183 Ind. 666 | Ind. | 1915
— This was a proceeding in equity, by appellants against appellees, to annul a consolidation agreement between two interurban' railway companies and to restore to one of them the property owned by it prior to the consolidation. Appellees’ demurrer to the complaint was sustained, and this ruling constitutes the error here assigned.
Appellants made defendants to their complaint Union Traction Company of Indiana, incorporated May 27, 1903, Indiana Union Traction Company, and Union Traction Company of Indiana, formed by the consolidation agreement of the other two, on May 13,1912, and also Philip Matter, James A. VanOsdol, Arthur W. Brady, Harry A. Nichol, "Willis C. Sampson, J. Levering Jones, and George F. McCullough, as.directors of said company, organized May 27, 1903. The complaint was subsequently dismissed as to J. Levering Jones, a nonresident, who was not served with notice. The complaint is very long. It avers that appellants, at the time of consolidation, owned 1,572 of the 85,000 shares of stock of Union Traction Company, incorporated May 27, 1903, and subsequently designated in the complaint as Union Traction No. 1; that the shares were of the par value of $100, and that appellants purchased their shares between January 1, 1910, and April 5, 1912. It appears from the complaint that in 1897, a corporation, called the Union Traction Company of Anderson, was organized with a capital stock of $300,000, to operate street railroad lines in and
It is alleged that in April, 1902, Randall Morgan, of Pennsylvania, and defendants McCulloch and Jones, “and their associates”, were in control of said Union Traction Company of Indiana, and caused to be organized the Indianapolis Northern Traction Company, with a capital stock of $3,500,000, all common, to construct and operate interurban lines from Indianapolis to Kokomo and Peru, and other named Indiana cities; that only $10,000 of the stock was subscribed, all by persons under the control of Morgan and his associates. None of the stock was sold, but was issued to and held by a syndicate of officers of the Union Traction Company of Indiana, all under the control of said Morgan and his associates. Nothing was paid for the stock. On July 1, 1902, said Indianapolis Northern Traction Company executed a mortgage on its property securing $5,000,-000 of bonds, and leased its property to said Union Traction Company of Indiana for fifty years, and, in the same transaction the latter company guaranteed the payment of said bonds of said Indianapolis Northern Traction Company, and further executed a mortgage on its property to secure the guarantee. Thereupon the syndicate transferred to the treasury of said Union Traction Company .said $3,500,000 stock in the Indianapolis Northern Traction Company, where it remained until May 27, 1903. On the latter date Morgan
The complaint alleges that on and before March 5, 1912, Morgan and associates knew that said lessor could not continue to perform its lease obligations, and knew it could not operate its own lines successfully if said lease were can-celled, but instead of so informing lessor company and causing the surrender of the lease, they, in company with other holders of investments in lessee company, including the directors of both companies, entered into a “conspiracy” to unload said investments on the lessor company to the detriment of appellants and others similarly situated, by a scheme of statutory consolidation, the effect of which would be to annul the lease. These “conspirators” owned 36,000 of the 85,000 shares of Union Traction No. 1, and they sought to effect a consolidation by voting their own stock and using the influence of the directors of the two companies, and resorting to “other financial, business and social influences”. At the stockholders’ meeting, on March 5, 1912, the “conspirators” secured the election, without opposition, of defendants Matter, Yan Osdol, Brady, Nieholl, Samson, Jones and McCulloch. At that time Brady was president and Jones was vice president of lessee company, and they and McCulloch were directors thereof, while Yan Osdol was general manager of said companju Samson was the confidential clerk of McCulloch. On the same day at a stockholders’ meeting of Indiana Union Traction Company, Brady, Jones and McCulloch were elected to the directorate consisting of seven members. At said stockholders’ meeting of Union Traction No. 1, Brady presided, and said that the lessee could no longer pay the stipulated rental; that urgent demands were pressing for additional capital which could not be met and that its remaining bonds could not be sold. There
It is also averred that said majority stockholders, when they voted for the scheme, knew that its object was to save investments in lessee company’s property at the expense of investments in lessor company, and knew that the minority stockholders owned no investments in lesee company; that Morgan and his brokers voted 22,194 shares for the consolidation, and that the “dummy” directors of the two companies voted 17,041 shares therefor; that disregarding the
The agreement recites that Union Traction No. 1, is a consolidated corporation, with a capital stock of $8,500,000 including $1,000,000 preferred, and owns various named lines of railway; that Indiana Union Traction Company has a capital stock of $5,000,000 and is operating, under lease, the lines of Union Traction No. 1, and is also operating other named leased lines and also named lines owned by itself; that the lines of the two companies connect at Anderson and other named places and may be physically joined and united at said places so as to form one connected and continuous system. This is followed by an agreement of consolidation vesting in the consolidated company all the property of the constituent companies; providing for the capitalization of the consolidated company at $9,000,000, with 90,000 shares, of which $1,000,000, shall be first preferred stock, $3,000,000 second preferred and $5,000,000 common, and for five per cent cumulative dividends on first preferred and six per cent on second preferred.
