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aty, seized them on March 29, 1878. Max Schott, on the sixth of April, commenced an action of trespass in the circuit court for Sagi. naw county, Michigan, against Matthews and Wells, to recover $25,
$ 000 damages for the acts of the defendants in breaking and entering the store at East Saginaw, and taking therefrom and carrying away goods of the plaintiffs of the value of $20,000, and converting the same to their own use, and preventing the plaintiffs from carrying on their lawful business in the store. After the defendants in the trespass suit had appeared therein by attorney and demanded a trial, and given the like notice of defense as was given in the suit for tres. pass brought by J. Leroux & Co., nothing further was done in the suit. In October, 1878, Hudson, (the assignee,) Matthews, (the marshal,) and Wells filed a bill in equity in the circuit court of the United States for the eastern disirict of Michigan against Max Schott, making the like allegations, mutatis mutandis, as to the goods taken from Max Schott, as were made in the bill filed by J. Leroux & Co. in regard to the goods taken from them, and containing a like prayer for relief and for an injunction. Like proceedings took place, except that a demurrer was embodied in the answer instead of being filed separately. The answer was of a like character, the proofs and protest were identical, and a like decree was entered, from which the defendant appealed.
The same questions are involved as in Lerout v. Hudson, the facts are substantially the same, and the same conclusions are reached. The decree of the circuit court is reversed, and the cause is remanded to that court, with direction to dismiss the bill.
(109 U. 8. $22) THOMAS, Trustee, o. BROWNVILLE, Ft. Ky. & Pao. R. Co. and others.'
(December 10, 1883.)
CORPORATION-DIRECTORS INTERESTED IN CONTRACT_FRAUD-BONDS ISSUED ON
PAYMENT— BENEFIT CONFERRED ON CORPORATION-FORECLOSURE. Where two of the board of directors of a railroad corporation, who took part in
making a contract for the construction of the road, were interested with the other parties in the contract, and the other contractors, except these two, en. tered into an agreement with the other directors at the time the construction contract was made, that, in effect, relieved them from liability on their unpaid stock, such contract is voidable at the election of the parties affected by the fraud; but to the extent of the benefit conferred upon and received by the corporation in the construction of the road, the bonds issued in payment thereof are not void, and in suit to foreclose the mortgage by which they are secured a decree for that amount should be allowed.
Appeal from the Circuit Court of the United States for the Distriot of Nebraska.
18. C. 2 Fed. Rep. 871.
Wm. M. Ramsey, for appellant.
MILLER, J. This is an appeal from a decree of the circuit court for the district of Nebraska dismissing appellant's bill for a foreclosure of a railroad mortgage. * The mortgage was made by the Brownville, Fort Kearney & Pacific Railroad Company to secure the payment of bonds issued by said company to certain persons who had contracted to build its road, and to whom 610 of said bonds of $1,000 each had been delivered. There was a default in the payment of these bonds. After they were executed and delivered the Brownville & Fort Kearney Railroad Company became consolidated under the laws of Nebraska with the Midland Pacific Railroad Company, under the new name of the Nebraska Railway Company. In the bill of foreclosure both these companies—that is, the Brownville Company and the Nebraska Company-are made defendants, and an answer confessing plaintiff's right to relief being filed, the court rendered a decree of foreclosure, and apparently a sale was bad. But at this stage of the proceedings certain parties interested as stockholders of the original Brownville & Fort Kearney Company were permitted to make them. selves defendants, and the first decree was vacated. These parties set up by way of answer and cross-bill that the contract for the construction of the road, on account of which the bonds were issued, was fraudulent and void, and so were the bonds issued under it, and they resisted the foreclosure of the mortgage on that account.
The fraud charged in this answer and cross-bill is founded on two allegations : First. It is alleged that two of the board of directors who took part in making the construction contract were interested with the other parties in the contract. Second. That the other contractors besides these two made an agreement, at the same time that the construction contract was made, with 12 of the shareholders of the railroad company, that they would relieve them, as subscribers to the stock of said company, from the payment of any further assessments upon the stock which they had subscribed for, by paying out said stock and having same assigned to them; in all, not to exceed $16,500 of the $41,000 of individual subscriptions to said company. The names of the persons thus relieved by the construction company included all the directors of the railroad company at the time the contract for construction was made. As the stock was worthless, and these parties were liable to be called on to pay up this $16,500, the effect upon the directors in making a construction contract with the men who relieved them of their liability, two of them being also parties in the construction contract, is readily seen. These allegations are proved beyond question, and the circuit court held the contract void, and the bonds issued in fulfillment of it also void, and dismissed the bill. We concur with the circuit judge that no such contract as this can be enforced in a court of equity where it is resisted and its immorality is brought to light. But as this court said
in the case of Twin Lick Oil Co. v. Marbury, 91 U. S. 587, such contracts are not absolutely void, but are voidable at the election of the parties affected by the fraud. It may often occur that, notwithstanding the vice of the transaction,-namely, the directors or trustees, or a majority of them, being interested in opposition to the interest of those whom they represent, and in reality parties to both sides of the contract,—that it may be one which those whose confidence is abused may prefer to ratify or submit to. It is therefore at the option of these latter to avoid it, and, until some act of theirs indicates such a purpose, it is not a nullity.
In the present case the stockholders of the corporation, whose officers accepted those benefits at the hands of the parties, with whom they were, in the name of the corporation, making a contract for over a million of dollars, do denounce and repudiate that contract. The conduct of these directors is utterly indefensible. The case of Wardell v. Union Pac. R. Co. 103 U. S. 651, is in precise analogy to this. See, also, same case in 4 Dill, 330. The original contract being such that the contractors can maintain no suit on it, the bonds which they received are affected with the same vice, and cannot be enforced unless they are negotiable instruments in the hands of innocent hold. ers for value. This principle is set up and relied on to reverse the decree, on the ground that the bonds are in the hands of the Burling. ton & Missouri River Railroad Company. This company is no party to the suit, but it appears in evidence that, while it has possession of these bonds, it did not receive them by any purchase in the ordinary course of business. They came into their possession as part of a transaction in which they purchased the consolidated Nebraska Company's railroad, and these bonds were probably taken as security against their being used to injure the title. It is also shown that, as further security in the same direction, the Burlington & Missouri Railroad Company yet retains $400,000 of the price of the road, which they agreed to pay. Under these circumstances we do not see that that company is in condition to avail itself of the doctrine of bona fide holders for value.
But we are asked to reverse the decree so far as to permit the trustee in this case to recover such a sum as the construction company actually earned in building the road. The matter was referred to a master, who, on this hypothesis, reported that the contractors had done work for the railroad company, which it had accepted, to the value of $205,947.66 beyond what they had received payment for, except as it was paid by these bonds. He also reported that this work was of that much advantage to the company, and its value or cost is estimated as on a quantum meruit, without regard to the prices fixed by the contract. We are of opinion that appellant's view of this part of the transaction is sound. The bonds and mortgage in the hands of the trustee were issued in payment for this work. To the extent of $205,947.66 the consideration is good, and no sound prin
ciple is seen on which they cannot to that extent be enforced. To this extent they do not rest on the original contract, but on work, labor, and material actually furnished to the company and received by it. These services and materials are not estimated by the prices named in the contract, but by their real value to the company.
In the analogous case of Wardell v. Union Pac. R. Co. 4 Dill. 339, the circuit court, after rejecting the fraudulent contract on the same grounds that we reject this one, said:
“By what rule shall we measure Mr. Wardell's rights? He has spent time and labor and money in discovering the mines, and in placing them in conditlon to be profitably worked. * Apart from the contract, and if it had never existed, he is entitled to a fair and reasonable compensation for his labor and time and skill. The fraud gives the railroad company no right to these without just compensation."
