turn back and enter upon the true course. And as to the effect of whatever he did while in pursuit of the false method. while we must hold that he gained nothing by su.ch proceedings, we must admit that he lost nothing beyond his time. labor, and expenses."
Counsel for defendant insists that this expression of opinion is mere dictwm, and that therefore the question is still open for consideration by this court; but I cannot so regard it, even if this case stood by itself. Certainly, when. taken in connection with the earlier cases, it would seem as though the supreme court had decided the question, so far as this state is concerned; for if the proceedings under the power were valid, the plaintiff had a good title, and should have had a decree quieting it. He should not have been put to the delay and expense of a foreclosure sale, with the possibility of finally losing the land. If his title were good, the amount of the original debt was immaterial. That his bill and prayer were good for a. decree quieting the title was conceded, and the only question was whether there was enough in it to sustain a foreclosure; and yet upon such a state of facts the supreme court says that he took nothing by his proceedings under the power, and reduced the amount of debt as found by the trial cou..rt. So, whatever might be my views upon this question as an independent proposition, I think the supreme court of the state has decided it, and I must follow that decision. . Judgment will be entered for the plaintiff.
BISCHOFFSHEIM .". BROWN
(OiTcuit Oourt, 8. D. New York. March 19,1888.)
RAILROAD COMPANIEs-BONDS AND MORTGAGES-TRUSTEES.
The complainant's firm were agents for a railway company to negotiate cer tain mortgage bonds, and account for 'the proceeds to trustees. They negotiated the bonds, and became accountable for the price, but subsequently bought them back in their own interest, and led the company to suppose that they had never been negotiated. Subsequently they made a loan to the company upon a pledge of the bonds as collateral security, and by the terms of the agreement ofloan the trustees of the company (who had the equitable title to the proceeds of \loll the bonds pledged) agreed to treat the loan as a trust fund, and disburse it for certain specified objects. In a suit brought by the complainant. as survivor·of the firm, to .enforce the agreement. alleging that the trustees had appropriated tke money to foreign objects, and seeking to compel them to account, it appeared that the loan was made in entire ignorance of the fact that the bonds had been negotiated, and that the trustees were entitled to a larger sum then in the hands of the complainant's firm than the sum loaned. Held, (1) that a court of equity would not. upon such a state of facts, assist the complainant, because he did not come into court with clean hands; (2) that the trustees could invoke the principles of equita.ble setoff to defeat the action.
Bill in Equity. . . Bischoffsheim, sUfvivorof the firm of Bischoffsheim & Goldschmidt· . complainant, filed a bill against J. C. Brown and Jesse Seligman, to ra-
BISCHOFFSHEIH f1. BROWN.
cover certain moneys alleged to have been paid to them as trustees for complainant's firm, and applied by them contrary to the terms of the trust, in the matter of the loan made by them to the New York, Boston &; Montreal.Railway Company. Evarts, Southmayd Choate and B. H. Bri8tow, for complainant. Bangs, Stetson, Tracy Mac Veagh, for J. C. Brown and Jesse Seligman. C. W. Bangs, for J. & W. Seligman & Co. Cary Whitridge, for Brown Bros. & Co. Porter, Lo'Wfe!!J, Soren Stone, for the New York, Boston & Montreal Railway Company.·
WALLACE, J. The complainant is the survivor of the former firm of Bischoffsheim & Goldschmidt, of London, and has filed this bill to recover the su,m of $917,182, advanced by that firm to the New York, Boston & Montreal Railway Company, of which sum $294,444 was advanced September 1,1873; $269,937 was advanced September15, 1873; and the balance was advanced on or about October 3, 1873. The averments of the bill are that these moneys were received at these dates by the defendants, John Crosby Brown and Jesse Seligman, as trustees for Bischoffsheim & Goldschmidt, to apply the same towards the construction and equipment of the unfinished railway of the company; that they applied the fund in great part to foreign purposes; and that before the suit was brought the railway enterprise became abortive, and it was impossible to carry out the purposes of the trust. It is further averred by the bill that the banking firm of Brown Bros. & Co. and J. W. Seligman &: Co., the members of which are named as defendants, received portions of the fund from the trustees, with