145 N.Y.S. 725 | N.Y. App. Div. | 1914
Lead Opinion
These two actions, brought by minority stockholders of the New York Central and Hudson River Railroad Company and the Michigan Central Railroad Company to secure an injunction restraining the defendants from consummating an agreement known as the “New York Central Lines Equipment Trust of 1913,” on the ground that such agreement is ultra vires the said companies, involve the same broad questions of law, and have been tried and disposed of as one case, and are before this court upon appeal upon the same basis. Both parties moved at Special Term for judgment upon the pleadings, thus eliminating all questions of fact, and the learned court at Special Term has given judgment dismissing the complaints. The plaintiffs appeal'from the orders and judgments.
The plaintiffs, suing in behalf of themselves and all other stockholders of the Michigan Central railroad, allege that they are the owners and holders of 270 shares of the capital stock of the Michigan Central Railroad Company, and that said company is a railroad corporation organized under the laws of the State of Michigan; that the New York Central and Hudson River Railroad Company is a corporation organized under the laws of the State of New York; that the Lake Shore and Michigan Southern Railroad Company is a corporation organized under the laws of the States of Illinois, Ohio, Michigan, Indiana, Pennsylvania and New York; that the other defendant railroad companies are corporations organized under the laws of their various States; that the New York Central owns and operates a line of railroad between New York and Buffalo, with various branches
The agreement which is thus attacked as being ultra vires, illegal and void, is one of a series of like agreements dating back about six years, and under which many millions of dollars of trust certificates have been placed upon the market and sold, and are now in the hands of innocent holders for value, and all of this appears to have been done while the plaintiffs were owners and holders of this stock. Of course if the agreement is ultra vires, illegal and void, the plaintiffs are entitled to maintain their action in behalf of the corporation, even though they have been passive while the issues of 1907, 1910 and 1912 were being negotiated and sold, but the court is not bound to search for a reason for declaring invalid that which has been accepted by interested parties for a series of years, and which has not been shown to have worked wrong to any one, and if the plaintiffs’ pleadings do not justify the relief demanded, the order and judgment should not be disturbed. The agreement may be summarized briefly as a triparty contract between John Oarstensen, Alfred H. Smith and Edward L. Bossiter, the vendors, of the first part, the Guaranty Trust Company, the trustee, of the second part, and the New York Central and Hudson Biver Eailroad Company, the Michigan Central Eailroad Company, and four other railroad corporations, known as “the Eailroad Companies,” of the third part, by the terms of which the vendors agreed upon the request of
It will thus he seen that the defendant railroad companies, which are interrelated in the manner set forth in the complaint, and which will be hereafter more fully considered, have joined in a plan for the purchase of equipment for the operation of
The suggestion that the mere joint purchase of equipment for affiliated railroads operating lines is in any way violative of the Sherman Anti-Trust Act (26 U. S. Stat. at Large, 209, chap. 647), or of the provisions of section 14 of the Stock Corporation Law of our own State, is so entirely fanciful that it does not seem necessary to give it any serious consideration at this time. The case presents none of the evils against which the statutes in question were intended to guard, and it is doubtful if a mere private individual is in a position to raise the question. Whatever combination there may be between these several railroads, their legal relations are in no wise changed by anything contained in these trust agreements, and it would be rather remarkable if in an action by a minority stockholder the whole question of the legality of the relations of these railroads could be inquired into in order to give him. the relief which he seeks as against this particular transaction.'
We conclude, therefore, that in so far as the plaintiffs rely upon their ownership of Michigan Central stock, they have failed to state a cause of action entitling them to relief, and we pass on to the consideration of the further question whether, as stockholders of the New York Central and Hudson Eiver Eailroad Company, they are in a better situation.
