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Pacific Railroad of Missouri v. Missouri Pacific Railway Company/Opinion of the Court

On the twenty-sixth of June, 1880, the Pacific Railroad, (of Missouri,) a Missouri corporation, filed a bill in equity in the circuit court of the United States for the Eastern district of Missouri, against the Missouri Pacific Railway Company, another Missouri corporation, and various individual defendants citizens of Missouri, Massachusetts, and New York, and a New York corporation. The main object of the bill is to impeach and vacate, for alleged fraud in fact, a decree made by that court, June 6, 1876, foreclosing a mortgage on railroad property of the plaintiff, and ordering its sale. The sale was made September 6, 1876, it was confirmed by the court October 7, 1876, and a deed was given October 24, 1876, by the master, to he purchaser, who was James Baker. The decree was made in a suit brought November 11, 1875, by one Ketchum, a citizen of New York, against the present plaintiff and various citizens of Missouri and New York, to foreclose a mortgage given by the present plaintiff, July 10, 1875, on its railroad and other property, to Henry F. Vail and James D. Fish, trustees, called the 'third mortgage,' to secure a proposed issue of bonds of $4,000,000. On the first of February, 1877, the present plaintiff took an appeal to this court from the decree of June 6, 1876, and from the order confirming the sale. The case was returnable at October term, 1877, was heard here in January, 1880, was decided in April, 1880, the decree below being affirmed, and a rehearing was applied for and was denied May 10, 1880. See Pacific R. R. v. Ketchum, 101 U.S. 289. This bill was then promptly filed.

Copies of the bill in the Ketchum suit, and of the decree and the deed of the master, and the order of the court approving the deed, are annexed to and made a part of the bill in this suit. The material allegations of the latter are these:

C. K. Garrison, James Seligman, and Pierce (three of the defendants in this suit) were made co-plaintiffs in the Ketchum suit, before the decree was entered, and their solicitors were directed to receive their instructions from and be advised by said Baker, who was the solicitor of this plaintiff, and they did follow Baker's instructions. The decree was procured to be made by the court by false and fraudulent representations made by the defendants herein. The decree and the master's deed designedly and fraudulently embraced more and other property of this plaintiff than was embraced in the mortgage being foreclosed, in the following language, which was interpolated without the knowledge of this plaintiff, viz.: 'Including, among other things, the track on Poplar street, and the levee in the city of St. Louis, commonly known as the 'Poplar-street track," the value of which property is more than $200,000. All of the defendants in this suit (only three of whom, Baker, Vail, and Fish, were defendants in the Ketchum suit, and four others of whom, Ketchum, C. K. Garrison, James Seligman, and Pierce, were plaintiffs in the Ketchum suit) had knowledge of and were parties to the frauds herein complained of, either at their inception or by 'subsequent subrogation.' The Atlantic & Pacific Railroad Company (which will be called the Atlantic Company) was the lessee of this plaintiff's railroad, under a lease, a copy of which is annexed to the bill as an exhibit, and which this plaintiff asks leave to refer to with the same effect as if it were set out at length in the bill, and was in possession of the property of this plaintiff. By the terms of said lease the Atlantic Company assumed certain obligations, including the payment of a rental to this plaintiff, being unable to pay which its manager sought to evade its obligation by destroying this plaintiff. On and before June, 1872, the chief officers and directors of the Atlantic Company, who were Andrew Pierce, Jr., Joseph Seligman, A. V. Stout, and others unknown, procured the ownership or control of a majority of this plaintiff's stock, for the avowed purpose of procuring control of all its assets and road; and, in execution of such purpose, said directors and officers procured the execution of said lease between the two roads on June 29, 1872. Upon the execution of the lease, the Atlantic Company became possessed of all the property and franchises of this plaintiff, and at all times since this plaintiff has not been in control of any of its property, except to receive rents under the lease, from June, 1872, to July, 1875. Since the making of the lease, the stockholders of this plaintiff have been paid all dues under the lease, to July, 1875. All interest on its bonds was also paid, and this plaintiff was not in default on any mortgage liability which existed when the lease was made. During the lease, he Atlantic Company, by false and fraudulent representations that this plaintiff was indebted to it for improvements made on this plaintiff's property, procured the execution by this plaintiff of three issues of bonds, namely, income bonds, for $1,500,000; improvement bonds, for $2,000,000; third mortgage bonds, so-called, for $4,000,000. The proceeds of all of said issues of bonds went to the Atlantic Company, or the persons by whose false and fraudulent action their issue was procured. At or before November 11, 1875, when the Ketchum foreclosure suit was begun, the Atlantic Company was indebted to various persons and corporations, whose names are set forth.

C. K. Garrison, on his examination in the Ketchum suit, said that he was one of the complainants in that suit, and the owner of over $1,500,000 of the third mortgage bonds, and represented the owners of the rest. By the terms of the lease the Atlantic Company undertook to pay all the debts of this plaintiff, as well as all operating and repairing expenses, and all interest on bonds to be issued after the date of the lease, for extending its lines, buying rolling stock, and rentals. The pretended increase of mortgage debt of $4,000,000, between July 1, 1871, and July 10, 1875, is fictitious, fraudulent, without consideration, and contrary to the laws of Missouri. The net income of this plaintiff's road from the date of the lease to December 31, 1874, was $739,172.68. The recitals in the third mortgage bonds, that they were issued to procure additional rolling stock for this plaintiff's road, were false. This plaintiff had no legal capacity to execute the third mortgage, or to issue $4,000,000 of bonds. The law of Missouri only authorized mortgages of railroad property for certain stated purposes, and no issue of bonds is valid without the vote of the stockholders. The only pretended authority for making the third mortgage (a copy of which is annexed to the bill) is shown by a circular and form of proxy issued to the stockholders by Mr. Hays, president, of which copies are attached to the bill. The circular and proxy do not authorize the mortgage of $4,000,000, or of any amount whatever. The Atlantic Company did not negotiate absolutely any of the $2,000,000 of improvement bonds, but used them to aid its own credit, and several of its directors and officers of this plaintiff were indorsers on obligations of the Atlantic Company secured by said bonds. The third mortgage was procured to be executed fraudulently, to be used as additional security for said indorsements, and $2,500,000 of the third mortgage bonds were used to secure the payment of obligations of the Atlantic Company; and said Garrison and Seligman and the defendant Sage, with full knowledge of these facts, bought at heavy discount the past-due obligations of the Atlantic Company, with the accompanying third mortgage bonds. Some of the directors and former officers of this plaintiff were interested in the bonds or the obligations, and vigorously prosecuted the foreclosure suit, to the destruction of the interests of the stockholders of this plaintiff. The defendants Stout, Fish, D. R. Garrison, Samuels, W. R. Garrison, and C. K. Garrison were, during all these transactions, up to the commencement of the foreclosure suit, either directors of the Atlantic Company or of this plaintiff, or creditors of, or otherwise interested in, the Atlantic Company, and benefited by said frauds, and were fully cognizant of the creation of said fraudulent bonds and of said fraudulent acts. and are not holders in good faith of said third mortgage bonds. The defendant C. K. Garrison agreed with Andrew Pierce, Jr., Baker, and D. R. Garrison that if they, controlling, as they did, the defense to the Ketchum suit, would consent to a decree therein in the manner and form in which consent to the entry of said decree was given, he would pay all their liabilities in connection with the Atlantic Company. Pursuant to such agreement, said Garrison did pay said liabi ities and took the improvement or third mortgage bonds which were held as collateral, and thereupon said Pierce, Baker, and D. R. Garrison caused said decree to be entered, and falsely set forth that this plaintiff consented to the decree and authorized the action of Baker in the premises.

Prior and subsequent to November 1, 1875, Baker, one of the directors of this plaintiff and its general attorney, with Andrew Pierce, another director, and others unknown, confederated with some of the defendants herein to institute proceedings to foreclose the third mortgage for the entire $4,000,000, in order to obtain the entire property for themselves for greatly less than its real value. In execution of this scheme they procured the bill of foreclosure in the Ketchum case to be printed prior to November 1, 1875, and filed in the circuit court of the United States for the Eastern district of Missouri, and procured the complainant, Ketchum, to allow his name to be used therein, and the bill was sworn to before the coupons were in default, and, without waiting the six months required by the trust deed, or procuring the request of the requisite number of bondholders, they began suit. Baker admitted service of subpoena in the name of this plaintiff, without authority, and without authority filed the answer of this plaintiff, falsely admitting the due and lawful execution of the mortgage and the liability of this plaintiff to pay the bonds, well knowing the said facts invalidating the bonds. As a part of the fraudulent schemes of the defendants no replications were ever filed to put the cause at issue; no reference was ever made to a master, so as to truly inform the court of the character and amount of the debt; the cause was hurriedly disposed of, without waiting for the three months allowed by the rules of that court, in equity; no defense was ever undertaken to be interposed at any stage of the proceedings by Baker, who pretended to act as solicitor for this plaintiff, but who really acted for Andrew Pierce, W. R. Garrison, C. K. Garrison, Russell Sage, James Seligman, and others unknown, in procuring the decree of foreclosure and the sale thereunder; the trustees, who alone had any right to foreclose the mortgage, never filed any cross-bill or prayed any relief; the recital in the decree that the cause was heard on 'proofs,' was wholly false and fraudulent, and there never was any judicial hearing whatever; no proofs were ever taken or offered, but the decree was prepared and entered entirely by consent of and collusively between the complainants and the counsel and officers of this plaintiff, who were both carrying out the common purpose of procuring the speediest decree of foreclosure, for which the action was originally instituted, and in fraud of the rights and property of this plaintiff, and without any authority from it; it was false that Garrison, Pierce, and Seligman were the owners of the bonds, as recited in the decree, and the complainants and Baker, counsel for them, and the officers of the corporation, consenting to said decree, knew of all the facts invalidating the bonds, and wrongfully concealed all such facts from the court; no decree was entered decreeing what debt was due under the mortgage, or ordering the payment thereof, or giving any time or opportunity for redemption; the third mortgage bonds, neither by their face nor by any provision of the mortgage, were due at the time the decree was made, and no interest thereon was unpaid, except the coupons which matured on the first on November, 1875; well knowing that there was cash in the hands of the receivers appointed by the court in the case, and valuable real estate in the city of St. Louis which could be separately sold, which was far more than sufficient to pay the entire amount of interest justly due on the mortgage debt, even if valid, the complainants and the attorney for this plaintiff, jointly, and for the purpose of defrauding this plaintiff, procured the entry of a decree to sell the entire property of this plaintiff to pay the principal and interest of the bonds; and the whole amount of the third mortgage bonds were not then and have not since been issued, and, in any event, were not, to the full sum of $4,000,000, a lien upon the premises.

