Court Opinion

ID: 6649263
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:52:35.680857+00
Date Added: 2024-06-11T15:59:36.160646
License: Public Domain

Ragan and Irvine, CC.,
dissenting.
We cannot concur in the conclusion adopted by the court. In our opinion the judgment should be very different, and for reasons which we shall proceed to state.
The Denver, Memphis & Atlantic Railroad Company (hereinafter referred to as the “Denver Company”) was incorporated in Kansas for the purpose of constructing a railroad from Denver to Memphis, extending through the state of Kansas. This company made a contract with the plaintiff and S. H. Mallory for the construction of a portion of its road. The terms of the contract are not material to this case. Fitzgerald & Mallory proceeded under the contract to the extent of grading about sixty miles of the road-bed, when funds seem to have been exhausted, and it became necessary to adopt some new plan of construction. Mr. Mallory and an officer of the Denver Company proceeded to New York for the purpose of interesting some large railroad company in the enterprise. Negotiations were begun with the officers of the Missouri Pacific Railway Company, chiefly with Mr. Jay Gould, its president; Mr. Fitzgerald also being in New York and taking part in the negotiations in some of their stages. As a result of these negotiations it was agreed between certain officers of the Missouri Pacific and Messrs. Fitzgerald & Mallory that a construction company should be incorpox-ated, the stock of which should be taken by Messrs. Fitzgerald & Mallory, and certain other persons, most of whom were interested in the Missouri Pacific. Accordingly the Fitzgerald & Mallory Construction Company (hereinafter referred to as the “Construction Company”) was incorporated under the laws of the state of Iowa, the expressed object of the corporation being the construction of railroads by contract, and the operation thereof, mining for coal or other minerals, quarrying stone and other materials. It does not seem to have ever been contemplated that the *477Construction Company should do a general business, but merely that it should construct the Denver road and other roads in connection therewith. This Construction Company had a board of five directors, composed of Mr. Fitzgerald, Mr. Mallory, and three other gentlemen closely associated in business with the two named, and presumably friendly to their interests. The capital stock of this company was at first one million dollars, but was afterwards increased to one million and a half. Of this Mr. Fitzgerald and Mr. Mallory never owned more than one-fifth; almost all of the remainder being taken by persons who were directors of the Missouri Pacific. Upon April 26, 1886, soon after the Construction Company was incorporated, a contract was entered into between the Denver Company and the Construction Company whereby the Construction Company agreed to furnish materials and money and to construct the Denver Company’s road. In consideration thereof the Denver Company agreed to pay the Construction Company its stock and all its bonds, being $16,000 per mile of each, at such times and in such settlements as the Construction Company might require. The Denver Company also agreed to deliver to the Construction Company all municipal and county bonds and all donations that might be voted to the Denver Company and to procure the right of way, but the Construction Company was to pay therefor. Upon the completion of the road the Construction Company was to equip it with at least $1,000 per mile of rolling stock. The road was to be built as it might be thereafter located, properly graded according to the engineer’s survey, furnished with oak ties, on curves not less than 2,600 to the mile, and steel rails not less than fifty-six pounds to the yard. There were also to be such depots and stations as the Denver Company might determine, all necessary siding and turn-outs, and the road generally was to be constructed “ equal to the roads now being built in southern Kansas.” The foregoing states the substance of the whole contract.
*478Upon May 4,1886, a contract was entered into between the Construction Company and the Missouri Pacific referring to that between the Construction Company and the Denver Company and making it a part of the new agreement, and reciting further that the Missouri Pacific “is desirous of obtaining control of the said line of road.” The agreement then follows that the Construction Company shall sell to the Missouri Pacific all of the securities to be received from the Denver Company, less the amount of stock given for municipal and county aid, estimated at $3,500 per mile, and receive in payment for the same $12,000 per mile of Missouri Pacific five per cent bonds, to be secured by a deposit of the Denver securities with a trustee. The Construction Company also agreed that the railroad should be of standard gauge, of not less than fifty-six pound steel rails, 2,600 ties to the mile, stations not more than eight miles apart, water stations not more than twenty miles apart, and that the road should be equal in its general character “to the roads now being constructed by the Missouri Pacific Railway Company in the state of Kansas, all to be subject to the approval of the chief engineer” of the Missouri Pacific. An addendum to the contract provides for the payment of these securities upon both sides upon the completion of the road in ten-mile sections, and for the transportation of men and materials by the Missouri Pacific, at the actual cost, over such portions of the road as might be turned over to the Missouri Pacific during the period of construction. Afterwards, the provision for settlements as ten-mile sections were completed was waived by the parties, as was also the requirement that the Construction Company should equip the road. This last waiver was through an arrangement between the Construction Company and the Missouri Pacific whereby the Construction Company was to omit the equipment and receive $11,000 instead of $12,000 per mile of Missouri’ Pacific bonds. The Denver Company was *479not a party to this last transaction and there was no rebate made in payments by the Denver Company to the Construction Company on that account. Upon May 11 the board of directors of the Construction Company approved both these contracts and one of its directors resigned and Mr. Russell Sage, a director of the Missouri Pacific, was elected to take his place. Upon November 3 two other directors resigned and Mr. George Gould and Mr. Richard Cross were elected in their stead. Mr. George Gould was then assistant to the president of the Missouri Pacific, and the following year became acting president thereof. Mr. Cross was a member of the banking house of Morton, Bliss & Co. The trial court found that he was directly or indirectly interested in the Missouri Pacific, but we find no evidence in the record to sustain that finding. It does not appear that either he or his firm was so interested, but it does very clearly appear from the evidence that upon every occasion when there was a difference of opinion among the directors Mr. Cross acted with Mr. Gould and Mr. Sage and against Mr. Fitzgerald and Mr. Mallory. It may be well to state here that the directory of the Denver Company was at first composed of men whose business and personal relations, and whose conduct as directors indicate that they were friendly to the interests of Mr. Fitzgerald and Mr. Mallory, but as soon as the Missouri Pacific had, by virtue of the contracts referred to, obtained an instalment of stock in the Denver Company, a meeting of that company was held and a board of directors elected, a majority of whom were closely connected with the Missouri Pacific. Under these contracts there was eventually constructed a line of railroad from Chetopa, near the southeastern corner of Kansas, in a generally northwesterly course to Larned, on the Arkansas river, and another line from McCracken, a short distance west of the center of the state, in an almost westerly course to the Colorado line. There was also constructed, under contracts substantially similar to those already set *480forth, a line of railroad known as the Kansas & Southwestern, about twenty-five miles in length, and under still another contract about two miles of road known as the Winfield, Texas & Gulf. No controversy arises out of the construction of the last named road and the Construction Company’s compensation therefor appears in the account below as an admitted item. During the ¡irogress of the work in Kansas a company known as the Pueblo & State Line Company was incorporated under the laws of the state of Colorado. This company will be hereinafter referred to as the “ Pueblo Company.” It seems to have been incorporated in the interest of the Missouri Pacific and by officers of that company. Upon August 16, 1887, the Pueblo Company entered into a contract with the Construction Company for the construction of a line of road from Pueblo easterly to a connection with the Denver road, and upon the same day the Missouri Pacific contracted with the Construction Company for the purchase of the stock and bonds of the Pueblo road and payment therefor in Missouri Pacific bonds. These contracts were very similar to those relating to the Denver road. They were somewhat more specific in their provisions, contained no requirement for equipping the road, and provided for bonds upon the Pueblo road at $15,000 per mile and stock at $10,000 per mile, for which stock and bonds the Missouri Pacific agreed to give $12,000 per mile of its five per cent bonds. This line of road was built by the Construction Company. Controversies having arisen out of various transactions under the foregoing contracts, or connected therewith, this action was brought by Fitzgerald, for himself and all the other stockholders of the Construction Company, for an accounting between the Construction Company and the Missouri Pacific.
