
    *Four Mile Valley Railroad Company v. Peter P. Bailey and others.
    1. A railroad contractor agreed with the company to construct and equip its entire road for 81,600,000, of which 8250,000 was to be paid in cash and cash assets, and the balance in the bonds and stock of the company, the-price named being more than twice the cash value of the work. The contract provided that payment should be made on monthly estimates, and in such of the said descriptions of payment as the contractor deemed would best subserve his purpose in doing the work; but the contract fixed no time-for the completion of the work. It also provided that both the parties should aid in converting said assets, bonds, and stock into means for carrying on the work, and that the contractor need not carry it on faster than such means would serve. The contractor performed work under the contract to the nominal amount of 8111,000, which, at his request, was mostly-paid him in the cash assets, and then, the charter of the company having expired by its own limitation, the work was suspended by mutual consent, and the road abandoned, its bonds and stock thus becoming worthless. Held, that the contractor is bound to account to the company for all actual profits realized from the work.
    
      2. Where subscribers to the stock of a railroad company had given their noteafor the amounts of subscriptions, payable when the road should be completed, but were subsequently induced to take up those notes, and to give new ones, payable in four years, in order to enable the company to carry out a contract for the completion of the road, and upon the confident but honest expression of opinion by its officers, that if they would do so, the road would be completed under such contract in less than four years: Held, that, although the said contract for building the road was afterward, and before anything had been done under it, abandoned by the contractor, and the road has never been completed, yet the subscribers are liable upon their said new notes.
    Error to the district court of Preble county.
    The judgment sought to be reversed was rendered in a cause which came to the district court by appeal. It was originally an action, brought by the present plaintiffs against the defendant, Peter B. Bailey, a contractor upon their road, to recover back from him, or to have him account for, alleged overpayment or advance made to him as such contractor during the progress of his work upon the road. By the contract between the parties, Bailey undertook to construct and equip the entire road, in a manner .-specified in the contract, for one million and six hundred thousand dollars, payable as follows : $250,000 in real estate, cash, and notes, and other actual assets of the company arising from subscriptions paid by subscribers to the stock of the road, and being the whole available means of the company; $1,000,000 in the bonds to be issued by the company; and $350,000 in its capital stock. Pay-209] ments *were to be made upon monthly estimates as the work progressed, and were to be in such of the items named “ as should best subserve Bailey’s purpose in carrying forward the work.” If he took any pay in real estate, it was to be at such prices as he .approved, and the title was to be “warranted;” and if he took ■notes of stockholders, they were to be indorsed and guaranteed by the company, “so that the said sum of $250,000 should be made equivalent to cash.” The contract fixes no time for the completion of the road, and provides that Bailey shall be required to carry forward the work “ no faster than he can convert the payments into means for that purpose.” The contract also provides that the -stock and bonds shall bo delivered to Bailey “ as he may require in ..the progress of the work,” and that they, as well as the other .assets to be paid him, shall, by the joint efforts of the parties, be ■converted into money and means such as he can use in the work, “ so that the work may more rapidly progress.” The nominal prices agreed to be paid appear from the evidence to have been more than double the cash value of the work.
    The charter of the company contained a proviso for its forfeiture, in case ten miles of the road should not be completed within a specified time, but it gave the court of common pleas power to prolong the period named. This period was about to expire at the ■date of the contract, and Bailey, who had been president of the company, and who resigned the office in order to become such contractor, knew this fact, and was conversant with all the affairs of the road; but it was confidently expected by the parties, when the ■contract was made, that there would be no difficulty in procuring from the court an extension of the time. In this, however, the parties were mistaken ; for the court, after a temporary prolongation of the time, ultimately, and before any part of the road had been completed, refused farther to extend the time, and the charter became forfeited, or rather, liable to forfeiture.
    Between the date of the contract, and the expiration of the ultimate period allowed by the court, Bailey did work upon the road, which, according to the monthly estimates thereof, *based [210 upon the prices named in the contract, amounted to about $117,000. This sum was paid to him in monthly installments, corresponding with the estimates, the whole amount, except $20,000 in bonds, in the “ cash funds,” as the items making up the $250,000 were denominated ; Bailey claiming, and being awarded the right to elect which description of funds he should receive, and refusing at all times to take any of the stock or bonds, except the $20,000 in bonds, which he took upon the last estimate.
    At the end of the final period fixed by the court, and upon its refusal further to extend the time, the work was suspended by mutual consent, and it has never been resumed. This was in 1856, and the project of building the road was then utterly abandoned.
    The stock and bonds of the road seem never to have had any value in market, and they are now worthless; and the company seeks, by its suit, to compel Bailey to receive a pro rata part of the $117,000 in stock and bonds, in the proportions indicated by the ■contract, and to refund to the company a like amo.unt of the cash assets paid him, or to compel him to account, on some equitable principle, for the excessive prices, overpayments or advances, so-made or paid to him upon the work.
    Whether upon a fair construction of the contract, and under the-circumstances of the case, Bailey was bound so to account, or rather, I whether he was bound to account for the assets in his hands, and Inot expended upon the road, but realized by him as profits on the-'work — was the principal question in the case. The court of common pleas decided this question in the affirmative, and sent the case-to a master for an account; but the district court held otherwise, and dismissed the plaintiff’s petition.
    During the progress of the case, some of the subscribers of stock, who had given to the company notes for the amount of their subscription, and whose notes had been transferred by the company to-Bailey as payments upon his work, were also made defendants, for-the purpose of compelling payment of their notes to the company, in part satisfaction of the amount claimed to be due to the company 211] from Bailey. *These subscribers set up as a defense that their notes had been procured by fraud, and that their consideration had failed. The evidence shows, substantially, that these subscribers' originally gave notes to the company for the respective amount of their subscriptions, payable when the road should be completed, but that they were subsequently induced to take up these notes,, and to give in lieu thereof unconditional notes for the same amount, payable in four years from their date, upon confident but bona fide• assurances, or expressions of opinion, by agents of the company transading the business, that the road would be completed in less than that time. The sole object of this change of notes was to make the notes available as assets in completing the road under a previous-contract for its construction by one Sturges, who afterward failed, ar d did no work under his contract. Another question in the case,, therefore, was, whether the consideration of these new notes had failed, so as to release the subscribers from their payment. The-common pleas decided this question in favor of the company, and. rendered a judgment against the makers of the notes for their respective amounts; but the district court were of opinion that the consideration of the notes had failed, and rendered judgment for the subscribers.
    A. bill of exceptions sets forth all the evidence in the case, making, with the pleadings and exhibits, a record of over three hundred pages, and shows that a motion for a new trial, predicated upon the-ground, that the findings of the court were contrary to law and evidence, was made by the plaintiff and overruled by the court.
    The errors assigned are that the court overruled the motion for a new trial, and refused to render judgment for the plaintiff.
    
