Higgins v. Lansingh (154 Ill. 301, 1895)

Carter, J.:

Appellee Lansingh, as administrator de bonis non of the estate of John Dempster, deceased, claiming to be the owner and holder of three certificates ■ of conditional scrip issued by the Rosehill Cemetery Com-pony, amounting in the aggregate, at their face value, to $19,000, filed his bill of complaint in the circuit court of Cook county, on behalf of himself and of all other holders of the conditional scrip of said company who should come in, etc., against the appellants, Van H. Higgins, Henry W. Blodgett, the Rosehill Cemetery Company, and others, to redeem 937 shares of the capital stock of the cemetery company held by Blodgett in pledge, as collateral security for the payment of a mortgage debt of one Benson, which was a lien on the real estate of and had been assumed by the company, and for an accounting, and for other relief. The original bill was filed December 9, 1882, to which a demurrer was sustained, and after various amendments, and after answers filed, an amended and supplemental bill was filed October 23,1885. Answers and replication having been filed, and the master to whom the cause had been referred to take the testimony having reported, the cause was heard on the evidence thus taken, and upon depositions, and upon oral and written proofs adduced in open court, and a decree was made by the chancellor on July 15, 1887, finding the equities for the complainant and intervening petitioners, and that they were entitled to redeem said shares of stock; that an accounting should be had to ascertain whether or not the debt for which the shares were pledged had been paid, and if not, how much remained due, and fixing the basis of such accounting. The master having proceeded with the accounting under the decree, and after having taken evidence relating thereto, the defendants, on June 24, 1890, filed their petition, stating to the court that on the basis as fixed by the court in the decree, the debt for which the shares were pledged had been fully paid, and asked the court to suspend the taking of the account, and to require the master to return into court the testimony, exhibits and accounts. The order was made according to the prayer of the petition, and the cause set for and final hearing had. Pinal decree was rendered in favor of the complainant and intervening petitioners October 30, 1890. The defendants appealed, and the Appellate Court for the First District being divided in opinion, the judgment was affirmed by operation of law, from which judgment of affirmance the defendants took this appeal to this court.

The pleadings, proofs and arguments are exceedingly voluminous, and their substance cannot be stated within any reasonable limits of space or time. Appellants alone, by their several counsel, have filed considerably more, in the aggregate, than a thousand pages of printed briefs and arguments, and cited many hundreds of authorities. The principal facts, and the contentions of the parties in reference thereto, and the law applicable to them, will be stated, as fully as time or space will permit, as the several branches of the case to which they relate are considered.

In the spring of 1857, Francis H. Benson purchased of Henry W. Blodgett, W. S. Johnson, S. F. Johnson and John S. Newhouse a tract of land in the town of Lake View, a few miles north of the city of Chicago, and for the deferred payments thereon gave his notes for §35,568, secured by a mortgage to" Newhouse upon the premises. He also purchased, about the same time, of the Illinois and Wisconsin Land Company, another piece of land adjoining the former, all togéther constituting what was known as the town of Chittenden, excepting certain lots which had been previously sold to others. For the latter tract he paid §25,140, — §5028 in cash, and the balance, §20,112, in notes, secured by mortgage to Henry Smith, John Felton and Reuben E. Deming, trustees of the Illinois and Wisconsin Land Company, afterwards called the Boston mortgage. The Newhouse mortgage bore date April 23,1857, and each of the four sellers of that portion of the land held one-quarter in amount of the notes secured thereby. Benson and his partner, Kingsbury, who were bankers, failed, and in October of the same year, owing between $150,000 and $200,000, made an assignment to Beveridge and Moss for the benefit of their creditors. Kingsbury, though named as a party to the deed of assignment, did not, however, it seems, execute it. Benson and wife conveyed, as a part of the assignment, by separate deed, this land and other property to these assignees.

After the great financial panic of 1857, which occurred in the fall of that year, real estate, especially suburban property, declined very greatly in value, and these tracts, which had beenpbought by Benson at an inflated price, became reduced in their market value to but little beyond one-half of the purchase moneys for which they were mortgaged. There was then little or rio market for such property. It seems, however, that from the nature and dryness of the soil, and from their location on the railroad, about seven miles north of the center of Chicago, they were especially adapted to the purposes of a cemetery, and might have a special value if devoted to that purpose. Nothing having been done with the lands or lots, (for they had been laid off and platted into town lots, with streets, etc., before the mortgage by Benson to New-house,) except the sale therefrom by Benson of a small quantity of gravel, Benson conceived the idea of forming a cemetery corporation and devoting the land to cemetery purposes. Prom correspondence and conferences with managers of cemeteries elsewhere, he became impressed with the belief that a large amount of money, sufficient to pay all his debts and to leave him a competency besides, could be realized from this land if used in this way. His creditors had held meetings and had authorized his assignees, by some writing spoken of by the witnesses but not produced in evidence, to allow him to manage the assigned property, and to trade and traffic with it, and out of it to pay his debts as best he could. He was wholly insolvent, but by promising to associate with him in the enterprise his former clerk, Sherman, he obtained from Sherman sufficient money to pay his expenses at the State Capital while he secured the drafting and passage of a special act of the legislature incorporating the cemetery company which he proposed to organize. Thus the law incorporating the Rosehill Cemetery Company was passed and came in force February 11, 1859. Benson had also, for reasons which he thought would popularize his undertaking, and for assistance rendered him, associated with him in the enterprise Dr. Blaney, who was the first president, and was one of the board of managers from the organization of the corporation until his death, some time after 1872.

The charter provided that William B. Ogden and twenty-two others named, including Benson, Blaney and Sherman, and such others as they might thereafter associate with themselves, should be and were constituted a body politic and corporate, with perpetual succession, etc.; that “they and their successors may have a common seal, and make and alter the same at pleasure, and do such other things as are incident to a corporation and not inconsistent with the constitution of the State of Illinois that the eighteen persons first named should constitute the first “board of consultation,” and the five last named, which were, Blaney, Henry Smith, Judson, Jansen and Benson, should be the first board of managers, and should have power to receive subscriptions for the purchase of property and for laying out and ornamenting the grounds for cemetery purposes, and might issue certificates representing the interests of subscribers in the property held by the company and in the proceeds of the sale of burial lots; that such individual interests should be personalty, and the certificates assignable only in such way as the managers should, from time to time, direct; that the managers should have authority to call in such subscriptions, in such payments, at such times or in such installments, as deemed proper, and to compel payment by forfeiture or sale, if necessary, of the interest of the delinquent subscriber ; that it should be lawful for the managers to receive, at their option, such real estate or personal property, at an equitable valuation, as they might deem available for the purposes of the company, and to obtain and hold possession of real estate situated in the town of Lake View, not exceeding five hundred acres, by purchase, exchange or otherwise, for cemetery purposes. The charter also provided that the managers might make a plat of such grounds and additions as they might acquire, and the recording thereof in the recorder’s office should operate as a legal vacation of any former plat or subdivision of the same, and of any roads, streets or alleys passing through the same. There were various other provisions relating to laying out and ornamenting the grounds, and protecting and caring for graves and monuments, exempting the grounds from taxation, etc., not having any bearing on this case.

The company was organized, with the officers stated, during February, 1859, and there can be no doubt, from the evidence, that it was organized and its charter obtained for the primary purpose of devoting these lands to cemetery purposes, and of selling them out in burial lots, for profit. Benson, acting for himself and his assignees, as well as for the cemetery company after it was organized, arranged to have the lands conveyed to the latter. The conveyance was accordingly made by the assignees and Benson and his wife, all joining, by means of five deeds, the first bearing date April 22, 1859, reciting a consideration of $2000; the second dated April 26, 1859, reciting a consideration of $1000; the third dated April 27, 1859, reciting a consideration' of $8000; the fourth bearing the same date and reciting a consideration of one dollar; and the fifth bearing the same date and reciting a consideration of $2000, the receipt of which consideration in each conveyance, it is stated, is thereby acknowledged and the party of the second part forever discharged from the payment thereof. By these conveyances the cemetery company expressly assumed and agreed to pay the encumbrances then existing upon the property for unpaid purchase money, including the New-house mortgage and the Boston mortgage, then amounting, with interest, to about §59,000, and further assumed all outstanding contracts for the conveyance of lots which had been previously sold by Benson or his grantors. The deeds also expressly conveyed to the company Benson’s reversionary interest in the streets and alleys and parks adjoining the lots and blocks, which he had previously included in the mortgage to Newhouse, but which seem not to have been embraced in his deed to the assignees. It appears that these deeds were made and acknowledged in advance of any action taken by the board of managers, as the first mention of the subject in the records of the company is found in the meeting of April 30, when a committee was appointed to confer with the assignees for the purchase of Benson’s interest in the property, and to report the conditions on which such purchase could be made. It is noticeable, also, that many subsequent acts of the company were authorized of.record after the acts themselves had been consummated.

It seems to have been understood, in advance of the incorporation, between Benson and those interested with him in the enterprise, that the capital stock should be §150,000, which was about the amount of Benson’s indebtedness, and that it should be divided so that Benson should have §115,000, Blaney §20,000 and Sherman §15,000, and after the company was organized it was discussed among the managers and officers, and understood and acquiesced in, without objection from any one, that Benson was entitled to the stock for what was called “his equity,” though no express order to that effect was made. Blaney and Sherman received their shares because Benson had promised they should receive them for the considerations before mentioned. The charter made no mention, in terms, of capital stock, nor fixed any limit to the amount of the certificates of interest authorized to be issued, but at meetings of the managers held in April and May, 1859, the capital stock was fixed at $150,000, in shares of $100 each, and a form of certificate was adopted which contained the clause, “each share being one undivided fifteen-hundredth part of all the estate of said company, subject to the provisions of the charter and the by-laws of the corporation, transferable only on the books of the company,” and providing further that no assignment of the certificate should take effect until made on the books of the company, the assigned certificate returned and a new one issued to the assignee. It was also ordered that the capital stock should not be increased or altered except by a five-eighths vote of all the stock,at a stockholders’ meeting called according to the bylaws. It was also then ordered that “the president and treasurer be authorized to issue stock to the amount of not more than $150,000, in such parcels as the parties who may be entitled to the stock may direct, and report the issues to the board, from time to time, as made.” It was arranged between the cemetery company and the holders of the Newhouse debt against Benson, which the company had assumed, that the debt, then amounting to $36,968, should be extended five years, to April 23, 1864, and the interest increased to ten per cent, and that bonds of the company for that amount, with interest coupons,' should be issued, secured, by deed of trust, on about forty acres of the land released from the Benson mortgage, and delivered to the defendant Blodgett in trust, as collateral security for the Newhouse debt. The trust deed ran to Blodgett as trustee, and provided for the sale of the forty acres in burial lots, and to be conveyed by the trustee as sold, one-half of the proceeds to be paid to the company and the other half on the debt. - Benson was not released from the indebtedness, but the same was expressly kept alive against him, the trust deed reciting that the extension of time and increase of interest were made by stipulation with him. The bonds also purported to pledge the income, property and franchises of the company for their payment.

About the same time, and as a part of the same transaction between the company, Benson and the holders of the Newhouse debt, certificates for 937 shares of the capital stock were ordered to be, and were, issued by the company and delivered to Blodgett, trustee, in pledge, as further collateral security for the debt, and Blodgett gave the following receipt therefor, which was approved by the board:

“Received, Chicago, May 27, 1859, of the Rosehill Cemetery Company, certificates for 937 shares of the capital stock of said company, which said stock is to be held by me as collateral security for the payment by F. H. Benson to John S. Newhouse, S. F. Johnson, W. S. Johnson and myself of the sum of §36,968 on the 23d day of April, A. D. 1864, with annual interest thereon at ten per cent per annum, each of said persons holding one-fourth of said indebtedness in severalty, the said interest being payable on the 23d day of April in each year; and in case the said Benson or said Rosehill Cemetery Company shall fail or neglect to pay said interest, or any part thereof, as the same accrues, or in case of failure to pay said principal sum, or any part thereof, at the time the same shall become due, then I am authorized to sell and dispose of said stock, or any part thereof as may be necessary, either at public or private sale, at my election, after giving ten days’ notice of the time and place of such sale in some daily newspaper published in the city of Chicago, and apply the proceeds of such sale, and after deducting the necessary expenses and commissions incident thereunto, toward the payment of said indebtedness. It being understood that the whole of said indebtedness is to become due, at the election of the holders thereof, upon default in the payment of said interest, or any part thereof. It being understood and agreed that during the time I shall so hold said stock as collateral, I or my executors, administrators, or any attorney or attorneys by me authorized, shall have the right to vote upon the same at all meetings of the stockholders of said company, having one vote for each share ; and I agree that upon a full and complete payment of said indebtedness I will surrender said stock to said company or assigns, and transfer the same to whomsoever it may request. It being further understood, that in case said stock, or any part thereof, shall be offered for sale by reason of default in the payment of said interest or indebtedness, the holders of said interest or indebtedness may become purchasérs, and whosoever may become purchasers of said stock, or any part thereof, at such sale, shall hold the same absolutely as against the said company and all persons claiming under it. H. W. Blodgett.”

By this arrangement Blodgett, representing the creditors holding the Newhouse debt, was given five-eighths of the voting power in the meetings of the stockholders. Arrangements were also made with the Illinois and Wisconsin Land Company, whereby portions of the land bought of it were released from the old trust deed and conveyed to Henry Smith, as trustee, upon trusts similar to those in the Blodgett trust deed, but securing the payment of the land company debt. The land so conveyed in trust to Blodgett and to Smith was inclosed into a cemetery, and the sale of lots and burials commenced. None of the stock was, however, pledged for the payment of the debt of the land company.

At a meeting of the managers November 2,1859, Blaney, who had previously been appointed for that purpose, presented two forms of scrip, which were adopted. First, a form certifying that “......is entitled to.... payable in the stock of the company at par, when presented, in sums of $100,” called in the record “absolute scrip and second, a form called “conditional scrip,” and when issued, as most of it afterwards was, in certificates of §5000 to Benson, read as follows:

“No......... Office of Rosehill Cemetery Company, Chicago, Ill., November 5, 1859 :

“Whereas, 937 shares of the capital stock of the Rose-hill Cemetery Company is deposited with Henry W. Blodgett, Esq., of Waukegan, Ill., which said stock is to be returned to the said company on the performance by said company of certain conditions, which are fully set forth in the receipt for said stock given by said Blodgett to said company on the 26th day of May, 1859, which said receipt is on file in the office of the treasurer of said company:

“Now, therefore, be it known, that F. H. Benson is entitled to the ■ sum of §5000, payable in the said stock held by said Blodgett, as aforesaid, at par, at any time' after the said stock shall again come into the possession of the said Rosehill Cemetery Company, when presented, in sums of §100. This certificate is transferable by endorsement.

“In witness whereof, the president and treasurer of said company have hereunto affixed the corporate seal of the company, and subscribed their names, at the city of Chicago, Illinois, on the fifth day of November, 1859.

Jas. V. Z. Blaney, Pres.,

J. Woodbridge Smith, Treas.”

At the same meeting “the president and treasurer were ordered to issue to F. H. Benson §115,000, Jas. V. Z. Blaney §20,000, A. T. Sherman §15,000, (§150,000) of the scrip in this company, in such parcels as the parties may desire.” While there is some evidence tending to show that a slight excess over §150,000 in stock and scrip was issued, we think it appears, from the whole evidence, that not more than that amount was ever issued and outstanding at any one time, and that the company did not intend to authorize to be issued, and did not issue, aside from the preferred stock mentioned hereafter, any more than the $150,000 of stock and scrip together. It is not always easy to determine from the books' of the company whether reference is made to stock or scrip, as'in most instances stock and scrip are mentioned indiscriminately as stock. The conditional scrip shows on its face that it relates to the 937 shares issued to Blodgett, and the absolute scrip was doubtless intended to evidence the right of the holder to the amount of stock called for by it out of the remaining 563 shares.

The company had no property or means except the land conveyed to it by Benson and his assignees and what it received from the sale of burial lots. For many years it had a hard struggle for existence, and would doubtless have failed altogether had not the holders of the New-house debt, after the first year, allowed it to retain the whole of the proceeds of the sales of lots instead of only one-half, as provided in the deed of trust, and allowed their debt, principal and interest, to remain unpaid. They also, including Blodgett, the trustee, assisted it with loans, which it could not then repay. Benson, from time to time, disposed of the stock and scrip issued to him, in paying his debts and in other ways, but remained in the employ of the company, as superintendent, or in some other capacity, until 1864 or 1865, and continued to be one of the managers of the company until about the year 1867, when he left it, claiming he had been “frozen out by the creditors,” and the three certificates of conditional scrip described in and relied on in the bill of complaint, two for $5000 each and one for $9000, were found among the papers of plaintiff’s intestate, — the two issued to Benson and endorsed by him in blank, and the other issued to deceased himself, but also endorsed by Benson. Dempster, the deceased, had been a creditor of Benson, but the amount of his debt is not shown.

Many of the certificates of scrip as well as of stock were destroyed in the great Chicago fire of 1871 or in other ways, and on proof being made were re-issued by the company at different times, even as late as 1882, when certificates for §5100 of stock were issued to appellant Higgins, who now claims to be the chief owner of all beneficial interests in the company and denies the validity of the scrip. The board of managers adopted a standing order for such re-issue. In 1876, after Higgins became one of the managers and the holder of the greater part of the indebtedness of the company, and was practically in control, a petition to the board, showing that three certificates of conditional scrip issued to Benson had been destroyed by the great fire and asking for their re-issue, was referred to the officers with power to act, who after-wards re-issued them as prayed. The certificates of scrip as well as of stock were bought and sold among the managers, officers and creditors of the company, and transferred on the books of the company, for more than twenty years before this suit was brought, without their validity being questioned. The company never took any action to call in or repudiate these certificates, nor indicated in any way, by its official proceedings, that they were invalid or had been issued without consideration.

In July, 1872, at a meeting of the managers, the New-house debt, principal and interest, remaining unpaid, except §3334.35, which had been paid to the holder of one of the quarter interests, was re-adjusted between the then holders of it and the company. There appears to have been due upon the principal of the Newhouse debt, when it matured in 1864, §33,633.65, and also the accrued interest. At this settlement in 1872 the interest was compounded, and the total amount due was fixed at §119,023.39. New bonds of the company, payable in ten years, with interest at ten per cent, were given in lieu of the bonds of April 23, 1859. It was provided in the resolution adopted by the managers, that these new bonds so issued “shall be taken as conclusive evidence of the amount of the indebtedness of the said Benson and cernetery company to said parties in interest under said mortgage.” Other considerations entered into this settlement, which will be noticed at another place.

Higgins had purchased a one-quarter interest in this debt in 1871, and had contracted with one of the managers for another quarter shortly before the settlement, and by other purchases, made later, obtained control of the rest of the debt as well as of the Boston mortgage and other indebtedness of the company. He also became the owner of substantially all of an issue of $25,000 of “preferred stock,” hereafter considered, and of a portion of the common stock and scrip which had originally been issued to Benson and others. He was .elected one of the managers in January, 1873, and treasurer in July, 1878, holding both of these offices at the beginning of this suit, and owning or controlling substantially all financial interests in the corporation except the scrip and stock in the hands of the complainant and intervening petitioners.

Blodgett had, in 1866, sold and transferred, for about one-fourth its face value, his interest in the Newhouse debt, for which debt he held, as trustee, the bonds and 937 shares of stock of the company as collateral, including in such sale his demands on the company of upwards of $1000 for money loaned, and thereafter he had no interest in the company or its indebtedness except as trustee, holding said stock and other securities under the trusts created, when they were placed in his hands. He was, however, elected manager at a stockholders’ meeting in November, 1862, and continued to act as such thereafter. He voted the stock in his hands at the stockholders’ meetings, as it was his right and duty to do, but it would seem that he also recognized Benson’s equity by associating Benson with him in voting the 937 shares at this meeting when he was elected manager. Benson also, at this meeting and others, voted the shares of stock issued to and retained by him without question or objection by Blodgett or any one. We think, also, that as stockholder holding in trust and voting five-eighths of the capital stock, and as manager for more than twenty years, dating back to within less than three years of the incorporation of the company, Blodgett was charged with notice of the orders of the board for the issue, and of the issuing by the officers, of the rest of the $150,000 of stock not issued to him, and of the scrip also, and that there was no other consideration for such issue except Benson’s equity in the land.

By means of this stock pledged to Blodgett, the creditors elected managers satisfactory to themselves whenever vacancies occurred, — Blodgett, J. Woodbridge Smith, Hewhouse, Turner, Higgins and others, all creditors, at some time, of the company, holding the position of manager; and in this manner they acquired as complete control of the corporation as any stockholder holding a majority of the shares of stock could lawfully acquire of any corporation. The company’s debts were not paid, but were increased by adding interest to principal and issuing new evidences of such debts, and by the purchase of additional lands at high valuations, and by making expensive improvements, until, from an original indebtedness of less than $60,000, it ran up to nearly half a million dollars when this bill was filed. Many of these things were, however, shown to have been beneficial to the company. It was necessary to its success that expensive improvements should be made, as thereby the sales of lots were increased four-fold; that extensions of its indebtedness should be secured, foreclosure of mortgages avoided, and perhaps that additional lands should be obtained, and it is apparent from the evidence that many of the acts of the managers and officers complained of by appellees as unduly increasing the indebtedness of' the company, were necessary to save it from complete insolvency and failure. A foreclosure, at any time, of the mortgages and trust deeds, or of the pledge of the stock, would have effectually destroyed all value of the conditional scrip, on which the bill in this case is predicated.

The complainant testified that he applied to several of the managers, and requested that action be taken to compel an accounting by Higgins and for redemption of the stock pledged to Blodgett, claiming that on a proper accounting it would be found that the debt was paid and the pledge ended. In a conversation with Higgins on the subject, Higgins told him he had better file his bill and he would make his account to the court, and that unless he did so soon he would have the stock pledged to Blodgett sold. Blodgett also informed him that unless enjoined he would advertise and sell the stock on Higgins’ request. Blodgett did advertise the stock for sale by virtue of the conditions of the pledge, but upon the filing of the bill the sale was enjoined. No request or demand was made on the corporation or board of managers, as such, to bring suit or to take any action in the premises, and it is one of the contentions of appellants that the complainant had no right to bring suit on behalf of the corporation or to represent it in any way in enforcing its rights against its creditors or officers. But it is apparent that if the holders of the conditional scrip are the equitable owners of the stock pledged to Blodgett, subject to the lien thereon to secure the payment of the Newhouse debt, they had a right to redeem it, by paying the debt, at any time after it became due, and in such case the suit would be on behalf of themselves, and not of the corporation. The first question, therefore, presented for decision is, what are the rights of the holders of the conditional scrip?

