50
REi'oBTElRitvol. 54. j
mind: that"uo',Yact preeediIrgthe.ignment suggestihg fraud in its execution iwas 'Jmown to him,' th.eJ.oe was nothinginthe deed to excite his suspiciom;,;It' had in it provis!ons knownm V'irg:inia.,and tioned by a long line of decisions highest court. .But when as by the eviwe examine.:tl;I.efacts dence, and discover the 'conduct of the grantor, we cannot resis1i the .conclusion that his actions were of the most.sus.picious charac.ter, and the. iiiferences of fraud Qn,14s part aJniost It is proved that he was in the frequent' receipt of sums of money, some of,largeam.ount, justpreceding-indeed, aJmost,: up to-the day on which he made his deed. For t.h1a he has had full opportunity of malting complete explanation. He has attemp.ted none whatever. 'he .hadin collecting these sums of money, what use he made of it, whether he maile any disposition of it at aJI,-the atlSWerlSto these questions he could easily have· maile. He had not only the opportunity, but the right, to make them. He has said. notbtng. While the courts in some states, and, among them, the stateiofVirginia., permit a deed of this kind to require a release as a condition precedent, it is granted reluctantly. '. It is. never per, mitted ,UDless there is' on the part of the assigning debtor a full, and free, surrender afaR of his property, clearly and .distinctly, and afra.Dk, unambiguous, statement of 'his affairs. If he demands this benefit, he must do so with clean hands. In this case the position of the' asSignor, before, this court is not of this character. So far as we are: able to of his'ootioD8,' b:ewithholds' in1portimt knowledge from hil!Icreditors.and he is entitled to no consideration. While the deed is good as to the trustee, this provision for a'release, inserted wholly for the benefit-of the grantor, cannot be' sustained. ' The conveyance to the trustee can be sustained, although we hold that debtor has forfeited this provision. Compare Doon.y v.. Bennett, 128 U. S.. 489,98up. Ot Rep.134;Ounningham v.Norton, 125 U. S. 77, 8 Sup.Let. Rep. 804; Peters v. Bain; 133 U. S. 688, 10 Sup. Ot. Rep. 354.Wifu this exception; we uphold the deed,· and to this extent sustain the exceptiollil. i' . .'fhUJ' isa creditors' bilL In this court the CQlllplainant in a creditm'S' bill of this character obtaillil no priority of payment. Day v. Washburn, .24 How. 355.' Such priority may' be. allowed under the statute. but this cannot guide thiscqut:+ Scott v.Neely, lSo far aa the decision of the circuit court ifsin conflict with this opinion,. it is reversed. Let the case be remanded to that court for such \other.proceedings as may be necessary. BALTl;MORE & O. TEL. CO. OF BALTIMORE COUNTY et al. v.lN· TERSTA!.l'm TEL. CO. (Ch'eu1tCourt of Appeals, Fourth cirCuit. Febl'dary 7, 1893.) No. 28.
1.
CORP.OBATIO··..;..COllTlW"1'8-lNSOLVENCY-LUBIL.
A railroad company, owning an extensive 'tele'graph'system, cauSed the 1DcorpOrat1ono:f a telegraph company by Ita lJdIlOOWf,i:futnJshedi Ita ei:lUft'
FUND.
BALTIMORE&O. TEL. 00. tI. INTEBSTATE TEL. CO.
51
capital stook,·and In the name of such telegraph company contracted with complainant.. For breacll of such contract, complBJ.wmt recovered judgment the telegraph company. The railrood company sold the entire teillgraph plant, received all the consideration, and left the telegraph company insolvent, and without assets of any kind. Held, that the money realized. by the railroad company from such sale was in its hands a trnst fund properly applicable to the payment of such judgment, and that payment thereof would be enforced by a court of equity. 51 Fed. Rep. 49, affirmed. 2. SAME-CREDITOR'S BILL-MULTIFARIOUSNESS. A creditor's bill seeking to compel payment by the rallroo:c1 company of the judgment against the telegraph oompany, to which bill both oompa.nies are. made parties, and which sets out the judgment, execution, and return tllereof unsatisfied, and the insolvency of the telegraph oompany, by reason of the sale of its plant by the railroad company, is not multifarious.
8.
