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Opinion of the Court.

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worth more than they could have been sold for, but we are to look at the circumstances as they were when the transaction took place, in considering what was its nature and whether it was legal.

Certainly it (the compromise] did not place the company in any worse position than it must have held had it not been made.

Besides, as we have seen, the arrangement assailed by the complainants was not a modification of the subscription previously made, or a bonus given for a release. It was rather a purchase of the city debt. We think it was not beyond the power of the contracting parties.” Again, after observing that the arrangement made was binding upon the railroad company, through which, as well as against which, the judgment creditors claimed, the court said: “No doubt the subscribed capital stock of a corporation is a fund held by it in trust for its creditors, as is also all its other property, and had the railroad company released, without equivalent consideration, or given it away, its action would have been fraudulent, and might have been set aside by a court of equity. But certainly it was in the power of the directors to apply the subscription on bonds taken in payment to the extinguishment of debts, and, if thus applied in good faith, all being obtained for it that it was worth, no one has been wronged. It is, therefore, a question of fact to be determined by the evidence, whether the bonds and the balance of the city's subscription were thus applied. add, the evidence is convincing that the contract between the city and the company was made in the utmost good faith, with no intention to wrong the creditors of the latter; that it was at the time considered advantageous to the company, and it is not proved that all was not paid for the bonds issued and to be issued that they could have been sold for in the market.” These principles have not been modified by any decision of this court, and they fully sustain the judgment in this case. And there is some support for the judgment in Gelpcke v. Blake, 19 Iowa, 263, 268, decided in 1865, in which a creditor of a railroad corporation sought to hold a stockholder liable on his subscription, notwithstanding his release by it. The court said : “Again, a release is a contract, and the articles of

We may Opinion of the Court.

incorporation give to this company all the powers described in section 674 of the Code of 1851. The sixth clause of that section invests the company with power to make contracts, acquire and transfer property, possessing the same powers in such respects as private individuals now enjoy. There was no lack of power, therefore, in this company, nor do we think there would have been in the board of directors, to rescind the contract with or without the consent of the stockholders or others, when it was done in good faith, and under the peculiar and equitable circumstances of the case.” The clause in the Code of 1851, above referred to, was reproduced in the Revision of 1860, $ 1151, and in the Code of 1873, $ 1059.

It is, however, contended that the judgment cannot be sustained without disregarding later decisions of the Supreme Court of Iowa, which, it is insisted, rest upon the statute of that State, and are binding upon this court. Reliance is particularly placed by the plaintiff upon Jackson v. Traer, 64 Iowa, 469. All the cases in that learned court to which attention has been called were determined after Greene acquired the stock in question, and all, with one exception, after this litigation was commenced. The recognition in the Iowa statute of the right of creditors of corporations to look to unpaid instalments of stock subscriptions to obtain satisfaction of their demands did not confer a new right, but is a recognition of a right existing before the statute in virtue of the relations between a corporation and its creditors and stockholders. The new right given to the creditor by the statute is to bave his execution, when corporate property cannot be found, levied upon the private property of the stockholder who is indebted on his subscription of stock; it being declared, out of abundant caution, that nothing in the statute “ exempts” stockholders from individual liability to the amount of their unpaid instalments of stock. The decisions of the state court are not, therefore, to be regarded as resting upon the local statute, but only as expressing the views of that tribunal in respect to the same principles of general law announced by this court, after the fullest consideration, in the numerous cases to which we have adverted. The leading case in the state court upon this

Opinion of the Court.

subject is Jackson v. Traer, above cited. It involved the liability of Greene's estate to another judgment creditor of the railroad company for the difference between the face value of his stock and the price at which it was received in payment of his claim. Upon the first hearing in the Supreme Court of the State, all its members except one held that the stock should be treated as fully paid. Upon a rehearing, at the October term, 1884 — some time after this action was brought and had been removed into the court below — three of the judges held that Greene's estate was bound to account to creditors for eighty per cent of the face value of the stock received by him. Chief Justice Rothrock and Judge Seevers dissented. The two cases since Jackson v. Traer. we allude to Boulton Carbon Co. v. Mills, 78 Iowa, 460, and Tama Water Power Co. v. Hopkins, 79 Iowa, 653 — do not rest upon any ground that is inconsistent with the views we have expressed. We cannot, consistently with our deliberate judgment upon this question of general law, accept the decision in Jackson v. Traer as controlling the determination of the present case. Upon questions of that character the federal courts administering justice in Iowa have equal and coördinate jurisdiction with the courts of that State, although they will lean "towards an agreement of views with the state court if the question seems to them balanced with doubt." Railroad Co. v. Lockwood, 17 Wall. 357, 367; Burgess v. Seligman, 107 U. S. 20; Pana v. Bowler, 107 U. S. 529; Hough v. Railway Co., 100 U. S. 213, 226; Railroad Co. v. National Bank, 102 U. S. 14, 30, 31; Myrick v. Michigan Central Railroad, 107 U. S. 102, 109; Carroll County v. Smith, 111 U. S. 556; Bolles v. Brimfield, 120 U. S. 759. The judgment below, in our opinion, is in accordance with the law as it was adjudged to be when Greene received the stock in question and surrendered his claim upon the railroad company, and with the law as this court has since that time frequently declared it to be; and our duty is to so declare in the case before us.