The agreement provides for the merging of the stock of the constituent companies as follows: the $1,000,000 preferred, of Union Traction No. 1, to be converted into $1,000,000 of first preferred of the consolidated company, and the remaining common shares in the two constituent companies to be converted into second preferred and common, in the consolidated company, according to this plan; each share of Union Traction No. 1, common to be converted into four-tenths of a second preferred share, and the same
The consolidation agreement provides for the cancellation of the $3,380,000 unissued bonds.of Indiana Union Traction Company secured by mortgage of Union Traction No. 1, and that the lien of the mortgage, as to the $1,620,000 issued, be confined to the property on which the mortgage was a lien at time of consolidation, and that mortgage liens aggregating $10,200,000 on property of Union Traction No. 1, shall be confined to that property. In ease of liquidation of the consolidated company, no bonds other than those secured by the mortgages upon the property of Union Traction No. 1, nor any obligations of the Indiana Union Traction Company, including its floating indebtedness, shall be enforced against the property of Union Traction No. 1, until after payment of the first and second preferred stock, including accrued and unpaid dividends of the consolidated company. However, the new company is empowered to execute mortgages on its property to secure the payment of bonds for proper corporate purposes, or to pay or refund mortgage debts against the constituent companies on condition that such mortgages must be authorized by affirmative vote of two-thirds of the outstanding shares of first preferred stock and a majority of the second preferred and common.
The complaint further alleges that the consolidated company will not have any increased earning power over that of its constituents and that the annual dividends provided for on the second preferred stock exceed the former annual rental which disabled the Indiana Union Traction Company, and that no benefit whatever will accrue to stockholders of Union Traction No. 1. It is also averred that at the time of consolidation Union Traction No. 1 was not an operating company; that before the consolidation appellant Alice Norton instituted a stockholder’s suit in the proper Federal court against the constituent companies and other
The complaint fails to state facts sufficient to warrant a court of equity in granting any relief to appellants, and the judgment is affirmed.
Note.- — Reported in 110 N. E. 113. As to right of stockholder to maintain bill to dissolve corporation and distribute assets, see 91 Am. St 33. Generally, on the right of corporations to consolidate, see 52 L. R. A. 369. Necessity of assent of ail stockholders to consolidation of corporations, see 19 Ann. Cas. 1206. See, also, under (1) 36 Oyc. 1437; (2) 36 Oyc. 1028, 1029, 1058; (3) 33 Cyc. 422, 423; (4) 10 Cyc. 302; 33 Cyc. 431; (5) 33 Cyc. 437; (6) 33 Cye. 427, 428; (7) 10 Cyc. 297; (8) 10 Cyc. 297, 298; (9) 10 Cyc. 969; (10) 33 Cye. 430, 431; (11) 33 Cyc. 437, 438; (12) 10 Cye. 303; (14, 15) 10 Cyc. 315.