There was attached to the bill as an exhibit a copy of the
mortgage of the branch road. It was recited in this mortgage that
the railway
"company has acquired and now possesses the right, under and by
virtue of the laws of the State of Missouri,
Page 115 U. S. 230
to construct, maintain, and operate a branch railway from the
Missouri River, opposite the City of Atchison, Kansas, by the most
practicable route, not exceeding fifty miles in length, to a
junction with the main line of the said first party, and whereas
the said first party has already commenced the construction of said
branch line and stanch in need of money to complete the same."
The property mortgaged was described in the following
language:
"All and singular the branch railroad of the said party of the
first part, as the same now is or may be hereafter surveyed, and
being constructed and leading from the Missouri River in the State
of Missouri at a point opposite the City of Atchison, in the State
of Kansas, by the most practicable route, not exceeding fifty (50)
miles in length to a junction with the main line of the railway of
said first party, together with all and singular the right of way
for said branch road belonging to the party of the first part,"
&c. There were several other provisions in the mortgage, of
which only the following are material in connection with the
opinion of the court.
"The said party of the first part hereby agrees to and with the
said parties of the second part that the amount of bonds issued
hereunder shall not exceed in the aggregate the sum of one million
of dollars upon the whole of said branch line of railway from said
Missouri River to said main line of the said Chicago and
Southwestern Railway, a distance not exceeding fifty miles. . . .
Said Chicago and Southwestern Railway Company further covenant and
agree that the money borrowed or procured for the purpose aforesaid
upon the security of said bonds shall be faithfully applied to the
building and completing of said line of railway and to no other
purpose, and that said application shall be made with due
diligence."
The principal fraud (so far as considered in the opinion of the
court) was charged in the following language:
"Your orator further states that it was also untrue, and known
to be untrue by said Frederick H. Winston, that said branch line
was designed to be fifty miles in length, and therefore, with the
intention to mislead and deceive the purchasers of said proposed
bonds, said branch was stated in said circular to be 'about'
Page 115 U. S. 231
fifty miles in length, and your orator says that before said
circular was issued a contract had been entered into with one H. M.
Aller for building said branch, and said Winston then knew it would
not be over twenty-nine miles in length. Your orator further states
that it was untrue that it was intended by said Winston that said
line should pass through the Counties of Buchanan, Clinton, and
Platte, as stated in said circular; that said line did not in fact
enter the County of Clinton; but your orator states that said
Winston, with intention to deceive and mislead the purchasers of
said proposed bonds, caused a map to be attached to said circular
whereon the junction of the branch and main line appeared to be
near Cameron, and showing that said branch would of necessity pass
through said Clinton County."
After making some other allegations referred to in the opinion
of the court, the bill further charged that the complainants and
other purchasers of the bonds were induced by these fraudulent
representations to purchase them; that the whole sum realized from
their sale was first deposited with the Rock Island Company and
then came into the hands of "Winston and his Confederates . . . in
trust to be faithfully expended in the building and completion of
said branch road;" that the parties who loaned the money for the
construction of the branch road were defrauded of their promised
security to the extent of twenty-one miles; that Winston, while
acting as president, made a large profit in the construction of the
branch, the larger part of which he converted to his own use, and
the remainder divided among Confederates; that the road was not
properly constructed; that the branch road from the outset was
substantially valueless; that Winston, as president, did not
faithfully apply the sums received from the Rock Island Company in
the building and completion of the branch road, but converted them
to the use of himself and associates; that the mortgage on the main
line was foreclosed at the instance of the Rock Island Company, and
the mortgaged property sold and conveyed to the purchaser at the
foreclosure sale; that the complainant then instituted his suit to
foreclose the mortgage on the branch road, and obtain judgment of
foreclosure, and the mortgaged property
Page 115 U. S. 232
was sold under the foreclosure to Johannes Berg for $10,000;
that after these foreclosures, the Southwestern Railway Company was
divested of all its property, franchises, power and capacity to
carry on business as a railroad company, and to carry out the
purposes for which it was incorporated; that the Southwestern
Company has failed to call to an accounting Winston and his
associates, although requested by complainant so to do, with like
allegations as to the trustees of the mortgage, who were made
defendants, but not served with process; that these facts became
known to complainant only shortly before the bringing of this bill;
that Winston had fraudulently concealed from the complainant the
fact of his interest in the construction of said road, so that the
same was not discovered till shortly before the bringing of this
suit, and that sufficient bonds of indemnity had been tendered to
F. S. Winston, Burnes, and Dows, trustees under the mortgage, with
a request that they should appear as defendants, and that Dows had
appeared, but the other trustees had refused and neglected to
appear. The relief asked for was the following:
"That the defendants, Frederick H. Winston and George C.
