleas within the year stipulated in the condition, and the commencement of the present action within one year after the dismissal of that action. To the replication the defendant demurred.

The statute of limitations of Missouri, after prescribing various periods of limitation for different actions, provides that if in any action commenced within the periods mentioned, the plaintiff shall 'suffer a nonsuit,' he may commence a new action within one year afterwards.

The Circuit Court sustained the demurrer, and rendered final judgment thereon for the defendant, and the plaintiff brought the case here by writ of error.

Mr. James Hughes, for the plaintiff in error.

I. Parties cannot by a contract agree upon a limitation different from the statutes within which suit shall be brought, or the right to sue be barred. This would be in conflict with the law and its policy. The point is so expressly ruled by McLean, J., and by the Supreme Court of Indiana which followed him.


text: Talk:Riddlesbarger v. Hartford Insurance Company


text:
Riddlesbarger v. Hartford Insurance Company/Opinion of the Court

This is an attempt to bar or discharge a right of action before the right accrues. It is a well-settled principle, that a release can only operate upon an existing claim.

Why has a condition or agreement in a policy, providing that all disputes arising under it shall be referred to arbitration, been held to be void? Because it is an attempt to oust the jurisdiction of the courts.

II. But if the limitation contract, as to the time of bringing the suit, is valid, and binds the plaintiff to commence his action within twelve months next after the loss occurred, then we insist that inasmuch as the plaintiff did commence his action against the defendant, within the time prescribed, viz., in June, 1862, in the Kansas City Court of Common Pleas, in Jackson County, Missouri, in which he sought to recover, for the same cause of action and none other, that he seeks to recover for in the present suit; to which action defendant appeared and filed an answer to the merits thereof; that said action was pending and undetermined in said court until June, 1864, when plaintiff sufiered a nonsuit therein, and the present action was commenced in the St. Louis Court of Common Pleas, in July, 1864, within twelve months after the nonsuit was suffered; then plaintiff has complied with the condition in said contract according to, and in compliance with the then existing laws of Missouri, and is entitled to maintain the present action.

The contract was made in the State of Missouri, and was made with reference to the then existing laws of that State.

That law became a part of the contract itself, and to that law we must look in giving a construction to the contract; and so far as the remedy is concerned, when suit is brought in that State to enforce a right growing out of that contract, the law of that State must alone govern and determine. The Revised Statute of 1855 were in force when the contract was made, and so continued in force until after the commencement of this suit in the Common Pleas Court of St. Louis County.

The statute of limitations of that State enacts that actions of this kind shall be brought within five years next after the cause of action accrues, provided that if any action be commenced within the time prescribed, and the plaintiff therein 'suffer a nonsuit,' such plaintiff may commence a new action, within one year from the time of such nonsuit suffered.

Mr. R. D. Hubbard, contra.

Mr. Justice FIELD, after stating the case, delivered the opinion of the court, as follows:

By the demurrer to the replication two questions are presented for our determination: First; whether the condition against the maintenance of any action to recover a claim upon the policy, unless commenced within twelve months after the loss, is valid; and Second; whether if valid, the condition was complied with in the present case under the statute of limitations of Missouri.

The objection to the condition is founded upon the notion that the limitation it prescribes contravenes the policy of the statute of limitations. This notion arises from a misconception of the nature and object of statutes of this character. They do not confer any right of action. They are enacted to restrict the period within which the right, otherwise unlimited, might be asserted. They are founded upon the general experience of mankind that claims, which are valid, are not usually allowed to remain neglected. The lapse of years without any attempt to enforce a demand creates, therefore, a presumption against its original validity, or that it has ceased to subsist. This presumption is made by these statutes a positive bar; and they thus become statutes of repose, protecting parties from the prosecution of stale claims, when, by loss of evidence from death of some witnesses, and the imperfect recollection of others, or the destruction of documents, it might be impossible to establish the truth. The policy of these statutes is to encourage promptitude in the prosecution of remedies. They prescribe what is supposed to be a reasonable period for this purpose, but there is nothing in their language or object which inhibits parties from stipulating for a shorter period within which to assert their respective claims. It is clearly for the interest of insurance companies that the extent of losses sustained by them should be speedily ascertained, and it is equally for the interest of the assured that the loss should be speedily adjusted and paid. The conditions in policies requiring notice of the loss to be given, and proofs of the amount to be furnished the insurers within certain prescribed periods, must be strictly complied with to enable the assured to recover. And it is not perceived that the condition under consideration stands upon any different footing. The contract of insurance is a voluntary one, and the insurers have a right to designate the terms upon which they will be responsible for losses. And it is not an unreasonable term that in case of a controversy upon a loss resort shall be had by the assured to the proper tribunal, whilst the transaction is recent, and the proofs respecting it are accessible.

A stipulation in a policy to refer all disputes to arbitration stands upon a different footing. That is held invalid, because it is an attempt to oust the courts of jurisdiction by excluding the assured from all resort to them for his remedy. That is a very different matter from prescribing a period within which such resort shall be had. The condition in the policy in this case does not interfere with the authority of the courts; it simply exacts promptitude on the part of the assured in the prosecution of his legal remedies, in case a loss is sustained respecting which a controversy arises between the parties.

The statute of Missouri, which allows a party who 'suffers a nonsuit' in an action to bring a new action for the same cause within one year afterwards, does not affect the rights of the parties in this case. In the first place, the statute only applies to cases of involuntary nonsuit, not to cases where the plaintiff of his own motion dismisses the action. It was only intended to cover cases of accidental miscarriage, as from defect in the proofs, or in the parties or pleadings, and like particulars. In the second place, the rights of the parties flow from the contract. That relieves them from the general limitations of the statute, and, as a consequence, from its exceptions also.

The action mentioned, which must be commenced within the twelve months, is the one which is prosecuted to judgment. The failure of a previous action from any cause cannot alter the case. The contract declares that an action shall not be sustained, unless such action, not some previous action, shall be commenced within the period designated. It makes no provision for any exception in the event of the failure of an action commenced, and the court cannot insert one without changing the contract.

The questions presented in this case, though new to this court, are not new to the country. The validity of the limitation stipulated in conditions similar to the one in the case at bar, has been elaborately considered in the highest courts of several of the States, and has been sustained in all of them, except in the Supreme Court of Indiana, which followed an adverse decision of Mr. Justice McLean in the Circuit Court for the district of that State. Its validity has also been sustained by Mr. Justice Nelson in the Circuit Court for the District of Connecticut.