Judgment affirmed.

MR. JUSTICE Brown, not having been a member of the court when this case was argued, did not participate in its decision.

Statement of the Case.

FOGG v. BLAIR.

APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE

EASTERN DISTRICT OF MISSOURI.

No. 135. Argued January 6, 1891. - Decided March 2, 1891.

It is the settled doctrine of this court, as well as of the Supreme Court of

Missouri, that unpaid subscriptions to the stock of a corporation constitute a trust fund for the benefit of creditors, which may not be given away or disposed of by it, without consideration or fraudulently, to the

prejudice of creditors. While it is competent for a railroad corporation in Missouri, exercising

good faith, to use its bonds and stock in payment for the construction of its road, it could not rightfully, at least, as against creditors or stock. holders, issue its stock to contractors as full paid, without getting some fair or reasonable equivalent for it. What is such equivalent depends primarily upon the actual value of the stock at the time it was contracted to be issued, and upon the compensation which, under all the circumstances, the contractors were equitably entitled to receive for the particular work undertaken or done by them. The corporation could not, by its directors, sell or dispose of its assets to the prejudice of creditors and stockholders, under such circumstances, on such terms, and at such prices as indicated, upon the face of the transaction, that they were being squandered recklessly or fraudulently in disregard of the trust committed

to them. In a suit brought against contractors for the construction of a railroad to

hold them liable for the face value of stock received by them, in payment for work done, the bill alleged that they got $12,000 in the company's first mortgage bonds, for each mile of constructed road, and, in addition, $850,000 in its stock, and that the mortgage bonds received by them were full and adequate compensation for the work; but there was no allegation as to the real value of the stock. Held, that the bill was bad on demurrer; that it should have shown that the stock was of some value; and that the general allegations that the arrangement was a " fraud," a “breach of trust,” a “scheme,” and “colorable,” without stating the ultimate facts upon which they were based, were only allegations of conclusions of law, which the demurrer to the bill did not admit.

The court stated the case as follows:

The appellant Fogg brought this suit to recover from the appellee Blair the amount of a judgment obtained by him

Statement of the Case.

against an insolvent railroad corporation. The general ground upon which it is sought to make the appellee liable is, that he holds stock of that corporation upon which he is alleged to owe more than is sufficient to discharge appellant's judgment against it.

The case was determined upon demurrer to the bill, which makes the following showing: The St. Louis and Keokuk Railroad Company, a corporation of Missouri created by an act approved February 16, 1857, was authorized to construct a railroad from some suitable point on the North Missouri Railroad, not exceeding thirty miles west of St. Charles in that State, by way of Louisiana, Hannibal, La Grange and Canton, to some point near the mouth of the Des Moines River on the northern boundary of Missouri. Between January 1, 1867, and May 1, 1880, it located its line between Gilmore about nineteen miles west of St. Charles and Alexandria at the mouth of that river, running in a northerly direction through St. Charles County to Lincoln County by the way of Troy to a point near Prairieville, a distance of thirty-eight miles. It was also located from the Fair Grounds near Hannibal by the way of New London to Frankfort in Pike County. The road between the two places last named, a distance of eighteen miles, was completed and a large amount of grading was done in Lincoln County on the line located. The sum of $300,000 was expended in grading in that county. In the progress of the work the company became indebted in large amounts to a considerable number of persons, the plaintiff Fogg among the number.

On the 22d of September, 1870, Fogg and the railroad company had a final settlement of their respective claims, showing due him the sum of $9547.75 for labor done and money furnished in the location and construction of the railroad.

Subsequently, June 3, 1872, nearly all of the stockholders and directors, and all of the executive officers, of the St. Louis and Keokuk Railroad Company entered into articles of association, and organized under the General Statutes of Missouri a new corporation named the St. Louis, Hannibal and Keokuk Railroad Company, with a capital stock of $6,000,000 divided

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