text:
Scovill v. Thayer

ERROR to the Circuit Court of the United States for the District of Massachusetts.

On Nov. 25, 1870, the Fort Scott Coal and Mining Company was organized as a corporate body under the General Laws of the State of Kansas, with a capital stock of $100,000.

According to the laws of that State, any corporation might increase its capital stock to any amount not exceeding double its authorized capital.

Under the provision of this law the corporation, on April 19, 1871, increased its capital stock from $100,000 to $200,000. On Oct. 16, 1872, the corporation attempted, by taking the steps required by law for the lawful increase of stock, to increase its capital stock to $300,000, and on Dec. 27, 1872, to make a further increase of $100,000. The nominal capital was thus raised to the sum of $400,000.

Nathaniel Thayer, the defendant in error, who was a holder of shares in the company, attended by proxy the meetings of the stockholders at which the third and fourth issues of stock were voted. After this attempted increase of the stock, the officers and agents of the company, by advertisements, billheads, and verbally, represented that its capital stock was $400,000.

Thayer was the holder of two hundred and eighty-five shares of the first two issues of stock. On two hundred of these shares he had paid to the company $20 per share, and on the remaining eighty-five he had paid $40 per share. He was also the holder of five hundred and eighty-five shares of the third and fourth issues, upon which he had paid the company $50 per share. No other payments were ever made by him on his shares of stock.

The other stockholders paid the same amounts on the shares of stock of the several issues held by them respectively. By agreement made at the date of the several issues of stock the amounts paid thereon were credited to the subscribers, and the balance unpaid credited by 'discount,' and certificates as for full-paid shares were delivered to the subscribers, and the stock account between the company and them balanced by such 'discount.'

On April 2, 1874, a petition in bankruptcy was filed against the company in the United States District Court for the District of Kansas. The company was adjudicated a bankrupt on the eleventh, and the plaintiffs in error were appointed its assignees on the twenty-ninth day of that month. On March 31, 1876, the assignees filed their petition in that court, wherein they prayed for an order directing them to make an assessment and call upon the unpaid stock of the company for the purpose of paying its debts.

In their petition the assignees represented as follows: 'At the date of adjudication in bankruptcy the affairs of said company were in a very embarrassed and complicated condition, and much time has been necessarily consumed and considerable expense incurred in opposing claims attempted to be established in said bankrupt court for failures on the part of said company to comply with contracts made by it. Many fraudulent claims for large amounts have been filed against said bankrupt, requiring time to oppose and defeat, which have been defeated. The litigated claims are now reduced to a small number, not covering more than ten thousand six hundred and one dollars and eighty cents. The property of the company on hand at the date of adjudication in bankruptcy has been disposed of as rapidly as seemed conducive to the interests of all concerned. The sale of a portion of the real estate has been delayed in the hope that the demand for land would increase, and your petitioners realize something out of it for the benefit of the creditors. Your petitioners believe, however, that any further delay in the disposal of the bankrupt's property would not be advantageous.

'Your petitioners had intended before making this application to have fully closed up the contest over litigated claims, disposed of assets of the company, and collected all its bills receivable, but find it is impossible to accomplish it without a longer postponement than is convenient or expedient.'

The petition further averred that 'the amount of the liabilities of the bankrupt over and above the assets is $124,684, while the amount yet due and unpaid on the stock held and owned by said stockholders is $222,650.'

By an amendment to their petition, the assignees represented as follows: 'That an assessment of seventy-six per cent upon the par value of each share of stock in said company, if credited with the amount paid each stockholder heretofore, would equalize the burden upon the stockholders, and also bring into the hands of your petitioners a sufficient amount to pay the debts of the company.'

Upon the filing of this petition, the court made an order that all the stockholders of the bankrupt company show cause on April 21, 1876, why the assessment and call prayed for in said petition should not be made, and that the assignees cause a copy of the order to show cause to be mailed to each stockholder at his usual place of residence and address, and also give notice by publication in the 'Fort Scott Daily Monitor,' for at least ten days before the said April 21, 1876.

By order of the court, the hearing of the rule was postponed to June 10, 1876. R. S. Watson, a stockholder, had in the mean time filed exceptions to the rule, on behalf of himself and all other stockholders desiring to avail themselves thereof. On the date last named, the petition and amended petition of the assignees, and the exceptions thereto, came on for hearing, whereupon the court overruled the exceptions, and decreed that an assessment and call be made upon the stock of the company of seventy-six per cent, upon which should be credited to each stockholder any sums paid by him on his shares, and that the sum so assessed should be paid to the assignees on or before Aug. 1, 1876, and in default of payment they were directed to sue for and collect the same.

On July 17, 1876, the assignees made an assessment and call as authorized by the order and decree of the District Court, and gave notice thereof to the stockholders; but before the assessment could be collected, Watson, the stockholder before mentioned, filed with the circuit judge a petition for the reversal of the order and decree of the District Court authorizing the assessment and call.

It does not appear from the record upon what day this petition was filed. But on Dec. 4, 1876, the decision of the circuit judge thereon was transmitted to the District Court, affirming its decree, 'with this modification: that the said District Court enter an order allowing each stockholder of said bankrupt company who shall pay the amount of said assessment on his stock in ninety days from this twenty-ninth day of November, 1876, a credit on his or her proportion of the amount so assessed as was included in said assessment for the purpose of paying the costs of enforcing by suit the collection of said assessment.'

The District Court, on Dec. 4, 1876, entered a decree in conformity with the order of the circuit judge.

Thayer having failed to pay within the time limited by the court the assessment made upon him on account of his stock, although served with notice to do so, the assignees, on April 9, 1877, brought against him, in the Circuit Court of the United States for the District of Massachusetts, an action at law to recover the sum of $27,160, the amount of the assessment on his unpaid stock.

The declaration alleged in substance the facts above recited.

The defendant filed two pleas, the first of which was a general denial of the allegations of the declaration, and the second set up the limitation of two years prescribed by sect. 2 of the act of March 2, 1867, c. 176, and now embodied in the Revised Statutes as sect. 5057.

The case was submitted to the Circuit Court upon an agreed statement of facts. The court found for the defendant, holding, in an opinion which appears in the record, that the cause of action was barred by the limitation of two years pleaded. Judgment was, therefore, rendered for him. The plaintiffs below brought the case here, and assign for error the ruling upon the Statute of Limitations and the rendition of the judgment for defendant.

Mr. J. E. McKeighan and Mr. A. A. Ranney for the plaintiffs in error.

Mr. Sidney Bartlett, Mr. William G. Russell, and Mr. George Putnam for the defendant in error.

MR. JUSTICE WOODS, after stating the case, delivered the opinion of the court.

title: Scovill v. Thayer


text: Talk:Scovill v. Thayer

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title: Talk:Scovill v. Thayer


text:
Scovill v. Thayer/Opinion of the Court

The averments made in the declaration were substantially supported by the agreed statement, and there should have been judgment thereon for the plaintiffs, unless, upon the facts as disclosed, they were shown not to be entitled to a recovery on the merits, or unless the Statute of Limitations was a bar to the action.

The defendant insists, first, that the third and fourth issues of stock, which were made after the limit had been reached, within which the amount of capital stock of the company was restricted by the laws of Kansas, were absolutely void, and no assessment could be made on them which he was bound to pay; secondly, that the sums voluntarily paid by him upon his void stock should be applied to the payment of the balance due on his valid stock, and that when so applied they would fully satisfy the assessment thereon; and, thirdly, that in any event the facts sustained the plea of the Statute of Limitations. We shall consider these contentions in the order stated.

The Constitution of Kansas forbids special charters. Art. 12, sect. 1. All corporations in that State are, therefore, organized under general laws. The Fort Scott Coal and Mining Company was organized under the general law of the State, which, with its articles of incorporation, that were required to be filed with the secretary of state, constituted its charter. By those articles the original stock of the company was fixed at $100,000. Chap. 23, sect. 14, of the Statutes of Kansas provides that 'any incorporation may increase its capital stock to any amount not exceeding double the amount of its authorized capital.' The second issue increased the stock to $200,000, which was the limit prescribed by the charter. The question, therefore, is whether the stock of the third and fourth issues, by which the aggregate amount was raised to $400,000, is or is not void.

As a general rule, corporations can have and exercise only such powers as are expressly conferred on them by the act of incorporation, and such implied powers as are necessary to enable them to perform their prescribed duties. Fertilizing Company v. Hyde Park, 97 U.S. 659; Salomons v. Laing, 12 Beav. 339; Eastern Counties Railway v. Hawkes, 5 H. L. Cas. 331.

And it is well settled that a corporation has no implied power to change the amount of its capital as prescribed in its charter, and that all attempts to do so are void. Mechanics' Bank v. New York & New Haven Railroad Co., 13 N. Y. 599; New York & New Haven Railroad Co. v. Schuyler, 34 id. 30; Railway Company v. Allerton, 18 Wall. 233; Stace & Worth's Case, Law Rep. 4 Ch. App. 682, note.

In this case the attempt to increase the stock of the company beyond the limit fixed by its charter was ultra vires. The increased stock itself was, therefore, void. It conferred on the holders no rights and subjected them to no liabilities. If the stock of the first and second issues had been held by one set of holders, and the stock of the third and fourth by another, in a contest between them the latter would have been excluded from all participation in the management of the company or in its profits. To decide that the holders of stock issued ultra vires have the same rights as the holders of authorized stock, is to ignore and override the limitations and prohibitions of the charter. We think it follows that if the holder of such spurious stock has none of the rights, he can be subjected to none of the liabilities of a holder of genuine stock. His contract to pay for spurious shares is without consideration and cannot be enforced.