notice of the trust and of the misapplication of the fund. The bill prays for an accounting, and for other relief. In the view of the case which has been reached, the material facts may be briefly stated. On the 14th day of March, 1873, Bischoffsheim & Goldschmidt entered into an agreement with the railway company by which they undertook to market in London $6,250,000 of an issue of $12,250,000 ofthe first mortgage bonds of the company. The defendants, John Crosby Brown and Jesse Seligman, were trustees under the instrument known as the "Disbursement Trust Agreement," by which the proceeds of the whole issue of mortgage bonds were to come to their hands for the purpose of being appropriated and distributed to various beneficiaries and objects, in part for the payment of designated creditors and in part for the construction of railway for the company, in the manner particularly specified by that instrument. By the contract made be'tween Bischoffsheim & Goldschmidt and the railway company for marketing the bonds in London, the former to negotiate them to the public at prices which would produce the company 90 per cent. in currency, (except as to $839,000 of the bpnds,) less specified commissions and charges; the proceeds were to be at the disposal of the company in monthly installments, as payable by the terms of the subscription for
.the'bOnds, and ,subject· futhe order of the Company, or the order of the .month jandBischoffsheim disbursement trustees, on. the 6th day & Goldschniidt were to account to the company for the proceeds .oiall the bonds subscribed for by the public"and allotted by them, lesB the commissions, etc;, which tbey were ahthorized to retain. The contract .also provided .that Bisch'offsbeim & Goldsahmidt should have a call or option to purchase the bonds at 80 per cent. for $839,000, and 90 per cent. for the residue, until. July 31st nextensuingishould in no event be bound to account for any amount beyond thatpricei and should have the right to buy.andsell;and deal in thc;lbonds for their own account and benefit, as though they were not the agents of the company to negotiate the same. Immediately after the making of this contract, Bischoffsheim & Goldschmidt issued a prospectus, offering. the bonds to the public for subscription at £180 for each $1,000 bond, payable £10 on application, £20 on allotment,. £40 May2d, £40·J'tlne'3d, £40 July 1st, and ·£30 August 1st. Applications were receive<;l by Bischoffsheirn: & Goldschmidt .largely in excess of the bonds offered,. and within a few days the entire $6,250,000 were subscribed .for and allotted unconditionally, and the £30 per bond payable on allotment duly paid by subscribers. Thebonds .were in very great demandj but only a small part ofthem,certainly not more than about $2,000;000, were allotted. to the general public, although about $10,000jOOOwere applied for by the public. The greater part, viz., $4,166,000 were allotted to a syndicate, known as the "Paris Syndicate," friends of Bischoffsheim & Goldschmidt, who were interested with Bischoffsheim & Goldschmidt in manipulating the market so as to advance the price. March 27th, Bischoffsheim& Goldschmidt notified the company of their desire to exercise their option of purchase, and. called for the delivery of the $839,000 of bonds which they had a right to purchase at80,per cent., and $4,166,000 which they had the right to purchase at 90 per cent., being $5)000,000 in all·. From that time thenceforth Bischoffsheim & Goldschmidt led the company to believe that this was the whole amount of bonds actually negotiated by .them. They never distinctly asserted that no more had been negotiated) but insisted that they were accountable for $5,000,000 only, and beyond that statement maintained a reserve which was effectual to lead the officers of the company to suppose that no more had been negotiated. The latter were also led to that belief by the statement of one McHeury, who had been an agent of the company, and was at the time supposed to be acting in its interest, but who was in fact in the interc;lst of Bischoffsheim & Goldschmidt. This statement was contained in a letter from McHenry to the company of the date of March 27 ,1873, in which he wrote that for some reason a revu1sion offeeling had set in against the bonds, "arising, perhaps, from so many being disappointed in not receiving allotments," consequently the wh;ole capital had been on the market, aQd BiBchoffsheim, for the safety of the loan, had been compelled to purchase it. Although the statements in this letter were fll.ls6,.,-because over $4,000,000 of the bonds had been permanently placed with the Paris syndicate,-the officers of the company were not aware of it. Shortly
BISCHOFFSHEUI V. BROWN.
