Opinion · Supreme Court of the United States
Harriman v. Northern Securities Co.
25 S. Ct. 493
- Type
- Opinion
- Court
- Supreme Court of the United States
- Jurisdiction
- Federal
- Date
- 1905-03-06
- Topic
- general
Mr. Chief Justice Fuller, after making the foregoing statement, delivered the opinion of the court. In applying to this court for the writ of certiorari counsel for complainants insisted that the Circuit Court of Appeals had practically disposed of the entire controversy on the *287 merits, although its decree only reversed the order of the Circuit Court granting the preliminary injunction. We accepted that view and granted the writ, in the circumstances, notwithstanding the decree was not final. In our opinion the record presented the whole case to that court, in such wise, that it might properly have been finally disposed of in terms by its decree, in accordance with the well settled rule upon that subject.
Citator
- Cited by
- 51 opinions
HARRIMANv. NORTHERN SECURITIES CO.,197 U.S. 244(1905)
25 S.Ct. 493
HARRIMANv. NORTHERN SECURITIES COMPANY.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT.
No. 512.
Argued March 1, 2, 1905.
Decided March 6, 1905.
Opinion delivered April 3, 1905.
EDWARD H. HARRIMAN, Winslow S. Pierce, Oregon Short
Page 246
Line Railroad Company and The Equitable Trust Company of New York
exhibited their bill against the Northern Securities Company in
the Circuit Court of the United States for the District of New
Jersey, April 20, 1904, on which, with accompanying affidavits
and exhibits, a restraining order was issued, pending an
application for an injunction as prayed in the bill. April 26 an
amended bill was filed, and the application for a preliminary
injunction was heard May 20, 21 and 23 by Bradford, J., holding
the Circuit Court.
On the fourth day of June a second amended bill was filed, and
on July 15, 1904, Judge Bradford delivered an opinion sustaining
the application. 132 F. 464.
The order for injunction was entered August 18, 1904, and an
appeal therefrom was prosecuted to the Circuit Court of Appeals
for the Third Circuit, which, on January 3, 1905, reversed the
order. 134 F. 331.
Thereupon complainants applied to this court for the writ of
certiorari, which was granted January 30, and the matter advanced
for hearing, and heard March 1 and 2. The affirmance of the
decree of the Circuit Court of Appeals was announced March 6, it
being added that an opinion would be filed afterwards.
The Northern Pacific Railway Company was the successor through
reorganization of the Northern Pacific Railroad Company, and by
its charter it was provided that its capital stock might be
increased from time to time by a vote of a majority of the
stockholders, and that the company might, by a like vote,
classify its stock into common and preferred, and might "make
such preferred stock convertible into common stock upon such
terms and conditions as may be fixed by the board of directors."
On July 1, 1896, by the unanimous vote of its then stockholders,
the capital stock was increased to one hundred and fifty-five
million dollars, divided into eighty millions of common stock and
seventy-five millions of preferred stock, and it was resolved
"that such preferred stock shall be issued upon the condition
that at its option the company
Page 247
may retire the same, in whole or in part, at par, from time to
time, on any first day of January prior to 1917." The plan of
reorganization which was adopted provided that as to the new
company which it was contemplated should acquire the properties
and franchises of the Northern Pacific Railroad Company, and the
issue of preferred stock by it, "the right will be reserved by
the new company to retire this stock, in whole or in part, at
par, from time to time, upon any first day of January during the
next twenty years."
All the certificates of stock, whether common or preferred, at
that time or subsequently issued, contained this clause: "The
company shall have the right at its option, and in such manner as
it shall determine, to retire the preferred stock, in whole or in
part, at par, from time to time, upon any first day of January
prior to 1917."
The reorganization had been managed by J.P. Morgan Co., and
the directory of the Northern Pacific Railway Company were
friendly to that firm. During the same period the president of
the Great Northern Railway Company was James J. Hill, and its
directors were friendly to him.
The two companies were friendly to each other, and in April,
1901, acquired the shares of the Chicago, Burlington and Quincy
Railroad Company.
At this time the Union Pacific Railway system included the
Union Pacific Railway, the railroad of the Oregon Short Line
Railroad Company, and the railroad of the Oregon Railroad and
Navigation Company. The Union Pacific Company was practically the
owner of the entire capital stock of the Oregon Short Line
Railroad Company, and the latter company was the owner of
practically the entire capital stock of the Oregon Railway and
Navigation Company. The interests in control of the Union Pacific
system might properly be called the Harriman interests. Shortly
thereafter, at the instance of the Union Pacific Railway Company
and with money furnished by that company, the Oregon Short Line
Company purchased Northern Pacific preferred stock to the amount
of $41,085,000,
Page 248
and common stock to the amount of $37,023,000, aggregating
$78,100,000 of stock, being a majority of the $155,000,000, total
capital stock of the Northern Pacific Company as then
outstanding. But the preferred stock was subject to retirement at
par at the option of the company, and the 370,230 shares of
common stock was less than a majority of the total common stock,
which majority was held by the Morgan-Hill party.
In October, 1901, complainant Harriman was elected a member of
the board of directors of the Northern Pacific Railway Company
and James Stillman was reelected. They were also directors of the
Union Pacific Railway Company. They both attended a meeting of
the Northern Pacific board on November 13, 1901, and Harriman was
chosen a member of the executive committee. At this meeting
resolutions were adopted providing for and resulting in the
retirement of the preferred stock on January 1, 1902, by the
payment of $100 cash for each and every share to each and every
holder of record on that day.
These resolutions declared that the company thereby determined
to exercise its right to retire the preferred stock; provided
that for the purpose of raising the funds necessary to do so, the
company should issue its negotiable bonds for $75,000,000,
convertible at par into shares of the common stock of the company
at par; authorized the making of a contract for the sale of all
of such bonds at par and accrued interest, the contract to
contain a provision giving to the holder of every share of the
common stock the opportunity to receive from the contract
purchaser, at par and interest, such bonds to an amount equal to
seventy-five eightieths of the par amount of said common stock at
such time owned by such holder, and arranged for the retirement
from and after December 31, 1901, of the $75,000,000 preferred
stock, by the payment to each and every holder of record thereof
on January 1, 1902, of $100 cash for each and every share.
On November 15, the executive committee of the Northern
Page 249
Pacific Company authorized the execution of a contract with the
Standard Trust Company of New York for the sale and delivery of
the convertible certificates for $75,000,000 provided for in the
resolutions.
The preferred stock was subsequently taken up in accordance
with the plan resolved upon.
The Northern Securities Company was incorporated under the
laws of New Jersey in November, 1901, its articles of association
having been filed at Trenton on the thirteenth day of that month,
with a capital stock of $400,000,000, divided into 4,000,000
shares of the par value of $100 each, and its objects being
certified to be:
"(1.) To acquire by purchase, subscription or otherwise, and
to hold as investments any bonds or other securities or evidences
of indebtedness, or any shares of capital stock created or issued
by any other corporation or corporations, association or
associations, of the State of New Jersey or of any other State,
Territory or country.
"(2.) To purchase, hold, sell, assign, transfer, mortgage,
pledge, or otherwise dispose of, any bonds or other securities or
evidences of indebtedness created or issued by any other
corporation or corporations, association or associations, of the
State of New Jersey, or of any other State, Territory or country,
and, while owner thereof, to exercise all the rights, powers and
privileges of ownership.
"(3.) To purchase, hold, sell, assign, transfer, mortgage,
pledge or otherwise dispose of shares of the capital stock of any
other corporation or corporations, association or associations,
of the State of New Jersey, or of any other State, Territory or
country; and, while owner of such stock, to exercise all the
rights, powers and privileges of ownership, including the right
to vote thereon.
"(4.) To aid in any manner any corporation or association of
which any bonds or other securities or evidences of indebtedness
or stock are held by the corporation; and to do any acts or
things designed to protect, preserve, improve or enhance
Page 250
the value of any such bonds or other securities or evidences of
indebtedness or stock.
"(5.) To acquire, own and hold such real and personal property
as may be necessary or convenient for the transaction of its
business.
"The business or purpose of the corporation is from time to
time to do any one or more of the acts and things herein set
forth.
"The corporation shall have power to conduct its business in
other States and in foreign countries, and to have one or more
offices out of this State, and to hold, purchase, mortgage and
convey real and personal property out of this State."
On the fourteenth day of November, 1901, fifteen gentlemen,
including complainant Harriman and two other directors of the
Union Pacific, James J. Hill, president of the Great Northern,
and two members of J.P. Morgan Co., were elected directors of
the Northern Securities Company. Complainant Harriman took his
seat at the board and an executive committee of five was elected,
of which he was one.
November 15 resolutions were passed authorizing the purchase
of the Northern Pacific stock held by Harriman and Pierce, as
follows:
"The president stated that he now had an opportunity of
acquiring $37,023,000 par value of the common stock, and
$41,085,000 par value of the preferred stock, of the Northern
Pacific Railway Company, at an aggregate price of $91,407,500,
payable, as to $82,491,871, in the fully paid-up and
non-assessable shares of this company at par, and, as to the
remaining $8,915,629, in cash.
"On motion, and by affirmative vote of all the directors
present, it was —
"Resolved, That the president be, and hereby he is,
authorized in behalf of this company, to purchase said stock —
namely $37,023,000 par value of the common stock, and $41,085,000
par value of the preferred stock of the Northern Pacific Railway
Company, at an aggregate price of $91,407,500,
Page 251
payable as to $82,491,871 thereof in the fully paid-up and
non-assessable shares of the capital stock of this company at
par, and as to $8,915,629 in cash; and that the officers of this
company be, and hereby they are, authorized to issue fully
paid-up and non-assessable shares of stock of this company to the
amount of $82,491,871, and to pay $8,915,629 in cash, in
consideration of such $37,023,000 of the common stock and
$41,085,000 of the preferred stock of the Northern Pacific
Railway Company.
"Resolved, That the president be, and hereby he is,
authorized at any time to retire at par, for cash, any and all
preferred stock of the Northern Pacific Railway Company that may
be acquired by this company, and in case such retirement shall be
effected prior to January 1, 1902, to allow interest up to
January 1, 1902, at the rate of four preferred per annum, on the
sum receivable for such preferred stock.
"Resolved, That the president be, and hereby he is,
authorized in behalf of this company to purchase at their par
value an amount of the convertible certificates of the Northern
Pacific Railway Company, to be issued pursuant to the resolutions
of the board of directors of the Northern Pacific Railway
Company, passed November 13, 1901, equal to seventy-five
eightieths of the par amount of any and all common stock of the
Northern Pacific Railway Company that shall have been acquired by
this company.
"Resolved, That the president be, and hereby he is,
authorized, in case of the purchase by this company of any of the
convertible certificates of the Northern Pacific Railway Company,
to convert the same into common stock of the Northern Pacific
Railway Company whenever such conversion may be effected.
"Resolved, That the president be, and hereby he is,
authorized to borrow, on such terms as he may arrange, any moneys
required for the purpose of carrying out the foregoing
resolutions, and to make all financial arrangements,
Page 252
and to do all acts and things, which he may deem needful in the
premises."
Complainant Harriman and his co-directors of the Union Pacific
were not present at this meeting, but were present at the next
meeting of the board on November 19, at which the minutes of the
meeting of November 15 were read and on motion were approved.
At a subsequent meeting of the executive committee, in which
Mr. Harriman participated, the form of the company's permanent
stock certificate, being the usual form, was unanimously
approved.
In the meantime, and on November 18, Harriman and Pierce had
delivered their Northern Pacific stock to the Northern Securities
Company and that company had delivered to them the 824,000 shares
of its stock and $8,915,629 in cash.
The Northern Pacific stock certificates received from Harriman
and Pierce were surrendered by the Securities Company to the
Northern Pacific Railway Company. The certificates for the
370,230 shares of common stock were exchanged for 370,230 shares
of common stock issued in the name of the Northern Securities
Company. The certificates for the 410,580 shares of preferred
stock were surrendered to the Northern Pacific Railway Company
for retirement, and paid for and retired as provided, the
transaction resulting in the receipt by the Northern Securities
Company of certificates for 347,090 shares of new common stock.
This made 717,320 shares, and the Securities Company also
acquired 820,270 shares, from a large number of separate
individual owners. And from a large number of stockholders of the
Great Northern 1,181,242 shares of the stock of the latter
company.
At a meeting of the board of directors of the Northern
Securities Company on January 22, 1903, at which complainant
Harriman was present, the sale by the company of 75,000 shares of
its own stock for cash was approved. The second amended bill says
$7,522,000 "was issued for cash used for the purchase of other
property and for corporate purposes."
Page 253
From the organization of the Securities Company until the
affirmance of the decree in the Government suit, hereafter
mentioned, complainants continued to exercise the right of
holders of 824,000 shares of stock in the Securities Company;
received their share of dividends, and gave their proxy to vote
at the annual meetings of 1902 and 1903.
July 17, 1902, Harriman and Pierce and the Oregon Short Line
Company pledged the 824,000 shares of Northern Securities Company
stock to the Equitable Trust Company, the Short Line Company
executing a trust indenture, which contained this clause: "The
deposit and pledge hereunder of said shares of stock, or of any
other securities which shall become subject to this indenture,
shall not prevent the consolidation, union or merger with any
other corporation of the Securities Company, or of any other
corporation by which said securities shall have been issued, or
the sale of its property or the distribution of its assets. In
any such case the trustee shall receive such amounts of stock,
bonds or other securities, or money, or of either or all of them,
as the holders of the pledged shares of stock of the Securities
Company or other pledged securities, as the case may be, shall be
entitled to receive and upon receipt thereof shall surrender the
deposited stock certificates or other securities."
March 10, 1902, a bill was exhibited in the Circuit Court of
the United States for the District of Minnesota by the United
States against the Northern Securities Company, the Northern
Pacific Railway Company, the Great Northern Railway Company,
James J. Hill, William P. Clough, D. Willis James, John S.
Kennedy, J. Pierpont Morgan, Robert Bacon, George F. Baker and
Daniel S. Lamont, to restrain the violation of the act of
Congress of July 2, 1890,26 Stat. 209, c. 647, entitled "An act
to protect trade and commerce against unlawful restraints and
monopolies," which resulted April 9, 1903, in a decision in favor
of complainants, 120 F. 721, and a decree as follows:
"That the defendants above named have heretofore entered
Page 254
into a combination or conspiracy in restraint of trade and
commerce among the several States, such as an act of Congress,
approved July 2, 1890, entitled `An act to protect trade and
commerce against unlawful restraints and monopolies,' denounces
as illegal; that all of the stock of the Northern Pacific Railway
Company and all the stock of the Great Northern Railway Company,
now claimed to be held and owned by the defendant, the Northern
Securities Company, was acquired and is now held by it in virtue
of such combination or conspiracy in restraint of trade and
commerce among the several States; that the Northern Securities
Company, its officers, agents, servants, and employes, be, and
they are hereby, enjoined from acquiring or attempting to acquire
further stock of either of the aforesaid railway companies; that
the Northern Securities Company be enjoined from voting the
aforesaid stock which it now holds or may acquire, and from
attempting to vote it, at any meeting of the stockholders of
either of the aforesaid railway companies, and from exercising or
attempting to exercise any control, direction, supervision, or
influence whatsoever over the acts and doings of said railway
companies, or either of them, by virtue of its holding such stock
therein; that the Northern Pacific Railway Company and the Great
Northern Railway Company, their officers, directors, servants,
and agents, be, and they are hereby, respectively and
collectively enjoined from permitting the stock aforesaid to be
voted by the Northern Securities Company, or in its behalf, by
its attorneys or agents, at any corporate election for directors
or officers of either of the aforesaid railway companies, and
that they, together with their officers, directors, servants, and
agents, be likewise enjoined and respectively restrained from
paying any dividends to the Northern Securities Company on
account of stock in either of the aforesaid railway companies
which it now claims to own and hold; and that the aforesaid
railway companies, their officers, directors, servants, and
agents, be enjoined from permitting or suffering the Northern
Securities Company, or
Page 255
any of its officers or agents, as such officers or agents, to
exercise any control whatsoever over the corporate acts of either
of the aforesaid railway companies.
"But nothing herein contained shall be construed as
prohibiting the Northern Securities Company from returning and
transferring to the stockholders of the Northern Pacific Railway
Company and the Great Northern Railway Company, respectively, any
and all shares of stock in either of said railway companies which
the said Northern Securities Company may have heretofore received
from such stockholders in exchange for its own stock; and nothing
herein contained shall be construed as prohibiting the Northern
Securities Company from making such transfer and assignments of
the stock aforesaid to such person or persons as may now be the
holders and owners of its own stock originally issued in exchange
or in payment for the stock claimed to have been acquired by it
in the aforesaid railway companies."
The case was brought to this court, and March 14, 1904, the
decree was affirmed.193 U.S. 197.
March 22, 1904, the board of directors of the Northern
Securities Company adopted the following preamble and
resolutions:
"Whereas, In the course of its business, this company has
acquired, and now holds 1,537,594 shares in the capital stock of
the Northern Pacific Railway Company; and 1,181,242 shares in the
capital stock of the Great Northern Railway Company; and
"Whereas, In a suit brought by the United States against this
company, the said railway companies and others, this company has
been enjoined from voting upon the shares of either of the said
railway companies, and each of the said railway companies has
been enjoined from paying to this company any dividends upon any
of the shares of such railway company held by this company; and
"Whereas, This company has issued, and there are now
outstanding 3,954,000 shares of its own capital stock; and
Page 256
"Whereas, This company desires and intends to comply with the
decree in the said suit, fully and unreservedly, and without
delay:
"Resolved, In consideration of the premises, it is declared
necessary and desirable for this company so to reduce its present
stock as will enable it, without delay, in connection with such
reduction, to distribute among its shareholders, the shares of
capital stock of said railroad companies held by it.
"Resolved, That the board of directors of this company
hereby declares it advisable that article (Fourth) of this
company's certificate of incorporation be amended, so as to read
as follows:
"Fourth. The capital stock of this company is hereby reduced
to three million nine hundred and fifty-four thousand dollars
($3,954,000), and shall hereafter be three million nine hundred
and fifty-four thousand dollars ($3,954,000), divided into
thirty-nine thousand five hundred forty (39,540) shares of one
hundred dollars ($100) each. Such reduction of capital stock
shall be accomplished by each holder of outstanding shares of
this company's stock surrendering to the company, for retirement,
ninety-nine (99) per centum of the shares held by him.
"Upon the surrender to this company, by any shareholder, of
the entire number of shares, and parts of shares, of this
company's stock, which he is hereby required to surrender, this
company will assign to him, for each share so surrendered,
thirty-nine dollars and twenty-seven cents ($39.27) of the stock
of the Northern Pacific Railway Company, and thirty dollars and
seventeen cents ($30.17) of the preferred stock of the Great
Northern Railway Company, and proportional amounts thereof for
fractional shares of the stock of this company.
"The board of directors or executive committee from time to
time shall make such rules and regulations as it shall deem
necessary or convenient for carrying out the provisions hereof
and all matters pertaining to the surrender and retirement
Page 257
of the stock of this company, or to the assignment and transfer
of the stocks of the said railway companies, hereby contemplated,
shall be under the direction of the board. For the purposes
hereof, the stockholders of this company, and the number of
shares held by them, respectively, shall be determined from the
stock transfer books of the company, which, for such
determination, shall be closed at a day and hour to be determined
by resolution of the board.
"Resolved, That a meeting of the stockholders of this
company, for the purpose of taking action upon the said
alteration of the certificate of incorporation of this company
and also upon such other business as may come before the meeting,
be, and is hereby called, to be held at the general offices of
this company in the city of Hoboken, county of Hudson, and State
of New Jersey, at 11 o'clock A.M., on April 21, A.D. 1904."
Notice was accordingly given that the meeting of the
stockholders would be held on April 21, and a copy of the
resolutions and an explanatory letter were sent to the Attorney
General of the United States. Early in April the three principal
complainants in the present suit presented to the Circuit Court
for the District of Minnesota their petition for leave to
intervene in the suit of the United States against the Northern
Securities Company, setting up substantially the same grounds as
in this suit, and seeking similar relief. This application was
heard at St. Paul, April 12 and 13. The Government appeared by
the Attorney General, and filed a declaration that it was
satisfied with the relief granted. April 19, 1904, the court
rendered its decision, denying leave to intervene.
128 F. 808.
Up to April 18, 1904, the Securities Company had issued 86,945
certificates of stock and there had been 16,000 transfers
registered on the books of the company. At the closing of the
transfer books on that day there were 3,953,971 shares of stock
outstanding in the hands of 2,531 separate holders.
Page 258
The meeting of the stockholders of the Northern Securities
Company was duly held April 21, 1904; and at that meeting the
stock of the company was reduced ninety-nine per centum, and the
proposedpro ratadistribution of the stock of the Northern
Pacific Railway Company and of the preferred stock of the Great
Northern Railway Company, to and amongst the shareholders of the
Northern Securities Company, was assented to. Two million nine
hundred and forty-four thousand seven hundred and forty shares
were represented and all voted for the plan adopted by the
directors.
As has been stated, the second amended bill was filed after
the hearing on the application for the preliminary injunction,
and it was therein alleged, among other things, that the Northern
Securities Company was incorporated and organized in pursuance of
a combination in restraint of trade and commerce among the
several States; that the said company was to "acquire and
permanently hold a majority of the shares of the capital stock of
said Great Northern and Northern Pacific Companies and control
the operation and management thereof in perpetuity, and that the
then existing holders of such railway shares should deposit the
same with said holding company and receive in lieu thereof share
certificates of said holding company upon the basis of $180 par
value of its stock for each share of Great Northern stock and
$115 par value of its stock for each share of Northern Pacific
stock, and that said holding company should act as custodian,
depositary, or trustee of said railway shares on behalf of the
existing stockholders of said railway companies and their
assigns."
"That prior to the incorporation of said Northern Securities
Company your orator Oregon Short Line Railroad Company, had
acquired and at the time of the incorporation and organization of
said Securities Company owned $37,023,000 par value of the common
stock and $41,085,000 par value of the preferred stock of the
defendant Northern Pacific Railway Company represented by
certificates issued to and registered in the name of your orators
Harriman and Pierce; and that after
Page 259
the incorporation of the said Northern Securities Company had
been resolved upon as aforesaid, your orators Harriman, Pierce
and Oregon Short Line Railroad Company agreed with the promoters
and incorporators of said Northern Securities Company to transfer
to and deposit with said Northern Securities Company, under the
terms and conditions aforesaid, the said shares of said Northern
Pacific Railway Company of the aggregate par value of $78,108,000
owned by said Oregon Short Line Railroad Company as aforesaid,
and to receive in exchange therefor certificates of said Northern
Securities Company representing an interest therein of
$82,491,871 par value and $8,915,629 in cash, and in pursuance of
said agreement your orators Harriman and Pierce, acting for your
orator Oregon Short Line Railroad Company, did, on or about the
eighteenth day of November, 1901, transfer and deliver to said
Northern Securities Company certificates for $37,023,000 par
value of the common stock and $41,085,000 par value of the
preferred stock of said Northern Pacific Railway Company owned by
your said orator as aforesaid and received in exchange therefor
certificates of said Northern Securities Company representing an
interest in $82,491,871 par value and said cash. . . ."
