Young v. Toledo & S.H.R. Co.
| Decision Date | 18 October 1889 |
| Citation | 43 N.W. 632,76 Mich. 485 |
| Parties | YOUNG v. TOLEDO & S. H. R. CO. ET AL. |
| Court | Michigan Supreme Court |
Appeal from circuit court, Van Buren county; A. J. MILLS, Judge.
The complainant, as a stockholder, owning 75 shares of stock in the Paw Paw Railroad Company, filed the bill in this case on the 21st day of January, 1887, and prayed the court to set aside the sale of the Paw Paw Railroad to the Toledo & South Haven Railroad Company, made on the 9th day of September 1886, and that the subsequent mortgage, given on the 21st day of October to the Farmers' Loan & Trust Company by the Toledo & South Haven Railroad Company, be annulled, and that the sale of the bonds secured thereby be enjoined, and that a reconveyance of the Paw Paw Railroad be decreed to the company; that an accounting be had of the rents and profits accruing from the use of the Paw Paw road since the sale to the Toledo & South Haven Railroad Company on the 9th of September, 1886; and that a receiver be appointed for that purpose. The two railroad companies were served with process. The trust company was not served, and the Toledo & South Haven Railroad Company alone appeared and made answer. In its answer the Toledo & South Haven Company averred the validity of its purchase from the Paw Paw Railroad Company on the 9th of September, 1886, and of the bonds subsequently issued, and charged that complainant purchased his stock in bad faith, and for the purpose of compelling its purchase at an exorbitant price by the Toledo & South Haven Company. After replication had been filed, and the cause was at issue, the several railroad companies interested were consolidated, under section 3343, How. St. The bonds previously issued were ratified, as were the other terms of the September purchase, and, so far as the companies could, both were ratified. After the consolidation was completed, the Toledo & South Haven Company set up the consolidation proceedings as a defense, " puis darrein continuance," by cross-bill, and which was subsequently brought to an issue. The testimony was taken in open court, and, upon the hearing, the circuit judge rendered a decree granting the complainant in the original bill relief substantially as asked, except as to the appointment of a receiver, and dismissed the cross-bill, without passing upon the validity of the consolidation proceedings. The Toledo & South Haven Railroad Company appeals to this court.
The Paw Paw Railroad Company was incorporated under the General Laws of the state in 1866, and runs from the village of Lawton to Paw Paw. The company commenced running trains upon its road in 1867, which it continued to do until about the 9th of September, 1886. The capital stock of the company consisted of 750 shares, of $100 each. It is claimed by complainant that the road was fully built, equipped, and completed. This however, is denied by the defendant, in its answer; and, as to this, defendant says that the Paw Paw Railroad Company, a long time previous to September 9, 1886, had been engaged, in good faith, in constructing its road and tracks, but had not been at that time, and never was, able to complete the construction of the same; that only the road-bed was constructed, and that very imperfectly; that it had no side tracks, no turn-tables, no station-houses, and no rolling stock; that all of those in use by it were constructed by, and belonged to, the Toledo & South Haven Railroad Company. The Toledo & South Haven Railroad Company was organized in 1876. It extends from Lawton to South Haven, as completed,-a distance of 36 miles. It passes through Paw Paw, Lawrence, and Hartford. The road is a narrow gauge, 9 miles of which, between Paw Paw and Lawrence, was built in 1876; and in 1883 it completed its road from Lawrence to Hartford,-a distance of 6 miles; and on September 9, 1886, it purchased of the Lake Michigan division of the Toledo & South Haven Railroad Company a partially completed extension between Hartford and South Haven,-a distance of 16 miles,-and at the same date purchased the Paw Paw road, as before stated. The Paw Paw road was at this time mortgaged for $3,000. In 1875 its stock was worth but about 40 per cent.; and in 1878 it leased its road-bed to the Toledo & South Haven Railroad Company for 8 per cent. on $30,000, or 40 per cent. of the par value of the stock. At an early day it became very desirable for the Toledo & South Haven Railroad Company to make its connection with the Michigan Central on the east, at Lawton, and with the lake on the west, at South Haven; and on the 21st of June, 1884, the complainant in this case went into the employment of that company and the Paw Paw Company to aid in accomplishing this result. This agreement will be seen in the margin. [1] Under this agreement, it would appear, the consideration the complainant was to receive for his services depended upon the success of the enterprise. About the 1st of August following, complainant refused to go further, under the contract, without pay; and from that time on he was in the employ of the companies, and under their pay, for what he did to accomplish the same general result contemplated by the contract.
