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THOMAS V. BROWNVILLE, FT. K. & PACIFIC R. CO., 109 U. S. 522 (1883)

U.S. Supreme Court

Thomas v. Brownville, Ft. K. & Pacific R. Co., 109 U.S. 522 (1883)

Thomas v. Brownville, Ft. Kearney and Pacific Railroad Company

Argued October 19, 1883

Decided December 10, 1883

109 U.S. 522


A railway company contracted with parties associated together as a construction company for the construction of a portion of its road, the payment to be made in mortgage bonds. Two of the directors were also parties in the construction contract. As part of the transaction, the other parties in the construction contract agreed to assume subscriptions by all individual directors of the railroad company to the capital stock of that company (which was worthless), and relieve them from all liability under it. Held that the contract could not be enforced in equity when resisted by stockholders in the corporation, and that mortgage bonds issued under it to the construction company were voidable at election of the parties affected by the fraud while in the hands of parties who took from the construction company not in the ordinary course of business, but under circumstances which threw doubt upon their being holders for value or without notice; also held that notwithstanding the invalidity of the contract, the holders of the bonds in a suit for the foreclosure of the mortgage were entitled to a decree for the payment of the sums actually expended for construction under the contract and remaining unpaid, which were payable and paid in bonds declared void.

Bill in equity to foreclose a railroad mortgage. Decree of sale and sale made. Then stockholders petition to intervene on the ground of fraud, and by permission intervened, praying to set aside the sale, and to have the mortgage decreed invalid. The decree below set aside the sale and decreed the bonds to be invalid. Appeal.

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