USA > Rhode Island > Rhode Island : three centuries of democracy, Vol. II > Part 28
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Winthrop De Wolf, receiver of the Franklin Savings Bank, which was in liquidation because of the Sprague failure, sued the A. & W. Sprague Manufacturing Company in 1874,
#Quotation is from a summary of the bill in equity made in the opinion written by Carpenter, J., in Chafee vs. Quidnick Company, 14 R. I. 75.
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and recovered judgment in 1878 for $826,912.78, on which execution was issued and levied upon property of the Sprague corporation in Rhode Island. In April, 1879, De Wolf filed a bill in equity, seeking to set aside the trust mortgage of 1873, and other assignments of Sprague property to Chafee, thus to clear the property for sale for satisfaction of the judg- ment. While the De Wolf judgment was unsatisfied, and the bill in equity was still pending, the Quidnick Company, in 1881, as part of William Sprague's campaign for recovery of the Sprague property, started three actions at law against the A. & W. Sprague Manufacturing Company, two in Rhode Island seeking recovery of $2,000,000 and $1,000,000, respectively, and the third in Maine for $500,000. Following the actions at law, the Quidnick Company filed two bills in equity, one seeking a lien on the property of the A. & W. Sprague Manufac- turing Company for a claim of $2,000,000, and the second seeking a lien on shares of the Quidnick Company held by Chafee as collateral security for the trust mortgage of 1873. The lawsuits and bills in equity were based upon an old claim of the Quidnick Company for $216,410.88 arising before the failure and assignment, and a new claim for $2,000,000 aris- ing from a contract between the Quidnick Company and Chafee as trustee for the A. & W. Sprague Manufacturing Company. One of the bills in equity also accused Chafee of mal- administration, specified as (I) using money belonging to the Quidnick Company to pay claims against the Sprague corporation; (2) buying with trust funds a judgment obtained by the Bank of Commerce; (3) applying funds belonging to the Quidnick Company to purchas- ing claims against the Sprague corporation, and (4) selling a large manufacturing plant, one of the Sprague factories, at much less than its fair value to a firm one of the members of which was "an active and influential member" of the creditors' committee; it requested an account- ing, declaration of a lien in favor of the Quidnick Company, and an injunction against Chafee forbidding sales of trust property except under direction of the court. For practical purposes the Quidnick Company in these suits represented the Sprague family interest against the trustee and against the creditors, and the court procedure aimed to prevent further sale of the trust property by Chafee, whom the Spragues considered an enemy.
The proceedings in the first bill in equity were heard by Justices Potter, Stiness and Til- linghast, until Justice Potter died, April 10, 1882, and after Potter's death by Stiness and Tillinghast. The Court invariably divided, with Potter, always the minority, dissenting from the opinions of his colleagues. The first difference of opinion between the judges arose from their interpretation of the contract between the Quidnick Company and the A. & W. Sprague Manufacturing Company, already mentioned. Stiness and Tillinghast construed the agree- ment as a "stocking" contract, substantially a proposition by the Quidnick Company in these terms: "Make our cotton into prints in your mills, we paying all expenses. If on sale they bring more than a certain price, you shall have the excess." "By necessary implication, there- fore," the court ruled, it said: "If they bring less than cost, it is our own loss, because our own goods have brought less than we have put out on them." On such a contract no liability for loss incurred in manufacture could arise unless from negligence or non-performance, neither of which had been alleged. The majority held that, while the Sprague corporation was not liable for any loss in the manufacture of print cloths, the Quidnick Company was entitled to an accounting on its allegations that Chafee had used funds of the Quidnick Com- pany to pay claims against the trust estate. Potter dissented, urging that the majority had read into the contract an interpretation which had not been urged by the counsel who had argued at the hearing, and which differed from the construction placed upon it by the parties themselves, as shown by the method of keeping accounts. Potter construed the contract as an agreement made by the Quidnick Company to assist the Sprague corporation by furnishing stock to operate the Sprague corporation's print works, the Sprague corporation being obli- gated to pay for stock out of the proceeds of sales, the Quidnick Company retaining title merely to protect its own interest while dealing with an insolvent corporation. Any other
