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Wallace v. Loomis/Opinion of the Court

This suit was instituted, by a bill in equity filed May 30, 1872, by Francis B. Loomis, John C. Stanton, and Daniel N. Stanton, trustees of what is known as the first mortgage of the Alabama and Chattanooga Railroad Company, for the purpose of procuring a foreclosure and sale of the mortgaged premises, being the railroad of said company, with its appurtenances and rolling-stock, situated in Tennessee, Georgia, Alabama, and Mississippi, but principally in Alabama. A further object of the bill was to remove the cloud from the title caused by the bankruptcy of said company, the seizure of its property by the governor of Alabama, and the sale thereof by the assignees in bankruptcy; also, to protect and preserve the property from waste and dilapidation until it could be applied to the satisfaction of the mortgage.

The bill stated that the mortgage in question was executed and delivered to the trustees, Dec. 19, 1868, and a copy of the same was annexed to the bill as an exhibit. It was further stated that, under the mortgage, the company issued a large number of bonds, each for $1,000, with interest at the rate of eight per cent per annum, payable in gold coin, semi-annually, on the 1st of January and July in each year; it being provided in each bond that the amount should not exceed $16,000 per mile. A copy of one of these bonds, and of the indorsements thereon, was also annexed to the bill as an exhibit. The bill stated that the bonds were indorsed by the governor of the State of Alabama with the guaranty of the State; and the same fact is recited in the mortgage, referring to certain acts of the legislature of Alabama, passed in 1867 and 1868, which authorized the governor of the State to indorse and guarantee such bonds to the extent of $16,000 per mile of the road, upon certain conditions being performed by the company. The bond appended to the bill is in the usual form of such instruments, the principal and interest being payable in lawful money of the United States. The coupons are also in the usual form. The first indorsement on the bond is by the governor of Alabama, and recites the acts by virtue of which the indorsement was made, and declares that the State is liable for the payment of the principal and interest of the bond. A further indorsement is also made by the company, agreeing to pay the principal and interest in coined money of the United States; but no such agreement is referred to in the mortgage nor on the face of the bond.

The bill stated that the number of bonds issued and indorsed was five thousand two hundred, amounting to $5,200,000; and that they were all issued and disposed of to various persons, who claimed, by virtue thereof, a first lien on the road and property mortgaged. It then stated that the railroad company failed to pay the instalments of interest which became due on the 1st of January and July, 1871, and the 1st of January, 1872; and that, though the governor of the State had paid a large portion thereof, yet he refused to pay in any thing but currency (which was received by the bondholders under protest); and he also refused to pay the interest on a large number of the bonds, because the holders thereof did not present to him proof that they were bona fide purchasers of the bonds held by them, though in fact they were such purchasers. [By an amended and supplemental bill, filed July 6, 1872, it was stated that the instalment of interest which became due on the 1st of July, 1872, was not paid in any manner, but that payment thereof had been totally refused. It was further stated, and so appears by the mortgage, that, upon failure by the company to pay any instalment of interest for the space of three months, the trustees were authorized to take possession of and sell the road, and pay the whole amount of principal and interest from the proceeds of such sale.]

The original bill further stated that the governor of Alabama claimed the right, by virtue of the payments made by him, and the delinquency of the company, to seize the road and its appurtenances, and did seize the same, and placed the same in the possession of a receiver by him appointed, who attempted to operate the road in the States of Alabama and Mississippi, but by his neglect and mismanagement the property had become greatly injured and deteriorated.

The bill further stated that the governor of Alabama had also filed bills for the foreclosure and sale of the road and its equipments in the States of Alabama, Mississippi, Georgia, and Tennessee (in all of which States portions of the road were situated), and had procured the appointment of receivers in said States, who took possession of the said several portions of the road; and that the governor had also procured the company to be declared bankrupt in the District Court of the United States for the Middle District of Alabama, which court had appointed assignees in bankruptcy of said company; and that the said assignees had made a pretended sale of the property, at which sale the governor had purchased the same under the pretence of purchasing it for the State of Alabama. The bill charged that this was a mere pretence, and that the purchase was really made for the benefit of other parties. The bill also stated that the company was sued by many persons, and that, by reason of the multiplicity of suits, the property of the company would be greatly deteriorated and wasted, and the possession thereof by those entitled thereto would be greatly interfered with.

The bill further stated, that, by reason of the various conflicting claims set up to said railway and other property by the various receivers and assignees, each denying to the other authority to run, operate, or control the same, the said property was permitted to go to destruction, and was being injured to the amount of $1,000 a day; and that the damage and injury already done to said property by said mismanagement exceeded $1,500,000; that the interest of the bondholders was being greatly impaired, and that the property had ceased to be sufficient security for their payment. Various other statements were made with regard to the rapid deterioration of the property, the clouds cast upon the title thereto by the various legal proceedings, &c., and prayed for the appointment of receivers with power to raise money to make necessary repairs, and to manage the property until it should be sold by order of the court.

The defendants to the original bill were the Alabama and Chattanooga Railroad Company, the trustees of the second mortgage, the receivers appointed by the State courts at the instance of the governor of Alabama, the assignees in bankruptcy, Governor Lindsay in his individual capacity, the receiver appointed by him, and one Caldwell, an officer who had advertised much of the loose property for sale.

The bill was first presented to the justice of the fifth circuit, at Galveston, in May, 1872; and an order was granted to show cause at the next Circuit Court, to be held at Mobile in June, why an injunction should not be granted and a receiver appointed. No hearing was had, however, at that term. Separate answers were filed by R. B. Lindsay, governor of Alabama, in his individual capacity, by Charles Walsh, the receiver appointed at the governor's instance by the State courts of Alabama and Mississippi, and by William T. Wofford, the receiver appointed at the same instance by the State court of Georgia. The governor vindicated the course he had taken, and repelled the charges of collusion made against him in the bill. Walsh did little more than disclaim any interest in the controversy; and Wofford detailed the circumstances of his appointment as receiver, and the manner in which he had endeavored to discharge his duties as such. Numerous affidavits were taken, and documents exhibited on the condition of the road, and on the various points that were made by the parties. Finally, by general agreement, application was again made to the justice of the circuit in August, 1872, for an injunction and the appointment of a receiver, and a large mass of affidavits and documents was produced, showing the necessity of immediate interposition of the court to save the property from absolute destruction. No opposition was now made to the appointment of receivers as asked by the bill, but the appointment was consented to by the governor of Alabama, and acquiesced in by all the parties. The complainants, by an amendment to their bill, withdrew all charges of improper conduct on the part of the governor and his agents. Arrangements had been made with him, by which all objections arising from the claims of the State to the possession of the road, to the proceedings in bankruptcy, and to the appointment of receivers by the State courts, were obviated,-it being agreed that the proceedings by which the latter had been appointed should be discontinued. Under these circumstances, an order for an injunction and the appointment of receivers was made on the twenty-sixth day of August, 1872. This order, amongst other things, recited as follows:--

'It appears, by the affidavits and proofs duly submitted and filed in this cause, that the property in question, to wit, the railroad and connecting works, and other property late of the Alabama and Chattanooga Railroad Company, which are embraced in and covered by the mortgage known as the first mortgage of said company, are rapidly deteriorating in value, and being wasted, scattered, and destroyed, whereby the security of the first-mortgage bondholders, and the interest of all other persons concerned in said property, are subject to great hazard and danger of entire sacrifice.

'And whereas the governor of Alabama, on behalf of said State, has purchased the said property at the sale thereof by the assignees in bankruptcy of the said company, for the purpose of protecting the interests of said State, as guarantor or indorser of $4,720,000 of said first-mortgage bonds, the indorsement of which has heretofore been recognized by the governor of Alabama as valid, or upon which he has heretofore paid interest, but it appears that the said State, as well as the said company, has failed to pay the full amount of interest due on said bonds;

'And whereas, in the present condition of said property, it is impossible, without great sacrifice, to dispose of the same in any manner; and whereas it has been proposed and agreed by the parties interested that all further opposition to the proceedings in bankruptcy against said company in the District Court for the Middle District of Alabama shall be withdrawn, and that the said proceedings shall be affirmed; and that all other proceedings for the appointment of receivers in the several State and District courts shall be discontinued, so that the proceedings in this suit shall have full effect and operation without undue embarrassment, and that a receiver or receivers shall be appointed in this cause, to take charge of said property, and put the same into proper condition for its preservation and disposition, for the mutual benefit of all parties interested therein;

'And whereas, in view of all the evidence and admissions of the parties, the court is satisfied that a receiver or receivers ought to be appointed to take charge of the entire property and manage the same, and to put the same in order and repair, to prevent the entire destruction thereof.'

