The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1898-04-04
BONDS HELD. TO BE VALID
FORECLOSURE ON THE TOLEDO,
ST. LOUIS & KANSAS CITY
Court Rules That a Secret Agree
ment Between a Director and the
Contractor Does Not Invalidate
bonds as Regards Innocent Pur-
chasers-SaIe sof the Road Orr
dered.

CINCINNATI, o., April 3.-The opin-
ion of Judge TaftHan the proceedings
brought to foreclose the mortgage on
the Toledo, ST. Louis & Kansas City
railway, running from Toledo to ST.
Louis, known asdthe Clover Leaf, was
handed down Saturday in the circuit
court for the northern district of Ohio
at IoIedo. This was a consolidated
suit embracing both a bill to foreclose
the mortgage on the road securing
000 OF bonds and q creditors bill
to sell the road ito pay the Judgment
and floating debts. The railroad COM
I'any and the Judgment creditors at
tackled the validity of the bonds, claim
ing that the bonds were void even in
the hands of innocent purchasers, be-
cause issued in violation of the law OF
ohio, which required that railroad COM
panles shall not sell their bonds at less
than par to- directors. 1t appeared in
evidence that kneeland, the contractor
received 100000 of bonds, 81 ,250, 900 Of
common stock and s1,OO0G90 of pre-
ferred stock, i'm consideration of his
building the old narrow gauge road
from Toledo to st. Louis, and paying
off all the claims which were liens un-
DERIVING the old narrow gauge first
mortgages. The court finds that the
company received as consideration for
ing In value to more than rs per cent
par OF the bonds: therefore that the
bonds were not invalid on the first
ground alleged. It further appeared
that seventeen days after the COM
pany assumed the construction con-
tract with Kneeland,s Kneeland made
a secret written partnership agreement
with Qu1gley, who was the. president
OF the railroad company and the chair
~ lI1o1
companies, by which Quigley was CIV
en- one-half interest in the construction
contract. Kneeland testified that he
and Quigley had made a verbal agree
ment of this kind before the contract
became binding on the company. The
court found as fact that the secret
partnership agreement between Knee
land and Quigley was made ait the time
OF It's date and not before. 1t was
argued on behalf Of the company that
the bonds which were delivered under
the construction contract to Kneeland
after kneeland and Quigley made their
secret partnership were bonds pur-
CHASED by Quigley for a director from
the company at less than par, and were
therefore void.
The court held that even if the part
nership agreement between Kneeland
and Quigley had been a lawful one. It
be considered a purchaser of the bonds
delivered under the construction con-
tract from the company within the
meaning of the statute, which must be
strictly construed. But. however this
might be, the court held that the pre-
tended contra ct of partnership between
Kneeland and Quigley, without regard
TO the statute, was corrupt, vicious and
void, and could, vest in Quigley no in
10 de- Iol{ II
land, under his construction contract.
And as the bonds were not delivered
to Quigley, but delivered to Kneeland,
and sold by him in the open market,
kneelands vendees could trace their
title to the company by lawful contract
untainted by the corrupt and void con-
tract between Kneeland4 and. Quigley.
1t appeared thatdhes period Of construc-
ton under the contract was four years.
and thatIJKneeland and .(QuigIey had
quarrefed at the end of the first year
and had dissolved all@their relations
The court therefore heldsthe bonds TAX
en- by Kneeland ifromSthe company were
not purchased by Quigley,.5a7 director,
within the inhibition of the statute
and were not tainted with illeganty
by reason of the partnership agree
ment
Another question decided, was the
right of the preferred stockholders who
were given by their certificates of stock
lien on the property of the railroad
to deposit such shares Of the stock
upon any bid which they! might make
at the sale after providing capital suf-
flcient to pay off the bonds and debt of
the company. The court held that the
surplus, if any, after the payment Of
the debts, must be turned over to the
company to be used in the proceedings
to wind up the company between the
preferred and the common stockholders
after payment Of such debts as had not
been put in the creditors', bill. and the
privilege of using the preferred stock
to complete bid as prayed. could not be
granted.
A decree for sale on the foreclosure
bill and also upon the creditors bill
was ordered to be entered.