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interpretation, he argued, would place the entire risk for the contract on the Quidnick Com- pany, which, besides carrying the risk, could not possibly profit from the contract. Potter believed that the making of a contract with such terms was as inconceivable as the contract would be unenforceable for want of consideration. Potter agreed with the majority "that no sale should be made except under the direction of the court," because "This would enable the court to see that all interests are protected; to prevent the trust property from being thrown upon the market in such amounts as to necessitate a sacrifice; to reserve from the sale or from the proceeds of sales enough to satisfy any liens that may be ascertained; to withhold from present sale any portion of the estate the title to which is so clouded as that it would not sell for a fair value, until the difficulties are removed; to prevent secret bidding ; or to pro- vide for a sale by a master of the court, all of which may be done upon proper proceedings to be advised by counsel and approved by the court." The interpretation of the contract between the Quidnick Company and the A. & W. Sprague Manufacturing Company was vital. The ruling of the majority of the court tended to remove obstacles to a sale of the trust estate, which was opposed by the Sprague family; Potter's interpretation would have effected a postponement of sale until the cloud on the title attached to a lien in favor of the Quidnick Company had been removed. The majority of the court entered a decree on November 5: (I) declaring that the A. & W. Sprague Manufacturing Company was not indebted to the Quidnick Company under the contract; (2) ordering an accounting and repayment of money belonging to the Quidnick Company applied by Chafee to the payment of creditors under the trust mortgage; and (3) "it appearing that said property cannot be held to await such account, except at great and ruinous expense," directing Chafee to advertise and sell the property. The final order in the decree rested on the fact that the printing factories were standing idle, opera- tions having ceased when the Quidnick Company terminated the contract for supplying gray cloth.
Potter, following his dissent from the majority's interpretation of the contract, dissented also from the decree ordering a sale, saying: "I do not think the court ought to make an order for the sale of the property so long as the title to it is in dispute. The decree for sale will bind no one who is not a party to the suit in which it is made, and it may therefore be argued that no harm can be done. In ordinary cases no mischief may be done. But here is an immense estate to be sold for the benefit of creditors, and if creditors appear and are repre- sented in the suit, it by no means follows that the large creditors will look out for the inter- ests of the smaller creditors as well as they do for their own. And it is a very common notion, too, that when a sale is made under order of court, the purchasers are sure of a good title. While the lawyers know that this is not so, and while we are apparently selling only land, mills, stocks, etc., we may, in fact be selling only the privilege for having a lawsuit, and thus aid in misleading purchasers and promoting litigation. . . The court ought to protect not only those who are bound by their decree, but also, as far as possible, those who may act hon- estly upon the faith of their decree." Potter then urged the duty of the court to guard against decrees obtained by collusion, adding : "Even if the parties do not collude, they may have an interest of the same nature in the result. Now we know, not from hearing nor loose declara- tion, nor from statements by counsel in argument, which may be inaccurate, but from our own records, that the title to all, or nearly all, of the property now sought to be sold is in dis- pute." He then directed attention to the pending bill in equity filed by De Wolf to test the legality of the trust mortgage. Chafee, on November 19, 1881, asked authority to lease the Baltic Mill property, in Connecticut, which was under litigation in Connecticut, and a decree was entered, accordingly, December 3. Potter dissented on the grounds that Chafee had authority to act under the trust mortgage, and that the court could not give him any "power whatever over land in Connecticut." He argued also that there was no more reason for not selling the property in Connecticut because of encumbrances, than for not selling the property
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in Rhode Island, which was subject to the lien of the Quidnick Company, and the judgment and execution of De Wolf.
Two days later, the court decided that the Quidnick Company, having prosecuted its bills in equity, was not entitled to a remedy at law. It entered a decree on December 10, ordering discontinuance of the actions at law, and dissolving attachments. The Quidnick Company was enjoined against further prosecution of its action at law pending in Maine. Potter dissented for the reason that a motion for reargument of the bills in equity was pending. Chafee adver- tised the trust estate for sale at public auction on December 8. On the morning of that day Potter received a petition from depositors in the Franklin Savings Bank, asking permission to intervene, and granted an injunction against a sale within ten days. The injunction was dissolved by the court, which ruled that the depositors were not proper parties to the suit brought by the Quidnick Company, which sought only to reclaim "its own funds, which, it claims, have been unlawfully added to the property belonging to the creditors in the hands of the trustees." Potter dissented from the reasoning of the majority of the court, but joined with the others in dissolving the injunction, on the ground that the purpose of the injunction had been attained in so far as the depositors had been permitted to have their day in court on the question of intervening.