J. Rely Bangs, of Paw Paw, at the time the contract was made, owned 75 shares of stock in the Paw Paw Railroad Company, which he purchased on the 3d day of April, 1884, of G. W. Longwell, who obtained it from the company in August, 1875. This is the stock now held by complainant. It nowhere appears that either of these owners objected to anything that was done, or which the company proposed to do, while they were stockholders. On the 6th day of February, 1886, Bangs sold this stock to Thomas Walch. He lived in Paw Paw, and the Paw Paw Railroad Company had its office there. He held the stock during the entire period the complainant was in the employment of the two defendant companies, and, so far as appears, he knew of all the action and doings of both companies, and what was contemplated and desired by both; and it is claimed by the defendant answering that, knowing of the contemplated sale of the Paw Paw road to the Toledo & South Haven Railroad Company, he not only approved of it, but actually agreed to sell and transfer the said 75 shares of stock to the Paw Paw Company, or to those representing it, to aid in the accomplishment of the sale, at 40 per cent. of the par value; that the complainant knew of this, and that he was employed by the companies defendant to accomplish this object; that instead of doing this, however, in violation of the trust and confidence placed in him by his employers, knowing that these shares were the only outstanding stock not purchased in the interest of the company, to enable it to complete the sale to the Toledo & South Haven Company, and with a view to compel the Paw Paw Company to pay more for the stock than it had to any of the other stockholders for their stock, he purchased of Walch, only the day before he had agreed to sell the same to the company, said stock, and, instead of taking the transfer of the same to or for use of the company, took it directly to himself, and now holds the same, as defendant claims, in violation of the equitable rights of the defendant companies, and refuses to sell or to transfer the same to either of them for less than its par value. It is true that many of these statements are denied by the complainant, but in the main I think they are borne out of the circumstances and testimony in the case, and for this reason, the defendant claims the complainant asks unconscionable relief; that, while he asks equitable relief, he has violated good faith with both companies, and has failed and refused to do equity, and that his action and conduct have been such, in the premises, as to estop him from asking the remedy he now seeks; that to do so would be to seriously affect injuriously large public as well as private interests, obtained and now enjoyed in perfect good faith, and could subserve no good or equitable purpose, or protect any just rights of the complainant. And there is much ground for this contention of defendants, if the legal status of the defendant companies can be sustained. On the 1st day of November, 1886, the Toledo & South Haven Railroad Company executed bonds of $1,000 each to the amount of $216,000. Said bonds are negotiable, and draw interest at the rate of 6 per cent. per annum, and the bonds are secured by a mortgage upon all the property of the company, which includes the Paw Paw Railroad, running to the Farmers' Loan & Trust Company, which is made a defendant in the bill. And the complainant's counsel, on the hearing in the court below, claimed that the relief complainant was entitled to, if he prevailed, as against the defendants, was an injunction restraining defendants from negotiating said bonds until they should purchase the 75 shares of stock, and pay him such sum as the court might deem reasonable therefor. It will be recollected that the consideration of the Toledo & South Haven Railroad Company paid for the Paw Paw road was stock in the former road at par. The stock of the one was to be exchanged for the stock of the other.
In this court the contention of the complainant is- First. That the sale made by the Paw Paw Railroad Company to the South Haven Railroad Company was void for two...
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