Dow v. N. R.R.

Decision Date11 March 1887
Citation67 N.H. 1,36 A. 510
PartiesDOW et al. v. NORTHERN RAILROAD et al.
CourtNew Hampshire Supreme Court

Case reserved from Merrimack county.

Bill in equity, by Samuel H. Dow and John E. Robertson, stockholders in the Northern Railroad, against the Northern Railroad, the Boston & Lowell Railroad, and the directors of the Northern Railroad, seeking to enjoin the operation of the Northern Railroad by the Boston & Lowell Railroad under a contract of lease. Answers were filed, and the case was heard at the trial term before Carpenter, J., both parties introducing evidence. Facts were found by the court, and the case was reserved for the law term by request of parties. Decree for plaintiffs.

The facts material to the points upon which the case was decided are as follows: The Northern Railroad was chartered in 1844. The corporation was authorized to construct and keep in use a railroad from Concord to Lebanon. Section 11 provides that "the legislature may alter, amend, or modify the provisions of this act, or repeal the same, notice being given to the corporation, and an opportunity to be heard." The road was constructed and put in operation within a few years after the charter. Chapter 100, Laws 1883, enacts that (subject to certain conditions and qualifications) "any railroad corporation may lease its road, railroad property, and interests to any other railroad corporation," upon such terms and for such time as may be approved by a two-thirds vote of the stockholders of each corporation Section 17. This act contains no provision for the compensation of dissenting stockholders. It was assumed that the Northern Railroad had notice of the proposed passage of this statute. On June 18, 1884, the stockholders of the Northern Railroad, by a vote of more than two-thirds, approved a lease to the Boston & Lowell. On the same day, pursuant to this vote, the Northern Railroad, by its president, executed to the Boston & Lowell Railroad a lease for 99 years of the railroad, rolling stock, etc., of the lessor; the lessee to pay a specified quarterly rental, and perform various other covenants. The plaintiffs voted against approving the lease, and seasonably filed their bill in equity, praying that the Boston & Lowell Railroad be enjoined from operating the Northern Railroad under the lease, and that the Northern Railroad and its directors be ordered to assume the management of the road.

Bingham & Mitchell and Jeremiah Smith, for plaintiffs.

Josiah H. Benton, Jr., and William L. Foster, for Northern Railroad.

William S. Ladd, Charles H. Burns, Daniel Barnard, and A. A. Strout, for Boston & Lowell Railroad.

DOE, C. J.1 The Northern Railroad is the name of "a collection of many individuals, united into one body," with certain rights and duties. Kyd, Corp. 13. A private business corporation is "an association formed by the agreement of its shareholders," and its existence "as an entity, independently of its members, is a fiction." It is "essential to bear in mind distinctly that the rights and duties of an incorporated association are in reality the rights and duties of the persons who compose it, and not of an imaginary being." Mor. Priv. Corp., preface. "The statement that a corporation is an artificial person or entity, apart from its members, is merely a description, in figurative language, of a corporation viewed as a collective body. A corporation is really an association of persons. * * *" Mor. Priv. Corp. § 227.