This ruling was affirmed in this court on appeal in the same case. 103 U. S. 659. See, also, Gardner v. Butler, 30 N. J. Eq. 702.
There is another principle of equity jurisprudence which leads to the same conclusion. The stockholders who have resisted complainant's claim were not parties to the original suit for foreclosure, nor were they either necessary or proper parties as the case then stood. The decree and sale were made in a suit where all the usual parties to such a suit were agreed. These stockholders had no legal right to interfere. It was only by permission of the court that they were allowed to come in and contest the validity of the mortgage. In doing this they became actors. They filed their cross-bill. In this condition of the case they are amenable to the rule that they who seek equity must do equity. It is just that they should pay a fair price for what they have received; that this mortgage, given for the construction of the road, though excessive by reason of the fraud in the contract, should stand for the reasonable value of what the company actually received in the way of construction. To permit these intervenors to defeat the mortgage on any other terms would be unjust, and would make the court the instrument of this injustice.
The decree of the circuit court must therefore be reversed, and the case remanded to that court, with directions for a decree in favor of the plaintiff for the sum of $205,947.66, with interest. If a sale becomes necessary this sum must be paid out pro rata on the bonds secured by the mortgage, on their being produced and canceled, or surrendered for cancellation, provided the road sells for so much.
Mr. Justice FIELD and Mr. Justice MATTHEWS took no part in the hearing or decision of this case.
(109 U. S. 426)
SMITH and another v. MONEAL and others.
(December 3, 1883.)
STATUTE OF LIMITATIONS-ACTION DISMISSED FOR WANT OF JURISDICTION-NEW
ACTION-TENNESSEE CODE, ARTs. 2765, 2755.
Where an action commenced within the time limited by article 2765 of the Code of
Tennessee has been dismissed for want of jurisdiction, it is within the saving of section 2755 of the Code, and a new action may be brought within one year from the date of such dismissal.
In Error to the Circuit Court of the United States for the Western District of Tennessee.
On December 31, 1873, the plaintiffs in error brought suit against defendants in the circuit court of the United States for the western district of Tennessee to recover 40 acres of land. The declaration described the land, and averred that the plaintiffs were possessed thereof, claiming in fee through a certificate of the United States district tax commissioners, naming them, under an act of congress entitled "An act for the collection of taxes in insurrectionary districts within the United States and for other purposes," and the acts amending the same, of January 1, 1865, and that after such possession accrued the defendants, on December 1, 1865, entered upon the premises and unlawfully withhold and detain the same, etc. Two of the defendants, NcNeal and Caruthers, demurred to the declarationFirst, because it did not sufficiently describe the property sought to be recovered; and, second, because it did not show that the plaintiffs were not citizens of the state of Tennessee so as to give the court jurisdiction of the cause. On February 24, 1877, the court sustained the demurrer upon the ground that it had "no jurisdiction of the cause of action in plaintiffs' declaration alleged and set forth," and dismissed the suit. Afterwards, on October 20, 1877, the plaintiffs in error brought the present suit against the same defendants in the Bame court to recover the same tract of land. The declaration in this cause was identical with that in the former action, except that in this case the following averment was added :
“Defendants do not claim under, but adversely to, and deny the validity of plaintiffs' claim of title under the aforesaid acts of congress; and the validity of plaintiffs' claim of title under the aforesaid acts of congress is the only question in controversy between the plaintiffs and defendants.”
The defendants pleaded the seven-years' limitation prescribed by the statute of Tennessee, to which the plaintiffs pleaded the following replication :
“Now come the plaintiffs, by attorneys, and as to defendants' plea herein pleaded say, that on the thirty-first of December, 1873, and within seven years from the time the plaintiffs' cause of action accrued, the plaintiffs brought suit against defendants in this court to recover possession of the same premises whereof plaintiffs here now seek to recover possession; and the said