Jencks v. Quidnick Co

• Decision Date: 14 April 1890
• Citation: 34 L.Ed. 200,10 S.Ct. 655,135 U.S. 457
• Parties: JENCKS et al. v. QUIDNICK CO. et al
• Court: U.S. Supreme Court

135 U.S. 457

10 S.Ct. 655

34 L.Ed. 200

JENCKS et al. v. QUIDNICK CO. et al.

April 14, 1890.

B. F. Butler, O. D. Barrett, and A. B. Patton, for appellants.

Wm. L. Putnam, J. C. Ely, A. L. Brown, Augustus S. Miller, Wm. G. Roelker, and O. Frank Parkhurst, for appellees.

BREWER, J.

On August 2, 1883, Evan Randolph, the testator of complainants, filed his bill in equity in the circuit court of the United States for the district of Rhode Island, for the purpose of establishing his title to 4,022 shares of the capital stock of the Quidnick Company, claiming to have purchased these shares on execution sales in March, 1883, for $275. The Quidnick Company was a corporation organized under the laws of Rhode Island in May, 1862, with a capital stock of $500,000, divided into 5,000 shares. Prior to December 1, 1873, the corporation had purchased some of its own stock, so that there was then outstanding only 4,349 shares, of which 327 were held by the estate of Edward Hoyt, deceased, and the remainder, being the 4,022 shares in controversy, by Amasa, William, Fanny, and Mary Sprague, and the A. & W. Sprague Manufacturing Company. At this time the Spragues, who were largely engaged in manufacturing and other business, became embarrassed, and executed the transfers hereinafter referred to, and which have become the source of much litigation. Notwithstanding the embarrassments of the Spragues, the Quidnick Company was entirely solvent, out of debt, and the owner of large properties. Its stock was valued by a committee of the creditors of the Spragues, at that time, at $374 a share; and the dividends which, in the winter after the filing of this bill, the stock was entitled to, as the proceeds of the sale of property and otherwise, amounted to over half a million of dollars. In other words, these complainants are asking the >>interposition of a court of equity to establish their title to property worth over half a million of dollars obtained by purchase at execution sales for $275. The immense disproportion between the value and the cost shocks the conscience of a chancellor, and forbids the supporting action of a court of equity. Some rights must have suffered, and some wrong must have been done, by such a transaction; and a court of equity properly says that it will not lend its aid to further such an unconscionable speculation. The case of Railroad Co. v. Cromwell, 91 U. S. 643, forcibly illustrates this rule. In that case, Harrison recovered a judgment in the circuit court of the United States for the district of Iowa, against Muscatine county, for $6,500. Under an execution on that judgment, the marshal assumed to levy on 1,714 shares of the capital stock of the Mississippi & Missouri Railroad Company, belonging to Muscatine county, and sold the same at public auction to Cromwell for the sum of $50. The latter filed his bill against the railroad company and the county to compel a r ansfer of this stock. The case was presented to this court in two aspects: By one, the stock in the company was worthless, and in reference to that the court observed: 'The property of the company was gone; its franchises were gone; the amount which the stockholders had arranged to realize was gone; and consequently the stock could have been nothing but an empty name, and the attempt to keep it afloat for speculative purposes is not such as should recommend it to a court of equity. The parties to such a transaction ought at least to be left to their remedies at law. A court of equity should have no sympathy with any such contrivances to gain a contingent or speculative advantage, if any such is to be gained.' By the other, it appeared that, through certain arrangements between this railroad company and another, there was a possibility of realizing 16 per cent. on the par value of the stock, which, with interest to the time of the bringing of the suit, amounted to over $32,000; and with reference to that the court said: 'He comes into court with a very bad grace when he asks to use its extraordinary powers to put him in posses- sion of thirty thousand dollars' worth of stock for which he paid only fifty dollars. The court is not bound to shut its eyes to the evident character of the transaction. It will never lend its aid to carry out an unconscionable bargain, but will leave the party to his remedy at law.' No language could be more appropriate to the case before us. Either this stock had been so appropriated by prior transfers and transactions as to be absolutely worthless in the hands of the Spragues, or else it represented more than a half million of dollars. It is doubtless true that property of large value, both real and personal, may be incumbered with mortgages or other liens to an amount something like its value, so that there remains in the owner but an equity of redemption of trifling value, and a creditor may, at execution sale, or otherwise, buy at a small price such equity, with a view to redemption from the liens; and a court of equity will then lend its aid to put him in a position where he may safely redeem. But, as will appear from facts to be narrated subsequently, this is not such a case. The purchase was purely speculative. If the transfers theretofore made by the Spragues for the benefit of their creditors are sustained, the purchaser takes nothing. If they are not to be sustained, they fail in toto, and the entire value of the property belongs to this purchaser. So his purchase is one simply to speculate upon the chances of successfully attacking transfers of large property made for the benefit of creditors, and with the view of depriving them of the benefits of such transfers. It is a case where equity, true to its ideas of substantial justice, refuses to be bound by the letter of legal procedure, or to lend its aid to a mere speculative purchase which threatens injury and ruin to a large body of honest creditors, who have trusted for the payment of their debts to the legal validity of proceedings theretofore taken.

Again, beyond the question of amount, is the matter of time. The transfers by the Spragues were in 1873. These execution purchases were in 1883. The transfers in 1873 were not made hastily, upon the judgment of the debtors alone, or without consultation with creditors. On the contrary, all creditors were invited, committees were appointed by them conferences had; and after weeks of examination and deliberation the substantial features of the arrangements were agreed upon between the creditors and debtors. The interests involved were immense. The committee of creditors appointed to examine into the assets and liabilities reported the former at $19,495,247, and the latter at $11,475,443. These assets were various in character, manufacturing stocks, real estate, stock in banks and other corporations, bonds, etc. They were widely scattered,—in Rhode Island, Maine, Connecticut, and other states and territories. Thee various properties were placed in the hands of a trustee to be managed and disposed of for the benefit of creditors, and the provisions of the arrangements were accepted by nearly all the creditors. By these arrangements it was provided that the trustee might continue the manufacturing business, and, in pursuance of the authority thus conferred, he did continue it; and before August, 1881, the amount of manufacturing business done by him was $29,802,286.10. The executions under which the stock was purchased, as alleged, were issued upon two judgments,—one in favor of Evan Randolph, and the other in favor of Horatio N. Waterman, each a creditor at the time of the transfers in 1873. Randolph commenced his action in October, 1875, as a personal action against the Spragues. After service of summons, nothing seems to have been done until the 14th of August, 1882, at which time an attachment was issued, and an attempted levy made upon the stock. Judgment was rendered March 7, 1883. Waterman commenced his action in October, 1882, and immediately thereafter placed an attachment on the stock. It will thus be perceived that these creditors made no attack upon the validity of the transfers...