Krohn v. Williamson

• Decision Date: 12 June 1894
• Docket Number: 1,841.
• Citation: 62 F. 869
• Parties: KROHN v. WILLIAMSON et al.
• Court: United States Circuit Court, District of Kentucky

62 F. 869

KROHN v. WILLIAMSON et al.

No. 1,841.

United States Circuit Court, D. Kentucky.

June 12, 1894

The action is based on the following facts: Nelson and Williamson, together with one Kirk and one Hawthorn, procured from the Kentucky legislature a charter for a corporation with power to erect a toll highway bridge from Newport, Ky to Cincinnati, Ohio. The company was organized, and the four promoters subscribed to $1,500,000 of the capital stock. An Ohio corporation for the same purpose was organized, and the two companies were then consolidated, under the laws of both states. The needed federal, state, and municipal franchises and privileges were obtained in both states; so that nothing remained to be done but the purchase of land for the approaches, and the construction of the bridge. Louis Krohn and C. B. Simrall were interested in the Ohio River Construction Company, organized to float the bridge company's bonds and to build the bridge. A contract was entered into with the bridge company for this purpose. Subsequently, in October, 1889, it was deemed best to abandon the contract, after the partial erection of one pier, begun to prevent the lapse of rights secured to the bridge company by an ordinance of the city of Newport. Krohn contributed to the erection of the pier $336. When the contract between the construction company and the bridge company was abandoned the promoters of the bridge company, who were also largely interested in the construction company, executed the following agreement:

'We the undersigned, hereby agree to assign to Louis Krohn the same interest in the Central Railway & Bridge Company that said Krohn now holds in the Ohio River Construction Company which it is agreed is eight per cent.; the said Krohn to bear his proportion of future expenses incurred by the Central Railway & Bridge Company whenever the other holders of stock in said bridge company contribute to said expenses their proportion; the consideration hereof being the cancellation of the contract between the Ohio River Construction Company and the Central Railway & Bridge Company, in which said Krohn is interested.

'(Signed) R. W. Nelson.

'Jno. W. Kirk. 'Jno. A. Williamson. 'L. R. Hawthorn.

'Newport, Ky., Oct. 23, 1889.'

By a similar contract, Simrall was given a 5 per cent. interest in the bridge company. By resolution of October 24, 1889, Williamson, as president of the bridge company, was authorized to make a contract for the construction of the bridge. After various negotiations with different bridge construction companies, Williamson and Nelson, who was vice president, director, and attorney of the Central Bridge Company, went to Cleveland, and made two contracts, of date March 31, 1890, with the King Iron Bridge & Manufacturing Company, of that city. One was a contract between the King Company and the bridge company, by which, for $1,000,000 of the bonds of the latter company and $1,500,000 of its stock, the King Company agreed to completely construct and equip the bridge by January 1, 1891; to furnish the money necessary to acquire the title to lands needed for the approaches to the bridge on both sides of the river; to return to the promoters of the enterprise and the subscribers to the stock $200,000 of the capital stock; to treat the entire $1,500,000 of stock as paid up by the acquisition of the franchises and privileges and the erection of the bridge; and to pay to the Central Bridge Company daily interest on $1,000,000 for every day's delay in the completion of the bridge beyond January 1, 1891, except for such delays as might be occasioned by the failure of the Central Bridge Company promptly to procure land for the approaches at reasonable terms. The contract recited that the $1,500,000 of stock conveyed to the King Company by the contract had been subscribed for by the four directors and stockholders of the company, but was used by the bridge company, with their assent, to secure the construction of the bridge. The second contract was made by the King Company with Williamson, Nelson, and D. P. Eels, a banker of Cleveland. By this contract the King Company agreed to give Williamson, Nelson, and Eels $300,000 in money or bridge bonds, and $600,000 in bridge stock, in consideration of their procuring a title to the land necessary for the bridge approaches, and conveying the same to the bridge company; the three individuals agreeing that, if the cost of the land and expenses of purchase and condemnation should exceed $300,000, they would pay the excess. Without such an assurance of the cost of the rights of way, signed by Eels, the King Company would not have entered into the first contract. Eels' interest in the contract grew out of the fact that he had agreed to float the bonds for the compensation usually paid for such services. By a writing of the same date with the contracts just described, Eels stipulated that he was to have no interest or part whatever in the $600,000 of stock, 'in consideration of Williamson and Nelson giving their personal attention and service to the purchase and appropriation of the rights of way' necessary to the completion of the bridge. Williamson reported to the board of directors of the bridge company the execution of the construction contract between the two companies, but he said nothing of the right of way contract.

