HOOK 11. A
847
HOOK v. AYERS et aLI (Circuit Court of Appeals, Seventh Circuit. No. 155. -()oBPOJU.TIQNS-OFFICERS-RAILROAD BONDS".-PLEDGE.
October 1, 1894.)
A rai\r()ad company, being the owner of 247 bonds or another company. pledged 125 of them to cross complainants, M. P. Ayers & Co. At or before that time the president of the company pledged the remaining 122 bonds to a syndicate. composed of himself, two of tire cr0S8 complainants, and others, for IL debt due by the company; and this wltir the knowledge of the cross complainants. Having subsequentiy the interests of his associates in the syndicate, tire president undertook to take title absolute to the bonds by crediting a certain amount upon tire debt of tire railroad company. Held, that the transaction was at most voidable at the suit of the railroad company, its shareholders or creditors. and'could not be attacked by the pledgee of the other bonds.
Appeal foom the Circuit Conrt of the United States for the :Southern District of Illinois. Suit by Charles H. Brownell, trustee, against the Louisville & St. Louis Railway Company, Jacksonville & Southeastern Railway Company, doing business as the Jacksonville Southeastern Line, Jacksonville, Louisville & St. Louis Railway Company, Louisville, Evansville & St. Louis Consolidated Railway Company, Marshall P. Ayers, Augustus E. Ayers, and John A. Ayers, partners as M. P. Ayers & Co., to foreclose a trust deed, and cross bill by Marshall P. Ayers, Augustus E. Ayers, and John A. Ayers, firm of M. P. Ayers & Co., against Charles H. Brownell, trustee, Louisville & St. Louis Railway Company, Jacksonville Southeastern Railway Com· pany, doing business as the Jacksonville Southeastern Line, Jacksonville, Louisville & St. Louis Railway Company, Louisville, Evansville & St. Louis Consolidated Railway Company, William S. Hook, and Mary B. Hook, to determine the relative rights of the bondholders. There was a decree ()f foreclosnre and distribution, from which Mary B. Hook appeals. Isaac L. Morrison and Thos. Worthington, for appellant. William Brown, for appellees. Before WOODS and JENKINS, Circuit Judges, and BUNN, District Judge. JENKINS, Circuit Judge. The contention here involves the relative rights of the holders of the mortgage bonds issued by the Louisville & St. Louis Railway Company. In a suit brought by the trustee to foreclose the trust deed securing such bonds, the appellees filed their cross bill against William S. Hook, subsequently amended by bringing in the appellant, to obtain adjudication of such relative rights. The cross bill asserts that the Jacksonville Southeastern Railway Oompany contracted with: the Louisville & 8t. Louis Railway Company to build the railroad of the latter com· pany from Centralia to Drivers, in oonsideration whereof the latter 1
Petition for rehearing overruled. For opinion on rehearing, see 64 Fed. --.
348
FEDEIU.L. Rll1P()RTER,
vol. tl3.
company was to issue and deliver to the former company its bonds, 247 in number, and itithe aggregate amounting at par value to $247,Opp,;tllatthe Jackson:vUJeCompany was withQut funds to construct the road, and that at its request the appellees furnished thE.' necessary money for that purpose from time to time as the work progressed; ,that. the Jackson"rllle Oompany gave its promissory notes to the'appellees for such advances, and delivered to them 125 of theoon:dl:ld>f $1,000 each, alii collateral security therefor,and claims that the several advances, with interest, amounted at the filing of cross bill to about the sum of $120,000. It further that, lttthe time of the execution of the bonds, William S. Hook of the Jacksonville Southeastern Railway Company; that he became the custodian of the remaining 122 of the issue of "that he is not· entitled to the sam.e in his personal right, and that, whatever of right he may have, it is subordiright of the complainants; and nate andinferiqrin equity to that he has no legal right to the bonds, other than as president of the ijoutheastern, Railway Company." The. cross bill praYl\l that the. ,debt of the appellees against the Louisville & St. Louis Railway Company may be held to be superior to the claims that it l>epaid out of the proceeds of sale. Mr. of all Hook answers' the cross bill, claiming that the remaining 122 bonds had Qeenlawfully transferred to him f.or value, and the appellant answ:eps. that she acquired the same through the gift of them to her by her husband, and asserting title to the bonds at the time of the gift to have been perfect in her husband, William S. Hook, and praying that her title to the same may be protected by tpe decree of the court. Upon replication and issue thus joined, evidence was taken bef.ore a master, who reported the same to the court SubsequeJ;ltly, on the 1st day of November, 1893, a final decree was paSsed in the court below upon the original and upon the cross bill, adjudging a· sale of the road, and also adjudicating the distribution of the proceeds of sale between the appellant and appellee. With: respect to the oontention involved, the decree finds as follows: (14) That in year 1887 the Jacksonville Southeastern Railway Company entered Into a contract with the defendant company. the Louisville & St. Louis Rallway Company. to build and construct for' said last-named company a railroad from the city of Centralia to the town of Drivers, a distance of about mUes. and in .consideration thereof the said Louisville & St. Louis Railway Company was to issue and deliver to the Jacksonville & Southeastern Company its bonds secured by deed of trust upon said railway so constructed. which said bonds and deed of trust or mortgage are specified in said original bUl. ,(15) That saidrallway was constructed in accordance with the terms of. said contract,and.. thereupon the Louisville & St. Louis to the JacksonvlIIe Southeastern RaHway Company Issued and Rallway Company two hundred and forty-seven of its bonds. of the denominationof ()ne thousand dollars each. bearing interest at the rate of five per cent. per annum. and the same bonds spooifiedin the said original bill, and secured .to be paid by the mortgage also specified in said original bill. (16) That at the making of said contract the said Jacksonville Southeastern Railway Com. pany was without the means or ready money to construct said railway. and that M. P. Ayers & Co., the complainants in said cross bill, at the request of the said Jacksonville Southeastern Railway Company. furnished the neces-
HOOK V. AYERS.
349
sary money for that purpose, and the Jacksonville Southeastern Railway Company executed and delivered to the said M. P. Ayers & Co. its promissory notes therefor, and with said notes delivered to the said M. P. Ayers & Co. one hundred and twenty-five of the said bonds, numbered from 1 to 125 inclusive, as collateral security for said advances. (17) That, at the delivery of said bonds by the Jacksonville Southeastern Railway Company to the said M. P. Ayers & Co., it was agreed between them that the said bonds so delivered should be the first and best lien on said mortgage estate, and superior to that of any other bonds of the same class. (18) That the defendant William S. Hook, at the delivery of said bonds and at the making of said agreement, was the president of the said Jacksonville Southeastern Railway Company, and that afterwards he, the said William S. Hook, while president as aforesaid, the remaining one hundred and twenty-two of said bonds, numbered from 126 to 247, both incllll'live, without the authority of said Jacksonville & Southeastern Rall-1l.y Company, and with full knowledge and notice of the said agreeW':::'L with M. P. Ayers & Co., and delivered the same to Mary B. Hook, hi.. ;"lfe, as a gift, and that the said Mary B. Hook now holds the same, aJ>i nas filed them in this case. (19) That the allegations of the said cross and amendment thereto are true, and that the equities are with the :U. P. Ayers & Co.
