Opinion of the Court. a foreclosure. The matter was referred to a master to take testimony and report upon the validity, and also the priority, of the various claims filed. On the 6th of November, 1882, the master filed his report, in which he divided the claims presented into four classes, numbered A, B, C and D, respectively. In class C he placed the claims secured by the first mortgage bonds, and the amount of said security. In this class was the claim of Benjamin Richardson for money furnished to aid in the construction of the road, amounting, with interest, to $273,282.87, secured, as the master found, by 200 bonds, amounting to $374,904. Exceptions to this report were filed by nearly all of the parties interested, but, in the main, it was confirmed by the court, and, on the 3d of May, 1883, a decree was entered on the question of priority among the respective claimants in the distribution of the fund arising from the sale of the mortgaged property, which had occurred. This decree, among other things, provided that, after certain expenses and certificates given by the receiver had been paid, the remainder of the fund should be ratably divided among the bond claimants, and where the bonds were held as collateral security no greater amount should be allowed than sufficient to satisfy the debt thus secured. Benjamin Richardson's claim is in this class. It was for 600 bonds claimed as collateral security for the amount of money advanced by him for the construction of the road, and for 1105 other bonds which he alleged he had redeemed from certain bankers in London; and, in another form, was for 3574 bonds which he had purchased at an execution sale in New York City that was had to satisfy a judgment he had obtained against the railroad company in the Court of Common Pleas for the city and county of New York for the amount of his debt with interest. The decree allowed Richardson's claim as respects 200 of the 600 bonds, but rejected it as to the other bonds claimed by him. Subsequently, that decree was amended by the decree of October 8, 1883, so as to correct certain mistakes in the calculation of interest upon the bonds. The effect of this latter decree was to reduce Richardson's share of the proceeds by Opinion of the Court. $2173.91 from what the original decree of May 3, 1883, had made it; and also to reduce in like manner the share of one of the other intervening parties, the Wrought Iron Bridge Company of Canton, Ohio, by the sum of $183.60. Four separate appeals were taken from the decree of May. 3, 1883, and an appeal was also taken by Richardson and his assignee, Henry Day, from the amended decree of October 8, 1883. At the last term of the court all the appeals were dismissed except that of Richardson and Day from the decree of October 8, 1883. Richardson v. Green, 130 U. S. 104. Before the decision at the last term of the court was rendered Richardson died, and his legal representatives are now prosecuting the appeal. As a decision upon the questions presented by this appeal affects the distribution decreed by the court below of $137,154.94 among the other claimants, it becomes necessary to examine the facts and to give consideration to the equities which relate to the claims of all those parties. The Chicago, Saginaw and Canada Railroad Company was organized about the 4th of December, 1872, under an act of the Michigan legislature approved April 18, 1871, with a capital stock of $4,200,000, divided into 4200 shares, for the purpose of building a railroad from St. Clair, in the eastern part of the State, to Grand Haven, on Lake Michigan, a distance of about 210 miles. The original incorporators each subscribed for 210 shares of this capital stock, five per cent of which was paid in. This was all the stock ever subscribed, and all the money paid in on any stock. Nine of those corporators were elected directors, all but three of whom resigned in 1873, transferring their stock, it is supposed, to those three. The stock subscribed and the money paid on it may, for all practical purposes, be considered as having afterwards disappeared from the organization. For the purpose of raising funds to build the road and equip it the corporation executed a mortgage and issued 5500 seven per cent bonds of $1000 each, due in 30 years, with interest payable semi-annually, and placed them in the hands of its executive committee to be put upon the market. Before selling any of its bonds, however, the corporation borrowed con VOL. CXXXIII-3 Opinion of the Court. siderable money from various parties, giving the bonds as security, at the rate of two dollars in bonds for every dollar borrowed, and also giving, as a bonus, to the parties from whom the money was borrowed, a large amount of capital stock. These loans were negotiated with the following persons: (1) With a syndicate of four persons in Philadelphia, designated in the record as the "Philadelphia parties," who advanced money to the company on the terms above stated until the amount aggregated, according to the report of the master, $143,629.62. The number of bonds pledged to the syndicate, as collateral security for this loan, was 462. The Philadelphia parties claimed before the court below to be entitled to prove all the bonds held by them to the full amount of principal and accrued interest, and to a share in the proceeds of the fund derived from the sale of the mortgaged property to the extent of their loans and the interest thereon. The decree of the court allowed their claim, to the extent of 287.26 bonds only, that number being twice the amount of the principal advanced. The second party from whom the company