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United States v. Union Pacific Railroad Company (98 U.S. 569)/Opinion of the Court

The Union Pacific Railroad Company brought the suit provided for in the second section of the act of March 3, 1873, 17 Stat. 508. The case was argued before us on appeal from the judgment of the Court of Claims. All the questions which concern the obligations of the company to pay money to the government, either by way of freight or government transportation, or for the five per cent on the net income of the road, were raised in that suit.

The Attorney-General, in pursuance of the directions of the fourth section of the act, filed this bill in equity. Many of the defendants demurred to the bill generally, and at the head of this class is the railroad company.

The Circuit Court sustained this demurrer and dismissed the bill, and the case is before us on appeal from that decree.

No suggestion is made either here or in the court below of any defect in the bill which can be remedied by amendment. The bill is very elaborate, very ably drawn, and no doubt presents in a very intelligible manner every thing which the facts known or suspected justified the pleader in placing in any bill which can be framed under the special statute authorizing the suit.

The question for decision is, therefore, squarely presented to us, as it was to the Circuit Court, whether, by the aid of that statute, and within the limits of the power it intended to confer, this bill can be sustained under the general principles of equity jurisprudence.

We say by the aid of that statute, because it is conceded on all sides that without it the bill cannot stand. The service of compulsory process on a party residing without the limits of the district of Connecticut who is not found within them, is expressly forbidden by the general statute defining the jurisdiction of the circuit courts. Parties and subjects of complaint having no proper connection with each other are grouped together in this bill, and they, by the accepted canons of equity, pleading, render it multifarious. This, and other matters of like character, which are proper causes of demurrer, are fatal to it, unless the difficulty be cured by the statute.

When we recur to its provisions, which are said to authorize these and other departures from the general rules of equity procedure, counsel for the appellees insist that it is unconstitutional, not only in the particulars just alluded to, but that it is absolutely void as affecting the substantial rights of defendants in regard to matters beyond the power of Congress.

If this be true, we need inquire no further into the frame of the bill, and we therefore proceed, on the threshold, to consider the objections to the validity of the statute.

The Constitution declares (art. 3, sect. 2) that the judicial power shall extend to all cases in law and equity arising under the Constitution, the laws of the United States, and the treaties made, or which shall be made, under their authority; and to controversies to which the United States shall be a party.

The matters in regard to which the statute authorizes a suit to be brought are very largely those arising under the act which chartered the Union Pacific Railroad Company, conferred on it certain rights and benefits, and imposed on it certain obligations. It is in reference to these rights and obligations that the suit is to be brought. It is also be be brought by the United States, which is, therefore, necessarily the party complainant. Whether, therefore, this suit is authorized by the statute or not, it is very clear that the general subject on which Congress legislated is within the judicial power as defined by the Constitution.

The same article declares, in sect. 1, that this 'power shall be vested in one supreme court and in such inferior courts as the Congress may, from time to time, ordain.'

The discretion, therefore, of Congress as to the number, the character, the territorial limits of the courts among which it shall distribute this judicial power, is unrestricted except as to the Supreme Court. On that court the same article of the Constitution confers a very limited original jurisdiction,-namely, 'in all cases affecting ambassadors, other public ministers, and consuls, and cases in which a State shall be a party,'-and an appellate jurisdiction in all the other cases to which this judicial power extends, with such exceptions and under such regulations as the Congress shall make.

There is in this same section a limitation as to the place of trial of all crimes, which it declares shall (except in cases of impeachment) be held in the State where they shall have been committed, if committed within any State.

Article 6 of the amendments also provides that in all criminal prosecutions 'the accused shall enjoy the right to a speedy and public trial by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law.' These provisions, which relate solely to the place of the trial for criminal offences, do not affect the general proposition. We say, therefore, that, with the exception of the Supreme Court, the authority of Congress, in creating courts and conferring on them all or much or little of the judicial power of the United States, is unlimited by the Constitution.

Congress has, under this authority, created the district courts, the circuit courts, and the Court of Claims, and vested each of them with a defined portion of the judicial power found in the Constitution. It has also regulated the appellate jurisdiction of the Supreme Court.

The jurisdiction of the Supreme Court and the Court of Claims is not confined by geographical boundaries. Each of them, having by the law of its organization jurisdiction of the subject-matter of a suit, and of the parties thereto, can, sitting at Washington, exercise its power by appropriate process, served anywhere within the limits of the territory over which the Federal government exercises dominion.

It would have been competent for Congress to organize a judicial system analogous to that of England and of some of the States of the Union, and confer all original jurisdiction on a court or courts which should possess the judicial power with which that body thought proper, within the Constitution, to invest them, with authority to exercise that jurisdiction throughout the limits of the Federal government. This has been done in reference to the Court of Claims. It has now jurisdiction only of cases in which the United States is defendant. It is just as clearly within the power of Congress to give it exclusive jurisdiction of all actions in which the United States is plaintiff. Such an extension of its jurisdiction would include all that the statute under consideration has granted to the Circuit Court.

It is true that Congress has declared that no person shall be sued in a circuit court of the United States who does not reside within the district for which the court was established, or who is not found there. But a citizen residing in Oregon may be sued in Maine, if found there, so that process can be served on him. There is, therefore, nothing in the Constitution which forbids Congress to enact that, as to a class of cases or a case of special character, a circuit court-any circuit court-in which the suit may be brought, shall, by process served anywhere in the United States, have the power to bring before it all the parties necessary to its decision.

Whether parties shall be compelled to answer in a court of the United States wherever they may be served, or shall only be bound to appear when found within the district where the suit has been brought, is merely a matter of legislative discretion, which ought to be governed by considerations of conveyience, expense, &c., but which, when exercised by Congress, is controlling on the courts.

So, also, the doctrine of multifariousness; whether relating to improperly combining persons or grievances in the bill, it is simply a rule of pleading adopted by courts of equity. It has been found convenient in the administration of justice, and promotive of that end, that parties who have no proper connection with each other shall not be compelled to litigate together in the same suit, and that matters wholly distinct from and having no relation to each other, and requiring defences equally unconnected, shall not be alleged and determined in one suit. The rule itself, however, is a very accommodating one, and by no means inflexible. Such as it is, however, it may be modified, limited, and controlled by the same power which creates the court and confers its jurisdiction. The Constitution imposes no restraint in this respect upon the power of Congress. Sect. 921 of the Revised Statutes, which has been the law for fifty years, declares that when causes of like nature or relating to the same question are pending, the court may consolidate them, or make such other orders as are necessary to avoid costs and delay. It is every-day practice, under this rule, to do what the statute authorizes to be done in the case before us.

But it is argued that the statute confers a special jurisdiction to try a single case, and is intended to grant the complainant new and substantial rights, at the expense and by a corresponding invasion of those of the defendants.

It does not create a new or special tribunal. Any circuit court of the United States where the bill might be filed was, by the act, invested with the jurisdiction to try the case. Nor was new power conferred on the court beyond those which we have regarded as affecting the mode of procedure. It seems to us that any circuit court, sitting as a court of equity, which could by its process have lawfully obtained jurisdiction of the parties, and considered in one suit all the matters mentioned in the statute, could have done this before the act as well as afterwards.

But if this be otherwise, we are aware of no constitutional objection to the power of the legislative body to confer on an existing court a special jurisdiction to try a specific matter which in its nature is of judicial cognizance.

The principal defendant in this suit, the one around which all the contest is ranged, is a corporation created by an act which reserved the right of Congress to repeal or modify the charter. To this corporation Congress made a loan of $27,000,000, and a donation of lands of a value probably equal to the loan.

The statute-books of the States are full of acts directing the law officers to proceed against corporations, such as banks, insurance companies, and others, in order to have a decree declaring their charters forfeited. Special statutes are also common, ordering suits against such corporations when they have become insolvent, to wind up their business affairs, and to distribute their assets, and prescribing with minuteness the course of procedure which shall be followed and the court in which the suit shall be brought.

This court said, in the case of The Bank of Columbia v. Okely (4 Wheat. 235), in speaking of a summary proceeding given by the charter of that bank for the collection of its debts: 'It is the remedy, and not the right, and as such we have no doubt of its being subject to the will of Congress. The forms of administering justice, and the duties and powers of courts as incident to the exercise of a branch of sovereign power, must ever be subject to legislative will, and the power over them is unalienable, so as to bind subsequent legislatures.' And in Young v. The Bank of Alexandria (4 Cranch, 397), Mr. Chief Justice Marshall says: 'There is a difference between those rights on which the validity of the transactions of the corporation depends, which must adhere to those transactions everywhere, and those peculiar remedies which may be bestowed on it. The first are of general obligation; the last, from their nature, can only be exercised in those courts which the power making the grant can regulate.' See also The Commonwealth v. The Delaware & Hudson Canal Co. et al., 43 Pa. St. 227; State of Maryland v. Northern Central Railroad Co., 18 Md. 193; Colby v. Dennis, 36 Me. 1; Gowan v. Penobscot Railroad Co., 44 id. 140.

