197 U.S. 244 (1905), 512, Harriman v. Northern Securities Company

Docket Nº:No. 512
Citation:197 U.S. 244, 25 S.Ct. 493, 49 L.Ed. 739
Party Name:Harriman v. Northern Securities Company
Case Date:March 06, 1905
Court:United States Supreme Court

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197 U.S. 244 (1905)

25 S.Ct. 493, 49 L.Ed. 739



Northern Securities Company

No. 512

United States Supreme Court

March 6, 1905

Argued March 1, 2, 1905

Opinion delivered April 3, 1905




After affirmance of the decree in the Northern Securities Case, 193 U.S. 197, adjudging the combination illegal under the Anti-Trust Act, the corporation adopted a resolution reducing its capital stock and distributing the surplus of assets created by the reduction and consisting of shares of the Northern Pacific and Great Northern Railway Companies ratably among its stockholders. Complainants objected to the pro rata distribution and insisted that the Northern Pacific stock they had delivered to the Securities Company was not so delivered in pursuance of an absolute sale, but to be held in trust; that they were entitled to have their stock returned to them; that the decree in the government suit practically so adjudicated, and that, as they acted in good faith, believing that the original contract was not within the prohibitions of the Anti-Trust Act, the doctrine of in pari delicto did not apply.

The circuit court granted a temporary injunction against pro rata distribution, and the circuit court of appeals reversed the order and practically disposed of the entire case adversely to complainants. This Court granted a writ of certiorari. Held that:

Where the decree of the circuit court of appeals in an action in equity only reverses an order of the circuit court granting an injunction, but the court, the record presenting the whole case, practically disposes of the entire controversy on the merits, certiorari may issue from this Court and this Court may finally dispose of it by its direction to the circuit court.

The decree of the circuit court in the Northern Securities case, affirmed by this Court, 193 U.S. 197, did not determine the quality of the transfer as between the defendants, and the provisions therein as to return of shares of stock transferred to it by the railway stockholders were permissive only, and not an adjudication that any of the vendors were entitled to a restitution of their original railway shares.

The judgment of this Court affirming the decree of the circuit court in the Northern Securities case went no further than the decree itself, and while it leaves the circuit court at liberty to proceed in the execution of its decree as circumstances may require, it does not operate to change the decree or import a power to do so not otherwise possessed.

General expressions in an opinion which are not essential to dispose of a case are not permitted to control the judgment in subsequent suits.

Nothing in the judgment or opinion of this Court in the Northern Securities

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case, 193 U.S. 197, enlarged the scope of the decree of the circuit court so as to make it an adjudication that any of the vendors of railway stocks were entitled to judicial restitution of the stocks transferred by them to the Securities Company, or that the Securities Company could not distribute the shares of railway stock held by it pro rata between its own shareholders.

The transaction between complainants and the Northern Securities Company was one of purchase and sale of Northern Pacific Railway Company stock for shares of stock of the Securities Company and cash, and not a bailment or trust.

When a vendor testifies that the transaction was an unconditional sale and that he attached to his negotiations no other conditions than that of price, he is estopped from afterwards denying that this is a statement of fact and claiming that he only swore to a conclusion of law.

Property delivered under an executed illegal contract cannot be recovered back by any party in pari delicto, and the courts cannot relax the rigor of this rule where the record discloses no special considerations of equity, justice, or public policy.

The fact that the complainants in this case acted in good faith and without intention to violate the law does not exempt them from the doctrine of in pari delicto. All the parties having supposed the statute would not be held applicable to the transaction, neither can plead ignorance of the law as against the other, and the defendant secured no unfair advantage in retaining the consideration voluntarily delivered for the price agreed.

Where a vendor, after transferring shares of railway stock to a corporation in exchange for its shares, becomes a director of the purchasing corporation and participates in acts consistent only with absolute ownership by it of the railway stocks, and does so after an action has been brought to declare the transaction illegal, his right to rescind the contract and compel restitution of his original railway shares, if it ever existed, is lost by acquiescence and laches.

