Farwell v. Great Western Telegraph Co. (161 Ill. 522, 1896)

Mr. Justice Phillips

delivered the opinion of the court:

Charles B. Farwell, and four other stockholders in the corporation known as the Great Western Telegraph Company, on the third day of October, 1888, filed in the circuit court of Cook county a bill in chancery, in behalf of themselves and all other stockholders in said company who would come in and contribute to the expenses of the suit, against the Great Western Telegraph Company, Selah Reeve, David A. Gage, Josiah Snow, Jeremiah M. Terwilliger, Judson M. W. Jones, Thomas J. Sutherland, Adelaide K. Sutherland, George F. Harding, John Clark Hilton, Franklin D. Gray, John J. McClellan and Edwin R. Bowen, which bill was subsequently amended by changing the name of Edwin R. Bowen to Elias R. Bowen, and also by making Elias R. Bowen, receiver, party defendant.

From the record it appears that on the second day of December, 1867, the Great Western Telegraph Company, a corporation, was organized under an act of the General Assembly of the State of Illinois, approved February 9, 1849, entitled “An act for the establishment of telegraphs.” The principal office of this corporation was located in the city of Chicago, and its capital stock consisted of 120,000 shares of $25 each, which was subscribed for and taken, at the time of its organization, by the following named persons, who subscribed for the number of shares, and amounting as follows:

The full number of shares being subscribed, a liability-existed on the part of each subscriber to the company for the par value thereof, respectively, for the amount taken.

It is elementary that stock may be issued by subscription made in writing, or even by an equivalent act for which cash is to be paid for the stock so subscribed for, or it may be issued to be paid for in property or labor, or both, or issued as a stock dividend. In the organization of a corporation the stock must be subscribed for to be paid in cash, labor or property. In the absence of an agreement as to the manner of payment, by the mere act of subscription alone a money payment may be enforced. There have arisen much controversy and litigation as to whether payment for the issue of stock may be made by labor, property, work under contract, or valuable consideration other than money. It is not now questioned that it may be done, in the absence of statutory provisions requiring payment to be made in cash. (Wyman v. Am. Pow. Co. 62 Mass. 168; Haydon v. Atlanta Cotton Factory, 61 Ga. 234; Reichwald v. Commercial Hotel Co. 106 Ill. 439; Liebe v. Knapp, 79 Mo. 22; Clark v. Farrington, 11 Wis. 306; Railroad Co. v. Cramer, 23 Ind. 490; Railroad Co. v. Hickman, 28 Pa. St. 318.) But when such payment is made otherwise than with cash it is necessary that the property or service shall be reasonably worth the sum at which it is so taken. Where a valuation is made in good faith and without fraud, the payment by property or labor at such valuation is as effectual in satisfying the liability for the subscription as a payment in money of the same amount.

Whether shares of stock, when the certificates are sold, may be treated as fully paid by the purchaser it is not necessary to determine in this case, as adjudications of this court with reference to this corporation have determined, incidentally, that question, and the statute now in force also determines that question.

On the shares of stock subscribed by the persons who sought to form this corporation no money was paid by any of them. Selah Reeve, who subscribed for the greater part of it, was insolvent, and a few months thereafter, on his own petition, was discharged as a bankrupt. On the 13th of January, 1868, the corporation elected as a board of directors, Gage, Snow, Hall, Hasbrouck Reeve and Selah Reeve. Gage was elected president. Selah Reeve resigned as director, and on the 25th of March, 1868, entered into a written contract, through Gage, as president, for the construction by him of 2000 miles of telegraph line, on routes to be designated by the company. No time for the commencement of the work or its completion, nor compensation per mile, was fixed. The agreement contained this covenant: “In consideration of the aforesaid covenants and agreements, to be faithfully kept and performed by the said contractor, the said Great Western. Telegraph Company doth hereby covenant and agree, to and with the said Selah Reeve, to issue and deliver to him certificates for shares in the capital stock of the Great Western Telegraph Company, to-wit, 120,000 shares, on the execution of this agreement, the said shares to be owned and represented by the said Selah Reeve in all meetings of the shareholders of said company until such time as the same shall be subscribed and fully paid for by other parties.”

We quote from Terwilliger v. Great Western Telegraph Co. 59 Ill. 249, a further statement of facts: “Contemporaneousty with the execution of this agreement Reeve assigned to Snow, the secretary and treasurer of the company, the 117,897 shares originally subscribed by him, in trust, to sell the same to such persons as either he or the company could procure to subscribe to the stock, at the rate of $10 per share, and to pay over the proceeds to Reeve under his contract with the company, or any contract supplementary thereto. The next day a supplementary agreement was made and executed between Reeve, the company, and Snow, as trustee. By this agreement an irrevocable authority is given to the trustee to sell stock, through the agents of the company, to subscribers, at $10 per share, the company paying to the trustee the money thus received, less a commission of fifty cents per share to be allowed to agents, and the trustee paying it to Reeve as fast as he should construct the line, in sections of ten miles each, to the satisfaction of the company. This contract also specifies the rate to be paid per mile for the construction of the line. The agreement also provides that the trustee shall represent all the stock assigned to him by Reeve, except so much as may be subscribed and paid for by other persons. The rate of compensation to be paid Reeve was, as shown by the evidence, largely in excess of the cost of construction. The next step of these parties was to put their scheme in a position to command the public confidence, and enable them to procure subscriptions and money. To this end they proceeded, on the 30th of March,—four days after the execution of the final contract between the company and Reeve,—to elect twenty-two additional directors. These new directors were selected from well known citizens and men of business in Chicago, but they were not stockholders. Some of them afterward did subscribe, but the greater part refused to do so or to act as directors. Of the few who subscribed, we infer, from the record, only one paid any money on his subscription. The parties conducting this scheme having thus placed themselves in a position to impose upon the public by the unauthorized use of names that would command confidence, proceeded to issue a prospectus, setting forth the organization of the company, with these names as directors, stating that the company was established under State laws and an act of Congress, for the purpose of cheapening telegraphic correspondence in the West, and that the stock would be apportioned, according to population, to the cities and villages of Illinois, Wisconsin, Minnesota, Michigan, Iowa, Indiana, Missouri, Kansas and Nebraska. The prospectus further stated that the stock was $3,000,000, divided into shares of $25 each, and that on the payment of $10 on each share a certificate of stock for $25 would be issued and no further assessments would be made. Prior to the election of the twenty-two new directors the old board had adopted by-laws. The first of these by-laws provided that the first annual meeting of the stockholders of the company should be held within ninety days after 2000 miles of the company’s lines had been equipped with wires. Another by-law provided for the election of directors whenever any number of stockholders holding a majority of the shares shall present a written request, addressed to the president, for a meeting of shareholders for that purpose. The prospectus did not disclose the fact that a contract for the construction of 2000 miles of line had already been made, and that all the stock, except an insignificant portion, had been placed, without payment, in the hands of a trustee of the contractor, with power to represent the same. Neither did the persons who were induced to become subscribers know that until about $1,500,000 should be subscribed their money could be controlled by this trustee, and that they would have no voice in the management of the company, even by voting for directors, until 2000 miles of line should be constructed, unless the trustee should choose to have an election called. By means of this prospectus and the solicitation of agents, who received a commission, large amounts of money were subscribed. As the money came in Reeve began to construct lines under his contract. Another prospectus was issued in 1869, in which it is stated that 333 miles of line were in operation on the 31st of July, 1869, that the company owed no debt, and that the net earnings of the preceding quarter on the Milwaukee division were at the rate of eighteen per cent on its cost. This prospectus further stated that there were already over two thousand subscribers to the stock among business men over various routes. The evidence shows that up to the 30th of June, 1870, Reeve had built 417½ miles of line, for which he had been paid $126,550.90, and that he had also been paid $25,000 on work not completed.”

After stating the history of the organization, this court in that case then determined that the contract between Reeve and the corporation was fraudulent, and held it should be set aside, and held further that the original subscription was a sham, and fictitious merely, and the bona fide stockholders are those who purchased the stock claimed to be owned by Reeve, but who, by the manner of their purchase, became original subscribers to t’he capital stock. The opinion in that case, in remanding the cause, gave full directions, which it is not necessary to here quote. Those purchasers of this stock who, it was held in that case, became original stockholders, became such by signing a contract of subscription.

The bill sets out a copy of the contract for subscription signed by the stockholders who procured the Reeve stock, and is the same as that set out in the opinion in Great Western Telegraph Co. v. Gray, 122 Ill. 630, and Bates v. Great Western Telegraph Co. 134 id. 536, and is as follows:

“Capital, $3,000,000; shares, $25; assessments not to exceed $10 on a share. Subscription list for the capital stock of the Great Western Telegraph Company.

“We, the subscribers hereunto, for value received, severally, but not jointly, agree to take the number of shares in the capital stock of the Great Western Telegraph Company placed opposite our respective names, and pay for the same in installments, to-wit: Five per cent on amount paid in, and the balance as the directors, from time to time, may order. In consideration thereof the Great Western Telegraph Company agree that when forty per cent of the par value of the shares shall have been paid under such orders, and the installment receipts therefor surrendered to the company, the number of shares severally subscribed by the undersigned shall be issued to them as full paid stock of said company.

“.............is appointed agent to solicit stock, and receive only the first installment of five per cent (fifty cents on a share) at the time of subscribing. ”

When the Terwilliger case was remanded by this court to the circuit court of Cook county, a decree was entered in accordance with the decision of this court. That decree was entered November 16, 1872, and sets aside and declares void the contracts between the corporation and Selah Reeve for the construction of the lines; refers the case to Chase, as master, to ascertain the names and residence of the subscribers to stock and the amount paid by them; requires the corporation to issue certificates of stock to all subscribers who have paid money, for as many shares as they are entitled to, reckoning forty per cent on $25 as giving title to a share; orders that the president and secretary call a meeting of such stockholders for the election of a new board of directors; that unless such newly elected board make an amicable settlement with Selah Reeve, satisfactory to the court, the court will ascertain, as nearly as possible, the cost of the lines constructed by Reeve, and allow reasonable compensation therefor, and make a decree against him for the balance, etc., and that the complainants be at liberty to apply for such further order, etc.

The corporation was re-organized by the election of a new board of directors, and being unable to make an amicable settlement with Reeve, on March 5, 1873, filed its petition against him for an accounting, and that was referred to Chase, as master, to take proof and state the account. That order of reference was entered on the 8th day of March, 1873. On February 9, 1874, by intervention, a bill was filed in that cause by J. M. W. Jones and others, who were stockholders, and who seem to have intervened for that purpose. The purpose of their bill was to wind up the affairs of the corporation, etc.

On the 7th of October, 1874, one Almon Kidder, a judgment creditor of the corporation, filed an original bill against and sought to wind up the affairs of the Great Western Telegraph Company, and asked for the appointment of a receiver. The order of reference on the petition of the corporation against Reeve for an accounting was still pending before the master, and on the 21st of September, 1874, Reeve filed his cross-bill, in which it was averred that he had constructed 1400 miles of additional lines, and he prayed an accounting. The original bill filed by Terwilliger against the corporation did not aver its insolvency or allege any' existing indebtedness, nor did it contain any averment to authorize the winding up of the affairs of that body. Neither did it make defendants any of the persons who purchased the Reeve stock under the above stated contract, and who were held by this court to be the bona fide stockholders. Neither did the petition of the corporation for an accounting against Reeve, the intervening bill of Jones, nor the original bill of Kidder, make any of the purchasers of what was formerly the Reeve stock parties defendant, except the officers of the company. The intervening bill of Jones and others, and the original bill of Kidder, contained allegations that were sufficient to authorize the court to appoint a receiver and wind up the affairs of the corporation.

Prior to the re-organization of the corporation the Commercial National Bank acquired a claim which, with interest, amounted to about $15,000, and John Clark Hilton had a claim which, with interest, amounted to about $30,000. Both of these claims had been reduced to judgments at law, and were proven before Chase, as master, and were based on notes made by the corporation before its re-organization and whilst it was under the control of the first board of directors. These notes were for no other consideration than for money alleged to be due Reeve for building the lines under his original contract.

George L. Otis was treasurer of the corporation from about May 1, 1871, until in 1872, and was assistant cashier of the bank. The notes on which the bank’s claim and Hilton’s claim were so allowed were made by the corporation, by Otis, treasurer. During the period of time that Otis was treasurer he made notes in the name of the corporation, with dates and amounts as follows: May 2, 1872, $2650; May 13, 1872, $15,100; May 24, 1872, $2650; May 30, 1872, $1000; June 22, 1872, $3000; June 6, 1872, $6603.16; June 6, 1872, $8603.16; June 6, 1872, $6603.16; June 30, 1872, $1000; August 1, 1872, $809.77. All those dated in May were made payable to the Commercial National Bank, that of June 30 was made payable to Gage, and all the others were made payable to Reeve, and were made to pay for work done under his contract, and no other consideration was received by the company. The facts as to these notes are shown by the bill and answers in the case of Great Western Telegraph Company against Reeve, Gage, Snow, Hilton, Commercial National Bank, Otis and others, filed in the circuit court of Cook county on February 6, 1874, which bill was afterward dismissed for non-compliance with the rule to file bond for costs.

On October 7, 1875, a stipulation was entered into, which was signed by Selah Reeve, by Thomas J. Sutherland, his attorney; the corporation, by Harding, McCoy & Pratt, its attorneys; the Commercial National Bank, by Sleeper & Whiton, its attorneys; John Clark Hilton, by E. A. Small, his attorney; and the complainants in the supplemental bill, by Bennett, Kretzinger & Veeder, their attorneys. This stipulation was filed in the cause of the intervening bill of Jones and others, and under it, and in accordance with its terms, a receiver was appointed and an order of reference made, requiring the master should give notice to creditors to present their claims, and that sale of the corporate property be made, etc. Under that stipulation O. H. Horton was appointed receiver, and he continued to act as such until the 31st day of May, 1879, when he resigned, and Thomas S. Mc-Clelland was appointed his successor. Under that stimulation a reference was made to Hiram M. Chase to take testimony.

Chase, the master, to whom the matter of accounting, on the petition of the corporation, as against Reeve, had been referred, on December 26, 1874, made a report finding there was due Reeve $55,958.99. That report recites that George F. Harding appeared for the corporation and Sutherland for Reeve. The corporation claimed that Reeve should be charged with the amounts paid by subscribers of the stock, amounting to $378,000. The master held he was not to be charged with anything except what he had personally received, and that the $126,550.90 and the $25,000 mentioned in the opinion of this court in the Terwilliger case was not paid him by subscribers, but by the corporation. The master on that point held: “The $126,550.90 and the $25,000, mentioned by the Supreme Court as having been paid up to June 30, 1870, was not paid him by subscribers, but by the company, as appears by the vouchers given by him. Eeeve claims that he had nothing to do with building the first 417½ miles of completed lines and the uncompleted lines mentioned in the opinion; that he was in Canada at that time, and on his return gave the vouchers, because advised by Snow that the amount had actually been expended in building the lines. Upon this question Reeve has had his day in court. His answer is on file in this cause, claiming pay for the construction. He has submitted all his claims to the court, and by the decision is only to be credited, as against the $151,550.90, with the cost of the 417& miles lines completed and the lines partially completed,” etc. The account is then stated, and the cost of building the lines, ect., is found to be $343,743.22 and the amount received by Eeeve is found to be $293,352.39, leaving a balance due Eeeve of $50,390.83, which, with interest, (found to be $5568.16,) makes the total amount due Eeeve $55,958.99.

To this report the Great Western Telegraph Company filed exceptions, as did also Kidder, their exceptions being similar. Of these, the following are to be considered in this connection:

“First—That the master states the company took the affirmative of the issue.

“Second—That the master fails to report the amount of money received by Reeve’s agents, trustees or other employees, as required by the order of reference.

“Seventh—The master failed to charge Reeve with all the moneys received by him and by his agents and trustees, as directed by the order of reference, and failed to charge him with large amounts of money received by Snow, his trustee; that the evidence shows Reeve should be charged with at least $400,000, while the master charges him with less than $200,000.”

Reeve also filed exceptions, and those important to be considered are the following:

“Second—That the master stated that the amount fixed by the Supreme Court as Reeve’s receipts up to June 30, 1870, is res judicata.

“Third—That the master stated that the Supreme Court has adjudicated as to the amount of money received and the lines built by Reeve up to June 30, 1870.

“Fourth—That the master stated that Reeve had had his day in court as to the lines stated by the Supreme Court to have been built and the money received by him up to June 30, 1870, and has submitted all his claims to the court, and by the decision of the Supreme Court is to be credited, as against the $151,550.90, with the cost of 417½ miles of constructed lines and the lines partially constructed, and with reasonable compensation for bis time and labor, whereas the master should have found that it was not an issue before the "Supreme Court as to how many miles of lines or parts of lines Reeve had constructed or how much money he had received up to June 30, 1870, and that what the Supreme Court said on that subject is not res judicata, and that Reeve has not had his day in court on those issues, but they were issues before the master in the accounting, and that he is not, and ought not to be, by the decision of the Supreme Court, charged with the said $151,550.90 mentioned in its decision, or to be credited, as against that sum, with the cost of 417½ miles of constructed and the lines partially constructed prior to June 30, 1870, with reasonable compensation for his time and labor; that the master has not found that Reeve had nothing whatever to do with the building of the 417½ miles completed and 267 miles of uncompleted lines constructed prior to June 30,1870, and referred to in the decision of the Supreme Court, but that the same were built by the company; that Reeve did not receive from the company, or any one else, any part of the said $151,550.90, but the company used that sum itself in building the lines and paying its expenses, and that said sum, and also the 417½ miles of completed and 267 miles of uncompleted lines, ought not to form any part of the accounting.”

