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Opinion of the Court.
been destroyed by fire, the result of accident or casualty, while in the possession of the defendant, undergoing ordinary repairs, it would have been liable for the loss. No doubt the defendant's assent to liability for losses or damages resulting from accident or casualty, was because the agreement contemplated that the cars furnished to and held by it under the contract would be, all the time, - whether they were on its road in actual service or in its shops undergoing repairs, — in its immediate possession and control, thereby insuring the safety of the cars, so far as the vigilance of its own employés was concerned, from loss or damage from the causes named. But the Pullman Company became dissatisfied with the manner in which the repairs were made by the defendant, and undertook itself to make such repairs, in a shop set apart to it for that specific purpose, and placed under its exclusive control, and to which the defendant's agents had no access. The defendant agreed to be liable for loss or damage, from accident or casualty, if the loss occurred while the cars were in its possession, subject to be used by it or subject to its control, care and supervision ; but not otherwise. That is the meaning of the contract. Looking at the whole agreement, and giving full force to all its provisions, the defendant cannot be held to have agreed to be liable for loss or damage accruing from accident or casualty, while the cars were in the exclusive possession and subject to the entire control of the plaintiff, and not subject to be used, controlled or cared for by the defendant, until the plaintiff chose to surrender its exclusive possession, and return the cars to the possession and control of the railroad company. Upon the theory sanctioned by the court below, we do not perceive but that the defendant would have been liable for the loss of the Great Northern, if it had been removed to the shops of the Pullman Palace Car Company at Pullman, Illinois, to be repaired, and, after being there from October, 1881, until May, 1882, had been burned up while in those shops --- a result that surely could not have been contemplated by the parties. In our opinion, the evidence did not disclose a case of liability under the contract, upon the part of the defendant, for the destruction by fire of the Great
Northern ; and an instruction to the jury to that effect would not have been improper. The judgment is reversed and the cause remanded for a new
trial in conformity with this opinion.
MR. JUSTICE BLATCHFORD did not sit in this case or take any part in its decision.
CLARK v. BEVER.
ERROR TO THE CIRCUIT COURT OF THE
UNITED STATES FOR THE
SOUTHERN DISTRICT OF IOWA.
No. 116. Argued December 15, 16, 1890. — Decided March 2, 1891.
In 1872, an Iowa railroad corporation, being indebted to a construction
company in the sum of $70,000 which it was unable to pay in money, had a settlement with the latter, whereby the debt was paid in shares of the stock of the railroad company of the par value of $350,000. The stock was taken at 20 cents on the dollar, but was not, at the time, worth anything in the market. Greene, a member of the construction company, received 910 shares as his part. Subsequently, in 1876, the railroad and its appurtenances were sold under a decree foreclosing a mortgage given to secure the bonds of the railroad company. Clark, a holder of bonds issued by the railroad company in 1874, obtained judgment for the amount due him, upon which execution was issued and returned in 1880, no property. Greene having died, Clark brought suit against his administrator in one of the circuit courts of Iowa, sitting in probate, to hold his estate liable for the difference between what was paid for the stock, and its face value, upon the ground that the stock of the corporation was a trust fund for creditors, and that as between creditors and stockholders, the latter was bound to account for its face value. Upon the petition of Clark, the case was removed to and tried in the Circuit Court of the United States, where a verdict was returned by direction of the court for the defendant. Held, (1) That as the proceeding involved a judicial determination of the lia
bility of Greene's estate for the claim in question, with parties before the court to contest all questions of law and fact, it was a "suit” within the meaning of the act of Congress providing for the removal of suits from the state courts. It is not competent for a State, by legislative enactment conferring upon its own courts exclusive jurisdiction of proceedings or suits involving the
Counsel for Plaintiff in Error.