      W. E. Brown and N. C. McFarland, for plaintiff in error:
    I. As to the construction of the contract.
    1. To interpret its true meaning look at the kind of pay Bailey was to take, the price the company agreed to give him, more than double price, the construction given by the parties themselves in making and receiving payment on account without ^settlement, [212 the abandonment by consent of parties and operation of law.
    2. It is an undoubted rule of construction that where an instrument is susceptible of two constructions, one of which would make it fraudulent or grossly unjust, whether as between the parties themselves or others interested in the subject-matter of it; and the other would avoid such consequence, the latter is to be adopted as the true construction. 2 Parsons’ Contr. 500. Keeping this rule in view, bear in mind:
    (1.) Both parties contemplated the building of the road with the assets mentioned; the company had no other; Bailey had no money and was not expected to put any in the work; and when these assets proved no longer available the work was to stop. The company was bound to aid him in converting the assets into money, and he risked nothing in any construction that could be given the contract.
    (2.) The several classes of assets were to be delivered to Bailey as required by him in building the road; the monthly estimates were to be paid to him from the several classes of assets, or any of them as would best serve his purpose in carrying forward the work; but what he might receive under such selection was to be applied to the only purpose of carrying forward the enterprise, not to put profits in his pocket. All the assets received by Bailey were to be held by him for the purpose of building the road, and he was bound so to apply them.
    To construe the contract so as to allow Bailey the right to select the class of assets out of which he shall be paid as he proceeds, and thus out of the best class of assets receive his profits upon the basis of the estimates at contract price, unconscionably exorbitant if the pay was certainly in cash, would make the contract grossly unfair and operate as a fraud on the stockholders.
    There has never been a final settlement.
    II. The subscribers of stock who gave their notes to the company are not discharged from their payment.
    1. The testimony makes out no case of fraud upon these subscribers.
    218] *2. It is no defense that the road never has been built and never will be. The payment of unconditional stock is precedent to building a road, as that is what builds it. 15 Ohio St. 225, 246.
    
