144 F. 742 (8th Cir. 1906), 2,299, Cella v. Brown

Docket Nº:2,299.
Citation:144 F. 742
Party Name:CELLA et al. v. BROWN et al.
Case Date:March 08, 1906
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 742

144 F. 742 (8th Cir. 1906)

CELLA et al.


BROWN et al.

No. 2,299.

United States Court of Appeals, Eighth Circuit.

March 8, 1906

On Rehearing, May 7, 1906.

(Syllabus by the Court.)

A mere allegation in a bill of complaint that the plan of reorganization between two street railway companies was fraudulently designed, without specifically charging that said companies participated therein, or specifying in what the fraud consisted, is a mere brutum fulmen. It presents no issuable fact, as it is a mere conclusion of the pleader.

Where the bill in equity instituted in the state court on its face states no ground of equitable relief against two defendant corporations, citizens of the same state as that of the complainants, such defendants should be eliminated from the case in determining the right of removal by a non-resident defendant in such action.

While the pleader, in the instance where he is uncertain as to what specific relief he is entitled, may so frame his bill as to entitle him to an alternative prayer for relief; yet he may not be so entitled where the bill clearly discloses the fact that he seeks relief based upon the recognition of the validity of a transaction which he seeks to specifically enforce, and at the same time pray for the annulment of such transaction as fraudulent.

The parties to the contract, as a general rule, are the only proper parties to a suit for its performance, except in case of an assignment of the entire contract, or there are some special circumstances authorizing a departure from the rule.

Where the bill seeks specific performance of an alleged contract between the complainants and the nonresident citizen defendant, claiming that under the contract the complainants are entitled to an allotment of an aliquot proportion of a large mass of bonds and securities, controlled by such nonresident defendant, against whom a decree for such allotment would apparently afford the complainants complete relief, a third party defendant, a citizen of the same state as complainants, to whom the nonresident defendant has made an allotment of like apportionment without complainant's consent, is not such a necessary party defendant as to disentitle the nonresident defendant to remove the controversy into the United States Circuit Court.

The remedy by specific performance, lying within the domain of judicial discretion not arbitrarily exercised, may be refused whenever there is any uncertainty or doubt about the terms of the proposed contract, or a well-founded conviction that its specific enforcement, under the facts and circumstances of the case, would be harsh and unreasonable, or more hurtful to the rights of others in interest than its denial to the suitor.

Where two street railway companies, to prevent financial disaster, enter into a tripartite agreement with designated Syndicate Managers for a plan of reorganization, whereby such managers were to control, for a given period, and sell participating interests in certain bonds and securities hypothecated as collaterals to secure a contract between the two street railway companies, to raise the necessary funds to meet pressing, maturing obligations of the pledgor company, providing for a specific time of control by and compensation to such Syndicate Managers, who, in order to raise an immediate fund of $7,000,000, submitted to the complainants as shareholders in the pledgor company a proposition to allot to them an aliquot portion of such bonds and securities on the payment to a designated agent of the Syndicate Managers of the purchase price, such interest in the purchaser to be evidenced by a participating receipt to be delivered to him by such agent, which proposition the complainants accepted, and, when they made tender of the designated purchase price, refused to execute the agreement, evidencing the right of the Syndicate Managers to hold and manage the securities for the designated period and compensation for their services, which was left by the Syndicate Managers with such agent to be signed by the purchasers before delivering to them the participating receipt evidencing such allotment. Held that, it appearing from the evidence that the complainants had participated in the meeting of the stockholders of said railroads providing for such reorganization, and that they had notice before the submission of said proposition to them of the terms of said agreement submitted for their signature, their refusal to so execute the same was a departure from the syndicate proposal of sale and disentitled the complainants to a specific performance.

