462
FEDERAL REPORTER.
At any time during the last 27 years these plaintiffs or their ancestors could have come into the courts of Nebraska and asserted their rights, and, as this,serip was,of value simply for the entering oflands, they could at any tim l:\, by examining the records at Washington, have ascertained whether it had been used and by whom, and where the land for which it had been used was located,. ,'1'he lneans of knowledge were open be-fore them. They had the right to sue, and the courts would have given them full protection. It would savor little of equity to permitthel1l to come in now and take from these, many defendants, most of whom are innocent of any intentional wrong. property of such enormous value, on the ground that their ancestor 28 years ago was swindled out of scrip of such trifling va]ue,-a million dollars to-day for one hundred and fifty dollars 28 years ago. 1 cannot believe that equity demands or even tolerates this. The demurrer will be sustained.
NEW
YORK
&
BOSTON RAPID TRANSIT
Co. et al.
17. PARROTT fit
al.
(Circuit OOU'l't, D. Oonnecticut. October 23,1888.) A was entered into between the A. L. Ry. ,Co. and the T. Co., In pursuance of which the latter received the controlling interest in the former's ,stock. and paid certain stock. notes. anrl money in return therefor to the A. L. stockholders, andassumerl t!;le building of its road. The 'r. Co. failed to build the roadwithinthe prescribed time. but no tellderof the stock, money. or notcs was marle by the A. L. Co. At an ndjourncd Rnnual meeting, which had been kept alive by successive adjouruments, and at which no business was, anticiJ>llted and the T. Co. was not represente(i" n,ew directors werc, elected. and the company was, by stratagem on the part of the defendants and by 8,urprise. placed inthe hands of non·stockholders, who said that they would pRy tbe debts and build the road. 11e d, that the acts of the defendants "ere in fraud of the T., Co.,. and that an injunction should issue to prevent the ca.rrying out of the arrangement. , PREVEN'l'ED-RESC{SSION OF CONTRACT.
InEquity. On bill for injunction. , The New York & Rapid Transit Compllny'and William M. agaiilst Henry R. Parrott and I!'. W. Parrott. 2d. Hyde,' GroS8 tk Hyde, and L. E. Chittenden, for plaintiffs. S. E. Baldwin, for defendants. I
'This is a motion for a preliminary injunction to restrain tD'edefendahtS from the performance of acts alleged to be fraudulent and prejudicial to the rights of the plaintiffs as owners M a majority of the votdugstock,ufthe New York & ConneCticut Air-Line Railway Company. The said company is a Connecticut corporation, and was incorporated for purpose. of builuing a railway from New Haven to the boundary line between, the.states of New York and Conn,bcticut., The time for the completion of said react will expire on October 22, IH89. This date was estaulished bya resolution of the Connecticut legif:slature, at its January
SHIPMAN, ,J.
NEW YORK & BOSTON RAPID TRANSIT CO. II. PARROTT.
