'LE W,ARNE V. MEYER.
191
insolvent, happened when the judgment was obtained against it, Id. § 293. Then, and Dot before, a cause of suit accrued to the plaintiff against the defendant to compel the payment of any balance due on its stock, sufficient to satisfy his judgment. At the same time the statute commenc,ed to run against slIch ca.use of suit and would bar a suit there.. on in six years. This is a case in which equity follows. the law on that subject. Manning v. Hayden; 5 Sawy. 379. 'the action at law against the corporation was commenced in less than four years after the right accrued, accordi.ng to the decision of the supreme court in the case, (16 Pac. Rep. 864;) and this suit was commenced in fifteen months after judgment was given therein, and in: less than six months after it was affirmed on appeal. The claim cannot be considered stale. In,conclusion, a suit on this judgment is not barredJor 10 years after its entry. Compo 1887, § 5. But the liability which the plaintiff llereby seeks to enforce against the defendant arose in favor of the former and against the latter on April 8, 1887, the date of the judgment against the corporation; and the right of suit thereon is not barred until six years thereafter. "An action upon 8 contract or liability, express or implied, except those mentioned in section 5," (8 judicial record ora sealed instrument.) must be commenced, "within six years" "after the cause of action.shall.have accrued." Ide §§ 3, 6. The exceptions are allowed.
LE
WARNE f1.
MEYER etal.,
(HARRIS,
Intervenor.)
(Clirtmit Oourt. E. D. Loui8iana.
March 14. 1889.)
CoBPOBATIO:N8-0RGAllTIZATION FOR ILLEGAL PURP08E-RIGHT801l' BTOCltHOLJ> ERe,
'. owning a grant from the Mexican government of lottery franchises and privlleges, organized a cOrPoration under the public improvement law of LOUIsiana; for the avowed purpose of constructing, operating, and developing :vario,us pu1;llic improvements in Mexico, but for the rea) pu,rpose, of carrying on a lottery in that republic. The capital stock was fixed at ,1,000,OOO,al1 of which Was issued as fully paid-up stock to subscribers who paid nothing therefor, Held, that &s'by the constitution of Louisiana the lottery business prohibited unless the privilege is granted by the state, as is also the 18sue of paid-up stock without any payment in fact being made, tpe subscribers to the original stock a.cquired no interests which a court would protect.
InEquity. Motion for an injunction and appointment ofreceiver. About February 13; 1888, the Mexican government ceded to Gen. Pedro Beranda, under certain terms and restrictions, lottery franchises and privileges to draw lotteries in Mexico. These franchisesandprivUeges passed by assignment. the terms of which are not known, to Gen. Beranda and associates, for the purpose of carrying out the contract, and
192
FEDERAL REPORTER,
vol. 38.
earrying on the lottery. The associates organized an incorporation under the public improvement law of Louisiana' for the purpose of carrying on the lottery business in Mexico. The corporation was organized under the name of " The Mexican International Improvement Company," for the avowed purpose of constructing, operating, maintaining, promoting, and developing various works of public and private improvement in the republic of Mexico. The capital stock was fixed at $1,000,000, divided into 10,000 shares of $100 each, to be paid in as might be provided by the board of directors; and the board of directors were authorized to issue such portions of such stock as they thought necessary, as full-paid stock, for the purchase of property, franchises, and grants, and payment of labor done, and servi<;es performed. Immediately, upon organization, the full amount of stock was issued as full-paid stock, and divided among the associates or promoters of the enterprise. Such stock was thereafter put upon the market in New Orleans, and notoriously and openly bought and sold as Mexican Lottery stock. All the stock being issued as full-paid stock, to be given out for the purchase of the lottery privilege, it became necessary to raise by other means funds sufficient to comply with the contract of the Mexican government, and to carryon the'lottery business. Thereupon a general meeting of stockholders was called in pursuance of the laws of Louisiana in such cases made and provided, for the purpose of increasing the stock. At such meeting eighttenths of the stockholders were represented in person or by proxies. At the meeting the charter was amended so as to authorize the issue of $1,000,000 of preferred stock and $400,000 of bonds, to be subscribed and paid for on certain terms and conditions; the preferred stock so issued to be paid, as dividends, 50 per cent. of the net earnings of the company; 25 per cent. of the same being set apart to pay dividends on certain 2,500 shares of the original stock issued to certain persons; the remaining 25 per cent. of net earnings to be applied as dividends 'on the remaining $750,000 of original stock. When this arrangement was concluded, the ordinary stock rose rapidly in the New Orleans stock market from $5 and $6 a share to $60 and $70 a share. On the 12th of January, 1889, Benjamin F. Le Warne, a citizen of California, had transferred to him on the books of the company 100 shares of this stock. On the 14th of January he applied, through an attorney, by letter, to the directors of the company to have issued to him his proportion of the preferred stock and of the bonds provided for in connection with the issue of preferred stock. The demand was rejected on the ground that the preferred stock was all subscribed for. Thereupon he brought his bill attacking the issue of preferred stock. He alleged fraud and conspiracy in the board of directors; the illegality of the proceedings in relation to the issuing of preferred stock; prayed for an injunction restraining the recognition of the preferred stock as valid stock, and for a decree declaring the whole issue of preferred stock illegal, null, and void. Soon after he filed an amended bill, wherein he set forth, among other things, the following, from information received by him and coming to his knowledge since the filing of the original bill:
LE WARNE V. MEYER.
