210 F. 696 | 8th Cir. | 1913
The paramount issue in these cases is: Did the Southern Company become liable to pay the unsecured debt of the-Belt Company to the Trust Company by participating in the execution of a scheme whereby 'it acquired the title- to the property of the Belt Company, deprived its creditor, the Trust Company, of recourse thereto by execution, to collect its claim and yet reserved to itself and other' stockholders of the Belt Company an equity in its property and a benefit therefrom more valuable than the amount of the Trust Company’s
The history of this litigation, the issues, and many of the facts found by the master are set forth in our former opinion. Central Improvement Co. v. Cambria Steel Co., 201 Fed. 811, 120 C. C. A. 121.
“That the Southern Company is not liable in any way for the floating indebtedness of the Belt Company.”
To this conclusion the Trust Company excepted on the ground that, in view of'other conclusions which the master reached adverse to it, jt was unnecessary for him to determine that issue. A consideration after argument of all the facts relating to this issue which the master found in his report convinced this court that the conclusion lawfully deducible from them was that the Southern Company was liable to pay to the Trust Company the debt which the Belt Company owed it. Counsel for the Southern Company now insist that this court was without power to consider or correct this conclusion of the master which the court below followed, and that the Trust Company must suffer the loss of this amount because its counsel did not state in its exception that the conclusion was wrong on the merits of the issue. They invoke the conceded general rule that where no exception is taken to the master’s report it will be deemed to be true, and where exceptions to parts of it are taken the parts to which no exception is taken will stand as correct and will not be open to review in an appellate court. Burns v. Rosenstein, 135 U. S. 449, 10 Sup. Ct. 817, 34 L. Ed. 193; Provident Life & Trust Co. v. Railway Co., 177 Fed. 854,
“It is true that, if the report of the master is clearly erroneous in any particular, it is within the discretion of the court to correct the error; but we • see no occasion for exercising such discretion in this case.”
In 2 Daniell’s Chancery Pleading & Practice, at page 1314, it is said that it is entirely discretionary with the court to grant an opportunity to except to a report after it.has been absolutely confirmed.
2. It is conceded that, by the transaction described in the former opinion of this court and deemed by it violative of the rights of the Trust Company, a creditor of the Belt Company, if that transaction be
“A reorganization of an insolvent railroad company, by wbich botli its mortgage bondholders and its stockholders, in exchange for their bonds and stocks, are given an interest in the new company, which purchases the property of the old company at a foreclosure sale made pursuant to such plan of reorganization and by the consent of the old company and its stockholders, is fraudulent in law as to unsecured creditors of the old company whose claims are left unpaid, and renders the new company liable for the claims of such creditors, at least to the extent of the value of the interest in the new company secured by the stockholders of the old company.” Northern Pacific Ry. Co. v. Boyd, 177 Fed. 804, 101 C. C. A. 18; Luedecke v. Des Moines Cabinet Co., 140 Iowa. 223, 118 N. W. 456, 32 L. R. A. (N. S.) 616; Hurd v. New York & Commercial Steam Laundry Co., 167 N. Y. 89, 60 N. E. 327.
Whére such a transaction is consummated without offering to the unsecured creditor a fair share of the benefits to be derived from the vesting of the title in the purchaser at the foreclosure sale, the intent or purpose to deprive him of recourse to the property to collect his debt be'comes immaterial and the fact that it has that effect charges the purchaser with liability.
"As against him the sale is void in equity; regardless of the motive with which it was made'; for if such contract reorganization was consummated ■ in good faith and in ignorance of the existence of the .creditor, yet when he appeared and established his debt the subordinate interest of the old stockholders would still be subject to his claim in the hands of the reorganized company.” Northern Pacific Ry. Co. v. Boyd, 228 U. S. 482, 502, 33 Sup. Ct. 554, 559 (57 L. Ed. 931).
‘‘For, if purposely or unintentionally a single creditor was not paid or provided for by the reorganization, he could assert- his superior rights against the subordinate rights of the old stockholders in the property transferred to the new company. They (the stockholders of the old company) were in the position of insolvent debtors who could not reserve an interest as against creditors. Their original contribution to the capital stock was subject to the payment of debts. The property was a trust fund charged primarily with the payment of corporate liabilities. Any device, whether by private contract or judicial sale under consent decree, whereby stockholders were preferred before the creditors was invalid. Being bound by the debts, the purchase of*702 th.eir property, by their new company, for their benefit, put the stockholders in the position of a mortgagor buying at his own sale. If they did so in good faith and in ignorance of Boyd’s claim they were none the less bound to recognize his superior right in the property, when years later his contingent claim was liquidated and established.” Northern Pacific Ry. Co. v. Boyd, 228 U. S. 504, 33 Sup. Ct. 560, 57 L. Ed. 931.
