text:
Home Life Insurance Company v. Dunn

ERROR to the First Judicial District Court of Hamilton County, Ohio; the case being thus:

The Judiciary Act of 1789, thus enacts:

'If a suit be commenced in any State court by a citizen of the State in which the suit is brought against a citizen of another State,. . . and the defendant shall at the time of entering his appearance in such State court file a petition for the removal of the cause for trial into the next Circuit Court, to be held in the district where the suit is pending, &c.,. . . it shall then be the duty of the State court. . . to proceed no further in the cause.'

Then came an act of July 27th, 1866. It was thus:

'If in any suit. . . in any State court by a citizen of the State in which the suit is brought against a citizen of another State,. . . a citizen of the State in which the suit is brought is or shall be a defendant, and if the suit, so far as relates. . . to the defendant who is the citizen of a State other than that in which the suit is brought, is or has been instituted or prosecuted for the purpose of restraining or enjoining him, or if the suit is one in which there can be a final determination of the controversy, so far as it concerns him, without the presence of the other defendants as parties in the cause, then, and in every such case,. . . the defendant who is a citizen of a State other than that in which the suit is brought, may, at any time before the trial or final hearing of the cause, file a petition for the removal of the cause as against him into the next Circuit Court of the United States to be held in the district where the suit is pending,. . . and it shall be thereupon the duty of the State court to. . . proceed no further in the cause as against the defendant so applying for its removal.'

Finally came an act of March 2d, 1867. Its title is,

'An act to amend an act entitled 'An act for the removal of causes in certain cases from State courts," approved July 27th, 1866.

It runs thus:

Be it enacted, That the act entitled An act for the removal of causes in certain cases from State courts,' approved July 27th, 1866, be and the same is hereby amended as follows: That where a suit may hereafter be brought in any State court, in which there is controversy between a citizen of the State in which the suit is brought and a citizen of another State, such citizen of another State, whether he be plaintiff or defendant, if he will make and file in such State court an affidavit, stating that he has reason to and does believe that from prejudice or local influence he will not be able to obtain justice in such State court, may, at any time before the final hearing or trial of the suit, file a petition in such State court for the removal of the suit into the next Circuit Court of the United States, to be held in the district where the suit is pending,. . . and it shall be, thereupon, the duty of the State court to. . . proceed no further in the suit.'

Each of these three acts enacts that after the case is removed, in the way which they respectively provide, into the Circuit Court of the United States, it shall there proceed in the same manner as if it had been brought in that court by original process.

These statutes being in force, Mrs. Dunn, widow and administratrix of John Dunn, sued the Home Life Insurance Company of Brooklyn, in one of the courts of common pleas of Ohio, on a policy of insurance for $2000 on her husband's life, and obtained a verdict against the company. The company moved to set aside the verdict and for a new trial. But upon consideration the court overruled the motion; and it was 'therefore considered by the court that the plaintiff recover her damages herein assessed, and the costs to be taxed.'

This, of course, in any court proceeding in the course of the common law, would have been the end of all 'trials,' or of other relief to the insurance company, except such as it might have provided for itself through writ of error.

But the law of Ohio respecting second trials is somewhat peculiar. The matter does not, as at common law, and in most of the States, rest in the discretion of the court trying the case, but rests in the option of the suitor himself. One of the statutes of the State, known as the Second Trial Act, thus enacts:

'SECTION 1. A second trial may be demanded and had in any civil action which has been. . . instituted in any court of common pleas in this State, in which said court has original jurisdiction, and in which either party has the right by law to demand a trial by jury. . . and after a judgment or final order has been rendered, upon the terms and in the manner hereinafter provided.

'SECTION 2. Any person desirous of such second trial. . . shall at the term of the court at which judgment was rendered, enter. . . into an undertaking within the time hereinafter limited, with security. . . payable to the adverse party in such sum as may be fixed by the court, and conditioned to the effect that the party obtaining such second trial shall abide and perform the order and judgment of the court, and pay all moneys, costs, and damages which may be required or awarded against him consequent upon such second trial.'

Under this statute of the State, the insurance company after trial and judgment demanded and had leave to have 'a second trial.' The company gave a bond in $4000, conditioned that it should abide and perform the judgment of the court, and pay all moneys which might be required of or awarded against it consequent upon a second trial by the Court of Common Pleas of Hamilton County.

At the next term of the court the company-assuming that, notwithstanding the trial already had, they had (in virtue of their demand for a second trial and their leave to have it) not yet had a 'final hearing or trial'-filed a petition in the Court of Common Pleas, where the case had been tried, to remove it into the Circuit Court, under the last of the above-quoted acts of Congress, the act, namely, of 1867, quoted on pages 215-16. And the Court of Common Pleas ordered the removal, and that no further proceedings should be had before it. A transcript of the record was accordingly filed in the Circuit Court, and the cause docketed there. Mrs. Dunn, by her counsel, now appeared in that court and moved to dismiss the case, as not having been one for removal under any of the acts of Congress.

The ground of her motion apparently was that the petition for removal had been too late; that it should have been before the trial in the Common Pleas; that under the act of 1789 a defendant desiring to remove was bound to petition for a removal, if he wanted one, 'at the time of entering his appearance;' that under that of 1866, 'at any time before the trial or final hearing of the cause,' and that though in the act of 1867 there was a slight transposition of words, so as to read 'at any time before the final hearing or trial of the suit,' the meaning in both acts was the same, the words 'final hearing' referring to proceedings in equity, and the word 'trial' to a proceeding at common law; and even if this were not so, that the case was the same, for that the company had had a final trial; that Congress could not be supposed to have had reference to the very peculiar local law of Ohio, about trials, of which perhaps not ten of its members had ever heard, but was to be taken to have referred to the general system of the common law, which came to us all by inheritance, and still so widely prevailed over the nation; that thus viewed the company had had a final trial; for it had had a trial on merits before a jury, it had moved for an it had been refused a new trial and a judgment had been entered against it, which was now in existence, a lien upon its property; that the words 'final trial' were used in contradistinction to the words 'interlocutory trial,' and this trial not having been interlocutory was final. Further than this, that if the application for removal, after a second trial was taken, was in time to be within the terms of the act of March 2d, 1867, then that the act violated the seventh amendment to the Constitution, which reads thus:

'In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved; and no fact tried by a jury shall be otherwise re-examined in any court of the United States than according to the rules of the common law.'

It was said that one branch of this suit was a suit at common law, and that the amount in controversy exceeded twenty dollars; and that all of the facts in the case were tried by a jury, and their verdict was affirmed before the case was removed into the Circuit Court for these same facts to be re-examined there, for a cause and under a proceeding not known to the common law, nor within any of its rules.

It was said further, that the law of March 2d, 1867, was unconstitutional for another reason, to wit, that it destroyed the second trial bond that had been given in the State court to secure the claim being litigated, without the process of law, and without consideration or any equivalent bond being substituted; that the condition of the bond to pay a judgment to be obtained at a second trial in the Court of Common Pleas of Hamilton County, Ohio, was not answered by a judgment obtained in the Circuit Court, and that the sureties on the bond would not be liable to answer to such a judgment.

But the Circuit Court was not of this view; and so, overruling the motion to dismiss, it retained the cause upon its docket.

Mrs. Dunn then filed an amended declaration in the Circuit Court, and that was now pending there.

She now went back into the State courts, and by petition for error filed in the District Court of Hamilton County (a court superior to the Common Pleas, and having in general jurisdiction to review its orders ), prayed for a reversal of the order which the Common Pleas had made to remove the case into the Circuit Court, and that it should be no further proceeded in before it. The insurance company opposed the application.

The District Court, however, did reverse the order; being of opinion that the petition for removal, in being filed after the trial, had not been filed in accordance with any act of Congress, and that the removal was not authorized by law.

The insurance company then took the question of the right of removal from the District Court to the Supreme Court of the State. That court, like the District Court, held-the bench being unanimous-that the removal, in being made after the trial, was unauthorized by law and void. It said:'This act of March 2, 1867, is an amendment of the act of July 27, 1866, in which the language used is, that the petition may be filed 'at any time before the trial or final hearing of the cause.'

'We have no doubt the terms 'trial' and 'final hearing' ought to have the same meaning in both acts, and that their transposition in the amendatory act was merely accidental.

'The terms, it seems to us, were intended to embrance actions at law and suits in equity-the word 'trial' having reference to an action at law, and the words 'final hearing' to a suit in equity; and that by 'the final hearing or trial of the suit,' is meant a hearing or trial upon the merits, such as results in a final judgment in an action at law, and a final decree in a suit in equity.

'The act of Congress was, doubtless, intended to have the same operation in all the States, irrespective of the difference that may exist in the modes provided in the several States for examining, in the appellate court, questions decided in the court below.

'In this State, after final decree, equity cases are appealable to the District Court, on the appellant giving notice and entering into an undertaking as required by the statute. In cases in which either party has the right to a trial by jury, there can be no appeal, but either party, after final judgment, by giving notice of his demand, and entering into an undertaking as required by the statute, is entitled to a second trial. If no undertaking is given, the demand for a second trial and the notice of appeal go for nothing; and the judgment or decree is conclusive upon the rights of the parties. Such, also, is the effect of the judgment or decree from the time of its rendition to the giving of the undertaking. And notwithstanding the appeal or the right to a second trial may be perfected, the lien of the judgment or decree is continued until the determination of the cause on appeal or second trial.

