Harry Dickerman v. Northern Trust Company

Decision Date22 January 1900
Docket NumberNo. 33,33
Citation20 S.Ct. 311,44 L.Ed. 423,176 U.S. 181
PartiesHARRY W. DICKERMAN, Trustee, et al., Petitioners , v. NORTHERN TRUST COMPANY et al
CourtU.S. Supreme Court

This was a bill in equity filed in the circuit court for the northern district of Illinois by the Northern Trust Company a c1j09orporation organized under the laws of Illinois, having its principal office in Chicago, and Ovid B. Jameson, a citizen of the state of Indiana, as trustees, against the Columbia Straw-Paper Company, a corporation organized under the laws of the state of New Jersey, to foreclose a trust deed of some thirty-nine papermill properties, leaseholds, and water powers, situated in thirty-two different counties and in nine different states. This deed, which was dated December 31, 1892, was given to secure the payment of one thousand bonds of the paper company of $1,000 each, with coupons bearing interest at 6 per cent per annum, payable half yearly. These bonds were issued and delivered to one Emanuel Stein, in part payment for the properties acquired by it from him.

The bill, which was in the ordinary form of a foreclosure bill, averred that by the terms of the bonds it was agreed by the paper company that it would redeem, on the 1st day of December, 1893, one hundred of such bonds, and annually thereafter until December 1, 1901, a similar number, and that the principal of such bonds should become due if the paper company should make default for a period of three months in the payment of any interest, and an election so to do were given in writing; that, by the terms of the mortgage or deed of trust, it should become enforceable, provided default were made in the payment of any one of the bonds which had become due and payable for one month thereafter, or, if default should be made in the payment of interest on any of such bonds, or in the performance of any of the covenants or conditions in the bonds or mortgage, and such default should continue for three months after written demand for payment or performance by the trust company, or if a judgment or order should be made, or any effective resolution adopted by the paper company for the winding up of such company, 'or if a distress, attachment, garnishment, or execution be respectively levied or sued out against any of the chattels or property of either company, and such company shall not forthwith upon such distress, attachment, garnishment, or execution being levied or sued out, remove, discharge, or pay such distress, attachment, garnishment, or execution.'

The bill alleged as the only grounds for enforcing the security of the mortgage, (1) that the mortgagor had made default in redeeming or discharging the several amounts of bonds designated in the mortgage and bonds for redemption; (2) in failing to pay certain instalments of interest; and (3) infailing to pay a certain execution sued out on January 22, 1895, against the property of the company upon a judgment obtained against it by one James Flanagan before a justice of the peace of Cook county, Illinois. That by reason of such default complainants had declared the principal and interest of the bonds to by immediately due and payable.

The bill contained the usual prayer for foreclosure and sale, and for a receiver and an injunction against disposing of any of the mortgaged property. The trustees having taken possession of the property, a receiver was appointed by consent of the company upon the same day the bill was filed.

The answer of the paper company admitted the material allegations of the bill, averred its inability to pay its debts, and asserted that the property covered by the mortgage was worth much more than the amount of the bonds and the indebtedness of the company.

A few days thereafter Dickerman, together with others, filed a petition setting forth that they, with other stockholders of the defendant company, had been injured by the wrongful and fraudulent manner in which its securities had been issued; that the defendant and its defense were under the control and direction of the bondholders and their trustees; that the directors were not fitted to conduct the suit by reason of their adverse interests, and prayed to be made defendants and be allowed to plead, answer, or demur to the bill, and to file a cross bill. This was allowed.

Thereupon petitioners filed their answer admitting the execution of the bonds and mortgage, but denying that the bondholders were entitled to the benefit of the trust created by the mortgage; denied that all of the one thousand bonds were duly issued, negotiated, and sold, or that they were outstanding and valid obligations of the mortgagor; and also denied that all of such bonds and coupons had come into the posses- sion of, or were held by, persons who had become the owners thereof in good faith and for a valuable consideration.

They further set forth in great detail the manner in which the combination had been formed in the summer of 1892, to purchase seventy paper mills with their plants, appliances, and goodwill, by means of securing from their respective owners option contracts whereby each owner agreed to sell his property to the combination for a stated sum in cash, and the residue in the capital stock of the corporation to be organized, to which the seventy paper mills, with their properties, etc., were to be conveyed; that the corporation so to be formed was to be capitalized at $3,000,000 of common and $1,000,000 of preferred stock, to be issued at par, in part payment for the mills at the option prices so obtained, until the whole amount was exhausted, and that in such contingency the corporation so to be organized was to have the power to issue $1,000,000 of its bonds to complete the payment for said mills; that after options had been obtained upon thirty-nine mills, the total purchase price of which was $2,788,000 in cash, stock, and notes, the parties met to consider them, and decided that it would be necessary to provide $1,000,000 to purchase the property and furnish the running capital; that the combination thereupon caused the option contracts to be transferred to one Emanuel Stein, and then arranged to divide up and to fraudulently appropriate to themselves $2,113,000 of the capital stock of the proposed corporation, which would not be required to pay for the thirty-one mills which were left out of the combination.