We have no doubt of its validity. The commencement, therefore, of the present action within the period designated was a condition essential to the plaintiff's recovery; and this condition was not affected by the fact that the action, which was dismissed, had been commenced within that period.

JUDGMENT AFFIRMED.


text: Talk:Riddlesbarger v. Hartford Insurance Company/Opinion of the Court


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Page:The Confidence Man.djvu/234

Rh "Are you in earnest? Was there ever one who so made it his particular mission to hate Indians that, to designate him, a special word has been coined—Indian-hater?"

"Even so."

"Dear me, you take it very calmly.—But really, I would like to know something about this Indian-hating. I can hardly believe such a thing to be. Could you favor me with a little history of the extraordinary man you mentioned?"

"With all my heart," and immediately stepping from the porch, gestured the cosmopolitan to a settee near by, on deck. "There, sir, sit you there, and I will sit here beside you—you desire to hear of Colonel John Moredock. Well, a day in my boyhood is marked with a white stone—the day I saw the colonel's rifle, powder-horn attached, hanging in a cabin on the West bank of the Wabash river. I was going westward a long journey through the wilderness with my father. It was nigh noon, and we had stopped at the cabin to unsaddle and bait. The man at the cabin pointed out the rifle, and told whose it was, adding that the colonel was that moment sleeping on wolf-skins in the corn-loft above, so we must not talk very loud, for the colonel had been out all night hunting (Indians, mind), and it would be cruel to disturb his sleep. Curious to see one so famous, we waited two hours over, in hopes he would come forth; but he did not. So, it being necessary to get to the next cabin before nightfall, we had at last to ride off without the wished-for satisfaction. Though, to tell the

title: Page:The Confidence Man.djvu/234


text:
Railroad Company v. Howard

APPEAL from the Circuit Court for Iowa. The case was thus:

The Mississippi and Missouri Railroad Company-a company in Iowa, and by the laws of that State, having power to issue its bonds to carry into effect the purposes for which it was created was incumbered by five several mortgages, given to secure bonds which it had executed, amounting, with arrears of interest, to $7,000,000; a sum greatly beyond what the road was worth. The interest was largely in arrears, and the company was insolvent. The Chicago and Rock Island Railroad Company-another company-made overtures for the purchase of the former road, offering to give for it $5,500,000, a sum more than it was worth, though, as just said, much less than what it owed. But the offer was contingent upon getting a title at once. The directors of the insolvent road had power, under its charter, to sell it on payment of its debts, and with the assent of two-thirds of its stockholders; but the only mode to make a satisfactory title which now seemed possible, was by a foreclosure under one of the mortgages; a matter which it was supposed, apparently, that it might be in the power of the stockholders, by the interposition of difficulties, to delay. Under these circumstances, a meeting of the holders of the stock and of the various classes of mortgage bonds of the company was called, to determine what should be done with the road. And it was resolved, at this meeting, to sell the road for the $5,500,000 offered; provided, that the purchase-money be distributed among the bondholders and stockholders of the company, according to a plan or 'scale' specified, by which the different classes of bondholders were to be paid certain specified amounts, varying from 100 to 30 per cent. of the amount of their bonds, and the stockholders were to receive 16 ''per cent. of the par value of their stock'', amounting to $552.400. A committee was appointed to arrange the details of the sale, and the mode of payment with the purchasing company; and the committee was instructed 'to make an arrangement with some trust company to receive the bonds and stock of the parties assenting and issue certificates therefor, setting forth what the holder thereof is entitled to receive.'

In pursuance of these resolutions, a written contract was made between the Mississippi and Missouri Railroad Company and the purchasing company, which in its caption was stated to be made 'in pursuance of resolutions passed by the meeting of the bondholders and stockholders' of the former company, by which it was agreed,

1. That the Mississippi and Missouri Company 'will take the proper steps, with all possible despatch, to cause the mortgages upon its line of road,' &c., & c., 'to be foreclosed, and its entire property, real and personal, sold, so that the purchaser shall be able to transfer a perfect and unincumbered title to such incorporated company as the Chicago and Rock Island Railroad Company may designate to become the purchaser and owner thereof.'

2. That the Chicago and Rock Island Company shall cause a company to be incorporated under the general law of Iowa, which shall purchase the said property for $5,500,000; and the Mississippi and Missouri Company agree that the purchaser, at the foreclosure sale, shall sell to such company so to be incorporated, 'for the sum and upon the terms herein stated and set forth.'The committee appointed at the meeting, to carry into effect the sale of the road, made arrangements as instructed by the resolution appointing them with the Union Trust Company of New York, to act as their agent to receive from the holders of bonds and stock, assenting to the plan agreed on, their bonds and stock certificates, and to give receipts to them therefor. A written agreement was subscribed by the committee, and by each party so depositing bonds or stock, entitled, 'Agreement made between A. B., and other subscribing holders of the stock and bonds of the Mississippi and Missouri Railroad Company of the first part, and G. W. S., J. E., &c. (the committee), of the second part.' By this instrument (after reciting the action of the meeting, and the agreement of sale between the two railroad companies, 'in furtherance of' the resolutions of the meeting; and that the committee to effectuate this clearance and sale were about to foreclose the various mortgages, in order subsequently to convey a clear title to the purchaser or purchasers thereof) the subscribing bond and stock holders ratified and confirmed the authority given to the committee by the meeting, and consented to the foreclosure of mortgages, and sale of the Mississippi and Missouri Road thereunder; and to surrender their bonds and stock certificates, on signing the agreement, to the Union Trust Company, as agent of the committee, to be used in carrying out the sale and foreclosure.

The committee agreed to use all diligence in foreclosing; to convey the road, after foreclosure, 'as more fully set forth in the agreement between the two companies for $5,500,000; and to distribute the same among the holders of stock and bonds, according to the following scale, viz.' (specifying the amounts to be paid on the different classes of bonds, and the 16 per cent. to the stockholders, as agreed on at the meeting), the amounts to be paid in the form in which the proceeds of sale were received, and to be either money, or bonds secured as provided in agreement of sale between the railroad companies.

