198 Mass. 413 | Mass. | 1908
In the St. 1906, c. 463, Part II. § 57, is the following provision: “ A railroad corporation, unless authorized by the general court or by the provisions of the following five sections, shall not directly or indirectly subscribe for, take or hold the stock or bonds of or guarantee the bonds or dividends of any other corporation.” This is a re-enactment of a statute
The provision above quoted is an affirmative statement of the doctrine of ultra vires, in reference to the stock or bonds of other corporations. It carries this prohibition into a field which otherwise, in individual cases and under peculiar conditions, possibly might seem to be open for occupation by a railroad corporation for the promotion, incidentally, of its corporate interests. It is intended to relieve railroad corporations and others from any doubt as to proposed investments in the stock or bonds of other corporations, and as to the financial support of other corporations by guaranteeing their bonds or dividends.
By excepting action under the five following sections it recognizes a policy of the Commonwealth to promote, under general laws, the investing in stock or the guaranteeing of bonds in certain corporations whose business is closely connected with that of the railroad corporation, or incidental to it, and also the like investing or guaranteeing for the purpose of aiding a connecting railroad, either already constructed or about to be constructed. Besides the general law permitting investing in aid of connecting railroads under these limitations, the exception recognizes the power of the General Court, by further legislation, to authorize the holding of stock or bonds of other corporations, as such holding has often been authorized by special legislation in Massachusetts and in other States.
The Attorney General alleges that the defendant has violated this provision. It therefore becomes necessary to consider the
The first question to be considered is whether, by reason of the peculiarities of its organization as a corporation owning and operating a railroad extending into different States, and deriving power and authority from the legislation of different States, it is relieved from the prohibition of the statute. If, without considering other provisions of the charter from Massachusetts or of the charter from Connecticut, we look first at the facts that there was a consolidation of two corporations into a single corporation which was the creature of both States, operating a railroad extending into both, having the same capital stock to cover the property in both States, and electing its officers and managing its business as a single corporation, there is nothing that makes it any more a domestic corporation in one of the States than in the other. It is a foreign corporation in neither of them. It is a domestic corporation in each of them. It is a single corporation in most of its features. In other features it is two corporations acting together as one. It is a single corporation with two parents who live apart and act independently, each having absolute control in his own domain. It owes allegiance and is subject alike to each, and is dependent upon each alike for future favors. W e are dealing now with a legislative consolidation, or merger, of two corporations, upon equal terms, which this was; and not with mere permission to a corporation of one State to enter another State and acquire property or franchises there.
The statutes relating to corporations owning lines of railroad running across the boundaries of States differ considerably in
The. Hartford and Springfield Railroad Company, which was consolidated with the Hartford and New Haven Railroad Company. under the. St. 1844, c. 28, was incorporated under St. 1839, c. 101, with the additional and amendatory acts, Sts. 1841, c. 72; 1845, & 42, and 1847, c. 244.
Section .7, of.ihe St. 1872, c. 171, under which the New York;
Section 6 of the St. 1844, c. 28, under which the union of the Hartford and Springfield Railroad Company with the Hartford and New Haven Railroad Company was formed, is as follows: “ Said corporation, so far as their road is situated in Massachusetts, shall be subject to the general laws of this state to the same extent as if their road were wholly therein.” Section 2 declares that, after the said corporations become united in one
The defendant relies strongly upon this last language, and contends that under it the State of Connecticut could give the corporation franchises and powers, to be exercised in Massachusetts, which other corporations in Massachusetts are not permitted to exercise. We have already suggested that, apart from some such provision, when a corporation is made up of two consolidated corporations holding charters from different States in the way shown by the statutes referred to, the new corporation is to be treated as a domestic corporation in each State in reference to the laws of that State relating to its conduct there. The relations of such corporations to the State, under different statutory provisions, have been considered in many cases, most of which relate to the citizenship of the corporation in reference to jurisdiction in the federal courts. Nashua & Lowell Railroad v. Boston & Lowell Railroad, 136 U. S. 356, and cases cited. Goodwin v. New York, New Haven, Hartford Railroad, 124 Fed. Rep. 358. In the first of these cases Mr. Justice Field said, speaking for the court: “ By the general law railroad corporations created by two or more States, though joint in their interests, in the operation of their roads, in the issue of their stock, and in the division of their profits, so as practically to be a single corporation, do not lose their identity; and each one has its existence and its standing in the courts of the country, only by virtue of the legislation of the State by which it is created. The union of name, of officers, of business and of property does not change their distinctive character as separate corporations.” p. 382. In the latter of these two cases, Judge Lowell considered the subject at length in a well reasoned opinion, with a review of the authorities. In Muller v. Dows, 94 U. S. 444, 447, the court said of a similar consolidation: “ The two companies became one. But in the State of Iowa that one was an Iowa corporation existing under the laws of that State alone. The laws of Missouri had no operation in Iowa.” The
Each of the statutes of Massachusetts under which the defendant claims its franchises was subject to alteration, modification or repeal, the St. 1872, c. 171, by the express provision contained in § 9, and the others by virtue of our general law on that subject, which has been in force since 1831. R. L. c. 109, § 3.