That after having arranged how many of the one thousand mortgage bonds of the new corporation each member of the combination was to receive for an equal amount in cash, and how many shares of preferred and common stock each was to receive gratuitously with bonds, they caused articles of incorporation to be filed December 6, 1892, in the state of New Jersey, to organize the paper company with a capital stock of $4,000,000, with themselves and their agents as directors. That on December 14, 1892, they procured Stein, who held the option contracts for the purchase of the thirty-nine mills to present to the stockholders a proposition to secure the titles to the thirty-nine mills, and to convey the same to the new corporation for $5,000,000, as follows: $1,800 in cash; $1,000,000 in first-mortgage bonds; $1,000,000 in preferred and $2,998,200 in the common stock of the new company; that this proposition was accepted by the stockholders and also by the directors, and the property conveyed to the company; the bonds and capital stock divided among the members of the combination, as had been previously arranged, and that such persons still owned and were still liable for their capital stock in a much larger amount than the bonds of the company; and that the latter were owned by the same persons, who were liable on their stock. That the Columbia Straw-Paper Company, having been organized for the purpose of taking such conveyances, and thus consolidating said mill plants, their contention was that, by reason of fraudulent overvaluation of the various mill plants and properties upon which options of purchase had been taken, a defense in the nature of a set-off existed in favor of the company against such bondholders as were also stockholders to the extent of the unpaid part of the stock held by them.

The answer also contained an averment that the judgment and execution in favor of Flanagan before a justice of the peace was a fraudulent and collusive act on the part of the managers of the defendant company, in order to give the trustees the right to begin this foreclosure proceeding; that in pursuance of this the directors had fraudulently neglected and refused to pay six interest coupons on the bonds owned by Flanagan, in order that a suit might be instituted thereon; that the defendant corporation appeared upon the return of the summons, consented to an immediate trial, made no defense, but allowed judgment to be entered and an execution to issue on the same day, and that the firm of lawyers who had devised this proceeding acted as solicitors for the trustees in filing the bill of foreclosure. It was denied that the straw-paper company was insolvent, and was averred that the complainants and others had combined to wreck the company and defraud the defendant stockholers by withdrawing from the treasury of the company bonds and stock to the value of $3,000,000, which the complainants held in trust for the company, and that the same are assets and not liabilities, as in the bill of complaint alleged.

Defendants also filed a cross bill for an accounting in respect of the transactions complained of, especially in reference to the issue of the alleged mortgage bonds and the preferred and common stock; and if, on such accounting, anything should appear to be due from any of the defendants to the straw-paper company, a decree might be entered for the payment of the same, and that the receiver theretofore appointed might be removed and a proper and practical person be appointed receiver in his stead, with power to take possession of the...

To continue reading

Request your trial
203 cases
  • Smith v. Sperling
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • 16 Diciembre 1953
    ...542, 45 S.Ct. 385, 69 L.Ed. 782; Hamer v. N. Y. Rys, Co., supra, 244 U.S. at page 274, 37 S.Ct. 511; Dickerman v. Northern Trust Co., 1900, 176 U.S. 181, 188, 20 S.Ct. 311, 44 L.Ed. 423; Blacklock v. Small, 1888, 127 U.S. 96, 8 S.Ct. 1096, 32 L.Ed. 70; Pacific R. R. v. Ketchum, supra, 101 U......
  • Northern Securities Company v. United States
    • United States
    • United States Supreme Court
    • 14 Marzo 1904
    ...Brackett v. Griswold, 112 N. Y. 454, 20 N. E. 376; United States v. Isham, 17 Wall. 496, 21 L. ed. 728; Dickerman v. Northern Trust Co. 176 U. S. 181, 44 L. ed. 423, 20 Sup. Ct. Rep. 311; Fahrney v. Kelly, 102 Fed. 403; Mogul S. S. Co. v. McGregor [1892] A. C. 25, 41; Allen v. Flood [1898] ......
  • Candless v. Furlaud 21 8212 22, 1935
    • United States
    • United States Supreme Court
    • 11 Noviembre 1935
    ...violation of a statute, unless the liability for such misconduct has been effectually released. Dicker- man v. Northern Trust Co., 176 U.S. 181, 203, 204, 20 S.Ct. 311, 44 L.Ed. 423; Brewster v. Hatch, 122 N.Y. 349, 362, 25 N.E. 505, 19 Am.St.Rep. 498; Erlanger v. New Sombrero Phosphate Co.......
  • Old Dominion Copper Mining & Smelting Co. v. Bigelow
    • United States
    • United States State Supreme Judicial Court of Massachusetts
    • 14 Septiembre 1909
    ...v. Coal & Oil Investment Co., 61 W. Va. 291, 305, 56 S. E. 494. 2Dickerman v. Northern Trust Co., 176 U. S. 202, 20 Sup. Ct. 311, 44 L. Ed. 423;Yeiser v. United States Board & Paper Co., 107 Fed. 340, 46 C. C. A. 567, 52 L. R. A. 724;Chaffee v. Berkley, 140 Iowa, --, 118 N. W. 267;Getty v. ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT