I have fully answered the questions as I understand them, and have the honor to be, very respectfully,

JUDSON HARMON,

Attorney-General.

In what is hereafter said, we speak only with reference to the Central Pacific Railroad Company. So far as concerns the liability of directors and stockholders in that company, these questions and answers are calculated to create painful impressions in the mind of any one at all acquainted with the matter. It is very hard to say it, but it really looks as though these questions had been framed with the deliberate view of defrauding the public judgment, and as though the AttorneyGeneral had hastily fallen into the trap. It is to be premised that he is not the constitutional or statutory adviser of committees of the houses of Congress; but whether he will give advice to a committee of Congress in response to a request for advice, is entirely a voluntary matter on his part; and it is understood that in another case he has declined to do so. This being his official relation toward committees of Congress, his opinion, announced to such a committee in response to their request, is extra-official, and, save that it may foreshadow the action or non-action of the Department of Justice, it amounts to no more than would the opinion of any other respectable lawyer occupying a private station.

Let us for a moment analyze the first question. No lawyer possessing a thimbleful of brains conjoined with the slightest learning upon the subject would for a moment suppose that the creditor of a corporation has any right of action against its officers and directors, grounded upon any wrong committed by them in unlawfully issuing and distributing the shares of the capital stock of the corporation. The answer of the Attorney-General to the question is obviously correct. But the question and answer taken together are calculated to impress the unlearned and uninformed with the conclusion that the government has no remedy against the directors of the Central Pacific Railroad Company, growing out of the notorious frauds committed by them in issuing the stock of the company and in building the road by means of the credit furnished them by the United States. Their wrong consisted in getting up a construction company composed of themselves, and then entering into contracts between the Central Pacific Railroad Company, also composed of themselves, and this construction company, for the building of the railroad at an enormous advance beyond the reasonable cost of so doing, in issuing shares of the stock of the Central Pacific Railroad Company to this construction company for so building the road, and in dividing such shares among

themselves as shareholders of the construction company. By this means, as soon as the road was built, four men, acquired all but a few shares of the stock of the Central Pacific Railroad Company, for which they paid substantially nothing. The highest estimate we have ever seen of the amount which they jointly put into the enterprise out of their own means was $400,000; the actual amount was probably less than $100,000. Having, by this manipulation, secured all the stock of the Central Pacific Railroad Company, with the exception of a few outstanding shares, which shares they subsequently bought in at enormous prices to prevent their conduct from being investigated by the holders of them, having thus acquired substantially all the capital stock of this company, without paying for it, they proceeded to declare dividends, in their own favor as stockholders, to the aggregate amount of about $35,000,000,- thus dividing among themselves, as holders of stock for which they had never paid, an enormous mass of money, which should have been saved for the purpose of repaying the government what it had advanced to them. It is thus seen that this question conceals the real case which the United States has against these directors and stockholders.

The second question and answer deserve the same observations. But they also deserve the additional observation that the answer of the Attorney-General does not state the law correctly. Contrary to his opinion, the law is, that if the assets of a corporation are fraudulently diverted into the hands of its officers or directors, or into the hands of its stockholders, or into the hands of third persons, a judgment creditor can pursue those assets and reclaim them, just as he can pursue and reclaim in equity any other property of his debtor, which has been fraudulently conveyed away and secreted, or otherwise made away with. If one could have any confidence whatever that the ordinary principles of equity would be administered in the Federal courts against these conspirators, his conclusions would be that the United States, upon obtaining a judgment against the corporation for the amount of its claim, can pursue these unfaithful directors and stockholders and recover from them all that portion of the mass of dividends declared and paid by themselves as directors to themselves as shareholders, so far as it has been paid upon shares fraudulently procured by them without being paid for. The same rule would apply and would operate to give relief to the government against them in respect to any other moneys of the corporation which they may have fraudulently diverted to themselves without rendering value therefor, through the device of organizing construction companies and finance companies, and thereby making contracts with themselves at prices enormously in excess of reasonable prices.

