Swan Land Cattle Co v. Frank

• Citation: 148 U.S. 603,37 L.Ed. 577,13 S.Ct. 691
• Decision Date: 10 April 1893
• Docket Number: No. 150,150
• Parties: SWAN LAND & CATTLE CO., Limited, v. FRANK et al
• Court: United States Supreme Court

148 U.S. 603

13 S.Ct. 691

37 L.Ed. 577

SWAN LAND & CATTLE CO., Limited,

v FRANK et al.

No. 150.

April 10, 1893.

In equity. Bill by the Swan Land & Cattle Company, Limited, against Joseph Frank, Morris Rosenbaum, Joseph Rosenbaum, and others. In the circuit court a demurrer to the bill was sustained, and the cause dismissed. 39 Fed. Rep. 456. Modified and affirmed.

W. H. Swift and Thos.

D. Jones, for appellant.

J. M. Woolworth and Levy Mayer, for appellees.

Mr. Justice JACKSON delivered the opinion of the court.

The appeal in this case presents for our consideration and determination the question whether the circuit courts of the United States can properly entertain jurisdiction of a suit in equity which unites and seeks to enforce both legal and equitable demands, when the right to the equitable relief sought rests and depends upon the legal claim being first ascertained and established, and where the person against whom such legal demand is asserted is not made a party defendant; or, stated in another form more directly applicable to the present case, can a party having a claim for unliquidated damages against a corporation, which has not been dissolved, but has merely distributed its corporate funds among its stockholders, and ceased or suspended business, maintain a suit on the equity side of the United States circuit court against a portion of such stockholders, to reach and subject the assets so received by them to the payment and satisfaction of his claim, without first reducing such claim to judgment, and without making the corporation a defendant and bringing it before the court? This question, which hardly needs or requires more than its bare statement to indicate the answer that must be made thereto, arises as follows:

The appellant, the Swan Land & Cattle Company, Limited, a corporation organized under the companies' acts of Great Britain, and being a citizen of that kingdom, filed its bill in equity in the court below against the appellees, all of whom are citizens of Illinois, except two, who are citizens of Wyoming, containing substantially the following material averments: That in November, 1882, three Wyoming corporations, known, respectively, as the Swan & Frank Live-Stock Company, the National Cattle Company, and the Swan, Frank & Anthony Cattle Company, being the owners of large herds of cattle and other property in Wyoming, and engaged there in the business of raising and selling what are known as 'range cattle,' entered into an agreement in writing with one James Wilson, of Edinburgh, Scotland, acting in his own behalf and for others to be thereafter associated with him in a limited liability company to be formed under the companies' acts of Great Britain, by the terms of which said company, when organized, was to purchase of the Wyoming corporations, for the sum of $2,553,825, 'all and singular the lands and tenements, water rights, improvements upon lands, houses, barns, stables, corrals, and other improvements and grazing privileges; also all live stock, consisting of neat cattle, horses, and mules, belonging to the said three Wyoming corporations, or any or either of them; also all live stock, brands, tools, implements, wagons, harness, ranch, camp, and round-up outfits, and branding irons' belonging to said Wyoming corporations, all of such property being particularly enumerated and described in certain inventories annexed to said agreement. In regard to all the property sold, except the live stock, the agreement provided that the representations in those inventories should be verified by a competent inspector or inspectors to be named by the British company, prior to the transfer of the title to such property, and that deficiencies, if any, in such representations should be made good or supplied by the Wyoming companies. The agreement then provided 'as to all live stock mentioned and described in said inventories that said first parties [the Wyoming corporations] shall and do hereby agree and guaranty to and with said second party [the British corporation] that the herd books of said first parties, showing the acquisitions, increase, disposition of, and number of cattle now on hand of said first parties, respectively, have been truly and correctly kept;' a copy of which herd books was required to be furnished to the party of the second part.

