County of Morgan v. Allen

APPEAL from the Circuit Court of the United States for the Southern District of Illinois.

The County Court of Morgan County, in the State of Illinois, at its December Term, 1856, in pursuance of authority conferred by statute (Private Laws Illinois, 1853, p. 53; id., 1854, p. 207), and in accordance with a vote of the people at an election previously held, entered upon its records a subscription, unconditional in form, of the sum of $50,000, payable in bonds of the county, to the capital stock of the Illinois River Railroad Company, a corporation created by the laws of Illinois, with power to construct a railroad from Jacksonville, in Morgan County, via the towns or cities of Virginia, Bath, Pekin, and Lacon, to La Salle, in La Salle County. At the same time, by an order of record, authority was given the county judge to act in regard to such subscription as might be necessary, according to the charter, rules, or by-laws of the company, to perfect the same, to represent the county in voting upon the stock, and to provide for the issuing and delivery of the bonds as they might be required.

By an act passed Jan. 29, 1857, the vote taken was declared to have been legally taken, and the county court was required to subscribe the stock and to issue bonds therefor. Shortly thereafter a subscription, unconditional in form, was made by the proper county officers on the books of the company. The bonds were not issued immediately, and application therefor was made by R. S. Thomas, the president of the company. In order to meet some objections urged against their immediate issue, that officer (upon his own responsibility, so far as the evidence discloses) filed with the county clerk a certificate stating that the part of the railroad north of the town of Virginia was then in process of construction and that the part between Jacksonville and Virginia was 'under contract to be completed by the 1st of December, 1858, and that it is provided in the contract for the construction of said road that the Morgan County bonds are to be expended for work done in Morgan County, and not elsewhere.' The county court, at its September Term, 1857, thereupon entered of record an order, which, after reciting, among other things, the execution of that certificate, and that the interest and advantage of the county would be promoted by the delivery of the bonds theretofore subscribed, directed 'that there be delivered to the Illinois River Railroad Company the amount of $50,000 of the bonds of this county of this date,' &c.; also, that the certificate of stock 'be deposited with the treasurer of the county for safe keeping,' &c.

The bonds were thereupon issued, and deposited by the county judge with Elliott & Brown, bankers, for the railroad company. The evidence is conflicting as to whether the bankers were instructed to hold them until the further order of the county court, or to deliver them to the company upon receiving the certificate of stock for the county. The records of the court indicate an absolute unconditional delivery; and the weight of the evidence supports such a delivery.

In 1859, the bonds still being in the custody of Elliott & Brown, the company gave Allen & McGrady, contractors, two orders for $2,000 each for work done by them outside of Morgan County, but payable on their face in Morgan County bonds. These were subsequently transferred for value to William Thomas.

Vail & Ladd, creditors of the Illinois River Railroad Company, having obtained against it judgments amounting in principal and interest to $7,008.10, and sued out executions which were returned nulla bona, instituted garnishee proceedings to obtain satisfaction of the judgments out of the bonds in the hands of Elliott & Brown. The latter thereupon filed a bill of interpleader in the Circuit Court of Morgan County, against Vail & Ladd, the Illinois River Railroad Company, the county of Morgan, Studwell, Hopkins, and Cobb (trustees in a mortgage executed Nov. 1, 1858, by the company to secure its bonds amounting to $1,020,000), R. S. Thomas (who held an acknowledged debt against the company of $16,502.24, payable out of any funds belonging to the company), and William Thomas, the holder of the two orders issued to Allen & McGrady.

By an interlocutory decree entered in that case, the bonds, after deducting $200 interest coupons for charges and solicitors' fees, were placed in the custody of Ayres & Co., to await the further order of the court. In that suit the county denied its liability upon the ground that no work had been done in Morgan County, and that by agreement between it and the company the latter was not entitled to the bonds except for work done by it in that county. The trustees named in the trust deed of 1858, in their answer, claimed that they were entitled to hold the bonds for the use and benefit of the Peoria, Pekin, and Jacksonville Railroad Company as the successor of the Illinois River Railroad Company, to be used by the former in the construction of the road in the county of Morgan, in accordance with the alleged agreement that they should be so used. Upon final hearing, the bills of all the parties interpleading were dismissed, but the court directed that the bonds remain in the custody of Ayres & Co. All the parties except the county of Morgan took an appeal to the Supreme Court, which held: First, That whether the bankers had notice or not of the certificate executed by R.S.Thomas, as president of the company, it showed an understanding, at least between the county and him, as to the use of the bonds for work to be done in Morgan County, and his claim, as a creditor, should not be allowed in violation of that understanding. Second, As to the claim of William Thomas, he was affected by the notice disclosed in the contract between Allen & McGrady, which provided for the payment of their claims by these bonds only for work done in Morgan County. Third, That the claims of Vail & Ladd stood upon an entirely different footing; that they were creditors of the company for ties furnished, and had no notice of the condition upon which the bonds were issued; that they only knew that the county had subscribed to the stock and issued them; that any agreement or understanding between the company and the county, of which they had no knowledge, and the effect of which would be to place the bonds beyond their reach as creditors, would be fraudulent as to them; that the county subscription and the absolute order of the county court directing the issue and delivery of the bonds may have induced them to give credit to the company; that while, as against the president and Allen & McGrady, who had notice of the specific purpose for which the bonds were to be used, the county might insist that the delivery was qualified, it could not do so as to those creditors; that, 'as to them, it cannot prove that the delivery was not as absolute as its records indicated; they had a right to regard the bonds as assets in the hands of the company.' Fourth, The trustees, Studwell, Hopkins, and Cobb, having failed to assign errors, the court did not consider the propriety of the decree as to them. Thomas et al. v. County of Morgan, 39 Ill. 496.

Upon the return of that cause to the inferior State court a decree was entered (by consent of the creditors, Vail & Ladd, and the county) by which the county obtained possession of its bonds of the nominal value of $17,832.18, with coupons attached, in consideration of its paying off the judgments of Vail & Ladd, amounting to the sum already stated. The coupons alone exceeded in amount and value the debts of those creditors.

A suit in equity subsequently instituted by William Thomas, as the assignee of the orders issued in favor of Allen & McGrady, raised the question as to whether he was not entitled to be paid out of the county bonds, inasmuch as the road had then been finally constructed in the county by the successors of the first company. It proceeded upon the ground that such construction, for all the purposes for which the stock was subscribed, was equivalent to a construction by the original company. He alleged in his bill that certain judgment creditors of the railroad company who had filed a bill in chancery in the Morgan Circuit Court, made as defendants thereto only the Illinois River Railroad Company, the county of Morgan, and Ayres & Co., for the purpose of subjecting to those judgments the county bonds left in the custody of Ayres & Co. Although the complainants knew he was interested in the disposition of the bonds; that by an agreement between those creditors and the county, which was carried into decree by a collusive arrangement, the county, by paying only $6,000 in cash and about $6,000 in bonds in full satisfaction of the claims of those creditors, had received from Ayres & Co. $32,500 in nominal value of its bonds, with coupons attached (the latter alone exceeding the amount of the debts thus paid off), and had cancelled the same. To the bill a demurrer was interposed by the county, which being sustained, the bill was dismissed. Thomas appealed to the Supreme Court of Illinois. The ease is reported as Thomas v. County of Morgan, 59 Ill. 479. The court in that case, speaking by Chief Justice Breese, said:--