Harwood v. Cincinnati and Chicago Railroad Company

APPEAL from the District Court for the District of Indiana.

Harwood, March, and several other persons, representing that they were stockholders in the Cincinnati and Chicago Railroad, 'a corporation now disorganized and unable to sue,' filed, on the 25th of December, 1865, a bill in the court below against the Air-Line Railroad Company, one Brandt, and several additional persons, to vacate a decree rendered in the same court in the early part of the year 1860, in a suit by George Carlisle as trustee of a second mortgage on the road for the benefit of a certain second issue of bonds, against the said Cincinnati and Chicago Railroad Company. The suit of Carlisle had been for the foreclosure of the said mortgage upon the road, given to secure the second mortgage bonds; and, in form at least, had been regular. The bill in the present case alleged fraud and collusion in that suit between Carlisle and his confederates and certain other persons, who were lessees of the road and in its possession, and who had agreed to pay the interest on its mortgages. It alleged that by the concurrence of these several parties the road had been allowed to lose credit, and that the payment of interest on its second mortgage bonds was wilfully neglected in order that the property might be sold; that this arrangement had been carried out, and that the road had been sold and purchased in by the conspirators for about $25,000, when it was really worth about $2,000,000 above a first mortgage of the same sum to which it was subject; and that the stockholders in the original road were injured by this collusive and fraudulent sale.

The bill prayed that the said alleged collusive and fraudulent sale might be set aside, the complainants and their costockholders remitted to their original rights in the former corporation, and permitted to redeem the road from the first mortgage, still upon it.

Carlisle was not made a party defendant to this bill.

By way of showing why their bill was not earlier brought, the complainants alleged that they knew the road was leased out of the power of the company, as they supposed, until 1862, and that they knew that it had been sold as above set forth, except that they were entirely ignorant of the fraudulent acts, arrangements, and combinations by which the sale was brought about and executed; that they trusted in their officers and supposed that all was fairly done; that on the sale the corporation ceased practically to exist, and that the officers industriously concealed from the stockholders the frauds perpetrated, and that these last had no organ to act in the premises; that in 1865 they learned from divers sources (the war having previously directed attention from the matter), that frauds had been perpetrated, but that they did not learn particulars; that the stockholders were scattered in several States, and had to be consulted and measures taken to raise men and money to investigate the transactions; that this was done as expeditiously as disorganized and scattered stockholders could do it, and agents be employed to investigate facts and counsel be consulted.

The defendants demurred. The demurrer was sustained by the court below, and on appeal here the question now was upon the correctness of its said judgment.

Mr. T. A. Hendricks, for the appellant; Messrs. McDonald, Roache, and Walker, contra.

Mr. Justice HUNT delivered the opinion of the court.