# Farwell v. Great Western Telegraph Co.

> Illinois Supreme Court · June 13, 1896 · 161 Ill. 522

URL: https://www.frixlaw.com/law-library/cases/6966807

## Case

- **Full name:** Charles B. Farwell v. The Great Western Telegraph Company
- **Court:** Illinois Supreme Court
- **Decided:** June 13, 1896
- **Citations:** 161 Ill. 522; 44 N.E. 891
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Phillips
- **Judges:** Phillips
- **Cited by:** 49 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/6966807

## Opinion text

Mr. Justice Phillips delivered the opinion of the court:
Charles B. Farwell, and four other stockholders in the corporation known as the Great Western Telegraph Company, on the third day of October, 1888, filed in the circuit court of Cook county a bill in chancery, in behalf of themselves and all other stockholders in said company who would come in and contribute to the expenses of the suit, against the Great Western Telegraph Company, Selah Reeve, David A. Gage, Josiah Snow, Jeremiah M. Terwilliger, Judson M. W. Jones, Thomas J. Sutherland, Adelaide K. Sutherland, George F. Harding, John Clark Hilton, Franklin D. Gray, John J. McClellan and Edwin R. Bowen, which bill was subsequently amended by changing the name of Edwin R. Bowen to Elias R. Bowen, and also by making Elias R. Bowen, receiver, party defendant.
From the record it appears that on the second day of December, 1867, the Great Western Telegraph Company, a corporation, was organized under an act of the General Assembly of the State of Illinois, approved February 9, 1849, entitled “An act for the establishment of telegraphs.” The principal office of this corporation was located in the city of Chicago, and its capital stock consisted of 120,000 shares of $25 each, which was subscribed for and taken, at the time of its organization, by the following named persons, who subscribed for the number of shares, and amounting as follows:
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The full number of shares being subscribed, a liability-existed on the part of each subscriber to the company for the par value thereof, respectively, for the amount taken.
It is elementary that stock may be issued by subscription made in writing, or even by an equivalent act for which cash is to be paid for the stock so subscribed for, or it may be issued to be paid for in property or labor, or both, or issued as a stock dividend. In the organization of a corporation the stock must be subscribed for to be paid in cash, labor or property. In the absence of an agreement as to the manner of payment, by the mere act of subscription alone a money payment may be enforced. There have arisen much controversy and litigation as to whether payment for the issue of stock may be made by labor, property, work under contract, or valuable consideration other than money. It is not now questioned that it may be done, in the absence of statutory provisions requiring payment to be made in cash. (Wyman v. Am. Pow. Co. 62 Mass. 168 ; Haydon v. Atlanta Cotton Factory, 61 Ga. 234 ; Reichwald v. Commercial Hotel Co. 106 Ill. 439 ; Liebe v. Knapp, 79 Mo. 22 ; Clark v. Farrington, 11 Wis. 306 ; Railroad Co. v. Cramer, 23 Ind. 490 ; Railroad Co. v. Hickman, 28 Pa. St. 318.) But when such payment is made otherwise than with cash it is necessary that the property or service shall be reasonably worth the sum at which it is so taken. Where a valuation is made in good faith and without fraud, the payment by property or labor at such valuation is as effectual in satisfying the liability for the subscription as a payment in money of the same amount.
Whether shares of stock, when the certificates are sold, may be treated as fully paid by the purchaser it is not necessary to determine in this case, as adjudications of this court with reference to this corporation have determined, incidentally, that question, and the statute now in force also determines that question.
On the shares of stock subscribed by the persons who sought to form this corporation no money was paid by any of them. Selah Reeve, who subscribed for the greater part of it, was insolvent, and a few months thereafter, on his own petition, was discharged as a bankrupt. On the 13th of January, 1868, the corporation elected as a board of directors, Gage, Snow, Hall, Hasbrouck Reeve and Selah Reeve. Gage was elected president. Selah Reeve resigned as director, and on the 25th of March, 1868, entered into a written contract, through Gage, as president, for the construction by him of 2000 miles of telegraph line, on routes to be designated by the company. No time for the commencement of the work or its completion, nor compensation per mile, was fixed. The agreement contained this covenant: “In consideration of the aforesaid covenants and agreements, to be faithfully kept and performed by the said contractor, the said Great Western. Telegraph Company doth hereby covenant and agree, to and with the said Selah Reeve, to issue and deliver to him certificates for shares in the capital stock of the Great Western Telegraph Company, to-wit, 120,000 shares, on the execution of this agreement, the said shares to be owned and represented by the said Selah Reeve in all meetings of the shareholders of said company until such time as the same shall be subscribed and fully paid for by other parties.”
We quote from Terwilliger v. Great Western Telegraph Co. 59 Ill. 249 , a further statement of facts: “Contemporaneousty with the execution of this agreement Reeve assigned to Snow, the secretary and treasurer of the company, the 117,897 shares originally subscribed by him, in trust, to sell the same to such persons as either he or the company could procure to subscribe to the stock, at the rate of $10 per share, and to pay over the proceeds to Reeve under his contract with the company, or any contract supplementary thereto. The next day a supplementary agreement was made and executed between Reeve, the company, and Snow, as trustee. By this agreement an irrevocable authority is given to the trustee to sell stock, through the agents of the company, to subscribers, at $10 per share, the company paying to the trustee the money thus received, less a commission of fifty cents per share to be allowed to agents, and the trustee paying it to Reeve as fast as he should construct the line, in sections of ten miles each, to the satisfaction of the company. This contract also specifies the rate to be paid per mile for the construction of the line. The agreement also provides that the trustee shall represent all the stock assigned to him by Reeve, except so much as may be subscribed and paid for by other persons. The rate of compensation to be paid Reeve was, as shown by the evidence, largely in excess of the cost of construction. The next step of these parties was to put their scheme in a position to command the public confidence, and enable them to procure subscriptions and money. To this end they proceeded, on the 30th of March,—four days after the execution of the final contract between the company and Reeve,—to elect twenty-two additional directors. These new directors were selected from well known citizens and men of business in Chicago, but they were not stockholders. Some of them afterward did subscribe, but the greater part refused to do so or to act as directors. Of the few who subscribed, we infer, from the record, only one paid any money on his subscription. The parties conducting this scheme having thus placed themselves in a position to impose upon the public by the unauthorized use of names that would command confidence, proceeded to issue a prospectus, setting forth the organization of the company, with these names as directors, stating that the company was established under State laws and an act of Congress, for the purpose of cheapening telegraphic correspondence in the West, and that the stock would be apportioned, according to population, to the cities and villages of Illinois, Wisconsin, Minnesota, Michigan, Iowa, Indiana, Missouri, Kansas and Nebraska. The prospectus further stated that the stock was $3,000,000, divided into shares of $25 each, and that on the payment of $10 on each share a certificate of stock for $25 would be issued and no further assessments would be made. Prior to the election of the twenty-two new directors the old board had adopted by-laws. The first of these by-laws provided that the first annual meeting of the stockholders of the company should be held within ninety days after 2000 miles of the company’s lines had been equipped with wires. Another by-law provided for the election of directors whenever any number of stockholders holding a majority of the shares shall present a written request, addressed to the president, for a meeting of shareholders for that purpose. The prospectus did not disclose the fact that a contract for the construction of 2000 miles of line had already been made, and that all the stock, except an insignificant portion, had been placed, without payment, in the hands of a trustee of the contractor, with power to represent the same. Neither did the persons who were induced to become subscribers know that until about $1,500,000 should be subscribed their money could be controlled by this trustee, and that they would have no voice in the management of the company, even by voting for directors, until 2000 miles of line should be constructed, unless the trustee should choose to have an election called. By means of this prospectus and the solicitation of agents, who received a commission, large amounts of money were subscribed. As the money came in Reeve began to construct lines under his contract. Another prospectus was issued in 1869, in which it is stated that 333 miles of line were in operation on the 31st of July, 1869, that the company owed no debt, and that the net earnings of the preceding quarter on the Milwaukee division were at the rate of eighteen per cent on its cost. This prospectus further stated that there were already over two thousand subscribers to the stock among business men over various routes. The evidence shows that up to the 30th of June, 1870, Reeve had built 417½ miles of line, for which he had been paid $126,550.90, and that he had also been paid $25,000 on work not completed.”
After stating the history of the organization, this court in that case then determined that the contract between Reeve and the corporation was fraudulent, and held it should be set aside, and held further that the original subscription was a sham, and fictitious merely, and the bona fide stockholders are those who purchased the stock claimed to be owned by Reeve, but who, by the manner of their purchase, became original subscribers to t’he capital stock. The opinion in that case, in remanding the cause, gave full directions, which it is not necessary to here quote. Those purchasers of this stock who, it was held in that case, became original stockholders, became such by signing a contract of subscription.
The bill sets out a copy of the contract for subscription signed by the stockholders who procured the Reeve stock, and is the same as that set out in the opinion in Great Western Telegraph Co. v. Gray, 122 Ill. 630 , and Bates v. Great Western Telegraph Co. 134 id. 536, and is as follows:
“Capital, $3,000,000; shares, $25; assessments not to exceed $10 on a share. Subscription list for the capital stock of the Great Western Telegraph Company.
“We, the subscribers hereunto, for value received, severally, but not jointly, agree to take the number of shares in the capital stock of the Great Western Telegraph Company placed opposite our respective names, and pay for the same in installments, to-wit: Five per cent on amount paid in, and the balance as the directors, from time to time, may order. In consideration thereof the Great Western Telegraph Company agree that when forty per cent of the par value of the shares shall have been paid under such orders, and the installment receipts therefor surrendered to the company, the number of shares severally subscribed by the undersigned shall be issued to them as full paid stock of said company.
“.............is appointed agent to solicit stock, and receive only the first installment of five per cent (fifty cents on a share) at the time of subscribing. ”
When the Terwilliger case was remanded by this court to the circuit court of Cook county, a decree was entered in accordance with the decision of this court. That decree was entered November 16, 1872, and sets aside and declares void the contracts between the corporation and Selah Reeve for the construction of the lines; refers the case to Chase, as master, to ascertain the names and residence of the subscribers to stock and the amount paid by them; requires the corporation to issue certificates of stock to all subscribers who have paid money, for as many shares as they are entitled to, reckoning forty per cent on $25 as giving title to a share; orders that the president and secretary call a meeting of such stockholders for the election of a new board of directors; that unless such newly elected board make an amicable settlement with Selah Reeve, satisfactory to the court, the court will ascertain, as nearly as possible, the cost of the lines constructed by Reeve, and allow reasonable compensation therefor, and make a decree against him for the balance, etc., and that the complainants be at liberty to apply for such further order, etc.
The corporation was re-organized by the election of a new board of directors, and being unable to make an amicable settlement with Reeve, on March 5, 1873, filed its petition against him for an accounting, and that was referred to Chase, as master, to take proof and state the account. That order of reference was entered on the 8th day of March, 1873. On February 9, 1874, by intervention, a bill was filed in that cause by J. M. W. Jones and others, who were stockholders, and who seem to have intervened for that purpose. The purpose of their bill was to wind up the affairs of the corporation, etc.
On the 7th of October, 1874, one Almon Kidder, a judgment creditor of the corporation, filed an original bill against and sought to wind up the affairs of the Great Western Telegraph Company, and asked for the appointment of a receiver. The order of reference on the petition of the corporation against Reeve for an accounting was still pending before the master, and on the 21st of September, 1874, Reeve filed his cross-bill, in which it was averred that he had constructed 1400 miles of additional lines, and he prayed an accounting. The original bill filed by Terwilliger against the corporation did not aver its insolvency or allege any' existing indebtedness, nor did it contain any averment to authorize the winding up of the affairs of that body. Neither did it make defendants any of the persons who purchased the Reeve stock under the above stated contract, and who were held by this court to be the bona fide stockholders. Neither did the petition of the corporation for an accounting against Reeve, the intervening bill of Jones, nor the original bill of Kidder, make any of the purchasers of what was formerly the Reeve stock parties defendant, except the officers of the company. The intervening bill of Jones and others, and the original bill of Kidder, contained allegations that were sufficient to authorize the court to appoint a receiver and wind up the affairs of the corporation.
Prior to the re-organization of the corporation the Commercial National Bank acquired a claim which, with interest, amounted to about $15,000, and John Clark Hilton had a claim which, with interest, amounted to about $30,000. Both of these claims had been reduced to judgments at law, and were proven before Chase, as master, and were based on notes made by the corporation before its re-organization and whilst it was under the control of the first board of directors. These notes were for no other consideration than for money alleged to be due Reeve for building the lines under his original contract.
George L. Otis was treasurer of the corporation from about May 1, 1871, until in 1872, and was assistant cashier of the bank. The notes on which the bank’s claim and Hilton’s claim were so allowed were made by the corporation, by Otis, treasurer. During the period of time that Otis was treasurer he made notes in the name of the corporation, with dates and amounts as follows: May 2, 1872, $2650; May 13, 1872, $15,100; May 24, 1872, $2650; May 30, 1872, $1000; June 22, 1872, $3000; June 6, 1872, $6603.16; June 6, 1872, $8603.16; June 6, 1872, $6603.16; June 30, 1872, $1000; August 1, 1872, $809.77. All those dated in May were made payable to the Commercial National Bank, that of June 30 was made payable to Gage, and all the others were made payable to Reeve, and were made to pay for work done under his contract, and no other consideration was received by the company. The facts as to these notes are shown by the bill and answers in the case of Great Western Telegraph Company against Reeve, Gage, Snow, Hilton, Commercial National Bank, Otis and others, filed in the circuit court of Cook county on February 6, 1874, which bill was afterward dismissed for non-compliance with the rule to file bond for costs.
On October 7, 1875, a stipulation was entered into, which was signed by Selah Reeve, by Thomas J. Sutherland, his attorney; the corporation, by Harding, McCoy & Pratt, its attorneys; the Commercial National Bank, by Sleeper & Whiton, its attorneys; John Clark Hilton, by E. A. Small, his attorney; and the complainants in the supplemental bill, by Bennett, Kretzinger & Veeder, their attorneys. This stipulation was filed in the cause of the intervening bill of Jones and others, and under it, and in accordance with its terms, a receiver was appointed and an order of reference made, requiring the master should give notice to creditors to present their claims, and that sale of the corporate property be made, etc. Under that stipulation O. H. Horton was appointed receiver, and he continued to act as such until the 31st day of May, 1879, when he resigned, and Thomas S. Mc-Clelland was appointed his successor. Under that stimulation a reference was made to Hiram M. Chase to take testimony.
Chase, the master, to whom the matter of accounting, on the petition of the corporation, as against Reeve, had been referred, on December 26, 1874, made a report finding there was due Reeve $55,958.99. That report recites that George F. Harding appeared for the corporation and Sutherland for Reeve. The corporation claimed that Reeve should be charged with the amounts paid by subscribers of the stock, amounting to $378,000. The master held he was not to be charged with anything except what he had personally received, and that the $126,550.90 and the $25,000 mentioned in the opinion of this court in the Terwilliger case was not paid him by subscribers, but by the corporation. The master on that point held: “The $126,550.90 and the $25,000, mentioned by the Supreme Court as having been paid up to June 30, 1870, was not paid him by subscribers, but by the company, as appears by the vouchers given by him. Eeeve claims that he had nothing to do with building the first 417½ miles of completed lines and the uncompleted lines mentioned in the opinion; that he was in Canada at that time, and on his return gave the vouchers, because advised by Snow that the amount had actually been expended in building the lines. Upon this question Reeve has had his day in court. His answer is on file in this cause, claiming pay for the construction. He has submitted all his claims to the court, and by the decision is only to be credited, as against the $151,550.90, with the cost of the 417& miles lines completed and the lines partially completed,” etc. The account is then stated, and the cost of building the lines, ect., is found to be $343,743.22 and the amount received by Eeeve is found to be $293,352.39, leaving a balance due Eeeve of $50,390.83, which, with interest, (found to be $5568.16,) makes the total amount due Eeeve $55,958.99.
To this report the Great Western Telegraph Company filed exceptions, as did also Kidder, their exceptions being similar. Of these, the following are to be considered in this connection:
“First—That the master states the company took the affirmative of the issue.
“Second—That the master fails to report the amount of money received by Reeve’s agents, trustees or other employees, as required by the order of reference.
“Seventh—The master failed to charge Reeve with all the moneys received by him and by his agents and trustees, as directed by the order of reference, and failed to charge him with large amounts of money received by Snow, his trustee; that the evidence shows Reeve should be charged with at least $400,000, while the master charges him with less than $200,000.”
Reeve also filed exceptions, and those important to be considered are the following:
“Second—That the master stated that the amount fixed by the Supreme Court as Reeve’s receipts up to June 30, 1870, is res judicata.
“Third—That the master stated that the Supreme Court has adjudicated as to the amount of money received and the lines built by Reeve up to June 30, 1870.
“Fourth—That the master stated that Reeve had had his day in court as to the lines stated by the Supreme Court to have been built and the money received by him up to June 30, 1870, and has submitted all his claims to the court, and by the decision of the Supreme Court is to be credited, as against the $151,550.90, with the cost of 417½ miles of constructed lines and the lines partially constructed, and with reasonable compensation for bis time and labor, whereas the master should have found that it was not an issue before the "Supreme Court as to how many miles of lines or parts of lines Reeve had constructed or how much money he had received up to June 30, 1870, and that what the Supreme Court said on that subject is not res judicata, and that Reeve has not had his day in court on those issues, but they were issues before the master in the accounting, and that he is not, and ought not to be, by the decision of the Supreme Court, charged with the said $151,550.90 mentioned in its decision, or to be credited, as against that sum, with the cost of 417½ miles of constructed and the lines partially constructed prior to June 30, 1870, with reasonable compensation for his time and labor; that the master has not found that Reeve had nothing whatever to do with the building of the 417½ miles completed and 267 miles of uncompleted lines constructed prior to June 30,1870, and referred to in the decision of the Supreme Court, but that the same were built by the company; that Reeve did not receive from the company, or any one else, any part of the said $151,550.90, but the company used that sum itself in building the lines and paying its expenses, and that said sum, and also the 417½ miles of completed and 267 miles of uncompleted lines, ought not to form any part of the accounting.”
The exceptions were argued and taken under advisement by circuit Judge Farwell some time in 1876. Prior to this time an order had been entered confirming the report of the master as to almost all the claims except that of Reeve, the nature and character of which are unnecessary to be here stated. Horton had, early in his receivership, made a lease of the property of the corporation to the Western Union Telegraph Company, and that lease contained provisions by which the Western Union Telegraph Company acquired a lien on the leased property for any moneys expended thereon.
On October 1, 1878, Judge Farwell entered an interlocutory decree on the exceptions taken under advisement by him. This order recites that the cause came on to be heard on the report of Chase, the exceptions thereto of Reeve, filed January 11, 1875, and of the Great Western Telegraph Company and Almon Kidder, filed January 14, 1875; that after hearing the report, the exceptions, and the arguments of Bennett, Harding, Pratt and Sutherland, it is ordered that of the exceptions of Reeve those numbered 2 and 3, and the first part of exception numbered 4, concluding with the words “up to June 30, 1870,” be allowed, and that the remainder of the fourth exception, beginning with the words, “and that he is not, and ought not to be, by the decision of the Supreme Court, charged with said $151,550.90,” and all other of said exceptions be overruled; that the exceptions of the Great Western Telegraph Company and of Almon Kidder numbered 1, 2 and 7 be allowed and the others overruled; that the report and finding of the master, except as to such parts as are excepted to and the exceptions allowed, as above stated, be approved and confirmed; that they be referred to Horatio L. Wait, master, the successor of Chase, deceased, to state the account in accordance with the order of reference made March 8, 1873, and in accordance with the ruling of this court upon said report and exceptions; and that in stating such account he allow Reeve, as the cost of building the lines, the amount found by Chase, and that he charge Reeve with all moneys received by him, or by the company, or by any officers, agents or employees of them or either of them, in payment or part payment for stock before the possession and control of the property and business of the company passed out of their hands, pursuant to the decision of the Supreme Court and the order of this court made in accordance therewith on November 16, 1872. To so much of such order as sustains the second, third and part of the fourth of his exceptions, Reeve excepted.
The effect of thus sustaining the exceptions to the report made by Reeve was, that the decision in the Terwilliger case was not res judicata as to an accounting between Reeve and the corporation. By sustaining, the second and seventh exceptions filed by the corporation it was substantially held that in stating the account Reeve should be charged with all moneys which came to his hands or which were received by his agents, trustees and other employees, specifying particularly that he should be charged with money received by Snow, as his trustee. This order then, by its terms, directs Wait to state the account in accordance with the order of reference made March 8, 1873. That order, by its express terms, directed the master, in stating the account, to state “the account between the company and Reeve of all money, notes, stock or other property of the company received by Reeve, his agent, trustee or other employees for him, and of all moneys paid out by Reeve for the company, and showing, generally, the state of the account between Reeve and the company.”
During this extended litigation Thomas J. Sutherland was the attorney for Reeve, and he also acted as the attorney for the receiver, and at a later period had an order entered that the accounting for Reeve should be carried on in his name and for Ms benefit. From an early period in this litigation Harding, McCoy & Pratt, of which firm George F. Harding was a member, became the attorneys of the corporation, and were so of record till late in 1879, and by no act of record was their appearance as such attorneys ever withdrawn. It is shown Harding was of record and acted as attorney for the corporation until late in 1879. While such attorney he acquired certain bonds of the corporation of the face value of $4500, and also had a claim for legal services, which, it is alleged, is the same claim which was paid to his partners. John I. Bennett had a claim against the corporation for legal services, he having at one time acted as attorney for it. Franklin D. Gray was a stockholder in the corporation, and bad bought the claim of David A. Gage above mentioned, which is alleged to be fraudulent. That claim was purchased from Gage by Sutherland, for Gray, at a, price of from $3000 to $5000.
The bill filed by the corporation against Reeve, Gage, Hilton, the Commercial National Bank and others, which was dismissed for failure to file cost bond, was not dismissed until October 7, 1879. The claims of Hilton, of Gage, of the Commercial National Bank and of Reeve were in litigation at this time. The accounting between the corporation and Reeve, referred to Wait, quietly slumbered, when an instrument-in writing, purporting to be of date June 18, 1879, was executed, as follows:
“This agreement, made and entered into at the city of Chicago, in the county of Cook and State of Illinois, this 18th day of June, A. D. 1879, by and between the following named parties, to-wit: The Commercial National Bank of Chicago, John Clark Hilton, George F. Harding, John I. Bennett, Thomas J. Sutherland and Franklin D. Gray, all being resident in the said city of Chicago:
“Witnesseth: That whereas, the said parties are the owners and controllers of certain claims, demands, judgments and decrees against the Great Western Telegraph Company, a corporation duly organized, etc., and in forms and amounts as follows, to-wit: The said Commercial National Bank a claim, according as the same was proved before Hiram M. Chase, master in chancery, under and in pursuance of a decree of reference made in the matter of said company, and the claims against the same subsequent to the appointment of O. H. Horton as receiver of the said company, and as also evidenced in certain suits and judgments in the courts of record in said Chicago, and which claim is now, including interest, about the sum of fifteen thousand dollars ($15,000); the said John Clark Hilton a claim against said company, and now in the form of judgment heretofore rendered in his favor and against said company in the court of record in said Chicago, and also according as the same was proved before said master under and in pursuance of said reference and before said master, and which amounts now, including interest, to about the sum of thirty thousand dollars ($30,000); the said George F. Harding a claim against said company, consisting as follows, viz., the bonds of said company amounting to the face value of four thousand five hundred dollars ($4500), and a two-fifths (2-5) interest and part in and to the late firm of Harding, McCoy & Pratt against said company, as proved before said master in pursuance of said reference, and reported by said master to the circuit court of Cook county, in the State of Illinois, and allowed by said court upon the said report of the said master, and being the sum of about twenty-six hundred dollars ($2600), the full claim, the sum total of said Harding’s claim against said company being about eight thousand dollars ($8000); the said John I. Bennett a claim against' said company, as proved against said company before said master on said reference, and as afterward allowed by the said court, the sum allowed being about twenty-nine hundred dollars ($2900), and the amount now due, including interest, being the sum of three thousand eight hundred dollars ($3800); the said Thomas J. Sutherland a claim against said company, now in process of determination in said court in an accounting between one Selah Reeve and said company, and which claim has been reported upon by said master in favor of said Reeve and against said company, and which, according to said report, now amounts, including interest, to the sum of about seventy-four thousand dollars ($74,000), the said claim being now assigned to and controlled by the said Sutherland, who has full authority to act regarding the same; the said Franklin D. Gray a claim against said company, as follows, to-wit, viz., the claim of David A. Gage against said company, as proved before said master on said reference and reported by him to said court, the said claim as reported being about thirty-five hundred dollars ($3500), and amounting, according to said report, at the present time, including interest, to the sum of about four thousand five hundred dollars ($4500); and whereas, the said parties have full power and authority to sell, transfer and assign the said respective claims, demands, judgments and decrees above described and set forth:
“Now, therefore, it is agreed hereby, and by and between the several parties hereto, each with the other, and in consideration of the covenants, agreements and undertakings of the said parties, respectively, as hereinafter set forth, as follows:
“First—The said claims, demands, bonds, judgments, decrees, etc., shall be assigned and transferred, with all proper evidences of title, immediately upon execution of this agreement, to some person to be selected by a majority of the parties hereto, as trustee, who shall hold the same, and collect all money paid by or on account of said company, or the receiver thereof, toward the liquidation and payment of the said claims, demands, judgments, decrees, bonds, etc., and all interest thereon, and hold the same in trust for the said parties hereto, and pay the same to them, respectively, upon demand, according as they are respectively entitled thereto by virtue of the terms of this agreement as hereinafter set forth, and also, if deemed advisable by the parties hereto, the said trustee may bid for and buy the said property of the said company according to the instructions of the parties hereto, and shall hold the same for their benefit and as hereinafter set forth. The parties hereto shall have the power to select a successor in trust, in the same manner as the original trustee shall be selected, if to them it shall seem advisable. Upon the successor being selected, the original trustee shall at once turn over to him all papers, moneys or other property coming to his hands as trustee. The signature hereto of the person being trustee under this agreement shall determine his acceptance of such trust and upon the terms herein set forth, and before executing the powers of the trust he shall furnish a bond, as shall be determined upon and accepted by a majority of .the parties, to insure the proper performance of his duties as such trustee.
“Second—All proceedings in court respecting the said claims, demands, judgments, decrees, etc., shall be brought to a close with all practicable speed, and all suits on behalf of said company, now pending against any of the parties hereto, shall he at once dismissed,
“Third-Judgments shall be at once rendered and entered upon all claims of the said Commercial National Bank against said company, if the court shall so determine ; and the said judgments, as well as all judgments heretofore rendered in favor of said bank and against said company, shall also be duly assigned to the said trustee; and all judgments heretofore rendered in favor of said Hilton and against said company shall be immediately assigned to said trustee; and a decree shall also be entered against said company on the said claim of the said David A. Gage, and at once be duly assigned to the said trustee.
“Fourth—The said bonds, claims, parts of claims and decrees of said Harding and said Bennett shall be at once transferred and assigned to the said trustee.
“Fifth—A decree shall be entered by the said circuit court in favor of said Selah Reeve or the said assignee of said claim, and against said company, for the amount that shall appear to be due to him on the basis of said report of the said master upon the said accounting and the rulings and decisions of Judge Farwell, of said court, upon the exceptions filed on the part of the said company and the said Reeve, respective^, to the said report, except and provided that the ruling and decision of said judge in the matter of said report and exceptions, that the said Reeve ought to be charged in said accounting, as against his credits, with all the money paid by the stockholders of said company, shall be taken' and considered error, and treated as such in figuring and arriving at the amount due said Reeve from said company and fixing the amount of said decree; and the amount of said decree ,in favor of said Reeve shall be established, determined and fixed upon the basis and rule of accounting in said accounting in this respect sustained, and reported by the said master in his said report, viz., that said Reeve, in said accounting, should be and ought to be charged, as against his credits, with the money which he actually and personally received from said company, and no more, and without regard to the amount that may have been paid by the stockholders of the said company, unless good cause be shown to the contrary; that upon the entering of said decree it shall be at once duly assigned to the said trustee.
“Sixth—The parties hereto agree to contribute their influence and labors to the end that the property of the said company may be sold as soon as practicable, and that all-proper means be instituted for the early payment of the debts of the company. It is also provided, that if it shall be deemed advisable by a majority of the parties hereto that the trustee should buy or attempt to buy, or make any offer for, the property of the said company, or any part thereof, then the said trustee shall act in that matter, and to the extent and in the manner and according to the advice and directions of the majority of the parties hereto, and whatever of the said property said trustee gets title to and possession of shall be held to the use of and subject to the direction of the parties hereto, or a majority thereof,—the will of the majority herein referred to, to be expressed only after due notice to all the parties hereto,—and shall be owned by them according to the percentages and proportions as hereinafter set forth, and also all outcome thereof.
“Seventh—None of the parties hereto shall, in any way or manner, for or without reward, assist or encourage any of the stockholders of the said company to contest, either in or out of court, the right of said, company or its receiver to collect any assessment or assessments, or any sum or sums of money ordered to be paid and made, on account of and subscription heretofore made to the capital stock of said company, or assist, encourage, advise or interfere, in any way, in or about any litigation, legal proceeding or proceedings, which shall tend to prevent, interfere with or embarrass the collection and payment of the above claims to and by the said trustee according to the tenor of this agreement, or which may tend to prevent the parties hereto from taking and retaining the proportions and amounts as herein provided, under penalty of forfeiture of all rights and privileges under this contract, and the repayment to said trustee of all moneys or other property paid or transferred by virtue of this agreement.
“Eighth—The said several claims, demands, judgments, bonds and decrees owned, and to be assigned .and transferred, as aforesaid, shall, after said assignment and transfer, as a whole or aggregation, and the total amount thereof, and all money or other property received by virtue thereof, and all property purchased as aforesaid, be divided in the following proportions : Forty-five per cent (45 per cent) thereof shall be the property of and belong to said Sutherland by virtue of the said Reeve claims and the assignment thereof to him; eighteen per cent (18 per cent) thereof to the said Hilton; fifteen per cent (15 per cent) thereof to the said Harding; nine per cent (9 per cent) thereof to the said Commercial National Bank; eight per cent (8 per cent) thereof to the said Bennett, and five per cent (5 per cent) thereof to the said Gray. And the said trustee shall pay to the said parties, respectively, of the moneys or other property that comes into his hands and possession, by virtue of and by way of payments on and in liquidation of said claims, demands, judgments and decrees, bonds, etc., to be assigned and transferred as aforesaid, and in the above proportion, upon demand and receipt: Provided, however, that the amount of money paid to said trustee and received by him, and in liquidation of said claims, demands, judgments and decrees, etc., etc., and to be received by the parties as above set forth, shall not, except in the case of said Bennett and Harding, exceed the amounts of the claims of the said parties, respectively, as legally adjudicated and determined, and including interest thereon; and all amounts that shall appear to be due the parties hereto, respectively, over and above the amounts of their respective claims, as aforesaid, including interest thereon, by virtue of the said percentages and proportions, shall belong to and be paid to the said Sutherland, Bennett and Harding, respectively, share and share alike,—that is, one-third thereof to each,—the same being as compensation to them for the extra services which they will have to perform in connection with the said claims and the litigation connected therewith, by reason of their previous close connection with the litigation in which said company has been and is involved, and their familiarity and knowledge concerning the same.
“It is also agreed to save and keep harmless from loss, by virtue of any assessment or assessments for payment of money or orders for the payment of money, made in pursuance of any decree of said court for the collection of money for the payment of the debts of said company, certain of the stockholders of the said corporation residing in the counties of Knox, Henderson, Warren, Mercer, Peoria and Henry, in the State of Illinois, as shall be designated by the said Bennett or the said Harding; and also Anthony W. Street of Iowa, C. H. Moore of Clinton, Iowa, A. Street of Nebraska, R. B. Frary of LaMoille, Illinois, Cairo D. Trimble of Ottawa or Princeton, Illinois, and J. M. W. Jones of Chicago, provided said Bennett or Harding so decide. Nevertheless, provided that none of the parties hereto shall, in any way or manner, reap, obtain or receive any benefit, reward or advantage, either directly or indirectly, by virtue thereof, from any person or persons whomsoever: And provided, also, that the parties hereto who may be stockholders of the said corporation shall be saved harmless from any loss by virtue of any liability as such stockholders: And provided, further, that this agreement to indemnify stockholders from loss shall only be binding upon the parties hereto so far as concerns the money that may come into the hands of the said trustee, as aforesaid, and this agreement shall not include or intend any further or other liability in this respect. This contract shall extend to and be binding upon the heirs, executors, administrators and assigns of the parties hereto. It is also provided that this contract shall not be considered executed, nor have any binding force, until signed and sealed by all of the parties hereto.
“In "witness whereof, we have hereunto set our hands and seals this 18th day of June, A. D. 1879.
H. K. Whiton. “The words ‘unless good cause be shown to the contrary,’ and also the words ‘if the court shall so determine,’ and the words ‘a majority of,’ and the word ‘trustee,’ on the sixth page hereof, and also the words ‘and accepted by a majority,’ on the seventh page hereof, were interlined before signing and sealing.
Thomas J. Sutherland, [Seal.]
Assignee of Reeve claim.
John Clark Hilton, [Seal.]
F. D. Gray, [Seal.]
John I. Bennett, [Seal.]
Commercial Nat. Bank, [Seal.]
By H. F. Eames, Ft.
August 18. ' George F. Harding. [Seal.]
H. K. Whiton. “The interlineation of the words, ‘the will of the majority, referred to, to be expressed only of the due notice to all the parties hereto,’ and also the words, ‘and also all outcome thereof,’ were interlined after the signing of said bank, John I. Bennett and Thomas J. Sutherland, and we hereby give our consent to such interlineation.
Thomas J. Sutherland, [Seal.]
Assignee of Reeve claim.
John Clark Hilton, [Seal.]
F. D. Gray, [Seal.]
Commercial Nat. Bank, [Seal. ]
By H. F. Eames, Ft.
John I. Bennett, [Seal. ]
August 18. George F. Harding. [Seal.]
H. K. Whiton. “The word ‘or,’ between the words ‘Harding’ and ‘Bennett,’ where it occurs, was placed in the above contract after the signing of the said Hilton, bank, Sutherland and Bennett, to which change we give our consent.
Thomas J. Sutherland, [Seal.]
Assignee of Reeve claim.
John I. Bennett, [Seal.]
F. D. G-ray, [Seal.]
Commercial Nat. Bank, [Seal.]
By H. F. Fames, Pres't.
John Clark Hilton, [Seal.]
August 18, 1879. G-eorge F. Harding. [Seal.]”
This contract is not the original. Who was iii possession of the original is not shown. Subpoenas ditces tecum and the examination of witnesses failed to show where it was. Sutherland says he signed a paper between the creditors in August, 1879; that Gray and Whiton signed the paper which he had signed, some time afterward, and is unable to say whether the paper produced is a correct copy of the one he signed or not. Barnes says he is inclined to believe he signed the contract on its date. Gray has no remembrance of the paper, but says if he did sign it, it was some time in 1880. Harding has no recollection of signing the paper of June 18, 1879, and does not think he ever signed a paper of which the exhibit is a copy. He says: “J "was an opponent of the Reeve claim, and continued to be until it had been finally adjudicated in his favor in some way, and I came at the last moment into the fold, whatever it was, as to some combination to preserve the rights of the creditors as against the Western Union, which was threatening to eat us all up.” He is sure he executed no agreement prior to 1880, and whatever agreement he and Bennett executed was "with reference and a view to releasing stockholders, to "whom they felt some relation. It is clear, from his own testimony, he executed a paper of this character, and his positiveness is with reference to the date. John I. Bennett and Frank I. Bennett saw the original, made and compared the copies and knew the handwriting of the signers, and their testimony is clear and convincing as to the existence of an agreement and the correctness of the copy produced in evidence.
This contract being entered into by the parties thereto, on August 7, 1879, an interlocutory decree was entered in the cause by Judge Barnum, ordering that the accounting then being carried on in behalf of Selah Reeve should thereafter be carried on in the name of Thomas J. Sutherland. On August 27, 1879, Sutherland, as solicitor for Reeve, gave notice to Harding, McCoy & Pratt, as solicitors for the corporation, that he would, on August 28, 1879, at ten o’clock A. M., move before Wait for the making by said master of .his report in the accounting with the corporation. That notice is indorsed, “Service accepted August 27, 1879.—Geo. F. Harding.” The master gave' notice to Harding, McCoy & Pratt, as solicitors for the corporation, and to Thomas J. Sutherland, as solicitor for Reeve, on September 11, 1879, that he had prepared his report, and the same could be examined at ten o’clock A. M., September 12, 1879. That notice is indorsed by acceptance of service by Sutherland, and “Received copy of above notice September 11, 1879.—Geo. F. Harding.” On September 13, 1879, the master, Wait, filed his report. By that report he states that “Thomas J. Sutherland appeared as solicitor for Reeve and offered in evidence the testimony taken in the cause, the exceptions thereto of Reeve, the Great Western Telegraph Company and Kidder, and other papers in the case; that no further evidence was offered and no further proof adduced showing any other receipts of stock, money or other property, except as herein set forth.” He then finds that the work done and money received from the company up to June 30, 1870, is not res judicata, and then finds that Reeve constructed the lines prior to November 16, 1872, as found by Chase, and fixes that amount at $225,762.43. He also finds that Reeve did not build the 417½ miles of completed and the 267 miles of uncompleted lines, or receive the sum of $151,550.90 referred to in the .report of Chase, and then makes the schedule of the account, making the total of Reeve’s credits $252,654.22 and debts $141,801.49, and finds the balance due Reeve, with interest, on September 13, 1879, to be $154,861.25.
On September 15, 1879, Sutherland gave notice to the solicitors of complainants and some of the defendants to the cross-bill, and also to Harding, McCoy & Pratt, as solicitors of the corporation, that a rule had been entered to answer the cross-bill of Reeve by September 19, 1879, and on September 20, 1879, a decree of confirmation of the report was made, and the decree was entered defaulting the corporation as defendant to the cross-bill. From the time of filing that cross-bill, for years, it lay quiet and undisturbed until the agreement of June 18 was effected, which seems to have revivified it.
In analyzing Wait’s report it is necessary to consider on what it was based. It is apparent from what is said in the opinion in the Terwilliger case that the corporation bad no money. The evidence in this record discloses that fact. Its stock had all been taken, and, with the exception of three shares, was held by Gage, Selah Reeve, Hasbrouck Reeve and Snow. Neither Gage, Snow nor Hasbrouck Reeve paid anything into the corporation to build the lines. There was no money to build them. The corporation had no means of procuring money except by a call on stockholders, and no call had been made on Gage, Snow or the Reeves. Such was the status of the corporation before the institution of the Terwilliger suit. Gage was its president, and he had contracted with Selah Reeve to build for the corporation 2000 miles of line, and by the same contract transferred to' Snow, as his trustee, the 117,897 shares of stock, to sell and dispose of the same in such manner and at such times as should, in his discretion, seem best to provide the necessary means for the prosecution and completion of said contract, and to apply the proceeds thereof, as fast as they might be needed, for the performance of said contract in accordance with the terms thereof. By a supplemental contract further covenants were made, and Reeve, Snow, as trustee, and Gage, as president of the corporation, were parties signing it. Gage, Snow and Reeve acted on the contracts as binding and valid. No other contract appears to have been made by the company for the construction of its lines. Gage, Reeve and Snow acted on the subscriptions as valid and binding. As they stood to each other and to the corporation at that time, no new subscribers or purchasers of stock being interested, the contract and subscription were valid as between those parties. Then Reeve’s stock was being sold under this arrangement among the parties, and the money derived from the sale of that stock would necessarily come to the hands of parties authorized to receive it by Reeve or his authorized trustee, agents or employees. He never claimed to the contrary before the decision of this court in the Terwilliger case. No other conclusion can be warranted by the facts than that the work on the 417½ miles of completed lines and the 267 miles of uncompleted lines was done under his contract, and the $151,550.90 was received by him, his trustee or agents. He afterward gave his receipt therefor, and not until the wreck of the plans of these men who had evolved this scheme, resulting from the opinion in the Terwilliger case, did they form or attempt to set up a different theory. It was so recognized from the evidence in the opinion in the Terwilliger case, so believed by the judge making the order of reference to Chase in 1873, and so known by Judge Farwell when he sustained the exceptions to Chase’s report and ordered a reference to Wait.
Reeve says in his cross-bill (and Wait so finds) that he did not build'the 417½ miles of completed nor the 267 miles of uncompleted lines, nor receive the money paid therefor, but claims it was represented to him by the corporation that the lines had been built by it and the' money expended,—the money as his,—and that he ought to give said company his receipts for said moneys “as if he had really built said lines and had really received said amount of money in payment thereof in pursuance of said contract; and your orator says that the argument of said company then appeared plausible and reasonable to j’-our orator, and at the request of the said company, as aforesaid, he did give to the said company, at various times, his receipts for the said money the same as if he had received it, and allowed it to be considered that he, your orator, built the said lines and parts of lines for which said money was expended, when, in fact, your orator did not build said lines and did not receive any of said money; and your orator says that it was testified to by himself and the said company, and the officers thereof, in this cause, before it went to the Supreme Court aforesaid, and upon which evidence the said Supreme Court partly relied in giving its said opinion, and which opinion was the rule followed by this honorable court in its decision and decrees subsequently entered in said cause tliat your orator built said lines and parts of lines and received from the company the said sum of money, when, as a fact, the contrary was and is true, although at the time said evidence was given it seemed to your orator to be true, as said contract was then undisturbed and not set aside, and in full force; and your orator states that the statements made in his answer in this cause were based upon the same facts and understandings and theories as those which governed the giving of said evidence and testimony.”
One does not have to read all this bewildering record to see that Reeve was not an unsophisticated man incapable of caring for himself, nor to find' that Sutherland, his attorney, throughout all this litigation was able to comprehend facts, and the statement in the cross-bill of facts different from a former sworn answer, and from his own testimony confessedly made, indicates not so much ignorance as moral obliquity. With the averments of the cross-bill and with the first order of reference, with Chase’s report and with Judge Farwell’s ruling in sustaining the exceptions, Wait’s report is incomprehensible, except that Wait was misled by suppression of the facts. In his report he states what evidence was heard, and disregards the orders of reference in taking testimony to show what money was received by Reeve, his trustee, agents and employees. And it is apparent that, relying on the knowledge and skill of Harding and Sutherland, on opposing sides, he allowed himself to be misled and was induced to act by Sutherland alone, and with the contract of June 18 concealed from him, with Harding and Sutherland acting in concert and with others to attain a common end, in which the interests of the corporation were to be sacrificed,—these facts, it must be held, constitute fraud in securing that report. He was deceived as to the corporation being represented by counsel and was deceived by suppression of facts. Suppressio veri, suggestio falsi.
When the contract of June 18 was discovered and this bill filed, it was sought to be shown that notice was given to other representatives of the company than Harding. Sutherland claims he served notice upon Pratt as well as upon Harding. The master acted on the notice to Harding as sufficient, and from the entire record we are of the opinion that Harding alone had notice.
The decree of confirmation of Wait’s report being entered, and the bill which challenged the character of the claims of the bank, Reeve, Hilton, Gage and others having been dismissed and these claims all allowed, the scheme of making a call upon the stockholders, who by the thousands were citizens of Illinois, Iowa, Wisconsin, Nebraska and elsewhere, was determined on. During this latter litigation, H. K. Whiton, who was connected with the June 18 contract, was of counsel for the bank. Sutherland, as attorney for the receiver, procured an order on October 16, 1879, directing that receiver to collect from stockholders the unpaid balance of the first forty per cent on their stock, and at about the same time the sale of the lines of the corporation suggested itself to these parties. These lines had bee,n in possession of the Western Union Telegraph Company under its lease from Horton, the first receiver, and the latter company had abandoned its lease and the lines had become greatly out of repair. A new corporation, entirely disconnected from any of these, had been organized—the American Union Telegraph Company—and was about to begin business in this territory, and desired to acquire the lines and franchises of the Great Western. It was this fact, as Bennett says, that induced these parties to join in their combination. In carrying out their design they first had the receiver, Thomas S. McClelland, lease the lines for five years, at $2000 per year, to George L. Otis, who, it will be remembered, was cashier of the Commercial National Bank, and had been the treasurer of the Great Western when Reeve’s coterie of officers was in power. Under this lease the receiver was to put the lines in working order and deliver them to the lessee as fast as possible. Sutherland, as the receiver’s attorney, procured the necessary orders of court for the execution of this lease, which Otis transferred to H. K. Whiton, who was the trustee under the conspiracy contract. The parties thus had the situation under such control that no one else could buy the lines except subject to their five year lease. They then negotiated with the American Union, had Whiton lease the lines to it, and on November 10, 1879, entered into a written contract with it. By this contract it was agreed, in substance, that they should endeavor to procure, in their own names or that of their trustee, the title to the lines, and when this was done the American Union should buy the property of them at its market value, to be fixed by arbitration, and that in determining the value the arbitrators should assume, absolutely, that the lines were in good working order, and should not consider any evidence to the contrary, or consider what the property cost the sellers. It also provided that upon the delivery of the lines to the American Union under the above lease it would advance to the receiver enough money to secure the possession and put the lines in good working condition, and assign its claim against the receiver for these advances to the sellers.
As soon as this contract was made, on November 15 the receiver made a contract with the American Union, by which it was to put the lines in good working order. The parties then proceeded to get the property" into the hands of the American Union, and to have the necessary order for a sale entered. The dispute with the Western Union was settled, and on January 20, 1880, the property was placed in the hands of the American Union. They then, on February 4, 1880, filed a petition, Verified by Sutherland, stating that they represented a majority of the creditors; that the repairs on the lines would soon be completed, and the time “seemed auspicious” for a sale of all the telegraph lines and other assets of the company, subject only to existing" leases; that the best price would be obtained if the whole property were sold as a unit, for cash, but if any creditor purchased he should be allowed to apply on his bid, as cash, any adjudicated claim against the company. An order for a sale by the master on those terms was prayed. On the same day that this petition was filed an order was entered directing a sale by H. L. Wait, master, of all the company’s property, franchises, etc., at public auction,.on the conditions stated in the petition. Under this order Wait sold the property on March 18, 1880, to Whiton, as trustee for these parties, for $15,000. Thus these parties—prominent among them the attorneys for the company and the receiver—having so forestalled the market that competition at the sale was practically impossible, bought the property at $15,000, and paid almost all of the price by crediting on their claims the insignificant dividend which that sum would pay. They then, by a re-sale contracted for in advance, pocketed over $38,000 of the money justly belonging to the company and its stockholders. By this means the stockholders, who were now to be pursued by these parties, were deprived even of the benefit of having the claims reduced by the-full amount which could be realized from a fair sale of the corporation’s property.
On August 16, 1880, John I. Bennett sold his claim against the company to John J. McClellan, reserving his interest in the contract of June 18, 1879, and reserving his interest in the property purchased by Whiton. The claim of the bank was also, about the time of the sale to the American Union, assigned to the defendant Adelaide K. Sutherland, the wife of Thomas J. Sutherland, who, although then the receiver’s solicitor, acted as her agent in effecting the purchase. Shortly after the sale to the American Union Thomas S. McClelland resigned as receiver, and, on motion of Sutherland and Harding, Elias R. Bowen, a clerk in Harding’s office, was appointed in his place. Bowen was in office when this suit was begun. He died in March, 1892, while the case was on hearing, and Frank A. Helmer, his successor, was substituted as defendant.
As stated, an order of assessment against stockholders was procured on October 16, 1879. This order directed all stockholders to pay the unpaid balance of the first forty per cent of their stock, and authorized the receiver to enforce collection, by suit or otherwise. Under this order the receiver employed attorneys to collect from the stockholders in different States, Sutherland, at the request of the larger creditors, having personal charge of the collections in Illinois and Wisconsin. This placed the enforcing of the assessment, so far as Illinois stockholders were concerned, in the hands of the parties to the conspiracy contract, and placed them in a position to render effectual its provisions for the protection of their particular friends.
On February 24, 1880, Sutherland represented to the court that nine-tenths of the creditors desired an order entered by which stockholders would be allowed to pay this assessment by setting off an equivalent amount of adjudicated claims against the company. A petition for this purpose had been filed on December 8, 1879, and the order was entered, as asked by Sutherland, on February 24, 1880. This enabled the holders of claims against the company to sell releases of them to stockholders, to be used in paying the assessment, and from the receiver’s report and otherwise it appears that a considerable number of claims held by Sutherland were paid in this manner. The two receivers, Thomas S. McClelland and Bowen, under this order, received releases of claims against the corporation amounting to $22,318.15.
Various proceedings were instituted to collect from stockholders, some by the receiver under the order of October 16, 1879, some by creditors individually. A bill was filed by Counselman, John J. McClellan, and Bowen, the receiver, in Iowa, against stockholders there, as the result of which $4143.50 was collected. Sutherland filed a petition in the Terwilliger case, asking for an allowance for services rendered. He was at this time the receiver’s attorney. There was no opposition to this petition, and he secured an allowance before the master of $10,596. In drawing the order confirming this report, Sutherland not only had it allowed as a claim against the receiver, but entered as a personal decree against the company also, with an award of execution. Upon this decree and some other claims he filed a bill in his wife’s name, against the company, the receiver and a number of stockholders, seeking to enforce their stock liability for his benefit.
It was finally determined that the most effectual method of collecting these claims against stockholders was through a general assessment by the court. Under the present statute of 1872 such an assessment can" only be made in a proceeding to which all the stockholders are parties. In order to escape this—for it was no part of the plan of these men to allow any one to be heard— the assessment proceedings were instituted as a sort of supplement to the case in which the receiver had been appointed. Then, by making it appear that the decree was in a case begun prior to the enactment of the statute of 1872, it could be claimed that the prior law governed, under which stockholders were not required to be made parties. Accordingly, on April 10, 1886, Sutherland filed a petition in the name of Bowen, as receiver, setting up that the company’s debts amounted to between $350,000 and $400,000, that its property was exhausted, and that an assessment against stockholders was necessary. This petition was referred to Wait, and the necessary proof before him was supplied wholly by the oral testimony of Sutherland, Bowen, Hilton and George F. Westover, the latter testifying merely as an expert. By the testimony of Sutherland and Bowen it was made to appear, and the master found, that the indebtedness of the company amounted to at least $375,000, and that it was necessary to assess the stockholders on that basis, and that one-third should be added to this to cover the cost of collection. Upon this basis an assessment of thirty-five per cent, or $8.75 per share, was found necessary and recommended. This report was confirmed, and on July 10, 1886, a decree was entered assessing the stockholders in accordance with its recommendations. No notice of these proceedings was given to the corporation or its stockholders. The whole thing was carried through on the theory that the corporation, being a party to the suit, represented the stockholders, that the receiver represented the corporation, and that therefore all these adverse interests were affected and concluded by the representation of Sutherland, as the receiver’s attorney, acting in his own interest and that of other parties to the contract of June 18.
As we have stated, under the order allowing set-offs of claims against stock subscriptions, claims against the company were satisfied to the extent of $22,318.15. Of this amount claims amounting to $12,109.84 were released to Thomas S. McClelland, receiver, between March and December, 1880, and $10,208.31 to Bowen. Of the amount thus released to Thomas S. McClelland, $5260.90 had been released when Wait made his report of June 25, 1880, under the reference directing him to ascertain, among other things, the amount of the company’s debts. The remainder of all the debts found by Wait in that report to be owing by the corporation amounted to $271,249.62. The gross indebtedness found by Wait in that report was thus reduced by $17,057.25. If the claims of Reeve, Hilton and the rest of these parties be conceded to be valid, the amount of the company’s debts at the time of the assessment in July, 1886, stood as follows:
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Bowen testified that the debts were from $350,000 to $400,000, and Sutherland that, as he figured it, “they amounted to over $375,000,” and on this evidence Wait found that the debts were “a little over” $375,000, and the assessment was made on that basis. To this statement of the amount of the indebtedness the master was induced, by the evidence placed before him by Sutherland and Bowen, to add thirty-five per cent—$181, 250—as the estimated cost of making the collections, in the way of counsel fees, receiver’s fees, etc. The estimate of the expenses of collection they immediately proceeded to verify by placing the matter in Sutherland’s hands, and agreeing to pay him twenty-five per cent of all collections.
It will thus be seen that, leaving entirely out of view the fraudulent contract into which Sutherland had entered and his other acts under it, a court of equity, which proceeded solely upon the information furnished by Sutherland and Bowen, was induced to enter a decree which authorized the collection from the stockholders of this company of $180,000 more than the corporation owed upon any theory, and by which Sutherland would be enabled to collect in full his claim of $153,270.23 and his wife’s of $17,983.98, with interest, and to get for this service in his own behalf twenty-five per cent of the amounts collected from stockholders. If the decree of assessment were carried out on the basis on which it was. rendered, there would be collected from stockholders $506,250, and of this amount there would be paid to Sutherland, upon his own and his wife’s claim, and for services in collecting, $297,816.21,—and this in addition to the decree of $10,596 for fees, entered in September, 1883.
It will be remembered that Franklin D. Gray was a party to the contract of June 18, 1879. Under its provisions, and as owner of the Gage claim, he was interested in having the assessment upheld and collected. He was a stockholder in the company, but by the provisions of this contract was to be saved harmless from any liability on that account. He was therefore interested in securing his own defeat in any suit brought against him on the assessment, and his prominent position would add to a decision, in a suit apparently defended by him, great weight with other stockholders who did not understand his real position in the matter. Sutherland was Gray’s attorney in procuring the Gage claim for him, in advising him with reference to the June 18 contract, and in other matters. A suit—called by Gray in his testimony “a friendly suit to test the assessment”—was brought against him by Sutherland,—not in Cook county, where he lived, but in Lake county. The case was there decided against the plaintiff on demurrer to the declaration. An appeal was prosecuted to the Appellate Court, where the judgment was affirmed, and from there to the Supreme Court, where it was reversed. The Supreme Court held the decree of assessment binding on stockholders though they were not parties, because the declaration alleged that it was rendered in a suit begun prior to the enactment of the law of 1872. (Great Western Telegraph Co. v. Gray, 122 Ill. 630 .) There was no sort of representation of the stockholders’ side of the question, and no real controversy between the parties to the case.
Of this case the following facts may be noted as to Gray’s interest: Gray was introduced to Winters, the attorney who was to represent him in the case, in Sutherland’s office. He swore in this case that he retained the attorney and paid him for his services, the money being paid either to Winters or to Sutherland. Winters swore that Gray never paid him anything and that he never expected anything from Gray—that his fees were to be paid by Sutherland. On cross-examination, Sutherland, after refusing to answer the question and being ordered to do so by the master, was compelled to admit that he himself paid for the printing of the briefs filed on Gray’s behalf, stating, however, that Gray refunded the money to him. The opinion in the Gray case was filed in November, 1887, but no subsequent steps were taken. The case was never re-docketed in the lower court, and Gray was not called upon to pay the assessment for which he was thus held liable. A year later the bill in this case was filed alleging these facts. The receiver answered, through Sutherland, his attorney, that he expected to collect from Gray at an early date, but the answer which Sutherland filed for Gray made no allegation that he expected to pay the assessment. A year and a half after this statement was made Gray still was left undisturbed, though other stockholders were compelled to pay, and he has never been called on to pay the assessment, but still enjoys the immunity guaranteed him by the contract of June 18.
The secret combination between these parties and their acts in carrying it out were not discovered until within a month before this bill was filed. The orders and decrees allowing claims, etc., were matters of public record, but the underlying circumstances were unknown, and were of such a nature as to conceal themselves. The undisputed evidence shows that neither the complainants, nor Stark, the president of the corporation after 1874, knew of the facts upon which the charges of fraud are based until September, 1888. No attempt was made by the defendants to show knowledge on the part of the complainants or the company of the June 18 contract. The whole theory of the defense was confined to a denial.
At the time this bill was filed the Great Western Telegraph Company was a corporation only in name. It had been in the hands of a receiver for about fourteen years, and during all that period the terms of officers and directors had expired without re-election. If the old officers held over because no new ones were elected, still they had no voice in its management or control over its affairs. The exclusive control of its property, affairs and corporate rights was in the hands of the receiver. More than eight years before this bill was filed all the corporation’s assets, franchises and property rights were sold by the court. Bowen, the receiver, who had charge of the affairs of the corporation at the time this bill was filed, had then been in office about eight years, and during that time Sutherland had been his legal adviser. His original appointment was procured on motion of Sutherland and Harding. He was a clerk in Harding’s office, and he and Sutherland, as we have stated, procured the decree of assessment. When this bill was filed, making these serious charges against Sutherland of frauds committed upon the corporation, the stockholders, the court and the receiver, Bowen placed the defense of the suit exclusively in the hands of the man charged with the fraud. Hot only did he place the receiver’s official defense in Sutherland’s hands, but he authorized him to appear for the company as well. He and Sutherland together prepared an answer, in which the corporation was made to speak in defense of those- claiming to be its creditors, but against its stockholders; to deny that any fraud was committed against it; to assert the validity of the Reeve claim, the absence of any defense to it, and the fairness and justice of Wait’s report upon it; to assert the justness of the claims of Hilton, the bank and the others that it had fought previously, when its bill was dismissed for want of a bond for costs; to deny the complainant’s right to inquire into the disposition of the property sold by Whiton, or the profits of that transaction; to set up a. defense for the protection of those who conspired against it, and to plead the Statute of Limitations against the stockholders’ right to relief for alleged frauds committed upon it and them by the attorney who filed the plea. Throughout the cause Bowen sought, under the advice of Sutherland, to prevent the complainants from unearthing a fraud, in.the investigation of which he should have been an earnest worker.
It appears that Sutherland had purchased certain claims against the corporation, and among others that of Collins & Burgie, and at the time of that purchase he contracted with them to save them blameless from liability as stockholders by the following contract:
“Chicago, April 14, 1880.
“I. Thomas J. Sutherland, do hereby agree to save Collins & Burgie harmless from any further payment by virtue of their subscription to the stock of the Great Western Telegraph Company so far as my interest in claims against said company is concerned.
Thomas J. Sutherland.”
These are the facts shown by this record, stated as briefly as it has been possible to do, and these facts are substantially and sufficiently averred by the bill filed in this cause. The relief sought is: First, to have the decree allowing the Reeve claim reviewed and set aside for error, and for fraud, both actual and constructive, in procuring its entry; second, to have the allowance of the claims of John Clark Hilton, the Commercial National Bank, (now held by Mrs. Sutherland,) reviewed and set aside for the same reasons; third, to secure a perpetual injunction restraining the collection from stockholders of all these claims, as well as those of Bennett, now owned by John J. McClellan and George F. Harding, upon the ground of fraud; fourth, to have the decree of assessment of July 10, 1886, reviewed and set aside for error in entering it and for fraud in procuring it; fifth, to have the court withhold its further aid to the collection of the claims of these conspirators; sixth, to have it declared that the complainants and other stockholders are dis- , charged from liability to contribute to the payment of the claims of the conspirators by reason of their release of some of the stockholders in the conspiracy contract and Sutherland’s release of Col]ins & Burgie; seventh, to have the sale of the telegraph lines declared fraudulent, and the defendants held accountable for the money realized from the property, and to have the money applied to the actual debts of the corporation; eighth, to have the Reeve claim, if held to be to any extent valid and enforceable, set off against Reeve’s liability as a stockholder, because his insolvency prevents the enforcement against him of the right of contribution; ninth, to have the claim of the bank in Mrs. Sutherland’s hands, if held to be otherwise valid and enforceable, expunged, except for such sums as she may have paid for it in good faith; tenth, to have an accounting of claims held by Sutherland and Harding, the amount paid for claims, and the amount collected; eleventh, to have the decree allowing fees in Sutherland’s favor set aside and its collection enjoined upon the ground of fraud.
On June 6, 1890, Sutherland withdrew his appearance as solicitor for the receiver, as also for the corporation in the litigation under this bill. Several parties to the bill had died, and leave to amend and to file supplemental bills had been entered. To this bill John J. McClellan and Terwilliger were defaulted. Demurrers were filed by Harding, Sutherland, Gray, the Great Western Telegraph Company and Bowen, and by Mrs. Sutherland, as also by Hilton. These demurrrers were overruled and answers were filed by Bowen, receiver, Adelaide K. Sutherland, the Great Western Telegraph Company and Gray, by Sutherland, and Harding and Reeve. Gage was also defaulted. Hilton elected to stand by the demurrer and subsequently died, when a supplemental bill was filed and Licinia E. Hilton was made a party defendant, to whom his claims had been devised, and she filed a general demurrer, and it being overruled she elected to stand by the demurrer. Subsequently Bowen, the receiver, died, and Frank A. Helmer was appointed his successor, and was substituted as a party defendant. May 27, 1889, A. J. Hoagland asked leave to intervene and become a party complainant, which was allowed. On August 2, 1889, one Milliken, on leave, also became a party complainant.
The several answers were general and specific denials of the averments of this bill, etc. The cause was referred to Boyesen, as master in chancery, to take proof and report his conclusions to the court. That report covers sixty-six type-written pages, and will be but briefly abstracted. It sets out the proceedings in the Terwilliger suit, and the reports, exceptions, decrees, etc., the petition for sale of the lines, and decrees finding the debts of the corporation amounted to about $375,000, and that the expense of collecting would amount to about one-third more; finds the contract of June 18 was executed, and the copy was admissible in evidence; found Reeve indebted to the company in the sum of about $140,000. This conclusion was reached by the master by his holding that the decree entered by Judge Farwell sustained every item of charge that had been made by Chase against Reeve, and, by sustaining the seventh exception made by the corporation, Reeve was chargeable with §200,000 in addition to the amount with which he had been charged by Chase in his report. The master further held that the contract of June 18, 1879, was fraudulent per se, and that the report of Wait made September 15, 1879, and the decree made September 20, 1879, were obtained by fraudulent concealment from the receiver of the decision of the circuit court on the claim, and by the fraudulent combination of the parties to the contract in obtaining the report and decree without proper notice to the receiver and company, and that the master was deceived by its being made to appear that the receiver and the corporation had been duly notified, and that the court in the same manner had been misled when no notice had been given except to a party to the fraudulent contract, and found that the report and decree were the result and in furtherance of the objects of the contract of June 18, 1879, and-were injurious to the interests of the corporation and the stockholders, and fraudulent and inequitable. The master further found that at the sale made by Wait of the lines of the" corporation they were purchased by H. K. Whiton, as trustee, under the June contract, for the price of $15,000, and that the sale was confirmed and a deed made, and that prior to the purchase by Whiton the parties to the June contract had entered into a contract with the American Union Telegraph Company, by which they were to sell the lines to that corporation when they obtained title thereto, at a price to be fixed by arbitration, and that subsequently arbitration was waived and the property purchased by the American Union from Whiton for $40,000, and of the proceeds of this sale Sutherland received $17,681.31, Hilton $5895.72, Bennett $2619.46, Gray $1637.15, Harding $7622.44, and the Commercial National Bank $2762.60, the balance being expended for receiver’s and trustee’s fees, etc.; that Harding, Gray and Sutherland should be decreed to account to the receiver for the full amount received from the American Union, less the expense of sale; that they had paid no actual money for the lines, and these parties to the June contract paid for the lines by crediting the amount of their bid, 815,000, on the claims held by them, respectively. The master found that the claims of the Commercial National Bank and Hilton had been reduced to judgments at law, and allowed by the master; that the claims of Bennett, Harding, and McCoy & Pratt had been allowed, and Harding was the holder of bonds; that the claims of the bank, Hilton, and Gray as the assignee of Gage, were, at the time of the June contract, involved in litigation by reason of the bill filed by the corporation, but that bill had been long pending, and the causes alleged in the bill for their being fraudulent were by reason of matters which could have been set up as a defense at law, and recommended that the claims of Gray, the bank and Hilton should be allowed to stand as proved, with leave to the corporation or receiver to introduce any evidence which could have been introduced, under the bill attacking said claims, to show whether they should be expunged, and that a reference should be made for that purpose; that the claims of Harding and Bennett should not be expunged, but an account should be taken as to how much money had been received from the sale of the lines and how much Harding had received from the collections from stockholders. He further recommended a reference to ascertain what claims Sutherland had purchased which are actually owned by him, and the amount he paid for them, and on the payment of that amount, with interest, the claim be declared satisfied; that the effect of the contract of June 18 was not to release any of the stockholders, nor was the covenant between Sutherland and Collins & Burgle one that stockholders could have pleaded in bar of their liability. The master further found that the amount of claims against the corporation which had been allowed and confirmed, excluding those of the parties to the June 18 contract, amounted to the sum of about $21,000, and that the decree of assessment under which the receiver was then acting was in excess of the amount due, and a reference should be made to ascertain the actual amount now due. The master further found the claim of the bank, now owned by Adelaide K. Sutherland, was purchased through her husband, Thomas J. Sutherland, when he was the attorney for the receiver of the company, and recommended that she should be paid on that claim no more than she actually paid for it, with interest, and further found that the decree against the corporation of September 26, 1883, for Sutherland’s services as solicitor, was erroneous on its face, because legal services to the receiver were not a liability of the corporation, and recommended that so far as executed it should not be interfered with. The master held that laches was not to be imputed to the complainants in filing the bill, as no officer of the corporation had notice of the June 18 contract, or of any similar combination or arrangement, until shortly before filing this bill, nor had complainants such notice; found no fraud against Bowen or cognizance of any fraud charged against Sutherland, and recommended a decree setting aside the decree of assessment and the decree confirming Wait’s report on the Reeve claim; that the claims of Reeve and of Sutherland, as his assignee, be expunged. as invalid claims; that they be relegated to their remedies at law, or left as they had placed themselves by their June 18 contract; that Harding should account and be directed to pay over anything in excess of the amount of his claim as it stood prior to the contract of June 18, and as to so much as remains unpaid as it stood prior to that contract he be permitted to share in collections made by the receivers, and that a personal decree be entered against Sutherland, Harding and Gray for the amount received from the sale of the company’s lines.
Sixteen exceptions were filed to the report of the master by the complainants, seven by Bowen, the receiver, and one hundred and ten each by Selah Reeve, Thomas J. Sutherland, Adelaide K. Sutherland, Franklin D. Gray and George F. Harding, which were overruled by the master, and the same exceptions were filed on the hearing.
On May 16, 1891, George F. Harding, Thomas J. Sutherland, Franklin D. Gray and Adelaide K. Sutherland, four of the defendants, filed their petition for a further reference of the cause, for the purpose of a further examination of John I. Bennett, and made an exhibit to that petition the answer filed by John I. Bennett to a bill filed by William N. Gregg against the Great Western Telegraph Company and others.
On the 11th day of July, 1892, George F. Harding entered his motion for leave to file an amendment and supplement to his answer to the original amended and supplemental bill in this cause, by setting up that on September 4, 1888, Eugene C. Bates and thirty-three other stockholders of this corporation, in behalf of themselves and all others who might come in as complainants, filed their bill, setting up substantially the same matter as alleged in this bill, including the contract of June 18, 1879, and asking the same relief, and averring that that bill was dismissed by the circuit court for want of equity, which was affirmed by the Appellate Court, and afterward, on October 31, 1890, affirmed by this court, and further alleging what was held in that case, and alleging res judicata,—which opinion is Bates v. Great Western Telegraph Co. 134 Ill. 536 ,—and further seeking to set up in defense laches and the Statute of Limitations of five years.
On the 11th of July, 1892, the motion of the defendant Harding for leave to file an amendment to his answer was denied, except as to the defense of laches, which was allowed, and the petition of the Sutherlands, Gray and Harding for a reference of the cause was denied, and the cause being heard under the evidence, report of master and the exceptions thereto, a decree was entered dismissing the-original and supplemental bills in the cause, and the complainants jointly and severally prayed an appeal to the Appellate Court for the First District, where that decree was affirmed, and from the judgment of that court an appeal is prosecuted to this court.
The contract of June 18, 1879, provided that the ruling and decisions of the judge on the exceptions, and the report of Chase in reference to the Reeve claim, by which he was to be charged, in the accounting, with all money paid by the stockholders of the company, as against his creditors, should be taken and considered error, and treated as such in determining the amount due Reeve from the company, and that in stating the account Reeve should be charged, as against his credit, only with the money he personally received from the company, and no more. It also provided for the allowance of the claim of the Commercial National Bank, and the assignment of the several claims in that contract mentioned, to a trustee, to hold and collect all money towards the payment of the same, with interest, and to buy the property of the corporation, if deemed advisable, and hold the same for their benefit and use; that the parties thereto should not, in any way or manner, contest the right of the company or its receiver to collect any assessment or assessments; that, except as to Bennett, Harding and Sutherland, the amount paid should not exceed the amount of the claims of the parties, with interest, as legally determined, and that all amounts collected over and above such claims, with interest, were to be paid “to the said Sutherland, Bennett and Harding, respectively, share and share alike,—that is, one-third thereof to each,— the same being as compensation to them for the extra services which they will have to perform in connection with the said claims and the litigation connected therewith, by reason of their previous close connection with the litigation in which said company has been and is involved, and their familiarity and knowledge concerning the same.” It further provided that they would save and keep harmless certain stockholders, designated by name or residence, from any liability by reason of any assessment made against them, and all money received or property purchased was to be apportioned among the parties in accordance with the percentage to be paid each, as fixed by the contract itself. It provided for the dismissal of any suits brought by the company there pending.
At the time of the execution of that contract the bill of the Great Western Telegraph Company against Reeve, Gage, Snow, Hilton, Commercial National Bank, Otis, and others, was pending, and that bill was filed by Joshua Stark, and Harding, McCoy & Pratt, as solicitors. This bill was dismissed on October 7, 1879, for failure to file security for costs, in accordance with the order of September 20, 1879, notice of which order was, so far as the record is concerned, received by Harding alone. The purpose of that bill was to set aside certain claims, as being fraudulent in their inception, and which were alleged to have originated in the fraudulent construction contract between Reeve and the corporation, and it was-averred therein that Hilton, Gage and the’ bank had notice of the consideration of the claims. Sutherland, as. the solicitor for Reeve, and Harding, as the representative of the corporation, having notice of the motion for a rule to file bond for costs, had, by their contract, entered into without the corporation being a party thereto, stipulated for the dismissal of this suit, as it was included within the terms of that contract, and these claims thus sought to be contested by this corporation, and with which Harding was intrusted, as counsel, constitute the greater part of, and almost all, the claims mentioned in the contract, the allowance and payment of which were clearly the object, scope and purpose of that agreement.
Counsel for Selah Reeve insists that notice was given to Stark by Harding, and of the numerous letters in evidence which passed between Stark and McCoy & Pratt he refers to and relies on the following, as showing that McCoy & Pratt and Stark were also of counsel contesting the Reeve claim, and says:
“It must be admitted that Sutherland served notice on Harding that he would ask Wait to make his report,— that the notice of the master that he had prepared his report and that he would file the same, and Sutherland’s notice that he would apply for a decree, all were served upon Harding. The record shows, beyond any question, that these notices were at once sent to Stark, at Milwaukee. Upon the reception of these papers Stark at ouce wrote to McCoy & Pratt, as follows:
“ ‘Milwaukee, Wis., Aug. 29, 1879.
“ ‘Messrs. McCoy & Pratt, 151 Monroe street, Chicago, Ill.:
“ ‘Gentlemen—This morning I received from Mr. Harding the inclosed papers, ‘a day after the fair. ’ What do they mean? I have never heard of the reference to Wait for an accounting with Reeve,—supposed it still stood on the report of Chase. What is the significance of this notice, and Harding’s insinuation that his interests and mine are henceforth in conflict? I shall be greatly obliged to you for information in the matter.
“ ‘Yours very truly,
Joshua Stark.’
“To this letter McCoy & Pratt wrote the following reply:
“‘Chicago, September 1, 1879.
“‘Joshua Stark, Esq.:
“ ‘Yours of the 29th of August received in due time, and we have been trying to post ourselves as to the status of affairs since Judge Farwell referred the telegraph case to H. L. Wait, master, to make a report of the Reeve accounting. Some of the exceptions to Chase’s report were sustained, but it is no doubt the programme to have an account again reported in favor of Eeeve, about equal to the Chase report, and an order made to sell out the company and its assets to pay the claim out of the proceeds. Of course, Eeeve or his attorney, in that case, would be able to outbid all others. Harding, no doubt, has an arrangement with Sutherland to pool in with him, and then hold the property for sale subject to the Western Union Telegraph Co. There is a new company expected to reach this city. Their object, no doubt, is to be ready to sell to this new company. It appears to be a rival of the Western Union Telegraph Co., from Baltimore. Yes, that inclosed notice was the first intimation we had of this accounting. John I. Bennett seems to be interested with the parties running this'accounting. What do you think? Would not any sale made under the Eeeve claim and accounting be subject to the trust deed securing our bonds? In other words, must not parties desiring title be compelled to go to the deed of trust? If you have any plans please communicate. We would like to co-operate with you.
"'Yours very truly,
McCoy & Pratt.’
“Stark was now fully advised of the state of proceedings. As to whether he came to Chicago before September 20, 1879, the record is silent.
“September 16, 1879, Sutherland served notice on Harding that he, Sutherland, would ask, on Saturday morning, September 20, 1879, for the confirmation of master Wait’s report, and for a decree in favor of Eeeve based upon the report. This notice was sent to Stark. September 20, 1879, Stark came to Chicago, talking with Sutherland, who let the matter of the entry stand over, at Stark’s request, till the next Monday or Tuesday. Stark then saw Wait, Whiton and McCoy & Pratt, and also the receiver. What further notice could have been given?
“September 23, 1879, McCoy & Pratt wrote to ascertain what Stark had done, as follows:
“ ‘Chicago, September 23, 1879.
“‘Joshua Stark, Esq., Milwaukee, Wis.;
"‘Dear Sir—We see that the report of master was this morning confirmed in the telegraph case. What arrangement, if any, did you make in the matter? Please advise us by return mail, as we do not want to be entirely left in the cold. We want to go in with you, if possible.
“‘Yours truly,
McCoy & Pratt. ’
“To this letter Stark replied as follows:
“ ‘Milwaukee, Wis., September 24, 1879.
‘ ‘ ‘Messrs. Me Coy & Pratt, 151 Monroe St.:
“ ‘Gentlemen—In reply to yours of the 23d. I made no arrangement relative to my bonds, but suppose the question of their amount, holders and validity will come before the court upon a reference, when all holders can present their bonds and have them allowed. I did not learn just what the scheme for the sale of the lines is. My chief concern was for my friends in Milwaukee. I found that, since the funds in the receiver’s hands were exhausted, no one has been willing to defend the company or even advise me what was required, so it happened that I was, for the first time, to learn last Saturday of Judge Farwell’s decision of the new reference and its terms, and of the need of funds to secure representation. ■ The notice first forwarded by Mr. Harding was blind. I did not understand it, and I got no explanation until I consulted the documents in the clerk’s office. It is now too late to avert the Reeve calamity. I have no funds for the purpose, and there is now no time to raise them. I do not think it is quite the fair thing to leave me so utterly in the dark respecting this litigation, especially in view of my double relation as counsel and officer. Do you?
"‘Yours respectfully,
Joshua Stark.’”
However it may have been that others were interested as counsel, it is apparent from all the evidence that Harding was one of the counsel of record, had not withdrawn as such, and continued to accept notices, and not until October, 1879, did he give notice that he would no longer accept notice as counsel and had ceased to act as such. The notices that were given by Sutherland were given to Harding as counsel for the corporation, were accepted by Harding as such counsel, were acted on by court and master as evidence of service on the corporation, and it must be held that Harding was the counsel of the corporation of record at that time, and from the evidence in this record we are unable to find any satisfactory evidence of a service upon any one else -than Harding by Sutherland. Harding occupied the relation to the corporation, in the record, as counsel, which was not severed, as appears from the evidence, until after this contract was consummated, and he continued to receive notices in reference to the notices in the litigation of the corporation, without informing the masters before whom references were pending or giving -information to the courts entering orders therein. This action of Harding was in line with the agreement in his contract, and was the carrying out of one of the early steps necessary to be accomplished in wrecking the corporation, and rendering necessary the call on the stockholders .to pay. assessments on their stock.
Shortly after the decision of this court in the Terwilliger case Reeve’s cross-bill had been filed, and the corporation had, by its petition, sought to have an accounting with Reeve, which latter petition was early referred to Chase to make his report and state the account between Reeve and the corporation. By Reeve’s cross-bill the new matter for accounting brought into the record mainly consisted of his claim for the construction of 1400 additional miles of telegraph lines. During the pendency of the hearing before Chase on this petition, evidence was heard and a report made by him as to not only the construction of the lines completed and uncompleted, as mentioned in the opinion in the Terwilliger case, but evidence was heard and report made of all the work done by Reeve subsequent thereto, including that of the 1400 additional miles of telegraph line. From the time of filing the cross-bill, and during the pendency of the accounting before the masters on the various orders of reference, Reeve’s cross-bill was without an answer, and no steps appear to have been taken to have one filed thereto. The contract of June 18, 1879, had on that cross-bill a re-animative effect, and it was aroused from its lethargic state by Sutherland delivering, on September 16, 1879, a copy of a notice to the clerk of Harding, at the office of his firm, that .an order on the defendants to answer that cross-bill by September 19, 1879, had been entered; and following that order a default of the defendants to the cross-bill and a decree confirming the report of Wait, as master, was entered, which decree is substantially as broad as warranted by the allegations of the cross-bill. The manner of securing the report of the master and that decree we have already discussed.
The efforts made by this corporation to defeat Reeve’s claim, and its efforts to set aside the claims of Gage, Hilton and the bank, had been rendered nugatory by its own counsel, Harding, in conjunction with Sutherland, who had, from the inception of this litigation, been constantly opposed to the corporation. Not only that, but the receiver in the later litigation had been represented, where he was a party, by Sutherland, and was to look to Sutherland, Harding and Bennett for counsel, but mainly relied on Sutherland for that purpose. From the claims of Gage and the bank springs the interest acquired by Gray and Mrs. Sutherland. Sutherland was attorney for the receiver, yet for Gray he purchased, at a great discount, the claim now held which Gray acquired from Gage in this matter, and the claim of Adelaide K. Sutherland was purchased by Sutherland from the Commercial National Bank, and the claims of Hilton, the bank and Gray all had their origin in the transaction by which Otis, as treasurer, executed notes of the corporation to make payments to, or as evidence of indebtedness of, that corporation to Reeve, for work performed under his contract, which was set aside as fraudulent by this court in the Terwilliger case.
The claims all now being allowed and a decree of confirmation entered, the first purpose of the contract was accomplished, and to accomplish it these parties had deliberately agreed to treat as erroneous and set aside a decree of the court in a cause where the corporation was a party and its stockholders had vital interests, and they and it were not represented or their interests protected by counsel.. Having accomplished their purpose to this extent, they next proceeded to the despoilment of the corporation and the sacrifice of its property. To accomplish this, the bank, Hilton, Sutherland and Harding, claiming to represent a majority, in interest, of all the creditors of the company, presented a petition asking for a sale of all its property, which petition was verified by Sutherland, and a decree was entered granting the prayer of that petition, and Wait, as master, ordered to make that sale. Preparatory to the sacrifice of this property the receiver had been induced to make a lease of the property for a term of five years, and from the record the- conviction forces itself upon us that in the execution of the lease and its transfer to the trustee of the men who concocted this scheme, the purpose was to create an incumbrance on the property and prevent dona fide bids therefor by disinterested parties.
At the sale, Whiton, as trustee, became the purchaser of all the property of the corporation for the sum of §15,000, and the purchase price was credited on the claims of the purchasers. Having thus acquired the property, which was held by their trustee, it was all transferred to the American Union Telegraph Company for the price and consideration of $40,000, which sum was distributed in accordance with the June 18 contract. Having exhausted the assets of the company, and an assessment having theretofore been made for a call on the stockholders, they, in accordance with the June 18 contract, attempted to provide for the collection of these calls: Gray was a stockholder. He was also the owner of the Gage claim, and evidently, after a consultation with Sutherland and in accordance with a previous agreement, he became the defendant in a suit and went to Sutherland’s office, where he consulted with Eric Winters, as his attorney. He allowed a friendly suit to be brought in a county in which he did not reside, and Sutherland paid his attorney for services. A demurrer having been sustained to the' declaration and an appeal prosecuted, Sutherland, the attorney for the appellant, paid for printing the briefs to be filed by the appellee. When the judgment of the circuit court was affirmed by the Appellate Court an appeal was prosecuted to the Supreme Court, where the judgment was reversed and remanded.
The contract signed by Gray in his subscription for stock, as quoted in Great Western Telegraph Co. v. Gray, supra, is identical with that herein above quoted. The declaration in that case was alleged by the defendant, in his demurrer, to not state a good cause of action for the following reasons: “First, that the contract of the defendant therein set forth is a limited contract, and provides for the payment by the defendant of forty per centum of the par value of the shares subscribed for by him, and no more—that he paid said forty per centum, and is not liable to pay any further sum; second, that the plaintiff’s right of action against defendant on said contract is barred by the Statute of Limitations; third, it does not appear by the declaration that the defendant was a party to the proceeding in the circuit court of Cook county, wherein the assessment was ordered.” And it was held in that case: “ThisGreat Western Telegraph Company was organized in the year 1867, under the law of 1849, in relation to telegraph companies. The suit in chancery wherein this receiver, Bowen, was appointed and this assessment made, was commenced in 1869, and has ever since been pending, so that it was not affected by the act of 1872, and the provisions of that act did not govern the proceedings therein.” And it was further said: “That suit was brought by one Terwilliger and certain other persons, stockholders of the company, on behalf of themselves and all others similarly situated, against the company and others, as defendants. The declaration in the present case avers, and the order of assessment appearing therein sets forth, that the receiver was appointed in the said chancery suit, of and for the company and all its property, on October 7, 1874, upon supplemental bill of complaint filed therein, and on account of the mismanagement and malfeasance of the then officers of the company.”
From these extracts it is apparent the allegations of that declaration were that the appointment of the receiver was made under the original bill of Terwilliger and the supplemental bill thereto, which was a misstatement of the facts and an effort to procure a decision by misleading as to the facts. As has already been stated, the Terwilliger bill contained no averments of indebtedness or allegation to authorize the court to appoint a receiver for the company. The bill filed by Jones and others, which was termed by the stipulation a supplemental bill, was in no sense of that character. The stipulation on its face shows that it was entered in that case as the basis of an interlocutory decree, and that the bill filed by stockholders was not filed for the purpose of giving the court jurisdiction to make an assessment against the stockholders.
It does not appear that Terwilliger was a party to the Jones bill, nor did he sign the stipulation, nor become a party to it in any way. That bill, therefore, was neither a supplemental bill nor an amendment to the original bill. It was, therefore, to all intents and purposes, and in law, an original bill, which did not relate to any matter already litigated by the same parties or their representatives, nor was it an addition to or a continuance of the scope and purpose for which the original Terwilliger bill was filed. So far as the appointment of a receiver was concerned, under the litigation herein mentioned, it was as by a new suit with new parties. (Phelps v. Illinois Central Railroad Co. 94 Ill. 548 ; Chicago and Northwestern Railway Co. v. Jenkins, 103 id. 588 ; Dunphy v. Riddle, 86 id. 22; Crowl v. Nagle, id. 437; Clark v. Manning, 4 Ill. App. 649 .) The application for appointment of a receiver coming thus for the first time into the case, it would, as a matter of pleading, be then first applied for. Such being the case with reference to that feature, the time of filing that pleading would fix the time of the commencement of the suit with reference to that fact, and under the authorities last above quoted, an amendment introducing new parties or setting up new matter is, as to the matter thus set up and the parties thus introduced, the commencement of a suit.
On the petition of the receiver, entered October 16, 1879, an order was entered authorizing the collection of unpaid balances from stockholders who had not paid forty per cent of the par value of their stock. On April 10, 1886, Bowen, as receiver, filed his petition for an assessment against the stockholders, and that petition is entitled in the Terwilliger case, the Jones case and in Reeve’s cross-bill. On July 10, 1886, a decree was entered in accordance with said petition which was purely ex parte, and neither the decree entered thereon, nor the petition, mentions the preceding order of assessment of. October 16, 1879.
It was held in Chandler v. Brown, 77 Ill. 333 , that it would not admit of argument that a stockholder could be concluded by any proceedings under section 25 of the present chapter on corporations, unless he was made a party thereto, as he had a substantial interest therein and was entitled to his day in court. In Lamar Ins. Co. v. Gulick, 102 Ill. 41 , it was held that where a stockholder was not a party to a proceeding for the appointment of a receiver, or for an order of court making an assessment on shares of stock, no order could be entered that would be obligatory on him. He is a necessary party to the proceeding before he is concluded by either the appointment or assessment. Section 25 of the act of 1872, in reference to corporations for pecuniary profit, was under consideration in each of the above cases. In Richardson v. Akin, 87 Ill. 138 , it was expressly declared that the provisions of that section, so far as it relates to the liabilities of stockholders, being in conflict with the act of 1857, the latter was thereby repealed, and that, so far as the remedy against corporations or stockholders was concerned, the provisions of section 25 of the act of 1872 apply to corporations organized under prior laws. In Low v. Buchanan, 94 Ill. 76 , the provisions of the act of 1872, in reference to making directors liable for allowing the debts of the corporation to exceed its capital stock, were held to apply to directors of a corporation organized under the act of 1857. In Harper v. Union Manf. Co. 100 Ill. 225 , the provisions of the act of 1857, in reference to the liability of stockholders thereunder, were before the court, and it was broadly intimated that “we are also inclined to think that the provisions of the act of 1857, upon which the claim rests, were superseded and became inoperative by reason of the general law of 1872 upon the same subject; but we find it unnecessary, in disposing of this case, to adjudge that question.”
Such being the rule declared by this court with reference to the act of 1872, so far as remedies have been provided under that act and a construction thereof given, what is said in the opinion in the Gray case, viz.: “In order for the board of directors to have made a valid order for payment, it would not be contended, we presume, that defendant should have been before the board. No more, we conceive, was it necessary that defendant should have been before the court, when it, in place of the directors, made the call or order of assessment,”—was not said in construing the act of 1872, but the general rule and practice in such cases, as they existed before that act, were under discussion, and the manner in which the case was presented to the court by the declaration, which misstated the facts, as appears by the quotations from the opinion in the Gray case heretofore made, caused the court to hold the order of assessment of 1886 valid and the stockholders not necessary parties thereto.
Without in any manner changing what is said in the Gray case, on the facts there appearing we hold that all the proceeding, so far as it affects stockholders who were not parties thereto, is invalid, and in like manner is the order of assessment of October 16, 1879, similarly not binding on those who were not parties thereto.
The provisions of section 25 of the Corporation act are applicable to all proceedings in this cause subsequent to the decree of November 16, 1872, on the original Terwilliger bill, so far as an assessment on the stockholders was concerned. The averments of the declaration in the Gray case, as the same are to be gathered from that opinion, were that the appointment of the receiver and the assessment were made under the Terwilliger bill and a bill supplemental thereto. This was not the case, however the order may have been entitled. The appointment of the receiver and the assessment were made on the Jones et al. intervening bill, which was filed long after the act of 1872 was in force and applicable thereto.
When the Terwilliger case was before this court, in the opinion rendered, wherein the circuit court was ordered to enter a decree, among the directions was the following: “Unless such newly elected board shall make an amicable settlement with Selah Reeve, and one satisfactory to the court, it will ascertain, as nearly as possible, the cost of the line constructed or partially constructed by him, and, after allowing him such cost and a reasonable compensation for his time and labor, will enter a decree against him for any excess of money he may have received from the company, to be paid to the treasurer appointed by the new board of directors.” The order of reference of March, 1873, required the master to state the account between the company and Reeve of all money, notes, stock or other property of the company received by Reeve, his agents, trustees or other employees, etc. When the December 26, 1874, report of Chase was made on the Reeve claim, he held that Reeve was not to be charged in the accounting with anything he did not personally receive, and treated the amount of $151,550.90 as having been adjudicated by the opinion in the Terwilliger case, and found the costs of the work done prior to June 30, 1870, to be $91,090, and on that basis the balance found due Reeve was $55,958.99. By sustaining certain exceptions to the report, Judge Farwell held that the master should report not only the amount received by Reeve, but also that received by his trustees, agents or emjdoyees. This decision of Judge Farwell was in strict accordance with the order of reference, and was in accordance with the requirements of justice. By the evidence in this record Reeve had subscribed for 117,897 shares, and transferred the same to Snow, as his trustee, to sell the same, all of which was assented to by Gage, as president of the corporation, and Snow was authorized to appoint agents or employees to sell that stock, and all the number of shares of stock subscribed for by Reeve, and which are not now held by him, were disposed of by Reeve, his trustee, agent or employees, and to the extent that any money was received by any of them Reeve must be held accountable, and in stating the account he should be charged therewith.
By the Terwilliger case, and the decree of the circuit court in compliance therewith, the contracts between Reeve and the corporation for the construction of the lines were set aside and declared void, and the corporation was required to issue certificates of stock to all subscribers entitled thereto by reason of their subscription for the Reeve stock under the contract quoted in this opinion, and that a meeting of stockholders should be called for an election of a new board, etc. The questions before the court in that case were presented by stockholders who sought to set aside the contract between Reeve and the corporation and have certificates issued to themselves, that they might have a voice in its management, and this is substantially the extent to which the opinion in the Terwilliger case goes, except as to the directions to the circuit court. The subscriptions of Gage, Hasbrouck Reeve, Snow, Johnson, Hall, Gardner and Selah Reeve were declared void no further than requiring certificates of stock to be issued to bona fide subscribers who became purchasers of the Reeve stock, and each of these first subscribers to that stock, under every principle of law, is liable for the amount of his subscription except where in good faith disposed of to others, in the manner found by the Terwilliger opinion; and it appearing that Reeve still holds stock, and is insolvent, if anything is found due him on final accounting, payment should be required of him, and anything found due him should be set off against his liability as a stockholder.
The claims of Hilton and of the Commercial National Bank had been reduced to judgments at law. Hilton’s claim was recovered by service on Gage, as president, and the company suffered a default. By the bill which was dismissed, as hereinbefore stated, these claims, together with those of Gage and others, were in litigation, and if the averments of that bill were true, then all claims sought to be contested by it should, in view of the circumstances under which it was dismissed, be allowed to be contested, on a re-reference of the cause, to the extent that it was sought to be done by that bill. It appears that Harding received the notice, on September 17, 1879, that a motion would be made to dismiss the bill, and accepted service thereof, and not until October 3, 1879, did he in any manner indicate that he was no longer the attorney of the corporation, at which time he indorsed a notice served on him, “I am no longer an attorney in the above case, and represent no one but myself,” and to allow the dismissal of this suit to prejudice the rights of stockholders or the corporation would be unconscionable.
The contract of June 18, 1879, heretofore discussed, was carried out, in almost all its parts, by the successive steps following its execution, and the final step was to be the making of the collections from the stockholders, authorized by the assessment order of 1886, and the relation of the parties to the contract, and their subsequent action, must be considered together. Harding’s relation as attorney of the corporation, and Sutherland’s relation as attorney for the receiver and also for himself and Adelaide K. Sutherland and others, and the relation of others signing that contract who had claims which were then being litigated, and their conspiring to accomplish the end of having claims allowed with which to charge the corporation and sell the lines and make the assessment, constituted the purposed acts a contemplated fraud and the consummated act a real one. The contract was fraudulent per se, and the execution of its terms was a fraud, not only as to the corporation, but as to the receiver and the stockholders.
The claim of Reeve, as presented to the master and finally confirmed by the court, we have already stated to be a fraud on the master and court alike. By the express provisions of the contract the decision of Judge Farwell was to be treated as error and contemptuously disregarded, and Hilton, Gray and the Commercial National Bank, with Whiton, as trustee, conspired to accomplish this end with Sutherland and Harding, and sell the property of the corporation and collect from stockholders. The objects and aims of each and all were alike fraudulent toward the corporation, the receiver and the stockholders. Reeve, Hilton and the Commercial National Bank, with Gage, Snow and Otis, were defendants to the bill which was filed by the Great Western Telegraph Company, which alleged the judgments in favor of the bank and Hilton, and the notes on which they were based, should be vacated and canceled and enjoined from collection, and that Gage should be required to pay the same. By the contract this bill was to be dismissed, in accordance with the following clause: “And all suits on behalf of said company now p

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/6966807. Public record. Not legal advice.