      Fox, Harris & Fox, for Bailey:
    We claim the following propositions:
    1. That by the terms of this contract Bailey was to got his full pay for work done, as per engineer’s monthly estimates, in real estate, notes, cash, bonds, and stock, or from either of them, as might best suit his purposes in carrying forward the work; and as Bailey was not to progress with the work faster than he could convert the subscriptions, bonds, property, notes, and stock, into means for that purpose, the election to determine what kinds’of pay he was to take in order to enable him to progress with the work, was in him and not in the company. 5 Ohio St. 186, 189; Morris v. Edwards, 1 Ohio, 206; 4 Ohio St. 43. The parol testimony as to what took place when the contract was made shows this was the intention, and the reason why the contract was so drawn.
    2. If the time and kind of payments had not been provided for by the terms of the contract, then the parties have by their conduct given a construction to the contract, and they are bound by their own dealings. Redf. on Railways, sec. 122; 11 Grattan, 676, 690; Smith’s Merc. Law, 637, 638; 1 Wheat. Selw. 134.
    3. If the contract had not specifically secured the right to Bailey .to determine the kinds of paj^ments he should receive, the fact that the sum of $250,000 is mentioned in the contract as being payable in the property and claims therein set forth, all of which are guaranteed by the company, and the fact of that being the portion to be first paid, gives Bailey the right to demand this $250,000 before he could be required to take any portion of the company’s bonds, upon the same principle that of a series of notes payable at different times the first one due is entitled first to be paid, and so on in their order. Bank U. S. v. Covert et al., 13 Ohio, 240.
    
      4. It is clear that all these payments were voluntarily made by the company, and charged to Bailey on the books. The *pay- [214 ments were all approved by the board of directors. The payments being thus voluntarily made by the company, on account of work then done, are obligatory upon all parties. Addison on Contr. 1107, 1112; Redfield, 229, 231, secs. 121, 122; 7 Wheat. 14; 5 Cond. 213; 2 Parsons, 142; Jones et al. v. Chamberlain, Strong & Co., 30 Vt. 196. The kind of payments made were for the express purpose of enabling Bailey to build the road, and thereby give greater value to the bonds and stock; and the payments having been made with that view, can not be claimed to be paid' back again. That any portion of these payments were made with an expectation of getting them back for bonds in case the company suspended the work, we deny, and there is no evidence to prove such a charge.
    5. Bailey did not fail to perform his contract. No time was fixed for the performance. The forfeiture of the charter was not caused by his neglect. The company ordered him to stop all further work. 2 Curtis, 33.
    6. The contract was not put an end to, but the work was suspended, and the work already done was paid for. Even a mutual agreement to suspend operations does not put an end to or even affect the contract. Pearce on Railways, 377, citing 31 Maine, 197.
    7. No part of the payments can be recovered back so long as the contract remains executory and in full force.
    8. An insolvent company can not now compel Bailey to return cash subscriptions and receive its worthless bonds.
    9. As to the notes of the stock subscribers. They were not procured by any misrepresentations. The statements made were matters of opinion merely; and as to such matters, all parties must judge for themselves. Pearce on Railways, 72, 73; 26 Penn. 69.
    The notes were used for the purpose of building the road, and it is now too late to set up that they were procured by fraud. Hale v. Fisher, 9 Barb. 17; 4 Paige Ch. 133; 2 Denio, 119; 1 Md. Ch. Decisions, 392.
    The consideration for the notes has not failed. They paid for the stock subscriptions and gave the subscribers the rights of stockholders, which rights they exercised. The failure to *build [215 the road can not be called a failure of consideration for the notes. If the consideration had failed, it could not affect the rights of an innocent purchaser of the notes before due.
    
      
      A. G. Thurman, also for Bailey:
    The substance of the plaintiff’s claim is, that Bailey shall be made to return the greater portion of the things of value received by him in payment for his work, and take, in lieu of them, things admitted to he of no value, to wit, the obligations and stock of a confessedly insolvent' corporation. That is, practically considered, that this court shall cut down the compensation to which the contract entitled him and which has been voluntarily paid him, and compel him to receive a much less compensation. In other words, that this court shall find that the contract was too favorable to him, and shall, therefore, not rescind it, but modify, chango, and alter it, so as to reduce his compensation.
    Why, suppose the prayer of the petition were granted, and Bailey compelled to refund a portion of his receipts, and take, in lieu thereof, the obligations of the company, would not the company owe him the amount of these obligations? And if it should pay off and discharge them, what benefit would it receive from the substitution? None whatever. The eguity of the plaintiff then is, that it never will pay, never will be able to pay, one cent of these obligations which it asks this court to compel Bailey to take I This is the strangest equity that I have ever heard of. A debtor who lias made payment, asks a court of equity to compel the creditor to refund the thing paid, and take, in place of it, an obligation of the debtor, which the debtor himself says is not, and never will be, of the slightest value, because he is, and ever will be, wholly insolvent.
    By the very express terms of the contract, the $250,000 in 'real estate, cash, etc., were to be delivered and conveyed to Bailey “ as required by him in the progress of building the said road."
    
