REPORTER, vol. 49.
(Circuit Court, S. D. Georgia, E. D. January 4, 18ll2.)
NotwithStanding Act Cong. 1889. (5St. at Large, p. 821, § 1,) and rule.7 for the equity practice of the circuit courts. passed in, pursuance thereof, relieving plain- , . turin equity from the obligation of making persons in interest parties the 'effect of their joinder would oust the court of jurisdiction, nodeoree cali. be made between the parties. before the court, involving the rights ofs,uchomitted party.
&H_TRANsFER OJ' COlU'ORATE FRANCHISEs-CANCELLATION...,.NlllCESSA"RY PARTIES.
JURISDICTION ()J' ¢9URT-DEORIllB.
Plaintiftil. alleged that they were promoters of the. E. G. & F.' R. Co., organized for the oohtltruction of a railroad ; that they entered into a centract :With McC. & Co. tor the construction of the road, by which the company's right of wa::"andimprovements were conveyed to McC. & Co., 'who were tb build the road, pllimtiffilto,receivein return certain litock and first mortgage bonds of the road, lmd, a considerationt that McC. & cO' having obtained control of all the capi. tal stock and, property or the company, e lected a board df directors. composed of themselves 'and others, and sold out the whole property to defendants. a competing companl' without attempting to road; that defendants took with full notice 0 ,plaintiffs' rights. The bill prayed that the transaction might be held void, and' d,efenaants de,c,lared, trustees for Pl,aintifrS, etc., but sought no, affirmative relief against McC. & Co.' Held, that McC. & Co. were not indispensable parties to the 6uit; Railwau 00. v. Mill8, 5 Sup. Ct. Rep. 456. 118 U. S. 256, distinguished.
PARALLllL' RAILROADS-ILLEGAL PURCHASE BY COMPETING ROAD.
The purchase by defendants of the road in question, which· was parallel to that. oftbeir own, was illegal and void, under Const. Ga. 1877, art. 4,§ par. 4, forbidding one corporation to make any contract with anotber tending to llefeat or lessen competition, in their respective businessell, Langdo1lJv. Branch, 87 Fed. Rep. 449, 1'eaflirmed. . A'leaseorsale of the corporate frauchises of a railroad company to another co1'poratioIl,bywhich it to operate its ,lines, is an ,aballlionmElnt of its duty to the puoli.c, is ultra Vires, and is absolutely null and void. Central TraMp. 00. V. PUZTRna.wPalace Oar 00., 11 Sup. Ct. Rep. 478, 139 U. S.
4.RAiLitO.UlC01l1PANIES-LlIIASE OR ,SALlll 01' FRANCHISII-V ALInITY·
In Equity. Oharlton.J: Mackall, for plaintiffs. lPrwint, ,l)uBignon 4& Ohisholm, for defendants.
SPEER, District Judge. Charles H. Hamilton, a citizen of New and William F.Bishop, a citizen of Connecticut, filed this bill against the& Western Railway Company,a corpdration created under the laws of Georgia, and a citizen thereof, the East Georgia & Florida RailrMdCompany, also a corporation created under the laws of Georgia, and a: t}itizenthereof, "and against William V. McCracken, George A. Evans, andqNeil McDonald,who orators aver are citizens of the state of New York, and residents of the city of New York, in said state, copartners under the firm name and style of W. V. McCracken & Co." The complainants by their bill make the following case: They are copartners under the firm name of Hamilton & Bishop. The East Georgia & Florida Railroad Company was incorporated under the general laws of Georgia, for the purpose of constructing and operating a railroad from Buffalo to or near St. Mary's. The certificate of incorporation is attached to the bill, and it shows that L. M. Lawson, Samuel Thomas, and H. S. Terrell, of New York, and C. D. Willard, of Washington, D. C., were the incorporators. Afterwards the route was changed from the southerv terminus northwardly, by the most direct and practicable line, througb
& W. BY. 00.
