Harriman v. Northern Securities Co.

Headnotes

1. Civil Procedure — Appellate Jurisdiction A court of appeals decree that, while nominally reversing only an interlocutory injunction order, effectively disposes of the entire controversy on the merits may be reviewed by certiorari, and the reviewing court may finally dispose of the case by direction to the circuit court. No. 512, syllabus
2. Civil Procedure — Res Judicata A judgment affirming a decree goes no further than the decree itself; it leaves the lower court at liberty to proceed in execution of the decree as circumstances require but does not change the decree or import a power to do so not otherwise possessed. 193 U.S. 197
3. Civil Procedure — Stare Decisis — Obiter Dictum General expressions in an opinion that are not essential to the disposition of the case do not control the judgment in subsequent suits. Cohens v. Virginia, 6 Wheat. 264, 399; Carroll v. Carroll's Lessees, 16 How. 275
4. Civil Procedure — Res Judicata The decree in the Northern Securities case did not determine the quality of the transfer as between the defendants, and its provisions concerning return of shares transferred to the Securities Company were permissive only, not an adjudication that any vendor was entitled to restitution of its original railway shares, nor that the Securities Company could not distribute the railway shares it held pro rata among its own shareholders. 193 U.S. 197
5. Contracts Law — Nature of Transaction — Sale versus Bailment A transaction in which complainants transferred railway stock to a securities company in exchange for the securities company's own shares and cash, pursuant to a resolution authorizing an unqualified purchase at a fixed price, is one of purchase and sale, not a bailment or trust.
6. Evidence — Admissions A vendor who testifies that the transaction was an unconditional sale and that he attached no conditions to his negotiations other than price is estopped from afterwards denying that statement by claiming he only swore to a conclusion of law. Sturm v. Boker, 150 U.S. 312, 336; Mutual Life Ins. Co. v. Phinney, 178 U.S. 327, 342
7. Contracts Law — Illegality — In Pari Delicto Property delivered under an executed illegal contract cannot be recovered back by any party in pari delicto, and where the record discloses no special considerations of equity, justice, or public policy, a court may not relax the rigor of that rule. St. Louis, Vandalia & Terre Haute R.R. Co. v. Terre Haute & Indianapolis R.R. Co., 145 U.S. 393
8. Contracts Law — Mistake Good faith and the absence of any intention to violate the law do not exempt parties from the doctrine of in pari delicto, and where all parties supposed the statute would not be held applicable to the transaction, neither may plead ignorance of the law as against the other; no unfair advantage is secured by retaining consideration voluntarily delivered for the price agreed.
9. Remedies — Rescission — Acquiescence and Laches A vendor who, after transferring railway shares to a purchasing corporation, becomes a director of that corporation and participates in acts consistent only with absolute ownership by it of the railway stocks — and does so after suit has been brought to declare the transaction illegal — loses, if he ever had it, the right to rescind the contract and compel restitution of his original railway shares.
10. Remedies — Relief — Public Policy Where delivery of the railway stock claimed by complainants and a ratable distribution of the balance among the other securities company stockholders would tend to smother competition and thus contravene the object of the Sherman law and the purposes of the Government's suit, the relief sought is inequitable and will be denied.