Powers and franchises of a general character, whose effect upon the corporation would not be merely local, but would work changes in its relations to private persons and to the public authority in both States alike, stand differently. It is not easy to maintain that under these statutes there is implied authority to the corporation to receive such powers from either State alone and hold them in such a way that they will have full effect in both States. If any such general powers can be so granted and held without legislative action in both States, it seems plain that they are only such as are not in conflict with the laws or the declared public policy of the State which does not grant them. Massachusetts cannot grant this corporation franchises to be enjoyed and exercised in Connecticut, which are contrary to the laws of Connecticut; for the corporation in each State is
■ If we look more particularly at the language in § 2 of St. 1844, c. 28, relied on by the defendant, we see that its real purpose was not to give to either State greater power over the interstate corporation than the State would have without it. Its object was to declare that the corporation created by the merger of the Connecticut corporation and the Massachusetts corporation should have but one capital stock, and that all the stockholders, in proportion to the number of their shares, should own the stock and all rights of property in common.
Apart from this, the ownership of stock in street railways in •Massachusetts is the exercise of a right under a Massachusetts franchise. This language was not intended to give to Connecticut authority to grant to the corporation a right to do in Massachusetts that which can be done only under a Massachusetts franchise.
It follows that, in reference to subscribing for, taking, or holding stock or bonds of corporations in Massachusetts, or guaranteeing the bonds or dividends of such corporations, the defendant is restrained by the statute, like other railroad corporations organized under the laws of this State.
Upon the question whether the defendant corporation has directly or indirectly subscribed for, taken and held the stock and bonds, and has guaranteed the bonds and dividends, and is now directly or indirectly holding the stock and bonds and guaranteeing the bonds and dividends of certain domestic corporations as alleged in the information, the master made a summary of facts found by him as follows:
“1. The directors of the New York, New Haven and Hart
“ 2. The directors of the defendant corporation, holding the entire stock of the Consolidated Railway Company elected its directors and corporate officers, and the directors and officers so elected were substantially the same persons who were the corporate officers and directors of the New York, New Haven and Hartford Railroad Company.
“ 3. The Consolidated Railway Company acquired all the stock of the Worcester and Southbridge Street Railway Company, the Worcester and Blackstone Valley Street Railway Company, the Webster and Dudley Street Railway Company, the Worcester and Webster Street Railway Company, and a majority of the capital stock of the Berkshire Street Railway Company. As holder of such stock it controlled the election of the directors and corporate officers of these street railway companies, and such directors and officers were substantially the same persons who were directors and officers of both the Consolidated Railway Company and of the New York, New Haven and Hartford Railroad Company.
“ 4. The Consolidated Railway Company did not directly acquire a majority of the stock of the Springfield Street Railway Company, but it passed votes, acted and entered into agreements for the organization of the Springfield Railway Companies, and made an agreement with that association guarantying certain dividends on its preferred stock and guarantying a certain price upon the preferred stock in a certain event, and the Springfield Railway Companies did acquire a majority of the stock and securities of the Springfield Street Railway Company.
“ 5. The officers and trustees of the Springfield Railway Companies are also persons who are directors and corporate officers of both the New York, New Haven and Hartford Railroad Company and of the Consolidated Railway Company.
“7. The Consolidated Railway Company has continued to hold the entire capital stock of the Worcester and Webster Street Railway Company and of the Webster and Dudley Street Railway Company.
“ 8. Upon June 25, 1906, the voluntary association known as the New England Investment and Security Company was formed, and the Consolidated Railway Company sold and conveyed to it all of the stocks, bonds, and securities which it held in the Worcester and Southbridge Street Railway Company, the Worcester and Blackstone Valley Street Railway Company, the Berkshire Street Railway Company, and the Springfield Street Railway Company (102 shares).
“ 9. The plan of organization of the New England Investment and Security Company was reported to and approved by the directors of the New York, New Haven and Hartford Railroad Company, and an agreement as to the guaranty of its stock was made between the New York, New Haven and Hartford Railroad Company, the Consolidated Railway Company, and the New England Investment and Security Company; and the Consolidated Railway Company was a party to the agreement and declaration of trust.