If the settlor, even without a valuable consideration, makes an explicit declaration of trust duly executed, with the intention of it being obligatory upon him, equity will enforce such trust. But, if it be a mere agreement without consideration to execute an agreement declaratory of a trust, the court will not enforce it, and no trust relation arises where there is a mere promise to execute an agreement when the promise is conditioned upon the promisee executing on his part a collateral obligation which he refuses to do. In such case no implied trust arises, for the reason that the vendees did not accept the proposition on the conditions submitted by the vendors.

The right to remove a suit in equity must be determined on the allegations of the bill as filed in the state court, and neither the allegations

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of a bill of repleader filed in the federal court after removal nor of the answer can be considered.

The certification of a question of law by a Circuit Court of Appeals to the supreme court under Act March 3, 1891, c. 517, Sec. 6, 26 Stat. 828 (U.S. Comp. St. 1901, p. 549), is a matter resting in the discretion of the court, the exercise of which cannot be invoked by a party as a matter of right. Such certification should not be made, except in cases of grave doubt, and not after the case has been decided by the Circuit Court of Appeals.

Page 744

The United Railways Company of St. Louis (hereinafter styled 'the Railways Company'), the owner of a system of railways in the city of St. Louis, on September 30, 1899, made a contract of lease with the defendant the St. Louis Transit Company (hereinafter styled 'the Transit Company') to extend, improve, and operate said street railways for a period of 40 years. Acting under the covenants made in said lease the transit company became largely indebted, beyond its ability to promptly meet and continue to be 'a going concern.' To meet this financial situation, on the 1st day of November, 1901, the transit company authorized an issue of its three-year five per cent. collateral trust notes, amounting to $6,000,000, to secure which it pledged with the Mercantile Trust Company of St. Louis stocks and bonds owned by it as follows: $2,877,000 four per cent. general mortgage bonds of the railways company, and $4,893,500 five per cent. preferred stock of the railways company. Of the authorized issue of the collateral trust notes, $5,776,000 were sold, maturing November 1, 1904. On June 17, 1903, the transit company, becoming further indebted and pressed for funds, authorized the issue of $20,000,000 20-year 5 per cent. gold improvement bonds, to be secured by the collaterals theretofore pledged with the Mercantile Trust Company, and by 33,297 shares of preferred stock and 172,613 shares of the common stock of the railways company, and mortgage executed by the transit company on its leasehold interests in said property, as also by the guaranty of the railways company. Being unable, however, to sell or dispose of this last-named issue of bonds or make other provision for the payment of its collateral trust notes maturing November 1, 1904, and its other indebtedness, the two railway companies and their stockholders were under the imperious necessity of adopting some plan to prevent the bankruptcy of the company.

The result of their convention was that what is known in this controversy as a 'Tripartite Agreement' was entered into on the 27th day of September, 1904, between the transit company, the railways company, and Brown Bros. &

Page 745

Co., a copartnership resident of the city of New York, as Syndicate Managers; which, after reciting the indebtedness and collateral trust securities aforesaid, and the fact that the transit company had a further specific floating indebtedness of about $935,000, which it was unable to meet except by the sale of the collaterals deposited with the Mercantile Trust Company, and which it was unable to dispose of without procuring a release thereof from said pledges and the right of substitution which the railways company had by reason of the terms of its guaranty, it declared that the transit company proposed to make an issue of 5 per cent. 20-year gold bonds to be called improvement bonds, in the aggregate amount of $10,000,000, and obtain the guaranty of the railways company thereon, secured by a mortgage of the railway company upon all of its property. The agreement then stipulated as follows:

'First. Transit company agrees, whenever requested by the railways company so to do, that it will surrender to railways company, by proper instruments or conveyance of release, all and singular the property demised by the aforesaid lease of September 30th, 1899, and deliver, assign and transfer to railways company, upon such request, the immediate possession of all the said demised property, and all cash, bills receivable or other credits then owned or held by it, for and upon the considerations and conditions hereinafter named. Provided, only that railways company, at the time of said request, shall release and fully acquit transit company from all liability which then has or may thereafter accrue to railways company under or by virtue of any of...

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