Campbell, may be required to render a full, strict, and exact
account of their and each of their transactions in relation to the
business of the Chicago and Southwestern Company, and particularly
the Atchison Branch thereof, from the 1st day of June, A.D. 1571,
to the present date; that the amount of moneys, bonds, stocks,
subscriptions, lands, or parcels of land received or taken by said
Chicago and Southwestern Railway Company, or by said Frederick H.
Winston and Campbell, or either of them, in connection therewith or
in any way relating to said branch railway be ascertained; that all
proper disbursements or expenditures of moneys, bonds, stocks, or
other property made in the necessary construction of said branch
railway be also ascertained, and that the defendants, Frederick H.
Winston and Campbell, may be charged by the decree of this court to
pay the ascertained balance of receipts above proper expenditures,
and if it shall appear that said Winston or Campbell, or either of
them, have now in their possession or under their control any of
the bonds or stocks subscribed or donated in aid of
Page 115 U. S. 233
said branch railway, and which by virtue of said contract or
otherwise became the property of said Southwestern Company, or if
said Winston and Campbell, or either of them, or if any other
person or persons in trust for them, or either of them, hold any
lands, or parcels of land, or interests in either, derived directly
or indirectly through or by means of their, or either of their
connection with said railway or branch, or in aid of the
construction of said branch, that they be required by the decree of
this Court to account for and surrender the same as this honorable
court shall hereafter direct. And that if it shall appear that the
said Frederick H. Winston and the said Campbell, or either of them,
misapplied and converted to their own use any portion of the said
fund so advanced by your orator and the other purchasers of said
bonds as aforesaid in trust to be expended in the construction of
said branch road, that they may be respectively charged with the
amount so converted and misapplied by them, as well as all other
amounts which they aided and caused to be applied for other
purposes than the building and completion of said road, and that
they be decreed to refund and restore the same to your orator and
the other purchasers of said bonds, by whom or in whose behalf the
said fund was so advanced as aforesaid; or, if some other method of
relief shall appear more consistent with the character of this
case, as it may be disclosed, your orators pray that said
defendants, Winston and Campbell, may be required to pay into court
the just and full sum due your orator upon said bonds, assuming and
declaring the same to be due, together with the interest thereon,
as in said bonds is provided, and that upon such payment being
made, together with such further costs as may properly be imposed,
your orator may surrender his said bonds for cancellation or
otherwise, as may be ordered, and that your orator may have such
other and further or different relief as to equity shall seem
meet."
Winston demurred to this bill on the ground of nonjoinder of
indispensable parties, because other indispensable parties (F. S.
Winston and Burnes) had not been served with process; that the bill
was multifarious; that there was no privity between
Page 115 U. S. 234
complainant and defendant; that the complainant had a complete
and adequate remedy at law which he had not exhausted; that the
complainant had no right to commence a suit in his own name; that
the supposed cause of action did not accrue within five years next
before filing the amended bill; that the amended bill set up new
causes of action; that when the Southwestern Railway Company was
first made party in an amended bill, the alleged causes of action
were barred, and that the bill did not state a case for relief in
equity. The demurrer of the defendant Campbell was to the like
effect. The railway company also demurred.
