4. Directors and officers of the company have no right to enter into or participate in a combination, the object of which is to devest the company of its property and obtain it exclusively for themselves at a sacrifice, or at the lowest price possible, and thus seek their own profit at the expense of the company, its stockholders, creditors and bond hold

ers.

5. They have no right to obtain the property for themselves by a hurried sale conducted with the least possible opportunity for notice of the proceeding to those stockholders and bond holders resident at a distance, who had the greatest interest, nor to make an agreement whose obvious purpose was to remove competition at the sale. 6. Directors of the company, owing duties to its stockholders and creditors, cannot combine to obtain the company's property for themselves at a sacrifice, through the formality of a judicial sale, nor become active participants in successful efforts to defeat a sale for a large sum in order that they might become the purchasers for a small amount; and they can take nothing from such a sale, thus 7. A new company, formed by the purchasers at this illegal and void sale, has no other or better title than that of these purchasers.

made.

8. The proceeding to homologate a sheriff's sale

peculiar to Louisiana, does not conclude the question whether the purchasers have obtained their title by fraud, or whether they are trustees mala

fide for others.

The bill is for discovery and relief against certain alleged frauds of the grossest character. The presumption of law is against all fraudall vicious and dishonest conduct. Odiosa et inhonesta non sunt in lege præsumenda.

The answers of the defendants to the bill and to the interrogatories are evidence. The complainants make the sixteen defendants witnesses, jointly and severally, to prove the charges of the bill. One and all, they unhesitatingly say that there is no truth in any of the charges. Their answers are clear, full, concurrent and uncontradicted.

The effect of this evidence is familiar. The elementary rule in equity is: "That an answer, which is responsive to the allegations and charges made in the bill, and contains clear and positive denials thereof, must prevail, unless overcome by the testimony of two witnesses to the substantial facts, or at least by one witness, and other attendant circumstances which supply the want of another witness, and thus destroy the statements of the answer, or demonstrate its incredibility or insufficiency as evidence."

3 Greenl. Ev., sec. 289; Mills v. Gore, 20 Pick., 28; Field v. Holland, 6 Cranch, 8.

The law of Louisiana governs this case. No

ed States for the District of Louisiana. The bill in this case was filed by the appellants in the court below, where a decree of dismissal was entered, whereupon they took an appeal to this court.

The case is fully stated by the court. Messrs. J. A. Campbell, H. M. Spofford & Campbell, for appellants:

Irregularities, defects and informalities must be cured by the monition process, or by prescription of five years.

This point is very plainly stated and decided in 1 Ann. Rep., 46. The court says:

The Act of 1834 was passed for the protection of bona fide purchasers at judicial sales, from litigation concerning matters of form, a non-observance of which frequently exposed purchasers to unreasonable and vexatious suits. Neither in the bill nor in the argument have we insisted upon any informalities in the order of sale,the advertisement of the sale, or of any of the formal acts which were authorized or appointed. The foundation of this claim is to be found in the conduct of the plaintiff, Gordon, and those who combined with him to use the mortgage of the large number of plaintiffs in this suit, so as to transfer to him and his associates the property pledged to the enlargement of their estates, and the diminution of the estates of other bond holders than himself; that there was unfairness, concealment, surprise, fraud and breach of obligation and duty in that conduct, to their prejudice. This case could not have been propounded in the monition suit. Branner & Co. attempted to do it. The opposition of this party was excepted to by these defendants, who were plaintiffs to the monition, for the reason that such objections are not objections to matters of form in the proceedings connected with the sale, but are objections to matters dehors the proceedings and of substance, if valid at all.

This was successful, and the court dismissed the opposition.

Messrs. Wm. H. Hunt, Randell Hunt and John Ray, for appellees:

terest in land or real estate can only be acquired or lost agreeably to the law of the place where the same is situated.

Story, Conf. L., sec. 365; Kerr v. Moon, 9 Wheat., 570; U. S. v. Crosby, 7 Cranch, 115; McGoon v. Scales, 9 Wall., 27-31 (76 U. S., XIX., 546–548); Miles v. Caldwell, 2 Wall., 36 (69 U. S., XVII., 755).