Baker, in pursuance of said fraudulent understanding, purchased the property at the sale, not for this plaintiff, his clients, and received a pecuniary reward from the defendant the Missouri Pacific Railway for doing the same. He bought the property upon secret agreements, and in trust for C. K. Garrison and his associates, for $3,000,000, payable in third mortgage bonds, a sum greatly less than its actual cash value. C. K. Garrison was surety for Baker, as purchaser. Baker transferred his interest in the purchase to the defendant the Missouri Pacific Railway Company, which has since held it. It has issued to the holders of the third mortgage bonds of this plaintiff, bonds of itself for an equal amount, the third mortgage bondholders receiving accrued interest in cash, and purchasing an equal amount of the stock of the Missouri Pacific Company. The principal holders of the third mortgage bonds are and were C. K. Garrison, Sage, James Seligman, and others, who confederated to procure the decree. On November 1, 1876, the Missouri Pacific Company made a mortgage for $4,500,000, to secure a pretended and fraudulent indebtedness, in which mortgage the defendant the Central Trust Company is now mortgagee. The defendants the Missouri Pacific Company, C. K. Garrison, Sage, and James Seligman own and control, or the same are held for their use, nearly the whole amount of the third mortgage bonds, and all took them with full knowledge of the want of authority to issue them, and of their fraudulent character. As part of said fraudulent scheme, the Atlantic Company, in 1872, procured the passage of an act of the legislature to enable the directors of this plaintiff to retain control of the company against the will of the stockholders. From the passage of said act to December, 1876, the Atlantic Company, through the directors of this plaintiff, who were false to their trust, have, by means of said law, controlled the organization and management of this plaintiff's corporation. The directors of this plaintiff did not properly represent the interests of its stockholders, but used their position to strip it of its property. The stockholders of this plaintiff, in writing, requested said directors to resign, that others might be appointed in their place who would properly attend to the duties of their office, and requested them to employ other counsel than Baker to defend theKetchum suit; but said directors allowed Baker, who had caused the Ketchum complaint to be prepared before any cause of action arose, and had caused the subpoena to be served on himself, to put in the answer of this plaintiff in said suit, when said directors and Baker knew that the averments admitted were many of them false in fact. The defendants C. K. Garrison, W. R. Garrison, Oliver Garrison, D. R. Garrison, Jay Gould, Russell Sage, A. V. Stout. George J. Forrest, Webb M. Samuels, and Joseph L. Stephens, with others unknown, are now, or have been, directors of the defendant the Missouri Pacific Railway Company, and in the receipt of its income, and had knowledge of all the matters complained of, and were parties to said frauds, and have been, from October, 1876, to the present time, in possession of this plaintiff's property.

Answers on oath to interrogatories in the bill are required from all the defendants except Baker, (Stout not being made a defendant in the prayer for process.) The prayer of the bill is that the improvement bonds, and the third mortgage bonds, and the two mortgages securing them, and the mortgage to the Central Trust Company, be declared void; that the decree of foreclosure in the Ketchum suit be set aside; and that proper accounts be taken, and this plaintiff be allowed to redeem, and its property be restored to it. The decree n the Ketchum suit states that this plaintiff, as defendant, appears by James Baker, as its solicitor, and that he appears, as defendant, in his own proper person, and as solicitor for five other defendants, who are not defendants in the present suit. It also states that the 'court, being fully advised in the premises, and by the consent of the parties to this suit, through their solicitors of record, thereupon and in consideration thereof' decrees; but the terms of the consent are not otherwise set forth in the decree.

There are two demurrers to the bill,-one by the Missouri Pacific Railway Company, O. Garrison, D. R. Garrison, Samuels, and Baker; the other by Ketchum, C. K. Garrison, Pierce, and Stephens. The two demurrers are substantially identical, wxcept that, in the first one, O. Garrison, D. R. Garrison, and Samuels allege that they are not proper or necessary parties, and in the second one it is alleged that the circuit court has no jurisdiction over the suit. In other respects, each demurrer is as follows:

'The defendants, * *  * by protestation, not confessing all or any of the matters or things in the said complainant's bill contained to be true in such manner and form as the same are therein set forth and alleged, do demur to the said bill, and for cause of demurrer show that the said complainant has not, by its said bill, made such a case as entitles it, in a court of equity, to any discovery from these defendants respectively, or any of them, or any relief against them, as to the matters contained in asid bill, or any such matters; and that any discovery which can be made by these defendants, or any of them, touching the matters complained of in the said bill, or any of them, cannot be of avail to the said complainant for any of the purposes for which a discovery is sought against these defendants by the said bill, nor entitle the said complainant to any relief in this court touching any of the matters therein complained of.

'And for further and more specific grounds of demurrer these defendants aver as follows, to-wit: (1) If, or in so far as, the said bill of complaint is to be treated and regarded as a bill of review for errors apparent in the record, then it clearly appears that the time limited by law for the bringing of such a bill of review had elapsed long prior to the bringing of the present suit; and also that said decree has been affirmed, on appeal, by the supreme court of the United States. If, or in so far as, the said bill of complaint is to be regarded and treated as a bill of review instituted upon the discovery of new matter, or based upon errors not apparent of record, then it appears that no leave of this court has been obtained for the filing of such a bill of review. It does not appear in the bill of complaint, or otherwise, that the matters of complaint therein set forth were not known to the complainant at the time of the pendency of the foreclosure, or that they could not have been therein set forth or determined; and the bill of complaint discloses such negligence and laches in the institution of the suit as destroys complainant's right to the relief prayed for. (2) The bill of complaint contains no description of the property mortgaged or covered by the decree, and in reference to which relief is sought to be had. (3) The bill of complaint fails to set forth the bill of complaint or the decree in the proceedings sought to be assailed, or the tenor or purport thereof, all of which things should appear in the body of the bill of complaint, in order to entitle the complainant to any relief or discovery. (4) The averments of the bill of complaint show that the complainant, even if its bill is to be treated as an original one and not a bill of review, should be precluded by its own laches and neglect from now instituting the present proceeding; for it is nowhere averred that the complainant or its stockholders were at any time ignorant of the various alleged frauds complained of; and, on the other hand, it does appear that the co plainant and its stockholders were all along aware of all the facts now sought to be assigned as grounds for relief and discovery in the bill, and that the complainant could have instituted its suit under the authority of the officers now representing it as early as March, 1877, and that the stockholders of complainant had the means and remedies to have averted the alleged wrongs, as well as the rendering of the decree and the foreclosure of the property now complained of, in so far as they may have had any just defenses thereto. (5) It affirmatively appears, by said bill of complaint, in conjunction with the exhibits sought to be made a part thereof, that the said stockholders of the complainant, having full knowledge of all the matters now sought to be set up as grounds of relief and discovery in this case, were allowed full opportunity to interpose any and all objections they might have to the rendering of said decree, and not only failed to do so, but actually assented to said decree in manner and form as it was rendered, and that the said stockholders actually assented to and ratified the sale of the property which was made under and by virtue of the foreclosure proceedings. (6) The bill of complaint fails to aver that its stockholders were at the time ignorant of the various facts alleged as occurring and existing prior to the foreclosure suit, or during the pendency of said suit, or that they were in any way precluded from making any defenses that they might have to said decree of foreclosure, all which averments, under the facts and circumstances of this case, should be made to appear by the bill of complaint, in order to entitle it to any relief or discovery. (7) The said bill of complaint is altogether vague, uncertain, and inconsistent in its various averments, and abounds in prolix, redundant, and impertinent matters, and it is not such a bill as, under the course of proceedings in chancery and of this court, these defendants ought to be called upon to make plea or answer to. (8) There is a defect of material and necessary parties defendant in said suit; for it appears from said bill of complaint that in order to the obtaining of the relief sought for, J. B. Colgate & Co., D. L. Caldwell, the National Bank of Commerce of New York, the National Shoe & Leather Bank, Andrew Pierce, as well as other corporations and individuals, and especially the officers of the Atlantic & Pacific Railroad Company at the time of the perpetration of the alleged frauds, and the former officers of the Pacific Railroad, are necessary and proper parties to the suit, in order to the obtaining of the relief sought to be had in the bill of complaint. (9) The thirty-fourth, thirty-seventh, thirty-eighth, thirty-ninth, fortieth, forty-first, and forty-second clauses of the bill of complaint contain matters and allegations that are entirely immaterial and irrelevant, and all of which have been adjudicated against the complainant, on appeal, by the supreme court of the United States.'

