Cameron v. New York & Mt. Vernon Water Co. — 16 N.Y.S. 757

Majority

p. 757

Cameron et al. v. New York & M. V. Water Co. et al.

(Supreme Court, General Term, Second Department.

December 14, 1891.)

Headnote

1. Corporations—Sale op Stock to New Corporation.

Where a new corporation purchases and pays cash for all the capital stock of a prior corporation with the assent of the stockholders of the latter, who receive the money therefor, the stock becomes the property of the new corporation, and the stockholders of the old corporation are not entitled to scrip therefor.

2. Same—Stockholders—Estoppel.

The stockholders of the old corporation in such case cannot complain that the new corporation has no power to hold the stock by purchase.

3. Same—Consolidation.

Under Laws 1877, c. 374, which allowed two corporations of the same nature, and covering the same territory, to consolidate, and the provisions of the corporation acts of 1890, saving the existing rights of existing corporations, (chapter 503, § 24; chapter 567, §22; chapter 564, §71,) two water companies organized before the taking effect of the acts of 1890, for the purpose of supplying water to the same village, may consolidate.

4. Same.

The consolidation of corporations engaged in the same general line of business is not against public policy, nor prohibited by Laws 1890, c. 564, § 7, which provides that no stock corporation shall “ combine ” with any other corporation for the prevention of competition.

Appeal from special term, Westchester county.

Action by D. F. Cameron and Henry Huss, stockholders, etc., against the New York & Mt. Vernon Water Company, the Mt. Vernon Water Company, and the New York City Suburban Water Company, to recover certain shares of stock, and for an injunction to restrain the consolidation or combination

p. 758

of such companies. From an order denying a motion to vacate and set aside .a preliminary injunction restraining them from transferring stock or consolidating, defendants appeal. Reversed.

The Mt. Vernon Water Company was incorporated in 1882 under the village water-works act of 1873. The New York & Mt. Vernon Water Company was incorporated in 1886. The New York City Suburban Water Company was incorporated in March, 1891. All of these companies were incorporated for the purpose of supplying water to the village of Mt. Vernon, and covered the same territory. The New York & Mt. Vernon Water Company was incorporated as the successor of the Mt. Vernon Water Company, and purchased its capital stock, paying therefor in cash, and operated its plant. Plaintiffs were stockholders in the Mt. Vernon Water Company, and brought the action to recover their shares of stock, which had been delivered to the New York & Mt. Vernon Water Company, and to restrain the proposed absorption of the prior companies by the New York City Suburban Water Company. A preliminary injunction was granted.

Argued before Barnard, P. J., and Pratt, J.

John S. Gleason, for appellants. Albertus Perry, (Martin J. Keogh, of counsel,) for respondents.

In 1882 a to furnish water to the of Mt. Vernon was incorporated under the village water-works act of 1873, with a capital of $25,000, under the name of the Mt. Vernon Water Company. In 1886 the defendant the New York & Mt. Vernon Water Company was incorporated under the general act authorizing the formation of corporations for manufacturing and other purposes. This company obtained a contract from the village in March, 1886, to furnish water, if pure, for 20 years. An exclusive privilege for establishing and maintaining water-works within and near the village was given by ordinance of the village. The stock of the Mt. Vernon Water Company was purchased by the new company, and held for the stockholders in the same. The stockholders in the old Mt. Vernon Water Company were paid the full par value of their stock; and as the object was to exterminate the prior company, and merge it in the New York & Mt. Vernon Water-Works Company, no right exists in the stockholders of the old company to demand new scrip for the stock for which they have been paid. No newright exists in respect thereto beyond whatever advantage may result from the purchase of the old stock to the stockholders in the new company. The consolidation appears to have been mutually agreed upon, and the acquiescence of the old company has been so long continued that justice cannot be now done after the use of the franchise and the property of the corporation has been delivered over to the new company. The village of Mt. Vernon is not a party, and the plaintiffs have no duty in respect to the rights or obligations of the village. The sole question, therefore, is whether the Mt. Vernon Water-Works Company can consolidate with a corporation known as the “New York City Suburban Water Company,” incorporated under the general law in respect to the formation of manufacturing corporations. The corporations are of the same nature, and they cover the same territory. In such a case the consolidation is authorized, or was at the passing of the resolution by the two companies to be consolidated, under chapter 374, Laws 1877. All the steps taken towards consolidation were in conformity with the act permitting "the consolidation, and the repeal of the consolidation act in 1891 subsequent thereto preserved such inchoate and ineompleted acts. The order should therefore be reversed, with costs and disbursements, and the motion to dissolve the injunction granted, with costs.

