Callanan v. Powers

Decision Date11 October 1910
Citation92 N.E. 747,199 N.Y. 268
PartiesCALLANAN v. POWERS et al.
CourtNew York Court of Appeals Court of Appeals

OPINION TEXT STARTS HERE

Appeal from Supreme Court, Appellate Division, Third Department.

Action by Michael J. Callanan against Joseph A. Powers and others. From an order of the Appellate Division (136 App. Div. 902,123 N. Y. Supp. 1109) affirming, as modified, an interlocutory judgment for plaintiff, both parties appeal by permission. Order reversed, and interlocutory judgment affirmed as modified.

The Keeseville, Ausable Chasm & Lake Champlain Railroad Company is a domestic corporation organized in 1889 to build and operate a steam railroad six miles long between Port Kent in the county of Essex and Keeseville in the county of Clinton. The authorized capital stock was $60,000, divided into 6,000 shares of the par value of $10 each, of which only 3,071 shares had been issued at the date of the contract mentioned hereafter; the remainder, 2,929 shares, being in the treasury. The company completed its road in December, 1889, equipped it with the necessary rolling stock and appliances, and for about 14 years, or until June 10, 1903, had continuously and successfully operated it. At that date it was a complete steam railroad, in active operation, with an adequate equipment in good repair, and earning each year a surplus of between $4,000 and $5,000 over fixed charges and operating expenses. It had been built and was mainly conducted by residents of the section through which it passed, and in the spring of 1903 they wished to change it from a road operated by steam to one operated by electricity, to extend it to Lake Placid, a distance of about 40 miles, and to make certain other changes and extensions. With these objects in view, on the 10th of June, 1903, the company entered into a written agreement with the defendants Joseph A. Powers and Walter H. Mansfield, of which the following is a copy:

‘Agreement made this 10th day of June, 1903, between the Keeseville, Ausable Chasm & Lake Champlain Railroad Co., hereinafter called the Company, and Joseph A. Powers and Walter H. Mansfield, hereinafter called the Contractors, in consideration of one dollar hereby receipted for mutually and other good consideration.

‘Witnesseth: The Company agrees to transfer to the Contractors and deliver the same within ten days after the completion of the agreement hereinafter mentioned on their part for the operation of the road by electricity seventy-five per cent. of the issued capital stock of said Company, and to at once place the same in escrow with the Keeseville National Bank for said purpose; and agrees to deliver to said Contractors all the unissued capital stock of said Company, and agrees to appoint an executive committee of three to be named by the said Contractors and with powers satisfactory to them. The Company agrees to mortgage its property, franchises and equipments by executing and filing a consolidated mortgage in the sum of $175,000, the bonds to be issued thereunder to be six per cent. twenty-year gold bonds, with interest payable semi-annually on July 1st and January 1st. Said bonds to be callable and payable at ten per cent. premium and accrued interest at any time. Sufficient of said bonds to be held in escrow to retire the present outstanding bonds of the Company and the balance of said bonds to be issued to said Contractors for the work and material hereinafter specified, as soon as practicable, and procure the necessary consents of stockholders thereto.

‘The Contractors agree to reconstruct the Company's railroad into a first-class modern third rail electric railroad, to furnish an electric locomotive of sufficient capacity for the company's business and storage battery, dynamo, switchboard and appurtenances sufficient for the company's use and business; and to furnish sufficient and proper cars for the business of the Company. Said Contractors agree to purchase and deliver to the Company the dock property at Port Kent on Lake Champlain, and to connect the Company's railroad therewith by suitable tracks; also to extend the Company's railroad westerly on both sides of the Ausable River to the upper bridge in the Village of Keeseville as soon as possible.

‘Said railroad when reconstructed shall at all times be operated with as good service to the Villages of Keeseville and Ausable Chasm as heretofore had and there shall be no increase of rate for freight or passengers.

‘The Company is to procure an exclusive contract for traffic from and to the Ausable Chasm, from the Ausable Chasm Co. if possible.