The allegations of the complaint are identical, except that the plaintiffs allege ownership of certain, shares of stock in the New York Central Eailroad Company, a domestic corporation, in place of the allegation in reference to the ownership of stock in the Michigan Central, a foreign corporation. Here we come to a closer question, broadly covering the one already disposed
The New York Central and Hudson Biver Eailroad Company is a railroad company organized under the laws of New York, and is operating a line of railroad between the city of New York and the city of Buffalo, with various branch lines throughout the State of New York, and it is the owner and controls a majority of the capital stock of the Lake Shore and Michigan Southern Eailroad Company, and of the Michigan Central Eailroad Company. As such owner of a majority of the capital stock of these two corporations it becomes responsible, through the boards of directors which it chooses, for the operation of these two corporations. It owes a duty to exercise the franchises of these corporations primarily to the public, and then to its own stockholders, for the majority interest in
This seems to us to be made entirely clear by the broad provision of section 6 of the Stock Corporation Law, which provides that “ In addition to the powers conferred by the General Corporation Law, every stock corporation shall have the power to borrow money and contract debts, when necessary for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises, or for any other lawful purpose of its incorporation; and it may issue and dispose of its obligations for any amount so borrowed, and may mortgage its property and franchises to secure the payment of such obligations, or of any debt contracted for said purposes.” Here is a very broad power to borrow money “ for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises,” and to issue and dispose of its obligations for these purposes, and what it may do directly it may clearly do through the intervention of a trustee. (See People v. New York Central & H. R. R. R. Co., 138 App. Div. 601.) It is manifestly the business of the New York Central and Hudson Eiver Eailroad Company, as the owner of the majority of the stock of the Lake Shore and Michigan Southern Eailroad Company, to so operate the latter company as to make the stock of the highest possible value to the holding company; it is the exercise of its rights, privileges or franchises to so control the affairs of the Lake Shore and
Taking this view of the matter it is not material that we should consider the further provisions of the agreement, but it may not be out of place to call attention to the fact that the trust agreement provides that in case of the default of any of the railroad companies in making payments into the rental fund the remaining parties to the agreement may be substituted in the place of such defaulting company, receiving the share of the equipment involved in the default upon paying the equitable equivalent to the trust fund, so that if it be assumed that there will be a default on the part of some one or more of the companies, the New York Central and Hudson Eiver Eailroad Company, or some of the other parties, may step into the shoes of the defaulting corporation, and thus no one of the parties to the agreement will be called upon to pay
While it does not seem important to us to consider the alleged violation of the Sherman Anti-Trust Act, and of our own section 14 of the Stock Corporation Law, the question, in so far as it relates to section 14, is fully disposed of by the discussion in Matter of Attorney-General (124 App. Div. 401, 404), and we are persuaded that the plaintiffs’ rights under the Sherman Anti-Trust Act are on no better footing.
The orders and judgments appealed from should be affirmed, with costs.
All concurred, Smith, P. J., and Kellogg, J., in separate memoranda; Lyon, J., concurred with Smith, P. J.
Concurrence Opinion
The opinion of Mr. Justice Woodward holds that no party to the contract becomes a guarantor for another party because of the provision entitling a party paying the obligation of another party to the equipment allotted to such another party. To this I cannot agree. The right to such equipment given upon payment of the other party’s obligation cannot, in my judgment, change a contract of .guaranty into any other form
Lyon, J., concurred.
Concurrence Opinion
Without further consideration I am unwilling to agree that the Public Service Commission has the legal right to authorize the issue of these certificates, but a decision of that question is not necessary and I express no opinion thereon.
Section 55 of the Public Service Commissions Law (Consol. Laws, chap. 48; Laws of 1910, chap. 480) applies to these certificates, and they could issue only after the approval of the Commission. (People v. New York Central & H. R. R. R. Co., 138 App. Div. 601; affd., 199 N. Y. 539.)
In determining whether it should approve of the certificates the Commission was called upon to determine whether they were being issued in accordance to law. If they were being issued pursuant to an illegal combination under the Sherman Anti-Trust Act (26 U. S. Stat. at Large, 209, chap. 647), or for purposes not permitted by the laws of the State, it was the duty of the Commission to refuse its approval. The plaintiff Venner was heard before the Commission, and when it granted its approval to the issue he asked no reconsideration of the order and took no steps to review the determination by certiorari. If he is right about the law he had it within his power to prevent the issue. Upon a review of the determination this court would have been called upon to determine the legal questions raised. But he elected to take no such proceeding, and thereby permitted the certificates to issue, and they are now in the hands of purchasers in good faith. These certificates were issued and sold and the proceeds used in the manner prescribed by the public authorities. The bona fide holders, therefore, may have rights which ought to be determined when they are present in court. The possibility that the plaintiff or the companies may suffer damage is so shadowy that it seems more important that the holders of the certificates should have a legal day in court, if the question ever becomes a live one, than that the court should now answer the questions propounded by the plaintiff. A determination in
For the protection of the stockholders and the public the laws of the State have provided the Commission to prevent the issue of illegal and improper securities, and an application for a rehearing gives an opportunity to any party aggrieved to test the determination by certiorari. The law has, therefore, provided the plaintiff with a legal remedy, which if pursued, would have fully protected him, without injury to the company or to the public. He raised like objections at the hearings before like Commissions in the States of Ohio and Michigan, with the same results. We assume that the common-law certiorari, unless some statutory remedy was provided, gave him ample opportunity to review those determinations in a proper court. Plaintiff has slept too long to now insist upon a hearing in a court of equity as to his technical rights. The court will now leave the matter, so far as he is concerned, where he left it.
I favor an affirmance upon the ground that the plaintiff is not now entitled to equitable relief.
Orders and judgments affirmed, with costs.