'It is competent for the legislature to take away the right of appeal and of a second trial. If this were done there would be no ground for the removal of the cause under the act of Congress.

'The true construction of the act does not, we think, thus make its operation depend upon whether the legislation of the State allows or does not allow the exercise of appellate jurisdiction after a common-law trial, or the final hearing of a suit in equity in the court of original jurisdiction.

'To bring this case within the act of Congress would be to allow the non-resident party to experiment with the jurisdiction of the State courts. If the trial should result in his favor, it would bind his adversary, but if it should result adversely to him, he could escape the effect of the litigation by removing the cause to another jurisdiction. To lead us to such a conclusion, 'the intention ought to be expressed with irresistible clearness.'

'The conclusion at which we have arrived in this case is in accordance with the decision of the Supreme Court of Wisconsin in Akerly v. Vilas. The judgment of the court in that case was pronounced by Paine, J., in an able opinion, to which we refer for a more elaborate discussion of the questions.'

title: Home Life Insurance Company v. Dunn


text: Talk:Home Life Insurance Company v. Dunn

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


text:
Home Life Insurance Company v. Dunn/Opinion of the Court

A second trial, contested by the company upon both law and merits, was then had, in the Common Pleas, resulting as before in a verdict and judgment for the plaintiff, which judgment the District Court, after hearing upon petition in error, affirmed.

Upon petition averring these facts, a writ of error was granted by one of the justices of this court, to the said District Court, directing the records and proceedings in the cause to be certified to this court, which was accordingly done, and the plaintiff in error, the insurance company, sought, herein, to reverse the order of the said District Court, asserting that the decision called in question the construction of the statute of 1867, of the United States, and was against the right and privilege set up by the defendant, the now plaintiff in error, thereunder.

1st. The reversal by the District Court of the order of removal.

2d. The subsequent judgment in the Court of Common Pleas after the jurisdiction of that court had been ousted by the removal.

3d. The affirmance of the said judgment by the District Court.

Mr. H. A. Morill, with whom were Messrs. George Hoadly and E. M. Johnson, for the plaintiff in error; Mr. W. H. Standish, contra.

Mr. Justice SWAYNE delivered the opinion of the court.

The case involves a question of jurisdiction arising between State courts and a Federal court, which, though not without interest, involves no difficulty in its solution.

The administratrix sued the insurance company upon a life policy, in the Court of Common Pleas of Hamilton County. She recovered a verdict, and thereafter a judgment was rendered upon it. The company applied for a new trial, and gave bond pursuant to the laws of Ohio, in that behalf. This had the effect of vacating the verdict and judgment as if a new trial had been granted according to the course of the common law, except that the lien of the judgment remained for the security of the plaintiff, in addition to the bond given by the defendant. In this condition of things, the company petitioned the Court of Common Pleas for the removal of the cause to the Circuit Court of the United States for that district, pursuant to the act of Congress of March 2d, 1867. The requirements of the statute having been complied with, the court ordered that no further proceedings be had there in the cause, and it was removed to the Circuit Court.

The administratrix appeared in that court and moved that the case be dismissed for want of jurisdiction. The motion was overruled. The administratrix thereupon asked leave to file an amended petition in that court. Leave was granted. The petition was filed, and is still pending there. She thereupon instituted proceedings in error in the District Court for the county to reverse the order made by the Court of Common Pleas, and a judgment of reversal was rendered. The company applied to the Supreme Court of the State for leave to file a petition in error. Leave was refused. This in effect affirmed the judgment of the District Court. A second trial was thereupon had in the Common Pleas, and the administratrix recovered a second judgment. The company removed the case to the District Court of the county by a petition in error. That court affirmed the judgment The company thereupon sued out this writ of error, and the entire record in the State courts is thus brought before us for review.

It is insisted that the company, by appearing and contesting the claim in the second trial, waived the question of jurisdiction, and was bound by the judgment. To this there are several answers.

The company resisted the reversal of the order of removal made by the Common Pleas, and did all in its power to that end. Having failed, and being forced into a trial, it lost none of its rights by defending against the action.

The cause was out of the Common Pleas, and in the Circuit Court. The former had jurisdiction to remit and the latter to receive it. Being in the latter, that court had jurisdiction to retain it. If there were error on the part of the Circuit Court in overruling the motion to dismiss, because the case had been improperly brought there, the remedy should have been sought in the Federal courts. The State courts were incompetent to give it. The authority of the latter was at an end until the case should be restored, if that were ever done, by the action of the former. Nothing is lost to the State courts by the application of this rule, for if they refuse improperly to permit a case to be removed, their refusal is liable to be reviewed and reversed by the Federal tribunals, and the power of paramount and final judgment rests with them. The same rule of exclusion applies in favor of a State or Federal court which first gets possession of a case over which both have jurisdiction.

The conditions prescribed having been complied with, the act of Congress expressly required the State court where it was originally pending, 'to proceed no further in the suit.' The further proceedings of the Common Pleas was a clear case of usurped jurisdiction. The illegality was gross. The action of the District and Supreme Court of the State gave them no validity. The maxim, that consent cannot give jurisdiction, applied with full force. Gordon v. Longest is exactly in point and conclusive.

This brings us to the cardinal inquiry in the case. It is maintained by the counsel for the administratrix, that the order of removal by the Common Pleas was erroneously made, the first verdict and judgment being final within the meaning of the act of Congress and the laws of Ohio. If the point be well taken the judgment must be affirmed. Otherwise it must be reversed.

It is not denied that the requirements of the act of Congress were fully complied with. No question is raised upon that subject. The proposition involves the construction and effect of the act, and of the laws of Ohio under which the transfer was made. The act declares that the petition may be filed 'at any time before the final hearing or trial of the suit.' It is contended that the qualifying adjective final applies to the term hearing and not to 'trial,' and that any trial, whether final or not, is conclusive against the petitioner. This is too narrow a view. It is contrary to the grammatical construction and the obvious import of the words. The repetition of final before trial would have been tautology. To produce such a result as that contended for, the indefinite article should have been placed before the word 'trial,' so that the language would have been,-before the final hearing or a trial. This would doubtless have been done if such had been the intent of the act. The statute is remedial, and must be construed liberally. There is no reason for interpolating this limitation. The adjective must be taken distributively and applied as well to the second as to the first term, and to both alike. The test is whether the hearing or the trial is the final one in the cause. It would be a strange anomaly if in equity and admiralty cases a final hearing only, could take away the right of removal, while any trial, however interlocutory in its character, should have the same effect in an action at law. This would be in conflict alike with the letter, the spirit, and the meaning of the act, and would largely defeat the purpose of its enactment. It was intended to permit the removal at any time before a hearing or trial, final in the cause as it stood, when the application for the transfer was made.

The proposition that the first judgment of the Common Pleas was final within the meaning of the laws of Ohio cannot be maintained. To say that there can be two final judgments upon the same pleadings, in the same cause, in the same court, and for exactly the same things, as the results of two successive trials, involves a solecism. If the first judgment was not final the first trial could not have been so. When the demand for a new trial was made, and the requisite bond was given and approved, the case stood upon the docket in all respects as if a new trial had been granted for some error or defect in the former trial, irrespective of the laws in question, and as if no previous trial had taken place. It is true that the lien of the judgment was preserved, but that was an incident remaining after the principal thing had been put an end to. It was like the bond, for the security of the plaintiff, and for no other purpose. The former affects the question of the finality of the first trial no more than the latter. The law of Ohio declares that the bond shall be 'conditioned to the effect, that the party obtaining such second trial shall abide and perform the order and judgment of the court, and pay all money, costs, and damages which may be awarded against him, consequent upon such second trial.' The proceeding is thus designated and regarded as a second trial.' The judgment following unless reversed or set aside-is the one to be satisfied, and it must necessarily be the final, and the only final one. The same remarks as to finality apply to the trial which preceded it.

In the act of Congress of 1866, the language used in this connection is, 'at any time before the trial or final hearing.' If the difference in the act of 1867 be material, it is fair to presume that the change was deliberately made to obviate doubts that might possibly have arisen under the former act and to make the latter more comprehensive.

The fact that, under our construction, a case which has made progress, however far, if it has not passed the final trial, is liable to be removed, has little weight as an adverse argument. Under the Judiciary Act of 1789, cases that have reached their termination in the highest courts of the States, may be brought here by a writ of error for review, and the practice in conformity to that section has been constant from the organization of this court down to the present time. If the act be unwise, the remedy lies with the legislature and not the judicial department of the government.

Of the constitutionality of this act we entertain no doubt. The question is not an open one in this court. A few remarks will be sufficient to dispose of the subject. The third article of the Constitution declares that the judicial power of the United States shall be vested in one Supreme Court and in such inferior courts as Congress may from time to time establish, and that it shall extend, among other things, to 'controversies' 'between citizens of different States.' As regards the inferior courts authorized to be established, Congress may give them such jurisdiction, both original and appellate, within the limits of the Constitution, as it may see fit to confer. How their appellate jurisdiction shall be exercised, is not declared. The whole subject is remitted to the unfettered discretion of Congress. It may be applied to any other inferior Federal court, and to any State court where a case is presented which, by reason of the character of the parties or a question involved, falls within the scope of such judicial cognizance. Courts of the States and those of the nation are alike within its sphere, and its exercise may be authorized before or after judgment in the tribunals over which it is extended.

