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financial agent, and ratified all that he had done. Soon after, by direction of S., the notes, none of which had ever been used, and the mortgage securing them, were canceled, and the bonds and mortgage for $2,700,000 were made. S. having difficulty in raising the money to complete the road by the use of the bonds, and having expended a large amount of money in building it, and differences having arisen between the parties interested, as to their interests, S. brought a suit in an Iowa state court, to which complainants and all others interested in the property were parties, and appeared and litigated the questions arising, in which suit all the facts relating to the property and the dealings of the parties with it were set out, and in which the court made a decree settling and adjusting the rights of all the parties, and adjudging, among other things, that the complainants and others in like situation should receive their proper proportions, which were ascertained and fixed, of the stock of the K. Ry. Co., in return for their contributions to its purchase. Complainants received such stock, and no appeal was taken from the decree. Subsequently, in order to get money to complete the road, S., pursuant to a resolution of the board of directors of the K. Ry. Co., offered to the stockholders, including complainants, an opportunity to buy an amount of the bonds of the company proportioned to their stock, at 50 per cent. of their par value, which was estimated to be sufficient to pay the debts of the company and finish the road. Complainants declined, and S. and his associates purchased all the bonds, but at a higher price, and the debts were paid, and the road finished. Afterwards, the C. Ry. Co. purchased the bonds from S. and his associates, for value, relying on the validity of the mortgage securing them. The K. Ry. Co. defaulted in payment of interest on the bonds, and the road was foreclosed and sold. Complainants, before the confirmation of the sale, brought this suit against the K. Ry. Co., S., the C. Ry. Co., and others interested in the property, to enjoin the confirmation and have themselves declared entitled to a lien, superior to the mortgage, on the road, for the share contributed by them to the purchase price on the original sale. They had previously brought another suit for the same purpose before the foreclosure, but after the sale of the bonds to the C. Ry. Co., which had been dismissed for want of jurisdiction. Helä, that complainants acquired no lien on the road by virtue of their contract with S. for the issue of notes by the K. Ry. Co., and the holding of them as security, or by virtue of the subsequent dealings of S. or E. or
others with the property. 2. SAME--RES ADJUDICATA.
Hela, further, that the decree of the Iowa court was res adjudicata as to any such lien, as well as all rights of complainants as against s. or his as
sociates, or their privies. 3. JUDGMENTS--COLLATERAL ATTACK-FRAUD.
Held, further, that in a collateral proceeding between the same parties the decree of the Iowa court would not be a less complete bar, if shown
to have been procured by fraud or imposition. 4. RES JUDICATA.
& judgment is conclusive upon the controversies determined thereby between the parties and their privies, and cannot be impeached for fraud otherwise than by a direct proceeding brought to set it aside on that
ground. 6. TRUSTEE UNDER MORTGAGE-DUTIES.
Until the bonds are sold or pledged, the trustee in a mortgage, made to secure them, is the agent of the maker of the bonds and mortgage only, and is bound to follow his directions.
Appeal from the Circuit Court of the United States for the Southern District of Iowa.
This was a suit by the Peninsular Iron Company and Abel Whitney, as trustee for himself and Walter S. Sears, Channing Whitney, William S. Wilcox, Porter L. Sword, the estate of Henry Hart, deceased, the estate of Charles Rynd, deceased, and for the Illinois
Manufacturing Company; Joseph S. Hart, administrator, and Jane S. Hart, administratrix, of the estate of Henry Hart; Adelia S. Angel; Joseph R. Bennett; S. Edson Graves; Henry S. Wilcox; George A. Wilcox; and Abel Whitney, against Dan. P. Eells; the St. Louis, Keokuk & Northwestern Railway Company; Andros B. Stone; the Chicago, Burlington & Quincy Railroad Company, and William Baldwin and C. F. Perkins, intervener, impleaded with Leander M. Hubby, Samuel M. Carpenter, and Charles Wasson, survivors of themselves and William F. Smith, copartners by the name of the Fulton Foundry Company; and the Bank of Skaneateles,to set aside a decree of foreclosure, and establish and foreclose a lien on the road of the St. Louis, Keokuk & Northwestern Railway Company. The circuit court dismissed the bill. Complainants appeal. Affirmed,
For decision on a question of jurisdiction in a previous suit between the same parties, see 121 U. S. 631, 7 Sup. Ct. 1010.
Andrew Howell, H. Scott Howell, and William C. Howell, for appellants.
Jas. H. Anderson, Palmer Trimble, H. H. Trimble, and G. Edmunds, for appellees.
Before CALDWELL, SANBORN, and THAYER, Circuit Judges.
SANBORN, Circuit Judge. This is an appeal from a decree dismissing a bill brought in September, 1887, by the appellants, the Peninsular Iron Company, a corporation, and others, to set aside the decree of foreclosure of a mortgage for $2,700,000 on the St. Louis, Keokuk & Northwestern Railway Company, rendered in the circuit court for the Southern district of Iowa on July 7, 1887, and to establish and foreclose a superior lien to that of the $2,700,000 mortgage upon the property of this railroad company. The facts out of which this controversy arises are substantially these:
On January 27, 1875, in the circuit court for the Eastern district of Missouri, a decree of foreclosure of two mortgages on the Mississippi Valley & Western Railway Company was rendered, which directed the sale of the property of that corporation to be made by a master on April 14, 1875. This railway company had constructed a railroad from Keokuk, Iowa, to Hannibal, Mo., and had expended a large amount of money towards its extension from Hannibal to Louisiana, a distance of 26 miles. This extension was, after the master's sale, completed by the Keokuk Company, which was formed by the purchasers, and the railroad was extended from Louisiana to Clarksville, 10 miles, and afterwards from thence to St. Peters, a distance of 43 miles, so that it ultimately became about 134 miles in length. On March 27, 1875, certain of the lienholders and bondholders of the Mississippi Valley Railway Company appointed one A. B. Stone their agent and trustee to purchase the property of the company at the foreclosure sale, and to hold or dispose of it as a majority in interest of those who made this appointment, and joined in the purchase through him, should direct. Those who joined in this purchase agreed with each other and with their agent, Stone, that they would deliver to him all the bonds and liens upon this railway property that they held, and that each of them would pay to him in cash, to be used in the purchase of the property, such a proportion of the cash required to complete the purchase as his bonds and liens bore to the aggregate amount of the bonds and liens received by Stone under the agreement.
Under this agreement the appellants joined in the purchase, and furnished in bonds, at the value awarded to them by the court, and in cash, about 4 per cent. of the purchase price paid. They furnished $24,391.61, and the price paid by Stone was $606,830.28. The appellants were creditors of the Adrian Car & Manufacturing Company, of Adrian, Mich., and received the bonds they furnished to make this purchase from that company to secure debts it owed to them. Their bonds were part of 125 bonds that had been previously pledged by the railway company to the car company to secure a debt due from the former to the latter. At the time of this contract to purchase this railway property, these 125 bonds were held by parties in and about Adrian who joined in the purchase, and together furnished about 11 per cent. of the purchase price. These Adrian parties acted together throughout these transactions, and were actively represented by the appellant William S. Wilcox, and by W. H. Angel, husband of the appellant Adelia S. Angel. Pursuant to the agreement of March 27, 1875, Stone purchased the property on April 14, 1875, and the court required him to pay $296,463.08 of the purchase price in cash on or before June 17, 1875. On June 8, 1875, Stone signed, and delivered to the Adrian parties, a contract in which he recited that he had purchased the property of the railroad company at the foreclosure sale; that a majority in interest of the purchasers had directed him to convey it to the St. Louis, Keokuk & Northwestern Railway Company, a corporation to be formed by those interested in the purchase; that these Adrian parties were interested in the purchase, and were required to furnish before June 17, 1875, their ratable proportion of the cash required to complete it, which was estimated to be $30,844.12; that they desired to borrow the same, and that to enable them to do so he agreed to convey the property to the Keokuk Company, to cause that company to mortgage the property to Dan. P. Eells, as trustee, to secure notes to the amount of $600,000, to deposit those notes with Eells, and to have Eells hold such an amount of those notes as would equal the amount of cash which the Adrian parties should pay to him before June 17, 1875, as collateral security for the repayment of the money so paid by them to complete the purchase of the property. The Adrian parties furnished $30,844.12, and Stone and others interested in the purchase furnished $265,619.86, in money, to complete the purchase, and with this money, and the bonds and liens of the purchasers, Stone completed it, and obtained a conveyance of the property to himself. Immediately thereupon the Keokuk Company was organized by those interested in this purchase. Stone then sold and conveyed the property to that company on these, among other, terms: That the company should issue $600,000 of notes payable in two years, and should secure them by a mortgage; that it should issue bonds to the amount of $2,700,000, payable in 30 years, and secure them by a mortgage; that the bonds should be used first to pay off and satisfy the mortgage for $600,000; that all these notes, bonds, and mortgages should be placed in the hands of Dan. P. Eells, trustee; that the notes and bonds should be sold and disposed of as Stone should direct; and that Stone should use the proceeds thereof in the construction of the railroad, until it was completed, and when the road was completed all the bonds and stocks should belong to him, but that until that time the bonds and notes should not be issued any faster than at the rate of $20,000 per mile of completed and equipped railroad. Pursuant to this contract, Stone conveyed the property to the Keokuk Company. On June 22, 1875, the Keokuk Company made and delivered to Eells, as trustee, notes amounting to $600,000, payable in two years, and secured them by a mortgage on the property. On August 10, 1875, the Keokuk Company appointed Stone its financial agent to sell and dispose of its bonds and notes, and ratified his prior contracts for their sale and disposition. The notes secured by the mortgage for $600,000 were never sold or used, and on November 10, 1875, by direction of Stone, they were canceled, and Eells delivered them back to the company, and released the mortgage which secured them. On the same day the company executed and delivered to Eells, as trustee, the 30-year bonds, amounting to $2,700,000, and a mortgage to secure them. Stone was unable to sell the bonds, and be proceeded to equip and operate the railroad, and to extend it towards St. Louis, on the credit of the bonds, which he pledged for materials and money to accomplish this puisse. In 1877 the road had been equipped and extended from Hannibal to Clarksville, a distance of 36 miles, through his exertions, at an expense of about $700,000, and $1,800,000 of the bonds had been pledged for this purpose.
