106 N.Y.S. 511 | N.Y. Sup. Ct. | 1907
The Northwestern Telephone and Telegraph Company was incorporated in the State of Delaware in the year 1900, and immediately thereafter constructed a telephone line in the village of Carthage and the surrounding country. It was what is known as an independent company, not affiliated with the various Bell companies. It had seven directors, of whom three constituted a quorum.
In the year 1899 there had been organized in the city of
The Central New York Telephone and Telegraph Company is what is known as a Bell corporation. It has obtained from the American Bell Telephone Company the exclusive right to use in a large part of New York State the Bell telephone instruments and to connect with other so-called Bell telephone companies.
In the year 1904, one W. K. Squires, who at that time owned a majority, of the stock of the Northwestern company entered into negotiations with the- Central Company for the sale of his stock. Thereupon the plaintiff, to prevent the injury which he feared would follow to the Citizens’ Company, bought this stock himself. Mr. Squires, who was a director, resigned and the plaintiff took his place upon the board. The other directors remained in office; and, as there has been since no annual election, they still continue, with the exception of one Flynn, who died, and whose place the directors themselves filled by the defendant Jenks.
Thereafter the relations between the Northwestern and the Citizens’ companies continued as before.0
A regular meeting of the board of directors was held on May 20, 1907. Kilby, Wilder and Yousey were present. The plaintiff, who resides in the city of New York, and who had been ill prior to that time, was notified but did not attend. Nor did the seventh director who resides in the State of Delaware and apparently has never been present at any meeting of the board. At that meeting a resolution was passed directing the president to execute a contract, which was then presented, between the Northwestern company and the Central New York company. Negotiations for this contract had apparently begun on or about April 6/1907, and
The plaintiff attacks hoth these transactions and asks for an injunction preventing the use by the defendants of stock so issued to them, preventing them from carrying out the contract of May 20, 1907, and requiring the defendants to reconnect the wires of the ¡Northwestern and Citizens’ companies.
So far as regards the issue of stock, the plaintiff is entitled to relief. Directors cannot, with secret knowledge of the existence of a contract which they claim to be of great value, issue treasury stock of the corporation and buy it in themselves, particularly when the transaction converts them
A much more serious question is that involving the contract with the Central company.
By this contract the Central New York Telephone and Telegraph Company grants to the Northwestern company thright to use the Bell telephone instruments in a certain defined territory in the neighborhood of Carthage. It is to lease to the Northwestern company Bell instruments for use in that district at a fixed rate; to turn over to it its property situated in the district, except trunk lines, for a rental; to turn over to it all its' subscribers in the district; and it agrees, during the term of the contract, not to connect with any other tel ephona company therein. In return, the Northwestern company agrees to turn over to the Central company its property situated outside the district at a rental agreed upon; to substitute Bell instruments for those now used by it within three years; to turn over to the Central company its subscribers outside of the-district; to cut off all connection with lines not fully equipped with Bell instruments; to use only Bell instruments at public stations; and, finally, it agrees not to extend its system outside the district specified in the contract without the consent of the Central company. The lines of the Northwestern and Central companies are .to be connected for the interchange of business,.and a traffic agreement is made as to messages passing over the wires of both companies. The time of the agreement is fixed at thirty years.
The board of directors of a corporation represent not simply the stock which they may happen to own individually,..
The first question to be considered, therefore, is whether this contract was entered into by the directors of the Northwestern company in bad faith. Upon the papers before me I could not sustain such a charge. The denial to his representative after it was executed that any such transaction was even contemplated, and the illegal issue of stock on Hay thirtieth, apparently made for the purpose of transferring the control from one who might be expected to be unfavorable to the contract to those who favored it, while they raise some suspicions, are not sufficient. Nor is the contract itself so unreasonable and so unfavorable to the interests of the Northwestern company as to be in itself proof of collusion or bad faith. In fact, the contract seems to be an advantageous one, and one essential to the continued prosperity of the Northwestern company. The mere fact that the Citizens’ company have but a thousand subscribers, of whom nearly 400 use also the Central’s telephones, while the Central has nearly 3,000 subscribers in the city of Watertown, would in itself tend to show that a traffic arrangement with the latter rather than the former would be advisable. Taking all the facts together, the contract seems to show good judgment on the part of the directors of tire Northwestern company,
Clearly it is not by reason of the fact that the Northwestern company agrees to sever the connection between its wires and those of the Citizens’ company. No rule of law or policy requires one public service corporation to submit its property to the úse of another. It may make or end such traffic arrangements at its option.
