MEISSNER V. BUElt.
and others ".
((}lrcuit Oourt, E. D. Virginia. July 20,1886.)
REMOVAL OF CAUSE-SUITS REMOVABLE-CITIZENSHIP.
Under the act of March 8, 1875, either plaintiff or defendant may remove any suit in which there is a contr()1)ersy between citizens of different states. Where a bill is filed to set aside a conveyance, the conveyance cannot be carried into execution without a cross-bill by a defendant. The converse of the proposition is equally true.
SAllE-WHEN A CRoss-BILL IS NECESSARY AND PROPER.
The plaintiff in such a cross-bill is such a defendant to the original suit as is entitled to remove the cause from the state to the federal court, under the act of March 3, 1875, if he is a citizen of a different state from the parties opposed to him.
In Equity. Upon a motion to remand to the chancery court of the city of Richmond, Virgiuia, whence the cause was I'emoved by writ of certiorari awarded by this court, June 23, 1886. The facts are fully stated in the opinion of the court. McGuire IX Ellett and Legh R. Page, for Meissner, and Buek & Hoff, and McGuire, Trustee. James Lyons and Coke cf; Pickrell, for Case Manuf'g Co. of Columbus, Ohio. HUGHES, J. The record in this case shows that the suit is removable, and the only question to be considered is whether it may be removed on the petition of the Case Manufacturing Company. The record shows debts due by the insolvent defendants Buek & Hoff to the amount of at least $75,000. The deed which the bill seeks to set up and carry into execution secures of this indebtedness $11,366 to three preferred creditors, who are designated as of the first class, and directs the surplus funds remaining after the payments of these debts to be distributed among all other creditors, whom it ranks as in the second class. One of the largest of these second-class creditors of the insolvent firm is the Case Manufacturing Company of Columbus, Ohio. The largest first-class creditor is C. F. L. Meissner, of New York, the debt due to whom is $10,000. Meissner filed the original bill in this suit in the chancery court of Richmond, iu which he sues for himself and two other first-class creditors. The bill seeks to set up the deed, and asks the court to carry it into execution byappointing a receiver, etc. The bill makes the trustee in the deed and the iusolvent firm, Buek & Hoff, who are citizens of Virginia, defendants of record by name; and asks the court to convene all the creditors of both the classes described in the deed before a commissioner, with e. view to the ascertainment of their claims, and the distribution of the funds that shall be realized, according to the provisions of the deed. v.28F.no.3-11
The deed was executed on first June, 1886, and the bill of Meissner filed on the second of the same month. Without notice to any creditor in adverse interest to the provisions of the deed, a receiver was appointed on the same day. The deed conveyed to the trustees all the insolvent firm's property, of whatever name and character; and the court, in converting by its order the trustee of the deed into its own receiver, took into its custody all the property of the insolvent defendants. On the nineteenth day of June the Case Manufactnring Company filed its cross-bill in the suit, and an order was entered by the chancery court allowing this to be done, and remanding the cross-bill to rules. On the twenty-first day of June, this corporation appeared again in court and asked leave to file a supplemental and amended cross-bill, and at the same time presented a petition for the removal of the suit to this court. After these motions were made, and at the same sitting of the chancery court, the order of the nineteenth inst. was revoked, and the cross-bill was dismissed by that court, the court at the same time denying the petition for removal. This action made it necessary that the suit should be brought here by a writ of certiorari. I believe the only gronnd on which it is contended that the petition of the Case Manufacturing Company was not a proper proceeding for the removal of the suit is that this company was not a party defendant to Meissner's bill. If it wa3 a defendant, there can be no doubt that it was competent for the Case Manufacturing Company to file a petition for removal. As before said, the original bill in this suit prays that the provisions of the deed of the insolvent firm may be carried into execution, and that their creditors shall be convened for that purpose. It thereby practically makes all the creditors who may not come in as joint plaintiffs parties defendant, and they are substantial defendants, whether named of record or not. The Case Manufacturing Company, being a large creditor, is a defendant in interest adversely to the deed; and, as such, had a right to be made so of record on application to the court; and the plaintiffs' omission to make it so in the bill, by name, whether by design or not, could not deprive this large creditor of that right. It took steps to be made a party defendant of reeord, and the mode of doing so which it was advised to pursue was by cross-bill. Whether that was the proper method to choose of obtaining all the redress sought does not matter. It was, at least, sufficient to the purpose of making the Case Manufacturing Company a party defendant to the suit of Meissner. A cross-bill is in its nature nothing more than an answer to the original bill, except that, inasmuch as it shoWH ground for a relief not prayed for in the original bill, it must itself annex to the answer a prayer for the relief which it seeks 'to obtain. The answer or cross-bill of the Case Manufacturing Company, filed in this cause, sets out matter of defense, which, if true, may defeat the prayers of the original bill; and it therefore, of logical necessity,