Page 115 U. S. 236
The cause was heard below, on the amended bill and demurrer,
before Mr. Justice Harlan, August 1, 1881. He held, as to the
alleged fraudulent representations in the circular, that if a fraud
was committed, the remedy was adequate at law; that as to the
alleged violations of duty by Winston as president, and conversion
to his own use of moneys realized from sale of the bonds, the right
of action was barred by the statute of limitations, and that no
trust was disclosed by the bill to exempt the complainant from the
operation of the statute. The demurrers were accordingly sustained
and the bill was dismissed. Whereupon the complainant appealed to
this Court.
MR. JUSTICE MILLER delivered the opinion of the Court.
This is an appeal from a decree of the circuit court of the
Page 115 U. S. 237
Northern District of Illinois dismissing the bill of Van Weel,
who was plaintiff below and is appellant here.
The original bill was filed December 12, 1876, and several
amended bills were filed until, on May 22, 1880, complainant filed
what he calls his amended and supplemental bill, substituting it in
lieu of his previous bill and amended bills.
The defendants named in this bill are the Chicago and
Southwestern Railway Company of Iowa and Missouri, Frederick H.
Winston and George C. Campbell, citizens of Illinois, Calvin F.
Burnes, a citizen of Missouri, and David Dows and Frederick S.
Winston, citizens of New York.
Mr. Van Weel describes himself as an alien, and a subject of the
King of the Netherlands, and a holder and owner of bonds of the
Chicago and Southwestern Railway Company for $67,000, principal,
and overdue interest on them to the amount of $35,175. He brings
this suit, as his bill alleges, not only for himself, but on behalf
of numerous other holders of the same issue of bonds, whose names
he gives, to the amount, including interest, of $671,000.
The bill was demurred to, the demurrer was sustained, and a
decree rendered dismissing it, from which this appeal is taken.
The contest seems to be mainly between complainant Van Weel on
one side and Frederick H. Winston on the other. Calvin Burnes, a
citizen of Missouri, has not been served with process within the
Northern District of Illinois, and has not appeared by himself or
attorney. The same may be said of David Dows and Frederick S.
Winston, who are citizens of New York.
F. H. Winston has demurred separately, and if the bill cannot be
sustained against him, it is obvious from its character that it is
not good against the other defendants.
The bill is a long one, the allegations are not classified, nor
the true foundations of relief very clearly stated. It is full of
the words "fraudulent" and "corrupt" and general charges of
conspiracy and violation of trust obligations. Mere words, in and
of themselves and even as qualifying adjectives of more specific
charges are not sufficient grounds of equity jurisdiction
unless
Page 115 U. S. 238
the transactions to which they refer are such as in their
essential nature constitute a fraud or a breach of trust for which
a court of chancery can give relief.
Ambler v. Choteau,
107 U. S.
590.
The charges in this bill on which relief is sought may be
arranged under two heads:
1. Fraudulent misrepresentations of the defendant affecting the
character and value of the security on which the bonds in question
were negotiated.
2. The violation of certain obligations in the nature of a trust
which he assumed in regard to the security and ultimate payment of
the bonds.
A few of the most important matters applicable to both these
charges as found in the bill may be thus stated:
A company had been incorporated under the laws of Iowa to build
a railroad from the Town of Washington in that state, on the line
of the Chicago, Rock Island and Pacific Railroad Company, in a
southwesterly course to the Missouri River or to the line of the
State of Missouri in that direction. Another corporation had been
organized under the laws of Missouri to build a railroad in that
state from a point opposite the City of Leavenworth, in Kansas, to
the Iowa state line in the direction of the City of Des Moines in
that state.