The fundamental principle to be observed should be the discovery of the real nature, purposes, and results of these .transactions and proceedings. Upon their face the con*481tracts appear to be grouped as follows: One class between railroad companies and tbe Construction Company, contemplating the construction of lines of railroad and the payment therefor in stock and bonds, a transaction reasonable and legitimate in its nature when unaccompanied by elements of fraud. Second, another series of contracts between the Construction Company and the Missouri Pacific, whereby the Construction Company sells the stock and bonds so obtained and receives in exchange bonds of the Missouri Pacific. This also seems upon its face to be a legitimate and reasonable transaction. It is the duty of a court, especially in the exercise of its equitable powers, to look behind the form of contracts and transactions and reach their substance. When an effort is made to do so in this case, an entirely new light is thrown upon the whole enterprise, and facts are disclosed which, in our opinion, call upon the court to apply to the case a fundamental and familiar maxim of the law which should dispose of the whole controversy, at least so far as the interposition of courts is concerned.
Examining the contracts and proceedings thereunder in this light, the following observations are made: (1.) The originally contracting railroad companies were scarcely more than paper concerns, without property, without bona fide stock, without financial responsibility, without any responsibility except to the sovereign power of the states creating them. (2.) The Construction Company, out of its board of five directors, at all times had at least two members of the directory of the Missouri Pacific, and for a third member a man who at all times voted with the Missouri Pacific interests. The large majority of the stock of the Construction Company was owned by Missouri Pacific directors and stockholders. (3.) It never seems to have been contemplated that the Construction Company should do a general business, but its organization and operation was a device to assist in the construction of these *482particular lines of railroad. (4.) The plain, and indeed the express, object of the Missouri Pacific in contracting with the Construction Company was to obtain control of the railroads so to be constructed by the acquisition of all their stock and all their bonds. (5.) It is just as plainly inferable that the accomplishment of this object was one motive which led the Missouri Pacific stockholders and directors to subscribe to the stock of the Construction Company. (6.) The control so obtained of the original corporations enabled the Missouri Pacific in some manner to arrange with those companies to obtain not only a directing control of the corporations themselves, but actual possession and right to operate their tangible property as rapidly as it was brought into existence. (7.) Each one of these original companies issued capital stock and bonds vastly in excess of the cost of creating, and presumably of the value of its property. To illustrate: The stock of the Denver Company was $16,000 a mile, and its bonds $16,000 a mile. The stock of the Pueblo Company was $10,000 a mile, and its bonds $15,000 a mile. The other companies show similar figures. The evidence is not altogether harmonious as to the cost of construction, but it may safely be said that a figure between $10,000 and $12,000 a mile would amply cover the whole cost of construction, including the procurement of the right of way and the purchase of material,- the erection of telegraph lines, the construction of stations, side tracks, stock pens, and all other things possessed by the companies. (8.) The bonds of the Missouri Pacific with which these securities were bought were not worth at the outside estimate much more than par; in fact, they were sold by the Construction Compauy at ninety cents. (9.) The Missouri Pacific was careful to contract in all cases that the stock and bonds which it should receive should be issued by the original companies, except that in regard to the Kansas roads an exception was made of so much of the stock as *483might be issued in payment for local aid bonds. This feature will be hereinafter referred to. (10.) The stock of these companies being delivered to the Missouri Pacific, and there being no evidence as to any future disposition thereof, it is to be presumed that the Missouri Pacific still holds it for the purpose of maintaining its “control” of the original companies. (11.) The bonds were deposited with a trustee to secure the Missouri Pacific bonds with which they and the stock were purchased, but the Missouri Pacific receives the interest thereon from time to time. (12.) While the arrangements between the Missouri Pacific and the companies so passed under its “control” do not appear from the evidence, in view of the fact that the bonds of these companies amount in their aggregate to more than the cost of the roads and that they bear six per-cent interest, it is fair to presume that any sums paid to the original companies by way of rentals or otherwise in payment for the privilege of holding and operating these roads is ab-orbed in the payment of interest on the bonds and so pass directly back to the Missouri Pacific. If any surpl us remains, it is, of course, disposed of by way of dividends to the stockholders, —that is, the Missouri Pacific, — except to the extent of stock in the Kansas roads held by the municipalities which saw fit to impose the burden of taxation upon their citizens for the purpose of aiding this enterprise. (13.) So far as the evidence shows what became of the Missouri Pacific bonds after they reached the Construction Company, it appears iliat nearly all of them were sold at a discount to directors of the Missouri Pacific, who were also stockholders in the Construction Company. It therefore follows that all the sources of income created by these complex arrangements have been so manipulated that the income passes either directly to the Missouri Pacific or to such of its directors as seem to control its operations and also those of the Construction Company.-
Erom these observations and from facts upon which they *484are based the following conclusions seem inevitable: The whole scheme amounted to a device of the Missouri Pacific, or those having its control, to construct certain railroads in Kansas and Colorado, issue stocks and bonds vastly in excess of the value of the property, so manipulate them that whatever earnings might accrue would pass to the Missouri Pacific or to favored stockholders therein, so that the Missouri Pacific and those stockholders should receive all possible benefits from the transaction, and at the same time assume no burdens, leaving all the financial responsibility upon the Construction Company and all the legal responsibility devolving upon a railroad company in favor of the state upon those local corporations which have been heretofore styled the original companies, and which it is perfectly fair to characterize as purely paper and fictitious concerns and irresponsible devices for the purpose of exercising the rights granted by the states and assuming the obligations imposed upon such corporations by the states, and so relieve the real projector and promoter of the scheme from all actual responsibility. The overissue of stock and bonds is in itself a serious and probably sufficient reason for characterizing the transaction as fraudulent.
The courts, wherever the subject has arisen, as well as the text-writers, have announced the general doctrine that stock certificates purporting to be paid up should be actually so, and that the issuing of stock gratuitously at a discount, or in exchange for property taken at a known and intentional overvaluation, is a fraud. The fraud has been variously characterized as one against bona fide stockholders, against creditors, against the corporation itself, against the public and upon the law. It is not often that a remedy exists for such a fraud, and in many of the cases the courts, while insisting that the issue of fictitious stock is a fraud, have been compelled to deny relief against it, either because the parties seeking relief were estopped, or because they were not the sufferers. This result does not, however, *485render the language of the courts regarding the nature of such transactions less significant.
In Re Ambrose Lake Tin & Copper Mining Co., L. R. 14, Ch. Div. [Eng.], 390, it was said in regard to such a transaction: “ Whether a fraud upon which any action can be taken has been committed in this case, I am not at present prepared to say, but that a fraud was intended I have not the least doubt. The transaction has all the badges of fraud.”
In Barnes v. Brown, 80 N. Y., 527, the court said: “The directors assuming to issue stock in that way (without consideration) would perpetrate a wrong upon the corporation and its stockholders and a fraud upon every person who took such stock as full paid stock, relying upon the appearance, and deceived thereby.” .
In Lorillard v. Clyde, 86 N. Y., 384, the court sustained the formation of a corporation whose stock was issued in payment for steamers purchased from the stockholders at an agreed valuation which was not shown to be excessive, but it was said: “ If it had appeared that the organization of the corporation in this way was a device to defraud the public by putting valueless stock on the market having an apparent basis only, a different question would be presented.”
Gilman, C. & S. R. Co. v. Kelly, 77 Ill., 426, was a case presenting many features like the one now before us. The court said: “ In this case certificates of stock to the amount of $1,400,000, being a majority of all the stock, have been issued without any real consideration, with the evident purpose to deprive the other stockholders of any influence in the election of directors or in the management of the affairs of the company. * * * Whatever may have been the motive, the disposition of the stock was such the directors could not rightfully make.”
In Tobey v. Robinson, 99 Ill., 222, the court said in regard to stock issued without consideration: “Its issue was *486in violation of law and in fraud of the rights of the stockholders of the Erie Company.”
In Osgood v. King, 42 Ia., 478, it was said: “It is a gross fraud for the officers of such a corporation to issue to stockholders paid up certificates of stock in consideration of real estate conveyed at a price known and understood to be many times its real value, but such a fraud is greatly intensified when the officers of a corporation deal with themselves as stockholders and accept such a conveyance in payment of their own stock.” This language is peculiarly applicable to the facts of the case under consideration.
As early as 1858 the issuance of fictitious stock was denounced by Mr. Justice McLean in Sturges v. Stetson, 1 Biss. [U. S.], 246, and in Fosdick v. Sturges, 1 Biss. [U. S.], 255, as “fraud upon law and upon the stockholders.” The maimer in which relief can be obtained from such a fraud is not material in this case. The only important principle is that the willful and intentional issuing of fictitious stock is unlawful. We can only surmise some of the motives which led to it in this case. One purpose on the part of the Missouri Pacific is plain enough. The trust indenture under which the Missouri Pacific bonds were issued restricted the issuance of such bonds to the amount of $10,000 per mile of roads whose underlying bonds were pledged to secure the same, with one exception in favor of the St. Louis, Eort Scott & Wichita road, which was $15,-000 per mile. So far as the railroad companies in this controversy are concerned, $12,000 per mile much more than covered the average cost of construction; but these Missouri Pacific bonds were given a fictitious value by the pledge of bonds having a nominal value of $15,000 or $16,000 per mile to secure them. The advantages from an overissue of stock and bonds are manifest to any one who has been called upon to investigate contracts of corpora-' tions, and those familiar with questions lately arisiug in regard to the reasonableness of rates fixed by the legisla-' *487ture, or by commissioners, for the carriage of freight and passengers. Such overissues are pernicious in effect and indefensible upon principle. No honest motive can be ascribed to such acts when knowingly committed. Such instruments partake of the nature of false tokens. They are the instruments of deception and fraud. They are intended to, and do usually, find their way into the hands of innocent purchasers, who ultimately find that they have parted with their money in exchange for depreciated securities whose actual value, owing to the gigantic nature of the enterprises upon which they are based and usually the remoteness of the field of operations, these purchasers were unable to investigate. They lead to corporate bankruptcy and often to the bankruptcy and distress of investors. They form at once the urgent motive and plausible excuse for excessive and unreasonable charges upon the patrons of the road in order to secure sufficient earnings to pay interest and dividends upon securities in excess of the productive capital invested. They afford a motive and an opportunity for directors — whose interests should be, as their legal and moral duty is, to conduct the operations of the road for the benefit of all its creditors and stockholders — to deviate from this duty and so act as to receive for themselves a profit, coming first from unfortunate and misguided investors and ultimately from the stockholders whose interests it was their duty to protect.
In the gradual advancement of the law of corporations the courts have been slow in appreciating the enormity of the fraudulent issue of stock and bonds. The devices first resorted to for this purpose were simple and transparent ■and were easily corrected. The ingenuity of promoters has since devised more subtle schemes, until we have, in this case, a fraud of this kind shielded under such a complexity of corporate creations, contracts, and transactions that it has been necessary to review the whole history of the enterprise and to brush aside the forms of contracts in *488order to discover its real nature. It is said that such schemes are common, that certain states are grid-ironed with railroads constructed in pursuance thereof, and so-charged with indebtedness that no earnings could be expected to meet their obligations as they accrue, without regard to the payment to stockholders of the profits which they have a right to expect from their investment. At the-same time a cry goes up from certain classes of patrons that the passenger and freight charges of these railroads are exorbitant and ruinous, and a demand, which some states have seen fit to meet, has gone out for legislative-action to control and reduce such charges. While investors in railroad securities declare that they receive no-income, that depreciation has occurred, and that failure threatens, other classes declare, with equal vehemence, that exorbitant charges by railroads render their business unproductive. This state of affairs is largely caused by just such operations as have given rise to this lawsuit, and it is high time for the courts to enforce the same rules in regard to fraudulent practices carried on upon this gigantic scale and followed by these enormous results as they enforce with regard to the same transactions where the magnitude of the scheme and the intricacies of its details tend less to-obscure the vision. The foregoing remarks apply to both the Kansas and Colorado roads, but with regard to those in Kansas there are other more direct and probably clearer reasons why this transaction should be deemed fraudulent. The law of Kansas was not directly put in evidence by production of the statutes or other usual methods of proof. It appears, however, that counties and municipalities of that state are permitted, upon vote of the electors, to issue their bonds to aid in the construction of railroads, and that they receive in exchange for such bonds capital stock of' the railroad companies at par valuation. About ¡$1,000,-000 of bonds were received by the railroad companies to-aid in the construction of these roads. These bonds went. *489to the Construction Company. Obviously it was contemplated by the law that the stock which these bonds went to purchase should be genuine stock, but we find the property of these companies incumbered by mortgages to secure bonds in themselves greatly in excess of the cost of the roads. Then there is issued, on top of this mortgage indebtedness, stock in itself greatly in excess of such cost. The result is that these confiding municipalities have incurred obligations which have for their security the full force of the taxing power, and have received in exchange certificates of stock which are utterly worthless, so weighed down with other stock as not even to give the municipalities any effective voice in the control of the corporations, and the whole matter so manipulated in this case that the property of the corporation is turned over at once upon its creation to a different organization, in which the municipalities have no voice at all, and under such arrangements that whatever earnings might otherwise accrue to the original corporations are immediately absorbed by the other. A review of the evidence, indeed, must convince any candid reader that a chief, if not the principal, object in this enterprise, so far as the construction in Kansas was concerned, was to obtain the greatest amount possible of this local aid, with the further purpose always in view of so manipulating affairs that nothing should be given in return therefor. (See on this feature, Gilman, C. & S. R. Co. v. Kelly, 77 Ill., 426.) Enough has been said to demonstrate that the whole enterprise was of an unlawful character, at least so far as the Missouri Pacific and those officers who took an active part are concerned.
