Passing by the question whether a receiver appointed by a court
pending proceedings to foreclose a railroad mortgage is precluded
from buying bonds on the market or from agreeing to unite with
others in bidding at the sale, and the question whether the
contract set up in this case is within the statute of frauds of the
State of Minnesota, and the question whether, even if the contract
was illegal and not enforceable in a court of equity, an account
might not be compelled, the Court holds that the plaintiff has
failed in proving his case.
In equity. Decree dismissing the bill, from which complainant
appealed. The evidence was voluminous, but the court seems to have
stated in its opinion everything that is necessary to be stated in
order to understand it. The case was before this Court at October
term, 1886, as stated in the opinion, under the title
Farley v.
Kittson, reported in 120 U.S. at p.
120 U. S. 303.
Since then, Mr. Kittson has died, and the St. Paul Trust Company,
the executor of his will, was substituted as defendant in his
place. The facts, as stated by the Court, were as follows:
Page 150 U. S. 573
On December 15, 1881, Jesse P. Farley filed in the Circuit Court
of the United States for the District of Minnesota a bill of
complaint against Norman W. Kittson, James J. Hill, and the St.
Paul, Minneapolis and Manitoba Railway Company.
The object of the bill was to enforce the complainant's alleged
right to share with Kittson and Hill in the proceeds of certain
foreclosure proceedings against the St. Paul and Pacific Railroad
Company and the first division of the St. Paul and Pacific Railroad
Company, and wherein the St. Paul, Minneapolis and Manitoba Railway
Company, a corporation organized by Kittson and Hill, in connection
with other persons, had become the owners of the foreclosed
properties.
To this bill the St. Paul, Minneapolis and Manitoba Railway
Company demurred for want of equity, and Kittson and Hill filed a
plea denying some of the allegations of the bill and alleging that
Farley, as receiver and manager under appointment by a court, was
precluded by reason of public policy from making any valid
agreement with Kittson and Hill of the kind set up in the bill.
To this plea a replication was filed, and proofs were taken. The
circuit court held that the agreement of the plaintiff with Kittson
and Hill was unlawful and void, and on that ground sustained the
plea and dismissed the bill. 14 F. 114.
On appeal to the Supreme Court, the decree of the circuit court
was reversed and the case was remanded with directions to overrule
the plea and to order the defendants to answer the bill.
120 U. S. 120 U.S.
303,
129 U. S.
318.
The case was proceeded in in the circuit court. The defendants
answered, replication was filed, and evidence was taken, and a
final decree was rendered dismissing the bill. 39 F. 513. From that
decree this appeal was taken.
Page 150 U. S. 574
MR. JUSTICE SHIRAS, after stating the facts in the foregoing
language, delivered the opinion of the Court.
The bill sought to enforce an agreement whereby Farley, the
plaintiff, and Kittson and Hill, were to purchase, for their joint
and equal benefit, bonds, secured by mortgages, of two railroad
companies, of one of which Farley was receiver by appointment by
the court, and of the other of which he was the general manager by
appointment of the trustees named in the mortgages.
The validity of such an agreement was denied by the defendants,
and they sought to raise that question at the threshold of the case
by filing a plea setting up the supposed incompetency of Farley to
enter into such a contract, and the court below sustained the plea,
and dismissed the bill. In order, however, to escape from the
effect of certain allegations in the bill, which averred knowledge
on the part of the bondholders of Farley's connection in interest
with Kittson and Hill, the defendants included in their plea a
denial of such allegations, and this Court was of opinion that the
proper office of a plea to a bill in equity was not to traverse its
allegations, like an answer, nor yet, like a demurrer, while
admitting those allegations, to deny the equity of the bill, but to
present some distinct fact which of itself creates a bar to the
suit, and thus to avoid the delay and expense of going into the
evidence at large. This view resulted in a reversal of the decree
of the circuit court sustaining the plea, and the cause was
remanded with directions to overrule the plea, and to order the
defendants to answer.
Farley v. Kittson, 120 U.
S. 318.
The result of the new trial below was that the circuit court
dismissed the bill, and, as we learn from the opinion of that
court, mainly upon two grounds -- namely, that the plaintiff had
failed to sustain the allegations of his bill by sufficient proof
and that the agreement relied on by the plaintiff, even if proven,
was, in view of his official position, invalid.
Page 150 U. S. 575
Upon the second appearance of the cause in this Court, the
proposition that was urged when it was here before is again pressed
upon us with great force of argument and illustration: that the
position of Farley, as receiver and manager of the companies whose
roads were embraced in the foreclosure proceedings was such as to
disable him from having an enforceable interest in a private
agreement with parties intending to buy up the bonds of the
companies and become purchasers of the railroads at the foreclosure
sales.