This act is confined to controversies between citizens of different States, and the power given to the Circuit Court is appellate. The jurisdiction involves the same principle, and rests upon the same foundation with that conferred by the twenty-fifth section of the Judiciary Act of 1789. The constitutionality of that provision has been uniformly sustained by the unanimous judgment of this court, whenever the subject has been presented for adjudication. The twelfth section of the act of 1789, and the third section of the act of the 2d of March, 1833, relating to revenue officers, present the same question. We are not aware that a doubt of the validity of either has ever been expressed by any Federal court. The acquiescence is now universal. The subject was elaborately examined in Martin v. Hunter.

The seventh amendment to the Constitution, touching the re-examination in the courts of the United States of facts which have been tried by a jury, has no application to this case, because the first judgment had been vacated, the first verdict set aside, and a new trial granted, as before stated, when the cause was removed to the Circuit Court.

The judgment of affirmance by the District Court and the judgment affirmed are REVERSED, and the District Court and the Court of Common Pleas will be directed to

PROCEED NO FURTHER IN THE SUIT.


text: Talk:Home Life Insurance Company v. Dunn/Opinion of the Court


text:
Dollar Savings Bank v. United States

ERROR to the Circuit Court for the Western District of Pennsylvania.

The United States brought an action of debt against The Dollar Savings Bank, in the court below, to recover certain internal revenue taxes, which the declaration alleged were due from it to the government. These taxes were asserted to have been authorized by an amendment contained in the ninth section of the Internal Revenue Act of July 13th, 1866, by which part of a prior Internal Revenue Act, the act, namely, of June 30th, 1864, was repealed, and in place thereof it was enacted:

'That there shall be levied and collected a tax of five per centum on all dividends in scrip or money thereafter declared due, wherever and whenever the same shall be payable, to stockholders, policy-holders, or depositors, or parties whatsoever,. . . as part of the earnings, income, or gains of any bank, trust company, savings institution, and of any. . . insurance company. . . in the United States or Territories,. . . and on all undistributed sums, or sums made or added during the year to their surplus or contingent funds; and said banks, trust companies, savings institutions, and insurance companies shall pay the said tax, and are hereby anthorized to deduct and withhold from all payments made on account of any dividends or sums of money that may be due and payable as aforesaid, the said tax of five per centum. And a list or return shall be made and rendered to the assessor,. . . on or before the tenth day of month following that in which any dividends or sums of money become due or payable as aforesaid; and said list or return shall contain a true and faithful account of the amount of taxes as aforesaid; and there shall be annexed thereto a declaration of the president, cashier, or treasurer of the bank, trust company, savings institution, or insurance company, under oath or affirmation, in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of the taxes as aforesaid. And for any default in the making or rendering of such list or return, with such declaration annexed, the bank, trust company, savings institution, or insurance company making such default shall forfeit as a penalty the sum of $1000; and in case of any default in making or rendering said list or return, or of any default in the payment of the tax as required, or any part thereof, the assessment and collection of the tax and penalty shall be in accordance with the general provisions of law in other cases of neglect and refusal.

'Provided, That the tax upon the dividends of life insurance companies shall not be deemed due until such dividends are payable; nor shall the portion of premiums returned by mutual life insurance companies to their policy-holders, nor the annual or semi-annual interest allowed or paid to the depositors in savings banks or savings institutions, be considered as dividends.'

The view of the government was that this act required a tax of five per cent. to be levied and collected, amongst other things, on sums added during the year by the Dollar Savings Bank, the defendant in the case, to its surplus or contingent fund, without regard to the character of the bank, or the nature and purpose of that fund.

The section above quoted, as the reader has observed, contains a requirement that each bank shall make a certain return, 'in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of the taxes aforesaid.' It appeared in this case that after the passage of the act in question, Mr. Rollins, the then commissioner of internal revenue, made, in February, 1867, a construction of it, so far as it affected banks of the character of the one now sued, and held that they were not required to pay a tax upon amounts which were added to their retained funds instead of being divided among their depositors, and that of course no return relating to any such subjects was required from such a bank.

This action of Commissioner Rollins was repeated by his successor, Commissioner Delano, in 1870; and it was reaffirmed and repeated by Commissioner Pleasanton, in 1871.

The Dollar Savings Bank, it seemed, had accordingly made no return during either of the years mentioned in the declaration, not being required to do so by the commissioner of internal revenue.

In the year 1872, the successor of Commissioner Pleasanton adopted a different construction of the act, and this action of debt was brought to recover the taxes which the declaration alleged should have been paid between June, 1866, and December, 1870, inclusive; and these taxes, thus alleged to be due, formed the subject-matter of this suit. The jury found a special verdict:

'We find that the Dollar Savings Bank is a banking institution created by the laws of the State of Pennsylvania, without stockholders or capital stock, and doing the business of receiving deposits to be loaned or invested for the sole benefit of its depositors; that the charter authorizes the retention of a contingent fund, accumulated from the earnings, to the extent of ten per centum of its deposits for the security of its depositors; that it has earned and added to the said contingent fund, or undistributed sum, from 13th July, 1866, to 31st December, 1870, $107,000 (the tax of five per cent. on its earnings having been paid prior to 13th July, 1866); that the earnings were carried to and added to the said contingent or undistributed fund semi-annually, on the first days of July and January in each year. And we find, if the court should be of opinion, on this state of facts, that the plaintiff is entitled to recover, a verdict for the United States for the sum of $5356, to which is to be added, if the court should be of opinion that plaintiff is entitled to interest on the semi-annual taxes, from the time they were due and payable, the further sum of $1100; but, if the court should be of opinion, on the said facts so found, that the plaintiff is not entitled to recover under the law, then we find for the defendant.'

The court rendered a judgment in favor of the United States for the principal sum of $5356, with costs of suit, and this writ of error was taken.

The errors assigned were:

1st. Holding that the act of Congress authorized the levy and collection of the tax.

2d. Holding that an action of debt was maintainable for the recovery of the tax.

No question was made in the court below as to whether debt was the proper form of action, nor any question except as to the liability of the savings bank to pay the tax.

Mr. B. R. Curtis, for the plaintiff in error:

1. The act of Congress does not authorize the levy and collection of the tax in question upon the defendant.

The decisions of the commissioners, Rollins and Pleasanton, were correct. They seem to have been founded upon this view of the law, that Congress intended to tax the net earnings of certain banking and other institutions named, whether those net earnings should be distributed to the stockholders in the form of dividends, or retained and added to the capital; and that in those cases in which Congress did not intend to tax the distributed earnings, they did not intend to tax the undistributed earnings; and as it is expressly declared in the law, that sums paid to depositors in savings banks are not to be deemed dividends within the meaning of that word in the law, neither should the sums which the bank has lawfully omitted to pay to its depositors, and has held undistributed, not as an addition to the capital stock (such banks having no capital stock), but only for the security of its depositors in the future, be deemed taxable as such surplus.

It is important to note in this connection, that, while this power of the commissioners to prescribe what returns should be made by savings banks was in full force, and while the construction placed by the commissioners on the law was known by public promulgation, Congress passed the act of July 14th, 1870, and in the fifteenth section used substantially the same language concerning the subject now in question as was contained in the act of 1866. The case, therefore, stands thus: Congress required the commissioner to prescribe what returns savings banks should make. This necessarily required him to put a construction on the law. He did so, and held that they were not required to return the sums held undistributed solely for the security of these depositors. After this practical construction had been made and acted on for nearly four years, Congress re-enacted the tax (though it was reduced in amount) in the same words which had received this practical construction.

It is a settled rule, that the re-enactment of a statute which had received a judicial construction in effect adopts that construction. And why not apply the same principle to a contemporaneous practical construction put upon the act by an officer expressly required to construe it?

2. An action of debt was not maintainable for the recovery of the taxes in question.

This was an action at the common law. The United States has no common law; but the thirty-fourth section of the Judiciary Act provides that the laws of the several States shall be the rules of decision in the trial of actions at the common law.

Now, by the law of Pennsylvania, as also of many other States, as it existed in 1789, an action of debt will not lie to recover a tax authorized to be levied and collected by a statute, which statute affords a remedy for its assessment and collection. The principle in all the decisions is, that where a statute creates a right, and provides a particular remedy by which that right may be vindicated, no other remedy than that afforded by the statute can be used.

Especially will no such action lie under the statute in question; because it expressly provides, that

'In case of any default in making or rendering said list or return, or of any default in the payment of the tax as required, or any part thereof, the assessment and collection of the tax and penalty shall be in accordance with the general provisions of law in other cases of neglect and refusal.'

Those other provisions here referred to are found in the act of July 13th, 1866. They require the assessor to make lists; they point out what the lists are to contain; they authorize him at any time within fifteen months from the time of the passage of the act, or from the time of the delivery of the list to the collector, to make special additional lists; and these general or special lists are to be delivered by him to the collector, to stand as his warrant for the levy of the tax upon the property of the dolinquent taxpayer, pursuant to the directions of the statute.

Further: Even if an action of debt could be sustained, according to the common law of Pennsylvania, or any common law, to recover taxes duly assessed, duly notified and demanded, it does not appear by the special verdict, nor is there any reason from the known facts even to conjecture, that any one of these taxes ever was duly assessed. For aught that appears, the commissioners of internal revenue prior to December 1st, 1870, gave such instructions to the assessors that none of these taxes were assessed; and when, at the end of that time, a new commissioner promulgated new views as to the construction of the law, this action of debt was brought. Now, if there had been any attempt regularly to assess these taxes, by reason of an assumed mistake in the construction of the law under which assessments had been omitted, the assessor could not have gone back to the term of fifteen months before he delivered his last list to the collector. Yet, without any attempt to make such a corrected assessment, so far as appears, or, indeed, ever to assess regularly the taxes demanded in this suit, the court below has rendered a judgment for their full amount.