The trust company issued certificates to the depositors of stock, acknowledging the receipt of their old certificates of stock, and declaring them to be held subject to the agreement made by the depositors and other holders of the stock and bonds of the company, with the committee; and that the receipt now issued entitled 'the bearer' to so many dollars in the new bonds to be issued, and interest thereon at the rate of 7 per cent. per annum, from December 1st, 1865, less the excess, if any, of the cost of foreclosure, sale, and other expenses of the committee, &c.; over and above $32,164, unappropriated balance of $5,500,000, derived from the sale of said road, and any and all the rights of the said depositor, under and by virtue of the agreement aforesaid.

On the back of the receipt was printed the scheme of distribution, specifying the proportion to be paid on each class of bonds and on the stock.

The holders of the stock and bonds (with unimportant exceptions) became parties to this agreement by depositing their stock and bonds with the trust company, signing the agreement, and taking their receipts as above.

The foreclosure was effected thus: Some holders of bonds, secured by the last mortgage, being dissatisfied with the above plan, caused a suit to foreclose that mortgage to be commenced in the Circuit Court for Iowa, in the name of the trustees of the mortgage, early in 1866. The Chicago and Rock Island Railroad Company subsequently purchased the bonds of these parties, and obtained the control of the suit, which was then turned over to the committee. Under their direction, cross bills to foreclose the other mortgages were filed, and a final decree of foreclosure of all the mortgages and for a sale of the road was had. A sale under this decree took place soon after, and the road was bid off by a new corporation, which had been organized under the Iowa law, for $2,200,000, which sale was afterwards confirmed, and a deed made in pursuance of it. The new company after the sale was consolidated with the Chicago and Rock Island Company, the consolidated company assuming the name of 'The Chicago, Rock Island and Pacific Railroad Company.' The $5,500,000 of bonds, agreed to be given for the property of the Mississippi and Missouri Company, were distributed as agreed on, except that portion thereof which was to have been divided among the stockholders. In regard to that, new claimants now appeared. These were, Howard, Weber, and numerous other persons, who had obtained judgments against the Mississippi and Missouri Railroad Company, on certain bonds of the cities of Davenport, Muscatine, &c., guarantied by the railroad company, but making no part of the bonds already mentioned, as executed by the Mississippi and Missouri Company, nor secured in any way by the mortgages foreclosed, nor provided for in the transactions above set forth. These creditors, on whose judgments executions had been issued and returned nulla bona, now filed a bill in the court below, to obtain satisfaction of their claims out of the fund of 16 per cent. allotted to the stockholders; making the committee who negotiated matters, all three railroads, and the city of Davenport (against which also they had obtained judgment) defendants. Answers were filed by the members of the committee, and by the Chicago, Rock Island and Pacific Railroad Company. The decree made in the case declared the complainants entitled to the fund, as creditors of the Mississippi and Missouri Railroad Company, directed its payment by the Chicago, Rock Island and Pacific Railroad Company to a receiver, its conversion by him into money, and distribution pro rata among the different creditors; providing also for subrogating the defendants to the rights and remedies of the plaintiffs, against the municipalities issuing the bonds, so far as they were paid out of the fund in controversy. From this decree the committee, and the Chicago, Rock Island and Pacific Railroad Company appealed; and this appeal constituted the present case: the principal question being, whether the court below, in allowing the creditors unprotected by mortgage to take away the 16 per cent. which had been allowed to the stockholders, had decreed rightly. The Mississippi and Missouri Railroad Company did not appeal.

Messrs. Emmot, Cook, and Drury, for the appellants:

1. We submit as a preliminary point that the guaranty made by the Mississippi and Missouri Railroad Company, of the Devenport city bonds, was beyond the power of the corporation, and void. A railroad corporation can no more guaranty the payment of a bond issued by a town or a county, than it can the payment of a similar obligation made by an individual, to enable either to raise money to pay their subscriptions to its stock.

2. Passing to the main matter. The decree below assumed that the 16 per cent. was a dividend of capital on the dissolution of the railroad company to its stockholders, something saved from the bondholders for the company, its property, therefore; and assuming this, it would argue, and argue rightly enough, that the stockholders were entitled to nothing till all creditors were paid. But the assumption made is a false one. This company was hopelessly bankrupt. Its bonded debt was about seven millions, while the proceeds of the sale amounted to but five and a half millions, even this sum being more than it was worth; the real price was, of course, below $2,200,000, that being as much as the road actually brought at a fair public sale. This fact makes it clear that the bound debt of the company completely exhausted its property, and left nothing for general creditors and stockholders. The property of every corporation is a trust fund for payment of the debts of the company, but a fund for their payment in the order in which they are due. This fund was held in trust, not for creditors generally, but for the bond creditors primarily. It was theirs; and as the bond debts far exceeded the fund, it was theirs only. The stockholders were entitled to nothing as a matter of right.

How, then, do they get it? The explanation is obvious. From the fund going to the bondholders, they agree to give to the stockholders 16 per cent. Whatever form, show, or courtesy toward the stockholders (whom it was desired to conciliate, and to treat as if they had some rights of value, though they had really none) the thing had, such was the real operation. No other operation which should have the same effect was possible. Now in this view, a true one, what legal claim have these complainants, creditors of one sort though they be, to this fund; a fund which is really but a surrender by the bondholders of their property to the stockholders? What have the complainants lost by this arrangement? Nothing. If the 16 per cent. had not been given to the stockholders, it would have been retained by the bondholders, and then, certainly, the complainants could not contend that they would be entitled to it.

The argument will be that this was a contract between the bondholders, stockholders, and the railroad company, to divide the proceeds in a certain way, and that the railroad company should sell the road, and should procure a foreclosure of the mortgages.

Any agreement, however, by which the railroad company bound itself to have the mortgages foreclosed and the property sold, so that the purchaser might transfer a perfect title to any company whom the Chicago and Rock Island Road might designate, was, independently of the bond creditors, impossible. How could the railroad company or the stockholders procure a foreclosure of its mortgages? They had no control of them. Suppose that the bondholders had refused to foreclose the mortgages, how could the railroad company or any one else procure the title under the foreclosure so as to transfer a perfect title to any designated person? There would have been no agreement of any value then by the company, even if the company agreed at all.