11. Business & Corporate Law — Powers — Holding Stock in Other Corporations Under New Jersey law a corporation may be authorized by its charter to acquire and hold shares of capital stock of other corporations as investments and, while owner, to exercise all rights, powers, and privileges of ownership, including the right to vote thereon; it may likewise acquire and hold bonds and other securities of other corporations and may aid any corporation of which it holds securities in order to protect, preserve, improve, or enhance the value of that investment. N.J. corporate charter provisions, cl. 2–5
12. Business & Corporate Law — Preferred Stock — Retirement at Option of Company Preferred stock of a corporation may be made subject to retirement at par at the option of the company, and by accepting such stock holders subject themselves to that right; the board of directors may adopt resolutions determining to exercise the company's retirement right, fix a record date, and provide for payment of par value in cash to each holder of record. Northern Pacific board resolutions of November 13, 1901
13. Business & Corporate Law — Corporate Finance — Convertible Bonds To raise funds to retire preferred stock, a corporation's board may authorize the issuance of negotiable bonds convertible at par into shares of its common stock at par, and may authorize a contract for sale of those bonds at par and accrued interest that grants common stockholders the opportunity to receive such bonds in proportion to their common holdings. Northern Pacific board resolutions; executive committee action of November 15, 1901
14. Business & Corporate Law — Consolidation and Merger — Effect on Pledged Shares A pledge of shares under a trust indenture does not prevent the consolidation, union, or merger of the issuing corporation with another corporation, nor the sale of its property or distribution of its assets, and upon such an event the trustee receives the stock, bonds, securities, or money to which the holders of the pledged shares would be entitled, surrendering the deposited certificates upon receipt. Trust indenture clause (quoted)
15. Antitrust & Competition Law — Restraint of Trade The acquisition, pursuant to an agreement among persons in control of two competing railway systems, of a majority of the stock of one of those railways through a holding company organized for the purpose of acquiring and voting the stock of both systems constitutes a combination or conspiracy in restraint of interstate trade and commerce within the meaning of the Act of July 2, 1890. 26 Stat. 209, c. 647; 120 F. 721; aff'd 193 U.S. 197
16. Antitrust & Competition Law — Remedies — Injunctive Relief A court of equity may enjoin a holding company and the officers, directors, servants, and agents of the railway companies whose stock it holds from voting or permitting the voting of that stock at corporate elections, from paying or receiving dividends upon it, and from exercising any control whatsoever over the corporate acts of either railway company, while leaving the holding company free to return and transfer the railway shares to the original railway stockholders who delivered them or to the holders of its own stock issued in exchange for them. Decree; aff'd 193 U.S. 197
17. Business & Corporate Law — Ultra Vires — Illegal Contracts A transaction entered into by a corporation wholly beyond its powers is ultra vires and illegal; where a contract is beyond the corporation's power, the objection is not merely that the corporation ought not to have made it but that it could not make it, and such a contract cannot be ratified or confirmed by the stockholders because it could not have been authorized by them. Central Transp. Co. v. Pullman's Car Co., 139 U.S. 24, 60; McCormick v. Market Bank, 165 U.S. 538, 550; California Bank v. Kennedy, 167 U.S. 362, 368; Pullman's Car Co. v. Transportation Co., 171 U.S. 138
18. Contracts Law — Illegality — Effect of Performance No performance can give an unlawful agreement validity by way of estoppel or otherwise, nor can it be the foundation of any right, and any contract made in violation of a statute is void, conferring no rights under it. Gibbs v. Baltimore Gas Co., 130 U.S. 396, 410; Miller v. Ammon, 145 U.S. 421, 426; Connolly v. Union Sewer Pipe Co., 184 U.S. 540, 548
19. Contracts Law — Illegality — Restitution Where the purpose and consideration of a contract have failed by reason of illegality resulting in corporate disability to perform, the vendor may rescind and is entitled to restitution of his title. Chapman v. Douglas County, 107 U.S. 348; Am. Table Works v. Boston Machine Co., 139 Mass. 5
20. Contracts Law — Illegality — Termination of Illegal Purpose When property is transferred for an illegal purpose which has been terminated, prevented, or abandoned, the holder must return the property on demand, and to deny a remedy to reclaim such property is to give effect to the illegal contract. Louisiana v. Wood, 102 U.S. 294; Parkersburg v. Brown, 106 U.S. 487, 503; Davis v. Old Colony Railroad, 131 Mass. 258, 275