"That at the time of such exchange, on said eighteenth of
November, 1901, it was agreed between said Harriman and Pierce
and said defendant Northern Securities Company that the said
$41,085,000 par value of said preferred stock of the said
Northern Pacific Railway Company should be converted into common
stock of said Northern Pacific Railway Company; that said
preferred stock was subsequently and in or about the month of
December, 1901, converted by said defendant Northern Securities
Company into common stock of said Northern Pacific Railway
Company of the same par value; that certificates for $34,709,062
par value of such common stock registered in its name on the
books of said railway company were substituted in lieu and place
of the certificates for said preferred stock; that said Northern
Securities Company
Page 260
caused said original common stock to be transferred into its name
upon the books of said railway company, and that said Northern
Securities Company now holds within the jurisdiction of this
court certificates registered in its name on the books of the
Northern Pacific Company for said common stock so originally
received from your orators Harriman and Pierce and for said
common stock into which said preferred stock was so converted and
certificates substituted as aforesaid."
"Your orators are advised by counsel and, therefore, aver that
the effect of said decree of April 9, 1903, as affirmed by the
Supreme Court of the United States, was to adjudge that the
Northern Securities Company was not a purchaser or owner but
simply a custodian of the shares of stock of said railway company
acquired and held by it as aforesaid, that it acquired and held
possession thereof in violation of said anti-trust act, that it
acquired no title thereto and cannot transfer any rights in
respect thereof, and that the legal and equitable owners of said
shares of the stock of said railway companies were and are the
several parties who originally exchanged the same for stock of
the Northern Securities Company or their assigns."
The prayer of the bill was "that it be decreed that said
proposed plan of distribution is illegal and contrary to law and
in violation of the rights and equities of your orators, and that
the complainants are entitled to the return and transfer to them
by the defendant Northern Securities Company of the shares of
common stock of said Northern Pacific Railway Company which were
so delivered by said Harriman and Pierce and the shares of common
stock into which the preferred stock of the Northern Pacific
Railway Company delivered by them were converted, in exchange for
the certificates of stock of the Northern Securities Company so
issued to and now held by your orators and such sum in cash as
may be just; and that the said defendant, Northern Securities
Company, its directors, officers and agents, may be ordered and
directed to endorse
Page 261
the certificates now held by it for said stock of the Northern
Pacific Railway Company to your said orator Oregon Short Line
Railroad Company or in blank, and deliver the same to your orator
The Equitable Trust Company of New York in exchange for the stock
of the Northern Securities Company now held by it to be held
subject to its rights and lien as trustee aforesaid; and that the
defendant Northern Securities Company, its directors, officers,
agents and employees be perpetually enjoined and restrained from
in any manner parting with, disposing of, transferring, assigning
or distributing any part of said stock of the Northern Pacific
Railway Company so received from your orators Harriman and Pierce
as aforesaid, or any common stock into which the preferred stock
received from them may have been converted, or the certificates
now representing the same or any part thereof, except to return
the same to your orators in exchange for its own stock so issued
as aforesaid and said cash; and that your orators have such other
or further or general relief against said Northern Securities
Company as shall be proper and just under the circumstances of
the case.
"Your orators further pray that the defendant Northern
Securities Company may be enjoined and restrained from parting
with, disposing of, transferring, assigning or distributing said
stock of the Northern Pacific Railway Company or any part thereof
during the pendency of this suit or any certificates now
representing the same."
The proofs embraced the pleadings and decrees in the suit of
United Statesv.Northern Securities Company;theex parte
affidavits of Harriman, Hill, and others; the deposition of
Harriman taken before the Interstate Commerce Commission at
Chicago in January, 1902; the deposition of Harriman taken in the
suit ofMinnesotav.Northern Securities Companyin December,
1902; extracts from the minutes of proceedings of the board of
directors of the Northern Pacific Railway Company, and of the
executive committee and board of directors of the Northern
Securities Company.
Page 262
As to the power of the court to enter final judgment; this case does not fall underSmithv.Vulcan Iron Works,165 U.S. 518, but under the exceptions inMast, Foos Co. v.Stover Mfg.Co.,177 U.S. 485,494, and seeBrillv.Peckham Motor TruckCo.,189 U.S. 57,63.
The Northern Securities Company, having been organized for an illegal purpose and having obtained possession of the railway stocks in pursuance of such purpose, could not thereby acquire the title to and ownership of the stocks.
The whole transaction was illegal,ultra viresand void from the beginning to the end. It was, legally speaking, a nullity — "an aggregate of nothings."Scovillv.Thayer,105 U.S. 150;Ashbury Ry. Carriage Iron Co. v.Riche, L.R. 7 H.L. 653;Thomasv.Railroad Co.,101 U.S. 71;Oregon Ry. Co. v.Oregonian Ry. Co.,130 U.S. 1,22;Penna. Co. v.St. L., A.c. R.R. Co.,118 U.S. 290.
The contract is void; the objection is not only that the corporation ought not to have made it, but that it could not make it, that the contract cannot be ratified or confirmed by the stockholders, because it could not have been authorized by them, and that no performance can give the unlawful agreement any validity by way of estoppel or otherwise, or be the foundation of any right.Central Transp. Co. v.Pullman's Car Co.,139 U.S. 24,60;McCormickv.Market Bank,165 U.S. 538,550;California Bankv.Kennedy,167 U.S. 362,368;Pullman's CarCo. v.Transportation Co.,171 U.S. 138. In fact any contract made in violation of a statute is void,Gibbsv.Baltimore GasCo.,130 U.S. 396,410;Millerv.Ammon,145 U.S. 421,426;Connollyv.Union Sewer Pipe Co.,184 U.S. 540,548, and it is vain to contend that any right can be acquired under such a contract.Montgomeryv.United States, 15 Wall. 395, 399;Desmarev.United States,93 U.S. 605,Page 263612;Sprottv.United States, 20 Wall. 459, 461;UnitedStatesv.Lapene, 17 Wall. 601, 602, 603;United Statesv.Grossmayer, 9 Wall. 72, 76;The Ouachita Cotton, 6 Wall. 521, 532; and cases cited inBank of the United Statesv.Owens, 2 Pet. 527, 541.
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.Chapmanv.Douglas County,107 U.S. 348;Am.Table Worksv.Boston Machine Co.,139 Mass. 5. When property is transferred for an illegal purpose which has been terminated, prevented or abandoned, the holder must return the property on demand.Louisianav.Wood,102 U.S. 294;Parkersburgv.Brown,106 U.S. 487,503. To deny a remedy to reclaim it, is to give effect to the illegal contract.Davisv.Old Colony Railroad,131 Mass. 258,275;Whitev.Franklin Bank, 22 Pick. (Mass.) 181;La Caussadev.White, 7 D. E. 535;Nat. Bank Loan Co. v.Petrie,189 U.S. 423;Sittelv.Wright, 122 F. 434;Railroad Co. v.RailroadCo.,66 N.H. 100. The contract having been declared invalid no rights were acquired thereunder. CasessupraandJacksonville c.Ry. Co. v.Hooper,160 U.S. 514,524;Dwightv.Brewster, 1 Pick. 50, 55. As to invalidity of contracts entered into in violation of statutes seeLangdonv.Branch, 37 F. 449, 463;Statev.Standard Oil Co.,49 Ohio St. 137,183;Peoplev.Chicago GasTrust Co.,130 Ill. 268;Peoplev.N.R.S.R. Co.,121 N.Y. 582;Cameronv.Havemeyer, 25 Abb. N.C. 438, 446;Uncklesv.Colgate,148 N.Y. 529;Statev.Distilling Co.,29 Neb. 700.
The question of ownership of stock was involved and decided in the Government suit.193 U.S. 197,227; 307, 325, 353, 362. The decree authorized thereturnof the stock, and as it also decided that the combination was illegal it is vain to contend that any rights were acquired under the contract.Montgomeryv.United States, 15 Wall. 395.
The extent and effect of the decision of any court, asresPage 264adjudicataor as a judicial precedent, must be ascertained, not merely from the decree or mandate, but also from the pleadings and the opinions delivered by the court. It is likewise proper to refer to the evidence before the court and to the arguments of counsel whenever necessary in order to determine exactly what points the court has ruled upon. The court is always at liberty to refer to its own records.Dimmickv.Tompkins,194 U.S. 540,548;Bienville Water Supply Co. v.Mobile,186 U.S. 212,217;Butlerv.Eaton,141 U.S. 240. Every question directly presented by the issues and discussed and passed upon in the opinions is as much a part of the decision and judgment of the court as if it had been expressly recited in its decree or mandate. So, the mandate of this court is always to be read in the light of its opinion, and it has never been the practice to recite in the mandate any of the points decided, but simply to declare the ultimate conclusion of affirmance, reversal, dismissal or qualification of the decree below.Last Chance Min.Co. v.Tyler Min. Co.,157 U.S. 683,690;In re Sanford ForkTool Co.,160 U.S. 247,256;In re Potts,166 U.S. 263;Bakerv.Cummings,181 U.S. 117,126;Nat. Foundry c. Co. v.Oconto Water Supply Co.,183 U.S. 216,234;NorthernSecurities Co. v.United States,193 U.S. 332;RailroadCompaniesv.Schutte,103 U.S. 118,143.
As stockholders, the complainants were clearly not strangers to a litigation which involved the right of the corporation to carry out the objects for which it was organized and which affected the title to all its property, received from them. As depositors, they were represented by their custodian, agent or trustee as to its right to hold and the legality of its custodianship. All identified in interest and in privity with one of the litigating parties are concluded by a judgment and entitled to invoke its effect.New Orleansv.Citizens' Bank,167 U.S. 371,396. Even if the decision in the Government suit does not constituteres adjudicatain the strict technical sense, it undoubtedly should have been regarded as a controlling judicialPage 265precedent on the same facts sufficient to establishprima facieall that the complainants were called upon to show on the motion for a preliminary injunction.Brillv.Peckham Motor TruckCo.,189 U.S. 57,59-63;American Bell Telephone Co. v.National Imp. Telephone Co., 27 F. 663, 664;Kerrv.New Orleans, 126 F. 920, 924.
A stockholder is so far an integral part of the corporation that he is considered privy to any legal proceedings touching its status and powers.Sangerv.Upton,91 U.S. 56. See also,Hawkinsv.Glenn,131 U.S. 319,329;Glennv.Liggett,135 U.S. 533,544;Great Western Telegraph Co. v.Purdy,162 U.S. 329,337; 3 Cook on Corporations, 5th ed. § 750; Herman on Estoppel and Res Judicata, 154, 165;Halev.Hardon, 95 F. 747, 759;Hendricksonv.Bradley, 85 F. 508, 516;Wilsonv.Seymour, 76 F. 678, 681;National FoundryPipe Worksv.Oconto Water Co., 68 F. 1006;Secorv.Singleton, 41 F. 725. As the Securities Company was the custodian or trustee of the railway shares deposited with it, it represented the complainants as itscestui que trustentand they are bound by the decree.Kerrisonv.Stewart,93 U.S. 155,160;Grahamv.Boston, Hartford Erie R.R. Co.,118 U.S. 161,179;McCampbellv.Mason,151 Ill. 500,508;McElrathv.Pittsburg and Steubenville Railroad Co., 68 Pa. 37,40,41.
In the Government suit certain stockholders of different railroad companies were made defendants as of their respective classes. The judgment therefore bound the whole.Smithv.Swormstedt, 16 How. 288, 303.
The court below was in error in holding that the form and not the legal effect of the transaction was controlling.
The assertion of a legal conclusion under such circumstances never operates to estop a party from showing the real facts.Sturmv.Boker,150 U.S. 312,336;Mutual Life Ins. Co. v.Phinney,178 U.S. 327,342;Towlev.White, 29 L.T.N.S. 78;Heryfordv.Davis,102 U.S. 235,243,244,246;ChicagoRailway Co. v.Merchants' Bank,136 U.S. 268,280;McGourkeyPage 266v.Toledo Ohio Railway,146 U.S. 536,569;McNamarav.Culver,22 Kan. 661,668;Pughv.Davis,96 U.S. 332,336.
The bill and proofs in the Government suit were all to effect that the Northern Securities Company was organized to effectuate an illegalholdingcorporation.
