90 N.Y.S. 714 | N.Y. App. Div. | 1904
The plaintiff appeals from a judgment dismissing the complaint on the merits. He brought the action as a stockholder of the Metropolitan Street Railway Company, suing for himself and on behalf of all stockholders of that company, to set aside or to prevent the delivery of a lease executed by it to the Interurban Street Railway Company, under the claimed authority of section 78 of the Railroad Law of the State of New York (Laws of 1890, chap. 565, as amd. by Laws of 1893, chap. 433). In addition to that relief, he
It should be stated at the outset that as the case now comes before us, the individual interests of the plaintiff alone are concerned; that no other stockholder of the Metropolitan Street Railway Company has united with the plaintiff in this action and that, therefore, so far as the present suit is concerned, it must proceed upon the special right of the plaintiff to maintain the action.
At the threshold an obstacle to the assertion of that right is presented. At the time of the commencement of the suit the plaintiff owned 1,000 shares of the stock of the Metropolitan Street Railway Company. The plan to which reference has been made and which he seeks to have declared illegal and in violation of his rights as a stockholder, included a privilege of stockholders of the Metropolitan Street Railway Company to share in the benefits of that plan by subscribing to stock of another corporation, the whole value of which stock rests upon the validity of the lease which the plaintiff is seeking to avoid. Before answer was interposed the plaintiff sold his right to subscribe, so far as it was associated with 885 of his shares of the Metropolitan Street Railway Company’s stock, and he received in money between $5,000 and $6,000 upon a sale of his privilege. He thus bound himself to the whole scheme which he now seeks to repudiate. It is true that he notified the Metropolitan Street Railway Company that his exercise of the privilege was without prejudice to his asserted rights with respect to the subject-matter of this present suit, but that cannot avail him. It would be a fraud upon the purchaser of stock, acquired through the exercise by the plaintiff of the privilege, to set aside, at his instigation, the transaction out of which arises the value, according to the plaintiff’s own showing, of-the new stock. The objection that the plaintiff is precluded from now insisting upon the invalidity or irregularity of any of the acts he •complains of is open to the defendants, and they have set, it up in their answer. “It is a familiar rule in equity cases which permits courts to take into consideration subsequent events, happening after the commencement of the action in equity, and determining what
We think the learned court at Special Term might well have disposed of this case at the trial by determining that the plaintiff had put himself in such relation to the subject-matter of the transactions that it would be grossly inequitable to allow him, in his own interest only, to maintain a suit to undo that out of which he had manifestly made a large profit. He should not be permitted to use his cause of action for purposes of speculation, by splitting up his right and disposing of part of it in such a way as to bind him to the transactions he complains of and retaining another part to enable him to repudiate those transactions.
The court at Special Term, while suggesting that view, was not controlled by it, but went into a consideration of the whole case in its legal aspect and upon its merits. We have also examined this record with very great care and with the result that we can see no reason whatever for reversing the judgment appealed from. The allegations of the complaint present a formidable case against the defendants and, if they had been established by proof in a properly constituted action, we should have been strongly inclined to afford relief, even if it required the disturbance and unsettlement at this late day of arrangements and relations which have by lapse of time become exceedingly complicated. The rights of minority
It becomes proper at this point to refer to some material facts and to the grounds upon which the plaintiff seeks relief, and that necessarily involves also an inquiry into the authority of the defendants to do those acts of which the plaintiff complains and the good faith and honesty with which they were done, if the legal right to do them existed.
The Metropolitan Street Railway Company operated a very extensive system of street railways in the city of New York. The Interurban Street Railway Company was a corporation of the State of New York, which owned and operated a line of railway in Westchester county, and owned or controlled certain franchises or rights to construct or operate street railways in some fifty or sixty miles of streets in the borough of the Bronx. On or about the 14th of February, 1902, the Metropolitan Street Railway Company leased to the Interurban Street Railway Company its lines of railway and entered into certain arrangements with it pursuant to a plan by which the property of the lessor corporation was turned over to the Interurban Street Railway Company, in consideration of that company agreeing to pay annual rental at an amount equal to seven per cent of the capital stock of the Metropolitan Street Railway Company, and also agreeing to provide if with $23,000,000 for the purpose of extending, improving and equipping the Metropolitan Street Railway system and of various other considerations not necessary to be stated in detail now. It was'also provided that the lessor sold to “ the lessee ” stocks and bonds then held by the former of very large value and also claims which it had against its dependent or subsidiary companies for moneys advanced or expended for them in equipping or improving the property of such companies. The plan which was adopted and acted upon, among other things,
Without going further into the detail of these matters and arrangements, it suffices to say that the plaintiff attacks the lease and plan, on several grounds, which are really reducible to two. Hhe first is, that all of the transactions from beginning to end were illegal, and, second, that those transactions constituted a fraudulent scheme to divert the property of the Metropolitan Street Railway Company from that corporation and to transfer it to another corporation in such a way as to enable those who were manipulating the scheme to realize immense sums of money to the great prejudice of the interests of the stockholders of the Metropolitan Street Railway Company, who did not approve of or participate in the transactions.
It is not to be controverted that the lease made by the Metropolitan Street Railway Company to the Interurban Street Railway Company was authorized and was executed in due conformity with the requirements of law. A special meeting of the board of directors of the Metropolitan Street Railway Company was held at the office of that defendant and there and then the directors, subject to the subsequent approval of the stockholders of the company, approved the lease and contract and authorized the president and secretary to execute the same on behalf of the company and it was directed that a stockholders’ meeting be called for the 20th of March, 1902, for the purpose of voting upon the approval of the
The fundamental consideration in the case is the power of the Metropolitan Street Railway Company to make this lease. That power is challenged by the plaintiff, who claims, in a very ingenious and plausible argument, that the instrument which is denominated a lease is something more than that, and that it is an absolute con veyance of everything the Metropolitan Street Railway Company owned to the Interurban Company under the guise of a lease, and that it is tantamount to a practical surrender of the franchises and corporate powers of the Metropolitan Street Railway Company. This aspect of the case, very forcibly presented, requires a consideration of the circumstances and conditions under which the lease was executed. So far as the instrument itself is concerned, and regarding it merely as a lease by one railroad company to
Considering the subject now before us merely in the light of the legal character of the lease, we can see no objection to its validity, although it be for a long term of years. But it might be assailable if it were established that the execution of that lease were merely a step in the consummation or perpetration of a fraud upon the stockholders of the lessor company. We have fully considered the evidence of the circumstances under which the lease was made and the subsequent arrangements between the various corporations entered into. If it were shown that there was no reason for the Metropolitan Street Railway Company directors to approve and recommend the plan, and that it was one by which the virtual ownership and administration of that road was turned over to others than its stockholders and in fraud of the rights of such stockholders, there would be no doubt of the aid of the court being extended to a
Certain considerations stand out prominently, and they are that immediately preceding the negotiations for leasing the lines of the Metropolitan Street Railway Company the affairs of that corporation were in embarrassment, and it was necessary that some plan should be devised to relieve the situation. It further appears that the stockholders of that road had received annual dividends of seven per cent upon their shares, and it was desirable that some plan should be devised by which the obligations of the road should be met, necessary funds for extension, addition and further equipment supplied, and at the same time provision be made for the maintenance of the dividends at the accustomed rate. Further than all that, several gentlemen of great prominence and experience, whose time and efforts had been given largely to the affairs of the Metropolitan Street Railway Company, were, by reason of other matters demanding their attention, obliged to withdraw from active participation in the business of that company. The situation and whát was done to remedy it is stated with remarkable clearness in the testimony of Mr. "William C. Whitney. There is nothing in the
Therefore, finding as we do, as matter of law, that the Metropolitan Street Railway Company had the power and the capacity to make the lease, and, as matter of fact, that it was authorized by the stockholders, and that there was no fraud or wrong perpetrated upon such stockholders of the Metropolitan Street Railway Company by any persons standing in the relation to them of trustees or
The judgment should be affirmed, with costs.
Van Brunt, P. J., O’Brien, McLaughlin and Hatch, JJ., concurred.
Judgment affirmed, with costs.