Williams v. Johnson

• Decision Date: 16 May 1911
• Citation: 208 Mass. 544,95 N.E. 90
• Parties: WILLIAMS et al. v. JOHNSON et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

208 Mass. 544

95 N.E. 90

WILLIAMS et al. v. JOHNSON et al.

Supreme Judicial Court of Massachusetts, Suffolk.

May 16, 1911

COUNSEL

Warren, Garfield, Whiteside & Lamson, for petitioners.

Henry Wheeler and Charles S. Rackemann, for respondents.

OPINION

KNOWLTON C.J.

This is a petition for the registration of the title to a tract of land in Boston, a part of which was formerly occupied as the station of the Boston & Providence Railroad Company, at Park Square. The diversion and extension of the railroad and the erection of the terminal passenger station in Boston under St. 1896, c. 516, rendered the property no longer available for railroad purposes, and it was conveyed by this corporation to the New York, New Haven & Hartford Railroad Company in consideration of improvements made by the grantee upon the property of the grantor, in connection with the location and erection of the new station. The validity of this conveyance was confirmed in Little v. Old Colony Railroad Co., 202 Mass. 277, 88 N.E. 896. The petitioners claim title under a deed from the New York, New Haven & Hartford Railroad Company, bearing date September 15 1909. The respondents, who are stockholders in the last-mentioned corporation, deny the validity of the deed, on the ground that it was ultra vires of the corporation and that the directors had no authority to make it.

The deed runs to the petitioners as trustees under a declaration of trust. The consideration expressed in it is one dollar and other valuable considerations. The conveyance is 'subject to and upon the terms, provisions and trusts mentioned and set forth in the aforesaid declaration of trust.' This declaration is of a peculiar kind. It provides that the trustees shall forthwith issue to the grantor certificates in a form prescribed, for 5 2,000 shares, of a nominal par value of $100 each, in payment for this real estate. The entire interest of the cestuis que trust, or shareholders in the property, was to be represented, immediately after the conveyance, by these shares. The trustees were authorized to issue not exceeding 40,000 additional shares of the same nominal par value, in exchange for convertible notes or bonds that the trustees may issue to obtain money to be used in conducting the enterprise. The shares are transferable on the books of the trustees. The shareholders are not to have any legal title to the trust property itself, real or personal, and especially they are not to have a right to call for any partition. It is declared that they shall have no equitable estate in the lands and appurtenances constituting the trust property, but their interest shall consist only of an interest in the money to arise from the sale or other disposition thereof by the trustees, and, previous to such sale, in all the rights mentioned in the declaration, which are rights 'of division of proceeds and profits, and the other rights and matters concerning the trust property.'

The death of a shareholder is not to determine the trust, nor entitle his legal representatives to an accounting, but his rights are to pass to his executors, administrators or assigns, upon the surrender of the certificate of the shares. The trustees may from time to time invite and receive subscriptions to additional shares, for the purpose of increasing the capital of the trust, giving preference, upon such terms and conditions as they shall deem best, to existing shareholders, and to the holders of convertible notes or bonds. The trustees have no power to bind the shareholders personally for any debt, nor are the trustees to be personally liable for claims or debts against the trust, but all persons extending credit to the trustees are to look only to the property of the trust for their payment. The trustees have no pecuniary interest in the property of the trust, or in the business carried on under the trust, except for the payment of prescribed commissions upon receipts and expenditures, as compensation for their services.

The trustees are to have absolute control over and disposal of all real estate and other property held under the trust, including the power to improve it by building thereon or otherwise; to sell, for cash or credit, at public or private sale, any part of the property; 'to lease or hire for improvement or otherwise, for a term beyond the possible termination of the trust, or for any less term; to let, to exchange, to release and to partition.' They have power to borrow money to carry out the purposes of the trust, to issue notes or bonds and to secure the repayment of them by a pledge, mortgage or hypothecation of the property of the trust, or any part of it. The only limitation upon the power to borrow is that the total indebtedness at any one time shall not exceed four million dollars. Notes or bonds issued for such indebtedness may be made convertible into shares of the trust.

The trustees may acquire, by purchase or otherwise, any real estate or any interest therein in the general vicinity of that, conveyed by the deed in question, 'and any notes, bonds, shares or other securities of any corporation, association or real estate trust, organized or adapted for the purpose of acquiring, holding magaging or improving real estate, or for the purpose of conducting a lighting, heating, power or other business directly related to the management of real estate, if, in their judgment, such acquisition will in any manner tend to facilitate the laying out, development, management or improvement of the real estate' conveyed to them by the deed in question. They may lay out and construct or discontinue streets or ways, upon any property at any time held by them. They may dedicate to public use, or convey to the city of Boston, with or without compensation, any part of the property, with a view to the enhancement of the value of the remaining property. For a like purpose they may contribute money or other property to the cost of any public or quasi public undertaking. In all these matters the judgment and determination of the trustees is to be final and conclusive.

They may from time to time determine what of their receipts and expenditures shall be treated as capital and what as income, and their determination shall be final. They may divide net income among the shareholders, under certain limitations, and may set aside a part of the net income as a reserve or contingent fund. Their determination of what is net income is to be conclusive. The trust is to continue until the expiration of 20 years from the death of the last survivor of nine persons named, some of whom, presumably, are quite young, unless three- fourths in value of the shareholders shall appoint an earlier time for its termination, not earlier than the 2d day of July, in the year 1919, by an instrument in writing duly signed and acknowledged. After the termination of the trust by its own limitation, or by such an appointment of three-fourths of the shareholders, the proceeds are to be divided among the shareholders. The trustees, when vacancies occur in their number, may appoint their own successors.

By this conveyance and the accompanying declaration of trust, the New York, New Haven & Hartford Railroad Company set on foot a scheme to put property, of an estimated value of more than $5,000,000, into the hands of trustees as managing agents, who were appointed irrevocably, to conduct a business for a term that might last nearly a century, with practically all the powers of an absolute owner, not only over the property conveyed, but for the acquisition of other real estate in the neighborhood, and of shares in corporations which have relation to the use, management and improvement of real estate. The scheme contemplates the borrowing of money to create an indebtedness not exceeding $4,000,000 at any one time. It contemplates an unlimited extension and enlargement of the enterprise, in the discretion of the trustees, by the issue of additional shares to persons who subscribe for them. It contemplates a real estate business, if not a speculation, that may continue a long time and become gigantic, of which the railroad corporation is now the sole owner. It needs no argument to show that, ordinarily, the proprietorship of such a business, by a railroad company as a beneficiary, is not within its corporate powers.

As was said in Davis v. Old Colony Railroad Co., 131 Mass 258, 259, 41 Am. Rep. 221; 'A corporation has power to do such business only as it is authorized by its act of incorporation to do, and no other. It is not held out by the government nor by the stockholders as authorized to make contracts...