These companies were consolidated into one under the name of the
Chicago and Southwestern Railway Company, with the declared purpose
of building a single road from Washington to the Missouri River at
a point opposite Leavenworth. Of this company Mr. Winston became
the president and a member of the executive committee of its board
of directors. The company issued bonds for $5,000,000, which were
guaranteed by the Rock Island Company, and made a mortgage on the
entire line of its road to secure their payment. The length of this
line was 266 miles, and the money raised on these bonds secured its
rapid completion. In the meantime, another corporation had been
organized in Missouri to build a road from the Missouri River
opposite the City of Atchison, in the State of Kansas, to some
point on the line of the Chicago and Southwestern road. This road
was called the Atchison
Page 115 U. S. 239
Branch, and when the main branch of the Southwestern road was
nearly finished, lacking, as the bill avers, only fifty miles of
its completion, a consolidation was effected between the company
organized to build this branch road to Atchison and the original
Chicago and Southwestern Company, in which consolidation the
corporation retained the name of this latter company.
This company, as consolidated, at once determined to raise a new
loan of a million of dollars, to be used mainly for the purpose of
building the Atchison Branch road, on which but little, if any,
work had been done. As a security for the bonds of this loan, they
made another mortgage, which was a first mortgage on the Atchison
Branch, and a second mortgage on the main line. These bonds were
all sold, and the two lines of road completed within a reasonable
time, and it may as well be added that both mortgages were
forfeited in a few years for nonpayment of interest, and the
mortgages foreclosed by a sale of the roads under two different
foreclosure suits.
The charge of actual fraud against Mr. Winston grows out of
certain acts and representations made by him in connection with the
sale of these bonds by the Chicago and Southwestern Company.
In order that no injustice may be done the complainant in regard
to his allegations on this point, the language of the bill will be
here given:
"Your orator further complains and states that the said
Frederick H. Winston, and his confederates afterwards, to-wit, on
or about the first day of June, A.D. 1871, contrived and entered
into a scheme to secure a loan of the further sum of $1,000,000,
for the ostensible purpose of building a branch line of road as
hereinafter stated, but in reality to enable him and his
confederates to get control of and convert to their own use a large
part of the funds secured and advanced to build said branch road.
And to that end, said Winston, as president of said Southwestern
Company, caused a circular to be issued, a true copy of which is
hereto annexed, marked 'Exhibit A,' to which reference is made as
if it was incorporated herein, in which, among other things,
speaking as president of said Southwestern Company, he said: "
Page 115 U. S. 240
" On the first day of May, 1871, the Chicago and Southwestern
railway, from Washington, Iowa, to Leavenworth, Kansas, a distance
of 266 miles -- now finished and in operation, 216 miles -- will be
fully completed and opened for business under the auspices and
management of the Chicago, Rock Island and Pacific Railroad
Company. The two roads thus under one management will constitute a
through line, and the shortest through line, from Chicago and the
Great Lakes of the North to the extreme Southwest. Congratulating
our friends and ourselves upon the prompt sale of our first issue
of bonds as well as their present established market value both in
this country and in Europe, we would present for sale, through the
financial agents of the company, a second issue, for the purpose of
constructing a branch railroad from the main line to Atchison,
Kansas, a distance of about fifty miles."
"Said Winston, after setting forth the advantages of Atchison as
a commercial and railway center, continued as follows:"
" To carry on the arrangements before stated, the Chicago and
Southwestern Railway Company have issued one thousand bonds, dated
June 1, 1871, each for one thousand dollars, due thirty years after
date, with semiannual coupons annexed at the rate of seven percent
per annum, principle and interest payable in American gold coin at
the American Exchange National Bank in the City of New York, all of
which are equally secured by a first mortgage on the road to be
built, its assets, rights of way, earnings, and other property, as
well as by a second mortgage upon the Chicago and Southwestern
Railway, its property and franchises."
"It was further stated in said circular that said mortgage would
be 'a safe and reliable security,' the value of which would be
better appreciated by the fact that the 'Chicago, Rock Island and
Pacific Railroad Company had already agreed to lease, and would
when completed operate, the whole line' on terms that would pay a
handsome dividend to the stockholders, and 'which in no event'
would be 'less than the interest on all the bonds outstanding,' and
that the value and security of the contract aforesaid was 'equal to
a direct endorsement of the bonds' by the Rock Island Company.