Whether a receiver appointed by a court pending foreclosure
proceedings is precluded from buying bonds on the market, or from
agreeing to unite with others in bidding at the sale, is a question
best decided on its own facts and when it shall be necessary to
decide it. His position, no doubt, is a fiduciary one towards the
creditors and stockholders of the company, and, in a proper case
disclosing fraud or unfairness, they could be heard to impugn any
rights or interests he might acquire hostile to theirs. Nor do we
wish to be understood as saying that facts might not not be made to
appear in a given case showing such dereliction of duty and such
abuse of his position by a receiver as to justify a court of equity
in declining to afford him a remedy even against those who had
participated with him in unlawful schemes.
It has also been contended in this Court that the contract set
up in the bill was ineffective because within the statute of frauds
of the State of Minnesota, which declares that every contract for
the sale of lands or any interest therein, shall be void unless the
contract, or some note or memorandum thereof expressing the
consideration is in writing and subscribed by the party by whom the
sale is made or by his authorized agent; it appearing that the main
object of the contract alleged was, through a purchase of the bonds
of the railroad companies, to finally become the purchasers of the
railroads on the foreclosure sale, such railroads and appurtenances
being claimed to be lands within the meaning of said statute.
When, however, we come to a consideration of the case as it
appears in the pleadings and evidence, we find no difficulty in
concurring with the view of the learned judge below that the
Page 150 U. S. 576
plaintiff failed in proving his case, and we are thus relieved
from determining whether the defendants could escape from
responding to their contract by setting up its invalidity on the
grounds of public policy; whether, even if the contract was illegal
and not enforceable in a court of equity, an account might not be
compelled within the doctrine of the case of
Brooks v.
Martin, 2 Wall. 70, and whether such a contract
would be within the statute of frauds of the State of
Minnesota.
The evidence upon which the court below acted in finding that
the plaintiff had failed to maintain his allegation that a contract
had been entered into with Kittson and Hill comprises nearly 2,000
pages, and it largely turns upon the testimony of Farley and of
Fisher, his clerk, on behalf of the plaintiff, and of Hill, one of
the defendants, on the part of the defense. Kittson, the other
defendant, died before his testimony could be taken, although he
had employed counsel to defend the case.
It is argued that as it thus appears that the question of fact
as to the existence of such a contract is
in as between
Farley and Hill, the testimony of Fisher, Farley's clerk, but who
is not a party, should turn the scale, and this might be just
reasoning if the question in issue had to be determined upon the
testimony of those three witnesses. But, as is pointed out in the
opinion of the court below, there is an inherent improbability in
the plaintiff's story -- not in the assertion that he had become
interested with others in the ownership of bonds, and in the
proposed purchase of the railroads, for such agreements are not
unusual, but by reason of the absence of any writing expressing the
agreement. A man of affairs, as the plaintiff was, would not be
likely in a matter of such magnitude to rely upon a merely verbal
agreement, and as the transactions occupied a considerable time, we
would expect, if such a contract really existed, to find letters or
memoranda relating to it; but such are not produced. On the
contrary, the letters and conversations that we find in the record,
though trifling and inconsequential in themselves, do not point to
or imply any subsisting agreement between Farley and Kittson and
Hill.
Page 150 U. S. 577
It is not necessary for us to say or to think that Farley and
Fisher, in testifying as they did, perpetrated intentional
falsehood. It is altogether possible that from desultory
conversations with Kittson and Hill, and from an exaggerated sense
of his own importance in the matters in hand, Farley was led to
believe that he was entitled to participate in the venture.
But a court cannot act upon such uncertain conjectures. A
contract of the kind asserted by the plaintiff must be established
to the entire satisfaction of a court of equity before its
intervention can be demanded.
The utmost effect that can be given to the plaintiff's evidence
is that he had reason to expect that he would be included as a
party in the project of buying bonds and bidding at the sale of the
railroads. But it is clear from his own evidence that he was not
included in the actual transaction. He furnished no part of the
moneys used, and is not shown to have contributed any special or
peculiar information important to the syndicate. His bill,
therefore, is filed for an account of a partnership or enterprise
in which he really did not participate. His remedy, if he is
entitled to any, would seem to be an action at law for damages,
though it is difficult to see that there was any consideration
proceeding from him, either in money contributed or in personal
services of any kind, out of which a legal obligation could arise,
or which could furnish a measure of damages.
Our conclusion is that the court below was right in dismissing
the bill, and its decree is accordingly
Affirmed.
