SMITII

ClliNT· .tW. B.

co.

731

SMITH 'IJ.

FLORIDA

CENT.

& W. R.Co.

et al.

(Circuit Oowrt,,lt.,D.FloridQ,. August, 1890.)
NBGOT]:ABLlIl

In' a suit to enforce the collection of railroad bonds which had beE:n declared fraudwent itaplleared that the blllldswere given to a firm of which plaintiff was a member in paYment for work alleged to have been done for the railroad company, andthat:another member of said firm was an active llarticipant in the fraud rendered the bonds invalid. Beld. that plainti1r w8snot an innocaut bolder.
.. _ I

BONDS-IloNA li',lDB HOL'DEB-:'F'RAtrD.

In Eq\lity. . . Q. L. Robinson, O. K. Davis. and J. W. Losey, for complainant. John A. l:!ender8on, for defendants· . SPEER, J. .This is a bill filed by the complainant, who avers self to .be a citizen of the state of Wisconsin, residing at La Crossein that state, against the Florida Central & Western Railroad Company, a corporation created by and under the laws of the state of Florida, havingits place of business at Jacksonville in said state; the Florida Central Railroad COlllpany, a corporation created by and under the laws oftha state of Florida, haviljlg its place of business at Jacksonville, in this district, against Sir .Edward J. Reede, who is an alien, and the subject of the queen of Great Britain and Ireland, and against J. Frederick Schutte, Jans Prins, Adrianus Prins, and 28 othem, who are aliens and l'lubjects of the king of the Netherlands, and against the .GuaranteeTrust & Safe-Deposit Company, a corporation created by the laws of the state of Pennsylvania, and a citizen of that state. The bill is brought to enforce the collection of 376 bonds of the Florida Central Railroad Company for 81,000 each, which will be hereafter more particularly described. It is one of,several cases, which it seems have sought to avoid the decision of this court, subsequently affirmed, in Schutre v. Railroad Qo. 103 U. S. 127. The hie,tory of this litigation is familiar. The deCree in the Schutte Que was rendered in this court by Mr. Justice BBA..J:). LEY, as circuit justice. That decree held that the trustees of the internal improvement fund or the state of Florida had the first lien upon this and other railroads to secure the sum of $464,175.37, with interest thereon since March 20,A. D.1869, at the rate of 8 per cent. per anof them defendants here, num. That the complainants, who are should have a second lien upon both railroads before mentioned, and upon the entire interests of the Jacksonville, Pensacola & Mobile Railroad Company betweep.QuiIlcy, and Chattahoochee, to the amount of all the bonds of the stltte of: Florida held and owned by them, mentioned in the pleadingl!! in the case, and numbered 3,000 and under, together with the That theamonnt of said state bonds now owned by the complainants was $2,75l,OOO, and the interest now matured amounted to 81,,655,001..That. the,(loJ11plaillants had a first Hen upon the rail:road running {ropt Lake City, to Jacksonville to the amount of the bonds for the bonds of the Florida Central of the state of.ll'lQridll.

782"

FEDERAL REPORTElt;

vol. 43.

Railroad Company, numbered 3,001 and upwards, held and owned by them, with the, interest. The amount ;'of the last-numbered bonds is $197,000, and the amount of interest now matured is $118,515.20. That the railroad and property and fra-nchises extending from Lake City to Chat4thoochee, including the branch road to Mont,icello, mentioneq, in the blll of complaint in this case, and the railroad from Tallahassee to St. Marks, and the property and franchises pertaining thereto, be each sold subject to the lien thereon, fixed by the decree to satisfy the lienofthe said complainants thereon. That the sale be made by Sherman, Conante, and Hawkins, as special masters, and be advertised for at least 90 days before the day of sale in some-newspaper of general circulation published in J/lCklloil'ViIle, and also in some newspaper of general circulation published in the state of New York. That the purchaser or purchasers at said sale may deposit with said special masters in payment of his or her bid the said Florida state bonds numbered 3,000 or under, in the proportion which the whole amount of the bid bears to the whole arilOunt 01 the said state bonds outstanding, and 97 numbered 3,001 or under, and the interest matured thereon, which is $4,406,001.60. Fifth. That the said railroad from Jacksonville to Lake City be sold by the said special masters at the same time to satisfy the lien ·of complainllnts declared by the decree. That the purchaser or purchasers at said sale shall' be authorized to deliver to the spedal masters, in payment of the bid, said bonds of the state of Florida numbered3,001 and upwards. in "tlle proportion which the whole amount of the bid bears to the whole amount of said state bonds outstanding, numbered last as aforesaid; that is, $315,515.20. Sixth. That the balance of every bid for either of the roads hereby directed to be sold above the amounts to be paid in bonds shall be paid in cash, and at the time or said sale, and, if not paid at once, the masters shall immediately reoffersaid property for sale,etc. The amount paid in cash'at either 'of the sslesshall he paid! into court by the masters, to be disposed:of bythe,!courton the coming in of the said master's report. After said sale, or sales shall be cOnfirmed the purchaser or purchasers shall be placed immediately in possession of the property purchased. &venth. That, unless the pur.¢haser of the railroad from Lake City to Chattahoochee, and the branch to Monticello, and the railroad from Tallahassee to St. Marks, shall, within one year from the date of the sale thereof, discharge and satisfy the liens of the trustees of the internal improvement fund of the state of Florida thereon, respectively, as hereinbefore declared·, then the said railroad property and franchises thereto extending from Lake City to Quincy, including the branch road to Monticello,sndthe railroad property and franchises theretobelonging;extending from Tallahassee to St. Marks, shall be taken possession of and sold by the marshal of the United States for said district, separately, to satisfy the liens thereon respectively fixed by this decree, "and saici decree shall; be advertised to take place at Tallahassee, in said state,' in a newspaper of general circulation published; in said Tallahassee, and also in a newspaper of general circulation published in