The fourth question was well devised to elicit an answer which would defraud the public judgment. (1) The only statute of limitations which would fit this description would be the statute of limitations of the State of California. But it is well settled that the United States is not bound by any statute of limitations of a State, when suing in its own courts. It follows that a statute of limitations, which would destroy a right of action on the part of the Central Pacific Company against its own directors and stockholders, would operate no further to bar a right of action by a private creditor in the courts of California, Statutes of limitation do not run against sovereign States. It is not competent for the legislature of a State to enact a statute of limitations which will affect rights of action which the United States may have in its own courts. Nor do statutes of limitation begin to run until a cause of action accrues. (2) If a debtor fraudulently conveys away his property, and a creditor seeks to set aside the conveyance and reach the property and subject it to the payment of his debt through the aid of a court of equity, he does not proceed, in theory of equity, in right of his debtor, since the debtor could not set aside the conveyance; but he proceeds in his own right; and consequently his right to relief is not affected by the running of any statute of limitation between his debtor and the fraudulent conveyee of his debtor. (3) The statute of limitations does not in such a case run between a corporation and its fraudulent directors so long as they remain continuously in their offices, because they are trustees and their trust is a continuing trust. The equitable doctrine of laches might operate, but laches are never imputed to a sovereign State. Nor would laches be imputed even to a private creditor for not seeking his remedy in equity before the maturity of his demand. (4) The same principle applies in respect to the liability of stockholders for the unpaid balances due the corporation in respect to their shares. In so far as they have not paid for their shares, they are deemed in equity to hold in their custody a portion of the assets of the corporation. Those assets are, in theory of equity, a trust fund for the creditors of the corporation, and the shareholders are trustees in possession of that fund. This being their relation to the corporation, the statute of limitation does not run in their favor until they have openly repudiated the trust.

It is noteworthy that this opinion of the Attorney-General was sent to the committee of Congress on the very day on which the Supreme Court of the United States decided the Stanford case against the government. That court decided the case on the ground that the constitution and statutes of California relating to the liability of stockholders did not confer any rights upon the United States as a creditor of the

Central Pacific Railroad Company, although that company was organized under the laws of California; because the acts of Congress, under which the United States extended the aid to the company, evinced a purpose on the part of the United States not to rely upon this superadded security. Quite contrary to this, the Attorney-General advises the congressional committee, in substance, that the statute of limitations of the State of California would operate to strike down the right of the United States to proceed against the unfaithful directors of this corporation. Those statutes thus become, like a rogue's conscience, to be put out of view or called into play to aid any convenient purpose. The United States can acquire no benefit under them, and the United States cannot have any right in opposition to them.

HON. HENRY CLAY CALDWELL. We print in this number a paper by this distinguished judge upon the subject of railway receiverships in the Federal courts, and we also print a likeness of him in his judicial robe. Many of our professional readers, who are interested in the numerous, very delicate and difficult questions growing out of such receiverships, will be glad to read in this article a free expression of the views of a judge who has had to do with the subject in his judicial capacity for more than thirty years. In several places in this paper we can read through a thin veil a description of the practice which long experience, conjoined with a strong sense of justice, has induced Judge Caldwell to adopt in his own courts. For fifteen years he has steadily departed from the old idea, which was once paramount in the Federal judicial mind in railway receivership cases, which placed the rights of the bondholder in the fore and ignored the rights of general creditors, whose labor, skill and materials had maintained the property for the benefit of the bondholders. During that length of time he has steadily refused to grant receiverships over insolvent railway properties, unless the applicants would consent to insert in the order appointing the receiver, a clause providing for the payment of meritorious claims of the character above indicated, and also of meritorious claims arising from the destruction of property by railway torts and the like. In this he has been steadily opposed by other Federal judges and there is a remarkable dictum in an opinion delivered in the Supreme Court of the United States condemning his policy and practice in this regard.1

1 In Kneeland v. American Loan &c. Co., 136 U. S., at p. 97, opinion by Mr. Justice Brewer, the following

language occurs, the italics being ours: "Indeed, we are advised that some courts have made the appointment of

Judge Caldwell's views on the subject of issuing injunctions against the striking employés of railroad companies and railroad receivers have attracted the attention of the whole country. He has acted, in more than one conspicuous case, upon the principle that an injunction cannot be issued by a court of justice to restrain the employés of a railroad company from quitting work separately or in a body; because to restrain such liberty of action. would create a state of slavery. It will be remembered that a prominent railroad attorney procured from a United States district judge within the Eighth Federal Circuit an order restraining the employés of the receivers of a railway system from striking in view of a contemplated reduction of their wages; and that such proceedings were had that