The Northern Pacific system, taken in connection with the Burlington system, is competitive with the Union Pacific system, and the entire record considered, to deliver to the complainants the Northern Pacific stock claimed by them and distribute the balance of the stock ratably between the other Securities Company stockholders would not only be inequitable, but would tend to smother competition, and thus contravene the object of the Sherman law and the purposes of the suit brought by the government against the Northern Securities Company.

It was the duty of the Securities Company under the decree in the government suit to end a situation which had been adjudged unlawful, and as this could be effected by sale and distribution in cash, or by distribution in kind, the company was justified in adopting the latter method and avoiding the forced sale of several hundred million dollar of stock which would have involved disastrous results.

Edward H. Harriman, Winslow S. Pierce, Oregon Short

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Line Railroad Company, and the Equitable Trust Company of New York exhibited their bill against the Northern Securities Company in the Circuit Court of the United States for the District of New Jersey April 20, 1904, on which, with accompanying affidavits and exhibits, a restraining order was issued, pending an application for an injunction as prayed in the bill. April 26 an amended bill was filed, and the application for a preliminary injunction was heard May 20, 21, and 23 by Bradford, J., holding the circuit court.

On the fourth day of June, a second amended bill was filed, and on July 15, 1904, Judge Bradford delivered an opinion sustaining the application. 132 F. 464.

The order for injunction was entered August 18, 1904, and an appeal therefrom was prosecuted to the Circuit Court of Appeals for the Third Circuit, which, on January 3, 1905, reversed the order. 134 F. 331.

Thereupon complainants applied to this Court for the writ of certiorari, which was granted January 30, and the matter advanced for hearing, and heard March 1 and 2. The affirmance of the decree of the circuit [25 S.Ct. 495] court of appeals was announced March 6, it being added that an opinion would be filed afterwards.

The Northern Pacific Railway Company was the successor, through reorganization, of the Northern Pacific Railroad Company, and by its charter it was provided that its capital stock might be increased from time to time by a vote of a majority of the stockholders, and that the company might, by a like vote, classify its stock into common and preferred, and might "make such preferred stock convertible into common stock upon such terms and conditions as may be fixed by the board of directors." On July 1, 1896, by the unanimous vote of its then stockholders, the capital stock was increased to $155,000,000, divided into $80,000,000 of common stock and $75,000,000 of preferred stock, and it was resolved

that such preferred stock shall be issued upon the condition that at its option, the company

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may retire the same, in whole or in part at par, from time to time, on any first day of January prior to 1917.

The plan of reorganization which was adopted provided that, as to the new company, which it was contemplated should acquire the properties and franchises of the Northern Pacific Railroad Company, and the issue of preferred stock by it,

the right will be reserved by the new company to retire this stock, in whole or in part at par, from time to time, upon any first day of January during the next twenty years.

All the certificates of stock, whether common or preferred at that time or subsequently issued, contained this clause:

The company shall have the right at its option, and in such manner as it shall determine, to retire the preferred stock, in whole or in part at par, from time to time, upon any first day of January prior to 1917.

The reorganization had been managed by J. P. Morgan & Company, and the directory of the Northern Pacific Railway Company were friendly to that firm. During the same period, the president of the Great Northern Railway Company was James J. Hill, and its directors were friendly to him.

The two companies were friendly to each other, and in April, 1901, acquired the shares of the Chicago, Burlington & Quincy Railroad Company.

At this time, the Union Pacific Railway system included the Union Pacific Railway, the railroad of the Oregon Short Line Railroad Company, and the railroad of the Oregon Railroad and Navigation Company. The Union Pacific Company was practically the owner of the entire capital stock of the Oregon Short Line Railroad Company, and the latter company was the owner of practically the entire capital stock of the Oregon Railway & Navigation Company. The interests in control of the Union Pacific system might properly be called the...

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