“ 10. Most of the trustees and officers of the New England Investment and Security Company are persons who are directors and officers of the New York, New Haven and Hartford Railroad Company and of the Consolidated Railway Company.”
It is important to determine what is meant by the words, “ shall not directly or indirectly subscribe for, take or hold the stock or bonds,” etc. Doubtless one purpose of the provision was to protect minority stockholders from the risk of detrimental acts of a corporation ultra vires. But a more important purpose was to prevent a railroad corporation from obtaining, without legislative permission, the control of another corporation so situated that competition between the two might conserve the interests of the public. While combinations of connecting
The master’s summary of facts and the other findings that appear in the report show how completely the defendant controls the street railways in question. The capital stock of all of them but the Springfield Street Railway Company was bought and held by the Consolidated Railway Company, all of whose stock is held by the defendant, and all of whose directors are the defendant’s directors. If we assume that this corporation was legally organized and is legally maintained, so as to have a separate corporate existence, it is in reality a piece of legal machinery owned and operated by the defendant. Through this the defendant acquires and owns and uses property with as complete control as it has over its locomotive engines. If it does this indirectly, it does it as effectively as if the ownership were direct. Through the direct purchase and ownership of the street railway corporations, by its creature, the Consolidated Railway Company, the defendant transgressed the law as to all the street railway companies mentioned in the information, except the Springfield Street Railway Company, and is still transgressing in the same way as to the Worcester and Webster Street Railway Company and the Webster and Dudley Street Railway Company, whose ownership is retained in the same form. Some of these street railway companies have been
The stock of the Springfield Street Railway Company was acquired through action of the Consolidated Railway Company, whose directors voted that it “ should be acquired by this company, and that the plan for payment of the same, outlined by the president be approved, namely, the establishment of a trust covering the issue of $3,000,000 guaranteed trust certificates, and the sum of $1,500,000 of four per cent, debentures of this company.” Here was the origin of the Springfield Railway Companies, which was established by the Consolidated Railway Company as a part of a scheme for holding and controlling the stock of the Springfield Street Railway Company. This is a voluntary association, consisting of a board of trustees, of whom all but one are directors of the Consolidated Railway Company and of the defendant corporation, who are designated as trustees in the declaration of trust, together with the members of the firm of Lee, Higginson and Company of Boston, bankers, who are called subscribers. Under the instrument the trustees assume no personal financial liability and have no beneficial ownership, although they are the holders of the legal title to all the property belonging to the association, and are the managers of it Lee, Higginson and Company are parties for the purpose of disposing of preferred shares to be issued by the association, and managing other matters of finance. As a part of the arrangement, the Consolidated Railway Company entered into a contract with Lee, Higginson and Company which, after the formal part, began with a recital as follows: “ Whereas, the Consolidated Railway Company desires to acquire the whole or at least a majority of the capital stock of the Springfield Street Railway Company, and desires Lee, Higginson and Company to offer to the stockholders of said company $225 in cash per share, or $75 in cash per share and $150 in preferred stock of the Springfield Railway Companies issued under a declaration of trust, dated March 15,1905,” etc. It was then agreed that the
The New England Investment and Security Company is a voluntary association similar to the Springfield Railway Companies, although in terms it is of broader scope as to the property that may be owned and the business that may be transacted. The declaration of trust by which it was created was signed by seven of the directors of the Consolidated Railway Company and of the defendant corporation, who were designated as the trustees, and by the Consolidated Railway Company, and by a member of the firm of Mackay and Company, bankers, who contracted to sell the preferred shares, and by an assistant of the president of the numerous corporations and the associations, who are designated together as subscribers. The trustees have no financial interest and are under no financial liability in regard to the property or business, but they hold the legal title and act as managers, under the name of the New England Investment and Security Company. They issued preferred shares and common shares which represent the ownership in the property and business of the association. The preferred shares are guaranteed by the Consolidated Railway Company, principal and interest, as the shares of the Springfield Railway Companies are, and are subject to call in the same way, and are to be redeemed at $105 per share when called, or when the affairs of the association are liquidated. This guaranty was made at the request of the defendant corporation, which in turn guaranteed the Consolidated , Railway Company against loss from its guaranty. The Consol
From the findings and evidence in the very voluminous report of the master, and notably from the testimony of Mr. Mellen, the president of the voluntary associations and the corporations, and of Harmer, the secretary and comptroller of the New England Investment and Security Company, it is plain that all the street railway companies mentioned in the information are indirectly held and controlled and managed in the interest of the defendant as absolutely and completely as it holds and manages its line of railroad between Springfield and New York. The allegations
The Attorney General contends that the defendant is directly or indirectly guaranteeing the bonds and dividends of these corporations. It is indirectly guaranteeing the dividends on the preferred shares of the two associations, — of the first association through the Consolidated Railway Company which it owns and controls, and of the second association in the same way, with an additional express guaranty to the Consolidated Railway Company for its protection from loss by its guaranty. These shares represent the ownership of the stock of these street railways. The guaranty is not of the dividends to be declared on the stock of the street railway corporations themselves, but only of the dividends to be declared on the shares of the holding company, issued to represent the stock in the corporations. Whether this should be deemed an indirect guaranty of the dividends of .the corporations, we do not deem it necessary at this time to determine, for it seems that, if the defendant ceases to hold directly or indirectly any proprietary interest in the stock of the street railway corporations, this will involve a termination of its relations as guarantor of these dividends.