The exceptions were argued and taken under advisement by circuit Judge Farwell some time in 1876. Prior to this time an order had been entered confirming the report of the master as to almost all the claims except that of Reeve, the nature and character of which are unnecessary to be here stated. Horton had, early in his receivership, made a lease of the property of the corporation to the Western Union Telegraph Company, and that lease contained provisions by which the Western Union Telegraph Company acquired a lien on the leased property for any moneys expended thereon.

On October 1, 1878, Judge Farwell entered an interlocutory decree on the exceptions taken under advisement by him. This order recites that the cause came on to be heard on the report of Chase, the exceptions thereto of Reeve, filed January 11, 1875, and of the Great Western Telegraph Company and Almon Kidder, filed January 14, 1875; that after hearing the report, the exceptions, and the arguments of Bennett, Harding, Pratt and Sutherland, it is ordered that of the exceptions of Reeve those numbered 2 and 3, and the first part of exception numbered 4, concluding with the words “up to June 30, 1870,” be allowed, and that the remainder of the fourth exception, beginning with the words, “and that he is not, and ought not to be, by the decision of the Supreme Court, charged with said $151,550.90,” and all other of said exceptions be overruled; that the exceptions of the Great Western Telegraph Company and of Almon Kidder numbered 1, 2 and 7 be allowed and the others overruled; that the report and finding of the master, except as to such parts as are excepted to and the exceptions allowed, as above stated, be approved and confirmed; that they be referred to Horatio L. Wait, master, the successor of Chase, deceased, to state the account in accordance with the order of reference made March 8, 1873, and in accordance with the ruling of this court upon said report and exceptions; and that in stating such account he allow Reeve, as the cost of building the lines, the amount found by Chase, and that he charge Reeve with all moneys received by him, or by the company, or by any officers, agents or employees of them or either of them, in payment or part payment for stock before the possession and control of the property and business of the company passed out of their hands, pursuant to the decision of the Supreme Court and the order of this court made in accordance therewith on November 16, 1872. To so much of such order as sustains the second, third and part of the fourth of his exceptions, Reeve excepted.

The effect of thus sustaining the exceptions to the report made by Reeve was, that the decision in the Terwilliger case was not res judicata as to an accounting between Reeve and the corporation. By sustaining, the second and seventh exceptions filed by the corporation it was substantially held that in stating the account Reeve should be charged with all moneys which came to his hands or which were received by his agents, trustees and other employees, specifying particularly that he should be charged with money received by Snow, as his trustee. This order then, by its terms, directs Wait to state the account in accordance with the order of reference made March 8, 1873. That order, by its express terms, directed the master, in stating the account, to state “the account between the company and Reeve of all money, notes, stock or other property of the company received by Reeve, his agent, trustee or other employees for him, and of all moneys paid out by Reeve for the company, and showing, generally, the state of the account between Reeve and the company.”

During this extended litigation Thomas J. Sutherland was the attorney for Reeve, and he also acted as the attorney for the receiver, and at a later period had an order entered that the accounting for Reeve should be carried on in his name and for Ms benefit. From an early period in this litigation Harding, McCoy & Pratt, of which firm George F. Harding was a member, became the attorneys of the corporation, and were so of record till late in 1879, and by no act of record was their appearance as such attorneys ever withdrawn. It is shown Harding was of record and acted as attorney for the corporation until late in 1879. While such attorney he acquired certain bonds of the corporation of the face value of $4500, and also had a claim for legal services, which, it is alleged, is the same claim which was paid to his partners. John I. Bennett had a claim against the corporation for legal services, he having at one time acted as attorney for it. Franklin D. Gray was a stockholder in the corporation, and bad bought the claim of David A. Gage above mentioned, which is alleged to be fraudulent. That claim was purchased from Gage by Sutherland, for Gray, at a, price of from $3000 to $5000.

The bill filed by the corporation against Reeve, Gage, Hilton, the Commercial National Bank and others, which was dismissed for failure to file cost bond, was not dismissed until October 7, 1879. The claims of Hilton, of Gage, of the Commercial National Bank and of Reeve were in litigation at this time. The accounting between the corporation and Reeve, referred to Wait, quietly slumbered, when an instrument-in writing, purporting to be of date June 18, 1879, was executed, as follows:

“This agreement, made and entered into at the city of Chicago, in the county of Cook and State of Illinois, this 18th day of June, A. D. 1879, by and between the following named parties, to-wit: The Commercial National Bank of Chicago, John Clark Hilton, George F. Harding, John I. Bennett, Thomas J. Sutherland and Franklin D. Gray, all being resident in the said city of Chicago:

“Witnesseth: That whereas, the said parties are the owners and controllers of certain claims, demands, judgments and decrees against the Great Western Telegraph Company, a corporation duly organized, etc., and in forms and amounts as follows, to-wit: The said Commercial National Bank a claim, according as the same was proved before Hiram M. Chase, master in chancery, under and in pursuance of a decree of reference made in the matter of said company, and the claims against the same subsequent to the appointment of O. H. Horton as receiver of the said company, and as also evidenced in certain suits and judgments in the courts of record in said Chicago, and which claim is now, including interest, about the sum of fifteen thousand dollars ($15,000); the said John Clark Hilton a claim against said company, and now in the form of judgment heretofore rendered in his favor and against said company in the court of record in said Chicago, and also according as the same was proved before said master under and in pursuance of said reference and before said master, and which amounts now, including interest, to about the sum of thirty thousand dollars ($30,000); the said George F. Harding a claim against said company, consisting as follows, viz., the bonds of said company amounting to the face value of four thousand five hundred dollars ($4500), and a two-fifths (2-5) interest and part in and to the late firm of Harding, McCoy & Pratt against said company, as proved before said master in pursuance of said reference, and reported by said master to the circuit court of Cook county, in the State of Illinois, and allowed by said court upon the said report of the said master, and being the sum of about twenty-six hundred dollars ($2600), the full claim, the sum total of said Harding’s claim against said company being about eight thousand dollars ($8000); the said John I. Bennett a claim against' said company, as proved against said company before said master on said reference, and as afterward allowed by the said court, the sum allowed being about twenty-nine hundred dollars ($2900), and the amount now due, including interest, being the sum of three thousand eight hundred dollars ($3800); the said Thomas J. Sutherland a claim against said company, now in process of determination in said court in an accounting between one Selah Reeve and said company, and which claim has been reported upon by said master in favor of said Reeve and against said company, and which, according to said report, now amounts, including interest, to the sum of about seventy-four thousand dollars ($74,000), the said claim being now assigned to and controlled by the said Sutherland, who has full authority to act regarding the same; the said Franklin D. Gray a claim against said company, as follows, to-wit, viz., the claim of David A. Gage against said company, as proved before said master on said reference and reported by him to said court, the said claim as reported being about thirty-five hundred dollars ($3500), and amounting, according to said report, at the present time, including interest, to the sum of about four thousand five hundred dollars ($4500); and whereas, the said parties have full power and authority to sell, transfer and assign the said respective claims, demands, judgments and decrees above described and set forth:

“Now, therefore, it is agreed hereby, and by and between the several parties hereto, each with the other, and in consideration of the covenants, agreements and undertakings of the said parties, respectively, as hereinafter set forth, as follows:

“First—The said claims, demands, bonds, judgments, decrees, etc., shall be assigned and transferred, with all proper evidences of title, immediately upon execution of this agreement, to some person to be selected by a majority of the parties hereto, as trustee, who shall hold the same, and collect all money paid by or on account of said company, or the receiver thereof, toward the liquidation and payment of the said claims, demands, judgments, decrees, bonds, etc., and all interest thereon, and hold the same in trust for the said parties hereto, and pay the same to them, respectively, upon demand, according as they are respectively entitled thereto by virtue of the terms of this agreement as hereinafter set forth, and also, if deemed advisable by the parties hereto, the said trustee may bid for and buy the said property of the said company according to the instructions of the parties hereto, and shall hold the same for their benefit and as hereinafter set forth. The parties hereto shall have the power to select a successor in trust, in the same manner as the original trustee shall be selected, if to them it shall seem advisable. Upon the successor being selected, the original trustee shall at once turn over to him all papers, moneys or other property coming to his hands as trustee. The signature hereto of the person being trustee under this agreement shall determine his acceptance of such trust and upon the terms herein set forth, and before executing the powers of the trust he shall furnish a bond, as shall be determined upon and accepted by a majority of .the parties, to insure the proper performance of his duties as such trustee.

“Second—All proceedings in court respecting the said claims, demands, judgments, decrees, etc., shall be brought to a close with all practicable speed, and all suits on behalf of said company, now pending against any of the parties hereto, shall he at once dismissed,

“Third-Judgments shall be at once rendered and entered upon all claims of the said Commercial National Bank against said company, if the court shall so determine ; and the said judgments, as well as all judgments heretofore rendered in favor of said bank and against said company, shall also be duly assigned to the said trustee; and all judgments heretofore rendered in favor of said Hilton and against said company shall be immediately assigned to said trustee; and a decree shall also be entered against said company on the said claim of the said David A. Gage, and at once be duly assigned to the said trustee.

“Fourth—The said bonds, claims, parts of claims and decrees of said Harding and said Bennett shall be at once transferred and assigned to the said trustee.

“Fifth—A decree shall be entered by the said circuit court in favor of said Selah Reeve or the said assignee of said claim, and against said company, for the amount that shall appear to be due to him on the basis of said report of the said master upon the said accounting and the rulings and decisions of Judge Farwell, of said court, upon the exceptions filed on the part of the said company and the said Reeve, respective^, to the said report, except and provided that the ruling and decision of said judge in the matter of said report and exceptions, that the said Reeve ought to be charged in said accounting, as against his credits, with all the money paid by the stockholders of said company, shall be taken' and considered error, and treated as such in figuring and arriving at the amount due said Reeve from said company and fixing the amount of said decree; and the amount of said decree ,in favor of said Reeve shall be established, determined and fixed upon the basis and rule of accounting in said accounting in this respect sustained, and reported by the said master in his said report, viz., that said Reeve, in said accounting, should be and ought to be charged, as against his credits, with the money which he actually and personally received from said company, and no more, and without regard to the amount that may have been paid by the stockholders of the said company, unless good cause be shown to the contrary; that upon the entering of said decree it shall be at once duly assigned to the said trustee.

“Sixth—The parties hereto agree to contribute their influence and labors to the end that the property of the said company may be sold as soon as practicable, and that all-proper means be instituted for the early payment of the debts of the company. It is also provided, that if it shall be deemed advisable by a majority of the parties hereto that the trustee should buy or attempt to buy, or make any offer for, the property of the said company, or any part thereof, then the said trustee shall act in that matter, and to the extent and in the manner and according to the advice and directions of the majority of the parties hereto, and whatever of the said property said trustee gets title to and possession of shall be held to the use of and subject to the direction of the parties hereto, or a majority thereof,—the will of the majority herein referred to, to be expressed only after due notice to all the parties hereto,—and shall be owned by them according to the percentages and proportions as hereinafter set forth, and also all outcome thereof.

“Seventh—None of the parties hereto shall, in any way or manner, for or without reward, assist or encourage any of the stockholders of the said company to contest, either in or out of court, the right of said, company or its receiver to collect any assessment or assessments, or any sum or sums of money ordered to be paid and made, on account of and subscription heretofore made to the capital stock of said company, or assist, encourage, advise or interfere, in any way, in or about any litigation, legal proceeding or proceedings, which shall tend to prevent, interfere with or embarrass the collection and payment of the above claims to and by the said trustee according to the tenor of this agreement, or which may tend to prevent the parties hereto from taking and retaining the proportions and amounts as herein provided, under penalty of forfeiture of all rights and privileges under this contract, and the repayment to said trustee of all moneys or other property paid or transferred by virtue of this agreement.

