The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1900-01-23
PAPER TRUST DECISION
OPINION BY THE SUPREME COURT
THAT AFFECTS MANY MILLS.
Thirty-Nfne Properties to he Sold
South Dakota Maximum Rate Law
Case Remanded.

Illinois by the trust company against the
Columbia Straw Paper Company to fore
close a trust deed of thirty-nine paper
mill properties located in nine different
States. The Court of Appeals for the
Seventh circuit issued a decree allowing
the foreclosure and sale and this decree
was affirmed by to-day's opinion, which
was handed down by Justice Brown.
In passing on the case Justice Brown
took cognizance of the organization of the
paper trust and of the objection that the
Circuit Court should have allowed the
answer to be amended for the purpose of
showing that the organization of the paper
company was part of a scheme to form a
trust. Justice Brown held. however, that
'the purpose for which the corporation
was originally organized could not become
a material inquiry So long," he continued.
''as the corporation existed, it had the
power to create a mortgage and when that
motgage became due the trustee had a
right to foreclose."
Another point raised was that the Cir
cult Court erred in holding that the evil
dence did not support the contention that
there is a liability against bondholders,
who also hold stock that Is not paid for.
to the paper company amounting to
s2,113,000 and which Indebtedness should be
set of against the Indebtedness on each
bond This proposition involved the real
merits of the case and was discussed at
length. the point being that the bondholder
should be held for the difference between
the amount paid for the thirty-nine mills
over.
The opinion reviewed the effort made in
1892 to organize a paper trust to comprise
seventy mills. Into this trust only thirty
nine mills entered, but the capital was not
reduced. In this connection the court
reached these conclusions: THAT the mill
owners were to be paid principally in
stock; that Emanuel Stein. who conducted
the transaction. had no personal title to
the property he pretended to sell; that the
corporation was organized by the parties
who had but twelve shares out of 10000
shares; that Untermeyer, who drew STEMS
proposition Of sale to a corporation, was
the only responsible stakeholder in that
corporations; that the paper mill owners
knew nothing of the proposition to sell to the
Straw Paper Company; that the stock was
fixed at $5,00O,000 on the idea that seventy
mills would join in the combination,
whereas only thirty-nine joined that but
81, $4,000 was paid for the properties and
that s2.l13.OOO of stock was distributed
among the persons who got up the cor
poration without any distinct consideration
being received; that the mill owners re-
ceived stock which was worth but one-half
the value of that which they supposed they
would receive and that they were defraud-
ed in that amount But Notwithstanding
the assumption of fraud, the court held
that this fact could not affect the validity
n n
trustees TO foreclose or give recourse
against the innocent bondholders.
Continuing, Justice Brown said that "as
this was a suit of stockholders, the declar-
alton that the shares are fully paid up
and unassessable is valid one. If an
action by the corporation would not lie to
recover the unpaid part of the subscrip-
ton, then such unpaid part cannot be de-
Quoted from the bonds"
With reference to the charge of fraud
in the organization of the Straw Paper
Company, Justice Brown said: 1--WE are
not disposed to condOne the offenses of
those who, through Beard & Ramsdell, of
Buffalo, and their assignee Stein, as their
agents, purchased these plants for ST.
7SS,OO and Immediately thereafter went
through the form of repurchasing of their
own agents lin fact, of themselves) the
same properties about IS, 600, 900. Bound as
these promoters were to deal fairly and
honestly with the stockholders in the new
corporation, they were guilty of appar-
emily inexcusable conduct in excluding
the mill owners from all participation, put.
ting in their own clerks as directors and
paying of the mill owners in stock which
was really little more than half of the
value they must have expected to receive.
If they were able to secure options on only
thirty-nfne of the seventy mills they
should have made known the fact, or at
least given those mill owners the benefit
of the surplus stock" Still is was difficult
to see how justice could. be done by re-
versal and the decree was affirmed JUS
tices Shiras and Peckham concurred in the
result but held that the question of fraud
was irrelevant to the issue.
The United States Supreme Court to-day
decided the case of the Chicago, Milwaukee
& st. Paul Railway Company VS.. the Rail-
road Commissioners of the States of South
Dakota. The case involved the State law
providing a maximum rate. The Circuit
Court Of the United States for the district
Of South Dakota dismissed the bill, but
to-days opinion reversed the judgment and
remanded the case with instructions to the
lower court to investigate the earnings of
the road in the State SO to arrive at
the equities of the case. The opinion criti-
cised the court below for it's summary dis
position of the case without any such in
vestigation of the facts as case of so
much Importance demanded. The opinion
said that the evidence before the court
showed that the local operating expenses
were much greater than the general oper-
ating expenses of the entire system and
that they amounted to or exceeded IS per
cent. 1t is also stated that If the local
operating expenses were SIS per cent. it
was obvious that under the schedule pre-
scribed by the commissioners there would
be nothing left by way of profit or reward
to the stockholders. Justice Brown de-
livered the opinion. =
Justice Peckham handed down the opin-
ion in the case of Chew Hing Lung &
Co. VS.. the collector of customs at San
Francisco. The case involved the question
as to whether tapioca flour is a form of
tapioca and admissible free Of duty, or a
form of starch and dutiable at the rate of
212 cents per pound. The court held that
the flour was tapioca and nondutiable thus
reversing the Circuit Court of Appeals for
the Ninth circuit. .
In the case Of the State of Missouri VS.
the State of Illinois. involving the petition
for an injunction against the Chicago
drainage canal, the court to-day decided to
permit the attorney general of Missouri
to file his bill making the summons to
the defendants returnable on April q In
connection with this decision, Mr.. B. NJ
Schumacher. Representing the State of
Missouri, asked for a temporary restrain
ing order against the Chicago drainage
district. prohibiting the operation of the
canal during the pendancy of the proceed
been opened since the proceedings had be-
gun here, and with the full knowledge of
the proceeding In reply, Chief Justice Full
Ter said IL was impossible for the Supreme
Court to exercise the original jurisdiction
in a suit between States without giving