The learned chancellor who tried the cause below held that these scripholders were equitable assignees of the stock in Blodgett’s hands, subject to the pledge, and were entitled to the same, in proportion to the scrip held by them, when the debt is paid; that the certificates of scrip operated as equitable assignments pro tanto of this pledged stock, and that therefore complainant was entitled to bring his bill to redeem. Appellees, while insisting, as we understand counsel, that these certificates may be regarded as equitable assignments of the stock, also insist that they havé yet a higher character, and may be regarded as declarations of trust, or, rather, as written declarations of the interest or equity which the holders have in the Blodgett stock. Appellants contend, on the other hand, that they are mere executory agreements, and that the company thereby merely undertook to pay the holders the amount called for by the scrip, out of the pledged stock, at par, when the Newhouse debt should be paid and the stock returned to the company. They also contend they were issued without any consideration paid to the company therefor; that they were fraudulently issued, and were issued in violation of law, and are absolutely void.

We are unable to agree with counsel for appellants on this branch of the case. It is clear, from the evidence, that Benson was the owner of the lands and lots, subject to the mortgage debts, until he conveyed them to his assignees for the benefit of his creditors, and that he remained the equitable owner of them, subject to the payment of his debts, his assignees being merely the holders of the legal title, and his agents to distribute his assets among his creditors. (Harris v. Cornell, 80 Ill. 54; Kirkland v. Cox, 94 id. 400; Bouton v. Dement, 123 id. 142.) It is equally clear that he conceived the idea of creating a special value for these lands and. lots by devoting them to the purposes of a cemetery, through the instrumentality of a cemetery corporation, with the consent of his assignees and his secured and unsecured creditors. This idea was carried- out, the corporation was formed, he secured the consent of his assignees and creditors, and the lands and lots, including Benson’s equitable interests and his reversionary interests in the streets vacated by force of the charter, were conveyed to the corporation. The company paid nothing, unless the stock and scrip be regarded as payment. It is true, the company assumed the mortgage debts; but it had no other capital whatever, and could pay the debts only out of the proceeds of the sale of the property when sold out in lots at the increased value which its devotion to this special use gave it. Benson was not released from the mortgage debts, but they were expressly kept alive against him, the rate of interest was increased, and the holders could have shared equally with the unsecured creditors in any other assets of his estate. True, the property could not then have been sold in the market for much more than half enough to pay the debts for which it was mortgaged. But it was no part of the proposed scheme to sell it at its then market value. It appeared to be to the interest of both the secured and unsecured creditors to avoid such sale and to carry out Benson’s plan, which, as he then conceived, would, if successful, enable him to pay all his debts in full. If Benson’s equity in the property had no real or market value, neither did the stock or scrip, and had he got all of the stock and scrip he would have received no more than he procured to be conveyed to the company. If the mortgage creditors preferred to extend the time for the payment of their debt, obtain an increase of interest, take as collateral the bonds of the company and 937 shares of its capital stock, it was doubtless because they thought it was to their interest to do so. If the unsecured creditors preferred to give up any right they might have by the assignment to share in any possible surplus which might be derived from the sale of the property, and take their chances of obtaining from Benson payment in stock, or otherwise, it was doubtless because it was to their interest to do so. If Benson, his assignees and all of his creditors were agreed in the matter, who was there to object, or to be injured or defrauded? Surely those of the appellants who are defending this suit as creditors succeeding to the interests of the original mortgage creditors cannot be heard to complain, when one of the purposes of the suit is to pay off their debts.

But counsel insist that the corporation was defrauded; that Benson, Blaney and Sherman, being a majority of the board of managers, voted the issue of the capital stock and scrip to themselves without paying the company anything for it and in fraud of the rights of the company, and that such stock and scrip are therefore void. The evidence shows that no deception was practiced on any one. There was no concealment; no pretence of any payment to the company, otherwise than by what was called Benson’s equity in the land; no pretence that the company had any other capital. No one was beguiled into becoming a subscriber to the capital stock, or a creditor of the company, on the supposition that Benson paid anything more than he actually did pay. What was done was done openly, and, so far as the evidence discloses, honestly. The company obtained through Benson all the capital it had, and gave no more in return than it received. Had there been, at the time, other stockholders who had paid for their stock, or creditors, who had been injured by the transaction and not consenting thereto, then, as to them, counsel’s argument would be unanswerable. But in passing on this branch of the case we must regard the company as a mere instrumentality by which the plan of Benson and his creditors was carried into effect. If instead of forming a corporation they had conveyed this land to a trustee, clothing him and his successors with power similar to that contained in the charter, as fully as it could be done without an act of the sovereign power of the State, to devote these lands to cemetery purposes, it would have been no fraud on the trustee to obtain from him certificate^ showing that all beneficial interests in the proceeds of the sale of burial lots belonged to Benson and his creditors. Before the conveyance to the company, whatever value the lands had, then or prospectively, belonged to Benson and his creditors, and they could have preserved their right to this value by any lawful means, and could have retained the beneficial interest in the proceeds of the sales of burial lots, in devoting the lands to cemetery uses. We cannot see why they could not, without any fraud on the company, where there was no one else to be injured, take from the company certificates of interest, or stock, (for the term is immaterial,) evidencing their interest in the corporation, or in the proceeds of sales of what had then become corporate property. It is the substance of the transaction that a court of equity must regard, and not the mere form in which the parties have clothed it.

