the car provided with appliances for seizing and dropping a cable. In other words, all of the actuating elements of the patent have been omitted, and a wholly different set of instrumentalities have been substituted. The use of a positively driven cable in the operation of vehicles used upon amusement structures of the class to which all the combinations under consideration belong was not new. The sliding cars described in the Alexander patent for an artificial sliding hill were actuated by a cable. The same power is suggested as a means for carrying such cars up the ascending grades of Pusey's artificial coasting course, patent No. 318,026, and its actual use is shown by Thompson's patent, No. 348,796, for a pleasure cable railway. These uses in the precise art here under consideration would forbid any broad construction of Thompson's adaptation of the power derived from such a positively driven cable in the subsequent patent now under consideration.

The argument of counsel for appellant is that the substitution of the electric motor and proper appliances for using the current on ascending grades, and for cutting it off on descending grades, for the cable and gripping appliances of Thompson's patent, is but the employment of well-known equivalent means for accomplishing the same result, and therefore infringement.

In Burr v. Duryee, 1 Wall. 531-573, 17 L. Ed. 658, Mr. Justice Grier, speaking of a similar mode of argument to show infringement, said: "The argument used to show infringement assumes that every combination of devices in a machine which is used to produce the same effect is necessarily an equivalent for any other combination used for the same purpose. This is a flagrant abuse of the term 'equivalent.' Without attempting to define this abstract term by other abstract terms, we may give examples which will best show its application to machines, as, where a simple lever is used in one, and the other substitutes a cam, or toggle joint, or wedge for a cam, and many other cases where one mechanical power is substituted for another in a machine. In the case of McCormick v. Talcott, 20 How. 405, 15 L. Ed. 931, we have said: 'If the invention claimed be itself but an improvement on a known machine by a mere change of form or combination of parts, the patentee cannot treat another as an infringer who has improved the original machine by use of a different form, or combination performing the same functions. The inventor of the first improvement cannot invoke the doctrine of equivalents to suppress all other improvements which are not colorable invasions of the first.' But it has been argued that, though not a colorable invasion of the patentee's claim, it is an evasion of his patent, which is equally injurious. If so, it is damnum absque injuria. Every man has a right to make an improvement in a machine, and evade a previous patent, provided he does not invade the rights of the patentee."

If the structure resulting from the combination of old elements included in this fourth claim of the Thompson patent was an invention of primary character, so as to entitle the patent to a generous application of the doctrine of equivalents, there might be room to say that the substitution of the electric motor with the appliances necessary for the control of the electric current for the positively driven cable, with its peculiar clutching mechanism, would be but the use of means which, in the propulsion of street cars, were well-known equivalents for each other. But the Thompson patent is not entitled to a broad construction, nor to a liberal application of the doctrine of equivalents. In addition to the omission of the cable and essential grip

ping devices, the defendant's adoption of the electric motor involved certain necessary structural changes in the general plan of its railway. Grades possible in a cable and gravity railway were not practical in an electric and gravity railway. A grade of 5 or 6 per cent. was the limit practical in a structure where the ascents were to be made through the power derived from a motor. This required Lilley to use towers at certain intervals, up which, by a winding railway, his cars were carried, in order to attain a height sufficient to give them the necessary velocity to carry them down the undulating descending grades to the foot of the next ascending grade. This substitution of the electric motor for the positively driven cable of the Thompson patent, and the structural changes necessary to utilize the motor, involved something more than colorable alterations, and implied inventiveness quite as marked as that which distinguished Thompson's gravity and cable railway from his earlier pleasure cable railway. Thompson's patent, No. 367,252, when properly construed and limited, as required by the history of the art, is not infringed by the structure of the defendant, and the decree of the circuit court is affirmed.

(99 Fed. 114.)

LAKE ST. EL. R. CO. v. ZIEGLER et al.

ZIEGLER et al. v. LAKE ST. EL. R. CO.

(Circuit Court of Appeals, Seventh Circuit. January 17, 1900.)

Nos. 536, 552.

