Majority
p. 334FREDERICK A. CHASE, Plaintiff and Appellant, v. CORNELIUS VANDERBILT, AUGUSTUS SCHELL, JAMES H. BANKER, AZARIAH BOODY, ALBERT KEEP and WILLIAM H. VANDERBILT, Directors, &c., impleaded with The Lake Shore and Michigan Railroad Company, Dependants and Respondents.
Headnote
I. Equitable belief.1. What is not a foundation for.
1. A claim for the recovery of an ascertained debt is not.
a. What is an ascertained debt'in this connection.
1. Where certain payments are to be made out of net profits, and the complaint alleges that sufficient net profits were made and received to make the payments, the obligation to pay the amount agreed to be paid is a legal liability, and furnishes no foundation for any equitable relief.
H. CORPORATION.
1. Consolidated.
a. Power of.
1. A consolidated corporation has no power to declare a divi dend, as such, of the earnings made prior to the consolidation by one of the companies which was merged in the consolidation, or dividends on the stock of that company out of the earnings of the consolidated one.
a. Specific performance by.
1. Such corporation cannot therefore be decreed specifically to declare such dividends.
a. Therefore, where the sole ground of equity juris diction shown by the complaint is that of specific performance in this respect by such a corporation, there is no equity in the complaint, and an - ' INJUNCTION ISSUED ON IT ItUST FALL.
3. Directors of—what not a cause of action against,
a. An action will not lie against the directors of a consolidated company, to compel them to make dividends of earnings made prior to the consolidation by one of the consolidating
p. 335Before Monell, Ch. J., Curtis and Speir, JJ. Decided May 2, 1874.
companies, or to declare dividends on the stock of such company out of the earnings of the consolidated.
3. Foreign corporation—Jurisdiction.
1. When the cause of action has reference to the obligations and business of a foreign corporation in a foreign State, the courts of this State have no jurisdiction'. a. They cannot obtain jurisdiction by acting on its directors.
HI. Parties dependant—who not proper.
1. Stockholders of ,a corporation in the case above put are not.
Appeal by plaintiff from an order sustaining a demurrer to a complaint.
The complaint alleges that the Michigan Southern & Northern Indiana "‘Railroad Company, a corporation created under the laws of Michigan, Ohio, Indiana and Illinois, issued certain stock evidenced by certificates in the following form:
“The Michigan Southern & Northern Indiana Railroad Company.
“No. [Vignette.] Shares.
“Guaranteed Ten Per Cent. Stock.
“This is to certify that F. A. Chase is entitled to fifty shares of one hundred dollars each in the guaran-; teed capital stock of the Michigan Southern & Northern Indiana Railroad Company, denominated construction stock. Said stock is entitled to dividends at the rate of ten per cent, per annum, payable semi-annually in New York, on the first days of June and' December in each year, out of the net earnings of said company ; and is also entitled to share pro rata with the other stock of the company in any excess of earnings over
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ten per cent, per annum; and the payment of dividends as aforesaid is hereby guaranteed. The said stock is transferable only on the books of the company, at their office in the city of Hew York, by the said stockholder in person, or by his attorney, on the surrender of this certificate.
“In witness whereof, the said company have caused the same to be registered, and this certificate to be signed by their president arid treasurer, and countersigned by their secretary.
“ Dated at Hew York, this 15th day of. June, 1857.
“ Edwin C. Litchfield,
“ John A. C. G-ray, “President.
‘ ‘ Treasurer.
“Countersigned, and prior certificate canceled, this 15th day of June, 1857. . J. M. Hepburn,
“Secretary
“Transfer made and registered this 15th day of June, 1857. 1 James H. Edsall,
“ Transfer Clerk.”
That during the half year prior to December 1, A. D. 1857, and in each half-year thereafter down to June 1, 1863, the said company realized net earnings from its said business to an- amount more than sufficient to have paid semi-annual dividends of five per cent, on the amount of the said guaranteed stock so issued as aforesaid ; but that no such dividend, and no dividend whatever, was declared or paid by the said company thereon, from the"date of the issue thereof, until on or about the first day of July, A. D. 1863, at or about which time the said board of directors declared and announced a dividend of five per cent, on said construction or guaranteed stock then outstanding, payable on August 1,' 1863, for the six months prior to that date ; and the same was paid accordingly to the t|ien holders of such stock; that during the period between June 1, 1857, and February 1, 1863, the said directors of the
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said company neglected and omitted to declare or pay any dividend whatever on the said guaranteed stock ; and that during the interval aforesaid, dividends to the amount of fifty-six and two-thirds per cent, of the par value of guaranteed stock accrued, and the same was . suffered by said company to remain unpaid and in arrears.
