34 N.Y.S. 370 | N.Y. Sup. Ct. | 1895
The plaintiff and the defendants Mackay and Bennett in September, 1883, entered into an agreement which had for its ultimate design the creation of a corporation for the purpose of constructing a submarine telegraph cable, between the coasts of France, Great Britain, and America. By it Mackay agreed to contribute the sum of $3,000,000, Bennett $1,250,000, and the plaintiff the sum of $50,000, to be expended in furthering the object which the parties had in view. Pending the incorporation, the parties organized themselves into a committee to prosecute the work, with the agreement that as soon as possible they should become the board of directors of the contemplated corporation. Preliminary work, of an important and comprehensive character, was at once undertaken by the committee, which was immediately supplemented by a submission to the committee of a formal article of association by the plaintiff, which provided for the formation of the MackayBennett Gable Company, and among other things embraced a scheme for special compensation or profit to the promoters. The details of it are unimportant, as it was not adopted, Mr. Bennett suggesting, as appears from the minutes, that, although the scheme was a usual one in Europe, it was not in conformity with the laws of the state of New York, under which it was proposed to incorporate the company. December 12, 1883, the Commercial Cable Company was incorporated under the laws of this state, and on the 2d day of January, following, the “committee” held a meeting in Paris, at which all of the members were present The provisions of the charter of the company were approved, and certain resolutions were adopted looking to the transfer to the company of . all the contracts, rights, and privileges which the committee had acquired from France, Great Britain, and the United States, upon the repayment
“Resolved, That the proposition of the original organizers and promoters of this company to transfer to this company all of the contracts made by them relating to ocean cables, and all their rights and privileges granted in France, Great Britain, and the United States with reference to the same, in consideration of the repayment of their cash advances and interest, and of the creation and issue to them of 1,000 shares of the par value of $100 each, of the preferred stock of this company, such preferred stock to be entitled to receive, by way of a dividend, 15 per cent, of the net annual earnings of this company, such net earnings to be set apart out of the gross earnings for each year after the payment of all expenses, and after the deduction from the gross earnings of all sums necessary for the maintenance, reparation, and replacement of the cables and other lines owned by this company, and directly in connection therewith, and as a part of its ocean cable system, and after carrying to the sinking fund such sum as may be deemed prudent and necessary, and such dividend of 15 per cent, of such net earnings to be paid before or at the time of the declarations and payment of any dividend upon the common stock of this company, be accepted by this company, subject, however, to this modification, viz., that only 800 shares of the said stock shall be paid to said original promoters and their associates, and that the remaining 200 shares shall be held in the treasury subject to the future action of this board, and that the said 800 shares of said stock shall be issued and delivered so soon as the requirements of the next following resolution are complied with.”
As the capital stock of the company had been fixed by its certificate of incorporation at $4,000,000, a resolution was adopted at the same meeting of the board of directors, directing the counsel of the company to take such action as should be necessary for the creation of the 1,000 shares of preferred stock provided for by the resolution. The provision for the issue of the stock was the outcome of a plan which the committee contemplated at the outset, and which was suggested in the scheme submitted by the plaintiff to the committee shortly after the making of the first contract, to secure to themselves compensation for their services as promoters. The failure to fully execute and abide by this plan to deliver 800 shares of the preferred stock to the promoters furnishes the occasion for this controversy. It so happened that the outcome of that which was done operated to deprive this plaintiff, and the other parties as well, from receiving any portion of the preferred stock or its equivalent, so that for their services as promoters no compensation has been received. By this action the plaintiff seeks to secure the rights and benefits assured by the contract with the cable company. How it happens that, by the judgment under review, it is held that he has no rights against the corporation which he can enforce, will appear from a brief examination of the subsequent conduct of the promoters and the cable pompany. Immediately after the meeting of the directors above referred to, steps were taken to accomplish an increase of the capital stock to $4,100,-000, by the addition of 1,000 preferred shares, but it was not com
“Now, therefore, it is resolved that this company does accept such surrender of said stock, and of all claims of the aforesaid Messrs. Mackay, Bennett, and Dillon thereto, and does hereby revoke and cancel the authority heretofore given for the issuance thereof, and that the counsel of this company be requested to cause such proceedings to be taken as may be necessary for the purpose of reducing the capital of this company to the original amount of $4,000,000 of common stock, and that the authority to create any preferred stock be put at end.”