the counties of Camden and Wayne, to Jessup, conne<;:ting at that point with the East Tennessee, Virginia & Georgia Railroad Company. The object of this company was to connect at st. Maty's with a system of railroads running to Jacksonville, and thence through Florida, and thus to supply railway facilities to a considerable portion of the state as yet without them. The Savannah, Florida & Western Railway Company owns and operates a line of railway from Savannah to Jacksonville by way of Waycross, which passes through Jessup. The East. Georgia & Florida Railroad Company, when constructed, would become and be a com petinglinefor business between Jessup and Jacksonville and other points. On December 22, 1885, by resolution of the directors of the East Georgia & Florida Railroad Company, its capital stock was fixed at $400,000, divided into 4,000 shares, of $100 each, such stock to be non-assessable and non-preferred, and the same remained so fixed during all the timeB hereinafter mentioned. By the same resolution it was declared that 51 per cent. of the stock should be issued to W. V. McCracken & Co., 30 per cent. to C. H. Hamilton,and 19 percent. divided into seven equal parts, one each to Goodyear, Kay, Hamilton, Dill, Morse, and Cox, and balfof a share each toJ. T. Collins and M. M. Welch. By the same resolution it was declared that the various interests in lands, etc., of the incorporators at St. Mary's and elsewhere, should be distributed in substantiaUythe same manner. Hamilton in all these matters was in fact acting as the representative of the firm of Hamilton & Bishop, who still are the real pnrties in interest. By virtue of said resolution, the complainants became the owners of,and entitled to, 1,200 shares of stock, and an undivided one-seventh ()f a right of way for a railroad occupying a portion of the territory to b.6 covered by the railroad of the Ea!'t Georgia & Florida Railroad Company, and 'all the improvements and work lXIadeand ,performed thereon, and an undivided one-seventh of the rights !lnd franchises formerly belonging to the Great Southern Railway Companyof Georgia, all of which were of great value. Complainants were promoters of the incorporation and organization of the East Georgia & Florida Rltilroad Company. They expended much time, money, and influence in the enterprise, with a view to realize a profit from the construction of the road. The Great Southern Railway Company was incorporated by act of the legislature of Georgia approved October 17, 1870, and was authorized to construct and operate a road from Millen, in as near a straight line as the topography of the country would permit, to the St. Mary's river, there to connect with the Great Southern Railway Company of Florida. On July 3, 1877, by decree of Wayne superior court, rendered in the case of Goodyear and Harris, for the use of the Southern Atlantic Telegraph Company, against the Great Southern Railway Company, the Great Southern Railway was sold by John F. King, receiver, to Willis Clary, property and franchises, who subsequently diep, leaving Lucinda Cliuy, hiB widow and heir at Inw, as the pwner of the. assets of the Great Southern Railway Company. Lucinda Clary poolp,d interests with the interests of complainants and their as promoters of the East Georgia ¢ Florida Railroad, Compal?-n
in'tQe: plioportions set· OUU: ," Under a ,resolution' of'ihedirectoDof the East Georg1uJ& Florida; COmpany, St\id Com pany made a contract with W. Vi. iMcCracken & Co. for buHding: a line from J essnp to HalIt'sRoad.This; contract: bears date DeceiUber 22, 1885,and is attached to the bill as ExhibitK On or about April 20, 1886, the promoters of the East Georgia & ,Florida Railroad Oompany, looking tl> the oonstruction of said road,. entered into a written contract with and .conveyance to" w. V.' McCracken & Co., wherein it is recited that McCracken & Co. have entered into a contract with the East Georgia & FloridaiRaiJroad Company, a corporation duly organized under the laws of Georgia and Florida', and authorized to construct and operate a road to extend from Millen, Ga., to Hart's Road, Fla., by which McCracken & Co; have undertakenl in consideration; of the compensation in said:contract provided,to furnishthe right of way I and all material necellsary1'or, and to construct and build, the said railroadj that the parties of the.first part thereto (the promoters) are severally the owners of certaiJ;l interests in a right of way for a railroad occupying a portion of the territorY' to be covered by the railroad of the East Georgia & Florida Railroad Company, and certain grading and other work done and materials furnished for a raIlroad over said right of way, and also of certain grants'ofland and concessions, and also are, or claim to be, the owners of certain rights and franchises formerly belonging to the Great Southern Railroad Company of Georgia, which were sold and conveyed to Willis Claryjand'under and by said contract and said parties 'of the first part thereto sold, granted. and assigned unto McCracken & Co., and theirf1SSigns, all the right, title,and interest ()f the said parties of the first part; and each of them, in and to the right ()f way aforesaid, and all the improvements and work made and performed thereon, and of, in, and ,to all the aforesaid franchises, rights, and privileges, and also an equal, ,undivided half part of, in, and to all the aforesaid grants and concessionsj and the said parties of the first part did thereby covenant and agree, at ,their own cost and expense, to secure for and transfer to said McCracken & Co. a full and complete right of way for the said railroad over the whole of the proposed route between Hart's Road and Jessup. The consideration moving to the parties of the first part for this contract and conveyance is therein stated to be certain stock and first mortgage bonds of the East Georgia & Florida Railroad Company, and certain sums of money payable in the manner set out in the said contract and conveyance. The consideration moving to Hamilton is stated to be 100 shares of stock of the East Georgia & Florida Railroad Company, and $3,000 in cash, payable October I, 1886. The bill ifurther avers that the complainants' interests in said properties, on April 20, 1886, were 1,200 shares of the stock of the East Georgia & Florida Railroad Company, one-seventh part of the said right of way and improvements, and of said rights and franchises, and one-fourteenth of the grants and concessions. That Hamilton, acting for the complainants, was to get from McCracken & Co., as a consideration for signing this contract and conveyance, $3,000 in cash, payable on October 1,1886, and 1,100 shares of stock upon completion
HAMILTON V. SA.VANNAH, F. & W. BY. CO.
