Bronson Et Al v. La Crosse and Milwaukie Railroad Company Et Al

• Decision Date: 01 December 1864
• Citation: 17 L.Ed. 725,2 Wall. 283,69 U.S. 283
• Parties: BRONSON ET AL. v. LA CROSSE AND MILWAUKIE RAILROAD COMPANY ET AL. 1
• Court: U.S. Supreme Court

69 U.S. 283

17 L.Ed. 725

2 Wall. 283

BRONSON ET AL. v. LA CROSSE AND MILWAUKIE RAILROAD COMPANY ET AL.¹

December Term, 1864

BRONSON and Souter filed their bill in the Circuit Court for the District of Wisconsin, to foreclose a mortgage made on the 17th August, 1857, by the La Crosse and Milwaukie Railroad Company, a corporation of Wisconsin, covering a portion of a railroad made by the said company in that State,—the portion being between Milwaukie and Portage City, about ninety-five miles, and called the Eastern Division.² The mortgage was made to the said Bronson and Souter as trustees, to secure the payment of bonds for one million of dollars issued by the company. These bonds were payable to bearer in New York, with interest at eight per cent., payable semi-annually. They were registered and countersigned by the trustees, and delivered to the company, and in the antumn of 1859 had been negotiated and put into circulation. They were for $1000 each.

The bill alleged that default had been made in the payment of interest, and prayed that the La Crosse and Milwaukie Railroad Company, and all other persons claiming under it, might be decreed to deliver to them, B. and S., or to their agents, and to put them into possession of, the railroad, with its appurtenances; and that all the income of the road might be applied to the payment of the moneys due, and to become due, on the mortgage or bonds; and that the road, with its rolling stock and franchises, might be sold, &c. and that, pending the proceedings, a receiver might be appointed. The bill was filed December 9th, 1859.

An order pro confesso was entered against the company.

Certain other parties, however, besides the La Crosse and Milwaukie Railroad Company, were made parties to this bill.

1. The Milwaukie and Minnesota Railroad Company. This company had been organized upon a sale of the La Crosse and Milwaukie Railroad, just named, under a third mortgage, which had been made to one Barnes, as trustee, by the debtor company, junior to that of the complainants. This Barnes mortgage, with a supplement to it, was made to secure an issue of bonds to the amount of TWO millions of dollars. The mortgage and supplement, by its terms, was made subject to certain incumbrances, and, among them, 'to the bonds secured by a second mortgage on the Eastern Division of the road to the amount of one million of dollars;' the mortgage, to wit, now sought to be foreclosed. They also had on their back the indorsement thus:

'State of Wisconsin. La Crosse and Milwaukie Railroad Company, 3d mortgage sinking fund bond, seven per cent., &c.' subject, among other things, 'to a 2d mortgage on the same line of road of $1,000,000.'

This company did not appear to the bill, but permitted it to be taken as confessed.

2. Certain private individuals—Zebre Howard, also Graham and Scott—were made defendants; the bill alleging that they had, or claimed to have, some interest in the mortgaged premises.

Howard answered the bill, setting forth that, on the 1st of May, 1858, he obtained a judgment against the debtor company, in the Circuit Court of Milwaukie County, for $25,586.78; and that this judgment remaining unpaid, he commenced suit thereon in the District Court of the United States, and recovered judgment in that court November 28th, 1859, for $16,379.86.³

Graham and Scott also answered the bill, setting up a judgment in their favor, recovered in the said District Court in December, 1859, for $41,008.86, founded on two former judgments in their favor in the State court.

The answer of Howard, and that of Graham and Scott, asserted that these judgments, respectively, were liens upon the mortgaged premises; and set forth various matters in defence against the relief prayed for by the complainants. Replications were filed to both these answers. No proof was made of these judgments other than that of their being included in a list of judgments appended to the report of a master in the case.