(concurring.) The injunction was continued in this case on the assumption that the proposed consolidation of the two water-works corpora

Concurrence

p. 759

tians was without lawful authority. Respondents’ counsel justify the injunction solely on those grounds. They contend that the laws in force prior to May 1,1891, so far as they authorized consolidation, have been repealed by the new business corporation law (chapter 567) and the stock corporation law (chapter 564) passed in 1890. They insist that consolidation cannot be effected under the stock corporation law, because its tendency would be to prevent competition, and because it would be against public policy. The facts are substantially undisputed. I am unable to accept the respondents’ view. The consolidation of corporations engaged in the same general line of business is not against public policy. The legislature has permitted it for years, and still permits it. Laws 1867, c. 960; 1877, c. 374; 1884, c. 367; 1890, c. 567, § 13. There is a great difference between the consolidation of two corporations into one new corporation and the combination between two existing corporations for the prevention of competition. The former is permitted, and the latter is condemned. It is not necessary to point out the distinction so far as the public or private good is concerned. It is enough that the legislature has drawn the distinction. See section 13, c. 567, 1890, and section 7, c. 564, 1890. I do not think that the new acts have repealed the old provisions which authorized consolidations. They have simply continued them. True, the old acts appear to be included in the schedule of acts repealed; but the saving and construction clauses of both acts, which authorize and provide for consolidation, clearly show that there has been no material change in the law. Existing rights of existing corporations are all saved by section 22, c. 567; section 24, c. 563; and section 71, c. 564. Certainly two new corporations might be organized now under the new law to do the business of supplying water for a village, because that is a “lawful business.” Section 2, c. 567, Laws 1890. The effect of the repealing clause is to require new corporations to organize under the new general law instead of under the old laws. Certainly two new corporations, like the two in question, might consolidate under this new law, but they could not maintain their separate existence, and combine to prevent competition between them or between themselves and others; and if such new ones could consolidate under this new law, then the express provisions of section 13 authorize the same thing by old corporations doing the same business as new ones organized under the new laws.

Turning, now, to the saving clause, we read that the repeal of a law by that act “shall not affect nor impair any * * * right accruing, accrued, or acquired prior to May 1, 1891, under or by virtue of any law so repealed; but the same may be asserted * * * as fully and to the extent as if such law had not been repealed.” Hence, if the old corporation had a right to consolidate under the old laws, that right would seem to be saved by this clause. And again, we read in section 23 that, where the provisions of this new law are substantially the same as those existing April 30, 1881, they shall be considered as a continuation of such old laws, and not as new enactments; and, so far as they differ, they are to be deemed mere modifications or amendments of old laws. I regard it as plain that the object of all these new provisions was simply in the line of codification. It therefore seems tome that the injunction proceeds upon an erroneous theory. Perhaps some question might have arisen as to the right of the Hew York & Mt. Vernon Water Company to hold the stock of the Mt. Vernon Water Company by purchase, if the complaint had not alleged that that purchase was made with the assent of the stockholders of the former. But it appears that such purchase was made with the assent of those stockholders. Hence the purchase itself cannot be the subject of complaint by any of those stockholders. They are estopped to question the purchase, nor can any stockholder of the Mt. Vernon Water Company be heard to question the purchase or holding. All the individual holders of that company have sold out. It has all been purchased by the Hew York & Mt. Vernon Water Company. The

p. 760

complaint assumes that that purchase was made for the purpose of a distribution of that stock among the stockholders of the New York & Mt. Vernon Water Company. I do not so understand their rights. Such a distribution would have been a dividend in property which had been purchased and paid for with capital of the New York & Mt. Vernon Water Company. In other words, it would have been a dividend out of capital, which could not have been contemplated. On the contrary, the purchase of that stock made it a part of the property of the company, and not as a special trust for its stockholders. Their interests in that property were the same as in any other property of their company; and, since that company has the right to consolidate with the New York City & Suburban Water Company, it would seem that that stock or its proceeds will have to abide the event of the effort to consolidate. The order should be reversed, with $10 costs,' and the disbursements on this appeal to the defendants, and the original injunction should be vacated.