"
Page 115 U. S. 241
"It was further stated in said circular:"
" The Chicago and Southwestern Railway, for over two hundred
miles west from Washington, is pointing almost directly to
Atchison, so that its extension to that place involves less
curvature than that of the established line to Leavenworth. . . .
The Atchison Branch, through the populous counties of Buchanan,
Clinton, and Platte, offers railroad facilities to wealthy
agricultural communities, which in return must afford a heavy and
lucrative local traffic. Every tract over which it will pass is a
farm, teeming with the abundant products of the famous Platte
purchase. . . . With the offering of the first loan of the Chicago
and Southwestern Railway Company, we were admonished, as the
originators of a new enterprise, to avoid the language of eulogy
and enthusiasm. Difficult as was the task to those who knew its
real merits, we have compensation now in a final and complete
success, far beyond any expectation we dared to hope to excite by
any statement in our former publication. Reviewing with a just
pride all that was then written, we feel authorized to claim the
confidence of the numerous friends, both in Europe and in this
country, of the Chicago and Southwestern Railway Company, to whom
we have more than verified all our statements. . . . To complete
the connections of the Chicago and Southwestern Railway, to extend
its power and usefulness, and to increase its business and earnings
by the construction of the Atchison Branch, we now offer this loan,
and commend it to our friends as a safe and desirable
investment."
"Dated 'New York, June, 1871,' and signed 'F. H. Winston,
President.'"
"The falsehood and fraud in these representations is in the
alleged fact that the branch road, when built, was only twenty-nine
miles and not fifty, whereby the bondholders were deprived of the
security of twenty-one miles of road which they had a right to
expect to make good their bonds, and that it was known to Winston
at the time that the road would not be as long as thus represented,
and would not go through all the counties named. There was one of
these counties in point of fact not touched by the road."
The first observation to be made on this subject is that
circulars
Page 115 U. S. 242
on which this allegation is founded are exhibits to the bill,
and in every instance they are clearly the circulars of the Chicago
and Southwestern Railroad Company. They are signed by Mr. Winston
as president of that company, and purport to be issued from its
office and in the charging part of the bill, copied above, and all
through it he is said "to be speaking as president of that
company." There is no allegation anywhere that Winston ever gave
his personal pledge or statement to anyone about to invest in the
bonds of the company that the road would be fifty miles long or any
other length. It is obvious from the nature of these circulars that
the branch road had not then been located, and Mr. Winston, as an
individual, could give no pledge on that subject which would bind
the company, nor could he do so as president of the company. The
road had yet to be located, and this could only be done by the
board of directors, of whom Mr. Winston was but one of eight or
ten.
A source of much safer reliance as to the security which these
purchasers of the bonds were getting was the mortgage given by the
company. This, of course, was made and recorded before the
negotiation for the loan was commenced, and copies of it
accompanied the bonds when offered for sale. Every prudent man,
knowing that this mortgage was his main security, would examine it,
or his agent would, before investing his money.
In this mortgage or deed of trust, the trustees being David
Dows, Frederick S. Winston, and Calvin F. Burnes, the property
conveyed is described as
"the branch railroad of said party of the first part, as the
same now is or may be hereafter surveyed, and being constructed and
leading from the Missouri River, in the State of Missouri at a
point opposite the City of Atchison in the State of Kansas, by the
most practicable route, not exceeding fifty miles in length, to a
junction with the main line of the railroad of said party of the
first part."
Whatever representations may have been made in the circulars of
the company was, according to all rules of evidence, superseded by
this solemn instrument between the parties. If they differed in any
respect, the latter must be looked to as the
Page 115 U. S. 243
security on which the bondholders alone had a right to rely.