The demurrers were brought to a hearing, and were, by consent, ordered to stand as demurrers for the Central Trust Company, and were sustained. 2 McCrary, 229; S.C.. 12 Fed. Rep. 461. The plaintiff elected to abide by the bill, and it was dismissed and the plaintiff has appealed.

The circuit court, in its opinion, regarded the bill as an original bill to impeach the prior decree for fraud, and not as a bill of review upon newly-discovered facts and evidence. It held the bill to be insufficient, for want of an affirmative allegation that the plaintiff was ignorant, during the pendency of the original suit, of the facts set up in the bill, much less that it was unable, after due diligence, to ascertain and plead them. The court added: 'But the demurrer goes further, and raises the question whether the bill and exhibits do not show affirmatively that the present complainant, through its stockholders, had notice of the foreclosure suit, knowledge of the defense now insisted upon against the third mortgage bonds, and ample opportunity to make that defense. It is, we think, very clear that, in considering the question of notice, no distinction can be made between the corporation and its officers and stockholders. We cannot separate them and say the officers and stockholders knew of the fraud, but the corporation did not. If, therefore, the stockholders were advised of the foreclosure suit, and of the facts now charged as constituting fraud in the execution of the bonds and mortgages sued on therein, and had an opportunity to intervene and defend, and did not do so, the corporation is concluded by their laches. That the stockholders, as a body, were advised of the foreclosure suit, and took action looking to its defense, and that they did not rely upon the officers of the corporation, but distrusted and antagonized them, is clear from the allegations of the fortyfifth count of the bill, by which it is charged that the stockholders, in writing, requested the directors to resign, that others might be appointed in their place, who would properly attend to the duties of their office; also that the stockholders requested said directors to employ counsel other than James Baker to defend the suit of Ketchum.' The court, in its opinion, then makes reference to various matters which, it states, appear in the record of the Ketchum case; that at a meeting of stockholders held in March, 1876, at St. Louis, several months before the decree of foreclosure was made, a resolution was adopted requesting the directors to employ counsel to aid in the defense of the foreclosure suit; that the stockholders, or their managing committee, afterwards assented to the decree; and that the stockholders knew the facts now set up by way of defense.

The record in the Ketchum suit is not before us on this appeal. The only allegation in the bill in regard to it is this: 'Your orator prays liberty to refer to the files and records of said United States circuit court in the case of George E. Ketchum irregular, and fraudulent character of the legal proceedings instituted, with advice of said Baker, the counsel of your orator, to sell all its property for the enforcement of a security which your orator avers to be fraudulent and void, and for which your orator had received no valuable consideration.' There is not, in the record on this appeal, any stipulation that the Ketchum record be considered as a part of the bill, nor is it identified in any way. It is no part of the transcript certified from the circuit court. The clerk of that court certifies that what is before us is 'a true transcript of the record in case No. 1,677, of Pacific Railroad, (of Missouri,) Plaintiff, against Missouri Pacific Railway et al., Defendants, as fully as the same remain on file and of record in said case in my office.' It follows that the record in the Ketchum case was never made part of the record in this case, so far as appears from the only record which is before the court on this appeal. In regard to the bill in the Ketchum suit, and the decree, and the master's deed, and the order approving the deed, they are made a part of the bill in this suit, and identified by the annexing of copies. But the statement in the bill that the plaintiff prays liberty to refer to the files and records of the circuit court in the Ketchum suit, to show such and such things, can be of no force or effect to allow either party to claim, in this court, the right to produce or refer to anything as answering the description of such files and records, which it may assert to be such, or as being what the circuit court considered as before it. One of the assignments of error on this appeal is that the circuit court considered matters outside of the record, and matters not embraced in the bill. We are of opinion that this court cannot consider anything which is not contained in the bill and the exhibits which are annexed to it, and that it cannot look into anything otherwise presented as the files and records of the Ketchum suit, or of any other proceedings in any court, for the purpose of determining the questions arising on the demurrers to this bill.

The decision of the circuit court was placed upon the ground that the stockholders, being dissatisfied with the action of the directors and the attorney of the company in defending the foreclosure suit, were put on inquiry, and bound to do whatever it was in their power to do to protect their interests; that any individual stockholder was at liberty to apply to the court for leave to intervene and defend; that the stockholders were parties in interest, and, upon representing that fact to the court, and showing that the officers were not defending in good faith, they would, without doubt, have been allowed to defend; and that stockholders of a corporation, though not bound to intervene in a suit against the corporation, for the protection of their rights, cannot, after having notice that the officers are not faithfully defending a suit, neglect to intervene, or to take any steps in the way of endeavoring to do so, and permit a final decree to be entered, and a sale to take place, and then, after years have elapsed, be permitted to attack the validity of the proceedings.

The case, therefore, was made to turn on the question of laches. The decree was made June 6, 1876, the sale September 6, 1876, the report of sale September 15, 1876, the confirmation of the sale October 7, 1876, and the master's deed October 24, 1876. The present plaintiff took an appeal to this court from the decree, and from the order confirming the sale, February 1, 1877. It prosecuted that appeal in due form, and the case was heard here as soon as the court could hear it, as the bill states. It appears from the report of the case in 101 U.S. 289, that the present plaintiff contended here that it had not consented to the decree, and sought to examine the question of the alleged fraud, or unauthorized conduct of its solicitor and its officers, and also sought to defeat the jurisdiction of the circuit court, and to attack the propriety of the purchase by the solicitor. The conclusion of this court was that it could not discover any error that could be corrected by appeal. But, in its opinion, it said: 'The remedy for the fraud or unauthorized conduct of a solicitor, or of the officers of the corporation, in such a matter, is by an appropriate proceeding in the court where the consent was received and acted on, and in which proof may be taken and the facts ascertained.' Thereupon, this bill was immediately filed.

The demurrers in this case are to the whole bill. If any part of the bill is good the demurrers fail. The charges of fraud in the bill, which are admitted by the demurrers for present purposes, are sufficient to warrant the discovery and relief based on such charges, leaving for consideration only the questions of laches and of jurisdiction.

On the admitted allegations of the bill, there was no real defense made in the Ketchum suit, and the present plaintiff was prevented from making that defense by the unfaithful conduct of its solicitor and its directors, and the directors of the Atlantic Company. A case of that kind is one of which a court of equity will take cognizance. U.S. v. Throckmorton, 98 U.S. 61.

As to the question of laches, the pendency of the appeal taken in the Ketchum suit suspended the control of the circuit court, and of every other court, except this court, over that decree, in respect to the relief sought in this suit, of stting that decree aside and declaring it fraudulent and void, all the other relief asked being consequent on that. The appeal appearing to have been taken and prosecuted in good faith, in view of what appears in the bill herein, and in the report of the case in this court, we cannot hold, on this demurrer, that the time during which that appeal was pending can be counted against the plaintiff on the question of laches. Ensminger v. Powers, 108 U.S. 292; S.C.. 2 SUP. CT. REP. 643.

As to the frauds alleged in the bill respecting the matters in the conduct of the suit, resulting in the decree, the right to relief is based on the view that the corporation itself, the present plaintiff, speaking and acting now for its stockholders as a body, was powerless then, because it was misrepresented by unfaithful directors, who did what was done and refused to do otherwise, and through whom alone it could then speak and act. The allegations in the bill, of facts showing the existence of hostile control of the corporate affairs of the plaintiff by its directors, from before the bringing of the Ketchum suit till after the foreclosure sale, are entirely adequate as against a demurrer. Under such circumstances, mere knowledge by or notice to the plaintiff, or its directors or officers, or more or less of its stockholders, is unimportant; and the plaintiff cannot be concluded by the failure of any number of its stockholders to do what unfaithful directors ought to have done, unless a case is shown of such acquiescence, assent, or ratification as would make it inequitable to permit what has been done to be set aside, or unless the rights of innocent purchasers have subsequently intervened, to an extent creating an equitable bar to the granting of relief. The bill in this case does not show such a state of things. While stockholders, more or less in number, may be allowed to interpose, if they have the means or the inclination to take upon themselves the burden of such gigantic controversies as are involved in the railroad transactions of the present day, it would go far to legalize condonation of such transactions as are set forth in this bill, if mere knowledge by helpless stockholders of the fraudulent acts of their directors were to prevent the corporation itself from seeking redress, if it acts promptly when freed from the control of such directors. Fruitlessly requesting unfaithful directors to resign and to employ other counsel, so far from throwing on the stockholders the peril of losing their rights, represented by the company, if they do not personally assert them in place of the directors, operates of itself, without more, only to aggravate the wrong. At the same time, it by no means follows that parties who have become interested in the plaintiff's corporation, with knowledge of the matters set forth in the bill, are entitled to the same standing, as to relief, with those who were interested in the corporation when the transaction complained of occurred.

