Hogg v. Hoag

• Decision Date: 03 January 1901
• Citation: 107 F. 807
• Parties: HOGG v. HOAG et al. HOFFMAN et al. v. HOGG.
• Court: U.S. District Court — Southern District of New York

107 F. 807

HOGG v. HOAG et al.

HOFFMAN et al. v. HOGG.

United States Circuit Court, S.D. New York.

January 3, 1901

P Lowrey, for complainant.

Charles E. Hughes, for defendants Coe.

Thomas N. Rhinelander, for cross complainants.

Francis K. Pendleton, for cross complainant Hoffman.

WALLACE Circuit Judge.

George S. Coe, trustee under a trust created by a declaration and conveyances executed in March, 1888, having died, one of the beneficiaries brought this action to procure the appointment by the court of another trustee to administer the trust. The defendant Hoffman was permitted to intervene as assignee of a part interest in the trust fund, and, besides answering, to file a cross bill alleging delinquencies and misconduct on the part of the trustee, aided and abetted by the complainant and one of the defendants, whereby the fund was impaired, and asking an accounting therefor, and that the amount found recoverable be paid in, and distributed as part of the trust fund. Wilmer and Bronson, who were also permitted, as assignees for a part interest in the trust fund, to intervene as defendants, have united as complainants with Hoffman in the cross bill.