contains the prayer for affirmative relief, which makes it something more than an answer to the bill,-which makes it a cross-bill. But the affirmative prayer does not change the relation of the Case Manufacturing Company to the original bill, or destroy the character of its answer as an answer to the original bill; and this answer, with a prayer for affirmative relief annexed, does not terminate the relation of this defendant to the suit in chief. If the original bill had other relief than the setting up of the deed, the Case Manufacturing Company would have been simply a defendant, and it is only what this company allege.s to be the vicious prayers of the bill that have made it necessary for the company to supplement what would have been its answer with matter that makes it more than an answer,-that makes it a cross-bill. A cross-bill, such as this, is, in the language of a standard authority, "a mere dependency, and part of the original suit." In the language of another authority, "it so incorporates itself with the original suit that, if the cross-bill were set for hearing, the effect is to set the original cause also for hearing." It is such a pleading that, as said by the court in Ex parte Railroad Co., 95 U. S. 22.5, "upon appeal or writ of error, the appellate court would proceed upon both bills as one proceeding." In the present case the cross-bill is a mere pleading in the original suit,-such a pleading as the prayer of the original bill made it necessary for creditors objecting to the deed of the insolvent defendants to file; and to say that these objecting creditors must go out of the conrt having custody of all the effects of the insolvents, and institute another proceeding, is to require them to fire into the air, and would be to leave the plaintiff in the suit, by having prayee- for what far the larger portion of the creditors vehemently oppose, to take advantage of his own wrong, effectuated by means of an ingenious bill. In reference to the competency of a cross-bill in this case, it was held in Carnuchan v. Christie, 11 Wheat. 446, 467, that where a bill is filed to set aside a conveyance, the conveyance cannot be ca:\'ried into execution without a cross-bill by a defendant. The converse of that proposition is true, namely: that, where the original bill seeks to carry a conveyance into execution, the conveyance cannot be set aside without a cross-bill by a defendant. Such a cross-bill is the one now before the court. The principal question in the suit under consideration is whether the deed shall be carried into execution 01 set aside. A cross-bill is necessary to having cause fully before the court, and is therefore a necessary part of this suit. It is only as a part of this suit that it could effect anything in preserving the rights of the Case Manufacturing Company, and other creditors objecting to the deed. Being a part of the original suit, and a necessary part of it, as concerns the rights of objecting creditors, and the act of March 3, 1875, having provided that any suit in which there is a controversy between citizens of different states may be removed on petition by a plaintiff or defendant from a state court into the circuit
court of the United States, this suit was removable to this court, and was removable on the petition of the Case Manufacturing Company. I will so decree. Judge BOND concurs in the ruling of the court, but has not seen this opinion. DECREE. This day came the defendants, by counsel, and moved the court to remand this cause to the chancery court of the city of Richmond, Virginia, and after argument, and upon consideration thereof, for reasons stated in writing and filed as a part of the record, it is ordered that the said motion to remand be, and the same is hereby, overruled; and the cause is hereby retained, to be further proceeded with in this court according to the rules of chancery practice.
SEELEY v. REED.
«(Jircuit (lourt, D. Oregon. July 28,1886.)
PROMISSORY NOTES-AGREEMENT TO DELIVER NOTES OF CORPORATION.
An agreement to deliver the notes of a corporation does not implr. that the party agreeing to make such delivery shall indorse them at all, and If, for any reason, they are made payable to his order, he is only required to indorse them so as to pass the legal title to them, which may be done by an indorsement "without recourse."
SAME-INDORSEMENT "WITHOUT RECOURSE."
The effect of an indorsement of a promissory note "without recourse" is to transfer the legal title to the same to the indorsee, and the indorser also thereby undertakes that the instrument is valid, and what it purports to be.
SAME-PARTY CONTRACTING TO DELIVER NOT A TRUSTEE.
A party who agrees to deliver to another one-third of the notes he may receive from a certain corporation on a loan thereto of $150,000, on the payment of the latter's note for $50,000, does not thereby become a trustee of such other person, and prima facie he has performed his contract when he delivers to the latter the notes of said corporation of the face Yalue of $50,000.
