Cont'l Sec. Co. v. N. Sec. Co.

• Decision Date: 26 April 1904
• Citation: 57 A. 876,66 N.J.E. 274
• Parties: CONTINENTAL SECURITIES CO. v. NORTHERN SECURITIES CO.
• Court: New Jersey Court of Chancery

57 A. 876

66 N.J.E. 274

CONTINENTAL SECURITIES CO.

v. NORTHERN SECURITIES CO.

Court of Chancery of New Jersey.

April 26, 1904.

Suit by the Continental Securities Company against the Northern Securities Company. On bill for injunction and relief. On rule to show cause why an injunction should not issue. Rule discharged.

Charles D. Thompson, for complainant.

John W. Griggs, Robert H. McCarter, Charles L. Corbin, and Thomas Thatcher, for defendant.

BERGEN, V. C. Stated as concisely as the matters under consideration will permit, it appears from the bill of complaint, affidavits, and exhibits offered and used, by consent, on the hearing, that the defendant was lawfully incorporated under the laws of this state; that the object for which it was formed, as set forth in its certificate of incorporation, was the purchase, holding, and selling of the bonds, evidences of indebtedness, or capital stock of other corporations, whether incorporated in this state or elsewhere, and, as owner thereof, to exercise all the rights, powers, and privileges of ownership, including the right to vote on any such stock; that shares of the capital stock of the defendant corporation, of the par value of $100 each, to the extent of 3,954,000 shares, were issued and disposed of; that, of the stock so issued, a large proportion was used in purchasing a majority of the capital stock of the Northern Pacific Railway Company, and also of the Great Northern Railway Company, by virtue of which the defendant company assumed the management and control of the railway companies; that the defendant company purchased 1,537,594 shares of the common stock and 410,850 shares of the preferred stock of the Northern Pacific Company, paying therefor in cash $43,625,030.50, and 1,708,229 shares of its own stock; that it purchased of the capital stock of the Great Northern Railway Company 1, 181,242 shares, paying therefor $1,707,200 in cash, and 2,110,576 shares of its own stock; that the defendant issued and sold, of its own stock, 75,220 shares to the public for cash; that in January, 1902, the preferred stock of the Northern Pacific Railway Company, held by the defendant, was called for payment by that company, and paid in cash, for which the defendant received $41,085,000, of which it invested $34,709,062.50 in the convertible bonds of the Northern Pacific Company, afterward availing itself of the convertible rights vested in the owner of any such bond. The defendant surrendered said bonds to the Northern Pacific Company, and received from it the equivalent in shares of the common stock of said company issued to redeem the bonds. It is thus disclosed that the capital stock of the defendant company was issued in part for the common stock of the two railway companies, which we may assume, for the purposes of this motion, was an exchange of stocks, with differences paid in cash; that stock of the defendant company worth at par $7,522,000 was sold in the public market for cash; that a large amount of common stock of the Northern Pacific Company now owned by the defendant was issued by the Northern Pacific Company directly to it, for the surrender of convertible bonds belonging to the defendant company. It further appeared that a suit brought by the United States against the defendant company, based upon an alleged violation of the act of Congress (Act July 2, 1890, c. 647, 26 Stat. 209 [U. S. Comp. St. 1901, p. 3200]) commonly known as the "Anti-Trust Act," had resulted in a decree, afterward affirmed by the Supreme Court of the United States, adjudging that the defendant had entered into a combination in restraint of trade and commerce among the several states, which the act of Congress denounced as illegal; that all of the stock of the Northern Pacific Railway Company and all the stock of the Great Northern Railway Company claimed to be held and owned by the defendant was acquired and held by virtue of such illegal combination, and, upon such adjudication, enjoining the Northern Securities Company, or its representatives, from acquiring or attempting to acquire any further stock in either of said railway compa nies, and prohibiting the defendant from voting or attempting to vote said stock at any meeting of the stockholders of either of said railway companies, and from exercising or attempting to exercise any control, direction, supervision, or influence whatsoever over the acts and doings of said railway companies, or either of them, by virtue of its holding any stock therein, or from voting at any corporate election for directors or officers of either of said companies; and said decree further enjoined the said railway companies from paying any dividends to this defendant on account of any stock which it claimed to hold or own of either of said companies, and prohibited the said railway companies from permitting the defendant to exercise any control over their corporate acts. The said decree adjudges that nothing in it contained should be construed as prohibiting this defendant from returning and transferring to the stockholders of either of said railway companies any and all shares of stock in either of said companies which the Northern Securities Company might have theretofore received from said stockholders in exchange for its stock, or as prohibiting the defendant from making transfer of the stock to such persons as might then be the holder of its own stock, originally issued in exchange or payment for stock acquired by it in the aforesaid railway companies. It further appeared that the continued ownership of said railway stocks by the defendant company would not only be useless, but a great disadvantage to the stockholders of the company, and that the directors of the company had decided to reduce its capital stock, and divide the surplus that would arise upon such reduction between the stockholders, and, in order to carry out said determination, on the 22d day of March, 1904, adopted certain resolutions for that purpose; those pertinent to this issue being as follows:

"Resolved, in consideration of the premises, it is declared necessary and advisable for this company so to reduce its present capital stock as will enable it without delay, in connection with such reduction, to distribute among its shareholders, the share of capital stock of said railroad companies held by it.

"Resolved, that the board of directors of this company hereby declare it advisable that article fourth (4th) of this company's certificate of incorporation be amended so as to read as follows:

"'Fourth. The capital stock of this company is hereby reduced to three million nine hundred and fifty four thousand dollars ($3,954,000) divided into thirty-nine thousand five hundred and forty (39,540) shares of one hundred dollars each ($100). Such reduction of capital stock...