Statutes of this character, if not so common as to be called ordinary legislation, are yet frequent enough to justify us in saying that they are well-recognized acts of legislative power uniformly sustained by the courts.

It may be said, and probably with truth, that such statutes, when they have been held to be valid by the courts, do not infringe the substantial rights of property or of contract of the parties affected, but are intended to supply defects of power in the courts, or to give them improved methods of procedure in dealing with existing rights.

This leads to an inquiry indispensable to a sound decision of the case before us; namely, does this statute, by its true construction, do any thing more than this?

We might rest this branch of the case upon the concession of counsel for appellants, made both in their brief and in the oral argument, but we proceed to examine the proposition for ourselves.

The first suggestion of the legal mind on this inquiry is, that it will not be presumed, unless the language of the statute imperatively requires it, that Congress, by a retrospective law, intended to create new rights in one party to the suit at the expense, or by an invasion of the rights, of other parties; or, where no right of action founded on past transactions existed, that Congress intended to create it.

The United States was to be sole complainant in a suit in equity, and though there may be other defendants, the Union Pacific Railroad Company is the only one named in the act. The relief to be granted is the collection and payment of moneys and the restoration of property, or its value, 'either to said railroad corporation or to the United States, whichever shall in equity be entitled thereto.' The decree, therefore, can only be made on the ground of some relief to which the United States or the company is entitled by the general principles of equity jurisprudence. It is no objection to granting such relief that the company is a defendant, for by the flexibility of chancery practice a person whose interests in the subject of litigation are on the same side with the complainant may be made a defendant. The corporation could also in such a suit file a cross-bill against the complainant, and, by virtue of this statute, against any co-defendant of whom it could rightfully claim the relief which the statute authorizes.

But whatever be the relief asked, it could only, by the express terms of the act, be granted to that party who was in equity thereunto entitled. It is very plain that there was here no new right established. No new cause of equitable relief. No new rule for determining what were the rights of the parties. That was to be decided by the principles of equity; not new principles of equity, but the existing principles of equitable jurisprudence.

But the statute very specifically defines the matters which may be embraced in this suit as foundations for relief, and classifies them under a very few heads, by declaring who besides the corporation may be sued. They are persons who have received,--

1. Capital stock of the company without paying for it in money;

2. Other property of the company unlawfully and contrary to equity;

3. As profits or proceeds of contracts for construction, money or other property which ought in equity to belong to the corporation; or, 4. Persons who have wrongfully received from the United States bonds, moneys, or lands which ought in equity to be accounted for, or paid to it or to the company.

There is in this description of the class of persons who may be sued an implied condition that they are already subject to be sued for causes which render them equitably liable. The relief to be granted is also such as to equity belongs.

We are of opinion, therefore, that the act in question was intended not to change the substantial rights of the parties to the suit which it authorized, but to provide a specific method of procedure, which, by removing restrictions on the jurisdiction, process, and pleading in ordinary cases, would give a larger scope for the action of the court, and a more economical and efficient remedy than before existed; and that it is a valid and constitutional exercise of legislative power.

If in passing on its constitutional validity we have given the subject much consideration, it will be seen that we have at the same time been compelled to give a construction to its language which will go far to enable us to decide whether it authorized the bill that was filed; for we are of opinion that nothing other than what is found in the act, be express language or by fair implication, can be introduced into this suit as a foundation for the action of the court.

The Attorney-General is peremptorily ordered to bring the proceeding. The filing of the bill and its subject-matter are both removed from the domain of discretion. For the purposes of this suit, the court wherein it is brought is vested with powers and aided by modes of procedure which it can apply to no other. Parties are subjected to a jurisdiction by process to which the same court cannot subject them in any other suit, and they are required to litigate their rights in a suit common to them and others with whom they could not be joined under the rules governing such matter in any other case.

We are bound, therefore, to presume that Congress did not intend that this special remedy should include any thing beyond the matters which we have seen were so carefully and so specifically mentioned as grounds of relief.

Other provisions of the act show that Congress had, or believed that it had, other grievances against this company for which other remedies are furnished. Any director or officer who violates certain provisions is to be punished criminally. By mandamus in the proper court, but not in this suit, the company is to be compelled to operate its road as required by law. The second section directs the Secretary of the Treasury to withhold payment for transportation for the United States until what is due for interest paid shall be satisfied, and the matter, if disputed, is to be settled by suit brought by the company in the Court of Claims.

This consideration makes it clear that any bill brought by the Attorney-General under the fourth section of the act of 1873 must be limited by the provisions of that act, both as to the grievances on which it counts and the relief which it seeks.

With these views of the statute under which this bill is brought, and by which its sufficiency on demurrer must be tested, we approach the examination of the bill itself.

It consists of forty-seven pages of printed matter, divided into forty-eight separate paragraphs, each of which undertakes to set forth a distinct ground of relief, or points out the relief which is sought.

It will, therefore, be impossible to give in this opinion the results of the separate examination of each of these paragraphs; nor is this at all necessary. A consideration of the principal grounds of relief, grouped as they can easily be under a few heads, will indicate the views which we believe to be sufficient to decide the whole.

We will consider together the allegations of the bill against the Wyoming Coal Company, the Credit Mobilier Company, the Pullman Palace Car Company, and the three construction contracts of H. M. Hoxie, Oakes Ames, and James W. Davis. These are by far the most important as regards the sum involved as well as the principles which must decide the case.

The substance of the charge is, that the board of directors of the railroad company made contracts for building the road, and for running the Pullman cars on it, and for mining its coal lands and purchasing the coal so mined, which were a fraud upon the company; that these contracts allowed exorbitant prices for work done and material furnished; that otherwise they were very advantageous to the other contracting parties and injurious to the company; that in all of them the directors, or a controlling majority of them, were interested adversely to the company; that in fact they were, in the name of the company, making contracts with themselves as the other party. In short, it may be taken for granted that if these allegations are true, as they must be held to be on demurrer, frauds more unmitigated than those set forth in this bill were never perpetrated on a helpless corporation by its managing directors.

That these frauds are such as a court of equity would relieve against in a proper case, may be seen in the opinion of the Circuit Court for the Nebraska district, in a suit growing out of the Wyoming Coal Company's contract. Wardell v. The Union Pacific Railroad Co., 4 Dill. 330.

The first inquiry arising on these facts is, What relief can be given, and who is entitled to it?

The obvious reply to the first branch of the question is, that the parties who made this contract and received the pecuniary benefit of it can at law be made responsible in damages, or held in equity to compensation for the loss suffered. There would be no difficulty in adjudging in a proper suit that such contracts were void, and then ordering an accounting, on the basis of a fair compensation for what had been done in the way of construction, building, opening mines, furnishing coal, &c., and what had been received for such work and materials. The difficulty is, to whom shall this money be paid when recovered, and can it be recovered in this suit? If the railroad company, falling into purer hands, had brought such a suit, the bill might be sustained.

But the company is not the complainant here. It seeks no relief for these wrongs. It may have been the design of the law to give the corporation an opportunity by a cross-bill to obtain relief against the other defendants, who are charged with these frauds. Such a bill, if not strictly within the rule of equity procedure, which only allows a defendant to file a cross-bill against a complainant, might be sustained under the provisions of this statute. But the company files no such bill. It desires no such relief. On the contrary, it resists by demurrer any further proceeding in the matter. Can it be compelled in this mode to prosecute such a suit? So long as it exists in the possession and unrestrained exercise of all its corporate powers, its board of directors, unless under judicial prohibition or compulsion, is vested with the sole authority to decide whether it will assert its right of action for a supposed injury, or will condone it.

The circumstances of the alleged fraud, the probability of success in the suit, the extent of the injury, the amount which may be recovered, the expense of the proceeding, and the danger of injury to the company itself, are all matters which address themselves to them as grounds for the exercise of the discretion of the directors. They have decided to have nothing to do with it. How, then, can a decree be rendered in their favor, or relief be given them which is not asked? With what hope of advantage can the court enter upon the inquiry touching the frauds alleged, and the amount of the injury sustained, when the party aggrieved refuses to proceed?