SMITH V. FLORIDA CENT. &: W. R. CO.

733

the city of New York, at least 90 days before the day of sale; and the pU'rchaserorpurchasers at silid sale or Sales may pay to the marshal for satisfaction their bid for either of said roads the bonds which are a'lienupon said is, the bonds to pay which the last vendor exists as declared by this decree, in the proportion which the whole bid bears to the whole amount of bonds. which were a lien as aforesaid on said road, and. shall pay the balance in cash at the time of said sale, and the marshal shiLllretum said bonds so received by him and the balabee, if any, of cash into court, .to be disposed of as the court shall direct. , This decree was, upon appeal, affirmed by the supreme court of the U nited Sta tes in the case of Railroad C..os. v. Schutte, above mentioned. The bill before the court prays that all proceedings subsequent to the decree above mentioned in the Schutte Case made as to the balance be evaded and, annulled and set aside, or that the decree may be so modified that plaintiff's rights may be established in, said suit, and said He prays further that the entire line of railroad from property Jacksonville to Lake City, and all property appurtenant thereto, may be decreed to be subject to and charged with the mortgage lien in favor of the plaintiff for the amount of his said bonds and interest thereon, and that the said property may be sold to satisfy the' same, or that his rights in the, premises against those who claim the property under the decree may ]je enforced upon such terms as may be equitable, and that he may have, the benefits of the provision of the statutes of the state of Florida, which created a lien on said railroad for the security and payments ofbis bonds; that the defendants, and each of them, may be enjoined from operating said railroad, or in any way interfering with it or any of ,said property, pending this action; that a receiver of said railroad and property may 1>e appointed by the court pending this litigation; that the, defendants, and especially the defendant the Florida Central & Western Railroad Company, may account for the rents and prof.. its of said railroad and property since it has had possession thereof. There isa prayer for subpcena as to all the parties heretofore men.;. tioned. ,' in detail the voluminous record in this case, Without. stating which, under the stipulations, involves 1,472 pages of printed matter, and besides all of the other evidence taken, which is voluminous, the ascertainment of the right of the controversy will be greatly facilitated by the consjderation of the case of Trask v. Railroad Co., 124 U. S. 515, 8 Sup. Ct. Rep. ,574. The facts are sufficiently stated in the opin':' ionof,thecourt, delivered by Mr. Chief Justice,WAITE:
"The suit. waR brought Spencer Trask to collect 192 of the 1,000 bonds of the state of Florida issued to the, Florida Central Railroad Company, which Were tbe subject of consideration by this court in Railroad Cos. v. Schldte,103 U.S. 118. Intbat case it was decided that, although the bonds were void as against the state, the railroad company that sold them was estopped from setting' up invalidity asa defense to an action brought by a bona fld8 holder to enforce the lien the company had given on its property to secure their payment/Accordingly a decree was rt'ndered' establishing the lien of the holders of197 bonds on the raill'oad of the company, and ordering a sale

'134'
4>t,

F.EDERkL.· REPORTER I' vol.