As to the matters alleged which are extrinsic or collateral to the issues in the Ketchum suit, to what extent, greater or less, there is jurisdiction to examine them under this bill, is a question not to be decided on these demurrers to the whole bill. The bill is sufficient in regard to the other frauds alleged. But, in regard to one of those extrinsic matters, the bill states that specified property not covered by the mortgage was put into the decree without the knowledge of this plaintiff.

Upon the question of jurisdiction there can be no doubt that the circuit court, as the court which made the Ketchum decree, and had jurisdiction of the Ketchum suit, as this court, in Pacific R. R. v. Ketchum, 101 U.S. 289, held it had, has jurisdiction to entertain the present suit to set aside that decree on the grounds alleged in the bill, if they shall be established as facts, and if there shall be no valid defense to the suit, although the plaintiff and some of the defendants are citizens of Missouri. The bill falls within recognized cases which have been adjudged by this court, and have been recently reviewed and reaffirmed in Krippendorf v. Hyde, 110 U.S. 276; S.C.. ante, 27. On the question of jurisdiction the suit may be regarded as ancillary to the Ketchum suit, so that the relief asked may be granted by the court which made the decree in that suit, without regard to the citizenship of the present parties, though partaking so far of the nature of an original suit as to be subject to the rules in regard to the service of process which are laid down by Mr. Justice MILLER in Pacific R. R. v. ''Missouri Pac. Ry. Co.'' 1 McCrary, 647; S.C.. 3 Fed. Rep. 772. The bill, though an original bill in the ohancery sense of the word, is a continuation of the former suit, on the question of the jurisdiction of the circuit court. Minnesota Co. v. St. Paul Co. 2 Wall. 609, 633.

We do not see any force in the second and third grounds of demurrer, nor, at present, in the eighth. The seventh ground of demurrer alleges what is, if true, matter for exception, and so does the ninth, in part. As to the rest of the ninth it is matter for an answer. All the demurring parties seem to be proper parties.

If, as has been strenuously argued for the defendants, there are complete defenses on the merits to the bill, answers should have been put in and proofs taken. We can act only on what the bill brings before us, and all it alleges is admitted for present purposes. The future proceedings in the case may show that the allegations of the bill are untrue, or may disclose perfect defenses to the suit. But, as the suit now stands, the plaintiff is entitled to have the matters it alleges inquired into and adjudicated.

The decree of the circuit court is reversed, and the case is remanded to that court, with direction to overrule the demurrers, with costs, and to take such further proceedings in the suit as shall be proper, and not inconsistent with the opinion of this court.


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Page:Copyright, Its History And Its Law (1912).djvu/259

 takes the place of publication and deposit in the case of works reproduced for sale, there can be no claim for statutory protection of an unpublished work of art without the deposit of the identifying copy, and the general provision (sec. 13) for fine and for voiding of copyright in the case of non-deposit, has, of course, no bearing on unpublished works. Any action or proceeding in respect to an unpublished work not registered by deposit must therefore be under common law and not under statutory provision.

To sum up, the author of a work of art, who is exhibiting his painting or statue or other work and not multiplying copies for sale, will assure himself of full protection if before such exhibition he places on the original work, in some visible but not obtrusive fashion, the letter C inclosed in a cirple with his name or mark, and deposits a photograph of such work with the Librarian of Congress or in the mails addressed to him, accompanied by a claim of copyright, — for which an application form (J, "photograph not reproduced for sale") is furnished on request by the Copyright Office from Washington,—with inclosure of one dollar.

As soon as the artist multiplies copies for sale, or permits reproduction of his work, as in a newspaper report of an exhibition, for instance, he must then take the precaution of depositing two copies of such reproduction os provided in general by the act, and it is further provided (sec. 18) "that on some accessible portion of such copies or of the margin, back, permanent base, or pedestal, or of the substance on which such copies shall be mounted, his name shall appear." In case two copies are not so deposited, it is probable that a fine and forfeiture of copyright would ultimately ensue, as indicated in section 13.

It is specifically provided (sec. 14) that copyright

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


text: Talk:Pacific Railroad of Missouri v. Missouri Pacific Railway Company/Opinion of the Court


text:
Barrett v. Failing

W. W. Chapman, for appellant.

J. N. Dolph, for appellees.

GRAY, J.

title: Barrett v. Failing


text: Talk:Barrett v. Failing

title: Talk:Barrett v. Failing


text:
Barrett v. Failing/Opinion of the Court

This is a bill in equity filed in the circuit court of the United States for the district of Oregon by Mary E. Barrett, a citizen and resident of the state of California, against Charles D. Failing and Xarifa J. Failing, his wife, citizens and residents of the state of Oregon. The bill alleged that on September 25, 1866, the plaintiff was, and for more than two years theretofore had been, the wife of Charles Barrett, and was a citizen and resident of the state of California; that on that day she commenced a suit for divorce against him for his misconduct in a district court of the state of California for the Fifteenth judicial district, that court having jurisdiction thereof, and being authorized to grant divorces according to and by virtue of the laws of that state; that he was duly serv d with process, and appeared and made defense; and that on April 18, 1870, the plaintiff being still a citizen of that state, that court rendered a decree in her favor, dissolving the bond of matrimony between him and her. The bill further alleged that, at the time of the commencement of that suit, Charles Barrett was not the owner of any real estate in the state of California, but was the owner in fee-simple of certain land (particularly described) in Portland, in the state of Oregon; that on February 4, 1868, he fraudulently conveyed this land to his daughter, the female defendant, without consideration, and with intent to defraud the plaintiff of her just rights in it, and for the purpose of preventing her from asserting her claim thereto or interest therein; that, at the time of the commencement of the suit for divorce, the plaintiff did not know that he was the owner of this land; that he died in Oregon in July, 1870; and that by the laws of the state of Oregon, and under and by virtue of the decree of divorce, the plaintiff became and was entitled to one-third of this land. The bill prayed for a decree that the plaintiff was the owner in fee-simple of one-third of this land, and that the defendants held it in trust for her, and for a conveyance, a partition, an account of rents and profits, and further relief. The defendants filed a general demurrer to the bill, which was sustained by the circuit court, and the bill dismissed. See 6 Sawy. 473; S.C.. 3 Fed. Rep. 471. The plaintiff appealed to this court.

It is not doubted that the decree of divorce from the bond of matrimony, obtained by the plaintiff in California, in a court having jurisdiction to grant it, and after the husband had appeared and made defense, bound both parties and determined their status. The question considered by the court below and argued in this court is whether, by virtue of that decree, and under the law of Oregon, the wife is entitled to one-third of the husband's land in Oregon. Unless otherwise provided by local law, a decree of divorce by a court having jurisdiction of the cause and of the parties, dissolving the bond of matrimony, puts an end to all obligations of either party to the other, and to any right which either has acquired by the marriage in the other's property, except so far as the court granting the divorce, in the exercise of an authority vested in it by the legislature, orders property to be transferred, or alimony to be paid by one party to the other. In estimating and awarding the amount of alimony or property to be so paid or transferred, the court of divorce takes into consideration all the circumstances of the case, including the property and means of support of either party; and the order operates in personam, by compelling the defendant to pay the alimony or to convey the property accordingly, and does not of itself transfer any title in real estate, unless allowed that effect by the law of the place in which the real estate is situated.

Accordingly, it has been generally held that a valid divorce from the bond of matrimony, for the fault of either party, cuts off the wife's right of dower, and the husband's tenancy by the curtesy, unless expressly or impliedly preserved by statute. Barber v. Root, 10 Mass. 260; Hood v. Hood, 110 Mass. 463; Rice v. Lumley, 10 Ohio St. 596; Lamkin v. Knapp, 20 Ohio St. 454; Gould v. Crow, 57 Mo. 200; 4 Kent, Comm. 54; 2 Bish. Mar. & Div. (6th Ed.) §§ 706, 712, and cases cited. In each of the Massachusetts cases just referred to, the divorce was obtained in another state. The ground of the decision of the court of appeals of New York in Wait v. Wait, 4 N. Y. 95, by which a wife was held not to be deprived of her right of dower in her husband's real estate by a divorce from the bond of matrimony for his fault, was that the legislature of New York, by expressly enacting that 'in case of divorce dissolving the marriage contract for the misconduct of the wi e, she shall not be endowed,' had manifested an intention that she should retain her right of dower in case of a divorce for the misconduct of the husband. See, also, Reynolds v. Reynolds, 24 Wend. 193. The decisions of the supreme court of Pennsylvania in Colvin v. Reed, 55 Pa. St. 375, and in Reel v. Elder, 62 Pa. St. 308, holding that a wife was not barred of her dower in land in Pennsylvania by a divorce obtained by her husband in another state, proceeded upon the ground that, in the view of that court, the court which granted the divorce had no jurisdiction over the wife. And see Cheely v. Clayton, 110 U.S. 701; S.C.. ante, 328.

