Beveridge v. New York El. R. Co.

• Decision Date: 15 January 1889
• Citation: 112 N.Y. 1,19 N.E. 489
• Parties: BEVERIDGE v. NEW YORK EL. R. CO. et al.
• Court: New York Court of Appeals Court of Appeals

112 N.Y. 1

19 N.E. 489

BEVERIDGE

v.NEW YORK EL. R. CO. et al.

Court of Appeals of New York.

January 15, 1889.

Appeal from supreme court, general term, Second department.

Action by Cornelia A. Beveridge, as executrix of James Beveridge, deceased, against the New York Elevated Railroad Company and the Manhattan Railway Company, to compel a transfer of certain stock, the payment of certain dividends, and for other relief. Plaintiff appeals from a judgment of the general term affirming a judgment of the special term.

Wm. H. Arnoux, Edward B. Cowles, and Luke A. Lockwood, for appellant.

Julien T. Davies and Charles A. Gardiner, for respondents.

GRAY, J.

The plaintiff's testator, in March, 1882, was the owner and holder of a certificate for 100 shares of the capital stock of the defendant the New York Elevated Railroad Company, on the margin of which were engraved the following words. ‘The Manhattan Railway Company, for value received, has agreed to pay to the New York Elevated Railway Company an amount equal to ten per cent. per annum on the capital stock of the latter company,-that is, on six and one-half million dollars,-payable quarterly, commencing January 1, 1880.’ There was no signature to this marginal writing. The certificate to stock was issued in the name of S. T. Russell & Co., and the plaintiff's testator acquired its possession under an assignment, in blank as to names, etc., printed in the usual form upon its back, and signed by St. T. Russell & Co. Testator, in July, 1884, commenced this action, and he seeks therein to obtain a judgment- First, that the New York Elevated Railroad Company be compelled to transfer the stock on its books, and to issue in its place to him a new certificate, upon which should be the same words as were upon the margin of the old certificate; second, that the Manhattan Railway Company be compelled to pay to the said New York Company an amount equal to 10 per cent. per annum on the capital stock of the latter company from July 1, 1881, to July 1, 1884; and, third, that out of such payment the New York Company be compelled to pay him $3,250, ‘being thirteen dividends, of $250 each, for the several quarters commencing July 1, 1881, to and including the quarter ending July 1, 1884, together with the interest on the several quarters.’

In order to better understand the nature of this claim, and the grounds upon which are based our conclusions with respect to it, some review of the principal facts and corporate transactionsof these two companies, as they appear from the record before us, is necessary.

Though the legal questions presented are grave, and of considerable importance as to the parties defendant, they are within a comparatively narrow compass. In May, 1879, the defendants the New York and the Manhattan Railway Companies united with the Metropolitan Elevated Railway Company in the execution of a tripartite agreement, by the terms of which the New York and Metropolitan Companies were to lease their railways and appurtenant properties and franchises to the Manhattan Company for a term of 999 years. There was reserved in that agreement, as to each of the lessor companies, the obligation of discharging certain liabilities incurred by, or possibly accruing to, them, and of meeting all claims, in action or otherwise, existing against them on January 31, 1879. On its part, the lessee company assumed certain liabilities of the lessors, agreed to pay an equal amount of first mortgage bonds of each company, and to do various other things expressed therein, or in the annexed form of lease; but with its other provisions we are not particularly concerned. In accordance with this agreement the New York Company executed the lease, in a form described in the tripartite agreement, to the Manhattan Company, in May, 1879. By its provisions the Manhattan Company agreed to pay a fixed sum of $10,000 a year, semi-annually, and by the following article ‘guarantied to the New York Company an annual dividend of ten per cent. on the capital stock of the New York Company, to the amount of six million five hundred thousand dollars; that is to say, the Manhattan Company will each and every year during the term hereby granted, beginning with the 1st day of October, 1879, pay to the New York Company six hundred and fifty thousand dollars, free from all taxes, in equal quarter yearly payments of $162,500 each; and the Manhattan Company will, from time to time, execute, in proper form, a guaranty to the above effect, printed or engraved, upon the certificates of stock of the New York Company; and, as such stock certificates are surrendered for cancellation and reissue, will, from time to tiem, upon request of the holder, renew such guaranty upon all reissued certificates.’ By a subsequent article that company further agreed, ‘in addition to the rental hereinbefore provided,’ to pay the taxes, etc., which might be imposed on the lessor company.

