A court of equity, in the exercise of its inherent power to do
justice between parties, will, when justice demands it, refuse
relief even if the
Page 155 U. S. 449
time elapsed without suit is less than that prescribed by the
statute of limitations.
The length of time during which a party neglects the assertion
of his rights which must pass in order to show lathes in equity
varies with the peculiar circumstances of each case, and is not
subject to an arbitrary rule.
Halstead v. Grinnan,
152 U. S. 412,
affirmed and applied to this point.
The facts in this case, detailed in the opinion, disclose such
laches on the part of Riker in asserting the rights which he here
claims that a court of equity should refuse to interpose without
inquiry whether the suit can or cannot be excluded from the
operation of the statute of limitations of the New York.
The case is stated in the opinion.
MR. JUSTICE HARLAN delivered the opinion of the Court.
William H. Aspinwall, Joseph W. Alsop, Edwin Bartlett, David
Leavitt, Edward Learned, Samuel W. Comstock, and William A. Booth,
holders of construction bonds of the Ohio & Mississippi Railway
Company, Eastern Division, issued to the stockholders and creditors
of that corporation, on the 15th day of December, 1858, a circular
inviting them to unite in adopting an agreement such as was
transmitted with the circular. In that circular, they expressed the
opinion that by the adoption of the proposed agreement, the company
would be enabled to place its road and property in a condition to
command the entire business to which, from its location, it would
be fairly entitled;
"to meet promptly all future demands upon it for interest on its
remaining indebtedness, from its net earnings to pay fair dividends
upon its stock within a reasonable time, and that all causes for
litigation will be removed, and the interests of all parties be
thereby placed in a safe and reliable position. "
Page 155 U. S. 450
With the circular was submitted a statement showing that the
estimated liabilities of the company, with interest to July 1,
1859, aggregated $18,393,768, of which $2,050,000 were first
mortgage bonds, $258,000 were second mortgage bonds, $4,242,000
were construction or third mortgage bonds, part of which were to be
used in redeeming and retiring the second mortgage bonds, and
$3,320,000 were income bonds, including scrip certificates.
The appellant Andrew J. Riker was at that time the holder and
owner of nine of the company's construction bonds.
The agreement recited that the subscribers were
"desirous that concessions shall be made by all parties in
interest which shall discharge a portion of the indebtedness of
said company, and thereby assure the prompt payment of all sums
which shall become due on the residue thereof, and without
prejudice to the proper improvement and maintenance of the road and
its appurtenances."
By the first paragraph of the proposed agreement, it was
provided that subscribers who were owners or legal representatives
of legal demands against the company would discharge the same on
payment therefor by the company, as follows: for the three coupons
that were then or that should become due on its first mortgage
bonds next prior to and including those due July 1, 1859, one-half
thereof in money and one-half thereof in shares of the capital
stock of the company at par; for the coupons that were then or that
should become due on second mortgage bonds, up to and including
those due April 1, 1859, one-half thereof in money, and one-half in
shares at par; for the principal of second mortgage bonds,
one-third in shares at par, and the remaining two-thirds in
construction bonds at par; for the coupons that were then due, or
that might become due, on its income bonds, up to and including
those due May 1, 1859, together with the principal of such income
bonds, in shares at par; for the scrip (certificates convertible
into income bonds) issued by the company, in shares at par; for
other evidences of indebtedness against the company, as the same
were admitted or allowed by its directors, in shares at par, the
interest on the above demands
Page 155 U. S. 451
(excepting coupons), so to be paid, to be made up to the 1st day
of July, 1859, and to be paid in the same manner as the demands to
which it related.
By the second paragraph, it was provided that subscribers being
owners or legal representatives of shares of the capital stock of
the company would transfer all their shares to its directors, or to
such person or persons as the directors should designate and
appoint, to be reissued or retransferred to make the above
payments, and to return to the subscribers or their legal
representatives who transferred their shares such portion as they
would be entitled to under the agreement, the residue, if any, to
belong to the company.