Whether a statute of one state securing or denying the right of dower in case of divorce extends to a divorce in a court of another state, having jurisdiction of the cause and of the parties, depends very much upon the terms of the statute, and upon its interpretation by the courts of the state by the legislature of which it is passed, and in which the land is situated. In Mansfield v. McIntyre, 10 Ohio, 27, it was held that a statute of Ohio, which provided that in case of divorce for the fault of the wife she should be barred of her dower, was inapplicable to a divorce obtained by the husband in another state; and the wife was allowed to recover dower upon grounds hardly to be reconciled with the later cases in Ohio and elsewhere, as shown by the authorities before referred to. In Harding v. Alden, 9 Greenl. 140, a wife who had obtained a divorce in another state recovered dower in Maine under a statute which, upon divorce for adultery of the husband, directed 'her dower to be assigned to her in the lands of her husband in the same manner as if such husband was actually dead;' but the point was not argued, and in the case stated by the parties it was conceded that the demandant was entitled to judgment if she had been legally divorced. The statute of Missouri, which was said in Gould v. Crow, 57 Mo. 205, to extend to divorces obtained in another state, was expressed in very general terms: 'If any woman be divorced from her husband for the fault or misconduct of such husband, she shall not thereby lose her dower; but if the husband be divorced from the wife, for her fault or misconduct, she shall not be endowed.'

The Oregon Code of Civil Procedure of 1862 contained the following section: 'Section 495. Whenever a marriage shall be declared void or dissolved, the real property of the husband or wife shall be discharged from any claim of the other to any estate therein, or right to the possession or profits thereof, except as in this section specially provided. If the marriage is declared dissolved on account of the adultery, or conviction of a felony, of either party, the adverse party shall be entitled as tenant in dower or by the curtesy, as the case may be, in the real property of the other, the same as if the party convicted of felony or committing the adultery were dead.' But by the statute of Oregon of December 20, 1865, § 11, that section was repealed, and the following enacted in place thereof: 'Section 495. Whenever a marriage shall be declared void or dissolved, the party at whose prayer such decree shall be made, shall in all cases be entitled to the one undivided one-third part in his or her individual right, in fee, of the whole of the real estate owned by the other at the time of such decree, in addition to the further decree for maintenance provided for in section 497 of this act; and it shall be the duty of the court in all such cases to enter a decree in accordance with this provision.' By section 497, thus referred to, the court, upon declaring a marriage void or dissolved, has power to further decree 'for the recovery of the party in fault such an amount of money, in gross or in installments, as may be just and proper for such party to contribute to the maintenance of the other;' and 'for the delivery to the wife, when she is not the party in fault, of her personal property in the possession or control of the husband at the time of giving the decree;' as well as for the future care and custody, nurture, and education of the minor children of the marriage, and for the appointment of trustees to collect, receive, expend, manage, or invest any sum of money decreed for the maintenance of the wife, or for the nurture and education of minor children committed to her care and custody.

The changes in the provision of section 495 are significant. The section, in its amended form, substitutes for the former provision that the innocent party, in the case of a divorce for adultery, or for conviction of felony, should be entitled as tenant in dower, or by the curtesy, in the real property of the guilty party as if the latter were dead, a provision that the party at whose prayer the decree is made shall in all cases be entitled to an estate in fee in one-third of the real property owned by the other party at the time of the decree; it declares that this shall be 'in addition to the further decree for maintenance provided for in section 497;' and it further provides that 'it shall be the duty of the court in all such cases to enter a decree in accordance with this provision.' Considering that this enactment is contained in a Code of Civil Procedure, and not in a statute regulating and defining titles in real estate; that the right conferred is a new title in fee, acquired only by virtue of this statute, and distinct from a tenancy in dower or curtesy, as at common law or under the former statute, which was only for life; that it is declared to be in addition to maintenance or alimony to be awarded by the court granting the divorce; and that it is made the duty of that court to enter a decree in accordance with this provision,-we are clearly of opinion that the statute is limited, in intention and effect, to divorces granted by the courts of Oregon, which are the only courts within the control of the legislature which passed the statute. To extend the provisions of this statute to the case of a divorce obtained in another state would be inconsistent with a series of decisions of the supreme court of Oregon, by which it has been held that, even where the wife obtains a decree of divorce in that state, the title in fee in one-third of the husband's real property, which the statute declares she shall have, and that the court shall decree to her, cannot vest in her without a provision to that effect in the decree of divorce, with this single exception: that if the husband has made a fraudulent conveyance of his real estate, with intent to defeat the right of his wife therein, and she does not know of his title or of the fraud until after the decree of divorce, she may assert her right by a bill in equity, which, although required by other provisions of the Code to be in the form of an original suit brought in the county where the land lies, is in the nature of a bill of review for newly-discovered evidence. Bamford v. Bamford, 4 Or. 30; Wetmore v. Wetmore, 5 Or. 469; Hall v. Hall, 9 Or. 452; Weiss v. Bethel, 8 Or. 522; Oregon Code Civil Proc. §§ 376, 377, 383.

The other cases cited in behalf of the appellant are quite unlike the case at bar.

In Barrett v. Barrett, 5 Or. 411, the suit was not to assert a title in real estate, but to enforce, out of the land fraudulently conveyed by the husband to his daughter, payment of the alimony awarded to this appellant by the California decree of divorce, which was held, in accordance with the decisions of other courts, to be so far in the nature of a debt that the wife might sue the husband for it in another state, and might contest the validity of a conveyance of property made by him with the fraudulent intent of preventing her from recovering the alimony. Barber v. Barber, 21 How. 582; Livermore v. Boutelle, 11 Gray, 217; Bouslough v. Bouslough, 68 Pa. St. 495.

In Godey v. Godey, 39 al. 157, and in Whetstone v. Coffey, 48 Tex. 269, the point decided was that land acquired by the husband or the wife during the marriage, the title in which by the local law vested in neither separately, but in both in common, continued to belong to both after the divorce, and that a division thereof between them, if not made by the decree of divorce, might be obtained by a subsequent suit for partition in the state in which the divorce was granted and the land was situated.

Judgment affirmed.

title: Barrett v. Failing/Opinion of the Court


text: Talk:Barrett v. Failing/Opinion of the Court


text:
Thompson v. First National Bank of Toledo Ohio

C. H. Scribner, for plaintiff in error.

Edward Bissell and Wesley S. Thurstin, for defendant in error.

GRAY, J.


text: Talk:Thompson v. First National Bank of Toledo Ohio


text:
Thompson v. First National Bank of Toledo Ohio/Opinion of the Court

This action was brought by the First National Bank of Toledo, Ohio, a national banking association established at Toledo, against William H. Standley, William H. Whiteside, Josephus Atkinson, Edward R. Thompson, and Joseph Uhl, as partners in the business of private bankers at Logansport, Indiana, under the name of the People's Bank, upon a draft for $5,000, drawn and accepted by the partnership on August 25, 1877, payable in 90 days after date to the order of the plaintiff's cashier, and taken by the plaintiff in renewal of a like draft discounted by it for the partnership on May 5, 1877. Thompson filed a separate answer, denying that he was a member of the partnership, or liable to the plaintiff on the draft sued on. He died pending the suit, and it was revived against his administrators. Upon a trial by jury, the plaintiff introduced evidence tending to show that about April 10, 1871, a partnership known as the People's Bank was formed at Logansport, for the purpose of carrying on a private banking business there for one year, and the articles of partnership were reduced to writing and signed by Standley, Whiteside, Atkinson, Uhl, and others in their own names, and in Thompson's name by Whiteside, who was his son-in-law, and cashier of the partnership; that none of the partners other than Thompson and Whiteside were acquainted with the business of banking; that late in the previous winter, or early in the spring, Thompson, who resided at Delaware, Ohio, was at Logansport, engaged in promoting the scheme of forming the partnership, and urged Uhl to take stock in it to the amount of $2,000, and, for the purpose of inducing Uhl to do so, agreed himself to take an equal amount of stock, and represented that he had had experience in such a banking partnership, and that it was a money-making institution; that he was worth about $75,000, and would make uhl safe if he would join them in forming the partnership, and that he wished to establish it, and Whiteside was to be its cashier; that Uhl, who was a man of means, then agreed to take the same amount of stock as Thompson; that thereupon Thompson, in the presence of Uhl, Standley, and others, authorized Whiteside to sign his name to the partnership, and to act for him in the organization of the bank; that the partnership entered upon the business of banking at Logansport with Whiteside as its cashier; and that about April 1, 1872, some of the partners sold out their interests to other members of the firm, and new articles of partnership were executed, to which Thompson's name was subscribed by Whiteside; but that Thompson was not present, on either occasion, when his name was subscribed to the articles. The testimony introduced by the plaintiff also tended to show that before the bank commenced business Whiteside caused to be printed blank checks, certificates of deposit, and advertising circulars, bearing the names of the partners, and of Thompson as one of them, which were used in the business of the bank; that from the time until 1876 advertisements were published by Whiteside's direction in a newspaper of Logansport, stating that the partnership was engaged in the business of banking, the names of the partners, and of Thompson as one of them, and that all the persons so named were individually liable for the debts of the partnership; that the fact that Thompson was so advertised as a partner was brought to his knowledge, and he admitted the truth of the published statement; that he at different times during this period, in conversation with the partners and with third persons, admitted that he was a partner, and that he had received dividends upon his shares in the partnership, and on two or hree occasions, when in the banking-house, was introduced as a director and stockholder in the partnership, and did not deny the fact; that the partnership carried on the banking business at Logansport under the same name from its original formation until August 25, 1877, when it failed in business, and its assets passed into the hands of a receiver, and that all its members except Uhl and Thompson were insolvent; and that the plaintiff began to do business with the partnership in October, 1873, and continued to do so until its failure.