In the case of an illegal trust and combination entered into and adjudged to be in violation of an act of Congress, particularly where, at the very inception of any such scheme, its legality is at once publicly challenged by the National Government, justice and sound public policy will be promoted by decreeing the restoration of thestatus quo, and not permitting distribution on the basis of alleged rights acquired under and by virtue of the illegal contract and in disregard and defiance of the pending litigation.
If Mr. Hill and his associates are to be judged as other men are judged and are to be presumed to have contemplated and intended the consequences of their own acts, there can be no escape for them from the conclusion that the present proposed plan of distribution is a willful and deliberate attempt to circumvent the decree in the Government suit, and was, in fact, all along, the alternative intended as part of their original unlawful scheme.
The Circuit Court in Minnesota did not intend to pass upon or to prejudice or prejudge the merits of a controversy which it declined to consider or decide.
There has been no equitable estoppel created for the benefit of the Northern Securities Company by what the company did or continued to do during the pendency of the Government suit and in defiance of the serious claim therein made, either as to sale of stock, all of the purchasers having notice of the situation, or by the receipt of dividends on the Northern Securities stock by the complainants.L. N. Railroad Co. v.Kentucky,161 U.S. 677,691;Scorillev.Thayer,105 U.S. 143,151;CentralTransportation Co. v.Pullman Car Co.,139 U.S. 24,60;Tietonv.Cofield,93 U.S. 163. Illegal acts cannot be given validity by assenting to them or acting underPage 267them. If so, a statute could be abrogated by simply contracting to do the prohibited act. CasessupraandThomasv.RailroadCo.,101 U.S. 71,86;Veederv.Mudgett,95 N.Y. 295,310.
The Northern Securities Company claims that because it now holds possession by virtue of an illegal contract between partiesin pari delicto, the complainants and all other depositors can be allowed no standing in any court of law or equity to reclaim their property. This contention cannot be sustained. Its result obviously would be that the company might dispose of and distribute at will all the property it held without legal accountability to any one.Yarmouthv.France, 19 Q.B.D. 647, 653;Northrupv.Graves,19 Conn. 548,554; 2 Stephen Cr. Law, 4;McMullenv.Hoffman,174 U.S. 639,669. Complainants acted in good faith and belief that the Northern Securities Company was not an illegal combination. As to what Congress itself contemplated by the statute is uncertain. See Cong. Rec., 51st Cong., 1st Sess., vol. 21, Pt. 3, pp. 2460, 3146, 4089.
Where the illegal purpose cannot be continued and must necessarily be abandoned, the innocent owner of property transferred does not forfeit his legal rights so that he has become outlawed, and cannot maintain an action to recover his property, and the other party may retain the property free from accountability and convert it to his own use or dispose of it as he sees fit, and the one in possession is protected in appropriating the property by a maxim of equity.Nat. BankLoan Co. v.Petrie,189 U.S. 423.
The rule as to partiesin pari delictocontemplates the existence of adelictum, that is, a wrongful act knowingly done, an intentional "transgression against positive law." Parties are notin pari delictowhen there is concededly no intentional wrongdoing or crime. Even in criminal cases, satisfactory proof of a mistake of the law, honestly held in consequence of a reasonable, but erroneous, construction of a doubtful statute, often operates to prevent a conviction.Queenv.Page 268Tolson, 23 Q.B.D. 168, 171;Taylorv.Newman, 4 Best S. 89;Reginav.Allday, 8 C. P. 136;Rexv.Twose, 14 Cox C.C. 327;Reg. v.Sleep, 8 Cox C.C. 472;Reginav.Tinkler, 1 F. F. 513;Riderv.Wood, 2 E. E. 338;Buckmasterv.Reynolds, 13 C.B. (N.S.) 62;United Statesv.Conner, 3 McLean, 573;United Statesv.Pearce, 2 McLean, 14;Halstedv.State,41 N.J.L. 552,591;Cutterv.State,36 N.J.L. 125;Stonev.United States,167 U.S. 178,188;Heddenv.Iselin, 31 F. 266;Iowav.Sheeley,15 Iowa 404;Commonwealthv.Bradford, 9 Metc. (Mass.) 268;Statev.Hause,71 N.C. 518;Dotsonv.State, 6 Coldw. (Tenn.) 545.
As to whether the rule applicable to partiesin pari delictoapplies where the parties have acted in good faith and under a mutual mistake as to the law, seeSpring Co. v.Knowlton,103 U.S. 49;St. Louis Railroadv.Terre Haute Railroad,145 U.S. 393;City of Detroitv.Detroit City Ry. Co., 60 F. 161, andPullman Palace Car Co. v.Central Transp. Co., 65 F. 158.
Relief will be granted from the consequences of a mistake of law, whenever the mistake is clearly proved oradmittedand, by reason of such mistake, the party against whom relief is sought would otherwise secure an unfair advantage.Mosesv.Macferlan, 2 Burrows, 1005, 1012;Farmerv.Arundel, 2 W. Bl. 824;Binghamv.Bingham, 1 Ves. Sen. 126; Belt's Supp. 79;Bizev.Dickason, 1 D. E. 285;Earl of Beauchampv.Winn, L.R. 6 H.L. 223;Re Saxon Life Assurance Society, 2 J. H. 408;Jonesv.Clifford, L.R. 3 Ch. D. 779;Allcardv.Walker[1896], 2 Ch. 369, 381;Griswoldv.Hazard,141 U.S. 260,284;Spring Co. v.Knowlton,103 U.S. 49,60;Snellv.Insurance Co.,98 U.S. 85;Huntv.Rousmanier, 8 Wheat. 174, 215;S.C., 1 Pet. 1, 17;Statev.Paup,13 Ark. 129,138;Griffithv.Sabastian County,49 Ark. 24,34;Northropv.Graves,19 Conn. 548,554;Stedwellv.Anderson,21 Conn. 139,144;Culbreathv.Culbreath,7 Ga. 64;Underwoodv.Brockman, 4 Dana (Ky.), 309, 317;Ray Thorntonv.Bank, 3 B. Mon. (Ky.) 510;StockbridgeIron CompanyPage 269v.Hudson Iron Company,102 Mass. 45;Lowndesv.Chisholm, 2 McCord Ch. (S.C.) 455;Mortimerv.Pritchard, Bailey Eq. (S.C.) 505;Hopkinsv.Mazyck, 1 Hill Ch. (S.C.) 242; 250;MacKayv.Smith,27 Wn. 442.
When an illegal contract is sought to be specifically enforced or when damages are claimed for its breach, undoubtedly the sound rule is that the difference betweenmalum prohibitumandmalumin seis immaterial.Gibbsv.Baltimore Gas Co.,130 U.S. 396,412.
But the distinction betweenmalum prohibitumandmalum insehas been often recognized by the courts when considering the right to recover property transferred under an illegal contract, upon disaffirmance or termination of the illegal transaction, under circumstances which result in a failure of consideration. Where the transaction involves moral turpitude, such as the giving of a bribe, or facilitating the commission of an immoral act or a heinous crime, the party is so clearly culpable and deserving of punishment that the courts will refuse to lend him any assistance against another party to the immoral transaction, but will leave both parties where their own immoral conduct has placed them. Where, however, the act involves no moral turpitude, but is merelymalum prohibitumas distinguished frommalum inse, relief has often been granted by restoring thestatus quoso far as practicable.Prattv.Short,79 N.Y. 437,445. For distinction betweenmalum prohibitumandmalum in seseeStock Yardsv.Railroad Co.,196 U.S. 217;Spring Co. v.Knowlton,103 U.S. 49;McCutcheonv.Merz Co., 71 F. 787, 789;Parkersburgv.Brown,106 U.S. 487;Bankv.Townsend,139 U.S. 67,75.
In this case the transaction was notmalum in se. All the parties believed they were not violating the law. The transaction was not forbidden by the common law.In re Greene, 52 F. 104, 111;Mogul Steamship Companyv.McGregor, Gow Co., 23 Q.B.D. 598, 619, 626; [1892] A.C. 25;United Statesv.FreightAssociation,166 U.S. 290,334;United Statesv.JointTraffic Association,171 U.S. 505,572. It wasPage 270also apparently legal according to the law of New Jersey where it occurred. New Jersey Corporation Act, revision of 1896, §§ 49, 51; Dill. on Corp. 88, 93;Trenton Potteries Co. v.Oliphant,58 N.J. Eq. 507,524;Ansborov.United States,159 U.S. 695. The transaction was at mostmalum prohibitum. Tappendenv.Randall, 2 B. P. 467, 470;Ex parte Bulmer, 13 Vesey, 313;Whitev.Franklin Bank, 22 Pick. (Mass.) 181;Lowellv.Boston and Lowell Railroad Corporation, 23 Pick. (Mass.) 24, 32;Washington Gas Co. v.Dist. of Columbia,161 U.S. 316,327;Hanauerv.Doane, 12 Wall. 342;Douglassv.Kavanaugh, 90 F. 373.
Where money or property has been deposited with a trustee or stakeholder the doctrine ofin pari delictodoes not apply. A mere custodian as was the Securities Company cannot take advantage of the illegality of the transaction but must return the property to the owners.Brooksv.Martin, 2 Wall. 70, 80;Planters' Bankv.Union Bank, 16 Wall. 483, 500;Blockv.Darling,140 U.S. 234;Pointerv.Smith, 7 Heisk. (Tenn.) 137, 144;Railroadv.Railroad,66 N.H. 100,131;Newboldv.Sims, 2 S. R. (Pa.) 317;Jeffreyv.Ficklin andBennett,3 Ark. 227,236;Barrettv.Neil, Wright (Ohio), 472;Skinnerv.Henderson,10 Mo. 205;Walkerv.Chapman, Lofft, 342;Wassermannv.Sloss,117 Cal. 425;Morganv.Groff, 4 Barb. (N.Y.) 524;Barnardv.Taylor,23 Or. 416,422;S.C., 18 L.R.A. 859;Kiewertv.Rindskopf,46 Wis. 481;Douvillev.Merrick,25 Wis. 688;Bonev.Ekless, 5 H. N. 925;Wrightv.Stewart, 130 F. 905, 921;Daulerv.Hartley,178 Pa. 23;Malloryv.Oil Works,86 Tenn. 598,606;Dwightv.Brewster, 1 Pick. (Mass.) 50, 55;Sampsonv.Shaw, Executor,101 Mass. 145,151;Morganv.Beaumont,121 Mass. 7;Clarke, HarrisonCompanyv.Brown,77 Ga. 606;Shannonv.Baumer,10 Iowa 210;Taylorv.Bowers, 1 Q.B.D. 291;In re Cronmire,ex parte Waud[1898], 2 Q.B. 383;Kinsmanv.Parkhurst, 18 How. 289.
The contention of the Northern Securities Company that the illegal contract had been executed, and that this precludedPage 271any relief to the complainants, is fallacious and cannot be sustained.Northern Securities Co. v.United States,193 U.S. 197,357.
A universally recognized exception to the rule concerning partiesin pari delictois that the courts will permit the recovery of property delivered and held under an illegal contract which has been terminatedin fieri, when the public interests will be advanced thereby.Starke's Exrs. v.Littlepage, 4 Rand. (Va.) 368;O'Connerv.Ward,60 Miss. 1025,1037; 5 Thompson on Corp. § 6410; 2 Pomeroy's Eq. § 941; Story's Eq. Jur. § 298.
These complainants can follow the common Northern Pacific stock obtained by the Northern Securities Company by the conversion of the preferred stock. 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 only ceases when the means of ascertainment fail.National Bankv.Insurance Co.,104 U.S. 54,68. See alsoSilsburyv.McCoon,3 N.Y. 379,390;McLarrenv.Brewer,51 Me. 402,404.
The real nature of the transaction was not changed by the conversion of stock. It was not an independent subscription for bonds.