“No such proceedings can be rightfully carried to consummation which recognize and preserve any interest in the ■ stockholders without also recognizing and preserving the interests, not merely of the mortgagee, but of every creditor of the corporation. * * * Any arrangement of the parties by which the subordinate rights and interests of the stockholders are attempted to be secured at the expense of prior rights of either class of creditors comes within judicial denunciation.” Louisville Trust Co. v. Louisville, etc., Ry. Co., 174 U. S. 674, 683, 684, 19 Sup. Ct. 827, 830 (43 L. Ed. 1130).
The transaction in hand, if valid, had the effect to deprive the creditors of the Belt Company of and to secure to the stockholders of that company out of its property the value of $1,187,500 par value of the preferred stock and $3,562,500 par value of the common stock of the Southern Company, and upon its face it seems to fall within the denunciation of these rules of law.
But counsel for the Southern Company argue that, although the-completed transaction has the effect of an illegal proceeding, it is not such because it is composed of two independent and valid transactions, to wit: (1) The organization in March, 1900, of the Southern Company and the exchange of the bonds and stock of the Belt Company for the bonds and stock of the Southern Company, so that by April 1, 1900, the latter had acquired. 97 per cent, of the stock and 89 per cent, of the bonds of the Belt Company, and the taking possession of the property of the Belt Company by the Southern Company by virtue of its ownership of these bonds and stock on April 1, 1900, when it filled the offices of the Belt Company with its chosen agents and proceeded to- control and operate it, and (2) the filing on September 6, 1900, by the Provident Trust Company, the trustee in the Belt mort--gage, at the instance of the Southern Company, the owner of 89 per cent, of the bonds, of the bill to foreclose the mortgage of the Belt Company, 97 per cent, of whose stock was owned by the Southern Company, the appearance and consent of the Belt Company on the same day to the appointment of receivers of its property, its answer on Octobér 19, 1901, admitting the material averments of the bill, the decree on November 6, 1901, of foreclosure and sale' of the Belt property and the sale thereof on. December 31, 1901, under this decree to the Southern Company, the owner of nearly all its bonds and stock. The contention is that, while the former transaction was the result of the scheme of reorganization, the latter was independent and free from, the influence thereof, and that each of these transactions taken by itself, as counsel insist they should be, is free from any just objection by any creditor of the Belt Company.
The plan of reorganization was made November 7, 1899, and it became effective December 20, 1899. This plan was made a part of the reorganization agreement, and it stated that it was expected and intended that the property of the Gulf Company would be purchased by the reorganization committee, that a successor of the company would
It is conceded that the organization of the Southern Company, its purchase of the Gulf' Company property, its exchange of its stocks, and bonds for those of the Belt Company, and its possession and control of its property on April 1, 1900, by means of its ownership of this stock, were steps in the execution of the scheme. But the .reorganiza•tion committee did not cease its work until October f, 1900, and before that date the Southern Company by its representative, the Provident Company, had, on September 6, 1900, commenced the suit to foreclose the Belt mortgage and to put its property in the hands of receivers and had caused the Belt Company to consent to the receivership. For what purpose did the Southern Company take these steps? It had the possession and absolute control of the Belt property by its ownership of 89 per cent, of its bonds and 97 per cent, of its stock. A default on its bonds was in reality a default of itself to itself. Foreclosure could give it no more power over the Belt .Company than it already had. For what purpose then was the foreclosure ? Evidently to carry out the reorganization agreement, as it was within the power and as it was the duty of the committee and of that company, its creature, to do, to acquire the property of the Belt Company in fee and bring it directly under the lien of the mortgage. Why did the Southern Company exchange its stock for the stock of the Belt Company? Was it not for the purpose of silencing the opposition of the Belt stockholders to the coming foreclosure, and to its acquisition of the fee of the Belt Company’s property, and was not the scheme of reorganization the primary cause, the vesting of the fee of the Belt property in the Southern Company by the foreclosure the object and effect of that scheme, and the exchange of the stock and the foreclosure of the Belt mortgage the means contemplated and authorized by that scheme to attain that end? To the minds of the members of this court the record in this case leaves no alternative but to answer these questions in the affirmative.
