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Webb v. Vanderbilt

39 N.Y. Super. Ct. 4 7 Jones & S. 4 Court N.Y. Super. Ct. Decision date 1875-02-01 English

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MORGAN L. WEBB, Plaintiff and Appellant, v. CORNELIUS VANDERBILT, et al., Directors of the Lake Shore and Michigan Southern Railway Company, impleaded with the Lake Shore and Michigan Southern Railway Company, and others, Dependants and Respondents. FRANCIS H. STODDARD, Plaintiff and Appellant, v. SAME. EVERETT B. SANDERS, Plaintiff and Appellant, v. SAME. JAMES LAURIE, Plaintiff, and Appellant, v. SAME. THE TRUSTEES OF SMITH COLLEGE, Plaintiff and Appellant, v. SAME.

Headnote

I. DEMURRER.—ONE DEPENDANT ANSWERING WHILE OTHERS DEMUR.
1. Effect of on demurrants.
1. The fact that one of the defendants has answered, has no effect upon the determination of the question as to whether the demurrer is well taken or not.
H. STOCKHOLDERS HOLDING COMMON STOCK,—WHEN ACTION WILL NOT LIE AGAINST.
1. An action at law to recover an ascertained debt due by the corporation, will not.
2. An action in eguii/y to compel them as stockholders of common stock of a consolidated corporation to make, or to do any act towards causing to be made dividends on the stock of one of the consolidating companies, of earnings made by such consolidating company prior to the consolidation, the payment of which dividends is claimed to have been assumed by the consolidated company, or to compel them to declare or do any act towards causing to be declared, dividend on the stock of such consoli
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dating company of the earnings of the consolidated one will not.
a. Compare the opinion in this case with the one in Chase v. Vanderbilt (37 N. Y. Superior Ct. R. 334).
Before Freedman, Curtis and Speir, JJ.
Decided February 1, 1875.
These are appeals from orders sustaining demurrers to the complaints, with leave to the plaintiff to amend. The substance of the complaints and demurrers is the same as that of the complaint and demurrers in Chase v. Vanderbilt (33 N. Y. Sup'r Ct. R. 334).
Birdseye, Cloyd, & Baylis, attorneys, and Lucien Birdseye, of counsel for appellant, urged; - I. It is not proposed to re-argue here any of the questions passed upon by the general term of this court in Chase v. Vanderbilt (37 N. Y. Sup'r Ct. R. 334); but, assuming all that was held by the court in that opinion, and adding other material facts (which although before the court in that case, were not referred to or considered by it), to ask for the judgment of the court upon the points raised by such additional and material facts. Those additional facts are that, while Vanderbilt and other individual defendants demurred to the complaint, the corporation—the Lake Shore & Michigan Southern Railway Company—had appeared and answered in the action, taking issue upon the allegations of the complaint, and that the demurrants are holders of the common stock of Ihe Lake Shore & Michigan Southern Railway Company.
II. After an answer has been interposed to the complaint, the demand for relief becomes immaterial (Code § 275; Marquat v. Marquat, 12 N. Y. 336 ; Emery v. Pease, 20 N. Y. 62 ). The only limitations put upon the rule that, after answer, the demand of relief in the
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complaint is immaterial, are : (1) That the relief must be limited to such as is proper in reference to the parties before the court. (2) It must be consistent with the case made by the complaint and embraced within the issue. (3) An action must be the proper remedy (Smith v. Howard, 20 How. Pr. R. 151; Cowenhoven v . City of Brooklyn, 38 Barb. 9 ; Bradley v. Aldrich, 40 N. Y. 510 ; Hart v. Harvey, 21 How. Pr. R 382; Barlow v. Scott, 24 N. Y. 40 ; Armitage v. Pulver, 37 N. Y. 494 ; Greason v. Keteltas, 17 N. Y. 491 ; N. Y. Ice Co. v. North Western Ins. Co. of Oswego, 23 N. Y. 357 ; Bidwell v. Astor Mutual Ins. Co., 16 N. Y. 263 ; Heywood v. City of Buffalo, 14 N. Y. 534 ; Rome Exchange Bank v. Eames, 1 Keyes, 588; Mann v. Fairchild, 2 Keyes, 106; Beach v. Cook, 28 N. Y. 508 ; Wright v. Hooker, 10 N. Y. 51 ; Scott v. Pilkington, 15 Abb. 280 ; Gordon v. Hostetter, 4 Abb. N. S. 263; Colten v. Jones, 7 Rob. 164 ; Byxbie v. Wood, 24 N. Y. 607 ).
III. It appearing that a good cause of action, of a legal character, is stated in the complaint against the Lake Shore & Michigan Southern Railway Company, as a corporation, upon its assumption of a guarantee of the preferred dividends, and that that corporation interposed an answer to that complaint; so that, under section 275 of the Code, and the cases decided under it, the demand for equitable relief has, as to that corporation, become immaterial, the action may proceed to trial upon the legal cause of action, and before a jury, if the corporation shall so insist; and the question now remains whether, to such an action against a corporation by a preferred stockholder, it is wholly incompetent and inadmissible to bring in holders of the common or unpreferred stock as defendants, to determine whether or not the holders of preferred stock are entitled to priority in payment of dividends over the 'common or unpreferred stock. It is submitted that, to