193
"That he has reason to believe, and does believe, and therefore charges, that not only are said defendants guilty of the wrongs and unlawful acts complained of and set forth in said original bill of complaint. but they were and are guilty of other serious and flagrant wrongs and frauds upon the rights that your orator holds in common with the bona fide good faith holders of all the other shares of the original 10,000 sl13res of capital stock of said defendant corporation. That said defendants, as the directors and officers of said corporation, have without any warrant of law, and in utter disregard of the rights of the bonafide shareholders, undertaken to subsidize said corporation, its assets and credits, to the accomplishment of fraudulent and illegal purposes, and, rmless controlled by the restraints to be put upon them by this honorable court.. will squander and destroy the same in acts and operations u.ztra vires of any power incident to, or vested in. the said corporation. under and in virtue of its original charter, and also ultra vires of any power or authority that could lawfully be vested in or reside in the officers and directors 01' representatives of any corporation that can have lawful existence under and by virtue of any general law of the state of Louisiana, under which said defendant corporation was sought to be organized and created. as shown in said original bill of complaint. and to do acts in the name of said corporation, and apparently for said corporation, that are prohibited, or at least not perm.i.tted. by the laws of the state of Louisiana. That, as averred and set forth in the said original bill, your orator, at the time of the purchase of said shares of stock in said defendant corporation, had reason to believe, and did believe. that the objects and purposes of .said corporation were fairly and honestly set forth and contained in its said original charter, as same stood, and was made public prior to any fraudulent attempt to amend the same, and that the purposes and objects for which said corporation was organized, and the business that it was intended to prosecute. was lawful, and connected with some public or private enterprises and improvements, or works of public improvement, to be prosecuted within the limits of the territory of the republic of Mexico. That, as averred in said bill of complaint, as originally filed herein, your orator had never been permitted to see or examine the terms, conditions, or character of said grant or concession, which the said defendants held out as a valuable grant or cession froin the government or authorities of the republic of Mexico, but believed that the same related to legitimate transactions and pUblic improvements which might become a source of profit and income to the corporation when prosecuted, the prosecution and carrying on of which might be. and was to be, within the limits and range of the purposes of said corporation, as explained and set forth in the act of incorporation. 'fllat since the of said original bill of complaint there has been made public through the public press of the country what is alleged to be the text of said alleged concession of the Mexican government, and your orator has reason to believe, and does believe, that the te:x;t of said concession, as made public through the p.ublic press, is substantially correct, and substantially sets forth the range. purpose, extent, and character of said alleged concession or Mexican grant, which the said defendants claim to hold an interest ill either by assignment or some convention, and the same is set forth with substantial accuracy, and contained in a printed copy thereof, filed with these amendments. That your orator has made inquiry concerning the verity of the same, and is informed and verily believes that same is a substantial, exact, translated reprint from the said concession or grant of the said Mexican government. That if said grant bt', as set forth and contained in said e:x;hibits, the representation that the said Mexican concescorporation was in character or lesion and grant acquired by said gal effect any concession or grant gi ving to the grantees or assignees thereot any rights, priVileges, or valuable immunities, or sources of profit connected
v.38F.no.3-13
194
with tbe construction of any publiq improvements, as based upon any grant or concession or privilege conferrell, set forth, or disclol'ed in said same was and is for all things 8 false representation. That your orator is informed and believes that tbe entire object and purpose of said concession, as is simply to prosecutll and carryon a evidenced in said publication lottery under the conditions presQribed in said grant, and. that the said scheme is not on the face thereof aily instant or future relation to, or any legal action with, any scheme or system or grants of rights to carryon or prosecute for profit works of public or other improveI;nent within the territory of the republic of Mexico; but, on the contrary, simply contains and sets forth a scheme and project for conducting a gamll of .chance, commonly called a 'lottery,' with stipulations and conditions regulating the manner in which said lottery scheme shall be drawn. That the said defendantcorporation, and the said defendants as officers tpereof, are, as Jour orator is informed and believes, undertaking to use the said defendant corporation's credits, assets, and property for the sole purpose of