Mr. C. H. Hill, Assistant Attorney-General, contra.

Mr. Justice STRONG delivered the opinion of the court.

title: Dollar Savings Bank v. United States


text: Talk:Dollar Savings Bank v. United States


text:
Dollar Savings Bank v. United States/Opinion of the Court

The facts found by the special verdict are that the plaintiff in error is a banking institution created by the laws of the State of Pennsylvania, without stockholders or capital stock, and doing the business of receiving deposits to be loaned or invested for the sole benefit of its depositors; that the charter authorizes the retention of a contingent fund accumulated from the earnings to the extent of ten per centum of its deposits for the security of its depositors; that the bank has earned and added to the said contingent fund, or undistributed sum, from July 13th, 1866, to December 31st, 1870, one hundred and seven thousand dollars; and that such earnings were carried to and added to said contingent or undistributed fund semi-annually, on the first days of January and July in each year.

Upon this state of facts, the first question presented is whether the act of Congress of July 13th, 1866, which was an amendment to the Internal Revenue law, authorizes the levy and collection of a tax upon the accumulated earnings carried to the contingent fund. It is very plain that the first intent of the act was to impose a tax upon all the earnings, income, or gains, of the institutions mentioned therein. The language of its one hundred and twentieth section is, 'There shall be levied and collected a tax of five per centum on all dividends in scrip or money thereafter declared due, whenever and wherever the same shall be payable to stockholders, policy-holders, or depositors, or parties whatsoever, including non-residents, whether citizens or aliens, as part of the earnings, income, or gains of any bank, trust company, savings institution, and of any fire, marine, life, inland insurance company, either stock or mutual, under whatever name or style known or called in the United States or Territories, whether specially incorporated or existing under general laws; and on all undistributed sum or sums made and added during the year to their surplus or contingent funds.' This tax the banks, trust companies, savings institutions, and insurance companies are required to pay, and they are authorized to deduct it from all payments made on account of any dividends or sums of money that may be due and payable as aforesaid. It is, however, only so much of the tax as is levied upon dividends or sums of money due and payable to stockholders, policy-holders, or depositors, &c., which they are authorized to deduct. Thus it appears the tax is laid upon two subjects,-the one dividends or sums due and payable, and the other the undistributed surplus of gains or earnings carried to a surplus or contingent fund. These subjects, though together making up the entire net earnings, are distinct from each other; and they are thus treated throughout the section as well as throughout other sections of the act. If the portion of the act which we have quoted were all, it would not admit of a doubt that both these subjects-the dividends, or annual or semi-annual payments, and the sums added to the contingent fund-are made taxable.

It is argued, however, that savings institutions were relieved by the proviso to the section. That, of course, is to be construed in connection with the section of which it is a part, and it is substantially an exception. It takes out of the operation of the body of the enactment that which otherwise would be within it. It restrains the generality of the previous provisions. Its language is: 'Provided that the tax upon dividends of life insurance companies shall not be deemed due until such dividends are payable; nor shall the portion of premiums returned by mutual life insurance companies, nor the annual or semi-annual interest allowed or paid to the depositors in savings banks or savings institutions be considered as dividends.' But so far as it relates to savings banks, the only subject of the proviso is the annual or semi-annual interest allowed or paid to the depositors. It makes no reference to the undistributed surplus which may be carried to a surplus fund. That it leaves as it was in the body of the section, subject to the tax therein imposed. And to us it appears quite plain that such was the intention of Congress. Had it been the purpose to exempt savings banks from liability to pay the tax on both the interest paid to its depositors and on all undistributed sums carried to the surplus fund, the plain mode of expressing such a purpose was to say in the proviso that such banks should be excepted from the operation of the section. If such was the purpose, why except them expressly from the operation of a part of the section only? Why take out one subject of taxation specifically, and leave the other unmentioned? And still more. If, as the plaintiff in error contends, it was intended that savings banks should pay no tax on either of the two subjects mentioned in the body of the section, why were such banks mentioned in the section at all? The broad construction of the proviso contended for makes it plainly repugnant to the body of the act, and it is, therefore, inadmissible.

Our attention has been called to the fact that in 1867, and again in 1870, the commissioners of internal revenue construed the proviso as exempting savings institutions from the tax upon all sums added to their surplus or contingent funds, and that the act of Congress of July 14th, 1870, which reduced internal taxation, employed substantially the same language respecting savings banks as that contained in the act of 1866. In view of this, the plaintiffs in error argue that Congress required the commissioner to prescribe what returns savings banks should make; that this made it his duty to put a construction on the law; that he did so, and held that such institutions were not required to return undistributed earnings carried to a surplus fund, and that after this practical construction had been made and acted upon more than three years, Congress re-enacted the tax, reduced in amount, in the same words. Hence, it is inferred, the construction given by the commissioner was adopted. It is, doubtless, a rule that when a judicial construction has been given to a statute, the re-enactment of the statute is generally held to be in effect a legislative adoption of that construction. This, however, can only be when the statute is capable of the construction given to it, and when that construction has become a settled rule of conduct. The rule, we think, is in applicable to this case. In the first place, the decisions of the internal revenue commissioner can hardly be denominated judicial constructions. That officer was not required by the law to prescribe what returns savings banks were required to make. That was prescribed by the act of Gongress itself, and he had no power to dispense with the requisition. There is, therefore, no presumption that his decisions were brought to the knowledge of Congress when the act of 1870 was passed. And again, the construction he gave is an impossible one, for, as we have seen, it makes the proviso plainly repugnant to the body of the section.

We are constrained, then, to hold that the act of Congress does impose upon the plaintiffs in error the tax to recover which the present suit was brought.

The second error assigned is that the Circuit Court erred in holding that an action of debt is maintainable in that court for the recovery of the taxes.

We do not perceive that the question presented by this assignment was raised or even mentioned in the court below, and it is not clear that it may first be raised here. But if it may, the answer must be that the taxes may be recovered in an action of debt brought in the Circuit Court.

The argument in support of the assignment of error is that the United States has no common law; that the thirty-fourth section of the Judiciary Act enacts that the laws of the several States shall be the rules of decision in the trial of actions at common law, of which debt is one; that the act of Congress which imposes the tax on savings banks provides a special remedy for its assessment and collection, and that it is a principle of the common law of Pennsylvania, that when a statute creates a right and provides a particular remedy by which that right may be enforced, no other remedy than that afforded by the statute can be used.

It must be conceded that in the section of the act, which required savings banks to pay the tax, they are also required to render to the assessor or assistant assessor a list of the amount of taxes with a declaration under oath attached thereto, on or before the 10th day of the month following that in which any dividends or sums of money may be due and payable, and for any default in rendering such a list they are liable to a penalty. The act also declares that 'in case of any default in making or rendering said list or return, or any default in the payment of the tax as required, or any part thereof, the assessment and collection of the tax and penalty shall be in accordance with the general provisions of law in other cases of neglect and refusal.' What those general provisions are may be seen in other sections of the act which prescribe assessments, delivery thereof to the collectors, and distraint if necessary.

It must also be conceded to be a rule of the common law in England, as it is in Pennsylvania and many of the other States, that where a statute creates a right and provides a particular remedy for its enforcement, the remedy is generally exclusive of all common-law remedies.

But it is important to notice upon what the rule is founded. The reason of the rule is that the statute, by providing a particular remedy, manifests an intention to prohibit other remedies, and the rule, therefore, rests upon a presumed statutory prohibition. It applies and it is enforced when any one to whom the statute is a rule of conduct seeks redress for a civil wrong. He is confined to the remedy pointed out in the statute, for he is forbidden to make use of any other. But by the Internal Revenue law, the United States are not prohibited from adopting any remedies for the recovery of a debt due to them which are known to the laws of Pennsylvania. The prohibitions, if any, either express or implied, contained in the enactment of 1866, are for others, not for the government. They may be obligatory upon tax collectors. They may prevent any suit at law by such officers or agents. But they are not rules for the conduct of the State. It is a familiar principle that the King is not bound by any act of Parliament unless he be named therein by special and particular words. The most general words that can be devised (for example, any person or persons, bodies politic or corporate) affect not him in the least, if they may tend to restrain or diminish any of his rights and interests. He may even take the benefit of any particular act, though not named. The rule thus settled respecting the British Crown is equally applicable to this government, and it has been applied frequently in the different States, and practically in the Federal courts. It may be consiered as settled that so much of the royal prerogatives as belonged to the King in his capacity of parens patriae, or universal trustee, enters as much into our political state as it does into the principles of the British constitution.

It must, then, be concluded that the government is not prohibited by anything contained in the act of 1866 from employing ploying any common-law remedy for the collection of its dues. The reason for the rule which denies to others the use of any other than the statutory remedy is wanting, therefore, in applicability of the government, and the rule itself must not be extended beyond its reason. And we do not find that either in England or in Pennsylvania it has been held to be applicable. On the contrary, in England informations of debt, and exchequer informations for discovery and account, to recover duties on importations, have been of frequent occurrence, though the acts of Parliament have provided a different remedy for enforcing the payment. Numerous such cases are reported in Bunbury's Reports. And in United States v. Lyman, Judge Story held that debt might be maintained in the Circuit Court for Massachusetts to recover duties upon imported goods; a doctrine reaserted by this court in Meredith v. United States.