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such action, the common stockholders, or some of them, are proper parties (Code, §§ 118, 119). (4) Section 118 of the Code merely re-enacts the former practice. It divides parties into two classes: {a) Those who are proper parlies, whom, therefore, the plaintiff may sometimes join, or omit to join, as parties, in his discretion. (5) Those who are necessary parties, without whom the suit is absolutely defective. (5) The former rule on this point was to the same effect (Bailey v. Inglee, 2 Paige, 278; Butts v. Genung, 5 Paige, 254, 256; Wendell v. Van Rensselaer, 1 Johns. Ch. 344 , 349; Wiser v. Blatchley, 1 Id. 437 ; Murray v. Hay, 1 Barb. Ch. 59 ; Weale v. West Middlesex Water Works Co., 1 Jac. & Walk, 369; The Attorney-General v. Jackson, 11 Vesey (Sumner), 365 and notes. Adair v. The New River Co.; 11 Id. (Sumner), 429, 443; Cockburn v. Thompson, 16 Id. (Sumner), 321, 325-8, and notes page 350). See 1 Moak's Van Santvoord’s Pleadings, 105, where he speaks of “necessary, as well as proper parties defendant” (Id. 107), &c., as to cases “where persons who are not absolutely necessary parties may be made defendants, at the election of the complainants ” (Id. 746, 859). (6) The facts stated as to the number, absence, &c., of the common stockholders, sufficiently excuse the joining of any other holders of common stock than those named in the complaint (Code, § 119. 1 Moak's Van Santvoord’s Pleadings, 77, 79, 116-17, &c.). (7) In Thompson v. The Erie Railway Co. ( 45 N. Y. 468 , 478), the court of appeals very, recently overruled the position that in a suit (precisely like the present) by a stockholder to recover preferred or guaranteed dividends, the common stockholders were absolutely essential parties. But the ruling of the court treats them as proper parties, so that their joinder would not be ground for a demurrer. (8) In numerous actions in England and Ireland, brought to enforce the rights of preferred stockholders to their dividends, it has never
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been held that holders of common stock were improper parties, but almost uniformly the reverse. In most of these cases the directors, as such, have been made defendants. The cases may be classified as follows: (a) Cases in which holders of common stock, other than directors, were made parties; Crawford v. North Eastern Railway Co., 3 Kay & J. 723; Corry v. Londonderry & Enniskillen RailwayCo., 29 Beav. 263; Coates v. Nottingham Water Works, 30 Id. 86; Smith v. Cork & Bandon, Railway Co., Irish Rep., 3 Eq. 356; Maugham v. Leamington Gas Co., 15 Weekly Rep. 333, (ib) Cases in which directors were joined with averment (like that in the present complaint) that they held common stock; Matthews v. Great Northern R. R. Co., 5 Jurist, N. S. 284. (c) Two cases in which it does not appear from the reports, whether or not common stockholders were joined; Sturge v. Eastern Union R. Co., 7 De G. M. & G. 858; Henry v. Great Northern R. Co., 1 Id. 606. (9) In Cramer v. Bird (L. Rep. 6 Eq. 143), common stockholders were held, for the purposes of that action, to be sufficiently represented by the directors; but the fund involved, was small, and it was obvious that the whole of it would be absorbed between two classes of preferred stockholders; but the court held expressly that the inferior class of preferred stockholders were not sufficiently represented by the directors, and refused to allow the action to proceed till some of that class had been made parties. (10) In several English cases, it has been decided that holders of common stock were not sufficiently represented by the directors; and that all stockholders, whose interests might be affected ' the decision, must be represented before the coir ->r-wise than through the medium of the corpor . itself or of directors whose interests did not upper Richardson v. Larpent, 2 Younge & Coll. 507; Lovell v. Andrew, 15 Simons. 581: Bailey v. Birkinhead R.
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Co., 12 Beav. 433; Carlisle v. S. E. R. Co. 1 McN. & G. 689; Fawcet v. Laurie, 1 Drewry & Emale, 192). (11) Both Sedgwick, J., and Speir, J., in their opinions, have entirely overlooked the portions of the complaint here referred to, and these grounds for the joinder of the defendants demurring as holders of the common stock. The learned judge disposed of the case upon the authority of Haywood v. The City of Buffalo ( 14 N. Y. 537 ), above mentioned. And no reference was made by him to the distinction existing between that case and the present one, above adverted to. Here the corporation sued is liable for the debt, has interposed its answer, and the prayer for judgment has become immaterial under the cases above cited. In the case of Heywood, both defendants demurred to the complaint, which was one asking for equitable relief, in a case where no relief, either in law or in equity, could be granted, because the case was an attempt to enjoin perpetually the collection, by a municipal corporation, of an assessment due to it for the improvement of streets, the plaintiff not showing any ground whatever either for legal or equitable relief, and not averring but that the alleged invalidity of the assessment appeared on the face of the record.
Matthews & Foley, attorneys, and James Matthews, of counsel for respondents, in addition to the authorities cited in Chase v. Vanderbilt, cited Stevenson v. Buxton, 15 Abb. Pr. 352 ; Kilbourn v. Allyn, 7 Lansing, 352; Brahe v. Pythagoras Association, &c., 11 How. Pr. 45 ; Brewster v. Michigan Central E. E. 5 How. Pr. 183 ; Prouty v. Lake Shore & M. S. E. Do. 52 N. Y. 363 ; Story Eq. § 1520.

