Hyperlawhypertext legal database Gere v. N. Y. Central 19 Abb. N. Cas. 193

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Gere v. N. Y. Central

19 Abb. N. Cas. 193 Court N. Y. Supreme Court, Fifth District, Special Term ; English

Delivered by Kennedy, J.

Contents

Majority

p. 193
GERE v. N. Y. CENTRAL, &c. R. R. CO.[1]
N. Y. Supreme Court, Fifth District, Special Term ;
December, 1885.

Headnote

1. Validity of lease of railroad; length of term,.] A lease by a railroad corporation, incorporated under the laws of this State for the term of one hundred years, of its road, property and franchises, for the term of four hundred and seventy-five years, is not void for the reason that it extends far beyond the term of the corporate existence, but, provided it can be executed as a valid lease at all, is valid for the period of the corporate existence. Its continuance beyond that time may be dependent upon an extension of the charter as provided by L. 1866, c. 697, § 5.
2. The same.] Under L. 1839, c. 218, providing : “It shall be lawful hereafter for any railroad corporation to contract with any other railroad corporation for the use of their respective roads, and thereafter to use the same in such manner as may be prescribed in such contract. But nothing in this act contained shall authorize the
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road of any railroad corporation to be used by another railroad corporation in a manner inconsistent with the provisions of the charter of the corporation whose railroad is to be used under such contract,”—a railroad corporation has the right and power to lease its property and franchise to another railroad corporation, provided the same is to be used by the lessee for the purpose defined in the charter of the lessor, and may exercise this right and power in all cases where there is no prohibition against their exercise contained in the charter of either company.
3. The same ; lease to competing line.] There is no statutory inhibition against such lease, although the roads are parallel and competing lines. Section 9 of chapter 917 of the Laws of 1869, prohibiting the merger or consolidation of companies whose railroads run on parallel or competing lines, does not apply to prevent the leasing of one railroad by another, whether for a longer or shorter period, as such leasing is not a merger or consolidation.
4. The same; public-policy.] The legislature having authorized the leasing-of parallel or competing railroads, the validity of the lease cannot be questioned by the courts upon grounds of public policy.
5. The same; pa/yment of lessor's bonds as rent.] A contract by the lessee company to pay as rent the interest on certain mortgage bonds of the lessor company during the continuance of the lease, and the principal at the termination of the same, is not ultra vires.
6. Injunction pendente lite ; continuance.] It is no ground for the continuance of an injunction pendente lite, restraining the consummation of the proposed lease, and the guaranty of the bonds of the lessor company thereunder, etc., that the complaint of the plaintiff, a stockholder of the lessor company, demands an accounting on the part of the directors as to the disposition of certain bonds and
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their proceeds, where it is not suggested that they are irresponsible or not fully able to respond in damages to the plaintiff for any misappropriation of the bonds or the proceeds thereof.
7. Stoclcholder's rights ; ¡protection in equity against director's illegal acts.1 Conceding the right of the owner of a single share of stock of a corporation to call upon the directors for an account of their stewardship, and, where it is entirely apparent that some act is threatened to be performed by them subversive of his interest, to invoke the aid of a court of equity to restrain their action, although his associate stockholders, representing millions of the stock, are opposed to his view, and approve the proposed action of- the directors, as taken for the common good of all, still the court should only interpose in a summary manner in his behalf .and grant relief by injunction, where the threatened act is wrongful beyond question, and the case made is free from reasonable doubt.
Motion to continue an injunction pendente lite.
Elizabeth B. Gere and others, brought this action on their own behalf and in behalf of all other stockholders in the New York, Central & Hudson River Railroad Company, against that company, - and the New York, West Shore & Buffalo Railroad Company, and the members of the firm of Drexel, Morgan' & Company, and others, to restrain the consummation of a lease between the railroad companies.
The facts are stated by the court as follows:
The defendant, the New York Central company, is a ■corporation created by and organized under the laws of the State of New York, and formed by the consolidation of two railroads, viz.: the New York Central, and the Hudson River. These two companies were originally incorporated and organized under the laws of this State. The New York -Central was formed by a consolidation of several railroads owning and operating different lines between the cities of Albany and Buffalo.
By its charter the New York Central became the owner ■of and operated a railroad starting at the city of Albany, and
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running thence west along' the north side of the Mohawk river to Utica, and thence through the central' counties of the State to Buffalo. The Hudson River Railroad Company owned and operated a road which, by its charter, ran from the city of Hew York along the east side of the Hudson river to the city of Albany. These two roads were consolidated in pursuance of the provisions of chapter 917 of the Laws of 1869, and the consolidated road owned and operated a continuous line from the city of Hew York along the route of the two roads to the city of Buffalo, and since the consolidation has continued to own and operate the' road.
