King v. Doane

• Citation: 35 L.Ed. 84,11 S.Ct. 465,139 U.S. 166
• Parties: KING v. DOANE
• Decision Date: 02 March 1891
• Court: United States Supreme Court

139 U.S. 166

11 S.Ct. 465

35 L.Ed. 84

KING v. DOANE.

March 2, 1891.

F. B. Hart and Morris P. Brewer, for plaintiff in error.

W. E. Hale and John M. Miller, for defendant in error.

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

This action was brought to recover the amount due on a promissory note executed November 10, 1884, by King, for the sum of $7,118.50, and made payable to the plaintiff, Doane, or his order, one year after date, with interest at the rate of 7 per cent. per annum from date until paid. By direction of the court the jury returned a verdict in favor of the plaintiff for the full amount of the note, with inteest . A new trial having been refused, judgment was entered in conformity with the verdict. 30 Fed. Rep. 106.

The defense is that the note sued on had no other consideration than the surrender and cancellation of a previous note alleged to have been obtained, with the knowledge and aid of Doane, by fraud and false representations; that the indorsement and transfer of the original note to him was wholly without consideration; and that the renewal note was executed by King in ignorance of the fraud perpetrated on him, and because of the false statement by Doane, through his agent, that he was the bona fide holder of the first note.

The principal facts out of which this litigation has arisen are as follows: During the fall of 1883, King, the plaintiff in error, had frequent interviews with one Frank B. Felt in reference to the purchase, by the former, at the price of $6,666.66, of $10,000, par value, of the capital stock of the Pullman Iron & Steel Company, a corporation then recently organized under the general laws of Illinois, with a capital stock of $500,000, divided in to 5,000 shares of $100 each, for the purpose of manufacturing iron and steel in different forms, principally the bayonet railway spike, for which a patent had been issued to J. P. Perkins. This patent, at the time of the organization of the company, belonged to Felt, Perkins, J. W. Doane, and James N. Smith; the latter representing, it is alleged, George M. Pullman. Felt, Doane, Perkins, and Smith constituted a majority of the directors, and Felt was the secre- tary and treasurer of the corporation. It does not appear that King made a formal written subscription of stock; but, under date of November 7, 1883, Felt wrote to him: 'If convenient, please remit one-half amount of subscription to stock, amounting to $3,333.33. Any time before the 15th will answer. We are progressing finely, and everything looks very flattering, having had applications from three companies to start other works at different places. I am confident we have the best thing in the country, and the outcome will make us happy. Will see you about the 25th, and advise you of progress, and the decision of directors as to starting other companies, either in stock or royalty.' King replied, under date of the 10th: 'Yours of the 7th at hand. I have a deal on hand which ought, and I believe will, pan out before the 15th, and I will respond as soon as it does. I expect to be in Chicago very soon; next week, possibly, and certainly not later than the week following. Will it answer if I make the payment then? You have no idea how d_____d tight money is up here, and I sometimes feel like getting tight myself; but I think I am sure of being easy in a few days. Glad to know of the promising outlook. Let me hear from This was followed by further correspondence, in which Felt urged King to pay the assessment made upon him, while King promised payment as soon as he could make arrangements for the money. In those letters Felt expressed high hopes for the future of the company. Under date of February 18, 1884, King wrote to him: 'I appreciate the situation as you describe it, and have delayed writing until this time, hoping to bring a settlement of the matter in which I have the funds you need, and considerably more, locked up, but can't do it, and must therefore come back to first principles, and do the best I can, viz.: I will send you my note for the amount, $6,666.66, due October 1, 1884, at 8 per cent., and until it is paid you may hold the $10,000 of stock as security, giving me a receipt showing what the transaction is. Your security will thus be ample, and you can discount the note to meet present needs. If I can get funds in, as I hope and expect to do, at an earlier date than above named, would be glad to take the note up before maturity, of course, but must fix a time which will render it certain that I shall not disappoint you, or be disappointed myself. I trust that you can arrange matters on this basis, and, if so, will close it up at once.' In a letter of February 22, 184, Felt inclosed a note to be signed by King, dated January 5, 1884, for $6,666.66, pay able on the 1st of October thereafter to the order of the Pullman Iron & Steel Company at the First National Bank, Minneapolis, with in terest at the rate of 8 per cent. per annum until paid. This note was signed by King, and returned to Felt in a letter of February 25, 1884, in which King said: 'Yours of the 22d at hand, and I herewith return the note, duly signed. Please return a receipt which will cover the transaction, and show that you hold my $10,000 of full-paid stock as security for the payment of said note, so that in case either of us should be snuffed out meanwhile, our administrators might have an easy job. Am delighted to know of the brilliant prospects of the company, and trust it will pan even larger than you anticipate. Our electric light business is climbing.' Felt, as treasurer, delivered to King a receipt, dated March 1, 1884, showing that, when the above note was paid, 'full-paid stock is to be issued' to him 'for $10,000 in the Pullman Iron & Steel Company.'

On the 19th of April, 1884, the company issued to King a certificate of 100 shares of stock, and it was inclosed the same day to King, in a letter from Felt, in which the latter said: 'Please indorse in blank on back of the same. Mr. Doane advanced the money on it, and this is to be held by him until note is paid, when stock will be returned to you. This should have been done when note was made, but just made our issue of stock, and now do this to close up the books. We are running in good shape. The leading iron man of the country, after looking over our works last night, said he thought the stock would double in a year, and double again, and pay good interest on the same. We are having large demand. Please sign and return at once.' King, as requested, executed an assignment, in blank, of the certificate, and returned it to Felt in a letter of April 24th, in which he said: 'Your favor of 19th, inclosing certificate No. 31 for 100 shares of the capital stock of the Pullman Iron & Steel Company in my name, is just received, and, as requested by you, I herewith return it, indorsed in blank, to be held by Mr. Doane until my note of January 5, 1884, for $6,666.66, due October 1, 1884, is paid, when said certificate is to be returned to me. Am delighted to hear of the flattering prospects of the company. The value of the stock can't double too often to suit.'

The explanation given by Felt of the transaction by which Doane got King's note as collateral was that while, in consideration of the transfer by Doane, Perkins, Smith, and himself to the company of the patent for the bayonet spike, the original stock was divided equally between them on the basis of 1,250 shares to each, one-half the stock was donated to the treasurer of the company, to be sold, the proceeds to be used in building a plant, and as a working capital for the company. Felt testified: 'I, as an officer of the company, received it [the note] from Mr. King. Soon after the receipt of this note, it became necessary for the company to have funds; and it was assumed that I, as one of the interested parties to [in] this company, should provide a certain amount of money by the sale of stock; and Mr. Doane, claiming that I had not provided the full amount, offered to discount my own note, and take this note of Thomas S. King as a collateral against the same. Soon after the execution of my note to J. W. Doane, he asked me if I wished to hold this note of King's, and...