of the road, and as soon as said shares should be delivered to McCracken & Co., or as soon as their right to receive such shares should accrue; and that in the mean time the said McCracken & Co. would hold the same as trustees for said Hamilton. A copy of the aforesaid contract and conveyance is attached to the bill as Exhibit C. At the time said contract and conveyance were made, McCracken & Co. did not mean to build the road,but intended to sell out to the Savannah, Florida & Western Railway Company, Of other parties, at a profit, without regard to complainants'rights. That, by means of said sale and conveyance, McCracken & Co. obtained control of all the capital stock and property aforesaid,and elected a board of directors composed of themselves or persons representing their interests, to the exclusion of all other interests, and continued in sole of the corporation, through all the transactions hereinafter set out. That without completing the rosdor their contract with Hamilton, and without his authority,McCracken & Co. sold and transferred the Esst Georgia & Florida Railroad, with all of its property and franchises, or attempted so to do, to the Savannah, Florida & Western Railway Company. At the time of said sale the Savannah, Florida & Western Railway Company not only had full notice and knowledge of the contract between McCracken & Co. and the East Georgia & Florida Railroad Company, but also of complainants' rights and interests therein. Before the Savannah, Florida & Western Railway Company paid the considera tion for said sale to McCracken & Co., it again received notice of complainants' rights. Said sale and conveyance was contrary to paragraph 4, § 2, art. 4, of the constitution of Georgia,· its being a contract or agreement intended to have the effect of defeating or lessening competition and encouraging monopoly, "and the said contract is therefore void, and should be so declared by this court." The Savannah, Florida & Western Railway Company, since buying the property, has made no attempt to build the road, but has abandoned the enterprise. The East Georgia & Florida Railroad Company is insolvent. Its franchises and property were rendered almost valueless by the acts of McCracken & Co. and the Savannah, Florida & Western llailway Company. In equity and good conscience,the Savannah, Florida & Western Railway Company should have assumed and carried out the obligations of the East Georgia & Florida Railroad Company and of McCracken & Co. with complainants. Complainants have requested the Savannah, Florida & Western Railway Company to account to them for the value of their rights and interests in the East Georgia & Florida Railroad CompanYl but said Savannah, Florida & Western Railway Company refuses. The said contract and conveyance of April 20, 1886, is absolutely void, because of fraud and want of consideration, and the same cannot, in equity, be considered as binding in any shape or form upon complainants. The Savannah, Florida & Western Railway Company, notwithstanding the notice it received of complainants' rights, has paid McCracken & Co. alargesuDl of money, and has taken an indemnity bond from McCracken & Co. to protetlt it against the claims of complainants. Tb,eroad along the line of the East Georgia & Florida Railroad Company is considered
by business and railroad people a practicable and reasonable. project, n.nd there are capitalists ready to build the road if the same can be legally accomplished. Complainants have, an equitable claim to 1,200 shares of said stock, an undivided one-seventh interest in the rights of way, improvements, and franchises aforesaid, and an undivided· one-fourteenth interest:in the grants and concessions aforesaid. Such are the averments of the .bill. The relief prayed is as follows: (1) That the made by McCracken. & Co. to the Savannah, Florida & Western RailwayCompany may be decreed tG be void and of none effect, as being in violation of the constitution of Georgia, and that the Savannah, Florida & Western Railway Company may be declared to be a trustee for complainants, and such other persons as may be eq· nitably entitled thereto, of all the property, assets, and franchises of the East Georgia & Florida Railroad Company. (2) An injunction to restrain the. Savannah, Florida & Western Railway Company from further destruction of the property. (3) The appointment oCa receiver to take charge of the property, assets, and franchises of the East Georgia & Flor· ida Railr,oad Company, and to manage and control the same subject to the further order of the court. (4) That the Savannah, Florida & West;, ern Railway Company may be compelled to account to a receiver for the value of the property of the East Georgia & Florida Railroad Company destroyed by it. (5) That the rights and olaims of complainants in and to the East Georgia & Florida Railroad Company may be protected and established by the decreepf this court, and that the Savannah, Florida & Western Railway Company maybe decreed to respond to complainants for auch damages as maybe shown to have resulted to them by rea80n of itsJillegal and unWarranted acts in the premises. (6) Discovery. (7) The' usual prayer for further and other relief. (8) Subpama is prayed against the East Georgia & Florida Railroad ,Company, the SavannahiFlorida& Western Railway Company, 'al1d also against the members. COlhposing the firm of McCracken & Co.· provided they, or either of them, should comewithin the jurisdiction of this court, and they shoUld to be necessary and proper parties to the bill. appellr: to the This cause is pending tJpon an applicatiou for an injunction and the appointment of a receiver pendente litdor the purposes described in the foregoing .statement. .The grounds of defense the defendants present by that under the allegations of the bill this court, for the want of proper parties, has no jurisdiction in the premises; 8econd, that it appears from the bill that there are no grounds for interference by a court of equity; third, that upon the proofs the merits of the case are with the, respondents. The questions thus presented will be considered in the order in which they are stated. "It is insisted for the respondents. that McCracken & Co. are necessary parties to the bill, and inasmuch as Hamilton, one of the complainants, and McCracken & Co. are citizens of the same state, the court herellas no jurisdiction to proceed with this Buit. Equity rule 47 pro-
HAMILTON V.SAVANNAH, F. & W.:&Y. CO.