The third paragraph provided that the covenants contained in the
above paragraphs were upon the following conditions: (1) that the
owners or legal representatives of all demands or stock paid or
transferred should subscribe to and comply with the agreement, or
that equivalent concessions be made, so that the entire payments
contemplated should be made, the company to purchase with any
balance of shares remaining after the payments above named, or with
other means, $50,000 of the first mortgage or construction bonds,
and to cancel all the bonds and coupons so paid or purchased,
except those necessary for exchange for second mortgage bonds as
aforesaid, so that on the 1st day of July, 1859, the indebtedness
should not exceed $5,000,000, of which not more than $2,050,000
should be represented by first mortgage bonds, and the residue by
construction bonds, with interest running from March 1, 1859; (2)
that the owners of income bonds should have loaned to the company
the money required to make the cash part of the above payments,
such loan, with interest, to be repaid at the earliest practicable
time consistent with the proper maintenance of the road; (3) that
the City of Cincinnati should grant such modifications and releases
of its demands, contracts, and claims against the company as its
directors and the trustees named in the agreement should deem
satisfactory; (4) that the capital stock of the company should not
exceed $7,500,000 unless increased by a further reduction of its
bonded debt.
Page 155 U. S. 452
It was further provided that the subscribers should transfer and
deliver to the persons named as trustees, their survivors and
successors in trust, their several demands, and all evidences
thereof, that were contemplated to be discharged or paid for in
shares of stock, and all their shares of said capital stock, with
power to transfer, to be managed by such trustees for the benefit
of the subscribers and their legal representatives in the
proportions and upon the terms and conditions specified in the
agreement, and should comply with any requirements which the
trustees, pursuant to authority, should make
The persons who sent out the above circular, their survivors and
successors, were named as trustees under the agreement, a majority
of them to have authority to do such acts and things on behalf of
the subscribers as they deemed necessary or expedient to carry out
the purposes of the agreement, which did not impose liability upon
a subscriber to pay any money except at his option.
The other paragraphs of the agreement prescribed in detail the
mode in which the proposed scheme should be executed, and the
authority which the designated trustees might exercise.
Among other things, it was provided in the proposed agreement
that the trustees should issue and deliver certificates equal to
the amount of demands admitted or allowed, properly equalizing any
differences occasioned by priorities of time in such transfers or
deliveries; that the trustees, in their discretion, might purchase,
for the benefit of the trust, bonds of the company not contemplated
to be delivered to them, also other evidences of indebtedness and
shares of stock deemed essential or beneficial to the trust and to
parties interested therein, and issue certificates in payment
therefor; that said certificates should be the only evidence of the
interest of subscribers in the property of the trust, which
interest was to be such proportion thereof as the amount of any
certificate or certificates bore to the amount of all the
certificates issued by the trustees, and that when the parties
necessary to carry out the provisions of the first three paragraphs
of the agreement
Page 155 U. S. 453
had subscribed and complied with the same, and the trustees were
furnished with evidences of the demands to be paid only in part,
the trustees should cancel and surrender to the company all
evidences of its indebtedness then belonging to the trust.
In view of the contingency of a foreclosure of some of the
mortgages upon the road and property, it was provided that the
trustees might make such arrangements with the trustees named
therein, or with the owners of the bonds secured thereby, as, in
their opinion, would enable them to protect the interests of the
trust without making calls upon subscribers; but failing in this,
and if they deemed the trust property insufficient or unavailable
for the purchase of the road and property at any sale thereof, then
they might, on sixty days' notice, make calls on owners of
certificates for their just proportion of the means necessary for
the purpose, provided that any party so called on could at his
option, omit or refuse to pay any portion of any or of all such
calls in the proportion of money or bonds called, in which case the
trustees could procure the deficiency from other persons, and issue
and deliver certificates for such amounts as they might agree
upon.
It was further provided that in the event of the purchase of the
road and property by the trustees and the procurement of title and
possession, the trustees should transfer the same to the owners or
legal representatives of the certificates issued in pursuance of
the proposed agreement, according to and on the surrender of their
several certificates, and distribute to them severally any other
trust property, or the proceeds therefrom, remaining in their
hands, such transfer and distribution to be made to each
certificate holder in the proportion that the amounts of his
certificates should bear to the whole amount of the certificates
outstanding, and that if any subscriber to the agreement should,
directly or indirectly, purchase the whole or any part of the road
or property, then every other subscriber, or his legal
representative, could at any time thereafter, until sixty days
shall have elapsed from service of notice upon him, pay or legally
tender to such purchasing subscriber or subscribers such proportion
of the purchase money paid by
Page 155 U. S. 454
him or them as was equal to the amounts of the certificates
issued to him or them, and to such other subscribers, respectively,
under the agreement, and he should then be entitled to participate
in the ratio the money he paid or tendered should bear to the
purchase money.
The appellant Riker signed the agreement for three of the nine
construction bonds held by him, and kept the remaining six in his
possession.