But the meeting where all was done that was done in this matter was a meeting of the bondholders and stockholders only. The railroad company as a corporation had nothing to do with it. The bondholders and stockholders acted, each man for himself. The question was: 'We being all interested in an insolvent corporation, what can we best do to promote our common interest?' The bondholders say to the stockholders, 'We wish to sell. Confessedly the road will not bring anything like the amount of our mortgages. You have no real interest in the thing under any circumstances. But do not interpose captions and unjust objections. Let us have the money confessedly due to us, and ours, and we will give you a small part of it.' Is there anything unfair in that?

We suppose that no question will be made but that, in the first instance, and aside from any agreement, the bondholders were entitled to every dollar of this money. The road was mortgaged for near three times its value, and the equity of redemption was supremely worthless. If, then, these stockholders have got anything, it must be because the bondholders have surrendered a part of their fund to them. If the fund belonged to the bondholders, they had a right so to surrender a part or the whole of it. And if the bondholders did so surrender their own property to the stockholders, it became the private property of these last; a gift, or, if you please, a transfer for consideration from the bondholders, whose it had before exclusively been in absolute property. What right have these complainants to such property in the hands of the stockholders?

If the road had been worth anything above the mortgage they would have some case. But it is a datum et concessum of this controversy that the road was worth very far less than the mortgage debts upon it, and that these were increasing, while the road of necessity was growing less valuable. In one sense the mortgagees held but liens on the road, but in fact they were the owners; and so, in strict view, they were in form, a mortgage being a conveyance in fee subject to defeasance by redemption; a right that here it was absolutely certain neither would or could ever be exercised.

Some additional points apart from the main one deserve to be suggested, as that—

3. The corporation could not sell its road, and did not undertake to sell it. It could not, because the directors of the company were authorized to sell only provided that, 1. Its debts were first paid. 2. That two-thirds of its stockholders assented to such sale. Now the agreement between the railroad companies was not an agreement for any such sale, and did not satisfy these conditions.

4. There is a defect of parties. Here is a fund amounting to over half a million of dollars, claimed by the stockholders and sought to be recovered by the general creditors of the railroad company, and yet, not a single one of the stockholders is made a party. Their right to this fund is to be determined without allowing them a hearing, or a day in court.

5. The certificates issued by the Union Trust Company were payable to bearer, and therefore negotiable. They have doubtless been sold in the market as other certificates of stock, and are now in the hands of persons other than the stockholders not parties to this suit. If payment of the 16 per cent. is arrested and diverted to the payment of the debts of the railroad company, these innocent third parties will be sufferers. This proceeding thus partakes of the character of a garnishment at law. The trustees are called on to pay these bonds to the creditors of the defendant. Their answer is: 'Our liability is on negotiable paper, and we can't say that we are indebted to the defendant.'

6. The complainants have a remedy at law. Numerous decisions recently made in this court, and especially the late one in Riggs v. Johnson County, show that vigorous measures have been taken against these defaulting cities and counties to enforce payment of these judgments. These measures are about to be crowned with success. Writs of mandamus against several cities and counties are now in the hands of the officers of the law. Let them proceed to collect their money. These are the parties who ought to be made to pay, and let the stockholders enjoy the small amount saved by them from a wreck.

Messrs. Grant and Rogers, contra:

1. As to the guaranty and its effect. We doubt not that the road which had, confessedly, power to borrow by executing bonds as a principal, had power to borrow by guaranty as well. But however this may be, as the Mississippi and Missouri Railroad Company, the guarantor, though made a party defendant, made no defence in the court below, and does not appeal, the other defendants are thereby concluded from controverting the status of the complainants as creditors of the railroad company.

2. Passing to the principal point. The appellants deny our right to the fund in controversy, on the ground that it belonged absolutely to the mortgage bondholders of the railroad company, who have seen fit, as a matter of favor, to surrender it to the stockholders.

Now, the fund in question is a part of the purchase-money agreed to be paid for the road and other property of the Mississippi and Missouri Company, on a voluntary private contract of sale of it to another company, to which contract the two companies and the bondholders and stockholders of the Mississippi and Missouri Company were all alike parties.

The foreclosure and sale thereunder were simply the form of conveyance, concerted and agreed on by the parties, and effected in pursuance and execution of the contract. They bear the same relation to the real transaction, which the forms of a fine, or common recovery (when those ancient modes of conveyance were in use), bore to the real contract in pursuance of which they were gone through with. Those old proceedings wore, on their face, all the outward insignia of a suit at law. There was a plaintiff and a defendant, formal pleadings, and a judgment entered of record. But the whole thing was a form, intended to carry into effect a previous private agreement, and was for centuries before it went out of use, regarded as a mere mode of conveyance, one of the common assurances of the realm, and so treated by legal writers. We read, in connection with the subject, of previous or concurrently executed deeds, in which the one or the other party covenants to levy a fine or suffer a common recovery of the property to be conveyed, and of deeds to declare or lead the uses of such fine or recovery, when levied or suffered; in which deeds, of course, the substance of the whole transaction was to be found. These instruments have their counterpart in the case now before the court. The contract between the two railroad companies, by which the Mississippi and Missouri Company agrees to 'cause the mortgages on its line of road, &c., to be foreclosed, and its entire property, real and personal, sold, so that the purchaser shall be able to transfer a perfect and unincumbered title,' &c., fulfils the same office as the deed covenanting to suffer a recovery and declaring its uses, while the formal foreclosure proceedings answer exactly to the recovery itself.

It is said by appellants' counsel that the contract of sale was void, because the Mississippi and Missouri Railroad Company had no power, under its articles of incorporation, to sell the road without the assent of two-thirds of its stockholders.

But it is in fact unimportant whether the transaction of the sale and agreement to divide the proceeds thereof were the result of regular and formal corporate action on the part of the Mississippi and Missouri Railroad Company, or not. If the officers of a corporation see fit to turn over the control of its affairs and property to an outside caucus of its stockholders, and the agents thereby appointed, and permit such irregular agencies in fact to dispose of its assets, the rights of its creditors are just the same in the proceeds realized as though the sale had been regularly ordered at a corporate meeting and formally entered on the corporate records. No distinction, for the present purpose, can be taken between the stockholders and the corporation. The stockholders constitute, collectively, the corporation. They control its action; and whether they do so in a regular way, or undertake and are permitted to do it in an irregular one, can make no difference as to the rights of creditors to compel the appropriation of the corporate property, or its avails, to the payment of the corporate debts.