The defendant’s counsel has referred in his argument to returns of different railroad companies to the railroad commissioners at different times, showing a holding of stocks or bonds of other corporations. These were not in evidence, and the circumstances of the corporate action and the reasons for it do not appear. It is fair to assume, as the defendant’s counsel did assume in his argument, that these holdings were, for the most part, if not altogether, under the authority of law. They show nothing more than that it has been a part of the policy of the Commonwealth to permit close relations between connecting railroads. Even if it should appear that some corporation had openly acted ultra vires without prosecution by the officers of the Commonwealth, it would not affect the construction of this statute or the right of the Commonwealth to enforce it. Action of a corporation ultra vires, where no great harm is done, often goes without rebuke.
The returns of the defendant are referred to, which show the holding of stocks in railroad companies in other states, and lately,
There was no unreasonable delay on the part of the public authorities in directing the attention of the defendant to the statute as soon as its conduct in Massachusetts in reference to these corporations became publicly known. The defense of loches cannot prevail.
Directly or indirectly subscribing for, taking and holding the stock or bonds or guaranteeing the bonds and dividends of another corporation in this Commonwealth, by a railroad corporation organized under our laws, is the exercise of that which would be a franchise if authority to do it had been granted by the Legislature. It is within the provision of the St. 1906, c. 372, and may be restrained by injunction under this statute. Attorney General v. New York, New Haven, & Hartford Railroad, 197 Mass. 194.
Decree for the informant.
Note. In pursuance of the rescript which accompanied the foregoing opinion, Bugg, J., on June 23, 1908, made the following decree:
“ This case came on to be further heard after a rescript, and was argued by counsel, and thereupon, upon consideration thereof, and in accordance with said rescript, it appeared that, at the time of the filing of the master’s report herein, the Worcester and Southbridge Street Railway Company, the Worcester and Blackstone Valley Street Railway Company, the Worcester and Webster Street Railway Company, the Webster and Dudley Street Railway Company, the Berkshire Street Railway Company, and the Springfield Street Railway Company, all being street railway corporations incorporated under and by virtue of the laws of this Commonwealth, and mentioned in the information, were, directly or indirectly, held, controlled and managed in the interests of the defendant, and that the capital stock of the said street railway companies was then, directly or indirectly, held by the defendant, and said cause having been reserved for the full court upon the entry of said master’s report, and having been argued before the full court upon the same footing, and a rescript having been sent down upon the same footing, and nothing to the contrary having appeared up to the time of the sending down of said rescript,
“ It is ordered, adjudged and decreed as follows:
“ 1. From subscribing for or taking, directly or indirectly, the capital stock of the Worcester and Southbridge Street Railway Company, the Worcester and Blacks tone Valley Street Railway Company, the Worcester and Webster Street Railway Company, the Webster and Dudley Street Railway Company, the Berkshire Street Railway Company and the Springfield Street Railway Company, or either of them, all being street railway corporations incorporated under and by virtue of the laws of this Commonwealth, and mentioned in the information.
“ 2. From assuming or exercising the franchise or privilege of subscribing for, or taking, directly or indirectly, the stock of said street railway corporations, or either of them.
“ 3. From holding, directly or indirectly, the stock of said street railway corporations, or either of them, after the first day of July, in the year nineteen hundred and nine.
“ 4. From assuming or exercising the franchise or privilege of holding, directly or indirectly, the stock of said street railway corporations, or either of them, after the first day of July, in the year nineteen hundred and nine.
“ Provided, however, That nothing herein contained shall affect existing leases executed in accordance with the provisions of chapter 293 of the Acts of the year nineteen hundred and one of this Commonwealth.
“ And it is further ordered that this decree be entered as of the eighth day of May, in the year nineteen hundred and eight.
“And it is further ordered that the Attorney General recover his costs taxed at $2,585.40 and there be execution therefor.”