463
session, 1886. On November 12, 1884,Satnuel E. Olmstead WllS the president of said company. lie died in 1885. On November 14, Henry R. Parrott was elected president, andhas ever since acted in that capacity. On said Novembel,' 12, 1884, said Olqlstead, Parrott, and Delas E. Culver of the first part, entered into the following written contract with the plaintiff Thayer and ,one Henry Levis ofthe second part: "Whereas, the said parties of the first part control a majority of the subscribed capital stock of the New York & Connecticut Air-Line Railw:ay Company and the said parties of the second part control a majority of the subscribedstOOk of the New York &:, Boston Inland Railroad Company, and both of said parties of the first and second parts desire to place the control of said companiesiR the possession of the New York & Boston Rapid Transit Company,or of some other construction company to be agreed upon. Therefore, the said parties of the first part agree to procure and assign to said construction company at least eighty (80) per cent. of the subscribed stock of the New York & Connecticut Air-Line Railway Company, and shall receive for said stackof said railway company (upon which at least ten (10) per cent. shall have been paid) eighty thousand dollars in cash, ($80,000,) and two hundred thouaanll.dollars at par, ($200,000,) of full-paid stock ofsaid construction company. of a capital stock, not exceeding one million five hundred thousand dollars, ($1,500,000;) and the said parties of the second part hereby agree to procure and assign to said construction company at least ninety (90) per cent. of the subscl'ibedstock of the New York & Boston Inland Railroad Company, upon which at least ten (10) per cent. shall have been paid, and shall receive for said' radroRd company stock so assigned three hundred thousand dollars ($300,000) of the fnll-paid stock of said construction company. Both of said railway and railroad companies are to be free from debt at the time of the , transfer of said stock and contr\>lof said railway and railroad companies. The said transfer of payment of money, and delivery of full-paid constrnction company's stock as aforesaid shall take place on or bE'fore January 15, 1885, or this contract shaH be null and void,and of no effect." . This written contract was not carried out according to its terms. It was not completed on January 15, 1885. The New York & Boston Transit Company was not organized until January, 1886, at which time the Air-Line Company deemed that it had expended about $200,000 in the and other expens'es of its road, of which about had beEm paid, in upon its stock, and it owed about $80,000. Parrott, acting for and in behalf of the stockholders of the Air-Line Company, verbally agreed with the Rapid Transit Company that it should make good or pay this amount of $200,000 to the stockholders of the Air-Line Company by delivering to them $120,000 full-paid stock of the Transit Company, and $80,000 in cash, with which to pay the debts of the AirLine Company; that the capital stock of the Transit Company should be $750,000; and that a controIJing interest in the stock of the Air-Line Company should be fnrnished to the Transit Company. These modifi<lations of the written contract were not reduced to writing, but they were verbally understood by the stockholders of the Air-Line Company on the <lne part and by Mr. Thayer and the Transit Company on the other. The object of the Air-Line stockholders was to have the $80,000 of p.ebts paid, and they were also to have $120,000 full-paid stock in the 'l'ransit Company, whilethe Transit Company was to have the ownership of the
464
, FEDERAL REPORTER.
majority of the Air-Line full-paid stock, and its control in return for their $200,000. The existence of the foregoing terms of this mutual agreement and understanding was fully known by the leading stockholders'and by all the directors of the Air-Line Company. As a matter of course, the Transit Company was to raise the funds to complete, 'arid was to build the road. This was the object of its organization. It , is not probable that any new agreement was entered into that it would build the road, for that was the original purpose ana scheme of the parties to the contract. On Novemb.er 12, 1884, and continuously thereafter to the present time, there and are 4,5'11 shares of stock of the ,Air-Line Company, of which, on December 1,1885, 200 shares only -were full-paid stock, 100 being in the name of H. R. Parrott, and 100 in the name of C. V. Sidell., Upon the rest of the stock various percentages, from 10 to 35 per cent., had been paid, except that upon 45 shares 50 per cent. had been paid. On October 6, 1888, 2,101 shares appear by the stock certificates to have been fully paid. Upon the remaining stock, 300 shares standing in the, name of H. C. Hepburn, and 2,110 shares standing in the name of B. B. Kirtland, only 10 per cent. has been paid. For these 2,410 shares no certificates have ever been issued. By the statutes of Connecticut, stock of railroad companies, which is not . fully paid, is not entitled to a vote at any stockholders' meeting. Un,der the contract of November 12, 1884, and its modifications, the Rapid Transit Company or W. M. Thayer, paid toC. V. Sidell, treasurer of the Air-Line Company, at various times between December 12, 1885, and March 13, 1888, the sum of $60,149.47 in money, which amount 'was received by said Sidell in behalf of the parties whom the said Pa.rrott represents, and for whom he acts. Said Sidell, as treasurer. also received from said Transit Company its demand promissory notes, in different sums, with interest, dated December 1, 1886, in all for the sum ()f$20,250, to sundry stockholders of the Air-Line Company, the respective amounts of said notes being the amounts due fromaaid company, on December 1, 1886, to said respective stockholders. Fourteen thousand bundred and fifty dollars of said notes were delivered by said Sidell . to said ,Parrott on July 8, 1887, and by him were delivered to and re'ceived by the payees thereof, and all said notes are still outstanding..,' I ddnotfind that the notes were received in payment and satisfaction of their ,debts against the Air-Line Company. On or about February 1, TrMsit Company delivered to said Sidell, treasurer, under " sliidc6ntract, and, the modification thereof, 2,400 full-paid shares of $50 'each oHts stock, in certificates of varying amounts, in the names of different stockholders, which certificates, with the exception of 3, for 189 shares in all, have been delivered by said Sidell to the parties therein respectively named. ,Said certificates so delivered were returned by the respective stockholders to Mr. Thayer, to be by him kept with ,"ot!le(stock of said Transit Company together, so as to keep the control ofthe 'rrausit Company in itstl,1en existing hands. From time to time stockholders of the Air-Line Company delivered to said Sidell, as treasurer,their certificates of stock in said company, duly a::signed in blank.
