FJIDERAL' REPORTER,' vol. 50.
CLARKE
v.
CENTRAL
;RA'ThROAD'&<BANKINGc8. bFNEW ,I.
OF GEORGIA
et al.
CEATRiLTRnSTCO. :.-.,-,
YORK
11.
CbMER etl:tl. .,
Court. 8. ;D. ",' ;;.'.':_,
Gea1'{1fa; 11:;
D. :&rayl4- 1892.)
t.RA:iLWUCOMl'ANIlCS"':ILLEGAL'CONSOLIDATIONS-TIU,NSJoEB OJ' S'l'OCK-RIGH'l' TO VOTE. '
The G,a. Co. ot North Ollrolina acquired by ,l!nrclulse a maJority otthe stock of the Cent. Jl.. ,po. of Georlt1a, whIch it, afterwards depoBiJ;ed wlththeCent. Trust Co. 'of New Ybrlt; 'and filially tr\msferred to the Tarminal Co:, a,.system oo.mpolled of sev· eral competitive lines of raiiroad. 'This company created a directory of the Cent. R. Co. to suit its purposes, wuich directory leased the Cent. R. R. to the R. & D. R. ,Co·· a cowpe1!ing ijne. lease, W!Wl enJotne4 as oontraryto Const. Ga. 18f7,art. 4,§ 2, par. 4, prohibitlngtlie merger of 'competing corPorations. The Injunction order directed the election of a new board of directors for the Cent. R. Co., and "p,',!'!',',OV,id" ell. thll<t the ,stock Of" ',t,hll'COmp,ny c,on,tI'O,lled, by e, Terminal Co. should not ' , be voteq in such election unless in good faith. ,The stock, in q , consisted of 42,000 shares, 40,000 of WhICh 'were those depOSIted by the <ill. Co. WIth tPe O.Trustpo. to: the,TerIl;lhlal Qo., an4 rem.inder, 2,200 ,shares, by thjl Co. from other, sonl7oos. The Co. and ilie Ga. Co. filed. a paper to the'Ci;nt. Trust Co. any right they might have to, .took.:: I#ld. no Interest In the stook appearing in the 'l'rust Co., other than that of a mere st.akeholder, .that the relinquishment in question did nol; entitle it to vote; , ': . The Cent. TrJ1st Co. was incapacitat¢.to vote such stock; by the foot that U 'Was trustee for a large ainount of of the Cent. R. Co., and, besides, ita charter apparently gives no such power. ., . The Cent: Trust Co. was unfit to be intrusted with the voting power in question because of the fact that its president, a financial expert, was engaged in an attempt to oUhe Cent.Il.. Co. with competing lines of railroad in the state of Georgia, and place them under the sole control of the Terminal Co., contrary to the oonstitution of the state. , ' . ',' . '! ,
lJ.SAM_INCAPAOIT'ATINGTlUJST.
3. :SAME.
.
,',
" ' ..
,
4. SAME-COlOn (BETWEBN mE STATES.', , . ' ' ' , '
The fact that tile charter of the Cent. R. Co., granted before the of the . constitution dfl$77, permitted munlcipaIcorpOrations to purchase Its stock, would not authoriZll corporation to llCqUire such stock after the adoption of the constitutIon. 6, :.:' , The fact tbatthe 'Permil1aHJo.hss 110 appreciable Interest In the' stock of the ..Ce.nt. R.: {fo." mortgage ,on,.tJ1e railroad execl1ted by the Terminal Co., does not remove the objecti()n to'Its voting in person 01' by representative in the election;of the ;ll'ecto1's of that railroad.! company, in view of the f8<lt that ,it hall large pecuniary interests in two directly competing lines railroad.
.s.
Comity between the states will not authorize a foreign rallroadoorpol"ation to ex, ercise powers within the state which a d,o\1lestic, corporatiop would not be permit... "",tedto exercise under the"constitutlon and ,policy of the state. ' CORpORATION&-AcQlltSITION 011' .
In Equity.
Bill by Rowena M. Clarke againE£the central Railroad
& Banking Company of Georgia and others, and bill by the Central Trust
Company of New York against H. M. Comer, receiver, and others. Motion by the Central Trust Company to modify an interlocutory decree. Motion denied. Butler, Stillman Hubbard and H. B. Tompkins, for the motion. Lawton Cunningham, Denmark, Adams & Adams, Daniel W. Rountree, Marion Erwin, and A. O. Bacon, opposed. SPEER, District Judge. It is essential to a clear understanding of the questions involved in this motion that a brief statement be made of the
CLARKE V. CENTRAL RAILROAD &:. BANKING :CO. OF GEORGIA.
