Clark v. Bever

• Decision Date: 02 March 1891
• Parties: CLARK v. BEVER
• Court: U.S. Supreme Court

139 U.S. 96

11 S.Ct. 468

35 L.Ed. 88

CLARK v. BEVER.

March 2, 1891.

[Syllabus from 96-97 intentionally omitted]

P. Henry Smyth, for plaintiff in error.

Chas. A. Clark, for defendant in error.

Mr. Justice HARLAN, after stating the facts in the foregoing language, delivered the opinion of the court.

*In the year 1872, theBur lington, Cedar Rapids & Minnesota Railway Company—of which at the time the intestate, George Greene, was president, as well as a stockholder, and of which he continued to be president until February, 1875—had a settlement with the North western Construction Company, of which also Greene was a member, for work done in building a part of its road. This settlement showed the sum of $70,000 to be due the construction company. The railway company, being unable to pay this claim in money, delivered to the construction company 3,500 shares of its stock, at 20 cents on the dollar, each share being for $100, and the same was accepted in full satisfaction of the debt. The stock, which was not worth anything in the market, was issued directly to the members of the construction company, the intestate Greene receiving 910 shares as his portion. No other payment than this 20 per cent. was made for or on account of the stock. The good faith of the parties in making this arrangement is not impugned by allegation or proof. The construction company was reluctant to take the stock, and insisted upon payment in cash. What the original stockholders paid for their shares does not appear; nor does the record show whether or not Greene exercised any of the privileges of a stockholder.

Prior to the above settlement a resolution was adopted February 7, 1871, by the executive committee of the railway company, to the effect that, in the adjustment or liquidation of claims against the company, the treasurer be authorized to use its stock, if not less than 20 per cent. of its par value could be realized for the purpose. At the time the stock was issued to Greene the financial condition of the company was as follows: The bonded indebtedness of its main line was $5,400,000; its floating debts over $1,000,000; its net earnings in 1871 and 1872 and subsequently were not sufficient to meet the interest on its bonded debts; and in March, 1872 when the settlement in question was made, it was without means to pay its floating debt or the interest on its bonded debt, except from net earnings and such money as could be realized from its stock and bonds and by borrowing.

The railway company continued to operate the road until May 19, 1875, on which day, in a suit brought in the United States circuit court for the district of Iowa to foreclose mortgages given by it to secure outstanding bonds, a receiver of its property was appointed. At this time the general condition of the company was this: Its bonded debt was $10,400,000, upon which no interest had been paid since November 1, 1873, and its floating debt amounted to $1,250,000, and it had no means with which to pay it. In the above suit a sale under a decree of foreclosure was made in July, 1876, when the railroad and all its property were purchased and have since been owned by the Burlington, Cedar Rapids & Northern Railway Company. After the appointment of the receiver, the Burlington, Cedar Rapids & Minnesota Railway Company ceased to do business or to exercise its franchises as a corporation.

It should be stated, in this connection, that Greene on the 10th of February, 1875, transferred the above 910 shares to John i. Blair, a gentleman of large fortune and financially responsible for the balance, if any, due on that stock. At the instance of the western managers of the Burlington, Ceder Rapids & Minnesota Railway Company, Mr. Blair undertook to save it from bankruptcy. But, ascertaining that the company's overissue of bonds was so great and its liabilities so large that it was necessary to commence foreclosure proceedings and to make application for the appointment of a receiver, he returned to Greene and others all the stock received by him.

Clark, the plaintiff below, a citizen of Ohio, being the holder of 50 gold bonds of $1,000 each of the Burlington, Cedar Rapids & Minnesota Railway Company, dated June 1, 1874, payable in the year 1914, and bearing interest at 7 per cent. per annum, which bonds were part of a series of 2,000, each for $1,000 secured by mortgge upon the company's net income, rolling stock, and additions, and convertible at the option of the holder into capital stock,—brought suit to recover the amount due thereon, and on the 4th of June, 1878, recovered judgment against the railroad company for the sum of $65,517, to bear in terest from that date. We infer, though the record contains no distinct statement or proof on the subject, that the bonds became due and payable prior to this suit, on account of default in the payment of interest. Execution was issued upon the judgment, and was returned August 10, 1880, 'No property found.'