But all this is superfluous, for the act of Congress authorizes suits at law to recover unpaid taxes. It enacts as follows: 'And taxes may be sued for and recovered, in the name of the United States, in any proper form of action, before any Circuit or District Court of the United States for the district in which the liability for such tax may have been or may be incurred, or where the party from whom such tax is due may reside at the time of the commencement of said action.'

Nor is there anything in the objection that the taxes for which judgment has been recovered in this case had not been assessed. No other assessment than that made by the statute was necessary to determine the extent of the bank's liability. An assessment is only determining the value of the thing taxed, and the amount of the tax required of each individual. It may be made by designated officers or by the law itself. In the present case the statute required every savings bank to pay a tax of five per cent. on all undistributed earnings made, or added during the year to their contingent funds. There was no occasion or room for any other assessment. This was a charge of a certain sum upon the bank, and without more it made the bank a debtor.

We think, therefore, the second assignment of error cannot by sustained.

JUDGMENT AFFIRMED.

Mr. Justice BRADLEY, with whom concurred Mr. Justice FIELD, dissenting:


text: Talk:Dollar Savings Bank v. United States/Opinion of the Court


text:
Dollar Savings Bank v. United States/Dissent Bradley

Mr. Justice BRADLEY, with whom concurred Mr. Justice FIELD, dissenting:

I dissent from the judgment of the court, on the ground that an action will not lie for a tax of the kind in question in this case, unless it be first entered on the assessment-roll. The assessment-roll should be regarded as conclusive as to the persons or things liable to taxation. If it is not, if the matter is left open so that any person or corporation may be prosecuted for taxes at any time, it leaves the citizen exposed to many hazards, and to the mercy of prying informers, when the evidence by which he could have shown his immunity or exemption has perished. If an action of debt without an assessment can be brought, what is the limit of time within which it must be brought? To what statute of limitations is the government subject? It seems to me that the decision introduces a new principle in the system of taxation, dangerous to the rights of the citizen and the peace and security of society.


text: Talk:Dollar Savings Bank v. United States/Dissent Bradley


text:
Nugent v. The Supervisors

ERROR to the Circuit Court for the Northern District of Illinois; in which court, in December, 1872, Nugent sued the supervisors of Putnam County, Illinois, on coupons for the interest of certain bonds issued by the said county.

The case, as appearing on demurrer to a replication by the plaintiff to several pleas of the defendant, and by admitted statutes, was thus:

A general statute of the State of Illinois, entitled 'An act to enable railroad companies. . . to consolidate their stock,' passed February 28th, 1854, thus enacts:

'SECTION 1. All railroad companies now organized, or hereafter to be organized, which now have, or hereafter may have their termini fixed by law, whenever their said road or roads intersect by continuous lines, may, and the same are hereby authorized and empowered to consolidate their property and stock with each other, and to consolidate with companies out of this State, whenever their lines connect with the lines of such companies out of this State.

'SECTION 2. The said companies, when so consolidated, shall be authorized to agree upon the name or names of such consolidated company; and by such name or names the said consolidated company shall be a body corporate and politic,. . . and shall have all the powers, franchises, and immunities which the said respective companies shall have by virtue of their respective charters, before such consolidation passed, within the State of Illinois.'

A similar general statute exists in Indiana.

This public statute being in force, the State of Illinois, on the 15th of April, 1869, by special act, incorporated the Kankakee and Illinois River Railroad Company. The company was authorized to make and maintain a railroad from the eastern line of the State to a place called Bureau Junction; and had liberty to increase its stock to such an amount as might be necessary to complete its road. The eleventh section of its charter ran thus:

'SECTION 11. It shall be lawful for said company, and they shall have power to unite or consolidate its railroad with any other railroad or railroads now constructed, or being constructed, or which may hereafter be constructed within this State, or any other State, which may cross or intersect the same, or be built along the line thereof, upon such terms as may be mutually agreed upon between said company, or any other company. And for said purpose, full power is hereby given said company to make and execute such contracts with any other company or companies as will secure the object of such connections or consolidations.'

At the same time the county of Putnam was empowered, by a general law of the State, to subscribe for the stock of the company, and to issue its bonds in payment of its subscription. In attempted exercise of the power thus conferred, the board of supervisors of the county, on the 4th day of June, 1869, ordered an election to be held, to determine whether the county should subscribe for stock of the railroad company, to the amount of $75,000, to be paid for with the bonds of the county, provided the railroad should be so located and constructed through, or within one-half mile of, the town of Hennepin. The election was held, and it resulted in favor of the subscription. On the 4th day of January, 1870, another election was ordered, to determine whether the county would subscribe for $25,000 more of the stock, to be paid in the same manner, and with a similar provision respecting the location of the road. This subscription was also sanctioned by the popular vote. On the 24th day of September, 1869, the railroad company accepted the $75,000 subscription, and on the 27th of October next following, gave notice of the acceptance to the board of supervisors of the county. This was put upon record, and on the same day the board of supervisors adopted a resolution that the subscription was thereby made for the building of the railroad, and directed the clerk of the county court to execute and deliver the bonds on behalf of the county. The resolution also declared that the bonds should be issued on the written order of a committee appointed to protect the interests of the county; that they should not be issued until the railroad company should have made a bon a fide contract with responsible parties for all necessary iron for their road, nor until the company should have made a bon a fide contract with responsible parties for laying the iron and operating the road through the county, as specified in a previous order of the board. On the 15th day of March, 1870, the second subscription for $25,000 was made in a similar manner, and with like directions.

The bonds, with the proper number of coupons attached, were executed in proper form by the proper county officers. The bounds were made payable to the Kankakee and Illinois River Railroad Company or bearer; the coupons to the bearer simply.

On the 12th of January, 1870, and before the instruments were delivered to the said railroad company, a company had been organized under the laws of Indiana, for the purpose of building a railroad from Plymouth, Indiana, to the east line of the State of Illinois, at some point to be selected in the direction of Momence and Kankakee, with a view to connection with some railroad leading westward. Its corporate name was the Plymouth, Kankakee, and Pacific Railroad Company. With this corporation, on the 21st day of October, 1870, the Kankakee and Illinois River Railroad Company became consolidated, taking the name of the former. This consolidation was made at the instance of the board of supervisors of Putnam County. It was not asserted that it had not been legally effected. The consolidation being completed, and the conditions precedent to the delivery of the bonds having been complied with to the satisfaction of the officers of the county, the bonds and coupons were delivered to the railroad company, and certificates for a corresponding amount of stock in the consolidated company delivered to and received by the county. The county voted as a stockholder of the railroad company, and proceeded to levy a tax to pay the interest on the bonds.

Certain of the coupons passed into the hands of the plaintiff, Nugent, bon a fide; he having paid value for them, in the market, without notice of any defence.

On these coupons it was that the present suit was brought.

The court below, disregarding an argument made in the case, that the county had made no actual subscription, and that what it had otherwise done wanted such completeness of action as would amount to a 'subscription' in law to anything-sustained nevertheless the demurrer on other grounds. It said:

'I feel compelled to say that I cannot find any line of distinction between this case and Marsh v. Fulton County, but it seems to me that that case must control the decision of the court in this.

'The vote of the 10th of July, 1869, and the 8th of February, 1870, were both upon the proposition to subscribe to the capital stock of the Kankakee and Illinois River Railroad Company, a corporation possessing the power to construct and maintain a line of road between certain termini in this State, with a capital stock limited, in any event, to the cost of constructing of this road. The bonds in question were issued after this Kankakee and Illinois River Railroad Company had merged itself, by articles of consolidation, into another corporation, now known as the Plymouth, Kankakee and Pacific Railroad Company, a road having control of a different enterprise from that of the original corporation, possessing a different capital stock, and governed by a different board of directors, elected upon a different basis, with different termini to the road.

'In the case of Clearwater v. Meredith, in the 1st of Wallace, the Supreme Court of the United States has passed upon the effect of consolidating railroad corporations. The principle which I have alluded to is there clearly announced, namely, that a different corporation results from the consolidation. The consolidated company is not either of the original corporations, although it may take the name of one of them. Here the original corporation for the stock of which the county of Putnam subscribed, was solely under control of the State of Illinois; its franchises had been created by that State, and were under its control. The consolidated company is in two States; its affairs are subject to the control of the legislatures of two States.

'Now, the principle of these authorities, it seems to me, is that the corporate existence of the Kankakee and Illinois River Railroad Company ceased on the 21st of October, 1871, and from that time forward whatever franchises it had were merged in the Plymouth, Kankakee and Pacific Railroad Company, the consolidated corporation, and after this event had taken place, after what we may call the legal demise of the Kankakee and Illinois River Railroad Company, the board of supervisors of Putnam County authorized the issue to the consolidated corporation of the bonds in question.

'I cannot see any feature in this case which differs from Marsh v. Fulton County, unless that this is a stronger case than that. There the corporation existed in and was controlled by this State alone, and its termini remained the same, while this consolidated corporation is a very different enterprise from the original to which the subscription was authorized.