Previous to March 8, 1882, Chafee received several offers for the Sprague estates, and the court, after consideration thereof, ordered a sale at public auction at a price not less than $2,880,000, that being the figure named in a letter suggesting the public sale. Potter dis- sented; he had read the letter and interpreted it, not as an offer, nor as a promise to bid $2,880,000 if the property were offered for sale, but as merely a suggestion. When the auc- tion was opened no bidders appeared. Justice Potter's keen discernment had been justified by the course of events. He died, however, before the case was further heard. Sale at public auction having failed, the court rescinded the order for an auction and entered a decree which authorized Chafee to sell the Sprague estates at private sale at terms satisfactory to him. The court also adjudged Joshua Wilbour, Benjamin A. Jackson, Charles H. Sheldon, Jr., and Wil- liam Binney, Jr., of the firm of Wilbour, Jackson & Co., which had made the suggestion of a sale at public auction, to be in contempt of court because of interference. The court, after a hearing on the question of contempt, failed to inflict a fine because Justices Stiness and Tilling- hast did not agree as to the amount of the fine or the time at which it should be inflicted.
The embarrassing position into which the court had permitted itself to be drawn attracted attention beyond the borders of the state as well as in Rhode Island, and a New York news- paper printed an editorial holding the court up to ridicule because of dilatoriness if not com- plete inefficiency. To the charge of dilatoriness, which was based on the term of almost ten years that had elapsed between the Sprague failure and the approach to a final settlement, Justice Stiness responded in a letter in which he reviewed the procedure before the court, and demonstrated that the Sprague case had not reached the court in the form of an action until 1881, nearly eight years after the making of the trust deed .* The end was close at hand in 1882. The Sprague estate was sold by Chafee to the Union Company, a corporation chartered April 20, 1882, under an amendment to an earlier corporation charter. The incorporators of the Union Company included Wilbour, Jackson, Sheldon and Binney of the firm of Wilbour, Jackson & Co., which had been declared in contempt, besides Jesse Metcalf, William Binney and Charles D. Owen. Alleged irregularity in the charter, suggesting unconstitutionality, was made the basis for procedure purposing to set aside the sale to the Union Company before the Sprague cases had been concluded.
Other decisions of the Supreme Court on cases incidental to the Sprague litigation tended to confirm the decision in the principal case. Thus the second complaint in equity by the
*The original manuscript with notes by Justice Stiness, is in the Rider collection at Brown University. R. I .- 49
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Quidnick Company against Chafee as trustee for the A. & W. Sprague Manufacturing Com- pany was dimissedt for the reasons (I) that, as previously decided,¿ the contract between the Quidnick Company and the Sprague Corporation had been a "stocking" contract, and (2) that the claim of the Quidnick Company against the A. & W. Sprague Manufacturing Com- pany existing before the assignment had been settled and paid by the acceptance of trust notes under the trust mortgage. Potter dissented, renewing his objection to the court's interpreta- tion of the contract. The court, Carpenter, Stiness and Tillinghast, JJ., sitting, held in 1884 that the conveyance of the Sprague property in 1873 to Chafee was a trust mortgage,§ and later in the same year that it was valid and not subject to attack as fraudulent in its effect on non-assenting creditors .** The court had previously, in 1883, sustained the conveyance to Chafee as binding him and the Spragues .** In the particular case, a bill in equity to foreclose a pledge of stock as collateral to the trust deed, the Sprague family answered that the inden- ture had been made for the purpose of hindering, delaying and defrauding the creditors of the Sprague corporations, and asked to have the issue thus raised tried by a jury. To the complainant's objection, "Nemo allegans suam turpitudem audiendus sit,"#* the respondent answered "In pari delicto potior est conditio defendentis vel possidentis."}} The court held that a plaintiff or defendant, in law or in equity, who can make out his case without introduc- ing into it a fraud in which his opponent and himself participated, may obtain relief in spite of any effort on the part of such opponent by plea or offer of proof to set up such fraud.