Suit for an Account and an Injunction. Thomas N. Strong, for plaintiff. George H. Williams, for defendant. DEADY, J. This suit is brought by the plaintiff, a citizen of Ohio, against the defendant, a citizen of Oregon, for an account of a loan of $150,000 heretofore made by the defendant to the Oregon Iron & Steel Company, an Oregon corporation, and to enjoin him from selling or disposing of the securities received therefor, or any portion of the 361 shares of the stock of said corporation heretofore delivered by the plaintiff to the defendant. as security for the payment of his note of $50,000 given to the defendant on March 27, 1884, on an
agreement that he should receive one-third of the securities obtained on said loan, on the payment of said note. The case was heard on the bill and answer. The plaintiff expressly waived the oath of the defendant to his answer. Counsel, however, insist that the defendant cannot thus be deprived of this privilege, and cites to that effect Clements v. Moore, 6 Wall. 314. That case was decided in 1867, while rule 41, as amended in 1871, gives' the plaintiff the right to waive the oath of the defendant to his answer in whole or in part; but, on a hearing on the bill and answer, the latter, whether under oath or Jot, is admitted to be true, as if the hearing was on a demurrer thereto, and so the amended rule provides. The suit grows out of a contract made by the parties on March 27, 1884. They were then in New York, and the plaintiff was a stockholder in the Oregon Iron & Steel Company, of which the defendant was president. The writing recites that Reed "is willing and is about to advance or loan" saicl corporation, including the amount heretofore loaned or advanced to it, the sum of $150,000; that Seeley "is willing and desires to obtain an interest of $50,000" in said loan, and to that end has given his note for that amount to Reed, payable in two years, with interest at 7 per centum per annum, at the banking-house of Ladd & Tilton, and has "delivered, as collateral security for said note and the interest thereon, 361 shares of the capital stock, full paid," of said corporation; in consideration whereof Reed thereby agrees, on the payment of said note, to redeliver to Seeley said shares of stocks, "together with one-third of said bonds, stocks, notes, or other securities," as he may obtain from said corporation, "in con· sideration of his said advance of $150,000," and Seeley thereby authorizes Reed, in default of payment of said note, "to sell or dispose" of said 361 shares of stock, and the said one-third of the securities received from said corporation, subject, however, to the stipulation that, if the proceeds of such sale or disposition are not sufficient to pay said note at the maturity thereof, Seeley shall not be further liable thereon, but the same shall be surrendered to him; and, in consideration of the premises, Seeley agreed to act as the general manager of the corporation for the period of two years, at a salary not exceeding $3,000 per annum. On July 29, 1884, the plaintiff commenced a suit against the defendant for a rescission of this contract, on the ground that he had been induced to enter into it, to his injury, by the fraudulent misrepresentations of the defendant. 'l'he case was finally heard on the bill, answer, and replication thereto, and the evidence of the plaintiff; when the court, having found the allegations of the bill in this respect to be altogether untrue, on November 2, 1885, dismissed the bill, with costs. 25 Fed. Rep. 361. On March 30, 1886, the plaintiff offered to pay at the bank of Ladd & Tilton the sum of $58,000 on said note and contract, which the bank, not having either of said papers, declined to and
on the same day the plaintiff informed the attorney of the defendant -the lattElt being absent in California-that he had tendered the sum of $57,039.16 in payment of said note at said bank; whereupon said attorney proposed to turn over to the plaintiff, in pursuance of said contract, two notes of said corporation, payable to the plaintiff's order, the one for $20,847.91, dated October 23, 1884, and the other for $30,000, dated June 16, 1884, and to assign to him as much of an open account, held by the defendant against said co'rporation for money advanced thereto, as would, with said notes and the interest thereon, make the sum of $57,039.16; and also to deliver to him the certificate for said 361 shares of stock, and the plaintiff's said note, as soon as the said papers could be sent to San Francisco, and returned with the necessary indorsements and assignments thereon; which proposition was acceded to by the plaintiff, and the computations of interest made, and the papers forwarded to San Francisco for indorsement and assignment; that on April 13th the by his attorney, deposited with Ladd & Tilton said two notes, duly indorsed "without recuurse," and an order on said corporation in favor of the plaintiff for $161.39.; the same being the one-third of the securities received by the defendant for the $150,000 advanced by him to said corporation as per the contract of March 27, 1884; also the certificate for said 361 shares of stock, and note of $50,000, with instructions to said Ladd & Tilton to deliver to said plaintiff, or his order, said papers, upon the payment to them for the defendant of said note of $50,000, amounting, un March 30, 1886, to the sum of $57,039.16; and notified the plaintiff thereof in writing, and thereby tendered to him said papers in fulfillment of the defendant's part of the contract of March 24, ] 884, and demanded payment of the plaintiff's note according to the tenor and effect thereof. To this notice and tender the plaintiff replied in writing on the following day, saying: "My tender to you of the amount of my note and interest, made on March 30th last was unqualified, and I am keeping it good, and your money is ready for you any time. You should return my note, and deliver to me, without qualification or restriction, the notes and securities you promised. This you have not done, and do not offer to do,"-the "qualification" and "re"striction" referred to being, as was admitted on the argument, the "without recourse" clause in the indorsement of said corporation notes by the defendant. On April 22, 1886, the defendant, by his attorney, wrote the plaintiff that, in consequence of a conversation between them in which it was suggested that there was nothing to show in the papers tendered to the plaintiff that the corporation notes and account included therein had not been paid, he had, to obviate such objection, without admitting the validity of it, deposited with Ladd & Tilton the certificate of the secretary of said corporation that no payments had been on such notes and accounts; and "I hereby further notify
SEELEY V. REED.