The 6.ecree thereupon adjudged that out of the net proceeds of the master should first pay to the appellees the sum due on the 125 bonds held by them, and in case of any overplus he sb.ould pay the same to Mary B. Hook, until her full amount was paid. The appellant brings here for review the decree of the court below, so far as it adjudges the relative rights of the con· testing parties with respect to priority in payment of the bonds. 'fbe facts, as disclosed by the record, are mainly undisputed. Upon one material point only can there be said to be controversy. The undisputed facts may be thus summarized: Prior to any transfer of the bonds in question the Jacksonville Southeastern Railway Company owned and operated a line of railway from Jacksonville to Litchfield. The road was bonded in the sum of $1,420,000, of which amount $194,000 remained in the treasury of the company. Mr. Hook was president, and the appellees Marshall P. and Augustus E. Ayers were two of the directors, of the company; the former being also its secre· tary, and the latter being also its vice president. These three persons held equal amounts of the stock, their joint holdings ago gregating over $600,000, and constituted the controlling interest. Mr. Hook, on the 1st day of February, 1887, and in behalf of a syndicate of six gentlemen, contracted with the receivers of the Wabash, St. Louis & Pacific Railway Company to operate certain lines from Pekin to Jacksonville, and from Havana to Springfield (now known as the Chicago, Peoria & St. Louis Rail· way); the syndicate to pay operating expenses and taxes, and to pay the receiver the one-half part of the net profits. In this syndicate, Mr. Hook held a one-half interest, and Marshall P. Ayers and John A. Ayers, two of the appellees, each held a onetenth interest. The bank account with the appellees was kept in the name of the Jacksonville Southeastern Railway Company, but, to their knowledge, embraced the earnings of all the lines. The net earnings of the leased lines accruing to the syndicate on July 1, 1887, amounted to $38,006.57, and were deposited in the bank ae-
:350
FEDERAL REPORTER,
vol. 63.
>cou.nt of the ,appellees to the, ,credit of South· Railwlli CompanY. OJ:!. July 4, 1887,thebank account -exhibited aClledit of 80me,$S,500, but the appellees held the notes ,of,the that month Mr. tb,e$l94,OOO of, remaining hI the treasury of the CQIPpany, in cash, which 'On the 5th day of J ulywas deposited in the bank of the appellees ,to the the .JacksonVille Company. On the 7th day of Ju.ly the up JtSXlote held by the appellees. This tr@.saction had upon t4e':understanding that the appellees ;should thereafter advance the necessary means to construct the Louisville '&, from Oentralia to Drivers, which the iJacksonville., CplJ;l,Rany had contracted. to build. In October, 'Qle moneys ofjhe, Jacksonville. Southeastern Railway Company in the bankseem.to have been exhausted, and advances were made by the appellees to that ,company, and were used hI. the ponstructiop- of. &r, St. Louis. Railway. '.QIl th-e 14th of November, 1888; tlle balance for such advances tlrDlountedto$S5,OOO, for which a note was given as hereafter :On October 1, 1887, the Louis;v:ille & St. Lou,is Railway Company ,deed securing the issue of 247 ponds of 'l,O()Q each. These bonds were early in the mon:th of December, 1S$7, to. the Jacksonyille Company for the 'eonstMlction,Qf'the road.T)Ie)ine was, thrown ,open to thepubIic opentted r()rtraffic on andllcfter the 4th day of December, IS87. On the 1St day of January, 188S, interest upon the bonds of the QompanYmaf,ured to the amount of $42,500, and the was, without t,O meet the ind,ebtedness. Mr. Hook ,applied to toJ,'a,. loan to the company to meet that payment, an4 they agreed to, and did advance the necessary money upon collaterll1 security, receiving the company's note, dated December30, 1887, for $42,50Q at,90 days, with 7 per cent. interest. "r,he note recites that there W,Il-s deposited with the appellees as eollateralsecurity "for payment of this or any other liability or liabilities of ours to said ba:p.k, due or to become due, or that may be hereafter, oontracted, the following property, viz. bonds of the Louisville and, St. Louis Railway Company, amounting to the sum of $125,000, being numbered from 1 to 1251nclusive." The note WEtS signed: "Jacksonville ,Southeastern Railway Company, by William S.. Hook, president Attested: M. B. Ayers, Secretary." '0n the Istot July, 1888, an,other installment of interest on the Jacksonville lW,lway Company's bonds to the amount of $42,500 due, and that compapy was without means to meet the payment. Mr.lIook proposed to the syndicate .operating the leased lines, to the that, as both had made large advances to Oompany, they should advance in equal amounts t¥ JP,oney required to pay that interest. The plan was carried into effect, the members (If the syndicate advancing onehalf of the amount, and the appellees advancing the other half. The appellees, for their advance, took the note of the company, signed by Mr. Hook as president and attested by Mr. M. P. Ayers
HOOK
v.