For several years prior to the commencement of this action, the plaintiffs were respectively the owners of a number of shares of the capital stock of the consolidated road, the aggregate amount so owned by them being three hundred and twenty-nine shares of the par value of $32,900. Upon these shares the company paid annual dividends to the holders of $8 per share, down to about two years prior' to the commencement of this action, out of its net earnings, and for the past two years it has only paid a dividend of $2‘ per share ; and whether that was paid from the actual net earnings does not definitely appear.
The obligations of the Hew York Central Company at the time of commencing this action may be fairly stated to-have been as follows: Capital stock, $89,428,300 ; indebtedness funded, about $50,000,000 ; unfunded, about $4,000,000. The precise amount of indebtedness cannot be ascertained from the papers ; the approximation, however, is near enough for all the purposes in hand.
In 1881 there was organized under the general railroad' laws of the State a corporation known as the Hew York,. West Shore and Buffalo Railway Company, the purpose of which was to construct a railway from W eehawken, in the State of Hew Jersey, to Buffalo, in the State of Hew York;' the route defined in its charter on which said road was to be built, was along and upon the west side of the Hudson river
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and the south side of the Mohawk river, and through the -counties in central New York to the city of Buffalo. This road was so far completed that the corporation began to run and operate that part thereof between Weehawken and the city of Syracuse on October 1, 1883 ; and from Syracuse to Buffalo, its terminal western point, on January 1, 1884; since which time the same has been in operation along its •entire route, although the road has never been completed—■ many miles of its track has not been laid.
The West Shore Company, in order to raise money ■necessary for its construction, equipment, etc., in an early .stage of its existence, issued its bonds for $50,000,000, with five per cent, annual interest, payable semi-annually, and to secure the payment of principal and interest executed a mortgage upon its property, road-bed, rolling stock and franchises. The cost of the construction and equipment of •the West Shore road, so far as the same has been accomplished, exceeded $50,000,000, and in addition to the bonds issued, it became indebted to divers individuals, companies •and corporations, to the amount of several million dollars. The North Elver Construction Company, a corporation organized under the laws of the State, consolidated with the West Shore Company on June 14, 1881, and the consolidated company organized under the name of the New York, West Shore & Buffalo Eailwav Company.
From the beginning the West Shore Company has been run and operated at a serious loss, and it defaulted in the payment of the interest on its bonds, and was unable to pay and discharge the debts contracted and obligations incurred in its construction, or to purchase and pay in full for its rolling stock and equipments. Becoming insolvent, a receiver of its property and assets was duly appointed, followed by an action commenced to foreclose the above-mentioned mortgage for the non-payment of interest on its 'bonds.
The foreclosure proceedings were impeded and delayed by divers means, judicial and otherwise, until it became
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quite apparent, if anything was to- be saved from the wreck for the bond-holders, some arrangement must be made to terminate the litigation with which the corporation was burdened.
The West Shore Railway was located and constructed upon a route immediately contiguous to the Central Railroad for its entire distance, and was and is in all respects a competing road for its entire length. So much was this the-case, that immediately after the opening of the West Shore and the commencement of its operation the charges for carrying passenger and freight were reduced to a sum so low as to afford no profit to either company, but, instead, the business of each was attended with loss, very considerable in amount. By this competition and its results, other industries were severely affected and values greatly depreciated.
This being the condition of the affairs of these two corporations, about the month of July, 1885, a scheme was-devised looking to a settlement of the foreclosure, and of the affairs generally of the said West Shore Company. To-carry out the same, the firm of Drexel, Morgan & Co.,, bankers in the City of blew York, issued and published and caused to be served upon the several parties interested,, a circular containing certain propositions, the substance of which were that the foreclosure suit of the West Shore mortgage should proceed to judgment and a sale of the mortgaged property without further litigation or impediment; upon the sale the property was to be purchased for the benefit of the bondholders; thereupon the company was to be re-organized, and the new company was to issue §10,000,000 of stock, together with §50,000,000 of its bonds, bearing four per cent, interest, the principal to become due and payable in four hundred and seventy-five years from January 1, 1886, or upon the contingency of a default in the payment of interest for any two consecutive years, the payment of these to be secured by a mortgage upon the property and franchises of the company. In further execution of the
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scheme, it had been agreed between the Central Company and the firm of Drexel, "Morgan & Co., that it, the Central, would, upon the re-organization of the West Shore road, and the issue of said stock and bonds in consideration of the transfer to it of all of said $10,000,000 of stock and a lease of the West Shore Bail way, with its rolling stock and appurtenances, executed to it for the period of four hundred and seventy-five years, with the right to continue the same for five hundred additional years, guarantee the payment of the principal and interest on said $50,000,000 of bonds so to-be issued by the re-organized company, as and for the rental of said West Shore road, to be used by the lessee for the purposes for which it was incorporated.
This agreement on the part of the Central Company, included in said circular, was thus made known to holders of the original West Shore bonds, as well as the public. The-proposition of Drexel, Morgan & Co., to the bondholders-was, that they should surrender the bonds held by them toDrexel, Morgan & Co., to be used by them to carry out said scheme, and that each bondholder should receive fifty percent. of the face of the bond held by him in the said new bonds so to be guaranteed by the Central Company, or im other words, for a $1,000 bond of the old issue by the West. Shore the holder should receive in full satisfaction one for $500 of the new issue guaranteed as aforesaid.
It was further stated in the circular that the remaining; $25,000,000, except such amount as may be necessary for re-organization, should not be issued except at the request of' the Central Company, to provide for prior liens, necessary terminals, and such other purposes as the directors of the-Central Company might .from time to time think necessary for the security, development and operation of the property’' leased.
In answer to this circular or proposition, persons holding-$19,502,000 of original West Shore bonds, assented to the same, and the bonds were placed in the hands of Drexel,, Morgan & Co., to be used in carrying out the agreement.
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Prior to the issuing of the circular, a receiver of the Construction Company had been appointed and qualified, and had acted as such. The West Shore Company was largely indebted to the Construction Company upon obligations incurred by the former in the construction of the road. The receiver, as such, became a party to the scheme of adjustment, and relying upon the carrying out and perfecting of the same, he parted with securities held by him, and ■entered into and executed contracts upon the strength thereof, and if the scheme fails, he and the creditors and stockholders of the Construction Company will sustain loss to the amount of some $6,000,000, as shown by his affidavit.
The negotiations which resulted in the agreement above set forth, were carried forward to consummation by Drexel, Morgan & Co., on the one side, and a sub-committee .appointed by the board of directors of the Central Company, and representing them, on the other. The firm of 'Drexel, Morgan & Co., were large stockholders of the Central Railroad. After the firm had secured the assent and ■approval of the $49,000,000 bondholders, the directors of the Central Company called a meeting of the stockholders, stating that the directors of- the company had deemed it .advisable to agree “in the event of the West Shore Railway being purchased by a committee of the creditors of the road, .having the matter in charge, to become lessees of the road for a long term of years, guaranteeing the payment of the •principal and interest upon fifty million of first mortgage bonds by way of rental at four per cent, interest per annum, the West Shore Company transferring to the company the whole of its capital stock, amounting to $10,000,000 par ■value, ” and that it had been thought desirable before completing the arrangement to ask the stockholders to ratify the action of the directors by their vote at a meeting called for that purpose.
Notice of this meeting was given to the stockholders, and the same was held at the time and place named, and at
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which five hundred and ninty-fchree thousand and thirty-six shares of the stock, representing $59,30.3,600, was represented, and to the holders of which personally or by proxy, the proposition contained in the notice was submitted for approval or rejection, and of that number and amount five hundred and ninty-two thousand seven hundred and seven shares, representing $59,270,700, approved of the proposed arrangement, and three hundred and twenty-nine shares, representing $32,900, voted to reject the same. This last-mentioned stock is that held by the plaintiffs, who, by proxy at the meeting, protested againsto the Central Company' entering into the proposed contract.
They thereupon commenced this action, and the temporary injunction now sought to be continued was then granted.
The temporary order granted, and which is sought to be continued, among other things restrained “ the Central Company, its directors, officers, agents, attorneys, and servants, and each and every of them, from excuting or accepting the execution of a lease of the West Shore Railway, or any of its property, assets, or franchises, or of any part of said railway property, assets, or franchises, for any time or period whatever.
“ Second. That the Central Company, its directors, officers, agents, attorneys and servants be restrained and enjoined from guaranteeing the fifty millions of four per cent, mortgage bonds proposed to be executed by the re-organized West Shore Company, or any part thereof, upon any consideration, or for any purpose whatever.
“ Third. That the corporation, its directors, officers, agents, attorneys, assistants and servants, and each and every of them, be restrained and enjoined from accepting or receiving any of the stock proposed to be issued by the re-organized West Shore Company.”
Robert Sewell (Jenny, Brooks, Marshall & Ruger, attorneys) for the plaintiffs, and the motion.
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Joseph H. Choate, Frank Hiscock, E. Winslow Paige, Thomas Thacher and William V. Rowe (Evarts, Choate, & Beaman, attorneys,) for the defendants, opposed.