It is insisted, however, that the defendant having attended by proxy the meetings at which the increase of the stock beyond the limit imposed by law was voted for, and having received certificates for the stock thus voted for, and after such increase the company by its agents having held itself out as possessing a capital of $400,000, and invited and obtained credit on the faith of such representations, he is now estopped from denying the validity of the stock and his obligation to pay for it in full.

We think that he is not estopped to set up the nullity of the unauthorized stock. It is true that it has been held by this court that a stockholder dannot set up informalities in the issue of stock which the corporation had the power to create. Upton v. Tribilcock, 91, U.S. 45; Chubb v. Upton, 95 id. 665; Pullman v. Upton, 96 id. 328. But those were cases where the increase of the stock was authorized by law. The increase itself was legal and within the power of the corporation, but there were simply informalities in the steps taken to effect the increase. These, it was held, were cured by the acts and acquiescence of the defendant.

But here, the corporation being absolutely without power to increase its stock above a certain limit, the acquiescence of the shareholder can neither give it validity, nor bind him or the corporation. 'A distinction must be made between shares which the company had no power to issue and shares which the company had power to issue, although not in the manner in which, or upon the terms upon which, they have been issued. The holders of shares which the company has no power to issue, in truth had nothing at all, and are not contributors.' 2 Lindley, Partnership, 138. And see Lathrop v. Kneeland, 46 Barb. (N. Y.) 432; Mackley's Case, 1 Ch. D. 247.

In Stace & Worth's Case (supra) it appeared that there was an agreement for the amalgamation of the London Northern Insurance Corporation and the Life Investment Mortgage Insurance Company, the two corporations to be formed into one, under the name of the corporation first mentioned. The corporation was to issue shares in exchange for those held in the company, and the amalgamated board was to consist of the five directors of the corporation, and of seven of the directors of the company, to be selected by themselves. After the amalgamation Stace and Worth, it was alleged, received and accepted certificates for shares in the corporation in exchange for their shares in the company, and they with five others were appointed directors of the corporation. Afterwards a resolution was passed for voluntarily winding up the corporation, and the names of Stace and Worth were placed upon the list of contributors. An application to have their names removed from the list was made to Vice-Chancellor James, who, after hearing the case argued, directed their names to be removed. This was done on the ground that the agreement for amalgamation was beyond the powers of the corporation, and, therefore, void. In giving the reasons for his decision he said: 'It is, however, contended that notwithstanding the agreement itself was ultra vires and void, yet there are personal acts and things personally affecting these two gentlemen which render them still liable as shareholders.' These were the acceptance of shares by Stace and Worth, the fact that their names appeared on the register of shareholders, and that they had sat as directors of the corporation after the attempted amalgamation. But he declared: 'This was a void agreement with a void acting upon it, a void recognition, and a void ratification by the acts which have been mentioned. It comes to an aggregate of nothings, and that aggregate of nothings is all that there is to fix those gentlemen on the list of stockholders.'

So in Zabriskie v. Cleveland, Columbus, & Cincinnati Railroad Co. (23 How. 381), this court, after holding the railroad company to be liable on certain bonds which it was alleged had been indorsed by the directors without lawful authority, added: 'This principle does not impugn the doctrine that a corporation cannot vary from the object of its creation, and that persons dealing with a company must take notice of whatever is contained in the law of its organization.'

Upon the principles stated in these authorities, we are of opinion that the defendant is not estopped by any acts of his, to assert the invalidity of the stock issued in excess of the limit authorized by the charter, and to deny his liability thereon.

It would seem to follow that if he is not estopped by his own acts, he is not by the acts of the agents of the Fort Scott Coal and Mining Company, in representing the company, by advertisements and otherwise, as having a capital of $400,000.

The officers of the company had no authority to make these representations, and the public no right to trust them. Persons dealing with the managers of a corporation must take notice of the limitations imposed upon their authority by the act of incorporation. Zabriskie v. The Cleveland, Columbus, & Cincinnati Railroad Co., supra. The laws secured to the public and the creditors an infallible mode of ascertaining the real capital of the company. They were bound to know that the law permitted no such increase of its capital stock as the company had attempted to make, and that any representation that it had been made was false.

As forcibly suggested by counsel, a creditor, who has been defrauded by misrepresentation of the real capital of the company, has his remedy in an action of tort against all who participated in the fraud. But the wrong done to him cannot entitle the entire body of creditors, who have not suffered from the alleged fraud, to recover of the entire body of stockholders, who have taken no part in it.

We are of opinion, therefore, that the defendant is not estopped by the acts of the agents and officers of the company to allege the nullity of the overissue stock, and his nonliability to an assessment on such void stock.

The next question for our consideration is whether he is entitled to offset against his liability to pay the sum due on his valid stock, the money paid on his void stock.

It is a general rule that a holder of claims against an insolvent corporation cannot set them off against his liability for an assessment on his stock in the corporation in a suit by an assignee in bankruptcy. Sawyer v. Hoag, 17 Wall. 610; Sanger v. Upton, 91 U.S. 56; Scammon v. Kimball, 92 id. 362; County of Morgan v. Allen, 103 id. 498.

The ground upon which this rule stands is thus stated by Mr. Justice Miller in Sawyer v. Hoag: 'The debt which the appellant owed for his stock was a trust fund devoted to the payment of all the creditors of the company. As soon as the company became insolvent, and this fact became known to the appellant, the right of set-off for an ordinary debt to its full amount ceased. It became a fund belonging in equity to all its creditors, and could not be appropriated by the debtor to the exclusive payment of his own claim.'

The defendant seeks to avoid the application of this rule to his case, on the ground that the real capital of the company was only $200,000, and this constituted the trust fund for the security of the debts of the company; that all the money that had been paid in as capital stock had been paid into that fund, and that the party paying any money to that fund was entitled to credit upon his dues thereto.

We cannot assent to this view. He was as much bound to know the limits of the charter of the company in which he was a stockholder, as the public or creditors of the company. He knew, therefore, that all stock issued beyond the limit fixed by the charter was absolutely void. When he paid in his money on the void stock, he knew that he was not paying it on the valid stock, and he is presumed to have known that it was not a good payment on the valid stock. The company had no right to apply it on the valid stock, without his direction. He never directed such application, and it remained in the possession of the company until the rights of the assignees in bankruptcy attached. To say that it was a contribution to the trust fund devoted to the payment of the creditors of the company is an entire misapprehension. It could not be such contribution unless it were a payment on the stock, and this, we have seen, was not the case. No call had been made for payment on the valid stock, to which the amounts paid on the void stock could be said to apply. No call could have been made by the company under its agreement with the stockholders, unless to pay its creditors, and it does not appear that when the payments were made the company had any creditors. It was a voluntary payment for the benefit of the company, and tended to increase the value of the authorized stock. In that way the stockholder got the benefit of it. There is no rule of law or equity which entitles him, in a contest between himself and a creditor of the company, either to receive a credit for it on his unpaid stock, or to have it repaid to him pro rata out of the assets of the company. We are of opinion, therefore, that it could not be offset against the money due on the valid stock held by him.

We are next to consider whether, upon the facts as disclosed by the record, the defence of the Statute of Limitations should have been sustained. The precise question with which we have to deal is, When would this action at law, brought by the assignees of the bankrupt company against a stockholder, to recover a part of the balance due on his stock, be barred by the statute?

This will depend on the answer to the question, When did the cause of action accrue to the assignees? In other words, When could they have commenced this action against this defendant to recover the amount due on his stock? Wilcox v. Plummer's Ex'rs, 4 Pet. 172; Amy v. Dubuque, 98 U.S. 470.

The stock held by the defendant was evidenced by certificates of full-paid shares. It is conceded to have been the contract between him and the company that he should never be called upon to pay any further assessments upon it. The same contract was made with all the other shareholders, and the fact was known to all. As between them and the company this was a perfectly valid agreement. It was not forbidden by the charter or by any law or public policy, and as between the company and the stockholders was just as binding as if it had been expressly authorized by the charter.

If the company, for the purpose of increasing its business, had called upon the stockholders to pay up that part of their stock, which had been satisfied 'by discount' according to their contract, they could have successfully resisted such a demand. No suit could have been maintained by the company to collect the unpaid stock for such a purpose. The shares were issued as full paid, on a fair understanding, and that bound the company.

In fact, it has been held in recent English cases that not only is the company but its creditors also are bound by such a contract. Waterhouse v. Jamieson, Law Rep. 2 H. L. (Sc.) 29; Currie's Case, 3 De G., J. & S. 367; Carling, Hespeler, and Walsh's Cases, 1 Ch. D. 115.

But the doctrine of this court is, that such a contract, though binding on the company, is a fraud in law on its creditors, which they can set aside; that when their rights intervene and their claims are to be satisfied, the stockholders can be required to pay their stock in full. Sawyer v. Hoag, Assignee, 17 Wall. 610; New Albany v. Burke, 11 id. 96; Burke v. Smith, 16 id. 390.

The reason is, that the stock subscribed is considered in equity as a trust fund for the payment of creditors. Wood v. Dummer, 3 Mas. 308; Mumma v. Potomac Co., 8 Pet. 281; Ogilvie v. Knox Insurance Co., 22 How. 387; Sawyer v. Hoag, supra. It is so held out to the public, who have no means of knowing the private contracts made between the corporation and its stockholders. The creditor has, therefore, the right to presume that the stock subscribed has been or will be paid up, and if it is not, a court of equity will at his instance require it to be paid.