    The payments, then, were made in strict pursuance of the contract, and if the company afterward became insolvent and unable 216] to prosecute the work, so that Bailey never could earn *or become bound to take the bonds and stock, that is simply the company’s misfortune, and affords it no ground for relief against him. If it would have guarded against such a misfortune, it should have proposed some guard when the contract was made, and then it would have been for Bailey to say whether he would enter into such a contract. Who can tell that he would have entered into any contract other than that which was actually executed ? But now this court is asked to do for the company what it failed to do for itself, and which, had it been suggested, no one can say Bailey would have assented to. And this, after the contract has been executed by Bailey until, stopped by the company, and he has been paid for his work in strict accordance with the contract.
    Again, the payments were voluntary, and again and again ratified by the company; and this would be a sufficient defense, even had the contract been misconstrued. This is too plain to need authority to support it; but if authorities be desired, see those cited by Messrs. Fox, Harris & Fox, and especially the case in 30 Vt. 196.
    
      Gilmore & Haines, and Miller & Haines, for the stock subscribers:
    The new notes were procured by fraud. The evidence on this point fairly shows that Bailey and the officers of the company implicated with him, wei’e x-eckless of the x’igbts of stockholders and others interested in the road. They begaxx this pretended enterprise of building the road when it was manifest (as the sequel proved) that ten miles could not be completed before the expiration of the charter, and without any reasonable assurance that an extension of time could be obtained; and the work was conducted in a manner to indicate an intention only to use up the best assets of the company, and abandon the further prosecution of the work, which was done by mutual consent, and the overestimates settled for to the amount of over §117,000. The idea that there was mutual fraud in this matter between Bailey and the officers of the coxnpany then controlling the board of directors, to wit, Elliott and Mollyneux, is ixot rebutted by the fact that the company, *now eon- [217 trolled, we hope, by better men, is seeking to make Bailey disgox’ge his ill-gotten gains.
    As to the second defense, that the new notes given in lieu of the first ones were to be placed in the hands of a trustee, for the sole pxxx’pose of raising money thereon, to construct the consolidated railroad under the Sturges contract, the evidence is all on our side;' and any attempt to use these notes in any other way, or for any other purpose, is a fraud upon the makers, and violates the most sacred principles of justice and equity.
    The payee of those notes is asking judgment thereon, so that it is no answer to our defense that these notes are'unconditional, to be paid in four years, and that the parties so understood it at the time.
    The xxotes were not given for the sole pux-pose of receiving certificates for so much stock. These defendants could have purchased any amount of stock, at the time, at a heavy discount, or obtained it in the regular way. It is therefore absurd to assert that these notes were given for stock, and that because the makers are stockholders, and were (illegally) permitted to vote at elections for directors, they are estopped from denying the validity of the notes.
   Welch, J.