The issue of the convertible certificates, the retirement of the preferred stock, and the conversion of the convertible certificates into common stock, are shown to have taken place all on the same day as part of one transaction and the securities are traceable. This was the only way it could be done under the laws of Wisconsin and the corporate powers of the Northern Pacific Railway Company.Weidenfeldv.Northern Pacific Ry. Co., 129 F. 305; Laws Wisconsin, 1895, ch. 244, § 10;Scovillv.Thayer,105 U.S. 143;Hamorv.Taylor-Rice Engineering Co., 84 F. 392;Trevorv.Whitworth, L.R. 12 App. Cas. 409, 416.
There is no merit in the fierce attack made on behalf of thePage 272Securities Company upon the motives of the complainants in instituting this suit and the announcement that if complainants prevailed and recovered their property, the so-called Union Pacific Railroad System would secure control of the Northern Pacific Railway Company nor should this consideration influence the court, change the rules of law, and produce a different result than if this feature did not exist.
This court will not consider the motives of parties in instituting legal proceedings to protect their alleged legal or equitable rights.Dickermanv.Trust Co.,176 U.S. 181,190;South Dakotav.North Carolina,192 U.S. 286,311. There is an uncontradicted statement in the record that the roads are not parallel and competitive. And see alsoLouisville and Nashvillev.Kentucky,161 U.S. 677,698. The real competitive lines are the Great Northern and the Northern Pacific and it has been the motive of those in control of the Great Northern to stifle competition.
If the railway shares deposited are not to be returned but to be regarded as assets of the Securities Company then the corporation should sell the stocks and make the distribution in cash.Masonv.Pewabic Mining Co.,133 U.S. 50,63;Keanv.Johnson,9 N.J. Eq. 401,408,409;Colerv.Tacoma Railwayand Power Co.,64 N.J. Eq. 117,125;S.C., 54 A. 413. It is so in the case of a partnership. Lindley on Part., 555, and much stronger are the reasons for such course in the case of a corporation. 4 Thompson on Corp. § 4548; 2 Cook on Corp. § 671. As to § 54, Corporation Act of New Jersey, Revision of 1896, seeBealsv.Hale, 4 How. 37, 54.Mr. D.T. Watsonalso for petitioners:
This court, in the Government case decided that the Securities Company was not the lawful purchaser or absolute owner of the capital stock of the Northern Pacific Railway Company assigned to it by appellants, but held it as custodian for the appellants.193 U.S. 325,334,346,353,361,365,390,400. The decree authorized the return of the stock to the originalPage 273stockholders of the constituent companies. The Securities Company cannot hold the railway stock and prevent giving relief to complainants under the doctrine ofin pari delicto.
By the affirmance of this court the decree of the Circuit Court became the decree of this court and binding upon all parties and privies and other courts.In re Potts,166 U.S. 265;Durantv.Essex County,101 U.S. 555;Sandford c. Co.,Petitioner,160 U.S. 247. The opinion of this court is part of the record and may be freely resorted to to determine what this court has decided.Foundry Co. v.Water Co.,183 U.S. 217;Bakerv.Cummings,181 U.S. 124;Mining Co. v.MiningCo.,157 U.S. 683,690;So. Pac. Co. v.United States,183 U.S. 519,532;United Statesv.Norfolk Railway Co., 114 F. 686;Russellv.Russell, 129 F. 434;Westv.Brashear, 14 Pet. 342;DeSollarv.Hanscome,158 U.S. 221;Cromwellv.County of Sac,94 U.S. 359;Strongv.Grant, 2 Sup.Ct. D.C. 222;Fultonv.Pomeroy,111 Wis. 668; Barton's Suit in Equity, 150; Equity Rule, 86;Putnamv.Day, 22 Wall. 66.
As parties by representation in the Government case, complainants are entitled in their own right to plead or give in evidence against, and as binding upon, the Securities Company, the conclusions in that case on the same questions which arise in this — even if the cause of action, parties, testimony and measure of relief in the two suits are different.Cromwellv.County of Sac,94 U.S. 352;Lumber Co. v.Buchtel,101 U.S. 638;So. Pac. R.R. Co. v.United States,168 U.S. 48; Black on Judgments, 609, 614;Burlenv.Shannon,99 Mass. 202;Railway Co. v.Schutte,103 U.S. 143;Duchess ofKingston Case, 20 Howell's State Trials, 355.
The appellants, as parties by representation in the Government case, are entitled in their own right to set up and assert the decree in that case as against the Northern Securities Company in this case. Story Eq. Pl. § 372; 2 Daniel's Ch. Pl. Pr. 1539;Wilton's Appeal,97 Pa. 393;Griffinv.Spence,69 Ga. 397.Page 274
It is not necessary that all the parties to the Government suit should be the same in the subsequent litigation.Thompsonv.Roberts, 24 How. 240;Smithv.Kernochen, 7 How. 217;Wilsonv.Buell,117 Ind. 315,318; Wells on Res Adjudicata, § 35;Lawrencev.Hunt, 10 Wend. 80; Freeman on Judgments, § 154; 1 Greenleaf, § 523;Greenv.Bogue,158 U.S. 478,502.
Where there are several grounds of recovery or defense on which the decree may have been rested, it will be conclusive on the specific findings, which led up to the proposition, on which the court decided the case, and what that ground was may be determined by evidencealiundewhere the decree itself is silent on it.Russellv.Place,94 U.S. 606;DeSollarv.Hanscome,158 U.S. 216;Flint Nat. Bk. v.Covington, 129 F. 798;Hawesv.Water Co., 5 Sawyer, 287;Corcoranv.Ches. Canal Co.,94 U.S. 741.
The former opinion and decree of this court is conclusive even on this court when the same case comes back here, and certainly so where that former opinion and decree is set up as conclusive in another litigation where the parties are not all the same, and where the complainant in the former case, the United States, is not a party to the second.Robertsv.Cooper, 20 How. 467, 481;Barneyv.Winona c. R.R. Co.,117 U.S. 231;UnitedStatesv.Camon,184 U.S. 574;Thompsonv.Maxwell c.Co.,168 U.S. 456;Yazoo c. Ry. Co. v.Adams,180 U.S. 7;Great Western Tile Co. v.Burnaham,162 U.S. 343;Chaffinv.Taylor,116 U.S. 567;Clarkv.Keith,106 U.S. 464;Supervisorsv.Kenniott,94 U.S. 498;Tylerv.Maguire, 17 Wall. 283.
The appellants were by representation parties and privies in the Government case, as stockholders of the Securities Company, as of class represented by Morgan, Hill and others, ascestuisque trust, and as stockholders of the Northern Pacific Railway they are therefore in their own right entitled to set up the findings and conclusions of this court in that case asresadjudicatain any subsequent litigation between themselvesPage 275and the Northern Securities Company so far as regards the issues raised and decided in that case. 3 Cook on Corp. § 750;Hendricksonv.Bradley, 85 F. 516;Foundry Co. v.Water Co., 68 F. 1007;Wilsonv.Seymour, 76 F. 681; Herman on Estoppel, 154-165;Secorv.Singleton, 41 F. 725;Gt. West. Tel. Co. v.Purdy,162 U.S. 329;Hawkinsv.Glenn,131 U.S. 319;Glennv.Williams,60 Md. 93,116;Hancock Bankv.Farmers,176 U.S. 640;Sangerv.Upton,91 U.S. 56;Whitmanv.Bank,176 U.S. 560;Flashv.Conn,109 U.S. 371;Hallv.Hardon, 95 F. 759;Fruit Co. v.Railroad Co., 89 F. 24;McElrathv.P. S.R. Co.,68 Pa. 40;Shawv.RailroadCo.,105 U.S. 605;Kerrisonv.Stewart,93 U.S. 160;Vetterleinv.Barnes,124 U.S. 169;Bealsv.Railway Co.,133 U.S. 290;Kentv.Lake Superior Co.,114 U.S. 90;Mansonv.Duncannon,166 U.S. 542;Smithv.Swormstedt, 16 How. 288;McIntoshv.Pittsburg, 112 F. 705;Willoughbyv.Chicago c. R.R. Co.,50 N.J. 609.
Complainants in this case are entitled to set up and plead asres adjudicatathe findings, conclusions and decree of this court in the Government case as hereinbefore enumerated, even if the cause of action in the Government case was different from the cause of action in the present case.
The decision in the Government case caused the present litigation. This case is the child of that parent. The parties to the present case, the appellants and the Northern Securities Company, were parties to the Government case, and in the same capacity.
The subject matter of the present litigation is 717,320 shares of the capital stock of the Northern Pacific Railway Company, and this identical capital stock was the stock which the complainants assigned to the Northern Securities Company for the purpose of carrying out the combination.
The averments of the bill and answers in the Government case distinctly raised,inter alia, as material numerous questions upon which the controversy turned, questions whichPage 276are in substance, the same as are now restated in somewhat different form.
These stocks in the two railroad companies which, as averred in the bill in the Government case, and as found by this court, were transferred by Hill, Morgan and other stockholders to the Securities Company in pursuance of, and to perfect the illegal combination to restrain trade and commerce, included the stock owned by the Oregon Short Line Railroad Company and held in the name of Harriman and Pierce as trustees, being the identical stock in controversy in this case.
This court had before it in the Government case all the testimony which was before the Court of Appeals in the present case as to the manner in which, and the purpose for which, the Securities Company acquired the Oregon Short Line stock in the Northern Pacific Railway Company, and this included the evidence of Mr. Harriman.
Not only did the pleadings sharply raise the issues in the Government case which are also in this case, — and this court discussed these issues and decided them, — but the evidence in the Government case, including all of Mr. Harriman's, supported the conclusions of this court on those issues.
The so-called permissive portion of the decree certainly did authorize the return by the Securities Company to the individual stockholders who assigned to the Securities Company the identical stock so assigned. If it was Northern Pacific stock, then Northern Pacific stock was to be returned.
The St. Paul opinion of Judge Thayer misconstrued the St. Louis decree as the St. Louis court did not make, as the controlling question in the case, the distinction between the real, substantial ownership and the mere holding of the railroad stocks as custodian that this court did.
The Court of Appeals erred in deciding that this court did not even "incidentally" consider the question of ownership and deciding this case as if the Government case had not arisen.
The equities of the case are with complainants.
All parties fully believed this plan to be lawful and reallyPage 277beneficial to commerce, but this court adjudged it was a violation of the Sherman Act, and made a decree which restrained the Securities Company from carrying out the scheme and rendered the railway stock worthless in its possession. This necessitated a dissolution of the Securities Company, as the Supreme Court foresaw.
Evidently, the scheme having failed, this put every one instatu quo, anteas to the transfer to the Securities Company of their respective stocks — and this could only be done by retransferring to each his stock, the Securities Company still holds it — each still holds his Securities Company stock. The retransfer is simple. If there be strangers who came in afterwards and who have equities, do what is fair to them.
Whoever bought stock after March 10, 1902, had noticependente liteand is concluded by the decree.Tiltonv.Cofield,93 U.S. 163. Hill, Morgan and Company are taking the property and seeking shelter behind either one of two innocent holders. They control the Securities Company and therefore owe complainants good faith but having induced complainants to put their stock into the Securities Company now they intend to avail of the situation to make money and secure control of the railway companies for themselves.
The Securities Company cannot compel complainants to accept Great Northern stock in lieu of their Northern Pacific. The stockholders of a corporation upon dissolution cannot be compelled to accept a distribution of their share of the assets in kind.Postv.Beacon c. Co., 84 F. 369, 375;Masonv.Pewabic Mining Co.,132 U.S. 50,58.
As to when the Circuit Court of Appeals may, on an appeal from an interlocutory decree, enter a final one, seeForsythev.Hammond,166 U.S. 512;Smithv.Vulcan Iron Works,165 U.S. 524;Mast, Foos Co. v.Stover Mfg. Co.,177 U.S. 494;Brittv.Peckham Motor Co.,189 U.S. 58, from which it appears that the present case is not one where the Circuit Court of Appeals on an appeal from an interlocutory order granting aPage 278preliminary injunction, could enter what is practically a final decree, and finally dispose of the case on the merits.