339
proceedings heretofore had i[l the equity cause in which the motion is presented. It is also essential to direct attention in the outset to parlitgraph 4 of section 2, art. 4, of the constitution of the state of Georgia. This clause of.the constiLltion.is as follows: "The general assembly of. this state shall have no power to authorize any corporation. to buy shares or stock in any other corporation in this state or elsewhere. or to make any <;ontract or agreement whatever with any such corporatidn;which may have the effect. or be intended to have the effect. to defeat or lessen competition in their respective businesses orto encourage monopuly; and all sllcllcontracts and agreements shall be illegal and void." The constitution in which this clause is found was adopted in the year 1877. It was evident at that time. and has become more plainly evident since then, that it was indispensable, by comprehensive and imperative enactments of fundamental law, to arrest the tendencies of corporate bodies to,wards abnormal and destructive aggregations of power; tendencies which could not have been foreseen. and which therefore had not been restricted and limited by the legislation of the past; tendencies which endanger the salutary purposes for which such corporations were created by the state, and which threaten to inflict upon vast multitudes of the people the most destructive injustice and injury,-injustice and injury against which' it is obviously the duty of the government to afford them protection. It would be perhaps difficult to express in such narrow compass a restriction of corporate power more conclusive in its inhibitory effect, or more diffit:ult to evade by those who for any motive would seek to avoid its legal force. Langdon v. Branch, 37 :b'ed. Rep. 449; Hamilton v. Railroad Co., 49 Fed. Rep. 412. The original bill and interventions filed in this cause seek to apply to the facts of the case the legal effect, of this constitutional provision, and, further, to invoke the doctrine following,announced with great force flnd clearness by Mr. Justice GRAY in tbesupreme court of the United States in the case of Central Trarup. Co. v. Pullman'8 Palace Chr 00., 139 U. S. 46, 11 Sup. Ct. Rep. 489: .. A contract of a corporation which Is ultra 'Dires in the proper sense. that is to say. out8itle of the object of its creation as dellnpd in the law of its organization,and therefore Leyond the powers conft'cred upon it by the legislature. is not "oidable only. but wholly void and of no legal effect. The objpction to theC\lotrllct is not ID!!rely that the corporation ought not to have made it, bu,t tbat it. could not make It." Further: "That the lease by one corporation of its property and franchises to another cllrpprtltion is unlawful lind void. because beyond the corporate powers of the and involving an abandonment of its duty to the public." It the record before the court that on or before the 30th day of May, 1887, certain persons formed a design .to obtain control of a majodty·of the capital stock of the Central Railroad & Banking CompanyofGeorgia. While this company has assets amounting to many millions ()fdollars, its capital stock is. only 87,500,000. For the. purpose of an exemption trom state laxation granted by the original of the stock had been preserved at that com-
." nn'ERA!. REPORTER,
vol. 50.
figure.. 'From fact it became relatively an easy mat. ter to obtairi a luajority of the stock bearing the voting franchise. To accomplish this purpose, D. Schenke, Samuel H. Wiley, and Thomas B. Keogh organized, or attempted to organize, at High Point, in North Carolina, a cbrporatiori bearing the significant name of "The Georgia Company.". The charter ms granted by the clerk of the superior court of Guilford qounty, and business of the company was, as therein stated, "to purchase, acquire, and to hold, or guaranty, to indorse the bonds or stoe!..s of any railroad company in this or any adjoining Ftlltc; tolease any railroad in this or any adjoining state; to engage in ";e business of transportation, to operate railroads in this lind adjoining states; to aid any railroad company in this or any aJjoining state; 'except building any ra.iIr<;>ad,' which is forbidden in said statute." The charter does not appear ,to have. any See St. N. C. Acts 1885, p. 70. This appears to be botl' a and railroad corporation, sucheorporations call, be ql'(Jated by the legislature only. It appears,however, that tbepersons mentioned in the original bill, who had bought of the ,st9ckoftheCentral Railroad&:Banking Cornpany:of Georgia, turned over their, entire holding to said Georgia Company; ariqit was furtherstlpulated and agree<;l that this stock should be held in a block, with the view to permanently control ,the management of the Railroad and its properties. Thereafter it appears that the Georgia Company deposited with the Central Trust Company of New York its entire holding of this st08k,and had issued thereon and sold to the, pU,blic :lour nlill.ions of the bonds of said Georgia Company. In the mean time, by virtue of its majority control, it had takell charge, through a pres,idellt and b.oard of directors elected in the main by this block of stocj{, of the Central Railroad & Banking Company of Georgia. Thereafter the GeQrgiaOompany.transferred all of its capitalatock to the Richmond ¢ Point Terminal Railway.