The plaintiff was at once informed of the action of the directors, a copy of the minutes reaching him on the 29th of the same month. Such proceedings were thereafter had as reduced the capital of the company to $4,000,000. In August following, the plaintiff sent his certificate of stock to the company, with direction that it be canceled and replaced by certificate of the new issue. This was done, and the new certificates were accepted by him on the 23d of October. This action was commenced in May, 1892, and prior thereto this plaintiff demanded of the cable company that it create 800 shares of preferred stock of the par value of $100 each and issue 266 shares thereof to him, or issue 12,000 shares of the capital stock of the company of the par value of $100 each to Mackay, Bennett, and himself, one-third thereof, or 4,000 shares, to be issued to Mm, or that it pay him the value of the 4,000 shares, together with all dividends declared thereon since the organization of the company.
The plaintiff’s position is, that while it is true he surrendered for cancellation Ms preferred stock, he did not by so doing discharge or
Again, it seems to us that such an agreement between the company and the plaintiff has not been proved. The books of the company show no such arrangement or understanding, nor was there any writing to that effect executed. Plaintiff’s contention is, that he was induced to consent to the cancellation of the preferred stock by the promise of Mr. Mackay that he should lose nothing thereby, and that Macltay’s promise was the promise of the company. There is evidence that such a promise was made, and we credit it; otherwise, it would be difficult to understand how the plaintiff could have been induced to surrender his preferred stock. But the question is, whether the promise was that of Mr. Mackay personally, or that of the company? It is conceded that Mackay was authorized to do what a board of directors might do, and the inquiry therefore is, whether that which he did was a corporate act, done in pursuance of the authority conferred on him, or his personal act. An examination of the letters, and of the conversations testified to, satisfies us
80 far we have said that the surrender and cancellation of the promoters’ stock was, so far as the cable company was concerned, the voluntary action of the promoters, for the company did not hold out any inducement, or even proffer a request, to bring about that result. And, further, that had the stock been surrendered by the plaintiff and the other promoters upon a secret agreement or understanding that, nevertheless, the promoters should receive eight-tenths of 15 per cent, of the annual profits of the company, such an agreement would not be enforced, as the stock of the company has been purchased by third parties without notice of the secret arrangement.
This brings us to the consideration of the other position taken by plaintiff, that if it should be held that he is not entitled to stand in front of the shareholders to the extent of his proportion of eight-tenths of 15 per cent, of the annual profits, as originally provided for, he is entitled to have such a proportion of the stock issued to him as will equal in value 266 shares of the preferred stock, which he estimates to be 4,000 shares. The last demand is said to be not open to the objection that a purchaser of the shares for value will be in any wise injured, for their purchases have been made with full knowledge of the extent of the issue authorized. If it be assumed that this demand is free from the difficulties which deny to the plaintiff the right to receive the preferred stock prayed for, it is, nevertheless, confronted with objections equally effective. In the first place, there is no proof of an agreement to give the plaintiff a part of the common stock. If it be said that, while this is true, yet the company agreed to pay the promoters eight-tenths of 15 per cent, of the annual net profits, for which the preferred stock was to be issued merely as a means of securing payment, and a court of equity should decree a substantial performance in the only way open to it, by directing a proportionate issue of the common stock, we answer that such was not the agreement as we understand it. The terms of transfer, as expressed in the resolution of April 1st, were stated to be repayment to the promoters “of their cash advances and interest, and of tire creation and issue to them of 1,000 shares, of the par value of $100 each, of the preferred stock of this company, such preferred stock to be entitled to receive, by way of a dividend, 15 per cent, of the net earnings of this company.” There was no other agreement,
A still further answer to plaintiff’s contention in such respect is, that there is no proof that there is any common stock unissued which might be distributed to him. The plaintiff was undoubtedly persuaded to so act as to injuriously affect his interests by the promises of Mackay, and it may well be that he has an adequate remedy against him, but if the views expressed be sound he cannot obtain relief as against the cable company.
The judgment should be affirmed, with costs. All concur.