after the call of Bischoffsheim & Goldschmidt,'the company delivered to them the remaining 1,250 bOnds. Bischoffsheim & Goldschmidt never rendered any account of the disposition of thel!Je bonds. In September, in urgent need of money. sent its agents to in1873, the duce Bischoffsheim&' Goldschmidt to advance what Was needed. Bischoffsheim & Goldschmidt finally consented to advance the sum which this'suitiscbroughtto recover, and a contract was entered into by which the cOhlpany pledged 1,250 of the bonds then in the possession of Bischoffsheim & Goldschmidt as collateral for the loan. That agreement, among other things, recited that the money advanced by Bischoffsheim & Goldschmidt was to be paid to John Crosby Brown and Jesse Seligman for the disbursement thereof in completing the railway "under a. trust for that purpose flJ.ready in existence." The agreement was formally reduced to writing about two weeks after the time when its terms had really after the SUm of $294,444, andtheftirther sum of $269,937, had actually been advanced by Bischoffsheim'& Goldschmidt. Iothe mean time Bischoffsheim & Goldschmidt had sent an agent-oneCassel--':"to -New York, and the formal agreement wasexecutedthere, September and delivered to him there by the officers ".. SimUltaneously with the delivery ofthis agreeof the railroad ment, a letter was delivered to Cassel; signed by Brown and Seligman, which oontains the alleged trust sought by the bill to be enforced. The latter was a.ddressedto' Bis(lhoffsheim & Goldschmidt, bore date September 30, 1873,'arid a.fter acknowledging the receipt through cable transfel1!'()f the two advances already made, read as follows: "We rlnderstandthat these sums, with such further sum as you may place in our hands on or about October 1st proximo, is so placed as a special fund to be d,iilbnrsed by us for account of the completion oUhe construction of the :New 'York: & :ijoston aailroad, and the purchaseof rolling stock oBbe New York. Boston & Montreal Railway Company, not exceeding the limit of the allotments made in the disbursement trust to these two accounts, and not as part of the proceeds of the, 1l.rst mortgage bonds coming into our hands under the consolidation and disbursement trust agreement; and, 80 far as we have any controlo'Ver the matter, we assent to the arrangement made by your 1l.rm and the New York. Boston & Montreal Railway Company, by contract dated September 29, 1873." The questions mainly litigated in the case, and to which the evidence is largely addressed, are as to the meaning and effect of the promise containedin this'letter, andw-hether moneys advanced were disbursed conformably with its terms by the trustees. Although the bill of complaint was filed in 1877, the testimony of the complainant was not taken until the summer of 1881, and he then testified that his firm never collected or received any money as proceeds of the bonds pledged; and it was not until the spring of 1887 ,upon the examination of certain witnesses in LOndon, that the fact waS elicited that March 26, 1873, Bischoffsheim & formally notified the Stock Exchange of London' that the whole $&,250.000 bonds which they had undertaken to negotiate had been unconditionally allotted to the public, and the sums due upon allotnienthad thereon. Further investigations were instituted by
tb"e 'defendants after learning this fact, and they discovered and proved that Bischoffsheim & Goldschmidt opened an account with the Imperial Bank, Limited, of London, in the name of the railway company, and that in this account credit items were entered for the various installments payable upon a subscription aggregating the subscription price for the whole of $6,250,000 of bonds. Thereup9n the d.efendallts gave notice that they should apply for leave to amend their answers, so as to allege thaL when the moneys in suit were loaned, Bischofl'sheim & Goldschmidt had in their hands more than the amount loaned, as the proceeds of the negotiation of the bonds, and belonging to the company. This notice was given before the complainant's evidence was closed, and when there was ample .opportunity to meet the new issue. The complainant has attempted to meet it; but the only evidence he has produced is his own testimony, which is, in substance, that he bought back the bonds. or rather the certificates which were in cirqulation prior to the definitive delivery of the bonds, in order to the market, and kept up payments in the account ,with the bank so that the transaction should appear regular, and in order to keep. the scrip alive. No attempt was made to fortify this testimony by the production of his own books, or py any corroborative evidence. It is in conflict with the testimony given by him in 1881. Bischoffsbeim & Goldschmidt never informed the company that such transactions had taken place. Their silence is significant, and especially so in view of their enigmatical