Connecticut Co. v. New York, N.H. & H. R. Co.
Decision Date | 31 July 1919 |
Citation | 107 A. 646,94 Conn. 13 |
Court | Connecticut Supreme Court |
Parties | CONNECTICUT CO. v. NEW YORK, N.H. & H. R. CO. et al. |
Case Reserved from Superior Court, New Haven County; Donald T Warner, Judge.
Suit by the Connecticut Company against the New York, New Haven & Hartford Railroad Company and others. On reservation by the superior court for the advice of the Supreme Court of Errors. Superior court advised.
Suit to determine the validity of claims made by the holders of outstanding debentures issued by the Consolidated Railroad Company which were alleged by the plaintiff to constitute a cloud upon the title to its properties and to prevent it from raising funds by way of mortgage, brought to and reserved by the superior court in New Haven county, Warner, J., upon the facts stated in the pleadings, for the advice of this court.
The Thompson Tramway Company was chartered by the General Assembly of this state in April, 1901. In January, 1902, its corporate name was changed to the Worcester & Connecticut Eastern Railway Company. Prior to September of that year the company came into the ownership of the New York New Haven & Hartford Railroad Company, and all the street railway and electric companies in Connecticut, which that company had then purchased, owned, or controlled, were merged in it. By special acts of the General Assembly passed in 1903 and 1905 (14 Sp. Laws, pt. 1, p. 145), and part 2, p. 706 the charter powers of the Worcester & Connecticut Eastern Railway Company, known after May, 1904, as the Consolidated Company, were greatly enlarged so as to include the powers of a holding company with authority to purchase, hold, or guarantee the stock, bonds, leases, and franchises of any other transportation or electric corporation, to merge, consolidate, and make common stock with other corporations, and to issue its bonds and full paid stock at its par value. From a time prior to May, 1904, the railroad company continued to own all the capital stock of the company, being $500,000 in amount, elected its officers and directors, all of whom were officers and directors of the railroad company, and controlled its affairs as absolutely as though the two companies were one and the same corporation.
May 18, 1904, the name of the railway company was, at the instance of the railroad company, changed to the Consolidated Railway Company, hereinafter referred to as the Consolidated Company. On that date the railroad company caused the capital stock of the Consolidated Company to be increased to $10,000,000 for the purpose of taking over and consolidating into it the various electric and street railway companies which the former company had then acquired or should thereafter acquire, together with their franchises and property. Then and thereafter the railroad company did so consolidate a number of street railway and electric companies, including the Fair Haven & Westville Railroad Company, an unmortgaged corporation whose property the complaint more especially concerns, and caused the same, with their property rights and franchises, to be conveyed to the Consolidated Company.
Beginning July 1, 1904, and ending January 1, 1906, the Consolidated Company made five separate issues of its coupon debenture bonds, aggregating in amount $13,047,000, of which $10,887,000 are now outstanding and unpaid. These bonds were declared to be issued for the purpose of purchasing the stock or bonds of other corporations owning or operating electric railways or the property rights and franchises of such corporations and for other proper purposes of the company.
Each of the bonds contained the following clause:
" The Consolidated Railway Company further promises that if it shall hereafter mortgage the whole or any part of the property and franchises by it owned on (date) except to renew existing mortgages, this debenture and the indebtedness evidenced hereby shall participate in the security of such mortgage upon equal terms with all other indebtedness or evidences of indebtedness to be secured by such mortgage."
The date inserted in each of the debentures corresponded with the date of the issue to which it belonged.
May 31, 1907, acting under authority obtained from the General Assembly, the Consolidated Company merged with and in itself the New York, New Haven & Hartford Railroad Company, and thereupon changed its name to that which the absorbed railroad company had borne. This corporation will for convenience sake be referred to hereinafter as the New Haven Company. Its capital stock consisted of the combined outstanding capital stock of the two merging corporations, and that of the Consolidated Company, which was all in the treasury of the New Haven Company or in that of another subsidiary of that company, the New England Navigation Company, became, by the terms of the merger, original capital stock of the New Haven Company.
By this merger the New Haven Company became the owner of all the capital stock of the Thomaston Tramway Company consisting of 2,500 shares of the par value of $100 per share. The name of the tramway company was thereupon by the procuration of the New Haven Company changed to the Connecticut Company. The New Haven Company thus became the owner of the Connecticut Company, and all the various electric and street railway companies, together with their rights, property, and franchises which had been held by the Consolidated Company prior to the merger.
From June 1, 1907, to on or about February 28, 1910, the Connecticut Company operated the street railway properties owned by the New Haven Company as a subsidiary company owned and controlled absolutely by the New Haven Company and as its agent acting under a lease agreement which was executed between them. During all this period the New Haven Company owned all the stock of the Connecticut Company consisting of 2,500 shares of the par value of $100 each, elected its officers and directors, who were likewise officers and directors of the New Haven Company, and controlled its affairs and policies absolutely. During this period the net earnings of the Connecticut Company from the operation of the street railway properties, amounting to a large sum, save only one item of $600,000 which was received by the New Haven Company in 1910 as a dividend upon the capital stock of the Connecticut Company, were turned over to the New Haven Company under the lease agreement. Before the termination of this period, the Connecticut Company had invested in its own lines and property a sum exceeding $300,000 for which payment was made out of the funds furnished by the New Haven Company, either old or new.
On February, 1910, the New Haven Company as a preliminary to and a part of its plan to consolidate all its Connecticut street railway properties into one subsidiary company caused the capital stock of the Connecticut Company to be increased from $250,000 to $40,000,000. In further pursuance of its plan of consolidation, the New Haven Company on February 28, 1910, sold and conveyed to the Connecticut Company all of its street railway properties in Connecticut owned by it and formerly owned by the Consolidated Company with two or three minor exceptions. In exchange for the property thus conveyed, all of the $40,000,000 of capital stock of the Connecticut Company, except a small amount already held by the New Haven Company in its treasury, was delivered to it. All of this stock and all of the obligations of the Connecticut Company for borrowed money remained in the hands of the New Haven Company until June, 1913, when the transaction detailed in the next following paragraph was had. After February 28, 1910, the Connecticut Company ceased to operate its Connecticut street railway companies and properties as lessee of the New Haven Company, and thereafter operated them as a subsidiary of the latter company. The transfer of properties to the Connecticut Company was made in pursuance of a written agreement authorized by that company's stockholders in January, 1910. On that date and on the date when the transfer of properties was made, the New Haven Company was the sole stockholder of the Connecticut Company, and the latter's directors were persons who were directors of the New Haven Company and the chief executive officers of the Connecticut Company were persons who were officers of the New Haven Company.
In June, 1913, the New Haven Company, in furtherance of its various purposes, transferred to the New England Navigation Company all of the $40,000,000 of stock of the Connecticut Company. This latter company was likewise a subsidiary of the New Haven Company and as such continued to hold the capital stock of the Connecticut Company down to the time when the court decree hereinafter referred to was entered. During all the time covered by this transaction, the stock of the navigation company was owned by the New Haven Company, and it was managed, controlled, and officered in the same manner as were the other subsidiary companies of the New Haven system as hereinbefore described. During that time the New Haven Company was the equitable owner of all of said stock and through the navigation company as its intermediary made use of the same with other securities held by it for financing further purchases of property and for purposes of its own.
October 17, 1914, the United States District Court for the southern district of New York, in a suit brought by the United States against the New Haven Company, its subsidiaries, and others, entered a decree providing for the separation of the management and control of certain properties held by the New Haven Company and its subsidiaries, including the street railway properties, from that of the New Haven Company and looking to the ultimate...
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