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Paine v. Central Vermont Railroad Company, 118 U.S. 152 (1886)

Paine v. Central Vermont Railroad Company

Argued April 8, 1886

Decided May 10, 1886

118 U.S. 152


In an action in the circuit court of the United States, submitted by stipulation of the parties in accordance with the practice prevailing in the state where the court is held, to the decision of the judge "as referee," the only matter reviewable by this Court is error of law in the judgment of the court upon the facts found by the referee.

A promissory note payable on demand, with interest, was made by a railroad corporation to a stockholder for money lent, and with the understanding that assessments to be laid on his shares should, when payable, be considered as payments upon the note. Assessments to a greater amount than the note afterwards became payable, and the difference only was paid by him. Held That the note was paid as between the corporation and the payee, and as against a subsequent endorsee taking the note when overdue. By the statutes of Massachusetts and of Vermont, promissory notes payable on demand are overdue in sixty days after date.

This was an action of assumpsit, brought October 1, 1878, in the circuit court of the United States for the District of Vermont by a citizen of New York as endorsee, against a Vermont corporation as maker, of the following promissory note:

"$5,000 Boston, July 10, 1873"

"On demand after date, with interest, we promise to pay to the order of H. B. Wilbur, treasurer, five thousand dollars."


"As Receivers and Managers Vermont Central"

"and Vermont & Canada R. Co."

"By H. B. WILBUR, Treasurer"

"No. 8. Value received. Approved."

"J. GREGORY SMITH, president"

"H. B. WILBUR, Treasurer"

On August 29, 1879, the defendant pleaded the general issue,

Page 118 U. S. 153

with a specification of defense, in accordance with the statutes of Vermont (Gen.Stat. 1862, c. 30, §§ 15, 32; Rev.Laws 1880, §§ 908, 909), that the defendant was organized as a corporation on May 27, 1873; that on July 10, 1873, it delivered the note in suit to John Q. Hoyt, an original subscriber to the defendant's capital stock, and then holding shares of that stock of the par value of $50,000, only partially paid for; that on that day, the defendant being in urgent need of money, and not having time to regularly lay and collect an assessment on its capital stock, Hoyt advanced to the defendant $5,000, and the defendant gave him this note, under an agreement that he should hold it until an assessment covering that amount should be made on his stock, and it was understood and agreed by and between him and the defendant that when such assessment should be made, the $5,000 so advanced should be applied in payment thereof, and the note should be thereby paid and extinguished, and should be surrendered; that on August 10, 1873, such an assessment was made by the defendant upon its capital stock, including Hoyt's shares; that on October 28, 1873, the $5,000 advanced as aforesaid was duly applied in payment of that assessment, whereby the note was paid and extinguished, and the note was suffered to remain in his hands through inadvertence, and that the plaintiff received the note from Hoyt long after its payment and extinguishment as above stated, as security for a preexisting debt from Hoyt to the plaintiff, and with full knowledge of such satisfaction and payment, and after the note had ceased to be current.

On May 16, 1882, the counsel of the parties signed and filed an agreement in writing, by which it was "stipulated and agreed to refer this case to Hon. Hoyt H. Wheeler to try and decide this case as referee."

On September 6, 1882, the referee filed his report, the material parts of which were as follows:

"On the hearing it appeared from the evidence that in 1872, several persons were in possession of and operating the Vermont Central and Vermont and Canada Railroads as receivers and managers of the court of chancery of the state, in Franklin County, and had prepared to issue a series of long-time

Page 118 U. S. 154

bonds, called income and extension bonds, a part of which had not been negotiated. The defendant was chartered with power to temporarily operate those roads, subject to the order of that court, and to assume the contracts of the receivers and managers. Subscriptions to the capital stock of the defendant were opened, and two millions in amount subscribed for April 30, 1873, of which John Q. Hoyt, of the City of New York, subscribed for $50,000, and it was expected by the subscribers that when the company should be organized it would be appointed receiver of those roads, and assume the obligations of the other receivers. Five percent of the subscriptions was required by the commissioners of subscription to be paid down. The receivers were in need of funds, and by arrangement with them one of the subscribers advanced $200,000, ten percent of the subscriptions, in behalf of all the subscribers, as a temporary loan to the receivers pending the organization of the company and proceedings to carry out the expectations of the subscribers, and a note of that amount was made, and, with $400,000 in amount of the income and extension bonds as collateral security for its payment, delivered to the subscriber making the advance, upon the understanding that the note should be paid if the defendant company did not come into possession of the roads and assume the obligations of the receivers, and stand against the subscriptions for stock if it did."