The several counsel for appellants have argued at great length, and cited hundreds of authorities, in their endeavor to show that the stock and conditional scrip were fraudulently issued to Benson, and that therefore a court of equity will not grant any relief to the holders of it, who have no higher equities than Benson himself. It is not, and, as we understand the evidence, it cannot be correctly, maintained that there was any fraudulent intent or purpose, any deception, concealment, misrepresentation or imposition, by Benson, but the contention is, that in so obtaining the stock and scrip, as shown by the evidence, it amounted to >a fraud upon the company itself, there being no one else to be defrauded. We are of the opinion that it was lawful for Benson, with the consent of his creditors, to devote these lands to the purposes of a cemetery through the instrumentality of this corporation, and, the lands being the only capital of the company, and there being then no other stockholders or creditors of the company to complain, to take and receive from the company certificates representing all of the capital stock, even though their face value was far beyond the value of the lands. It was a mere change from private to corporate ownérship of the land.

In Coffin v. Ransdell, 110 Ind. 417, it was said: “Patent rights and mining and manufacturing property, which are embarked in enterprises, are frequently valued by their owners and others at a prospective value, which may or may not be realized, dependent upon future contingencies. If the owners, who put such valuation thereon, act in good faith, and yet suffer disappointment, we can see no reason why they should suffer further, unless they have been guilty of fraud or concealment which has resulted in damage to others.” See, also, Brant v. Ehlen, 59 Md. 1; New Haven Horse Nail Co. v. Linden Spring Co. 142 Mass. 349.

In Scoville v. Thayer, 105 U. S. 143, in a suit to recover unpaid assessments, it was said: “The stock held by the defendant in error was evidenced by certificates of full-paid shares. It is conceded to have been the.contract between him and the company that he should never be called upon to pay any further assessments upon it. The same contract was made with all the other stockholders, and the fact was known to all. As between them and the company this was a perfectly valid agreement. It was not forbidden by the charter of the company or by any law or public policy, and, as between the company and its stockholders, was just as binding as if it had been expressly authorized by the charter.” See, also, Bank of Fort Madison v. Alden, 129 U. S. 372; Flinn v. Bagley, 7 Fed. Rep. 785; Parsons v. Hays, 14 Abb. N. C. 419.

In Foster v. Seymour, 23 Fed. Rep. 65, where the trustees of a corporation bad delivered to themselves the stock in payment of their mining property, Mr. Justice Wallace, of the Circuit Court of the United States for the Southern District of New York, said: “The corporation lost nothing by the transaction disclosed by the bill, except the paper which was created and called capital stock. None of its capital was diverted. The scrip was not capital stock. The capital stock of a corporation is the money or property which is put into a corporate fund by those who subscribe for stock, and thereby agree to become members of the corporate body. Unless it represents capital contributed or agreed to be paid in, it has no value. (Burrall v. Bushwick Railroad Co. 75 N. Y. 216; Sturges v. Stetson, 1 Biss. 246.) The property it received in exchange for the scrip had some value — certainly as much as the scrip had. There was no fraud upon the corporation. At the time the scrip was exchanged for the mining property the trustees was all there was of the corporation. There were no stockholders unless they were the stockholders. What was done was done by the corporation. By the exchange the corporation got the mining property, and gave it back again to those from whom it got it, divided into 100,000 shares, of the nominal value of $100 each.”

In Stewart v. St. L., Ft. S. & W. R. R. Co. 41 Fed. Rep. 736, decided'by Mr. Justice Foster of the United States Circuit Court for the District of’ Kansas, one Tiernan and others had purchased an old railroad bed and incorporated the defendant railroad company, and were on its first board of directors. They then sold the road-bed to the company for $200,000 of the notes of the company and $3,600,000 of its capital stock, which purchase was after-wards ratified by the stockholders. The court said: “At the time of the sale there were no stockholders, and the $3,600,000 stock issued under the said purchase was all that had been subscribed or issued, and the only assets of the company were its charter and this road-bed. It appears, from the evidence, that the road-bed originally cost about $2000. It had no marketable value, only as it could be used for the purpose for which it was made. It also appears, from the evidence, that the stock and notes of the company, at the time they were issued, had no present marketable value. The value of the property sold, as well as consideration paid, (stock and notes,) depended very largely upon the success of the enterprise. There is no doubt but the directors — Tiernan, Ayers, and, perhaps, Bronson — -while directors of the company used their influence to consummate this sale from themselves, as individuals, to the company, and it is altogether probable that they had that object in view when they bought the road-bed. But the question still remains, were they guilty of fraud, deception or any other breach of good faith in their fiduciary relations as directors? * * * It does not appear, in this case, that there was any deception or fraud practiced by the parties. The property was open to inspection, and the approximate cost of constructing it was easily obtainable. Its value to the company for the purpose desired was not difficult to ascertain. * * * Now, who was defrauded or deceived? All parties — directors and stockholders — • assented to it, and surely subsequent purchasers of the stock, or the corporation itself, cannot now object to it. 1 Mor. Pri. Corp. 290.”

In St. L., Ft. S. & W. R. R. Co. v. Tiernan, 37 Kan. 606, a suit was brought on one of the promissory notes given for the road-bed mentioned in Stewart v. St. Louis, etc. R. R. Co. supra, and in reviewing the same transaction the Supreme Court of Kansas said: “It has been decided, time and time again, that the owner of a mine, an oil well or a valuable patent can .organize a corporate company to develop mineral or oil or to manufacture the patented article, take a very large amount of stock in payment of his mine, oil well or patent, and trust to the value given the stock by the success of the corporation for payment of his labor and discovery. In this class of cases there is a mere transfer of the status of the mine, oil well or patent. It ceases to be personal property and becomes corporate property, and each individual interest, as well as that of the owner, discoverer or patentee, is represented by shares of stock. It is now decided in this case that the owners of a graded railroad bed can sell the same to a railroad company whose officers and directors are composed of the same identical persons who own the road-bed, and issue the capital stock of the railroad company in payment thereof, at a time when those who sell the road-bed and own and control the railroad corporation are the absolute owners of all the stock issued by the railroad company, and when the terms of sale and the issue of stock are matters of record on the books of the railroad company, and when this transaction occurs months before any other or additional stock is issued by the company; that parties owning an old railroad grade, with culverts and some bridges erected thereon, and who organized, control, manage and own a railroad company, whose stock, at the time of the issue, has no market but only a nominal value, can transfer the railroad grade to the railroad company, and issue the stock of the company in,payment therefor, they, and they alone, at that time, being the only persons interested in the road-bed and in the railroad company. ” Substantially the same doctrine has been announced in numerous other cases, English and American. In re Ambrose, etc. Co. L. R. 14 Ch. Div. 390; Lorillard v. Clyde, 68 N. Y. 384; Dupont v. Tilden, 42 id. 87. See, also, Protection Life Ins. Co. v. Osgood, 93 Ill. 69; Union Mutual Life Ins. Co. v. Frear Stone Manf. Co. 97 id. 537; Bouton v. Dement, 123 id. 142; Winston v. Dorsett Pipe and Paving Co. 129 id. 64.

