Stewart v. St. Louis, Ft. S. & W.R. Co.

• Decision Date: 26 February 1887
• Citation: 41 F. 736
• Court: U.S. District Court — District of Kansas
• Parties: STEWART v. ST. LOUIS, FT. S. & W.R. CO.

41 F. 736

STEWART v. ST. LOUIS, FT. S. & W.R. CO.

United States Circuit Court, D. Kansas.

February 26, 1887^[1]

At Law.

E. N Hulett and J. D. McCleverty, for plaintiff.

A. A Harris and J. H. Sallee, for defendant.

FOSTER J.

The plaintiff brings his action to recover on several promissory notes issued by the defendant company, amounting in the aggregate to $85,000. The defendant, by its answer, denies that A. M. Ayers as president, and Ira D. Bronson as secretary, of said company, had authority to execute or issue said notes; that said notes were fraudulently and wrongfully issued through the collusion of the officers and directors of the company, and without any consideration whatever therefor. The facts, in brief, are as follows: In January, 1880, one M S. Carter, of St. Louis, was the owner of a railroad bed graded and constructed westward from Ft. Scott to Humboldt by a company known as the 'Ft. Scott, Humboldt & Western Railroad Company,' being a distance of 40 miles. On the 17th of February, 1880, Francis Tierman and A. M. Ayers entered into a contract with said Carter for the purchase of said road-bed, in their own names, for the sum of $15,000, and afterwards, in May, sold a third interest in the same to John J. Franklin. In January preceding, said Tierman, Ayers, Bronson, and others associated with them, had become the promoters of the defendant railroad company, and had taken the necessary steps to incorporate said company, said Tierman and Ayers having signed and acknowledged the articles of incorporation on January 20th. Bronson and Hill acknowledged said articles on February 21st, and the other five incorporators signed and acknowledged the same at different times from January 19th to February 21st; and on the 23d day of February, 1880, the charter was filed with the secretary of state, and the company became duly organized. Its purpose was to build and operate a railroad from the eastern line of the state, near Ft. Scott, in a westerly direction, through the counties of Bourbon, Allen, Woodson, Greenwood, Butler, and Sedgwick, to Kingman, in Kingman county. There were nine directors named for the first year, among whom were A. M. Ayers, F. Tierman, H. M. Ayers, Ira D. Bronson, J. D. Hill, and others. At the first meeting, held February 28th, Francis Tierman was elected president, A. M. Ayers, vice-president, and J. D. Bronson, secretary. In May following, said Tierman and A. M. Ayers entered into an agreement with the directors of said railroad company to sell to said company said road-bed at the sum of $200,000 cash or bonds, and $3,600,000 of the capital stock of the company. This sale and the terms thereof were afterwards, in November, at a meeting of the directors, formally ratified and approved, and appear in full on the records of the company. The purchase was afterwards approved, (March 4, 1881,) at a meeting of the stockholders, by unanimous vote; and a deed of conveyance was afterwards made and delivered by said parties to said defendant for said road-bed. At the time of the sale there were no stockholders, and the $3,600,000 stock issued under the said purchase was all that had been subscribed or issued; and the only assets of the company were its charter and this road-bed. The said stock was issued, and the company, having no money or bonds, finally issued its notes for the $200,000, of which $120,000 have been paid; and this suit is brought on the remaining $80,000, together with a $5,000 note issued to J. D. Hill for a year's salary as superintendent.

It appears from the evidence that the road-bed originally cost about $2,000. It had no marketable value, only as it could be used for the purpose for which it was made. It also appears from the evidence that the stock and notes of the railroad company, at the time they were issued, had no present marketable value. The value of the property sold, as well as consideration paid, (stock and notes,) depended very largely upon the success of the enterprise. There is no doubt but the directors Tierman, Ayers, and perhaps Bronson, while directors of the company, used their influence to consummate this sale from themselves as individuals to the company; and it is altogether probably they had that object in view when they bought the road-bed of Carter. But the question still remains, were they guilty of fraud, deception, or any other breach of good faith in their fiduciary relations as directors? At the time they bought the property the defendant company had not been organized; and at that time, of curse they could not have held any fiduciary relations to stockholders or any one else. When the sale to the company was made, they did hold a position of trust, and were bound, in their official action, to faithfully and honestly execute their duties, and not to make a deal where their personal interest should be served at the expense...