The order then appointed three receivers, with power to take possession of the property and collect the debts and claims due to the company, and also with power to put the road and property in repair, and to complete any uncompleted portions thereof, and to procure rolling-stock, and to manage and operate the road to the best advantage, so as to prevent the property from further deteriorating, and to save and preserve the same for the benefit and interest of the first-mortgage bondholders, and all others having an interest therein. The order also provided that, to enable the receivers to perform the duty imposed upon them, they might raise money to an amount limited in the order, by loan, if necessary, upon certificates to be issued by them, which should be a first lien on the property.

Up to this point of time, Wallace, the present appellant, was not a party; but, as a holder of second-mortgage bonds, was, with the other holders of such bonds, represented in the suit and proceedings by the trustees of the second mortgage, who were defendants, and had due notice of, and acquiesced in, all that was done.

In February, 1873, by leave of the court, Wallace was made a defendant, and thereupon filed an answer and cross-bill, claiming to be the holder and owner of five second-mortgage bonds for $1,000 each. His answer was, in substance, as follows: He denied that the Alabama and Chattanooga Railroad Company was a corporate body, though admitting that there was a joint-stock company so called, and contending (as was necessary to do in order to sustain his own claim) that the bonds and mortgages issued by it were valid and binding in equity as a lien on the property in question; he denied that all the first and second mortgage bonds were valid, contending that many of them were held mala fide and without consideration; he denied the validity of the bankrupt proceedings against the company, and the validity of the sale of the property by virtue thereof; he denied that the State was liable on the first-mortgage bonds, and that the governor of Alabama had any right to pay interest or to seize the road therefor; and affirmed that the trustees of the first and second mortgages had the superior right to take possession of said property, under the powers conferred in the mortgages.

It is difficult to see how the allegations of the answer, if true, could furnish any fair ground of defence to the bill. It rather corroborated the position of the complainants than otherwise, and furnished additional reasons for the relief which they asked. Indeed, the cross-bill, which was filed at the same time with the answer, and which amplified the averments thereof, prayed that the first and second mortgages might be sustained for the benefit of all bona fide owners of bonds issued under the same, and that the court would continue to hold the property in the hands of receivers, and would continue to direct and control them in the administration thereof; and that, when a sale of the property should become necessary and advantageous to all concerned, the proceeds be brought into court, and paid to the parties entitled thereto.

This hardly bears the aspect of opposition to the general object of the original bill; but, as the appellant objects to the decree for pronouncing against the positions taken in the answer, and has argued the subject with much earnestness, as a reason why the decree ought to be reversed, we will examine these positions before proceeding further.

First, The answer alleges that the Alabama and Chattanooga Railroad Company was not a corporate body, and the decree affirms the contrary. The cross-bill states at large the reason for the allegation of the answer. It is, that the company had its alleged corporate existence alone in virtue of a special act of the legislature of Alabama, passed the 17th of September, 1868, which act upon its face was a violation of the Constitution of the State, which declares that 'corporations may be formed under general laws, but shall not be created by special act, except for municipal purposes.' The act referred to is set out in full, as an exhibit to the cross-bill. It authorizes the Wills Valley Railroad Company (a pre-existing corporation) to purchase the railroad and franchises of the Northeast and Southwestern Alabama Railroad Company (another pre-existing corporation); and, after doing so, to change its own name to that of the Alabama and Chattanooga Railroad Company.

We are unable to see any thing in this legislation repugnant to the constitutional provision referred to. That provision cannot, surely, be construed to prohibit the legislature from changing the name of a corporation, or from giving it power to purchase additional property; and this was all that it did in this case. No new corporate powers or franchises were created.

The appellant, however, in his cross-bill alleges that fraud and collusion were practised in making the purchase of the Northeast and Southwestern Alabama Railroad, and that the proper steps were not taken to entitle the Wills Valley Railroad Company to assume the new name. It is admitted that the purchase was made and the name assumed; and it sufficiently appears throughout the record and by the laws of Alabama that the company always afterwards acted under the name so assumed, and was recognized thereby by all departments of the State government. The mortgage and bonds under and by virtue of which the appellant claims a standing in court were executed by the Alabama and Chattanooga Railroad Company as a corporation. The mortgage commences with the statement that it was made between the Alabama and Chattanooga Railroad Company, a corporation of the States of Alabama, Georgia, Mississippi, and Tennessee, party of the first part, and the trustees (naming them), party of the second part; and it then recites as follows: 'Whereas, in pursuance and by virtue of an act of the legislature of the State of Alabama, approved Nov. 17, 1868, and entitled 'An Act relating to the Wills Valley Railroad Company and the Northeast and Southwestern Alabama Railroad Company,' said Wills Valley Railroad Company has changed its name to the Alabama and Chattanooga Railroad Company.' In view of these facts, we think that the appellant is estopped from denying the corporate existence of the company whose bonds he thus holds, and by virtue of which he acquires a locus standi in the suit. Irregularities and even fraud committed in making the purchase authorized by the act, and failure to perform strictly all the requisites for changing the company's name, cannot avail the appellant, occupying the position he does in this suit, to deny the corporate existence of the Alabama and Chattanooga Railroad Company. He waived all such objections when he took the bonds, and came into court only as a holder and owner thereof. The irregularities on which he relies might, perhaps, have been sufficient cause for a proceeding on the part of the State to deprive the company of its franchises, or on the part of third persons who may have been injuriously affected by the transactions. But neither the State nor any other persons have complained; and it is not competent for the appellant to raise the question in this collateral way, for the purpose of gaining some supposed advantage over other creditors of the same company, who have relied on its corporate existence in the same manner that he has done.

Secondly, The ground for impeaching the sale of the road by the assignees in bankruptcy is based on the supposed want of jurisdiction of the judge who made the order to show cause why the company should not be declared bankrupt, of the District Court which made the decree of bankruptcy, and the alleged want of notice to the second-mortgage bondholders, or their trustees, of the petition for an order of sale.

As to these proceedings (which are quite fully stated in the answer of Lindsay, one of the defendants), the appellant, in his cross-bill, admits that a petition of involuntary bankruptcy was filed against the Alabama and Chattanooga Railroad Company, in the District Court of the United States for the Middle District of Alabama, by one W. A. C. Jones; that a rule to show cause was made by Circuit Judge Woods; that the company was adjudged a bankrupt by default by the district judge; that Bailey, Gindrat, and S. B. Jones were appointed assignees; that they filed a petition in the District Court for the sale of the property; that the court granted a rule to show cause thereon, and heard the same, and made an order of sale; and that the sale was made accordingly. The petition of the assignees, asking for an order to sell, the order to show cause why a sale should not be made, and the order of sale made thereon, are all set in full by way of exhibits to the cross-bill. The assignees' report of sale, and the order confirming the same, had been previously filed in the cause by the complainants. With all this in the record, it is certainly difficult to see any lack of jurisdiction in the court to order the sale complained of; but the cross-bill alleges that these proceedings were irregular and void. Whether this be so, and whether it can be alleged in this collateral way, depends upon the character of the objections made to their validity. The objections made are as follows:--

First, That the company was not a legal corporation, and therefore the court had no jurisdiction to declare it bankrupt.

We have already considered this objection, and think it has no foundation in fact.

Secondly, That the proceedings were instigated by the governor of Alabama, on a pledge or promise to Jones, the petitioner, that his debt should be paid in full. We do not perceive how this fact, if true, can avoid the proceedings in bankruptcy. If the debtor should make such a promise or pledge, it would affect his discharge, but would not invalidate the proceedings. To give it that effect would operate to the injury of other creditors and purchasers interested in the bankruptcy proceedings.

Thirdly, It is alleged that Judge Woods had no authority to make the order to show cause; that he could not know, when he made it, that the district judge would not be present to conduct the proceedings. As the appellant has not set forth in full the order to show cause referred to, we must presume that the circuit judge acted according to law. He had full power to perform the duties of the district judge when the latter was disabled to perform them. The act of Congress of March 2, 1809 (2 Stat. 534), expressly authorized the justice of the circuit to do this, in case of the disability of the district judge to perform the duties of his office; and the act of April 10, 1869, which created the circuit judges, conferred upon them the same power, in the circuits, as the justices of the Supreme Court had. 16 id. 44.