That the said directors, in announcing and paying said dividend on the first day of August, 1863, applied and appropriated the same to the percentage or interest which had accrued upon said stock during the last period of six months, ending on that day, and refused to apply the same, or allow it to be applied by the shareholders receiving the same upon the percentage for any previous period of six months, or upon the said aggregate accrued as aforesaid, of fifty-six and two-thirds per cent.
That after the said date of August 1, 1863, and down to the time of the consolidation hereinafter mentioned, the said company regularly declared and paid the said percentage or dividends of five per cent, for each successive period of six months upon said stock, but always insisted upon applying and appropriating it in the same manner as aforesaid.
That about the month of July, 1864, said guaranteed stock had been reduced, by cancellation and otherwise, to about twenty-one thousand eight hundred and thirty-six shares, of the nominal value of two million one hundred and eighty-three thousand six hundred dollars, upon which the percentage of five per cent, for the last previous six months would be one hundred and nine thousand one hundred and eight dollars. That at that date, an amount of surplus earnings and profits had been accumulated and realized by said company, sufficient to pay, in addition to all the then pressing liabilities of said company, the said sum of one hundred and nine thousand one hundred
p. 338
and eighty dollars; and also to leave besides a balance in hand of about seven hundred and forty-three thousand eight hundred and ninety-one dollars and eighty-seven cents, which sum, or so much 1 thereof as was required, might, and this plaintiff insists, ought to have been applied to the payment or reduction of the said arrears of fifty-six ancL two-thirds per cent, accrued upon said preferred stock prior to said year 1863.
But the said corporation, and its board of directors, then in office, utterly refused so to apply or appropriate the same, or any part thereof; that the said plaintiff was, on June 15,1857, and still continued to be the holder ot fifty shares of stock for which he held a certificate, in above form ; that said stock was issued pursuant to a resolution of the stockholders of said company, and to a resolution of the directors thereof, and to a report of the directors to the stockholders; and was subscribed for by plaintiff, or those from whom he claimed, on the basis of certain subscription proposals; that in the year -1869, pursuant to certain acts of the legislatures of Pennsylvania, Ohio, Michigan, Indiana and Illinois, the said corporation, the Michigan Southern .and Northern Indiana Railroad Company, was merged and v consolidated with the Lake Shore Railway Comyany, a corporation created under -the laws of Pennsylvania and Ohio, and that the consolidated company thus formed, took the name of the Lake Shore and Michigan' Southern Railway Company; that afterward, pursuant to certain acts of the legislature of the State of New York, and to the provisions of certain laws of Pennsylvania, Ohio, Michigan, Indiana and Rlinois, the Buffalo and Erie Railroad Company, a , corporation created under the laws of New York and Pennsylvania, was merged and consolidated with the Lake Shore and Michigan Southern Railroad Company, and the corporation thus formed assumed the name of
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the Lake Shore and Michigan Southern Railroad Company ; that the company thus formed owned and operated lines of railroad, which, taken together, formed a continuous line of railroad extending from the city of Buffalo through the States of Hew York, Pennsylvania, Ohio, Michigan, Indiana, and Illinois, to Chicago, in the State of Illinois.
That, according to the provisions of the said several statutes above mentioned and referred to, the rights of all the creditors of, and all the liens upon the property of the said corporation, The Michigan Southern & Horthern Indiana Railroad Company, were to be and were preserved unimpaired, and that by the said agreement of consolidation, first hereinbefore mentioned, all just debts, guarantees, liabilities and obligations existing against either of the said companies, parties to said agreement, at the time of the taking effect of the said consolidation were to be, and were by said agreement, assumed, and to be provided for, paid and discharged by the said consolidated company; and all contracts and agreements existing between either of the said parties to the said agreement of consolidation and other companies, or with any person or persons, were to be carried out and performed by the said consolidated company; and the holder of shares of either of the said companies was to be entitled to receive, on the surrender of his certificate for the shares so held by him, a certificate for an equal amount of stock in shares at par in said consolidated company, which company was without delay to issue such certificates on demand of any such stockholder; and that by the terms of said agreement of consolidation, secondly hereinbefore mentioned, all just debts, guarantees, liabilities and obligations existing against either of the said companies parties thereto, at the time of the taking effect of said last mentioned consolidation, were to be and were thereby assumed, and were to be provided for, paid
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and discharged by the said consolidated company; and all contracts and agreements existing between either of the parties to said last mentioned agreement and other companies, or with any person or persons, were to be carried out and performed by the said consolidated company, the defendant corporation in this action ; and that every stockholder in each of the said companies, or in either of the companies forming the said corporations, which by said agreement were consolidated, was to receive in place of the stock at that time held by such stockholder, a proportionate share of the capital stock of the said new or consolidated corporation, upon surrendering to be canceled to the said new corporation the certificate or certificates of,stock held by such stockholders respectively; and there was not in such distribution to be any difference made in the relative value of the capital stock of either of the said companies; and the said new corporation was, without unnecessary delay, after the perfection of its organization, to ' issue to the stockholders of the said two companies parties to the said agreement, or to holders of stock in the companies, forming the companies which by the said agreement were consolidated, in proportion to their respective interests, certificates of stock in the said new or consolidated corporation, so to be formed as aforesaid; and. that such new certificates of stock have been issued by the said defendant to the holders or many of the holders of stock in the corporations so as aforesaid previously existing, and so consolidated as aforesaid.