'It was insisted in the argument, and also in the pleadings, that these bonds being made payable in terms to the Kankakee and Illinois River Railroad Company, is a fact which the court should notice, and which should control the decision of the court. It certainly is an important fact, and has received consideration, but I cannot see that it changes the legal bearings of the question. This was a defunct corporation, and the bonds might just as well have been made payable to bearer, and the person to whom they are made payable cuts no figure in the case.

'In the case of Clearwater v. Meredith, the general law of the State of Indiana existed at the time the stock in question was issued. The law of that State and of Illinois are substantially the same, the two State keeping pace with each other in their legislation on this question; but the Supreme Court did not hold that the organic right of either or both corporations to consolidate changed the rights of the stockholders.'

To a judgment against him the plaintiff took this writ of error.

Mr. T. M. Shaw, for the plaintiff in error; Mr. T. L. Dickey, contra.

Mr. Justice STRONG delivered the opinion of the court.

title: Nugent v. The Supervisors


text: Talk:Nugent v. The Supervisors

title: Talk:Nugent v. The Supervisors


text:
Nugent v. The Supervisors/Opinion of the Court

We think the Circuit Court erred in sustaining the demurrer to the plaintiff's replication. The bonds to which the coupons in suit were attached, purport to have been made and issued by the order of the board of supervisors of Putnam County, in payment of the county's subscription to the capital stock of the Kankakee and Illinois River Railroad Company. They are made payable to that company or bearer, and the plaintiff is a bon a fide holder of the coupons, having paid value for them without notice of any defence. If, then, the bonds are valid obligations, if they were rightfully issued, the right of the plaintiff to a judgment against the county is plain.

That by what it did in the matter the county became in effect a subscriber to the capital stock of the railroad company, and liable for the sums designated, admits of no serious question. The fact that no subscription was formally made upon the books of the company is quite immaterial. In The Justices of Clarke County v. The Paris, Winchester, and Kentucky River Turnpike Company, it was ruled that an order of the County Court, by which it was said that it subscribed for a specified number of shares of road stock, was binding, the court having authority to make a subscription. In this case there was more. There was not only the resolution, declaring the subscription made, but there was an acceptance by the railroad company, and notice of the acceptance. The minds of the parties came together. Both understood that a contract was made, and had nothing subsequently occurred to change their relations the county could have enforced the delivery of the stock, and the company could have compelled the delivery to itself of the bonds, on performance of the conditions stipulated. So the parties regarded their relations to each other. The bonds were delivered. The committee appointed by the board of supervisors to protect the interests of the county, under whose direction the bonds were ordered to be issued, were satisfied that all the prescribed conditions precedent to their delivery had been complied with, and they so decided. The county accepted the position of a stockholder, received certificates for the stock subscribed, voted as a stockholder, and proceeded to levy a tax to pay the interest falling due on the bonds. Were this all of the case, the validity of the bonds, and of their accompanying coupons in the hands of a bon a fide holder for value, would be beyond doubt.

The Circuit Court, however, was of opinion, and so decided, that the bonds are invalid, because before their delivery the Kankakee and Illinois River Railroad Company had become consolidated with the Plymouth, Kankakee, and Pacific Railroad Company, another corporation. This consolidation was authorized by the general laws of the two States, and by a section in the special charter of the latter company. No claim is made that it was not legally effected. The result necessarily was, that the consolidated company succeeded to all the rights, property, and privileges which belonged to each of the two companies out of which it was formed, before their consolidation. It was not until after this had taken place that the county bonds were handed over and sold, and it was certificates of the stock of the consolidated company which the county received.

What, then, was the legal effect of the consolidation? Did it release the county from its prior assumption to take stock in the Kankakee and Illinois River Railroad Company and give its bonds in payment? Or, did it render unauthorized the subsequent delivery of the bonds, and make them invalid even in the hands of a bon a fide purchaser? These are the only questions presented by the record that need discussion.

It must be conceded, as a general rule, that a subscriber to the stock of a railroad company is released from obligation to pay his subscription by a fundamental alteration of the charter. The reason of the rule is evident. A subscription is always presumed to have been made in view of the main design of the corporation, and of the arrangements made for its accomplishment. A radical change in the organization or purposes of the company may, therefore, take away the motive which induced the subscription, as well as affect injuriously the consideration of the contract. For this reason it is held that such a change exonerates a subscriber from liability for his subscription; or, if the contract has been executed, justifies a stockholder in resorting to a court of equity to restrain the company from applying the funds of the original organization to any project not contemplated by it. But while this is true as a general rule it has no applicability to a case like the present. The consolidation of the Kankakee and Illinois River Railroad Company with another company was no departure from its original design. The general statute of the State, approved February 28th, 1854, authorized all railroad companies then organized, or thereafter to be organized, to consolidate their property and stock with each other, and with companies out of the State, whenever their lines connect with the lines of such companies out of the State. The act further declared that the consolidated company should have all the powers, franchises, and immunities which the consolidating companies respectively had before their consolidation. Nor is this all. The special charter of the Kankakee and Illinois River Railroad Company contained, in its eleventh section, an express grant to the company of authority to unite or consolidate its railroad with any other railroad or railroads then constructed or that might thereafter be constructed within the State, or any other State, which might cross or intersect the same, or be built along the line thereof, upon such terms as might be mutually agreed upon between said company and any other company. It was therefore contemplated by the legislature, as it must have been by all the subscribers to the stock of the company, that precisely what has occurred might occur. Subscribers must be presumed to have known the law of the State and to have contracted in view of it. When the voters of the county of Putnam sanctioned a county subscription by their vote, and when the board of supervisors, in pursuance of that sanction, resolved to make the subscription, they were informed by the law of the State that a consolidation with another company might be made, that the stock they proposed to subscribe might be converted into stock of the consolidated company, and that the liability they assumed might become owing to that company. With this knowledge and in view of such contingencies they made the contract. The consolidation, therefore, wrought no change in the organization or design of the company to which they subscribed other than they contemplated at the time as possible and legitimate. It cannot be said that any motive for their subscription has been taken away, or that the consideration for it has failed. Hence the reason of the general rule we have conceded does not exist in this case, and, consequently, the rule is inapplicable.

In a multitude of cases decided in England and in this country it has been determined that a subscriber for the stock of a company is not released from his engagement to take it and pay for it by any alteration of the organization or purposes of the company which, at the time the subscription was made, were authorized either by the general law or by the special charter, and a clear distinction is recognized between the effect of such alterations and the effect of those made under legislation subsequent to the contract of subscription. In The Cork and Youghal Railway Company v. Paterson, which was an action to recover a call of one pound per share on one hundred shares subscribed, it appeared that the defendant was one of the subscribers to the agreement for the Cork, Middleton, and Youghal Railroad Company. That agreement authorized the provisional directors to extend the purposes of the organization, to change the termini of the road, and to amalgamate with other companies. The subscriber's agreement for the Cork and Waterford Railroad Company contained similar provisions. After the defendant's subscription was made the two companies executed a deed of amalgamation, without any other assent of the defendant than his signature to the subscriber's agreement for the first-named company. Upon this state of facts all the judges held that he remained liable on his subscription. Its effect was said, by Chief Justice Jervis, to be an authority to the company to tack his subscription to anything else they might see fit, and thus make him a subscriber to that, and therefore, added the judge, by signing the Cork and Youghal he afforded an authority to the directors to apply his signature to the Cork and Waterford, and so make him a subscriber to that. To the same effect are the cases of Nixon v. Brownlow and Nixon v. Green. The American authorities are equally explicit. They uniformly assert that the subscriber for stock is released from his subscription by a subsequent alteration of the organization or purposes of the company, only when such alteration is both fundamental and not provided for or contemplated by either the charter itself or the general laws of the State. In Sparrow v. The Evansville and Crawfordsville Railroad Company, where it appeared that after a public act had taken effect authorizing the consolidation of the charters of two railroad companies, the defendant had subscribed for shares in one of them, and a consolidation was afterwards made, he was held liable to the consolidated company for his subscription, and this, though the consolidation took place without his knowledge or consent. The same doctrine was asserted in Bish v. Johnson. The Supreme Court of Connecticut recognized the rule in Bishop v. Brainerd, and a subscriber to one company was held to be a debtor to the consolidated company in a case where there was no general authority to consolidate, but the charter of the company was subject to amendment by the legislature, and where the legislature, after the subscription confirmed the consolidation.

Many other citations are at hand, but these are sufficient. No well-considered cases are in conflict with them. Marsh v. Fulton County is altogether a different case. In that it appeared that the people of the county voted in November, 1853, in favor of a subscription for stock in the Mississippi and Wabash Railroad Company, and in April, 1854, the board of supervisors of the county ordered their clerk to make the subscription. It was not, however, then made. Subsequently, in 1857, the legislature made fundamental changes in the organization of the company, dividing it substantially into three companies, with a distinct governing body for each, and with three classes of stockholders. It was after this that the county subscription was made; and made not for the stock of the Mississippi and Wabash Railroad Company, but for the stock of one of the divisions. Necessarily, therefore, we held that there was no authority to make the subscription which was made, that it had not been approved by a popular vote, and hence that the bonds issued in payment for it were invalid. The county had entered into no contract until after the radical changes had been made in the organization of the company. It never assented to such a change, and when the proposed subscription was approved by the popular vote, there was no reason to expect the change afterwards made. There was at that time nothing in the general law of the State, and nothing in the charter, which authorized the company to change its organization, or which looked to its division into several distinct corporations. It needs nothing more to show how unlike that case was to the present.