The bill of exceptions, after stating the evidence introduced by the plaintiff, added: 'But no testimony was given showing that the plaintiff or any of its officers had knowledge during said period as to the persons who constituted said partnership, or of said advertisements published in the papers of Logansport as aforesaid, or of the fact that the name of Thompson appeared upon such checks and certificates of deposit, or in said circulars as aforesaid, as one of said partners; or that the plaintiff, or any of its officers, servants, or agents, had knowledge of said conversations with Thompson concerning his said alleged connection with said firm, or of any of said alleged statements by him relative to said matters; or that said Thompson had ever held himself out to the plaintiff as a member of said firm.'

The defendants introduced evidence tending to contradict the evidence introduced by the plaintiff, and to show that, although Thompson, before the partnership was formed, had a conversation with those who afterwards became partners on the subject of forming a partnership for banking, he never authorized Whiteside to sign his name to the partnership articles, or to act for him in the organization of the bank, and never agreed to take stock in, or paid any money into, the partnership, or participated in its proceedings, or received any dividends, or knew that his name was used in the checks, certificates of deposit, circulars, or advertisements of the partnership; that his name nowhere appeared on the books of the partnership, except on the stock-book; that after the checks and certificates of deposit first printed had been used up, new ones were printed on which his name did not appear, and others on which none of the names of the partners appeared; that just before the partnership commenced business Thompson received a letter from Whiteside, inclosing a form of assignment from him to Whiteside of the stock in the partnership for which Whiteside had subscribed in Thompson's name, and that Thompson, after adding the words, 'which you took for me,' signed the assignment, and inclosed it in a letter to Whiteside, which Whiteside received, and shortly afterwards posted in the stock-book at the place where Thompson's name appeared; and that Whiteside, when he signed Thompson's name to the articles, expected that Thompson would take the stock so subscribed for, and, upon his failure to do so, procured the assignment aforesaid, and himself paid in the capital which he had agreed that Thompson should pay in, and himself received the dividends which would have gone to Thompson.

The defendant offered to prove, by the testimony of Whiteside and his wife, that Thompson, after the time when the evidence for the plaintiff tended to show that he authorized Whiteside to sign his name and to take stock for him as a partner, and before any partnership articles were signed, or the partnership commenced business, instructed Whiteside that he would not become a partner therein. The defendants also introduced evidence that Thompson's letter, inclosing the assignment aforesaid, had been lost after being received by Whiteside, and offered to prove its contents. But the court declined to permit the defendants to prove either of these matters, and excluded the testimony so offered, and the defendants excepted to each of the rulings.

After the testimony had been closed, the defendants requested the court to instruct the jury that 'i they found from the testimony that Thompson was not in fact a member of said partnership the plaintiff could not recover, unless it further appeared from the testimony that Thompson had knowingly permitted himself to be held out as a partner, and that the plaintiff had knowledge thereof during its transactions with said partnership.' The court refused to instruct the jury as requested, and instructed them that the first question for them to determine was whether Thompson was a partner in the firm on August 25, 1877, and, if they found he was, they need not go further, but might, upon that finding, return a verdict for the plaintiff; and that, if they found he was not a partner, it was for them to determine whether he had held himself out, and permitted the officers of the bank to hold him out, to the world as a partner in the business; and upon this branch of the case instructed them, among other things, as follows: 'The defendants' counsel insist that no recovery can be had on this ground unless the plaintiff shows by the evidence upon the trial of the cause that he gave credit to the bank, looking to the defendant as a part of it; in other words, that the credit was extended in part to the defendant Thompson. We entertain a different opinion. It is not necessary for the plaintiff to show here that at the time it discounted the acceptance sued on it especially relied upon the defendant Thompson for its payment. If Thompson had held himself out to the world in this public manner, through these advertisements and the other means brought to your attention, as an interested party, as liable for the obligations of the bank, the plaintiff is entitled to the benefit of that fact, without showing that it knew that Thompson was a partner in the bank, or without showing that it specially gave credit to this particular defendant. This publication is of such a character as to entitle the plaintiff to rely upon it, without such proof as the defendants' counsel insist ought to be made here; that is, that the plaintiff knew of these advertisements, etc., and relied upon Thompson for the payment of this debt. If he was not at any time a partner, but still permitted the officers of said bank to hold him out, by advertisements and otherwise, as shown in the evidence, and permitted himself to be introduced as a director and stockholder, as is shown by the evidence,-if he permitted that to be done, then, as between him and third parties such as the plaintiff, he is estopped from denying his liability as a partner.'

The jury returned a general verdict for the plaintiff, upon which judgment was rendered. The defendants, having duly excepted to the refusal to instruct as requested, and to each of the instructions above quoted, sued out this writ of error.

The errors assigned were (1) the exclusion of the evidence of Whiteside and wife; (2) the exclusion of the evidence of the contents of Thompson's letter to Whiteside; (3) the refusal to instruct the jury as requested; (4) the instructions given and excepted to.

The plaintiff at the trial sought to charge Thompson with liability as a partner upon two grounds: First, that he was actually a partner; second, that, if not actually a partner, he had held himself out to the world as such. And the case was submitted to the jury upon both grounds.

The first and second assignments of error relate to the exclusion of evidence offered by the defendants bearing upon the first ground of action. The third and fourth assignments of error relate to the instructions given and refused as to the second ground of action.

The oral testimony offered by the defendants to prove that Thompson, before the partnership articles were signed, and before the partnership began business, instructed Whiteside that he would not become a partner therein, directly tended to contradict the testimony introduced and relied on by the plaintiff to prove that Thompson was actually a partner, and was erroneously excluded. The first assignment f error is therefore sustained.

From the connection in which the offer of evidence of the contents of the letter from Thompson to Whiteside appears in the bill of exceptions, it is quite possible that this evidence was equally admissible for the same purpose. But the bill of exceptions is defective in not stating what the contents of the letter were, and not showing that they were material, or that the exclusion of the proof of them was prejudicial to the defendants. The second assignment of error, therefore, is not sustained. Packet Co. v. Clough, 20 Wall. 528; Railroad Co. v. Smith, 21 Wall. 255.

The remaining and the principle question in the case is whether the liability of Thompson, by reason of having held himself out as a partner, was submitted to the jury under proper instructions.

The court was requested to instruct the jury that if Thompson was not in fact a member of the partnership, the plaintiff could not recover against him, unless it appeared from the testimony that he had knowingly permitted himself to be held out as a partner, and that the plaintiff had knowledge thereof during its transaction with the partnership. The court declined to give this instruction, and instead thereof instructed the jury, in substance, that if Thompson permitted himself to be held out to the world as a partner, by advertisements and otherwise, as shown by the evidence, and to be introduced to other persons as a partner, the plaintiff was entitled to the benefit of the fact that he was so held out, and he was estopped to deny his liability as a partner, although the plaintiff did not know that he was so held out, and did not rely on him for the payment of the plaintiff's debt, or give credit to him, in whole or in part. This court is of opinion that the circuit court erred in the instructions to the jury, and in the refusal to give the instruction requested.

A person who is not in fact a partner, who has no interest in the business of the partnership and does not share in its profits, and is sought to be charged for its debts because of having held himself out, or permitted himself to be held out, as a partner, cannot be made liable upon contracts of the partnership except with those who have contracted with the partnership upon the faith of such holding out. In such a case, the only ground of charging him as a partner is that, by his conduct in holding himself out as a partner, he has induced persons dealing with the partnership to believe him to be a partner, and, by reason of such belief, to give credit to the partnership. As his liability rests solely upon the ground that he cannot be permitted to deny a participation which, though not existing in fact, he has asserted, or permitted to appear to exist, there is no reason why a creditor of the partnership, who has neither known of nor acted upon the assertion or permission, should hold as a partner one who never was in fact, and whom he never understood or supposed to be, a partner, at the time of dealing with and giving credit to the partnership. There may be cases in which the holding out has been so public and so long continued that the jury may infer that one dealing with the partnership knew it and relied upon it, without direct testimony to that effect. But the question whether the plaintiff was induced to change his position by acts done by the defendant or by his authority is, as in other cases of estoppel in pais, a question of fact for the jury, and not of law for the court. The nature and amount of evidence requisite to satisfy the jury may vary according to circumstances. But the rule of law is always the same: that one who had no knowledge or belief that the defendant was held out as a partner, and did nothing on the faith of such a knowledge or belief, cannot charge him with liability as a partner if he was not a partner in fact.

The whole foundation of the theory that a person who, not being in fact a partner, has held himself out as a partner, may be held iable as such to a creditor of the partnership who had no knowledge of the holding out, and who never gave credit to him or to the partnership by reason of supposing him to be a member of it, is a statement attributed to Lord MANSFIELD in a note of a trial before him at nisi prius, in 1784, as cited by counsel in a case in which it was sought to charge as a partner one who had shared in the profits of a partnership. By so much of that note as was thus cited, which is the only report of the case that has come down to us, it would appear that in an action by Young, a coal merchant, against Mrs. Axtell and another person, to recover for coals sold and delivered, the plaintiff introduced evidence that Mrs. Axtell had lately carried on the coal trade, and that the other defendant did the same under an agreement between them, by which she was to bring what customers she could into the business, and the other defendant was to pay her an annuity, and also two shillings for every chaldron that should be sold to those persons who had been her customers or were of her recommending; and that bills were made out in their joint names for goods sold to her customers; and that the jury found a verdict against Mrs. Axtell, after being instructed by Lord MANSFIELD that 'he should have rather thought, on the agreement only, that Mrs. Axtell would be liable, not on account of the annuity, but the other payment, as that would be increased in proportion as she increased the business. However, as she suffered her name to be used in the business, and held herself out as a partner, she was certainly liable, though the plaintiff did not, at the time of dealing, know that she was a partner, or that her name was used.' Young v. Axtell, at Guildhall Sittings after Hilary Term, 24 Geo. III., cited in Waugh v. Carver, 2 H. Bl. 235, 242. But as the case was not there cited upon the question of liability by being held out as a partner, it is by no means certain that we have a full and accurate report of what was said by Lord MANSFIELD upon that question; Still less that he intended to lay down a general rule, including cases in which one, who in fact had never taken any part in or received any profits from the business, held himself out as a partner.