furthering,.aiding, carrying out, and prosecuting said lottery scheme, and that there is, and can be, no warrant or anthc;>rity, under the charter of said defendant corporation, as the same was made and published, to embark in said scheme or imperil the funds or property or credit of, said aiding or carrying out said lottery scheme, , corporation, directly or either for and on account of the government of the republic of Mexico, or any person or persons in Mexico or elsewhere, interested therein. or for and on account of any lawful holders ,of shares of stock in said corporation; and that any attempt to do so in any p;&rticular and respect is to, put the assets. property, and credits of said defendant corporation ill peril. and is in all respects ult1'a'Vires; and tlnit, under the btw oithe state of Louisiana authorizing the organization of corporations, no corporation can be laWfully created with power to carryon, prosecute, or embark in said lottery scheme, the same not being one of the enumerated purposes named in the law for which corporations can be lawfully organized or created in Louisiana, under the general laws thereof." . The amended bill.further alleged fear on the part of the complainant that tbe defendants woqld carry the assets and property of the corporation out of and beyond the jurisdiction of the court, and otherwise complicate the affairs of the defendant corporation. Complainant renewed his prayer for decree and injunction, and also prayed for the appointment of a receiver with qualified powers. In the suit one Albert Harris, alleging himself to be a stockholder in the Mf'xican International Improvement Company ,interyenes, attacking the issuance of preferred stock, and asking practically the same relief as the complainant. ,On the hearing of motion for.,injunction and receiver affidavits were submitted attacking the good faith of the complainant, justifying the proceedings with regard to the issuance of preferred stock, and showing that over eight-tenths of the stockhplders holding original stock were well satisfied with the proceedingsofthedirectors and the BtatU8 of the compal1Y. In argument, counsel on both sides admitted that the Mexican International Improvement Company was organized for no other purpose than to carryon the lottery business. . H.L. Lazarus and J. R. Eecktoith, for complainant. Bayne & Denewe, for ' Buck, Dinkelspiel& Hartllq,d W. W. Howe, for defendants. Before PARDEE and BILLINGS, JJ.
HAZARD':i1. t:REDIT MOBIL1ER OF AMERICA.
195
PARDEE,"]). The 'Mexican Improvement was organized under, the generltllaw of the state of Louisiana pro,viding for the organization of corporations for works of puJ>lic improvement and other purposes. It has neither charter rior privilege from the legislature of the state of Louisiana. The objects and purposes of the. organization, as declared in the charter, are: "To construct, operate, maintain, promote, and develop various works of public and in the· republic of Mexico." The present case shows that the real objects and purposes of the organization were the purchase of lottery' franchises and privileges, and the carrying on of the lottery business. It had 'no other purposes, nor has it any other business. The ,charter is a fraud on the law of the state. Unless the lottery privilege is specially granted by the state, the lottery business is prohibited by the law of Louisiana; See Const. 1879 and act No. 44 of 1879. The interest of the complainant and of the intervenor is that of stockholders of the organization in the original issue of $1,000,000 of stock upon which not one dollar has been paid, but all of which was issued as full-paid, and all of which was given out and distributed under the pretense of paying for labor and services rendered; but in fact for the purchase of lottery privileges. Such issue of stock is in violation of'the constitution of the state, and entitled to no protection in the courts. The complainant and the intervenor, at the time they acquired their stock, knew, or ought to have known, the object,scope, and illegality of the organization, and the tainted nature and consideration of the stock they acquired. The interests of the complainant, the intervenor, and the defendants, for the reasons above given, are illegal, and for their adjustment or protection can have no judicial aid. In pari ,delicto potior est conditio po88identis. The motions for an injunction and the receiver are denied. The restraining order heretofore issued in the case will be discharged. BILLINGS,
J I concurs.
HAZARD v. CREDIT MOBIUER
OF
AMERICA et al. January 15, 1889.)
Court, B. D. Pennayl'lJania.
1.
CORPORATIONS-STOCKHOLDERS-RECEIVER-INJUNCTION-LACHES.
A motion was made to dismiss the receiver of a corporation, and to vacate an injunction restraining its stockholders from making a fraudulent settle· ment of a suit. A claim was made al:{ainst the corporation for back dividends, etc.. and the motion was opposed by the claimant, who, however,had had for many years full. knowledge of his claim. Held, even if not barred by the statute oflimitations, he had no standing to oppose the motion.
SAME-CLAIM FOR TAXES.
A motion was made to dismiss a receiver of a corporation, and to vacate an injunction restraining a majority of its stockholders from making a.fraudulent settlement of a suit; when before the master. a claim was made by the state'of Pennsylvania for back taxes, and the motion to dismiss was opposed