“Eighth—The said several claims, demands, judgments, bonds and decrees owned, and to be assigned .and transferred, as aforesaid, shall, after said assignment and transfer, as a whole or aggregation, and the total amount thereof, and all money or other property received by virtue thereof, and all property purchased as aforesaid, be divided in the following proportions : Forty-five per cent (45 per cent) thereof shall be the property of and belong to said Sutherland by virtue of the said Reeve claims and the assignment thereof to him; eighteen per cent (18 per cent) thereof to the said Hilton; fifteen per cent (15 per cent) thereof to the said Harding; nine per cent (9 per cent) thereof to the said Commercial National Bank; eight per cent (8 per cent) thereof to the said Bennett, and five per cent (5 per cent) thereof to the said Gray. And the said trustee shall pay to the said parties, respectively, of the moneys or other property that comes into his hands and possession, by virtue of and by way of payments on and in liquidation of said claims, demands, judgments and decrees, bonds, etc., to be assigned and transferred as aforesaid, and in the above proportion, upon demand and receipt: Provided, however, that the amount of money paid to said trustee and received by him, and in liquidation of said claims, demands, judgments and decrees, etc., etc., and to be received by the parties as above set forth, shall not, except in the case of said Bennett and Harding, exceed the amounts of the claims of the said parties, respectively, as legally adjudicated and determined, and including interest thereon; and all amounts that shall appear to be due the parties hereto, respectively, over and above the amounts of their respective claims, as aforesaid, including interest thereon, by virtue of the said percentages and proportions, shall belong to and be paid to the said Sutherland, Bennett and Harding, respectively, share and share alike,—that is, one-third thereof to each,—the same being as compensation to them for the extra services which they will have to perform in connection with the said claims and the litigation connected therewith, by reason of their previous close connection with the litigation in which said company has been and is involved, and their familiarity and knowledge concerning the same.

“It is also agreed to save and keep harmless from loss, by virtue of any assessment or assessments for payment of money or orders for the payment of money, made in pursuance of any decree of said court for the collection of money for the payment of the debts of said company, certain of the stockholders of the said corporation residing in the counties of Knox, Henderson, Warren, Mercer, Peoria and Henry, in the State of Illinois, as shall be designated by the said Bennett or the said Harding; and also Anthony W. Street of Iowa, C. H. Moore of Clinton, Iowa, A. Street of Nebraska, R. B. Frary of LaMoille, Illinois, Cairo D. Trimble of Ottawa or Princeton, Illinois, and J. M. W. Jones of Chicago, provided said Bennett or Harding so decide. Nevertheless, provided that none of the parties hereto shall, in any way or manner, reap, obtain or receive any benefit, reward or advantage, either directly or indirectly, by virtue thereof, from any person or persons whomsoever: And provided, also, that the parties hereto who may be stockholders of the said corporation shall be saved harmless from any loss by virtue of any liability as such stockholders: And provided, further, that this agreement to indemnify stockholders from loss shall only be binding upon the parties hereto so far as concerns the money that may come into the hands of the said trustee, as aforesaid, and this agreement shall not include or intend any further or other liability in this respect. This contract shall extend to and be binding upon the heirs, executors, administrators and assigns of the parties hereto. It is also provided that this contract shall not be considered executed, nor have any binding force, until signed and sealed by all of the parties hereto.

“In "witness whereof, we have hereunto set our hands and seals this 18th day of June, A. D. 1879.

H. K. Whiton. “The words ‘unless good cause be shown to the contrary,’ and also the words ‘if the court shall so determine,’ and the words ‘a majority of,’ and the word ‘trustee,’ on the sixth page hereof, and also the words ‘and accepted by a majority,’ on the seventh page hereof, were interlined before signing and sealing.

Thomas J. Sutherland, [Seal.]

Assignee of Reeve claim.

John Clark Hilton, [Seal.]

F. D. Gray, [Seal.]

John I. Bennett, [Seal.]

Commercial Nat. Bank, [Seal.]

By H. F. Eames, Ft.

August 18. ' George F. Harding. [Seal.]

H. K. Whiton. “The interlineation of the words, ‘the will of the majority, referred to, to be expressed only of the due notice to all the parties hereto,’ and also the words, ‘and also all outcome thereof,’ were interlined after the signing of said bank, John I. Bennett and Thomas J. Sutherland, and we hereby give our consent to such interlineation.

Thomas J. Sutherland, [Seal.]

Assignee of Reeve claim.

John Clark Hilton, [Seal.]

F. D. Gray, [Seal.]

Commercial Nat. Bank, [Seal. ]

By H. F. Eames, Ft.

John I. Bennett, [Seal. ]

August 18. George F. Harding. [Seal.]

H. K. Whiton. “The word ‘or,’ between the words ‘Harding’ and ‘Bennett,’ where it occurs, was placed in the above contract after the signing of the said Hilton, bank, Sutherland and Bennett, to which change we give our consent.

Thomas J. Sutherland, [Seal.]

Assignee of Reeve claim.

John I. Bennett, [Seal.]

F. D. G-ray, [Seal.]

Commercial Nat. Bank, [Seal.]

By H. F. Fames, Pres't.

John Clark Hilton, [Seal.]

August 18, 1879. G-eorge F. Harding. [Seal.]”

