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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 340 The plaintiff bases his claim to relief in this action upon two grounds: 1st. That, at the time of the purchase by the Milwaukie and St. Paul Railroad Company of the property of the La Crosse and Milwaukie Railroad Company, he was a creditor of the last named company; and, 2d. That, under the scheme and agreement of September 3 and October 3, 1861, he was entitled to have provision made for his demands out of the bonds or stock of the new company. His claim to relief as a creditor of the La Crosse and Milwaukie Railroad Company is made upon the theory that the property of that company was in equity a trust fund for the payment of its debts, and that having been transferred, in the manner described in the complaint, to the Milwaukie and St. Paul Railroad Company, it continued subject to that trust, and should be applied accordingly. The case of Railroad Co. v. Howard (7 Wallace, 392) is cited in support of this proposition. *Page 342 That case recognizes the doctrine that equity regards the property of a corporation as held in trust for the payment of the debts of the corporation, and that it may be pursued by the creditors into whosesoever possession it may be transferred unless it has passed into the hands of a bona fide purchaser, and that stockholders cannot appropriate any part of it until the debts of the corporation are paid. (Story's Eq., § 1252.) In accordance with that doctrine, it was held, in the case cited, that where the stockholders of an insolvent corporation contracted to sell all its property to another corporation, under an arrangement with the mortgagees of the insolvent corporation, whereby such mortgagees consented to receive eighty-four per cent of the purchase-money in satisfaction of their claims to a much larger amount, and the residue (sixteen per cent) was to be paid to the stockholders, leaving judgment creditors unpaid, this residue of sixteen per cent represented the equity of redemption in the mortgaged property, and belonged to the insolvent corporation, which was entitled as trustee for the creditors to the benefit of the rebate made by the mortgagees, and that the judgment creditors were entitled to have it applied to their demands in preference to the stockholders to whom, by the terms of the contract, it was payable; and that it made no difference that the title to the property was transferred to the purchaser by means of a foreclosure of the mortgages thereon, such foreclosure having been made in pursuance of the arrangement, and merely as a means of consummating the contract of sale and transferring a clear title.
But the facts set forth in the complaint in this action do not make out a case for the application of that doctrine. The parties who combined under the scheme and agreement of 1861 to purchase the property of the La Crosse Milwaukie Railroad Company were not the stockholders of that company, but certain classes of its creditors. No contract for the sale of the road was made by the insolvent corporation or its stockholders, and it does not appear that any of the stockholders were parties to the agreement.
There is no allegation in the complaint that the foreclosure *Page 343 was collusive or the sale unfairly conducted. The property brought at the sale only $2,675,000, and the complaint shows that the parties who united in the agreement for purchase were holders of bonds to the amount of over $3,800,000, secured by the mortgage under which the sale was made. It is not shown that those who united in the agreement for purchase occupied any relation of trust toward the corporation or its other creditors, or were in any respect incompetent to purchase and hold the property in their own right and to agree among themselves as to the disposition to be made of it. Consequently they appear to have been bona fide purchasers, and to have acquired the property unincumbered by any trust except such as they themselves created by their agreement of October 3, 1861. They having organized as a corporation under the name of the Milwaukie St. Paul Railroad Company, and transferred the property to that corporation in pursuance of the agreement, that company took it subject to the obligations created by the agreement of 1861, but no others.
The agreement of 1861 contains some provisions for issuing common stock of the Milwaukie St. Paul Railroad Company to the holders of farm mortgage stock of the La Crosse Milwaukie Railroad Company. What the nature of that stock was, does not appear in the complaint; neither does it appear that any of the holders thereof received the benefit of the agreement. It may be that judgment creditors of the La Crosse Milwaukie Railroad Company might, under the principles enunciated in the case ofRail Road Co. v. Howard (7 Wall, 392), have been entitled in equity to compel the application to their demands, of the new stock thus secured to old stockholders of the insolvent company. But the complaint does not show the plaintiff to be entitled to relief against the defendants in this action, in respect of that stock. He cannot be permitted to assert that the agreement of October 3, 1861, was fraudulent as to creditors and that he is entitled to pursue the property on that ground, for he admits in his complaint that he was a party to and one of the trustees *Page 344 under that agreement, and that in pursuance of it he surrendered a large amount of bonds of the La Crosse Milwaukie Railroad Company, thus entitling himself to the benefits of the agreement. Being such party, he also necessarily assented to the issue of the new stock to the old stockholders. Although this might not prevent his asserting any equitable rights which he might have as a creditor, to the application of the new stock to the payment of his claims, yet it would preclude him from claiming as against the new company after they had distributed the new stock in pursuance of the agreement, and he would be obliged to follow it in the hands of the old stockholders who might have received it. There is no allegation in the complaint that any of the defendants have in their hands any of the stock thus appropriated to the old stockholders of the La Crosse Milwaukie Railroad Company.
Even if it be assumed, therefore, that the plaintiff was a creditor of the La Crosse and Milwaukie Railroad Company, as claimed, and that he could pursue his remedies in equity without having exhausted his legal remedies or established his status as a creditor by the recovery of a judgment, and that his right would not be barred by delay, the facts alleged in the complaint do not show that any of the defendants have in their hands any property applicable to the payment of his demand, or that he has any cause of action against them, unless by virtue of some right conferred upon him by the agreement of October 3, 1861. Under that agreement he clearly cannot claim to have provision made for any unsecured and unliquidated demand for damages, or otherwise, arising under his contract of December 3, 1856. The agreement of October 3, 1861, provides only for the redemption of different classes of bonds therein specified, held by the parties to the agreement, and which they should surrender to the trustees. It makes no provision for general unsecured creditors.
To meet this difficulty, the plaintiff claims that, inasmuch as according to his construction of the agreement of December, 1856 (the correctness of which construction it is not necessary to question), the La Crosse and Milwaukie Railroad Company *Page 345 ought to have issued to him a sufficient additional amount of bonds to make up the amount of the purchase-money of the iron at the reduced price of the bonds, he is now entitled to be treated precisely as if the additional bonds had been actually issued to and held by him at the time of the agreement of October 3, 1861, or of the distribution of the bonds and stock of the Milwaukie and St. Paul Railroad Company, under that agreement, and that the defendants, or some of them, hold the property formerly of the La Crosse and Milwaukie Railroad Company subject to the trust of making provision according to that agreement for the additional bonds which the plaintiff should in equity be thus supposed to hold.
The insuperable difficulty in the way of granting relief on this theory is that the agreement of October 3, 1861, provides only for bonds actually issued and outstanding. In the scheme which was the basis of the agreement, the numbers and amount of these bonds are specifically stated, and specific amounts of new bonds and preferred stock are appropriated to the redemption of such bonds, and the rates at which different classes of them are to be redeemed are specified. And the agreement provides only for the redemption of the specific bonds described in the scheme, viz.: First issue land grants numbered 1 to 1,991, medium issue land grants 1,992 to 2,500, second issue land grants 2,501 to 3,950, and $500 bonds numbered 1 to 100, making in all $4,000,000 of land grant bonds. This was the class of bonds the plaintiff's firm was to have received in payment for iron under the agreement of 1856, and if he had received the additional bonds claimed it is clear that they were not provided for by this agreement. He was a party to the agreement, and necessarily assented to the limitation of the amount of land grant bonds to be redeemed to $4,000,000. The parties to the agreement of October 3, 1861, entered into it with reference to the known existing obligations of the company, and arranged their scheme accordingly. However equitable it might have been in a controversy between the plaintiff and the La Crosse and Milwaukie Railroad Company to have treated as done that which they ought to have done, it *Page 346 certainly would not be equitable as to third parties, who made their arrangements, predicated upon what the company had actually done, to extend this fiction to them, so as to affect their rights as between each other.
I am unable, after a careful examination of the complaint, to discover any theory upon which the plaintiff is entitled to relief in this action upon the facts alleged. It is, therefore, unnecessary to consider the minor objections to the joinder of parties, etc., set forth in the demurrers.
The judgment should be affirmed, with costs.
All concur.
Judgment affirmed.