182 F. 607 | 7th Cir. | 1910
This suit, begun in August, 1905, is by the Citizens’ Savings & Trust Company, a citizen (fictionally) of Ohio, and Chaplin, trustee, a citizen of Missouri, as complainants, against the Illinois Central Railroad Company, the Belleville & Southern Illinois Railroad Company, the St. Louis, Alton & Terre Haute Railroad Company, citizens of Illinois, and the United States Trust Company,,a citizen of New York, as defendants. The Illinois Central and the United States Trust Company filed general and special de
The bill opens by setting forth at length certain facts which appear in Citizens’ Savings & Loan Association v. Belleville & Southern Illinois Railroad Co., 117 Fed. 109, 54 C. C. A. 495. For the purposes of this case the following epitome will suffice: By virtue of doings' under a construction contract between one Chamberlain and the Belle-ville Company, Chamberlain subscribed and paid for a certain 1,000 shares of the common stock of the Belleville Company. By virtue of dealings between complainants and Chamberlain, complainants became the owners prior to 1895 of Chamberlain’s paid subscription for 790 of the shares.
The suit (in 117 Fed. 109, 54 C. C. A. 495) was begun in 1898 and in effect was for the specific performance of the subscription contract. We held that complainants had not been guilty of laches in beginning or prosecuting their suit and that they were entitled to certificates for the shares. A final decree was accordingly entered in the Circuit Court on May 16, 1903, and on May 12, 1904, the Belleville Company in compliance with the decree issued certificates to complainants.
In 1866, the bill proceeds to allege, the Belleville Company leased its line to the Terre Haute Company for 999 years on the basis of a division of the gross earnings. Under the lease the Belleville Company received enough to pay dividends on its preferred stock' and to accumulate a fund from which it declared a 19 per cent, dividend on the common stock in 1895. Gross earnings (and therefore the Belleville Company’s rental) steadily increased from 1866 to 1895. Since 1895 the gross earnings have continued to increase, but the Belleville Company has derived no benefits therefrom on account of the doings of the Illinois Central.
Prior to 1895 the Illinois Central owned a line whose western terminus was Du Quoin, Ill. The Belleville line extended from Du Quoin to Belleville, the Terre Haute line from Belleville to East St. Louis. The Illinois Central, desiring to reach East St. Louis, formed a plan of securing control of the Belleville and Terre Haute lines by acquiring enough stock in each company to elect its own men as directors and through them to abrogate the 1866 lease, make new leases and conveyances, all in the interest of the Illinois Central and detrimental to the interest of the Belleville Company. Before embarking upon this plan, the Illinois Central knew that complainants were claiming to be the equitable owners of the 790 shares in the. Belleville Company. Prior to April 4, 1896, the Illinois Central had acquired all of the preferred stock of the Belleville Company except 35 shares, and all of the common stock except 5 shares and the 1,000 shares of the Chamberlain subscription. On April 4, 1896, the Illinois Central procured the Belleville Company to execute a purported lease of the Belleville line to the Illinois Central for 99 years at a yearly rental just sufficient to pay interest on bonds and guaranteed dividends on preferred stock of the Belleville Company. This rental was not fair or adequate, and the arrangement was destructive of the
In complainants’ suit to obtain stock certificates, the Illinois Central paid costs and attorney’s fees and directed the defense. The steps of the Illinois Central stated in the preceding paragraph were taken for the purpose of depriving the Belleville Company’s common stock of all value, so that, if complainants should succeed in establishing the fact of their equitable ownership and their consequent right to certificates, their victory would be barren.
Since 1897 the Illinois Central had! prevented the Belleville Company from making the annual reports required by the Illinois law. This was for the purpose of concealing the earning capacity and income of the Belleville line and the amount of stock acquired in the Belleville Company by the Illinois Central.