21. Civil Procedure — Res Judicata The extent and effect of a court's decision, whether as res judicata or as judicial precedent, must be ascertained not merely from the decree or mandate but also from the pleadings and the opinions delivered, and a court may refer to the evidence before it, the arguments of counsel, and its own records to determine exactly what points were ruled upon; every question directly presented by the issues and discussed and passed upon in the opinion is as much a part of the decision as if expressly recited in the decree or mandate. Dimmick v. Tompkins, 194 U.S. 540, 548; Bienville Water Supply Co. v. Mobile, 186 U.S. 212, 217; Last Chance Min. Co. v. Tyler Min. Co., 157 U.S. 683, 690; In re Sanford Fork Tool Co., 160 U.S. 247, 256
22. Civil Procedure — Appellate Mandate — Contents An appellate mandate need not recite the points decided but need only declare the ultimate conclusion of affirmance, reversal, dismissal, or qualification of the decree below, and is always to be read in the light of the court's opinion. Last Chance Min. Co. v. Tyler Min. Co., 157 U.S. 683, 690; In re Sanford Fork Tool Co., 160 U.S. 247, 256; Railroad Companies v. Schutte, 103 U.S. 118, 143
23. Civil Procedure — Res Judicata Stockholders are not strangers to litigation involving the corporation's right to carry out the objects for which it was organized and affecting title to property it received from them; a stockholder is so far an integral part of the corporation that he is considered privy to legal proceedings touching its status and powers, and all persons identified in interest and in privity with a litigating party are concluded by the judgment and entitled to invoke its effect. Sanger v. Upton, 91 U.S. 56; New Orleans v. Citizens' Bank, 167 U.S. 371, 396; Hawkins v. Glenn, 131 U.S. 319, 329
24. Civil Procedure — Res Judicata Where a securities company held railway shares as custodian or trustee, it represented the depositing stockholders as cestuis que trustent in litigation concerning the legality of its custodianship, and those beneficiaries are bound by the resulting decree. Kerrison v. Stewart, 93 U.S. 155, 160; Graham v. Boston, Hartford & Erie R.R. Co., 118 U.S. 161, 179
25. Evidence — Estoppel — Statements of Legal Conclusion The form rather than the legal effect of a transaction is not controlling, and an assertion of a legal conclusion does not estop a party from showing the real facts. Sturm v. Boker, 150 U.S. 312, 336; Mutual Life Ins. Co. v. Phinney, 178 U.S. 327, 342
26. Remedies — Restitution Justice and sound public policy favor restoring the status quo where an illegal combination has been adjudged to violate an act of Congress — particularly where its legality was publicly challenged by the National Government at the scheme's inception — rather than permitting distribution on the basis of alleged rights acquired under the illegal contract and in disregard of pending litigation; a proposed plan of distribution that is a willful and deliberate attempt to circumvent a decree in a Government suit may be found to have been the alternative intended as part of the original unlawful scheme.
27. Remedies — Estoppel — Conduct During Pending Litigation No equitable estoppel arises from a company's conduct during the pendency of a Government suit and in defiance of the serious claim made therein, whether as to sales of stock (all purchasers having notice of the situation) or as to the receipt of dividends on the stock by the complainants.
28. Contracts Law — Illegality — Validity by Assent Illegal acts cannot be given validity by assenting to them or acting under them; otherwise a statute could be abrogated by simply contracting to do the prohibited act. Thomas v. Railroad Co., 101 U.S. 71, 86; Veeder v. Mudgett, 95 N.Y. 295, 310
29. Contracts Law — Illegality — In Pari Delicto — Innocent Owner The rule that parties in pari delicto may have no standing to reclaim property held under an illegal contract cannot be applied so as to allow the holder to dispose of and distribute at will all property held without legal accountability to anyone; where the illegal purpose cannot be continued and must necessarily be abandoned, the innocent owner of transferred property does not forfeit his legal rights so as to be unable to maintain an action to recover it. National Bank Loan Co. v. Petrie, 189 U.S. 423
30. Contracts Law — Mistake The rule as to parties in pari delicto requires a delictum — a wrongful act knowingly done, an intentional transgression against positive law — and parties are not in pari delicto where there is concededly no intentional wrongdoing or crime; a party who acted in good faith under a mutual mistake of law honestly held in consequence of a reasonable but erroneous construction of a doubtful statute is not necessarily barred, and relief will be granted from the consequences of a mistake of law whenever the mistake is clearly proved or admitted and the party against whom relief is sought would otherwise secure an unfair advantage. Spring Co. v. Knowlton, 103 U.S. 49; St. Louis Railroad v. Terre Haute Railroad, 145 U.S. 393; Moses v. Macferlan, 2 Burrows 1005, 1012
31. Contracts Law — Illegality — Malum Prohibitum versus Malum in Se Where specific performance of an illegal contract is sought or damages are claimed for its breach, the distinction between malum prohibitum and malum in se is immaterial, but courts recognize that distinction when considering the right to recover property transferred under an illegal contract upon disaffirmance or termination of the transaction resulting in a failure of consideration; where the act involves no moral turpitude but is merely malum prohibitum, relief has often been granted by restoring the status quo so far as practicable. Gibbs v. Baltimore Gas Co., 130 U.S. 396, 412; Pratt v. Short, 79 N.Y. 437, 445