In this case the managers and agents of the bankrupt company had in effect represented to the public that all its capital stock had been subscribed for, and had been or would be paid in full. Considered, therefore, in the view of a court of equity, the contract between the company and its stockholders was this, namely, that the stockholders should pay, say, for example, twenty dollars per share on their stock and no more, unless it became necessary to pay more to satisfy the creditors of the company, and when the necessity arose and the amount required was ascertained, then to make such additional payment on the stock as the satisfaction of the claims of creditors required.

When the company was adjudicated a bankrupt, the assignees were bound by this contract, thus equitably construed. Their duty was to collect a sufficient sum upon the unpaid stock, which, with the other assets of the company, would be sufficient to satisfy the company's creditors. They were authorized to collect no more. If it should turn out that the other assets were sufficient, no action would lie against the stockholder for the balance due on his stock. For if in a bankruptcy proceeding any surplue remained after payment of debts, it would go to the company and not to the stockholders. And we have seen that the company in this case would have no right to any surplus.

The question for solution is, therefore, When, under the facts of this case, did the cause of action accrue against the defendant in error? Certainly not until it became his duty to pay according to the terms of his contract or according to law.

It is well settled that when stock is subscribed to be paid upon call of the company, and the company refuses or neglects to make the call, a court of equity may itself make the call, if the interests of the creditors require it. The court will do what it is the duty of the company to do. Curry v. Woodward, 53 Ala. 371; Robinson v. Bank of Darien, &c., 18 Ga. 65; Ward v. Griswoldville Manufacturing Co., 16 Conn. 593. But under such circumstances, before there is any obligation upon the stockholder to pay without an assessment and call by the company, there must be some order of a court of competent jurisdiction, or, at the very least, some authorized demand upon him for payment. And it is clear the Statute of Limitations does not begin to run in his favor until such order or demand. Van Hook v. Whitlock, 3 Paige (N. Y. ), 409; Salisbury v. Black's Adm'r, 6 Har. & J. (Md.) 293; Sinkler v. The Turnpike Company, 3 Pa. 149; Walter v. Walter, 1 Whart. (Pa.) 292; Quigg v. Kittredge, 18 N. H. 137; Nimmo v. Walker, 14 La. Ann. 581.

In this case there was no obligation resting on the stockholder to pay at all until some authorized demand in behalf of creditors was made for payment. The defendant owed the creditors nothing, and he owed the company nothing save such unpaid portion of his stock as might be necessary to satisfy the claims of the creditors. Upon the bankruptcy of the company his obligation was to pay to the assigness, upon demand, such an amount upon his unpaid stock as would be sufficient, with the other assets of the company, to pay its debts. He was under no obligation to pay any more, and he was under no obligation to pay anything until the amount necessary for him to pay was at least approximately ascertained. Until then his obligation to pay did not become complete.

But not only was it necessary that the amount required to satisfy creditors should be ascertained, but that the agreement between the company and the stockholder to the effect that the latter should not be required to make any further payments on his stock should be set aside as in fraud of creditors. No action at law would lie to recover the unpaid balance due on the stock until this was done. The proceeding for an assessment in the bankruptcy court was in effect a proceeding to accomplish two purposes: first, to set aside the contract between the company and the stockholder; and, second, to fix the amount which he should be required to pay. Until these things were done the cause of action against the stockholder did not accrue, although his primary obligation was assumed at the time when he subscribed the stock.

It appears from the petition of the assigness for an assessment upon the stock of the bankrupt company, that they had used due diligence to ascertain what additional payments on the stock would be required to pay off the claims of creditors; that at as early a time as possible they applied to the court for an order directing that the stockholders should pay a part of the amount due on their shares of stock, and assessing the stock therefor; that the order was made accordingly, and within five months thereafter this action at law was begun to enforce its payment.

If, therefore, the right to bring this suit did not accrue to the assignees until the assessment was made upon the stock by the court, and the stockholders were required to pay it, the action was brought long before the limitation of the statute could bar it.

All the delay which has occurred has been caused by the proceedings of the assignees, taken for the benefit of the stockholders, in order that they might not be subjected to unnecessary and onerous exactions. The lapse of time between the filing of the petition for the assessment and the decree of the bankruptcy court thereon is chargeable to continuances made by order of the court and to the opposition of the stockholder referred to. It does not lie in the mouth of the defendant to say that, while the steps necessary to fix his liability and limit its amount were being taken, the bar of the statute has intervened and cut off his liability altogether.

The cases cited by the defendant to sustain his contention, that the cause of action accrued to the assignees in bankruptcy at the time of their appointment, are clearly distinguishable from this. In Terry v. Tubman (92 U.S. 156), the suit was by a bill-holder of an insolvent bank against a stockholder to enforce the individual liability of the latter to pay the bills of the bank held by the former. The court decided that the case was not so much like that of the guarantee of the collection of a debt, where a previous proceeding against the principal is implied, as it was like a guarantee of payment where resort may be had at once to the guarantor, without a previous proceeding against the principal. The conclusion of the court, therefore, was that the cause of action in favor of the bill-holder arose against the stockholder when the bank ceased to redeem its notes and became notoriously and continuously insolvent. It is clear that this authority has no application to the question in hand.

The case of Terry v. Anderson (95 U.S. 628), also relied on by the defendant, was a suit in equity to enforce the individual liability of the stockholders of a bank, and to collect unpaid subscriptions to its capital stock. There was no agreement on the part of the bank not to collect the balance due on the stock. The bank itself could have enforced payment, without regard to the necessity for its collection, to satisfy the debts of the bank. And so the court held that the Statute of Limitations began to run against the bank and its creditors, in favor of the stockholder, when the bank stopped payment.

In Baker v. Atlas Bank (9 Metc (Mass.), 182), and Commonwealth v. Cochituate Bank (3 Allen (Mass.), 42), also relied on by the defendant, it appeared that upon suspension of payment by the banks there was a present and unconditional liability of their stockholders, which the court held was barred by the limitation of six years. In the case of Baker v. Atlas Bank the court said: 'The demand sought to be enforced in this suit was a debt alleged to be due to the bank. Whenever, therefore, the bank became insolvent by the loss of its capital stock an action accrued to the bank, according to the construction of the thirtieth section (Rev. Stat., c. 36), which is contended for by plaintiff's counsel to recover the sum from the stockholders respectively, equal to each one's share of stock. The statute, therefore, began to run in strictness immediately on the loss of the capital stock, and certainly when the bank stopped payment, and after the lapse of six years from that time the debt was barred.'

But in the present case, as we have seen, there was, as between the company and its stockholders, no obligation on the part of the latter to pay the residue of their stock, unless it became necessary to satisfy creditors. We think, therefore, we are safe in saying that the statute did not begin to run in favor of the stockholders until at the very least the necessity for the payment had been ascertained, and an authorized demand of payment made.

It is said by the defendant that to hold that the suit to recover the sums due on the stock held by him is not barred would defeat the policy of the Bankrupt Act, which is a speedy settlement of the bankrupt's estate and the equitable distribution of his assets among the creditors.

Unquestionably a prompt administration of the bankrupt's assets was one of the ends which that act had in view; but theis policy must be held to be subordinate to a just regard for the rights of both the creditors and debtors of the bankrupt estate. The debtor cannot be forced to pay before his contract requires it, merely because the assignee may be in haste to close up the estate. If his obligation were evidenced by a promissory note due at a future day, he could not be compelled to pay it before maturity in order that the estate might be speedily settled. So if some act must be done by the assignee, such as a demand of payment before his liability is fixed, he cannot be compelled to pay until the prerequisites have been performed. In short, until an unconditional liability to pay something is fastened on the debtor no action can be maintained against him, and the Statute of Limitations does not begin to run in his favor. The suggestion that the assignee may postpone indefinitely the necessary steps to fix the liability of the debtor, and thus defeat the policy of the law, does not answer the proposition that the debtor cannot be sued until a cause of action has accrued against him. It is presumed that the assignee will do his duty. If he fails to do it he is subject to the order of the bankruptcy court, which, at the instance of those interested, can compel him to act.

Our opinion is, therefore, that this action at law, prosecuted by the plaintiffs, assignees in bankruptcy of the Fort Scott Coal and Mining Company, against the defendant, to recover from him the balance due on his unpaid valid stock in said company, was not barred by the limitation of two years prescribed by the Bankrupt Act.

For the error in holding that the action was barred, the judgment of the Circuit Court must be reversed, and the cause remanded with directions to award a

New trial.

MR. JUSTICE FIELD and MR. JUSTICE GRAY dissented.

title: Scovill v. Thayer/Opinion of the Court


text:
Author:Alexander Macleod Symington

Works

 * The Elder and his Friends: Christian Friendship Delineated in the Private Letters of John
 * Lectures on the Apostles of Our Lord
 * The Apostles of Our Lord: Practical Studies
 * The Last First: Sketches of Some of the Less Noted Characters of Scripture History

title: Author:Alexander Macleod Symington


text: Talk:Scovill v. Thayer/Opinion of the Court


text:
Bantz v. Frantz

APPEAL from the Circuit Court of the United States for the District of Kentucky.

On June 22, 1858, there was issued to Gideon Bantz, the appellant, who was complainant in the court below, an original patent of that date 'for an improvement in furnaces for heating steam-boilers.' On Feb. 6, 1872, Bantz obtained a reissue, and on June 22, 1872, an extension for seven years of his reissued patent.