"The defendant company was organized May 27, 1873; was appointed receiver and manager of the roads, June 21, 1873, and went into possession of the roads, assuming the obligations of the former receivers and managers, July 1, 1873. An assessment of thirty percent on the subscriptions for stock was laid June 24, another of ten percent August 13, and another of ten percent October 28, 1873, the last payable on or before December 1, 1873. The assessment of June 24th was paid by the subscribers, respectively, including Hoyt. After the arrangement for making the defendant receiver of the roads was consummated, the note of $200,000 was given up, and new notes of the defendant were given, running to the subscribers separately, each in proportion to the amount of his subscription. The other subscribers paid to the one who made the advance

Page 118 U. S. 155

each his proportion of it, and received the notes and a proportionate amount of the collateral bonds. Hoyt paid $5,000, and received the note in suit, and $10,000 of the bonds. Hoyt paid the assessment of August 13th, and one-half the assessment of October 28. The other half of the latter was rescinded, and stock issued for one-half the amount subscribed. The assessments paid amounted to fifty percent of the subscription. Hoyt paid, as stated, fifty percent, and no more, of his subscription. There was no other consideration for this note, and by the understanding of the parties, it was to be delivered up, with the collateral bonds, on delivery to him of stock certificates for his stock."

"About November 1, 1873, Hoyt became indebted to the plaintiff at New York, for $7,000 lent, with the understanding that the loan should be increased to $10,000, and delivered this note and these bonds to him as security for the payment of the loan. The plaintiff at that time knew, from previous conversations with Hoyt generally, about the subscription for stock and the situation and circumstances of the roads, but he did not know before, and was not then informed, that the note was to stand against the subscription for the stock, nor that the bonds, which then had a long time to run, were collateral to the note, but took all of them supposing that they were valid securities for what they purported to be. Certificates of stock were issued for all the subscribers in 1874 and delivered to them, and all but Hoyt delivered up the notes and bonds. He endeavored to procure the note and bonds of the plaintiff to deliver up to the defendant, but was unable to do so."

"In April, 1876, the plaintiff called on the president of the defendant for payment of the note in suit, who told him the circumstances under which the note was given, but did not state that they would be relied on as a defense to the note, or that any question would be made about its validity, and requested him to wait and endeavor to get payment from Hoyt, and encouraged him that he would succeed in doing so. He had a similar interview, with a like result, afterwards; the president adding that if Hoyt did not pay the plaintiff's note, the defendant would not

Page 118 U. S. 156

ask him to wait again, but would provide for the payment of this one. Just before this suit was brought, a similar interview was had during which the president told him that he thought and had been advised that the circumstances under which the note was given would constitute a good defense to the note, and did not pay it."

"The income and extension bonds were sold in the market, March 24, 1881, for $5,000, less $12.50 commission, without notice to Hoyt or the defendant. They had been worth more while the plaintiff held them, but this was their then market value. The note is made a part of this report. It was executed, as to time and place, according to its purport."

"All the evidence showing the circumstances under which the note was given and the proceedings in relation to it were seasonably objected to, and admitted against the objections. The respective rights of the parties to recover in this action are, upon these facts, submitted to the court."

"HOYT H. WHEELER, Referee"

The record stated that afterwards

"said cause came on for trial, upon the report of the referee, before the Honorable Hoyt H. Wheeler, district judge of the United States within and for the District of Vermont, and, after hearing the arguments of counsel for the plaintiff and defendant, the court on November 7, 1882, filed its decision in said cause rendering judgment for the defendant,"

being the opinion reported in 14 F. 269. On the same day, judgment for the defendant was entered upon the docket, and four days afterwards the following order was filed:

"Upon the report of the referee, the court rendered judgment for the defendant, to which decision and judgment the plaintiff excepted. Exceptions allowed, and ordered to be placed on record."


Page 118 U. S. 158

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