AYERS.
351
as secretary, dated August 1, 1888, at 60 days, with 8 per cent. interest; and Mr. Hook on the same day executed a note for a like amount for the sum advanced by the syndicate, which was delivered to }Ir. Marcus Hook to hold as trustee for the benefit of the syndicate. On the 31st of May, 1888, the net earnings of the leased lines operated by the syndicate, and which had been deposited in the bank account to the credit of the Jacksonville Company, amounted to $69,125.05, and had been consumed by the railway company in the construction of the Louisville & St. Louis Railway, and for its own purposes. At that time Mr. Book, as president of the Jacksonville & Southeastern Railway Company, executed its note dated May 31st, one day after date, for $65,000, with 6 per cent. interest, on account of that indebtedness of the J acksonviUe Company to the syndicate, and the note was delivered t9 Marcus Hook as trustee for the benefit of the syndicate. The remaining 125 bonds of the Louisville & St. Louis Railway Company were about January, 1888, deposited by Mr. Hook with the American Exchange Bank of New York, subject to the order of T. J. Rook & Co., a firm which was substantially William S. Book" in trust for and subject to the order of the syndicate, and as security for such amount as might be due from the Jacksonville Company. Upon the execution of the $65,000 note to the syndicate a dividend wasde<;lared of that amount, and receipts were taken by Marcus Hook from each member of the syndicate (except Mr. John A. Ayers, who appears to have been ill at the time) for the proportion coming to each. These receipts were delivered to Marcus Book, and represented the share of each in the $65,000 note, but no money was paid thereon at the time. In the month of June, 1889, William S. Hook, at the suggestion of Mr. John A. Ayers, agreed to purchase the interest of the other members of the syndicate. At this time one Southworth, a judgment creditor of the Jacksonville Company, was seeking to obtain the appointment of a receiver of the railway. To avert that result it became necessary to give a bond in the sum of $10,000, and to obtain a supersedeas upon appeal from the judgment which he had obtained. All the members of the syndicate, except Mr. Hook, were unwilling to assume any obligation in that respect. There were also unpaid taxes owing by the Jacksonville Company, and the sum of $42,500 of interest was maturing on the 1st day of July. The syndicate had also outstanding obligations with no means to pay the same, save such amount as could be realized on the 122 Louisville & St. Louis bonds held as collateral for advances to the Jacksonville Company. Mr. William S. Hook thereupon, at the suggestion of :Mr. John A. Ayers, assumed the giving of the bond in the SouthWOl'th case, and all obligations of the syndicate, and purchased the interest of the other members of the syndicate on the basis of $80,000 for the entire interest of the syndicate in the property. Hook paid each member of the syndicate for his interest on that basis, each of the appellees John A. Ayers and Marshall P. Ayers receiving $:3,000 fl'om Mr. Hook for his interest. Mr. Hook also subsequently paid the Southworth judgment, amounting to some $7,000. On November
352
'Vol. 63.