& Warehouse Company. This latter company thus came into control of the Central Railroad & Banking Cqmpany. It;also had qOlltrol of the Richmond & Danville Railroad Company, a,n<l.,Ofthe East Tennessee, Virginia & Georgia Railway Company, both of which Ilre competitive lines of the Central Railroad &iBanking Company. The TerminalOompany (as we shall call it for the sake of brevity) now put out, thr011gh the Central Trust Company of New York, a large issue of its bonds, secured by a mortgage deposited with the Central Trust Company, on its stock holdings, in all the properties ita'cbntrol. ' . ,With shares ofstock oithe Central Railroad with it' as' collateral to secure the. bonds of the Georgia pany, it wasstip'l'llated iii the mortgage that whenever the 'ferminal Company presented a'bond of the Georg:iaCompany the CenttalTrust Company shouldissUeinHeu thereof a bond of the Terminal Company. Two millions of the bonds of the Terminal Company werE! left On deposit with the Central Trus'tCompany, with the avowed purpose of procuring by the use of said bonds,the 32,000 shares of stock of the Central Railroad, which had not yet been secured by the Terminal Company or the pro-
CENTRAL ltAILROAD &: BANKING CO. OF GEORGIA..
341
moters of the scheme to possess and control the Central Railroad & Banking Company of Georgia. The Central TruEtt Company thus became the trustee for this mortgage, a salient feature of. which was the design to compass the absolute and undivided ownership of the Central Railroad by a company controlling rival lines, largely by means of the use which had been made of a majority of its stock held in a block by this contract or voting trust, apparently a corporate purpose to obtain $3,200,000 in stock of a company it controlled for $2,000,000. The Terminal Company bad obtained elsewhere 2,200 shares of stock, which it likewise deposited. with the Central Trust Company; and with regard to all of this stock, thus deposited, it was stipulated by the promoters of the scheme that its voting power should be retained by the Georgia Com pany, and afterwards, when the Terminal Company absorbed that, by the latter. By means of this voting power the Terminal Company was now the master orthe destinies of the Central Railroad, and its president and board of directors had become a directory which was in the control of the Terminal Company, and, if need be, removable by it. In pursuance of the scheme, this directory on the 1st day of July, 1891, leased for 99 years the Central Railroad & Banking COLnpany of Georgia, and all of its property, nominally to the Georgia Pacific Railroad Company, but really to the Riohmond & Danville Company, both of which were under the control of the Terminal Company, which now directed the operation of all the Central properties, with the most disastrous results to the immense and vital system of which it had thus become possessed. This lease and the proceedings of those in charge of the control of the Central Railroad & Banking Company are attacked by the original bill. A temporary receiver was appointed. While this officer was proceeding to take possession of the assets of the Central Railroad & Banking Company the Georgia Pacific and Richmond & Danville Companies threw up the lease,and formallyabandoned the possession of all the properties. At the hearing of the rule to show cause why the injunction prayed for should not be granted, and the receiver appointed, after .an investigation lasting through several days, thecoprt (Judges PARDEE and SPEER presiding) granted an interlocutory ordlJr appointing receiv!lrs to take charge ofthe properties and llssets of the Central Railroad & Banking Company, and all subsidiary railroads and steamship companies. The order directed an eleotion for II board of directors to be held on the 16th day of May, 1892, and it enjoined the:Central Railroad & Banking Company from receiving the ,vote oithe 42,200 shares of stock controlled by the Terminal Company, and held by the. Central Trust Company of New York. It provided, how,ever, that, in case there s,houldbe a transfer of that ;stock in good faith, it might be voted, provided that the court approved the genuineness and legality of the transfer. The proceeding now before the court is brought to ha"e that order modifilJd, so that the stock may be voted by the Central Trust Company and counted in the al,ection on Monday next. The motion involves the .control of the Central Railrol1d & Banking Company of Georgilt; and the many millions of property which cpnstitute its assets. The Central Trust
,'. .' :FEDERALBEPOBTER.
vol.