Moreover, the property of the Belt Company was a trust fund. The stockholders of that company were trustees charged with the duty to apply that property to the payment of the claims of the trust company and of the other creditors of the Belt Company before they took to themselves any share in or benefit therefrom. When the Southern
Moreover, where the property of a corporation is sold to a purchaser and part or all of the purchase price thereof is paid or distributed to its stockholders to the exclusion of its creditors from a collection of their debts from the property of the corporation, the latter may recover that part of its value from the purchaser with notice, on the ground that the conveyance is fraudulent in law. Central of Georgia Ry. Co. v. Paul, 93 Fed. 878, 882, 884, 35 C. C. A. 639; Luedecke v. Des Moines Cabinet Co., 140 Iowa, 223, 118 N. W. 456, 457, 32 L. R. A. (N. S.) 616; Hibernia Ins. Co. v. St. Louis & N. O. Trans. Co. (C. C.) 13 Fed. 516; Grenell v. Detroit Gas Co., 112 Mich. 70, 70 N. W. 413; Northern Pacific Ry. Co. v. Boyd, 228 U. S. 482, 33 Sup. Ct. 554, 57 L. Ed. 931. And the fact must be constantly borne in mind, in the consideration of this case, that as against the Trust Company the entire transaction was in effect that the Southern Company knowingly purchased and took to itself without even a formal foreclosure the property of the Belt Company and paid the latter’s stockholders the value of $4,750,000 of its stock therefor to the exclusion of the Belt Company’s-creditors therefrom, for by the express provision of the foreclosure decree the Trust Company was excepted from all its effects.
Another argument is that the Trust Company is entitled to no relief because the equitable interest of the creditors in the property of the Belt Company was of no value. This contention is founded on the findings of the master that there was no direct testimony of the fair value of the Belt Company’s property at or before the time of the foreclosure, no proof that it was worth more than the $1,000,000 for which it was sold at the foreclosure sale, and therefore that it was sold at its fair market value. The mortgage was $1,000,000, and the deduction is that the equitable interest of the creditors was valueless. But the crucial issue here was npt what the fair market value of the mortgaged property was, nor was it how much more the mortgaged property was worth than the amount of the mortgage. Although evidence upon these subjects would have been competent in the consideration of the real issue here in the absence of an estoppel, that issue was: What was the equitable interest of the creditors in the mortgaged property of the Belt Company worth during the execution of the scheme and immediately after the foreclosure sale and the appropriation of it thereby by the Southern Company, the trustee for the creditors, to itself, for a trustee who violates his trust may not prof
“If the value of the road justified the issuance of stock in exchange for old shares, the creditors were entitled to the benefit of that value, whether it was present or prospective, for dividends or only for purposes of control. In either event it was a right of property out of which the creditors were entitled to be paid before the stockholders could retain it for any purpose whatever.” Northern Pacific Ry. Co. v. Boyd, 228 U. S. 508, 33 Sup. Ct. 561, 57 L. Ed. 931.
Deliberate consideration has been given to the earnest objection to the consideration by this court of the question of the value of this equitable interest of the creditors in the Belt property on the ground that the master found that there was no direct evidence that the property of the Belt Company was worth more than $1,000,000, and hence that this was its fair value, that no exception was taken to that finding, and that the evidence is not here. But because the finding of the fair market value of the mortgaged property is not conclusive of the value of the creditors’ equity therein, and because other facts and findings contained in the master’s report, all of which are available to this court for the determination of that issue, have convinced that the value of that equity was more than $475;000, the objection of counsel has not been thought fatal to the consideration and determination of this question.
Counsel say that because the original stockholders of the Belt Company, by the exchange of their stock for that of the Southern Company retained, as they claim, only 3% per cent, of the value of their equitable interest in the Belt property, therefore the Southern Company is liable for only 3% per cent, of that interest. But the measure of the creditors’ recovery is the value of the creditors’ equity which was diverted from them by their trustees, the stockholders of the Belt Company, including the Southern Company, the successory trustee, and vested in that trustee. If the Southern Company had been the owner of the bonds of the Belt Company only, and knowing the condition and indebtedness of the Belt Company, as it did, had paid to the stockholders of that company $475,000 to the exclusion of the creditors for a conveyance of its property by the Belt Company to ‘the Southern Company, it could not have escaped liability to the creditors of that company for that amount. Much less can it do so when it became owner of nearly all the Belt Company’s stock, and in equity a trustee for its creditors. Story’s Equity Jurisprudence, §§ 1261, 1262; Grenell v. Detroit Gas Co., 112 Mich. 70, 70 N. W. 413; Camden Interstate Ry. Co. v. Lee (Ky.) 84 S. W. 332, 333; Central of Georgia Ry. Co. v. Paul, 93 Fed. 883, 884, 35 C. C. A. 639; Luedecke v. Des Moines Cabinet Co., 140 Iowa, 223, 118 N. W. 457, 458, 32 L. R. A. (N. S.) 616; Hibernia Ins. Co. v. St. Louis & N. O. Trans. Co. (C. C.) 13 Fed. 516, 519.