NEW YORK &: BOSTON RAPID TRAl'iSIT CO. V. PARROTT.
465
alid with executed powers of attorney for their transfer, delivery to said Thayer or to the Tratlsit Company under said contract. It is claimed by some of these stockholders, who have given affidavits on the subject, that said certificates were to be held in escrow, and were not to be delivered until said notes and said $80,000 were fully paid, and sufficient proOf was given that the road was to be built. 'fhere is nothing in evidence in writing in regard to a delivery in escrow, except a letter from said Sidell to said Parrott, dated July 5, 1887, in which he says: "I wrote Mr. Thayer that we could not pass the control out of our hands until our notes were all paid, and that the agreement, as understood between us, would be carried out by us; namely. to place the control, (full-paid stock.) 'together with the notes in escrow, and as fast as the notes were paid, or any . portion of the same, we would transfer the full-paid stock to his Co. in propor,tion to the ainount paid. If there can be any better plan adopted. very well. 'A.nyway to get the matter closed up."
Fl'omthe subsequent facts I think that it must have been in substance agreed or understood, subsequent to July 5,1887, that all the stock of the Air-Line Company s,hould not be delivered to Mr. Thayer, but that it should be transferred to his company, or delivere? to him in some proportion tothe amount which should be paid upon the $80,000, and that ,a portion of said stock should be retained to enforce or compel the payment of all said notes. . , Befure July 22, certificates for 509 shares full-paid stock, duly assigtled in blank, and with duly-executed powers of attorney to transl fer, had been delivered to said Sidell, as treasurer. and had been by ,him with the, knowledge and assent of said Parrott. delivered to said ',Thayer under said contract, who held said certificates until September 25, 1888, when he surrendered the same to Thomas N. Browne, who then claimed to be the secretary-of said company, and who had the custody of the stock-books, and received new certificates therefor. On July 22, 1887, 900 shares of the stock of said Air-Line Com pany, 300 of the 'same, belonging to WiUliam T. Black, and 600 belonging to Sheldon CoUiilS, havingheen surrendered, llew full-paid certificates for said 900 shares were issued to W M. Thayer, trustee, and are still kept by him. These 900 shares were not full-paid stock when they were surrendered. Sixteen thousand four hundred dollars had been paid thereon, but new full paid certificates were issued therefor. I do not know why such certificates were issued and signed by Messrs. Parrott and Browne. There is some reason to infer that the payments and transfer of stock by the Rnpid Transit Company were considered to be credited UpOll the stock 'received therefor, and that such stock became' full paid. They were issued without any mistake oithe facts in relation thereto, and no criticism , seems to have been made on account of such issue until this litigation. Certificates for 345 more shares were delivered to said Sidell, as treasurer, under said contract. The certificates of 235 of these shares were asc signed, in blank, and powers of attorney were duly executed to transfer the same. Of these 345 shares, C. H. Lontrell, John C. Shaw, and C. D.;\Ingersoll owned 100each,W. W. Douglass 25, and F. W. Ford and v.36F.no.8-30
466 1. R. jessup, 10 each.