A similar lease was executed by the Metropolitan Company of its railroad and appurtenant property to the Manhattan Company.

In July, 1881, the Manhattan Company made default in the payments called for by the leases, and the attorney general of the state instituted an action in the name of the people to obtain a decree for the dissolution of the corporation, on the ground of its insolvency, among others; and other actions were brought, prior to that date, by bondholders of the lessor companies for certain equitable relief, which also were based on such insolvency. The net earnings from the operation of the leased roads had not amounted to what had been expected, as the result of their being placed under one management, and, in addition to that fact, the taxes, which were assessed upon the properties, appear to have been larger in amount than anticipated; and the result was that the Manhattan Company was unable to fulfill its engagements. The court, in the people's action, appointed two receivers for the Manhattan Company, who continued in possession for several months. Meanwhile contests were waged for the possession of the leased properties, and for the establishment of claims against them in behalf of the lessee, and negotiations were set on foot for the settlement of these difficulties. In October, 1881, these negotiations resulted in agreements made for the three companies by their boards of directors, by which the leases were modified in certain respects, but the principal features of which were a reduction in the payments required of the lessee company on the capital stock of the lessors from 10 to 6 per cent., and in making the payments to the New York Company preferred over that due to the Metropolitan Company. Thereafteran order of the court was obtained in the people's suit, directing the restoration by the receivers to the Manhattan Company of the properties in their possession. In November of the same year the boards of directors of the three companies made an agreement for the transfer or merger of the capital stock of the lessor companies into that of their lessee. Under its provisions the stock issued in exchange for the stock of the New York Company was to be called ‘first preferred stock,’ and became entitled, from net earnings, to the payment quarterly of dividends at the annual rate of 6 per cent. before any other class of stockholders-that is, of the other companies-should receive any dividends. The Metropolitan stockholders were to receive second preferred stock of the Manhattan Company, which should be entitled to similar dividends, but only after the payment of full dividends on the New York Company's stock; and whereas the dividends were cumulative on the first preferred stock, for the second preferred stockholders they were not. The exchanged shares were to be held by the Manhattan Company uncanceled, as a muniment of title to itself and to the exchanging stockholders. Except as expressed in this merger agreement, the previous agreements and the leases were confirmed. Soon after the capital stock of the Manhattan Company was increased from thirteen to twenty-six millions of dollars in due form of law.

At the annual meeting of stockholders of the New York Company, in January, 1882, on the question of their approval of these October and November agreements, a vote of 25,904 shares was cast in favor, and of 737 shares in opposition. The amount of capital stock of the New York Company was 65,000 shares. In January, 1882, a majority of that stock had been converted into the first preferred stock of the Manhattan Company; and by May 6, 1884, before this plaintiff's testator's demand and the commencement of this action, 58,011 out of the 65,000 shares had been so converted. On January 31, 1882, the Manhattan directors by resolution elected to become ex officio directors of the New York Company. Holders of the Metropolitan Company's shares, whose interests were only in that company, or were greater than in the other companies, were not so well satisfied with the October agreements; and in December, 1882, a month after the election of a board of directors composed of persons other than in the previous board, a suit was instituted in the common pleas of New York by the Metropolitan Company as plaintiff, against the Manhattan and the New York Companies as defendants, to set aside the agreements. A decision was had in May, 1884, declaring those agreements to be null and void as to all the parties thereto. The opinion upon which this decision was entered was rendered by Judge VAN BRUNT, and is a most able and exhaustive review of the law relative to the government of corporations, their powers, and the duties of directors to stockholders. The effect claimed for his decision by this plaintiff is that as between these companies it is res adjudicata, and restored the contract in the lease of 1879 with the same obligation as though it had never been modified or changed by subsequent agreements. That cannot be so, and a consideration...