"A sale may be void for bad faith though the buyer pays the full value of the property bought. This is the consequence, where his purpose is to aid the seller in perpetrating a fraud upon his creditors, and where he buys recklessly, with guilty knowledge. When the fact of fraud is established in a suit at law, the buyer loses the property without reference to the amount or application of what he has paid, and he can have no relief either at law or in equity. When the proceeding is in chancery, the jurisdiction exercised is more flexible and tolerant. The equity appealed to — while it scans the transaction with the severest scrutiny — looks at all the facts, and, giving to each one its due weight, deals with the subject before it according to its own ideas of right and justice. In some instances it visits the buyer with the same consequences which would have followed in an action at law. In others, it allows a security to stand for the amount advanced upon it. In others, it compels the buyer to account only for the difference between the under price which he paid and the value of the property. In others, although he may have paid the' full value, and the property may have passed beyond the reach of the Process of the court, it regards him as a trustee, and charges him accordingly. Where he has honestly applied the property to the liabilities of the seller, it may holdJbim excused from further responsibility. The cardinal principle in all such cases is that the property of the debtor shall not be diverted from the payment of his debts to the injury of his creditors, by means of the fraud.” Clements v. Moore, 6 Wall. 299, 312 (18 L. Ed. 786).
The application of the principles there announced in that suit, which was in equity, was this: Nicholson, the debtor, had sold his .property to Moore for $6,310.35 to defraud his creditors, and Moore had paid Nicholson for the goods in cash and his own notes which Nicholson had disposed of and Moore had sold the goods. But Nicholson had applied all of the $6,310.35 to the payment of his debts except $1,500. The Supreme Court held that Moore was liable to the creditor Clements for that amount. By the same mark the Southern Company became liable to the Trust Company to the extent of its claim for the value of the $4,750,000 of its stocks which it issued to the stockholders of the Belt Company to secure the property of the Belt Company and divert it from its creditors. Central of Georgia Ry. Co. v. Paul, 93 Fed. 883, 884, 35 C. C. A. 639; Camden Interstate Ry. Co. v. Lee (Ky.) 84 S. W. 332, 333.
The question, however, is not material in the case at bar because the transaction was a conveyance of the property of the Belt Company in fraud of creditors and a breach of trust by the Southern Company, which company, with full knowledge of all the facts, actively participated in the entire transaction and thereby acquired the property of the Belt Company, so that that property and the improvements the Southern Company has made thereon, free from the $1,000,000 Belt mortgage and free from any charge for the expenses which the Southern Company has made thereon, stands in its hands charged with a trust to pay the claim of the Trust Company against the Belt Company which the court may execute by a seizure and sale by its master or receiver. Railroad Co. v. Soutter, 80 U. S. (13 Wall.) 517, 522, 524, 20 L. Ed.
And if the Southern Company has disposed of the property or destroyed it, or placed it beyond the reach of the Trust Company or the court, or given a mortgage or incumbrance' upon it to a party without notice, the court has plenary power, and it is its duty to require the Southern Company to account for and pay over the proceeds of the property or the value of it, or the proceeds of the mortgage, or the amount of it, to the extent of the Trust Company’s claim, and to so conduct its proceedings and mold its decrees that full relief may be secured by the Trust Company. And as the property of the Belt Company was worth many times the amount of the claim of the Trust Company at the time of its transfer to the Southern Company, the ultimate result will be the same whether the decree be for the seizure and sale of the Belt property or for the payment,of the claim of the Trust Company by the Southern Company, for it must ultimately be paid either out of the property in its hand's or by the Southern Company itself. 20 Cyc. 630, 631; Doherty v. Holliday, 137 Ind. 282, 32 N. E. 315, 317, 36 N. E. 907, 908; Jones v. Reeder, 22 Ind. 111; Swinford v. Rogers, 23 Cal. 234, 237; Mason v. Pierron, 69 Wis. 585, 34 N. W. 921, 925; Blair v. Smith, 114 Ind. 114, 15 N. E. 817, 819, 820, 5 Am. St. Rep. 593; Williamson v. Williams, 11 Lea (Tenn.) 355; Murtha v. Curley, 90 N. Y. 372; Post v. Stiger, 29 N. J. Eq. 554, 561; Chamberlin v. Jones, 114 Ind. 458, 16 N. E. 178, 179; Muskegon Valley Furniture Co. v. Phillips, 113 Ala. 314, 21 South. 822, 823; Coale v. Moline Plow Co., 134 Ill. 350, 25 N. E. 1016, 1018; Dilworth v. Curts, 139 Ill. 508, 29 N. E. 861, 864; Hulley v. Chedic, 22 Nev. 127, 36 Pac. 783, 786, 58 Am. St. Rep. 729; Morrell v. Miller, 28 Or. 354, 43 Pac. 490, 494, 45 Pac. 246.