On the other hand, if the court does proceed, shall the decrees, if rendered against the defendants, be in favor of the company? If so, what good results would follow? Since the company resists any decree in its favor now, it would probably enter satisfaction or releases of the decrees as fast as they are rendered. If it did not do this, how would the moneys, if collected and paid into its treasury, be applied? It is alleged to be insolvent and in debt, but except the claim of the government, which will be presently considered, there is no allegation showing to what use the court can decree the application of these moneys. They must, therefore, go into the treasury of the company, to become subject to the control of its directors, who are now resisting this action. Not only this, but it is obvious that the amount recovered would come mainly out of the same men who now as directors or as stockholders would control the fund, and would probably order its redistribution to the parties who paid it, or give receipts or releases in advance.

The truth is, that the persons who were actually defrauded by these transactions, if any such there be, were the few bona fide stockholders who took no part in them, and had no interest in the fraudulent contracts. But it is not alleged that there are such. If there be, they are not made parties to this bill, nor does it provide any relief for them. Yet a moment's consideration will show that they alone (to say nothing of the complainant for the present) suffered any legal injury, or are entitled to any relief. As to the directors and stockholders who took part in these fraudulent contracts, they are participes criminis, and can have no relief. This class probably included nine-tenths in value of the shareholders. It is against all the principles of jurisprudence, whether at law or in equity, to permit them to litigate this fraud among themselves. If the innocent stockholders are not parties here, we have already seen that, with the power of the directors over the money recovered, they would get no relief by the suit.

The statute, however, did not permit them to be made parties. Their interest is not the same as that of the company. The statute provides only for the collection and payments of money, or the restoration of property, or its value, to the railroad company, or to the United States, as either of them may be in equity held entitled thereto. This does not embrace what a defrauded stockholder may be entitled to in his individual right.

We are of opinion, therefore, that no decree can be rendered in favor of the railroad company on account of these transactions, or for the value of the stock not paid for by those who received it. Although issuing it without payment may have been in violation of law, and an implied contract may exist on which the company could compel payment, the United States cannot in this suit recover it, and the company refuses to assert its right thereto.

The same principle applies to the arrangements made by the railroad company with the Atlantic and Pacific Telegraph Company, and with the Omaha Bridge Company, which are here assailed. These are existing contracts under which the business of the principal corporation with the others is conducted, and with which it is satisfied. It asks no rescission, and is content to comply with them. It is not within the power of the court to annul them, or to make new ones for the parties.

No decree can therefore be rendered on this bill in favor of the Union Pacific Railroad Company, because it is not the complainant, but a defendant, and, asking no affirmative relief or any other, it resists being brought into this suit, and refuses to plead in it any further than compelled by the court.

If there is any relief to which the United States is entitled against the company, the latter, being a defendant, must remain and answer to the claim. But it is conformable to the principles neither of the common law nor of equity to compel it to prosecute a suit as complainant which it disapproves, or to establish a claim which it denies, or take a decree where it asserts nothing to be due.

We must now inquire whether the bill makes a case in which the United States, the complainant, is entitled under the terms of the statute to relief.

The United States is not, and never has been, a stockholder in this company. It is a creditor.

The government sustains two distinct relations to the railroad company, and, in considering her rights under this statute, it is important to keep them separate. The company is organized under, and owes its corporate existence to, an act of Congress. The government has all the rights which belong to any other government as a sovereign and legislative power over this creation of that power. That this power should not be too much crippled by the doctrine that a charter is a contract, the eighteenth section declares that Congress may at any time, having due regard for the rights of the companies named therein, add to, alter, amend, or repeal the act. The power of Congress, therefore, in its sovereign and legislative capacity over this corporation is very great.

The government, however, holds another very important relation, namely, that of contract. It has loaned to the company $27,000,000, and granted to it on certain terms many million acres of land. The government is paying all the time the semi-annual interest on its own bonds, loaned to the company. The company is bound by contract to pay them, principal and interest, at their maturity. The government by the contract has a lien on the road and its appurtenances to secure this payment. The company is also bound by the contract to perform for the government all the transportation and telegraphing graphing that may be required of it, and to keep its road and line always in order and readiness to render these services. It may have other contract obligations to the government not here mentioned, but these are all that are important to our inquiry. The government has delivered its bonds to the company. The company has built the road, owns it, and operates it. Does the bill allege any thing which, growing out of this contract, entitles the United States to relief?

One of its allegations is that there is due to the United States and unpaid, on account of interest on the bonds, the sum of $6,198,700, and that the balance of interest for which the company is liable is rapidly accumulating. It was filed in May, 1873, and this court, at its October Term, 1875, decided, in United States v. Union Pacific Railroad Co. (91 U.S. 72), that the company was not bound to pay this interest until the bonds mature, except so far as the act made in that regard two special provisions. One was that half the compensation for transportation performed for the United States should, as provided by the subsequent amended charter of 1864, be withheld by the government for that purpose; the other was that after the completion of the road five per cent of its net earnings were to be applied annually to extinguish the debt to the United States.

The second section of the act of 1873, as we have seen, provides for the first of these cases, and as to the other, the government has brought suits, which are now ripe for decision in this court.

There is, therefore, no ground for relief on account of money due by the company to the United States.

It is said that the latter, as a creditor whose lien is endangered by the extravagance of the company, and the misappropriation of its means, has the right to come into equity for preventive relief to secure the collection of the sums of which the company has been defrauded.

The government made its contract and bargained for its security. It had a first lien on the road by the original act of incorporation, which would have made its loan safe in any event. But in its anxiety to secure the rapid prosecution of the work, an end more important to it than to any one else, and still more important to the people whom it represented, -it postponed this lien to another mortgage, that the means might be raised to complete the road. It has the second lien, however, and the right to appropriate one-half of he price it annually pays for the use of the road,-a very large sum,-and five per cent of the net earnings of the road, which may become much larger, to the extinction of this debt. It is not wholly unreasonable to suggest that the amount which the company may be compelled to pay annually, under these two provisions, will be sufficient as a sinking fund to pay the entire debt, principal and interest, before it falls due.

It is difficult to see any right which as a creditor the government has to interfere between the corporation and those with whom it deals. It has been careful to protect its interests in making the contract, and it has the right which that contract gives. What more can it ask? It is true that there is an allegation of insolvency. But in what that insolvency consists is not clearly shown. It has a floating debt. What railroad company has not? It is said it does not pay the interest on its debt to the United States. We have shown that it owes the United States no money that is due. There is no allegation that it does not pay the interest on all its own funded debt. The allegation as it is would be wholly insufficient to place the corporation in bankruptcy, even if that was not forbidden by the act under which this bill is drawn. The facts stated are utterly insufficient to support a creditor's bill by the United States. That requires a judgment at law, an execution issued, and a return of nulla bona. Here there is no judgment, no money due, and no sufficient allegation of insolvency.

We are unable, therefore, to see any relief to which under this bill the United States, on account of its contract relations with the company, would be entitled in a court of equity.

If we look at the statute this is still clearer. The moneys due for unpaid stock, or for property of the company unlawfully received, or as profits in fraudulent contracts for construction, are all described in the act as belonging to the corporation, and to be restored to it. Those who may have wrongfully and unlawfully received from the United States bonds, moneys, or lands which ought in equity to be accounted for and paid to it or to the company, may be compelled to pay the moneys or restore the property to the party, which shall in equity be entitled thereto.

But, in this connection, no one but the company has received property, lands, or moneys from the United States. There is no allegation that the moneys were not used to build the road. If there was, there is nothing now due, and the company is performing all its obligations to the government under the contract.

The bill establishes no right in the government, under this or any other clause of the act, to recover in its own right any property or money from the company.

In its sovereign or legislative relation to the company, the United States has powers the extent of which it is unnecessary to define in this case. The two sections of the act, under one of which this suit was instituted, are instances of the exercise of these powers, and they affect the interest of the company in important particulars. Congress might also have directed the Attorney-General, either as part of this proceeding or as an independent one, to ask the court to declare the franchises of the company forfeited. It might have ordered a bill to inquire if the company was insolvent, and if so, to wind up its affairs and distribute its assets. In short, there are many modes in which the legislature could have called into operation all the judicial powers known to the law. But it has not done so, and that is the constantly recurring answer to this bill. It provided in the statute for a mode of securing a full inquiry into the affairs of the company, by enacting that the Secretary of the Treasury should have free access to all its books and correspondence,-a mode of obtaining information far more effective than a bill of discovery. The statute, therefore, did not authorize a bill of discovery. Not wanting the company declared bankrupt and closed out by a decree of the court, Congress enacted that it should not be subject to the bankrupt law, as other corporations were, but should continue to exercise its franchises and perform its duties, and that it might be compelled to do this by a writ of mandamus from the proper court. It limited the relief to be granted under this act, therefore, both by the terms in which it was granted and by other provisions, to the recovery of a moneyed decree, or a restoration of specific property to which the United States or the company was by law entitled.

It is useless, therefore, to inquire what might have been done by some other legislation, or what, independently of legislation, are the rights of the government; for we can only act on such as are recognized by the act under which the Circuit Court proceeded.

