Kidd v. New Hampshire Traction Co.

• Decision Date: 05 March 1907
• Citation: 66 A. 127,74 N.H. 160
• Parties: KIDD et al. v. NEW HAMPSHIRE TRACTION CO. et al.
• Court: New Hampshire Supreme Court

66 A. 127

74 N.H. 160

KIDD et al.

v. NEW HAMPSHIRE TRACTION CO. et al.

Supreme Court of New Hampshire. Rockingham.

March 5, 1907.

Transferred from Superior Court, Rockingham County; Peaslee, Judge.

Bill by Charles G. Kidd and another against the New Hampshire Traction Company, the New York Security & Trust Company, and others. The bill was filed by two holders of preferred stock in the Massachusetts Construction Company, Incorporated, in behalf of themselves and all other stockholders of the corporation, alleging in part, in substance, that as a result of fraud all the assets of the corporation have passed into the possession and control of the New York Security & Trust Company, one of the defendants, and praying for an accounting by the latter company. There was a trial by the court. A general decree was made in favor of the plaintiffs against the trust company, and the bill was dismissed without costs as to the other defendants. The facts and rulings upon which the decree was based, together with the defendants' exceptions thereto, were transferred from the superior court. Case discharged.

Roger F. Sturgis and Streeter & Hollis, for plaintiffs. William B. Hornblower, J. Norris Miller, and Sargent, Remick & Niles, for defendant New York Security & Trust Co. Storey, Thorndike, Palmer & Thayer, Samuel W. Emery, and Sargent, Remick & Niles, for defendant Hampshire Traction Company. Burnham, Brown, Jones & Warren, for defendants Massachusetts Construction Company, Incorporated, and Wallace D. Lovell.

CHASE, J. Wallace D. Lovell, a promoter and builder of street railways, doing business in the name of incorporated companies whose stock he owned and whose affairs he controlled, borrowed money of the plaintiffs from time to time, beginning in 1897, to such an extent that in the fall of 1901 he and his company were owing the plaintiff Kidd about $179,000, and the plaintiff Whitcomb $65,000. In October, 1901, the Massachusetts Construction Company, Incorporated (Connecticut Company) was formed under the general laws of Connecticut, and took the assets and assumed the liabilities of the Massachusetts Construction Company (Massachusetts Company), in whose name Lovell had previously conducted the business. The Connecticut Company's capital stock is $500,000, of which $250,000 is preferred, both as to the payment of dividends and the par value of the stock upon liquidation, and has no voting power, that being wholly lodged in the owners of the common stock. Lovell induced the plaintiffs to surrender the notes and collaterals which they held for their loans and to take in payment preferred stock of the Connecticut Company, Kidd taking 1,790 shares and Whitcomb 650 shares. The plaintiffs now hold this stock. Lovell borrowed of the defendant the New York Security & Trust Company (Trust Company) in 1900 and 1901 large sums of money upon notes secured by pledges of stocks and bonds of the railway corporations whose roads he and his corporation constructed. The Trust Company also purchased bonds of some of these railway corporations in the summer of 1900. By a contract, dated November 12, 1901, the Massachusetts Company and the Connecticut Company sold and conveyed to the Trust Company all their interests in large blocks of the stocks and bonds of the railway corporations. The contract provided that the Trust Company should organize, or cause to be organized, under the laws of this state, a holding corporation, to which the stocks and bonds received by the Trust Company under the contract, with certain exceptions, should be sold upon the terms set forth in the contract, and that the Massachusetts Company and the Connecticut Company should be paid for their equity in the stocks and bonds so sold to the Trust Company, by portions of the stock and bonds to be issued by the holding corporation. The Trust Company thereupon caused the New Hampshire Traction Company (Traction Company) to be organized, and the sale was made to it as provided in the contract.