The bill in this case was filed by him on May 4, 1876, to restrain infringement by the defendant, David Frantz, of the extended reissue.

The answer denied the novelty and utility of the invention, denied infringement, and asserted the invalidity of the reissue.

The Circuit Court dismissed the bill, and the case is brought here by the complainant.

The specification of the original patent declared:--

'The object of this invention is the more perfect combustion of tan, sawdust, bagasse, and all other kinds of refuse fuel in a wet or dry state, as well as of wood or coal. It is, however, with particular advantage to the burning of wet fuels. My invention consists in the arrangement embracing, for united use in the manner and for the purposes hereinafter specified, the following features, to wit:

'First, two or more arched fire-chambers, with throats of less area than their capacity; second, an auxiliary combustion reservoir or chamber, with cima-reversa shaped bottom and side draft-door; third, a series of reverberatory chambers, with side draft-doors and passages at top for communication with each other; and, fourth, a diving or direct flue leading into the chimney or smoke-stack.

'To enable others skilled in the art to make and use my invention, I will proceed to describe its construction and operation.

'A A are two arched fire-chambers, arranged side by side furnished with grates a a, having ash-pit B B provided below the said grates. These fire-chambers are not placed below the boiler, H, but directly in front thereof, and longitudinally therewith. They may, however, be placed at one side of the boiler or at any angle to it. Each is provided with the usual door b, but these are only used for lighting the fires; and the ash-pits are provided with doors c to regulate the supply of air through the grates, and permit the cleaning out of ashes. On the top of each chamber there are feeders d d for supplying the fuel, but as these feeders are the same as used in other furnaces, no particular description of them is necessary. The fire-chambers are covered with a flat floor built over the arches, that the fuel may be wheeled to the feeders in barrows, or brought in any other convenient manner. At the rear end of each fire-chamber there is a throat-like aperture e communicating with what I term the reservoir C, which is built of brick, lined with firebrick, under the front portion of the boiler, and which has a concave bottom m and convex back n, which are formed by a cimareversa shaped plate. By having the bottom and back of the reservoir formed by a cima-reversa shaped plate, the throat e is not partially closed up, as it would be if the plate was straight and set inclined, and, beside this, the heated products of combustion are made to hug the bottom of the boiler, and as the draft is at this point, the perfect combustion of partially ignited gases is insured. The convex back of the reservoir terminates in and serves as a bridge-wall, and has a concave top so formed as to leave a space, o, of but three or four inches between it and the boiler.

'The purpose of the reservoir will be presently explained. In rear of the bridge-wall f there is a series of reverberatory-chambers D D D, two, three, or more, one behind the other, the series extending nearly as far as the rear end of the boiler, and the said chambers being severally separated by bridge-walls, g g, and each chamber being provided with one or more doors h, in either or both sides, for the purpose of admitting air in sufficient quantities either to complete the combustion of the gases from the fire-chambers or to check the draft. The reservoir is furnished with a door h1, for a similar purpose as those h h in the reverberatory-chamber. At the rear of the hindmost reverberatory-chamber there is a wall g1, like g g, behind which there is a diving or drop flue E leading to the chimney.

'The operation of the furnace is as follows: The gaseous products of the combustion in the fire-chamber A A escape by the throats e e into the reservoir C, where they mingle together, and the combustible portion thereof becomes ignited, and where their heat acts upon the boiler, and from whence they pass into one after another of the reverberatory-chambers, in each of which a portion of their heat is abstracted by contact with a portion of the boiler, and finally they descend the flur E to the chimney. The effect of the principal portion of my improvement, which consists in the employment of the reservoir C, connected with the fire-chambers by the throats e e, of much smaller transverse area than the fire-chamber, is that the products of combustion and heat are prevented leaving the fire-chamber too rapidly, and the said chambers are conse-quently caused to be heated to an intense degree, and a very nearly perfect combustion of the fuel is obtained therein, and when the gaseous products of combustion leave the fire-chambers by the said throats and arrive in the reservoir C, the side walls and curved bottom and back of which are kept at a white heat, the still combustible portion of the gaseous products is ignited under the boiler.'

The claim was thus stated:--

'What I claim as my invention, and desire to secure by letters-patent, is: the arrangement of fire-chambers A A, contracted throats e e, auxiliary combustion-reservoir C, with the cima-reversa bridge-plate m n, and the door h1, reverberatory-chambers D D, with doors h h, and the diving or direct flue E, substantially as and for the purposes set forth.'

The description of the invention in the specification of the reissued patent is substantially the same as that in the specification of the original patent. The drawings are identical. In the reissue the invention is called 'a new and useful improvement in furnaces for burning wet fuel.' The claim is thus set forth:--

'I do not claim a furnace for burning wet fuel, broadly, nor the use of a series of fire-chambers connecting with the common flue, arranged between the furnace and the boiler, as I am well aware that this had been done before.

'Having described my invention, I claim—

'1. In a furnace for burning wet fuels, having two or more single fire-chambers not arranged under the boiler, the combustion-chamber or reservoir C, a rranged above the top of said fire-chambers, and located directly under the front end of the boiler, essentially as described.

'2. The cima-reversa bottom m n of the combustion-chamber or reservoir C, in combination with the narrow throats e of the separate fire-chambers, and the narrow exit flue o of the bridge-walls f, for the purpose essentially as described.

'In combination with the combusion-chamber or reservoir C, arranged and located as described, I claim the side door or doors h' for the admission of atmospheric air, for the purpose described.

'4. In combination with a series of fire-chambers, A, and the combustion-chamber or reservoir C, located and arranged directly beneath the front end of the boiler, and above the crown of said fire-chamber, I claim a series of reverberatory-chambers, D, provided with side-doors h, and a diving-flue, E, at the rear end of the boiler, to hold the heat beneath the same throughout its entire length, and to arrest and deaden the sparks as described.

'5. In a furnace for burning wet fuels in which the fire-chambers are not arranged under the boiler, I claim the arrangement of the boiler upon the rear wall of the furnace and the rear wall of the diving-flue E, for the purpose of obtaining the full advantage of the heat of the walls of the the furnace, and of the diving-flue, as described.

'6. In a furnance for burning wet fuels, having a flat top, and supplied through openings therein, I claim the dead-chambers, arranged between the floor and the arches of the fire-chambers, for the purpose of maintaining the top of the furnace cool for the workingmen as described.'

The figures on page 164 were annexed to the specification.

Mr. Arthur Stem for the appellant.

Mr. William A. Maury and Mr. Lewis N. Dembitz for the appellee.

MR. JUSTICE WOODS, after stating the case, delivered the opinion of the court.

title: Bantz v. Frantz


text: Talk:Bantz v. Frantz

title: Talk:Bantz v. Frantz


text:
Bantz v. Frantz/Opinion of the Court

We are clearly of opinion that the reissued patent is void.

It is evident on a cursory reading of the specification and claim of the original patent that it was meant to cover a combination of the several contrivances therein described, and not to cover the several elements of the combination as distinct inventions. No claim is made for the several parts of which the furnace is constructed, but for the 'arrangement embracing, for united use in the manner and for the purposes specified, the following features,' &c.

If the claim had been for the several distinct contrivances of which the furnace is composed, as claimed in the reissue, the original patent would not have been granted, because the evidence in the record shows that at least the sixth claim in the reissued patent, for dead-chambers over the arches of the fire-chambers, was distinctly covered by the patent of Moses Thompson, dated April 10, 1855, for an improvement in burning tan-bark, bagasse, sawdust, or other kinds of fuel in a wet state, for the purpose of creating heat to generate steam, &c. This the drawings accompanying the specification of Thompson's patent clearly show.

It is evident, therefore, that if the appellant had, in his application for the original patent, claimed as his own invention all the distinct devices described in the specification, he could not have obtained his patent in its present form. It could have been only on the ground that his claim was for a combination that it was allowed and the patent issued. Prouty v. Draper, 1 Story, 568; Pitts v. Whitman, 2 id. 609; Prouty v. Ruggles, 16 Pet. 336.

If the reissued patent is valid the appellant could maintain an action against the infringer of any one of the separate claims covered by it. Under the original patent, suit could be maintained only against those who employed the combination embracing all the distinct contrivances described in the reissued patent. The reissue is, therefore, broader than the original patent, and is, under the circumstances of this case, void.

The act of July 8, 1870, c. 230 (16 Stat. 198), was in force when the reissue was granted. Section 53 (Rev. Stat., sect. 4916) declares 'that whenever any patent is inoperative or invalid by reason of a defective or insufficient specification, or by reason of the patentee claiming as his own invention or discovery more than he had a right to claim as new, if the error has arisen by inadvertence, accident, or mistake, and without any fraudulent or deceptive intention, the commissioner shall, on the surrender of such patent and the payment of the duty required by law, cause a new patent for the same invention, and in accordance with the corrected specification, to be issued to the patentee.'

In this case the original patent bears date June 22, 1858. The reissue bears date Feb. 6, 1872, more than thirteen years and six months after the date, and less than five months before the expiration, of the original patent. If the specification in the original patent was defective or insufficient in claiming a combination of several devices instead of making a distinct claim for every device which entered into the combination, the fact was instantly discernible, even to an unpractised eye, as soon as the patent was read. Therefore, as said by Mr. Justice Bradley in delivering the opinion of this court in a similar case, Miller v. Brass Company (104 U.S. 350), if any correction was desired it should have been applied for immediately; the right to have the correction made was abandoned and lost by unreasonable delay. That case is apposite and is conclusive of this.