:.1
Company: is a PArty defendant totbe' original bill, and, in the opinion of the cQurt,migbt well he held to be bound by the former adjudication. Its counsel were'present at the hearing. The cause had been cd'ntinued in part upon tbe application of itscounselj they stating that they desired to be beard. It being insisted, however, that the situation of this stock has been:changed since that judgment was rendered, the court has he3lro its application. There are now presented on the part of the Central Trust. Company two written representations, one signed by the Georgia .Company, by T.W. Scarborough, president, and the other by the Richmond& West Point Terminal Railway & Warehouse Company, by John A. Rutherford, second vice president. The representations both recite the fact of the deposit of the 40,000 shares of Central Railroad stock with the Central Trust Company for the purpose of securing the bonds above mentioned, and they both contain this further statement: "It may be claimed that th.e adjudication by your honorable court bears the that this company shall not exercise the right to vote upon the rest>rvl"d by the said deed of trust, ami in view of such decision said this yields. transfers.'anu surrenders any right which It possesses or possessed to vote upon tbe sll-it! stock, or any part thereof. at the election of the, shareholders of the Central Railroad & .Banking Company of Gebrgia to be held' May 16. 1892. or at anyadjollrnment thereof. In fil'Vor of the said Central Trust Company, representative of the said bondholders. the legal and owners of the said 40,000 shares of stock. In making this surrendel' of any right to.vote Ilponthe said stock, the Georgia Company represents tothe court that.it bas nqt entered into any arraugemen t. bargain. or under,standing of any kind or n<ttllre whatsoevt'r with the said Central Trust Company in respect to the exercise of the voting power upon the said stock b.y thatcohrpRuy. and that it will not make or endeavor to make any such bargain. contract, or arrangement. and that the said Central Trust Company Shall be.entHelyfree·.inda/,endtmt. and untrammell'd. so far as the said Gt'orgia. ()ompanyijJconcerned, from ,,,oy direction. or control in the exercise by ,It. of sQch v()tinE{. power." The repre.E\entation of ,the Terminal Company purports only to surrender the voting right in 2,200 sbares of stock. Both representations restrict the transfer of the voting right reserved by the Terminal Company to the electioq to. be held :onMay 16, 1892, or at any adjournment thereof·. It is difficult to perceive how this instrument differs in any matter of substance from an ordinary proxy. The transfer of the Georgia Company of its right to vote the st.ock is not considered by the oourtasmaterial, for thatcompatiy has really no control over the stock to which a court\ of.equity will pay any attention. The Georgia Company has been wholly absorbed by the Tel'minal Company, but the Terminal Company omits to make anytransfel' of the right to vote the 40,000 shares of stock ill qa6stion, and limits its representation to the court to 2,200 shares, which it has presumably acquired from sources other than the Georgia Oompany. It follows, therefore, that as to 40,000 shares of this stock the condition is preoisely the same as when the court enjoined the Centia:l,Railroad from receiving or counting the votes thereof, for the reason that it had been purchased and held in violation of the laws and constitution of Georgia. But, as. we have. seen, the transfer of
CLARKE V. CENTRAL RAILROAD&BAl\KING CO. OF GEORGIA,
343
the Terminal Company relating to 2,200 shares is nothbg more than a. proxy; and, the Terminal Company being enjoined ffom voting the stock directly, it cannot be permitted· to vote it by. proxy, unless, deed, His thought proper to set aside the former judgment of the court in this respect: There appears to be no consideration whatever for this transfer. The Central Trust Company of New :York 'holds this stock merely as a naked trustee to' secure certain bonds for which it was pledged as collateral Now,when those bonds were issued the stock thus pledged had attached to it no voting power, of which either the Trust Company or the bondholders had the right to avail themselves. Its voting power, therefore, was DO part of their security. This transfer, even if it were efficacious to convey the voting franchise of all the stock, would be merely an attempt to ingraft upon the trust a new feature, which the beneficiaries of the trust did not seek, or expect, at the time of its creation. The voting of the stock was enjoined because it was deemed by the court that it would bring about a public wrong, the gravity of which cannot well be foretold. It WEIS further deemed to threaten the continuance and perhaps the aggravation of the illegal and injurious results it had already accomplished. If the Central Trust Company was wholly relieved of any entanglement, with the perplexed and ehaotioeondition, which the voting power of this block of stock, and the illegal, reckless, and destructive' man,agement, its exercise. has entailed'upon these propel1iies, the court would even then