The necessity for a hearing in the ordinary way where each side could put in all its proofs, cross-examine witnesses, compel the attendance of hostile witnesses and the production of all books and papers, is not only apparent from the complications in this case, but is further shown by the inaccuracy which the Circuit Court of Appeals fell into in finally considering and passing on the case merely on an interlocutory hearing and uponex parteaffidavits.Mr. Elihu Root, with whomMr. Francis Lynde Stetsonwas on the brief, for respondent:
Everything in the record, by mere recital and without argument, shows that in fact and by intent of both parties, there was a sale of the Northern Pacific stock to the Securities Company in consideration of a stockholder's interest in that company, and a large sum of money —i.e., the issue to Harriman and Pierce of $824,918 shares of the stock and the payment to them of $8,915,629 in cash.
The complainants are estopped from asserting that the Securities Company is a trustee or bailee. They have publicly held out the Securities Company to be the owner of the railway stocks, and have induced innocent third persons to acquire interests in the corporation in reliance thereupon.
But whether the Securities Company be a vendee or a custodian, the complainants are not entitled to recover the Northern Pacific stock. The transaction was in contravention of public policy and a penal statute, and their demand for the return of the stock by them delivered for such illegal purpose, is barred by the ruleIn pari delicto potior est conditio defendentis et possidentis. The complainants cannot avoid the bar of the rule, if the Securities Company be regarded as vendee. The complainants and the Securities Company arein pari delicto.
Neither can the complainants avoid the operation of the rule by treating the Securities Company merely as custodian,Page 279to hold a deposited stock, to collect dividends, etc. The Securities Company isin pari delictowith the complainants. It was an active party to the illegality.
The complainants assisted in placing the control of the railway companies in the hands of the Securities Company, and in maintaining that status until the decree in the Government suit was affirmed by the Supreme Court. This executed the illegal purpose to such a degree as to bar the assertion of any right to withdraw the property deposited.
Property delivered under an illegal contract cannot be recovered back by any partyin pari delicto;certainly not in any case where the contract has been executed in whole or in part.Scottv.Brown, L.R. [1892] 2 Q.B. 724;Hillv.Freeman,73 Ala. 200;Thornhillv.O'Rear,108 Ala. 299;Inhabitants c. v.Eaton,11 Mass. 368;Atwoodv.Fisk,101 Mass. 353;Myersv.Meinrath,101 Mass. 366;Hortonv.Buffington,105 Mass. 399;Cransonv.Goss,107 Mass. 439;Traders' Bankv.Steere,165 Mass. 389;Whitev.Hunter,23 N.H. 128;Ellicottv.Chamberlin,38 N.J. Eq. 604;Hopev.Linden Assn., 29 Vroom, 627;Allebachv.Hunsicker,132 Pa. 139;Moorev.Kendall, 52 Am. Dec. 145;Cohnv.Heimbauch,86 Wis. 176;Bank of U.S. v.Owens, 2 Pet. 527;Vandalia case,145 U.S. 393;Central Co. v.Pullman Co.,139 U.S. 24;Equitable Societyv.Wetherill, 127 F. 946; Pomeroy's Equity Juris, § 939; Addison on Contracts: Domat.
After delivery of the property for an accepted consideration, the contract has ceased to be executory, even though it was entered into with the expectation of a continuity of benefits no longer susceptible of complete realization.Kearleyv.Thomson, L.R. 24 Q.B.D. 742;Hermanv.Jeuchner, L.R. 12 Q.B.D. 561;Harsev.Pearl L. Co., L.R. [1904] 1 K.B. 558;Vandalia case,145 U.S. 393;Equitable Societyv.Wetherill, 127 F. 946;McIntoshv.Wilson,81 Iowa 339;Atwoodv.Fisk,101 Mass. 353;Bruerv.Kansas Ins. Co.,100 Mo. App. 540;Ellicottv.Chamberlin,38 N.J. Eq. 604Page 280; Pollock, Principles of Contract, 364;Millerv.Larson,19 Wis. 463;Martinv.Wade,37 Cal. 168.
The indisposition of the court to grant relief is not limited to the cases in which the plaintiff is endeavoring to enforce the contract; a party exhibiting the contract merely to denounce it as illegal will be denied judicial assistance.Taylorv.Chester, L.R. 4 Q.B. 309;Brindleyv.Lawton,53 N.J. Eq. 259;Hopev.Linden Association, 29 Vroom, 627;Hermanv.Jeuchner, L.R. 12 Q.B.D. 561;Kearleyv.Thompson, L.R. 24 Q.B.D. 742;Harsev.Pearl Co., L.R. [1904] 1 K.B. 558;Hillv.Freeman,73 Ala. 200;Watkinsv.Nugen, 45 S.E. 262;McIntoshv.Wilson,81 Iowa 339;Atwoodv.Fisk,101 Mass. 353;Myersv.Meinrath,101 Mass. 366;Baggv.Jerome,7 Mich. 145;Whitev.Hunter,23 N.H. 128;Ellicottv.Chamberlin,38 N.J. Eq. 604;Markleyv.Village, 51 N.E. 28;Moorev.Kendall, 52 Am. Dec. 145;Equitable Life Assurance Societyv.Wetherill, 127 F. 946.
In all such cases the defendant's possession is a sufficient answer to the plaintiff's demand; both because such possession stands as the equivalent of a title in the defendant, and because to discourage such transactions, courts will be deaf to the clamor of a complainantin pari delicto. Myersv.Meinrath,101 Mass. 366;Hortonv.Buffington,105 Mass. 399;Baggv.Jerome,7 Mich. 145;Smithv.Bean,15 N.H. 577;Watkinsv.Nugen, 45 S.E. 262;McIntoshv.Wilson,81 Iowa 339;Traders' National Bankv.Steere,165 Mass. 389; Harris, Sunday Laws, § 169.
The condition of the possessor is so much better than that even of the original owner, that the possessor can recover the property not only from a stranger but from such original owner, if by chance the latter has been able to repossess himself of the property.Kinneyv.McDermott,55 Iowa 674;Smithv.Bean,17 N.H. 577;Thompsonv.Williams,58 N.H. 248;Cohnv.Heimbauch,86 Wis. 176.Page 281
The distinction betweenmala in se, andmala prohibitahas been abandoned, but were this otherwise, there is authority for regarding asmalum in seany act contravening public policy and a penal statute.Irwinv.Curie,171 N.Y. 409,415;Gibbsv.Gas Co.,130 U.S. 396;McMullenv.Hoffman,174 U.S. 639;Equitable Societyv.Wetherill, 127 F. 946.
The doctrine oflocus paenitentiaeis available only to those who seasonably seek to make restitution and to withdraw from their illegal executory contract. Laches is a fatal vice.Vandalia case,145 U.S. 393;Union T. Co. v.Illinois Co.,117 U.S. 434;In re Great Berlin S. Co., 26 Ch. D. 616;Hardwoodv.Railroad Co., 17 Wall. 80;Twin Lick Oil Co. v.Marbury,91 U.S. 587;Grimesv.Sanders,93 U.S. 55,62;Haywoodv.Nat. Bank,96 U.S. 611,617;McLeanv.Clapp,141 U.S. 429,432;Hoytv.Latham,143 U.S. 553,567;Townsendv.Vander-worker,160 U.S. 171;Wardv.Sherman,192 U.S. 168;Ruganv.Sabin, 53 F. 415, 418;Kinneyv.Webb, 54 F. 34;Boston R.R. v.New York R.R.,13 R.I. 264;Kitchenv.St. Louis Ry. Co.,69 Mo. 224;Peabody et al. v.Flint, 6 Allen, 56;Dunphyv.Travelers'Assn., 16 N.E. 426;Grahamv.Birkenhead, 2 McN. G. 156.
The rigor of the rule against the complainant is never relaxed out of consideration for him, but only when necessary to promote equity and justice.Pullman Co. v.Central Co.,171 U.S. 138;Spring Co. v.Knowlton,103 U.S. 49.
In cases presenting no such special considerations of equity, justice or public policy, a party even to an unexecuted illegal contract cannot recover back money paid or property delivered thereunder.Scottv.Brown, L.R. [1892] 2 Q.B. 724;In reGreat Berlin S. Co., 26 Ch. D. 616;McIntoshv.Wilson,81 Iowa 339;Bruerv.Kansas Ins. Co.,100 Mo. App. 540;Thompsonv.Williams,58 N.H. 248;Markleyv.Village, 51 N.E. 28;Storzv.Finkelstein,46 Neb. 477.
As to Northern Pacific preferred stock retirement seeHackettv.Northern Pacific Ry. Co.,36 Misc. 583.Page 282Mr. John G. Johnson, with whomMr. John W. GriggsandMr.W.P. Cloughwere on the brief, also for respondent:
On appeal from an interlocutory decree granting a special injunction in a suit for establishing title to property, if the record fully and fairly discloses the case on the point of title, the Appellate Court not only may, but rightfully should, determine the question of the injunction upon the merits of plaintiff's claim. The action of the Circuit Court of Appeals in this case was controlled by that rule, and proceeded upon it. 1 High on Injunction, 3d ed. § 7;Knoxvillev.Africa, 47 U.S. App. 74;Bissell Co. v.Goshen Co., 43 C. C.A. 47;Shinklev.Louisville Nashville, 62 F. 690;Mast, Foos Co. v.Stover Mfg. Co.,177 U.S. 485.
If, up to the time of argument of the appeal in the Circuit Court of Appeals, plaintiffs had been entitled to a stay of thepro rataplan of distribution, until opportunity could be given for fair argument and advisement upon the law points involved in their claim, such right was exhausted by their opportunity to be heard in the Circuit Court of Appeals.
In the Circuit Court of Appeals, therefore, the whole case for an injunction,pendente lite, was thrown back upon the first ground of the Circuit Court, viz., "grave and difficult" questions of fact, for ultimate determination.
The bill claims two distinct parcels of stock, one of which complainants never owned.
Plaintiffs' claims are self-contradictory and can be established, if at all, only under rules of common law. Equity rules cannot be invoked in their support.
The facts constituting title to the stock in controversy necessarily consist of, and are limited to, the things said and done, and mutually intended, by Harriman and Pierce on the one part, and the Securities Company on the other. As all material facts in regard to those sayings, doings and mutual intentions appear in this record, the entire case, on both sides, relating to title, must be here and can be disposed of.Page 283
The Union Pacific owns the Oregon Short Line. The latter owns the Oregon Railway and Navigation Company.
As to effect of acquisition of control of the stock of a competing road made by a railway company, and by the stockholders of a railway company see thePearsall case,161 U.S. 646;Kentuckyv.Louisville Nashville,161 U.S. 676.
Plaintiffs in effect ask the court to place control of the Northern Pacific system of railways in the hands of the Union Pacific Railroad Company. Of the relative geographical positions of the Union Pacific and the Northern Pacific Railway systems, and of the public laws of the several States on the subject of railway combinations, as well as of the Federal laws on the same subject, the court will take notice without proofs.
The burden of proof is on plaintiffs to show, by proper evidence, that the sale to Securities Company was different from what, on its face, it appears to have been. No such proof was tendered.
Plaintiffs really found their claims on what they assert to have been adjudicated in the Government suit, and not on what was actually done and intended by the parties. The plaintiffs were strangers to that suit.
For the assumed adjudication in their favor, plaintiffs rely not on the decree, but upon the opinion of Mr. Justice Harlan which does not, however, mean what plaintiffs claim, and their alternate theory, that the title of Securities Company was subject to a condition, since broken, is unsupported by fact, law or adjudication.
Where there has been a transfer of property, illegal from any cause, and possession has been delivered to the person to whom the title under the transfer was intended ultimately 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 governs under all forms of illegality; whether in doing something which the laws positively prohibit, or something which they merely omit to allow.Thomasv.RailroadPage 284Co.,101 U.S. 71,83;Vandalia case,145 U.S. 393,399,408;Central Co. v.Pullman Co.,139 U.S. 24.
