Majority
p. 750Solon Humphreys et al, as Trustees of the Car Trust Co. of New York, No. 2, Resp’ts, v. The New York, Lake Erie and Western Railroad Co. et al., App’lts. (Supreme Court, General Term, First Department, Filed January 28, 1889.)
Headnote
1. Contract—When assent of majority not binding on all.In an action brought to recover rent for certain cars and locomotives, leeased by the plaintiff to the defendant, it appeared that the defendant entered into an agreement with the plaintiff to pay a certain rental for the; use of the cars and locomotives. Subsequently and with the consent of a, majority of the certificate holders of the plaintiff a compromise agreement was entered into reducing the rent, and the defendants sought to-avail themselves of this agreement as against all the certificate holders, whether assenting or not assenting to the compact. Feld, that as the trustees did not modify the terms of the lease by the exercise of any authority derived from any source other than the assent of the certificate holders,, and as the compromise agreement expressly stated that it was made on behalf of such certificate holders as should assent thereto, the binding
p. 751The facts are as found by the learned justice in the -court below, and his conclusions follow: Matters op Fact. I. That the defendants, the Hew York, Lake Erie and Western Bailroad Company were, and still are, a corporation duly organized under the Laws of the state of Hew York, having full authority to contract, as hereinafter stated. II. That on February 19,1880, an agreement bearing date of that day, was duly made and executed between John Lober Welsh, Homer Bamsdell, John A. Hardenburgh, George B. Blanchard and Bobert Harris of the first part, and the said Hew York, Lake Erie and Western Bailroad Company of the second part, for the purpose, among other things, of forming an association to be known as the Car Trust of Hew York, Ho. 2, the purport of which said agreement is correctly set forth in the second paragraph of the complaint herein, and a true copy of which is annexed thereto, marked Schedule A. III. That said agreement was afterwards, and before the execution of the lease, hereinafter mentioned, made binding and operative by the making of subscriptions for at least five hundred shares of the capital stock referred to therein. IY. That on January 12, 1882, the Hon. Edwin D. Morgan (since deceased), and the plaintiff, Edwin D. Morgan (then Edward D Morgan, Jr.), acting under the direction of the board of managers of the association, created as aforesaid by and under the above mentioned agreement, as trustees of the said association, duly executed and delivered to the defendants, the Hew York, Lake Erie and Western Bailroad Company, a certain lease bearing date of •said January 12, 1882, whereby they leased to said railroad company certain cars and locomotives, as set forth in the fourth paragraph of said complaint, for the term of ten years from Hovember 1, 1881, at and for a rent (among other things), to be paid semi-annually on the first days of May and Hovember, in each year, which should be equivalent to interest at the rate of six per cent per annum, upon all the certificates of shares in the capital stock of the above
effect of the agreement is limited to the assenting holders of the certificates only.
.3. Lease—-Effect of modification of—Rent.
Held, that the modification of the lease operated as a reduction pro tanto, and the assent of the certificate holders was in effect a receipt of so much of the rent exceeding the reduction as the company would be entitled to if the whole were paid.
Appeal from a judgment rendered at the special term.