1. REMOVAL OF CAUSES-DIVERSITY OF CITIZENSHIP-JOINDER OF FORMAL PAR

TIES.

A corporation brought a suit in equity in a state court against persons alleged to be the holders of certain of its stock and bonds, who were all citizens and residents of other states, to obtain an accounting, and the surrender of such stock and bonds, on the ground that they had been obtained by one of the defendants, who was a director of complainant, in fraud of its rights. The bill also alleged that defendants had made a demand on the trustees in the trust deed securing the bonds in suit, with others, for the foreclosure of such trust deed, and made the trustees, one of whom was a citizen of the same state as complainant, parties defendant for the purpose of obtaining an injunction restraining such foreclosure. Held, that the trustees were not indispensable, but merely formal, parties, having no interest in the controversy, and that their joinder did not deprive a federal court of jurisdiction of the suit, which was removable by the individual defendants.1

2. EQUITY-HEARING-RIGHT OF PARTIES TO DECISION ON THE MERITS.

Where both parties to a controversy are before the court, and a full hearing has been had upon their respective claims, the suit should be determined on the merits, and it is error to dismiss it without prejudice against the wishes of both parties.

3. RAILROAD CORPORATIONS-STATE REGULATION-ISSUANCE OF STOCK.

The provision of Const. Ill. art. 11, § 13, that no railroad corporation shall issue any stock or bonds except for money, labor, or property ac

1 As to diversity of citizenship as a ground of federal jurisdiction, see note to Shipp v. Williams, 10 C. C. A. 249, and, supplementary thereto, note to Mason v. Dullayham, 27 C. C. A. 298.

tually received and applied to the purposes for which such corporation was organized, and that all stock dividends and other fictitious increase of the capital stock of any such corporation shall be void, does not render invalid stock issued by a railroad company, directly or indirectly, in payment for the construction of its road; nor can a court hold it invalid on a determination that the consideration so received was not equal to the par value of the stock.

4. SAME.

The issuance of stock by a railroad corporation in violation of such provision is ultra vires, and the stock void in the hands of all holders, and the corporation cannot maintain a suit against the person to whom it was issued to require an accounting for its proceeds.

5. Same-RightS OF MINORITY Bondholders.

A court of equity will not, at the suit of a corporation, compel its minority bondholders to assent to a reorganization scheme by which they are required to scale their bonds, accepting in lieu thereof new bonds for a smaller amount, without additional security; the benefits of the scheme, if any, inuring solely to the stockholders.

Appeal and Cross Appeal from the Circuit Court of the United States for the Northern Division of the Northern District of Illinois.

On December 31, 1895, the Lake Street Elevated Railroad Company, a corporation of the state of Illinois, the appellant in the first and the appellee in the second of these causes, filed its bill, and on the 16th day of January, 1896, filed its amended bill, in the circuit court of Cook county, Ill., against the appellants, William Ziegler and 12 other individual defendants, each being a citizen of a state other than the state of Illinois, the Farmers' Loan & Trust Company, a corporation of the state of New York, and the American Trust & Savings Bank, a corporation of the state of Illinois, the two last-named corporations being trustees in the trust deed executed by the appellant. This bill sought to charge William Ziegler, one of the defendants, and who was a director of the Lake Street Elevated Railroad Company, with certain bonds and stock received by him from the contractors who constructed the road, upon the ground that he, being a director, was interested in the contract which the company, with his participation, had made with the contractors, and which was improvident; and that he was interested with the contractors in the profits to be made. These charges having been, at the hearing, abandoned by the complainant below, it is not necessary to state them in detail. The other individual defendants were charged to have received bonds from Ziegler with notice of the facts charged in the bill, or to hold them in secret trust for him. The amended bill charged that Ziegler and the other individual defendants had demanded of the trustees that, by reason of default in payment of interest upon the bonds held by them, respectively, they should take possession under the trust deed, or proceed to foreclose it, which the complainant feared would be done by the trustees upon such demand by reason of their ignorance of the facts stated in the bill. The prayer of the bill was that an accounting might be had between the complainant and the individual defendants, and that, upon payment by the complainant of the amount paid by Ziegler to the contractors for the bonds and stock now held by him and the other individual defendants, such bonds, stock, and other property, if any, should be surrendered to the complainant, it offering to pay the amounts paid by Ziegler therefor. The bill also prayed for an injunction pendente lite restraining disposition of the bonds and stock held by the individual defendants, and from commencing suit at law or in equity upon the bonds or coupons pertaining thereto, and from collecting the interest due thereon; and that the trustees might be enjoined from taking possession of the road and from foreclosure of the trust deed at the request of the individual defendants. At the commencement of the suit a temporary injunction was allowed as prayed, but process was not served upon the defendant. On the 22d day of January, 1896, the individual defendants filed their petition for the removal of the suit into the circuit court of the United States for the Northern district of Illinois upon the ground that the suit was a controversy wholly between citi