After the time had expired within which the Milwaukie and Minnesota Railroad Company ought to have answered, but before an order had been entered taking the bill against them pro confesso, one J. S. Rockwell, a stockholder of the said company, presented to the court his petition, charging collusion between the complainants or their agents and one Russell Sage, President of the said Milwaukie and Minnesota Company, to secure a foreclosure and sale in their cause, for the purpose of extinguishing the rights of the said Milwaukie and Minnesota Company, which was alleged to be the owner of the equity of redemption of the mortgaged premises; and that the President of the said last-named company, although requested by its stockholders, had declined to make any defence in this cause. The petition prayed leave to defend the bill, 'on the part of said company, as a defendant therein, and to be let in and allowed to make such defence as he may be advised is proper or necessary, in the place of said company, as a party defendant to said action, and for a reasonable time to prepare and file his answer.' Upon this petition, the court 'ordered that the said Rockwell be, and hereby is, allowed to make defence to this bill in the name of said Milwaukie and Minnesota Railroad Company, to the same extent as the said company could do, under the rules and practice of this court.' In pursuance of this order, Rockwell filed his answer, entitled 'The separate answer J. S. Rockwell, who, by the order of this court, is allowed to make defence to the bill, &c., in the name of the Milwaukie and Minnesota Railroad Company.' This answer was signed by Rockwell individually.

Fleming, another stockholder of the Milwaukie and Minnesota Company, presented a petition, charging collusion, as before charged in the petition of Rockwell, apparently upon the theory that Rockwell's was his individual answer, and not that of the company, and praying leave 'to put in an answer for said Milwaukie and Minnesota Railroad Company, and that said company may have thirty days' time to perfect the same, and prepare a cross-bill as shall be necessary.' Upon this petition, the court 'ordered that the said Fleming have leave to put in answer in the name of the Milwaukie and Minnesota Railroad Company.' Under this order, Fleming filed an answer, entitled, 'The answer of the Milwaukie and Minnesota Railroad Company, one of the defendants to the bill,' &c. This answer was signed 'The Milwaukie and Minnesota Railroad Company, by A. Fleming, stockholder;' and also, 'A. Fleming, stockholder of the Milwaukie and Minnesota Railroad Company.' The complainants filed replications to these answers, entitled 'Replications, &c., to the answer of J. S. Rockwell,' and 'Replication, &c., to the answer of the Milwaukie and Minnesota Railroad Company.'

The answer of Fleming set up, in general terms, that the bonds of the La Crosse and Milwaukie Company for the one million of dollars were issued, and the mortgage of the road to the complainants made, in violation of the charter of the company, and in fraud of the stockholders and creditors, and it then set forth six particular instances of the alleged fraud on the part of the company, or its officers and directors, in disposing of the bonds. These six instances being connected with the names of, 1st, Chamberlain; 2d, one S. R. Foster; 3d, J. T. Souter, a trustee and complainant; 4th, Greene C. Bronson, another trustee and complainant; 5th, one Prentiss Dow. The 6th charge had reference to a certain leasing of the road to Chamberlain. The answer proceeded thus:

The defendant, answering, states and shows, upon information and belief, that the said mortgage and the said one thousand bonds, to which the same is collateral security, was gotten up, contrived, and executed by the said railroad company, when the said company was well known to its board of directors to be greatly embarrassed in its pecuniary condition and affairs, for the corrupt and fraudulent purpose of disposing of said bonds, or a large part thereof, in payment of pretended debts to the officers and agents of said company, or their friends, without any consideration to be paid therefor, or in exchange for the stock of said company, then of little or no value, held by its officers and agents or their friends; and that, in point of fact, a large part of said bonds were so disposed of and given away in violation of the true intent and meaning of the charter of said company, in fraud of its creditors, and of this defendant in particular that two hundred of said bonds, being those numbered from 651 to 825 inclusive, and from 851 to 875 inclusive, were delivered or given to the defendant, Chamberlain, in pretended payment or satisfaction of a claim of said Chamberlain for services rendered to said company, or for damages sustained by him by reason of the breaking up or surrender of a contract or contracts between him and said company, which claim was wholly fictitious, or was greatly over-estimated, for the fraudulent purpose of enabling him to receive and hold said bonds; that one hundred of said bonds were given to S. R. Foster, of the city of New York, as a security for a pretended indebtedness of said company to him, but that, in truth and in fact, said company was not indebted to said Foster, on a fair settlement of accounts, in any sum whatever, but that said Foster was largely indebted to said company; that about fifty-five of said bonds were delivered to the said complainant, J. T. Souter, either without any consideration at all, or as collateral security to or in exchange for certain bonds of the said company, theretofore issued corruptly and fraudulently, and without any legal authority whatever, by the said company, and popularly known as 'Corruption Bonds,' or 'Barstow Bonds,' and that said Souter gave no valid or valuable consideration therefor, but that the said transfer to him of the said fifty-five bonds was fraudulent; that fifteen of said...