On the 18th of March, 1859, formal notice was given to the
stockholders of the company, by the trustees named, that only a
part of those whose signatures were essential in order to carry out
the main purpose of the agreement had signed it, and that the
trustees, under the authority given them, had adopted a resolution
that the right to subscribe would cease from and after May 1, 1859,
except upon the unanimous consent of the trustees, and that on that
day the trustees would determine whether the agreement had been
subscribed by a sufficient number for the consummation of the
objects contemplated by it.
On the 13th day of December, 1860, and at the request of the
holders of certificates, the trustees made a statement that was
embodied in a circular addressed to creditors and stockholders,
showing that the claims surrendered to the trustees under the
agreement aggregated at that time $10,549,570.84, for which
$182,995.66 was paid in cash and $10,366,575.18 in trust
certificates.
In the same statement, the trustees said:
"The suit instituted by the second mortgage bondholders is being
urged to a decision in the courts of Ohio and Indiana, and a decree
of sale will no doubt be obtained in a few weeks, at the latest,
when it will become necessary for the trustees to exercise the
authority given in the agreement of 15th December, 1858, to protect
the property of the trust."
By a circular issued by the trustees to creditors and
stockholders on the 11th day of July, 1861, the latter were
informed that the foreclosure suit instituted by the second
mortgage bondholders had resulted in a decree of sale, and that by
the terms of such decree the road could not be sold for less
than
Page 155 U. S. 455
$1,000,000, subject to the first mortgage of $2,050,000.
Creditors and stockholders were also informed by the same circular
that the trustees required from them $623,165, in addition to their
then available means, to enable them to protect the trust by a
purchase of the property. The sale under the decree obtained by the
holders of second mortgage bonds was advertised for October 21,
1861; but, as no bid was offered equal to the requirements of the
decree, the property was not then sold.
Subsequently, certain amendments of the trust agreement were
made at meetings of the subscribers, which amendments, the trustees
claim, were made for the purpose of enabling them to protect the
trust by purchasing second mortgage bonds and holding them for the
benefit of the trust. These purchases were made prior to April 17,
1863.
During the year 1866, the trustees and the holders of
certificates issued under the trust agreement determined to wind up
the trust. To that end, the trustees holding second mortgage bonds
for the benefit of the trust caused the property specified in the
decree of foreclosure to be duly readvertised for sale. The sale
was adjourned from time to time, but it finally took place on the
9th of January, 1867, the trustees becoming the purchasers at
$1,000,000. A plan of reorganization was adopted by the certificate
holders, and the trust agreement was so amended that it could be
carried into effect. That plan contemplated the formation of a new
corporation to receive from the trustees the property purchased by
them, and all other property and rights belonging to the trust. The
new corporation was formed by the name of the Ohio &
Mississippi Railway Company, and on the 18th day of December, 1867,
it took, by regular transfer from the trustees, the trust property
held by the latter, including all the property, real and personal,
and all the franchises of the old corporation.
The object of the present suit is to hold those who were
trustees under the agreement of 1858, and who participated in the
proceedings under which the Ohio and Mississippi Railway Company
acquired the property in question, personally liable to Riker for
the amount due on the six construction
Page 155 U. S. 456
bonds he withheld from the trustees. The theory of the suit is
that the agreement of 1858 had in view the protection of all the
bonds held by subscribers -- those withheld from as well as those
delivered to the trustees under that agreement -- and consequently
that the purchase of the property by the trustees for the
protection simply of the particular debts covered by the trust
agreement was contrary to its object and provisions, and was such a
breach of duty upon their part as made them liable to him for the
amount due on six construction bonds.
The defense, stated generally, was that the trustees held
relations of trust to those who subscribed the agreement of 1858
only in respect to the debts for which the subscribers signed; that
the plaintiff refused to avail himself of the opportunity to become
a party to that agreement in respect to the bonds held by him,
except the three construction bonds for which he signed; that by
the sale under the above decree of foreclosure, all the debts of
the Ohio and Mississippi Railroad Company that were subordinate in
right to the holders of second mortgage bonds were cut off, and
that those who acted from time to time as trustees under the
agreement of 1858 had no duty to perform except to represent the
subscribers thereto in respect to the parts of claims for which
they signed. The defendants also relied upon the statute of
limitations barring all claims not accruing within six and ten
years, respectively, before the commencement of action.
The court below sustained the plaintiff's demand and rendered a
personal decree for the amount due on his six construction bonds
not embraced in the agreement of 1858. The decree was for the
aggregate sum of $18,305. Both plaintiff and defendants appealed,
the former claiming that a larger amount should have been awarded
to him.