zens of different states, to wit, a controversy between the complainant, an Illinois corporation, on the one hand, and Ziegler and the other individual defendants, citizens of states other than the state of Illinois, on the other hand, and which could be fully determined as between them. An order was thereupon entered by the state court, removing the cause into the federal court. The individual defendants, other than Ziegler, answered, setting forth their respective holdings and bonds, and asserted themselves to be bona fide holders, for value, and without notice of the facts set forth in the amended bill. The defendant Ziegler also answered fully, denying the equity of the bill, and asserting his holdings and the sources thereof.

The facts, so far as they are necessary to be stated to present the questions submitted to the court, are these: The Lake Street Elevated Railroad Company was incorporated in the month of August, 1892, with a capital stock of $5,000,000, for the purpose of constructing and operating an elevated railway some seven miles in length, and within the city of Chicago. Prior to December, 1892, the company had issued $3,500,000 of its stock. It had constructed one mile of its railway. It had issued $812,000 of bonds, the proceeds of which presumably had been used in the construction of the one mile of road. The company was in straitened circumstances, and unable to proceed further with the construction of the railway. The enterprise was moribund. Under these circumstances the directors applied themselves to the task of devising plans for the completion of the road. On December 23, 1892, William Ziegler, a resident of New York, was elected a director of the road, and took his seat as director at a meeting of the board on the 2d day of February, 1893. On September 1, 1892, one Miller, a law clerk, financially irresponsible, subscribed for $1,500,000 of unissued stock. On February 3, 1893. this subscription was approved by the directors, who agreed to receive in payment thereof the notes of Miller, dated September 23, 1892, payable at six months and one year from their date, upon the condition that those who should become contractors for the construction of the road would agree to take these notes of Miller in part payment of the work to be done. This condition was afterwards carried into effect, the notes were delivered to the company and received in payment by the contractors, and the stock was issued to Miller; and presumably this stock passed to the contractors from Miller, the transaction being a device for the issue of stock, and being resorted to, probably, because the subscription of Miller antedated by some months the letting of the contract. Negotiations were entered upon in the fall of 1892 with Underwood and Green for the construction and equipment of the road. At a meeting of the directors of the company held on February 3, 1893, the committee of the board having the matter in charge reported, and proposals were submitted to and considered by the board. On the 4th day of February, 1893, a contract was agreed upon with Underwood and Green as follows: They were to build and equip the road, and were to receive in payment thereof $11,710,000, of which $6,500,000 was to be in the capital stock of the company at par, $5,150,000 in the first mortgage bonds of the company at par, and $60,000 in cash,-an amount received by the company from one Wheeler upon subscription to stock, which was to be considered as a part of the fund provided to be paid for the expenses of the company during the time of construction, but the directors might use any part of it to pay bills for the construction of the road. It was further arranged that an underwriting agreement should be made to aid the contractors in their work. By this agreement bonds and stock were to be deposited in trust, and monthly estimates should be had as the work progressed, and a proportionate amount of bonds and stock delivered to the contractors upon such estimate. Underwood and Green were to procure subscribers to this underwriting agreement, by which the subscribers were to take from the contractors the bonds of the company at 90 per cent. of their par value, and also such amount of stock, as, taken at par, would equal the number of bonds so purchased. To enable the company to carry out the contract, the shareholders agreed to an increase of the capital stock so that the capital stock of the company should amount to $10,000,000. Ziegler, prior to his connection with the company, had loaned to Underwood and Green the sum of $30,000 upon their note. After the maturity of the note, and after the contractors had received 39 C.C.A.-28