Decree affirmed.

MR. JUSTICE HARLAN did not sit in this case, nor take any part in deciding it.

title: Bantz v. Frantz/Opinion of the Court


text: Talk:Bantz v. Frantz/Opinion of the Court


text:
Railroad Company v. Ellerman

APPEAL from the Circuit Court of the United States for the District of Louisiana.

The facts are stated in the opinion of the court.

Mr. John S.C.adwalader and Mr. Thomas L. Bayne for the appellants.

Mr. Charles N. Hornor for the appellee.

MR. JUSTICE MATTHEWS delivered the opinion of the court.

title: Railroad Company v. Ellerman


text: Talk:Railroad Company v. Ellerman

title: Talk:Railroad Company v. Ellerman


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

The New Orleans, Mobile, and Texas Railroad Company, one of the appellants, and the principal defendant below, is a corporation of the State of Alabama, by the original name of the New Orleans, Mobile, and Chattanooga Railroad Company, which has constructed a line of railroad from Mobile to New Orleans. It was authorized by its charter 'to obtain by purchase or grant from any person or corporation, and afterwards maintain, manage, use, and enjoy, any railroad property, and the appurtenances thereto, or any steamboats, piers, wharves, and the appurtenances thereto, that the directors may deem necessary, profitable, and convenient for the corporation to own, use, and manage in connection with its railroads.' Session Acts of Alabama, 1866.

The General Assembly of Louisiana, on Aug. 16, 1868, passed an act which recognized the company as a body corporate, and authorized it to exercise its franchises in Louisiana, and expressly conferred upon it power 'to construct, establish, or purchase in the State of Louisiana, and thereafter to own, maintain, and use, suitable wharves, piers, warehouses, steamboats, harbors, depots, stations, and other works and appurtenances connected with and incidental to said railroad and the business of said company, and by the directors of said company deemed necessary and expedient for said company to own and manage.'

In 1869 that State further enacted 'that the said company, with the consent of the owners of lands fronting on any navigable watercourse, or after such lands have been acquired by the company by purchase, release, donation, or in any other manner, in accordance with the laws of the State of Louisiana, may erect, construct, and thereafter maintain and use wharves, warehouses, depots, or other buildings and structures in and upon the margins, or upon that portion of the margins reserved to public use, of any and all navigable rivers, bayous, or water-courses in the State of Louisiana, wherever the same may be deemed, by a majority of the directors of the company, necessary and requisite for the legitimate and convenient transaction of the business of the company.'

On March 6, 1869, the General Assembly of Louisiana passed a joint resolution, having the force of law, granting to the company 'the right to enclose and occupy for its purposes and uses, in such manner as the directors of said company may determine, that portion of the levee, batture, and wharf in the city of New Orleans, between the street laid out between Pilie Street and the Mississippi River, and from Calliope Street to the lower line (about three hundred and fifty-five feet below Calliope Street) of the batture rights owned by said company, and no steamship or other vessel shall occupy or lie at said wharf, or receive or discharge cargo thereat, except by and with the consent of said company; and all steamships or vessels discharging or receiving cargo at said wharf for said company, or any steamships or vessels using said wharf, by and with the consent of said company, and not receiving or discharging cargo at or occupying any other wharf in the city of New Orleans, shall be exempt from payment of all levee and wharf dues to the city of New Orleans. Said wharf shall be maintained and kept in repair by said company.' All laws and parts of laws, and all ordinances and parts of ordinances, conflicting with the provisions of the joint resolution were thereby repealed.

At the date of the passage of the joint resolution the company was the owner by previous purchase of the land described in it, and in possession, using it for the purposes of a depot and for other railroad purposes, and as a wharf, appropriate structures having been built for that use. A portion of this property was leased in June, 1875, by the receivers of the railroad, appointed under proceedings to foreclose, for twelve months, at the sum of $7,200, to Roberts and Witherspoon, who were made defendants to the bill, the use and employment of the wharf granted by such lease consisting 'in the morring of vessels coming to the consignment, custody, or care of the parties of the second part (the lessees) or to either of them, and the loading and unloading of cargoes upon all vessels of this kind with the full consent of the parties of the first part, exempt from wharf and levee dues, according to the terms of the said resolution.'

The object of the bill filed by Elerman, the appellee, was to enjoin the execution of this contract, and the use and employment of the wharf described therein in the manner contemplated by it. His claim is based on a contract between himself and the city of New Orleans, entered into June 29, 1875. It purports to be a grant from the city to him, for a term of four years and eleven months from the date of the contract for building and repairing the wharves and levees according to certain specifications on file, and for the payment of debts contracted on account of them, and for transferring the revenues of the same for the said term, agreeably to the terms of a certain ordinance and resolution of the city, all which are set out in the contract. The specifications state the particulars of the required repairs and extensions of the wharves. The subject-matter of the ordinance is declared to be the sale of 'the revenues of the wharves and levees of the city of New Orleans, collectible under existing ordinances upon all ships, vessels, steamships, steamboats, flatboats, and water-craft of any and every description, upon the terms and conditions' therein set forth. The purchaser was to assume certain specified liabilities of the city, connected with the wharves, and it was provided that the sale should be awarded to the bidder who would assume to discharge the obligations set forth, in consideration of the transfer of the revenues assigned, in the shortest time. The purchaser should be subrogated to all the rights and privileges of the city, to sue for and collect the revenues; and it was understood and agreed that 'the city only undertakes to transfer only such rights as she possesses, and the purchaser takes the said revenues subject to all the rights now held by other persons by way of lease, privilege, contract, or by law, and the purchaser shall, in reference to them, be subrogated only to the rights of the city.' It was provided that the purchaser should take possession of the wharves, landings, and levees in the condition in which the same might be at the time, and should repair the same and keep them in good order and condition during the term stipulated. It was further provided that if, from over-powering force, the city should not be able to protect the transferee in receiving the said revenues, or if they should by any such cause be diminished over one-third, the transferee might, after satisfying all obligations incurred under the contract up to the time, surrender it and be discharged from further responsibility; but the city, it was expressly declared, in nowise guaranteed the payment of the wharfage and levee dues, the collection of which is to be enforced by the transferee at his own cost.

The wharves and levees which constitute the subject-matter of this arrangement consisted of artificial improvements made at the expense of the city, by grading, and by driving piles which are securely fastened, and covered by a plank flooring, so as to furnish safe and convenient landings and moorings for water-craft, and places for loading and unloading their cargoes. Provision was made not only for keeping in repair the existing works and structures, but the transferee of the revenues was bound to build additional new wharves in certain specified districts of the city, if required to do so, not to exceed a named sum per annum; but if new wharves should be required in other districts by the city council at their own or the request of any other person, the party so desiring them should be bound to pay for the cost thereof, and should be entitled to receive the revenues derived from such wharves during the term of contract with the transferee, unless sooner reimbursed.

The claim of Ellerman is, that the administration of the wharves and levees within the city limits is intrusted by law to the municipal government; that with this administration is coupled a franchise, that the city may charge and receive a reasonable remuneration for the expense of the facilities afforded to commerce; that under this franchise the city expended out of its revenues very large sums on the wharves and levees in permanent works and improvements for the benefit of commerce; that, in consequence, it had a vested right in the franchise and the revenues legitimately derived from these expenditures, of which it could not be divested by an act of the legislature, and that he, by virtue of his contract, is subrogated during its term to the rights of the city.

He further claims that it is a violation of these rights for the defendants to permit the use and employment of their property as a wharf, and to charge and receive wharfage for such use, by and from persons not engaged in conducting the proper business of the company, thus opening a rival wharf business in competition with the city, and him as its lessee; and that if the joint resolution of March 6, 1869, must be construed so as to confer upon the company any such authority, it is null and void, because contrary to that provision of he Constitution of the United States which forbids the taking of private property without due process of law.

It is not claimed that the city has ever used as a public wharf the premises so occupied by the appellants, or made any expenditures for works and constructions upon them; and it is admitted that all expenditures of that description which have been made thereon have been at the cost of the railroad company.

A decree was rendered in the Circuit Court in favor of the appellee, granting the relief prayed for, to review which this appeal is prosecuted.

In the opinion of the circuit judge (2 Woods, 120), the case turned upon the construction to be given to the joint resolution of March 6, 1869; and being of opinion, upon the authority of the decision of the Supreme Court of Louisiana in City of New Orleans v. New Orleans, Mobile, & Chattanooga Railroad Co. (27 La. Ann. 414), that this resolution conferred upon the railroad company no right to charge wharfage dues against vessels landing at said wharf which were in no way connected with the business of the railroad company, and no right to maintain a free wharf for such vessels, it was assumed that the appellee had such an interest in the question as qualified him to maintain this suit and entitled him to the relief prayed for.

City of New Orleans v. New Orleans, Mobile, & Chattanooga Railroad Co. (supra) was a suit brought against the company to recover a sum of money for levee dues charged against the defendant for barges and flatboats belonging to it which were lying at this wharf, and used in its business. The Supreme Court of the State, in that case, decided that the joint resolution was not void for either of the reasons urged. It said: 'The public servitude along the banks of rivers in Louisiana is under the control of the General Assembly. C. C. 453, 455, 458. The right of the General Assembly to grant the right to corporations or individuals to make and maintain wharves has been long settled. 5 Ann. 661; 15 id. 577; 22 id. 545; 6 N. Y. 523; 26 id. 287. In the case now under consideration the State granted the right to the riparian owner. This is permissible. 1 Black, 1. Nor was the grant a donation of public revenues to a private purpose. The grant is a license to a railroad company to use its property on the river bank for public purposes, to wit, to facilitate the transaction of its business with the public. It was the control by the legislature of a public servitude.'