you that unless your note to me of $50,000, dated March 27, 1884, is paid within three days from the date hereof, according to its tenor and effect, I shall take steps to enforce the collection of the same, as provided in my agreement with you of the twenty-seventh of March, 1884." The certificate of the secretary, dated April 22, 1886, a copy of which was inclosed in the letter of the defendant, states, in effeyt, that no payments had been made on either of the notes in question, and that there is due Reed from the corporation, "on open account, the further sum of $33,126.35, for money advanced." To this the plaintiff replied on the following day, claiming, in effect, that the defendant had undertaken to make an investment of $150,000 in the securities of the Oregon Iron & Steel Company, one-third of which was for the benefit of the plaintiff; and that, as his trustee, the defendant was bound to make a showing of the results of the investment, and that the notes in question are actually one-third thereof, and are "good and valid claims" against the corporation. This ended the correspondence between the parties. The plaintiff did not accept the papers tendered him, or offer to pay his note, but, on April 24th, brought this suit, without bringing his tender into conrt. The bill states the offer of the plaintiff to pay his note oil March 30th, and alleges that the defendant refused to perform the contract on his part, and deliver up said note Rnd stocks, or any of the securities received on said loan, or to furnish any account thereof, and is threatening to sell and dispose of the same, to the great and irreparable injury of the plaintiff, that "cannot be compensated for in money damages." It appears from the answer, and thElre is no doubt abont the fact, that at the date of the contract Reed had already advanced to the corporation over $95,000 of this loan, and that that fact, and all the circumstances of the transaction, down to and including the making of the notes to tho defendant, and the state of accounts between him and the corporation, were and are as well known to the plaintiff as to the defendant. From this statement of the case it is evident that this so-called tender of March 30th was a mere make-believe, and intended for effect. When the defend·ant's attorney heard of it, and expressed his willingness to accept it, as soon as the papers could be properly indorsed and assigned, no quiblJle was made about the nature of the indorsement, or the propriety of a report from the defendant as the supposed trustee of a joint investment; but when, on April 13th, the notes of the corporation were tendered to the plaintiff, duly indorsed "without recourse," objection was first made to this" qnalification" or "restriction." Now, the }Jlaintiff had no right to any other indorsement. Reed did not agree to give him the corporation notes secured by his own unqualified indorsement. He simply agreed to give him one-third of the notes he received from the corporation, without any indorsement whatever. Seeley having the option to pay his note and receive the corporation notes, or forfeit his stock pledged as coUat·
eral, Reed could not safely take any of the corporation notes in the former's name. From the nature of the case he was compelled to take them payable to his own order, and await Seeley's action. And when the latter signified his readiness to pay his note, and take the securities, all that Reed was required to do, under the circumstances,. was to indorse them so as to pass the legal title to Seeley, without in any manner making himself personally liable for their payment; and this was properly done by adding to his name thereon the words "without recourse." By this indorsement, however, Reed undertook that the notes were what they purported to be,-the valid obligations of the Oregon Iron & Steel Company fOl' the sums stated therein. 1 Daniel, Neg. Inst. § 670. More than this the plaintiff had no right to ask, and his having done so, under the circumstances, is proof that he was merely playing a part. But in the of April 23d this objection is apparently abandoned, and the plaintiff assumes that the defendant has been acting in this matter in the high character of his trustee, alld wants a showing as to what he has received from the corporation for this loan of $150,000; and, in a roundabout way, suggests, if not insinuates, that possibly he might have taken the corporation paper at a discount, and, if so, he wants to know'it, and have his share of the benefit. Of course, Seeley is entitled, on the payment of his note, to the full one-third of all the evidences of debt that Reed obtained from the corporation for this loan. But there is no presumption that