Farley v. Kittson

• Citation: 30 L.Ed. 684,120 U.S. 303,7 S.Ct. 534
• Parties: FARLEY v. KITTSON and others. 1
• Decision Date: 07 February 1887
• Court: United States Supreme Court

120 U.S. 303

7 S.Ct. 534

30 L.Ed. 684

FARLEY v. KITTSON and others.¹

February 7, 1887.

This was a bill in equity by Jesse P. Farley against Norman W. Kittson, James J. Hill, and the St. Paul, Minneapolis & Manitoba Railway Company, which, as amended by leave of court, contained the following allegations: That in 1876 the plaintiff and Kittson and Hill agreed together to acquire by purchase or contract, for their joint and equal benefit, all that could be obtained of the bonds of the St. Paul & Pacific Railroad Company and the First Division of the St. Paul & Pacific Railroad Company, two corporations existing under the laws of Minnesota, and owning railroads in that state, those bonds being then outstanding and for sale at a large discount, and secured by mortgages upon the railroads, then in process of foreclosure; that the object of the agreement was to buy the railroads at the foreclosure sales, using the bonds in payment, andt hereby to acquire the railroads; that it was also agreed that. in order to obtain from one Donald A. Smith and other capitalists the funds required for the enterprise, Kittson and Hill might use or give them an interest therein, but that all the interest not so used or given should be retained and held for the joint and equal benefit of the plaintiff and Kittson and Hill; that it was further agreed between the plaintiff and Kittson and Hill that the details of the negotiations for procuring the necessary funds and for the purchase of the bonds should be principally conducted and managed by Kittson and Hill, and the persons so given an interest in the enterprise, and that the plaintiff 'should furnish such facts, information, and advice, and render such aid and assistance therein, from time to time, as should be required of him;' that the plaintiff 'had knowledge, not possessed by any of the other parties, as to the whereabouts and situation of said bonds, the rated value thereof by the holders, the mode whereby, and the channel through which, the same could be- reached and procured; also in respect to the situation, amount, character, and value of the lines of railroad and property mortgaged to secure said bonds, and in respect to the pending suits for the foreclosure of said mortgages, and that the services of the plaintiff in respect to all of said matters, and his co-operation, were indispensable to the success of said enterprise;' that thereupon Kittson procured funds from Smith and one George Stevens, and agreed to give them a share in the enterprise, the amount of which was unknown to the plaintiff, but was believed by him to be one-half; and that the rest belonged to the plaintiff, Kittson, and Hill in equal shares; that pursuant to the agreement between the plaintiff and Kittson and Hill negotiations were opened in 1877 and carried on until 1879, resulting in the purchase of bonds, amounting in the aggregate, at their face value and interest, to more than $25,000,000, and that the purchases of bonds were made by and in the name of Smith, Stevens, Kittson, and Hill, but for the purpose of being used in the purchase of the railroads when offered for sale under foreclosure decrees, and under and in pursuance of the agreement between the plaintiff and Kittson and Hill; that 'throughout said negotiations for the purchase of said bonds, and in the purchases thereof, the plaintiff was continuously called upon by the said Kittson and Hill for facts and information, advice and co-operation, in respect thereto, and at their request furnished and rendered the same, pursuant to the aforesaid agreements and understandings between them, and that said negotiations were only successful through and by means of the advice and co-operation of the plaintiff, and the facts and information peculiarly within his knowledge as aforesaid, and imparted by him to the said Kittson and Hill, at their request, under said understandings and agreements;' that most of the purchases of bonds were made under an agreement with the holders that they should not be paid for till the railroads were sold under decrees of foreclosure, and that the sellers of the bonds should then have the option of being paid in cash, or of taking new bonds issued by a company to be organized by the purchasers, and secured by mortgage upon the same property; that nearly all the bonds were owned in Holland, and that one John S. Kennedy was agent of a large majority of the bondholders, with full authority to take such action in respect to them as he thought best, and was a trustee in all the mortgages, except one for $15,000,000 on the First Division of the St. Paul & Pacific Railroad, and was the agent of the holders of more than $11,000,000 of the bonds secured by that mortgage, and that all the foreclosure suits had been commenced by his order, and were prosecuted under his general control and direction; that the plaintiff 'was appointed