hesitate long before it .would avoid the i,njuriction, which was the outcome of the mosi anxious c.onsideration by the learned circuit judge, and by the district judge, merely because the Terminal Company, enjoined from voting itself, had gratuitously conveyed to the Trust Company the power which the latter apparently had not desired, and which was in no sense a part of the contract with its bondholders. But the Central Trust Company is not, in our opinion, in any view, ,a proper party to vote this stock. It has no interest of its own in the stock. It is simply a stakeholder. There are many situations in which stock may be so placed that it becomes inequitable or illegal for it to be voted. The law places the voting power of pledged stock in the pledgor or mortgagor, even where there is no express stipulation to that effect. Schofield v. Bank, 2 Cranch, C. C. 115; VoweU v.Thompson, 3 Cranch, C.' C. 428. And where the pledgor or mortgagor is disqualified to vote the stock the disqualification extends as well to the pledgee or trustee. Ex parte Holmes, 5 Cow. 426; 1 Woods, Ry. Law, § 61, p. 149, and cases cited. See, also, Bank Vi. SiJJley, 71 Ga. 726; Burgess v. Seligman, 107 U. S. 20, 2 Sup. Ct. Rep. 10. It may well be doubted if the charter of the Central Trust Company affords any authority for the exercise of ,such a power. It is what its name imports, a, trust company, and,as was well said in the argument of one of the counsel, if the Central Trust Company "springs from the passive position ofa naked trustee into the active operation of a great railroad system," the courtmU'stbe clearly satisfied of its authority by law to do so. If it may' do this, it has within its gift the appointmentof every officer of this vast railroad' system, from president to flag-
844
FEilERAL REPORT:&R,
maDjand all the Ya$t and most important powers of the railroad, poweJ,1sin which the petlple of states distant from the office of the Centl'81 Trust Company; are profoundly concerned, are likewise within its control. It is moreover the trustee,Rs we are informed by its counsel and as it appears from the evidence, for twenty-six millions of the indebtedMSS of this road. It is, then, the agent for its creditors. Can it aJso be agent forthe debtor? If so, it is easily possible that when the agent of the creditor perceives a debt to be due the agent for the debtor may make default,.fllldthus the entire property be brought to the block. In stating this possibility, no reflection is intended on this great financial i:Qstituticln, but the law. will not permit conflicting trusts or conflicting interest!!. to be reposed in one trustee. ·:B.esilielil,it apPl33,rs from the evidence that the accredited president of the.Centrql Trui;lt.Compl1ny is and· has been c9ncerned as the financial expt:nttseeking to bring about a conaolida.tion and reorganization of all .the railroads which are Or have been:UDder the control of the Terminal lines in the state of GeorCompany. :These r9ads.operate gia, and in the of March 1,.1892, addressed by Mr. Frederick P.Olcptt, president of theCentralTJ;ustCompany, to the holders of secUJ;it;.es.of the Terminal Company, this' appears: , ''In:'view of the pending litigation atfeetillg the Central Railroad & BankiQg .(}Qmpllny of questions which are before the courts undeterits lease, considering the legal difficulties atmined tendiIig:a consolidation that the has found it advis!,ble to make no provision for the present for taking up the outstanding stocks or securitiell of the Central Railroad & Banking Company of Geol'g,j!\. but the interl'8t of the Uicbmond Terminal Company in these stocks and securities will vestJn a new.ooI:poration, and form a part of the on a new bond." The East Tennessee, :Virginia & Georgia securities will be covered by the same mortgage, and the two roads will be under the same control. Can it be denied that this avowed purpose would have the effect, or be to defeat or lessen competition, and to enintended to have the courage monopoly? And.yet with the voting power of this stock in its accomplish this result. Not only is this control the Trust Company true; but if it be competent for the Central Trust Company to operate one railroad system of which it holdssecnrities, if a few words from the mortgagor,; transferring the voting pOwer of stocks pledged with it, can give it control, what it may do with one road it may do with another. If it may vote the stock of the Central, it may vote the stock of the East Tennessee, Virginia & Georgia, the Louisville & Nashville, and all the others, and thus the railroads of an entire section may be the playthings of the officers of.this coq>oration. Surely this may tend to defeat or lessen competition and to encourage monopoly. But whatever may be the powers of the Central Trust Company elsewhere, it certainly cannot exercise such powers as we have described within the state of Georgia. A corpora:tion of this state could not do so. Comity between the state& authorizes a corporation to exercise its charter powers within another state, but it does not permit the exercise of a power where the policy of
CLARKE t1. CENTRAL RAILROAD &: BANKING CO. OF GEORGIA.