FEDERAL 'REPORTER.
The custody ofthese certificates with said Sidell until September 20, 1888. On said last-mentioned day said Parrott also had the custody ·of 237 more shares, all duly assigned in blank,-which had been placed in his hands or control for delivery to said Thayer under said contract. The names of all the holders of these 237 shares did not appear in the affidavits. On July 13, 1888, said notes had not been paid; and the Air-Line directors, thinking there was no apparent probability of the ability of the Transit Company to build the road, appointed Messrs. Parrott and Cowles a committee under the terms of the following resolution: "Resolved, that Messrs. H. R. Parrott and George R. Cowles be appointed a special committee. with instructions to proclled to Boston at the earlie!!t practicable day 'and lay the !!ubject.matter of the report before the board of directors of the New York & Boston Rapid Transit Company as the sp,nse of this boaI'd ; and, further, that, unless satisfactory guamntees can be given by the said Hapid Transit Company, expressive of the tenor of said report, all uIlderstandings heretofore had between and officers of both companies shall be considered abrogated, and of no effect." The conCluding part of the report of a committee of the Air-Line di. rectors, to which reference is made iIi saId resolution, is as follows: "In view of the limited time allowed by law for the construction and completion of the company's road, to-wit, fifteen months from the 1st day of July, 1888, and of the fact that no further extension of time can be had at the hands of the legislature of the state of Connecticnt. which convenes in January, 1889, unless a large amount of work by way of construc.tion is done, and an earnest of good faith evinced I;>y this company, your committee would earnestly impress upon the of its prompt action herein, that, upon the '¥lid Rapid Transit C<;,mpany's paying the and would sums due OU tue purchase of stock from the stockholders of the company prior to the 1st'day of August, 1888, Rnd commence and diligently prosecute the work of construction on the line of this company's roati prior to said 1st day of August, 1888. and expend thereon in a sufficient sum to warrant this compafly in asking for 1\0 furtber extension of time from the genpral as· sembly, this company enter into and execute an agreement with the Rapid Tra!1sit Company, fUlly setting out the obligations of both companies." In order to obtain an extension of time, from the legislature of 1889, for the building of the road, it is probably important that the promoters of the enterprise should exhibit substantial financial ability, llnd a determination to build therqad, and should have commenced the enterprise in a substantial and bona fide manner. Said committee went to Boston on July 24th. The of the Transit Company said that company could not then pay the notes due the Air-Line stockholders. The committee then made to the president and other gentlemeh representing the Transit Company the two following propositions: (1) That they would return all the Rapid Transit stock and not,es and money .received by, the stockholders of said Air-Line Company upon the said Transit Company's returning the stock which it held; or (2) it might keep said stock, and have all the remaining full-paid stock by paying the n;1Oney which it had cost, and the debts of the Air-Line Company, and that said Air-Line Company's stockholderEl would give up their claims to
NEW YORK &: BOSTON RAPID
CO. ". PARROTT.