In delivering the judgment of the common bench in Waugh v. Carver, Chief Justice EYRE said: 'Now a case may be stated in which it is the clear sense of the parties to the contract that they shall not be partners; that A. is to contribute neither labor nor money; and, to go still further, not to receive any profits. But, if he will lend his name as a partner, he becomes, as against all the rest of the world, a partner, not upon the ground of the real transaction between them, but upon principles of general policy, to prevent the frauds to which creditors would be liable if they were to suppose that they lent their money upon the apparent credit of three or four persons, when in fact they lent it only to two of them, to whom, without the others, they would have lent nothing.' 2 H. Bl. 246. This statement clearly shows that the reason and object of the rule by which one who, having no interest in the partnership, holds himself out as a partner, is held liable as such, are to prevent frauds upon those who lend their money upon the apparent credit of all who are held out as partners; and the later English authorities uniformly restrict, accordingly, the effect of such holding out.

In McIver v. Humble, in the king's bench in 1812, Lord ELLENBOROUGH said: 'A person may make himself liable as a partner with others in two ways: either by a participation in the loss or profits, or in respect of his holding himself out to the world as such, so as to induce others to give a credit on that assurance.' And Mr. Justice BAYLEY said: 'To make Humble liable, he must either have been a partner in fact in the loss and profit of the ship, or he must have held himself out to be such. Now here he was not in fact a partn r, and the goods were not furnished upon his credit, but upon the credit of Holland and Williams.' 16 East, 169, 174, 176.

In Dickinson v. Valpy, in the same court, in 1829, Mr. Justice PARKE (afterwards Baron PARKE and Lord WENSLEYDALE) said: 'If it could have been proved that the defendant had held himself out to be a partner, not 'to the world,' for that is a loose expression, but to the plaintiff himself, or under such circumstances of publicity as to satisfy a jury that the plaintiff knew of it and believed him to be a partner, he would be liable to the plaintiff in all transactions in which he engaged and gave credit to the defendant upon the faith of his being such partner. The defendant would be bound by an indirect representation to the plaintiff arising from his conduct, as much as if he had stated to him directly and in express terms that he was a partner, and the plaintiff had acted upon that statement.' 10 Barn. & C. 128, 140. See, also, Carter v. Whalley, 1 Barn. & Adol. 11.

In Ford v. Whitmarsh, in the court of exchequer in 1840, a direction given by Baron PARKE to the jury in substantially the same terms was held by Lord ABINGER, Baron PARKE, Baron GURNEY, and Baron ROLFE (afterwards Lord CRANWORTH) to be a sound and proper direction; and Baron PARKE, in explaining his ruling at the trial, said: 'I told the jury that the defendant would be liable if the debt was contracted while he was actually a partner, or upon a representation of himself as a partner to the plaintiff, or upon such a public representation of himself in that character as to lead the jury to conclude that the plaintiff, knowing of that representation, and believing the defendant to be a partner, gave him credit under that belief.' Hurl. & Walms. 53, 55.

In Pott v. Eyton, in the common bench in 1846, which was an action by bankers to recover a balance of account against Eyton and Jones, on the ground that either they were actual partners in the business carried on by Jones, or Eyton had by his own permission been held out as a partner, Chief Justice TINDAL, delivering the judgment of the court, said: 'There was no evidence to show that credit was in fact given to Eyton, or that the bankers knew that his name was over the door of the shop at Mostyn quay, or that they supposed him to be a partner. One person who had been manager, and another who had been a clerk, in the bank, were in court; and if they could have given such evidence, they would no doubt have been called as witnesses. We must assume, therefore, that credit was given to Jones alone; and, if Eyton is to made liable, that must be on the ground of an actual partnership between himself and Jones.' 3 C. B. 32, Martyn v. Gray, in the same court, in 1863, Chief Justice ERLE and Mr. Justice WILLES expressed similar opinions. 14 C. B. (N. S.) 824, 839, 843. The decision of the court of exchequer in Edmundson v. Thompson, in 1861, is to the like effect. 31 Law J. (N. S.) Exch. 207; S.C.. 8 Jur. (N. S.) 235.

Mr. Justice LINDLEY, in his Treatise on the Law of Partnership, sums up the law on this point as follows: 'The doctrine that a person holding himself out as a partner, and thereby inducing others to act on the faith of his representations, is liable to them as if he were in fact a partner, is nothing more than an illustration of the general principle of estoppel by conduct.' 'The expression in Waugh v. Carver, 'if he will lend his name as a partner, he becomes as against all the rest of the world a partner,' requires qualification; for the real ground on which liability is incurred by holding one's self out as a partner is that credit has been thereby obtained. This was put with great clearness by Mr. Justice PARKE in Dickinson v. Valpy.' 'No person can be fixed with liability on the ground that he has been held out as a partner, unless two things concur, viz.: First, the alleged act of holding out must have been done either by him or b his consent; and, secondly, it must have been known to the person seeking to avail himself of it. In the absence of the first of these requisites, whatever may have been done cannot be imputed to the person sought to be made liable; and, in the absence of the second, the person seeking to make him liable has not in any way been mislead.' Lindl. Partn. (1st Ed.) 45-47, (4th Ed.) 48-50.

The current of authority in this country is in the same direction. Benedict v. Davis, 2 McLean, 347; Hicks v. Cram, 17 Vt. 449; Fitch v. Harrington, 13 Gray, 469; Wood v. Pennell, 51 Me. 52; Sherrod v. Langdon, 21 Iowa, 518; Kirk v. Hartman, 63 Pa. St. 97; Hefner v. Palmer, 67 Ill. 161; Cook v. Penrhyn Slate Co. 36 Ohio St. 135; Hul v. Harvey, 78 Ind. 26. The only American case, cited at the bar, which tends to support the ruling below, is the decision of the commission of appeals in Poillon v. Secor, 61 N. Y. 456. And the judgment of the court of appeals in the later case of Central City Savings Bank v. Walker, 66 N. Y. 424, clearly implies that in the opinion of that court a person not in fact a partner cannot be made liable to third persons on the ground of having been held out as a partner, except upon the principle of equitable estoppel, that he authorized himself to be so held out, and that the plaintiffs gave credit to him.

The result is that both, upon principle and upon authority, the third and fourth assignments of error, as well as the first, must be sustained, the judgment of the circuit court reversed, and the case remanded to that court with directions to order a new trial.


text: Talk:Thompson v. First National Bank of Toledo Ohio/Opinion of the Court


text:
Spindle v. Shreve

Gwynn Garnett, for appellant.

L. M. Shreve and Emery A. Storrs, for appellees.

MATTHEWS, J.

title: Spindle v. Shreve


text: Talk:Spindle v. Shreve

title: Talk:Spindle v. Shreve


text:
Spindle v. Shreve/Opinion of the Court

This is a bill in equity, filed by the appellant as assignee in bankruptcy of Charles U. Shreve, to subject an equitable interest in certain real estate, situated in Chicago, and its rents, issues, and profits, alleged to be the property of the bankrupt, and assets belonging to his estate. The appeal was from a decree dismissing the bill for want of equity. The question to be determined arises upon these facts:

Thomas T. Shreve died at Louisville, Kentucky, his domicile, November 5, 1869, leaving a last will, duly admitted to probate and record in that state. By that will, after providing for certain special devises, he directs his estate to be divided into five equal parts, of which he wills that one-fifth part be allotted to his son, Charles, U. Shreve, 'subject to such conditions and restrictions as hereinafter named.' The twelfth clause of the will is as follows:

'(12) As soon after my death as it can be conveniently done, I wish my executor hereinafter named, after first setting apart a fund sufficient to pay the above-named special devises, and incidental expenses, to make out a full and complete list and schedule of all my estate, of every character and description, real, personal, and mixed, in the state of Kentucky and elsewhere, and hand the same to the following-named persons, to-wit, James W. Henning, A. C. Badger, and A. Harris, who, or any two of whom, I desire to proceed to value it, and divide it into five equal shares upon the principles hereinbefore indicated. One-half of each share (which half I wish to be income-paying real estate) I desire to be set apart and conveyed to a trustee, to be held for the use and benefit of each child during his or her life, and then descend to his or her heirs, without any power or right on the part of said child to incumber said estate, or anticipate the rents thereof; but said trustee shall collect said rents, and, after paying taxes, insurance, and keeping the property in repair, pay the rent to the child in person quarterly, or as the same may be collected according to the terms of the lease; the other half of each share I wish conveyed to each child in fee, to do with as he or she may please.

