Van Weel v. Winston

• Decision Date: 02 November 1885
• Citation: 6 S.Ct. 22,115 U.S. 228,29 L.Ed. 384
• Parties: VAN WEEL v. WINSTON and others. 1 Filed
• Court: U.S. Supreme Court

6 S.Ct. 22

115 U.S. 228

29 L.Ed. 384

VAN WEEL v. WINSTON and others.¹

Filed November 2, 1885.

[Syllabus from pages 228-229 intentionally omitted]

[Statement of Case from pages 229-234 intentionally omitted] J. K. Edsall and W. H. Moore, for appellant.

[Argument of Counsel from pages 234-236 intentionally omitted] M. W. Fuller and W. C. Goudy, for appellees.

MILLER, J.

This is an appeal from a decree of the circuit court of the Northern district of Illinois, dismissing the bill of Van Weel, who was plaintiff below and is appellant here. The original bill was filed December 12, 1876, and several amended bills were filed, until, on May 22, 1880, complainant filed what he calls his amended and supplemental bill, substituting it in lieu of his previous bill and amended bills. The defendants named in this bill are the Chicago & Southwestern Railway Company, of Iowa and Missouri, Frederick H. Winston and George C. Campbell, citizens of Illinois, Calvin F. Burnes, a citizen of Missouri, and David Dows and Frederick S. Winston, citizens of New York. Mr. Van Weel describes himself as an alien, and a subject of the king of the Netherlands, and a holder and owner of bonds of the Chicago & Southwestern Railway Company for $67,000, principal, and overdue interest on them to the amount of $35,175. He brings this suit, as his bill alleges, not only for himself, but on behalf of numerous other holders of the same issue of bonds, whose names he gives, to the amount, including interest, of $671,000. The bill was demurred to, the demurrer was sustained, and a decree rendered dismissing it, from which this appeal is taken.

The contest seems to be mainly between complainant, Van Weel, on one side, and Frederick H. Winston on the other. Calvin Burnes, a citizen of Missouri, has not been served with process within the Northern district of Illinois, and has not appeared by himself or attorney. The same may be said of David Dows and Frederick S. Winston, who are citizens of New York. F. H. Winston has demurred separately, and if the bill cannot be sustained against him it is obvious, from its character, that it is not good against the other defendants. The bill is a long one, the allegations are not classified, nor the true foundations of relief very clearly stated. It is full of the words 'fraudulent' and 'corrupt,' and general charges of conspiracy and violation of trust obligations. Mere words, in and of themselves, and even as qualifying adjectives of more specific charges, are not sufficient grounds of equity jurisdiction, unless the transactions to which they refer are such as in their essential nature constitute a fraud or a breach of trust for which a court of chancery can give relief. Ambler v. Choteau, 107 U. S. 590; S. C. 1 Sup. Ct. Rep. 556.

The charges in this bill on which relief is sought may be arranged under two heads: (1) Fraudulent misrepresentations of the defendant affecting the character and value of the security on which the bonds in question were negotiated. (2) The violation of certain obligations, in the nature of a trust, which he assumed in regard to the security and ultimate payment of the bonds. A few of the most important matters applicable to both these charges as found in the bill may be thus stated:

A company had been incorporated under the laws of Iowa to build a railroad from the town of Washington, in that state, on the line of the Chicago, Rock Island & Pacific Railroad Company, in a south-westerly course to the Missouri river, or to the line of the state of Missouri in that direction. Another corporation had been organized under the laws of Missouri to build a railroad in that state from a point opposite the city of Leaven worth, in Kansas, to the Iowa state line, in the direction of the city of Des Moines in that state. These companies were consolidated into one, under the name of the Chicago & Southwestern Railway Company, with the declared purpose of building a single road from Washington to the Missouri river at a point opposite Leavenworth. Of this company Mr. Winston became the president, and a member of the executive committee of its board of directors. The company issued bonds for $5,000,000, which were guarantied by the Rock Island Company, and made a mortgage on the entire line of its road to secure their payment. The length of this line was 266 miles, and the money raised on these bonds secured its rapid completion. In the mean time another corporation had been organized in Missouri to build a road from the Missouri river opposite the city of Atchison, in the state of Kansas, to some point on the line of the Chicago & Southwestern road. This road was called the Atchison Branch, and when the main branch of the Southwestern road was nearly finished, lacking, as the bill avers, only 50 miles of its completion, a consolidation was effected between the company organized to build this branch road to Atchison and the original Chicago & Southwestern Company, in which consolidation the corporation retained the name of this latter company. This company, as consolidated, at once determined to raise a new loan of a million of dollars, to be used mainly for the purpose of building the Atchison Branch road, on which but little, if any, work had been done. As a security for the bonds of this loan, they made another mortgage, which was a first mortgage on the Atchison Branch, and a second mortgage on the main line. These bonds were all sold, and the two lines of road completed within a reasonable time; and it may as well be added that both mortgages were forfeited in a few years for non-payment of interest, and the mortgages foreclosed by a sale of the roads under two different foreclosure suits.