The bill then averred that, after the making and delivery of this agreement, the vendor companies proceeded to make the necessary arrangements for the turning over of their property to the purchaser in accordance with the terms of the agreement; and that, in pursuance of the agreement, the said Wilson returned to Scotland, and organized a limited liability company, completing its organization March 30, 1883. In effecting this organization Wilson was aided in inducing parties to take stock in the new company by a certain report in relation to the properties that were the subject of the negotiation, made by one Lawson in December, 1882, who had previously visited and inspected said properties, and who, it was averred, was acting in the interests of the vendor corporations, and was in their employ, having received from them the large sum of $12,000 for said report, and also by Alexander H. Swan, the president of each of the vendor corporations, who at that time was in Scotland, and represented that the number of cattle the vendors would turn over under the agreement was 89,167, as was shown by alleged copies of the herd books, which he produced, and also by certain alleged inventories of the stock on the ranches, and that any death losses in the herds would be more than made good by the number of calves on the ranches that escaped branding at the usual branding season; and who also made certain estimates as to the prospective increase in the herds, which representations and estimates were implicitly relied upon by the parties forming the new corporation. By a supplemental agreement, also in writing, between the contracting parties, it was provided, among other things, that Swan should become the general manager of the new company at a salary of $10,000 a year, and he and the vendor companies should subscribe for 10,000 shares of stock in the new company; and the vendors then agreed that if the number of calves branded in 1883 belonging to the herds sold should be fewer than 17,868, then they should be jointly and severally bound to pay to the new company $31.68 for each deficiency in that number.

The bill then averred that the vendors represented that it would be impossible to count the cattle upon the ranches, and that the new company would be obliged to take possession of them wherever they might be ranging, without any count being made; and that, relying upon all these representations made by the vendors, and in their behalf, as above set forth, the new company received delivery of the property so purchased by it, and paid the purchase price it had agreed to pay, in the manner agreed upon, and did and performed all the things it was required to do and perform by the terms of the aforesaid agreements.

The bill then averred that the representations made by the vendors, and in their behalf, as respects the number of cattle on the ranches, and which were relied upon by the parties forming the new company, were grossly untrue, and known at the time by the vendor companies to be so, and that the number of cattle actually turned over to the new company under the agreement was at least 30,000 less than was represented by the vendors, whereby it had suffered loss and damage in the sum of at least $800,000.

The bill then proceeded as follows: 'Your orator further showeth that said vendors had no other business except the management of the herds sold to your orator, and no other assets, or substantially none, except the properties sold by them to your orator; and your orator showeth that, after the sale of their said properties to your orator, and the receipt by them of the purchase price, as aforesaid, said three vendors paid whatever liabilities they had outstanding, except their liability to your orator herein set forth, and distributed the money and stock obtained from your orator as the proceeds of said sale and all their other assets amongst their respective shareholders, and the same were received by said shareholders; and since that time said three corporations have not, nor has either of them, made any use whatever of their franchises, but they have abandoned the same; and neither of said corporations has any officer of agent upon whom process can be served; and they have not, nor has either of them, any assets of any kind out of which any judgment at common law against them, or either of them, could be satisfied. Your orator further showeth that the assets of said corporation were in the hands of said corporations a trust fund, held by said corporations in trust to satisfy the claim of your orator herein set forth, before the shareholders of said corporations were entitled to receive any portion of the same; and said shareholders, in receiving said assets, did take and now hold the same as trustees in place of said corporations, and subject to the lien of your orator's aforesaid claim, and should account for the same to your orator, and apply the same, so far as necessary, in satisfaction of your orator's claim, herein set forth.'

The bill prayed that the several defendants be required to answer certain interrogatories thereto attached, but not under oath, and that whatever property each and every one of them may have received from the vendor corporations, or any of them, in the distribution of the assets aforesaid, be decreed to have been taken and to be held by them in trust for the payment of the claim of the plaintiff, and 'be applied, so far as shall be necessary, in satisfaction of the damages which shall be found due to your orator from the vendors aforesaid upon final hearing hereof,' and for other and further relief,...