Mills v. Cent. R. Co. of N. J.

• Decision Date: 06 February 1886
• Parties: MILLS and others, ex'rs, etc v. CENTRAL R. CO. OF N. J. and others.
• Court: New Jersey Court of Chancery

2 A. 453

41 N.J.E. 1

MILLS and others, ex'rs, etc

v. CENTRAL R. CO. OF N. J. and others.

Court of Chancery of New Jersey.

February 6, 1886.

Bill for relief. On final hearing on pleadings and proofs.

H. C. Pitney and Barker Gummere, for complainants.

B. Williamson, Mr. Kaercher, and G. M. Robeson, for defendants.

THE CHANCELLOR. This suit is brought by Alfred Mills and John H. Lidgerwood, executors of the will of Stephen Vail, deceased, against the Central Railroad Company of New Jersey, the Philadelphia & Reading Railroad Company, and the persons who at the time of filing the bill (August 29, 1883) were the directors of the latter company. The object of it is to annul the lease made the twenty-ninth of May, 1883, by the Central to the Reading, by which the former demised to the latter, for the term of 999 years, its railroads and works, and all their appendages and appurtenances, and conveyed to it all its property and assets, real and personal, together with all its rights, powers, franchises, and privileges for the management, maintenance, renewal, extension, alteration, or improvement of the demised railroads and works and their appurtenances. The rent reserved was payments of interest, dividends, rents, etc., for which the Central was liable, and the annual payment of a sum equal to 6 per cent. upon the par value of the then outstanding capital stock of that company. The Reading took possession of the property at the date of the lease. The complainants now hold, and did at the date of the lease, 2,048 shares of stock of the Central. They never consented to the lease, and they insist that they are entitled in equity to have it set aside, and to have the Central reinstated in the rights, and repossessed of the property, which were demised or conveyed by that instrument.

The questions to be considered are whether the Central had the right to make the lease without the consent of the complainants; and, if not, whether the latter are estopped, by their conduct in reference to it, from seeking relief in equity against it. The Central has undertaken to transfer to the Reading all of its railroad and other works, with all of its franchises requisite to the maintaining and operating them, for a period so long as to be equivalent in duration to a conveyance in fee, and it has conveyed to the Reading all the rest of its property, real and personal. It has thus, if the lease be valid, divested itself of all of its property, and, abdicating all control of its railroads and other works, turned over (practically forever) the management and operation thereof to the Reading, only reserving to itself the payment of the rent, with the right of enforcing it by re-entry, etc., and the benefit of certain covenants.

The lease was made with the consent of a majority only of the stockholders of the Central. It is urged by the defendants that, when it was made, the Central had legislative authority so to make it, derived, not only under the supplement of 1880 (P. L. 1880, p. 231) to the general railroad law, but also under the third section of a supplement to its charter, which supplement was approved March 17, 1854, (P. L. 1854, p. 524,) and under the act of 1881, "to authorize railroad companies incorporated under the laws of this and adjoining states to merge and consolidate their corporate franchises, and other property," (P. L. 1881, p. 222.) The act of 1880 declares, among other things, that it shall be lawful for any corporation incorporated under the general railroad act, or under any of the laws of this state, at any time during the continuance of its charter, to lease its road, or any part thereof, to any other corporation or corporations of this or any other state, or to unite and consolidate as well as merge its stock, property, and franchises and road with those of any other company or companies of this or any other state, or to do both; and such other company or companies are thereby authorized to take such lease, or to unite and consolidate as well as merge its or their stock, property, franchises, and road with such company of this state, or to do both, etc. The supplement imposes no condition that the stockholders, or any of them, shall consent; but it is silent on that head. The provision in that act, that it shall be lawful to lease or consolidate, is merely a legislative authorization—a concession on the part of the legislature of the power—to do that which could not lawfully be done without such authority. It is not an enactment that the directors may, without the consent of the stockholders of the company, lease, consolidate, or merge; nor is it in effect an enactment that they may, with the consent of the majority of the stockholders, do so. But the statute is merely an enabling act,—a law intended to give once for all a general legislative authority to lease, consolidate, or merge. The legislature did not intend to affect the rights of stockholders inter s'ese, and the act does not do so either expressly or by implication. It was settled law when the act was passed that, after shareholders had entered into a contract among themselves under legislative sanction, and expended their money in the execution of the plan mutually agreed upon, the plan could not, even by virtue of legislative enactment, be radically changed by the majority alone, and dissentient stockholders be compelled to engage in a new and totally different undertaking; because such action would impair the obligation of the dissenting stockholders' contract with their associates and the state. This was declared by the highest tribunal of the state to be the law, and to be as well supported by every consideration of justice and right as it was firmly imbedded in judicial decision. Black v. Delaware & R. C. Co., 24 N. J. Eq. 455.