That the said defendants, Cornelius Vanderbilt, Augustus Schell, James H. Banker, Azariah Boody, William Williams, Henry B. Payne, Amasa Stone, Jr., Stillman Witt, William L. Scott, Charles M. Bead, John A. Tracy, Albert Keep and William H. Vanderbilt are the directors of said corporation, and the said James H. Barker is the treasurer thereof. That said
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corporation has an office and place of business in the city of New York for the registry and transfer of its stock, and the management of its business, or portions thereof, at which office meetings of said directors are held. That the said treasurer performs the* functions of his office, or some of them, at and in the said city of New York. That the said defendants Cornelius Vanderbilt, Augustus Schell, James H. Banker, Azariah Boody, William Williams, Henry B. Payne, Amasa Stone, Jr., Stillman Witt, William L. Scott, Charles M. Read, John A. Tracy, Albert Keep and William H. Vanderbilt are severally holders and owners of shares of that portion of the capital stock of the said defendant The Lake Shore & Michigan Southern Railway Company not entitled to any preference or priority in the payment of dividends, and known or denominated as common or unpreferred stock, and that they, or some of them, were, prior to such mergers and consolidations as are herein set forth, the holders and owners of shares of that part of the capital stock of -the said corporation The Michigan Southern & Northern Indiana Railroad Company, known as the common or unpreferred stock thereof, and which, by reason and in consequence of such mergers and consolidations as aforesaid, has become, and now is, a portion of the capital stock of the said defendant corporation the Lake Shore & Michigan Southern Railway Company, known as the common or unpreferred stock thereof, and which is not entitled to any preference or priority in the payment of dividends. That the number of holders of shares of the said common or unpreferred stock of and in the said defendant corporation The Lake Shore & Michigan Southern Railway Company is very great, numbering many hundreds ; that many of them are unknown to the said plaintiff, and cannot with diligence be ascertained by him ; that many of the same reside without the State of New York, so that is wholly impracticable
p. 342
to bring them all before the court as parties defendant to this action; wherefore, in place of joining all the holders of the common or unpreferred stock of said corporation The Lake Shore & Michigan Southern Railway Company as defendants in this action, the said Cornelius Vanderbilt and the other individual defendants above named are joined as defendants therein, as such holders of shares of the common or unpreferred stock of said corporation, and as representing all other like holders and owners of shares of the common or unpreferred stock thereof, and so that they may represent and defend for the benefit of all such other stockholders.
That since such formation of the said corporation, the Lake Shore & Southern Michigan Railway Company, the said defendant in this action, such defendant, and the directors thereof, have realized net earnings from the business of said corporation to an amount more than sufficient to have paid the said arrears of dividends upon all the said guaranteed or construction stock of the said original corporation, the Michigan Southern & Northern Indiana Railroad Company, then or still outstanding, together with the interest thereon, from the time when the said several installments of such dividends in arrears became, by the agreement for the issue thereof, due and payable, and which were legally and properly applicable thereto, but have at all time© neglected, omitted and refused to pay over the same, as or for said arrears of dividends, or for the interest thereon, and have used and applied all the net earnings of said existing corporation for purposes other than the payment of said arrears of dividends and interest; and that they have, from time to time, declared regular semi-annual dividends, at and after the rate of four per cent for each half-year, upon the capital stock of the said corporation, The Lake Shore & Michigan Southern Railway Company, which included, and by means whereof there was paid, a dividend upoL i-he eiock of
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the said Lake Shore & Michigan Southern Railway Company, issued in place of, and which represented, the common or unpreferred stock of the said Michigan Southern & Northern Indiana Railroad Company, and that the dividends so paid by the said Lake Shore & Michigan Southern Railway Company, upon the stock thereof, issued in place of, and which represented originally the said common or unpreferred stock of the said Michigan Southern & Northern Indiana Railroad Company, exceeded many times the amount which would have been necessary to pay, satisfy and discharge all the arrears of dividends, together with interest thereon, due or owing to the said guaranteed or construction stock of the said Michigan Southern & Northern Indiana Railroad Company, so issued as aforesaid—all of which dividends were so paid by the said Lake Shore Michigan Southern Railway Company, in violation of the rights and interests of the said plaintiff, and of all who stood in the same position with the said plaintiff, and were entitled to the like rights as holders of shares of the said guaranteed or construction stock so issued as aforesaid; and prayed that the court determine, adjudge and decree that the plaintiff was and is entitled to receive semi-annual dividends at the rate of ten per cent, per annum upon all the said guaranteed stock so held by him, from the time of the original subscription therefor, to wit, from the first day of June, 1857; and was and is entitled to receive interest on the sums to which the said several dividends would have amounted from the time when the said payments ought severally and respectively to have been made, and was and is entitled to such payments, whether the net earnings of the said Michigan Southern & Northern Indiana Railroad Company were in each year sufficient to enable the said company to make said payments out of said net earnings or not; or if it should be held that the plaintiff could not legally
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compel the said company to make such payments from year to year, except out of its net earnings, then that an account be taken and stated by, and under the direction of, this court, and that the net earnings of the said company in each year, for and during the whole of the period last aforesaid, might be ascertained, stated and adjudged: and that thereupon it might be declared and adjudged that the net earnings of said company were sufficient in each of said years to have paid, and that therefore the said company, and the directors and officers thereof, ought to have paid such dividends of ten per cent, per annum, semi-annually, on the'first days of June and December in each year, from and • after June 1, 1857.