If the contract is objectionable, it is because of the clause limiting the right of the Northwestern company to extend its business beyond the territory defined therein.
It should be noticed that this is not a case where by its charter a transportation corporation is to extend its lines between two points and then agrees with a rival not to construct it for the whole distance. Such a contract might well be ultra vires. Nor, under 'the circumstances disclosed, does the contract seem to be an unreasonable one — one that would unduly limit the power of the Northwestern company to serve the public. A telephone corporation need not do business throughout the State. -The incorporators may specify and limit the territory to be occupied. Where, as in the case of a corporation organized under the laws of Delaware, such territory need not be specified, there seems to be no public reason against the corporation doing precisely what our statutes permit and require incorporators to do. Further, the territory assigned by this contract to the Northwestern company, in view of its authorized capital and the cost of construction, seems practically all it ever can or will occupy. The limitation also constitutes no breach of faith with the public. Under its charter no one could insist that the lines of this company should be extended. No contract with the State is violated if it confines its operations to Carthage or to some portion-of Carthage. It is difficult "to specify the “ evident grounds ” for anticipating public injury from this agreement.
The bare question is, therefore, presented whether, under any circumstances, a telephone corporation may, where such a course is not expressly op impliedly prohibited by ij® char
I think it is clear that an individual or an ordinary business corporation may do so. The law permits contracts in partial restraint of trade, if they are reasonable — if they be such as only to afford a fair protection to the interests of the party in favor of whom it is given, and not so large as to interfere with the interests of the public. It is always to be remembered that the court should not interfere arbitrarily with freedom of contract. To justify its action apprehension of danger to public interests should rest on clear grounds. In some tangible form the contract should threaten the public welfare. Diamond Hatch Company v. Roeber, 106 N. Y. 473.
I think it is also clear that the same rule applies to a semi-public corporation, if it does not possess the power of eminent domain and if no rights over the highways of the State are conferred upon it. Leslie v. Lorillard, 110 N. Y. 519; Lough v. Outerbridge, 143 id. 271.
It may be very doubtful whether the Northwestern company has that, power. No corporation, foreign or domestic, may condemn property or may occupy the public highways, unless the right is conferred upon it by the Legislature. A statute claimed to grant the right must be strictly construed. The Northwestern company is a foreign corporation. Section 100 of the Transportation Corporations Law regulates the creation of domestic telegraph and telephone companies. Section 101 provides how such companies may extend their lines. Section 102 permits “ such corporation” to erect its . structures upon public highways or over private lands upon making compensation. If' “ such a corporation ” means a corporation referred to in section 100, this act does not confer -the right of eminent domain upon foreign corporations.
Sections 15 and 16 of the General Corporation Law provide for certificates authorizing foreign corporations to do business in the State. Section 17 provides that such corporation c|oing bupippsa here, getptirp suck regí prop
I have been unable to discover any other statutes bearing on the subject. Nor do I find any decisions in point.
In Telephone Company v. Marsh, 9-6 App. Div. 122, Mr. Justice Chester refers to the Transportation Corporations Law as giving such companies “ organized under it ” the power conferred by section 102.
In New York, N. H. & H. R. R. Co. v. Welsh, 143 N. Y. 411, it was held that foreign railroad corporations might condemn real estate, but solely because the various railroad laws gave that right to “ all existing railroad corporations ” and to “ every railroad corporation.”
Possibly the Legislature may have withheld this power with set purpose. It may have been deemed, unwise to encourage the formation of such corporations under laws perhaps less stringelit than those prevailing here.
But I think the same result would be reached, even if we assume that the Korthwestern company possessed the power of eminent domain. It is claimed that a cofiporation vested with these powers owes certain duties to the public, greater or different from those of a line of steamers, for instance, which may be a common carrier, but which may not condemn land; that the State has a greater right to supervise its contracts; that certain contracts, perfectly legal between two steamship companies, or between one and its patrons, would be void as in restraint of trade or tending to monopoly if-made between two railroad companies, or between one and its patrons. All this may be true. It may also be true that such a corporation, or any corporation, may not disable itself from the performance of those functions which were the consideration of the grant to it of its charter. But, when the
As has been said, the contract in question here seems a reasonable one. The further question whether, assuming this particular clause to be illegal, the "whole contract must be held void, need not, therefore, be discussed. W. U. Tel. Co. v. B. & S. Ry. Co., 11 Fed. Rep. 1.
An order may be entered granting the motion herein so far as the issue of the sixty-seven shares of stock is concerned. As to all of the other matters the motion is denied.
Ordered accordingly.
Post, page 340.