The extent of the rights of the company under the joint resolution-whether the use of the wharf was limited to railroad purposes merely, or embraced all purposed-was a point not involved in that case, nor decided either in express terms or by any fair inference. What that decision did affirm, however, was, that the disposal of the public right in the premises, as a wharf, was in the State, to the exclusion of the city, so that if the joint resolution had been a cession to a natural person, as riparian proprietor, to improve the premises as a landing-place for water-craft, and for loading and unloading cargoes, by building levees and wharves, at his own expense, with the right to charge reasonable wharfage for their use, it would have been conclusive upon the city and those claiming in its right. And construing the grant to the company as limiting the use of the property as a wharf, to purposes strictly incident to its corporate business, still, in order that it should be beneficial to that extent, it would be essential that the company should have the right to exclude all other uses; and this would effectually withdraw it from the jurisdiction of the city authority over the general subject of the public wharves.

Neither would this be in derogation of any vested right of the city. Whatever powers the municipal body rightfully enjoys over the subject is derived from the legislature. They are merely administrative and may be revoked at any time, not touching, of course, any property of the city actually acquired in the course of administration. The sole ground of the right of the city to collect wharfage at all is that it is a reasonable compensation, which it is allowed by law to charge for the actual use of structures provided at its expense for the convenience of vessels engaged in the navigation of the river. Cannon v. New Orleans, 20 Wall. 577.

And while it may be true, as was decided by the Supreme Court of Louisiana in Ellerman v. McMains (30 La. Ann., pt. 1, 190), that the city cannot lawfully be required to permit the use of its wharves, without compensation, on the ground that they are private property; it is equally true, as decided by the same court in City of New Orleans v. Wilmot (31 La. Ann. 65), that the city cannot forbid any water-craft from using the banks of the navigable waters of the State for purposes of navigation and commerce, and cannot compel them to pay to it wharfage except for the use of wharves of which it is the proprietor.

The rights of the city in respect to this controversy would seem, then, to be reduced to that of building levees and wharves on the banks of the river within its corporate limits for the public utility, with the exceptions established by paramount law, and collecting reasonable wharfage for the actual use of such structures. Its right to build a wharf upon the land of the company is, we have seen, excluded by the terms of the joint resolution of March 6, 1869, according to its narrowest construction.

The sole remaining question then, is, whether Ellerman, as assignee of the city, has any legal interest which entitles him to enjoin the company from using its wharf as a public wharf beyond the limits of such use, as defined by that construction of the joint resolution. If he has such interest, it can only consist in preventing competition with himself as a wharfinger, which such more extensive use of the railroad property would create. And if the right to assert it exists, it must rest, not upon the claim that the premises are thus used for purposes to which they might not be lawfully devoted if owned and used by a natural person, but on the allegation merely that such use is beyond the corporate powers of the company. But if the competition in itself, however injurious, is not a wrong of which he could complain against a natural person, being the riparian proprietor, how does it become so merely because the author of it is a corporation acting ultra vires? The damage is attributable to the competition, and to that alone. But the competition is not illegal. It is not unlawful for any one to compete with the company, although the latter may not be authorized to engage in the same business. The legal interest which qualifies a complainant other than the State itself to sue in such a case is a pecuniary interest in preventing the defendant from doing an act where the injury alleged flows from its quality and character as a breach of some legal or equitable duty. A stockholder of the company has such an interest in restraining it within the limits of the enterprise for which it was formed, because that is to enforce his contract of membership. The State has a legal interest in preventing the usurpation and perversion of its franchises, because it is a trustee of its powers for uses strictly public. In these questions the appellee has no interest, and he cannot raise them in order, under that cover, to create and protect a monopoly which the law does not give him. The only injury of which he can be heard in a judicial tribunal to complain is the invasion of some legal or equitable right. If he asserts that the competition of the railroad company damages him, the answer is, that it does not abridge or impair any such right. If he alleges that the railroad company is acting beyond the warrant of the law, the answer is, that a violation of its charter does not of itself injuriously affect any of his rights. The company is not shown to owe him any duty which it has not performed.

This was the principle on which this court proceeded in the case of City of Georgetown v. Alexandria Canal Co., 12 Pet. 91. It is applied in ''Mayor, &c. of Liverpool v. Chorley Waterworks Co., 2 De G., M. & G. 852; Stockport Districk Waterworks v. Mayor, &c. of Manchester'', 9 Jur. N. S. 266; Pudsey Coal Gas Co. v. Corporation of Bradford, Law Rep. 15 Eq. 167.

On this ground it is our opinion that the appellee failed to allege and show any right to maintain his bill, which should, therefore, have been dismissed. The decree will be accordingly reversed, with directions to dismiss the bill; and it is

So ordered.

MR. JUSTICE WOODS dissented.


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


text:
Manufacturing Company v. Bradley

APPEAL from the Circuit Court of the United States for the District of South Carolina.

The facts are stated in the opinion of the court.

Mr. A. G. Magrath and Mr. Samuel Lord, Jr., for the appellants.

Mr. William E. Earle and Mr. James B. Campbell for the appellee.

MR. JUSTICE MATTHEWS delivered the opinion of the court.

title: Manufacturing Company v. Bradley


text: Talk:Manufacturing Company v. Bradley

title: Talk:Manufacturing Company v. Bradley


text:
Manufacturing Company v. Bradley/Opinion of the Court

The Marine and River Phosphate Mining and Manufacturing Company, one of the appellants, is a corporation organized under the General Statutes of South Carolina, on March 15, 1870, with a subscribed capital of $500,000, the amount limited by the articles of association, of which but one-half had actually been paid in. On Dec. 28, 1872, it borrowed from William J. Gayer, receiver, appointed by the Court of Common Pleas for the County of Charleston, in a cause pending therein, of Debney, Morgan, & Co. against The Bank of the State of South Carolina, $20,000 of the funds in his hands, which he was authorized so to invest. As evidence of, and security for, the loan it executed and delivered its bond, of which the following is a copy:--

'STATE OF SOUTH CAROLINA, CHARLESTON COUNTY.}

'Know all men by these presents, that we, the Marine and     River Phosphate Mining and Manufacturing Company of South      Carolina, are held and firmly bound unto William J. Gayer,      receiver, in the sum of twenty thousand dollars, with      interest thereon at the rate of ten per cent annually,      payable semi-annually, to be paid on the first day of July      next ensuing the date hereof, for which payment well and      truly to be made we, the said company, do hereby bind      ourselves and our successors firmly by these presents.

'In witness whereof the said company have caused their seal     to be hereunto affixed, the twenty-eighth day of December, A.      D. 1872.

'We the said company, do further covenant and agree that the     above bond constitutes a lien upon the property of the said      company, and that the same is issued under and pursuant to      the provisions of section thirty-nine of chapter sixty-four      of the General Statutes.'

It is signed by 'D. T. Corbin, president Marine and River Phosphate Mining and Manufacturing Company of South Carolina,' countersigned by 'Reuben Tomlinson, treasurer,' and sealed with the corporate seal.

Subsequently to the maturity of this bond, C. C. Puffer, who had become successor in the receivership to Gayer, on April 2, 1874, transferred and delivered it to D. T. Corbin, in exchange for three hundred shares of the capital stock in the Phosphate Company, owned by him. This transaction was reported by the receiver to the court as a payment of the note, and the shares of stock were carried as part of the fund in his hands, and were afterwards sold by order of the court. No express order of the court is produced authorizing the transaction, but his accounts disclosing it were passed and confirmed and he was bischarged. Corbin at this time was still president of the company. The bond, while held by the original receiver, had been duly recorded in the office of the register for mesne conveyances, as a lien upon the company's property.

On May 13, 1874, an indorsement was made upon the bond, as follows:--

'In consideration of further forbearance on the part of the     holder of this bond till the first day of January, A. D.      1875, the Marine and River Phosphate Mining and Manufacturing      Company of South Carolina hereby promises, waiving all      set-off or other defence, to pay this bond to bearer on the      first day of January, A. D. 1875, with interest at the rate      of twelve per cent per annum, from the first day of April,      1874, payable quarterly; and should said bond not be paid on      the first day of January next, then thereafter interest shall      be paid in the same manner and at the same rate as herein      mentioned, till paid.'

This indorsement was signed 'The Marine and River Phosphate Mining and Manufacturing Company of South Carolina, by D. T. Corbin, president,' and countersigned by 'Reuben Tomlinson, treasurer.' The corporate seal was thereto affixed.

The evidence on the point does not permit any doubt that this arrangement between Corbin and the company was made with the full knowledge and express sanction of the directors. The treasurer testifies that he objected to taking action upon the proposal of Corbin for an extension of payment as contained in the indorsement, without first submitting the question to them. The form of the renewal was the one agreed to by them, and by them ordered to be indorsed on the bond. This was done with knowledge that Corbin then held it. The interest to be paid appears to be lawful and customary, being then the rate charged by banks. It was regularly paid by the treasurer to Corbin, and in December, 1876, a payment of $10,000 was made to him by the treasurer on account of the principal. That payment was reported to the board of directors, some of whom had been consulted in regard to it by the treasurer before it was made; because, as he states, 'the funds on hand at the time having been provided for other purposes, I did not feel at liberty to use them for that purpose without first consulting with such directors as were conveniently at hand.' He adds: 'Mr. Corbin frequently, during the months of January and February, 1877, requested me to arrange for the payment of the balance of $100,000 principal, and the interest due on said bond. The matter was brought to the attention of the directors by me, and no objection was made by them to the payment of said money, if it could be raised without serious embarrassment to the company. Arrangements to pay said bond were finally made and the money actually raised and deposited in bank for that purpose, subject, however, to conditions, the fulfilment of which was prevented by the change in the organization of the company which took place in March, 1877.'

