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decided: January 22, 1900.



Author: Brown

[ 176 U.S. Page 187]

 MR. JUSTICE BROWN, after stating the case, delivered the opinion of the court.

This case presents primarily the question whether a minority of the stockholders of a corporation have a right to intervene in the foreclosure of a mortgage upon the corporate property for the purpose of showing that the property was sold to the corporation by the connivance of the mortgagees at a gross overvaluation, and to compel the bonds held by them to be

[ 176 U.S. Page 188]

     subjected to a set-off of their indebtedness to the corporation for unpaid stock.

It should be borne in mind in connection with the several defences set up by the intervenors that they do not appear here in the capacity of creditors, but as stockholders; that their rights are the rights of the corporation and must be asserted and enforced through the corporation, and upon the theory that the latter has or threatens, by collusion or otherwise, to neglect the proper defence of the foreclosure suit. Dodge v. Woolsey, 18 How. 331, 341, 343; Koehler v. Black River Falls Iron Co., 2 Black, 715; Bronson v. La Crosse &c. Railroad, 2 Wall. 283; Davenport v. Dows, 18 Wall. 626; Dewing v. Perdicaries, 96 U.S. 193; Hawes v. Oakland, 104 U.S. 450, 460; Greenwood v. Freight Co., 105 U.S. 13; Detroit v. Dean, 106 U.S. 537; Cook on Stockholders, §§ 645, 659, 750.

There are several preliminary objections made by the intervenors to this foreclosure which require to be disposed be before entering upon the proper merits of the case. They are --

1. That the bonds were not due. This in a certain sense is true. The bonds were peculiar in this respect: There was no date fixed for their maturity, but there was a provision that on the first day of December, 1893, and upon the same date in every succeeding year, the company would redeem a certain number of bonds to be ascertained by drawings made under the direction of the Northern Trust Company in the month of November in each year. That immediately after such drawing the company should cause the numbers of the bonds drawn for redemption to be published in New York and Chicago newspapers, and that every bond so drawn should become redeemable on the first day of December next thereafter. There was no evidence that any such drawing was ever made, and the Trust Company did not institute their foreclosure proceedings upon the theory that any of the bonds, by their terms, had matured.

There was, however, a provision that the mortgage should become enforceable, if the trustees should declare the principal

[ 176 U.S. Page 189]

     and interest upon the bonds to be immediately payable, after any execution should be levied or sued out against the chattels or property of the company, and such company should not forthwith, upon such execution being levied or sued out, remove, discharge or pay the same.

It appears that one James Flanagan, who was a bondholder, brought suit against the company on January 22, 1895, upon six coupons. The action appears to have been brought directly or indirectly through the legal firm who were also counsel of the defendant company. Summons was issued, returnable January 28, 1895, and served upon the president of the company at five o'clock P.M. on the day it was issued (22d). On the same afternoon, the president appeared before the justice of the peace and consented to an immediate trial, which resulted in a judgment for $180. Execution being sworn out, it was issued and placed in the hands of the constable at about half-past five o'clock of the same day. Later on the same day the trustees gave notice to the company that by reason of such execution having been unpaid, they declared the principal and interest upon the one thousand bonds named and described in the trust deed to be immediately payable, and upon the same night the trustees took possession of the property of the company in the vicinity of Chicago, the officers and agents of the company making no resistance. It also appeared that the president of the company had been in consultation with the attorneys of the trustees about foreclosing the mortgage and taking possession of the property, for several days prior to January 22.

Upon this state of facts the master, to whom the case was referred, reported that the contention of the defendants, that the procurement of the Flanagan judgment was the result of a collusion of the company, was not supported by the testimony. This was also the opinion both of the Circuit Court and of the Court of Appeals.

We have no doubt that this judgment was collusive in the sense that it was obtained by the plaintiff and consented to by the defendant company for the purpose of giving the trustees a legal excuse for declaring the principal and interest of

[ 176 U.S. Page 190]

     the mortgage to be due, and to give authority for a foreclosure. But this did not constitute collusion in the sense of the law, nor does it meet the exigencies of the petitioners' case. Collusion is defined by Bouvier as "an agreement between two or more persons to defraud a person of his rights by the forms of law, or, to obtain an object forbidden by law," and in similar terms by other legal dictionaries. It implies the existence of fraud of some kind, the employment of fraudulent means, or lawful means for the accomplishment of an unlawful purpose; but if the action be founded upon a just judgment, and be conducted according to the forms of law and with a due regard to the rights of parties, it is no defence that the plaintiff may have had some ulterior object in view beyond the recovery of a judgment, so long as such object was not an unlawful one. In Morris v. Tuthill, 72 N.Y. 575, which was also a suit to foreclose a mortgage, the court observed: "The facts that the assignor of a mortgage and his assignee acted in concert with a view unnecessarily to harass and oppress the mortgagor, and with intent to prevent payment, to the end that the equity of redemption might be foreclosed, and they become purchasers for less than the value, do not constitute a defence to an action to foreclose a mortgage. So, also, the the facts that the assignee took title from motives of malice, and solely with the view to bring an action, and that the assignor assigned from a like motive, and without due consideration, furnish no defence, and do not impeach plaintiff's title. It is sufficient to sustain the action that the mortgage debt is due, has been transferred to and is owned by plaintiff; and the mortgagor can only arrest the action by paying or tendering the amount due."