The judicial proceedings under which the defendants acquired their title, are in strict conformity to the laws of Louisiana.

This has been expressly decided by the courts of Louisiana in this very instance.

Branner v. Hardy, 18 La. Ann., 537; Gordon v. The Vicksburg S. & T. R. R. Co., 18 La. Ann., 550.

These decisions dispose of the very objections now urged by these complainants to the defendants' title.

But the judgment in the monition suit, confirming and homologating the sale, is, by the laws of Louisiana, a complete bar against all persons, whether of age or minors, present or absent. The proceedings are in the nature of proceedings in rem; and, therefore, on principle as well as by the express terms of the statute, bind all the world.

Mr. Justice Strong delivered the opinion of the court:

The complainants are holders of six hundred and sixty out of seven hundred and sixty-one bonds of $1,000 each, issued by the Vicksburg, Shreveport and Texas Railroad Company, and secured by a mortgage upon the railroad and its appurtenances, and upon the franchises and personal effects of the Company, together with more than four hundred thousand acres of land. Their bill is filed as well for themselves as fo all other bond holders whose situation is similar to theirs. Some of them are also preferred stockholders of the Company to a large amount. The mortgage was made by an authentic Act on the first day of September, A. D. 1857, to John Ray or bearer, to secure the full, faithful

and punctual payment and redemption of each | and all the bonds issued under it to any and all the future holders thereof, and to each and every one of them when the same should be come due and payable, together with the in terest accruing thereon. The relief sought by the bill is, that the mortgage may be declared to be a valid lien upon all the property described therein; that a sale averred to have been made under it in 1866 to the defendant Ludeling and his associates may be set aside, and the deed made to them by the sheriff may be declared to be fraudulent and void, that the defendants may be enjoined against setting up any title under the sale in the deed prohibited from selling any of the property, rights and privileges of the Railroad Company, and required to account for all money received by them on account of the Corporation, and that mortgaged property may be decreed to be sold for the benefit of the bond holders, the preferred and other stockholders. The bill also prays for the appointment of a receiver and for other relief.

To the bill and the relief asked the only defense set up is what is alleged to have been a judicial sale of the property under executory process at the suit of William R. Gordon, one of the defendants, and the only question of importance presented by the record is, whether that sale, as against these complainants, extinguished the lien of the mortgage.

The sale was made under an ex parte order, obtained from a judge in chambers on the 23d of December, 1865, at the suit of Gordon, who described himself as the owner of four of the mortgage bonds, upon which coupons amount ing to $720 were due and unpaid. The petition for the order of sale did not aver that Gordon was the owner or bearer of the mortgage, or that he had any rights therein superior to the rights of any other bond holder for whom the mortgage was a security. It might, perhaps, be doubted, therefore, whether under the law of Louisiana he was in a condition to petition for executory process for a sale of the mort gaged premises, and whether the judge had any authority on his petition to order a sale. No question of this kind, however, is seriously made here, and we proceed to notice at once the manner in which the process was used, the proceedings prior to the sale and at the sale, and the actions and relations of the purchasers. Gordon's petition made no disclosure of the name of any other holder of bonds secured by the mortgage. Ostensibly he sued for himself alone. He asked for no notice, and none was given, of his application to any other bond holder, though there were seven hundred and sixty one bonds outstanding held principally in other States. The order of seizure was granted by the judge on the 23d day of December, 1865. but it was not filed in the clerk's office until Saturday, the 30th of that month, late in the afternoon, and on that day the sheriff made a seizure and served a notice thereof upon H. M. Bry, who was then acting as the president of the Corporation, and who subsequently became one of the purchasers at the sale. On the 2d of January, 1866, the sheriff advertised the property for sale in one newspaper published in the Town of Monroe, and by posting a copy of the advertisement on the church door and another at the door of his office. The sale was