The court sustained the charter of the Union Company as constitutional, in spite of apparent inconsistency with Article XIV, section 17, which read: "Hereafter, when any bill shall be presented to either house of the General Assembly to create a corporation for any other than for religious, literary or charitable purposes, or for a military or fire company, it shall be continued until another election of members of the General Assembly shall have taken place and such public notice of the pendency thereof shall be given as may be required by law." *¿ Jesse Metcalf, William Binney, Charles D. Owen, Joshua Wilbour, Benjamin A. Jackson, Charles A. Sheldon, Jr., William Binney, Jr., their associates, successors and assigns, were incorporated June 3, 1881, under the "name of the Providence Car Trust Company, with full power and authority to make, manufacture, buy, sell, lease and deal in all kinds of railroad rolling stock and equipment, to buy, sell and deal in all kinds of railroad securities, and to accept and execute all trusts that may be committed to said corporation by any railroad cor- poration." On April 20, 1882, the charter granted to the Providence Car Trust Company was amended in such manner as to incorporate the same persons under the name of the Union Company, "for the purpose of manufacturing, bleaching, dyeing, printing and finishing cot- ton, woolen, worsted and other goods, with full power and authority to take, acquire, hold, manage, improve, lease, let, sell and convey real estate, to take, hold and dispose of stock in national banks and other corporations, and to transact any other business incidental thereto or connected therewith, and generally to do and execute all acts, matters and things which may be necessary or convenient to carry into effect the purposes of this act," etc. The capital stock of the Providence Car Trust Company was $100,000, in shares of $100 each; of the Union Company, $1,000,000 in shares of $1000 each. It was argued that the charter of the Union Company was unconstitutional because (I) the petition for amendment had not been continued over the holding of a general election, and (2) the notice required by law had not
/Quidnick Company vs. Chafee, 13 R. I. 438.
#Quidnick Company vs. Chafee, 13 R. I. 367.
§Union Company vs. Sprague et ux., 14 R. I. 452. Semble, Chafee vs. Fourth National Bank, 71 Maine 514 ; De Wolf vs. Sprague Manufacturing Company, 49 Conn. 283 ; Stafford National Bank vs. Sprague, 17 Federal Reports, 784.
** Austin vs. Sprague Manufacturing Company, 14 R. I. 464.
** Chafee vs. Sprague Manufacturing Company, 14 R. I. 168.
#*No one may be allowed to plead his own fraud as a defence.
##When both are equally guilty, the defendant or possessor prevails.
** Repealed by Article IX of amendments, adopted 1892.
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been given. The court, Carpenter, Stiness and Tillinghast, JJ., overruled the objection* that "the amendatory act amounted substantially to an act creating a new corporation," saying : "In order to sustain this position we ought to be satisfied beyond a doubt of the truth of two propositions : first, that an amendment to a charter which radically changes the purpose and power of the corporation is in effect the creation of a new corporation; and, second, that the amendment in this case was of such a radical character. We are not prepared to say that we could resolve these questions in favor of the defendant, even if there were no other considera- tion in the case. But there is an additional most weighty consideration. The act in question is one of very many acts of amendment equally radical and sweeping which have been passed by the General Assembly at different dates since the adoption of the Constitution. To hold that such acts are void would give rise to endless litigation. The uniform practical and legis- lative construction has been in favor of the validity of these acts." The court also held that the notes issued by Chafee in accordance with the agreement for a three-year moratorium were negotiable, as certain in amount, although the right to pay by installments was reserved,} but that notes issued as collateral security to a draft were not negotiable because the obligation was contingent .¿ In the series of decisions the court had sustained the original conveyance to Chafee, the sale to the Union Company, and the Union Company itself.
With the major issues decided against the Sprague family, the process of completing the details of enforcing the trust mortgage of 1873 and the assignments supplementary thereto went steadily forward. The Supreme Court, Potter, Stiness and Tillinghast. JJ., in September, 1881, entered a decree enjoining the Quidnick Company, its officers, agents and servants, "from taking any corporate action prejudicial to creditors, and from contracting any debts or other obligations, or entering into any agreement that in any manner can be or become liens upon the corporate property or estate or subject it to liability, and from disposing of any part of the corporate estate or property, or otherwise changing its present condition," and appointed a special receiver, with direction to collect a certain claim due the company, and to apply the proceeds to insurance of the property and to payment of claims for labor and services.§ The court subsequently sustained a demurrer to the bill in equity on which the injunction had been granted, on the ground that the bill was multifarious. Potter dissented from the reasoning of the majority, but concurred in the opinion that the bill was defective. Benjamin F. Butler, Roger A. Pryor and Andrew B. Patton appeared as solicitors and as counsel for the Quid- nick Company. Butler and Patton assigned to Pryor, who was a member of the bar in New York, their claims for counsel fees against the Quidnick Company, and Pryor filed an action for counsel fees against the Quidnick Company in New York, and attached the claim which the receiver had been directed to collect, to recover the sum of $21,000. For this "interfer- ence" with the decree of the Supreme Court of Rhode Island, Butler, Patton and Pryor were called before the court for alleged contempt. Butler and Patton were excused, as having no control over the procedure in New York, and Pryor was enjoined from further procedure in New York and ordered to release the attachment. He did.