MIn all cases where it shall appear to the court that persons who might otherwise be deemed necessary or proper parties tathe suit cannot be made parties by reason of their being out of the jurisdiction of the court, or incapable otherwise ofbei ng made part,les, or because their joinder would oust the jurisdiction of the court as to the parties before the court., the court may, in their discretion, proceed in the cause without making such persons parties; and in such cases the decree shall be without prejudice to the rights of the absent parties." Respondents insist that McCracken & Co. are indispensable parties, because the prayers of the bill are to declare as void the sale made by them of the East Georgia & Florida Railroad to the Savannah, Florida & Western Railroad; that the Savannah, Florida & Western Railway Company may be dedared a trustee for the complainants, and such others as may be entitled; that, if the sale is set aside and declared void, the title to the property will be in McCracken & Co.; that to appoint a receiver for the property the title to which is in McCracken & Co. would be to deprive them of their property without due process of law,-without giving them an opportunity of being heard, if they desire voluntarily to come to this court for relief,-for, as McCracken & Co. and Ham-' ilton are citizens of the same state, this court can under no circumstances hear any controversy between them. The defendants cite and I rely upon the case of Shielch v. Barrow, 17 How. 146. That case was argued by Mr. Juda4 P. Benjamin for the appellants, and by Mr. Janin for the appellee, nnd Mr. Justice CURTis delivered the opinion of the' court. The vendor .had sold an estate in Louisiana for a large sum of l money,and received payment from time to'time for nearly one-half the' amount.. ,Afterwards he agreed to take back the property upon the payment of an additional sum of money which was secured to him by the promissory note of six individuals, four of whom lived in Louisiana anQ. two in. Becomingdissatisfted with this arrangement, he filed his billin the. circuit court of the United States against the two citizens of Mississippi to set aside the agreement as having been erly procured, and to restore him to his rights under the original sale. The four parties to the compromise who resided in Louisiana not being in the circuit court of that state, and their presence 8S defendants heing necessary, it was held that the court could not rescind the contract as to two, and allow it to stand as to the other four. Consequently it could not pass a decree as prayed. The court held that neither the of congress of 1839, lO St. at Large, p. 321, § 1,) nor the fortyseventh rule for the equity practice of the circuit court, above quoted, enables a circuit court to make a decree in equity, in the absence of an indispensable party whose rights must necessarily be affected hy such decree. The. court go on to say:
"Such beIng the scope of this blll and its parties, it Is perfectly clear that the circuit court of the United States for Louisiana could not make any decree thereon. The contract of compromise was one entire su bject, and from its nature could not be rescinded, so far as respected two parties to it, and allowed to stand as to the others. ThomasR. Shields, the principal, and four out of six of his indorsers, being citizens of Louisiana, could not be made
tendante tn this sult, reteach 01 them (was an .indispensable party to a. bill tor the rescission of the contract. In Russel v. Clark'a Efl}'ra, 7 Cranch, 78. this court said: «The; incapacity imposed, on the circuit court to proceed against any person residing within the United States, but noL within the district for which the court may be holden. would certainly justify them in disparties are essenpensing with parties merely formal; but in this case all tial to the merit,s of the action.' .. 'The court proceeds to point out. three classes of. parties to a bill in equity. They are: (1) Formal parties. (2) Persons having an interest in the controversy, and who ought to be made parties, in order that the court may act on that rule which requires it to decide on and finally determine the entire controversy, and do complete justice by adjusting all the rights involved' in it; ThescpersoDs are. commonly termed "necessary parties,"but, if their interests are separable from those parties before the court, so that the court can prdceed to a decree and do complete and final justice without affecting other persons not before the court'; the latter are not indispensable parties. (3) Persons who have an interest in the Mntroversy, but an inwtestofsuch a nature that a final decree cannot be made without eitlieraffecting that interest or leaving the controversy in such a condition that its final terminawith equity and good conscience. The tion may be wholly court adds: "On FebruarY 28. 1839. ttJeact of congress was pallsed' upon this subject, That is still of force. and this court adopted the It prOVides that, in all Cases where it shall appear to the court that persons who might oLherwise be deemed necessary or proper parties to the suit cannot be made parties by reason of being out of the jurisdiction of the court, 'or incapable othel'wise of being made parties, .or bllCRuse their joinder would oust .jurisdiction of the court as to the Parties before the court, the court may. in their discretion, proceed in the cause without making such persons parties, and in 8u.,h cases a decrAe shall be without prejudice to the rights Of the absent parties. This act relates solely to the non-joinders of parties who are not Within reach of the process of the court. This court had already decided that the non-joinder of a party who could not be served with process would not defeat the jurisdictioJ;1."
It remains true, then, that, notwithstanding the act of congress and the forty-seventh equity rule, a court can make no decree affecting the rights of an absent person,' arid can make no decree between the parties before it which so far involves or depends upon the rights of an absent person that com plete and final justice cannot be done between the parties to the suit without affecting those rights. To use the language of this cotirtin Elmendorf v. Tayldr; 10 Wheat. 117: "If the case may be compietely decIded as between litigant parties. the circumstance that an interest exists in some other person whom the process of the court ,cannot reach, as if SUCh. a party be 8 of another state, ought not to prevent a decree upon its nleritSj but, irthe case cannot be thus completely decided, the court should make no decree.;"
In the last case above referred to Mr. opinion oft4ecourt, uses the followi(lg language:' '. delivering the .
HAMILTON V.SAVANNAH, F;
-Second. It is contended toot herthe plaintifflis a tenant in common with the others, and ought not to be permitted to sue in equity without making his co-tenants parties to the ,suit. This objection does not the jurisdiction, but addresses itself to the policy of the court. Courts of equity require that all the parties concerned in inter!'st shall be brought before tllem, that the matter in controversy may be finally settled. This equitable rule. however. is framed by the court itself, and is subject to its discrption. It is not like the discretion of parties,-an inflexible rule. a failure to observe which turns the party out of court because- it has no jurisdiction over his cause, -but, being introduced by the court itself for the purposes of justiee,is susceptible of modification for the promotion of those purposes. Inthis case the persons who are alleged to be tenants in common with the appear to be entitled to a fourth part. not of the whole contract. but of a specially described portion of it, which mayor riHiy not interfere with the part occupied by the dElfendant. NeitherthebillllOr the answer alleges such an interference, and the court ought not. without such allegation. to presume it." In Pa,yne v. Hook, 7 Wall. 425, it was held that, in a bill in equity in the circuit court by one distributee of an intestate's estate against an administrator, it is not indispensable that such distributee make the othel distributees parties, if the court is able to proceed to a decree and to do justice to the parties before it withont injury to absent parties equally interested. After stating the general rule, ,.hich is that all persons materially interested in the sUbject-matter of the suit should be made parties to the suit, the court proceeds: "But this rule. like rules. being founded in convenience, will yield whenever it is necessa.ry th11t it should yield in order to accomplish the ends of justice. It will yield if the court is able to proceed to a decree and do justice to the parties bdore it without injury to absent persons equally interested in the litigation, but who cannot conveniently be madle' parties to tbe suit." Citing West v. Randall,2 Mason. ll:ll; StOl')'. Eq.l:'l. § 89 et seq.