settlement and distribution of the estates of deceased persons, to exclude the jurisdiction in such matters of the courts of the United States, where the constitutional requirement as to citizen
ship of the parties is met; (2) That the value of the matter in dispute here is the amount of the
claim the plaintiff seeks to establish, and that amount being in excess of $5000, without costs, this court has jurisdiction without reference to any inquiry as to what might be ultimately realized
from Greene's estate, if the claim be established; (3) That the estate of Greene is not liable for the face value of the stock
by reason of the statute of Iowa providing that nothing therein contained “ exempts the stockholders of any corporation from individual liability to the amount of the unpaid instalments on the stock owned by them or transferred by them for the purpose of defrauding creditors, and execution against the company may to that extent be levied upon such private property of any individ
ual.” Revision of Iowa, 1860, sec. 1172; Code of 1873, sec. 1082; (4) That whether a stockholder in law or in fact, owed to the corpora
tion any sum on the stock held by him, was left by the statute to be determined in each case, upon its own circumstances, and in accordance with the principles of general law touching the rights
and liabilities of creditors and stockholders. While the capital stock of a corporation, especially its unpaid subscrip
tions, is a trust fund sub modo for the benefit of its general creditors, a corporation - no statute forbidding — may in good faith sell or dispose
of its stock to creditors in discharge of their debts. The principle reaffirmed that when the interest of the public or of a
stranger is to be affected by any transaction between the stockholders owning a corporation, and the corporation itself, such transaction is subject to rigid scrutiny, and if found to be infected with anything unfair towards such third person, calculated to injure him, or designed intentionally and inequitably to screen the stockholder from loss at the expense of the general creditor, it will be disregarded or annulled so far as it inequitably affects him. Therefore, when the interest of creditors requires, those holding shares in a corporation, purporting to be, but which are shown not to have been, paid for to the extent of their face value, should be held liable to pay for such shares unless it appears that they acquired the stock under circumstances that did not give creditors
and other stockholders just ground for complaint. The doctrine reaffirmed that the federal courts, sitting in any State, have
equal and coördinate jurisdiction with the state court in determining questions of general law, although they will, in cases of doubt, lean to an agreement of views with the state court.
The case is stated in the opinion.
Mr. P. Henry Smyth for plaintiff in error.
Opinion of the Court.
Mr. Charles A. Clark for defendant in error.
MR. JUSTICE Harlan delivered the opinion of the court.
In the year 1872, the Burlington, Cedar Rapids and Minnesota Railway Company - of which at the time the intestate George Greene was president, as well as a stockholder, and of which he continued to be president until February, 1875, — had a settlement with the Northwestern Construction Company, of which also Greene was a member, for work done in building a part of its road. This settlement showed the sum of $70,000 to be due the Construction Company. The railway company, being unable to pay this claim in money, delivered to the Construction Company thirty-five hundred shares of its stock, at twenty cents on the dollar, each share being for $100, and the same was accepted in full satisfaction of the debt. The stock, which was not worth anything in the market, was issued directly to the members of the Construction Company, the intestate Greene receiving 910 shares as his portion. No other payment than this twenty per cent was made for or on account of the stock. The good faith of the parties in making this arrangement is not impugned by allegation or proof. The Construction Company was reluctant to take the stock, and insisted upon payment in cash. What the original stockholders paid for their shares does not appear. Nor does the record show whether or not Greene exercised any of the privileges of a stockholder.
Prior to the above settlement a resolution was adopted February 7, 1871, by the executive committee of the railway company to the effect that, in the adjustment or liquidation of claims against the company, the treasurer be authorized to use its stock, if not less than twenty per cent of its par value could be realized for the purpose. At the time the stock was issued to Greene, the financial condition of the company was as follows: The bonded indebtedness of its main line was $5,400,000; its floating debts over $1,000,000; its net earnings in 1871 and 1872 and subsequently were not sufficient to meet the interest on its bonded debts; and in March, 1872,
Opinion of the Court.
when the settlement in question was made, it was without means to pay its floating debt or the interest on its bonded debt, except from net earnings and such money as could be realized from its stock and bonds and by borrowing.
The railway company continued to operate the road until May 19, 1875, on which day, in a suit brought in the United States Circuit Court for the District of Iowa to foreclose mortgages given by it to secure outstanding bonds, a receiver of its property was appointed. At this time the general condition of the company was this: Its bonded debt was $10,400,000, upon which no interest had been paid since November 1, 1873, and its floating debt amounted to $1,250,000, and it had no means with which to
it. In the above suit a sale under a decree of foreclosure was made in July, 1876, when the railroad and all its property were purchased and have since been owned by the Burlington, Cedar Rapids and Northern Railway Company. After the appointment of the receiver, the Burlington, Cedar Rapids and Minnesota Railway Company ceased to do business or to exercise its franchises as a corporation.
It should be stated, in this connection, that Greene on the 10th of February, 1875, transferred the above 910 shares to John I. Blair, a gentleman of large fortune and financially responsible for the balance, if any, due on that stock. At the instance of the Western managers of the Burlington, Cedar Rapids and Minnesota Railway Company, Mr. Blair undertook to save it from bankruptcy. But, ascertaining that the company's overissue of bonds was so great and its liabilities so large, that it was necessary to commence foreclosure proceedings and to make application for the appointment of a receiver, he returned to Greene and others all the stock received by him.
Clark, the plaintiff below, a citizen of Ohio, being the holder of fifty gold bonds of one thousand dollars each of the Burlington, Cedar Rapids and Minnesota Railway Company, dated June 1, 1874, payable in the year 1914, and bearing interest at seven per cent per annum — which bonds were part of a series of two thousand, each for one thousand dol