48......

abotaa'ftde holder

tQparthe aIDountdne,thereon·..· Traak ,a,s

He conas the .,st&te IS concerned, but as its rropertycla!m,s of the same estoppel that was adJudged in tbe other case to eJn.st iil favor of those who re,r ,
I,

I

.'"

"

, '

I

,

·

:"Tlre g,neral facts [ae: to the issue of the bonds are stated in the Gase of lJeginniJJg at page 127 oftha volume In which it is reported, (103U. S.), (If our finding!!! then is not denied now. Indeed, Trask decisip" as the lJis rifht and the only disIS whel.ber he does 10 law and in fa:ct occupy the position of a borii(j,ftdebolder. , substantially a question of fact only, and it se.ritliitself in a double 'aspect.. Trask got his titlll from Thomas B, lan,and the inquiry is. first, as to; his own position separate from tbat of OMdington, and, if tbatis,not, SUfficient, then, next, as to {bat of. Coddington, under whom he,WlIjrn"'; ,We have. carefully considered the testhnony bearillg ,Qn tb,ese in record as', It, hilS in the in ,the Gase, brought into this also by stipulation. 'It' would serve no nseful pnrpo/le toteferto this testimony in detail, a.nd iii i'14sufficient to say that we have had no ,difficUlty in' reaching the cCJn· elusion: that Traskias a purchaser of the ,bonds, occupies no better position thaoVdddington. frornwbom he bought. His purchase was September 12; an auction New York. The bonds bad then beenrqpning ,ten, yeal,"ll aI;ld more, an4 ,no interest had ever Pllid upon them. ,As the sale was 'made under the agreement of August 00,1872, Trask is witl1:notice of the cOntents of that instrument, which showed on its tace that the bonds had 'been the subject of litigation, and hart not been ,hi the ordinary course of bUlliness. His debt, for which they, were: (leId,:Was $40,000, lj,nd the bondil,.without interest, which badbeenrQnningten years at eight per cent. per annum, amollnted to $192,000. As tbe state bonqs,tge mere fact th!\t no interest had ever paidfurnished the strongest presumptive evidence that they were dishon. ored·. 'rhe)pt.;rest alone, if coHel'ted, wuuld much more than pay the debt / for which tll\e bonds were held.' The circumstances connected with the sale also were:enthtely hlconsistellt with tbe idea of a purchase of commercial pa.. per in: good for a valuable consideration witho\lt, notice. No one present at tuetirne could have had, any other, than that the sale was of bonds which had been commercially dishonorea. We are equally well satisfied that Coddington WitS, ,never in any commel'cial sense a, bona ./ld6 bolder oftha bonds. AccorcHng ,to his own testimony, he w:asoriginally the mere agent, of those who were engaged in perpetratiJ)g the fraUd upon the railroad :ciJmpany, andemplpyed ,.bytbem to get the bonds from Florida to London,!lo,that.they might besQld, a. large part of the proceeds Itpplied to the plI;ymelltof the personal debts of one of the guilty parties. He un· doubtedly 4id because he bad told that it would enable · the parties in interest' to pay him the cash for of coupons of another company, for which they were bound·. 'Reentered into no contract with the Florida Centra.! :Company. and. It could nevel'have beensupposedi by bim that any part of ,the, proceeds was, to .lile into its treasury Or for Its use. He could notbilt haVe 'known that the wbole purpose of his .employment was to getthebonds; to London, been contracted to be sold at a price that wallIe ,yield less than haIf,tbeir,tacevalue, was himself to apply more t,llllnhalf of this tot4e payment of the inlll..Vidualdebtsof one of the stoCkholders of the company. by whose infhlence and in wlJose interest the railroad bonds bad been ,executed, to be exchanged for the state bonds, whiobhe was to away. Under /luch c.lrculJlstanqes. it is certain

SMI:L'U V· .FLOBIDA CENT. &W.B; CO.