appointed for the first Saturday of February, which was the earliest day on which it could be made under the law of the State. By that law the property seized was required to be ap praised, and could not be sold for less than two thirds of its appraised value. It consisted of a railroad about one hundred and ninety miles in length, with numerous water stations, buildings, warehouses, depots and depot grounds, cars, locomotive engines, wagons, machinery, utensils, bills receivable from numerous promisors, aggregating more than $40.000, unpaid stock subscriptions exceeding $320,000, and a large land grant of several hundred thousand acres, together with the franchise of the Company. To appraise all this property the appraisers were summoned to meet on February 3, the day of the sale, at 10 o'clock A. M. They were appointed by Gordon and Bry, both of whom were purchasers at the sale. Obviously it was impossible for the persons appointed to make any fair appraisement at that time. Yet they reported one of all the property at $75.000 in legal tender notes, and the sale proceeded. From the sheriff's return as first made, drawn up by John T. Ludeling, Gordon's attorney, and one of the purchasers, the sheriff exacted an illegal and onerous condition. The condition was, that the purchaser should pay cash to pay the interest coupons then due, with credit to meet the immature interest and bonds, and should give bonds, with personal security, for the credit portion of the bid. At the first cry the property was struck off to George M. Branner & Co. for $550,000; but because they failed to pay at once the interest coupons then due and presented, the sheriff immediately set up the property again in bulk, and sold and adjudicated it to John T. Ludeling, John Ray, Francis P. Stubbs, Wesley J. Q. Baker, William R. Gordon, Henry M. Bry, Joseph F. McGuire, John A. McGuire, Robert Ray, Joseph P. Crossley, Charles W. Phillips, Robert C. Strother, Christopher H. Dabbs, George C. Waddell, William M. Pincaird and James U. Horne, the said John T. Ludeling having bid in the property for them for the sum of $50,000, and they having complied with the terms of sale by paying the proportional amounts of the several coupons due, which were presented for payment, to wit: $10,739.83, to William R. Gordon, John T. Ludeling and James U. Horne, the holders of one hundred and fiftyfour bonds, and to F. P. Stubbs $850.68, being the amount due on the coupons he presented for payment. Such was the sheriff's return. Two days afterwards he made a deed to the purchasers.

Were there nothing more in this case than is narrated by the brief history thus given, which is uncontradicted, it would be difficult to characterize the transactions as anything less than a great wrong perpetrated by the agency of legal forms. The great body of the bond holders could have known nothing of the proceeding to sell the mortgaged property and discharge their lien. Their residence was remote, and the sale was hurried as fast as the forms of law permitted. Not a day was lost. They were not af forded an opportunity to attend and bid at the sale, or pay off Gordon's small claim of $720. Neither they nor their trustee were consulted. The sale was made in a village far in the in

terior. It was advertised in only one local newspaper, and not a day longer than the law required. A farcical appraisement was made at the last moment, and it was obviously intended to facilitate a hasty sale for a nominal price. Onerous and illegal conditions of sale were exacted from other bidders, but not from these purchasers, who paid nothing except to themselves. A property upon which had been expended nearly $2,000,000, together with a large stock subscription, a large grant of lands, and considerable movable property, was bought for $50,000 by the very persons who defeated a sale for a much larger price, and the purchase money was retained by themselves.