from the company bonds in payment of the work done in the construction of the road, he received from the contractors payment of the note in such bonds at ninety per cent. of their par value. He also subscribed the underwriting agreement for $250,000 of the bonds of the company upon the terms of that agreement. Afterwards, at the solicitation of the president and attorney of the company and of the contractors, and in order that the subscription might be completed within the time limited, and the contractors be enabled to comply with their contract and build and equip the line as therein agreed, he subscribed for an additional $250,000 worth of bonds upon the agreement by the contractors that, in consideration thereof, they would give to Ziegler an additional bonus in stock received by them in payment of the contruction of the road of $125,000 at its par value. These facts were known to the president and attorney of the company at the time, and the proposition therefor was made in their presence, and they knew, and Ziegler was at the time assured, that the contractors had offered such terms to others, who had and would accept thereof, and so the underwriting agreement would be fully executed within the time limited. This was a matter wholly between the contractors and Ziegler, and in no way affected the rights of the company under the contract. The underwriting agreement was thereby completed, and the contractors enabled to proceed with the construction of the road. The stock received by Ziegler under the underwriting agreement was sold by him in July, 1894, at 18 cents upon the dollar,-a price above its market value. Ziegler at the time of suit owned 400 bonds of the company, of which 8 had then recently been purchased by him in the open market, 145 purchased by him of the company in the year 1894 at 52 cents on the dollar, and the remaining 247 were part of the 500 bonds received by him under the underwriting agreement at 90 cents on the dollar. The bonds purchased of the company were not the bonds delivered by the company to the contractors, but were part of those reserved by the company, all of which were sold by the company to different parties at the same price. At that price Ziegler purchased them at the solicitation of the officers of the company, and at a price not less than, if not greater than, their market value at the time. The other individual defendants purchased their bonds of Ziegler, being part of those received by him from the contractors under the underwriting agreement. They were bona fide purchasers thereof, for value, without notice.

On April 7, 1893, the company executed to the two corporations defendants. as trustees, its trust deed upon its road, to secure $6,500,000 of bonds, of which $5,150,000 were to be issued to Underwood and Green under their contract. This trust deed was in the usual form, except that it provided that the holders of bonds should have no right of action at law or in equity upon the bonds, except only in case of the refusal of the trustees to act. It further provided that, upon default in interest continuing for six months, the trustees might, upon request of the holders of one-fourth in interest of the outstanding bonds, and shall, if requested by the holders of a majority in interest of the outstanding bonds, declare the principal matured. It further provided that upon default in the payment of interest, and upon request of a majority in interest of the outstanding bonds, the trustees, on being indemnified, should take possession of the road. These provisions were not in curtailment of the power of the trustees upon default by the company, and of their own motion, to institute such proceedings as they might deem necessary in protection of the trust. The railroad was completed by the contractors, and on the 4th day of March, 1894, the directors of the company, by resolution, accepted possession, without prejudice to any claim that the work was not in compliance with the contract, and the company has since continued in the possession and operation of the railway. In October, 1894, the company had a settlement with the contractors, and for the balance then found due gave them its promissory notes due in January and February, 1895, and upon maturity of the notes made further claims against the contractors with respect to alleged defects in their work; whereupon a further, complete, and final adjustment was made in March, 1895, and mutual releases passed between the company and the contractors. The company paid the interest upon these bonds up to January 1, 1895, paying the interest then due on the bonds held by the individual defendants below in October, 1895. On January 8, 1895,