When complainants had transferred the Northern Pacific shares to the Securities Company, and the latter had made payment of the price therefor by handing over to them the cash and the certificates for its own stock, coming to them, nothing remained executory between the parties save the implied mutual obligations concerning the Northern Securities stock resulting from the relation of corporation and stockholder, thus created.Mr. Thomas Thacheralso submitted a brief for respondent:
The injunctionpendente litecan be justified only upon the theory that it is a necessary incident to the granting of such final relief as the complainants appear to be entitled to. The right to such final relief must appear; if not, the injunction was error. If such right did not appear, the question of granting or denying the injunction was not addressed to the discretion of the court. If, upon the record, it does not appear that the complainants are entitled to recover this stock the order appealed from was erroneous and should be reversed.BrooklynClubv.McGuire, 116 F. 783;Home Ins. Co. v.Nobles, 63 F. 643;Central Stock Yards Co. v.L.N.R.R. Co., 112 F. 823;Stevensv.M., K. T.Ry. Co., 106 F. 771;Amelia Milling Co. v.TennesseeC.I. R. Co., 123 F. 811.
In some cases "a probable right" is deemed enough.NewMemphis Gas Co. v.Memphis, 72 F. 952;IndianapolisGas Co. v.Indianapolis, 82 F. 245;Reduction Worksv.California Co., 94 F. 694;Georgiav.Brailsford, 2 Dallas, 402; or a "prima facieright"Charlesv.Marion, 98 F. 166;Cosmos Exploration Co. v.Grey Eagle OilCo., 104 F. 20;Utah N. C.R.R. Co. v.Utah N. C.Ry. Co., 110 F. 879. As to preservation ofstatus quoseeAllisonv.Corson, 88 F. 581;Denver R.G.R.R.Co. v.United States, 124 F. 156;Haddonv.Dooley,Page 28574 F. 429;Cartersville Light Co. v.Cartersville, 114 F. 699;Cohenv.Delavina, 104 F. 946;Newtonv.Levis, 79 F. 715;West. U. Tel. Co. v.Pennsylvania R.R. Co., 123 F. 33.
On appeals from injunction orders the court will not only consider the merits but dismiss the bill, if it can see that the complainant is not entitled to final decree.Smithv.VulcanIron Works,165 U.S. 518;Mast, Foos Co. case,177 U.S. 485;Castnerv.Coffman,178 U.S. 168;Knoxvillev.Africa, 77 F. 501;Bissell Co. v.Goshen Co., 72 F. 545.
If the argument of the complainants, therefore, still rests upon the theory ofres adjudicata, that is upon the effect of the decrees in the Government suit, or upon any other theory concerning which the facts are substantially undisputed, this court, finding such theory unsound, will not simply reverse the injunction order, but dismiss the bill.
It was not the legal effect of the decree in the Government suit that title to the stocks of the Northern Pacific Railway Company and the Great Northern Railway Company, which the Securities Company now holds, never passed to the last-named Company. See opinions193 U.S. 197,321,324,327,334,344,357.
It does not follow as matter of law, from the facts shown by the record, including the decree, that title to these stocks did not pass to the Securities Company. The transaction was not void because illegal.Harrisv.Runnels, 12 How. 79;Mining Co. v.National Bank,96 U.S. 641;National Bankv.Mathews,98 U.S. 621;National Bankv.Whitney,103 U.S. 99;LoganCounty Bankv.Townsend,139 U.S. 67,76;Thompsonv.St.Nicholas Nat. Bank,146 U.S. 240,251;Scottv.Deweese,181 U.S. 202,211;Burckv.Taylor,152 U.S. 634,648;Fritsv.Palmer,132 U.S. 282;McBroomv.Investment Co.,153 U.S. 318;Jarvis Trust Companyv.Willhoit, 84 F. 514;Central Trust Co. v.Columbus Ry. Co., 87 F. 815;Terminal Co. v.Trust Co., 82 F. 134;ChattanoogaS.R. Co. v.Evans, 66 F. 809, 815.Page 286
The Sherman Anti-Trust Act expressly contemplates that contracts may be made in violation of the statute under which property will be owned.
Nor was the transaction void becauseultra vires.
The law of New Jersey as declared by its courts is that an executedultra virestransaction is not void.Cam. Atl. R.R.Co. v.May's Landing c. R.R. Co.,48 N.J.L. 530,567.
The place of the transaction in this case was New York, and the New York law is to the same effect as that of New Jersey — that an executedultra virestransaction stands as valid.Whitney Arms Co. v.Barlow,63 N.Y. 62;Woodruffv.ErieRy. Co.,93 N.Y. 609;Rider Life Raft Co. v.Roach,97 N.Y. 378;Bath Gas Light Co. v.Claffy,151 N.Y. 24;Voughtv.Eastern Bldg. c. Assoc.,172 N.Y. 508.
In the Federal courts, with respect to the passing of title, the law is the same. SeeNational Bankcases above referred to.
Even if the transaction in which the Oregon Short Line Railroad Company parted with the stock was void because illegal orultra vires, nevertheless the complainants could not recover.Equitable Life Assurance Societyv.Wetherill, 127 F. 947;Smithv.Bean,15 N.H. 577;Myersv.Meinrath,101 Mass. 366;Vandalia case,145 U.S. 393;Higginsv.McCrea,116 U.S. 671;Whitev.Barber,123 U.S. 392;Hortonv.Buffington,105 Mass. 399.
The transaction has never been abandoned. The Securities Company claims the ownership which was thus acquired and proposes to exercise the rights of such ownership by distributing the stocks as surplus assets among its stockholders.
InWestern Union Telegraph Companyv.Pennsylvania RailroadCompany et al.,195 U.S. 540,547, the Circuit Court had granted a preliminary injunction, 120 F. 981, which was reversed by the Circuit Court of Appeals. 123 F. 33. The telegraph company moved that the decree be modified so as to direct the dismissal of the bill. The motion was denied, and the telegraph company took an appeal to this court. Subsequently the Circuit Courtsua sponteentered an order dismissing the bill, and the telegraph company appealed therefrom to the Circuit Court of Appeals.195 U.S. 547. We then granted a certiorari, and, considering both appeals together, affirmed the decree of dismissal.
In the present case we granted the certiorari, at the instance of complainants, before the case had gone back to the Circuit Court, and shall do what the Circuit Court of Appeals might have done, that is, finally dispose of the case by our direction to the Circuit Court.
Complainants deny that the Securities Company became the owner of the Northern Pacific Railway shares, and assert to the contrary that the company held the shares as a trustee or a bailee for complainants.
And the principal ground on which this contention is rested is that it was so adjudicated by the Circuit Court for the District of Minnesota in the Government suit, by the decree of April 9, 1903, affirmed by this court.
It may be said in passing that complainants were not partiesPage 288of record to that suit, and that they were not parties by representation, if the effect of the transfers as between the parties thereto had been in issue and the vital conflict between complainants and the corporation, now set up, then existed, which would destroy the community of interest on which the rule of representation is founded. And, on the other hand, in that suit the Northern Securities Company, at a time when complainant Harriman was a director, answered that: "Every share of the Great Northern Company and the Northern Pacific Company acquired by this defendant has been, and, so long as it remains the property of the defendant, will continue to be, held and owned by it in its own right, and not under any agreement, promise, or understanding on its part, or on the part of its stockholders and officers, that the same shall be held, owned, or kept by it for any period of time whatever, or under any agreement that in any manner restricts or controls to any extent any use of the same which might lawfully be exercised by any other owner of said stocks."
But we are of opinion that the Circuit Court did not determine the quality of the transfer as between the defendants themselves, nor was that the purpose of the Government proceedings.
The decree of April 9, 1903, adjudged that defendants had theretofore entered into a combination or conspiracy in restraint of trade and commerce; that all stock of either of the railway companies then held or owned by the Securities Company was acquired and held in virtue of such combination; and enjoined the Securities Company and the two railway companies from receiving, or permitting the exercise of, any control by the Securities Company over either railway, or any exercise of the voting power of the railway shares, and the payment or reception of dividends upon the railway shares held by the Securities Company; and the Securities Company was forbidden from acquiring further stock of either of the railway companies.
And it was provided that nothing should be construed asPage 289prohibiting the Securities Company from returning and transferring the railway shares to the original railway stockholders who had delivered their shares to the Securities Company for shares of its stock; or to such person or persons as might be the holders and owners of its own stock originally issued in exchange or in payment for the stock claimed to have been acquired by it in the railway companies.
This did not involve a decision that any original vendor of the railway shares was entitled to a judicial restitution thereof, and such was the view of the Circuit Court itself, for in its opinion of April 19, 1904, the court said:
"The decree was wholly prohibitory. It enjoined the doing of certain threatened acts, and so long as these acts are not done it enforces itself, and no further action looking to its enforcement is deemed essential.
"In its bill of complaint the United States prayed, among other things, for a mandatory injunction against the Securities Company requiring it to recall and cancel the certificates of stock which it had issued, and to surrender the stock of the two railway companies in exchange for which its stock had been issued. This prayer for relief was denied. The court doubted its power to compel stockholders of the Securities Company, who had not been served with process, and were not before the court otherwise than by representation (if, indeed, they were present by representation), to surrender stock which was in their possession, and to take other stock in lieu thereof. It accordingly contented itself with an order which rendered the stock of the two railway companies, so long as it was in the hands of the Securities Company, valueless for the purpose of carrying out the objects of the unlawful combination in restraint of interstate trade.
"The Government was satisfied with the relief obtained, and expresses itself as fully satisfied therewith at the present time. When the decree was entered it was assumed by the court that when the stock was thus rendered valueless in the hands of the Securities Company the stockholders of thatPage 290company would be able, and likewise disposed, to make a disposition of the stock which, under all the circumstances of the case, would be fair and just, and would restore it to the markets of the world, where it would have some value, instead of being a worthless commodity. It was thought that the duty of thus disposing of it could be safely left to the stockholders of the Securities Company, and that, if any controversy arose in the discharge of this function, in view of the situation that had been created by the decree, it would be a controversy that would properly form the subject matter of an independent suit between the parties immediately interested.
"It is true that the decree contained a provision, in substance, that nothing therein contained should be construed as prohibiting the Securities Company from returning to the stockholders of the Northern Pacific Railway Company and the Great Northern Railway Company any and all shares of stock in either of said railway companies which the Northern Securities Company had acquired in exchange for its own stock, and that nothing therein contained should be construed as prohibiting the Securities Company from making such transfer of the stock aforesaid to such person or persons as had become owners of its own stock originally issued in exchange for the stock in the two railway companies; but this provision was purely permissive. It did not command that the stock should be so returned, or exclude other methods of disposition of it that, in view of all the circumstances, might appear to be more equitable. The fact that the directors of the Securities Company have proposed to its stockholders a plan of distributing the stock of the two railway companies in a manner somewhat different from that which was tentatively suggested by the decree, but not commanded, cannot be regarded as a failure to obey the decree. It was said in argument that one purpose of the intervention is to have that clause of the decree which is now merely permissive made mandatory. But this would be to modify the provisions of a decree which had become final by affirmance, and make anPage 291order which we expressly and on full consideration declined to make when the decree was entered. This we must decline to do."
The decree of April 9, 1903, was affirmed by the judgment of this court, which, of course, went no further than the decree itself. We did, indeed, by our judgment leave the Circuit Court at liberty "to proceed in the execution of its decree as the circumstances may require," but this did not operate to change the decree or import a power to do so not otherwise possessed.
Counsel argue, however, that certain expressions in the opinion of Mr. Justice Harlan so enlarged the scope of the decree as to give it the effect now attributed to it by complainants.
This suggestion is inconsistent with the settled rule that general expressions in an opinion, which are not essential to dispose of a case, are not permitted to control the judgment in subsequent suits.Cohensv.Virginia, 6 Wheat. 264, 399;Carollv.Caroll's Lessees, 16 How. 275. But we do not think that the opinion of Mr. Justice Harlan is open to the construction put upon it. In speaking of the situation as between the Government and the defendants, the Securities Company is sometimes referred to as the custodian of the shares and sometimes as the absolute owner, but in the sense that in either view the combination was illegal. For the purposes of that suit it was enough that in any capacity the Securities Company had the power to vote the railway shares and to receive the dividends thereon. The objection was that the exercise of its powers, whether those of owner or of trustee, would tend to prevent competition, and thus to restrain commerce.