The present suit was commenced July 5, 1881, by Clark against the administrator of Greene, a citizen of Iowa, in the circuit court for Linn county in that state. The petition, after setting out the foregoing judgment, the return of the execution thereon unsatisfied, and the ownership of the 910 shares of stock by Greene up to his death, and by his estate since, alleged 'that of the value of said shares of stock owned by said decedent there has been paid only the sum of eighteen thousand two hundred dollars, or about twenty per centum of the full value of said stock, and there is still due upon said shares a balance of eighty per centum of their full value, amounting to the sum of seventy-two thousand and eight hundred dollars; that the said balance due upon said shares was a trust fund in the hands of said decedent for the payment of said judgment, and is still a trust fund for the purpose in the bands of decedent's administrator; that the defendant herein is the administrator of the estate of said George Greene, deceased, duly appointed and qualified; that said decedent in his life-time failed and neglected to pay or cause to be paid the said judgment, or any part thereof, and this defendant has failed and neglected to pay or cause to be paid the same, or any part thereof, and the said judgment is still due and wholly unpaid.' The prayer of the petition was for a judgment against the defendant as administrator for the whole amount of the plaintiff's claim, with interest and costs, and that it be allowed by the court as a just claim against Greene's estate.

The case was subsequently removed, upon the petition of Clark, to the circuit court of the United States for the district of Iowa, and thereafter by consent was transferred to the eastern division of the southern district of that state.

The defendant, besides denying each allegation of the plaintiff's claim and petition, pleads, in bar of the action, the statute of limitations of Iowa, and also a certain settlement and compromise between the plaintiff and the railway company. To this answer a replication was filed by the plaintiff.

After the evidence was concluded the plaintiff asked several instructions based upon the general ground that the stock used in discharging the debt of the construction company was a trust fund for the benefit of creditors, and that, without reference to the necessities of the railroad company or the good faith of the transaction, Greene was accountable to the creditors of the latter corporation for the par value of the stock issued to him under the settlement or compromise of 1872, whatever may have been its market value at the time he got it or at the time this action was commenced.

The court below refused to so instruct the jury, and held, as matter of law, that upon the evidence the intestate, Greene, by taking the 910 shares of stock upon which the 20 per cent. was paid, did not become liable to pay anything further on account thereof to creditors of the railway company; and, pursuant to its direction, the jury returned a verdict for the defendant. Clark v. Bever, 31 Fed. Rep. 670.

The questions to be first considered relate to the jurisdicton of the court below and of this court.

This proceeding was commenced in one of the circuit courts of Iowa, having general original jurisdiction in all civil actions and special proceedings, and original exclusive jurisdiction, in the respective counties of the state, among other things, 'of the settlement of the estates of deceased persons.' Of the filing of a claim against the estate of a deceased person, the executor or administrator is entitled to notice, to be served 'in the manner required for commencing ordinary proceedings,' unless the claim be expressly admitted in writing with the approbation of the court, and when not so admitted 'the court may hear and allow the same, or may submit it to a jury.' On such hearing, unless otherwise declared, the court is governed by the provisions of law applicable to an ordinary proceeding. When a claim is allowed, it is 'placed in the catalogue of established claims, but shall not be a lien.' Code Iowa 1873, §§ 161, 2312, 2370, 2408-2411, 2416. No other court of the state, except a circuit court, has jurisdiction to allow or disallow a claim against the estate of a deceased person. Tillman v. Bowman, 68 Iowa, 450, 27 N. W. Rep. 377; Shropshire v. Long, 68 Iowa, 539, 27 N. W. Rep. 737. While an order allowing such a claim is not an ordinary judgment upon which an execution may issue, it is an 'adjudication' establishing that claim as one to be paid by the executor for administrator so far as the estate in his hands is sufficient. Foteaux v. Lepage, 6 Iowa, 123; Voorhies v. Eubank, Id. 274; Little v. Sinnett, 7 Iowa, 324; Smith v. Shawhan, 37 Iowa, 585; Dessaint v. Foster, 72 Iowa, 640, 34 N. W. Rep. 454. It is suggested that the claim in suit here is a mere incident to the marshaling and distribution of the estate of Greene; that such...