Another contract under seal, dated December 28, 1901, between the Construction Companies, the Trust Company, and Lovell, was prepared, by which the Construction Companies sold and conveyed to the Trust Company, and the Trust Company purchased of the Construction Companies, all their right, title, and interest in and to the stock and bonds of the Traction Company received under the contract of November 12, and in and to certain railway stocks, bonds, and claims, in consideration of $639,1(53.75 in cash (to be used in the payment of the debts of the Construction and Railway Companies), debenture bonds, of the Traction Company amounting to $375,000, a certificate of the Trust Company providing that 2,375 shares of the Traction Company's stock should be delivered to the Connecticut Company, January 1, 1907, and certain covenants of the Trust Company. The Construction Companies covenanted that their indebtedness and that of the railway corporations together did not exceed $639,163.75, and pledged the debenture bonds and interest in stock received by them under the contract to secure this covenant. The Trust Company agreed to furnish money to complete certain railways, and to cause Lovell to be retained in and about the construction of the same for the term of two years at an annual salary of $6,000, and necessary disbursements. The Construction Companies agreed that all construction might be done in the name of the Connecticut Company— the Trust Company to pay all bills incurred with its consent, and to indemnify the Connecticut Company for all expenses, costs, and liabilities arising from any act, contract, or omission of that company, while its control was in the Trust Company as provided in the contract. The Trust Company further agreed to sell and assign to the Traction Company the stock and bonds received and to be received by it under the contract, upon certain terms. The contract also provided for the substitution of persons desired by the Trust Company for the officers and directors of the Construction Companies then in office, as is hereinafter stated—the officers and directors so substituted to have the right to make such changes in the by-laws as they might think desirable. Lovell was to furnish stock to qualify the officers and directors so substituted, and was to deposit with parties named certificates for all the common stock of the Connecticut Company, indorsed in blank, as security for the faithful performance by him and the Construction Companies of all the covenants, terms, and conditions of the contract. By the twelfth article of the contract it was "expressly understood and agreed that in so far as the Trust Company is concerned this contract shall not take effect until the examination now being made by the representatives of the Trust Company of the properties, rights, privileges, and franchises of the various companies shall be completed, and shall not then take effect unless the report of the engineers and accountants making such examination shall be entirely satisfactory to the said Trust Company." This contract was laid before the directors of the Connecticut Company at a meeting held December 31, 1901, and the action was taken which appears later in this opinion. Immediately following this action, three of the five directors resigned, and Trust Company nominees were elected in their stead.

January 3, 1902, the Trust Company wrote Lovell, as president of the Construction Companies, as follows: "Referring to the agreement of December 28, 1901, between [naming the parties], we beg to advise you that the examinations made by us under article xii of said contract have been completed; that the results of said examinations are satisfactory to us; and that we are prepared to accept said contract upon the express understanding and agreement on the part of the Massachusetts Construction Company and the Massachusetts Construction Company, Incorporated that they will furnish and pay for the work, materials, and machinery necessary for the entire completion of the high tension service on all of the roads now constituting the New Hampshire Traction Company, including rotaries, wiring, etc., and that there shall be no claim whatsoever against the New Hampshire Traction Company * * * on account of the completion of said high tension service." To this the Construction Companies by their president, Lovell, replied in their corporate names under the same date "that the same is in all respects entirely satisfactory to the Massachusetts Construction Company and the Massachusetts Construction Company, Incorporated, the said companies agreeing to furnish and pay for all the work, materials, and machinery necessary for the said high tension service." There was no other acceptance of the modified contract, except by implication from action subsequently taken under it. The sale was of all the assets of the Connecticut Company. The Trust Company subsequently sold to the Traction Company the securities mentioned in the contract. These securities represented an outlay by the Trust Company of $1,247,163.75, and it received therefor from the Traction Company its bonds, apparently worth at that time $1,958,945.47. This shows a profit of $711,781.72, and the Trust Company was required by the court's decree to account to the plaintiffs for this sum, so far as necessary to satisfy their claims as holders of preferred stock of the Connecticut Company. It was also found that the value of these securities, if determined by subsequent developments, was never as much as the Trust Company paid for them.

The Trust Company's title to the securities in question depends upon this contract of December 28th. The company says it acquired a legal and absolute title to these securities by virtue of this contract, and its subsequent acts in fulfilment of the provisions of the contract. This claim must be sustained if the contract was duly executed, and is not void or voidable for any reason. The...