The necessity for the relaxation of the rule is more specially apparent in the courts of the United States, where oftentimes the enforcement of the rule would oust them of their jurisdiction, and deprive parties entitled to the interposition of a court of equity of any remedy whatever. The present case would seem to afford an ample illustration of this necessity. The bill itself is drafted upon the theory that McCracken & Co. are not necessary parties. No subprena is prayed against them. There is, however, a prayer that, if the court should deem them to be necessary parties for any purpose in such case, an order might be passed to that end, under section 8 of the act of March 3, 1887. The gravamen of the bill is the recaption of certain railroad stock alleged to belong to the plaintiffs, which it is alleged is held by the Savannah, Florida & Western Railway Company. The bill further seeks to establish an equitable lien upon the right of way of the East Georgia & Florida Railroad Company, also within the southern district of Georgia. It is alleged that the transfer of this property, to-wit, the franchise and al'sets, to its present custody was tortious as to the plaintiffs, and absolutely void, because a distinct violation of the organic law of the state. If this be true, may not the parties at interest proceed directly against the person or corporation holding their property without making any intermediate wrong-
doer a pany to the proceeding? If ,the conveyance from McCracken &: Co. to the Savannah, Florida & Western Railway Company is absolutely void and unconstitutional, the latter could acquire no title; for title does not pass under a void contract. If it be true, as alleged, that Hamilton conveyed to McCracken & Co. his interest in the East Georgia & Florida Railroad to the latter to build a railroad,and if instead of building the railroal1 its entire franchiSe and all its hQIdings were conveyed by a void contract to another corporation, it is optional with Hamilton to proceed against McCracken & Co. for the breach, of their undertakof the property itself. Code ing, or to pursue and Ga. § 2333. This is especially truevr,here the taker McCracken & Co. had notice of the nature of the,obligatlontheY were llnder to Hamilton and his associates,as is alleged:here. Here the proceeding is to declare & trust upon the property within the district, with,s prayer that all others whobave,&ll interest in it Illay;eome in and be madepartiesj and, if it be trtl6 'that McCracken & Co. have interests which should be protected by the court, it would seem that they might ,come in as parties complainant, by intervelltion, and. protect themselv:,es, and at the same, time not oust the jurisdiction of the court. BrQtlm!,. Steam-Ship 00., 5 Blatchf.52,6. , In Ribon v. [;lailroadOo., 16 WaU. 4Q'O, also cited by defendant. the sale sought to he iespinded was not'Y<;iiil, but merely voidable. As it was a sale under a decree foreclosing 'mortgages, it was man· ifestly true, that the trustees in, the mortgages were indispensable, Inthe casElpfCoirlm v. Millaudon,19 HoW'. 113,cited also, thebill attempted to set aside the sale, of on the ground of irregularity simply, and the Inqrlgageeswere held indispellsable parties. The court, on page 115, uses, ,howeYer, this significant language: "A court or equity, ill setting. allide a deed of a purcbaser upon groundll otller than, positive fraud ,on his part. it aside upon terms. and req a return of the purchase or that the conveyance stand as a security for its payment. 'Boyd v. Dunlcip, 1 Johns. Ch. 478; Sanqa v. Coawise, 4 Johns. 5$6, figS, 'This constitutes the t'Bsential difference'between relief in sq.: uity and that:afforded in aCGurt of 16W. A court of law can hold no middle course. claim of eacb party xnust rest and be determined at law, of tbe validity of j but it is; the ordinary case in on the the former collrt that a, deed not absolutely void, yet, under the circumstances, inequitable as between 'the parties, may be set aside upon terms. to Of course, all the parties to the deed merely voidable would be enti· tled to receive the benefit of such terms as the court ought to make in the order of, rescission, but the supreme court would seem to imply that, where the deed is absolutely void, no terms will be consideredj therefore such parties would not be .necessary. In the case of Railway Co. v. Wil81m, 114 U.S. 62, 5 Sup. Ct. Rep. 738, it was held that, to compel a corporation tp transfer to the plaintiff stock standing on, its books in, the name of a third person, the corporation is a necessary party. There the principal.relief was again'3t the railroad company, anll the case would be pertinent if the plaintiffs had filed their bill against McCracken & Co.,' and had omitted the Savannah, Florida & Western Railway. The of Railway C9. v. Milia, 113 U. S. '256, 5 Sup. Ct. Rep. 450, is the,
1'. " W. BY. CO.