The fund in question being thus part of the proceeds of a sale of the railroad, by voluntary contract, assented to by its mortgage bondholders, and its attitude being the same as though the road had been conveyed to the new company, in consideration of the $5,500,000, directly by deed of the railroad corporation, the mortgagees joining therein, and releasing the lien of their mortgages, we may consider the main argument urged by the appellants, viz., that the fund was never, in favor of creditors, part of the assets of the corporation, but was the absolute property of its mortgage bondholders, and has been bestowed by them upon the stockholders.

We deny both branches of this proposition. We main tain (1) that this fund was never the property of the bond holders; and (2) that their agreement to relinquish their lien upon it, or rather upon the property by the sale of which it was realized, for a less sum than their whole debt, leaving this remainder, so far from being a gratuity, was made upon a perfectly adequate consideration.

The error in the argument on the other side is, that it treats the mortgagees of the railroad as its absolute owners, with full power to sell and dispose of it at their sole will and pleasure, and to do with the proceeds whatsoever seemed to them good. But they were simply creditors of the railroad company, secured by a pledge of its property; merely lienholders. The ownership, subject to the liens, was in the company. It alone could sell and convey the road, subject to the liens of the mortgagees, if without their concurrence, or free from such liens if such concurrence were obtained.

The rights and powers of the mortgagees, in respect to the property, were simply either to release their mortgages, or to foreclose them by judicial proceedings. It is said that their claims amounted to more than the road was worth, and more than the $5,500,000 realized by the sale. Whether or not they were more than the value of the road (whatever conjectures may be hazarded), no court can now judicially say; for the only test of the question recognized by the law has been rendered impossible by a public judicial sale of the road, under an actual foreclosure. But were it as asserted by the appellants, the fact could not enlarge the rights of the mortgagees to those of proprietors. And as to the $5,500,000 purchase-money, it was obtained by a sale which the mortgagees had neither the right nor the power to make without the co-operation of the railroad company; which co-operation, if given, constituted an ample consideration for any concessions which the mortgagees agreed to make in order to obtain them.

3. What, then, did these two parties, the railroad company and its mortgage bondholders, standing in these relations to each other and to the property, actually do? The bondholders in effect say to the stockholders: 'If you, who constitute and control the Mississippi and Missouri Railroad Company, will agree to sell the road to the Chicago and Rock Island Company for the $5,500,000, which they offer to give for it, and will procure the company's co-operation in the necessary steps to consummate the sale and transfer the title, with all possible despatch, we will agree, in consideration of such consent and co-operation, to receive, in full satisfaction of our bonds, so much of the purchase-money as will leave a balance of it sufficient to pay you sixteen per cent. on your stock; and will release all claim upon such balance, and let you divide it, if you choose, among yourselves.' This offer was accepted (as well it might be) by the stockholders, and the scheme was carried into effect in the manner already detailed.

In short, the company effected a compromise of its obligations to its mortgage-bondholders, and thereby saved a remnant of its property from their grasp. And this compromise was effected with the intent that the remnant thus saved, and which when released by the mortgagees became in law assets of the Mississippi and Missouri Company, should go to the stockholders. That is, the parties intended to commit a fraud upon the complainants and all other general creditors of the company.

The idea is implied in the argument on the other side, that the mortgage-bondholders have some interest in having this money go to the stockholders, and that some wrong will be done to them by giving it to the complainants. But such is not the case. The bondholders have no interest in the matter. They have received all they bargained for, viz., the proportion stipulated to be paid them on their bonds; and it is obviously wholly indifferent to them what becomes of the residue. That residue, as already shown, they agreed, on sufficient consideration, to relinquish. Their bonds were in no case to be returned to them. They were cancelled and satisfied by the completion of such sale and the payment to the receipt-holders of the agreed share of the purchase-money, as specified in their respective receipts.

We pass to the minor points.

4. If the stockholders were necessary parties, it amounts to a denial of justice; for it was impossible to make them parties. Their number was very great; their names were unknown to the complainants; and many, without doubt, resided beyond the reach of the process of the court. But on no principle were they necessary parties. Their rights and interests are doubly represented by parties brought before the court, viz., 1st, by the corporation itself, the Mississippi and Missouri Company, of which they were members; 2d, by their own committee, chosen and appointed by themselves.

5. The proposition that the receipts issued by the trust company were payable to bearer, and therefore negotiable, hardly requires refutation. A written contract is not negotiable, simply because by its terms it is to enure to the benefit of the bearer. These receipts were not negotiable. They were assignable, no doubt, and would have been so had the word 'bearer' been omitted. But assignees take them subject to every equity affecting them in the hands of the original holder.

6. The remedies at law against defaulting cities have, as is commonly known, thus far practically proved of no value in Iowa; and whether they 'are about to be crowned with success,' remains to be seen. They are, therefore, not an 'adequate remedy.' The complainants will, at all events, if the relief prayed for is granted, enjoy them by subrogation.

Mr. Justice CLIFFORD delivered the opinion of the court.

title: Railroad Company v. Howard


text: Talk:Railroad Company v. Howard

title: Talk:Railroad Company v. Howard


text:
Railroad Company v. Howard/Opinion of the Court

Subscriptions were made to the Mississippi and Missouri Railroad Company by certain municipal corporations through which the railroad was located, and the proper authorities of those municipalities issued their bonds in payment of such subscriptions to the stock of the railroad company.

Coupons were attached to the bonds providing for the payment of interest semi-annually, and the railroad company, as the immediate transferees of the bonds, guaranteed that the principal and interest of the bonds should be paid as stipulated by an instrument in writing on the back of each bond, duly executed by the proper officers of the railroad company.

Obvious purpose of that guaranty was to augment the credit of the bonds in the market, and to facilitate their sale to capitalists to raise money to construct their railroad and put it in operation. Complainants became the lawful holders for value of a large number of these bonds, and the guarantors as well as the obligors neglecting and refusing to pay the coupons as the same fell due, they brought separate suits against those parties, and recovered judgments against them respectively, as alleged in the bill of complaint.

Executions were issued as well on the judgment against the obligors of the bonds, as on the judgment against the guarantors of the same, and the return of the officer in each case was that he found no property. Prior to the date of those judgments, the railroad company had executed several mortgages of their railroad to secure the payment of their bonds, issued at different times, to the amount of seven millions of dollars, and the company had become insolvent. They had also become liable as guarantors of the municipal bonds already described, and others of like kind received and used for the same purpose, to the amount of three hundred thousand dollars, the payment of which was repudiated by the respective municipal corporations, by whose officers the bonds were issued.