The question will now be asked, how does that fact affect the rights of the Construction Company ? ' The answer is that the Construction Company was an essential part of the unlawful scheme. It was organized for the purpose of rendering the scheme feasible, and was as necessary to it as the original paper corporations themselves. *490Had the contracts been directly between these two companies and the Missouri Pacific, it is probable that they would have been ultra vires of the Missouri Pacific. It had the right to build railroads for itself and to purchase and lease roads, but probably not to construct roads for other companies. Then it must be kept in view that the Missouri Pacific stockholders, who were also stockholders in the Construction Company, so manipulated affairs as to reap an individual profit to themselves. They undoubtedly had this object in view from the beginning. Then in a direct transaction the Missouri Pacific would have incurred a direct financial responsibility which it was more convenient to form the Construction Company to assume. In short, the Construction Company, was a mere device to assist in the unlawful enterprise. Its two stockholders who were not interested in the Missouri Pacific had full knowledge of the relations of the other stockholders to that company. They knew all the details of the scheme. They are chargeable with the knowledge of its legal result. It is not a ease where a third person has innocently assisted in the accomplishment of an illegal design, but one where the party seeking relief was a party to that design. By way of illustration: If A and B concoct a scheme whereby they contract with C to do a certain work, and by virtue of that contract defraud C, or a third person, the working of that fraud being their object in making the contract, and to carry out the fraud employ men to do the work, these workmen should undoubtedly recover from A and B for their services, if they were not aware of the unlawful character of the enterprise. Possibly they might recover even if they had notice of its illegality. But if A should pay these workmen, no court would hold that he could compel B to contribute or account. Such is the situation here. The Missouri Pacific and the Construction Company were practically partners for the purpose of carrying out an unlawful scheme. The court will not enforce such *491a contract when executory, and when executed the court will leave the parties where they have placed themselves and refuse all relief. The general principles upon which this conclusion has been reached are founded upon public policy and are as old as the common law itself and require no argument for their establishment. There are, indeed, many cases holding that the mere knowledge of one party that the other proposes to illegally use the fruits of the contract will not prevent a recovery. This doctrine seems to have taken its rise from the opinion of Lord Mansfield in the case of Holman v. Johnson, 1 Cowp. [Eng.], 341, where it was held that there could be a recovery for goods sold at Dunkirk, the vendor knowing that the vendee intended to smuggle them into England; but in Lightfoot v. Tenant, 1 B. & P. [Eng.], 551, it was held that there could be no recovery upon a sale of goods to be disposed of by the vendee contrary to an act of parliament, where the vendor participated in the unlawful design, the court saying : “ The plaintiffs do not merely assist another, they must be taken to be principals in the illicit transaction.” The following forcible illustration is used: “The man who sold arsenic to one he knew intended to poison his wife with it, would not be allowed to maintain an action upon his contract.” In Hobbs v. Henning, 17 C. B., n. s. [Eng.], 819, the court distinguishes the two cases last cited and attempts to reconcile them, overlooking the fact that in Light-foot v. Tenant the inference of participation was drawn chiefly from the fact of the vendor’s knowledge, and overlooking the further fact that in Langton v. Hughes, 1 Man. & Sel. [Eng.], 593, and in Cannan v. Bryce, 3 Barn. & Ald. [Eng.], 179, the doctrine of Holman v. Johnson had been overruled and no recovery permitted. We think that we have shown that the Construction Company was a principal and a participant in the illegal transaction, so that, measured by either rule, there can be no recovery. The language of Lord Mansfield in Holman v. Johnson, in *492which he states the general rule, has been frequently approved and followed, while the conclusion reached in that case has been overruled. His language is as follows : “The objection, that a contract is immoral or illegal as between plaintiff and the defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed, but it is founded on general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may say so. The principle of public policy is this: Ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes ; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then havé the advantage of it-for where both are equally in fault, potior est conditio defend ends.^
That the manipulation of the roads in Kansas was a gross and deliberate fraud upon the municipalities is clear, and that the organization of the Construction Company put it within the power of the common*stockholders, in the first place, to earn for themselves and their coadjutors in the Construction Company a profit out of the Missouri Pacific, towards which they occupied fiduciary relations, and then in turn to take these profits from the Construction Company and put them into their own pockets, is equally clear. If the case is not parallel upon the facts, it is fairly within the principle of Wardell v. Railroad Company, 103 U. S., 651; Anderson v. Carkins, 135 U. S., 483; Gould v. Ken*493dall, 15 Neb., 549, and many other cases of a similar nature. In both Wardell v. Railroad Company and Anderson v. Carkins there is a dictum that in an appropriate action there might probably be a recovery upon a quantum meruit, but if that be so, it must be upon grounds independent of the contract and not in an action founded thereon. Relief was altogether refused in the cases cited, and should be refused here.
