Statement of the case. BRONSON ET AL. v. LA CROSSE AND MILWAUKIE RAILROAD COMPANY ET AL.* 1. Stockholders of a corporation, who have been allowed to put in answers in the name of a corporation, cannot be regarded as answering for the corporation itself. In a special case, however, where there is an allegation that the directors fraudulently refused to attend to the interests of the corporation, a court of equity will, in its discretion, allow a stockholder to become a party defendant, for the purpose of protectingfrom unfounded and illegal claims against the company-his own interest and the interest of such other stockholders as choose to join him in the defence. 2. The filing of a cross-bill on a petition without the leave of the court is an irregularity, and such cross-bill may be properly set aside. 3. Judgments recovered against a corporation in Wisconsin, after the dato of a mortgage by it, are discharged by a foreclosure of the mortgage. 4. Until the filing of his bill of foreclosure and the appointment of a receiver, a mortgagee has no concern or responsibility for or in the dealings of a mortgagor with third parties, such as confessing judgment, and leasing its property subject to the terms of the mortgage. 5. Where a mortgage is made in express terms subject to certain bonds secured by prior mortgage, these bonds being negotiable in form, and having in fact passed into circulation before such former mortgage was given, the junior mortgagees, and all parties claiming under them, are estopped from denying the amount or the validity of such bonds so secured, if in the hands of bonâ fide holders. Parties holding negotiable instruments are presumed to hold them for full value, and whether such instruments are bought at par or below it, they are, generally speaking, to be paid in full, when in the hands of bonâ fide holders, for value. If meant to be impeached, they must be impeached by specific allegations distinctly proved. 6. A court of equity, where a mortgage authorizes the payment of the expenses of the mortgagee, may pay, out of funds in his hands, the taxed costs, and also such counsel fees in behalf of the complainants as, in the discretion of the court, it may seem right to allow. BRONSON and Souter filed their bill in the Circuit Court for the District of Wisconsin, to foreclose a mortgage made on the 17th August, 1857, by the La Crosse and Milwaukie Railroad Company, a corporation of Wisconsin, covering a portion of a railroad made by the said company in that *This case was decided at the last term. - Statement of the case. State, the portion being between Milwaukie and Portage City, about ninety-five miles, and called the Eastern Division.* The mortgage was made to the said Bronson and Souter as trustees, to secure the payment of bonds for one million of dollars issued by the company. These bonds were payable to bearer in New York, with interest at eight per cent., payable semi-annually. They were registered and countersigned by the trustees, and delivered to the company, and in the autumn of 1859 had been negotiated and put into circulation. They were for $1000 each. The bill alleged that default had been made in the payment of interest, and prayed that the La Crosse and Milwaukie Railroad Company, and all other persons claiming under it, might be decreed to deliver to them, B. and S., or to their agents, and to put them into possession of, the railroad, with its appurtenances; and that all the income of the road might be applied to the payment of the moneys due, and to become due, on the mortgage or bonds; and that the road, with its rolling stock and franchises, might be sold, &c.; and that, pending the proceedings, a receiver might be appointed. The bill was filed December 9th, 1859. An order pro confesso was entered against the company. Certain other parties, however, besides the La Crosse and Milwaukie Railroad Company, were made parties to this bill. 1. The Milwaukie and Minnesota Railroad Company. This company had been organized upon a sale of the La Crosse and Milwaukie Railroad, just named, under a third mortgage, which had been made to one Barnes, as trustee, by the debtor company, junior to that of the complainants. This Barnes mortgage, with a supplement to it, was made to secure an issue of bonds to the amount of Two millions of dollars. The mortgage and supplement, by its terms, was made subject to certain incumbrances, and, among them, "to the bonds secured by a second mortgage on the Eastern Divi * For an understanding of the position of this road, its Eastern Division, &c., see diagram, infra, p. 610. Statement of the case. sion of the road to the amount of one million of dollars;" the mortgage, to wit, now sought to be foreclosed. They also had on their back the indorsement thus: "State of Wisconsin. La Crosse and Milwaukie Railroad Company, 3d mortgage sinking fund bond, seven per cent., &c. ;" subject, among other things, "to a 2d mortgage on the same line of road of $1,000,000." This company did not appear to the bill, but permitted it to be taken as confessed. 2. Certain private individuals-Zebre Howard, also Graham and Scott-were made defendants; the bill alleging that they had, or claimed to have, some interest in the mortgaged premises. Howard answered the bill, setting forth that, on the 1st of May, 1858, he obtained a judgment against the debtor company, in the Circuit Court of Milwaukie County, for $25,586.78; and that this judgment remaining unpaid, he commenced suit thereon in the District Court of the United States, and recovered judgment in that court November 28th, 1859, for $16,379.86.