receiver of the property of the St. Paul & Pacific Railroad Company, and was made genera manager of the lines of road of the First Division of the St. Paul & Pacific Railroad Company, under the trustees in said mortgages in possession thereof, upon the recommendation and at the instance and request of said Kennedy;' that after the agreement between the plaintiff and Kittson and Hill, and before the decrees of foreclosure, and before the purchase of any of the bonds, and while negotiations were pending for the purchase of the bonds represented by Kennedy, 'the plaintiff informed the said Kennedy of his said interest and connection with the said Kittson and Hill in the project for the purchase of said bonds, and that the said Kennedy had full notice and knowledge that he was so connected therewith and interested therein, and fully approved and sanctioned the same;' that the negotiations for the purchase of the bonds were mainly had with Kennedy, as agent of the bondholders, and the bonds purchased were placed in the hands of Kennedy and his partner, one Barnes, to be held until paid for as agreed, and were so held, and only delivered upon being so paid for, and that Kennedy strongly recommended the bondholders to sell their bonds upon the terms offered by Smith, Stevens, Kittson, and Hill, as the best disposition of them that could be made; that 'to all inquiries made by said Kennedy, or any of the trustees in said mortgages, or by any of the holders of any of the bonds secured thereby, or by any one interested in the property under his charge as manager or receiver, he (the plaintiff) at all times gave full and true answers and information to the best and utmost of his knowledge and ability, and kept the said Kennedy fully informed of all facts, matters, and things coming to his knowledge affecting said property, and in all things acted honestly and in good faith towards all persons interested in the property under his control as receiver and manager as aforesaid;' that the defendant railway company was a corporation organized under the laws of Minnesota in May, 1879, by Kittson, Hill, Smith, and Stevens, for the purpose of taking, holding, and managing the mortgaged railroads, for the use and benefit of the parties interested in the purchase of the bonds, and that those four persons were directors and officers of this company, and had control of it; that in March and April, 1879, foreclosure decrees were entered in the pending suits, directing the sale by auction of the mortgaged railroads, and allowing outstanding bonds to be taken in payment for an amount equal to what they would be entitled to by way of dividends under those decrees; that in May and June, 1879, the railroads were sold accordingly, and, by direction and procurement of Kittson, Hill, Smith, and Stevens, purchased by the defendant railway company, for the use and benefit of the parties interested in the purchase of the bonds, as aforesaid, including the plaintiff, and all the bonds purchased were then used in payment; that the defendant company paid nothing for the railroads, but took them without consideration, except the consideration furnished and provided by the plaintiff and Kittson, Hill, Smith, and Stevens, which consideration, aside from the bonds, was furnished by Smith and Stevens, as aforesaid; that property worth in all over $15,000,000 was thereby vested in the company, for the use and benefit of the plaintiff and Kittson, Hill, Smith, and Stevens, in proportion to their respective interests, and the company had notice at the time of the purchase that the plaintiff was jointly interested with Kittson and Hill that the defendant company in June, 1879, issued and negotiated new bonds to the amount of $8,000,000, secured by mortgage of the railroads, and with these bonds paid for all the bonds purchased as aforesaid, and all other expenses of the enterprise, and had since, under the control and management of Kittson, Hill, Smith, and Stevens, held and operated the railroads, and made large net profits; that the capital stock of this company was $15,000,000, which represented the property acquired, and wasp art of the profits resulting from the enterprise; that other profits, amounting to many hundred thousand dollars, had also been divided between Kittson, Hill, Smith, and Stevens, and that a large amount of stock had been distributed among them, of which Kittson and Hill received 57,646 shares, being part of that to which the plaintiff, Kittson, and Hill were entitled under the arrangement with Smith and Stevens, but that the company neglected and refused to deliver any of the stock to the plaintiff; that Kittson and Hill never questioned, but always admitted, the plaintiff's right to share equally with them, until after the organization of the defendant company in May, 1879, and then at first only suggested to him that his share ought not to be equal to theirs, because they had, as they claimed, been required to advance some money in carrying out the enterprise; but now the defendants, confederating to defraud ...