Btrongest authority wehllve been able to find for the defendant's propO-; sition. There a suit was filed by citizens of New Jersey in aNew Jersey court against a New Jersey corporation, and citizens of New Jersey,l1nd a Pennsylvania corporation. The proceeding was to set aside a lease ml1de by that corporation, the New Jersey railroad company, of its road and property, in excess of its corporate powers, and in fraud of the rights of the plaintiffs. All the defendants, including the New Jersey corporation, united in defending the acts complained of, and denying the illegal and other charges against them. The court held, on a ,rootiontoremand the cause after its removal to the circuit court, that the New Jersey corporation was in no sense a mere formal party to the suit; ora party in the same interest with the plaintiffs, but was necessarily made a defendant. "The bill seeks affirmative relief,"con1 tinued the 'learned justice wbo rendered the opinion, "against the dii rectors as well as· against the two corporations, for one and the same, illet gal and fraudulent act. The single matter in controversy between the plaintiffs and all the defendants isthe validity of that act, and, unless it is determined that the action of the New Jersey corporation was as against the plaintiffs, there can be no decree against any of the defendants." , It cannot be denied that this is exceedingly like the case at bar; and, if it may not be distinguished therefrom, it is controlling. Upon careful consideration, it seems, however, to be distinguishable. Therl! the defendants, who were the railroad companies and many othercitV zens of New Jersey I had been sued in the New Jersey courts upon a sub: ject-matterofwhich these courts had jurisdiction concurrent with circuit court of the United States. They were before a court, therefore, with competent power to decide all the questions in controversy; and there could be no failure of justice because a party having a substantid interest was out of the jurisdiction. It may well be doubted,however; if the snit had been brought by the stockholders of the Ne'wJersey corporation who were residents of Pennsylvania, in the circuit .courtof the United States for New Jersey, whether that court would have <lanied' the plaintiffs a hearing because they had failed to make the Pennsyl.. vania corporation a party, when to have done so would have defeated the jurisdiction of the United States circuit court for New Jersey. Besides, this bill seeks no affirmative relief against McCracken & Co;; and while they would be proper parties, and perhaps ought tob!, parties, before all the matters which may arise in the controversy can be ado, judicated, yet it does not seem that they are such indispensable parties as, upon consideration of the authorities, will oust the jurisdiction and deny to the plaintiffs a hearing in the forum which they have sought. [n the case of Railroad 00. v. Mills, trUpra, the question arose on motion to remand, and the court was not in the position to exercise that discretion in the furtherance of justice to which Chief Justice MARSHALl. ad.' verted in the case of Elmendorfv. Taylor,lO Wheat. 117. On the other hand. this would seem to be· a case in which there is .a proper ocClision\,
FEDERAL REPORTER I vol. 49.
is as follows: 'The generalasspll1bly, shall have no power to authorize any corpOl'ation to buy shares or stock in any other corporation in this state or 0.)- make any contract or agreement whatever with any such corp\>ration wf!ic!llllay have the eff'ect, 01' be intended to have the effect, to defeat or lessen competition in their resppcti ve busitlt'sses. or to encourage monopoly;and'aU such contracts and agreements shall be illegal and void.' Analyzing this section, we have the following: (1) The general assembly shall have no power to authorize any corporation to buy shares or stock in any other corporation in this state or elsewhere which may have the effect, or be intended to. hJI,.ve the effect. to defeat or lessen competition in their respecti ve businesses. , (2) The gen,eral assembly shall have no power to authorize any corporation to buy shart's or stock in other corporations', in this state or elsewhere, which may have theeffect, or be intended to have the effect, to encourage monopoly. (8) The gentral assembly shall have no power to authorize any corporation 'to make any contract or agreement whatever with any such conpQration which may have the effect. or be intended to have the effect. to defeat or lessen competition iotheir respective businesses. (4) The general a8sembI,y,shall have no power to authorize any corporation to make contract or agreement which may have the effect, or be intended to have the effect, to encourage monopoly. The foregoing constitute four distinct inhibitions upon the power of the general assembly, and it goes without saying that any attempt of the legislature to legalize either or all of these forbidden acts would be ultra veres and void. Then comes: (5) And · all such contracts and agrefroents sbRIl be illegal and void.' What contracts or agreements? Cleady, the contracts or agreements of corporations which have the effect, or lue Intended to have the effect, to defeat or lessen competition or to encourage monopoly. In others words, the constitution, after specifying the four things which the legislature shall not do. then dt'clares what acts of the corporations themselves shall be void. · Contracts and agreements' must refer to transactions of corporations. and :not to acts of the legislaturp. If. then, the contract or agreement by Which the Savannah, Florida & Western Railway Company obtain£'d possessioI! of the properties and franchises of the East Georgia & Florida RailNad Company is olmoxious to any or all of the aforesaid inhibitions, sllch contract or agreement must perforce be void. and, under the decision in the Langdon Oase, a court of equity will interfere to .protect the property for the benefit of those entitled to it...
in.the:feUcitbuslanguage of the late Justice MILLER,t'forthe ex:ercise of the, powers and flexible methods of courts of equity." Ihemains to be determined whetbetthetransfer oHhe East Georgia & Florida Railroad to the Savannah,'Florida & Western Railway Company by McCracken & Co. is void 'because in violation of the constitution of ,the state of Georgia. The statement of this question cannot readily be'made in more appropriate language than that used in his brief by the learned counsel for the plaintiffs, Mr. Walter G. Charlton: "(a):The lanl!'uage of paragraph 4, § 2, art. 4, of the constitution of 1877,
The learned counsel refets, in the last sentence quoted, to the case of lJangdon v. Branch, decided by this court November 20,1888, and reported in 37 Fed. Rep. 449-465, a case based upon facts similar in many respects to those in the case at bar as they now appear, and in· volving the application of the clause of the constitution of the state above quoted. In the decision with referenpe to tQat clause the court used the following language:' ,
HAMILTON t1. SAVANNAH, Jr. & W. RY. 00.