SAME':""WA.IVER·
.The fact that compla1nant elected to sue the agent, the telegraph com· pany, and take judgment against it, did not .preclude It from maintaining the suit against the railroad company to compel payment of sUch judgment. There being no outstanding debts of the telegraph company, except that of complainant, andposslbly a claim for advances on the part of the railroad oompany, the a'pPOintment of a reQeiver for the telegraph company was unnecessary.
4.
S.um-RECEIVER8-A.1'POINTMlllNT.
Appeal from the Circuit Court of the United States for the Dis· trlct of Maryland. In Equity. Bill by the Interstate Telegraph Company against the Baltimore & Ohio Railroad Company and the Baltimore & Ohio Telegraph Crnnpany of Baltimore County to compel the payment by the railroad company of a judgment recovered by complainant against the telegraph company. Decree for complainant.. 51 Fed. Rep. 49. Defendants appeal. Affirmed. C. J. M. Gwinn, for appellants. N. P. Bond., R. D. MOIlTiBon, and C. E. Warner, for appellee. .Before BOND and GOFF, Circuit Judges, and SIMONTON, Dismet Judge. SIMONTON, District Judge. The Baltimore & Ohio Railroad Company used in connection with its railroad system lines of telegraph wires, with poles and plant. They facilitated the business of the railroad. With the view of diminishing the expense of this telegraphic system, and of increasing its usefulness, the Baltimore & Ohio Railroad Company determined to open it to use by the public. Pursuing this·· plan, it extended its lines in many directions. Between the years 1877 and 1885, it established a system of more than 6,000 miles of poles, and 47,000 miles of wire, costing millions of dollars. The method adopted by the Baltimore & Ohio Railroad Company in developing this plan was the formation of a number of corporations in several states of the Union, all bearing the dis· tinctive prefix ''Baltimore & Ohio," and known respectively as the Baltimore & Ohio Telegraph Company of Illinois, or of Ohio, or of New Jersey,etc., as the case may have been. Each corporation had mall capita.l.. The corporators were officials of the railroad com·
DDERALREPORTER.
vol. 54.
pany, and the capital stock wasaJl paid by the rallioad. company. At the h,eadot all this system, asi:t8ge):l.eral manager, was David H. Bates. He held his position by ilie appointment of the Baltimore & Ohio Railroad Company, directly. At one time after this appointment he :filled the place of president of the Balti· more & Ohio Telegraph Company of Baltimore City,which was the central part of the system. When the use of this company was dis· continued, he in like manner became the president of the Baltimore & Ohio Telegraph Company of Baltimore County. This last-named company was incorporated 2d November, 1885·. Its capital stock was $100,000. All of its corporators were officials of the Baltimore & OWo Railroad Company. Every dollar of the. capital stock was paid by this railroad company, for whom, and for whose use, the nom· inal stockholders held the stock. This new corporation, the Balti· more & Ohio Telegraph Company of Baltimore Oounty, became the center of the telegraphic· system. It controlled and operated all the lines theretofore controlled or operated by the railroad company and its telegraph corporations. It was in and control of the plant on the lines of the railroad company,. and outside and beyond these lines owned valuable pla;nt. Although its capital was but $100,000, its outlay extended into millions and was supplied by the railroad company. The record doeanot discloae w:hether it had any money in its treasury. All requisitions for money were made by the mallager upon its treasurer, who was alsO! treasurer of the railroad company, and these were met promptly. In the mode of dealing between the railroad company and the telegraph company, these were treated as advances. At one time there was a plan projected Whereby a contract of purchase should be executed between the two companies, and a bond or bonds were to executed by the telegraph company to the extent of $6,000,000, to 'be secured by a mort· gage of the plant, and intended to cover all money transactions between them. The bond or bonds were executed. The mortgage never was executed. All of the transactions and expenditures of the telegraph company were under the supervision and control of the railroad company. It is difficult to fix the exact relation between these two companies,-whether the railroad company exercised its control as the sole stockholder,-that is to say, as the only person having any beneficial interest in its stock,-or whether as the prin· cipal its agent, or whether the telegraph company was one of the bureaus or depm-tments of this great railroad system, for which a charter of incorporation-had been olltained simply for con· venience, or whether it exercised control as lessor Qver its lessee, or as creditor over its debtor. Be this as it may, the identity in action of the two corporations was complete. On 17th December, 1885, the BaltimOre·· & Ohio Telegraph Company of Baltimore County entered into a contract with the Interstate Telegraph Construction Oompany of Michigan,followedbya supplemental contract made 30th November, 1886: These contracts related to the extensions of the line of telegraphic communieation and territory. They contained certain covenants which need . not be detailed. While these agreements were in full fOl'ooandoperation,---that is to say, on 15th October.