The bill in equity came up for further hearing, and in 1883 the court, Carpenter, Stiness and Tillinghast, JJ., declined to appoint a receiver for the Quidnick Company, on the ground that the injunction already in force protected the company and property amply, and that the evidence tended to show that the operation and administration under the direction of William Sprague was not detrimental. The court, Carpenter, J., thus summarized the situation: "The personal property of the company being in the hands of a custodian, and the company being enjoined from contracting any debt, and by consequence prevented from doing any business,
*Union Company vs. William Sprague, et ux., 14 R. I. 452.
¡Riker vs. A. & W. Sprague Manufacturing Company, 14 R. I. 402.
#American National Bank vs. A. & W. Sprague, 14 R. I. 410.
§Chafee vs. Quidnick Company, 13 R. I. 442.
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the president of the company has been able to make an agreement with some persons of sub- stance by which he continues the business, keeps the property in good order, and keeps the insurance rates at the lowest point, retains the operatives in employment at the mills, and pays the profits of the business, if any there be, to the use of the stockholders, without involving them in liability for any losses which may be made. .... If we should retain the receiver in office, and advise him to the best of our ability as to the management by the mills, I could not venture to hope that the condition of the property would be more favorable." *; The court later in the same year, 1883, facilitated the enforcement of an assignment of 4022 shares of the Quidnick Company as collateral security for the trust mortgage of 1873, by refusing to submit to a jury an issue raised by William Sprague's plea that the trust mortgage and pledge were fraudulent .*¿ With Chafee in control of the stock, William Sprague could have no further interest in operating the Quidnick Mill. The Quidnick Company, while controlled by Sprague, resisted an attempt to collect a bill for cotton purchased by Chafee, for the reasons alleged ( I) that the cotton delivered was of poor quality; and (2) that the fact that Chafee bought cotton regularly at a price higher than the market rate was proof of fraud and collusion. The court found no evidence to sustain a claim that Chafee was imposed upon by the delivery of cotton of a lower grade than had been contracted for, and sustained the trial court's instruction to the jury with reference to the price paid, which the newspapers of the period show was higher day by day than the cotton market price in Providence. "There is nothing here that tends to show any imposition on Mr. Chafee. The fact, if true, simply tends to show incompetence on his part to buy cotton, which is no defence to the Quidnick Com- pany. If he was a poor buyer that is their fault. Mr. King had a right to sell them cotton for all he could get."*§
The Sprague factory property had been taken, and the Spragues had been ousted. The trustee and purchasers under him proceeded to obtain possession of the Sprague residences. One of these in Providence, the property in 1873 of Fanny Sprague, William Sprague and Amasa Sprague, was included in the trust mortgage of 1873, and was sold by Chafee to the Union Company. After the delivery of the trust mortgage, Rodman, a creditor, who had not accepted the composition, recovered judgment against William and Amasa Sprague, and levied execution on the residence. The latter was sold under the execution, and purchased by Inez Sprague, second wife of William Sprague. In an action brought by the Union Company under the trust deed, the Supreme Court, Carpenter, Stiness and Tillinghast, JJ., sustained the trust mortgage as legal, and the Union Company's charter as constitutional, and confirmed a judgment against the Spragues .;* The court also allowed recovery for "damages for wrongful occupation" on the bond given by the Spragues when they appealed from the Common Pleas Court to the Supreme Court.#* But the tide stopped at Canonchet, the magnificent palace with eighty bedrooms at Narragansett Pier, where Senator William Sprague and Kate Chase Sprague had entertained the most brilliant society in America. Kate Chase Sprague had departed, after divorcing William Sprague while he was fighting desper- ately to retrieve his fortune. To Canonchet he returned with his second wife, Inez Weed Sprague. A jury which heard an action of trespass and ejectment for possession of Canon- chet against William Sprague on January 18 and 19, 1883, returned a verdict for the defend- ant, although the only question for the jury related to the fact of possession. The Supreme Court, July 18, 1885, ordered a new trial .* William Sprague was not dispossessed; he sat on the porch at Canonchet with a shotgun across his knees when a sheriff called. Time works
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