The trust was the outgrowth of the transactions of the Oregon Pacific Syndicate. April 2, 1887, certain parties, 12 in number, consisting of individuals and firms, among whom were Hogg, Bentley, Hazard, White, Coe, Jones, and Rhinelander, by an instrument of that date associated themselves together as members of the Oregon Pacific Syndicate. Hogg was the promoter and president of the Oregon Pacific Railroad Company, a corporation organized in 1880 for the purpose of constructing and operating a railroad from Yaquina Bay, Or., to Boise City, Idaho, a distance of 640 miles. The company had created an issue of $15,000,000 first mortgage bonds, of which $10,000,000 had not been negotiated. Hogg was also the president of the Pacific Construction Company, and the owner of its capital stock. He was also the owner of 15,000 of the 25,000 shares of the capital stock of the Oregon Development Company. The construction company was a corporation which had been organized to build the railroad for the railroad company, and was the fiscal agent of the latter in negotiating its bonds and providing the means for constructing the road. The development company owned a line of steamships, terminal properties, and coal and timber lands. Its interest were affiliated with those of the railroad company, and the value of its properties depended mainly upon the completion of the railroad. Hogg was also the owner individually of extensive real-estate interests. It was supposed that the assets of the development company and of the construction company and Hogg's real estate would be greatly enhanced in value when the railroad was built. The syndicate was organized to finance the railroad company, and thereby secure the building of the road, and to acquire the stock of the construction company, a majority of the stock of the development company, and the real estate of Hogg; the expectation of its members being that a profit could be made by negotiating the bonds of the railroad company sufficient to pay for the other properties. The syndicate agreement provided for purchasing the bonds in lots of $1,000,000 at a time for 90 cents on the dollar; for purchasing the stock of the construction company for $100,000, the 15,000 shares of the stock of the development company at $25 per share, and Hogg's real estate for about $426,000. It contemplated a purchase of all the bonds, and that not more than $1,000,000 or $2,000,000 would have to be advanced, as the bonds could be sold for their face value, and the sale of the first lot would supply the fund for the purchase of the next, and the 10 per cent. profit would pay for the other properties. The prices fixed upon the properties of Hogg were supposed to represent not more than six-tenths of their then actual value. By the terms of the syndicate agreement the subscribers became severally responsible for a definite proportion of the fund to be contributed, and entitled to a pro rata share of the profits. Eight of the subscribers agreed to contribute one-tenth part each of the necessary fund, and four to contribute one-twentieth part each. The agreement provided that payment for the properties other than the bonds might be made in cash or the bonds of the railroad company, or by interests in the syndicate, in such manner or proportion as might thereafter be agreed upon. It also provided that the holdings in the syndicate should be represented by certificates from the syndicate to the individual members, that the property of the syndicate should be placed in such custody as the syndicate should determine and that Hogg, besides the share of profits to which he should be entitled as a subscriber, should also be entitled to four-tenths of all the net profits arising otherwise than from the sale of the bonds. In June and July, 1887, calls were made by the syndicate upon the members for funds for the purchase of two lots of bonds. One of the members, a subscriber for a one-tenth part, did not respond. Hogg and Bentley did not pay their calls, but they acquired $300,000 of the bonds from the construction company ($200,000 for Hogg and $100,000 for Bentley) by an arrangement between the syndicate and the construction company, the exact nature of which does not appear. It is apparent, however, that the syndicate did not become liable to the construction company for these bonds, or, if it did, that such liability was a temporary one, and was discharged by some subsequent arrangement between it, Hogg, and the construction company. The syndicate purchased $1,500,000 of the bonds from the construction company at 90 cents on the dollar, and distributed them to the members of the syndicate who had paid their calls, charging them the face value of the bonds. The syndicate, however, did not receive the $30,000 profit on $300,000 of the bonds which it would have made if Hogg and Bentley had paid their calls in cash. Of the profits derived from the sale of this lot of bonds by the syndicate, $146,000 was loaned to the construction company; that company pledging to the syndicate, as collateral, bonds of the railroad company in double the amount. Thereafter no further purchases of bonds were made by the syndicate. Apparently, the bonds could not be marketed as had been expected, and the purchase of more bonds was abandoned. In March, 1888, Hogg notified the syndicate that, if it proposed to purchase his properties, it must elect to do so promptly. To do this it was necessary to raise $826,000; that being the amount of the purchase price, interest, etc. Calls were made upon the members for the payment of their respective proportions. The majority in interest responded, but some were indisposed to participate further. In the meantime the trust deeds conveying Hogg's real estate to the syndicate, vesting the title in Coe as trustee, together with a declaration of trust by Coe, were prepared, were executed by Hogg and Coe, respectively and were left in the hands of the counsel for the syndicate. These instruments bear date March 20, 1888, but they were in fact executed at a somewhat later date. At the same time Hogg transferred to the syndicate (Coe, custodian) 940 shares of the stock of the development company, and gave to the syndicate an order on Percy R. Pyne for the delivery of the whole of the stock of the construction company. The members who responded to the calls were Hogg, Coe, Hazard, and White, who paid in a one-tenth part, or $82,600, each, and Bentley, Jones, and Rhinelander, who paid in a one-twentieth part, or $41,300, each. Subscribers for nine twentieth parts did not respond to the call. The payments were made at different dates between March 31, 1888, and June 16, 1888, and amounted altogether to $454,426. As the moneys were paid in, they were paid over to Hogg. The deeds from Hogg to Coe, trustee, conveyed 40,720 acres of land in one tract, and eight other tracts or parcels, and, so far as appears, conveyed perfect title. The declaration of trust by Coe recited that the lands, premises, and other property which were the subject of the trust therein declared had been conveyed to Coe, as trustee, by Hogg, by several deeds of the same date, 'for the benefit and protection, in large measure, of a syndicate of certain parties' who had advanced the money for the purchase; that Hogg was to retain under the trust fund four tenths of the profits of the trust, and the remaining six tenths should be set apart for the benefit of the syndicate; that the moneys paid by the syndicate should be regarded as a charge upon the property, to be repaid from the proceeds of sales; that the trustee should issue certificates of interest in profits to the parties entitled thereto, and for the convenience of distribution the four tenth parts to which Hogg was entitled, and the six tenth parts to which the syndicate parties were entitled, should altogether and as a whole be taken to represent 1,000 shares, and the trustee should issue to Hogg a certificate for 400 shares, and to the syndicate parties certificates for 600 shares; that the holders of a majority in interest of the said certificates should in every respect govern the trust; and that the trustee should have full power and authority to lease or sell the trust property, and execute good and sufficient deeds of conveyance for the same, but should not execute any of the powers vested in him, except with the consent of the majority in interest of the certificate holders. The instrument contained this further recital:

'It is further understood that the trust property includes 15,000 shares of the Oregon Development Company and 900

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