Unable to pay the debts of the company, the stockholders of the same determined to sell their railroad. Arrangements were accordingly made between the stockholders and the holders of the mortgage bonds to get up the stock of the company through certain agents or trustees, and to execute and deliver to the several holders of those bonds and to the owners of the stock of the company, certificates of the amounts that they respectively would be entitled to receive under a distribution of the consideration of the proposed sale. Amount of the consideration, as assumed in the arrangement, was five millions five hundred thousand dollars, and the terms of the arrangement were that the consideration should be distributed among the parties interested therein, according to a prescribed scale as set forth in the bill of complaint.

By that scale of distribution sixteen per cent. of the amount, to wit, five hundred and fifty-two thousand four hundred dollars were to be paid to the owners of the capital stock, but none of the stipulations in the arrangement made any provision for the payment of the bonds or coupons belonging to the complainants. Authorized to carry the arrangement into effect, the proper agents of the company offered to sell the entire property of the railroad to the Chicago and Rock Island Railroad, and the latter company, on the first day of November, 1865, accepted the proposition, and the parties entered into written stipulations upon the subject.

Those proposing to sell agreed that they would, with all possible despatch, cause the mortgages on the railroad to be foreclosed, and that the entire property of the company, real and personal, should be sold and conveyed to trustees, and that the same should be transferred to such incorporated company in that State as the other contracting party should designate as the purchaser of the property, if such designation was made within the time therein prescribed.

By the terms of the agreement the Chicago and Rock Island Railroad Company agreed to cause to be incorporated in that State a company which should make the purchase, as proposed, for the sum of five million five hundred thousand dollars, and complete the railroad to the place therein mentioned, and the other party stipulated that the purchaser at the foreclosure sale should convey the railroad to the new company for that consideration. Pursuant to that agreement the mortgages were foreclosed, and the new company, to wit, the Chicago, Rock Island, and Pacific Railroad Company, was created under the general laws of the State, and the entire property of the railroad was sold at the foreclosure sale, and the purchasers conveyed the same to the new company as stipulated in the agreement. All the stockholders in the old company became thereby entitled, as against all those who joined with them in negotiating the sale, to a pro rata share in the sixteen per cent. of the consideration reserved to their use under the scale of distribution prescribed in that arrangement.

Statement of the bill of complaint is, that the new company is ready to pay that amount to the stockholders of the old company, and the complainants contend that the facts herein recited show that they are entitled to have their whole debt paid before any portion of the fund derived from that sale shall go to the stockholders of the old company, which is insolvent, and will become extinct when that arrangement is fully carried into effect.

Views of the complainants were sustained in the court below, where it was ordered, adjudged, and decreed, that the complainants and the other parties who were duly admitted as such, and joined in the prosecution of the suit, were entitled, as creditors of the railroad company, to so much of the purchase-money as was agreed between the parties, and intended to be reserved and distributed among the stockholders of the company, and from that decree, as more fully set forth in the record, the respondents appealed.

I. Equity regards the property of a corporation as held in trust for the payment of the debts of the corporation, and recognizes the right of creditors to pursue it into whosesoever possession it may be transferred, unless it has passed into the hands of a bon a fide purchaser; and the rule is well settled that stockholders are not entitled to any share of the capital stock nor to any dividend of the profits until all the debts of the corporation are paid.

Assets derived from the sale of the capital stock of the corporation, or of its property, become, as respects creditors, the substitutes for the things sold, and as such they are subject to the same liabilities and restrictions as the things sold were before the sale, and while they remained in the possession of the corporation. Even the sale of the entire capital stock of the company and the division of the proceeds of the sale among the stockholders will not defeat the trust nor impair the remedy of the creditors, if any debts remain unpaid, as the creditors in that event may pursue the consideration of the sale in the hands of the respective stockholders, and compel each one, to the extent of the fund, to contribute pro rata towards the payment of their debts out of the moneys so received and in their hands.

Valid contracts made by a corporation survive even its dissolution by voluntary surrender or sale of its corporate franchises, and the creditors of the corporation, notwithstanding such surrender or sale, may still enforce their claims against the property of the corporation as if no such surrender or sale had taken place. Moneys derived from the sale and transfer of the franchises and capital stock of an incorporated company are assets of the corporation, and as such constitute a fund for the payment of its debts, and if held by the corporation itself, and so invested as to be subject to legal process, the fund may be levied on by such process; but if the fund has been distributed among the stockholders, or passed into the hands of other than bon a fide creditors or purchasers, leaving any debts of the corporation unpaid, the established rule in equity is, that such holders take the fund charged with the trust in favor of creditors, which a court of equity will enforce, and compel the application of the same to the satisfaction of their debts.

Regarded as the trustee of the corporate fund, the corporation is bound to administer the same in good faith for the benefit of creditors and stockholders, and all others interested in its pecuniary affairs, and any one receiving any portion of the fund by voluntary transfer, or without consideration, may be compelled to account to those for whose use the fund is held. Creditors are preferred to stockholders on account of the peculiar trust in their favor, and because the latter, as constituent members of the corporate body, are regarded as sustaining, in that aspect, the same relation to the former as that sustained by the corporation.

None of these principles are directly controverted by the appellants; but they deny that the sixteen per cent. agreed to be paid to the stockholders belonged to the corporation.

Claim of the complainants to the fund in controversy rests mainly upon two propositions, which present mixed questions of law and fact:

1. That they are creditors of the railroad company, as evidenced by the judgments set forth in the record.

2. That the fund in question was assets of the railroad company.

Authority of the municipal corporations to issue the bonds purchased by the complainants is not denied; but the appellants contend that the railroad company had no power to guarantee their payment, and they also deny that the railroad company had any title or interest in the fund in controversy. On the contrary, they insist that it was a concession made by the holders of the mortgage bonds to the stockholders as a 'gratuitous favor' to save them from a total loss, and to induce them not to interpose any obstacles in the way of a speedy foreclosure of the several mortgages.

Express allegation of the bill of complaint is, that the bonds issued by the municipal corporations were received by the railroad company in payment for subscriptions to the stock of the company, and that the corporation, as the holders of the same, guaranteed their payment and sold them in the market, and the stipulation of the parties is, that all the allegations of the bill of complaint not denied in the answer are to be considered as admitted. Apart, therefore, from the effect of the judgments, those allegations must be taken to be true, as they were not denied in the answer.

Power to make contracts, and acquire and transfer property, is conferred upon such corporations, by the laws of the State, to the same extent as that enjoyed by individuals; and the record shows, to the entire satisfaction of the court, that the instrument of guaranty was executed and the bonds sold in the market as the means of raising money to construct the railroad and put it in operation.

Counties and cities may issue bonds under the laws of that State in aid of such improvements; and railway companies are expressly authorized to receive such securities in payment of subscriptions to their capital stock, and to sell the bonds in the market for such discount as they think proper.

Abundant proof exists in this record, that railway companies may issue their own bonds to raise money to carry into effect the purposes for which they were created; and it is difficult to see why they may not guarantee the payment of such bonds as they have lawfully received from cities and counties, and put them upon the market instead of their own, as the means of accomplishing the same end. Undoubtedly they may receive such bonds under the laws of the State, and if they may receive them, they may transfer them to others; and if they may transfer them to purchasers, they may, if they deem it expedient, guarantee their payment as the means of augmenting their credit in the market, and saving the corporation from the necessity of issuing their own bonds to accomplish the same purpose.

Considered, therefore, as an open question, the court is of the opinion that the objection is without merit. Private corporations may borrow money, or become parties to negotiable paper in the transaction of their legitimate business, unless expressly prohibited; and until the contrary is shown, the legal presumption is that their acts in that behalf were done in the regular course of their authorized business.

Railroad companies are responsible in their corporate capacity for acts done by their agents, either ex contractu or ex delicto, in the course of their business and within the scope of the agent's authority.

Corporations as much as individuals are bound to good faith and fair dealing, and the rule is well settled that they cannot, by their acts, representations, or silence, involve others in onerous engagements and then turn round and disavow their acts and defeat the just expectations which their own conduct has superinduced.

Tested by any view of the evidence, it is quite clear that the corporation possessed the power to execute the instruments of guaranty appearing on the back of the bonds, and the necessary consequence of that conclusion is that on the default of payment they became liable to the holders of the same to the same extent as the obligors.

Present suit is not one against stockholders to compel them to pay a corporate debt out of their own estate, but it is a suit against the corporation and certain other parties holding or claiming assets which belong to the principal respondent, to prevent that fund from being distributed among the stockholders of the corporation before the debts due to the complainants are paid. Viewed in that light, it is obvious that the stockholders are precluded by the judgment from denying the validity of the instruments of guaranty, and that the judgments are conclusive as to the indebtedness of the corporation.

II. Second defence is that the fund in question did not belong to the corporation, as contended by the appellees. Extended discussion of that proposition is not necessary, as the evidence in the record affords the means of demonstration that it is not correct. Mortgage bondholders had a lien upon the property of the corporation embraced in their mortgages, and the corporation having neglected and refused to pay the bonds, they had a right to institute proceedings to foreclose the mortgages, but the equity of redemption remained in the corporation. Subject to their lien, the property of the railroad was in the mortgagors, and whatever interest remained after the lien of the mortgages was discharged belonged to the corporation, and as the property of the corporation when the bonds were discharged, it became a fund in trust for the benefit of their creditors. Holders of bonds secured by mortgage as in this case, may exact the whole amount of the bonds, principal and interest, or they may, if they see fit, accept a percentage as a compromise in full discharge of their respective claims, but whenever their lien is legally discharged, the property embraced in the mortgage, or whatever remains of it, belongs to the corporation.

Conceded fact is that the property and franchises of the railroad were sold for the consideration specified in the record, and that the mortgage bondholders discharged their lien for eighty-four per cent. of that amount, and that the residue of the purchase-money remained in the hands of the purchaser discharged of the lien created by the mortgages, and the complainants contend that it was clear of all liens, except that of the creditors. Such a corporation cannot be said to own anything separate from the stockholders, unless it be the tangible property of the company and the franchises conferred by the charter, and it is conceded by both parties that the fund in question was derived from a voluntary sale and transfer of those identical interests. They were heavily incumbered by mortgages, and our attention is called to the fact that the provisional arrangement was negotiated by the stockholders and bondholders; but the decisive answer to that suggestion is, that the two railroad companies were parties to the subsequent contract of sale, and that they both agreed to all the terms of sale and purchase, and to the mode of transferring and of perfecting the title. Prompt payment was secured by the bondholders, and it is highly probable that they received under that arrangement a larger portion of their claims than they could have obtained in any other way.

Another suggestion of the appellants is that the contract of sale was unauthorized, but the suggestion is entitled to no weight, as the contract was ultimately carried into effect by the consent or subsequent ratification of all parties interested in the subject-matter of the sale.

Next objection is that there is such a want of parties that a court of equity cannot grant the relief as prayed. Principal suggestion in support of this proposition is that the stockholders should have been made parties, but the court is of a different opinion, because their interest is fully represented by the parties before the court. Respondents in the suit are the two railroad companies and the committee or trustees chosen and appointed by the stockholders and bondholders through whom the provisional arrangement was perfected and the contract of sale was carried into effect. Neither the stockholders nor bondholders were necessary parties under the circumstances of this case.

Remaining objection is, that the certificates issued to the stockholders in lieu of their stock, were negotiable, and that they may be in the hands of innocent holders; but the objection is entitled to no weight, because it is based upon an erroneous theory.

Written contracts are not necessarily negotiable simply because by their terms they enure to the benefit of the bearer. Doubtless the certificates were assignable, and they would have been so if the word bearer had been omitted, but they were not negotiable instruments in the sense supposed by the appellants. Holders might transfer them, but the assignees took them subject to every equity in the hands of the original owner.

Particular mention is not made of the defence that the complainants have an adequate remedy at law, as it is utterly destitute of merit.

DECREE AFFIRMED.


text: Talk:Railroad Company v. Howard/Opinion of the Court


text:
Sheets v. Selden

ERROR to the Circuit Court for Indiana.

The State of Indiana, owning a certain canal and its adjacent lands, made two leases of its surplus water; the first being made, February, 1839, to one Yandes and a certain Sheets (this Sheets being the appellant in this case), and the other made January, 1840, to Sheets alone. Each lease was for the term of thirty years. Certain rents, payable semi-annually, on the first of May and November, were reserved; it being provided, that if any rent 'should remain unpaid for one month from the time it shall become due,' 'all the rights and privileges' of the lessees 'shall cease and determine, and any authorized agent of the State, or lessee under the State, shall have power to enter upon and take possession of the premises,' &c. The leases contained a further provision, that the lessees should not be deprived of the use of the water by any act of the State, or its agents, or by the inadequacy of the supply of water, for more than one month in the aggregate in one year; and that if, for the purposes of repairing the canal, preventing breaches, or making improvements to the canal, or the works connected with it, or the inadequacy of the supply of water, the lessees should be deprived of the use of any portion of the water-power leased, such deduction should be made from the rent accruing on such portions of the power as the lessees should be prevented from using, as would bear the same proportion to the yearly rent thereof as the time during which the lessees might have been deprived of its use bears to eleven months. In October, 1840, Sheets became owner of Yandes's interest in the lease of 1839.

The State subsequently sold so much of the canal, land, and water-power as was embraced by the two leases; and one Selden and others, on the 2d of October, 1857, became owners under this sale.

Afterwards (Sheets being in possession, under the leases, and having refused for several years to pay rent), the purchasers formally demanded, on the premises, rents falling due on the first day of May, 1860. The lessee failing to pay them, the purchasers brought, in June, 1860, an ejectment in the Circuit Court for Indiana (in which State the action of ejectment is regulated by statute, and has the same conclusiveness as common law judgments in other cases), to recover the possession of the property, as for forfeiture from non-payment of the rents reserved in the two leases. Verdict and judgment were given in their favor.

After five years had elapsed since the commencement of the ejectment, the lessee now filed a bill in equity (the suit below) to enjoin the issuing of a habere facias on the judgment in ejectment, and for a redemption of the lands from the forfeiture incurred for non-payment of rent.

The bill alleged that while the ejectment was pending, the lessees tendered to the purchasers $400, as in full for the particular rents, for the non-payment of which the forfeitures were declared, and as in full for interest thereon, and the costs of suit up to that time, and that the same was now brought into court for the purchasers if they would accept it and waive the forfeiture; but it tendered nothing for rents subsequently or previously accrued. It sought to avoid such a tender by asserting an equity to set off against all rents a demand for damages on account of alleged breaches of covenants, contained in the leases. As for—

1. Inadequacy in the supply of water, when by the use of proper efforts, an adequate supply might have been furnished.

1. Inadequacy of supply, owing to the culpable negligence and gross carelessness of the purchasers in failing to repair breaches in the canal banks, and to remove obstructions created by the growth of grass in the bottom and sides of the canal, &c., setting up the expense of repairs alleged to have been made by the lessee to render the supply adequate.

3. Not prohibiting lessees under subsequent leases from drawing off needed water from the mill of the original lessee to supply their own.

The claim of reductions of the rents owing to failure of water were from the 2d October, 1852, when the title of the purchasers accrued, to the 1st May, 1865, when the last instalment of rents before the filing of the bill came due, and amounted to $2649. The rents during the same term amounted to $4500.

The lessee alleged as an excuse for not paying the rents on one of the leases, that he had abandoned that lease, and that the purchaser under the State acquiesced, and that the title so became vested in them by reverter, and declined to redeem that lease from forfeiture. While thus declining to redeem that lease, his bill sought to enjoin the whole judgment.

The defendants demurred; and the court sustained the demurrer; giving leave to the complainant to amend his bill on tender of all the rent, with interest on it that had accrued on both leases since the bringing of the ejectment, which sums the court found to be, on one lease $4494.50, and on the other $2247.25. The complainant refusing to amend on such terms, judgment was given on the demurrer against him, and he brought the case here.

Mr. Barbour (a brief of Mr. Morrison being filed), for the appellant:

1. Assuming, as we have the right to assume (the case being on a demurrer), that the facts alleged in the bill of complaint are true, the permission to amend was clogged by an onerous and inequitable condition. The suit in ejectment embraced premises covered by two several and independent leases, executed on different days, and to different parties, one of them to Yandes and the appellant, the other to the appellant alone; and yet the court ruled, that the two, for all the purposes of this suit, were one and indivisible, and that therefore, an ample tender, for the purpose of redeeming either one of them, would be of no avail, unless it should be sufficient to cover the other one also. In this there was error. The appellant had the right to pay the sum demanded for the quarter's rent of the premises held under the first lease, had he elected to do so. And if he had done this, the appellees could have declared no forfeiture as to that lease. The demands were separate and distinct acts, for distinct sums. The appellant had the right to save either premises, and let the other go, if it pleased him.

Even if the bill of complaint did not show a case that should entirely and fully absolve Sheets from all his obligations under the lease to himself, still its defects, in that regard, cannot affect so fatally the other lease.

2. The bill, as to the lease not surrendered, contains sufficient equity to entitle the appellant to be rel eved as to it. The court below assumed that the lessees could claim nothing by way of set-off, or recoupment, for any damages or injury sustained by them, consequent upon the failure to supply water, except an abatement of rents for such time as they might have been deprived of the specified supply, beyond one month in each year.

The assumption is unwarranted, unless it is shown that the appellee had used some diligence to furnish the requisite supply. But the bill avers and the demurrer admits that the appellant was deprived of the water-power by the culpable carelessness and gross negligence of the appellee.

If these averments would not entitle the appellant to damages against the appellee, as well as to an abatement of rents, then the latter would not be liable, had he cut the canal banks, and thereby deprived the appellant eleven months in the year.

The demise of the water-power and the land is equivalent to a covenant that the water shall be supplied. No particular words are necessary to constitute a covenant in a lease. It is sufficient if it be such as to show the intention of the party to bind himself to the performance of the matter stipulated for; and when covenants exist they are to be construed according to the apparent intention of the parties, looking to the whole instrument, and to the context, and the reasonable sense and construction of the words; so that a covenant is broken if the intention is not carried out.

The general rule, that unliquidated damages cannot be set off or recouped in an action at law, is admitted; but the rule does not hold in equity, which is independent of statutes of set-off; and, besides, this being a suit in equity, the court will see to it, that the decision shall settle the mutual rights of the parties, fully and completely.

Mr. T. A. Hendricks, contra.

Mr. Justice SWAYNE delivered the opinion of the court.

title: Sheets v. Selden


text: Talk:Sheets v. Selden

title: Talk:Sheets v. Selden