obtained a loan was the appellant Richardson, upon terms hereinafter stated. The third party was George G. Sickles of New York, who loaned the company $100,000 upon a pledge of 250 of the bonds, as collateral, and also a bonus of $100,000 full paid stock. Afterwards his son, Daniel E. Sickles, bought 163 of the bonds for the consideration that he would assume and pay the debt due his father, which he afterwards did. The bonds held by the elder Sickles were then returned to the company. Daniel E. Sickles claimed that, as an innocent purchaser, he was entitled to priority over the other collateral bondholders, who were the directors, officers and promoters of the company. His demand for priority was disallowed by the court; and the only part of his claim that was allowed was, that as innocent purchaser of the 163 bonds he might prove them to the full amount of his principal and interest. After the negotiation for the three loans above named, Thomas M. Nelson contracted with the company to ballast and iron the first twenty miles of the road from the town of Opinion of the Court. St. Louis west, etc. This contract he substantially performed. Two months afterwards he entered into another contract with the company to clear, grub and grade the road, and build bridges and culverts on the second division thereof to Lakeview. Part of this second contract was assigned to the claimant Soule. This contract also, with the exception of a part of the grading, was performed by these parties. They had no security for the payment of their services. They relied on the solvency of the company and the assurances of Richardson, who was then a director and the treasurer of it, that arrangements were perfected for the payment of the work as fast as it progressed. The company failed to pay the amount due on these contracts. Suits were brought, judgments obtained, and executions issued which were returned nulla bona. They presented their claims to the master, who reported in their favor, and allowed them priority over the bondholders to the amount of $16,342.68. Exceptions to this finding having been filed were sustained by the court below, which allowed their debt, but put it in the fourth class, to be paid pro rata from any surplus remaining after the bondholders were paid. The claim of the Wrought Iron Bridge Company was based upon a contract with the railroad company, under which it built an iron bridge across the Saginaw River, which was sold by the receiver for the sum of $20,000. This claimant was allowed a share in the proceeds of the sale on the basis of the 66 bonds of which it had become the actual owner. The claim of Stevens was based upon a bona fide loan made to the company by him. By the decree of the court below he was allowed a share in the funds to the extent of 32 bonds. Any modification of the decree of the court below favorable to the contention of the appellants herein will correspondingly reduce the allowances made to the above-mentioned claimants. The loan of $100,000 by Richardson to the railroad company, on which he obtained the first 200 bonds, as collateral, was made by him on the 31st of March, 1875, under a contract with the company, in which he agreed to lend the corporation that amount upon certain terms, which, among others, were, (1) that the company should deliver to him 200 mortgage Opinion of the Court. bonds of $1000 each; (2) that, within fourteen days, he should be elected a director of the company; (3) that John A. Elwell, of New York City, should be employed by the company at a salary of $2500 and his personal expenses, for the purpose of superintending the construction of the road and of looking after the interests of Richardson; (4) that as a further collateral security the company should lease the first 20 miles of the road as soon as it should be completed, and assign such lease to Richardson, and should also assign to him all the subsidy notes pertaining to that division of the road, he to retain all the money derived from the lease and subsidy notes, and render unto the company, at final settlement, seven per cent interest upon the money so received; and (5) that the company. should execute and deliver to Richardson 1250 full paid shares of capital stock of $100 each. Although, on its face, this was to be fully paid up stock, it was understood that no money was to be actually paid for it, the consideration, as recited in the agreement, being Richardson's services, good offices and influence in favor of the company in the financial world. In the contest for priority among the claimants before the master the judgment creditors of the corporation claimed that they entered into the contracts with the company whereon they obtained their judgments relying upon its resources, which they were led to think were ample by reason of the amount of the outstanding paid up stock in the hands of such responsible stockholders and owners as Richardson and the Philadelphia parties; and it was contended that those stockholders should not be allowed to share in the proceeds arising from the sale of the mortgaged property on the basis of the bonds held by them, as collateral, unless they should first pay to the company the full amount of the shares of stock of which they had held themselves out to the world as the owners. The master concurred in this view, but, because there was no proof of the actual value of the stock, he declined to make any deduction from the amount due to Richardson, but limited his claim to the 200 bonds. The appellants received the amount which the decree allowed, but appealed to this court from that decree, contending that they were entitled to a |