they amount to more than the sum loaned. The transaction was not a purchase of the corporation paper in the market at a discount, with $150,000. It was simply an advance to the corporation from time to time, by the president thereof, of what amounted in the aggregate to $150,000, and taking its notes therefor, not as a speculation, but for the purpose of tiding the corporation, in which both parties were interested, over a financial difficulty. And no one knows any more about the transaction than the plaintiff does. The history of it is contained in the corporation books, with which he is familiar, and which were kept during the greater portion, if not the whole, of this period, by his particular friend and business associate. And yet he dares not say in his bill, and does not say in this correspondence, that Reed got one dollar more in notes and accounts from the corporation than the amount of the money advanced to it. On the other hand, Reed offers these notes and this account as the one-third of what he got for the loan. By a necessary implication he asserts that they are onethird in value of what the corporation gave for the $150,000 advanced to it, and I see. no reason to doubt the truth of his statement. The refusal to pay the note on this flimsy pretext furnishes further proof, if any is necessary, that the plaintiff. is not acting in good faith in this matter; and this is further confirmed by the fact that he has not kept his tender good by bringing the amount into court. The plaintiff is not entitled to any relief under this bill, and the Bame is dismissed, with costs.
HERVEY V. ILUNOIS MIDLAND RY. CO.
HERVEY V. ILLINOIS MIDLAND
SECOR V. SAME. UNION TRUST Co. OF SAME
PARIS & TERRE HAUTE
FREIDENBERG V. PARIS
KANSAS ROLLING-MILL CO. V. ILLINOIS MIDLAND
(Oircuit Oourt, S. 1J. Illinois. February 29, 1884.)
RECEIVER-ApPOINTMENT IN VACATION.
The appointment of a receiver, in Illinois, by a judge of the state circuit court. in vacation, is unauthorized by law; but such an appointment, if afterwards confirmed by the court in term, will be deemed to have been made by the court itself.
Where a railroad company had purchased the properties and franchises of other railroad companies, and a bill has been filed against such company by a part of its judgment creditors and the holders of, a majority of its stock, 11,1leging the existence of judgments to a large amount against the purchasing and the selling companies, and that the officers cannot distinguish the propertyof the several companies on which to levy for their respective debts, and that their property is therefore being sacriticed, the court has jurisdiction, as between the parties before the court, to t,ake possession of the property by a receiver, apart from the question how far its action during the receivership would affect the rights of parties not before the court. The charter of the Peoria, Atlanta & Decatur Railroad Company authorizes that company to purchase railroads which may form a continuation of its main line; and where such purchase has been fully executed, and where its validity has never been questioned b,r a direct proceeding, the parties to such purchase, those who acquiesced in It, and those who failed in due time, by some proper proceeding, to question its validity, are estopped to raise any such question. The provision of the general act of Illinois, relating to the incorporation of railroad companies, providing that the assent of two-thirds in amount of the stock 01 the corporation shall be essential to the validity of any mortgage by that corporation, is applicable only to corporations formed under that act, and that provision is for the benefit of stockholders, and not creditors. The constitution and laws of Illinois do not invalidate deeds and bonds of railroad companies, organized under its laws, merely because executed nut of the state.
PURCHASE OF RAILROAD-AcQUIESCENCE THEREIN-EsTOPPEL.
GENERAL RAIJ,ROAD INCORPORATION ACT OF ILLINOIS-STOCKHOLDERS.
ACTS OF RAILROAD COMPANIES PERFORMED OUT OF THE STATE.
MORTGAGES OF RAILROADS TO FOREIGN TRUST COMPANIES AS TRUSTEES
A mortgage upon railroad property in I1linois, executed to a foreign trust company, to secure bonds made payable out of the state, is not prohibited by the laws or public policy of that state.
RECEIVERS CERTIFICATES-EQUITIES OF PRIOR MORTGAGEES.
Where the court authorizi's the receiver, for the protection of the trust property, to borrow money, and give certificates therefor, which are made a charge upon the property, the holder of such certificates must be deemed to have taken them subject to the rights of parties who have prior liens upon the property, and who have not, but should have been, brought before the