The trouble in construing Bailey’s contract with the company arises from the fact that the contingency which afterward happened, an expiration of the charter, and the consequent abandonment of the work, was not contemplated by the parties. No word in the contract looks to such an event. All its provisions are based upon the supposition that the work would all be performed; that however unprofitable the investment might prove, however worthless its bonds and stocks, the road would be finished and equipped. In such a case we must determine as best we can, from what the parties have said, and in the light of the circumstances that surrounded them, what they reasonably would have saidhadthis contingency been in their minds. I know of no other or better rule. Now, tried by this rule, will the contract in question bear the construction put upon it by the district court? In the light of 218] what the parties have said, *and of their surroundings, is it reasonable to suppose that they intended, or that if they had foreseen the contingency which happened, they would have provided that if the work should only progress far enough to use up the cash assets of the company, the $250,000, the contractor should have double pay for what ho did ? — that the company should not only bear the whole loss, but should be subjected to a large additional loss, in the shape of exorbitant profits to the contractor? As just and reasonable men they could not have so intended or provided, and if their contract will boar an interpretation which makes them just and reasonable, we are bound to give it that interpretation. The parties evidently contemplated the possibility, or rather the probabibility, of tho bonds and stock becoming greatly depreciated below their par value, and perhaps of the latter, like the stock of most roads, being utterly valueless. This is the only assignable reason why two prices were allowed for the work. The work was probably estimated to be worth some $800,000, instead of $1,600,000 ; and the $1,250,000 of stock and bonds were probably considered of the value of about $550,000, making with the $250,000 cash assets, the sum of $800,000. The price agreed to be paid was nominal. The estimates, based as they were upon the sum of $1,600,000, were nominal estimates, and if paid wholly in cash assets, were, to the extent of their value over and above what it would have been if paid pro rata in the articles stipulated, advances, to be adjusted at the end of the work. Ordinarily “estimates ” are resorted to as a mere expedient for determining the rapidity with which advances or payments are to be made, and their necessity is found in the fact that the contractor is unable to complete the work without them. They are not paid as the absolute prices of the work done, but are, as the name indicates, mere approximations to its value, and subject to a final adjustment when the work is completed. Usually a percentage on the current estimates is left in the hands of the employer, to be accounted for upon the final settlement. At the end of the work a “final ” estimate is made, which, as I understand the terms, is not only final ” in point of time, hut final because it re-estimates the entire work, superseding all intermediate estimates, *and finally fixing the rights [219 of the parties. Upon this final estimate and settlement all overestimates and overpayments, as well as underestimates and underpayments, are to be considered and accounted for by the parties. The contract in this case reserves no part of the estimates in the hands of the company,-but in effect-, as we understand it, provides for the payment of overestimates at the option of Bailey. It is as though the contract had said: “Provided, however,'that said Bailey shall have the right, if he finds it necessary in order to the completion of the work, to demand and receive double estimates upon his work, to any extent not exceeding $250,000, in which case subsequent estimates shall be diminished, so as to compensate for the overpayments.” If the contract had read thus, there could be no doubt as to its true construction. To read it otherwise would be to hold that the parties meant to put it in the power of Bailey, nay, to make it his interest, to defeat the apparent object of both, by using his influence and the power which ho would acquire as contractor, not to procure an extension of the charter, or to effect a completion of the road, but to realize a largo profit from a forfeiture of the charter, and abandonment of the road. If they wore reasonable and honest men, as we are bound to consider them, they could never have so intended.

We think, therefore, that these current estimates and payments are not to be regarded as final between the parties, but that they are subject to a future and final account, upon just and equitable principles. What those principles are seems to us quite evident. The contract provides, among other things, that Bailey shall not be compelled to advance the work faster than the conversion of the funds into means for the purpose will enable him to do. It seems to us that there are in this provision, in common with other features of the contract, two undeniable implications: 1. That Bailey, during the progress of the work, should not be compelled to invest in it any of Ms private means, thus subjecting him to loss; and, 2. That he should apply all the means furnished him to the construction and equipment of the road, and not withdraw any part thereof, in the shape of profits or otherwise, so long as those means did not 220] exceed the necessary ^amount to carry on and complete the work. If we are right in this construction, it follows that Bailey should be required to account to the company for actual profits realized upon the work, and for no more. On the one hand, it would be unjust to him that he should be compelled to refund twelve hundred and fifty sixteen-hundredths of all the valuable assets received, and take worthless bonds and stock instead; and on the other hand it seems to us it would be equally unjust to the company to throw upon it, in addition to the loss of the whole work, the loss of large profits to the other party. Neither party seems to have been at fault, and Bailey ought to be satisfied if he escapes from the unfortunate enterprise without actual loss.

We differ with the district court also as to the question raised between the company and the stock subscribers. Upon the case made in the bill of exceptions we think they should have been held liable on their new notes. No fraud is shown in the representations made to them. Nothing appears in the evidence to distinguish their case from the ordinary case of subscriptions to the stock of a railroad company, made in the honest but erroneous belief that the road would be completed, and be a wise investment. In all such cases public policy, as well as good faith to the creditors and other stockholders of the company, requires that they should be held to the fulfillment of their undertakings.

We are of opinion, therefore, that the finding of the district court on both issues was contrary to the law and evidence of the case, and that the court erred in overruling the motion for a new trial.

The judgment will therefore be reversed, and the case remanded for a new trial and further proceedings.

Day, C. J., and Brinkerhoff, Scott, and White, JJ., concurred.  