"This is the action of the sovereign people of Georgia in convention assembled. They chartered the Central Railroad & Banking Company. They chartered the Savannah, Dublin & Western Short-Line Railway Company. Th",y granted to these railways vast, valuable, and perpetual franchises. With these rights thus granted. no power can interfere. They are perpetual; they are indefeasible. But with these rights are carried all the deterring and prohibitory effects of the constitutional inhibition just quoted, by which the people seek to defeat the of monopoly, and prevent the coporations which they permit to exist from aggrandizement of power, to the injury 61' destruction of public and private rights. The court has no official concern in the policy of this law. It is too plain and significant for intelligent controversy.· Whatever may be the rules upon similar topics prescribed in other states. the people of Georgia. With full power to act, with undeniable jurisdiction over the important parties here, have embodied in their fundamental law this comprehensive and vital clause, clearly intended to accomplish what they dCElmed the salutary and healthful result of competing lines for railway transportation. Contracts in violation of this clause are not permitted. When attempted, they are utterly void. T1}.ey have no binding force. They are nullities. and are to be disregarded and ignored when· ever it concerns a party at interest to do so. Now. what may not be done directly may not be done by indirection. The Central Railroad & Banking Company could not purchase the control of a railroad running parallel with its line from the same terminal points. Such a contract would be absolntely void, and being void, and an absolute D ullity, no title would pass under it." The decision was not appealed, notwithstanding the large interest involved, and is believed to contain a definite and valid exposition of the law, as declared by the constitution. Of course, by the language used the court did not mean to intimate that private parties could by their personal action ignore or disregard contracts void under this statute, but that courts in proper cases would hold them void. The construction placed upon this clause by the learned counsel for the plaintiffs here appears to be unanswerable. After declaring that' the generul assembly shall have no power to authorize any corporation to buy shares of stock in any other corporation, or to make any contract which may have the effect, or be intended to have the effect, to defeat or lesElen competition in their respective businesses, or encourage monopoly, and then declaring that all such contracts and agreements shall be illegal and void, it may not be supposed that the constitutional convention presumed that th9 legislature would authorize contracts which the constitution inhibited. So far as legislative impotency upon the subject is involved, it was sufficiently declared by the words of the clause: "The general assembly shall have no power to authorize," etc. The meaning of the last paragraph of the clause is therefore clearly that contracts and agreements between corporations to buy shares or stock in another corporation in this state, and contracts and agreements which may tend to defeat or lessen competition in the business of said corporations, or which may have the effect or tend to encourage monopoly, are illegal and void. If it be true, however, that the clause of the constitution is intended to declare merely that legislative action authorizing contracts of this injurious tendency is invalid and void, a fortiori would it be true that such contracts by corporations, which are the creatures of the legislature, when made
withouf1egislative authority, will void, and they would be held by the as invalid ana void. The clause ofthe constitutionhr'qtlestion is ar\d needs no legislation to enforcE' it. The iDlport of the clause may als'o hE' regarded as prohibiting the legislature from changing the common law ulJon this subject. It has long been true that, before one corporation can acquire the stock of another corporation, there must be express authority given for it by the state. At common law there was no such power. Ra.ilroad v. Collins, 40 Ga. 582; Railroad 00. v. Wood,7 South. Rep. 108, (Sup. Ct. Ala. Nov. term, 1889, opinion of Chief JuSticoSTONE;) Cook, Stocks, §§ 667-672. It does not appear that any statutory authority was given to the Savannah, Florida & Western Railway Company to buy stock in any other corporation. In fact,'its charter was not granted until after the adoption of the constitution of 1877, from which the inhibitory clause is taken. 'Since of this cause the supreme court of the United aftt1fan elaborate and careful review of the leading cases upon the gllneml subject, has rendered a decision confirming in all material reI:lpects the decisions in Railroad v. Collin8 and Landon v. Branch, supra. We refer to the cases of Central Tra,mp. 00. v. Pullman Car 00., 139 U. t3. Ct. Rep. 478, (decided the 2d day of March, 1891.) Decision by Mr. Justice GRAY for the entire court, except Mr. Justice B.aOWN, who, not having been a member of the court when the case was argued, took no part in the decision. Of this important cdse, its copious, careful citation and analysis of the authorities, and deduction of salu. tary principles therefrom, without making the superflllOus attempt to Apply the doctrine there settled, it will suffice to say it announces that where a corporation, altholJghempowered by its charter to enter into contracts with other corporations oLany state, for the leasing or hiring transfer to them. 'Or any of them, its railway cars and other personal property, transfers to any (X)rporationall its cars, railroad tracks, patentrights, and other personal properties and rights of action for a term of 99 years, and covenants it not tQengage in the business for which it was chartered whUe the indenture should retnJlin of force, the contract was ,un.1awful and void, because beyond the corporate powers of the lessor, involving an abandonnlent of his duty to the public; and therefore nO action cQuldbe maintained by the lessor upon the contract, or to re.cover the sums thereby payable, notwithstanding the fact that the lessee had enjoyed the benefits of the contract. The learned justice sums up the decision in the language following: "A contract of a corporation which is ultra vires, in the proper sense,that is to say, outside the object of its creation as defined in the law of its organization, and therefore beyond the powers conferred upon it by the legislature.-is not voidable only, but wholly Void, and of no legal effect. The objection to the contract is not merely that the corporation ought not to have ,made it, but that it could not 1Jlake it. The contract cannot be ratified by 'either party. because it could not have been authorized by either. No performance on either side can give the unlawful contract any validity, or be the :foundation of any right of action upon it. When a corporation is acting 'within of the powers conferred upon,it by the legislature,
HAMILTON ,. SAVANNAH, F. &: W. BY. CO.