This instrument, so far from giving any pledge or assurance that
the branch road should be fifty miles long, or near that, is
careful to say it shall not
exceed that length. The
limitation is in its length, not its shortness. The latter is
provided for by saying that it should be by the
most
practicable route.
It is impossible to read this description of the line of road
conveyed as security for the bonds without seeing clearly that the
line was not yet located -- that its future location was to be
governed by two considerations: 1. that it should be the most
practicable route between Atchison and the main line of the road,
and 2. that its length should not
exceed fifty miles. If
the most practicable line, by which is evidently meant the best
working line for the company who was building it, should require a
shorter line than fifty miles, there is not the shadow of a promise
or suggestion that it should not be so long, and no longer, as that
required. But in the provision that its length should not exceed
fifty miles, there was a protection against wasting the money
received from the bondholders on a long and unprofitable line of
road made only for the benefit of people living along that
line.
But this line of road was not the only security for the payment
of these bonds. The mortgage included also the entire main line
from Washington to Leavenworth, 266 miles, which was now nearly
completed. This made a direct connection between the rich
agricultural country of western Missouri and the City of Chicago by
means of the Chicago, Rock Island, and Pacific Company, then a rich
and prosperous corporation so deeply interested in this
Southwestern Railway that it had guaranteed $5,000,000 of the bonds
of the company. It was further stipulated in this mortgage or deed
of trust that the proceeds of the sale of these bonds should be
placed in the hands of the Rock Island Company, which should only
pay them out in the regular prosecution of the work. It was further
provided in that mortgage that if any of these proceeds remained
with that company after the completion of the road, it should be
paid over to the president or other authorized agent of the Chicago
and Southwestern Company.
Page 115 U. S. 244
It cannot be doubted that this mortgage on the main line, though
a second lien, was regarded as an important part of the security of
the bondholders under it, and when taken in connection with the aid
and interest of the Rock Island Company, the precise length of the
branch line could not have been held to be very important. In fact,
as the two lines belonged to one company, and that company was
liable for all the bonds, it was obviously the interest of the
bondholders and of the stockholders that the branch line should be
so located as to make it add to the profits of the entire
enterprise on which the bondholders held a lien.
In regard to the allegation of fraud in this matter it is
apparent --
1. That all that is charged against Mr. Winston is that he
signed, or permitted his name to be affixed to, a circular which
stated the probable length of the branch road, then unsurveyed and
unlocated, as about fifty miles.
2. That the place of junction with the Southwestern road, which
necessarily determined the length of the branch road, was not
described or mentioned.
3. That in the mortgage which was made on said branch road all
that was said was that it should not exceed fifty miles.
4. That it is nowhere averred that the line was not properly
located, or that it should have been located otherwise.
5. That the security which the bondholders had upon that line
and the other seemed to render the place of connection between the
branch and the main line unimportant as regards the security for
their loan.
We are of opinion, therefore, that the complainants had no right
to rely on the statement concerning the length of the line as
materially affecting their security, and that Mr. Winston committed
no fraud in the part he took in that matter. This view is
reinforced by the admission of the bill that the branch road was
completed mainly out of the money arising from the bonds sold to
plaintiff and others, and that several years after both it and the
main line had been finished and in operation, both roads were sold
under the two mortgages;
Page 115 U. S. 245
that the branch line was sold under foreclosure proceedings
inaugurated by Van Weel, and was bought in for $10,000 by Mr. Berg,
one of Van Weel's associates as bondholder, and that they now, as
far as appears, own the road their money was used to build.
Other transactions are mentioned as fraudulent, such as that Mr.
Winston converted some of the money arising from these bonds to his
private use, and not to the purposes of the company. The answer to
this is that Mr. Winston came under no obligation to see to the
application of this money as the bondholders might think it ought
to be applied. They had bought their bonds, paid their money, and
received their security. The money so diverted was the money of the
Southwestern Company, and not their money.