735

that thll bonds as seqQ)'ity'for any services he might rendl;lr in tbem to London, or for any liability he had incurred. to third partiesih order to get the. bonds a\\'ay. His contract for the service, and for the he was to receive, was not with the railroad com pll'ny itself, but with the president of the Jacksonville, Pensacola Company, who 'was enj;taged in appropriating the bonds issued"t,otheFlQrida Central Company to his own use. This disposed of his cl4m o:Oien PJl aC,count ot' his services and liabilitiEls as agent. He was not the agent of ;the Florida Central Railroad Company, and, as it must be con· ceded that t,bose for whom he was acting had no title as against this com· pany,'there'was nothing in his hands to which any lien could attach in his favor ahymore than in favor of his principals. "AI! to the. contract made with the Jacksonville, Pensacola &; Mobile Cowpany 01,1. the 29th of August, 1872, by which the 192 bonds were, given security for a debt owing him by tl:at company, little need be"said.. The Jacksonville, Pensacola & Mobile Company had no legal right to the bonds, and it couid not, therefore, pledge them as security for its debts. All thisCQddington knew, or ought to have known. And besides, when this 'contract was made, the fraud alid illegality in the original issue of the bonds, both by the railroad' company and ,the state, had become notorious, and it is impos!,!ible tMt Coddington, he was, could have been ignorant of t,he facts. order to get the bonds away from Florida ,he was compelled to witncertain lltockhoJders of the Florida Central Company, who had begunasuit to ptevent their rrnloval by the president of the Jackson viJle, Pensacola" &, MobilEf Company,' on the ground that he had no right to use the road ·of thelnorida Central Company, ·and cover it with liens to raise money to pay private debts,; notwithstanding he is the owner ofa mlljotity of particUlarly, to the evidence. It tbestoqk.· It is unnecellsary to ls.full an4 conclusive, and leaves no doubt on our minds as to the knowledge of ,Coddington of such facts as would prevent him from acquiring any title to tbe bonds be took away by purchasing them from any of the parties engaged in th.e transaction, which he'couldenforce as a bona, fide holderagaiIist the Florlda,Central Company." . . " The in thiilcase, according to the. atipuiation in in the. case, had practically come into the, possession of the,bonds which be tc;>enf<?rce ip August, 1882. The decree, the substance of which we have set forth, was rendered in this. court in favor 'of Schutte on the day ,of ::May,1879. It ,was affirmed by the BUpl'eme court of the United, States i;n October, 1880. The sale under the decree of all the property of t1)e Florida Central Railroad Company, including everything w,hich is sought to be, evade.d by the prayers of the bill here, wastnade' iq February, 188h and was confirmed by the court in the same month. '.J:;pe deed conveying the title to this railroad property was made to Sir Edward Reeqe, and to the Florida Central & Western Company, organized . under the general In WIl, for the purpose, of holding Hnd" operating these pQrchases., All.of that is made. to appear by the stipulations and the ,copy of the deed from Sir Reed El to the Florida Central & Western Railroad Company. , i It is insistEld by the defendants with great force, thnt. the stockholders of AlilJ organization were innocent ,holders, .taking the 'p'rt?perty UPl?J?j the [aitll pi, the judicial decrees of this court, having the hign sanction of the supreme court of the United Sta.tee. It is true, also,.

736

FEDERAL REPORTER,

vol. 43.

in this case were made upon the same theories presented in Case, and, indeed, were standing for hearing when the supremecqUi't amtnled in that case the decree of this court. 'The, plaintiff attemptstQ' evade, the decision, in, the Schutte and Trask (lqSeB, and. latter, by insisting that ,he is a bona fide holder orthege'bonds, with0ut notice, and that a certain deed of trust betweeniheJacksol1ville, Pen,sll,oola & Mobile Railroad :qompany and C. L.C4ase. 'l'.H. Flagg, and,fI?/G. Ambler was an actual application of the bonds therein sued oIi t.o:tbe partnership which the plaintiff was a member, for the construction of the line of road from Quincy to Mobile. This deed will be found in the Schutte record, pages 1454-4 ..,-5-6 and -7. . He insists further that the actual delivery of the bonds -which, .as we have seen, did pdt take place until August, 1882-was such a delivery as the date of the trust-deed, October, 1871, or at ai)y rate to the time when the work was done. But it seems that this contention has been dil'ectly negatived by decision of the supreme court of Florida in the case of State v. Railroad Co., 15 Fla. 709. The court held that, the instrument in question did not support the claim ofa sale of its bonds to the trustees mentioned. It is not alleged in the bill that the complainant and his partners, the Florida Constrijction, Cqmplliny, evercoritracted to receive these ..1>ondsfor their 'York of constrUlltion, or to their pay in b()nds. Such does not appear to be the. fact. The proper construction Mthe instrument above referred to will lead to theeonclusi<mthat they were to be paid in money; and if, after the bonds declared invalid by the most lofty tribunals in litigation which mnde notorious from one, end of the country to the other,,8Qq .}ndeed ,In Europe, they then having failed to obtain the money, accepted the bonds in considerationofwotk previously done, they cannot, with any force whatever, insist acceptance of the bonds would relate back to their original construction'contract in such manner as toavoid." the:effect of the decree, nullifying their bonds and transferring the properties Upon which they purport to be a lien. It appears, too, that the Flo'ridaCenttalRailroad'Company was an entire stranger to this instrument. It appears to be nothing but an attempt to provide cash with which to make the payments to a firm of which the plaintiff was It member; nor Was the plaintifl'a party to it. The climstruction company 'of which he was: 8 member was ousted by a pre-existing conttact,and acquired no rights under this deed of trust. IIi the Case of Trask, supra, Coddington acquired possession of his bonds pending the litigation in the Schutte Case,' while here the possession came on after the decree and the sale" and after the property covered by the liens therein declared had passed into the hands and ownership of a company whose every stock':' holder waS apparently an innocent purchaser for value without notice, and indeed with all the encouragement which comes from the decision of a court of final resort. Trask was held chargeable with notice of all that Coddington ;knew, Coddington ha\'ing notice of the mala fidea of this entire;trlliDB8:ction, which was notorious throughout the country, it was held to attach to Trask.