The aforesaid doings of the Illinois Central were concealed by it, were not disclosed in" annual reports or otherwise, and were not fully known to complainants until immediately preceding the bringing of this suit. The first that complainants knew of the Illinois Central’s purchase of any of the Belleville Company’s stock was during the examination of a witness in the stock-certificate suit. Complainants immediately began an investigation, the diligent prosecution of which did not yield adequate information on which to base a suit until August, 1905, when the bill was filed.
Prayers of the bill are for discoveries, cancellations of leases and deeds, receiver, accounting, and general relief.
The claim that the suit is violative of equity rule 94, in that the bill does not show that complainants were stockholders at the time of the transactions complained of, or that the stock devolved upon them by operation of law since that time, is in our opinion utterly unwarranted, and arises, we believe, from a failure to apprehend) the scope of the decision in the previous suit. In that case we held that complainants prior to 1895 were the owners of Chamberlain’s paid subscription for 790 shares of the Belleville Company’s common stock. The owner of a paid stock subscription is the full beneficial owner of the stock. A stock certificate is merely evidence of ownership; and, during the time in which a company fails or refuses to issue a certificate to a subscriber who has paid in full, the company is at most only the holder of the naked legal title in trust for the beneficial owner. Cook v. Sterling Electric Co. (C. C.) 118 Fed. 45. The decree of May, 1903, did not create complainants’ ownership of the stock; it adjudicated the fact (which the defendant had been disputing) that ever since a time antedating 1895 complainants had been the full beneficial owners, and that therefore now (1903) their bare trustee should give them the evidences of title.
Barring laches and other objections hereinafter considered", the equity of the bill is dear. With knowledge of complainants’ assertion of ownership, the Illinois Central formed a plan to forestall secretly the benefits of a successful prosecution of their claim; it caused the Belle-ville Company to fight off complainants’ claim from 1898 to 1903; it held the Belleville Company and the Terre Haute Company as puppets in its hands and made them go through the motions of abrogating their lease and of executing new leases and deeds to it, while it itself was both bargainor and bargainee. The effect accorded with the purpose — it deprived complainants of their property. Force was the primitive means of taking a man’s property away from him. Stealth and guile followed. But these fared no better in the courts than force. Meeker v. Winthrop Iron Co. (C. C.) 17 Fed. 48; Jones v. Missouri-Edison Electric Co., 144 Fed. 765, 75 C. C. A. 631; Wheeler v. Abilene Nat. Bank Bldg. Co., 159 Fed. 391, 89 C. C. A. 477, 16 L. R. A. (N. S.) 892, and cases there collated. It may be that invention will never cease to be exercised in devising plans for wrongful appropriation; but courts of equity will never countenance any scheme to defraud, no matter how novel and ingenious.
Laches is a doctrine of equity. No hard and fast rule, applicable to all cases, has ever been laid down. In each instance the quest is for the equity of the particular case. If an alleged owner permits enough time to elapse to raise, under a statute of repose, the presumption of
It is contended that complainants can have no relief until the considerations paid by the Terre Haute Company to the Belleville Company and by the Illinois Central to the Belleville and Terre Haute companies for the challenged leases and deeds have been restored. Complainants have none of the considerations. Under the averments of the bill, whatever considerations passed went from one till of the Illinois Central to another.
Changes in operation, commingling of funds, inclusion of other properties besides the Belleville line in the leases and deedte, may occasion difficulties in an accounting, if that should prove necessary. But the confused state of affairs was brought about by the Illinois Central in pursuing the averred fraudulent plan, and certainly creates no bar to relief.
Want of capacity of complainant corporation to own stock in another corporation, as being beyond its charter powers, does not appear on the face of the bill.
The United States Trust Company was alleged to have “acquired some interest in the subject-matter of the bill,” and was invited to set it up. The bill does not show that any bonds under the trust deed have been issued. If there are innocent holders of any such bonds, they can be protected in the final decree. For example, if the bill should be sustained, a decree might give complainants a lien on the Belleville property for the value of their interests therein, subject to the United States Trust Company’s mortgage, with a proviso that the other property in the mortgage and the general assets of the Illinois Central should first be exhausted.
The decree is reversed, with the direction to overrule the demurrers.