[After stating the facts as above.] Assuming that the plaintiffs, as owners of the stock represented by them, are in a position to question, on behalf of themselves and such other stockholders as may join with them in this action, the strict legality of the proposed or threatened acts of the defendant, the Central Railroad corporation, then the questions hereafter discussed properly arise and are to be met and disposed of on this application.

The first in the order they have been presented by the respective counsel is: Can the West Shore Company, being by its articles of association, incorporated for the term of one hundred years from February 18, 1880, the day of filing of said articles in the office of the secretary of state, lease its road, property and franchises for the term of four hundred and seventy-five years, a period far beyond its own corporate life ?

Section 5 of chapter 697 of the Laws of 1866 [as amended by L. 1874, c. 240] provides that the corporate existence “ of any railroad corporation now existing or hereafter to be formed under the laws of this State may be extended beyond the time named for that purpose in its act or acts-of incorporation, or in the articles of association of such corporation, by the filing in the office of the secretary of state a certificate of consent to such extension, signed by the holders of two-thirds in amount of the stock held by the stockholders of such corporation, and in every case where such consent has been or shall be so filed, the term of existence of such corporation is hereby extended and declared to be extended for the period designated in such certificate % and each such corporation shall during the period named in such certificate, possess and enjoy all the rights, privileges and franchises enjoyed or exercised by such corporation attire time such certificate was or shall be so filed.”

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This provision seems to imply a legislative intent to render the existence of a railroad corporation perpetual, since the facility with which a charter may be extended makes such extension a matter of course in all cases where the same may be deemed desirable, or for the interest of the stockholders. A lease executed by the re-organized West Shore Company for a period extending beyond its corporate existence, as defined in its original articles of association (provided it can be executed as a valid lease of all), is not void for that reason, but, instead, is valid and binding, upon it for the period of its existence at least. Its continuance beyond that time may be dependent upon an extension of its charter, as provided by the act referred to(Wood’s Landl. and T. 107-8.)

The succeeding and most important question is : Can there-organized West Shore Company lease its road and property to the Central Company, to be used by the lessee to carry out the purpose for which the leased road was organized, that is, for the carrying of passengers and the transportation of freight, and for such other purposes as by its-charter the said West Shore corporation undertook and promised the State it would execute and carry out, in consideration of the granting to it of its franchises and privileges ?

Upon the determination of this question many of the-propositions argued by the respective counsel depend and are to be disposed of.

The doctrine contended for by the plaintiffs, that a railroad corporation, being a creature of the statute, takes no power beyond that delegated, and can exercise none except those especially given or necessary to give efficacy to its charter and the privileges conferred, is too well settled to -be at this day the subject of serious question; and unless the power and authority shall be found to be vested in the-West Shore corporation to lease its road, a contract of that character would be ultra vires. This power is not found in its charter or articles of association, it being incorporated-

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.under the general railroad act, by which no such right is conferred. The privilege, if it exists, must, therefore, be sought for elsewhere and in some other statute. Chapter 218 of the Laws of 1839 contains but a single section, and is as follows: “ It shall be lawful hereafter for any railroad corporation to contract with any other railroad corporation for the use of their respective roads, and thereafter to use the same in such manner as may be prescribed in such contract. But nothing in this act contained shall authorize the road of any railroad corporation, to be used by any other railroad corporation in a manner inconsistent with the provisions of the charter of the corporation, whose railroad is to be used under such contract.”

This is the only act to which my attention has been called, or of the existence of which I am aware, which can be deemed to confer this power; and the authority of the West Shore to lease its road, property and equipments is to be found in this legislative enactment, if it exists, the same being made applicable to all railroads incorporated .under the laws of this State.

Being creatures of the statute, their powers and privil.eges are to be found in the statutes creating them, and judicial authority which bears or may seem to bear upon the question, announced in sister States or in England, serves no other purpose than to inform us of the rule at common law, and to that extent to aid in the construction to be given to the statute of our own State.

I have not had my attention called to the special charter of any railroad corporation which contains an express authority to lease its road, and I am not aware that any such exists. Several general acts passed since 1839 may be referred to in seeking legislative construction of that passed that year, and as tending to show that that act provided for .the leasing for railroad uses and purposes the road of one corporation to another (L. 1855, c. 302; L. 1867, c. 254; L. 1883, c. 383).

The case of Abbott v. Johnstown Horse Railroad Com

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pany ( 80 N. Y. 28 ), on plaintiff’s brief, is a case where the corporation was created for the building and operating of a horse railroad. After it construction it was leased to an' individual who ran it. While doing so, a person was injured through the negligence of one in charge of and" managing a car. The injured party brought an action against the corporation to recover for the damages sustained. The defense was that the road was being run by the lessee, and that the lessor, the corporation, was not liable. The court held that there was no power or authority in the cor. poration to lease its road to an individual, and because of a' want thereof the lease was void, and the lessee must be regarded as running and operating the road as agent for the lessor. It was not claimed that the- Act of 1839 was applicable ; but it was claimed that a clause in the act (L. 1864, c. 582), requiring lessees to perform certain acts, etc., because it specified among lessees other railroad companies and person or persons, that the power to lease to individuals might be inferred. The court say the act does not profess to confess the power to lease, and is therefore only applicable when such power has been otherwise obtained. The case was disposed of upon the ground that there was no power anywhere given in our statutes to a railroad corporation to lease its road to an individual, and to thereby relieve itself from-the obligations it incurred by the acceptance of its charter.

In the case of Troy & Boston R. R. Co. v. Boston, Hoosac Tunnel & Western R. R. Co. ( 86 N. Y. 107 ), it appeared that the lease of the road involved was for the purpose, and so understood by both parties to be, not for the use of the leased road for railroad purposes, but with the view and to the end that the road should be abandoned for all purposes, and to wholly deprive the public of its use as a railroad. The courts say a lease for such a purpose and with that intent, is not authorized by chapter 218 of the Laws of 1839 before quoted, since that act especially provides that the contract, to be within its provisions, must be a contract for the use of the leased road in the manner, and as provided-

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by its charter. Instead of denying the authority of one railroad to lease to another, for use and to be used as a railroad, and with intent that the lessee shall perform all the obligations the lessor is under, it may fairly be said that it affirms the existence of such authority (See opinion of Danforth, J.).

The case of Marie v. Garrison ( 13 Abb. N. C. 210 , 232), cited by the plaintiff’s counsel, was a case pending before Judge Dwight as referee; and his opinion is entitled to great weight as that of a very learned lawyer. The question before him was an application made upon the trial to ■ exclude certain evidence which had been offered, and was interlocutory in its nature. The enunciation of his opinion ■ of a want of power- on the part of one railroad company to lease its property and franchises to another railroad company, although expressed in doubtful language, is entitled to just consideration in seeking a correct conclusion upon the question involved.

I have examined with much care other cases to which my attention has been called by the learned counsel for the plaintiff, both of our own State and elsewhere, but find nothing in them to disturb my own judgment as to the proper construction to be given the Act of 1839, fortified .as it is by a series of authorities of our own court of appeals, .and which I am' fain to believe removes the question from the realm of doubt.

In Fisher v. N. Y. Central, &c. R. R. Co. ( 46 N. Y. 644 ), the question as to the construction to be given to the act of 1839 was directly before the court. It is there held that this statute authorized the leasing of one railroad to another, such lease contemplating a use by the lessee of the leased road for railroad purposes. In the opinion, Gboveb, .J., says: On December 23, 1853, the New York Central Company entered into an agreement with the Buffalo and Niagara Falls Company, by which (if valid) the former acquired from the latter the right to use the road and prop•erty connected therewith and its franchises, during the

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existence of -the latter corporation. (The exact nature of the contract made between the two corporations is stated in the case, as follows: On December 22, 1853, an agreement was entered into-between the New York Central Railroad Company, the Buffalo and Niagara Falls Railroad Company, and the Lewiston Railroad Company, in and by which the Buffalo and Niagara Falls Railroad. Company leased to the New Fork Central Railroad Company its entire property and franchises for the full and unexpired term of its corporate existence. One of the questions .argued was as to the validity of this lease. See respondent’s brief).

' The court proceeds to say : “ The validity of this contract is claimed by virtue if the act authorizing railroad companies to contract with each other (Laws of 1839, c. 218). That act contains but a single section, providing that it shall be lawful hereafter for any railroad corporation to contract with any other railroad corporation for the use of their respective roads, and thereafter to use the same in such manner as may be prescribed by such contract, but that nothing in the act contained shall authorize the road of any railroad corporation to be used in a manner inconsistent with the provisions of the charter of the corporation whose railroad is to be used under such contract. I think the contract made was within the powers conferred by this act, and therefore valid, and that under this contract the Central ■Company acquired the right to run cars theretofore in use by the Niagara Falls Company under the franchise of the latter company.”

In Woodruff v. Erie R. R. Co. ( 93 N. Y. 609 ), Ruger, Ch. J., delivering the opinion of the court, says : “ The instrument by which the plaintiff acquired an interest in the property of the Erie and Genesee Valley Railway Company, which was a corporation duly organized to build and operate the railroad in question, must be regarded for the purposes of this action, as a simple lease of the property for an .agreed annual rental of $8,400, which the plaintiff Wood-

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ruff especially covenanted to pay therefor. The manner of payment was that the plaintiff should pay the interest to-whomsoever due upon a certain mortgage for $120,000, given by the Erie and Genessee Valley Railway to certain parties, etc. ... We do not think that either of those leases (referring to the above and another not important to-specify), were void as being either malum in se, or malum prohibitum, or contrary to public policy. Neither do we think that they can be avoided by the respective lessees thereof, on account of any want of power on the part of the-respective lessors to make such contract.....Whatever may be the rule in other States or in England, the public-policy of this State, as manifested by numerous acts of the legislature, has always been not only to afford the fullest scope for the consolidation and re-organization of non-competing railroads and railroad corporations, but also for the-transfer of the use of such roads and their franchises by one-corporation to another.”

Referring to the act of 1839, the learned Judge says: “ This act has never been repealed, and has been held by this court to confer power upon railroad corporations not only to acquire, but also to transfer to other railroad corporations by lease the exclusive right to enjoy the property and privileges of the lessor in such contract ” (Citing Fisher v. N. Y. Central, &c. R. R. Co., 46 N. Y. 644 ; People v. Albany & Vt. R. R. Co., 77 N. Y. 232 ; Troy & Boston R. R. Co. v. Boston, Hoosac Tunnel, &c. R. R. Co., 86 N. Y. 107 ).

In Central Crosstown R. R. Co. v. Twenty-third Street R. R. Co. ( 54 How. Pr. 168 , page 183), Judge Saítdfobd,of the superior court, says: “I am further of the opinion that, irrespective of the powers conferred by these acts, and. under and by virtue of a general and public act, passed April 13, 1839, the defendants and each of them had full' power and authority to enter into the contract of lease.”

I have made these copious extracts from the cases cited because of the great urgency with which the learned counsel for the plaintiff has pressed upon the court, both in his-

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brief and upon the argument, that the proposed lease of the West Shore Railroad by the Central Railroad was ultra vires and void.

In my judgment it is too late in this State to question the right and power of one railroad corporation to lease its property and franchises to another railroad corporation, provided the same is to be used by.the lessee for the purposes-defined in the charter of the lessor, and that this right and power may be exercised in all cases, provided there is no-prohibition against their exercise contained in the charter of either company.

If right in the above conclusion, it necessarily, follows that the N. Y. C. & H. R. R. Co., has the right to take a lease of the West Shore, to use its road for the purposes for which it was chartered, and to undertake to discharge the obligations which such charter imposed, unless there is found some impediment created by the peculiar location of said roads in respect to each.other.

It is urged that because the said roads are parallel roads, running in close proximity to each other, each extending through the centre of the State from its respective confines, and being, in fact (as must be conceded), in all respects competing roads, the one cannot lease the other or enter into a-contract for its use, whatever construction may otherwise be given to the Act of 1839.

The argument in support of this position is founded in. the main on section 9, of chapter 917, of the Laws of 1869. The act is entitled “An Act authorizing the consolidation of certain railroad companies.” The first section of the act defines its purpose, and, as amended by' the Laws of 1881, chapter 685, reads: “It shall and may be lawful for any railroad company or corporation organized under the laws of this State, or of this State and any other State, and operat- - ing a railroad or bridge either wholly within, or partly within, and partly without this State, to merge and consolidate its capital stock, franchises and property with the capital stock, franchises and property of any other railroad -

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company or companies organized under the laws of this State, or under the laws of this State and any other State, or under .the laws of any other State or States, whenever the railroads or branches or any part of the railroad or branches of the ■companies or corporations so to be consolidated shall or may form a continuous and connected line of railroad with each other, or by means of any intervening railroad, bridge, or ferry.” The succeeding sections relate to the manner of perfecting such consolidation in detail; then comes section 9, as follows : “Xo companies or corporations of1 this State, whose railroad runs on parallel or competing lines, shall be authorized by this act to merge or consolidate.”

The leasing of one railroad by another, whether for a longer or shorter period, is not a merger or consolidation. The term lease implies the continued existence of the corporation, the lessor, with all its powers and functions, and Ml the rights incident to its creation, and it would be a gross misapplication of terms to hold that a leasing or contract for use by one railroad to another is a merger or consolidation of the two roads.

I am, therefore, forced to the position that it, the West .Shore road, has the authority to execute the lease, and the Xew York Central has the power and right to receive the -same, and to pay rental for the use thereof ; and because said roads are competing roads, there being no statutory .inhibition upon that ground, it is not a reason why a lease may not be executed by the one and accepted by the other.

Upon the assumption that the legislature has authorized ■a lease between two roads situated as these two roads are, the question of public policy does not enter into a consideration of the questions involved here. If the power has been granted by the legislature, although it may be deemed unwise, and in this instance dangerous in its execution, the remedy will be found in another department of the government, and is not lodged in the judiciary.

Several statutes recognize the right, power and author

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tty of the lessee of a railroad to receive by transfer, from the lessor or other or others owning the same, the capital stock in the leased road (L. 1855, c. 302; L. 1867, c. 254; L. 1883, c. 383).

It is urged that the Central Company has no power or •authority to guarantee the payment of the principal and "interest of the $50,000,000 mortgage bonds, to be issued by the re-organized West Shore Company, and that such contract of guaranty is ultra vires.

The agreement appearing by the "papers submitted, gen .ally stated, is that the new West Shore Company is to lease the Central its road, property and franchises for the period of four-hundred and seventy-five years; and in consideration of the same the Central Company, as rent to be paid by it, undertake to pay the interest on the $50,000,000 during the continuance of the lease, and the principal at the termination of the same. It is not quite apparent why, if the Central has the power to accept the lease and assume the burden it imposes, it may not agree to pay for the use of the ■same in, such manner as by the agreement between the contracting parties shall be provided.

Unless restrained by law every corporation has the incidental power to make any contract necessary to advance the ■object for which it was created (LeGrand v. Manhattan Mercantile Assoc. Co., 80 N. Y. 638 ).

By the circular issued by Drexel, Morgan & Co., containing a statement of the arrangement between the respective parties, it appears that a portion of the scheme consisted in the transfer of $25,000,000 of the guaranteed re-organized West Shore bonds to the holders of the $50,000,000 •mortgage bonds of the original West Shore corporation in full payment of the latter ; and that those obligations were thereby to be fully cancelled and discharged. The remaining $25,000,000, except such amount as may be necessary for re-organization, are not to be issued except upon the -request of the Central Company to provide (pay) prior liens, necessary terminals and such other property, and for

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such other purposes as the directors of the said Central Company may from time to time think necessary for the1 security, development and operation of the property leased.

It is shown, generally,, not as definite or as much in-detail as it should, that the debts owing by the West Shore beyond its bonded debt contracted for- the building and equipment of its road, including those. contracted by the receivers, by order, of the court, for running and operating the same since his appointment, and for which a lien ■ exists upon its property, together with the cost of completing the road, including the laying of- a double track, not now completely laid, but which is a part of the plan for the construction of the road, with the terminal facilities at Weehawken, not owned by the West Shore or held and sold under the mortgage, will require and cost $24,000,000, and that the purpose is to appropriate so much of the-$25,000,000 as is necessary for that purpose, and to perfect the West Shore enterprise.

One of the grounds for relief sought by the bill, and included in the demand for judgment, is that the defendant make full discovery on oath of the purpose for which this-last $35,000,000 is to be issued, and what disposition is proposed to be made of them or their proceeds.

Upon the trial, the purpose of the guaranty of these-bonds, and the disposition made or proposed to be made of them, will be the proper subject of inquiry, and the directors of the Central will be compelled to account for all said bonds, and their proceeds; and as it is not suggested that-they are irresponsible or not fully able to respond in damages to the plaintiff for any misappropriation of said bonds- or the proceeds, upon this branch of the case, no ground is presented for sustaining the injunction order.

The plaintiffs are the owners of $32,900, par value of the capital stock of the Hew York Central Company ; the total amount of the capital stock of said corporation is $89,428,300. At a meeting of said stockholders, called to vote upon the question as to whether they- would approve,

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ratify the proposed agreement, and the action of their ■directors in relation thereto, stockholders representing '$59,270,700 par value voted to so approve and ratify, and $32,900 refused and protested against the carrying out of said scheme.

While it may be conceded that a stockholder in a corporation owning a single share of its stock may call upon the directors for an account of their stewardship, and perhaps ■may, when it is entirely apparent that some act is threatened to be performed by them subversive of his interest, invoke ■the aid of a court of equity to restrain the doing of such acts, although his associate stockholders representing millions of said stock do not concur with him in the view he entertains and the position he takes, but instead assert their belief that the threatened act will, if carried forward to completion, result in the common good to all those associated with him ; still, to entitle him to maintain the position and to demand relief by in junction under such circumstances, the cdurt should only interpose in this summary manner when the claimed wrongful acts are so beyond question, and the case made should be one free from reasonable doubt.

The importance of this case is apparent.when it is realized that the business of the whole country is likely to be •more of less affected by its disposition. If the scheme inaugurated shall be carried forward to its consummation, business will be less likely to be depressed than it will if this great enterprise is suddenly thwarted, and while this aspect of the case should not in any manner control the disposition ■of the question upon strict legal grounds, it does present a view worthy of'some consideration when the matter to be determined is subject to any considerable doubt.

I am the more satisfied with the conclusion to which I am compelled in this case in a realization of the fact that if I have erred in the result the plaintiff’s cannot by reason of such error seriously suffer.

An order will be entered setting aside and vacating the injunction order, without costs.

Cases cited