Gregg v. Mayor and City Council of Baltimore
| Decision Date | 29 July 1859 |
| Citation | 14 Md. 479 |
| Parties | JOHN GREGG and Others v. THE MAYOR AND CITY COUNCIL OF BALTIMORE. |
| Court | Maryland Court of Appeals |
Appeal from the Circuit Court for Baltimore City.
The Board of Directors of the Baltimore & Ohio Railroad Company adopted, on the 17th of December 1856, a resolution for an extra dividend, in which, after reciting, by way of preamble, that there has been appropriated by the company from time to time, the sum of $3,000,000, and upwards, of the net earnings of the main stem of the road, to the purpose of construction, with the intention, in conformity with the practice of the company, of paying the same to the stockholders in the shape of a dividend, at such time as they might deem judicious, it is provided that an extra dividend of thirty per cent. be declared on the stock of the company to be paid on and after the 12th of January 1857, to all stockholders owning stock on the 22nd of December 1856, in certificates of indebtedness, bearing an interest from the 1st of June 1857, of six per cent. per annum payable half yearly, on the first day of December and June in each year, until the 1st of June 1862, inclusive, after which said certificates of indebtedness shall be converted into the stock of the company at par, and blank forms of certificates were prepared by the company to be issued to the stockholders, in conformity with this resolution.
On the 10th of January 1857, the Mayor and City Council of Baltimore, who were owners of $3,500,000 of its stock, and also creditors in the sum of $5,000,000, secured by mortgage filed a bill in the court below against the Rail Road Company to annul the above resolution, and for an injunction to restrain the company from issuing and delivering these certificates of indebtedness. This bill states, that from the year 1830 to the present time, a part of the surplus profits of the road, amounting to $3,000,000, has been applied to the construction and reconstruction of the road, its repairs, the building of bridges, making sidelings, to the purchase of real estate and depots, and for numerous other substantial and permanent improvements, but denies that such use and employment of these surplus profits created any indebtedness on the part of the company to its stockholders or any one else, or that the company had any power, under its charter, to make them the subject of a dividend. It further charges that the transaction now contemplated by the above resolution is substantially an increase of the capital stock of the company, and a multiplication of its shares of stock, which the company has a right at any time to accomplish, under the 13th sec. of its charter, but even when viewed in the light of a present increase of the shares of stock, the resolution is illegal and inoperative, inasmuch as it creates a species of preferred stock not authorized by any provision in the charter of the company. The bill also further charges that by the 7th sec. of the charter of this company, the complainants (the Mayor and City Council of Baltimore) are entitled to appoint a director for every twenty-five hundred shares of stock owned by them at the time of the annual election of directors of the company, and complainants are informed and believe, and therefore charge, that a majority of the said board of directors did, with a view to defeat this right of the complainants to appoint directors according to their proportion of said $3,000,000 of stock, adopt the plan of ostensibly treating said surplus profits as constituting a debt due from the company, well knowing at the time that no such debt existed, but designing thereby to defraud the complainants out of their chartered rights and power to appoint an additional number of directors as aforesaid.
Upon this bill the court granted an injunction, as prayed, and, on the 21st of January 1857, the railroad company appeared and filed its answer under its corporate seal, which was subsequently verified by the oath of its President, made in open court on the 2nd of February 1857. This answer admits that since the year 1830, surplus profits have been earned by the company amounting, on the 1st of October 1856, to $3,833,071.75, over and above the dividends in stock, money and bonds from time to time paid, and that $3,000,000 of these surplus profits have been applied to the construction and reconstruction of the road, as charged in the bill, but denies that the company had no power, by its charter, to declare the dividend in question, and, on the contrary, insists that they have such power, and that the dividend, in the shape in which it has been declared, is entirely legal, and has been so decided to be by the Court of Appeals in 6 Gill 363, upon a state of facts identical with those existing in the present case. The answer also denies the averment of the bill, that a majority of the Board of Directors, with a view to defeat the right to appoint directors, adopted the plan of ostensibly treating this surplus as constituting a debt due from the company, and knowing, at the time, that no such debt existed, but designing thereby to defraud the complainants out of their chartered rights to appoint an additional number of directors, and insists that such averment is absolutely untrue.
At the same time with the filing of this answer, a motion to dissolve the injunction was made and set down for hearing. An order was then passed allowing testimony to be taken before a commissioner, relative to the allegations of the bill, to be used at the hearing of the motion to dissolve, under which a large mass of testimony was taken and returned. On the 23rd of March 1857, whilst the argument on the motion to dissolve was going on, the Board of Directors of the railroad company passed resolutions which declared that the above answer had been filed without having been submitted to the Board, and, if allowed to stand, might prejudice the company in other suits or controversies in relation to this dividend, and instructed their solicitors to ask leave of the court to withdraw said answer, in order that an answer, sanctioned by a majority of the whole Board, may be hereafter filed, and for that purpose, to dismiss the pending motion to dissolve the injunction. In obedience to these resolutions, Mr. Latrobe, the solicitor of the company, on the next day, (24th of March 1857,) filed a petition asking leave to withdraw the answer, and to dismiss the motion to dissolve. The court ordered the leave to dismiss to be granted, the solicitors of the complainants being in court and making no objection, and, in pursuance of this leave, the motion to dissolve was dismissed.
At this stage of the cause, and on the same day, (24th of March 1857,) the present appellants, who are and were, on the 22nd of December 1856, the holders of 12,619 shares of the stock of the Railroad Company, and therefore entitled to certificates of indebtedness under the extra dividend resolution of the 17th of December 1856, filed their petition, in which, after stating, their respective interests as such stockholders, they allege that the other stockholders are very numerous and dispersed, so that it would be impossible to make them all co-petitioners, and they, therefore, pray that this petition may be taken as filed for all persons having concurrent interests in the dividend, who may desire to make themselves parties on just terms to be imposed by the court, and that all the previous proceedings and papers in the cause may be taken as part of this petition. The petition then states that since the commencement of the argument on the motion to dissolve, the petitioners have been informed that by reason of some proceedings of the Board of Directors of the Railroad Company, called in special session, it was resolved, that the counsel of the company should withdraw the answer, the effect of which would be, if allowed, without some action at the instance and on behalf of the petitioners, that the motion to dissolve will cease to be argued, and the injunction continued indefinitely, to the prejudice of the petitioners and others in like interest, who are interested in said extra-dividend. It then states that the injunction should not have been granted, because no person or party was made defendant, who was or could be injuriously affected by it; that the dividend became on the day it was promised to be executed by the delivery of certificates of indebtedness, the property of the respective shareholders, and that the Railroad Corporation has no adversary interest to the granting of the injunction, but the only adversary interest is in the petitioners and others in like interest, or as assignees from other shareholders of said dividend; that the injunction grievously affects the petitioners and others in like interest, and yet has been granted to their injury, without their having the formal opportunity of being able to move for its dissolution by being defendants to the bill, or to call for an adequate bond to protect their rights; that they do not know whether they or others sufficient to make a substantial representation of the interest of shareholders, were left out, as defendants, through error or by design, to injure their interests, and to afford an opportunity to the complainants and defendants through their counsel and directory so to control the suit that it should injure the petitioners, without their having the power to approach in this cause, the justice and equity of the court for redress, but they prefer to suppose no such professional device was intended, and that the complainants' counsel supposed the interest of the petitioners are in law represented by the defendant, which the petitioners deny; that if the dividend is legal the Railroad Corporation is the debtor of the petitioners...
To continue reading
Request your trial