In the case in hand the county had, under lawful authority, undertaken to subscribe for stock before the consolidation was made, and the undertaking had been accepted. A liability had been incurred, and the business agents of the county, to whom exclusively the law intrusted the management of its affars, consented to and promoted the consolidation. And the subscription was made in full view of the law that allowed an amalgamation with another company. The contract was made with reference to that law. Nothing has taken place which the county was not bound to anticipate as likely to happen, and to which the people in voting for the subscription, and the board of a supervisors in directing it, must not be considered as having consented. What was ruled in Marsh v. Fulton County, therefore, does not touch this case. Nor was there anything decided in Clear-water v. Meredith which sustains in any degree the defence set up on behalf of the defendants.

We have, then, in brief, this case: The people of Putnam County, in pursuance of law, voted a county subscription for stock in a railroad company, to be paid for with county bonds. The financial agents of the county agreed to make the subscription, and the company accepted it. The bonds were made payable to the company, or bearer, but before they were delivered, the company became consolidated with another, in pursuance of authority conferred by the law in force when the subscription was voted, and at the instance of the board of supervisors of the county. All the conditions precedent to the delivery of the bonds were complied with to the satisfaction of the county agents, certificates for the stock were received, and the bonds were delivered and sold. The plaintiff is a bon a fide holder of some of the coupons for value paid. It would, we think, be a reproach to the administration of justice if he cannot enforce the payment of those coupons, and we see no principle of law or equity that stands in the way of his action. He found the bonds and the coupons upon the market, payable to the Kankakee and Illinois River Railroad Company, or bearer. Proposing to buy, he had only to inquire whether the county was, by law, authorized to issue them, and whether their issue had been approved by a popular vote. He was not bound to inquire farther, and had he inquired he would have found full authority for the issue, and if he had also known of the consolidation it would not have affected him.

JUDGMENT REVERSED, and the cause remitted with instructions to

OVERRULE THE DEFENDANT'S DEMURRER.

Dissenting, Mr. Justice DAVIS and Mr. Justice MILLER.


text: Talk:Nugent v. The Supervisors/Opinion of the Court


text:
Kitchen v. Rayburn

APPEAL from the Circuit Court for the District of Missouri, in which court Solomon Kitchen filed a bill against W. C. Rayburn, charging a breach of trust in appropriating to his own use the proceeds of certain bonds put into his hands, as the bill alleged, to sell for another purpose. The case was thus:

Kitchen, president of the Cairo and Fulton Railroad Company, owning in his own right a valuable tract of land in Missouri, containing 2200 acres, and called the St. Luke lands, agreed to sell one-half of it to Rayburn, a farmer, for a price fixed on. Rayburn accordingly paid him the amount, and so became the equitable owner of the half; Kitchen giving to him a bond to make a complete title. The consideration was paid in Confederate notes, then having some market value. Both parties had been in the rebel service; Kitchen as a colonel. Having an opportunity to use the whole of the tract in paying a debt of his own, Colonel Kitchen now proposed to Rayburn to buy back the half; and in March, 1866, he passed to him bonds of the said Cairo and Fulton Railroad Company for $5000, with unpaid interest coupons, which made the amount more than $6000. At about the same time he passed to him $119,000 of other bonds, with unpaid interest coupons attached, to the amount of $50,405. Rayburn's account of this matter was thus:

'Some time in March, 1866, Kitchen told me if I would go home with him, he would place a sufficient amount of the bonds of the Cairo and Fulton Railroad Company in my hands to secure me in the price of the undivided half of the St. Luke lands, which I owned at that time, and which Kitchen wanted. I told him then that I would be at his house in a short time. During this conversation I stated to him that I knew nothing of the value of the bonds; that his words were good to me. I went to his house. He then told me he had a lot of bonds that he wanted me to enter land with; that he wanted me to enter the land in my own name, and sell it, and that he did not want his name known in the transaction, and wanted to know what I would be willing to do this for. He told me that I would have no trouble, only to examine the land and get the numbers. I I told him I thought I could do it for one-eighth of the whole amount. He then gave me five bonds to enter land in lieu of the St. Luke lands that I had let him have. He told me that I could take those five bonds and enter the whole 1100 acres, paying all expenses, anywhere about Clarkton, Dunklin County, Missouri; and that he had a lot of bonds, over one hundred in number, that he would let me have and take my receipt for; that he wished me to enter land in my own name; in accordance with our agreement. I told him that I knew there were valuable lands around Clarkton, and he told me that those lands were railroad lands, and subject to be entered with those bonds at this time. I told him that I did not know anything about the bonds, nor the railroad land, nor the railroad company, and that I did not know whether the five bonds he had laid out for me would enter me the 1100 acres of land and pay all expenses or not. He told me they would, and if they did not, he said, 'Pay yourself out of the bonds I am going to give you, and take your receipt for.' I had confidence in what he told me to be facts that I had to means of knowing myself. I agreed to the proposition and took the five bonds. He then wrote a receipt in his wife's name for one hundred and nineteen bonds, with which I was to enter Cairo and Fulton Railroad lands in my own name, sell the lands and turn them into money, reserving one-eighth of the proceeds, after all expenses were paid, and turn him over the balance. This is the receipt:

'WILCOK, ARKANSAS, March 16th, A.D. 1866.

'Received, from Martha Kitchen, the sum of $119,000 in bonds of the Cairo and Fulton Railroad Company of Missouri, and I also received $50,405 of coupons or interest warrants due and owing by said company, amounting, in the aggregate, to the sum of $169,405, which said sum I promise to expend in the purchase of land from J. Moore, J. Wilson, and A. G. Waterman, trustees of the said Cairo and Fulton Railroad Company of Missouri, at or near the average price of $5 per acre, taking the deeds in my own name; and I further promise to sell all the lands purchased as aforesaid, as soon as possible, at such prices as the said Kitchen may direct; and if I should fail to sell all said lands as soon as said Kitchen may desire them, I promise to sell the same at public auction whenever so directed by the said Kitchen; and after deducting the expenses of stamps and the necessary travelling expenses, to pay unto the said Martha Kitchen, or her legal representatives, seven-eighths of all the money that I may sell the said lands for.

'Given under my hand and seal the date above written.

[SEAL.] 'W. C. RAYBURN.'

'Kitchen then placed in my hands maps and plats showing the railroad lands. I then signed the receipt spoken of, made in his wife's name. He then gave me the one hundred and twenty-four bonds. I saw that they were of $1000 each, the coupons thereto attached. I then went home with the maps, plats, and bonds, and went to work hunting up the numbers of the lands in Missouri. I spent a good deal of time, trouble, and some money, and employed another man to assist me. Some time afterwards I made inquiry of every person that I though knew anything about these railroad lands, and I never have been able to find out how I could lay the bonds on lands. I then tried to sell the bonds and convert them into money. I found no one that would purchase up to July, 1866. I then told Kitchen that I didn't believe I could do anything with the bonds. He told me it would be only a short time then till the railroad company would be organized; and for me to continue to get up numbers of land, and be ready. He then called on me for the bond which he had given me for the undivided half of the St. Luke lands, which was my interest therein. I gave him the bond, and saw him put this bond in the fire. He then and there again assured me that the five bonds would satisfy me, and if they did not, I could use a sufficient number of the other bonds in my possession to pay myself for the undivided half of the St. Luke lands, valued at $10,000 by Kitchen himself.'

[The witness here narrated various efforts which he had made in vain to locate the bonds and to sell them.]

'I then, with the effort I had made, become very much discouraged, and come to the conclusion that I could not realize anything out of the bonds. I think it was some time in December, 1866, H. H. Bedford made me an offer of $10,000 for the one hundred and twenty-four bonds. I sold them to him for that sum and he paid me the money. Before I sold these bonds to Bedford I saw a proposition made by Kitchen, stating that he was willing to take $8423 for one hundred and sixty-eight bonds. I think this was some time in August, 1866. Under these and other considerations I thought it best to sell for the $10,000. With a part of the proceeds I got for those bonds I purchased the lands from one Timberman, mentioned in the plaintiff's bill.'One Starr gave this testimony:

'I was present at a conversation when Mr. Kitchen stated to Mr. Rayburn that he would give him bonds sufficient to secure him in the sum of $10,000, upon the condition that he, Rayburn, would give up his claim of obligation on him for the St. Luke lands; and stated that with the bonds he, Rayburn, could get more land equally as good and in a better body or locality; that he would be amply able to secure himself for the loss, or for his surrendering his claim on the St. Luke lands, by a transfer of railroad bonds, with which he would be able to enter more and better lands. I think that the land relinquished by Rayburn was worth at least $10 per acre, then and now. After Rayburn had got some railroad bonds, he placed in my hands a lot of them to see if I could enter lands with them. I did all that I could to obtain lands for them and to ascertain what they were worth. I could not get lands for them or sell them for anything. I know that Rayburn made considerable inquiry and went to great trouble about getting lands for the bonds, and I know that he was offering to sell them. I do not know of any offer being made to him for the bonds until I learned that he had sold them to Bedford, for the sum of $10,000. I then thought and still think it was the best that Rayburn could have done. I know that he went to great trouble in getting up the numbers of lands, and in trying to get lands for the bonds which he held, and was not able to do it.'

Some considerable time after this sale the railroad company was organized; the prospects of its success improved; and Bedford, to whom Rayburn sold the bonds for $10,000, sold them for $26,300.