the corporation, as well as persons contracting with it. may be estopped to deny that it has complied with·the legal formalities which are prerequisites to its existence or to its action. because such requisites might in fact have been complied with. But wben the contract is beyond the powers conferred upon it by existing laws. neither the corporation, nor the other party to the contract. can be, estopped. by assenting to it, or by acting upon it. to sbow that it was prohibited by those laws." As to the right of the Savannah, Florida & Western Railway to reCf)ver the money paid McCracken & Co., the following remarks of the learned justice' seem important: " A contract ultra vires being unlawful and void. not because it is in' itself immoral. but because the corporation. by the law of its creation. is incapable of making it. the courts. while refusing to maintain any action upon the unlawful contract, have always striven to do justice between the parties, so far as could be doue consistently with adherence to law, by permitting property or money, parted with on the JaJ-th the unlawful contract. to be recovered back, or compensation to be made for it. In such case. however, the action is not maintained upon the unlawful contracts, nor according to its terms, but on an implied contract of the defendant to return, or, failing to do that. to make compensation for, property or money which it has no right to retain., To maintain such an action is not to affirm, but to disaffirm, the unlawful.contract... The ground and the limits of the rule concerning the remedy the case of a contract ultra 'Vires, which has been partly performed, and,under which property has passed, can 'hardly be summed up better than they were by Mr. Justice MILLER in a ,passage already quoted, where he said that the rule "stands upon the broad ground that the contract itself is void, and, that nothing which has been done under it, nor the action of the court, can infuse any vitality into it;" and that, "where the parties have so far acted under such a contract that they cannot be restored; to their original condition, the court inquires if relief can be given independently,of the contract, or whether it will refuse to interfere as the matter stands." Pennsylvania R. Co. v. St. Louis, A. &: T. H.R. Co.,ll8 U. S. 317, 6 Sup. Ct. Rep. 1094. This case would control the actio(l of the court, even in the absence of the constitutional inhibition, as construed in Landon v. Branch. With reference to the merits of the controversy, it will be sufficient to say that it appears, as we are now informed, that the East Georgia & Florida Railroad Company and the Savannah, Florida & Western Railway Company are "competitive," in the sense in which the term'is used in the clause of the constitution of Georgia above referred to. It further appears tha.t, if the Savannah, Florida & Western Railway' Company were permitted to control or suppress the East Georgia & Floridil Railroad, it will have a monopoly of railway transportation ,for goods and passengers in all that sectiQn of the state from JElSSUP to the 'Florida line. It is not denied ths:tthe entire franchises and assets of the East Georgia & Florida Railroad Company are now controlled by means of the sale from McCracken & Co. to the Savannah, Florida & Western Railway Company. The interest of the complainants here is their claim to 1,200 shares of stock of the East Georgia & Florida Railroad,and
I. ...., .
"right ,of way." :Sufficient appears to give the ,tiffs Ii standing in court, at least for the purposes oflitigating their rights and taking evidence, to show, if, they can, that they are meritorious. All of these.fadts, of course, are made apparent merely by affidavits, or by the undisputed or conceded faets' in the After thorough investigation attainable by the usual progress of a suit in equity, a different appearance may be given to the case. As we aTe advised, howwe obliged to grant the injunCtion prayed for, and ever, at appoint a receiver pendente lite, in accordance with the prayers of the bill. An order will be taken accordingly.
(Cirpufl ,Court qfAppealB, Eighth Circuit. lI'ebl'llan'
The CircUIt court of appeals cannot take knowledge, actual or judicial, of what may appear upon the records of the district and circuit courts within the bounda'. ries of I, Cir.CUi, t.o sUPPo,rt, the right Of, ,appeal cann,.ot assume the existenlle of l1ece8saryfaots which do not appear of record in such court. an allowance of aclaimtn railway mortgage fOreclQsure proceedtngs, by one styling himself "the purchasing trustee of defendant's property," it did not thereoord that the property had been sold under the decree, or whatjnterelltt or rigJ;lt' appellant had in ,the proclledings,forwhom he was tr.listee, or moneys out of which the claim was paid a part of any fund in which he had an interesll. "Held, that the appeal should be dismIssed, appellant not , bV; the record BIJY right to appeal. In of'ril.ilway foioeclosures, where 'the property 18801d before the rights of lntervening'.Iparties, are determined. and by ,the terms of the decree the court reserves fuU power to heBJ:',such matters after" the sale, and subject the property or its proceedito,the payment of claims f1.nally adjudged to be prior to the mortgage lien., the proyer practice is for the purohaser, upon confirmation of the sale. to make himsel a to the foreclosure proceedings by filing a lupplemental bill or petition 01 intervention, and l if anon-resident. to appear by attorney; and, where the purchaser fails in suon partioular,the court should compel him to be made a party to the record.
" " " ,
, . " .
8. lI'ORBOLOSUR' ,OP, R,uLROAD
, Appeal frqlIl the Circuit Court of the United States for the Eastern District of Arkansas. "Bill!:?ythe Central Trust Company of NewYork against the St. Louis, & Texa,s Company to mortgage upon deroad. Louis Fitzgerald appeals from the allowance of a claim of Annie Evans out of the fund in court. Dismissed. S. n, W68t ard J. M. <!cJ. G. Taylor, for appelllUlt. Oscar D. appellee. ' Before and THAYER, District Judges.
" D,istrict Judge" ',This cause is now before us on a mQtionto of the re,cord discloses the .fo1dismiss the appeal, and an lowing to be.the position in which the matter standS before this court: