208 Mass. 544 | Mass. | 1911
This is an appeal from a decree of the Land Court granting a petition for the registration of the title to a tract of land in Boston, a part of which was formerly occupied as the station of the Boston and Providence Railroad Company, at Park Square. The diversion and extension of the railroad and the erection of the terminal passenger station in Boston under the St. 1896, c. 516, rendered the property no longer available for railroad purposes, and it was conveyed by this corporation to the New York, New Haven, and Hartford Railroad Company
The deed runs to the petitioners as trustees under a declaration of trust. The consideration expressed in it is $1 and other valuable considerations. The conveyance is “subject to and upon the terms, provisions and trusts mentioned and set forth in the aforesaid declaration of trust.” This declaration is of a peculiar kind. It provides that the trustees shall forthwith issue to the grantor certificates, in a form prescribed, for fifty-
The death of a shareholder is not to determine the trust, nor entitle his legal representatives to an accounting, but his rights are to pass to his executors, administrators or assigns, upon the surrender of the certificate of the shares. The trustees may from time to time invite and receive subscriptions to additional shares, for the purpose of increasing the capital of the trust, giving preference, upon such terms and conditions as they shall deem best, to existing shareholders, and to the holders of convertible notes or bonds. The trustees have no power to bind the shareholders personally for any debt, nor are the trustees to be personally liable for claims or debts against the trust, but all persons extending credit to the trustees are to look only to the property of the trust for their payment. The trustees have no pecuniary interest in the property of the trust, or in the business carried on under the trust, except for the payment of prescribed commissions upon receipts and expenditures, as compensation for their services.
The trustees are to have absolute control over and disposal of all real estate and other property held under the trust, including the power to improve it by building thereon or otherwise ; to sell, for cash or credit, at public or private sale, any part of
The trustees may acquire, by purchase or otherwise, any real estate or any interest therein in the vicinity of that conveyed by the deed in question, “and any notes, bonds, shares other securities of any corporation, association or real estate trust, organized or adapted for the purpose of acquiring, holding, managing or- improving real estate, or for the purpose of conducting a fighting, heating, power or other business directly related to the management of real estate, if in their judgment such acquisition will in any manner tend to facilitate the laying out, development, management or improvement of the real estate ” conveyed to them by the deed in question. They may lay out and construct or discontinue streets or ways, upon any property at any time held by them. They may dedicate to public use, or convey to the city of Boston, with or without compensation, any part of the property, with a view to the enhancement of the value of the remaining property. For a like purpose they may contribute money or other property to the cost of any public or quasi public undertaking. In all these matters the judgment and determination of the trustees is to be final and conclusive.
They may from time to time determine what of their receipts' and expenditures shall be treated as capital and what as income, and their determination shall be final. They may divide net income among the shareholders, under certain limitations, and may set aside a part of the net income as a reserve or contingent fund. Their determination of what is net income is to be conclusive. The trust is to continue until the expiration of twenty-years from the death of the last survivor of nine persons named, some of whom, presumably, are quite young, unless three
By this conveyance and the accompanying declaration of trust, the New York, New Haven, and Hartford Railroad Com-pony set on foot a scheme to put property, of an estimated value of more than $5,000,000, into the hands of trustees as managing agents, who were appointed irrevocably, to conduct a business for a term that might last nearly a century, with practically all the powers of an absolute owner, not only over the property conveyed, but for the, acquisition of other real estate in the neighborhood, and of shares in corporations which have relation to the use, management and improvement of real estate. The scheme contemplates the borrowing of money to create an indebtedness not exceeding $4,000,000 at any one time. It contemplates an unlimited extension and enlargement of the enterprise, in the discretion of the trustees, by the issue of additional shares to persons who subscribe for them. It contemplates a real estate business, if not a speculation, that may continue a long time and become gigantic, of which the railroad corporation is now the sole owner. It needs no argument to show that, ordinarily, the proprietorship of such a business, by a railroad ..company as a beneficiary, is not within its corporate powers.
As was said in Davis v. Old Colony Railroad, 131 Mass. 258, 259, “ A corporation has power to do such business only as it is authorized by its act of incorporation to do, and no other. It is not held out by the government, nor by the stockholders, as authorized to make contracts which are beyond the purposes and scope of its charter. It is not vested with all the capacities of a natural person, or of an ordinary partnership, but with such only as its charter confers.” In Waldo v. Chicago, St. Paul & Fond du Lac Railroad, 14 Wis. 575, 581, we find this language: “ When a corporation, created for the purpose of building and
If the railroad company had taken its money and purchased land, and had applied it to a use like that contemplated by this scheme, no one would contend that it was acting within the law. We are left with only the question whether its ownership of this real estate justifies its creation of such an enterprise.
Its ownership of the land, which came to it legitimately, left it with the property on hand, to be sold or disposed of, so that its proceeds could be properly used for the purposes for which the corporation was created. It did not give it the right to hold the land permanently, or for an unreasonably long time, as an investment for the production of income; much less did it give it the right to carry on, for a long term of years, the business of speculating in land, or developing this and other land in the vicinity, and changing its general character, for the purpose of gain. If the corporation could not do this directly, it could not do it indirectly through the appointment of trustees or agents who should continue the business for its benefit. Attorney General v. New York, New Haven, & Hartford Railroad, 198 Mass. 413.
The objection to such a venture on the part of a corporation is twofold. On the part of the State it is that the corporation is
The other objection is from the side of the stockholder in the corporation. He invests his money by subscribing for the shares of stock, with a knowledge of the purpose for which the corporation is organized, and with a view to the probable gain, and a thought of the possible loss, that may result from the transaction of the business of the corporation. He does not invest in any other kind of enterprise than that which is within the authority conferred upon the corporation. His protection requires that the company be confined strictly to the business and functions for which it was organized. It would leave him without compass or rudder in making his investment, if the managing officers, or a majority of the stockholders, could use the corporate property in a business foreign to that for which the company was established*
In turning this real estate into money, the railroad company should not be held too strictly to sales to be made at once and without expenditure for changes and improvements that would increase its marketable qualities. A reasonable latitude in that respect is- fairly incidental to ownership with a right to sell. Dupee v. Boston Water Power Co. 114 Mass. 37. But nothing more than what is fairly incidental to a reasonable disposition of
The only debatable question in this case is whether such a scheme as has been devised is incidental to the right to sell, and reasonably necessary to enable the corporation to obtain the fair market value of the property. We are of opinion that it is not.
The reasons relied on by the petitioners for adopting the scheme, as given in the statement of agreed facts, are that “ earnest efforts during several years were made, without success, to sell the same and convert it into cash, but the risks and uncertainties attending the development and use of so large a tract of land, without streets or other facilities for its development, were such that no purchaser was in fact found, and no purchaser seemed likely to be found, willing and able to purchase said property, except at a price so low as to indemnify him against all such risks and uncertainties and much below the estimated real value of said land.” This is, in substance, that the directors have not been able to sell the land for its estimated value, and that there are risks and uncertainties attending the development and use of the land, which a purchaser would take into account in determining what price he would pay for it. The directors decided to put these risks and uncertainties upon the stockholders of the corporation, by providing for a business of developing and using this property for many years, in the belief, doubtless, that the business would be more profitable than a sale to others who would assume the risks of such a business. This is not very different from taking $5,000,000 in money of the corporation, if that amount happened to be on hand, and if land could be bought for its fair market value, and investing the money in such an enterprise, in the expectation that the assumption of these risks and uncertainties, in buying at a price diminished on account of them, would open a large field for profit in the business of developing and using the property.
The conveyance to the trustees merely changed the form of the property. It did not bring a dollar to the treasury of the corporation. If the trust were sustained, it might or might not be possible, at some time, to sell shares at their estimated value instead of selling portions of the land. But, presumably, there will be no satisfactory market for any of these shares, unless
In addition to the general objections already stated to such a venture on the part of a railroad corporation, there are special objections. If stock is purchased by the trustees in other corporations, this corporation will become indirectly a holder of the stock of these other companies, in direct violation of St. 1906, c. 463, Part II. § 57, which expressly forbids the directly or indirectly subscribing for, taking or holding, by a railroad corporation of the stock or bonds of any other corporation. Attorney General v. New York, New Haven, & Hartford Railroad, 198 Mass. 413. In Williams v. Boston, ante, 497, it was decided that the certificate holders in such a trust are partners within the meaning of that word in St. 1909, c. 490, Part I. § 27.
Moreover, if other stock is issued by the trustees, and other parties are brought into the enterprise, and other lands are bought, the railroad corporation will be in a community of interest in the profits and losses, and in all the activities of the business, with other owners. It will be virtually, if not technically, in partnership with them. It is familiar law that a corporation cannot enter into a partnership. Whittenton Mills v. Upton, 10 Gray, 582. Bishop v. American Preservers' Co. 157 Ill. 284. Burke v. Concord Railroad, 61 N. H. 160. Mallory v. Hanaur Oil Works, 86 Tenn. 598. Sabine Tram Co. v. Bancroft & Sons, 16 Tex. Civ. App. 170, 174. People v. North River Sugar Refining Co. 121 N. Y. 582. Most of the reasons for this rule are as applicable to the present case as to an ordinary partnership. They are strongly stated in the first and last of the cases just cited. Through the trustees, who represent the interests of new shareholders as well as those of the creator of the trust, the rights and interests of the railroad corporation are controlled in part for those who are not members of it or peculiarly interested in it.
In the decision in Kelly v. Biddle, 180 Mass. 147, cited by the petitioners, it was assumed that the arrangement, only for a temporary purpose, might have been ultra vires of the corporation.
It is the duty of a railroad corporation holding real estate under such circumstances as exist in this case, to dispose of it and turn it into money with all reasonable despatch, and in view of such circumstances it may take all action necessary to realize
We are of opinion that the deed of the New York, New Haven, and Hartford Railroad Company to the petitioners was beyond the power of the corporation or the directors to make, and that the petitioners took no valid title under it.
Petition dismissed.
A railroad corporation, subject, to the laws of this Commonwealth and operating a railroad therein. See Attorney General v. New York, New Haven, & Hartford Railroad, 198 Mass. 413.