It may be said that the Construction Company is indebted and that its creditors- should not suffer. Some indebtedness does appear in the record, most of it, however, to individuals who were parties to the scheme; but no creditors are here to enforce their rights, and this suit does not affect their rights. Their remedies against either or both of these companies are not before the court for consideration; and if in a direct proceeding between the parties to an unlawful contract the creditors of either must be protected, the courts could probably never apply the maxim, “ex dolo malo non oritur actio,” and illegal contracts would always have to be enforced. There is no pleading of the illegality of the contract, at least upon the ground herein discussed; but where upon the trial it is apparent, from evidence material to the issues, that the cause of action rests upon an agreement against public policy, the court will of its own motion refuse to enforce such agreement or grant any relief where the parties are in pari delicto. But conceding that the subject-matter of this suit is one which the courts should entertain, we can see neither reason nor consistency in accepting some portions of the transaction as it appears on its face and rejecting other portions as subterfuges — measuring some liabilities by the terms of the contracts and others by a rule obtained by disregarding those terms. If the case is to be entertained at all we think it should be resolved as follows:
First — Fitzgerald’s right to maintain the action. The Missouri Pacific contends that the plaintiff has not es*494tablished a sufficient foundation for maintaining a stockholder’s bill. The allegations of the petition upon this point are, briefly, that the persons interested in the Missouri Pacific have a controlling interest in the stock of the Construction Company; that a majority of the board of directors of the Construction Company are interested in the Missouri Pacific and have manipulated the affairs of the Construction Company to its own disadvantage and to the advantage of the Missouri Pacific. These matters are set out at length and in detail. The evidence shows that prior to the commencement of the suit the plaintiff requested Mr. Mallory, the president of the Construction Company, to institute the action, and that Mr. Mallory refused to do so. No demand was máde upon the board of directors. It is claimed in defense that in every case such a demand must be made as a condition precedent to the institution of a suit by a stockholder, or if there be an exception, it is confined to cases where the action is against the directors individually. The findings of the trial court and the overwhelming weight of evidence show that a majority of the board of directors in all of the transactions where there was a conflict of interests have acted in accordance with the interests of the Missouri Pacific or expressed wishes of Mr. Jay Gould, its president; that in all the matters complained of the Construction Company has been placed in the position it now occupies by acts of that same majority, and it is perfectly clear that a demand upon the board of directors to institute the suit would have been fruitless, or if it had been complied with, that the action would have been conducted as all the past affairs of the Construction Company had been, — not adversely to the Missouri Pacific, but in accordance with its wishes. We do not think that in any case presenting a similar state of facts has relief been denied to a stockholder. While the cases holding that a demand is unnecessary are generally actions against the persons upon whom if demand were necessary *495it must be made, the principle established in those cases is that the demand is not necessary where it would be useless. (Barr v. New York, L. E. & W. R. Co., 96 N. Y., 444; Beach, Private Corporations, 886; Cook, Stockholders, 741.)
Second — Is there a defect of parties? It appears incidentally in the pleadings and distinctly by the evidence that Fitzgerald brought an action in Iowa against the Construction Company for the purpose of winding up its affairs, and that in that action a receiver was appointed of the effects of the Construction Company. It is urged that Fitzgerald cannot now maintain this action, at least without joining the receiver as a party defendant. We think it is clear that the receiver could not himself have maintained the action in this state. The point was considered and discussed with great care by Mr. Justice Wayne in Booth v. Clark, 17 How. [U. S.], 321, and it is there said: “Our industry has been tasked unsuccessfully to find a case in which a receiver has been permitted to sue in a foreign jurisdiction for the property of the debtor. So far as we can find, it has not been allowed in an English tribunal; orders have been given in the English chancery for receivers to proceed to execute their functions in another jurisdiction, but we are not aware of its ever having been permitted by the tribunals of the last. We think that a receiver has never been recognized by a foreign tribunal as an actor in a suit. He is not within that comity which nations have permitted, after the manner of such nations as practice it, in respect to the judgments and decrees of foreign tribunals.” Inasmuch as the receiver could not be recognized in this state and could not have been permitted to maintain the action, it would seem to follow that the courts of this state must proceed independently of the receivership. As a foreign receiver he would have no interest in the controversy, and is neither a necessary or proper party thereto. The case relied upon by the defendants *496upon this point is that of Porter v. Sabin, 149 U. S., 473. It was there held that after a state court had appointed a receiver of property of a corporation, stockholders could not bring suit against the officers in a court of the United States of the same territorial jurisdiction without making the receiver a defendant. The decision was based upon the ground that when a court of competent jurisdiction appoints such a receiver it assumes the administration of the estate, and it is for that court to determine whether it will adjudicate claims for or against the receiver, or allow them to be litigated elsewhere, and in that case the court appointing the receiver and the court in which the stockholders’ bill was filed having the same territorial jurisdiction, the state court had already obtained jurisdiction over all the property and rights of action which would otherwise be within reach of the federal court. The facts which influenced the decision in Porter v. Sabin do not exist in this case and the general doctrine applies.
Third — The accounting. Both parties have appealed from the decree of the district court, and we are now brought to a review of the findings of that court in the accounting between the parties defendant.
1. The trial court finds, in accordance with the evidence that the railroads were constructed and turned over to the Missouri Pacific as follows: Denver, Memphis & Atlantic —February 14, 1887, 150 miles; August 11, 1887, 29.83 miles; August 11, 1887, 93.57 miles; October 1, 1887, 124.42 miles; December 15, 1887, -12.82 miles; total, 410.64 miles. Kansas & Southwestern — May 3, 1887, 24.84 miles. Pueblo & State Line — December 15, 1887, 151.34 miles. Total, 586.82 miles.
2. Upon the completion of the first 150 miles a controversy arose as to whether the road had been constructed in accordance with the contract, and the Missouri Pacific at first refused to accept the road. A proposition was then made by Mr. Jay Gould, as president of the Missouri Pa*497cific, to the directors of the Construction Company, that the Missouri Pacific would accept the road at $10,000 per mile. This proposition was accepted by a resolution of the directors and settlement made accordingly. The plaintiff seeks to recover the $150,000 thus withheld. The evidence as to the manner in which this 150 miles had been •constructed is very conflicting, but the trial court found upon ample evidence that the road was constructed in accordance with the contract, except as to some details of the work which were afterwards performed. The binding force •of the compromise depends not, however, upon what the rights of the parties actually were at the time it was entered into, but upon the question as to whether or not there was, at the time of the compromise, a bona fide controversy upon the subject. It is very clear from the evidence that Mr. Gould was dissatisfied with the work of the Construction Company; that he made many objections thereto; that he insisted earnestly that the work did not satisfy the requirements of the contract; and there is so much evidence to support the contention of Mr. Gould and the Missouri Pacific in this regard that a finding by the trial court based upon that evidence would not have been disturbed. We think the evidence shows that an actual controversy existed, that the Missouri Pacific urged it in good faith, and that the resolution was adopted in good faith for the purpose of settling it. A settlement was actually made upon the basis of a compromise, acquiesced in by both parties thereto, throughout all subsequent transactions, and it cannot now be disturbed. The trial court was right in disallowing this item. It is said that the Missouri Pacific paid Gould and others $11,000 per mile for the whole of the Denver road, making these persons its agents to pay the Construction Company. We cannot find any support for this in the evidence. The only thing from which such an inference could possibly be drawn is a report of the directors of the Missouri Pacific to its stockholders, in which the cost of the Denver road is *498estimated at a little less than $12,000 per mile; but when the admitted items of extras in this account are considered, this statement is easily explained. But did the facts appear as the plaintiff claims, it would not affect the compromise. If A give B $100 to pay C, and a controversy existing as to whether C has earned the money, B settle for $500, his liability for the remainder is to his principal and not to C.
3. A portion of the road, 36.6 miles long, the Missouri Pacific at one time determined should not be constructed. Mr. Mallory urged its construction, and finally agreed to construct it at the rate of $10,000 per mile, if the Missouri Pacific would permit. Mr. Mallory had no authority to so modify the contract, and the directors of the Construction Company never ratified his action. For this section of the road the Construction Company is entitled to $11,000 per mile, and the trial court rightly so held.
4. Allowing, then, $10,000 a mile for the first 150 miles of the Denver road, $11,000 a mile for the remainder and for the Kansas & Southwestern, and $12,000 per mile for the Pueblo road, we find that the Construction Company earned upon its contracts $6,456,360, payable in Missouri Pacific five per cent bonds. The trial court found $6,454,-60(). The difference, amounting to $1,760, is due to a difference in the findings in regard to the length of the Denver road. The thirteenth and fifteenth findings conflict to the extent of .16 of a mile, and we have accepted the detailed statement of the fifteenth finding, rather than the general statement of the thirteenth, there being support in the evidence for either finding.
5. The trial court found that there had been payments of bonds as follows: February 14, 1887, $1,500,000; July 28, 1887, $2,500,000; September 22, 1887, $2,500,000; total, $6,500,000; and so credited the Missouri Pacific in the account with an overpayment of $45,400. The finding, however, of a payment upon July 28, of $2,500,000, *499was a conclusion of the trial court based upon certain other findings. Upon the date named the Construction Company borrowed of Jay Gould $2,500,000 of these bonds. The trial court found that at that time the Construction Company had earned and that the Missouri Pacific was obliged to pay to it the sum of $2,500,000, and. the court concluded that the loan of the bonds made by Gould should be treated as a payment of that date by the Missouri Pacific, and that the Missouri Pacific should be charged against this payment with an item of $62,500, being six months’ interest upon the bonds lent by Gould, which Gould after-wards received. In this we think the.trial court erred. It should not have treated the loan by Gould as a payment by the railroad company; but if the Missouri Pacific had unreasonably delayed or withheld payments due the Construction Company, the measure of damage would be the interest which the bonds would draw from the time they ought to have been delivered until they actually were delivered. The transactions between Gould and the Construction Company on the one side and the railroad company and the Construction Company on the other must be kept separate. The delivery; of July 28 must be treated as a loan by Gould, which in fact it was, and the railroad company should only be credited with the bonds actually delivered to the Construction 'Company, or upon its order. The amount of these, as we find it from the evidence, is $6,418,000.
6. It was claimed by the Construction Company that a contract existed between that company and the Missouri Pacific by which the Missouri Pacific was obligated to transport materials to be used by the Construction Company over the Missouri Pacific lines at a rate of three-fourths of a cent per ton per mile. The Missouri Pacific, however, undertook to charge a rate of three cents per ton per mile, and the treasurer of the Construction Company, Mr.- Cross, paid the Missouri Pacific, upon that basis, its *500claim without authority. The by-laws of the Construction Company required vouchers to be approved by the president and this payment was made without such vouchers. The Construction Company claims that there should be refunded to it upon this account $318,763.56, and this item was allowed by the district court, the trial court finding the facts substantially as the plaintiff claimed them to exist, and finding that the rate of three cents per ton per mile was unreasonable. All the shipments out of which this account arose were interstate shipments, and the trial court finds specifically that of the whole amount claimed, $17,-768.45 arose out of shipments made prior to April 5, 1887, when the interstate commerce act took effect; the remainder arose subsequently. The evidence as to this contract was conflicting, but the findings of the trial court received substantial support and we think that the item of $17,769.45 was properly allowed. Section 2 of the interstate commerce act is as follows: “That if any common carrier subject to the provisions of this act shall, directly or indirectly, by any special rate, rebate, drawback, or other device, charge, demand, collect, or receive from any person or persons a greater or less compensation for any service rendered or to be rendered in the transportation of passengers or property subject to the provisions of this act than it charges, demands, collects, or receives from any other person or persons for doing for him or them a like and contemporaneous service in the transportation of a like kind of traffic under substantially similar circumstances and conditions, such common carrier shall be deemed guilty of unjust discrimination, which is hereby prohibited and declared to be unlawful.” The plaintiff claims that the rate of three-fourths of a cent per ton per mile was the regular rate charged by the company to others for similar material, and that it was never changed. Section 9 of the act referred to is as follows: “ That any person or persons claiming to be damaged by any common *501carrier subject to the provisions of this act may either make complaint to the commission as hereinafter provided for, or may bring suit, in his or their own behalf, for the recovery of the damages for which such common carrier maybe liable under the provisions of this act, in any district, or circuit court of the United States of competent jurisdiction. But such person or persons shall not have the right to pursue both of said remedies, and must, in each case, elect which one of the two methods of procedure herein provided for he or they will adopt.” There is no provision in the act which authorizes suit to be commenced in the state courts. In this respect the act differs from that in regard to usury exacted by national banks, construing which it has been held that a state court has jurisdiction of a suit to recover the penalty. (Schuyler Nat. Bank v. Bollong, 37 Neb., 620.) As to the particular kind of grievance alleged in this case, congress has provided a commission to which application may be made for redress, or the aggrieved party may at his election bring suit for redress in the federal courts. The subject being one upon which the power to legislate is delegated to congress, and congress having enacted laws upon the subject and provided for certain procedure in certain tribunals to obtain redress for a violation of such laws, we think the tribunals so created have exclusive jurisdiction. (Copp v. Louisville & N. R. Co., 46 Am. & Eng. R. Cas., 634; Coxe Brothers v. Lehigh Valley R. Co., 4 Interstate C. C. Rep., 578; Swift v. Philadelphia & R. R. Co., 58 Fed. Rep., 858, in circuit court for northern district of Illinois; Keith v. Tilford, 12 Neb., 273.) The matter of overcharges for freight since April 5, 1887, is, therefore, not within the jurisdiction of the court and must be for that reason dismissed from the case without determination.
7. The following items of charges against the Missouri Pacific were allowed by the trial court: Additional stall roundhouse, Chivington, $1,000; extra grading at Chiv*502ington, $6,000; extra ties on D., M. & A., $23,192.17; stock yards and pens, $11,800; fencing, $1,522.98; turntables, $4,522.01; extra nut-locks, D., M. & A., $2,223.92. These were all items which the Construction Company claims were not included in the contracts with the original railroad companies, but were performed and furnished at the instance and request of the Missouri Pacific, and for which the Construction Company should be allowed their reasonable value. The evidence is ample to support the findings of the trial court, which are upon these items affirmed.
8. The Construction Company also seeks to recover upon a quantum meruit for a telegraph line constructed along the Denver road. This line was constructed by virtue of a written contract between the Denver Company and the Western Union Telegraph Company, the Denver Company to do the work and the Telegraph Company to furnish the material. But there is much evidence to show that a telegraph line is not a portion of a railroad such as the Construction Company had contracted to build for the Denver Company. The negotiations in regard to this line were conducted between the Construction Company and officers of the Missouri Pacific. The contract was not entered into until after examination and approval by the Missouri Pacific officers, and the Construction Company proceeded with the work at the direction of these officers. Under these circumstances the Missouri Pacific rendered itself liable to the Construction Company and the trial court properly allowed this charge, which amounts to $25,703.03. (Baltimore & Ohio Telegraph Co. v. Interstate Telegraph Co., 4 C. C. A. [U. S.], 184.)
9. Upon the completion of the Pueblo road a large quantity of track material remained unused at Chivington. It was claimed by the Construction Company that the Missouri Pacific agreed to take all of this property as inventoried by representatives of the two companies and at *503prices agreed upon. Upon the other hand the Missouri Pacific claims that it agreed absolutely to take a portion of the material, to be delivered as it should be needed, and to take the rest provided it should find use therefor. Two items of this material are not disputed. The trial court seems to have found substantially in accordance with the claim of the Missouri Pacific as to the terms of this arrangement, and allows, in addition to the two items, an item of $16,910.59. This is the remainder of the track material which the Missouri Pacific agreed to take absolutely as it should need it; but before it was taken it was seized .for taxes and the Missouri Pacific undertook to buy it at tax sale, paying therefor $3,050.40. The trial court, while charging the Missouri Pacific with this third item, credits it with the amount paid for taxes. Upon the basis of the finding of fact, which is sustained by the evidence, we think this is correct. The Missouri Pacific was obligated to take the material, but at the time of the tax sale the Construction Company was liable for the taxes, so while the Missouri Pacific could not, as against the Construction Company, obtain title through the tax sale, it was entitled to credit for the amount of taxes paid.
10. There is a further charge allowed by the trial court of $5,000, under the head of miscellaneous material at Chivington. This would be more correctly described as freight on material from Chivington to the "Verdigris Valley railroad, for the construction of which it was ultimately used. The charge presents no question of law, and the evidence sustains the finding of the trial court.
11. The trial court also allowed, under the head of miscellaneous items, the sum of $12,988.87. Besides the items set forth in detail in th’e statement of account there was evidence in the record relating to a large number of transactions between the companies, resulting in what the Construction Company claimed to be just charges against the railroad company. The aggregate of those items which *504receive support from the evidence is greater than that allowed by the court. The record does not show the constituent parts of the charge allowed, and error in this record not affirmatively appearing, the finding of the trial court is affirmed as to that item.
12. The following items of charges against the Construction Company allowed by the trial court present no question of law, and receiving support from the evidence are-here allowed:
Taxes paid............................................ $1,021 38-
Recording deeds..................................... 13 80
Loss and damage on shipments................... 47 13-
Overcharges and shortage on way bills......... 839 50
Expenses paid on right of way.................. 5,521 05
Paid M. S. Carter & Co........................... 513 90
Cash, Russell Sage................................. 10,000 00
Cash, Jay Gould.................................... 20,000 00
Cash, George Gould................................ 10,000 00
For right of way since suit....................... 6,601 91
13. Each party admits a, number of items as correct charges against it by the other, and in the following statement of account all items appearing, which have not already been discussed, are items which are so admitted.
14. There is due from the Missouri Pacific to the Construction Company the following:
Refund of passenger fares..................... $4,538 51
Labor........................... 93 50
Material furnished............................... 11,396 75-
Water furnished................................. 3 00
Coal furnished.................................... 11 00
Rails and ties..................................... 7,098 17
Engine supplies..................1............... 536 69
Labor and material (bridges).................. 1,194 57
Taxes.......... 1 00-
Mail service....................................... 1,055 41
Construction Yerdigris Yalley R. R......... 36,869 01
*505Winfield, Texas & Gulf R. R................. $18,028 84
Overcharge on merchandise.................... 1 66
Equipment purchase............................. 132,735 03
Overcharge on materials......................... 163 72
Material at Chivington, October, 1888...... 16,241 16
Material at Chivington since November ... 19,680 00
Material at Chivington sold for taxes........ 16,910 59
Miscellaneous items............................. 12,988 87
Overcharge on freight prior to April 1,1888, 17,769 45
Additional stall roundhouse, Chivington... 1,000 00
Extra grading at Chivington.................. 6,000 00
Freight on material from Chivington...-..... 5,000 00
Telegraph line........................ 25,703 03
Extra ties, D., M. & A........................ 23,192 17
Stock yards and pens........................... 11,800 00
Fencing.......................................... 1,522 98
Turn-tables....................................... 4,522 01
Extra nut-locks, D., M. & A.................. 2,223 92
Bonds earned under contracts by Construction Company................................. 6,456,360 00
Interest on bonds not paid..................... 9,590 00
Interest on other items.......................... 132,398 36
Total......................................$6,976,629 40
15. The Missouri Pacific should receive the following credits:
Freight charges................................... $28,766 17
Tickets............................................. 881 54
Water furnished ................................. 45 50
Coal furnished.................................... 3,197 38
Cars destroyed.................................... 334 63
Cars repaired.....................:............... 1,117 49
Rent of cars....................................... 20 00
Cross-ties furnished.............................. 110,776 62
Overcharges on freight.......................... 413 07
Labor and materia].............................. 1,921 76
*506For right of way prior to suit................ $58,758 39
Paid to T. J. Prosser & Co.................... 26,776 39
Stoves, etc......................................... 113 59
Bridge material.................................. 186 00
Labor and material (bridges).................. 23,673 00
Paid Colt & Son................................. 18,830 61
Paid T. J. Hilliard.............................. 13,106 44
Cash A. H. Calef, January 25,1888......... 20,000 00
Taxes paid......................................... 1,021 38
Recording deeds................................. 13 80
Loss and damage on shipments....!.......... 47 13
Overcharge and shortage on way bills........ 839 59
Expenses paid on right of way............... 5,521 05
Paid M. S. Carter & Co........................ 513 90
Cash, Russell Sage..................... 10,000 00
Cash, Jay Gould................................ 20,000 00
Cash, George J. Gould.......................... 10,000 00
Taxes paid at Chivington....................... 3,050 40
Paid for right of way since suit............... 6,601 91
Bonds delivered..;............;.................. 6,418,000 00
Interest.................. 128,284 71
Total......................................$6,912,812 45
Missouri Pacific, Dr. to balance............... 63,816 95
$6,976,629 40
16. The dates when these different items accrued are in most cases not ascertainable from the evidence. Moreover, the transactions form a running account between the parties, and in calculating interest we do not think any foundation has been laid for the allowance of interest to either party before the commencement of suit. "We have, therefore, calculated it from December 1,1888, to December 1,1893, at seven per cent, there being no proof of the interest laws of either of the states where the transactions arose, and their law being presumed to be like our own. This does *507not apply, however, to the difference between the amonnt of the bonds earned and the amount delivered. These bonds draw but five per cent interest, and interest upon that difference has been calculated at five per cent.