But if, on such accounting, it should be found that such net earnings were not sufficient for and during any year or years, or part thereof, to pay thereout such dividend, then that it might be adjudged and declared by the court that said plaintiff vjas and is entitled to such dividends, together with interest on the same from the several times when the same ought respectively to have been paid, out of the future or subsequent earnings of said company, before any part of the same could be paid as dividends to any holder of any of the common or unpreferred stock, or applied in payment or satisfaction of any claim or demand against, or liability or obligation of, the said company, created after the issue of said guaranteed or construction stock; and that the said corporation, the Lake Shore & Michigan Southern Railway Company, and the said directors and treasurer thereof, hereinbefore named as defendants, and their successors in office, might be, by the judgment and decree of this court, required and compelled specifically to perform the said contract and agreement, so as aforesaid' made and entered into by the said Michigan Southern & Northern Indiana Railroad Company in reference to the said guaranteed or
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construction stock, and be thereupon adjudged to pay to the said plaintiff the amount of the said dividends so in arrears as aforesaid, together with interest on the said several installments of the said dividends, for the periods for which the same ought to have been paid ; and then prayed that the defendants might be restrained by a temporary injunction and by final judgment, from declaring or paying any dividend or dividends whatsoever upon so much and such part of the capital stock of the said Lake Shore & Michigan Southern Railway Company, as has been issued in place of, or which represents, the said common or unpreferred stock of the said, corporation, the Michigan Southern & Northern Indiana Railroad Company, as the same existed at the time of the. first consolidation hereinbefore mentioned, until the said claims and demands of the said, plaintiff and all other persons, holders of any of the said shares of the guaranteed or construction stock hereinbefore mentioned, who have rights similar to those of said plaintiff and are entitled to like relief, shall be paid, satisfied and discharged in full.
The defendants, Cornelius Vanderbilt, Augustus Schell, James H. Banker, Azariah Boody, William Williams, Albert Keep and William H. Vanderbilt, directors of said corporation, and the said James H. Banker, as also treasurer of said corporation, demurred to the complaint Upon the following grounds, viz:
First. That the court has no jurisdiction of the subject of the action, or to grant or decree the relief or judgment sought to be enforced or .recovered in this action, or of the persons of these or either of these defendants.
Second. To so much of the amended complaint as charges these defendants or either of them, with any obligation or liability to declare or pay any dividend or dividends alleged to be in arreár or unpaid, for the
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period between June 1, 1857, and February 1, 1863, upon the plaintiff’s stock mentioned in the amended complaint, or that charge or seek to hold these defendants or either of them with any obligation, liability or duty for or on account of any failure or neglect of the Michigan Southern & ¡Northern Indiana Railroad Company, or its directors or officers, to declare or pay any dividend or dividends upon the guaranteed or construction stock, or upon any stock mentioned in the amended complaint, for the period aforesaid, or for any other period, or that charge or seek to hold these defendants or either of them with any obligation, liability or duty to apply the net earning or earnings or any part thereof, of the defendant corporation to the payment of any dividend or dividends upon the plaintiff’s stock, for or during the period aforesaid, or for or during any period.
Third. To so much and such portions of the amended complaint as charge or seek to impose upon these defendants or either of them any obligation, liability or duty to perform any contract, covenant, agreement, act or acts of the Michigan Southern & Northern Indiana Railroad Company, or its board of directors, directors or officers, in relation to the declaration or payment, or failure or refusal to declare or pay any dividend or dividends in arrear or otherwise, upon the plaintiff’s stock or upon any stock mentioned in the amended complaint, for or during the period between June 1, 1857, and February 1,1863, or for any other period prior to the creation of the defendant corporation as a corporate body.