‘The Company is to procure and the Contractors pay for proper water power to operate said electric road, at a price mutually agreed upon.

‘The Contractors agree to commence the said work of reconstruction at once and carry the same to completion as rapidly as possible, and both parties are to use their best endeavors to accomplish the same.

‘This contract is made upon the mutual understanding that said electric railroad is to be extended through the Ausable valley to Lake Placid as soon as practicable, and work to be begun within not longer than three years.’

This agreement was promptly performed by the company on its part, except in certain particulars, which were either waived or prevented by the other parties thereto. On the other hand, when this action was commenced, about 20 months after the date of the contract, there had been a substantial and nearly absolute failure to perform on the part of Powers and Mansfield, although performance was practicable and quite within their power. While they had purchased and transferred to the company the dock property at Port Kent, they had not connected the railroad therewith by suitable tracks, which would have required the expenditure of considerable money in grading, acquiring a right of way, purchasing and laying rails, and the like. Without such connection the dock property was of little use to the railroad company. While the work of transforming the steam road into an electric road and equipping it as required could easily have been done within six months from the date of the contract, in March, 1905, when this action was begun, Powers and Mansfield had done no substantial part thereof, although they had laid at intervals on the roadbed some long ties, which were equally adapted to an electric or a steam road, and they had placed on the ground, but had not erected, the poles needed to carry the electric wires and the cover to protect the third rail, together with some lumber suitable for the work, but equally useful for other purposes. They had not procured a water power to operate the road by electricity, nor extended the road to the upper bridge in the village of Keeseville on either side of the river, which would have required the construction of about one mile of road, nor had they procured the right of way for such extension or the consent of property owners or of the village authorities. Nothing had been done to extend the road to Lake Placid, which would have cost a large sum of money, but, on the other hand. Powers and Mansfield had repudiated that part of the agreement, and had declared that they never intended to be bound by it, although they knew when they signed the contract that the other party thereto understood it as requiring such extension and that the railroad authorities would not have executed it upon any other understanding. Their omission to perform the contract according to its terms was not owing to unforeseen circumstances, nor to any default, consent, or waiver of the railroad company while under the control of the original directors.

The entire amount expended by Powers and Mansfield, their assignees and agents in doing work contemplated by the contract did not exceed $14,250.31 at the time the action was commenced. This sum includes all moneys paid out for any purpose, and all that may become due on obligations incurred by them for the purpose specified. Of this amount $7,000 was expended for the purchase of the dock property, $3,796 for material bought and labor done in the work of transforming the road and the remainder for purposes which had little or nothing to do with the performance of their contract. Performance of the contract on their part, aside from the extension to Lake Placid, would have cost about $120,000. The net earnings of the road during the years 1903, 1904, and 1905 were about $4,000 a year. While Powers and Mansfield had done but little toward performance, they had obtained possession of the treasury stock and by voting thereon and on a few other shares which they had purchased had elected their relatives and employés as directors and had thus secured absolute control of the road. Through such control they had obtained possession of the bonds issued by the road to the amount of $175,000 and to a large extent had used them for purposes other than the performance of their contract, and had transferred them to certain of the other defendants in the action who claimed to own them in good faith, but they had notice of the facts. They had also caused the railroad company to enter into an improvident contract with an electric light and power company, owned and controlled by themselves, to their own profit and to the detriment of the road. This action was commenced on the 5th of March, 1905, by service of process upon all the defendants except one, the Powers & Mansfield Company, owned and controlled by Powers and Mansfield, which was brought in as a party defendant by an amended complaint on the 26th of August following. It is a representative action brought by a stockholder of the railroad company from the date of organization to rescind the contract of June 10, 1903, recover possession of the bonds and treasury stock, set aside various contracts made by Powers and Mansfield with their own instruments and agents, and, so far as possible, to place the company in the position it occupied when the contract was made. The plaintiff...

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