The rights of unwilling stockholders are not protected by the act of 1880, and, inasmuch as their interest cannot be taken or controlled in invitum except under the exercise of the right of eminent domain, it is a legal conclusion, from the absence of any provision in that respect, that the legislature did not intend to exercise the right of eminent domain at all, but simply to confer the right to do the act, or exercise the power given, on first obtaining the consent of those affected, or on payment of satisfactory compensation to such outside of legislative provisions. Carson v. Coleman, 11 N. J. Eq. 106; Boston, etc., R. R. v. Salem, etc., R. R., 2 Gray, 1; Mills, Em. Dom. § 123. Where a railroad company, by a vote of a majority of the stockholders, but without legislative authority, leased its road to another, it was held that the transaction was not valid as against the minority, although the legislature subsequently ratified and confirmed it. Boston, etc., R. Corp. v. New York & N. E. R. Co., 2 Amer. & Eng. Ry. Cas. 300. The act of 1881, to which reference has been made, is one "authorizing railroad companies, incorporated under the laws of this and adjoining states, to merge and consolidate their corporate franchises and other property." It provides for consolidation and merger of companies whose railroads form a continuous line. But the law of 1880 had already declared that railroad companies might consolidate and merge their stock, property, and franchises. The law of 1881 provides the method of consolidating or merging in the cases which are within its provisions. It makes it necessary that two-thirds of the stockholders of each company shall agree to the change. It is not in terms amendatory of the general railroad law, and it makes no reference to the act of 1880. It is in itself some evidence that the legislature intended by the act of 1880 to do no more than give its consent to leasing, consolidation, or merger. The act of 1881 provides that stockholders refusing to agree to the consolidation may have their damages assessed, and their stock appraised, and that the company shall pay the damages or take the stock at the appraised value, and that if the value of the stock be not paid within the time limited in the act, the amount of the damages shall be a judgment against the company. The act gives no express power to lease.

But it is argued that the power to consolidate either involves in itself the power to lease, or so enlarges the power given by the charter to purchase, hold, and convey any lands, tenements, goods, and chattels, whatsoever necessary or expedient for the objects of the corporation, (P. L. 1847, p. 128,) as to create the authority to lease. In Branch v. Jesup, 106 U. S. 468, S. C. 1 Sup. Ct. Rep. 495, where a railroad had power by its charter to incorporate its stock with that of any other railroad company, and had also by its charter the ordinary power to purchase, hold, and convey property, real and personal, it was held that the power to incorporate the stock had such an enlarging effect upon the power to sell as to authorize a sale of the railroad and franchises of the company which issued its stock, in the place of that of the selling company, to the holders of the latter stock. The stock so issued was accepted by those stockholders, and they all fully acquiesced in the arrangement. The selling company constructed its road under the agreement with the purchasing company, by which the road was to be constructed in sections, and the sections, as they were constructed, were to be turned over to the latter company, and, after the completion of the road, the stock of the former company was to be incorporated with that of the latter. The case supports the proposition that a railroad company, having the ordinary power to buy and sell property, with power to incorporate its stock with that of any other railroad company, may, under those powers, lawfully sell all its property and franchises to a railroad company whose stock it incorporates...