The appeals before us present precisely the same questions that were determined by this court in Chase v. Vanderbilt (37 N. Y.

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Superior Ct. R. 334). It was held in that case that the complaint stated no cause of action whatever against the defendants, the parties demurring ; and the ground of that decision was, not that the court did not possess jurisdiction of the subject-matter, or of the questions involved, but that the defendants could do nothing, nor could they be compelled by judicial sentence to do anything, which would give to the plaintiff the dividends he claimed, and that, therefore, the defendants were neither necessary nor proper parties to the suit. Until that decision is reversed by some higher court, it is conclusive upon us upon the questions covered by it.

The appellants insist, however, that the attention of the court was not called to, and the court on that occasion did not consider the fact, that while Vanderbilt and the other directors demurred to the complaint, the corporation, the Lake Shore & Michigan Southern Railway Company, had appeared and answered, and had taken issue upon - the allegations of the complaint. There is nothing in the suggestion. Where there are several defendants, some may answer, while others demur. A demurrer is, in effect, a declaration that the. party demurring will go no further, because the other has shown nothing against him. And a demurrer will be sustained where the cause of action set forth in the complaint fails to show any connection between the facts therein alleged, and the party defendant by whom the demurrer is interposed. But even those who answer, do not thereby waive the objection that the complaint does not state facts sufficient to constitute a cause of action (Code § 148).

It is also insisted that the court overlooked the fact that the defendants demurring were not only directors, but also holders of common stock. This suggestion is equally unavailable. If as directors they could neither do anything, nor be compelled to do anything, which would give to the plaintiffs the dividends, the pay

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ment of which they claim was assumed by the Lake Shore & Michigan Southern Railway Company, it is difficult to perceive what they can do, or be compelled to do, in their capacity of holders of part of the stock. If the company is liable upon the obligation assumed or incurred by it, as alleged, it must respond in its corporate capacity, and if the defendants, as directors, are neither necessary nor proper parties to the action set out against the corporation, they are still less so as holders of part of the stock.

The order sustaining the demurrer in each of the five above entitled actions should be affirmed, with costs.

Curtis and Speir, JJ., concurred.

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