(1) Because it signed and induced others to sign, the trust agreement which contained this paragraph:
“No right is conferred, nor any trust, liability or obligation (.except the agreements herein contained in favor of the holders of certificates of deposit hereunder) is created by this agreement or the plan, or is assumed hereunder, or by or for any new company in favor of any bondholder or any other creditor or any holder of any claims whatsoever against the said companies, nor in favor of any company now existing or to be formed hereafter (whether sueh claim be based on any bonds, coupon stocks, securities, lease, guaranty or otherwise) with respect to any security deposited under this agreement or any moneys paid to or received by the committee or by the depositor hereunder, or with respect to any property acquired by purchase at any foreclosure sale, or with respect to any new certificates to be issued hereunder, or with respect to any other matter or thing.”
(2) Because it was one of the depositories under the agreement, and on June 26, 1900, it accepted bonds and stock of the Southern Company in exchange for bonds and stock in the Gulf Company and other companies reorganized under the agreement, and especially because it accepted stock of the Southern Company in exchange for stock of the
It may be that if, when the Trust Company signed the agreement, that instrument had disclosed a purpose or had by its terms required the committee, or the stockholders of the Belt Company, or their suc-cessory trustee, the new company, the Southern Company, to violate their trust and divert the equity of the creditors of the Belt Company in its property to its stockholders, the Trust Company’s signature to it, its action as a • depository of the bonds and stocks under it, and its exchange of its Belt Company stock for the Southern Company stock, might have wrought an estoppel against it. But the agreement must be read in the light of the law which was necessarily a part of it. It was to execute a plan, which it disclosed, to transfer the property of •the Belt Company to a new company by means of the exchange of the stock of the new company for that of the Belt Company. The law was that as against 'creditors of the Belt Company such a plan could be lawfully executed in but one way, and that was by offering and, if accepted, by paying to the creditors of the Belt Company either in cash or in stock of the new company, or in some other property at least as much in value as the stockholders should receive, and, in the absence of such an offer or payment the transfer would be fraudulent and voidable as to the creditors. Unless there'was in the agreement some term or provision which required the committee or the Southern Company to violate this law and to,make'a transfer fraudulent and voidable as to the creditors, the legal presumption was that the agreement contemplated, and that the committee and the Southern Company would make, such an offer and payment to the creditors, and upon that presumption the Trust Company had the right to rely when it signed the agreement and thenceforth until it was clearly notified to the contrary. The legal presumption was that the committee and the new' company, the Southern Company, which was to succeed to the trusteeship of the stockholders of the Belt Company, and all others executing the agreement would obey the law, would refrain from making the transfer of the property from the Belt Company fraudulent and voidable, and would make it fair, just, and valid. The Trust Company had the right to calculate the natural and probable result of its signature to the agreement and of all its acts and omissions in reliance upon this presumption. Indeed, it could reckon upon no other, for it is alike impracticable and impossible to predicate and administer the rights and remedies of men upon the theory that their associates and fellowmen will either violate the laws or disregard their duties. Cole v. German Savings & Loan Co., 124 Fed. 113, 119, 59 C. C. A. 593, 599, 63 L. R. A. 416; Little Rock & M. R. Co. v. Barry, 84 Fed. 944, 950, 28 C. C. A. 644, 650, 43 L. R. A. 349; Burt v. Advertiser Newspaper Co., 154 Mass. 238, 247, 28 N. E. 1, 13 L. R. A. 97; American Bridge Co. v. Seeds, 144 Fed. 605, 609, 75 C. C. A. 407, 411, 11 L. R. A. (N. S.) 1041.
The reorganization agreement has been searched in vain for any provision which required or notified the committee or the new company that they must violate the law and make the transfer fraudulent and
“No right is conferred, nor any trust, liability or obligation * * * is created by this agreement or the plan,- or is assumed hereunder, or by or for any new company in favor of * * * any holder of any claims whatsoever against the said companies, * * * with respect to any property acquired by purchase at any foreclosure sale.”