of

SMITH V. FLORIDA CENT. & lV. R. CO.

737

It appears from the evidence that in the transaction in consequence of which the complainant insists he received these bonds he was a partner with one E. G. Smith and one Converse S. Chase and one J. H. Gardner, the firm name being "The Florida Construction Company." .This is plain from the Schutte record, page 1453. This is otherwise shown from the transcript of the Leon county judgment, hereinafter to be mentioned, and the assignment of May 27,1879. Converse S. Chase was a trustee for the Florida Construction Com pany, as well as a member of it, and it follows that notice to him of the unlawful character of these bonds was notice to his partner. the complainant. Wade, Notice, § .59; Stevens v. Goodenough, 26 Vt. 676. On the 11th of April, 1879, three years before the complainant received the bonds, Chase testified as follows: "1 know there were some bonds issued about that time to said Railroad Co.; about three thousand, according to my recollection." Being asked by counsel whether any question was raised about the validity of the bonds, he answered: "There was quite a controversy about that time about the constitutionality of issuing those bonds. 1 of course know that from reading it in the public press and by hearing it. Again 1 visited Europe in June, July, August, and September, 1872. My visit was in reference to said bonds, for the sale of the same. 1 found the bonds being held by one John Collinson and a Dutch syndicate." On the next page he states that he received a telegram containing this expression with reference to certain litigation: "State and company hopelessly discredited, unless," etc. " Also there were damaging reports in Europe. I learned them first from Mr. John Collinson in person, on the 4th day of July, 1872; and the reports were published in a Dutch paper in Amsterdam, as I was informed, at the time, though 1 could not read the paper." On page 701 of the Schutte record the partner of the plaintiff further is recorded as testifying to the effect that these bonds were disposed of at a price of 40 cents on the dollar. He admits that he knew of their unconstitutionality and illegality being matter of common report. So damaging were these reports that the agent Collinson requested Chase to procure from the attorney general of Florida, the judge of Florida, and the governor, statements to counteract these damnatory reports. This duty was admirably performed, as we see from pages 1239 and 1240 of the Schutte record. The testimony thus received from high officials in Florida was unquestiona bly misl.eading. and Chase himself was active in attempting to contradict the damaging statements in reference to the bonds which were being considered by the shrewd and wary t1nanciers of Holland. He knew that the interest on the bonds was to be provided for out of the proceeds of sale of other bonds. They took out, says Chase, the payment for 3 coupons on 2,800 bonds, which amounted to about £95,400, or about $460,736 in gold. By thus selling these fraudulent bonds to pay matured interest on bonds of a similar character, .these conspirators, against the credit and honor of the state of Florida, sought to give them a temporary and delusive value on European exchange. Chase himself W!lS charged with the sale of 1,200 bonds, including the 396 involved in this controversy. He attempted v.43F.no.1l-:47

J!'EDER.<\LREPORTER,

voL 48.

tAcompromise litigation pending in London involving, these bonds by their fraudulent misapplication. He identifies a consent decree in which he was concerned, and to which his signature is attached, (page record,) the decree being taken in the English chancery, anq, htrtestifies this decree, which involved these bonds, was never com- . plied. with. and that the bonds were never otherwise disposed of to his It would be difficult to imagine a stronger array of facts to bring bome to the partner of the plaintiff the knowledge of the worthlessobligations. It is insisted, however, that the 1,200 bonds qf which. the plaintiff's 360 were' a part were· specially dedicated to the pUrposes oUhe construction company, which we have seen was no company at all, at least no corporation, but merely a partnership. It is true, however, as appears frOm the record, that at the date of the trustdeEldllllder which the construction company 'claims, their 1,200 bonds were to what is known in the history of this famous litigation as the This draft was for $16,326.70_ ·Theagreements to that efl'Elct appear solemnly signed by M. S. Littlefield, the president oUba Jacksonville, Pensacola &.Mobile Railroad Company, and by Edw$l'd lt9USton. Two hundred.and ninety-four of these bonds were exoe8si>,rely issued. and with great scrupulousness were afterwards returned and. for. This appears inll.memorandum of compromise proposed by (Joml'el;'se S. Chase to settle all outstanding claims and differences. The third ppintin this memorandum is im portant. It .reads as follows:
"Thirdly. The proceeds of the balance of the bonds to be used to repay the Flori4l\Co.nstruction Companyfpl the money expended, by them on the' works of .the .J., P. & :rd. R. R. Co. ,am. in satisfaction of several·eMms of all the of the . .' .' .

ThistDemorandum must not have been effective, although it is,clear from its third clause that the .construction company was not to have the negQtiablepaper itself as .bmta fide holders, but merely the proceeds. Instead of relying on the bonds: the construction company should have proceeded against those persons or cOllporations whQ employed but did Ilot pay 'them. Bllt it appears that Littlefield and his associates had other uses for these bonus. ,Two, were lost, but the remainder, or the proceeds of their sale,werjj to be equally divided between Littlefield for himselfand his company onthe one hand, and the Western North Carolina Railroad Company on the: other. part.. We observe, therefore, that the burdens placed on these 1,0200 bonds, including the 396 of the plaintiff, 'were of an onerous and multitudinous character. As we have seen, they were to satisfy in parts. decreeofthe English chancery on the other siue, to meet the draft of Edward Houston on this side. to satisfy the demands of the FloridilConstructiou:Company, and finally to, be divided dollar for dolla'r between Littlefield Jor the company and the.western Division of the Western,Railrond of North Carolina. It will not be difficult to understand, in all of ,these. historical transactions that Chase; occupying a threefold relation,-of partner with the complainltnt; trustee for the construction company:, and attorney in fact for the: railroadcompany,became saturated with the knowledge of the vicious character of. these

SMITH V. FLORIDA

& W. R:. CO.

'739

transactionsfand it is equally demonstratedthaUhe'plaintiffshared the .legal responsibility of this knowledge with him. -Seepages 1242, 987, of the same rec988, of the Schutte record.' See, also, pages ord for Collinson's reply to a proposition of Chase, in which he is fully put on notice of the fraud upon the state and all parties he is contemplating. Other stupendous frauds upon the state of Florida and its by this same agent, contractor,and partner for railroad were the plaintiff. They are fully presented in the Sohutte record,and have been passed upon by the supreme court of the United States. The' New York World, a paper of wide circulation, had called the attention of the public to this mlltterin its article of Wednesday, June 15, 1870. After stating the issue of the bonds, the article states that the bonds first above ,mentioned have already been issued, and are on their way to New York, and some ofthern to Europe, it is said for negotiation. It is well, per-, haps, that capitalists should be put on their guard. Attention is called to the clause of the state constitution upon which these bonds were finally declared unconstitutional. The article prints extracts from a letter of George W. Swepson of North Carolina, to which reference has already been made, as the president of the Western Division of the Western Railroad of North Carolina, with whom it was stipulated that his road should receive the "dollar for dollar" division 'of a Jarge portion of these bonds. !tis addressed to Gov. Reid, and it reads as follows: .. I reg-ret my inabi lity to be in your t\lwn during the extra sf'ssion of the legislature. General Littlefield hits the biJIs anu act. and will fully explain evel'ythiilg to you. * * * You willl'emember,when in New York our agreement was this: You were to call thf'i legislature together, and use your to have our bills as drawn by us, and if you were successful in this you were to be paid $12.500 in cash." The legislature was accordingly convened in extra session only about three months after its regular session, and did pass the railroad bill required of them. B:ut, the majority not then being thoroughly corrupted, a clause was inserted in the act authorizing the issue of the bonds after a severe struggle requiring the railroad company to give to t 11e state mortgage Elecurity for its protection. This clause, though notoriously adopted by both branches of the was found to have mysteriously disappeared from the act as signed by the governor, among the rolls of the secretary of the state. A bill in chancery was therefore filed to enjoin the issue of the bonds, on the ground that the act authprizing their issue had been fraudulently changed by Littlefieldnnd his associates, or by their procurement and for their benefit. The injunction was granted by the court, and 110 motion was ever made by the parties to have it dissolved. At the next s,ession of the legislature, held in January last, the operationsof the railroad ring thus arrested by the court were renewed at the capitol, and a bill was actually prepared by these Shameless parties, introduced, and passed, whereby validity was given to the law pronounced void by: the court for fraudulent alteration of it, with authorization for the issue of bonds in imtnenElely Rugmentedqullntities. And it is under this bill, claiming to hea law, that the four millions of Florida state