The charge of actual fraud against Mr. Winston grows out of certain acts and representations made by him in connection with the sale of these bonds by the Chicago & Southwestern Company. In order that no injustice may be done the complainant in regard to his allegations on this point, the language of the bill will be here given:

'Your orator further complains and states that the said Frederick H. Winston, and his confederates afterwards, to-wit, on or about the first day of June, A. D. 1871, contrived and entered into a scheme to secure a loan of the further sum of $1,000,000, for the ostensible purpose of building a branch line of road as hereinafter stated, but in reality to enable him and his confederates to get control of, and convert to their own use, a large part of the funds secured and advanced to build said branch road. And to that end said Winston, as president of said Southwestern Company, caused a circular to be issued, a true copy of which is hereto annexed, marked 'Exhibit A,' to which reference is made as if it was incorporated herein, in which, among other things, speaking as president of said Southwestern Company, he said:

"On the first day of May, 1871, the Chicago & Southwestern railway, from Washington, Iowa, to Leavenworth, Kansas, a distance of 266 miles,—now finished and in operation, 216 miles,—will be fully completed and opened for business under the auspices and management of the Chicago, Rock Island & Pacific Railroad Company. The two roads, thus under one management, will constitute a through line, and the shortest through line, from Chicago and the Great Lakes of the North to the extreme Southwest. Congratulating our friends and ourselves upon the prompt sale of our first issue of bonds, as well as their present established market value, both in this country and in Europe, we would present for sale, through the financial agents of the company, a second issue, for the purpose of constructing a branch railroad from the main line to Atchison, Kansas, a distance of about fifty miles.'

'Said Winston, after setting forth the advantages of Atchison as a commercial and railway center, continued as follows:

"To carry on the arrangements before stated, the Chicago & Southwestern Railway Company have issued one thousand bonds, dated June 1, 1871, each for one thousand dollars, due thirty years after date, with semi-annual coupons annexed, at the rate of seven per cent. per annum, principle and interest payable in American gold coin at the American Exchange National Bank, in the city of New York; all of which are equally secured by a first mortgage on the road to be built, its assets, rights of way, earnings, and other property, as well as by a second mortgage upon the Chicago & Southwestern Railway, its property and franchises.'

'It was further stated in said circular that said mortgage would be 'a safe and reliable security,' the value of which would be better appreciated by the fact that the 'Chicago, Rock Island & Pacific Railroad Company had already agreed to lease, and would when completed operate, the whole line' on terms that would pay a handsome dividend to the stockholders, and 'which in no event' would be 'less than the interest on all the bonds outstanding,' and that the value and security of the contract aforesaid was 'equal to a direct indorsement of the bonds' by the Rock Island Company.

'It was further stated in said circular:

"The Chicago & Southwestern Railway, for over two hundred miles west from Washington, is pointing almost directly to Atchison, so that its extension to that place involves less curvature than that of the established line to Leavenworth.' 'The Atchison Branch, through the populous counties of Buchanan, Clinton, and Platte, offers railroad facilities to wealthy agricultural communities, which in return must afford a heavy and lucrative local traffic. Every tract over which it will pass is a farm, teeming with the abundant products of the famous Platte purchase.' 'With the offering of the first loan of the Chicago & Southwestern Railway Company we were admonished, as the originators of a new enterprise, to avoid the language of eulogy and enthusiasm. Difficult as was the task to those who knew its real merits, we have compensation...