answer to inquiries by the. company at thetime, which naturally called for an explanation. After receiving their letter of Ma,rch 27th containing the call. for $5,000,000 of the bonds, on April 10, 1873, the president of the company wrote them calling,attention to the fact that he was advised by cable of the allotment of the whole $6,250,000, and stating that he should forwa.rd that amount in place of the $5,000,000 called for. April 24, 1873, Bischoffsheim & Goldschmidt answered that letter as follows: "We beg to state' a;s slated in our respects of March 27tp., only $5,000,000 of youl: company's first mortgage bonds have qeenpul'chased by us." The company knew that Bischofl'sheim & Goldschmidt had exercised their right to purchase that amount of bonds. No information on that point was necessary. It is entirely obvious that this curt communication was meant to silence further inquiries. The contract between Bischoffsheim & Goldschmidt and the company gave Bischoffsheim & Goldschmidt no authority to buy back bonds for the company which had been actually negotiated, although it did allow them to do so on their own account, and for. their own benefit; and it is therefore altogether unlikely that they would have assumed to buy back for ihecompany. in i)rder to sustain the market, withou.t communicating with the company, informing its officers of the necessity for doing so. Certainly, good faith, and the duty of f1,111 information by an agent to his principal, required them to inforIll the company whether they were buying them back at the company's .risk or for their own account. It is incredible, in view of the great demand for the bonds at the price, that Bischoffsheim & Goldschmilit were unable ultimately to place a single bond, ex-
BISCHOFFSHEIM tl. BROWN.
cept those which they purchased of the company themselves. Under all the circumstances, it seems reasonable to conclude that after the whole amount had been allotted, and when the public appetite was fierce and unappeased, Bischoffsheim & Goldschmidt commenced to buy the scrip on their own account, and for their own benefit, and continued to speculate in it until definitive bonds were deliverable, and thus had the $1,250,000 of bonds on hand at the time of making the loan to the company. Upon this state of facts the case is so clear that it can hardly be expected that any time will be spent in examining the record in order to find out whether the moneys loaned by Bischoffsheim & Goldschmidt were disbursed by John Crosby Brown and Jesse Seligman according to the alleged trust evidenced by the letter of September 30, 1873. It is enough to defeat the complainant that he does not come into court with clean hands. At the time the loan was made, the lenders had in their hands more than the amount loaned, as the proceeds of bonds which they had negotiated, which they were bound to account for to the company, and pay over to John Crosby Brown and Jesse Seligman as the trustees of the disbursement trust agreement. The equitable title to this money was in John Crosby Brown and Jesse Seligz.nan, as trustees under that instrument, and they not only had the right to receive it from Bischoffsheim & Goldschmidt unconditionally, but it was their duty to disburse it, when received, conformably with the trusts of that instrument. If they have received it, q1though they have received it in the form of a loan from Bischoffsheim & Goldschmidt, and have not disbursed it as they were required to, the beneficiaries in the disbursement trust agreell1ent can question their acts, and call them to an account; but no one else can do so. On the other hand, if the money received by them from Bischoffsheim & Goldschmidt was other money, and not the identical money that Bischoffsheim & Goldschmidt should have paid over to them, Bischoffsheim & Goldschmidt,6r the complainant as survivor of that firm, cannot be permitted to assert an equitable title to it, so as to follow it into the hands of the trustees, and compel them to refund it, without doing equity, and placing the trustees in possession of what be;. longed to them. It would seem also that, if the trustees have an equitable title to a larger sum of money in the hands of the complainant, they Can invoke the d09trine of equitable sei-off to shield themselves against a. recovery of the money to which the complainant claims an equitable title; and the other defendants are not liable unless the trustees are liable; because they succeeded to the rights of the trustees when they received any part of the money in controversy. Inasmuch as the defendants John Crosby Brown and Jesse Seligman have not filed a cross-bill, they cannot have any affirmative relief by way of an accounting for the money in the hands of Bischoftsheim & Goldschmidt beyond the amount received. The decree ordered is therefore a dismissal of the bill. v.34J",.no.3-11
.:: .FEDERAl, .'. REPORTER.
