Railroad Companies v. Schutte
103 U.S. 118 (1880)

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U.S. Supreme Court

Railroad Companies v. Schutte, 103 U.S. 118 (1880)

Railroad Companies v. Schutte

103 U.S. 118

Syllabus

1. The circumstances stated under which bonds of Florida, payable to bearer, issued in aid of certain railroad companies, signed by her governor and her treasurer, and sealed with her seal, were sold by the active efforts of the governor and came into the hands of subjects of Holland. Most of the sales were in that country. Held that inasmuch as the bonds, though fraudulent in their inception, were put upon the market and sold in a foreign country to a people largely unacquainted with the English language, a case is presented which justifies the court in treating the owners of them as purchasers for value and in good faith, and entitled to relief accordingly.

2. One S., having money in his hands belonging to a corporation, W., fraudulently diverted it from the use to which the company had appropriated it and purchased therewith bonds of the P. & G. and of the T. railroads. S. subsequently handed over the bonds to D. and others, purchasers of the railroads from the trustees of the state Internal Improvement Fund, that D and his associates might use them in payment, it being the understanding that they were to raise money by mortgage and pay S. what he had advanced on the bonds, with commissions and fees in addition, and S., besides taking stock in the new company to be formed, was to have certain privileges in the election of directors. D. and his associates not being able to raise the balance of the purchase money remaining after applying the bonds, S., by giving to the trustees a fraudulent check, got possession of the title deeds, and caused them to be recorded. Thereupon D., for himself and his associates, executed a paper, purporting to convey the railroads to S.,

"in trust for the express purpose of enabling said S. which he hereby agrees and binds himself to do to convey tire same to that incorporation, consisting or to consist as incorporators of said D. and his associates,"

as soon as the latter should be incorporated as a railroad company by the legislature. The legislature incorporated D. and his associates, and the company at once, without objection from S. or anyone in his interest, took possession of the property and operated the railroad as owner. One L., who had succeeded to S. under his contracts, assumed control of the company and was its principal stockholder. A new railroad company was then incorporated, which absorbed the other and took possession of its property. Both S. and L. were named as incorporators of the new company. The corporation W., whose funds S. had thus embezzled and invested, averred in its bill that the ownership of the property was in it. Through its agents, it had also entered into a contract of settlement with S. and L., stipulating that the money it had lost should be paid to it from the proceeds of the

Page 103 U. S. 119

sales of certain state bonds to be issued to the railroad company on the faith of the ownership of this property. Held that the corporation W. was estopped from setting up title to the property as against bona fide holders of the bonds.

3. The legislation under which certain bonds were issued by the State of Florida in aid of railroads having been pronounced unconstitutional by the supreme court of that state, this Court passes upon the liability of the railroad company as guarantors of such bonds, the case upon the facts being within the rule of the liability of an endorser of commercial paper.

4. Contracts created by or entered into under the authority of statutes are to be interpreted according to the language used in each particular case to express the obligation assumed.

5. The state, by the terms of the statute, having a lien on the, property of the railroad company as trustee for the holders of the bonds, it does not follow, because the provisions of the statute in respect to the execution and exchange of the state bonds is unconstitutional, that the statutory lien is void also. The unconstitutional part of the statute may in this instance be stricken out and the statutory mortgage left in full force.

6. A suit was brought by the State of Florida against the F. C. Railroad Company, alleging default in the payment of interest due on the company's bonds given in exchange for state bonds, and seeking to enforce the statutory lien by the sale of the roads and the application of the proceeds to the holders of the state bonds. The company answered, setting up fraud, the unconstitutionality of the law touching the state bonds, and averring that the railroad bonds were not a lien. The supreme court of the state dismissed the bill because it was not proved that any of the state bonds were in the hands of bona fide holders. The point as to the statutory authority, however, to exchange the bonds and create a lien, was directly made by the pleadings, and, after full argument, elaborately considered by the court. Held that the decision on this point was in no just sense obiter.

7. It cannot be said that a case is not authority on one point, because, although that point was properly presented and decided in the regular course of the consideration of the cause, something else was found in the end which disposed of the whole matter.

The facts are stated in the opinion of the Court.

Page 103 U. S. 120

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