It is not, of course, decided that such a disposition of these certificates as was made to Benson, Blaney and Sherman, (and including, possibly, the trustee, Blodgett,) would have been valid as to others subscribing and paying for stock at par, without notice of and not consenting to such disposition, nor as to creditors injured by the transaction who had relied upon the company’s having received face value for its corporate stock. Different principles control the decision of such cases, as they do in other branches of the law where the rights of creditors and innocent purchasers are involved, and transactions are held invalid as to them which are valid and binding between the parties and those in privity with them. But little is said in the many long and able arguments of counsel for appellants as to this distinction. The defendants to this bill, other than the company, are in no better position to question the validity of these certificates than the company itself. They are, in the main, mere purchasers of the original mortgage indebtedness, and holders of evidences of later credits extended to the company, with full knowledge of all the facts attending the transactions which they now seek to impeach, and which they must, on the evidence, be held to have known the company, its stockholders and creditors had treated as valid for more than twenty years, and all of which debts of the company, so far as valid, the bill seeks to have paid. Surely no creditor can ask for more than his debt. True, it is said by appellants that Higgins is the holder of substantially all of the $25,000 of preferred stock issued by the company, for full value paid after the issuing of all of the certificates to Benson and others, in controversy. The purchasers of this preferred stock took it with full notice of the equities of the holders of the certificates of common stock and scrip, and, like the corporation itself and its creditors, have acquiesced in the validity of such scrip and stock ever since the issue of the preferred stock in 1860. The preferred stock was itself authorized and created by the holders of the common stock, the charter being silent on the subject, and the holders of such preferred stock thus created could not stand by for more than twenty years, while the holders of the common stock elected the managers and performed all other acts as stockholders of the company, and then be permitted to say that as holders of the preferred stock they are the only stockholders. They occupy no better position to question the validity of any issue of the common stock or scrip than that occupied by the holders of common stock, or by the corporation itself, or by any subsequent creditor with knowledge of or consenting to such issue. Indeed, the validity of this preferred stock is also challenged, and the learned chancellor of the circuit court held that it was issued without power therefor; that if valid at all it is only as common stock, and that the defendants to the bill holding such stock should account for all dividends received on it, none having been paid on other stock. This question will, however, be considered at another place.

It is further insisted by appellants, that even if the law be as contended for by appellees, still the evidence shows the stock and scrip were not issued to Benson in payment for his equity in the land. It is said that both Beveridge and Moss, the assignees, testified that there-was no other consideration for the conveyance of the land to the company than the assumption by the company of the mortgage debts resting upon it. They did so testify in substance; that they knew of no other consideration; that they, as assignees, received nothing from the company; but they stated also that Benson attended to the matter of disposing of the assigned property by authority of his creditors, subject only to their approval, _ and it is evident that they meant only to testify that, as assignees, they received no stock or scrip, or promise of any, from the company-for the conveyance of the lands, but, as said by Moss, the stock and scrip belonged to Benson, outside of the estate. As Benson’s creditors had given full authority in the premises, the reason it did not pass through the hands of the assignees is apparent. The deeds also acknowledged a money consideration, and full receipt thereof, of upwards of $11,000, which the evidence fails to show was ever paid. Other witnesses testified that it was talked over in the board of managers, and it was considered that the stock and scrip belonged to Benson for his equity in the land. It was ordered issued to him accordingly, subject to the pledge of $93,700 of the stock to Blodgett. This pledge was perfectly consistent with the claims of Benson, as it was apparent the success of the entire enterprise depended on the co-operatian of the mortgage creditors, and Benson was more interested in obtaining such co-operation, by securing the payment of their debts, than any one else. The records of the company, though imperfect, show that the board of managers considered that Benson was entitled to the stock. It fixed the amount at $150,000, and ordered it to be issued to the parties entitled, in such shares as they should direct, and after the pledge to Blodgett they adopted the form of conditional scrip, reciting the pledge, and ordered it to be issued to Benson, Blaney and Sherman, as it had been talked over in the board, — that is, to Benson $115,000, Blaney $20,000 and to Sherman $15,000. We have carefully considered the evidence, and are satisfied therefrom that the real consideration for this stock and scrip was Benson’s equity in the land. Ho other reasonable conclusion can be drawn from the evidence when it is all considered together. Whether or not it was voidable at the election of the company, because of over-valuation of the property, it is not now necessary to decide. As the company, by successive boards of management, elected, in the main, by the creditors and not by scripholders, not only acquiesced in the transaction, but ratified it in many ways, as before shown, through a period of more than twenty years, it is now too late for the company to avoid it. The same reasoning also leads to the conclusion that this stock and scrip must be treated as having been fully paid for, and that it would be inequitable to require the holders of it to pay for it again, on any basis which could be now fixed, as a condition of equitable relief. We think the trial court erred in requiring such payment, and the decree in that respect is reversed.