1888, the Jacksonville Southeastern Railway Company, by William S. H:00k,'president, and M. P. Ayers, secretary, executed its promissory note for $35,000, which was delivered to the appellees. This note'recites that the bonds of the Louisville & St. Louis Railway Oompany,numberedfrom 1 to 125 inclusive, are given as collateral. This 'Bote was given for the balance of account due by the JacksonvilleOompany, and represents moneys which were used in the constrnction of the Louisville &St. Louis Railroad. The debt due to the appellees is represented by the three notes of $42,500, the first two being for moneys $21,250,and $35,000 advanced to the JackSoIiville Company to pay interest on its own bolids, and the latter for advances to that company to construct the Louisville & St. Louis Railway line. The ,'parties agree that at the time of the deposit of moneys by the Jacksonville Company, and the payment of its note to the appelleei!l, in July, 1887, it was arranged that in consideration thereof the appellees should advance money to be used in the construction of the road from Centralia to Drivers. They disagree as to the condition upon which such advances should be made. One of the appellees asserts thatMr.Hook stated "he would secure us," but in what way is not disGlosed; another, that Mr. Hook promised they "should be reimbursed by the sale of the Louisville & St. Louis bonds," then not in existence; the third does not seem to speak to the transaction in question. Mr. Hook insists that, in consideration of the payment of the Jacksonville Company note at that time, the appellees agreed thereafter to make the necessary advances to the amount of the note then paid. He controverts any agreement to pledge the bonds when they should be issued. Subsequently the appellees took specific bonds in pledge for their advances. If they did not kilow on the occasion of the first of these loans that the remaining 122 bonds were claimed to be held in trust for advances made by the syndicate, of which two of tlie appellees were members, to the Jacksonville Company, they certainly knew it beyond contention on the 31st day of May, 1888, when they were so informed by Mr. Marcus Hook. Thereafter they made advances, taking the notes of the Jacksonville Company secured by specific pledge of the 125 bonds held by them, and without any claim made upon the remaining 122 bonds. The two cross complainants, who were members of that syndicate, with that knowledge, sold to Mr. Hook their interest in the syndicate, receiving from him $6,000 therefor. No claim of an equitable pledge of the 122 remaining bonds would seem to have been made by the appellees before their examination in November, 1892. They assert no such claim in their cross bill filed in July, The decree finds no such agreement. If it be possible to establish an equitable pledge in the light of this evidence and of the subsequent acts of the cross complainants, it is sufficient to say that no such alleged pledge is charged in the bill, or made the foundation of the decree. The decree finds that in December, 1887, upon the delivery of the 125 bonds to the appellees in pledge, it was agreed between them and the Jacksonville Company that the ''bonds so delivered should
HOOK'll. AYERS.
353
be the first and best lien on the said mortgaged estate, and superior to that of any other bonds of the same class." The evidence upon which this finding is sought to be rested, is as follows: Mr. John A. Ayers states as follows: "Statement was made that these bonds should be transferred to us from No. 1 to 125, Louisville & St. Louis, as security for advances made by M. P. Ayers & Co., of $42,500." This was undoubtedly correct, and is the transaction disclosed by the written contract. Upon being pressed whether anything further was said "about the bonds," he replied, "The statement was then made that the Louisville & St. Louis bonds were to be sold to reimburse us for the advances made to the Jacksonville Southeastern." The subject of the interview had relation to the loan of $42,500. The witness does not state that reference was made to any other bonds than those actually pledged. It probably was contemplated that those should be sold to meet the advance of $42,500. They amounted at par to more than thrice the amount of the loan, and their sale was authorized by the pledge. It seems improbable, if the appellees were at the time seeking further security for the then present advance, that they should not then have demanded and received it. The whole issue of bonds was then in existence, to their knowledge. They had been signed by Mr. Marshall P. Ayers, one of their number, as secretary; and all of the appellees were in a position to be fully informed of the transactions with respect of all the lines of railway, being largely interested in all, and officially connected with all. Mr. Marshall P. Ayers states the understanding to be that the notes-that is, the three notes now existing-were to be puid out of the sale of the Louisville & St. Louis bonds when they were sold. He speaks in a very general way. He does not particularize the specific bonds, or state that he refers to the whole issue. His testimony is quite consistent with the written pledge of the 125 bonds for the loan of $42,500, and for the notes thereafter executed. He is unwilling to say that the appellees were to be paid out of the remaining bonds to the exclusion of other creditors of the company. Mr. Augustus E. Ayers states that, at the time of the application for the loan of $42,000: "I then said to him that I would like some bonds as security, for the reason that I did not know what the financial condition of the country would be, and that I wanted some bonds in New York to use as collateral. He said lIe would get me $125,000 in bonds; that that was all that would be issued until the completion of the track; and, more than that, he said that all the bonds should be held intact to pay any advances of M. P. Ayers & Co. to the railroad line."