This brings us to the consideration of the last ground of relief which we propose to notice, and which, with the alleged right to a decree in favor of the company against the individuals and corporations who have defrauded it, is most earnestly insisted on here.

The proposition is that the United States, as the grantor of the franchises of the company, the author of its charter, and the donor of lands, rights, and privileges of immense value, and as parens patriae, is a trustee, invested with power to enforce the proper use of the property and franchises granted for the benefit of the public.

The legislative power of Congress over this subject has already been considered, and need not be further alluded to. The trust here relied on is one which is supposed to grow out of the relations of the corporation to the government, which, without any aid from legislation, are cognizable in the ordinary courts of equity.

It must be confessed that, with every desire to find some clear and well-defined statement of the foundation for relief under this head of jurisdiction, and after a very careful examination of the authorities cited, the nature of this claim of right remains exceedingly vague. Nearly all the cases-we may almost venture to say all of them-fall under two heads:--

1. Where municipal, charitable, religious, or eleemosynary corporations, public in their character, had abused their franchises, perverted the purpose of their organization, or misappropriated their funds, and as they, from the nature of their corporate functions, were more or less under government supervision, the Attorney-General proceeded against them to obtain correction of the abuse; or,

2. Where private corporations, chartered for definite and limited purposes, had exceeded their powers, and were restrained or enjoined in the same manner from the further violation of the limitation to which their powers were subject.

The doctrine in this respect is well condensed in the opinion in The People v. Ingersoll, recently decided by the Court of Appeals of New York. 58 N. Y. 1. 'If,' says the court, 'the property of a corporation be illegally interfered with by corporation officers and agents or others, the remedy is by action at the suit of the corporation, and not of the Attorney-General. Decisions are cited from the reports of this country and of this State, entitled to consideration and respect, affirming to some extent the doctrine of the English courts, and applying it to like cases as they have arisen here. But in none has the doctrine been extended beyond the principles of the English cases; and, aside from the jurisdiction of courts of equity over trusts of property for public uses and over the trustees, either corporate or official, the courts have only interfered at the instance of the Attorney-General to prevent and prohibit some official wrong by municipal corporations or public officers, and the exercise of usurped or the abuse of actual powers.' p. 16.

To bring the present case within the rule governing the exercise of the equity powers of the court, it is strongly urged that the company belongs to the class first described.

The duties imposed upon it by the law of its creation, the loan of money and the donation of lands made to it by the United States, its obligation to carry for the government, and the great purpose of Congress in opening a highway for public use and the postal service between the widely separated States of the Union, are relied on as establishing this proposition.

But in answer to this it must be said that, after all, it is but a railroad company, with the ordinary powers of such corporations. Under its contract with the government, the latter has taken good care of itself; and its rights may be judicially enforced without the aid of this trust relation. They may be aided by the general legislative powers of Congress, and by those reserved in the charter, which we have specifically quoted.

The statute which conferred the benefits on this company, the loan of money, the grant of lands, and the right of way, did the same for other corporations already in existence under State or territorial charters. Has the United States the right to assert a trust in the Federal government which would authorize a suit like this by the Attorney-General against the Kansas Pacific Railway Company, the Central Pacific Railroad Company, and other companies in a similar position?

If the United States is a trustee, there must be cestuis que trust. There cannot be the one without the other, and the trustee cannot be a trustee for himself alone. A trust does not exist when the legal right and the use are in the same party, and there are no ulterior trusts.

Who are the cestuis que trust for whose benefit this suit is brought? If they be the defrauded stockholders, we have already shown that they are capable of asserting their own rights; that no provision is made for securing them in this suit should it be successful, and that the statute indicates no such purpose.

If the trust concerned relates to the rights of the public in the use of the road, no wrong is alleged capable of redress in this suit, or which requires such a suit for redress.

Railroad Company v. Peniston (18 Wall. 5) shows that the company is not a mere creature of the United States, but that while it owes duties to the government, the performance of which may, in a proper case, be enforced, it is still a private corporation, the same as other railroad companies, and, like them, subject to the laws of taxation and the other laws of the States in which the road lies, so far as they do not destroy its usefulness as an instrument for government purposes.

We are not prepared to say that there are no trusts which the United States may not enforce in a court of equity against this company. When such a trust is shown, it will be time enough to recognize it. But we are of opinion that there is none set forth in this bill which, under the statute authorizing the present suit, can be enforced in the Circuit Court.

There are many matters alleged in the bill in this case, and many points ably presented in argument, which have received our careful attention, but of which we can take no special notice in this opinion. We have devoted so much space to the more important matters, that we can only say that, under the view which we take of the scope of the enabling statute, they furnish no ground for relief in this suit.

The liberal manner in which the government has aided this company in money and lands is much urged upon us as a reason why the rights of the United States should be liberally construed. This matter is fully considered in the opinion of the court already cited, in United States v. Union Pacific Railroad Co. (supra), in which it is shown that it was a wise liberality for which the government has received all the advantages for which it bargained, and more than it expected. In the feeble infancy of this child of its creation, when its life and usefulness were very uncertain, the government, fully alive to its importance, did all that it could to strengthen, support, and sustain it. Since it has grown to a vigorous manhood, it may not have displayed the gratitude which so much care called for. If this be so, it is but another instance of the absence of human affections which is said to characterize all corporations. It must, however, be admitted that it has fulfilled the purpose of its creation and realized the hopes which were then cherished, and that the government has found it a useful agent, enabling it to save vast sums of money in the transportation of troops, mails, and supplies, and in the use of the telegraph.

A court of justice is called on to inquire not into the balance of benefits and favors on each side of this controversy, but into the rights of the parties as established by law, as found in their contracts, as recognized by the settled principles of equity, and to decide accordingly. Governed by this rule, and by the intention of the legislature in passing the act under which this suit is brought, we concur with the Circuit Court in holding that no case for relief is made by the bill.

Decree affirmed.

MR. JUSTICE SWAYNE, with whom concurred MR. JUSTICE HARLAN, dissenting.


text: Talk:United States v. Union Pacific Railroad Company (98 U.S. 569)/Opinion of the Court

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United States v. Union Pacific Railroad Company (98 U.S. 569)/Dissent Swayne

MR. JUSTICE SWAYNE, with whom concurred MR. JUSTICE HARLAN, dissenting.

I concur in the opinion, so far as it relates to the constitutional validity of the act of Congress which lies at the foundation of the case. In the residue I cannot concur.


text: Talk:United States v. Union Pacific Railroad Company (98 U.S. 569)/Dissent Swayne


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National Bank v. Matthews

ERROR to the Supreme Court of the State of Missouri.

On the 1st of March, 1871, Hugh B. Logan and Elizabeth A. Matthews executed and delivered to Sterling Price & Co. their joint and several promissory note for the sum of $15,000, payable to the order of that firm two years from date, with interest at the rate of ten per cent per annum. The payment of the note was secured by a deed of trust, executed by her, of certain real estate therein described, situate in the State of Missouri.

On the 13th of the same month, the note and deed of trust were assigned to the Union National Bank of St. Louis. Price & Co. failed to pay the loan at maturity. The bank directed the trustee named in the deed of trust to sell. Said Elizabeth thereupon filed this bill in the proper State court to enjoin the sale. The bank in its answer avers that it 'accepted the said note and deed of trust as security for the sum of $15,000, then and there advanced and loaned to said Sterling Price & Co. .. . on the security of said note and deed of trust.' A perpetual injunction was decreed, upon the ground that the loan by the bank to Price & Co. was made upon realestate security; that it was forbidden by law; and that the deed of trust was, therefore, void. The decree was made upon the pleadings. No testimony was introduced upon either side The bank removed the case to the Supreme Court of the State, where the decree was affirmed. The bank then sued out this writ of error.

Mr. Philip Phillips for the plaintiff in error.

This case does not fall within the limitations imposed by Rev. Stat., sect. 5137. No mortgage or conveyance of real estate was made to the bank. Price & Co. had only a lien which could be enforced in default of payment. This was all that they passed to the bank: Potter v. McDowell (43 Mo. 93); Watson v. Hawkins (60 id. 550); and it was a mere incident to the note, securing its payment to the holder thereof in good faith, although he was ignorant, at the time of taking it, of the existence of the lien. Had the mortgage not been delivered nor any thing said about it, the bank, on failure of the maker to pay the note, would have been entitled to the lien: Green v. Hart (1 Johns. (N. Y.) 590); Chappell v. Allen (38 Mo. 213); and its right to assert it could not have been successfully resisted on the ground that to permit it to do so would authorize a violation of its charter.

The act, by authorizing loans to be made 'on personal security,' cannot be held as limiting the transaction to the personal undertaking of the parties to the note; and it would not be violated if the bank should require as collateral a deposit of bonds or of stocks, either of States, municipalities, or incorporated companies. Shoemaker v. National Bank, 2 Abb. (U.S.) 416; Schouler, Personal Property, pp. 87, 94; Pittsburg Car Works v. Bank, Thompson's Nat. Bank Cases, 315. In many of these instances the bonds or stocks are secured by real estate. This, however, does not change the character of the collateral, or make it other than personal security. See also First National Bank of Fort Dodge v. Haire, 36 Iowa, 443; Merchants' National Bank v. Mears, Thompson's Nat. Bank Cases, 353.

The decision of the learned court below questions neither the right of the bank to recover the contents of the note by suing the parties thereto, nor the validity of the lien created by the mortgage. Here there are a bona fide subsisting debt, evidenced by the note, whereof the bank is the lawful holder, and a lien which Price & Co., before their attempted transfer of it, could have made available. It does now inure to their benefit, because they have assigned the note, and it cannot be enforced by the bank, as it was made void in its hands. Is the lien then vacated? It certainly is, for all practical purposes, if the extraordinary position taken below should be sustained here.

Can the defendant in error, by a strained construction, be permitted to make the objection and cancel a contract which the statute does not declare to be void? There is some contrariety of opinion upon this question, and the court is referred to some of the numerous cases which answer it in the negative. Smith v. Sheely, 12 Wall. 360; Gold Mining Company v. National Bank, 96 U.S. 640; Silver Lake Bank v. North, 4 Johns. (N. Y.) Ch. 370. The decision in the last case is, that if the bank had passed 'the exact line of its power, it would rather belong to the government to exact a forfeiture of the charter, than to the court in this collateral way to decide a question of misuser by setting aside a just and bona fide contract.' The same doctrine is repeated in Steam Navigation Company v. Wood, (17 Barb. (N. Y.) 380), and supported by the judgments of the courts of Massachusetts, Pennsylvania, and other States. Ang. & A. Corp., sect. 153.

Mr. J. A. Hunter, Mr. John W. Noble, and Mr. John C. Orrick, for the defendant in error.

The deed of trust is in effect a mortgage with a power of sale thereto annexed. Although a third person is named as trustee, and vested with that power, the grantor has an equity of redemption, which may be judicially foreclosed and sold. The cestui que trust has a beneficial interest in the lands. Kennett v. Plummer, 28 Mo. 142; Chappell v. Allen, 38 id. 213; Potter v. Stevens, 40 Id. 229. In the absence of any statutory prohibition, the assignments would have vested that interest in the bank, but as the latter is permitted (Rev. Stat., sect. 5137) to 'purchase' or 'hold' real estate in certain specified cases,-of which this is not one,-and in 'no other,' the assignments passed no interest in the lands, and conferred no right to subject them to sale to pay the note.

The words 'purchase' and 'hold,' where they occur in that section, are not confined to cases where the absolute title to the fee has been conveyed. The provision allowing the bank to take a mortgage, by way of security for debts previously contracted, would be superfluous, if the general prohibitory words did not forbid it to purchase such an interest in real property as a mortgage transfers. Looking at the mischief which the statute had in view, it is immaterial whether the mortgage is made directly to the bank, or is assigned to it. The interest acquired is in each case the same.

The preceding section allows the bank to loan money on personal security. This virtually prohibits loaning it on any other. Expressio unius est exclusio alterius.

The decided cases, without a dissent, affirm that all grants of corporate power are to be construed favorably to the public at large and most strongly against the corporation; that it has only the powers expressly given or necessarily implied; that the specification of certain powers prohibits by implication the exercise of other substantive powers, and that the intention of the law-maker is to be gathered from the whole statute. Governed by these fundamental rules, it must be held that the transaction on the part of the bank was ultra vires, not allowed by, but in palpable violation of, the statute to which it owes its existence, and consequently void. The injunction was therefore properly awarded. Fowler v. Scully, 72 Pa. St. 456; Kansas Valley National Bank v. Rowell, 2 Dill. 371; Ripley v. Harris, 3 Biss. 190; Commonwealth Bank v. Clark, 4 Mo. 59; Griffith v. Commonwealth Bank, id. 255; Bank of Lawrence v. Young, 37 id. 398; Downing v. Ringer, 7 id. 585; White v. Franklin Bank, 22 Pick. (Mass.) 181; Brown v. Farkington, 3 Wall. 381; Beasley v. Bignold, 5 Barn. & Ald. 335; Forster v. Taylor, id. 887; Cope v. Rowlands, 2 Mee. & W. 149.

MR. JUSTICE SWAYNE, after stating the facts, delivered the opinion of the court.

title: National Bank v. Matthews


text: Talk:National Bank v. Matthews

title: Talk:National Bank v. Matthews


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National Bank v. Matthews/Opinion of the Court

This case involves a question arising under the national banking law, which has not heretofore been passed upon by this court. We have considered it with the care due to its importance.

Our attention has been called to but a single point which requires consideration, and that is, whether the deed of trust can be enforced for the benefit of the bank.

The statutory provisions which bear upon the subject are as follows:--

'SECT. 5136.' Every national banking association is authorized 'to exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidence of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this title.

'SECT. 5137. A national banking association may purchase, hold, and convey real estate for the following purposes, and for no others: First, such as may be necessary for its immediate accommodation in the transaction of its business. Second, such as shall be mortgaged to it in good faith by way of security for debts previously contracted. Third, such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. Fourth, such as it shall purchase at sales under judgments, decrees, or mortgages held by the association, or shall purchase to secure debts to it. But no such association shall hold the possession of any real estate under mortgage, or the title and possession of any real estate purchased to secure any debts due to it for a longer period than five years.' Rev. Stat. 1999; 13 Stat. 99.

Here the bank never had any title, legal or equitable, to the real estate in question. It may acquire a title by purchasing at a sale under the deed of trust; but that has not yet occurred, and never may.

Sect. 5137 has, there, no direct application to the case. It is only material as throwing light upon the point to be considered in the preceding section. Except for that purpose it may be laid out of view.

Sect. 5136 does not, in terms, prohibit a loan an real estate, but the implication to that effect is clear. What is so implied is as effectual as if it were expressed. As the transaction is disclosed in the record, the loan was made upon the note as well as the deed of trust. Non constat, that the maker who executed the deed would not have been deemed abundantly sufficient without the further security. The deed, as a mortgage would have been, was an incident to the note and a right to the benefit of the deed, whether mentioned or delivered or not, when the note was assigned, would have passed with the note to the transferee of the latter.

The object of the restrictions was obviously threefold. It was to keep the capital of the banks flowing in the daily channels of commerce; to deter them from embarking in hazardous real-estate speculations; and to prevent the accumulation of large masses of such property in their hands, to be held, as it were, in mortmain. The intent, not the letter, of the statute constitutes the law. A court of equity is always reluctant in the last degree to make a decree which will effect a forfeiture. The bank parted with its money in good faith. Its garments are unspotted. Under these circumstances, the defence of ultra vires, if it can be made, does not address itself favorably to the mind of the Chancellor. We find nothing in the record touching the deed of trust which, in our judgment, brings it within the letter or the meaning of the prohibitions relied upon by the counsel for the defendant in error.

In The First National Bank of Fort Dodge v. Haire and Others (36 Iowa, 443), the bank refused to discount a note for a firm, but agreed that one of the partners might execute a note to the other, that the payee should indorse it, that the bank should discount it, and that the maker should indemnify the indorser by a bond and mortgage upon sufficient real estate executed for that purpose, with a stipulation that, in default of due payment of the note, the bond and mortgage should inure to the benefit of the bank. The arrangement was carried out. The note was not paid. The maker and indorser failed and became bankrupts. The bank filed a bill to foreclose. The same defence was set up as here. In disposing of this point, the Supreme Court of the State said: 'Every loan or discount by a bank is made in good faith, in reliance, by way of security, upon the real or personal property of the obligors; and unless the title by mortgage or conveyance is taken to the bank directly, for its use, the case is not within the prohibition of the statute. The fact that the title or security may inure indirectly to the security and benefit of the bank will not vitiate the transaction. Some of the cases upon quite analogous statutes go much further than this. Silver Lake Bank v. North, 4 J. C. R. 370.' But it is alleged by the learned counsel for the defendant in error that in the jurisprudence of Missouri a deed of trust is the same thing in effect as a direct mortgage,-with respect to a party entitled to the benefit of the security,-and authorities are cited in support of the proposition. The opinion of the Supreme Court of Missouri assumes that the loan was made upon real-estate security within the meaning of the statute, and their judgment is founded upon that view. These things render it proper to consider the case in that aspect. But, conceding them to be as claimed, the consequence insisted upon by no means necessarily follows. The statute does not declare such a security void. It is silent upon the subject. If Congress so meant, it would have been easy to say so; and it is hardly to be believed that this would not have been done, instead of leaving the question to be settled by the uncertain result of litigation and judicial decision. Where usurious interest is contracted for, a forfeiture is prescribed and explicitly defined.

In Harris v. Runnels (12 How. 79), this court said that 'the statute must be examined as a whole, to find out whether or not the makers meant that a contract in contravention of it was to be void, so as not to be enforced in a court of justice.' In that case, a note given for the purchase-money of slaves, taken into Mississippi contrary to a statute of the State, was held to be valid.

Where a statute imposes a penalty on an officer for solemnizing a marriage under certain circumstances, but does not declare the marriage void, the marriage is valid; but the penalty attaches to the officer who did the prohibited act. Milford v. Worcester, 7 Mass. 48; Parton v. Hervey, 1 Gray (Mass.), 119; King v. Birmingham, 8 Barn. & Cress. 29.

Where a bank is limited by its charter to a specified rate of interest, but no penal consequence is denounced for taking more, it has been held that a contract for more is not wholly void. The Planters' Bank v. Sharp et al., 12 Miss. 75; The Grand Gulf Bank v. Archer et al., 16 id. 151; Rock River Bank v. Sherwood, 10 Wis. 230.

The charter of a savings institution required that its funds should be 'invested in, or loaned on, public stocks or private mortgages,' &c. A loan was made and a note taken, secured by a pledge of worthless bank-stock. The borrower sought to enjoin the collection of the note upon the ground that the transaction was forbidden by the charter, and therefore void. The court held the borrower bound, and upon a counter-claim adjudged that he should pay the amount of the loan with interest. Mott v. The United States Trust Co., 19 Barb. (N. Y.) 568.

Where a corporation is incompetent by its charter to take a title to real estate, a conveyance to it is not void, but only voidable, and the sovereign alone can object. It is valid until assailed in a direct proceeding instituted for that purpose. Leazure v. Hillegas, 7 Serg. & R. (Pa.) 313; Goundie v. Northampton Water Co., 7 Pa. St. 233; Runyon v. Coster, 14 Pet. 122; The Banks v. Poitiaux, 3 Rand. (Va.) 136; McIndoe v. The City of St. Louis, 10 Mo. 577. See also Gold Mining Company v. National Bank, 96 U.S. 640.

The authority first cited is elaborate and exhaustive upon the subject. So an alien, forbidden by the local law to acquire real estate, may take and hold title until office found. Fairfax's Devisee v. Hunter's Lessee, 7 Cranch, 604.

In Silver Lake Bank v. North (4 Johns. (N. Y.) Ch. 370), the bank was a Pennsylvania corporation, and had taken a mortgage upon real estate in New York. A bill of foreclosure was filed in the latter State. The answer set up as a defence 'that by the act of incorporation the plaintiffs were not authorized to take a mortgage except to secure a debt previously contracted in the course of its dealings; and here the money was lent after the bond and mortgage were executed.' The analogy of this defence to the one we are considering is too obvious to need remark. Both present exactly the same question. Chancellor Kent said: 'Perhaps it would be sufficient for this case that the plaintiffs are a duly incorporated body, with authority to contract and take mortgages and judgments; and if they should pass the exact line of their power, it would rather belong to the government of Pennsylvania to exact a forfeiture of their charter, than for this court in this collateral way to decide a question of misuser, by setting aside a just and bona fide contract.'. . . 'If the loan and mortgage were concurrent acts, and intended so to be, it was not a case within the reason and spirit of the restraining clause of the statute, which only meant to prohibit the banking company from vesting their capital in real property, and engaging in land speculations. A mortgage taken to secure a loan advanced bona fide as a loan, in the course and according to the usage of banking operations, is not surely within the prohibition.'

It is not denied that the loan here in question was within this category. This authority, if recognized as sound, is conclusive. See also Board v. The Bank of Washington, 11 Serg. & R. (Pa.) 411.

Sedgwick (Stat. and Const. Constr. 73) says: 'Where it is a simple question of authority to contract, arising either on a question of regularity of organization or of power conferred by the charter, a party who has had the benefit of the agreement cannot be permitted in an action founded upon it to question its validity. It would be in the highest degree inequitable and unjust to permit a defendant to repudiate a contract, the benefit of which he retains.'

What is said in the text is fully sustained by the authorities cited.

We cannot believe it was meant that stockholders, and perhaps depositors and other creditors, should be punished and the borrower rewarded, by giving success to this defence whenever the offensive fact shall occur. The impending danger of a judgment of ouster and dissolution was, we think, the check, and none other contemplated by Congress.

That has been always the punishment prescribed for the wanton violation of a charter, and it may be made to follow whenever the proper public authority shall see fit to invoke its application. A private person cannot, directly or indirectly, usurp this function of the government.

The decree of the Supreme Court of Missouri will be reversed, and the cause remanded with directions to dismiss the bill; and it is

So ordered.

MR. JUSTICE MILLER dissenting.


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National Bank v. Matthews/Dissent Miller

MR. JUSTICE MILLER dissenting.

I am of opinion that the National Banking Act makes void every mortgage or other conveyance of land as a security for money loaned by the bank at the time of the transaction to whomsoever the conveyance may be made; that the bank is forbidden to accept such security, and it is void in its hands.

The contract to pay the money, and the collateral conveyance for security, are separable contracts, and so far independent that one may stand and the other fall.

In the present case, the money was loaned on the faith of the deed of trust, and that instrument is void in the hands of the bank, but the note, as evidence of the loan of money, is valid against Mrs. Matthews personally. With this latter contract the State court did not interfere. It enjoined proceedings under the deed of trust against the land, and did no more.

Its judgment in that matter ought, in my opinion, to be affirmed.


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Town of Coloma v. Eaves/Concurrence Bradley

MR. JUSTICE BRADLEY delivered the following concurring opinion:--

I dissent from the opinion of the court in this case, so far as it may be construed to reaffirm the first point asserted in the case of Knox County v. Aspinwall; to wit, that the mere execution of a bond by officers charged with the duty of ascertaining whether a condition precedent has been performed is conclusive proof of its performance. If, when the law requires a vote of tax-payers, before bonds can be issued, the supervisor of a township, or the judge of probate of a county, or other officer or magistrate, is the officer designated to ascertain whether such vote has been given, and is also the proper officer to execute, and who does execute, the bonds, and if the bonds themselves contain a statement or recital that such vote has been given, then the bona fide purchaser of the bonds need go back no farther. He has a right to rely on the statement as a determination of the question. But a mere execution and issue of the bonds without such recital is not, in my judgment, conclusive. It may be prima facie sufficient; but the contrary may be shown. This seems to me to be the true distinction to be taken on this subject; and I do not think that the contrary has ever been decided by this court. There have been various dicta to the contrary; but the cases, when carefully examined, will be found to have had all the prerequisites necessary to sustain the bonds, according to my view of the case. This view was distinctly announced by this court in the case of Lynde v. The County of Winnebago, 16 Wall. 13. In the case now under consideration, there is a sufficient recital in the bond to show that the proper election was held and the proper vote given; and the bond was executed by the officers whose duty it was to ascertain these facts. On this ground, and this alone, I concur in the judgment of the court.


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 174 could not be executed without tumults and massacres, as in many places the people chose rather to die in the defence of their altars than to behold in the midst of peace their cities exposed to the rapine and cruelty of war. The soldiers themselves, among whom this sacrilegious plunder was distributed, received it with a blush; and, hardened as they were in acts of violence, they dreaded the just reproaches of their friends and relations. Throughout the Roman world a general cry of indignation was heard, imploring vengeance on the common enemy of human kind; and at length, by an act of private oppression, a peaceful and unarmed province was driven into rebellion against him.

The procurator of Africa was a servant worthy of such a master, who considered the fines and confiscations of the rich as one of the most fruitful branches of the Imperial revenue. An iniquitous sentence had been pronounced against some opulent youths of that country, the execution of which would have stripped them of far the greater part of their patrimony. In this extremity, a resolution that must either complete or prevent their ruin was dictated by despair. A respite of three days, obtained with difficulty from the rapacious treasurer, was employed in collecting from their estates a great number of slaves and peasants blindly devoted to the commands of their lords, and armed with the rustic weapons of clubs and axes. The leaders of the conspiracy, as they were admitted to the audience of the procurator, stabbed him with the daggers concealed under their garments, and, by the assistance of their tumultuary train, seized on the little town of Thysdrus, and erected the standard of rebellion against the sovereign of the Roman empire. They rested their hopes on the hatred of mankind against Maximin, and they judiciously resolved to oppose to that detested tyrant an emperor whose mild virtues had already acquired the love and esteem of the Romans, and whose authority over the province would give weight and stability to the enterprise. Gordianus, their proconsul, and the object of their choice, refused, with unfeigned reluctance, the dangerous


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Wolf v. Stix (99 U.S. 1)

APPEAL from the Circuit Court of the United States for the Western District of Tennessee.