p. 752mentioned association, which had been, or should be, issued as representing the cost of the cars and locomotives so leased, and which should be outstanding and unredeemed at the time of each semi-annual payment, and also the further sum of sixty-three thousand eight hundred dollars-($63,800), to be used and applied in purchasing or redeeming the outstanding certificates of Series F, in the manner provided for in said first mentioned agreement of February 19, 1880, a copy of which said lease is annexed to the said complaint, marked Schedule B. V. That all the cars and locomotives mentioned in said lease, which was known as lease Series F, were on or about January 12, 1882, duly delivered to and received by the defendants, the New York, Lake Erie and Western Railroad Company, and have ever since remained in their possession. VI. That certificates for one million two hundred and seventy-five thousand dollars ($1,275,000) of the capital stock, of the above mentioned association, were duly issued as representing the cost of the cars and locomotives which had been embraced in said lease Series F, all of which certificates were also designated by the letter F, as was required by the provisions of the first above mentioned agreement-of February, 19, 1880, and that prior to November 1, 1884, two hundred and fifty-six thousand dollars ($256,000),. thereof were purchased or redeemed by said trustees, in accordance with the provisions of said first mentioned, agreement of February 19, 1880. VII. That the Hon. Edwin D. Morgan, one of the original trustees appointed under said agreement of February 19, 1880, departed this life on February 14, 1883; and on February 15, 1883, the plaintiff, Solon Humphreys, was. duly appointed by the board of -managers of said association to be his successor as trustee, and the said Solon Humphreys thereupon accepted said office, and has since that time acted as one of said trustees. VIII. That on November 1, 1884, there became due for rent under the above mentioned lease, series F, the sum of ninety-four thousand three hundred and seventy dollars-($94,370), being made up as follows, viz: Thirty thousand five hundred and seventy dollars ($30,570), as and for six. months’ interest at the rate of six per cent per annum upon one million and nineteen thousand dollars ($1,019,000), that being the amount of the certificates of series F, then outstanding; and the remaining sixty-three thousand eight hundred dollars ($63,800), as and for the fixed semi-annual payment called for by said lease, to be paid on that date. That this sum has not been paid or satisfied by the defendants, the New York, Lake Erie and Western Railroad Company, except in so far as the payments made by them.
p. 753under and in pursuance of the agreement of March 17, 1885, hereinafter referred to may have satisfied and discharged or extinguished the same. IX. That on or about March 17, 1885, the plaintiffs acting in that behalf, with the approval, and under the authority of the board of managers of the said association, duly executed another agreement under seal with the said New York, Lake Erie and Western Eailroad Company, bearing date of that day, in and by which for certain good and valuable considerations therein set forth, they did, on behalf of those certificate holders of series F, who then had authorized, or should thereafter authorize the same, modify and change the terms of the said original lease series F, in various particulars, as set forth in the ninth paragraph of, said complaint, and especially in reducing the rate of interest to be paid by said railroad company from six to five per cent per annum and in reducing the amount and extending and altering the periods of making the fixed payment® which were to be used and applied towards payment or redemption of the principal of said certificates as above set. forth. A true copy of said agreement is annexed to said-complaint, marked schedule C. X. That prior to the commencement of this action, holders of eight hundred and ninety-one thousand dollars ($891,000) of the then outstanding one million and nineteen, thousand dollars ($1,019,000) of certificates, series F had assented to and had either authorized or ratified the terms of said agreement of March 17, 1885, and holders of only one hundred and twenty-eight thousand dollars ($128,000) of said certificates had not assented thereto, and had not authorized or ratified the execution thereof. That the holders, of the eight hundred and ninety-one thousand dollars ($891,000) of assenting certificates, also constituted a majority in number, as well as in value, of all the holders of said certificates, series F, then outstanding. Also, that prior to the trial of this action, holders of twenty-eight thousand dollars ($28,000) more of said certificates had assented to,, and had authorized or ratified said agreement of March 17, 1885, thus making in all nine hundred and nineteen thousand dollars ($919,000) of said certificates, that down to the date of the trial hereof, had assented to and authorized or ratified the same, and leaving only one hundred thousand! dollars ($100,000) thereof that had not assented to or authorized or ratified the same. XI. That since the execution of said agreement of March-17, 1885, the defendants the New York. Lake Erie and Western Eailroad Company have paid to the plaintiffs various sums of money amounting in the aggregateto twenty-seven thousand five hundred and seventy dollars ($27,570) as and.
p. 754for the amount to which the holders of said nine hundred •and nineteen thousand dollars ($919,000) of assenting certificates would be entitled, as their proportion of the rent falling due on November 1, 1884, under the terms and provisions of the said agreement of March 17, 1885, being interest thereon, at the former rate of six per cent per annum, which sums the plaintiffs have paid to the several holders of assenting certificates for and in satisfaction of their respective proportions of the rent which became due on said November 1, 1884, as provided in and by said agreement of March 17, 1885. But after allowing such payments as extinguishing pro ■rata the claims of the holders of said assenting certificates to their proportion of the installment of rent which fell due ■on November 1st, 1884, under the terms of the original lease, series F, there remained due and unpaid on account of such installment the sum of nine thousand two hundred -and sixty-one dollars and four cents ($9,261.04), being six months interest at the rate of six per cent per annum upon the one hundred thousand dollars ($100,000) of non-assenting certificates of the series F still outstanding, and also i)Si°9°o°oo of the fixed payment of sixty three thousand eight hundred dollars ($63,800), which was also called for by said -original lease, series F, and which was to be used and applied in the purchase or redemption of the then outstanding certificates of said senes F. XII. That on the 1st days of May and November, 1885, ■the said defendants, the New York, Lake Erie and Western Railroad Company, made similar defaults in paying the ■respective installments of ninety four thousand three hundred and seventy dollars ($94,370) each, which fell due upon those days respectively for the rents called for under the :said lease, series F, and that the said sums have not, nor have any parts thereof, been paid by the said New York, Lake Erie and Western Railroad Company, except in so far as the hereinafter mentioned payments made by them under and in pursuance of the above mentioned agreement of March 18th, 1885, may have satisfied and discharged or •extinguished the same. XIII. That since the execution of the above mentioned agreement of March 17th, 1885, the defendants, the New York, Lake Erie and Western Railioad Company, have paid to the plaintiffs various sums of money amounting in the aggregate to twenty-two thousand nine hundred and seventy-five dollars ($22,975), as and for the amount to which the holders' of the said nine hundred and nineteen thousand dollars ($919,000) of assenting certificates would be entitled as their proportion of the rent falling due on May 1st, 1885, being interest thereon at the rate of five per
p. 755cent per annum from November 1st, 1884, and they have also paid other sums, in like manner, amounting to twenty-two thousand nine hundred and seventy-five dollars-($22,975), as and for the amount to which the same holders, of said assenting certificates would be entitled as their proportion of the rent falling due on November 1st, 1885, under the terms and provisions of the said agreement of March 17th, 1885, being interest thereon at the rate of five-per cent per annum; all of which sums the plaintiffs have-paid to the said several holders of assenting certificates for,, and in satisfaction of their respective proportions of the successive installments of rent which became due on said first days of May and November, 1885, as provided in and by said agreement of March 17th, 1885. But after allowing such payments as extinguishing pro rata in each case, the claims of the holders of said assenting certificates to their proportion of the two installments, of rent which fell due, as aforesaid on the first days of May and November, 1885, under the terms of the original lease, series F, there remained due and unpaid on account of each of said two installments the sum of nine thousand two hundred and sixty-one dollars and four cents ($9,261.04), being in each case six months interest at the rate of six per cent, per annum upon the one hundred thousand dollars ($100,-000), of non-assenting certificates of series F, and, also, i™9°o°o°o of the fixed payment of sixty-three thousand eight-hundred dollars ($63,800), which was called for by said original lease, series F, and which was to be used and applied in the purchase and redemption of the -then outstanding certificates of said series F. XIV. That at the times of making the several above-mentioned payments to the plaintiffs under the provisions-of the said agreement of March 17, 1885, for and on account of the several installments of rent which fell due respectively on the first days of November, 1884, and of May and November, 1885, the defendants, the New York, Lake Erie and Western Eailroad Company offered to make similar payments for and on behalf of all the then outstanding certificate holders of the said series F, provided they would assent to the terms of said agreement of March 17, 1885, and since the commencement of this action, they have offered to> make such payment unconditionally. XV. That since the falling due of the said several installments of rent on the first days of November, 1884, and of May and November, 1885, the defendants, The Provident Life and Trust Company of Philadelphia, The Girard Life Insurance, Annuity and Trust Company of Philadelphia, Mary McKee, Sarah A. Hewitt, Abraham F. Peters, Charles. O. Skeer, The First National Bank of Harrisburg, and composing the firm of J. & N. Scoville, and fifty-five other persons and firms, all of whom are, or claim to be, holders of
p. 756■certificates of said series F, representing in the aggregate "two hundred and seventy-six thousand dollars ($276,000), and who have either signed or ratified the above-mentioned agreement of March 17, 1885, have served upon the plaintiffs a protest in writing, protesting in substance against the bringing of this action, and in fact against "the bringing of any action by these plaintiffs to recover .any portion of any of the said three installments of rent which fell due as above set forth, over and above the sums which would so become payable under the provisions of "the said agreement of March 17, 1885, on the ground, .among others, that the hereinabove first recited agreement of February 19, 1880, constituted a partnership or other .association of individuals, in which a majority should .govern, and that the plaintiffs were and are merely the representatives of the whole body collectively, and were and are as such, authorized and bound to act in all business matters in which such partnership or association were or .are concerned in accordance with the will of a majority, ■either in numbers or in value, of the parties in interest, and that the action of the majority of the holders of the said certificates of series F, both in number and in value, in executing or ratifying the above mentioned agreement ■of March 17, 1885, approved and recommended as it was by the board of managers, was in legal effect a sufficient .authority and a binding direction to the plaintiffs to modify and change the said base series F in accordance with said .agreement of March 17, 1885, and that any legal proceedings taken by these plaintiffs to collect and recover any portion of the rents originally called for by said lease except as so modified, would be injurious to the interests and contrary to the rights of all those certificate holders who .had become parties to the above recited agreement of March 17, 1885, and would be a violation of the duty of these plaintiffs as trustees for the entire body of the holders of said certificates of series F. Also that the above protesting defendants have made their said protest on behalf of themselves and of all other holders of said certificates who have either executed or ratified the said agreement of March 17, 1885, and they have threatened to hold these plaintiffs personally responsible if they should bring any suit for the collection of said rents otherwise than in accordance with the said agreement of March 17, 1885. Also that the certificates which represent the nine hundred and nineteen thousand dollars ($919,000) which are ¡embraced in and covered by the said agreement of March 17, 1885, are held by moré than one hundred and sixty-six different persons and firms, and it would be inconvenient and impracticable to make them all actual parties to this
p. 757action, but the interests of all of them in the matters herein involved are identical, and can be fully and completely represented and protected by the persons, firms and corporations who have been made actual defendants herein as protesting certificate holders as aforesaid. And I do further find and decide as Conclusions of Law. First. That the agreement of March 1Y, 1885, above referred to, was madeby the plaintiffs as trustees only for and on behalf of such of the holders of the then outstanding certificates of series E as then had authorized or should thereafter authorize the same, and that it was, and is, binding only upon the holders of the said nine hundred and nineteen thousand dollars ($919,000) of such certificates who had assented thereto prior to the trial of this action and upon any other holders of said certificates who may have since assented or may hereafter assent to the same, and that it was not, and is not binding upon the holders of the one hundred thousand dollars ($100,000) of such certificates who have not yet assented thereto, and who still persist in such refusal. Second. That the above mentioned payments which have been made by the defendants, the New York, Lake Erie and Western Railroad Company, since the execution of the above mentioned agreement of March 1Y, 1885, have satisfied and extinguished the plaintiffs’ right to collect such proportion of the three several installments of rent which fell due on November 1, 1884, and on May 1 and November 1, 1885, as would have belonged to the holders of the said nine hundred and nineteen thousand dollars ($919,000) of assenting certificates, and all the rights and claims of such assenting certificate holders in regard to the payment and distribution of those three installments of rent have been thereby satisfied and extinguished, and as to such assenting certificate holders the plaintiffs are authorized and bound to carry out and enforce the said lease of January 12, 1882, only in the manner, and with the modifications specified and provided in the above mentioned agreement of March 1Y, 1885. Third. That the plaintiffs are entitled to and should recover judgment herein against the defendants, the New York, Lake Erie and Western Railroad Company, for such a porportion of each of the installments of rents which fell due according to the terms of the original lease of January 12, 1882, on November 1, 1884, and on May 1st and November 1, 1885, as would belong to the holders of the one hundred thousand dollars ($100,000) of non-assenting certificates, which proportion amounted in each instance to
p. 758the sum of nine thousand two hundred and sixty-one 4-100 dollars ($9,261.04), with interest thereon from November 1? 1885, that being the date when the last of said installments fell due; and as to all installments of said rent which have-fallen due, or shall hereafter fall due, subsequent to the trial of this action, the plaintiffs should be authorized and directed to demand and recover from the said defendants? the New York, Lake Erie and Western Railroad Company? such proportion thereof as would upon the principles hereinabove declared, belong to the holders of all such non-assenting certificates as shall then be outstanding, at the rate and in the manner originally provided in said lease? Series E. But the said railroad company should be allowed a credit upon such judgment for such a proportion of said amounts as would belong to any of such non assenting certificate holders who shall hereafter assent to the terms of said agreement of March 17, 1885, and who shall receive through the plaintiffs their proportion of the modified payments in said last-named agreement provided for. Fourth. That such portions of the moneys herein directed to be paid by the said railroad company, "as do not consist of interest on the said non-assenting certificates, shall be used and applied by the said plaintiffs in purchasing or redeeming in the manner provided for in the first above-mentioned agreement of February, 19, 1880, with interest from said November 1, 1885, so many of the said non-assenting certificates as said moneys shall suffice to so purchase or redeem. Fifth. That the plaintiffs are entitled to their costs herein incurred. AB’M R. LAWRENCE, Justice 8. O. Buchanan & Steele, for def’t Railroad Co.; Bristow, Beet. & OpdyTce, for def’ ts other than Railroad Co.; Jj,ord, Bay & Lord, for pl’ffs.
The object of the defendants, the Railroad Company, is to avail themselves of the compromise agreement against all the certificate holders whether assenting or non-assenting to that compact. They are, however? lessees who took a lease from the trustees, and being unable to meet their pecuniary obligations thereunder were relieved to the extent formally expressed in the agreement, mentioned, and to that extent only.
Whatever may have been the power the managers possessed on that subject, they did not exercise it directly, but applied to the certificate holders who had a pecuniary interest in the rental secured by the lease, and asked their assent to the contemplated change of the liability of the rail
p. 759
road company under that instrument, and having secured a large majority assenting, in virtue thereof and not from any inherent powers, made the compromise formulated by the agreement referred to. No ingenuity of counsel, no invocation of subtle device can overcome this fact. That paper expressly states that it is made on behalf of such holders of certificates, issued by the parties of the first part as trustees, or their predecessors in the trust as have already authorized or should thereafter authorize the same, and had caused or should cause such authorization to be endorsed upon the respective certificates held by them, and thus contracted for them, and such as should subsequently come in and assent to the arrangement. The defendant railroad company was advised therefore at the outset of this feature of the compromise, that all the parties in interest, namely, the certificate holders, had not acquiesced and could have refused to accept the partial compact, had they seen fit to adopt that course. The agreement by the trustees, clearly bound the assenting holders of the certificates, and the railroad company as lessees, were benefited to that extent, and the agreement, though limited as to such holders, was an advantage to themselves by payment to them under it and according to its terms. It makes no difference whether the original compact or organization created a co-partnership or not, inasmuch' as the railroad company by accepting a lease, assumed new responsibilities and relations “to the Car Trust of New York No. 2,” duly expressed in writing, and that relation has continued, however changed or modified the terms of the lease. They are designated as lessees, and the cars and locomotives are hired and let and leased to them by that instrument. The trustees did not, as already suggested, modify the terms of that paper, by any exercise of authority derived from any source other than from the assenting certificate holders, whose assent had been obtained as proved upon the trial. What they •did was necessary as trustees to give form to the assent to this compromise, and to secure to the said railroad company the benefits to accrue from such assent.
Various technical and refined theories and subtle suggestions of varied relations created, by the different papers have been invoked, which tend rather to obscure than to enlighten us upon the real subject of the controversy, and great ingenuity and zeal have been thus displayed by the learned counsel for the said railroad company in the array; but, however, devoted and laudable, professionally it can be of no avail. The obligations of their client, the railroad •company, are too plainly set down to be attenuated by abstruse and specious argument. The common sense view of the situation must predominate, and declare their liabili
p. 760
ties under the lease to which reference has been made. ' Indeed, it may be said, that Judge Van Brunt in the opinion he delivered upon considering the propriety of the demurrer interposed herein, has covered the whole subject. It should be remarked here, in passing, that it is now urged that the plaintiffs have not the legal capacity to sue on a ground not taken by demurrer and waived therefore; but, if it were-otherwise, the point'is not well taken, for the reason that the claim urged is under' a lease between the trustees and the railroad company, and whatever rental remains unpaid may be collected by the former under the covenants in the lease contained. The modification of that instrument operated as a reduction of the rent protanto, and the assent of the certificate holders was, in effect, a receipt or legal discharge of so much of it exceeding the reduction as they would be entitled to if the whole were paid. The construction adopted by the special term of the' agreements, brought to view for the reason given, was correct, and the judgment pronounced should not be disturbed. The exception to the exclusion of evidence, which was designed-to show what was intended by the compromise agreement, is of no value. There is no such ambiguity in that paper as would warrant such a procedure, and the effect of such evidence, if admitted and effectuated, would be to enlarge the sphere of the written paper in favor of the railroad company, and to diminish the rights of the non-assenters. Familiar rules require courts to reject such evidence under such circumstances.
It is perhaps unnecessary to continue this opinion beyond what has been already said, but some observations may be indulged in in reference to some of the positions taken on. behalf of the appellant. It is said for example that it is not necessary that all the members of an association shall personally join in performing an act, in order to make it legal and binding upon them all. They may delegate authority to others, to bind them by acting as agents on their behalf, and this principle seems to be invoked for the purpose of sustaining the proposition that a majority of the certificate holders having assented to the compromise agreement, it is binding upon the whole. .The answer to this proposition, assuming it to be correct, is that by the terms of the organization, the entire management of its affairs is vested in a board of management whose determinations were to be executed by the trustees named in the articles of association in whom the legal title to this property was vested, and they determined in the management of its affairs to seek the assent of the certificate holders, and to carry out their views; as far as expressed in reference to the subject-matter to which the assent related. The same view is taken of the protest of- some of the assenting certificate, holders against
p. 761
the propriety of bringing and continuing this action. If such a procedure were given any force, it would be in effect interfering with the management of the business and might arrest the entire business of the association at least for a time. It is also suggested that it is the duty of the court, if it can legally do so, to construe the agreement particularly under consideration, as binding upon all the certificate holders. The difficulty of carrying out this view is, that the ■agreement of compromise was not made for, and not intended to be binding upon all the holders, a construction ■already said to have been properly adopted, not only by the special term, but by the learned judge who presided when the demurrer to which reference has been made, was argued, and by him determined. The duty suggested, it is quite apparent, therefore, cannot be legally performed.
The judgment should be affirmed, with costs.
Van Brunt, Ch. J., and Macomber, J., concur.