There are two reasons why the Trust Company did not, by signing this paragraph, deprive itself of its equity in the property of the Belt Company, which it held as the cestui que trust of its stockholders, nor of its claim against the Southern Company, the stockholder’s succes-sory trustee: First, if that equity and trust were created or conferred by or under the agreement, they were created and conferred, not by the just and lawful execution of that agreement, but by the inequitable and fraudulent appropriation of the Trust Company’s equity in the property to the benefit of its stockholder or stockholders, and the paragraph in question barred the Trust Company from asserting only such rights, trusts, liabilities, and obligations as arose out of the lawful and equitable execution of its contract. It did not bar it from enforcing its claims accruing from illegal or inequitable acts or omissions of those engaged in the execution of the agreement. If the committee or any one engaged in such execution had unlawfully appropriated to their or his benefit the property, money, or securities of signers of the contract which came to them or him under the agreement, the signers would not have been estopped by that paragraph from recovering the property or from enforcing the personal liability of the appropriators. Second, the Trust Company’s right, trust, and equity in the property of the Belt Company acquired by the Southern Company “by purchase at any foreclosure sale” was neither created nor conferred by the reorganization agreement. It existed in all its force and inhered in the
The plan of reorganization was made on November 7, 1899. It became effective on December 20, 1899. In December, 1899, or during the eariy part of the year 1900, the Trust Company requested a prominent member of the reorganization committee to adjust or settle and pay its claim against the Belt Company, and he answered that it was asserted that the Belt Company did not owe the Trust Company anything, that an examination of the books of the' Belt Company and the books of the Trust Company was being made and that when that was completed he would take up the question of whether anything could be done towards an equitable settlement of the claim. On February 5, 1900, the decree of foreclosure and sale of the Gulf Company’s property was rendered. On March 19, 1900, the Southern Company was incorporated. ■ On March 19, 1900, the Southern Company purchased the property of the Gulf Company at its foreclosure sale. By April 1, 1900, it had acquired, by its exchange of its stocks and bonds for those of the Belt Company, 97 per cent, of the Belt Company’s stock and 89 per cent, of its bonds. On April 1, 1900, it placed its chosen agents in the offices of the Belt Company and took possession of its books and property by virtue of its ownership of its stock. On June 6, 1900, the reorganization committee purchased of the Trust Company and paid it $35,000, which they applied in, part payment of the debt of the Belt Company to it, for certain shares of the- stock of the Terminal Company and of the Airline Company, which the Trust
On September 6, 1900, the Cambria Company commenced the suit here in hand against the Belt Company and against the Trust Company to enjoin the latter company from selling its collaterals and applying their proceeds to the payment of the debt of the Belt Company, a suit which it founded on the averment, which has been adjudged untrue, that the Belt Company was not indebted to'the Trust Company, and on other allegations so baseless that it has become clear that the Cambria Company had no cause of action against the Trust Company. On September 6, 1900, the Belt Company, the hand of the Southern Company, appeared in the Cambria suit, and on the same day the Trust Company was restrained by the court from selling its collaterals, and receivers of the property of the Belt Company were appointed in this suit. On November 5, 1900, the Trust Company answered and set up its claim against the Belt Company and the pledging of its col-laterals. On December 3, 1900, the Cambria Company filed a replication to that answer. On that day the issue of the indebtedness of the Belt Company to the Trust Company was made in this suit, and that issue really existed then between the Trust Company and the Southern Company, for the Southern Company by its ownership of 97 per cent, of the Belt Company’s stock controlled it and in all subsequent proceedings directed its course, and is as much bound by its action as though it had been the Belt Company itself. This issue was referred to the special master, and it was not until May 21, 1910, after testimony had been taken for years and after a record of approximately 34,000 pages had been accumulated, that the Trust Company succeeded in obtaining an adjitdication thereof, and that issue was first determined by the court below a few days later. It will be interesting to note a few of the proceedings which resulted in this delay. Before the Trust Company reached the decision of the master, more than 15 pleadings were filed in this case by other parties to this suit, and the Trust Company was compelled to file 6.
On October 20, 1900, the Trust Company filed a petition in the Prov
On February 27, 1905, the Southern Company filed an intervening petition in the Cambria Company’s suit by which it sought to recover certain collaterals pledged by the Belt Company to the Trust Company to secure the Belt Company’s debt and certain moneys which the Trust Company had collected. On March 7, 1905, the Trust Company filed its answer to this petition, wherein it denied the validity of the claim of the .Southern Company, and alleged that by virtue of the proceedings which resulted in the foreclosure sale and conveyance of the Belt Company’s property to the Southern Company that property remained bound, and the Southern Company became bound to pay the Trust Company’s claim against the Belt Company. On May 1, 1905, the Southern Company filed an amended intervening petition seeking substantially the same relief on the same grounds. On May 25, 1905, the Trust Company answered it in substantially the same way as it answered the Southern Company’s former petition, and the issues thus formed were, by order of the court, referred to the special master for hearing and report. Then followed objections and arguments and testimony, until on May 21, 1910, the master finally filed his report, and in a few da)7s thereafter the court rendered its decree. The Trust Coni;-pany, however, was not idle during this time, nor did it limit its endeavors to enforce its claim to the prosecution of it in the court below. On March 15, 1905, and on March 28, 1905, it commenced actions at law in a state court against the Southern Company for certain parts of its claim against the Belt Company. On July 3, 1905, the Southern Company filed a supplemental bill in the Provident Company’s fore-' closure suit to enjoin the Trust Company from prosecuting those actions. On August 29, 1905, the Circuit Court ordered the Trust Company enjoined from prosecuting it. On May 31, 1906, this court reversed that order. In May, 1907, the Southern Company made a motion in the state court to stay the proceedings in these actions at law, and in June, 1907,'that motion was denied and the cases were set for trial on December 2, 1907. On November 16, 1907, the Southern Company filed another bill to enjoin the Trust Company from prosecuting those actions and the court below granted the injunction. On April 2, 1909, this court reversed that order.