32. Contracts Law — Illegality — Stakeholders and Custodians The doctrine of in pari delicto does not apply where money or property has been deposited with a trustee or stakeholder, and a mere custodian cannot take advantage of the illegality of the transaction but must return the property to its owners. Brooks v. Martin, 2 Wall. 70, 80; Planters' Bank v. Union Bank, 16 Wall. 483, 500; Block v. Darling, 140 U.S. 234
33. Remedies — Tracing — Property in Hands of Custodian Where specific property belonging to another is changed by a custodian, bailee, trustee, or agent into other property or funds, the original owner is entitled to follow it as long as it can be ascertained to be such, and the right ceases only when the means of ascertainment fail. National Bank v. Insurance Co., 104 U.S. 54, 68; Silsbury v. McCoon, 3 N.Y. 379, 390
34. Business & Corporate Law — Dissolution Where railway shares deposited with a corporation are to be regarded as assets of the corporation rather than returned to the depositors, the corporation should sell the stocks and make distribution in cash, the same rule of sale and cash distribution applying, with stronger reason, in the case of a corporation than in the case of a partnership. Mason v. Pewabic Mining Co., 133 U.S. 50, 63; Kean v. Johnson, 9 N.J. Eq. 401, 408, 409
35. Civil Procedure — Law of the Case Upon affirmance by the Supreme Court, the decree of the circuit court becomes the decree of the Supreme Court and is binding upon all parties, privies, and other courts, and the opinion of the court is part of the record and may be resorted to in order to determine what was decided. In re Potts, 166 U.S. 265; Durant v. Essex County, 101 U.S. 555; Foundry Co. v. Water Co., 183 U.S. 217; Baker v. Cummings, 181 U.S. 124
36. Civil Procedure — Res Judicata Parties by representation in a prior Government case may, in their own right, plead and give in evidence against, and as binding upon, the party defendant the conclusions of that case on the same questions arising in later litigation, even though the cause of action, parties, testimony, and measure of relief differ between the suits, and it is not necessary that all parties to the prior suit be the same in the later one. Cromwell v. County of Sac, 94 U.S. 352; Lumber Co. v. Buchtel, 101 U.S. 638; Thompson v. Roberts, 24 How. 240; Smith v. Kernochen, 7 How. 217
37. Civil Procedure — Res Judicata Where several grounds of recovery or defense exist on which a decree may have rested, the decree is conclusive on the specific findings that led up to the proposition on which the court decided the case, and the ground of decision may be determined by evidence aliunde where the decree itself is silent. Russell v. Place, 94 U.S. 606; DeSollar v. Hanscome, 158 U.S. 216
38. Civil Procedure — Res Judicata The former opinion and decree of the Supreme Court is conclusive even on that court when the same case comes back before it, and certainly so where the former opinion and decree is set up as conclusive in other litigation in which the parties are not all the same and the complainant in the former case is not a party to the second. Roberts v. Cooper, 20 How. 467, 481; Barney v. Winona c. R.R. Co., 117 U.S. 231
39. Civil Procedure — Res Judicata Stockholders of a corporation who were represented as a class in prior litigation are parties and privies to that litigation, and may invoke the findings, conclusions, and decree of that court as res judicata in subsequent litigation with the same opposing party, even where the cause of action in the prior case differed, so long as the prior pleadings distinctly raised as material questions substantially the same as those presented. Great Western Tel. Co. v. Purdy, 162 U.S. 329; Hawkins v. Glenn, 131 U.S. 319; Smith v. Swormstedt, 16 How. 288
40. Civil Procedure — Lis Pendens — Purchasers of Stock A party who acquires stock after the filing of a suit affecting that stock takes with notice pendente lite and is bound by the resulting decree. Tilton v. Cofield, 93 U.S. 163
41. Business & Corporate Law — Dissolution Stockholders of a corporation upon dissolution cannot be compelled to accept a distribution of their share of the assets in kind. Mason v. Pewabic Mining Co., 132 U.S. 50, 58; Post v. Beacon, 84 F. 369, 375
42. Civil Procedure — Appellate Review of Interlocutory Orders — Final Disposition A court of appeals reviewing an interlocutory order granting a preliminary injunction may not enter what is practically a final decree and dispose of the case on the merits where the case is not one permitting such disposition, because disposition on the merits ordinarily requires a hearing at which each side may present all its proofs, cross-examine witnesses, compel the attendance of hostile witnesses, and compel production of all books and papers. Smith v. Vulcan Iron Works, 165 U.S. 518, 524; Mast, Foos Co. v. Stover Mfg. Co., 177 U.S. 485, 494
43. General — Estoppel — Holding Out Another as Owner A party who has publicly held out another as owner of property, inducing innocent third persons to acquire interests in reliance thereon, is estopped from asserting that the other is a trustee or bailee of that property.