'In placing these restrictions upon one-half of the estate I give my children, I do not wish it understood that I distrust their capacity to manage their own affairs, for I do not, but believe one-half of a share that each will receive will afford ample means to commence and conduct a respectable business, and as the other half will give them a comfortable living in the event they should be unfortunate in business or otherwise, and now having it in my power, it is my pleasure, as I believe it to be my duty, to shield and protect them against casualties and accidents as far as possible.'

The trustee for each child was to be appointed by the Louisville chancery court, and after the division of the estate had been made, and the report thereof by the commissioners recorded, the executor of the will was directed to make deliveries, transfers, and conveyances according to the report and the directions of the will. In pursuance of these directions a division of the estate was made, and the share allotted to Charles U. Shreve, embracing the premises described in the bill, was conveyed by the executor by deed executed on June 25, 1870, to John M. Shreve, appointed to be trustee for Charles U. Shreve, to be held by him 'for the use and benefit of said Charles U. Shreve during his life, and then to descend to his heirs, without any power or authority of said Charles U. Shreve to incumber said estate or anticipate the rents-thereof; but said trustee shall collect said rents, and after paying taxes, insurance, and keeping the property in repair, pay the rent to the said Charles U. Shreve in person quarterly, or as the same may be collected, according to the leasing thereof, and with all other rights, duties, powers, and restrictions as are conferred and imposed by the will of said Thomas T. Shreve, deceased.' The trustee accepted the trust, and entered into possession of the property in execution of it.

On June 20, 1876, at Louisville, Charles U.Shreve conveyed to J.M.Shreve 'all the real, personal, and mixed property owned by said party of the first part, not exempt from execution, and which is as follows,' being certain specifically described lots and tracts of land, some in Cook county, Illinois, and some in Kentucky, and certain personal property, to have and to hold on certain trusts, viz., that the party of the second part shall 'immediately proceed, in such manner as to him shall seem best, either by public or private sale, or by instituting suit in the Louisville chancery court, to sell and have sold all the foregoing property, and any and all other property belonging to said first party not exempt from execution, which, by any oversight, may have been omitted in the foregoing list,' etc., for the payment of the debts of the grantor: First, all such as were specifically secured by liens on the property conveyed; second, all unsecured debts equally, and any surplus to return to the grantor; 'it being the object and intent of this conveyance to transfer to said second party all the property belonging to said first party not exempt from execution for t e benefit of all the creditors of said first party.' This deed did not describe any property held in trust for the grantor under his father's will, of which that named in the bill is a part; but the court of appeals of Kentucky, in Knefier v. Shreve, 78 Ky. 297, had before it the very question as to the construction of this deed, and decided that all the estate and interests in property which at its date the grantor held, which he could alien, and which was liable at law or in equity for the payment of his debts, passed by its terms; and in that decision we concur. Such was the manifest intention of the grantor, and the language of the deed to which we have referred is broad enough to effect it. Subsequently, by appropriate judicial proceedings in Kentucky, James Buchanan was substituted for John M. Shreve as trustee under this assignment. Buchanan, on August 16, 1878, filed a bill in equity in the superior court of Cook county, Illinois, to enforce the trusts of this conveyance for the benefit of creditors, claiming under it the right to subject for that purpose the estate and interest of Charles U. Shreve, under the trusts of his father's will, described in the bill in this case. That suit was pending when the present was commenced. A decree was afterwards rendered dismissing the bill of Buchanan for want of equity on general demurrer. In the mean time, on August 31, 1878, Charles U. Shreve filed his petition in bankruptcy in the district court for Kentucky, and was adjudicated a bankrupt, the appellant being appointed his assignee, to whom all the estate and effects of the bankrupt were duly assigned according to the act of congress.

The bill in this case was filed February 27, 1879, but, although it asserts a contradictory title to that set up and insisted upon by Buchanan, as trustee, under the conveyance to John M. Shreve for the benefit of creditors, and although Buchanan himself is made a party defendant, no notice is taken in the bill of his claim of title. And yet it is too clear for argument that if the estate and interests of the bankrupt, sought to be subjected in this suit, were assignable, and are liable to be taken at law or appropriated in equity for the payment of his debts, they passed by the previous deed of assignment and are vested in Buchanan; for the conveyance under which he derives title was made more than two years before the bankruptcy, and has not, on any ground, been assailed as affected by the bankrupt law; so that the foundation of the case asserted in the bill is entirely taken away. It is shown that nothing of what is therein claimed could pass to the assignee in bankruptcy, because it had already passed to another. On the other hand, if nothing passed by the deed under which Buchanan claims, affecting the estate and interests in controversy, it must have been because, under the law of Illinois, which, of course, governs in respect to interests in real estate situated in that state, those interests were not liable to be appropriated to the payment of the debts of the beneficiary, and were, therefore, not embraced in the description of the property conveyed. That such questions are determinable only by the local law where the property has its situs, was expressly decided in Nichols v. Levy, 5 Wall. 433, and was also intimated in Nichols v. Eaton, 91 U.S. 716-729. The bankruptcy act (Rev. St. § 5045) expressly adopts the local law of the state as to such exemptions. And in Illinois the subject is regulated by a special statutory provision. By section 49, c. 22, (Hurd's Rev. St. Ill. 195,) of the chancery practice act of that state, providing for creditors' bills of discovery, and to reach and apply equitable estates and interests to the satisfaction of debts, property held in trust is made subject to that proceeding, 'except when such trust has, in good faith, been created by, or the fund so held in trust has proceeded from, some person other than the defendant himself.' The Tennessee statute, which was applied o the exoneration of the interests sought to be appropriated in Nichols v. Levy, 5 Wall. 433, was substantially the same as this; and both seem to be copies from that of New York, (2 Rev. St. p. 173, §§ 38, 39,) although in the last-named state, as appears from the decision of the court of appeals in Williams v. Thorn, 70 N. Y. 270, and McEvoy v. Appleby, 27 Hun, 44, another statute (1 Rev. St. p. 729, § 57) limits the exemption, in cases where income is payable under such a trust, to the principal fund itself, and the beneficial interest of the cestui que trust in the income only to the extent of a fair support of the beneficiary out of the trust estate.

The statute of Illinois does not apply merely, as is argued, to cases where a technical discovery is sought, but to all cases where the creditor or his representative is obliged, by the nature of the interest sought to be applied, to resort to a court of equity for relief, as he must do in all cases where the legal title is in trustees, for the purpose of serving the requirements of an active trust, and where, consequently, the creditor has no lien, and can acquire none at law, but obtains one only by filing a bill in equity for that purpose. If the trust was merely passive, and therefore executed by the law of its locality, in the cestui que trust, so as to be subject to the levy of executions at law, and the present was such a case, then the bill would fail, because the remedy at law would be adequate and complete.

The case has been argued by counsel as if it depended upon, or at least, involved the question whether, upon general principles of equity jurisprudence, as administered in the courts of the United States, the terms of the trust in favor of Charles U. Sherve, under his father's will, exceeded the limits fixed for restraints upon the alienation of property held for the beneficial use of the cestui que trust, and its exoneration from the liability to be taken for payment of his debts. It cannot be doubted that it is competent for testators and grantors, by will or deed, to construct and establish trusts, both of real and personal property, and of the rents, issues, profits, and produce of the same, by appropriate limitations and powers to trustees, which shall secure the application of such bounty to the personal and family uses during the life of the beneficiary, so that it shall not be subject to alienation, either by voluntary act on his part, or in invitum, by his creditors. The limits within which such provisions may be made and administered, of course, must be found in the law of that jurisdiction which is the situs of the property, in case of real estate, and, in cases of personalty, where the trust was created or is to be administered, according to circumstances. And in determining * those limits that law declares how far, and by what forms and modes, the institution of property may be permitted to accommodate itself to the will and convenience of individuals, without prejudice to public interest and policy; by what limitations and instruments its usual incidents may be affected and altered, so as to effectuate the intentions of parties; how far the dominion, implied in the idea of property, may be extended so as to limit the future dominion of those who succeed to its beneficial enjoyment.

It follows, therefore, that the judgment in each case must be determined by the positive provisions of the law of the locality which governs it, and the particular terms of the instrument by which the scheme is framed. And, applied to the circumstances of the present case, the question would be merely, whether, according to the law of Illinois, the terms of the trust, established under the will of Thomas T.Shreve, created an interest or estate in the beneficiary, which, not having been previously conveyed to another, could be taken at law or in equity for payment of his debts, and which, therefore, vested in his assignee in bankruptcy. That quest on, as we have already shown, so far as required by the case, is answered by the declaration that, as nothing has been assigned to the appellant except what had not been previously conveyed and could lawfully be subjected to the payment of his debts, and as the interest in question was either vested in Buchanan or could not be so subjected, by reason of the positive provisions of the statute of Illinois, to which we have referred, the appellant has shown no right to the relief for which, in his bill, he prayed.

The decree of the circuit court is accordingly affirmed.

title: Spindle v. Shreve/Opinion of the Court


text: Talk:Spindle v. Shreve/Opinion of the Court


text:
Thorwegan v. King

Given Campbell, for plaintiff in error.

James Carr, for defendant in error.

MATTHEWS, J.

title: Thorwegan v. King


text: Talk:Thorwegan v. King

title: Talk:Thorwegan v. King