But upon cross-examination he states as follows: "We then took a note for $42,500, and to aid us in raising money, if It was essential, he gave me an order with it for $125,000 in bonds, and said that all the balance of the bonds belonged to the railroad treasury or syndicate."
This witness would seem to be mistaken in his assertion that Mr. Hook represented at the time of this conversation a stated number of bonds were all that could be issued until the complev.63F.no.3-23
354
FEDERAL Rll:PORTER,
-tion of the tracK. He places the' conversation in the last week of 1887" at the date of the note. It took place in the of Mr. John A. Ayers. The latter, in his testimony, such statement. Mr. Hook denies any such statement. Al!ls:matterof fact the road was completed and in full operation on the 4th day of December previous: That was matter of' public notoriety. The witness was the directJors of the company, andoould not have ignorant 'of the completion of the road, and could not have been imposed upon by such a statement, if it was made. It may further be observed that his assertion that he was 'promised by Mr. Hook "that all the bonds should be held in trust, to pay any advances of M.P.' Ayers & Co. to the railroad line," if he would: apply the remark to include the remaining 122 bOnds, is irreconcilable 'with the statement that Mr. Hook, informed him at the time that thebahmce of the bonds belonged to the syndicate. This theory of an'equitable pledgetlO the appellees of the 122 bonds conflicts with the el:press declaration of the notes accepted by 'them, signed bYOI!e of the as secretary of the Jacksonville Company, upon the occasion of subsequent advances, and stated to be secured by the pledge of the 125 bonds. It confiicts with the, evidence of the cross complainants themselves, one asserting his information at the time that the bonds were held in trust for the syndicate. It is in conflict with the subsequent action of .Mal"ShallP. Ayel"S and John A. Ayers, who, as members of, the "syndicate, sold ,their intel'est therein to Mr. Hook with knowledge that he claimed that these 122 bonds were held in trust as collateral security for the Haim purchased' of them. The testimony of Mr. :Hook with respect to this transaction appeals to us as entirely consistent with the contract executed, to accord with the subsequent acts of the appellees, and to be supported by the testimony of the appellees He states: "I did refuse to give him more bonds than the 125 bonds t.o secure the $42,500 note, and assigned as a reason that I intended to hold t.hese bonds, the 122,000, to secure the syndicate for advances made by {he Chicago, Peoria & St. Louill Company to the Jacks.onville Southeastern Railway Company. I did not at that time !!tate to A. E. Ayers that the 122 bonds were to be held to secure any advances made by M. P. Ayers & Co. to the Jacksonville Southeastern Railway Company."