This contract is not the original. Who was iii possession of the original is not shown. Subpoenas ditces tecum and the examination of witnesses failed to show where it was. Sutherland says he signed a paper between the creditors in August, 1879; that Gray and Whiton signed the paper which he had signed, some time afterward, and is unable to say whether the paper produced is a correct copy of the one he signed or not. Barnes says he is inclined to believe he signed the contract on its date. Gray has no remembrance of the paper, but says if he did sign it, it was some time in 1880. Harding has no recollection of signing the paper of June 18, 1879, and does not think he ever signed a paper of which the exhibit is a copy. He says: “J "was an opponent of the Reeve claim, and continued to be until it had been finally adjudicated in his favor in some way, and I came at the last moment into the fold, whatever it was, as to some combination to preserve the rights of the creditors as against the Western Union, which was threatening to eat us all up.” He is sure he executed no agreement prior to 1880, and whatever agreement he and Bennett executed was "with reference and a view to releasing stockholders, to "whom they felt some relation. It is clear, from his own testimony, he executed a paper of this character, and his positiveness is with reference to the date. John I. Bennett and Frank I. Bennett saw the original, made and compared the copies and knew the handwriting of the signers, and their testimony is clear and convincing as to the existence of an agreement and the correctness of the copy produced in evidence.

This contract being entered into by the parties thereto, on August 7, 1879, an interlocutory decree was entered in the cause by Judge Barnum, ordering that the accounting then being carried on in behalf of Selah Reeve should thereafter be carried on in the name of Thomas J. Sutherland. On August 27, 1879, Sutherland, as solicitor for Reeve, gave notice to Harding, McCoy & Pratt, as solicitors for the corporation, that he would, on August 28, 1879, at ten o’clock A. M., move before Wait for the making by said master of .his report in the accounting with the corporation. That notice is indorsed, “Service accepted August 27, 1879.—Geo. F. Harding.” The master gave' notice to Harding, McCoy & Pratt, as solicitors for the corporation, and to Thomas J. Sutherland, as solicitor for Reeve, on September 11, 1879, that he had prepared his report, and the same could be examined at ten o’clock A. M., September 12, 1879. That notice is indorsed by acceptance of service by Sutherland, and “Received copy of above notice September 11, 1879.—Geo. F. Harding.” On September 13, 1879, the master, Wait, filed his report. By that report he states that “Thomas J. Sutherland appeared as solicitor for Reeve and offered in evidence the testimony taken in the cause, the exceptions thereto of Reeve, the Great Western Telegraph Company and Kidder, and other papers in the case; that no further evidence was offered and no further proof adduced showing any other receipts of stock, money or other property, except as herein set forth.” He then finds that the work done and money received from the company up to June 30, 1870, is not res judicata, and then finds that Reeve constructed the lines prior to November 16, 1872, as found by Chase, and fixes that amount at $225,762.43. He also finds that Reeve did not build the 417½ miles of completed and the 267 miles of uncompleted lines, or receive the sum of $151,550.90 referred to in the .report of Chase, and then makes the schedule of the account, making the total of Reeve’s credits $252,654.22 and debts $141,801.49, and finds the balance due Reeve, with interest, on September 13, 1879, to be $154,861.25.

On September 15, 1879, Sutherland gave notice to the solicitors of complainants and some of the defendants to the cross-bill, and also to Harding, McCoy & Pratt, as solicitors of the corporation, that a rule had been entered to answer the cross-bill of Reeve by September 19, 1879, and on September 20, 1879, a decree of confirmation of the report was made, and the decree was entered defaulting the corporation as defendant to the cross-bill. From the time of filing that cross-bill, for years, it lay quiet and undisturbed until the agreement of June 18 was effected, which seems to have revivified it.

In analyzing Wait’s report it is necessary to consider on what it was based. It is apparent from what is said in the opinion in the Terwilliger case that the corporation bad no money. The evidence in this record discloses that fact. Its stock had all been taken, and, with the exception of three shares, was held by Gage, Selah Reeve, Hasbrouck Reeve and Snow. Neither Gage, Snow nor Hasbrouck Reeve paid anything into the corporation to build the lines. There was no money to build them. The corporation had no means of procuring money except by a call on stockholders, and no call had been made on Gage, Snow or the Reeves. Such was the status of the corporation before the institution of the Terwilliger suit. Gage was its president, and he had contracted with Selah Reeve to build for the corporation 2000 miles of line, and by the same contract transferred to' Snow, as his trustee, the 117,897 shares of stock, to sell and dispose of the same in such manner and at such times as should, in his discretion, seem best to provide the necessary means for the prosecution and completion of said contract, and to apply the proceeds thereof, as fast as they might be needed, for the performance of said contract in accordance with the terms thereof. By a supplemental contract further covenants were made, and Reeve, Snow, as trustee, and Gage, as president of the corporation, were parties signing it. Gage, Snow and Reeve acted on the contracts as binding and valid. No other contract appears to have been made by the company for the construction of its lines. Gage, Reeve and Snow acted on the subscriptions as valid and binding. As they stood to each other and to the corporation at that time, no new subscribers or purchasers of stock being interested, the contract and subscription were valid as between those parties. Then Reeve’s stock was being sold under this arrangement among the parties, and the money derived from the sale of that stock would necessarily come to the hands of parties authorized to receive it by Reeve or his authorized trustee, agents or employees. He never claimed to the contrary before the decision of this court in the Terwilliger case. No other conclusion can be warranted by the facts than that the work on the 417½ miles of completed lines and the 267 miles of uncompleted lines was done under his contract, and the $151,550.90 was received by him, his trustee or agents. He afterward gave his receipt therefor, and not until the wreck of the plans of these men who had evolved this scheme, resulting from the opinion in the Terwilliger case, did they form or attempt to set up a different theory. It was so recognized from the evidence in the opinion in the Terwilliger case, so believed by the judge making the order of reference to Chase in 1873, and so known by Judge Farwell when he sustained the exceptions to Chase’s report and ordered a reference to Wait.