845
that state, distinctly marked by legislative enactments or constitutional forbids it. RunY'ln v. Coster, 14 Pet. 122; .McDmwgh v. Murdock, 15 How. 367; Marshall v. Railroad Co., 16 How. 314. It is said, however, that. by the charter of the Central Railroad & Banking Company, other corporations may own stock in that company. It is evident that the language upon which counsel for the movant rely relates to corporations of the classes mentioned in the charter. The cities of Macon and Savannah are mentioned, and other corporations are authorized. Under a .familiar rule of construction, this would seem to mean other municipal corporations. Be this as it may, if any other corporation had not purchased the stock before the constitution of 1877, such other corporations cannot since then buy it, or hold it on any contract or agreement whatever which might have the effect, or be intended to have the effect, to defeat or lessen competition or to encourap;e monopoly. This would be especially true of a nonresident corporation, which, when it enters the state, does so with submission to the settled policy of the state. The court recognizes the soundness of the authorities cited by the learned counsel for movant in argument. It is, however, true that they do not apply to a case like this. It is perhaps true that there is no precedent precisely pertinent to the grave issues presented by this controversy. They have sprung into existence because of the marvelous railroad development of the country, and because of the ease and facility with which a trust owning a bare majority of the stock of a corporation can nullify and deaden the vote of all the minority stock, however great the minority, or however rightful and intelligent would be its exercise. The alarming effect of this power may be illustrated by the facts of this case. Forty thousand shares of stock have deadened the votes of 32,000 shares, and have controlled as many millions in values. These 40,000 shares have been deposited, and bonds issued thereon. If the voting power of the stock is apportioned among the bonds, 20,100 shares may control the policy of the entire block, and these. 20,100 shares may thus control all the millions belonging to the Central properties, and yet stockholders who have 32,000 shares have no voice in the management of the properties, in which perhaps their all is invested. Even where individuals .form a combination to control the majority stock of a corporation, and agree not to transfer their shares to the opposition or not to vote against the combination, such contracts have been held to be void as in restraint of trade, and against public policy. Ordinarilyany stockholder may withdraw from such a contract, although it is expressly agreed that it shall be irrevocable. 1 Beach, Priv. Corp. § 305, and cases cited. It is insisted by the petitioners that the Terminal Company has no appreciable interest in the stock of the Central Railroad. The interest it formerly had was conveyed by the mortgage of 1889. The bonds executed under that mortgage, and secured by the Central stock, have long ago been sold, and the proceeds appropriated by the Terminal Company. But that company has a substantial and large pecuniary interest in the
a4G
,',!'i"'.·!' ';
'J'EDER.AL RgPORTER,
vol ,50; ":', ."
Ribhin6nd &. Diui11ille 'and the East Tennessee, Virgibia &; Georgia Rail. These! roads 'are the natural competitors of theCentl1al. Is it then, that'the Torminal Cotnpany, by this mgtrust" the 'management of the Central, should make the road 111 which 'itisI1M suffer for the berlefitof its rivals, which it not only <.'Ontrols, but: 'p6$se'sses?It is,:Mt difficult to perceive that a combination df oorporll.tiofisWhich prodhces a oonditionllo inequitable can;' noti be'sanctioned llly: the law.: We believe that transaotions of this characterare within if not wIthin the leUer, of the act of congress l known, as the Law." Act July 2"1890, (26 St. fitlrge, p.209;) ,!t'6ertah1Iy iSi:l\s ;we have .seen, obnoxious to the lawof'Georgia, and :it:was certainly as obnoxious to the common law. Thebalelulefl'ectll"bf an unlawful scheme have been most significantly'illustratedby-Itberecord itself. The property of dne of the oldeat and most renowned tttilroads in the United States has been brought to tMJverge' of ruin. These' stocks were once so solvent and reliable that trust: restates, the property of widows and orphans, of charitable and in them, at the will of the trusan order!E>f court to'sanction the investment. The propel'tieeha.ve beenimpo'Verished in every department. Skillful artisans andttiechanics, who frem their apprenticeship have beeh in the service eof the'bompanies, have boon turned away. Vast buildings which were once ',musical with thew-hitr of ,maohinery and the voices of. prosperous and contented workingmen,earning by their useful and valuable labor a comfortable livelihood', 