BALTIMORE &: O. TEL. CO. ". INTERSTATE TEL. CO.
53
I887,-the Baltimore & Ohio Railroad Company, for the sum of $5,000,000, and the payment of $60,000 per year for 50 years, sold and conveyed to the Western Union Telegraph Company the entire line and system operated, controlled, and owned by the Baltimore & Ohio Telegraph Company of Baltimore County, and all the plant and privileges connected therewith. It also directed and accomplished the assignment and transfer to the Western Union Telegraph Com· pany of all the capital stock in the Baltimore & Ohio Telegraph Companies heretofore referred to. After this oonveyance and transfer the Baltimore & Ohio Telegraph Company of Baltimore County could not any longer perform its covenants with the Interstate Telegraph Company, having been denuded of its property and plant thereby. Thereupon the latter company brought its suit on the law side of the circuit court for the district of Maryland and reo .covered judgment against the Baltimore & Ohio Telegraph Company in the sum of $25,000. Execution W88 issued on this judgment, and returned nulla bona. Upon this the Interstate Telegraph Company instituted proceedings on the equity side of the same court against the Baltimore & Ohio Railroad Company and the Baltimore & .ohio Telegraph Company of Baltimore County, seeking the pay. ment of this judwnent: Each of the defendants filed its demurrer to the bill as multifarious. These demurrers were overruled in the court below, and its action thereon is the ground for the first and second exceptions. . "It is impracticable to lay down any rule as to what constitutes multifariousness. as an abstract proposition. Each case must depend on its own circumstances, and much must necessarily be left, where the authorities leave it, to the sound discretion of the court." -Oliver v. Piatt, 3 How. 411; Attorney General v. Cradock, 3 Mylne .& C. 85; Story, Eq. Pl. §§ 530, 540. The purpose of this bill is to reach certain moneys alleged to be in the hands of the Baltimore & Ohio Railroad Company, and which, it is charged, are applicable to the debts of the Baltimore & Ohio Telegraph Company of Baltimore County. It sets out the intimate relations between the two compa· nies, whereby the affairs, business, and property of the telegraph company were controlled by the railroad company; 'that, taking advantage of this. the railroad company has sold to the Western Union Company a large and valuable telegraphic plant, theretofore under the operation, control, real and apparent ownership, of the Baltimore & Ohio Telegraph Oompany of Baltimore County, and had .appropriated the money derived from said sale to its own use; that this money really belonged to the creditors of the Baltimore .& Ohio Telegraph Company. It sets out its judgment, execution, and the return thereon, and the insolvency of the Baltimore & Ohio Telegraph Oompany, by reason of the action of the railroad .company. As the complainant works out its rights through the telegraph company, it is made a party defendant. As this is a. creditor's bill, it seeks no direct payment to itself, but to a receiver, whose appointment is asked for in behalf of all creditors who may ·come in to this suit. The scope, purpose, and proposed result of the ,bill .are one. It could not be maintained without making both
iS4 defendants
nDERAL REPORTER.