The grounds upon which the circuit court held the plaintiff to
be entitled to a decree for the value of his six unsurrendered
construction bonds are fully stated in an opinion rendered by the
learned circuit judge who tried the case. 27 F. 251, 256, 257. "The
concessions to be made by holders of construction bonds," the court
said,
"were the surrender by them of one-third of the principal of
their bonds,
Page 155 U. S. 457
and acceptance, in lieu thereof, of an interest in the trust
fund which was to come into the hands of the trustees under the
plan of the agreement. Beyond the one-third which they were to
surrender, they were to have no interest in the trust fund, and
their rights were to remain the same as though no agreement had
been subscribed, and the only change effected in their previous
relations to the company was that thenceforth they were embarked
with the trustees in the common undertaking which the trustees
obligated themselves to carry out. By the terms of the agreement,
the trustees promised to distribute the trust fund which was to be
created among the certificate holders according to their respective
interests. If they had succeeded in exchanging the claims which had
been surrendered to them by creditors for stock of the company, the
trust fund which they would have distributed would have been the
stock of the company, and the certificate holders would have become
stockholders whose rights would have been subordinate to the
existing mortgages upon the property. The holders of construction
bonds who had surrendered a third of their holdings under the
agreement would have occupied the position of stockholders for the
amount surrendered, but their rights as bondholders for the
unsurrendered two-thirds of their bonds would have remained the
same as before."
Again:
"There is not a word in the agreement to indicate that they
could purchase the road discharged of the equitable lien of those
who had surrendered a portion of their bonds in order that the
remaining part should be more safely secured. . . . The trustees
did not purchase upon the foreclosure of the second mortgage
because a sale of the property was imminent. They did so because a
sale, and a purchase by them under such a sale, would afford a
convenient method of closing out their trust, and enable them to
convey a satisfactory title to the new corporation. Of course they
occupy no better position towards the complainant than they would
if they had purchased pursuant to the conditions of the trust. They
now insist, as they have insisted all along, that they owe no duty
to the complainant, and that no one had any right to share in the
proceeds of the trust fund arising under the agreement except
Page 155 U. S. 458
certificate holders, or in the distribution of the property
which they acquired by purchase. It does not follow, because the
complainant had no interest in the trust fund, and was not entitled
to share in its distribution after he had parted with his
certificate, that the trustees owed him no duty respecting the
unsurrendered two-thirds of his bonds. They undertook to become his
trustees for the purpose of protecting, as well as could
practically be done, his interest as a secured bondholder of the
company, to the extent of two-thirds of his original security, in
consideration of his becoming a subscriber to the agreement."
On the other hand, the contention of the trustees from the
outset was that the securities received by them and those they
purchased were to be held for the exclusive benefit of certificate
holders, and that they never became trustees for the plaintiff in
respect to the six construction bonds not surrendered by him, and
for which no certificate was issued.
Whether the view taken by the circuit court of the relations
between the trustees and the complainant be correct or not we do
not deem it necessary to determine, for in our judgment the case
must be disposed of without considering that question -- namely,
upon the ground that the plaintiff was not entitled to the
interposition of equity in his behalf. His bill should have been
dismissed without prejudice to an action at law. It is impossible
to doubt that he was fully informed of every step taken by the
trustees from time to time in the discharge of what they conceived
to be their duty to certificate holders. He was not ignorant of the
fact that the original agreement of 1858 was amended in important
particulars in 1862 and 1863, and that, in virtue of the additional
powers conferred by those amendments, the trustees, by purchases
made prior to April 15, 1863, acquired the second mortgage bonds,
and thereby obtained control of the foreclosure suit.
In November, 1866, he was present at a meeting of certificate
holders, and mentioned to Campbell, who became a trustee in 1864,
the fact that he held six construction bonds. Campbell replied that
he knew nothing about the early workings of the trust, and would
inquire into the matter. In
Page 155 U. S. 459
January, 1867, the road and its appurtenances were sold, as he
well knew, and were purchased by the trustees, and in December,
1867, he presented his six construction bonds to Campbell, the
chairman of the trustees, and told him that he (Riker) wanted done
for those bonds what was done for them in the agreement -- meaning
the agreement of December 15, 1858. Campbell, doubtless supposing
that Riker meant to assert some interest in the property, replied
to him that the bonds "were not worth a cent, as they were shut out
by the sale" under the foreclosure decree. He was thus distinctly
informed as early as December, 1867, that his claim upon the
property acquired by the trustees for the certificate holders was
disputed, but he took no steps to vindicate his rights, if any he
then had. He was quiescent until December 10, 1870, which was
nearly four years after the purchase by the trustees, and nearly
three years after they had conveyed it to a new corporation, the
Ohio and Mississippi Railway Company. On that day, he served a
formal written notice upon Campbell, as chairman of the trustees,
that he held and owned the six construction bonds (describing
them), and demanded that Campbell pay or secure to him the
aggregate of principal and interest then due on them -- $10,830.
Then ensued another period of inaction, for the present suit was
not brought until August 7, 1876 -- more than thirteen years after
the trustees purchased the second mortgage bonds for the benefit of
the trust, more than nine years after the purchase of the road at
the foreclosure sale, for the benefit of certificate holders, and
nearly nine years after the interview between the plaintiff and
Campbell in which the latter told him that his bonds had been cut
off by that sale, and were not worth anything.
The record discloses no element of fraud or concealment upon the
part of the trustees, or of any of them. What they did was done
openly, and was known, or might have been known, by the exercise of
the slightest diligence upon the part of everyone interested in the
property of the old corporation. The plaintiff unquestionably knew,
or could easily have ascertained, before the trustees bought the
property at
Page 155 U. S. 460
the foreclosure sale -- at any rate, before they transferred it
to the new corporation -- that their purchase would be and was
exclusively for the benefit of certificate holders interested in
the trust. Although his bonds had not then matured, he could have
taken steps to prevent any transfer of the property that would
impair his equitable rights in it, or instituted proper judicial
proceedings, of which all would be required to take notice, to have
his interest in the property adjudicated. He allowed the trust to
be wound up, and postponed any appeal to a court of equity based
upon an alleged breach of trust by the trustees, until six out of
the seven original trustees had died. His laches cannot be excused
upon the ground that the trust assumed by the trustees was express
or direct, for it is clearly established that the trustees, as
early as December, 1867, denied and repudiated, as the plaintiff
knew, the existence of any trust in relation to such of the
construction bonds as the plaintiff did not surrender to them.
Speidel v. Henrici, 120 U. S. 377;
Riddle v. Whitehill, 135 U. S. 621;
Philippi v. Philippe, 115 U. S. 151. We
therefore incline to think that this suit cannot be excluded from
the operation of the statute of limitations of New York prescribing
a limitation of six years for an action "upon a contract,
obligation, or liability, express or implied." N.Y.Civ.Code Pro. in
force prior to September 1, 1877; Voorhees' Code ยง 91, 4th ed. 86;
5th ed. 69, 70;
Miller v. Wood, 116 N.Y. 351;
Carr v.
Thompson, 87 N.Y. 160;
Kirby v. Lake Shore &c.
Railroad, 120 U. S. 130,
120 U. S.
139.
But without placing our decision upon that ground, and
independently of the statute of limitations, the case is one in
which a court of equity should refuse to interpose because of
laches upon the part of appellant in asserting the rights he now
claims. Looking at all the circumstances, particularly the nature
of the property, good faith demanded that if he intended to
question the right of the trustees to acquire, hold, and transfer
it for the exclusive benefit of certificate holders, he should have
done so by formal proceedings, commenced within a reasonable time
after he became cognizant of all the facts. The case is one
peculiarly for the application of the
Page 155 U. S. 461
rule that equity, in the exercise of its inherent power to do
justice between parties, will, when justice demands it, refuse
relief, even if the time elapsed without suit is less than that
prescribed by the statute of limitations.
Harwood
v. Railroad Co., 17 Wall. 79;
Twin Lick Oil Co.
v. Marbury, 91 U. S. 587,
91 U. S. 592;
Hayward v. National Bank, 96 U. S.
611,
96 U. S. 616;
Richards v. Mackall, 124 U. S. 183,
124 U. S. 187;
Hammond v. Hopkins, 143 U. S. 224,
143 U. S. 250.
As observed in
Halstead v. Griffinnan, 152 U.
S. 412,
152 U. S.
416,
"the length of time during which the party neglects the
assertion of his rights, which must pass in order to show laches
varies with the peculiar circumstances of each case, and is not,
like the matter of limitations, subject to an arbitrary rule. It is
an equitable defense, controlled by equitable considerations, and
the lapse of time must be so great, and the relations of the
defendant to the rights such, that it would be inequitable to
permit the plaintiff to now assert them."
The decree is reversed at the costs of the complainant, and the
cause remanded with directions to dismiss the bill without
prejudice to an action at law.
Reversed.