FOOTE et al.
(CtrcuU Court, D. New Jersey. September 27, 1892.)
INJUNCTION-RESTRAINING ENFORCEMENT OF JUDGMENT-FEDERAL AND STATE COURTS.
Decrees of state courts, having jurisdiction, in a suit against a corporation, brought by a creditor on behalf of himself and others, established the validity and declared the legal effect of a deEld of trust made by the corporation for benefit of creditors, ascertained the debts o"71ing by it, and made calls on unpaid subscriptions to its capital stock, upon which the trustee appointed to execute the deed of trust recovered judgment against a stockholder in a United States circuit court in another state. Held. that that court would not restrain the enforcement of such judgment upon charges of fraud and collusion in the al10wance of claims by the decrees of the state courts, neither the corporation nor the creditors whose claims were impugned:being parties to the suit for injunction, and there being other creditors having just claims for tne payu:ent of which there were no assets except the unpaid subscriptions; as, even if more than the complainant's just proportion of such valid claims should be collected by execution, the excess would be refunded.
InEquity. Motion for preliminary injunction. Denied. Suit by John T. Foote, Catharine J. Cooper, and Robert D. Foote against John Glenn, trustee of the National Express & Transportation Company, to restrain the enforcement of a judgment recovered by deagainst the complainant John T. Foote. See 36 Fed. Rep. 824. The. complainants joining with Foote in the bill were the sureties upon the bond given by him upon allowance of a writ to review said judgment. Complainants moved on their bill and affidavits for a preliminary injunction. Alfred MillS and George Zabriskie, for complainants.. Oharles MarshaU and Charles Biddle, for defendant; Before ACHESON, Circuit Judge, and GREEN, District Judge. ACHESON, Circuit Judge. That the chancery of the city of Richmond, Va., in the suit brought by William W. Glenn, suing on behalf of himself. and other creditors, against the National Express & Transportation Company, a corporation of Virginia, and others, had jurisdic. tion to make its decree of December 14, 18HO, establishing the validity of the deed of trust for the benefit of creditors, executed by the said corporation, and declaring its legal effect, removing the surviving trustees thereunder, and appointing a new trustee (John Glenn) in their place, ascertaining the debts owing by the corporation, and. making an assessment and call upon the subscrihers to its capital stock for a partial payment of their unpaid subscriptions, for the purpose of satisfying the debts of the corporation, and that the citcuit court of Henrico county, Va., to which the cause was removed, had jurisdiction to make its decree in chancery of March 26, 1886, for an·additional assessment and call upon said subscribers, are propositions no longer debatable, in view of the decisions of the supreme court of appeals of Virginia in Lewis' Adm'r v.Glenn, 84 Va. 947, 6 S. E. Rep. 866, and Hamilton v. Glenn, 85 Va. 901, 9 S.E. Rep. 129, and the decisions of the supreme court of the United States in Hawkins v. Glenn, 131 U. S. 319, 9 Sup. Ct. Rep. 739; Glenn v. Liggett, 135 U. S. 533,10 Sup. Ct. Rep. 867; and Glenn v.52F.no.6-·34
FEDERA.L REPORTER, .vt>l.
v. Marbury, 145 U. S. 499, 50e, 12 Sup. Ct. Rep. 914. It is indeed true that the bill now before us tQ resttain the trustee, John Glenn, from enforcing his,jtldgtll:ent()qt!1iped ,on the law sideofthj.s court against the complainant Foote, one' of th'e 'subscribers to the capital stock of said corporationj proceeds u,poA. tlle g;rqijIJ.cl, that the Virginia decrees werli procured by specifically charged by the bill and set fort4 in,tbe affidavits 'tiled in support o(the present motion is tbattleI'tain claims, were, allowed by the decree of ,December 14, 1880, which 'were open te> validd,e(enses, and that other specified claims were thereby allowed whioh were unfounded and fraudulent, and that the court was, kept in ignorance of the facts by the fraud and collusion of parties to the cause. Bot, ifthis be so, how can this court properly interfere? By what rightful authority can we undertake to pass upon the merits of individual claimel sanctioned by the Richmond court? Neither the l;lorporation nor the qreditors whose claims are here impugned are before" us, 'or within the' reach, of the process of, this court. Furthermore,tbe:fraudnow cdtnpla:ineO of, if proved, would not invalidate the whoIe:proceedings in the Virginia courts.:Uis not denied that there are 'of the who haVe just claims which should be paid. Nowjthose credito'r$ are'not responsible for the fraud alleged, and they ougM'not to be prejudiced thereby. There are no assets for the and unimpeachable claims except the unpaid stock subscriptibns. ' The trustee appoil1ted by the Virginia court of chancery, acting under the decrees, is proceeding to collect the stock as:cessmehtsfor the payment of the 'debts of the corporation. The pistribtition 6f the fund so to be raised is exclusively a matter for theVirgiriill. chancery court. Indeed, that court is dealing with a it hasacqtlired rightful jurisdiction. The complainants, therefore, in I,?e!'lking here, are' in the wrong forum. Their application for relief against the consequences of the alleged fraud should 'beadiIressed to the Virginiai court.' The case, we think, falls directly withiii'the principle bfthe deCision in Graham v. Railroad Co., 118 eSup.Ct. We must assume that the Virginia chancery court is t'reelyopen. to the complainants, and it is not to be doubted that upon proper Mmplaint that tribunal will investigate the facts, and grant appropriate relief' if fraud should be shown. In the mean time the worst the complainants is that a greater sum may be collected by e,xecution at law than Foote's just proportion of the valid claims agailist' the corporation as they may be established ultimately. But,ifthis should prove to be the case, the eXCess will be refunded; and, assuredly, the possibility that he may now be compelled to pay more than. may be neenEidin the end affords no equitable ground for restraining execution upon the judgment which the trustee has recovered against him upon the assessments and calIS made by the chan<1erycourt.' Kennedy v. Gibson,' 8 Wall. 498, 505,.' ,We must deny the motion for a 'preliminary injunction, and dissolve' .the restraining order :heretofore made. ' GREEN, District Judge, concurs.
EAST & W. R. CO.
& W. It. Co.
et al. v.
(OircuU Court, N.D. Azabama, B. D. January 12, 1892.)
CORPORATIONS,;.....IsSUE OF STOCKII'OR CONSTRUOTION OF RAILROAD-CONSTITUTIONAL RESTRICTION·.
Certain stockholders and directors of a railroad company, who owned a controlling interest therein, having the best interests of the company in view, and with the concurrence of all the other stockholders, negotiated a contract on its behalf with a construction company for the building of a portion of the road for $10,000 per mile in the bonds, and $10,000 per mile in the stock, of the railroad company. Held, that as the contract appeared to be fair, under the circumstances, and involved no fraudulent overvaluation. of the work, the bonds and stock issued in accordance with its terms were not void, under Const. Ala. art. 14, § 6, pro"iding that "no corporation shall issue stock except for money, labor done, or money or property actually receiVed, and all fictitions increase of stock or indebtedness shall be void. "
ISSUE 011' BONDS.
2. SAME,;"",CONTRAOTS BETWEEN COMPANIES HAVING SAME DmECTORS-RATIFIOATION-
The same persons, being also the stockholders and directors of an iron company, negotiated in good faith a contract between the railroad company and the iron company, which took the form of a resolution by the railroad company to lease a railroad oW'ned by the iron company, and.pay in stocks and bonds, and of a subBcription by the iron company to be paid in property, viz., a lease of their railroad: and the contract was ratified·. by a unanimous vote of all the stockholders of the railroad company. Held, that the contract was, at worst, only voidable, and as no fraud or intentional overvaluation appeared, and the consideration was as nearly adequate as could be expected under the circumstances, the bonds issued in accordance therewith were valid.
3,SAME-ISSUE OF HONPS-PUROHASE :BY CONTROLLING DIRECTORS AT DISCOUNT.
Subsequently:, the same retaining control of the railroad company, fore· bore to collect Interest on Its first mortgage bonds held by them, and advanced to it money fol' repairs made necessary bV an unusual fiood, and for improvements, until such fioatmg debt amounted to upwards of $300,000. For the purpose of paying this, a meeting of stockholders authorized the issue of debenture bonds of the railroad company, Iiot exceeding $500,000, to be secured by a second mortgage. The directors had previously resolved that such bond·s, when issued, should not be disposed of at less .than 65 per cent. Held, that the purchase by such persons, holding the entire fioating.debt, of the whole amou)}t of bonds authorized, paid for in snch indebtedness, and the balance in cash, was .valid. . Thereafter, in accordance with resolutio!ls of the stockholders in the company, which were assented to by all the stockholders, and which authorized the issuance of consolidated first mortgag-e bonds, in order to extend and improve the road, to .take up and retire the first mortgage bonds and debenture bOnds,' and to cancelthe first and debenture mortgages, tlie railroad company issued to the same persons' consolidated first mortgage bonds, and took up at an agreed rate the debenturebonds; purchased by them, the first mortgage bonds and stock issued to them and to the iron company, and the first mortgage bonds and stock issued to the construction company, and subsequently sold to them by that company to enable it to complete the road. Held, in an action to foreclose such consolidated. first mortgage, that subsequent purchasers from them of such consolidated first mortgage bonds were chargeable with notice of the prior bonds and mortg-ages. and of the terms on which such consolidated bonds were issued, and that, the railroad company acquiescing in the transaction, and no intention to defraud subsequent creditors being shown, such subsequent purchasers could not impeach the prior indebtedness on which such bonds were issued, in order to invalidate the balance of the bonds. Holders of first mortgage bonds of a railroad, having contracted with brokers to sell all. their bonds, transferred to the brokers a portion of the bonds, and together with the brokers fraUd. ulently procured the listing 'of the bonds in the New. York Stock Exchange. .Held, that persons Who loaned monev to the brokers on such bonds as security,relyiug either on the standing and representations oithe brokers, or onquotaUons made in the New York Stock Exchange, and produced by fictitious maniPJ11ations pf. the brokers, and not on tile false representations made by thl'l
4. SAME-RIGHTS OF BONDHOLPERS-IMPEACHtNG PRIOR INDEllTEDNESS.
5. EQTIITY-RELIEF PROM FRAUP-RELIANOE ON FALSE REPRESENTATIONS.