ruling thedeJl;lurrers isatp:rm:ed. .,., Leayerof the court to that end h.aving:been given, both defendants
judgJJient of the cirCuit eoUl.'t over-
answered. Testimony : was taken..The cause wWhheard on the meritB.[,TM court ordered. the payment of this jUdgment by the Baltimore· & Ohio Railroad Company. The' remaining exceptions attaekijUsdecree. ' we: have seen, the Baltimore & Ohio Telegraph Company of Baltimore County was in the operation, possession, and control of· the entire telegraphic'ff.Ystem. inaugUrated by the Baltimore & Ohio Railroad COIp.pany. With respect to' so much of the plant as WB.$ beyond the lines of the railroad companY,it would seem that the telegraph compaJlY was the owner thereof. With respect to so much Off the plant as was on ilie lines of the railroad, the telegl"aph company was in possession of, and 'operated it, in some sort of either as lessee, .ageilt, or under operating contract, or as vendee.·· In whatever capacitY,and under whatever title, it held, two faets are clear: That to the world the Baltimore & Ohio Telegraph Company of. Baltimore County.appeared to be the owner; and in reality it was under the control, management, and direction of the Baltimore & Ohio Railroad Company. The f manager of the entire telegrfl,ph system . was the seleCtion of, and employe of, the railroad company, .holding the .position of president of ,the telegraph company, simply because of his selection and employment, and not by the .action of any board of directors; this manager' knowing nothing of-any meeting. of such a'board, and never having attended one.. The Ba.ltimore & Ohio Railroad Company, using this control, sold the whole of the prtoperty operated, controlled" managed, and owned by the! Baltimore & Ohio Telegraph Company to the Western Union Telegraph Company, and reooived and appropriated the proceeds, of the. slUe. Thereupon· the telegraph company became and WJl8 totaUyina;olvent. ..As this telegraph company was a corporation, stated, its property and assets were a trust under the, fund for the .payment of all of its cred.itoos. CUrran. v. Arkansas, 15 B;ow. 304;. v. HQag, 17 Walt 620. When, therefore, the BaJtinlore ·& Ohio Railroad Company 1;o0k possessi(l)l1 of, controlled, and. appropriated this property and .its proceeds,.·it· took them impressedwith·,these trustil, and is boUnd by them. This result follows, whetherlt acted as sole beneficial owner of all its stock, or as creditor Who had made large advances, 01' as principaJ who had placed large and valuable assets in the hands of its agent, as ostensible owner, and thus secured· ita credit,or as vendor who had sold on credit without taking mortgage security, or as lessor who had entered upon the possession of its lessee. The Bal:t:imore & Ohio' Bailroad Company insists that the com· plainant, before his action ,at law,had the choice of suit against it as principal, or: the. telegraph· company as agent; tha.tit made the election, and having against the'telegraph' company, and entered it, it can, no :longer maintain an action against the railroad company, the principal. 'W'e are not called upon to decide whether the rule ;which .p:..-evaAlsin· Westminster Hall. and I
PRESIDENT AND TRUSTEES OF BOWDOIN COLLEGE II. MERRITT.
55
which sustains this position, (see 2 Smith; Lead. Cas. [8th Ed.] pt. 1, p. 38G, etc.,) is the law of this court, or whether we will follow the broader rule adopted in some of our states. Maple v. Railroad Co., 40 Ohio St. 313. The bill is not a proceeding against the railroad company for damages upon a breach of contract by its agent. The question of damages has been made and decided. The purpose of the bill is to follow in the hands of the railroad company moneys which, ex equo et bono, are applicable to the debts and contracts of the telegraph company, taken by the railroad company with knowledge of It seeks restitution. One other exception must be noticed. The testimony in the ca.se shows that there are no outstanding debtB of the Baltimore & Ohio Telegraph Company of Baltimore County but this one held by complainant, and perhaps a claim for advances on the part of the Baltimore. & Ohio Railroad C9mpany. This being the CWle, the circuit court evidently saw no reason for the appointment of a receiver, and we concur in this view. The railroad company, if it be a creditor, has mixed the tr1l8t funds with its own, and must pay. The last exception, as to costs, is within the discretion of the circuit. court. The eX()eptions to the circuit decree are overruled, and the· decree affirmed, with costs. Let the caae be remanded . to that court for such further proceedings as may be necessary. PRESIDENT AND TRUSTEES OF BOWDOIN COLLEGE et al. v. MERRITT et al. (Olrcu1t Court, N. D. California. 1.
Februa17 3, 1893.)
CONTRACTS-VALIDITy-PROMISE NOT TO CONTEST A
WILL. Certain heirs of a deceased testator, in consideration of property valued at about $500,000, conveyed by deed to the testator's sister, who was the principal legatee and devisee, all the property of which the testator died seised or possessed, promising not to dispute or contest any disposition of the said property, "or of any property which may be acquired therefrom or thereby," made or to be made by her, either by deed or by will. Held, that the agreement applied only to the property which she derived from the estate of the deceased testator, and not to any other property which she might own at the time of her death, and was valid and upon sufficient consideration, since it was not a contract by which the promisors renounced their status as her heirs.
11.
FEDERAL COURTS-FoLLOWING STATE PRACTICE.
a.
.
TRUSTS-BENEFICIARIES.
.j,
Where trustees neglect to defend their legal title to the trust property the beneficiaries may do SO, and may BIle to remove a cloud on the title, although the trust deed gives the trustees uncontrolled discretion for five years in executing the trust. BAMm-PARTIES. Such a suit can be maintained by BOlDe of the beneficiaries without joining others as partiesl when the court can do justice to the parties baton it without injury to BUOh others.