But to a thorough understanding of the case it is necessary to consider the relation in which many of the purchasers at the sale, who are the present defendants, stood to the complainants, and how far their conduct was consistent with that relation. As we have seen, William R. Gordon, at whose suit the executory process for the sale was ordered, was the holder of four bonds. These he obtained in the month of October immediately preceding the sale, paying for them $640, and by his purchase he be came entitled to the security of the mortgage ratably with the holders of the other bonds. In equity he was a quasi owner in common with the other bond holders of whatever rights the mortgage gave. He was not a partner with them, nor strictly a tenant in common, but the relation into which he introduced himself by his purchase imposed upon him some duties. If he actually held the mortgage he held it as a trustee. Whether he did or not, it was a duty which he owed to the other bond holders not to destroy its value. When two or more persons have a common interest in a security, equity will not allow one to appropriate it exclusively to himself, or to impair its worth to the others. Community of interest involves mutual obligation. Admitting, then, that Gordon had a right to make use of the mortgage to enforce the payment of the bonds which he held, he had no right so to use it as to obtain an advantage for himself over the other bond hold ers. He had no right to employ it as an instrument by which he might become the owner of the property mortgaged at the lowest possi ble price at which it could be obtained, leaving the bonds held by his associate holders unpaid. His duty, if he used it at all, was to make it productive of the most that could be obtained for all who were interested in it, and if he sought to make a profit out of it at the expense of those whose rights in it were the same as his own, he was unfaithful to the relation he assumed, and was guilty of fraud. In Gue v. Canal Co., 24 How., 263 [65 U. S., XVI., 636], it was said by Chief Justice Taney, when delivering the opinion of the court, that "It would be against the principles of equity to allow a single creditor to destroy a fund to which other creditors had a right to look for payment, and equally against the principles of equity to permit him to destroy the value of the property of the stockholders by dissevering from the franchise, property which is essential to its useful existence."

If, now, the conduct of Gordon be observed and compared with the relation he sustained to the other mortgage bond holders it will be apparent he was utterly regardless of his duty.

Before he sued out the executory process he conceived the scheme of forcing a sale of the mortgaged premises, not for the purpose of paying the debt which was a lien upon them, but for profit that might be made out of the purchase, or, as he represented in substance to one whom he requested to join in his plans, because there "was a probability of a very decided speculation from the sale." And in pursuance of this scheme, on the 10th day of January, 1866, only a few days after the executory process was placed in the sheriff's hands, he entered into a written agreement with John T. Ludeling, W. J. Q. Baker, F. P. Stubbs, G. C. Waddell and John Ray, which had for its object the purchase of the railroad and mortgaged property for the exclusive benefit of the parties to the agreement, with no reference to the other bond holders. By this agreement he placed himself in an antagonistic position to those creditors of the Company whose security he was using. Their interest was that the property should bring a full price, but his, under the agreement, was that it should be sold for the lowest price possible. Nor is this all. He himself appointed one of the two appraisers who, on the day of the sale, made an appraisement so obviously inadequate and unfair that it forces a conviction it was made collusively, to enable the parties to the agreement to obtain the property at a price nearly nominal. The entire property was appraised at $75,000. Five hundred and fifty thousand dollars were bid for it (though the bid was rejected), and immediately after it was adjudicated to Gordon and his associates, they were offered for their bid $1,000,000, as testified by the person who made the offer, or $600,000, as admitted by Ludeling, and the offer was rejected. Gordon was also a party to the steps taken by which the sheriff was induced to reject the bid of $550,000 made by Branner & Co., and put the property up for a resale. It is impossible to look at all this without coming to the conclusion that Gordon's conduct was, from beginning to end, a violation of the duty he owed to the other bond holders, a duty growing out of his relation to them, and out of his appropriation of a security in which they had an interest nearly two hundred times greater than his own.

And the situation of the other defendants is little if any better. John Ray, Joseph F. McGuire, John C. McGuire, Christopher H. Dabbs, Wesley J. Q. Baker, Robert Ray and Henry M. Bry were directors of the Railroad Company when the executory process was sued out, and when the sale was made. Bry was the vicepresident and acting president, in consequence of the absence of the president, who was in Georgia. Joseph McGuire was the Company's secretary and treasurer. All these parties were at hand, residents in or near Monroe. As officers of the Company they had the custody and charge of the railroad and all the property of the Corporation. And they held it in a very legitimate sense as trustees. Certainly they were the trustees of the stockholders, and also, to a considerable degree, of the bond holders, owners of the mortgage. We do not say they might not have purchased the property at a sale over which they had no control, and made under judicial process adverse to the Company. Perhaps they might. But we do say they had no right to join hands with Gordon. They had