In June, 1877, Corbin transferred and delivered the bond to Bradley, the appellee, in consideration of ten dollars paid, and his agreement to pay the amount still due on the face of it, less the ten dollars paid, as stated in a letter from Corbin to Bradley, making the offer which was accepted, 'only when you shall have collected the amount from the company, and what you shall collect from the company, less the cost and expenses of collection.'

In answer to a question, on cross-examination, as to his motive and purpose in parting with the bonds in this way, Mr. Corbin said, 'that the company had refused to pay the bond, and I believed if I held the bond I would be compelled to litigate the same with the company, and I believed if it passed into the hands of a third person, in good faith, that the company would pay it to him without a long and tedious litigation, having no prejudices against him, as I believed; and further, I did not wish to be a party plaintiff in an important suit against the company that I had been so long connected with as president.'

On July 5, 1877, Bradley, being a citizen of Massachusetts, filed his bill in equity in the court below against The Marine and River Phosphate Mining and Manufacturing Company, and several others, alleged to be citizens of South Carolina, and stockholders in that corporation. It alleges that the bond is a lien upon all the property of the corporation, embracing certain described personal property, and the franchise granted to it by the State to dig, mine, and remove from the bed of the navigable streams and waters within the jurisdiction of the State the phosphate rock and deposits, according to an act passed March 1, 1870. It also alleges that the defendants charged to be stockholders in the corporation have not fully paid up the amount of the capital subscribed by them, and that they are within the provisions of section 23 of chapter 64 of the General Statutes of South Carolina, under which act the corporation was organized, which provides that 'the members of every company shall be jointly and severally liable for all debts and contracts made by the company until the whole amount of capital stock fixed and limited by the company in manner aforesaid is paid in, and a certificate thereof made and recorded as prescribed by the following section.'

The bill contains the following averment: 'That to bring a separate and distinct action at law against each of such stockholders would be a great hardship to your orator, inasmuch as a court of equity has full power to hear and adjudicate all the issues between your orator and the said several defendants, thus preventing a multiplicity of suits; and by ascertaining the number of shares of the capital stock of the said Marine and River Mining and Manufacturing Company of South Carolina, held by the said several defendants, the amount of the subscription paid upon each of said shares, and the amount still due and unpaid thereupon, can adjust and decree the amount which each of said defendants justly owes to your orator, and can afford him that relief which a court of law is unable to give.'

The prayer of the bill is that the defendant, The Marine and River Phosphate Mining and Manufacturing Company of South Carolina, be decreed to pay the amount due upon the bond, with interest; that the same be declared to be a lien upon its property described in the bill, and that the same be sold for the payment and satisfaction thereof; and that the other defendants be decreed to be justly and severally liable for the amount of the said debt, and to pay on account thereof so much of the unpaid subscription of each share of the stock in said corporation, held by them severally, as shall be necessary to pay the same, and for general relief.

A final decree was rendered against the company and several of its stockholders, co-defendants, for the payment of the amount due on account of the said bond, for which execution was awarded, and a decree foreclosing the equity of redemption in the corporate property described in the bill, on which the bond is declared to be a lien, and directing its sale.

To review this decree the defendants below prosecute the present appeal.

Several questions, arising upon the pleadings and evidence, and embodying the errors assigned upon the decree, will be considered in their order.

I. The first of these relates to the jurisdiction of the court.

It is objected in the first place that the complainant is the assignee of a chose in action on which no suit could have been maintained in the Circuit Court by his assignor, and that consequently he is within the prohibition of the first section of the act of March 3, 1875, c. 137. The answer to this objection is, that the obligation sued on is a negotiable promissory note, and is, therefore, excepted out of the prohibition relied on. It is true that the bond, as originally executed, was payable to Gayer, receiver, simply, and was not negotiable; but the subsequent indorsement was a new and complete contract, upon a distinct the sufficient consideration, and being payable to bearer, is negotiable by delivery merely. It is a negotiable note within the meaning of the law merchant, and according to the law of the place of the contract, notwithstanding it is an instrument under seal. Langston v. South Carolina Railroad Co., 2 S.C.. 248; Bank v. ''Railroad Company, 5 id. 156; Bond Debt Cases'', 12 id. 200, 250.

It is further objected, however, that the transaction between Corbin and Bradley was fictitious and not real; that the title to the bond remained in the former, so that the latter, not being the real party in interest, cannot maintain an action to enforce it; that the present suit is collusive, for the purpose of conferring jurisdiction upon the Circuit Court, and, therefore, within the rule declared in Smith v. Kernochen (7 How. 198), Jones v. League (18 id. 76), and Barney v. Baltimore City (6 Wall. 280), and enacted by the fifth section of that act, as construed in Williams v. Nottawa, 104 U.S. 209.

The delivery of the bond by Corbin to Bradley, under the arrangement we have mentioned, was, however, a transfer of the legal title to the obligation. Whether the agreement was not also a transfer by Corbin of all beneficial interest in the bond, depends on whether Bradley was bound to account to him specifically for the net proceeds of its collection, or only to pay him so much money as they should amount to,-a question which it is not necessary to decide; because it does not appear from this record but that Corbin could himself have maintained a suit in his own name in the Circuit Court upon the bond. It is nowhere distinctly alleged or shown that at the time this suit was brought he was a citizen of South Carolina. That he was so at the time of the original transaction may be presumed or inferred from the circumstances; but to confer or oust jurisdiction, when that depends on citizenship, the necessary facts must be distinctly alleged and admitted or proved. Upon the present state of the record, the assumption could not have been made in his favor to sustain the jurisdiction if he were seeking as a citizen of South Carolina to prosecute a suit; and equally it will not be made to defeat the jurisdiction, which otherwise is rightly invoked by the complainant.

It is further objected that the jurisdiction in equity cannot be sustained, because the complainant had a complete and adequate remedy at law. so far, at least, as relief is sought against the stockholders individually upon their statutory liability.

That liability is a joint and several personal obligation of all the members of the company, unlimited except by the amount of the debts and contracts of the corporation, to which it extends. It is unconditional, original, and immediate, not dependent on the insufficiency of corporate assets, and not collateral to that of the corporation, upon the event of its insolvency. It is, in one aspect, a suretyship for the corporation, for by sect. 37 of the act any stockholder paying a debt of the company for which he is personally liable is entitled to an action against it for indemnity, in which he may take the corporate assets, but is without recourse upon the property of any other stockholder.

The jurisdiction in equity, then, cannot rest upon the administration of a trust fund, as in cases where delinquent stockholders are charged with the obligation to make good their subscriptions to unpaid capital stock, or in those where a constitutional or statutory liability is imposed beyond the amount of the subscription, to a fixed sum, but on each in proportion to his share in the capital stock. There the necessity of enforcing, a trust, marshalling assets, and equalizing contributions, constitutes a clear ground of equity jurisdiction.

The statute under consideration prescribes no form of action, and the jurisdiction may be regarded as concurrent, both at law and in equity, according to the nature of the relief made necessary by the circumstances upon which the right arises. The thirty-fifth section of the act expressly authorizes separate actions at law against the company and against its officers, in cases where, by the statute, the latter are made personally liable for defined delinquencies; while the thirty-sixth section provides that the property of stockholders, in cases where they are liable, may be taken on attachment or execution issued against the company. In the present case there was an acknowledged jurisdiction to grant equitable relief, by enforcing the lien of the bond upon the corporate property, and as incident to that to make a decree against the corporation for the payment of the debt. Having jurisdiction for that purpose, it is entirely consistent with its principles and practice for a court of equity to extend it, so as to avoid a multiplicity of suits, and to give to the plaintiff a single and complete remedy. As the indicvidual stockholder is bound by the judgment against the corporation, it is equitable that he should be present as a party, that he may have the opportunity to defend for himself; and in case of payment out of his property he is entitled to be subrogated to the right of the creditor against the company, in order to indemnify himself out of the corporate assets. On these grounds, we think the jurisdiction in equity is well supported.

II. The remaining grounds of defence have been, in effect, anticipated in the statement of the case. They are without merit or substance.

The title of the complainant to the bond sued on cannot be assailed for want of authority in the receiver to transfer it, even if such a defence was open to the obligors, for it sufficiently appears that the transaction, if not previously authorized, was subsequently confirmed by the court.

Nor does the relation between Corbin and the company at the time of the transaction furnish any defence, either at law or in equity. The relation undoubtedly was one of a confidential and fiduciary character, but there seems to be no ground in the evidence to challenge the good faith with which the business was conducted. The bond of the company was purchased from the receiver with his own means, and not those of the company; the value paid, so far as the testimony discloses, was full; and every step, when taken, was made known and assented to by the directors of the corporation. The transaction was legitimate in itself and beneficial to the company, and the dealing was not by the president with himself, but with the corporation, in fact, represented and acting by other directors, with full knowledge of all the facts.