44. Contracts Law — Illegality — Locus Poenitentiae — Laches The doctrine of locus poenitentiae is available only to those who seasonably seek to make restitution and to withdraw from their illegal executory contract; the right of rescission may be lost by acquiescence and laches, and laches is a fatal vice. Vandalia case, 145 U.S. 393; Twin Lick Oil Co. v. Marbury, 91 U.S. 587; McLean v. Clapp, 141 U.S. 429, 432; Ward v. Sherman, 192 U.S. 168
45. Contracts Law — Illegality — Executed Transfers — Repudiation Where property has been transferred, illegal from any cause, and possession has been delivered to the person to whom title under the transfer was ultimately intended to go, the transaction has become executed on the part of the transferrer, and he cannot thereafter repudiate it and reclaim the property because of the illegality; this rule applies under all forms of illegality, whether the transaction involves doing something the law positively prohibits or something it merely omits to allow. Thomas v. Railroad Co., 101 U.S. 71, 83; Vandalia case, 145 U.S. 393, 399, 408; Central Co. v. Pullman Co., 139 U.S. 24
46. Remedies — Interlocutory Injunction — Right to Final Relief An injunction pendente lite can be justified only as a necessary incident to granting such final relief as the complainants appear entitled to; where the right to final relief does not appear, the injunction was erroneously granted, and the question is not addressed to the court's discretion. Brooklyn Club v. McGuire, 116 F. 783; Home Ins. Co. v. Nobles, 63 F. 643; Amelia Milling Co. v. Tennessee C.I. R. Co., 123 F. 811
47. Civil Procedure — Appellate Review of Injunction Orders — Dismissal of Bill On appeal from an injunction order the court will consider the merits and may dismiss the bill if it can see that the complainant is not entitled to a final decree; where the complainant's theory is unsound, the court will not simply reverse the injunction order but will dismiss the bill. Smith v. Vulcan Iron Works, 165 U.S. 518; Mast, Foos Co. v. Stover, 177 U.S. 485; Castner v. Coffman, 178 U.S. 168
48. Contracts Law — Illegality — Void versus Voidable A transaction is not void because it is illegal or because it is ultra vires; under the settled law of New Jersey and New York and in the federal courts with respect to the passing of title, an executed ultra vires transaction stands as valid, and the Sherman Anti-Trust Act expressly contemplates that contracts may be made in violation of the statute under which property will be owned. Harris v. Runnels, 12 How. 79; National Bank v. Mathews, 98 U.S. 621; Logan County Bank v. Townsend, 139 U.S. 67, 76; Whitney Arms Co. v. Barlow, 63 N.Y. 62; Cam. Atl. R.R. Co. v. May's Landing c. R.R. Co., 48 N.J.L. 530, 567
49. Civil Procedure — Certiorari — Review of Nonfinal Decrees A court may grant certiorari and review a decree of a circuit court of appeals that is not final where the record presents the whole case such that the lower court might properly have finally disposed of it by its decree; where certiorari is granted before the case has returned to the circuit court, the reviewing court may do what the circuit court of appeals might have done, that is, finally dispose of the case by direction to the circuit court. Mast, Foos Co. v. Stover Mfg. Co., 177 U.S. 485, 495; Castner v. Coffman, 178 U.S. 168, 183; Mayor c. of Knoxville v. Africa, 77 F. 501
50. Civil Procedure — Res Judicata Complainants who were not parties of record to the Government suit were not parties by representation where the effect of the transfers as between the parties thereto had not been in issue and the vital conflict later set up did not then exist, destroying the community of interest on which the rule of representation is founded.