Fourth. To so much and such parts of the amended complaint as charge or demand that these defendants or either of them be compelled to apply the earnings of the defendant corporation to the payment of any dividend or dividends that ought or might have been paid out of the earnings or net earnings of the Michigan
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Southern & Northern Indiana Railroad Company, during the period between June 1, 1857, and February 1, 1863, or during any other period, or that charge or seek to compel these defendants or either of them to apply the earnings or net earnings, or earnings or any part thereof, of the defendant corporation, to the payment of any sum or dividend, ascertained upon any accounting mentioned in the amended complaint to be due, unpaid or in arrear.
Fifth. To so much and such parts of the amended complaint as allege or demand that the plaintiff is entitled to any judgment, order, decree or other relief against these defendants or either of them, either as a board of directors, directors, treasurer, successor or successors, or otherwise.
Sixth. That there is a defect of parties defendants in this, that these defendants are improperly joined as defendants with the defendant corporation, the Lake Shore & Michigan Southern Railway Company, and that all the stockholders in the defendant corporation have not been joined either as parties plaintiffs or defendants in this action.
Seventh. That the amended complaint does not state facts sufficient to constitute a cause of action.
The demurrer was sustained at special term with leave to plaintiff to amend the complaint.
The plaintiff appeals.
Birdseye, Cfloyd & Baylis, attorneys, and Luden F. Birdseye, of counsel for appellant, urged:—I.
The parties demurring are proper parties to the present action, on the simple ground that they are holders of shares of the common stock, which may possibly be injuriously affected by the decision in the action, and that they are to defend for the benefit of other parties, who are very numerous, and all of whom it is im
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practicable to bring before the court (Code, § 119 ; Crawford v. Northeastern R. Co., 3 Kay & J. 723; Corry v. Londonderry & Enniskillen R. Co., 29 Bear. 263; Coates v. Nottingham Water Works, 30 Id. 86.; Smith v. Cork & Bandon R. Co., Irish Rep. 3 Eq. 356 ; Maughan v. Leamington Gas Co., 15 Weekly Rep. 333 ; Matthews v. Great Northern R. R. Co., 5 Jurist N. S. 284; Sturge v. Eastern Union R. Co., 7 De G. M. & G. 158 ; Henry v. Great Northern R. Co., 1 De Gex & J. 606; Cramer v. Bird, L. Rep. 6 Eq. 143; Richardson v. Larpent, 2 Younge & C. 507 ; Lovell v. Andrew, 15 Simons, 581; Bailey v. Birkenhead R. Co., 12 Bear. 433; Carlisle v. S. E. R. Co., 1 McN. & G. 688; Fawcett v. Laurie, 1 Drewry & S. 192).
II. The present directors and treasurer of the present corporation are, as such-, necessary and material parties to obtain the relief sought in this action. A material part of that relief is, or may be, to enjoin and restrain those defendants, as directors and treasurer, from declaring or paying any dividends upon .the common stock of this corporation, until the arrears of dividends upon guaranteed stock are paid and satisfied.
III. A cause of action does exist against the individual defendants demurring, as directors. It appears that the payments in question were of the technical nature of u-dividends,,:i to the payment of which, the act of the board of directors in declaring the dividend and making it payable, was essential. And the declaration of the dividends by the directors is essential, and therefore the directors are proper parties defendant in this action.
IV. The' parties demurring are also proper parties defendant, on the ground that the dividends in question are withheld, needlessly, improperly, and in violation of the contract which the original corporation had made and violated, and which the present corporation assumed, and has also violated. It was held by the
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supreme court of Connecticut, in Pratt v. Pratt, 33 Gmn. 446, that a corporation and its directors are trustees, and as such may be called into a court of chancery, either for an account, or to restrain them from mismanagement of the corporate property, or for the purpose .of compelling the corporation and its directors to declare dividends from its surplus earnings, where such dividends are needlessly and improperly withheld.
V. Specific performance of the contract set out in the complaint; [whichever it be; whether that set out in the stock certificate to pay the dividends out of the net earnings; or the broader contract (to make these payments absolutely), previously made, as above set forth], can be decreed.
VI. The possibility of a dividend put of the net earnings of the M. S. & N. I. R. R. Co., has not passed away by the mergers and consolidations.
VII. The eguaranty of payment by the M. S. & N. I. R. R. Co. extended to all net earnings, to wit: those for subsequent years, as well as for each current period of six months or one year; and the payment out of such subsequent net earnings, for any other purposes than the satisfaction of arrears of dividends, might be enjoined in equity (See plaintiff’s points in Prouty v. M. S. & N. I. R. R. Co., pp. 25-34, and cases there cited, viz.: Litchfield v. M. S. & N. I. R. R. Co., per Babhabd, J., in New York Transcript, September 14, 1865; Williston v. M. S. & N. I. R. R. Co., 13 Allen [Mass.] 400; Taft v. Hartford, Providence & Fishkill R. R. Co., 8 R. I. 310 ; Bates v. Androscoggin & K. R. R. Co., 49 Me. 491 ; Rutland & Burlington R. R. Co. v. Thrall, 35 Vt. 536 ; Lindley on Part: 655; Stevens v. South Devon R. W. Co., 9 Hare, 313; S. C., 21 Law Jour. Rep. Ch. N. S. 816 ; 12 Eng. L. & Eq. Rep. 229 ; Sturge v. Eastern Union Railway Co., 7 De Gex McN.
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& G. 158 ; S. C., 31 Eng. L. & Eq. R. 406 ; Crawford v. N. E. Railway Co., 3 Jurist N. S. part 1, p. 1093 ; S. C., 3 Kay & J. 733 ; Henry v. Great Northern Railway Co., 3 Jurist N. S. part 1, p. 1117; S. C., 1 Kay & J. 1; affirmed on appeal, 3 Jurist N. S. part 1, p. 1113; S. C., 1 De Gex & Jones, 606; Matthews. v. Great Northern Railway Co., 5 Jurist JJ. 8. part 1, p. 284 ; Corry v. Londonderry & Enniskillen R. Co., 29 Beav. 263; Smith v. Cork & Bandon R. Co., 3 Irish Eq. JJ. 8. 356).
VIII. If the plaintiff cannot have equitable relief, of the character sought in the present action, against the present corporation, what redress can he ever obtain ? In none of the cases, English or American, has it ever been held that where the contract was for the payment “dividends,” qua dividends, the stockholder could recover the amount due him, as an ordinary debt, or as damages for the non-performance of a contract. In McLaughlin v. Detroit & M. R. R. Co. (ubi supra), the sum sued for was “interest” and not “dividends.” In Bates v. A. & K. R. R. Co. (ubi supra), the stock certificate stipulated for “the payment of six dollars per share semi-annually and the court held that, upon the true construction of the vote for the issuing of the preferred stock, its language was precisely equal in meaning. In each of these cases, therefore, a judgment was rendered, as at law, and for damages. But, after a somewhat careful examination, it is submitted that these are the only two reported cases, at all even kindred to the one in suit, in which judgments against corporations, as in actions at law, and as for the recovery of damages, have been permitted. In all the other cases, the proceedings have been in equity, and have, in substance, required the declaration, as well as the payment, of dividends (See cases above cited).
IX. If, prior to the mergers, no right of action existed against the M. S. & N. I. R. R. Co., for the recovery
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of damages, as damages, in consequence of the failure to declare the dividends which are in arrears, and to order and make payment of the same (as is in substance adjudged in the Prouty case, and admitted by Sedgwick, J., in his opinion), what different cause of action for damages, as damages, has arisen, or now exists, against" the present corporation, the L. S. & M. S. R. Co., by reason of the mergers and consolidations of the M. S. & N. I. R. R. Co., with others, out of which the present corporation has derived its existence ? Prior to the consolidation, the right of action as to these dividends was equitable.
X. If, when the obligation now in suit was that of a foreign corporation, of such a' character that the act of its directors in declaring the dividends and ordering payment of the same, was essential to the stockholder’s remedy, and the joinder of such directors as defendants in the action was absolutely essential to authorize a court of equity in this State or Massachusetts to entertain jurisdiction of the action (as was held in the first suit of Prouty v. M. S. & N. I. R. R. Co., decided by Sutherland, J., at the special term of the supreme court, in 1868, and in Williston v. the same, 13 Allen, 400 ), does the fact that the corporation, then sued as a foreign corporation, has now availed itself of the laws of New York, and become a corporation, existing not only under the laws of other States, but this State, and is now owning, operating and controlling an immense property, almost wholly beyond the territory of New York, render the directors of the changed corporation, as the same now exists, unnecessary or improper parties defendant in this suit, so that, either on their demurrer or that of the corporation itself, it can be adjudged that they are improperly joined as defendants, because no cause of action exists against them % The property of the old corporation, out of the earnings of which, as defendants contend, the moneys due plaintiff
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arise and are to be paid, is still beyond the limits of this State, and may perhaps be accessible only by control over the persons of the directors of the corporation. It is not in the month of such directors to say, that no cause of action can ever arise against them, and no relief be granted, as against them, in this suit, even though they do not appear to be absolutely necessary and essential parties defendant.
XI. For, even if, since the merged or consolidated corporation has obtained .a legislative authority in this State to exist as a corporation here, the new corporation is the only absolutely necessary defendant, so that a sufficient recovery might be'had in a suit against such corporation as, sole defendant, still, the directors of such a corporation, which also exists under the laws of many other States, and the greater part of whose property and assets is beyond the territory o'f this State, and the jurisdiction of its courts, are at least proper parties defendants in this action. There is the same distinction here between necessary and proper parties; between those whom the plaintiff must join as defendants, and those whom he may, at his election, join as defendants; as is above shown in relation to making the holders of common or unpreferred stock parties defendant in their character as stockholders.