Shortly before the execution of these contracts, Williamson induced Simrall to assign to him his 5 per cent. interest in the bridge enterprise for about $200; and, a few days or weeks thereafter, made several efforts to procure an assignment to him of Krohn's interest in the company, but Krohn declined his offer.

The bridge was constructed, and the necessary rights of way for the approaches were procured. The land cost about $250,000. The expenses and lawyer's fees amounted to $30,000. It was necessary in buying the land to purchase more than enough for the approaches, because the approach on each side ran diagonally across many of the lots. The land was taken in the name of Williamson, and then there was conveyed to the bridge company only what was required for the approaches. The remnants were kept by Williamson, for the benefit of himself, Nelson, and Eels. Three such lots have been sold for $15,000. On the whole, the profit of the right of way contract, exclusive of the $600,000 of stock, ranged from thirty-five to fifty thousand dollars. Neither Williamson nor Nelson was satisfactorily definite on that subject. In the settlement between Eels, Williamson, and Nelson, Williamson took $5,000, to pay for his services in superintending the purchase and condemnation of the right of way; while Nelson, as counsel in the transaction, had received $6,250. After the completion of the bridge, Krohn applied to Williamson and Nelson for his share of whatever was due to the projectors of the enterprise. He was informed by Nelson, speaking for himself and Williamson, that his interest was limited to 8 per cent. of $200,000 of bridge stock. Krohn insisted that he was also entitled to the $336, which he had advanced to the first construction company, with interest. After correspondence and much delay, upon threat by Krohn of a suit, Nelson and Krohn settled for $16,000 of the stock and $1,050 in money, and Krohn signed the following receipt:

'Received of R. W. Nelson, John W. Kirk, John A. Williamson, L. R. Howthorn, and the Central Railway & Bridge Co., sixteen thousand dollars of the capital stock of the Central Railway & Bridge Co., in full satisfaction and discharge of all obligations against them, and each of them, and especially as regards an obligation dated October 23d, 1889, of which the paper on the face of which this is written is a true copy; and also the $1,050.00,-- in full of all claims whatsoever to date.

'(Signed) Louis Krohn.

'March 16, 1892.'

Nelson says that he told Krohn that Williamson and he would not make anything except their share of the $200,000 and whatever they might make out of the right of way. Krohn denies that Nelson ever said anything about the right of way. Neither Nelson nor Williamson exhibited the right of way contract to Krohn, and Krohn denies all knowledge of it or its contents until shortly before bringing this action, when he learned of it from a published account of a suit brought by C. B. Simrall, against Williamson, in which the fact and contents of the right of way contract were stated. Krohn thereupon tendered back the $1,050 received at the settlement, and demanded $48,000 of the bridge stock, as 8 per cent. of the $600,000 received by Nelson and Williamson in addition to the $200,000 mentioned in the construction contract.

Wm. Goebel, for complainant.

Paxton, Warrington & Boutet, George Washington, and W. W. Cleary, for defendants.

TAFT, Circuit Judge (after stating the facts as above).

Were this proceeding an attempt by Krohn to obtain from Williamson and Nelson the profits received by them from the $300,000 in money or bonds, paid by the King Company for the right of way, or from the remnants of land bought, but not used, for the bridge approaches, the objection made by defendants' counsel that Krohn is here seeking to assert the rights of the bridge company, without showing a refusal of that company to act in its own behalf, would be well taken, and the bill would have to be dismissed on that ground; for it is undoubtedly the law that a stockholder cannot be permitted to institute litigation on behalf of the corporation until he has made every effort to induce the corporation to appear and maintain its rights in its own person, and unless its failure or refusal to do so is something like a fraud upon the complainant.

Porter v. Sabin, 149 U.S. 473, 13 Sup.Ct. 1008; Dimpfell v Railway Co., 110 U.S. 209...