Differences had arisen between the parties interested in the original purchase, as to their respective interests, and thereupon Stone brought a suit in the district court of Lee county, in the state of Iowa, against all the parties interested in the original purchase, including the appellants in this suit, and against all the parties to whom the Keokuk Company had become indebted, to determine the respective interests of these parties in the property, and to obtain his discharge as their trustee. In his petition he pleaded all the facts to which we have referred, except his agreement with the Adrian parties, of June 8, 1875, that such an amount of the notes secured by the mortgage for $600,000 as would equal the money they furnished towards the purchase should be held by Eells as collateral security for the repayment of the money to them. He expressly stated in his petition, however, that the notes and mortgage for $600,000 had been made; that they had not been used, and that the notes had been canceled; and that the mortgage had been discharged. He set forth in detail the amount of cash and the amount of bonds and liens which each of the purchasers had furnished to him to make the purchase, and the amount of expense incurred by him for the Keokuk Company in equipping and extending the railroad. He pleaded that, of the $2,700,000 of bonds, bonds to the
amount of $1,800,000 had been pledged for the payment of expenses of construction and equipment incurred since the purchase, and that the entire assets of the Keokuk Company stood pledged for this indebtedness, for the moneys paid into court by him upon the purchase, and for his charges for services and expenses, and that they must all be paid before the bonds and stocks could be divided between the owners. He prayed, among other things, that “the respective interests of each and all the parties in the property of the St. Louis, Keokuk & Northwestern Railway Company, and the other property purchased by your petitioner, as herein stated, be ascertained and determined by the court; that the moneys paid, as hereinbefore stated, upon said purchase, be refunded to the purchasers, or be so prorated as that each shall bear and pay his or its ratable portion thereof, and that the moneys expended and debts incurred in the construction, improvement, and repair of said road and for rolling stock, be paid:
and, finally, that this court direct the distribution of the assets of said St. Louis, Keokuk & Northwestern Railway Company remaining after all equities are adjusted between the parties to this suit, among the respective parties, according to their respective interests therein, and that your petitioner be discharged from further liability on account of his said trust."
On August 24, 1877, the appellant Wilcox verified an answer made by the assignees, of the Adrian Car Company in that suit, which admitted the truth of all the allegations of this petition that are material to the issues now under consideration, and claimed a preference in the payment of $22,830.66 due from the old Mississippi Valley Railway Company to the car company. One of the defendants in that suit brought a suit against Stone in the state of New York, and obtained an injunction which prohibited him from proceeding with the suit in Lee county, Iowa. Thereupon, on June 9, 1878, the assignees of the car company, one of whom was the appellant Wilcox, filed a cross bill in the court in Lee county, in which they set forth the amounts, in cash, bonds, and liens, paid by each of the original purchasers; alleged that each of them was entitled to share in the property of the Keokuk Company in the same proportion that the value of their securities and cash furnished bore to the whole purchase price; that their attorneys had charged them $5,000 for services in maintaining their lien against the old Mississippi Valley Railway Company, and that their fees should be paid out of the assets of the Keokuk Company before division; and prayed that the court “decree a division among the several claimants of the bonds, stocks, assets, and property of the railroad company in the hands of said railroad company [the Keokuk Company], or in the hands of Daniel P. Eells, trustee, as they severally may be found entitled; that they may be found to be the owners of the undivided one-ninth of all said property; and that the other claimants may be decreed their respective interests, so that the title and ownership of said property between the said parties may be found and settled by said decree.” All the appellants in this case received and accepted service of a notice of the filing of this cross bill, and be