Where is the evidence of any laches of the Trust Company in these proceedings? It presented to one of the members of the committee its claim against the Belt Company for adjustment and settlement and was told that when the examination of the books were completed he would take up the matter whether anything could be done towards an equitable settlement of its claim, and there that matter rested until the Trust Company was enjoined from selling its collaterals in September, 1900. By a sale of some of its collaterals to the committee it collected
But counsel argue that the Trust Company is equitably estopped from maintaining its claim by the fact that it was one of the depositories under the reorganization agreement, that it persuaded others to sign it, and that on July 26, 1900, it exchanged its $76,972 par value of stock in the Belt Company and the stocks and bonds it held in the Gulf Company and the other .reorganized companies for $1,480,-909 par value of stock of the Southern Company. Let us see:
The legal presumption was, and the Trust Company had a right to rely thereon, that the scheme disclosed by the reorganization agreement would be executed in a just and lawful way and that its claim and the claims of all creditors of the Belt Company would be adjusted and settled by full or partial payment by the committee and neither its action as a depositor nor its activity to persuade others to accept the plan, nor its exchange of its stocks and bonds,- constituted any representation that the plan would not be so executed, that the transfer of the property of the Belt Company to the Southern Company would be illegal and fraudulent as to creditors, nor any consent to or participation in such an execution of the agreement. That transfer had not then been made, the Southern Company held the stock of the Belt Company charged with the trust to secure for its creditors at least as much as it had paid to its stockholders, and there was no notice or presumption that it would violate its trust. The Trust Company made no misrepresentation by any of its acts or omissions* of any known fact on which an estoppel in favor of the Southern Company can be based. Second, the reorganization agreement showed that under it the title in fee of the property of the Belt Company was to be transferred to the new company, the Southern Company, and brought under the lien of its mortgage by means of the exchange of the stock of the Belt Company for the stock of the Southern Company, and this disclosure and the law notified the Southern Company and every one who received any stocks or bonds of that company that the acquisition of that stock in that way and its pledge under the mortgage charged the Southern Company, its bondholders and its stockholders, with a trust to secure and distribute to the creditors of the Belt Company the value of their equity in the property of that company, and the answers of the Trust Company in the Provident Company’s foreclosure suit, its application to file its cross-bill, and the paragraph in the decree of foreclosure which exempted the Trust Company from the effect of that decree, kept that notice flaming in the record, so that neither the Southern Company nor any of its bondholders or stockholders were without equal means of' knowledge nor without notice under the law that the transfer of the property of the Belt Company to the Southern Company without offering to pay or paying anything to its creditors was a breach of trust, fraudulent and voidable as to them.
Moreover, although it is immaterial under the opinion in Northern Pacific Ry. Co. v. Boyd, 228 U. S. 502, 33 Sup. Ct. 554, 57 L. Ed. 931, whether they were notified of the Trust Company’s claim or not, they all had notice of it by its presentation to one of the committee, by the Southern Company’s possession of the books of the Belt Company as early as April 1, 1901, by the answers and the application to file the'
This question of estoppel was ably and exhaustively argued. It has not failed to receive the study and meditation of each member of this court. But for the reasons which have now been stated, perhaps at too great length, this study and meditation have but confirmed the court in its former view, and its conclusion still remains that the Trust Company was not estopped either by its promotion of the reorganization agreement, its signature to it, its exchange of stock, or its alleged laches, from prosecuting its claim against the Southern Company .to adequate relief.
In the course of their argument counsel have invoked the maxims that he who seeks equity must do equity and that he who seeks equity must come into court with clean hands, and have claimed that the Trust Company is entitled to no relief because it participated in the formation and execution of a fraudulent scheme. The answer has. been given. The fraud and breach of trust which made the transfer voidable as to creditors were not committed nor disclosed until after the Trust Company’s acts in the formation and execution of the plan
5. Counsel have argued the question whether the Trust Company or the Southern Company has the superior equity in the lands of the Central Company, but the court is not convinced that it was in error in the conclusion, upon this subject which it announced in its former opinion at pages 824, 826, 827 and 828 of 201 Fed., page 121 of 120 C. C. C. A., and as, unless the court is in error on the questions which have already been discussed, that question is no longer material because the Southern Company may have no relief in that regard, unless it pays the claim of the Trust Company, the court refrains from another discussion of it.