Construction of the scrip certificates. — Counsel for appellants have argued, with great vigor and ability, that the trial court erred in holding that the certificates of conditional scrip are equitable assignments of the interest of the company in the shares of stock pledged to Blodgett, entitling the holders of such scrip to redeem such stock from the pledge, and have cited a vast array of authorities which they insist support their contention that, instead of amounting to equitable assignments, they are mere executory agreements of the company to pay the designated amount out of the stock pledged to Blodgett, at its face value, when it should again come into the possession of the company, and that the complainant’s remedy, if any he has, is not in equity, but by action at law upon such executory agreements. We cannot undertake, in the time at our command to be given to this case, nor'within any reasonable space, to review to any considerable extent the arguments of counsel nor the numerous cases cited bearing upon this question. We do not think, however, that the authorities sustain the views contended for. The scrip certificate recites the fact that the stock was pledged to Blodgett, and then refers to the Blodgett receipt on file with the company as stating the conditions of the pledge, and certifies that Benson is entitled to $5000, payable in said pledged stock at par, at any time after it shall again come into the possession of the company. It is said, this is a clear promise to pay out of a particular fund (of stock) in futuro, on the happening of a contingency, and not an executed assignment, constituting Benson the equitable owner in prcesenti of the amount of stock called for. The argument is not without force, but is, we think, more plausible than sound. The stock certificates themselves are made transferable only on the books of the company, and provide that no assignment thereof shall take effect until the return of the certificates and the issue of new ones. The provision in question in the scrip was a mere recognition of the provision in the stock that the certificate must be returned and a new one issued before the assignee could become the legal owner of the stock. It did not affect the character of the scrip as an equitable assignment pro tonto of the stock, subject to the pledge, if otherwise the instrument amounted to such assignment. The legal title to the stock could not pass to the scripholder except through the company, by a return and cancellation of the old certificate and the issue of a new one. As said by the learned chancellor who tried the case below, the company was a mere conduit through which the legal title would pass. To say that such a provision in the scrip destroyed its character as an equitable assignment is practically to say that no equitable assignment could have been made which recognized the above mentioned provision in the stock.

It is said, also, that the scrip certifies that Benson is entitled to §5000 payable in said stock at par, and that by the word “payable” is meant to be paid, and imports a promise to pay in stock, and makes the certificate an executory agreement instead of an executed assignment. This is also a plausible construction if that clause be considered alone, and without any reference to the entire transaction, of which it was only a part. The certificate certifies that Benson “is entitled to §5000,” not of money, —not even of stock at its real or market value, — but payable in the pledged stock at par. We think the word “payable” should be referred to the legal satisfaction of the equitable demand, — that is to say, Benson is declared to be entitled to, or the equitable owner of, §5000 of the pledged stock, to be made the legal owner whenever the pledged stock shall have been returned to the company and new certificates issued therefor. Not only must all the provisions of the scrip certificate be considered together, but they must be considered in connection with the stock certificates and the receipt containing the conditions of the pledge, referred to in the scrip, and in the light of the circumstances under which the transaction took place. Pomeroy, in his work on Equity Jurisprudence, (vol. 3, sec. 1282,) says : “What shall amount to the present appropriation which constitutes an equitable assignment, is a question of intention, to be gathered from all the language, construed in the light of the surrounding circumstances.” See, also, Otis v. Beckwith, 49 Ill. 121; Padfield v. Padfield, 72 id. 322.

Thus interpreted, what was the intention of the parties? We think, without doubt, it was to declare that the holder of the scrip was entitled to the designated amount of stock, subject to the pledge to Blodgett. While the certificates of scrip may, in one sense, be held to be equitable assignments of the interest of the company in the stock in question, they may more properly be designated as written declarations of the interest which the scripholder had in the pledged stock, as certificates of stock are written declarations or acknowledgments by the corporation of the interest of the holder in the corporate property and franchises. Cook on Stock and Stockholders, sec. 10; Burr v. Wilcox, 22 N. Y. 551; see, also, Kekewich v. Manning, 1 DeG., M. & G. 176. The legal title being in Blodgett, the company could not transfer or vest it in Benson, but it could, and we think did, vest in him the equitable title, — and that, equity will protect and enforce.

The cases cited by counsel holding that a promise to pay a debt out of a particular fund will not constitute an equitable assignment of any part of the fund are inapplicable. Counsel, however, rely with great confidence on Brown v. Lehigh Coal and Navigation Co. 49 Pa. St. 272, as sustaining their views. We do not so regard it. We can not stop here to review that case, but we have carefully examined it, and find that the principal features of the certificate or contract there referred to by the court as of controlling importance, were radically different from those which must control the construction of the scrip certificates involved in this cause.

As a part of this branch of the case it is also urged that the claim against Blodgett, arising out of the contract of pledge, cannot be divided, and Blodgett compelled to answer different suits involving conflicting interests; that his contract is an entirety, and cannot be divided without his consent; and Stone v. Pratt, 25 Ill. 16, and Chicago and Northwestern Railroad Co. v. Nichols, 57 id. 464, are cited to support this view. The questions there decided were wholly different from the ones here involved. Without entering into any discussion of the rule contended for, and which, it may be remarked, pertains more to s°uits at law than in equity, we are of the opinion that in this case the supposed division of the cause of action is more apparent than real. In the first place, the pledge debt must be fully paid and the whole of the stock returned to the company before any of it can be issued to complainant. When the debt for which Blodgett-holds the stock shall have been fully paid, (as under the ruling of the trial court relating to the accounting appellants admit has .already been done,) he must, under • his contract of pledge, return the stock to the company to be re-issued to those entitled to it, and when he has done this his contract is complied with; or if the complainant should be required to pay off the pledge debt in order to redeem, he would, in equity, be subrogated to the rights of the pledgee,