Rogers v. New York & Land Co. — 17 N.Y. St. Rep. 131

Majority

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Jacob S. Rogers et al., Resp’ts, v. The New York and Texas Land Company, Limited, App’lt.

(,Supreme Court, General Term,, First Department,

Filed June 19,1888.)

Headnote

1. Pleading—Complaint—Consteuction of.

Where the complaint in an action states that the same is brought by the plaintiffs on behalf of themselves and all other stockholders, and scrip-holders of a certain corporation similarly situated, Held, that this language means precisely the same as though the allegation had been of all other stockholders or scripholders.

2. Same—Bill in equity filed on behalf of a class—Who has a bight

TO ENJOY BENEFITS OF.

If a bill in equity is filed on behalf of a class, to enforce the rights of a class then every member of that class has a right to come in and enjoy its benefits upon contributing to the expenses of the litigation whether he has some other qualification or not.

3. Same—Cause of action on conteact—When not stated.

The complaint alleged that the scrip of the defendant company was issued under an agreement that it “ should be receivable in payment for lands of the company, to the extent of seventy-five per cent of the selling price.” The first cause of action stated therein was that the defendants had sold lands for cash, and in their contract had inserted a clause that scrip would not be received in discharge of deferred payments. Held, that these facts constituted no breach of the rights of the plaintiffs as scrip-holders, because there was no allegation that these cash prices were the regular selling rates of the corporation, nor that the defendants have refused to accept scrip in payment of land purchased at the regular selling rates.

4. Conteact — Consteuction of—Coepoeation — Right to beissue

SCEIP.

The provision of the contract is that the scrip shall be received in payment of seventy-five per cent of the price of the lands of the company at its regular selling rates with an option to the company to retire the scrip from time to time by the payment of its par value, and liberty to purchase it out of the company’s surplus fund, etc. Held, that this scrip became

, functus officio when purchased by the defendant. That when the cornoration purchased the script it was for the purpose of retirement under the tenor of this agreement and that it had no power whatever to revive it,

5. Same—Pleading—Scbip-holdebs—When eight of action in favob of—Injunction—When entitled to.

The allegation of the complaint that the defendant company is about to issue as a dividend to its stockholders, scrip which had been purchased with the proceeds of land, set forth a cause of action in favor of the scrip-holders, and a grievance which if true they had a right to retain.

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An appeal from an interlocutory judgment overruling a demurrer interposed to the complaint.

The complaint states that it is brought by the plaintiffs “on behalf of themselves and all other stockholders and scripholders of the New York and Texas Land Company, limited, similarly situated.”

Its allegations are substantially as follows:

The defendant is a domestic corporation, and each of the plaintiffs is the owner and holder of certain amounts, both of the capital stock and of the land scrip issued by the defendant. When the company was organized, it issued capital stock for $1,500,000, and scrip to the amount of $6,000,000, distributed pro rata among the original stockholders, in form as follows:

“ This is to certify that-is the owner of land scrip of the New York and Texas Land Company, limited, to the amount of $-par value. This certificate is transferable by assignment in writing by the owner or attorney, on the books of the company, at its office in the city of New York, or at any transfer agency, established by the company, only on surrender of this certificate, and in multiples of $1,000.” Prior to the formation of this company, the International and Great Northern Eailroad Company of Texas owned certain property, which was covered by mortgages. These mortgages were foreclosed, and the property sold, and part of this property, consisting of certain lands, land grants and stock in a land company, was accepted by the holders of these mortgage bonds, in full satisfaction of all their claims against the International and Great Northern Eailroad Company. By direction of these bondholders, a committee, acting on their behalf, organized the defendant as a corporation, in order that these lands, land grants and land company’s stock, etc., should be transferred to the defendant, and that the bondholders should receive certain interests in the defendant, as a corporation, in exchange for their claims against the railroad company.

In pursuance of these plans, the committee organized the defendant as a corporation; and it was agreed between this committee and the defendant corporation that the said lands, land grants, etc., should be transferred to the defendant, in consideration of its capital stock and of land scrip, to be issued by the defendant, which “ should be receivable in payment for lands of the company, to the extent of seventy-five per cent of the selling price,” which offer was accepted by the defendant through its board of directors.

The bondholders were induced to receive this stock and scrip by the purchasing committee, on the representation that, as the property of the new company would greatly exceed in value the amount of its capital, it was advisable that the coporation should issue scrip to its stockholders, pro rata, entitling them to an amount of lands corresponding to this excess. The precise paper, issued by the pur

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chasing committee, is annexed to the complaint, and shows that the scrip was, by the terms of the original offer, “to be receivable in payment of seventy-five per cent of the price of its lands, at its regular selling rates, with an option to the company to retire the scrip from time to time by the payment of its par value, and liberty to purchase it out of the company’s surplus funds.” . .

Under this agreement, the defendant became practically possessed of about 5,000,000 acres of agricultural lands, and over 6,000 town lots.

The complaint then charges that “ the said defendant has steadily pursued a policy through its board of directors, since its organization, of depreciating the said scrip, and of refusing to accept the said scrip in payment for lands of the said company, at the prices for which the said lands would be sold to purchasers who offer to pay all cash for said lands; that the said company has inserted, in its contracts of sale of lands, that no part of the purchase price should be paid in scrip, and has taken notes to a very large extent, in payment of sales of lands, and has insisted upon the insertion, in said notes, of a clause, that they should not be paid in scrip of this defendant,”

The defendant has purchased and canceled its land scrip to the amount of over $3,000,000, and has purchased land scrip in par value of $1,125,000, which it is about to distribute to its stockholders pro rata.

There is no averment that the lands remainining unsold are not ample to provide for all the remaining scrip, both in amount and in value.

The demand of judgment is:

1st. That the defendant be enjoined from issuing to its stockholders, or treating as valid, any land scrip which is. now in the defendant’s possession.

2d. That the defendant be enjoined from making any dividend to its stockholders out of the proceeds of land sold, so long as any of this land scrip is outstanding.

3d. That the defendant be required to receive land scrip for seventy-five per cent of any price at which it may sell, or have sold any lands, and for seventy-five per cent of any obligations that it may have taken to secure the purchase price of lands sold, and that it be enjoined from refusing to accept its land scrip as cash in all transactions connected with the sales of -its lands to the extent of seventy-five per cent.

T. G. Sherman, for app’lt; J. T. Davies, for resp’ts.

The complaint in this action states that the same is brought by the plaintiffs on behalf of themselves and all other stockholders and scripholders of the New York and Texas Land Company, similarly situated.

The defendants demurred upon the ground among others

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that the complaint did not state facts sufficient to constitute a cause of action, and that the complaint did not state facts sufficient to constitute a cause of action in favor of the plaintiffs as stockholders, and that the complaint did not state facts sufficient to constitute a cause of action in favor of the plaintiffs as scripholders.

It is conceded upon the part of the appellant, that no cause of action in favor of the plaintiffs, as stockholders, is set out in the complaint. The respondents, however, claim in support of the decision of the court below overruling the demurrer generally, that this action was not brought to enforce any rights of the plaintiffs as stockholders or on behalf of any of the plaintiffs as scripholders, but that it is only brought on behalf of those who are stockholders and scripholders both.

Consideration, however, of the language of the complaint does not bear out this construction. The action is brought on behalf of the plaintiffs and all other stockholders and scripholders similarly situated. It is clear that this language means precisely the same as though the allegation had been of all other stockholders or scripholders. Any persons who are entitled to relief under this complaint, whether stockholders or scripholders, could have come in and claimed the benefit .thereof under this form of allegation; and it seems to us that this statement that the bill was only filed on behalf of those who were both stockholders and scripholders is an after thought.

But furthermore if the bill was filed on behalf of the scripholders, the plaintiffs have no right to restrict its benefit to only those scripholders who happen to be stockholders also. If the bill is filed on behalf of a class, to enforce the rights of a class, then every member of that class has a right to come in and enjoy its benefits upon contributing to the expenses of the litigation whether he has some other qualification or not. Having this rule in view, it is evident that it was the intention of the pleader to file his bill on behalf of all stockholders and all scripholders.

As has been said, it is conceded that no cause of action on behalf of stockholders has been set out, and therefore that part of the demurrer which relates to the setting out of a cause of action in favor of any stockholder of this corporation should have been sustained.

It is claimed that the complaint states two causes of action in favor of the plaintiffs as scripholders:

First. The pursuance of a policy of depreciating the scrip, and Secondly, the proposal to re-issue as a dividend, scrip which the defendant had purchased.

It is urged upon the part of the. defendant that neither of these grounds is sufficient to maintain the action. The

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foundation of the first cause of action seems to be an allegation that the defendants have sold land for cash, and in their contract have inserted a clause that script will not be received in discharge of deferred payments. These facts constituted no breach of the rights of plaintiffs as scrip-holders, namely that the corporation would receive in payment of seventy-five per cent of the price of its land sold at its regular selling rates, this scrip, because in the first place there is no allegation that these cash prices were the regular selling rates of the corporation. Nor does the complaint contain any allegation that the defendants have refused to accept scrip in payment of land purchased at the regular selling rates.

Neither is it apparent that the plaintiffs have suffered any damage in that regard, or that they have even been refused the purchase of lands upon the tender of scrip. The only manner in which the plaintiffs can establish an injury in this respect is by proving-some act done by the corporation in breach of this contract, and this contract is not broken until some scrip-holder goes to the corporation for the purpose of buying lands, and tenders the scrip for seventy-five per cent thereof. If the corporation refuses to sell upon these terms at their regular selling rates, then a breach of the contract has taken place; but merely because in the case of an outside purchaser for cash, they make the contract that nothing but cash shall be received, no breach of the rights of the scrip-holders or of the contract between the scrip-holders and the corporation is effectuated.

There is no obligation or agreement whatever that the corporation shall receive- in payment of the debts due from third parties, scrip which should be purchased for that purpose. The contract is that they shall receive for the purchase of lands at their regular selling rates, seventy-five per cent in scrip; and that this scrip must be tendered at the time of the purchase of the lands seems to be apparent from the terms of the contract. There is therefore no cause of action set out in the complaint whereby any damage is alleged to these plaintiffs as scrip-holders because of the refusal to receive this scrip in payment of lands.

The second alleged cause of action seems to rest upon a more substantial foundation. It is based upon the allegation that the company; is about to issue as a dividend to its stock-holders scrip which had been purchased from the proceeds of land which should have been cancelled and retired, and which is no longer an obligation of the defendant.

It is urged in defense of the demurrer to this cause of .action that the scripholders have nothing to do with this matter; that it is entirely a question for the stockholders;

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and that the stockholders sustained no injury by the declaration of this scrip dividend.

But it is not entirely a question for the stockholders. If the corporation have a right to re-issue this scrip by way of dividends or otherwise, then the scrip which by the contract of the defendant has been given to the scripholders, is impaired by such re-issue.

The claim that if the corporation have no right to reissue scrip as dividends, it is therefore void, and cannot be held as an obligation against the company in the hands of any purchaser, is no answer to this proposition, because that necessitates the tracing out of everjr share of this scrip after receipt-thereof, by the company in payment for lands. It is difficult to see how the stockholder is going to impeach the title of any purchaser. This could only be done by the corporation, as the scripholders have no power , to set the corporation in motion. The lands are pledged to the redemption of this scrip; the company is pledged to sell to the scrip-holder the land at its regular rates, receiving the scrip in payment of seventy-five per cent of the purchase money. Any proceeding upon the part of the corporation which increases the volume of this scrip, is an attack upon the integrity of this contract, and imperils the security of the other scripholders.

For example, there are so many millions of acres which can be purchased by $6,000,000 of scrip. One million acres of that land is sold, and the purchase-price received by the corporation. That purchase-price is devoted to the redemption of the scrip. Then the scrip is re-issued, and, as a result, the $5,000,000 remaining of the original scrip have their security impaired by just the purchase-price of the $1,000,000 of scrip which has been purchased, and should have been retired. That this scrip became functus officio, when purchased by the defendant, seems apparent upon a consideration of the agreement, which defines the rights of the scrip-holders and the corporation. The provision in the contract is that the scrip shall be received in payment of seventy-five per cent of the price of the lands of the company at its regular selling rates, with an option to the company to retire the scrip from time to time by the payment of its par value, and liberty to purchase it out of the company’s surplus fund under public notice and sealed proposals at the lowest price at which it may be offered. In other words, the corporation has a right to buy without public notice at par, but it cannot purchase the scrip above par except upon public notice and sealed proposals. If it is to be retired by the payment of its par-value, it must necessarily be so retired out of the company’s surplus fund. If it is to be purchased at a premium, the provision is that the purchase-price shall be paid out of the-same surplus funds,

The words “out of the surplus funds” evidently apply to both paragraphs of the agreement, and it is evident that-

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the sole purpose of the use of the company’s funds was the retirement of this scrip, whether paid for at par without notice, or above par upon public proposals. The whole idea was that the surplus proceeds of the lands were to be devoted to the redemption of the scrip certificates.

It seems to us therefore apparent that when the corporation purchased this scrip, it was for the purpose of retirement under the tenor of this agreement, and that it had no power whatever to revive it any more than it had the power to revive a debt which had already been extinguished by payment.

Under these allegations of the complaint therefore, the scripholders had a grievance which, if true, they had a right to restrain, and a cause of action in their favor was, therefore set up. It consequently appears that the overruling of the demurrer upon the ground that no cause of action on behalf of the scripholder was stated in the complaint, was correct.

We think, therefore, that the judgment should be modified, sustaining the demurrer, that this complaint does not state facts sufficient to constitute a cause of action in favor of the plaintiffs as stockholders, and overruling the demurrer that the complaint does not state facts sufficient to constitute a cause of action in favor of the plaintiffs as scrip-holders.

The judgment, as modified, should be affirmed without costs to either party.

Brady and Daniels, JJ-., concur.