The evidence of Mr. Augustus E. Ayel"S is only to be reconciled with and with the subsequent conduct of the parties, and with the written agreements, upon the construction that the 125 bonds as 'collateral to the note of $4:2,500 should serve 'as collateral for any future advances that the appellees might make; and that was undoubtedly the fact, as expressly stated in the written contract of pledge. And, finally, it is to be observed that there is. no assertion 'of any such claim of equitable pledge in the cross bill, or of any claim in the cross bill or in the evidence tbat the 125 bonds pledged were to be a first lieu upon the mortgaged estate in. priority to the other bonds secured by this trust deed. It proceeds solely upon the theory that the 125 bonds, and those alone, were pledged; and it claims that the appellees are entitled
355
to priority of payment for those 125 bonds over the 122 remaining bonds, because, and only because, the latter are in fact the pl10perty of the Jacksonville Southeastern Railway Company, and are held by Mr. Hook merely as custodian of that company. The finding of the seventeenth paragraph of the decree that it was agreed that the 125 bonds should be the first and best lien upon the mortgaged estate, superior to that of any other bonds of the same class, has no support in the allegations of the cross bill, or in the evidence before the court. We are next confronted with the claim presented by the cross bill, and upon which the appellees predicate their demand for priority in payment of their bonds, namely, that the 122 remaining bonds are in fact the property of the JackSQnville Southeastern Railwa;y Company, and held by Mr. Hook as president of the company, and merely as its custodian, and that any right of his thereto is subordinate and inferior in equity to the rights of the appellees. The decree, by the eighteenth paragraph, finds that Mr. Hook took the bonds without the authority of the Jacksonville & Southeastern Railway Company, and with full knowledge and notice of the agreement alleged to have been made with M. P. Ayers & Co. that the 125 bonds delivered to them should be the first and best lien on the mortgaged estate, 'and superior to that o·f any other .bonds of the same class. We have reached the conclusion that no such agreement was made, and the question of notice of it to Mr. Hook therefore passes out of the case. So that the question remains whether these 122 bonds are the property of the Jacksonville Oompany, and were taken by Mr. Hook without the authority of the company, or whether they became his property by the transactions detailed in the evidence. Mr. Hook claims that the 122 bonds were, about the 1st of January, 1888, deposited by him with the American Exchange National Bank of New York, subject to the order of T. J. Hook & Co., and held by T. J. Hook & Co. subject to the order of the Chicago, Peoria & St. Louis Syndicate as collateral security for such advances as had been ,or should be made by the syndicate to the Jacksonville Company. The not6 of the Jacksonville Company for $65,000, dated May 31, 1888, waif delivered to Marcus Hook as trustee of the syndicate. On October 1, 1889, William S. Hook caused to be indorsed on that note a credit of $61,000 as the purchase price of the 122 bonds, which he then took to himself, and claimed to own absolutely. The principal stockholders of the Jacksonville Company were Marshall P. Ayers, Augustus E. Ayers, William S. Hook, and Elliott & Dunn, of Philadelphia, their holdings amounting to about $930,000 of the $1,000,000 of capital stock. The syndicate, or in other words, the Chicago, Peoria and St. Louis Railway Company, was composed of William S. Hook, M. P. Ayers, John A. Ayers, Edward L. McDonald, E. S. Greenleaf, and Charles S. Rannells. Prior to this indorsement of payment, Mr. Hook had purchased all the interest of his associates in the syndicate. It is contended with great earnestness that the transactions of Mr. Hook in transferring the
356
J'EDERA,L REPORTER,
ponds, and in purchasiIlg,and taking them to himself, were void, and that the bonds still remain the property of. the Jacksonville Southeastern Oompany. . .contention is sought to be supported one occupying ftduciary relations upon the familiar m.atter of his trust upon his own ac· cannot deal with the count and for his own advantage, to the injury of those whose interests he .is bound to pr()tect. But it is a mistake to suppose that such transactions are absolutely void. They are at most voidable at the instance of the cestui que trust. Such dealings and in good faith, and without imare. upheld when they of the ftdticif.l,.fY relatton. Oil Co. v. Marbury, 91 U. S.587; Tyler v. Hamilton, ()2 Fed. 187-189. The transactions complained ,of here, if unfair and wrong, were injurious to the Jack· sonville OO;Illpany, and can only be impeached by that cQmpany, its creditors or Certainly they cannot be impugned by the appellees, who court simply as pledgees of the other bonds. The cross bill makes no attack upon those transactions as in any way detrimental.to the company, its creditors or shareholders, It may be further remarked that the transfer of these bonds in trust for the syndicate was known to the appellees probof the. first note, certainly before ably at the time -of the the making of the last two. Two of the appellees w.ere members of the syndicate, and disposed of their interest therein, and in the 122. bonds so held as collateral for the advances to the syndicate, to Mr. Hook, and received from him the consideration therefor. They would seem to be estopped by their conduct from denying the right of Mr. Hook to hold the bonds as collateral for the debt dpe the syndicate. Hotel Co. v. Wade, 97 U. S. 13. If the transaction by which the bonds were taken by Mr. Hook absolutely upon crediting a certain amount upon the notes was unwarranted, it can only be gainsaid by the Jacksonville Company, its creditors and shareholders; and if it were void Mr. Hook could still hold them as collateral for the debt to the syndicate, if that pledge We are of .opinion that the appellees are in no condition, suing neither as creditors nor shareholders, to contest the right of the appellant to the bonds. . The appellant insists that that portion of the decree is erroneous which directs the payment to the appellees of the full amount of the 125 bonds, with interest, since they hold them as collateral security for a smaller indebtedness. We find in the record no assignment of error which presents that question to our con· sideration, and must therefore decline at this time to express any ()pinion upon it. If error in that respect has intervened, it can be corrrected by the court below upon reconsideration. The determination of that question, we suggest, may well be postponed until the distribution of the proceeds of sale. They might prove $ufficient to render the question of no practical moment The decree is reversed, and the case remanded for further proceedings in accordance willi this opinion.
