Lloyd v. Preston

• Decision Date: 19 December 1892
• Docket Number: No. 59,59
• Citation: 13 S.Ct. 131,146 U.S. 630,36 L.Ed. 1111
• Parties: LLOYD et al. v. PRESTON et al
• Court: U.S. Supreme Court

146 U.S. 630

13 S.Ct. 131

36 L.Ed. 1111

LLOYD et al.

v PRESTON et al.

No. 59.

December 19, 1892.

In equity. Bill by Emma C. Preston, as executrix of Josiah W. Preston, and others, against Harlan P. Lloyd, trustee of Edward L. Harper, the said Edward L. Harper, and others, to compel the payment of stockholders' subscriptions, and for application of the same to judgments recovered against the Cincinnati, Columbus & Hocking Valley Railway Company. Decree for complainants. 36 Fed. Rep. 54. Defendants Lloyd and Harper appeal. Affirmed.

Statement by Mr. Justice SHIRAS:

On October 12, 1881, Edward L. Harper was the owner of what was then known as the Columbus, Washington & Cincinnati Railroad, a narrow-gauge road extending from Allentown to New Burlington in the state of Ohio. Prior to that time Harpel had been engaged in the purchase and sale of grain in the city of Chicago, Ill., through J. W. Preston & Co., W. E. McHenry, Preston & McHenry, and H. Eckert & Co., agents for W. E. McHenry and Preston & McHenry, and on account of such grain transactions the said persons made claims against Harper, which he disputed. By way of settlement and compromise of these claims, Harper entered into an agreement, October 12, 1881, with the said Preston & McHenry, and their agents, which agreement, after naming the parties thereto, and setting out Harper's ownership of the said railroad, proceeds as follows:

'First. That the said Harper shall cause the gauge of said road to be changed to the standard gauge, and shall extend the same from its present terminus at Allentown, Ohio, on the Dayton and Southwestern Railroad, to the town of Jeffersonville, on the Southern Ohio R. R., and make the connection with the last-named road; also shall extend it from its present western terminus at New Burlington to the present line of the Little Miami Railroad, at or near the town of Corwin, and make connection therewith.

'Second. And the said Harper agrees to make said gauge and said extensions and connections with said roads within four months from the date of this contract.

'Third. And the said Harper further agrees within the same period of four months to cause to be organized under the laws of Ohio a railway company, to be named the Cincinnati, Columbus and Hocking Valley Railway Company, and to convey, or cause to be conveyed and transferred, to said company said railroad and extensions, and all the privileges, appurtenances, and plant thereunto belonging, an unincumbered title therefor, except the mortgage bonds herein provided for.

'Fourth. And the said Harper further agrees to cause said company to issue its coupon bonds of one hundred, five hundred, and one thousand dollars each, payable in forth years, with interest at six per cent. per annum, payable semiannually, which shall be secured by a first mortgage upon the said railroad and its extensions and the real and personal property and franchises of said company then owned or thereafter acquired by it, said first mortgage bonds not to exceed in the aggregate an amount equal to the rate of twenty thousand dollars per mile of the length of said road and extensions; and said Harper likewise agrees to cause said company to issue income bonds of one hundred, five hundred, and one thousand dollars each, payable in forty years, properly secured, which shall not exceed in the aggregate twenty thousand dollars per mile, interest and principal of said bonds to be made payable in New York city.

'Fifth. And the said Harper further agrees to deliver to the said other parties hereto, in payment of their respective claims, said first mortgage bonds at the par value thereof, as follows To the said J. W. Preston & Co., seventy-five thousand five hundred and thirty-four dollars. To the said W. E. McHenry, twelve hundred and fifty dollars. To the said Preston & McHenry, one hundred and thirty-seven thousand and six hundred and twenty-two dollars. To the said H. Eckert & Co., agents for W. E. McHenry and Preston & McHenry, five hundred dollars, and likewise to deliver as a bonus at the par value thereof fifty per centum of the above amount respectively in said income bonds. Said deliveries to be made within four months from the date hereof, at the Third National Bank of Cincinnati.

'And the said Howard Eckert & Co., J. W. Preston & Co., W. E. McHenry, and Preston & McHenry, each for himself and themselves, agree to accept said first mortgage and income bonds in full payment of the indebtedness of said Harper to each of them respectively.'