On the 8th of December, 1866, Louis Stix & Co. commenced a suit in the Chancery Court of Shelby County, Tennessee, against Marks, Pump, & Co. and M. Wolf, to recover a debt owing by Marks, Pump, & Co., and to set aside a sale of goods by the latter firm to Wolf, on the ground, as alleged, that it had been made to defraud creditors. In accordance with the practice in that State, a writ of attachment was sued out and levied upon the goods in the possession of Wolf.

The Code of Tennessee provides that (sect. 3509) 'the defendant to an attachment suit may always replevy the property attached by giving bond with good security, payable to the plaintiff, in double the amount of the plaintiff's demand, or, at defendant's option, in double the value of the property attached, conditioned to pay the debt, interest, and costs, or the value of the property attached, with interest, as the case may be, in the event he shall be cast in the suit;' and that (sect. 3514) 'the court may enter up judgment or decree upon the bond, in the event of recovery by the plaintiff, against the defendant and his sureties for the penalty of the bond, to be satisfied by delivery of the property or its value, or payment of the recovery, as the case may be.' As soon as the attachment was served, Wolf moved the court to ascertain the value of the goods and fix the amount of the bond to be given in replevying them. This was done, and the value ascertained to be $10,000; and on the 24th of December, 1866, Wolf, as principal, and Lowenstein and Helman, as his sureties, filed in the cause their bond, a copy of which is as follows:--

'We, M. Wolf, as principal, and Elias Lowenstein and Leon Helman, as sureties, hereby bind ourselves unto Louis Stix & Co. in the sum of $20,000.

'The condition of the above bond is that, whereas, in the suit now pending in the Chancery Court at Memphis, in favor of said Louis Stix & Co. and against Marks, Pump, & Co., and in which said Wolf is joined as a defendant, an attachment has been issued against said Marks, Pump, & Co. for $18,699.54, besides interest and costs, and has been levied upon a stock of goods and other property as the property of said Marks, Pump, & Co., which were in the possession of said M. Wolf, and were and are claimed by him as his property; and this bond given by him for the purpose of replevying said stock of goods and other property attached, being, altogether, as it is agreed by the parties, of the value of ten thousand ($10,000) dollars. Now, in the event said M. Wolf shall be cast in said suit, and said stock of goods and other property shall be found and decreed by the court to have been subject to said attachment, and liable thereunder to the satisfaction of the debts of complainants against Marks, Pump, & Co., then and in that event, should said Wolf pay to complainants, as the court may order and direct, the said sum of $10,000, the value of said stock of goods and other property, with interest thereon from this date, this bond shall be void, otherwise to remain in full force and effect.

'Witness our hands and seals, this-day of December, 1866.

'M. WOLF. [L. S.]

'ELIAS LOWENSTEIN. [L. S.]

'L. HELMAN.' [L. S.]

The property attached was thereupon surrendered to Wolf. All the members of the firm of Marks, Pump, & Co. were afterwards discharged in bankruptcy, and in due time, by leave of the court, they severally filed formal pleas setting up their respective discharges. Wolf put in his answer, claiming title to the goods and denying all fraud. Testimony was taken; and on the 13th of December, 1872, after hearing, the Chancery Court found and decreed that there was no fraud in the sale to Wolf, and dismissed the suit as to him. As Marks, Pump, & Co. had been discharged in bankruptcy, it was also dismissed as to them. From this decree Stix & Co. appealed to the Supreme Court on the 21st of March, 1873. On the 28th of March, 1874, Wolf obtained on his petition therefor a discharge under the bankrupt law. On the 28th of April, 1877, the Supreme Court, upon hearing, reversed the decree of the Chancery Court, and, after finding the amount due from Marks, Pump, & Co., and ordering a recovery, concluded as follows:--

'And this court being of opinion, as before recited, that said sale was fraudulent and void, and that said stock of goods, fixtures, &c., so attached and replevied, were subject to said attachment, and liable for complainants' said debt. And it further appearing from simple calculation that said sum of $10,000, with interest from the date of said bond, Dec. 24, 1866, to the present time, amounts to the sum of $16,200: it is, therefore, further ordered, adjudged, and decreed by the court, that said fraudulent sale be and is hereby set aside, and for naught held, as to complainants' said debts herein against defendants Marks, Pump, & Co., and that the complainants Louis Stix & Co. in their own right, and also for the use of Rinskoff Bros. & Co., do have and recover of and from the defendant M. Wolf, and Elias Lowenstein and L. Helman his sureties on the aforesaid replevin bond, the said sum of $16,200, the value of the property replevied, and interest thereon to this date, for which execution may issue. And it further appearing from the record that the said defendants, Marks, Pump, & Co., have been since the filing of complainants' bill discharged in bankruptcy, no execution is awarded against them for complainants' recoveries herein; and the cost of this cause, and the court below, will be paid out of the said recovery of $16,200, against defendant M. Wolf and his aforesaid sureties on replevin bond.'

On the third day of May, 1877, after this decree was rendered, Wolf and his sureties petitioned the court for leave to come in and plead in that court the discharge of Wolf in bankruptcy; but this was denied, as no new defence could be made in that court, and it was not allowable to set up the defence of bankruptcy by any proceedings there for that purpose.

On the 26th of May, 1877, these appellants filed this bill in the Chancery Court of Shelby County, setting forth the facts substantially as above stated, and praying that the judgment or decree of the Supreme Court might be decreed to be satisfied, and of no force and effect, by reason of the discharge of Wolf in bankruptcy, and that Stix & Co. might be enjoined from enforcing the collection.

The case was afterwards removed to the Circuit Court of the United States for the Western District of Tennessee. The answer of Stix & Co. does not deny any of the material facts alleged in the bill, but sets up as a defence:--

1. That the discharge of Wolf does not release him from his liability upon the decree of the Supreme Court, because the decree is founded upon a debt created by fraud;

2. That if Wolf is discharged, his co-complainants, the sureties upon his bond, are not; and,

3. That the appellants have been guilty of such laches as to cut them off from relief in a court of equity.

The Circuit Court dismissed the bill, and from a decree to that effect this appeal has been taken; the appellants assigning for error that the court below erred, 1. In dismissing the bill; 2. In not decreeing that the appellees should be perpetually enjoined from enforcing the decree rendered by the Supreme Court of Tennessee in their favor against the appellants.

Mr. William M. Randolph and Mr. Henry Craft for the appellants.

The Code of Tennessee (sect. 3509) gave Wolf the right to execute the bond and replevy the goods, which were then in the custody of the law. His doing so cannot, therefore, by the most strained construction of the act of Congress, be regarded as creating a debt by fraud or embezzlement; executo juris non habet injuriam. There must be positive fraud or fraud in fact. Neal v. Clark, 95 U.S. 704. The debt arose out of the bond which he executed to the appellees, for it cannot be seriously insisted that he incurred any other liability to them; and they, as parties to that instrument, are estopped from showing that it was tainted with fraud. Palmer v. Preston, 45 Vt. 154; Sherman v. Strauss, 52 N. Y. 404; Brown v. Broach, 52 Miss. 536; Fowler v. Treadwell, 24 Me. 377; Jones v. Knox, 46 Ala. 53. The conveyance under which he held them when they were attached has no connection with the bond, and his liability upon the latter was extinguished by his discharge in bankruptcy.

In order that the bond shall remain in full force and effect as to the sureties, Wolf must be 'cast' in the attachment suit. He cannot, by reason of his discharge in bankruptcy, be so cast, as under the decision of this court in Wolf v. Stix (96 U.S. 541) he is, in view of the peculiar practice which prevails in Tennessee, entitled to relief by this bill, and it furnishes him an appropriate and efficient remedy for asserting the rights and exemptions which that discharge secures. The decree of the Supreme Court has no validity against him; and it could not have been rendered if the rules of that court had permitted him to plead the discharge granted to him after the appeal had been taken, and when it was pending there. The contingency, therefore, upon which the liability of the sureties depends-a valid decree or judgment against him which can be enforced-has not arisen, and it cannot arise. The condition of the bond has been discharged, and they are released. Smith v. Eakin, 2 Sneed (Tenn.), 456; Carren v. Breed, 2 Cold. (Tenn.) 465; Payne v. Able, 7 Bush (Ky.), 344; Odell v. Worten, 38 Ga. 224; Loring v. Eager, 3 Cush. (Mass.) 188; Carpenter v. Turrell, 100 Mass. 450; Hamilton v. Bryant, 114 id. 543; Braley v. Boomer, 116 id. 127; Williams v. Atkinson, 36 Tex. 16; Nettleton v. Billings, 17 N. H. 453; Kirby v. Garrison, 1 Zab. (N. J.) 179; Barber v. Rodgers, 71 Pa. St. 362; Herbert v. Horter, 81 id. 39.

Wolf's discharge will be of no practical benefit to him, so far as the liability in question is concerned, if his sureties be bound. If they are compelled to pay, his liability to them at once accrues. Loring v. Kendall, 67 Mass. 305; Fowler v. Kendall, 44 Me. 448; Ellis v. Ham, 28 id. 385; Leighton v. Atkins, 35 id. 118; Holbrook v. Fox, 27 id. 441; Porter v. McDonald, 32 id. 418; Pogue v. Joyner, 6 Ark. 241.

Mr. Josiah Patterson, contra.

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

title: Wolf v. Stix (99 U.S. 1)


text: Talk:Wolf v. Stix (99 U.S. 1)

title: Talk:Wolf v. Stix (99 U.S. 1)


text:
Wolf v. Stix (99 U.S. 1)/Opinion of the Court

This cause may be considered as supplementary to that of Wolf v. Stix, 96 U.S. 541. It is in fact the suit in chancery referred to in the opinion in that case as furnishing the complainants an appropriate remedy for enforcing their rights growing out of the discharge of Wolf in bankruptcy during the pendency of the original cause on appeal in the Supreme Court, and before the final judgment as rendered in that court. In addition to Anderson v. Reaves, cited in the argument of the other case, we are now referred to the following cases as establishing the same practice: Ward v. Tunstall, 58 Tenn. 319; Riggs v. White, 4 Heisk. (Tenn.) 503; and Longley v. Swayne, id. 506. In Ward v. Tunstall the rule is thus stated: 'On the record when presented, to which we can alone look, in our view of the case, a judgment can be rendered, and then if the debtor desires to be relieved he will find no difficulty in being protected from payment of improper judgments in the bankrupt court, or by an original proceeding in the State court, where he can make such issues as will raise the question, and as he is precluded from interposing his defence arising out of his bankruptcy, the judgment will not interfere with his case in any way.' But it is unnecessary to pursue this branch of the case further, as we do not understand that the position assumed by the appellants is disputed.

The two questions which have alone been argued here in behalf of the appellees are:--

1. Whether the liability of Wolf was one created by fraud, within the meaning of sect. 5117, Rev. Stat., which provides that 'no debt created by fraud. . . shall be discharged in bankruptcy.' And,

2. Whether if Wolf was discharged his sureties were also.

1. As to Wolf.

In Neal v. Clark (95 U.S. 704) it was decided that 'fraud,' as used in this section of the bankrupt law, 'means positive fraud or fraud in fact, involving moral turpitude or intentional wrong, as does embezzlement; and not implied fraud or fraud in law, which may exist without imputation of bad faith or immorality.' With this definition we are content. It is founded both on reason and authority. Clearly it does not include such fraud as the law implies from the purchase of property from a debtor with the intent thereby to hinder and delay his creditors in the collection of their debts. But if it did, such a purchase does not create a debt from the purchaser to the creditors. As between the debtor and the purchaser the sale is good, but as between a creditor and the purchaser it is void. The purchaser does not subject himself to a liability to pay to creditors the value of what he buys. All the risk he runs is that the sale may be avoided, and the property reclaimed for their benefit. To come within this exception in the Bankrupt Act the debt must be created by fraud. The debt of Wolf in this case was not created by his purchase of the goods, but by his bond to pay their value if he failed to sustain his title. In this there was no fraud. It was a right the statute gave him as the claimant of the property, and he availed himself of it in a lawful way. He thus perfected his title to the goods by agreeing to pay their value if his original purchase should be held to be invalid. A debt thus incurred cannot be said to be created by fraud. It occupies in this respect the same position it would if Wolf, acknowledging the invalidity of his original purchase, had, without suit, given his note to the creditors for the value of the goods in order to perfect his title.

The debt thus created was provable under the Bankrupt Act. It was payable upon the happening of an event which might never occur, and was, therefore, contingent. The bond was in full force when the petition in bankruptcy was filed. The sum to be paid was certain in amount. Whether the event would ever occur which would require the payment was uncertain; but if it did occur, the amount to be paid was fixed. This clearly is such a case as was provided for in sect. 5068, Rev. Stat., which is, that 'in all cases of contingent debts and contingent liabilities contracted by the bankrupt,. . . the creditor may make claim therefor, and have his claim allowed, with the right to share in the dividends, if the contingency happens before the order for the final dividend.' There is nothing in the case of Riggin v. Magwire (15 Walls. 549) in conflict with this. That case arose under the bankrupt law of 1841, which was somewhat, though perhaps not materially, different from that of 1867 in this particular, and not only the happening of the event on which payment was to be made, but the amount to be paid, was uncertain and contingent. The amount to be paid depended materially upon the time when the event happened. Every thing was uncertain. The obligation in this case is to pay $10,000 and interest, if, upon the trial of the suit in the progress of which the bond was executed, it should be adjudged that the goods attached were subject to the attachment, and liable thereunder to the satisfaction of the debt sued for. As, therefore, the debt of Wolf was not created by fraud, and was provable under the act, it follows that his discharge released him from his liability on the bond. The discharge would have been a bar to a judgment against him, if, before the judgment, it could have been pleaded as a defence to the action. It follows that, under the practice which prevails in Tennessee in this class of cases, Wolf is entitled to the relief he asks for himself.

2. As to the sureties.

Sect. 5118, Rev. Stat., provides that 'no discharge shall release, discharge, or affect any person liable for the same debt for or with the bankrupt, either as partner, joint contractor, indorser, surety, or otherwise.' The cases are numerous in which it has been held, and we think correctly, that if one is bound as surety for another to pay any judgment that may be rendered in a specified action, if the judgment is defeated by the bankruptcy of the person for whom the obligation is assumed, the surety will be released. The obvious reason is that the event has not happened on which the liability of the surety was made to depend. Of this class of obligations are the ordinary bonds in attachment suits to dissolve an attachment, appeal bonds, and the like. But here the bond was not given to dissolve the attachment. That was issued against the property of Marks, Pump, & Co.; and in order to get possession of the goods which had been attached, and which Wolf claimed as his own, he subjected his bond to the operation of the attachment which was to continue in force, and took the goods away. In legal effect, he purchased the interest of the creditors in the goods, and, with Lowenstein and Helman as his sureties, agreed to pay the creditors $10,000, if, upon the trial of the suit in which the attachment was issued, it should appear that they had any interest to sell. In this obligation Lowenstein and Helman were joingly bound with Wolf, and their liability was made to depend, not upon the recovery of a money judgment against him, but upon a judgment that the title he acquired by his purchase from Marks, Pump, & Co. was void as against the attaching creditors. The case stands precisely the same as it would if Wolf and his sureties had entered into a contract with the attaching creditors, in a form authorized by law, to take the goods from the sheriff and pay $10,000, if on the trial it should be determined that the attachment was valid, and this was a suit on that contract. Clearly, under such circumstances, it could not be successfully contended that Wolf's bankruptcy released his sureties.

As we understand the practice in Tennessee, the parties are to have the same relief in this action they would have been entitled to in the original suit, if, before the judgment, Wolf's discharge in bankruptcy could have been pleaded. This proceeding performs the office of such a plea, and enforces the same rights.

Had the plea been filed, it would have shown a discharge of Wolf from his liability, but not that of his sureties. They were bound not to pay any judgment which might be rendered against him, but to pay the debt he had agreed to pay in a certain event, which had happened. The judgment which the Code of Tennessee authorizes in such cases is upon the bond according to its tenor and effect, and if the principal debtor is discharged his sureties must respond, as in other cases of joint liability. They are no more released by his discharge than they would be from a note or ordinary money bond which they had signed as his sureties.

No question has been raised as to the effect of the bankruptcy of Marks, Pump, & Co., and it is unnecessary, therefore, to take time to consider it.

Our conclusion is, that as to Wolf the decree is erroneous, and should be reversed, but as to Lowenstein and Helman, that it was right, and should be affirmed.

The cause is remanded with instructions to modify the decree below in such manner as to give to Wolf the benefit of his discharge in bankruptcy, as stated in this opinion, but to leave it in all other respects in force. The costs in this appeal must be paid by the appellees; and it is

So ordered.


text: Talk:Wolf v. Stix (99 U.S. 1)/Opinion of the Court