Fourthly, It is objected that no notice of the assignee's petition for a sale was given to the second-mortgage bondholders, or their trustees, although it requested a sale of the property free from the incumbrance of the second mortgage, and subject only to that of the first mortgage; but it appears from the petition itself, set forth as an exhibit to the cross-bill, that it had annexed to it a copy of both the first and second mortgages, and that it stated that the assignees were informed that there was a third mortgage; that it stated the number of bonds which had been issued under the second mortgage; that it stated and alleged that much the larger portion of the second-mortgage bonds which had been issued were in the hands of the corporators of the railroad company, without consideration or value; that the only holders and owners of said bonds known to the assignees were W. A. C. Jones (the petitioner in bankruptcy), James W. Sloss, and A. C. Hargrove, residents of Alabama, and that the others were not known to them, and that they believed they were citizens of other States, and beyond the jurisdiction of the court; that the original trustees named in the second mortgage had ceased to be such, and that, under a power in the mortgage, others had been appointed in their stead,-to wit, as the assignees had been informed, Seth Adams, Francis B. Loomis, and John C. Stanton, all residing in Boston, Mass. It appears further, that the order to show cause, made upon said petition, was directed to be served on the said substituted trustees, and also on the said Jones, Sloss, and Hargrove, ten days before the hearing thereon. The order of sale recites that it appeared to the satisfaction of the court that due service of the petition and order to show cause had been made for more than ten days prior thereto. Now, although the assignees were in error as to the names of the substituted trustees of the second mortgage, yet the service on a portion of the bondholders, whose interest was identical with that of the appellant and the other bondholders, and who were the only bondholders known to the assignees, would seem to be sufficient, under the circumstances, to give the court jurisdiction to make the order of sale. The assignees themselves represented all creditors of every class; and if they deemed it advisable that the property should be sold, and that it ought to be sold subject only to the first mortgage, and gave notice of their application for an order of sale to all persons interested in the subsequent securities of whom they had any knowledge (such persons representing a real and substantial interest identical with that of the others who were not known), we think that the bankruptcy court had power to act upon the petition. The order of sale provided that abundant notice of the sale should be given, both in Alabama and elsewhere; and it is apparent, from the report of sale made by the assignees, that it was a notorious proceeding, the appellant himself attending the sale, by his attorney, and making sundry objections thereto. The defendant and other holders of second-mortgage bonds, if they had so desired, could have objected to the confirmation of sale, and it would then have been competent to them to question the sufficiency of notice and the jurisdiction of the court; but no such objections appear to have been made by them.

On the whole, we think that the objections to the jurisdiction of the District Court were not well taken, and that the sale was a valid one, even if it be a question whether, under the circumstances, it was so made as to cut off the second-mortgage bondholders.

But if the objections were valid, there is nothing, in reference to this matter, in the final decree of the court, which can materially injure the appellant. All the notice which the decree takes of the assignees' sale is to recite the facts of the proceedings in bankruptcy, and of the sale as it actually occurred. No order is made or judgment rendered in decree which would preclude the appellant and other holders of second-mortgage bonds, in the proceedings to be instituted before the master for ascertaining the claims chargeable upon the property, from setting up their claim to any part of the surplus proceeds after satisfying the first-mortgage bondholders and the liens paramount thereto.

We have thus disposed of the principal grounds of defence taken by the appellant in his answer and cross-bill. His allegation that the State of Alabama was never liable on the indorsement made by its governor on the first-mortgage bonds, and therefore had no right to take possession of the road, and is accountable for its proceeds whilst in the possession of its agent or receiver, and that those proceeds should be set off against its claim for interest paid, whether such allegation be well or ill founded, forms no objection to the decree made in the cause. There is nothing in the decree which affirms or disaffirms the rights of the State. Perhaps the very fact that this point was taken in the appellant's answer was the reason why the decree is silent on the subject. Whatever demands may exist in favor of or against the State remain unadjudicated, as they should be, unless the State had chosen voluntarily to submit itself to the jurisdiction of the court.

The final decree, from which the present appeal was taken, was made on the 23d of January, 1874; and it was thereby, in substance, declared, that the Alabama and Chattanooga Railroad Company was a corporation under the laws of Alabama, and that corporate privileges had been granted to it by the States of Tennessee, Mississippi, and Georgia; that the first mortgage and the bonds bona fide issued under it were a first lien on the property, except as therein afterwards stated; that the moneys raised by loan, or advanced by the receivers and expended on the road pursuant to their order of appointment, were a lien paramount to the first mortgage; and direction was given that it should be referred to a master to ascertain the true amount of said loan and of the bonds bona fide issued under the first mortgage, as well as other claims against the property. The decree further found and declared that the railroad company had been declared bankrupt by the District Court of the Middle District of Alabama, and that the said court had appointed assignees in bankruptcy; and that the said assignees, by virtue of an order of the court, had sold the railroad, and that the governor of Alabama had purchased the same on behalf of the State, subject only to the lien of the first mortgage. The decree then directed that the road and its appurtenances should be sold, as an entirety, by commissioners named for that purpose, with directions as to the manner of sale; and that, when sold, the company, and all parties claiming under it, should be barred and foreclosed of all claim thereto. It then decreed the application of the proceeds to arise from the sale, as follows: first, to the payment of the trust and legal expenses; second, to the payment of taxes and other liens prior in law to the first mortgage, including the liabilities incurred, as aforesaid, by the receivers, and such receivers' certificates or other indebtedness as might thereafter be sanctioned or ordered to be paid by the court; third, to the payment of such first-mortgage bonds (with the interest thereon) as might be reported by the master to have been bona fide issued and yet unpaid; fourth, the residue, if any, to be subject to such order and priority in distribution as the court should thereafter establish and decree. It was further ordered that the master should ascertain and report the amount of said several classes of securities before the sale.

The appellant raises several objections to this decree in addition to those which have been already considered.

First, it is objected that it is variant from the relief sought by the bill. The principal gravamen of the bill, it is contended, was that the interest due on the bonds was not paid in gold; and the decree sought was, that the bondholders were entitled by the contract to be paid in gold coin. It is also alleged that the evidence was variant from the allegations of the bill in this respect. The bill alleged that the contract was to pay in coin, whereas the bonds, as shown by the exhibit annexed to the bill, were only payable in lawful money. It is argued, from the maxim that the allegata and the probata should agree, that this variance was fatal, and that the bill should have been dismissed.

It is true that the complainants do, in their bill, insist that the contract was to pay the principal and interest of the bonds in gold coin, and the point is strenuously urged as a ground for relief. But it cannot be justly said that this was the principal gravamen of the bill, or that the principal object of the bill was to establish that claim. Its main object was to secure the payment of the first-mortgage bonds (however payable), and to get possession of, and preserve from destruction, the fund out of which they were payable, and which, it was alleged, was fast being dissipated and destroyed. The leading facts on which this desired relief was based, and which were alleged and relied on, were the execution of the mortgage as a first lien on the property, the issue of bonds secured thereby, the insolvency of the company and its failure to pay the interest, the refusal of the State to pay the interest in coin, and its refusal to pay the interest on a large number of bonds in any form, and the mismanagement and rapid deterioration and destruction of the property subject to the mortgage. These facts were all substantially admitted by the appellant in his answer and cross-bill, or clearly follow from facts which were admitted. The question about payment in coin was a subordinate one. The trustees saw the security of the bondholders fast disappearing before their eyes. They desired to save it in time, to rescue it from the hands of those who were mismanaging and dissipating it. They might be mistaken on the question of coin, but the default was sufficient without that to entitle them to the relief they sought. They asserted that view of the claim which was most favorable to the bondholders. This should not preclude them from relief if a less favorable view should be adopted by the court. The company had, in fact, by an indorsement on the bonds, agreed to pay in coin; but the court probably considered that this agreement was not binding on the State, nor on the subsequent incumbrancers, not being notified in the mortgage; and it only rendered a decree for payment in lawful money. Surely the second-mortgage bondholders cannot complain of this decision, which was in their favor; and we can see no such variance between the proofs and allegations as to render the decree technically erroneous. Whilst the complainants, in their bill, insisted that the agreement was to pay in coin, they spread the whole agreement upon the record, precisely as it was made, so that no one was misled by the form or manner of pleading. If the objection were a valid one, it might have been set up by way of demurrer, or it might have been made in the answer. But in neither of these ways did the appellant see fit to bring it to the notice of the court. We think that he cannot now complain of it as error in the decree.

The appellant argues further, however, that the indorsement by the company of an agreement to pay the bonds in coin had the effect of changing the contract as guaranteed by the State, and as entitled to priority over the second-mortgage bonds; and, therefore, that the bonds being thus changed in their legal effect lost the benefit of the guaranty, and the priority to which they would otherwise have been entitled. This would, indeed, be a strange result. The bonds on their face, as prepared for issue and sale, promised payment in lawful money. As such, they were guaranteed by the State. As such, they were entitled to priority over the second-mortgage bonds. The purchasers required from the company the further stipulation that it should pay in coin. Such stipulation was clearly supplemental and subsidiary, affecting only the company itself. So long as it was not recognized by the court to the prejudice of the State, or of the holders of the second-mortgage bonds, it is difficult to see how the latter could be injured by it. They could be no more injured, in a legal point of view, than if a stipulation had been made for additional security. That it could not be enforced against the common fund, to the prejudice of the State or of the second-mortgage bondholders, is conceded by the court in its decree. And in this we see no error.

The only other material objection made by the appellant to the decree, not already disposed of, is, that it declared the amount due on the receivers' certificates to be a lien on the property in their hands prior to that of the first-mortgage bonds. The history of these certificates has already been referred to. The receivers were authorized by the order appointing them, amongst other things, to put the road in repair and operate the same, and to procure such rolling-stock as might be necessary; and, for these purposes, to raise money by loan to an amount named in the order, and issue their certificates of indebtedness therefor; and the order declared that such loan should be a first lien on the property, payable before the first-mortgage bonds. The power of a court of equity to appoint managing receivers of such property as a railroad, when taken under its charge as a trust fund for the payment of incumbrances, and to authorize such receivers to raise money necessary for the preservation and management of the property, and make the same chargeable as a lien thereon for its repayment, cannot, at this day, be seriously disputed. It is a part of that jurisdiction, always exercised by the court, by which it is its duty to protect and preserve the trust funds in its hands. It is, undoubtedly, a power to be exercised with great caution; and, if possible, with the consent or acquiescence of the parties interested in the fund. In the present case, it appears that the parties most materially interested either expressly consented to the order, or offered no objection to it. The appellant complains that it was made without due notice to the second-mortgage bondholders. But this cannot properly be alleged, inasmuch as the trustees of the second mortgage were parties to the suit, and had due notice of the application, and made no objection to its being granted. The bondholders were represented by their trustees, and must be regarded as bound by their acts, at least so far as concerns the power of the court to act, in making the order, and so far as the interest of third persons acting upon the faith of it might be affected. The appellant did not seek to be made a party to the suit until several months after the order was made; and, when he became a party and filed his answer and cross-bill, he prayed that the court would continue to hold the property by its receivers, and would continue to direct and control them in the administration thereof, without suggesting the slightest objection to the terms of the order by which the existing receivers had been appointed.

We see nothing in the case before us on which the appellant can ground any just exception, either to the original order which authorized the loan to be made, or to the decree which confirmed it and recognized such loan as a paramount lien on the fund.

Other objections of a subordinate character are made to the decree; but we are satisfied, from an examination of the grounds on which they rest, that they do not show any error therein.

Decree affirmed.

title: Wallace v. Loomis/Opinion of the Court


text: Talk:Wallace v. Loomis/Opinion of the Court

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


text:
United States v. Norton (97 U.S. 164)

APPEAL from the Court of Claims.

This is a suit by Emory E. Norton, assignee in bankruptcy of Samuel DeBow & Co., to recover $3,206.66, paid by that firm to the treasury agent at New Orleans, Louisiana, June 13, 1865, under the eighth section of the act of July 2, 1864 (13 Stat. 375), and the regulations of the Treasury Department, on account of certain cotton shipped from Vicksburg, Miss., to New Orleans.

Said section enacts:--

'That it shall be lawful for the Secretary of the Treasury, with the approval of the President, to authorize agents to purchase for the United States any products of States declared in insurrection, at such places therein as shall be designated by him, at such prices as shall be agreed on with the seller, not exceeding the market value thereof at the place of delivery, nor exceeding three-fourths of the market value thereof in the city of New York, at the latest quotations known to the agent purchasing,' &c.

The regulations of May 9, 1865, for the purchase of the products of the insurrectionary States on government account, were approved by the President. They provide:--

'3. The operations of purchasing agents shall be confined to the single article of cotton; and they shall give public notice at the place to which they may be assigned that they will purchase, in accordance with these regulations, all cotton not captured or abandoned which may be brought to them.

'4. To meet the requirements of the eighth section of the act of July 2, 1864, the agents shall receive all cotton so brought, and forthwith return to the seller three-fourths thereof, which portion shall be an average grade of the whole, according to the certificate of a sworn expert or sampler.

'5. All cotton purchased and resold by purchasing agents shall be exempt from all fees and all internal taxes. And the agent selling shall mark the same 'free,' and furnish to the purchaser a bill of sale clearly and accurately describing the character and quantity sold, and containing a certificate that it is exempt from taxes and fees as above.

'6. Purchasing agents shall keep a full and accurate record of all their transactions, including the names of all persons from whom they make purchases, the date of the purchase, a description of the cotton purchased by them, and the quantity and quality thereof; also of the one-quarter retained by them. A transcript of this record will be transmitted to the Secretary of the Treasury on the first day of each month.

'7. Sales of the cotton retained by the purchasing agents under regulation 4, as the difference between three-fourths the market price and the full price thereof in the city of New York, may be made by such agents, at such places and times and in such manner as may be directed in special instructions from the Secretary of the Treasury. Where such sales are not so authorized, the agents shall, without delay, ship it to New York on the best terms possible, consigned, until otherwise directed, to S. Draper, cotton agent and disbursing officer at that place. Bills of lading in triplicate for such shipment must be taken, one of which shall be sent to the agent at New York, one to the Secretary of the Treasury, and one retained by the purchasing agent.'

On the 13th of June, 1865, the President of the United States signed a proclamation. So much of it as relates to any question involved in this suit is as follows:--

'Now, therefore, be it known that I, Andrew Johnson, President of the United States, do hereby declare that all restrictions upon internal, domestic, and coastwise intercourse and trade, and upon the removal of products of States heretofore declared in insurrection,. . . heretofore imposed in the territory of the United States east of the Mississippi River, are annulled, and I do hereby direct that they be forthwith removed.'The court below found that, on the 12th of June, 1865, there arrived at New Orleans, on the steamer 'Grey Eagle,' from Vicksburg, one hundred and twenty-five bales of cotton, belonging to Samuel DeBow & Co.; at which time no shipments of cotton to New Orleans were allowed, except such as were consigned to the purchasing agent of the Treasury; that on the 13th of June, 1865, DeBow & Co. executed a bill of sale of all the cotton to that agent, at an expressed consideration of $9,625.98, and that the latter executed to them another bill of sale of all the cotton, at an expressed consideration of $12,834.64; that DeBow & Co. thereupon paid to said agent the difference, viz., $3,208.66, and received the cotton,-such interchanged bills of sale and payment being in fact one transaction, intended to be in compliance with the provisions of the act of July 2, 1864, and the treasury regulations thereunder of May 9, 1865, relating to the 'purchase of products of the insurrectionary States on government account;' that the treasury agent reported said amount of $3,208.66 as being 'twenty-five per cent retained on government account,' and that it was duly accounted for by him, and paid into the treasury; that, when the sale and resale took place, neither DeBow & Co. nor the treasury agent had knowledge of the President's proclamation of June 13, 1865, annulling restrictions upon trade east of the Mississippi; that DeBow & Co. were duly adjudicated bankrupts, and Emory E. Norton was appointed their assignee.

The court thereupon found, as a conclusion of law, that 'the treasury agent in New Orleans, having control and possession of the claimant's cotton brought in from the east bank of the Mississippi, had no authority, on the 13th of June, 1865, to retain the same, or one-fourth thereof, nor to exact from the owner a payment equivalent to one-fourth of its value, under the act of July 2, 1864 (13 Stat. 375); and the owners should recover back the money so exacted in payment, it having been paid over to the defendant, and being now in the treasury.'

Judgment having been rendered in favor of the claimant, the United States appealed to this court.

The Attorney-General and Mr. Smith, Assistant-Attorney-General, for the appellant.

It matters not whether the payment was voluntary or involuntary. If voluntary, it cannot be recovered in any court. Elliott v. Swartwout, 10 Pet. 137; Cunningham v. Monroe, 15 Gray (Mass.), 471; Ellston v. Chicago, 40 Ill. 518; Mayor v. Lefferman, 4 Gill (Md.), 436; Fellows v. School District, 39 Me. 561; Benson v. Monroe, 7 Cush. (Mass.) 125. That the payment, so far as any act upon the part of the treasury agent is concerned, was voluntary, is obvious. The cases cited by the appellee do not apply; for in each the party to whom the payment was made had either actual possession of the goods of the other party and refused to restore them, or an apparently legal process, under color of which he threatened to seize and detain them.

The payment of an illegal tax before the issue of process for its enforced collection is so far voluntary that it cannot be recovered. Barrett v. Cambridge, 10 Allen (Mass.), 48; Forbes v. Appleton, 5 Cush. (Mass.) 117; Lee v. Templeton, 13 Gray (Mass.), 476; Walker v. Saint Louis, 15 Mo. 563, and cases cited; Christy v. Saint Louis, 20 id. 143; State v. Powell, 44 id. 436; Nickodemus v. East Saginaw, 25 Mich. 458.

Even if the statute and the treasury regulations operated as a compulsion, they remained so no longer than they were in force. While in force, their compulsive effect was legal and proper. If, therefore, there was any misapprehension which led to the payment, it was a mistake of law. If the payment was involuntary, this suit to recover it must, if within the jurisdiction of the court below, be based upon some contract, express or implied, between the United States and the claimant. Gibbons v. United States, 8 Wall. 269; Rev. Stat., sect. 1059.

There was confessedly no express contract on the part of the United States to take cotton, sell it for the owner, and return him the proceeds. No officer had the right to make the government a cotton-factor for individuals, and there was no such attempt. Nor can such a contract be implied; for the law will not assume that aught was done which could not have been done by express contract, or where the circumstances repel all implication of a promise in fact. Simpson v. Bowden, 33 Me. 552; Whiting v. Sullivan, 7 Mass. 107; Watson v. Stever, 25 Mich. 386.

Non constat but that the act of Congress and the regulations were in force at the moment when the payment was made to the agent.

Until the proclamation was signed, or delivered to the State Department, it was not merely his right, but his duty, to receive all cotton brought to him under existing law and regulations.

This is one of the cases in which it becomes the duty of the plaintiff to show, and of the court to determine, at what hour of the day a law becomes operative. Gardner v. Collector, 6 Wall. 499.

The approval, attested by the President's signing a bill, cannot look backwards, and by relation make that a law at any antecedent period of the same day which was not so before the approval. The law prescribes a rule for the future, not for the past. Ex parte Richardson, 2 Story, 580.

The rule that the law knows no fractions of a day is one of convenience merely. Where the ends of justice require it, or conflicting interests are involved, the law will look into the fractions of a day as readily as into those of any other unit of time. Chick v. Smith, 8 Dowl. Pr. Cas. 340; Regina v. St. Mary, 1 El. & Bl. 827; Brainerd v. Bushnell, 11 Conn. 24; Lemon v. Staats, 1 Cow. (N. Y.) 594; Small v. McChesney, 3 id. 19; Rogers v. Beach, 18 Wend. (N. Y.) 533; Havens v. Dibble, id. 655; Clute v. Clute, 3 Denio (N. Y.), 264; Blydenburg v. Cotheal, 4 N. Y. 418; Jones v. Porter, 6 How. Pr. (N. Y.) 286; Grosvenor v. McGill, 37 Ill. 240; Ferris v. Ward, 9 id. 506; Tufts v. Carradine, 3 La. Ann. 431; Callihan v. Hallowell, 2 Bay (S.C..), 9; Ex parte Richardson, 2 Story, 577, citing Digges's Case, 1 Co. 174; Fitzwilliam's Case, 6 id. 33; Wrangham v. Hersey, 3 Wils. 274.

The finding does not show at what hour the payment was made. If the horal divisions are not noticed, it must be presumed to have happened contemporaneously with the issuing of the proclamation. The crown, in such cases, has priority over the subject. Edwards v. Reginam, 9 Exch. 632.

The claimant in this case must show that the money to which he says he is ex aequo et bono entitled was wrongfully obtained by the United States. It is a presumption of law that officials and citizens obey the law and do their duty; and although it cannot supply the place of proof of a substantive fact, he who disputes it must furnish the requisite evidence to overcome its effect. 2 Whart. Evid., sect. 1318, citing nearly forty cases; among them Ross v. Reed, 1 Wheat. 486; ''Phila., &c. Railroad Co. v. Stimpson'', 14 Pet. 458; Minter v. Crommelin, 18 How. 88; United States v. Weed, 5 Wall. 62.

An individual, as against another, can sue in assumpsit, when the tort, though the gist of the transaction, arises out of a contract (Stoyle v. Wescott, 2 Day (Conn.), 422; Buckley v. Storer, id. 531; Vasse v. Smith, 6 Cranch, 231); but no new jurisdiction can be thereby conferred. No court can take jurisdiction of the assumpsit but the one which can give the remedy on the tort itself. Mann v. Kendall, 2 Jones (N. C.), L. 193; Clark v. Dupree, 2 Dev. (N. C.) L. 411; Briggs v. Light-Boats, 11 Allen (Mass.), 157.

The statutes conferring jurisdiction upon the court of claims exclude, by the strongest implication, demands upon the government, founded on torts committed by an officer in its service, and apparently for its benefit. Gibbons v. United States, 8 Wall. 269; Morgan v. United States, 14 id. 531. The restrictions they contain would be practically unllified, if in every case really dependent upon the tortious act of an officer, in which the government receives some incidental benefit, the tort could be waived, and the imagined assumpsit, founded only upon it, be made the basis of a suit. The provision limiting that court to matters of contract was based upon the theory that the State could do no wrong; that is, if it inadvertently inflicted wrong upon a citizen, redress would be given directly by Congress, and not through the instrumentality of a tribunal which renders judgment only upon judicial proof.

Mr. Edward Janin, contra, cited Astley v. Reynolds, 2 Stra. 915; Close v. Phipps, 7 Man. & G. 586; Shaw v. Woodcock, 7 Barn. & Cress. 73; Atlee v. Backhouse, 3 Mee. & W. 633; Adams's Case, 1 Ct. Cl. 306; Boston & Sandwich Glass Co. v. City of Boston, 4 Metc. (Mass.) 181; Amesbury Woolen Co. v. Inhabitants of Amesbury, 17 Mass. 461; Preston v. City of Boston, 12 Pick. (Mass.) 7; Ripley v. Gelston, 9 Johns. (N. Y.) 201; Clinton v. Strong, id. 370; Moses v. Macferlan, 2 Burr. 1005; Atwell v. Zeluff, 26 Mich. 118; McKee v. Campbell, 27 id. 497; Wabaunsee County v. Walker, 8 Kan. 431; Wolf v. Marshall, 52 Mo. 167; Hendy v. Soule, Deady, 400; Lauman v. Des Moines County, 29 Iowa, 310; Hubbard v. Brainard, 35 Conn. 563; United States v. Lapeyre, 17 Wall. 191; Allen v. McKeen, 1 Sumn. 317.

MR. CHIEF JUSTICE WAITE delivered the opinion of the court.

title: United States v. Norton (97 U.S. 164)


text: Talk:United States v. Norton (97 U.S. 164)


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United States v. Norton (97 U.S. 164)/Opinion of the Court

In our opinion, this case is governed by the decision in United States v. Lapeyre (17 Wall. 191), which, although not concurred in by all the justices then composing the court, is accepted as conclusive upon the questions involved.

Under the ruling in that case, the proclamation took effect as of the beginning of June 13, 1865, and, therefore, covers all the transactions of that day to which it is applicable. We do not think this is a case in which fractions of a day should be taken into account.

While the questions of whether payments made under the circumstances of this case were voluntary or not, or whether, if voluntary, being made under a mutual mistake of law, can be recovered back, were not considered in the opinions filed, it is clear that the judgment rendered could not have been given, unless they had been decided adversely to the United States.

Judgment affirmed.

NOTE.-United States v. Ceif's Assignee, United States v. Levy, United States v. Rowan, United States v. Yorke, United States v. White, United States v. Bonnafon, and United States v. Ethel's Assignee, appeals from the Court of Claims, were also submitted at the same time and by the same counsel as was the preceding case. The first four involved similar facts to that case. In the remaining cases, the cotton was shipped to New Orleans from 'States in insurrection' June 26 and June 27, 1865, and the payment made in ignorance of the President's proclamation of June 24, 1865. MR. CHIEF JUSTICE WAITE, in delivering the opinion of the court, remarked, that they were all governed by the decision in the immediately preceding case, and that the judgment in each case was.

Affirmed.


text: Talk:United States v. Norton (97 U.S. 164)/Opinion of the Court


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Godfrey v. Terry

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. Theodore G. Barker and Mr. James Lowndes for the appellants.

Mr. D. H. Chamberlain and Mr. Harvey Terry, contra.

MR. JUSTICE MILLER delivered the opinion of the court.

title: Godfrey v. Terry


text: Talk:Godfrey v. Terry

title: Talk:Godfrey v. Terry


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Godfrey v. Terry/Opinion of the Court

The Merchants' Bank of South Carolina, at Cheraw, was chartered in 1833, and the charter was renewed for twenty years in 1852. Both statutes provided that, 'in case of the failure of the said bank, each stockholder, copartnership, or body politic, having a share or shares in the said bank at the time of such failure, or who shall have been interested therein at any time within twelve months previous to such failure, shall be liable and held bound individually for any sum not exceeding twice the amount of his, her, or their share or shares.'

In December, 1870, Harvey Terry filed a bill in equity, in the Circuit Court of the United States for the District of South Carolina, to enforce this provision as to certain bills of the bank, of which he claimed to be the holder and owner. He alleges himself to be a citizen of the State of Virginia; and he prays for subpoena against William Godfrey, receiver of the bank, John Mattison, cashier, and five others, as directors of the bank, and some sixty others, as stockholders. The bank is not made a party, and no allegation is found in the bill, or anywhere else in the record, of the citizenship of any of the defendants. Of the persons made defendants by the bill, service was only obtained upon twenty, and no appearance was made for any one else.

The bill charges, among other matters, 'that on the first day of March, A.D. 1865, and, indeed, at an earlier date, the said bank had failed, being then indebted to an amount far exceeding its assets; and that, in consequence of such failure, in accordance with the provisions of the said act, the stockholders, copartnerships, and bodies politic, holding shares in said bank, or who had been interested therein within twelve months previous to such failure, became liable for the debts of the said bank for sums not exceeding twice the amount of the shares held by them respectively.'