Matthews <& Foley, attorneys, and of counsel for respondents, urged :—I.
The complaint, stripped of its superfluities and verbiage, in which the real cause of action is buried, charges, in substance, that the Michigan Southern & northern Indiana E. E. Co., being a corporation created under the laws of certain States other than this State, duly authorized the issue and issued its certain certificates of guaranteed ten per cent, stock, a copy of one of which certificates is set out in the complaint in each case; that the plaintiff is the owner of a certain specified number of shares,
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either by original award or purchase, or both ; that the Michigan Southern & Northern Indiana R. R. Co. realized net earnings sufficient either in whole or in part, during the interval between 1857 and 1863, or subsequently, to pay the dividends in arrear for such interval (this allegation is unnecessary, if it be true, as the plaintiff insists, that dividends were payable independently of net earnings); that the Michigan Southern & Northern Indiana R. R. Co. failed to pay, and the defendant company, both by merger and covenant, assumed and became bound to pay ; that there is due the plaintiff a certain sum for which, with interest, he demands j udgment. That is all that is material to present the questions involved, to entitle the plaintiff to recover. The dividends in arrear became an ascertained debt against the old company, long before the merger with defendant company, who is only liable upon the ground of its assumption, and the existence of the debt.when such assumption was made. Looking at the cases in any aspect, there is no foundation for any equitable relief. It is simply, and entirely, an action at law, and cannot be maintained upon any other theory. It is merely a legal, demand, if it is anything—a liability growing out of an obligation to pay. We submit, that this is not a case calling for the equitable powers of the court; that the case must be dismissed with costs. (Note: The court will remember that the plaintiff’s counsel, upon the argument, substantially conceded want of jurisdiction in the court, but asked to be let off without costs.) We refer to the following adjudged cases, illustrative of the rule for which we contend : Howe v. Peckham, 6 How. Pr. 232 ; Cropsey v. Sweeney, 27 Barb. 310 ; S. C., 7 Abb. Pr. 129 ; Madison Avenue Baptist Church v. Same, 26 How. 72 ; Benefit Life Ins. Co., &c. v. Supervisors, 32 Id. 359. This case was decided by the court of appeals. See cases cited at length in a note to the case, pages 367 and 368-
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Heywood v. City of Buffalo, 14 N. Y. 537 ; Livingston v. Hollenbach, 4 Barb. 10 ; Thatcher v. Dusenbury, 9 How. 32 ; Boston v. City of Brooklyn, 15 Barb. 375 ; Craig v. Hyde, 24 How. 313 ; Kempshall v. Stone, 5 John. Ch. 193 ; see also Hatch v. Cobb, 4 Id. 559 see also to the same effect Geer v. Kissam, 3 Edw. Ch. 130 ; Morss v. Elmendorf, 11 Paige, 278 ; Bank of Utica Dill, 1 Id. 466; see note under section 427, pages 648-9 of Voorhies' Annotated Code (ed. 1870), and under same section of pages 778-9 of Waifs N. Y. Annotated Code, where the cases are collected as to jurisdiction of foreign corporations, and Waifs Pr. vol. 1, p. 122-3.
II. Bearing in mind that whatever obligation was ever contracted had its origin as against a foreign corporate body, and that this defendant company is only liable, if at all, upon the ground that it, not‘its directors, assumed that original obligation, the next question is, do the complainants state a cause of action as against them? We earnestly insist that they do not. The directors have contracted no obligation in the matter with which they can be personally charged. Ho foundation is laid upon which any judgment or other relief can be pronounced, as against them. They are, as regards this alleged guaranty, directors of a new and different corporation (see opinion of court of appeals, at the end of these points). They cannot be compelled to declare a dividend or dividends of a former company for past years. They cannot be compelled, under any circumstances, to. apply the present net earnings of this new company to the payment of dividends in arrear of the old company. As before stated, these dividends in arrear had ripened into a debt long before the present company had an existence.' As well might they be compelled to declare a dividend to liquidate any other obligation of the old company. As well might the directors be joined as parties in every case
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against a railroad company. What can these directors be compelled to do in this case, any more than in any other ordinary case against the company? They may be ont of office next year, but the corporation, in legal contemplation, never dies. If the company is liable, it must respond, not the directors or their successors (Smith v. Poor, 40 Me. 415 ; Smith v. Poor, 3 Wares’ U. U. Rep. [Me.] ; French v. Fuller, 23 Pick. [40 Mass.] ; Smith v. Hurd, 12 Metc. 371 -383-4).
The plaintiff’s counsel contend that the contract between the parties, as set forth in his complaint, was for ah absolute payment of the dividends specified at the time fixed, without regard to the question of “net earnings.” He claims that this contract between the plaintiff and the original corporation—the Michigan Southern & Northern Indiana Railroad Co.—is evidenced—
By the resolution of the stockholders, passed, at their annual meeting, in 1857.
By the resolution of the directors, immediately thereafter.
By the report of the directors to the stockholders, of May 6, 1857.
By the proposals for subscription, and by the subscriptions for the stock, all of which are set forth in the complaint. ,
In either aspect of the case—whether the demands were made payable out of the “net earnings of the company,” as certified to the plaintiff in his stock certificate, or whether the dividends specified were to be paid absolutely—the liability growing out of the alleged obligation is purely a question of law. It is charged that the net earnings were, in 1864 and 1865, and prior thereto, largely in excess of the amount necessary to liquidate the dividends in arrear. It, therefore, became an ascertained debt against the old company before the
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merger with the defendant’s company, and its liability is based upon its assumption and the existence of the debt when such assumption was made. It is a liability growing out of an obligation to -pay a legal demand, and there is no foundation for any equitable relief. • If the defendant’s corporation, or its directors, became bound, and assumed any obligation, it was for a specific sum of money only. The obligation to pay being established, there can be no dispute about the amount to be paid.
The liability of the defendant depends upon the fact as well as the legal obligation assumed or incurred, and both must be established before the plaintiff can be entitled to any judgment. It clearly appears that this liability, whatever it was, was a debt existing before the creation of the present defendant company, so that the liability of the latter depends entirely upon the liability incurred by the old company, and that was fixed, if ever, before the alleged merger, and must be settled as q question involving the obligations of the old company and its business.
The plaintiff has not, I think, made out a case falling under any acknowledged head of equity jurisdic tion, and the court has- not the power to administer the species of relief asked for (Heywood v. City of Buffalo, 14 N. Y. 537 ). It is well settled that no relief can be administered in equity when the remedies at law are adequate for the attainment of justice (Benefit Life Ins. Co. v. Supervisors, 32 How. Pr. 359 ).
It seems to me that the examination into the question of the foundation of the plaintiff’s right to any judgment must inevitably extend beyond the jurisdiction of this court, and must have reference to the obli-. gations and business of a foreign corporation in a foreign State. The examination of the questions involved relate to subjects beyond, and over which this court has no control (Williston v. Michigan Southern
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& Northern Indiana R. R. Co., 13 Allen, 400 ; Whitehead v. Buffalo & Lake Huron Co., 18 How. Pr. 218 ; Howell v. Chicago & Northwestern Railway Co., 51 Bard. 378.
Does the compaint state a cause of action against the directors of the company \ I do not see any ground or foundation upon which any judgment or other relief can be pronounced against them. They have contracted no obligation in the matter .with which they can be personally charged. With respect to this alleged guaranty they are directors of a new and different corporation. Under no circumstances whatever could they be compelled to apply the net earnings of this new company to the payment of dividends in arrear of the old company (see opinion in Prouty v. Lake Shore & Michigan Southern Railway Company, 52 N. Y. 363 ). If the company is liable it must respond, not the directors or their successors. They may cease at any time to hold office ; but the corporation in legal com templation never dies.
The learned judge in his opinion at spécial term, pertinently remarks that the only ground alleged for an injunction is in connection with the plaintiff’s right'to a specific performance, and if it appears ■ on the face of the complaint that the defendant corporation has never had the power to specifically perform the contract, there is no equity in the complaint, and an action for damagés is all that is left to the plaintiff. As the case stands, the Lake Shore & Michigan Southern Railway corporation have no legal right or power, either to declare a dividend, as such, of the earnings of the Michigan Southern & Northern Indiana Railroad Company, or to declare a dividend on the stock of that company out of the earnings of the consolidated company, while the plaintiff calls for a specific performance by the making of such dividend. The complaint shows that the present • defendants cannot do anything which will
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give the plaintiff the dividends he claims, and it follows that an injunction against them will not permit his getting such dividends through this action. These defendants are not necessary or proper parties, and the complaint states no cause of action against them.
The defendants demurring, must have judgment on the demurrer, with costs.
Cases cited
- Cropsey v. Sweeney 27 Barb. 310 p. 353
- Cropsey v. Sweeney 7 Abb. Pr. 129 p. 353
- Bouton v. City of Brooklyn 15 Barb. 375 p. 354
- Mutual Benefit Life Insurance v. Board of Supervisors 32 How. Pr. 359 p. 356
- Whitehead v. Buffalo & Lake Huron Railway Co. 18 How. Pr. 218 p. 357
- Prouty v. Lake Shore & Michigan Southern Railway Co. 52 N. Y. 363 p. 357