74<,>

FEDERAL REPORTER,

vol. 43.

bon(lsnow on their way to, northern and European markets for negotiahave, been issued. Seepages in the Schutte Case, 682, 683. But this i!l not all. S. M. Hopkins & Co", the London agents, in view of the questionable character of the bonds, were given permission by Littlefield to sell the bonds at 50 cents on the dollar, and less, in order to induce buyers. This was done, and they were afterwards at £128. lOs. 1d. This lamentable array of fraud and corruption is recounted to show the impossibility that a man largely interested, as he insists, with Chase in these transactions could be ignorant of their notorious and universally understood character. ,The "construction company," as we have seen, waS' at no time entitled to these bonds. It was stipulated that they should be paid from the proceeds of a portion thereof; but if they had taken the bonds after the occurrences herein set out had, been passed on ,by the state courts of Florida, by the circuit court for the United States for this district, by the supreme court of the United States, and given besides the widest publicity in this country and in Europe, it is asking too much of a court of equity to believe that a subsequent holder of these bonds, himself a contractor on one of the roads to build which the bonds WAre ostensibly issued, could be ignorant of their character, and therefore a bonafide holder for value; and this view is irrespective of the representations of Chase above presented. Smith, the plaintiff, must have had knowledge of the. truth in the ,&hutte Case. It was to marshal the assets of the wrecked corporation, to determine priority of loans, and to award the property in kind. The plaintiffs in the Schutte Case were obliged to buy the l!"lorida Central Railroad to protect themselves from loss. It is impossible to doubt, notWithstanding this denial, that the plaintiff might have intervened and asserted his rights on that trial, and he, is now estopped. Mr. Henderson, in the brief filed in the record, gives a record of the ultimate disposition of these bonds, which is satisfactory to the court, but which it is not necessary to reproduce here. It appears further from the evidence that the F'lorida Construction Company, though never having built any of the railroad, had judgment on award for arbitra tion for all of its claims for work and material. This amounted to $36,000. Chase and Glagg, trustees under the deed of trust providing for the payment of the proceeds of sales of certain bonds to the work of construction, operated the road from October, 1871, until the receiver' took charge, in the spring or summer of the year 1882. They have never accounted for the although, as we have seen, Chase was a partner in the construction company. It if! insisted that the revenue from this source alone 'was more than three times the debt of the construction company, and payment to Chase was payment to the company. Be this as it may, if the construction company relied upon their award, which is yet unsatisfied, it is difficult to understand how company, ora member thereof, can lawfully claim for the same debt to be the bona fide hOlders of $396,000 worth of bonds. It is insisted, further, that Chasenevet in any way accounted for '£19,200, which it is asserted was received by him in the sale toCoilinson of the bonds and the application of this statement, which the court is, however, not

SMITH V. lfLORIDA

& W. R. CO.