And it was alleged that, under statutes of the State of South Carolina enacted for that purpose, the bank and all its property were, by the proper State court, placed in the hands of William Godfrey as receiver, who was then in charge of the same. It then prays for an account of the assets, furnishes a schedule of the stockholders, which plaintiff says is the best he can obtain, and calls for a discovery of the names of all who were stockholders at the date of the failure, and for twelve months next preceding that date, and that, when ascertained, they may be made defendants, and charged with liability for his debt against the bank.

Answers were filed for all, or nearly all, who were served; but no replications to any of these answers are found in the record.

The answers generally set up a plea of the four years' stat ute of limitation. Several of the answers aver that the fail ure of the bank took place Nov. 13, 1860, when this bank, in common with all the banks of South Carolina, suspended specie payment of their obligations, and never afterwards resumed.

The only answers which admit the ownership of shares in the bank, and fix the time of said ownership, are the separate answers of A. Baxter Springs and R. A. Springs, each of whom admits that he held sixty shares of the bank in 1854, and has held the same ever since.

In December, 1872, the court made an order of reference to a master, with instructions to ascertain and report who were stockholders in the bank on the first day of March, 1865, and for twelve months previous thereto, and how many shares they held; also, to ascertain and report who were the creditors and bill-holders of the bank, and the amount due to them respectively.

This order, it will be seen, fixed the day of the failure of the bank at March 1, 1865. What evidence was before the court, or whether there was any, of the date of failure, the record does not show, except the following agreed statement of facts, which, as far as they show any thing on that subject, support the allegations of the answers, that the failure occurred in November, 1860:--

'In this case, the following facts are agreed to by counsel in the cause, and to be considered as testimony in the same before the court:--

'1. The Merchants' Bank of South Carolina, at Cheraw, suspended specie payments at the same time with the other banks in the State; was so suspended in November, 1860, and never after resumed specie payments.

'2. The said bank ceased to pay out its bills as soon as the Confederate currency began to circulate. The last time at which any of its bills were paid out was on the 6th of August, 1861.

'3. In his regular business as banker and broker, the complainant, Harvey Terry, bought the notes and bills of the said Merchants' Bank of South Carolina, as proved by him in this case, amounting to over $20,000, at prices ranging from twenty cents to five cents on the dollar of their face value. Most of these purchases were made in 1868 and 1869, at about fifteen cents on the dollar.

'4. That the Circuit Court of the United States for the District of South Carolina was held in Charleston, on the twelfth day of June, A.D. 1866.'

The order, however, was binding on the master, and the date fixed by it controlled his action and all subsequent proceedings in the case. The master reported that there were sixty-four shareholders liable for various sums, taking the date of the failure mentioned in the order, and giving their names; that Harvey Terry, the plaintiff, was a creditor of the bank, on account of its circulating notes held by him, to the amount of $28,040.36, and Simonton and Barker to the amount of $26,760, and four other persons, whose claims in the aggregate were about $500.

The court made a final decree, which, reciting the names of the stockholders and the sums for which each of them was liable, says, 'It is further ordered, adjudged, and decreed that the clerk of this court do enter up judgment for complainants to the amounts of their respective bills proven in this cause, as hereinafter stated.' The names of the creditors and the sums due each of them is then stated, and the decree closes as follows: 'And it is ordered that said bill-holders respectively have execution against said defendants, stockholders above named, for the several amounts above stated, and costs. It is further ordered that as to the defendant, Richard Lathers, the bill be dismissed with costs.'

This whole proceeding is a very extraordinary one. It is a case in which, if the Circuit Court of the United States had any jurisdiction at all, it must have been on the ground of the citizenship of the parties. But the only allegation or evidence in the whole record on that subject is that plaintiff, Terry, is a citizen of the State of Virginia. What is the citizenship of five or six other parties, who by the decree are called complainants and bill-holders, and who are awarded execution for their debts against sixty-four defendants, we are not informed. Nor is there a word said about the citizenship of any of the defendants. Upon what principle the court could entertain jurisdiction, and proceed to decree in the case, we are utterly at a loss to understand. If the bank had been a party, its citizenship might possibly have been inferred. But it was not made a party; and a decree was rendered against the defendants, by reason of an obligation which the statute imposes upon them. The court clearly had no jurisdiction of the case.

But suppose it had jurisdiction of the case as to the defendants who were served with process or who appeared. There were only twenty out of the sixty-four individuals against whom the decree was rendered who were served with process, or who appeared in any stage of the proceeding. As to the other forty-four persons against whom this decree is rendered, they have had no day in court, and were served with no process.

The master seems to have called before him a cashier or clerk of the bank, and obtained from him a list of the stockholders, whose names and the number of shares held by each he reported to the court; and on this the court rendered a decree against them. It is impossible to sustain such a decree, if it was shown they were all citizens of the State of South Carolina. The liability of each one of these stockholders, if liable at all, is his several liability. It is a liability depending upon the statutory contract. It depends on the fact of the failure of the bank, and on his holding shares in the bank when it failed, or within twelve months before its failure. His liability depends in every instance on facts peculiar to his own case; for, if the failure of the bank and the date of the failure may be common to all parties charged, it still remains that the ownership of shares, the number of shares, and the time when they were owned, are facts to be established against each man charged, and with which no other defendant has any connection. And in regard to which, if a prima facie case is made, each man may have a distinct defence depending on different testimony. These remarks are not made with a view of showing that the stockholders must each be sued in a different action, but to show what is one of the most elementary principles of the law, that no judgment can be rendered against a man who is not brought within the jurisdiction of the court, because somebody else is on a similar liability.

If, however, we examine the decree on the basis that relief in this action could be afforded to each creditor against the stockholders named, we do not think the present decree can be supported.

The first relief granted by it is, that 'it is ordered that the clerk of this court do enter up judgment for the complainants to the amounts of their respective bills proven in this cause, as hereinafter stated.'

Was any such judgment ever entered up? If so, it is not found in the record. Was it intended that any judgment except this decree should be entered? No necessity for it is to be seen. Who are the complainants that are to have this judgment? There is but one man named in the bill, or named anywhere else, as complainant.

But treating this as surplusage, the real relief granted is that in the close of the decree, in which it is ordered that the bill-holders respectively have execution against the stockholders for the amounts found due them. Six executions, to be issued against the same parties on the same liability, in a chancery decree. How are they to be enforced?

One of the stockholders, Allan McFarlan, is held liable for $100,000. He is not served with process, did not make any appearance, may reside in another State. Is all the money due to all the creditors to be made out of him, if his property can be found in the State? If so, what remedy has he against the others? Must he begin a new suit? Must he get another execution against all the others, by another proceeding in this suit?

If there is any reason why this suit should be sustained in chancery instead of a separate suit at law against each stockholder, it is that the burden may be equalized and properly distributed as to the shareholders, and the benefits among the creditors. This decree does nothing of the kind. It leaves the marshal of the court to collect the whole of each execution out of one man, out of two men, out of ten men, as he pleases. It may be asked, How can this be avoided? The answer is easy. It was no trouble to take the sum due to each creditor and the sums due from each stockholder, give a decree nisi with time for each man to pay the sum assessed. Against such as did not pay let execution issue; and if nulla bona was returned, there must be a new assessment against the others until all should be paid or the sum of the several liabilities exhausted. On the other hand, the whole benefit of the chancery remedy, namely, the power to do justice to all by equalizing and properly distributing the relief and the burden, was not exercised by this decree. Pollard v. Bailey, 20 Wall. 520; Hornor v. Henning et al., 93 U.S. 228.

But there is a well-founded objection to the decree, which is fatal to the relief sought by the bill under any circumstances.

We are of opinion that the court erred in fixing the date of the failure of the bank at March 1, 1865. On looking into this record to discover on what evidence the court fixed that date, we find that there was none at all. No evidence on this subject or any other was taken, at least none is found in the record prior to the order of the court referring the case to the master. That order fixed the first day of March, 1865, as the day of failure, and peremptorily directed the master to ascertain and report who were liable as stockholders, with reference solely to that date. The bill alleges that on that day, 'and, indeed, at an earlier day, the bank had failed.' The answer of every defendant who did answer says the bank failed in 1860. On what evidence, then, did the court, in its order of reference, fix that as the date of the failure? There is literally none in the record.

It is true that the master reports that in his examination of one or two witnesses 'the fact was elicited that the bank failed on or about the first day of March, A.D. 1865.' But this matter was not referred to him. He had no right to decide it, or to take testimony about it, or to report upon it. Exception was taken to this part of the report on the ground that the evidence showed that the bank suspended specie payments in November, 1860, and never afterwards resumed, and that there was no other evidence by which the date of actual failure could be determined.

The evidence which he reports on that subject is that of the receiver and cashier, who stated that the bank finally closed March 1, 1865, though both state their belief that it was insolvent for some time before. All this, however, was improper testimony, because that issue had been decided by the court, and was not open before the master. Neither plaintiff nor defendant had any right to give evidence before him on that subject.

But there is evidence in the agreed statement of facts, not filed before the master, but in the open court, which we have already set forth, that the bank failed on the 13th of November, 1860, and never after resumed; that on that day it suspended specie payments, and never afterwards paid; that the last time it paid out any of its own bills was Aug. 6, 1861; after that it only paid its debts, whether due to depositors or holders of its bills, in Confederate money. What is meant by 'failure of the bank,' in the clause of its charter which makes the stockholders liable? If a partnership engaged in any mercantile or manufacturing business fails to meet, and pay when demanded, its current business paper as it falls due, that firm is said, in popular language, to have failed. And unless it compromises with its creditors, or makes arrangement for extension of time, it has failed in all senses of the word. If it continues to dishonor its paper, it has failed. If any business man or business firm does the same thing, they are, by the express terms of every bankrupt law, bankrupts. By the bankrupt law of England and of the United States, and by the insolvency laws of Massachusetts and many other States, the person or the partnership in business which is no longer able to pay its current debts as they fall due is insolvent. Here, then, in all these instances, what the bank at Cheraw did is called in others bankruptcy, insolvency, failure. Why is it not so with regard to a bank? If there be any difference, it should be in favor of the rule which brings into action the remedies for bank failures. They are more trusted than individuals; their functions are more important; their failures more disastrous to those who deal with them.

It is argued that the suspension of specie payments in 1860, by the banks of South Carolina, was legalized by her legislature. The legislature did no more, and could do no more, than to relieve them from the penalty of the forfeitures of their charters. It could not relieve them from the obligation to pay their debts in specie, nor extend the time for such payment. It could not do this, because any such law would impair the obligation of the creditor's contract. It could say: We won't forfeit your charter; we won't close your door; we won't prevent you from doing business if any one will trust you. But it could not and did not say, We relieve you from the obligation to pay your existing debts. If they did not pay them, they failed. What are the principal functions of a bank? They are: 1, To receive and pay deposits; 2, to issue notes of circulation redeemable on presentation at its counter; 3, to buy and sell exchange; and, 4, to loan money. Now, of these functions the first two are, as to the public, by far the most important; and as to these the bank at Cheraw failed emphatically in 1860, and never resumed. That is to say, it failed to pay the deposits then held, or the circulating notes it had then out, according to its legal obligations to do so. It was not able to do so, and therefore was insolvent. It did not do so, and was therefore bankrupt. It refused to do so, and therefore it had failed.

If this bank had resumed payment shortly after the suspension, and had paid or offered to pay all its indebtedness in specie, there would have been no question of the liability of stockholders, nor any question of failure. But since it never did pay or offer to pay these obligations, since it was never after this able to pay these obligations, it was ever afterwards insolvent, and its failure must bear date of this first and continued refusal and inability to pay.

Although a provision similar to this had been in the charter of the Bank of South Carolina for over seventy years, no decision by her highest court of the question has been made. We are referred to decisions which determine under what circumstances a bank has forfeited its charter; but they have nothing to do with this question. The liability of the stockholder does not depend on forfeiture of the charter. It is a right given to the creditor of the bank against its stockholders whenever it fails. The duties of the bank to the State depend on other principles, and are within the subsequent control of the legislature. The right of the creditor is beyond its control altogether.

Counsel for appellee furnishes an analysis of the statutory provisions similar to the one under consideration as found in the charters of South Carolina banks from 1801 to the one before us, and insists that the words 'bankruptcy' and 'failure' were used together and as synonymous until about the time of the charter of the Cheraw bank, when the word 'failure' alone was used. But when both words were used, the reasonable inference is that both failure and bankruptcy were required to fix the liability of the stockholder, and when the word 'bankruptcy' was dropped, it implied that failure alone was sufficient for that purpose.

But if failure meant bankruptcy, it must mean such a failure as would authorize proceedings in bankruptcy where a bankrupt law existed.

We have already seen that what the bank did in November, 1860, would have been an act of bankruptcy in an individual.

We are of opinion, then, that the bank failed, within the meaning of the clause of its charter, in November, 1860. It follows that only those who were then shareholders, or who had been within twelve months before, are liable, or could be liable, in this suit. We are further of opinion that as to those who were then stockholders the Statute of Limitation is a perfect bar, and no action can be maintained against them.

Decree reversed, and cause remanded with directions to dismiss the bill.

title: Godfrey v. Terry/Opinion of the Court


text: Talk:Godfrey v. Terry/Opinion of the Court


text:
Lamborn v. County Commissioners

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

The facts are stated in the opinion of the court.

Mr. C. E. Bretherton for the plaintiff in error.

Mr. S. O. Thacher, contra.

MR. JUSTICE BRADLEY delivered the opinion of the court.

title: Lamborn v. County Commissioners


text: Talk:Lamborn v. County Commissioners

title: Talk:Lamborn v. County Commissioners


text:
Lamborn v. County Commissioners/Opinion of the Court

Lamborn, the plaintiff in error in this case, is the trustee and representative of the National Land Company. This company had contracted with the Kansas Pacific Railway Company for the purchase of a large quantity of the lands in Kansas, to which the latter company was entitled under the congressional grant made to it, under the name of the Leavenworth, Pawnee, and Western Railroad Company, and the Union Pacific Railroad Company, Eastern Division, by the acts of July 1, 1862, and July 2, 1864. The contract required the land company to pay all such taxes and assessments as might be lawfully imposed on the lands. And it provided that the railway company should, at the request of the land company, convey by deed of general warranty any of the lands purchased, whenever the purchase-money and interest and the necessary stamps should be furnished by the latter. The land company, after acquiring this contract, had contracted to sell large portions of the lands to third parties, taking from them agreements to pay all taxes and assessments that might be imposed upon the lands sold to them respectively. The lands in Dickinson County were assessed by the defendants for taxes for the years 1870, 1871, and 1872 successively, when, as yet, they were not taxable, no patent having been issued therefor, and the costs of surveying, selecting, and conveying the same not having been paid. These taxes, therefore, as decided by us in the case of Railway Company v. Prescott (16 Wall. 603), were not legal. Nevertheless, the Supreme Court of Kansas, in that case, had held such taxes legal; and the taxes for the year 1870, now in question, not having been paid, the treasurer of Dickinson County proceeded to advertise and sell the lands therefor in May, 1871, and, no person bidding the requisite amount, the lands were bid in for the county. The assessments for 1871 and 1872 were made against the lands whilst they were in this position.

By the laws of Kansas, if lands sold for taxes are bid in for the county, the county treasurer is authorized to issue a tax certificate to any person who shall pay into the county treasury an amount equal to the cost of redemption at the time of payment. Gen. Stat. of Kansas, c. 107, sect. 91. And if any lands sold for taxes are not redeemed within three years from the day of sale, the clerk of the county may execute a deed to the purchaser, his heirs or assigns, on the presentation to him of the certificate of sale. Sect. 112. It is further provided, that if the county treasurer shall discover, before the sale of any lands for taxes, that on account of any irregular assessment, or from any other error, such lands ought not to be sold, he shall not offer such lands for sale; and if, after any certificate shall have been granted upon such sale, the county clerk shall discover that, for any error or irregularity, such land ought not to be conveyed, he shall not convey the same; and the county treasurer shall, on the return of the tax certificate, refund the amount paid therefor on such sale, and all subsequent taxes and charges paid thereon by the purchaser or his assigns, out of the county treasury, with interest on the whole amount at the rate of ten per cent per annum. Sect. 120.

In 1872, the plaintiff in error paid into the county treasury the sums due for taxes, interest, &c., on the said lands in Dickinson County, which had been sold for taxes as aforesaid, and received tax certificates therefor, without making any protest, not being aware at that time, as he alleges, that the lands were exempt from taxation, but supposing that the taxes were legal and valid. On the second day of January, 1874, after the decision of this court in Railway Company v. Prescott (supra), he offered to return the tax certificates to the county treasurer, and demanded a return of the money paid by him into the county treasury, with interest, which was refused by the treasurer; and thereupon this suit, against the board of county commissioners of that county, was brought to recover the same.

Under this state of facts the judges of the Circuit Court differed in opinion on the following points of law:--

1. Whether judgment should be rendered for the plaintiff or for the defendant.

2. Whether the acquisition of said tax certificates and the subsequent payment of taxes by the plaintiff was a voluntary payment of the money now sought to be recovered back in such a sense as to defeat the right to such recovery.

3. Whether the statute of Kansas (Gen. Stat., p. 1058, sects. 120, 121) gives the right upon the facts above found to the plaintiff to recover in respect of the causes of action set out in the petition.

Judgment was given in favor of the defendant, in accordance with the opinion of the presiding judge, and Lamborn sued out this writ of error.

The plaintiff insists that he is to be regarded as a purchaser, and entitled under the statute referred to, or, if not under that statute, then on general principles of law, to a return of the money paid by him to the county treasurer.