The wrong done by Winston in that matter, if wrong there was,
was done to that company, and not to the bondholders. They had
provided their own means of insuring the building of this branch
road by disbursing the money through the Rock Island Company, and
it was successful. The road was built. There was no privity between
Mr. Winston and these bondholders as to his use of money which they
had loaned to the company, which was no longer their money. The
error which pervades the bill throughout is to treat this
corporation, to which the bondholders loaned their money, as if it
had no existence, as if they had loaned it to Mr. Winston and held
his personal obligation that it should all be honestly applied, and
be responsible for the repayment of the loan. If Mr. Winston
cheated this company out of its money, the right to redress for
that wrong is in the company or in its stockholders. As a creditor
of the company, Mr. Van Weel has no right to interfere in the
matter until he has a judgment against the company, with an
execution returned
nulla bona. He has not, in this suit,
shown any right to use the name of the company, or of its
stockholders, to obtain redress for a tort committed on them.
United States v. Union Pacific Railroad Co., 98 U.
S. 614.
There are probably other allegations of fraud, but they are no
better founded than these, and we can give them no further
attention.
Page 115 U. S. 246
As regards the matter of trust, which is one of the grounds of
relief set up in the bill, we need not occupy much time in its
consideration.
The trustees in the mortgage, which is the only express trust
that we can find set out in the bill, were Frederick S. Winston,
David Dows, and Calvin Burnes, neither of whom reside within the
jurisdiction of the court or has been served with processes.
If, however, they were before the court, they are not charged
with any breach of the duty with which they were entrusted.
The application of the money arising from the mortgage bonds was
not by the mortgagees entrusted to them, nor had they any control
over it after the bonds were sold.
It is not alleged that they refused to foreclose the mortgage
when it became forfeited by nonpayment of interest, or that they
failed to perform any duty imposed upon them by the mortgage.
It is asserted, however, that Frederick H. Winston, as president
of the company, was bound to see that the money raised on these
bonds was used exclusively in the construction of the branch road,
and that in this regard he was a trustee for the lenders of the
money. We are unable to see any such trust in the matter.
The contracting parties in regard to this loan were the
bondholders and the Southwestern Company. The one became debtor for
the money loaned, the other became creditor. Mr. Winston, as the
president of the company, represented the company, the borrower.
The lenders desired a security for the repayment of their money,
which they obtained in the mortgage, and their trustees in that
trust were Dows, Burnes, and F. S. Winston. They in that instrument
undertook to secure the building of this road out of the money
loaned by requiring its deposit with the Rock Island Company, and
its disbursement, for that purpose, under its supervision. But if
the loan should produce more than was necessary for that purpose,
what was to become of it? Was it to go back to the lenders? There
is no hint of the kind. It was impracticable to do so, because the
bonds would, many of them, have changed hands. As to the new owner,
it would have been a mere
Page 115 U. S. 247
gratuity to return it. And the original lender had no interest
in the matter. Instead of this, it is expressly declared that the
Rock Island Company could relieve itself of further obligation in
the matter by payment to Winston as president of the company.
When thus paid, did he hold it as trustee for the bondholders?
If so, under what trust or what obligation? Could he return it to
the bondholders, with the bonds still outstanding against the
company? Or did he hold it merely as the representative of the
company of which he was president? We think it was clearly the
money of the company, and could have been used by it for the
purchase of rolling stock, general equipment, or any other
legitimate use of its own money.
This money belonged to the company. The road was built -- the
only interest in the nature of a trust which the lenders had
attempted to protect by the control of the funds. The obligation of
Mr. Winston in the disposition of the money, if any of it came to
his hands, was to the company. If it was lost, it was the company's
loss, not appellants'. If he improperly or fraudulently converted
it to his own use, he was liable to the company, and not to the
plaintiff in this suit. There was no privity or trust relation
between him and them in this regard.
We think appellant has shown no right to relief in this suit,
that the demurrer was properly sustained, and the decree of the
circuit court dismissing the bill is therefore
Affirmed.