(Circuit (J()'1J,rt, S. D.New Yor1C. March 19,1888.)
'The 6()mplainants. 8cting as 8 syndicate. purchased pari of an issue of railway, mortgage bonds offered foi: sale to the public by a prospectus issued by , the of .the raihvay,company·. Trustees had been appointed by an agreement between the s'everal cOnstituent companies composing the railway company to receive and disburse the proceeds of the bonds for certain specified objectll, among them the payment oithe debts of the constituent companies. In a suit ,brought by complainants against the railway company, the trustees, .'and varioull'defendants to 'whom the trust6esbad paid part of the proceeds of' the bonds; 'the bill that theprospootus' contained'various untrue and, fraqd'llelltreprese;ntatlOns; that the complainants relying thereon ,had beeu" t()purchase tb!! bonds by I that the trustees and the, other defennant! who had recelved part. oftl:1e proceeds were when they re-, ccivedthe: money of the false and fraudulent character of the prospectus; and theprospectqs also contained a that the of the. bondsshoiIld be used to complete the constructIOn of the raIlway, and not for the extii1ction of liabilities of the but the proceeds were applied in part ,by the trustees. and were rAceived by ,the other defend· ants in of such liat)Hities. with knowledge of thi, promise., The objectof the !!'nit was (1) to resCind thepurchaile for fraud. andcb.arge the trusteesandioo recipients of ,the moneys from them as trustees 6;2l maleficio; and (2) to enfOrce the promise of the prospectus as a.promiseto'the purchasers of bondl! in tlle .nature ofa trust, and c(l):npelthe trustees and the recipients from them ,to account for the part appropriated 'contrary to the promise. Held. that compla.inants were merely creditors of the company, and as such, even were the, issue presented by the !,Jill, cpuld not assail t)levalidity of the agree1Jlent appointing the trustees, nor question the doingllof the trustees as Such. ' " ' , '
2.., SAlIE""""PLEADtNG-MUL'1'1FARIOUSNESfil. If the bill preeellted a case seeking relfef because of the invalidity of the trust agreeJ;llellt, or the violation of tlle provisions of that agreement by the, trustees, the 'conjunction of such a cause of action with the causes of action Arising' upon the prospectu's would render thebitl multifarious; and the join,.' der IlIt\U!es 'of action so ,wholly disconnected would render the bill so ob. noxlOull that the court 8ua 8ponte would refuse to tolerate it.
Equity' WIn,not refuse jurisdiction of a suit to recover moneys obtained by fraud, wnen, the money in part has passed into the hands' of several third parties wlthk;nowledgeof the fraud, and the object of the suit is to reach. what remains in the hande of the original wrong·doers, and follow the rest and, reach it in'the hands of the other defendants. In such a case the remedy is' moreadeq:nate alid complete in equity than at law.
SAME-MISRIllPRESEN'l'ATION IN PROSPECTUS.
by prospectus, except as between promoters and shareholders; isto be triedbythe ordinary criterion of !llisrepresentation. But a of 'a prospectus may require that a' :reasonable construction ot. the ,future tIlns8'should be, given to words mthe past or present tense. '
A right of rescission because of misr.epreseI\tations in a, prospectus must rest upon cOIl,cerningmaterial facts, and not of mere of opinion. and 'must relate to existing 'facts, and not to'niatters of future conduct or expectation. It cannot be founded upon the breach of purepromis· 80ry statements.
"" " ' '
Unless promissory statements are such as imply that a certain condition of things, or state of facts, exists at the time to form the basis of the promised