51. Antitrust & Competition Law — Remedies — Self-Executing Prohibitory Decree A wholly prohibitory decree enjoining certain threatened acts enforces itself so long as those acts are not done, and no further action looking to its enforcement is essential. Circuit Court's opinion of April 19, 1904 (quoted)
52. Remedies — Enforcement of Decree — Power to Compel Surrender of Stock A court may doubt its power to compel stockholders of a holding company who had not been served with process, and were not before the court otherwise than by representation, to surrender stock in their possession and take other stock in lieu thereof, and may confine its order to rendering the railway stock valueless, while in the hands of the holding company, for the purpose of carrying out the objects of the unlawful combination in restraint of interstate trade.
53. Civil Procedure — Modification of Final Decrees A decree that is final by affirmance cannot be modified to convert a merely permissive provision into a mandatory one; where a decree expressly declined, on full consideration, to make a certain order when entered, a court must decline to make that order afterwards, and leave to proceed in execution of the decree as circumstances may require does not change the decree or confer a power to alter it not otherwise possessed.
54. Antitrust & Competition Law — Restraint of Trade Possession of the power to vote railway shares and receive dividends thereon, whether held as owner or as trustee, may bring the holder within the statute where exercise of that power would prevent competition and thus restrain commerce.
55. Evidence — Parol Evidence — Establishing Agreement Where an alleged agreement is not in accord with the documentary evidence, a clear preponderance of proof is at least required to establish its existence, and a contract established and its terms embodied in corporate resolutions, approved by the vote of a party and testified to by the corporation's president as the only contract made and authorized, cannot be overthrown in the absence of any evidence to the contrary.
56. Contracts Law — Consideration The compulsory abandonment of the design for which a corporation was organized does not divest or affect the absolute title it acquired by an executed contract of purchase; anticipation that rights ordinarily incident to stock ownership, including the right to vote and to receive dividends, would be exercisable by the corporation is not a contract, and the frustration of that anticipation cannot be said to occasion a failure of consideration where the only consideration agreed upon was payment of the price and that payment was admittedly made.
57. Business & Corporate Law — Shareholder Rights Stock certificates in common form are each a muniment of the holder's title to a proportionate interest in the corporate estate vested in the corporation; a stockholder who acquires such shares takes the ordinary rights of stockholders in a New Jersey business corporation, including the right to receive dividends and to share in the distribution of assets on dissolution or of any surplus on reduction of capital stock, and by accepting the shares subjects himself to the corporation's reserved power to dissolve and distribute its assets. New Jersey corporation act; certificate of incorporation
58. Contracts Law — Illegality — In Pari Delicto — General Rule The general rule, in equity as at law, is in pari delicto potior est conditio defendentis: neither party to an illegal contract will be aided by the court, whether to enforce it or to set it aside, and if a contract is illegal, affirmative relief against it will not be granted unless the contract remains executory, or unless the parties are not in equal fault — as where the law violated is intended for the coercion of one party and the protection of the other, or where there has been fraud or oppression on the part of the defendant. Thomas v. Richmond, 12 Wall. 349, 355; Spring Co. v. Knowlton, 103 U.S. 49; Story Eq. Jur. § 298
59. Contracts Law — Illegality — Fully Executed Contracts When the parties are in pari delicto and the contract has been fully executed on the part of the plaintiff by conveyance of property or payment of money, and has not been repudiated by the defendant, neither a court of law nor a court of equity will assist the plaintiff to recover back the property conveyed or money paid under the contract. Thomas v. Richmond, 12 Wall. 349; Ayerst v. Jenkins, L.R. 16 Eq. 275, 284
60. Remedies — Relief — Competing Equities of Stockholders Holders of securities company shares who purchased in reliance on the belief that they thereby acquired a ratable interest in all of the company's assets have superior equities against a later conflicting claim, and an illegal contract cannot be made legal by estoppel.
61. Business & Corporate Law — New Stock — Subscription Rights New common stock issued upon retirement of preferred stock is the result of the exercise of the right of subscription, not the natural increase of the old stock, and absent an express agreement former stockholders are not entitled to that new stock.
62. Remedies — Restitution Parties in pari delicto who seek relief must offer restoration of the status quo where practicable, and an executed sale and purchase cannot be disturbed on the ground of illegal purpose at the instance of such parties absent such an offer.