CITY OF SUPERIOR 'l1. NORTON.
357
CITY OF SUPERIOR v. NORTON et al.' (CIrcuit Court of. Appeals, Seventh Circuit. No. 107. MUNICIPAT, CORPORATIONS-ExECUTION OF CONTRACTS-CTTY COMPTROLT,ER.
October 16, 1893.)
In that chapter of a city charter which defined the powers and duties of the city comptroller it was provided that he should "countersign all contracts made with the city, if the necessary funds shall have been provided to pay the liability that may be incurred against the city under such contracts, and no such contract shall be valid until so countersigned;" while the chapter defining the powers and duties of the board of public works declared that "all contracts shall be signed by the mayor and clerk, unless otherwise provided by resolution or ordinance, provided. however, that no contract shall be executed on the part of the city until the city comptroller shall have executed the same and made an indorsement thereon showing that sufficient funds are in the city treasury, or that provision has been made to pay the liabiUty that may accrue under such contract." Held, that a contract of the city, imposing pecuniary obligation payable out of the revenue of the current year, not countersigned by the comptroller, was invalid, although the contract was made by another department of the city government than the board of public works.
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Appeal from the Circuit Court of the United States for the Western District of Wisconsin. Suit by Ann E. Norton and William F. Norton, Jr., against the city of Superior for specific performance. Oomplainants obtained a decree. Defendant appeals. The appellees filed their bill in the court below to enforce the specific performance of a contract for the conveyance of certain real estate situated in the city of Superior. In 1890 the board of park commissioners of that city adopted a plan for a boulevard and park system for the city, extending from St. Louis bay on the west, easterly and northeasterly to the Bay of Superior, a distance of several miles. In the central portion of the system it was designed to have a large park. The lands of the appellees which form the subject of contention here were situated within the territory embraced by the system, and were desired to be acquired by the city authorities for the purposes of the proposed park. The city, under the authority of its charter, instituted proceedings for the condemnation of the lands by the exercise of the right of eminent domain. Pending these proceedings, the parties negotiated for the purchase of the lands by the city, which resulted in a contract dated December 16, 1890, between the board of park commissioners of the one part and the appellees of the other part, by which the premises were agreed to be sold to the city for the price of $33,083.50, payable upon the delivery of a good and valid warranty deed at any time on or before six months from that date, with interest at 7 per cent. per annum, which sum the city of Superior, by the board of park commissioners, agreed to pay. This contract was ratified and approved by resolution of the common council of the city on the 6th day of January, 1891. The defendant interposed three pleas to the bill, in substance as follows: First That previous to the contract the common council had not provided the money or funds to discharge the liability created by it, and that there was no money in the treasury at the time of the execution of the contract, nor at the time when the deeds were to be delivered, available to pay the liability and indebtedness thereby incurred; and that the common council did not, by the resolution approving the contract or otherwise, provide for the collection of Ii. direct annual tax sufficient to pay the principal and interest of the 1
Rehearing pending.