Reeve says in his cross-bill (and Wait so finds) that he did not build'the 417½ miles of completed nor the 267 miles of uncompleted lines, nor receive the money paid therefor, but claims it was represented to him by the corporation that the lines had been built by it and the' money expended,—the money as his,—and that he ought to give said company his receipts for said moneys “as if he had really built said lines and had really received said amount of money in payment thereof in pursuance of said contract; and your orator says that the argument of said company then appeared plausible and reasonable to j’-our orator, and at the request of the said company, as aforesaid, he did give to the said company, at various times, his receipts for the said money the same as if he had received it, and allowed it to be considered that he, your orator, built the said lines and parts of lines for which said money was expended, when, in fact, your orator did not build said lines and did not receive any of said money; and your orator says that it was testified to by himself and the said company, and the officers thereof, in this cause, before it went to the Supreme Court aforesaid, and upon which evidence the said Supreme Court partly relied in giving its said opinion, and which opinion was the rule followed by this honorable court in its decision and decrees subsequently entered in said cause tliat your orator built said lines and parts of lines and received from the company the said sum of money, when, as a fact, the contrary was and is true, although at the time said evidence was given it seemed to your orator to be true, as said contract was then undisturbed and not set aside, and in full force; and your orator states that the statements made in his answer in this cause were based upon the same facts and understandings and theories as those which governed the giving of said evidence and testimony.”

One does not have to read all this bewildering record to see that Reeve was not an unsophisticated man incapable of caring for himself, nor to find' that Sutherland, his attorney, throughout all this litigation was able to comprehend facts, and the statement in the cross-bill of facts different from a former sworn answer, and from his own testimony confessedly made, indicates not so much ignorance as moral obliquity. With the averments of the cross-bill and with the first order of reference, with Chase’s report and with Judge Farwell’s ruling in sustaining the exceptions, Wait’s report is incomprehensible, except that Wait was misled by suppression of the facts. In his report he states what evidence was heard, and disregards the orders of reference in taking testimony to show what money was received by Reeve, his trustee, agents and employees. And it is apparent that, relying on the knowledge and skill of Harding and Sutherland, on opposing sides, he allowed himself to be misled and was induced to act by Sutherland alone, and with the contract of June 18 concealed from him, with Harding and Sutherland acting in concert and with others to attain a common end, in which the interests of the corporation were to be sacrificed,—these facts, it must be held, constitute fraud in securing that report. He was deceived as to the corporation being represented by counsel and was deceived by suppression of facts. Suppressio veri, suggestio falsi.

When the contract of June 18 was discovered and this bill filed, it was sought to be shown that notice was given to other representatives of the company than Harding. Sutherland claims he served notice upon Pratt as well as upon Harding. The master acted on the notice to Harding as sufficient, and from the entire record we are of the opinion that Harding alone had notice.

The decree of confirmation of Wait’s report being entered, and the bill which challenged the character of the claims of the bank, Reeve, Hilton, Gage and others having been dismissed and these claims all allowed, the scheme of making a call upon the stockholders, who by the thousands were citizens of Illinois, Iowa, Wisconsin, Nebraska and elsewhere, was determined on. During this latter litigation, H. K. Whiton, who was connected with the June 18 contract, was of counsel for the bank. Sutherland, as attorney for the receiver, procured an order on October 16, 1879, directing that receiver to collect from stockholders the unpaid balance of the first forty per cent on their stock, and at about the same time the sale of the lines of the corporation suggested itself to these parties. These lines had bee,n in possession of the Western Union Telegraph Company under its lease from Horton, the first receiver, and the latter company had abandoned its lease and the lines had become greatly out of repair. A new corporation, entirely disconnected from any of these, had been organized—the American Union Telegraph Company—and was about to begin business in this territory, and desired to acquire the lines and franchises of the Great Western. It was this fact, as Bennett says, that induced these parties to join in their combination. In carrying out their design they first had the receiver, Thomas S. McClelland, lease the lines for five years, at $2000 per year, to George L. Otis, who, it will be remembered, was cashier of the Commercial National Bank, and had been the treasurer of the Great Western when Reeve’s coterie of officers was in power. Under this lease the receiver was to put the lines in working order and deliver them to the lessee as fast as possible. Sutherland, as the receiver’s attorney, procured the necessary orders of court for the execution of this lease, which Otis transferred to H. K. Whiton, who was the trustee under the conspiracy contract. The parties thus had the situation under such control that no one else could buy the lines except subject to their five year lease. They then negotiated with the American Union, had Whiton lease the lines to it, and on November 10, 1879, entered into a written contract with it. By this contract it was agreed, in substance, that they should endeavor to procure, in their own names or that of their trustee, the title to the lines, and when this was done the American Union should buy the property of them at its market value, to be fixed by arbitration, and that in determining the value the arbitrators should assume, absolutely, that the lines were in good working order, and should not consider any evidence to the contrary, or consider what the property cost the sellers. It also provided that upon the delivery of the lines to the American Union under the above lease it would advance to the receiver enough money to secure the possession and put the lines in good working condition, and assign its claim against the receiver for these advances to the sellers.

As soon as this contract was made, on November 15 the receiver made a contract with the American Union, by which it was to put the lines in good working order. The parties then proceeded to get the property" into the hands of the American Union, and to have the necessary order for a sale entered. The dispute with the Western Union was settled, and on January 20, 1880, the property was placed in the hands of the American Union. They then, on February 4, 1880, filed a petition, Verified by Sutherland, stating that they represented a majority of the creditors; that the repairs on the lines would soon be completed, and the time “seemed auspicious” for a sale of all the telegraph lines and other assets of the company, subject only to existing" leases; that the best price would be obtained if the whole property were sold as a unit, for cash, but if any creditor purchased he should be allowed to apply on his bid, as cash, any adjudicated claim against the company. An order for a sale by the master on those terms was prayed. On the same day that this petition was filed an order was entered directing a sale by H. L. Wait, master, of all the company’s property, franchises, etc., at public auction,.on the conditions stated in the petition. Under this order Wait sold the property on March 18, 1880, to Whiton, as trustee for these parties, for $15,000. Thus these parties—prominent among them the attorneys for the company and the receiver—having so forestalled the market that competition at the sale was practically impossible, bought the property at $15,000, and paid almost all of the price by crediting on their claims the insignificant dividend which that sum would pay. They then, by a re-sale contracted for in advance, pocketed over $38,000 of the money justly belonging to the company and its stockholders. By this means the stockholders, who were now to be pursued by these parties, were deprived even of the benefit of having the claims reduced by the-full amount which could