Some of our number thought that as the Securities Company owned the stock the relief sought could not be granted, but the conclusion was that the possession of the power, which, if exercised, would prevent competition, brought the case within the statute, no matter what the tenure of title was.Page 292
Treating the question as an open one, it seems to us indisputable that, as between these parties, the transaction was one of purchase and sale. The situation is thus well put by Dallas, J.:
"The resolution which authorized the acquisition of the railway stock on behalf of the Securities Company was adopted by its board of directors at a meeting at which Mr. Harriman was present as a member of the board, and the only authority it conferred was `to purchase said stock . . . at an aggregate price of $91,407,500, payable, as to $82,491,871 thereof, in the fully paid-up and non-assessable shares of the capital stock of this company at par, and as to $8,915,629, in cash.' It is obvious that this resolution contemplated a `purchase,' and not a bailment or trust; and that it accurately stated the nature and terms of the contract which was actually made by and with the Securities Company is unequivocally shown by what was done in pursuance of it. The railway shares were unconditionally assigned to that company. The price specified in the resolution was paid by it, and this payment was made partly in cash and partly in shares of its own stock, for which corporate certificates in the ordinary form were delivered and accepted. . . . The complainants received dividends upon the stock that was issued to them, which were paid out of the general funds of the Securities Company; and by its indenture to the Equitable Trust Company of New York the Oregon Short Line Railroad Company irrefutably asserted its ownership of the Securities Company stock which it thereby pledged."
And the Securities Company sold 75,000 shares of its stock for $7,522,000 cash, "used," as stated in the bill, "for the purchase of other property and for corporate purposes."
But assuming that the transaction was in form, and at leastprima faciein substance, one of purchase and sale, it is denied that the equitable title vested because, as alleged in the second amended bill, there was an agreement by the promoters of the Securities Company, carried out by thatPage 293company, that the latter should "acquire and hold the shares of said railway stocks, as aforesaid, as custodian, depositary, or trustee, and to issue in exchange therefor its own share certificates upon said agreed basis." And here again we concur in the views of the Circuit Court of Appeals as expressed by Judge Dallas.
"The agreement thus set up is not in accord with the documentary evidence which has been referred to, and to establish its existence a clear preponderance of proof should at least be required, whereas, in our opinion, it conclusively appears that no such agreement was ever made. Mr. Harriman himself has distinctly testified that the Northern Pacific stock in question was sold; that the transaction was not an exchange; that he, principally, negotiated the sale; and that there was not attached to the negotiations any condition except as to price. And to the same effect is his affidavit in this case, in which he deposed that he was urged by Messrs. Morgan Co. to dispose of the Northern Pacific stock held by the Oregon Short Line Company, and that `they further stated that, upon the organization of the proposed holding company,' not that it would take as custodian or trustee, but that `they would be prepared to purchase the holdings of stock of the Northern Pacific owned by the Oregon Short Line, and pay therefor in the stock of the holding company.' These statements of that one of the complainants having most knowledge of the subject, confirmed, as they are, by other evidence, make it quite impossible to believe that the railway stock was received by the Securities Company merely as a custodian or depositary. The only agreement upon which it was transferred was an unqualified agreement of sale, and the fact that the design with which the Securities Company was organized has been compulsorily abandoned has not divested or in any way affected the absolute title which, by executed contract of purchase, it acquired. Undoubtedly, it was anticipated by the complainants, as by all concerned, that the rights ordinarily incident to the ownership of stock, including the right to vote andPage 294to receive dividends, would be exercisable as to this stock by the Securities Company. But expectation is not contract, and therefore the frustration of this anticipation cannot be said to have occasioned a failure of consideration. The only consideration agreed upon was payment of the price, and admittedly that payment was made."
Complainants' counsel say, in respect of Mr. Harriman's testimony that the transaction was an unconditional purchase and sale, that he only swore to his opinion on a question of law. This will hardly do when applied to testimony as to what was said and done in conference with the alleged promoters of the Securities Company. When Mr. Harriman testified that he attached to his negotiations in the sale of Northern Pacific stock no other condition than that of the price, and that the transaction was completed, how can complainants be permitted to deny that this was a statement of fact? And how can the establishment of the contract and its terms as embodied in the resolutions of November 15, 1901, approved at the succeeding meeting by the vote of Mr. Harriman, and which appeared to be, and were testified to by Mr. Hill, President of the Securities Company, as constituting the only contract which was made and authorized, be overthrown in the absence of any evidence to the contrary?
The consideration received by complainants consisted of money and Northern Securities stock certificates. Those certificates were in common form, and each was a muniment of the holder's title to a proportionate interest in the corporate estate vested in the corporation. By the provisions of the corporation act of New Jersey, and its certificate of incorporation, the Securities Company had power to acquire and to hold, and at any time to sell, the shares of other corporations. And under that act it had power, in the discretion of its directors and of the holders of two-thirds of its capital stock, at any time, on notice, to dissolve and to wind up the corporation and distribute its assets. Complainants subjected themselves to this power in accepting the shares of thePage 295Northern Securities Company, and their unqualified transfer of their railway stock was inconsistent with any obligation of the Securities Company to retain the railway shares for any particular period.
In acquiring the Securities stock, complainants acquired the ordinary rights of stockholders in New Jersey business corporations, including the right to receive dividends, and to share in the distribution of the assets of the corporation on its dissolution, or of any surplus of assets on reduction of its capital stock. In view of the decree of the Circuit Court for the District of Minnesota in the Government's suit the continued ownership of the railway shares became useless to the stockholders of the Securities Company, and accordingly the directors decided to reduce the capital stock and distribute the surplus of assets created by that reduction, and the resolutions to that end were ratified by a vote of more than two-thirds of the Securities shares.
By the transfer of the Northern Pacific shares and the payment therefor as agreed the contract was executed, and the implied obligations resulting from the relation of corporation and stockholder alone remained executory. And when the Securities Company resolved to distribute these railway shares ratably among all its stockholders, it did this in performance of its contract with them and not in repudiation of it. It is the complainants who are seeking the determination and repudiation of the contract. Their final contention in that regard is that they are entitled to a decree rescinding the contract of purchase and sale, and directing the return of the railway shares parted with by them thereunder, because of the illegality of the transaction as adjudged in the Federal courts.
And this in defiance of the settled rule that property delivered under an illegal contract cannot be recovered back by any partyin pari delicto. "The general rule, in equity, as at law," said Mr. Justice Gray inSt. Louis, Vandalia Terre HauteRailroad Companyv.Terre Haute IndianapolisPage 296Railroad Company,145 U.S. 393, "isIn pari delicto potior estconditio defendentis;and therefore neither party to an illegal contract will be aided by the court, whether to enforce it or to set it aside. If the contract is illegal, affirmative relief against it will not be granted, at law or in equity, unless the contract remains executory, or unless the parties are considered not in equal fault, as where the law violated is intended for the coercion of the one party, and the protection of the other, or where there has been fraud or oppression on the part of the defendant.Thomasv.Richmond, 12 Wall. 349, 355;SpringCo. v.Knowlton,103 U.S. 49; Story Eq. Jur. § 298. . . .
"When the parties arein pari delicto, and the contract has been fully executed on the part of the plaintiff, by the conveyance of property, or by the payment of money, and has not been repudiated by the defendant, it is now equally well settled that 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.Thomasv.Richmond, supra; Ayerstv.Jenkins, L.R. 16 Eq. 275, 284."
That was a suit in equity by the maker of an unauthorized lease of a railway and franchises, against the lessee, to enforce an attempted repudiation of the lease by the former, on the ground of the illegality. The lease was for nine hundred and ninety-nine years, of which but a few years had elapsed at the date of the attempted rescission.
The illegality of the lease and the consequent breach of public duty were manifest, but the right of the lessor, therefore, to maintain the suit was denied by this court.
In the present case complainants seek the return of property delivered to the Securities Company pursuant to an executed contract of sale on the ground of the illegality of that contract, but the record discloses no special considerations of equity, justice or public policy, which would justify the courts in relaxing the rigor of the rule which bars a recovery.
The Circuit Court decrees put at rest any question that thePage 297ratable distribution resolved upon was in violation of public policy.
And it is clear enough that the delivery to complainants of a majority of the total Northern Pacific stock and a ratable distribution of the remaining assets to the other Securities stockholders would not only be in itself inequitable, but would directly contravene the object of the Sherman Law and the purposes of the Government suit.
The Northern Pacific system, taken in connection with the Burlington system, is competitive with the Union Pacific system, and it seems obvious to us, the entire record considered, that the decree sought by complainants would tend to smother that competition.
While the superior equities, as against complainants' present claim, of the many holders of Securities shares who purchased in reliance on the belief that they thereby acquired a ratable interest in all of the assets of the Securities Company, are too plain to be ignored.
The illegal contract could not be made legal by estoppel, but the ownership of the assets, unaffected by a special interest in complainants, could be placed beyond dispute on their part by their conduct in holding the Securities Company out to the world as unconditional owner.
And, without repeating in detail what has been already set out, it is plain that right of rescission of the executed contract of November 18, 1901, even if rescission could have otherwise been sustained, had been lost by acquiescence and laches at the time this bill was filed.
Since the transfer of that date Securities stock had passed into the hands of more than 2,500 holders, many of them in Great Britain, France and other parts of Europe; nearly a year after the filing of the Government bill 75,000 shares were sold for cash, complainant Harriman concurring; some months after, Harriman and Pierce and the Oregon Short Line Company pledged their 824,000 shares to the Equitable Trust Company; notwithstanding the decree of April 9, 1903, theyPage 298stood upon their rights as shareholders; and it was not until after March 22, 1904, when defendant's board of directors resolved upon a ratable distribution that complainants undertook to change an election already so pronounced as to be irrevocable in itself in view of the rights of others.
We regard the contention that complainants are exempt from the doctrinein pari delictobecause the parties acted in good faith and without intention to violate the law as without merit. With knowledge of the facts and of the statute, the parties turned out to be mistaken in supposing that the statute would not be held applicable to the facts. Neither can plead ignorance of the law as against the other, and defendant secured no unfair advantage in retaining the consideration voluntarily delivered for the price agreed.
Perhaps it should be noticed that the bill sought the return of two parcels of Northern Pacific common stock, the 370,230 shares delivered to the Securities Company, November 18, 1901, and the 347,090 shares received December 27, 1901, from the Northern Pacific Company on the retirement of preferred stock.
Early in 1901 the Hill-Morgan party held a majority of the common stock, and had asserted the intention to retire the preferred stock, "without," as Mr. Harriman testified, "affording the holders of the preferred stock the right to participate in any new securities that might be issued."
With full knowledge of that intention the proceedings of the two companies followed in November, 1901, and the absolute and unconditional sale and purchase, as we hold the transaction to have been.
We find no evidence of any express agreement that complainants should be entitled to the new common stock, and it was certainly not the natural increase of the old stock, but the result of the exercise of the right of subscription. The purchase by the Securities Company was on its own account and not in trust, and cannot be disturbed because of illegal purpose at the clamor of partiesin pari delicto. And there isPage 299here no offer of the restoration of thestatus quo, if that were practicable.
Doubtless it became the duty of the Securities Company to end a situation that had been adjudged unlawful, and this could be effected by sale and distribution in cash, or by distribution in kind, and the latter method was adopted, and wisely adopted, as we think, for the forced sale of several hundred millions of stock would have manifestly involved disastrous results.
In fine, the title to these stocks having intentionally been passed, the former owners or part of them cannot reclaim the specific shares and must be content with their ratable proportion of the corporate assets.Decree affirmed; cause remanded to Circuit Court with adirection to dismiss the bill.