The court has ample power to remand the case and permit the filing of a cross-bill or an amendment of the answer so as to pray for the specific relief to which the Trust Company is entitled. Wiggins Ferry Co. v. Ohio & Mississippi Ry. Co., 142 U. S. 396, 413-416, 12 Sup. Ct. 188, 35 L. Ed. 1055; Hardin v. Boyd, 113 U. S. 756, 5 Sup. Ct. 771, 28 L. Ed. 1141; Clark v. Clark, 62 N. H. 267, 272; Trimble v. Wollman, 71 Mo. App. 467, 484. But,that would be a useless proceeding, and neither the law nor the rules and practice in equity require the performance of futile acts. An answer may be treated as a cross-bill, and the rights and remedies which the defendant has alleged in its answer and at the hearing has proved it is entitled to enforce may be maintained and enforced although its prayer is limited to a dismissal of the bill. Bradford v. Union Bank of Tennessee, 13 How. 57, 68, 69, 14 L. Ed. 49; Walden v. Bodley, 14 Pet. 156, 164, 10 L. Ed. 398; Moran v. Hagerman, 64 Fed. 499, 503, 504, 12 C. C. A. 239; Wyatt v. Sweet, 48 Mich. 539, 12 N. W. 692, 693, 13 N. W. 525. In Warden v. Bodley, 14 Pet. at page 164, 10 L. Ed. 398, the Supreme Court said on this subject:
“It would be a reproach to the administration of justice, if in this case the parties should be left, by the decision of this court, apparently, as remote from a final determination of it, as they were 40 years ago. It -is true, the answer prays merely for a dissolution of the injunction, and that the bill may be dismissed. But the court have, by the bill, answer, and evidence, the equities of the parties before them; and, having jurisdiction of the main points, they may settle the whole matter. A court of equity cannot act upon a case which is not fairly made by the bill and answer. But it is not necessary that these should point out in detail the means which the court should adopt in giving relief.”
These rules and authorities and the principle of equity that a court of chancery which once acquires jurisdiction of the subject-matter and the parties to a controversy ought, if possible, to determine the entire matter and grant just relief to each party, the length of time this litigation has already been pursued, and the greater danger of injustice from its continuance than from its termination, have persuaded that the ends of justice will be best served by the entry of a decree in this case upon the issue of the mandate in favor of the Trust Company for the relief to which it is entitled.
7. Counsel for three of the stockholders of the Trust Company have been heard upon their petition that this court adjudge that certain of the litigation herein instituted by the Cambria Company, the Belt Company, and the Southern Company was commenced and prosecuted in bad faith, and that it direct the court below to find the amount of attorneys’ fees, stenographers’ fees, and expert accountants’ fees necessarily incurred by the Trust Company. in that litigation, and, after the entry of the main decree, to render a further decree in favor of the Trust Company and against the. Southern Company for the aggregate of these ■ amounts, or that this court direct the court below to insert in its decree an adjudication that it is rendered without prejudice to the right of the Trust Company to sue the Southern Compa
And the conclusion of the whole matter is that the decree below should be reversed and the district court should render a decree which should contain the first five paragraphs of the former decree, except that the proceeds of the sale of 99 first mortgage bonds and coupons of the Kansas City & Northern Connecting Railroad Company, amounting to $40,001.25, referred to in paragraph 5 of the former decree, together with all interest which has accrued and shall accrue, has been and shall actually be earned on said sum, shall be applied as a credit at the time when the Trust Company shall receive said sum as its own, upon the amount which the Southern Company should pay to the Trust Company, as hereinafter provided, which future decree should also adjudge that the Southern Company is indebted to and should pay to the Trust Company the amount of the indebtedness of the Belt Company to the Trust Company, that is to say, the sum of $639*658.86 and interest from the date of the former decree on $473,723.59 at 6 per cent, per annum, on $46,565.76 at 7 per cent, per annum, and on $119,369.51 at 8 per cent, per annum, and the costs of this suit; that the Trust Company’s right to and equity in the property of the Belt Company which was transferred to the Southern Com'pany by means of the exchange of the stock of the Belt Company for- the stock of the Southern Company and by the foreclosure proceedings, sale, and conveyance, and otherwise, was • and is prior in time and superior in equity and right, to the extent necessary to pay that debt, to the right, title, and equity of the Southern Company therein; that by virtue of the indebtedness of the Belt Company to the Trust Company and the pledge to it of 1,120 shares of the stock of the Central Company, the equity and right of the Trust Company in the property of the'Central Company described in the sixth paragraph of the former decree is superior, to the extent necessary to pay
Bet the decree be reversed, and let the cases be remanded to the District Court, with directions to render a decree for the Trust Company in accord with the views expressed in this opinion.