By the first section of the Northern Railroad charter (Laws 1844, c. 190) it is enacted "that Timothy Kenrick" and twenty other persons, "their associates, successors, and assigns, shall be and hereby are made a body politic and corporate by the name of the Northern Railroad." Here is no evidence of an attempt to introduce a mystery, or to create a fictitious being, to whom the state can give neither body nor mind. The stockholders are the corporation. They have the entire equitable title and beneficial interest of the property by them put in the corporate trust, and they are the corporate trustee in whom is vested the legal title. All of them, assembled at their annual meeting, choosing their seven directors by ballot and exercising their stockholding rights in any other legal act, would be the visible body, and the acting mental and moral faculty, whose partnership name is the Northern Railroad. They are made a body, not by the legislature, but by their own several acts of becoming stockholders and joint principals. Under the common law, without a charter, they can form a partnership body by becoming stockholders and joint principals in the business of a stagecoach common carrier between Concord and Lebanon. Under general law, without a special act of incorporation, if a majority of them are inhabitants of this state, they can make themselves a railroad corporation. Laws 1883, c. 100. "May associate themselves together, by written or printed articles of agreement, for the purpose of forming a railroad corporation," is the language of the act. They are no more made a body by the law than they would be if they should form a corporation under the act of 1883, or an unincorporated partnership under the common law. Whether they are incorporated or not, their company is formed by their contract with each other, and it has such powers and duties as the law allows them to give it, and such as the law grants and imposes. For whatever legal purposes their corporate body may be regarded as unreal the fiction does not vest all the property in an imaginary being, and does not make the shareholders owners of an imaginary capital stock, for the purpose or with the consequence of giving to the majority of them, or to the state, a leasing power which the majority or the state would not have if the partnership were not incorporated.

As the plaintiffs could assent to the lease only in person, or by some agent or agents, and as they have not personally approved it, but have seasonably opposed it, one question is whether, by becoming stockholders, they conferred a general leasing power over their shares upon a majority of the corporation. Whether the agents' power given by the plaintiffs to the majority is now regarded by either of those parties as too much or too little, it cannot be revoked or diminished by the minority, or increased by the majority. Neither party have any legal cause of complaint against their own agreement. If the plaintiffs are dissatisfied with the control they have given the majority as their agents, they can withdraw from it by the simple process of selling their shares. If the majority are embarrassed by the need of a larger agency, they can liberate themselves by the same process. The question whether each of the plaintiffs, by the act of buying a share, gave the majority a general leasing power over that share, is not affected by the circumstance that such power, if given by him, could not be lawfully exercised until the state consented, as it did by the act of 1883, to accept the lessees as substitutes for the lessors in the performance of the lessors' public duties. But the extent of the power vested in the majority may be obscured by overlooking the widely-different origins of that power, and the distinction between the stockholders' private property, which they did not receive from the state, and the public rights which they exercise as state agents. Eminent domain not being exercised over the plaintiffs' shares, it is necessary to observe the difference between that private authority over each share of the private property which its owner alone can give the majority, and that public agency which the public alone can give them.

The lease of the Northern to the Lowell is an attempt to compel the plaintiffs, dissenting stockholders of the Northern, to exchange for 99 years all their interest in the Northern for an annuity, secured by a right of entry, practically equivalent to a mortgage enforceable by strict foreclosure. The possibility of a nonpayment of the annuity, and a resumption of the carrier business by the Northern, has no bearing on the question of the validity of the exchange of that business for the annuity. This question is to be decided on the possibility and the presumption that the Northern will have no occasion to resort to its security. The circumstance that the money to be received by the Northern is divided into many sums, due at different times, is immaterial. The law of the case is what it would be if the price paid for the estate of 99 years had been paid in a single sum before the purchaser took possession of the road, and the security given were merely for the performance of covenants not relating to the payment of the price. The payment of the whole price in one sum, and the division of it among the Northern stockholders, would leave them members of their corporation, and owners of an estate in remainder. Instead of being a step in a process of dissolving the Northern Company and winding up its affairs, the lease requires that company to "keep up and preserve its organization." Whether each stockholder's share of the price of the estate sold is paid to him in one sum at one time, or in many sums at many times, the sale of the road for 99 years is not a provision for the Northern Company's working the road, which by the terms of the sale is to be worked during that time, not by the Northern and the Lowell as joint principals, nor by the Lowell as agent of the Northern, but by the Lowell for the Lowell as sole principal. "If the directors of the Concord Railroad should vote to build a line of telegraph on its road from Nashua to Concord, and stockholders should ask an injunction against the execution of the vote, one question would be whether a telegraph line is reasonably necessary for working the road and carrying into effect the purposes of the charter. It would be largely, if not wholly, a question of fact." Burke v. Railroad Co., 61 N. H. 160,...

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