17. A large amonnt is claimed on behalf of the Construction Company in the nature of consequential damages arising out of the disposition of the bonds made by the directors of the Construction Company. Most of the bonds were sold by the Construction Company at ninety cents on the dollar, and it is claimed that the Missouri Pacific should be charged with the discount. The evidence relating to this is voluminous, but the contention of the plaintiff may be thus briefly summarized: That the Missouri Pacific unreasonably and wrongfully withheld its acceptance of the roads after they were completed, compelling the Construction Company to resort to devices in the nature of borrowing money and bonds, and that owing to the exigencies arising from the necessity of meeting these debts, the majority of the board of directors was enabled to carry through a scheme by which the bonds were sold by the Construction Company to themselves and to Jay Gould at a discount. We do not think that the evidence shows any such unreasonable or unlawful withholding of the bonds, and the trial court did not find that there had been such. In order to obtain the bonds the Construction Company was required not only to build the road, but to deliver the stock and bonds of the original railroad companies. The provision in the first contracts by which settlements were to be made by ten-mile sections was waived by the Construction Company, and for this provision no definite times were substituted for settlements. The original companies were, until construction had advanced to a considerable extent, under the control of the Construction Company. Their bonds could not be delivered until they directed the trustee to certify them. The first certification was not ordered until a few days before the first instalment of the *508Missouri Pacific bonds was delivered, and this at a time before the Construction Company lost control of the railroad company. There is evidence that a number of bonds of the Denver road were executed by its officers and retained in the possession of the Missouri Pacific, but they were not certified, and could not be certified until the directory of the Denver road so ordered. They were no better until certification than blank paper, and had the Missouri Pacific obstructed a settlement, there was nothing to prevent the Construction Company, while it had control of the Denver Company, from causing to be executed other bonds, having them certified, and tendering them to the Missouri Pacific., No such thing was done. In the subsequent operations we cannot find anything in the evidence justifying us in holding that the district court erred in not finding that there had been a wrongful withholding by the Missouri Pacific of its bonds. But aside from this, the bonds were sold at a discount by order of the directors of the Construction Company. The first order gave the stockholders of the Construction Company a preference in proportion to their stock. Fitzgerald and Mallory did not take advantage of this and their proportion was taken by other stockholders. These acts may have been a fraud upon the Construction Company by a majority of its directors who happened to be interested in the Missouri Pacific, but as the Missouri Pacific, as a corporation, was not a party to the proceeding, the directors were acting as directors of the Construction Company and not as directors of the Missouri Pacific. The Missouri Pacific can no more be charged with the consequences of their wrongful acts in this regard than it could be charged for damages sustained by a passer-by in consequence of the unsafe condition of a sidewalk in front of the residence of such a director. The fact that it was Missouri Pacific bonds which were sold was, in this regard, a purely fortuitous circumstance, and the Missouri Pacific can no more be *509charged with this than with the loss sustained by a sale of any other property of the Construction Company which had never been in the possession of the Missouri Pacific. The contract of the Missouri Pacific was to pay the Construction Company in Missouri Pacific bonds at specified sums per mile. The undisputed evidénce shows that these payments were made as agreed and the Missouri Pacific’s outstanding bonded indebtedness was thereby increased to that full amount. Upon what principle of law or equity can an additional sum of $500,000 be charged to that company? The trial court found no evidence whereon to base such a charge. We can find none, and the opinion adopted by the court does not, so far as we can discern, point out any such evidence or any tangible reason for allowing this item.
18. The same conclusions of fact on the question of the withholding of the bonds dispose of plaintiff’s contention that the Construction Company should be charged with the item of $62,500 interest received by Jay Gould upon the $2,500,000 of bonds loaned by him to the Construction Company.
19. Interest is claimed upon a payment of $380,000, which it is alleged the treasurer of the Construction Company made to the Missouri Pacific for rails purchased from that company before the rails were delivered. A contract had been made for the purchase of these rails and a voucher approved by the president of the Construction Company. He claims that the approval was made simply to enable payments to be made as the rails were delivered, but the-treasurer was authorized upon this voucher to disburse the money upon presentation, and he did so. This bound the Construction Company, and there can be no recovery on account of the prepayment.
20. The Denver contract provided that the Denver Company should procure the right of way, but the Construction Company pay therefor. The Construction Company claims that it was thereby obligated to pay only the pur*510chase price or condemnation money and that the costs of the proceedings and other expenses were chargeable against the Denver Company, and upon the theory that the operation was for the benefit of the Missouri Pacific should be charged against that company. The object of this provision in the contract is plain enough. All proceedings were necessarily in the name of the Denver Company and the title taken to that company. The proceedings had to be conducted through the officers of that company, and a stipulation to that effect was accordingly inserted in the contract. But it is equally clear that the Construction Company was to bear the whole expense of constructing the road, inasmuch as it received all the slock and bonds of the Denver Company for doing so, and the cost of condemnation proceedings and all other items of expense in procuring the right of way were as much chargeable against the Construction Company as the condemnation -money itself.
21. The Missouri Pacific claims that there was a failure of consideration to the extent of some seventeen miles of railroad built over government land to which it was claimed no title was obtained. For several reasons nothing can be allowed on this account. The Missouri Pacific contends throughout the rest of its argument that it did not buy the Denver road, but only its stock and bonds, and we cannot say that any portion of the stock or bonds was without consideration on this account. Their amount was fixed according to the mileage of the road, but the security was upon the road as a whole. In the next place the Missouri Pacific obtained possession of the whole road, remained in possession, and has not been evicted. Even had there been a conveyance of the road to the Missouri Pacific with covenants of warranty and for quiet enjoyment, there would as yet be no cause of action upon these covenants. That case would be much stronger than this.
22. The Construction Company claims large amounts *511caused by the failure of the Missouri Pacific to make Chivington a division station. A part of this claim is because there was a large amount of construction at Chivington based upon the intention of making it a division station. It was the duty of the Construction Company to build the railroad according to the plans. The plans provided for this construction, and it was entirely immaterial whether the railroad company afterwards used these structures or not. The remainder of the claim is for losses sustained by the Construction Company on account of speculations in land at Chivington and the erection of a hotel, out of which the Construction Company contemplated making large profits through the division station’s being there located. Such an enterprise was wholly beyond the scope of the Construction Company’s powers and objects, and the damages claimed are at once too uncertain, too speculative, and too remote for consideration.
23. There are a few other items claimed on either side and disallowed by the trial court. They depend for the most part upon questions of fact which were determined by the trial court upon conflicting evidence, and both upon the law and the facts we think they were correctly determined and they will not here be noticed in detail.
It follows from the fo/egoing considerations that the decree of the district court should be modified and the judgment entered here in favor of the Construction Company against the Missouri Pacific, if for any sum, should be $63,816.95, with interest from December 1, 1893.