Fisk v. Chicago, Rock Island & Pacific Railroad

Majority

p. 513

James Fisk Jr. and others vs. The Chicago, Rock Island and Pacific Railroad Company. Hatch vs. The Same. Fanshaw vs. The Same. Belden vs. The Same.

Headnote

The Supreme Court has jurisdiction, in actions brought by citizens of this state as holders of stock of a railroad corporation created by the states of Illinois and Iowa, for the purpose of restraining, by injunction, the use of the proceeds of an issue of stock alleged to be illegal and void, and appointing a receiver of such proceeds.

Neither a railroad corporation, nor its directors, have the right to make certificates purporting to represent capital stock, which has not in fact been subscribed and paid for, and to put them on the market and sell them below par. Every paper issued purporting to represent stock which has in fact no existence, is a false certificate; and the directors are not authorized to issue false certificates. Such issues are ultra vires.

The act of the directors in issuing such false certificates of stock, cannot be ratified by a subsequent statute, passed by one of the states from which the corporation derives its existence, alone ; neither state having exclusive jurisdiction over the corporation.

An "injunction should not be issued to restrain the corporation, except so far as the illegal certificates are concerned. The transfer -of such certificates may be enjoined, and the proceeds held by the court to protect the company against claims for damages by the holders of false certificates, or to enable it to retire them.

THE plaintiffs in these several actions sued, as holders of original shares of the stock of the Chicago, Eock Island and Pacific Eailroad Company, a corporation cre

p. 514

ated by the states of Illinois and Iowa. The complaints alleged that the new issue of 49,000 shares of the stock' was illegal and void, and demanded injunctions against the use of the proceeds of that issue, and the appointment of a receiver of such proceeds. Motions were made by the plaintiffs for the appointment of such receiver, and motions were made by the defendants to dissolve the pending injunctions against the use of ,the proceeds. All the motions came on and were heard together.

D. D. Meld, J. E. Burrill and J. K. Porter, for the plaintiffs.

C. Tracy, W. M. Evarts, W. Eullerton, A. J. Vanderpoel and J. E. Whiting, for the defendants.

I shall not follow the counsel over the extended field of discussion in which they indulged on the argument of the motions in these cases. The statement of a very few plain and well recognized propositions is all that is necessary to dispose of the question really involved. My views may be briefly expressed, as follows:

1. Even if my reflection and examination led me to a different opinion, which they do not, I should not feel at liberty to deny the existence of the jurisdiction which it is sought to have the court entertain, in these actions, since the point has been fully and 'distinctly decided by the general term of this court in Griffiths v. Scott, cited on the argument. My views accord with that decision, but in any event I should consider myself bound to follow it. In that case Judge Ingraham said: “I think there can be no doubt that a citizen of this state can maintain an action against a foreign corporation, for any cause connected with the recovery of, or protection to, his property or rights in said corporation.” Judge Leonard, in the same case, held that this cou.rt “ has not the power to remove

p. 515

or appoint the trustees or directors of a foreign corporation, but it can enjoin their action, when illegal, or when acting fraudulently or unlawfully, if they are personally within our jurisdiction.” These remarks are apposite to the present suits, and dispose of the point as to jurisdiction, raised by the defendants’ counsel'.

2. The issue of the 49,000 shares complained of, was ultra vires. Neither the corporation nor its directors had, in any view, the right to make certificates purporting to represent capital stock which had not in fact been subscribed and paid for, and to put them on the market as stock and sell them below par. If they might do so, and sell them at a discount of one or two per cent, they might sell them at fifty per cent, or any greater discount. It is not a question of good faith, or of honest intention, or of wise policy, or skillful or discreet management on the part of the directors; it is a question of power. Evéry paper issued, purporting to represent stock which had in fact no existence, was a false' certificate; and the directors were not authorized to make false certificates. No such power attaches to their office, and the stockholders have the right to complain that they have assumed a power which was not conferred upon them. These views, controlling the case, are so familiar that they do not require the citation of authorities to support them.

3. The statute passed by the legislature of Iowa (Laws of Iowa, 1868, ch. 13) cannot alone ratify the act of the directors. The state of Iowa has not exclusive jurisdiction over this corporation. The certificates do not purport to represent stock in the original corporation created by the state of Iowa, but assume to represent stock of the consolidated company, consisting of that corporation and the one formed under the laws of Illinois. The latter state, therefore, has quite as much control of the present matter as the state of Iowa. Certainly the act of either, alone, will not aid the defendants.

p. 516

[New York Special Term, at Chambers,

April 6, 1868.

4. I see no reason why any injunction should have issued to restrain the defendants, except so far as the 49,000 illegal certificates are concerned. The transfer of the illegal issue was properly enjoined, and the proceeds should be held by the court to protect the company against damages in favor of the holders of the false certificates, or to enable it to retire them; but nothing is disclosed in the papers which satisfies me that it is either proper or necessary to prevent dealings in the genuine stock, or to interfere with the business of the corporation, except to the extent I have mentioned. •

5. Respecting the motions to attach the defendants, I have only to remark that I do not think that any breach of the injunction has been established by the affidavits submitted to me, calling for any present action.

6. I shall appoint Hugh Smith, Esq., (the deputy city chamberlain,) receiver of the proceeds of the 49,000 illegal shares, requiring from him a bond with surety, to be approved, in $500,000, and directing that each half million of dollars which shall come to his hands as such receiver shall be deposited alternately in the United States Trust Company and in the Union Trust Company.

7. The costs of these motions, will be costs in the actions, and abide the event of the same.

8. An order in accordance with these views, and containing such provisions as may be deemed necessary to carry them into effect, will be prepared by the plaintiffs’ attorneys and presented to me for settlement.

Ordered accordingly.

Cardozo, Justice.]