On November 7, 1881, a corporation was organized under the laws of the state of Ohio, under the name of the Cincinnati, Columbus & Hocking Valley Railway Company, the said Harper and five other persons being the incorporators, and the capital stock being fixed at $2,500,000, divided into 25,000 shares of the par value of $100 each. Of this stock Harper subscribed for 2,500 shares, at the par value, and John L. Pfau, E. Snowden, J. H. Matthews, W. H. Harper, J. F. Gimperling, D. P. Hyatt, and William C. Herron, of the state of Ohio, and George E. Clymer, of the state of Kentucky, subscribed for one share each. After the subscriptions were made, the stockholders met and elected a board of seven directors, composed of all the stockholders of the company, except E. L. Harper and W. C. Herron. Immediately upon their election, on December 13, 1881, the board of directors met, all the members being present, and chose officers and adopted by-laws. At this meeting the following proposition was made to the directors by the said Harper:

'I hereby propose to broaden the gauge of the road now owned by me to a standard gauge, and extend the same on the west to near Corwin, on the Little Miami road, and also to extend the east end to Jeffersonville, on the Springfield Southern road, say about thirty miles of railroad, and hereby agree to sell the same to your company for eighteen hundred thousand dollars of the par value of the securities of your company, as follows, viz.: Six hundred thousand dollars of the first mortgage, forty years, six per cent. bonds, issued at the rate of twenty thousand dollars per mile of constructed road; six hundred thousand dollars of the income bonds, issued at the rate of twenty thousand dollars per mile of constructed road; and six hundred thousand dollars of the capital stock, including subscriptions already subscribed.'

A motion to accept this proposition was carried by a unanimous vote of the directors.

At a meeting of the stockholders of the company, held on January 2, 1881, all the stockholders being present either in person or by proxy, the action of the directors in accepting the above proposition was ratified.

On June 20, 1882, a called meeting of the board of directors was beld at the office of the company, in Cincinnati, Ohio, at which the following motion was unanimously carried:

'Whereas, the president, Mr. Gimperling, reports that E. L. Harper has complied with his contract made with the company for the construction of twenty-eight miles of railroad from Claysville Junction to Jeffersonville, Ohio, and that the chief engineer, H. Phillips, has certified to the Union Trust Co., of New York, that the twenty-eight miles have been constructed in accordance with the terms of the contract: Therefore, resolved, that the road be accepted from said E. L. Harper, and he be paid any balance in bonds, stock, or money which may be due him on said contract, taking his receipt for the same.'

There appears to have been no other meeting of the directors or stockholders, except a meeting of the directors, held on February 20, 1883, when B. D. Hyatt was elected president and general manager, and W. C. Herron was elected a director, to fill vacancies caused by the resignation of J. E. Gimperling.

On February 11, 1882, Preston & McHenry and their agents gave to the said Harper a receipt for $214,000 in first mortgage bonds and $107,200 in income bonds of the said Cincinnati, Columbus & Hocking Valley Railway Company, in full satisfaction of their claims against him under the above agreement of October 12, 1881.

On June 5, 1885, Josiah W. Preston, Eugene H. Lahee, William E. McHenry, Charles J. Gilbert, William T. Baker, Murray Nelson, Abram Poole, Almore A. Kent, Selah Young, Jr., and James S. Sherman, of the state of Illinois, filed their bill in equity in the circuit court of the United States for the southern district of Ohio, western division, against the Cincinnati, Columbus & Hocking Valley Railroad Company, E. L. Harper, John L. Pfau, E. Snowden, J. H. Matthews, D. P. Hyatt, W. H. Harper, W. C. Herron, Lewis Seasonagood, W. D. Lee, and John E. Gimperling, of the state of Ohio, and George E. Clymer, of the state of Kentucky, alleging that in a previous action in the same court certain of the individual complainants, or certain of the complainants jointly, had recovered judgments for divers amounts respectively against the said railway company; that thereupon writs of fieri facias had been issued against the property of the company and returned unsatisfied; and that, the company having become insolvent, and having abandoned all action under its charter, nothing could be accomplished through it or its officers by way of collecting unpaid stock subscriptions, or other credits due to said corporation.

The bill also alleges that no part of said subscriptions for the capital stock of the company by E. L. Harper and others has been paid; that the company was duly organized and incorporated under and by virtue of the laws of the state of Ohio, and that the capital stock of $2,500,000 was subscribed for as stated above. Also, that W. D. Lee, of the state of Ohio, became and is the holder of certain certificates representing 3,000 shares, of the par value of $100 each, of the stock of the corporation; that said certificates were issued and delivered by the said company to the said W. D. Lee on or about June 1, 1882, at the special...