If the law concerned itself with the motives of parties new complications would be introduced into suits which might seriously obscure their real merits. If the debt secured by a mortgage be justly due, it is no defence to a foreclosure that the mortgagee was animated by hostility or other bad motive. Davis v. Flagg, 35 N.J. Ep. 491; Dering v. Earl of Winchelsea, 1 Cox Ch. 318; McMullen v. Ritchie, 64 Fed. Rep. 253, 261; Toler v. East Tenn. &c. Railway, 67 Fed. Rep. 168.

[ 176 U.S. Page 191]

     Now, in this case there is no doubt that Flangan's claim was an honest one; that the coupons upon which he brought the suit were due and unpaid, and there is nothing to show that he would not have entitled to a judgment upon them if the defendant had made a contest. The company was notoriously insolvent. Its coupons for 1894 and 1895 were unpaid. All its property was subject to the mortgage given to secure its bonds. It could no longer continue its business. Flanagan had a perfect right to bring suit, and under these circumstances the president of the company was guilty of no wrong in consenting to a judgment and to the immediate issue of an execution. The company was not bound to defend if there were no defence. The forms of law were complied with. It would doubtless have been more seemly if judgment had been entered until the return day of the summons, if the execution had not issued until the expiration of the twenty days allowed by law, and if the trustees had not been so alert in seizing upon the non-payment of the judgment as an excuse for declaring the principal and interest of the bonds to be due. But this haste did not render the judgment or execution void. If the company had become insolvent and could no longer carry on its business, it was not only its legal obligation, but its moral duty, to surrender the mortgaged property to the mortgagees, in order that the latter might protect their interests. If the corporation saw fit to consent to a foreclosure, a minority of stockholders cannot question their right to do so. The fact that the Flanagan action was undertaken for the purpose of enabling the trustee to declare the principal and interest due does not invalidate the proceeding so long as there was a debt due, an action properly conducted to recover it, and the object to be gained was not an illegal one.

The reports of this court furnish a number of analogous cases. Thus, it is well settled that a mere colorable conveyance of property, for the purpose of vesting title in a nonresident and enabling him to bring suit in a Federal court, will not confer jurisdiction; but if the conveyance appear to be a real transaction, the court will not, in deciding upon the

[ 176 U.S. Page 192]

     question of jurisdiction, inquire into the motives which actuated the parties in making the conveyance. McDonald v. Smalley, 1 Pet. 620; Smith v. Kernochen, 7 How. 198; Barney v. Baltimore, 6 Wall. 280; Farmington v. Pillsbury, 114 U.S. 138; Crawford v. Neal, 144 U.S. 585.

The law is equally well settled that, if a person take up a bona fide residence in another State, he may sue in the Federal court, notwithstanding his purpose was to resort to a forum of which he could not have availed himself if he were a resident of the State in which the court was held. Cheever v. Wilson, 9 Wall. 108, 123; Briggs v. French, 2 Sumn. 251; Catlett v. Pacific Ins. Co., 1 Paine, 594; Cooper v. Galbraith, 3 Wash. 546; Johnson v. Monell, Wool. 390. So, also, in cases where a surety attacks a judgment against his principal upon the ground that it was obtained for the purpose of defrauding him, it must be made to appear either that no debt existed against the principal, or that the amount was grossly exaggerated for the purpose of defrauding the surety. Parkhurst v. Sumner, 23 Vermont, 538; Annett v. Terry, 35 N.Y. 256; Dougherty's Estate, 9 Watts & S. 189; Thompson's Appeal, 57 Penn. St. 175; Willard v. Whitney, 49 Maine, 235; Pierce v. Jackson, 6 Mass. 242; Great Falls Mfg. Co. v. Worster, 45 N.H. 110; Berger v. Williams, 4 McLean, 577; Feaster v. Woodfill, 23 Indiana, 493. So, too, it has held that a person may purchase stock in a corporation for the very purpose of bringing a stockholder's suit, and that the law will not inquire into the motive which actuated his purchase. Bloxam v. Met. Railway, L.R. 3 Ch. App. 337., Seaton v. Grant, L.R. 2 Ch. App. 459; Elkins v. Camden & Atlantic Railroad, 36 N.J. Eq. 5.

In this connection it is claimed that the Trust Company was premature in declaring the principal and interest of the mortgage to be due, although the mortgage provided that such declaration might be made if the company should not "forthwith," upon execution being sued out, discharge or pay it. It is insisted that the company was entitled to a reasonable time in analogy to certain cases which hold that in insurance companies the word "forthwith" carries this significance.

[ 176 U.S. Page 193]

     But "forthwith" is defined by Bouvier as indicating that "as soon as by reasonable exertion, confined to the object, it may be accomplished. This is the import of the term. It varies, of course, with every particular case." In matters of practice and pleading it is usually construed, and sometimes defined by rule of court, as within twenty-four hours. Anderson (Law Dict.) says of the word that it "has a relative meaning, and will imply a longer or shorter period, according to the nature of the thing to be done." There are many cases which turn upon the question whether a person was not too late in complying with a requirement that a thing must be done forthwith, but we can recall none where he has been held in default for doing such act too speedily, and as the corporation in this case made no objection to an instant declaration by the trustees that they would treat the principal and interest of the mortgage as due, it was not within the power of the appellants to set up the fact that they acted with too great haste. It is one of those matters within the discretion of the directors, and we do not think the appellants are in a position to impugn their judgment. Railway ...

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