'are now voiceless. The ashes sleep undisturbed ontba forge, and the' hammer rusts on the anvil. Merchants and tradesnien' who have depended upon the purchasing power of these operatives hil:V'e',beenthreatened *ith ruin;llumberless houses once occupied by th:eir happy families· are now arid those whose all is invested in ' the1soouritiesof this company 'are haunted with the expectation that the rClitd'ins.ytiefa'ult upon ,ltg, obligations, and be sold under the hammer on forecldsure,'andtheprovisioll made for their declining years swept from 'BlJt' this; and all of this, is unimportant, compared with the the of the people in their rightful demand that the corporation created by them, and granted vast and valuable franchises, shall'ibe managed as 8 railroad upon lawful business principles, in the ttansportatiorlof freight and passengers, and for the development of the state', and that it shall not be the toy of the speculator, and that the franchiseswbiehthey'grtttited for nobler purposes shall not be made the inatrument 1M their ruin the degradation of the state. The possession ofif.Sstockdoes:not give uncontrollable right in the management of a railroad corporation. The right of the state that the corporation 'should conform to the purposes for which the law created it is wholly paramount to any and flU tights of stockholders. It may not be doubted that'the values represented by these 42,000 shares of stock are entitled to the protection of thEieonrt, and they will be protected. When it is offered to vote them with the legitimate purpose for which the majority Of shares of stock' in a corporation may be lawfully voted, at the instance
at
347 of parties who have legal authority to hold and vote them, they will. be· voted. 'Thecourt'will be,moreover, htippyto 'entertain any for voting them which will result in the management of this road in that it n.eed not be wrecked; in such manner that its matchless properties may be utilized to pay ita obligations as they matur&) and to protect its values. It is well understood by the court that the mere fact that this stock may not be voted in its present illegal 8tat1L8 is a. menace to the credit of the Central Railroad, and to the power of the court and.of its receivers to redeem it for the benefit of all concerned. We have no doubt that, properly managed in accordance with the law; with the encouragement of those who are friendly to it, which its great importance deserves, the Central Railroad & Banking Company cannot only pay its obligations as they mature, but rehabilitate its fortunes, imperiled as .they are by this illegltl trust voting a majority of the stock, the exercise of which the court has enjoined. The court is quite as solicitous to protect the interest of the creditors as of stockholders of this great property, but there is nothing in this motion which will justify the court in changing the order, which was mainly, indeed, we may say almost wholly attrihutable to the wisdom, experience, and acumen of the learned circuit judge; an order intended to preserve the property for the present, to gather anew its dissipated assets, and to restore it as speedily as possible to the lawful charge of those who may be fOUlld legally entitled to its management and control. Let an order be taken, denying the application.
DANmLS 11. BENEDICr et
ale
(CirCUit Court, D. Co£orndo. May 17, L J'URI$DIOTION OJ' CIROUIT COURTS-PARTITION.
a
The circuit courts of the United States, sitting as courte of equity, have jurladlOo tion of suits for the partition of land.
PARTITION-FRAUDULENT DEORIIB OJ' DIVOROIl-EvIDIINOIl.
Plaintiff, decedent's wife, in partition against trustees under his will, alleged that she agreed that a suit for divorce should be begun against her on the sole ground of desertion, and that a decree of divorce should be entered therein, in consideration of a sum of money needed for her temporary support; that sucll agreement was procured through decedent's paid agents, when plaintiff was greatly enfeebledby disease; and that decedent fraudulently obtained a decree of divorce on the ground of adultery, of which fact plaintiff did not learn until she had removed to the east. Plaintiff alleged that she was utterly ignorant of the pleadings in the suit, and denied the charge of adultery, and that, as soon as informed thereof, she brought suit to vacate the decree. Hetd, that the facts alleged showed a cause of action; In such case the fraudulent matter alleged was extrinsic to the matter tried by the court in the suit for divorCe, so that the decree was open to attack in the present collateral proceeding. Though in such case plaintiff was in fault, to some extent, In consenting to a collusive decMe, yet the parties Were. not in pari deUcto, and .ahe was not thereby estopped from attacking the
8.
SAME-COLLATBRAL ATTACK-ExTRINSIO FRAUD.
.. ·SAME-COl,LUSIVII DEORIIII-UIN PARI DELICTO."