But we are of opinion that the plaintiff cannot be regarded as a purchaser of the lands. The moneys were paid by him on behalf of the National Land Company, under the belief that the taxes were legal and valid; and it is not only apparent from the facts found that he made the payment in 1872 by way of redeeming the lands, but, if it did not so expressly appear, it ought to be presumed that he paid the money for that purpose. As between the land company and the Kansas Pacific Railway Company (which had not yet been paid for the lands), it was the duty of the former to pay all legal taxes and assessments imposed thereon. The plaintiff, as agent of the land company, could not acquire a tax title without being guilty of bad faith to the railway company. Taxes on lands in Kansas are assessed against the lands themselves, and a tax sale (when valid) confers an absolute title. Such a sale, had it been valid in this case, would have given the land company a full and valid title adverse to that of the railway company, and would have defeated their lien upon the same for the purchase-money. The cases on this subject are very full and explicit, and are based on considerations of equity and justice. Judge Cooley says: 'There is a general principle applicable to such cases, that a purchase made by one whose duty it was to pay the taxes shall operate as payment only: he shall acquire no rights, as against a third party, by a neglect of the duty which he owed to such party. This principle is universal, and is so entirely reasonable as scarcely to need the support of authority. Show the existence of the duty, and the disqualification is made out in every instance.' And he instances the cases of lessees and mortgagors as obviously within the disability. Cooley, Taxation, 346. In Blackwell on Tax Titles, 401, it is said: 'A vendee cannot acquire a title adverse to his vendor by the purchase of the land at a tax sale, nor can an agent whose duty it is to pay the taxes become the purchaser of the principal's land at such a sale.' This doctrine has been fully adopted by the Supreme Court of Kansas. Carithers v. Weaver, 7 Kan. 110; Kurtz v. Fisher, 8 id. 90.

The next question to consider, therefore, is whether money thus paid by way of redemption can be recovered back. There are only three grounds on which such a recovery can be maintained, fraud, mistake, or duress.

No fraud is charged.

Mistake, in order to be a ground of recovery, must be a mistake of fact, and not of law. Such, at least, is the general rule. 3 Pars. Contr. 398; Hunt v. Rousmaniere, 1 Pet. 1; Bilbie v. Lumley, 2 East, 183; 2 Smith, Lead. Cas. 398 (6th ed. 458), notes to Marriot v. Hampton. A voluntary payment, made with a full knowledge of all the facts and circumstances of the case, though made under a mistaken view of the law, cannot be revoked, and the money so paid cannot be recovered bank. Clarke v. Dutcher, 9 Cow. (N. Y.) 674; Ege v. Koontz, 8 Pa. St. 109; Boston & Sandwich Glass Co. v. City of Boston, 4 Metc. (Mass.) 181; Benson & Another v. Monroe, 7 Cush. (Mass.) 125; Milnes v. Duncan, 6 Barn. & Cress. 671; Stewart v. Stewart, 6 Cl. & Fin. 911; and see cases cited in note to 2 Smith, Lead. Cas. 403, 404 (6th ed. 466), Marriot v. Hampton.

In the present case, there is no dispute that all the facts and circumstances of the case, bearing on the question of the legality of the tax, were fully known to the plaintiff. He professedly relied on the law, as declared by the Supreme Court of Kansas, and supposed that the tax was legal and valid.

The only other ground left, therefore, on which a right to recover back the money paid can be at all based, is, that the payment was not voluntary, but by compulsion, or duress. It is contended that the plaintiff was obliged to pay the taxes in order to remove the cloud from the title which had been raised by the tax sale, and to prevent a deed from being given to some third party after the expiration of the three years allowed for redemption.

It is settled by many authorities that money paid by a person to prevent an illegal seizure of his person or property by an officer claiming authority to seize the same, or to liberate his person or property from illegal detention by such officer, may be recovered back in an action for money had and received, on the ground that the payment was compulsory, or by duress or extortion. Under this rule, illegal taxes or other public exactions, paid to prevent such seizure or remove such detention, may be recovered back, unless prohibited by some statutory regulation to the contrary. Elliott v. Swartwurt, 10 Pet. 137; Ripley v. Gelston, 9 Johns. (N. Y.) 201; Clinton v. Strong, id. 369; and cases cited in 2 Smith, Lead. Cas. (6th ed.) 468; Cooley, Taxation, 568.

But it has been questioned whether a sale or threatened sale of land for an illegal tax is within this rule, there being no seizure of the property, and nothing supervening upon the sale except a cloud on the title. This view has been adopted in Kansas. In Phillips v. Jefferson County (5 Kan. 412), certain Indian lands, not legally taxable, were nevertheless assessed and sold for taxes, and a certificate issued to the purchaser. Phillips, having acquired title to the land, paid the amount of said taxes, at the same time denying their legality, and saying that he paid the money to prevent tax-deeds from issuing on the certificates. The court hold that the payment was purely voluntary, and add: 'The money was not paid on compulsion or extorted as a condition. A tax-deed had been due for nearly two years. Had the plaintiff desired to litigate the question, he could have done so without paying the money; even had a deed been made out on the tax certificate, it would have been set aside by appropriate proceedings. There was no legal ground for apprehending any danger on the part of the plaintiff. He could have litigated the case as well before as after payment. Neither his person nor property was menaced by legal process. Regarding, then, the payment as purely voluntary, it is as certain as any principle of law can be that it could not be recovered back.'

It seems to us that this case is precisely parallel with the one before us. We are unable to perceive any distinction between them. And as it is the law of Kansas which we are called upon to administer, the settled decisions of its Supreme Court, upon the very matter, are entitled to the highest respect. We are not aware of any decision which tends to shake the authority of Phillips v. Jefferson County. On the contrary, the same views have been subsequently reiterated. In Wabaunsee County v. Walker (8 id. 431), a case precisely like it, with the exception that when the taxes were paid to the county collector to redeem the tax certificates, under a mistaken view of the law, he charged twice as much interest as he was entitled to, the party paid under protest. Yet it was held that he could not recover back even the illegal interest. The court relied on the previous decision in Phillips v. Jefferson County, and, after examining various other authorities, summed up the matter as follows: 'A correct statement of the rule governing such cases as this would probably be as follows: Where a party pays an illegal demand with a full knowledge of all the facts which render such demand illegal, without an immediate and urgent necessity therefor, or unless to release his person or property from detention, or to prevent an immediate seizure of his person or property, such payment must be deemed to be voluntary, and cannot be recovered back. And the fact that the party, at the time of making the payment, files a written protest does not make the payment involuntary.'

The question was again discussed in the recent case of the Kansas Pacific Railway Co. v. Commissioners of Wyandotte County (16 id. 587); and although, in that case, a personal tax paid by the railroad company under protest was recovered back, such recovery was allowed on the ground that, if the tax was not paid, it would be the immediate duty of the county treasurer to issue a warrant to the sheriff to levy upon and sell the personal property of the company therefor. But the principles of the former cases were recognized and affirmed.

It has undoubtedly been held in other States (though perhaps not directly adjudged) that a payment of illegal taxes on lands, to avoid or remove a cloud upon the title arising from a tax sale, is a compulsory payment. The case of Stephan v. Daniels et al. (27 Ohio St. 527) is of this character; though in that case the plaintiff relied on the provisions of a local statute; and besides this, a legal tax was combined with an illegal assessment, and perhaps a sale would have conferred a valid title upon the purchaser. Where such would be the effect of a tax sale, we cannot doubt that a payment of the tax, made to prevent it, should be regarded as compulsory and not voluntary. The threatened divestiture of a man's title to land is certainly as stringent a duress as the threatened seizure of his goods; and if imminent, and he has no other adequate remedy to prevent ¢it, justice requires that he should be permitted to pay the tax, and test its legality by an action to recover back the money. But as, in general, an illegal tax cannot furnish the basis of a legal sale, the case supposed cannot often arise. If the legality of the tax is merely doubtful, and the validity of the sale would depend on its legality, according to the law of Kansas, the party, if he chooses to waive the other remedies given him by law to test the validity of the tax, must take his risk either voluntarily to pay the tax, and thus avoid the question, or to let his land be sold, at the hazard of losing it if the tax should be sustained. Having a knowledge of all the facts, it is held that he must be presumed to know the law; and, in the absence of any fraud or better knowledge on the part of the officer receiving payment, he cannot recover back money paid under such mistake.

In conclusion, our judgment is that the questions submitted by the Circuit Court must be answered as follows:--

To the first: that judgment should be rendered for the defendant.

To the second: that the acquisition of the tax certificates and the subsequent payment of the taxes by the plaintiff were a voluntary payment, in such a sense as to defeat the right to recover in this action.

To the third: that the statute of Kansas, referred to in the question, does not, upon the facts found, give to the plaintiff the right to recover in respect of the causes of action set out in the opinion.

Judgment affirmed.


text: Talk:Lamborn v. County Commissioners/Opinion of the Court