467
the Rapid 'I'ransh. stock, which had been transferred to them. The gentlemen representing the Transit Company said that they were unable to accept either proposition. Nothing more was ever done under these propositions. No money or stock of the Transit Company was tendered Or offered by the Air-Line Company. The Transit Company desired a delay of one month, and the committee agreed to favor delay till September 1st. On August 21st, said Parrott went to Boston again, but could not obtain either money or prospect of money. Before September 19th said Parrott had found some person or persons whom he deemed financially responsible, and who said that, if they were put in immediate control of the company, they would pay its debts, and would build the road. '1'hey did' not propose to pay anything more for the control or to buy the stock. On September 14th a meeting of the directors of the Air-Line Company was called to be held on September 19th, at room 500 of No. 146 Broadway, the office of the secretary. The meeting was not held in that room, but a meeting of directors assembled in Mr. Sidell's office, in another room of the same building, at which Mr. Parrott made a report of his intervieWs with the Transit Company, and infornled them of the proposal of the other party, whose name or names were not disclosed in the affidavits. The of those present at this discussion favored the new projeH of giving the new parties the immediate control of the company, and authorized the treasurer to issue demand interest notes, in all for $19,100, dated December 1, 1886, to named stockholders of the company, for the amount of the debts of said company to said stockholders, being the same persons to whom the Transit Company had issued notes. At this meeting Mr. Parrott flaid that there were 582 shares of stock which had not been delivered to Mr. Thayer, and which should be returned, and he thought that the fairest. way would be to divide these shares pro rata among all the stockholders who had taken Rapid Transit stock, which would give for every $1,000 of Transit stock about $400 of full-paid Air-Line stock. The directors present assented to the!\e suggestions, and on September 20th Mr. Parrott took from the company's office the certificates for 582 shares for canceliation, and directed that other certificates for 582 shares should be made out to sundry stockholders, in general pursunnce of the 40 percent dividend plan. They were so made, and Mr. Parrott took them from the office to sign them. Seven cates, for one share each, were made out in the names, respectively, of J. Walsh, J. W. Lessells, F. W. West, C. L. Seabury, Hcmy Kinsler, B. F. Cash, and H. Jansen, who were to represent in the new board the new controlling power. These persons had not previously been stockholders. No annual election of directors had been held since November 27, 1883. The by-laws provided that the annual meeting should be held on the third Friduy of October in each year. An annual meeting was called to be held on that day in 1887, but at the wish of the Transit Company no directors were 'elected, and the annual meeting was kept alive by adjournmentfrom month to month, only two present. rrhertl had been no purpbseor plan to elect any various adjourned meetings. The mst adjournment was, as is now 'apparently shown on .
468
the record, to September 21, 1888. On September 20th, Mr. Parrott stated to Mr. Browne, the secretary, that he could not close the negotiations unless a new board was elected on September 21st. At this meeting a new board was declared to be chosen, com-listing of the seven sons whose names have been given, and Messrs. Parrott, Cowles, Lockwood, Winton, Coolidge, and F. W. Parrott, 2d, each of the last-named being former directors, except F. W Parrott, 2d. Messrs. Lockwood, Winton , Cowles, and Coolidge resigned on the next day. In the place of Messrs. Lockwood and Winton Messrs. Armstrong and Baldwin were chosen, who have each declined to accept.. Mr. B. F. Cash was appointed secretary and treasurer. Mr. Parrott did not inform Mr. Thayer, whom he saw in New York on the 20th, of the proposed electipn of a new board. Eighthundred Messrs. Sidell and Browne did not attend the and thirty-threeshares were apparently represented at the meeting, of which 100 belonged to Mr. Parrott, and 5belonged Mr. Parrott,2d. To whom therel1laining shares belonged, or in whose IJ.al1les theY, 8tood, did '' : not appear. " It thus appears that, undera ,con,tract whic4, was kept and recognized by Mr., Parrott until a v,erY,recent period, the, plaintiffs delivered into the control of the parties whom he, represents, $120,000 of fully-paid stock, about $60,OqO in mOIJ.eyand $20,0.00 in notes,. The notes are unpaid, aIJ.d the plaintiffs are apparently now nnableto pay represent, and tl1ereseems them, or to pay the debts which these to be no present probability that they can build the road. Mr. Parrott, manner which can be considered a without returning or offering in tender of the property Wllich was received frorp the plaintiffs, dete:q:uined to consider the contract at an end, and to deliver the control of the company into the hands of other persons not stockholders, upon their ise to pay the debts of the company, and to build the road. The delivery of the company into the hands of the new parties was accomplished by an election which was held under the form of law, but was none the less accomplished by stratagem and a surprise upon the plaintiffs. ,An election of directors was not and could not with reason have been anticipated by them to be held on September 21st. The previous ments were in pursuance of the plan, which had been adopted, of not eleoting a board, but of awaiting the directions of the Transit pany in that regard, which was recognized as haviI).g rightfully the con, trolling power and voice in the election directors. Of the 2,101 voting shares it had, in the name of William M., Thayer, trustee; 900, and it had the certificates for 509 which could at nny" time rightfully hav y been placed in the name of Mr. Thayer or Company. "The Transit Compa,nyhad been apparently cOIJ.ceded to be the owners ofa large majority of the voting stock, and to. beentit.led to the ingshares in the hands of Sidell and Parrott whenevel,' said notes paid., This private delivery oLthe corporation into the nonstockholders, Mr. Parrott and his associates ;retained all the money of the .which had been delivered to them, was in fraudulent ·. Tlle plaintiffs' bill is. upon the.'theory , . , . - , .', that the . '., . - "
FULLER V. DETROIT FIRE & MARINE HiS. CO.