A defence of payment was suggested by the circumstance that the receiver, after parting with the bond in exchange for the stock, reported it as paid in that way. So far as the fund in his hands was concerned, it might be so treated; but the company and its stockholders must be conscious that they have no right so to consider it.

We find no error in the decree, and it is accordingly

Affirmed.


text: Talk:Manufacturing Company v. Bradley/Opinion of the Court


text:
United States v. Hunt (105 U.S. 183)

ERROR to the Circuit Court of the United States for the Southern District of Mississippi.

The case is stated in the opinion of the court.

The Solicitor-General for the United States.

Mr. William L. Nugent for the defendants in error.

MR. JUSTICE MATTHEWS delivered the opinion of the court.

title: United States v. Hunt (105 U.S. 183)


text: Talk:United States v. Hunt (105 U.S. 183)


text:
United States v. Hunt (105 U.S. 183)/Opinion of the Court

This was an action brought by the United States upon the official bond of Fidelio S. Hunt, as collector of taxes, under the Internal Revenue Act, for the second district of Mississippi. He died pending the suit, and it was revived against his executrix. The other defendants were sureties. The condition of the obligation was that the said Hunt 'shall truly and faithfully execute and discharge all the duties of the said office according to law, shall justly and faithfully account for and pay over to the United States, in compliance with the orders and regulations of the Secretary of the Treasury, all public moneys which may come into his hands or possession,' &c. It is alleged in the declaration that the bond was delivered and approved on July 19, 1866, on which day Hunt entered upon the discharge of the duties of his said office, and continued therein until on or about May 23, 1867. The breach alleged was that during that period he became indebted to the United States in the sum of $139,463.15, received by him as such collector for and on account of taxes due to the United States, being a balance reported to be due from him upon the adjustment of his account as such collector in the Treasury Department, of which a duly certified copy was filed, and which he had refused to pay. The sureties filed joint pleas, and the executrix pleaded separately. The pleas were alike, and amounted to a general denial of every allegation necessary to constitute a liability.

There was a judgment for the defendants. The United States sued out this writ, and the errors which are assigned arise upon the rulings of the court upon questions of evidence, presented by a bill of exceptions.

The plaintiff offered in evidence the certified transcript of Hunt's account from the books of the Treasury Department. The certificate of the fifth auditor, accompanying it, states that he has examined and adjusted 'an account between the United States and Fidelio S. Hunt, late collector for the 2d district of Mississippi, from July 19th, 1866, to May 23d, 1867, and find him chargeable as follows, under bond approved July 19th, 1866.' The debit side of the account is, 'to amount of assessment lists receipted for, per form 23 1/2, viz.' Its first item is dated July 28, 1866, and is to 'amount receipted for as December, 1865, list.' It also embraces similar debits, of the same and subsequent dates of entry, for lists of January, February, April, May, and June, 1866. The last five items on the same side of the account bear date, as to the entries, subsequently to May 23, 1867, but are for amounts receipted for as lists of January, 1866, April and May, 1867. The credit side of the account contains items of cash paid at dates subsequent to May 23, 1867, and also gives credit for amounts collected by his successors in office on lists he receipted for, and also for amounts collected by him as collector under the first bond on lists receipted for by him as collector under the second bond. This statement of account shows a balance due the United States of the amount claimed in the declaration.

The transcript included, as part of the statement of account and explanatory of it, a statement of differences, showing and accounting for the discrepancies between the balance exhibited by the collector's own account and that ascertained by the adjustment. From this it appeared that the balance due the United States by the collector's account to March 31, 1867, since which date he had rendered none, was $76,756.17, showing a difference to his debit of $62,706.98. This is explained, in part, by showing the whole amount of assessments of form 23 1/2 charged under his first bond and under his second bond separately, which he had failed to give correct credit for, to the amount of $137,430.78; in part, by showing the amount of cash deposited by him under his first and second bonds respectively, and that he had twice credited himself with $169,517.83 on account thereof; and by other errors, the whole amounting to $702,434.36. On the other hand, this is reduced to the sum of $62,706.98, the difference to be accounted for, by credits for taxes abated by the adjustment, by credits therein for collections by successors in office, on bills receipted for by him during his term, and by amount claimed and credited in his accounts as collections on cotton. A list of warrants covering into the treasury, the amounts of cash deposited, is appended, showing the amount of each, and on account of which bond it was paid.

To the introduction in evidence of this transcript objection was made on the part of the defendants, 'upon the grounds that the balance exhibited by the said account is the result of the transactions of both terms of the defendant's service, whereas the suit is upon a bond which covers only the transactions of the secoud term; and because it embraces transactions made by the collector after his removal from office and after the appointment and qualification of his successor, and the balance is in part made up of these transactions, occurring when the collector no longer sustained any official relation to the United States, and after the alleged breach had occurred.' And in support of their said objections, the defendants by their attorneys, the bill of exceptions proceeds to state, introduced in evidence the bond of Martin Keary, the successor of the said Hunt as such tax-collector, showing that the same was approved on April 29, 1867. Thereupon the objections to the introduction of the certified account in evidence were by the court sustained, and the same was excluded, the court holding that the said certified statement should stand and be considered only as a bill of particulars annexed to plaintiff's declaration.

This ruling was excepted to and is assigned for error.

It was an irregularity to permit the defendant to interject into the plaintiff's case testimony upon the merits of the defence in support of his objection that the evidence offered was irrelevant, and the testimony interposed was not by itself sufficient to establish the date on which Hunt ceased to hold an official relation to the United States as collector, for it did not show when his successor actually entered upon the discharge of the duties of the office. But passing by, without further comment, these minor errors, we find that the objection to the transcript of the account, as matter of evidence, is without foundation, either in fact or in law.

It was assumed on both sides, though there is no proof to that effect in the record, that Hunt had filled a prior term as collector, being his own successor, and it was admitted that his second term commenced on July 19, 1866. The objectionable items in the first part of the account charge him with amounts of assessment lists receipted for per form 23 1/2 on dates subsequent to the beginning of his second term, though being described as lists for specified months prior to July, 1866, it is argued that he could not be chargeable upon his second bond with those sums. But this does not follow; for it is entirely consistent with the description of the lists, that the collector actually received the taxes paid upon them, after the date of his second term, and just as he is charged with them in this account. And so, on the other hand, with similar items charged upon receipts of assessment lists, of dates subsequent to May 23, 1867, the alleged date when his second term expired. It is consistent with the nature of those charges that they were for moneys received on account of taxes paid on account of these lists, and received by him before the end of his second term. The account charges him with distinct sums of money collected by him. They are identified by reference to assessment lists for particular months, and then by the dates of his receipts to the government for the lists, upon form 23 1/2. No dates are traced in the account as those on which the taxes were actually collected by him, but the certificate of the Treasury Department declares it to be an account between the United States and the collector from the beginning to the end of the period covered by the bond in suit, and there is nothing on the face of the account which necessarily contradicts this statement. The certificate has the legal effect of making the transcript prima facie evidence of the fact of indebtedness which it certifies, unless upon the face of the account it necessarily appears to be otherwise.

But the ruling of the court in excluding the transcript is equally untenable upon the contrary supposition, that the items on account of which the objection was sustained, were on their face such as could not be charged against the defendants upon the bond in suit. For, rejecting these items, there remained many others with which the collector and his sureties upon his second bond were admitted to be chargeable, and the transcript was clearly admissible in proof of these. The presence of the objectionable items could not prejudice the defendants, for on the supposition, they were separable from the remainder of the account by mere inspection. On the other hand, their presence might be important to the government, as explanatory of corresponding items upon the credit side of the account; particularly in view of the ruling of the court, which rejected the transcript as evidence against the defendants, but required it to remain upon the record as proof against the United States.

For the same reasons the subsequent ruling of the court must be held to be erroneous, by which it excluded the receipts of the collector on form 23 1/2, which constituted the items upon the debit side of the account. Even if the receipts alone were not sufficient in each case to charge the collector with the sums charged as taxes collected upon the assessment lists, nevertheless they were competent evidence which, by other testimony, might be made full proof, until overcome by a sucessful defence. The ground of the objection was that the form 23 1/2 was a receipt for alphabetical lists, showing in detail the names of persons assessed for taxes and the amounts severally due from each, and that these alphabetical lists were primary and better evidence to charge the collector than the receipt on form 23 1/2, which expressed merely the aggregate amount of the alphabetical lists. But the receipts offered were signed by the collector, on their face constituted a part of his official transactions, and fomed the very basis of the account against him upon the books of the Treasury Departments. The originals would be competent against him, for they are not secondary evidence, although they may show the existence of other documents more in detail. The law gives to a copy certified by the Treasury Department at least the same force in evidence which the original would otherwise have.

The ruling of the court rejecting the original statement signed by the collector, showing the amounts collected and the amounts abated as uncollectible during the month, and those collected on May 18, 1867, was likewise erroneous for the same reasons.

For these errors the judgment of the Circuit Court is reversed, with instructions to grant a new trial; and it is

So ordered.


text: Talk:United States v. Hunt (105 U.S. 183)/Opinion of the Court


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Root v. Railway Company

APPEAL from the Circuit Court of the United States for the Northern District of Illinois.

The facts are stated in the opinion of the court.

Mr. Albert H. Walker for the appellant.

Mr. George Payson for the appellee.

MR. JUSTICE MATTHEWS delivered the opinion of the court.

title: Root v. Railway Company


text: Talk:Root v. Railway Company

title: Talk:Root v. Railway Company