741

able to decide upon the facts, is that, being a member of the construction company, the payment to him of this amount was payment for that ·codIpany. It seems indisputable, however, from the evidence that Converse S. Chase left Florida, and has never returned to protect the interests of his construction company, the management of his trust, the"development of the Florida railway system, or any of the litigation. He does not appear in the litigation again except to testify that not one of the bonds numbered above 3,000 was ever issued or sold. This he testified in New York. Besides, it does not appear that Smith was ever It purchaser of these bonds. The Florida Central Company never owed him a dollar ; and it does not appear that he credits any account against the company or against the Jacksonville, Pensacola & Mobile Company, because of the possession by him of these bonds. There was offered in evidence on the trial, and admitted subject to the objection of defendants' counsel, a judgment in favor of the Florida Construction Company against th e Jacksonville, Pensacola & Mobile Company , and also the record of a case from a Minnesota state court between Smith, the plaintiff, and the same company. This was offered on the trial, and it was objected that the time for hearing or taking testimony had long passed, and no sufficient reason was shown for opening the case. It was objected, further, that there were no allegations in the bill to support such proofs, and that there was a manifest inconsistency between the evidence offered and the facts as stipulated in the case. Also that the defendant was in no way a party to the proceedings in Minnesota; that they were collusive and fraudulent. The depositions of Smith were also offered. It was objected that they were wholly ex parte, simply an affidavit made in a foreign and remote jurisdiction. The judgment. of the construction company against the Jacksonville, Pensacola & Mobile Company was on an award of arbitration of all matured demands and claims. This was entered in Leon county, and never made a matter of record in any county in which the property of the defendant is situate. It is objected that the plaintiffs in that submission are not a corporation; but were only partners, and the title was simply the firm name. It is stated that the construction firm never built any of the extension tracted for; that the road even now extends only from Quincy to Chattahoochee; and that the constructed portion of the Jacksonville, Pensacola & l\fobile Company is the 21 miles from Quincy to Chattahoochee; It is stated that Gibbs built for the company, Davis & Bunkwright being the subcontractors; that these parties had separate suits in the state court for and intervened in this case for payment. See G'ibb8 v. Drew, 16 Fla. 147. As to the Minnesota judgment, if it were wise admissible when offered on the argument, we would be compelled to regard it as an additional step in the tortuous journey of fraud which has traveled its slow length through the vast record before the court. It plainly has no jurisdiction of the defendant company. That the same M. S. Littlefield, whose unscrupulous and daring corruption stains we11nigh every page of this record, assisted in the work of obtaining this judgment, by collusion,-a judgment of over $900,OOO,-to be added

;742

FEDERAL REPORTER,

vol. 43.

,to the; Rward of $36,000 after full Bubmission.of all claims, shows how

Minnesota court was misled. The judgment of the Minnesota court, t ju,risdiction of the subject-matter Or the parties, must be regarded as;1l nullity so far as this case is concerned. Like the Trask Case, the controversy here is mainly of fact, and, as we have seen from a lengthy review. of the evidence, which the court has felt it incumbent to attempt in a case of this magnitude, it is impossible to doubt that the plaintiff fully understood the illegality and fraudulent character of his bonds when he received them. The notorious character 9f the men with whom he and his agent dealt, the continuous and unblushing wrongs which they perpetrated, were known to the country, and havexeceivl;ld the scathing condemnation of the supreme court ofthe United States. "Littlefield's character," says Chief Justice W,AITIj: in Railroad Cbs" ,v. Schutte, 103 U. S. "141, "as. it appears all through this voluminous record, is not such as to entitle him to any favorable consideration as a witness or otherwise. He and Swepson have both shown themselves capable of the most shameless frauds, and we cannot but look with suspicion upon everything they do or say." I!n the later Case oj'J.lrask, 124 U. S. 515,8 Sup. Ct. Rep. 574, the reasoning of the court, as we have seen, is fuUy applicable to the case at bar. Coddington, whose bonds were held as invalid and of no effect in his hands, had bought them at an auction sale September 12, 1881. The plaintiff obtained his in 1882. No interest had been paid on either. No one can believe that either Coddington in that <)ase, or Smith in this case, was in any commercial sense a bona fide holder of the bonds. It is difficult to understand at this period of peace, prosperity, and enforcement of law, how our country's history could have been sullied by such. shameless occurrences as we have been obliged to recall, and the participapts escape the severest penalties of the outraged law. They occurred, howeyer, when the vast caldron of revolution, boiling by the fierce and lurid fires of civil war, had thrown to the surface much of the scum of society. Good men of all parties were powerless in the hands of these adventurers, who, in that period of public prostration, rode into places of influence on the wave of corruption and ignorance. The opportunity for such blots upon the history of the country is fortunately past, and the patriotic, the pure, and the wise should be ever careful lest that opportunity may return with its resulting paralysis to such empires as the state of Florida. A most anxious and deliberate consideration ofthis record has induced the conclusion that the prayers in the bill should be all denied, and that it be dismissed at the plaintiff's
. ,

CUTTINGI'. FLORIDA RY. &: NAV. CO.

743

CuTTING tI. FLORIDA Ry, & NAV. CO. MEYER V. SAME. BROWN 'l1. SAME. CENTRAL TRUST Co. V. SAME. GUARANTEE T. & S. D. CO. fl. SAME. DAVIS V. SAME, (MALLORYet al., Intervenors.)

(Oircuit Oourt, N. D ..Flortda. August, 1890.)
EQUITY PRA.OTICE-MASTER'S REPORT.

Where the exceptions to a master's report make no allusion to the evidence, and are not :supported by the master's statement, and such statement is sumcient to sustain his conclusions,the report should be confirmed.

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