Kitchen's account of the matter was that the land, though it had been worth $10 an acre before the Rebellion, was not worth that sum when Rayburn agreed to retransfer it to him; not worth more than $5; and that the five bonds of the Cairo and Fulton Railroad Company, with the coupons with arrears of interest, were the payment for it on the retransfer, the amount above $5000 being added, in case the trustees of the railroad company should charge Rayburn more than $5 an acre for their lands; that the remaining one hundred and nineteen bonds were put in Rayburn's hands for the exact purpose stated in Rayburn's receipt, and for no other purpose.

At the time when these transfers took place, and when this receipt was given, the Cairo and Fulton Railroad was insolvent. There was no fixed market for its bonds; but when sold they would bring about five cents on the dollar. Kitchen, in settling with the company, a claim which he had against them, took the bonds which he transferred to Rayburn at about that price. Neither the company, nor Moore, Wilson, or Waterman, the trustees of the company, had any lands open to purchase through the surrender of bonds.

Rayburn not being able to use his bonds in the way in which Kitchen had told him that they could be used, Kitchen sent a young man named Carter with a letter in the shape of an order to deliver up to Carter the one hundred and nineteen bonds mentioned in the receipt. But Rayburn had in the meantime sold the bonds. He soon afterwards wrote this letter to Kitchen:

PRAIRIE CITY, STODDARD COUNTY, MISSOURI,

'February 8th, 1867.

'COLONEL KITCHEN.

'DEAR SIR: I received your note a few days ago, and should have wrote to you before, but was on my way to Cape Girardeau. Colonel, I may have done rong, but if I have I thought it was the best that could be done, and I hope you will be satisfied. I have sold the bonds. D. B. Miller advised me to sell. He sold, and everybody else that had bonds, I think. The hold number of bonds that went from Bloomfield was something over $800,000. I agreed to take whatever they got, and I only got $10,000, or am to get by the first of April next. I ought to have went to see you before I sold, but hope you will be satisfied. I will write again soon. Let me hare from you.

'W. C. RAYBURN.'

In 1870 Kitchen and wife filed a bill against Rayburn and others, claiming the proceeds of these bonds, now alleged to have passed into certain real estate. The bill set out that the bonds had been given to Rayburn in trust, as the receipt showed; that in breach of his trust he had sold them and vested the proceeds in lands. The answer gave the history of the transaction as given in Rayburn's statement above.

The court below dismissed the bill, and the complainants brought the case here.

Messrs. J. M. Carlisle and J. D. McPherson for them relied on the declaration of trust signed by Rayburn, and which they contended the court ought not to suffer to be weakened by parol testimony, and especially not by his own parol testimony. It was certain that he had received other bonds, and it was not to be doubted that those were the bonds that were the equivalent for the moiety of the St. Luke property originally bought for Confederate money, at what value did not appear, and on a retransfer of which the $6000 debt due by the railroad company was, probably, a sufficient compensation.

Then Rayburn's own letter came in confirmation. He admits that he may have done wrong, and that he ought to have gone to see Kitchen before selling as he did.

The fact that the bonds were worth but five cents on the dollar would be important if Kitchen were seeking to charge Rayburn with some higher sum than the admitted proceeds; but as he is only seeking to charge Rayburn with such admitted proceeds, their small market value in comparison with their 'face value' has nothing to do with the matter. Rayburn got about eight cents, and he is asked to account for no more.

Messrs. Montgomery Blair, T. T. Gantt, and F. A. Dick, contra.

Mr. Justice STRONG delivered the opinion of the court.

title: Kitchen v. Rayburn


text: Talk:Kitchen v. Rayburn

title: Talk:Kitchen v. Rayburn


text:
Kitchen v. Rayburn/Opinion of the Court

It is impossible to separate the receipt which Rayburn gave for the one hundred and nineteen bonds from the arrangement by which he gave up his title to the moiety of the St. Luke lands, and the engagement of Kitchen to secure to him $10,000, the understood value of the lands. They are all parts of one transaction. The assent of Rayburn to a rescission of the contract by which he had become the equitable owner of that moiety, the acceptance of some of the bonds as security for payment of the consideration for the surrender, and the undertaking to invest the remaining bonds in the purchase of land from the trustees of the railroad company, were all induced by the representations of Kitchen, and they were obtained at the same time. The evidence satisfactorily establishes that, having sold an undivided half of the St. Luke lands to Rayburn, and subsequently finding it for his interest to recover the ownership of them, he proposed a repurchase. There appears to have been no difference of opinion respecting the value of the lands and the price to be paid for the proposed surrender of Rayburn's title. Starr, a witness present when the arrangement was spoken of, testifies that Kitchen stated to Rayburn he would give him railroad bonds sufficient to secure him in the sum of $10,000 if he would give up his claim or obligation on him for the lands, and further stated that with the bonds he, Rayburn, could get more land equally good and in a better body or locality. The St. Luke body of lands contained twenty-two hundred acres, of which a moiety had previously been sold by Kitchen to Rayburn, and this witness thought they were worth at least $10 an acre then, that is, when the arrangement was made for the repurchase. To the same effect is the testimony of Rayburn himself. It is that the undivided half of the St. Luke lands were valued by Kitchen at $10,000, and there is no evidence in the case inconsistent with this. Ten thousand dollars, then, was the sum when Kitchen came under obligation to pay to Rayburn for the lands which the latter surrendered by giving up the receipt he had taken for the purchase-money, and by returning the property bond.

Thus far there is little conflict in the evidence. But from this point onward there is more disagreement. The account of the transaction given by Kitchen is that he agreed to give Rayburn, in satisfaction of the debt, railroad bonds of the Cairo and Fulton Railroad Company, enough to pay for a thousand acres of land of the company, then held by trustees, and that he did give him five such bonds for $1000, each amounting with the interest coupons thereon to more than $6000, telling him the trustees might charge him for the land a little more than $5000, but that he would make it up. The remaining bonds, he states, were taken by Rayburn to be invested in lands for Mrs. Kitchen. He does not admit that he authorized the application of any of those remaining bonds to the payment of his debt to Rayburn.

The testimony of Rayburn is that Kitchen not only gave him the five bonds towards the liquidation of the debt, but that he also said if they were not sufficient, he (Rayburn) might use a sufficient number of the others in his possession (meaning those for which the receipt was given) to pay himself for the undivided half of the St. Luke lands, valued at $10,000 by Kitchen himself. If this is true there is an end of the plaintiff's case, for it clearly appears that the bonds could not be used in the entry or purchase of the railroad company's lands, and that the whole of them, one hundred and twenty-four in number, were sold for $10,000, a sum not greater than the agreed value of the St. Luke lands. The plaintiff's bill affirms that sale, and it seeks to follow the proceeds subsequently invested, in part, in the land bought from Timberman.

It is not necessary, however, to determine whether the testimony of Rayburn in this particular is a true account of the transaction. There is another aspect of the case which is controlling. The arrangement between Kitchen and Rayburn, in which the latter surrendered his claim to the St. Luke lands, accepted bonds in payment of the debt due him, and assumed a trust of other bonds, even if it was such as the plaintiffs allege, was fraudulently obtained by Kitchen. He had been president of the railroad company. He knew its condition. He knew that the bonds were almost valueless. He had declared that under certain circumstances they would not be worth more than five cents on the dollar. Having himself a claim upon the company, he had refused to receive the company's bonds in liquidation of the claim at more than $50 each, including unpaid coupons, and he had settled with the company, receiving one hundred and sixty-eight bonds at that rate. Yet, in order to effect his bargain with Rayburn, who was an illiterate man, he represented to him that the bonds were very good; that he (Rayburn) could make the money at any time out of them; that he could enter eleven hundred acres anywhere about Clarkton, Dunklin County, with five of them, paying all expenses; that the lands about Clarkton, known to Rayburn, were railroad lands, and subject to be entered with those bonds at that time. All these representations were false, and were known by Kitchen to be false. Moreover, he was assured that Rayburn had no knowledge upon the subject, and that confidence was resposed upon his statements. It was thus the contracts were obtained. Rayburn gave up his bond for the conveyance of the St. Luke lands, accepted the bonds, and assumed the trust. And it was not until after he had discovered that neither the trustees of the railroad company nor the company itself had any lands about Clarkton, or elsewhere, that could be entered with the bonds, either at five dollars per acre or at any price, that the bonds were almost valueless, and that Kitchen had offered to sell one hundred and sixty-eight similar bonds for $8423, that he sold those transferred and deposited with him for $10,000.

The complainants, then, do not come into court with clean hands. They are seeking the benefit of a contract obtained by their fraud, or by the fraud of Kitchen. Hence they can have no standing in a court of equity. Such a court will not lend its power to assist or protect a fraud. It will not even enforce an unconscionable bargain. In Bein v. Heath it was said to be a principle in chancery 'that he who asks relief must have acted in good faith. The equitable powers of this court can never be exerted in behalf of one who has acted fraudulently, or who by deceit or any unfair means has gained an advantage. To aid a party in such a case would make this court the abettor of iniquity.' For this reason, if for no other, the plaintiffs cannot succeed. They are seeking in a court of equity to derive an advantage from their own wrong.

DECREE AFFIRMED.

title: Kitchen v. Rayburn/Opinion of the Court


text: Talk:Kitchen v. Rayburn/Opinion of the Court