469
contract of November 12, 1884, had been executed; that Parrott and hi.s co-directors were holding over as directors merllly in the interest and for the benefit of the plaintiffs, who were substantially the owners of the stock of the Air-Line Company; and that the action of Parrott was a fraudulent violation of the contract, and an intentional sacrifice of the rights of the plaintiffs; which could not be compensated in damages, for. which an action at law afforded no adequate remedy, and the injurious effect of which could only be prevented by injunction.. The bill was not intended to be a bill for specific performance. I do not find that the contract was an executed one, because I do not think that the unpaid. notes were accepted in payment of the claims against the Air-Line CO!l1pany; but I find that the plaintiffs had substantial pecuniary interesf and ownership i.n said com'pany, which the wrongfully at-, tempted to impair, anq that from the further commission of lik,e they should be restrained until a thorough and investigatio,Ii; shows E'ithe.r that r been misled by qr t911t mayhereafter take place have altered the pqsitionC?f tile Leta temporary h1junctipn issue against H. R.Rarrott F.. W. p'.agott,( 2d, enjoining arid'restraining them, and each ,of them, froin making,any. agreement' or contract, or executing any .or'doing any 'other', act or thing,either directors, agents, or officers of said New Connecticut.i\.ir-Line Railway Company, any manner interfeJ,"es with, affects, influences, or touchel3 the interests of , said plaintiffs, or of either of them, until' the (urthero,rder of the' .court: in the prem4!es. . . '" . . .. .... ..
as'
'j
FULLER
et al.
11. DETROIT FIRE
MARINE
IN&.Co. tIt' ale .
(Ot"rcuit Oourt, N. D. llUnoia.
October ,.29,·1888.) )
1.
lNsURANCE-,AI'PORTIONMENT OF Loss-EQUITy-JPRlsIHCTION.
2. SAME-PRO all' OF Loss. ' . , .' '. . In such s'daile' it lsnnt necessary for the claimant's to apport,ion. littempt. to apportion. the loss among the different ins-urers. in their preliminary proofs, althopgh the policies require that th" iJ;lsured, shU; in, case ofloss. Jurni:!ib. to the insurer ,a full and detailed statement I>f the loeSS and' amoupt, ClaiJ;Iljld.
Where there is a claim against several insuranpe cOIljplliuies fOT the, !!a\lle. loss, upon different policies. a court of equity bas jurisdiction t6apportion' the loss amlmg'the respective companies, and' require·payment from· each of: the amount .lor which it is liable. , ,
or
·
:
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.
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....
,
"
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InEquity. 'On exceptions;to '.. ; .. i .. : .. , ·.....· Action by, William 4. Fuller and. others .the Detroit & Marine InsuranCEl Compapy and on ',fire ,and ulllrine insurance' P?licies on .the,st.eaQ 13uckeye, toascertair. ,and ler classes of .. ; Af,ter. joineq, , wa.s referred a master, who filed his report in accordance with t46 refer-·, ,eJ1¢e, to whi6hthedifferent claSses of' defexiditQtseicepted·. " " " . . ., · · . ·- ..... ,,',_ , ·· :.;. ,."J . . ;
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