* Graham and Scott also answered the bill, setting up a judgment in their favor, recovered in the said District Court in December, 1859, for $41,008.86, founded on two former judgments in their favor in the State court. The answer of Howard, and that of Graham and Scott, asserted that these judgments, respectively, were liens upon the mortgaged premises; and set forth various matters in defence against the relief prayed for by the complainants. Replications were filed to both these answers. No proof was made of these judgments other than that of their being included in a list of judgments appended to the report of a master in the case. After the time had expired within which the Milwaukie and Minnesota Railroad Company ought to have answered, but before an order had been entered taking the bill against them pro confesso, one J. S. Rockwell, a stockholder of the * There seemed to be some confusion about these dates, &c., not perfectly understood by the reporter. Statement of the case. said company, presented to the court his petition, charging collusion between the complainants or their agents and one Russell Sage, President of the said Milwaukie and Minnesota Company, to secure a foreclosure and sale in their cause, for the purpose of extinguishing the rights of the said Milwaukie and Minnesota Company, which was alleged to be the owner of the equity of redemption of the mortgaged premises; and that the President of the said last-named company, although requested by its stockholders, had declined to make any defence in this cause. The petition prayed leave to defend the bill," on the part of said company, as a defendant therein, and to be let in and allowed to make such defence as he may be advised is proper or necessary, in the place of said company, as a party defendant to said action, and for a reasonable time to prepare and file his answer." Upon this petition, the court "ordered that the said Rockwell be, and hereby is, allowed to make defence to this bill in the name of said Milwaukie and Minnesota Railroad Company, to the same extent as the said company could do, under the rules and practice of this court." In pursuance of this order, Rockwell filed his answer, entitled "The separate answer of J. S. Rockwell, who, by the order of this court, is allowed to make defence to the bill, &c., in the name of the Milwaukie and Minnesota Railroad Company." This answer was signed by Rockwell individually. Fleming, another stockholder of the Milwaukie and Minnesota Company, presented a petition, charging collusion, as before charged in the petition of Rockwell, apparently upon the theory that Rockwell's was his individual answer, and not that of the company, and praying leave "to put in an answer for said Milwaukie and Minnesota Railroad Company, and that said company may have thirty days' time to perfect the same, and prepare a cross-bill as shall be necessary." Upon this petition, the court "ordered that the said Fleming have leave to put in answer in the name of the Milwaukie and Minnesota Railroad Company." Under this order, Fleming filed an answer, entitled, "The answer of the Milwaukie and Minnesota Railroad Company, one of the defendants to Statement of the case. the bill," &c. This answer was signed "The Milwaukie and Minnesota Railroad Company, by A. Fleming, stockholder;" and also, "A. Fleming, stockholder of the Milwaukie and Minnesota Railroad Company." The complainants filed replications to these answers, entitled "Replications, &c., to the answer of J. S. Rockwell," and "Replication, &c., to the answer of the Milwaukie and Minnesota Railroad Company." The answer of Fleming set up, in general terms, that the bonds of the La Crosse and Milwaukie Company for the one million of dollars were issued, and the mortgage of the road to the complainants made, in violation of the charter of the company, and in fraud of the stockholders and creditors, and it then set forth six particular instances of the alleged fraud on the part of the company, or its officers and directors, in disposing of the bonds. These six instances being connected with the names of, 1st, Chamberlain; 2d, one S. R. Foster; 3d, J. T. Souter, a trustee and complainant; 4th, Greene C. Bronson, another trustee and complainant; 5th, one Prentiss Dow. The 6th charge had reference to a certain leasing of the road to Chamberlain. The answer proceeded thus: The defendant, answering, states and shows, upon information and belief, that the said mortgage and the said one thousand bonds, to which the same is collateral security, was gotten up, contrived, and executed by the said railroad company, when the said company was well known to its board of directors to be greatly embarrassed in its pecuniary condition and affairs, for the corrupt and fraudulent purpose of disposing of said bonds, or a large part thereof, in payment of pretended debts to the officers and agents of said company, or their friends, without any consideration to be paid therefor, or in exchange for the stock of said company, then of little or no value, held by its officers and agents or their friends; and that, in point of fact, a large part of said bonds were so disposed of and given away in violation of the true intent and meaning of the charter of said company, in fraud of its creditors, and of this defendant in par. |