41()
FEDERAL REPORTER.
complainants aver that, in fact, Moore, though a stranger to the title, redeemed the land before the, expiration of the three years. The evidence fails t'o show that a redemption was in fact made, and consequently the tax title must be held to be valid; and the defendants are therefore entitled to It decree dismissing' the bill on its merits, at cost of complain. ants. A large part of the argument of counsel, and of the evidence, is directed to the question of the validity of the mortgage, purporting to have been executed by Seward Wilson arid wife to one C. C. Knowlton on the nineteenth day of June, 1862. In the view we have taken of the case, it is not necessary to discuss the questions touching ·this mortgage, as the same do not affect the chain of title under which the defendants hold the lands. The exceptions to the master's report are overruled, and decree ordered dismissing bill, at cost of complainants.
MILLS .". HURD and others.
(Four Cases.)
(Oircuit Oourt. D.Oon'Mcticut. January 6,1887.) INJVliCTION-PENDENTE LITE-RECEIVER-CORPORATIONS.
Where a plan for the incorporation and consolidation of certain Joint-stock associations was being carried out; by consent of nearly all the stockholders. under a charter from the legislature, and one of the stockholders, who had previously favored the scheme, sought by suit in equity to prevent it. and to compel an accounting. and the winding up of the old companies, held, that. Its the charges of fraud made in the bill appeared to be baseless, and no harm was likely to ensue to anyone from allowing the proceedings to go on, questions of law arising concerning the validity of the proceedings in several respects would not be decided upon a motion for an injunction and receiver pendente lit8. and that srich motion would be denied..
In Equity. Alvan P. Hyde and Wm. A. Underwood, for plaintiff. Henry Robi'n80n and Goodwin Stoddard, for Consolidated Rolling. stock Co. Wm. a. Case and T. M. Maltbie, for Hui-d. -
a.
SHIPMAN, J. . These four motions are for an injunction pendente lite. and for the appointment of a temporary receiver in each of said four cases.' Upon these motions, supported and opposed by ex parte affidavits, it is not expedient to attempt to make an exhaustive finding of facts. I shall give merely an outlined statement. Frederick H. Mills, the plaintiff, and John Hurd, one of the defend· ants, organized on October 1, 1881, an association by the name of the Housatonic Rolli'ng-stock Company, which subsequently issued 27,400 shares of stock, of $100 each, and owned 1,644 railroad frei3ht cars. On December 1, 1878, they organized the New England Rolling-stock
MILLS V.HURD.
411
Company, which had a nominal capital of$1,011,700, divided among 311 stockholders, and owned 607 freight cars. On August 15, 1879, they organized the Boston & Maine Rolling-stock Company, having a nominal capital of$1,250,OOO, and 365 shareholders, and owning 750 cars. On August 2, 1880, they organized the Bridgeport Rollingstock Company, having a nominal capital of $3,333,300, divided among 1,170 shareholders, and owning 2,000 freight cars. The office of each of these associations was to be in the city of Bridgeport, Connecticut, unless the trustees should locate it in some other place. The offices remained in Bridgeport until September, 1884, when they were moved to Detroit, ,Michigan. They were moved back to Bridgeport, on October 11, 1886. by a vote of four trustees, at a meeting at which said Mills was not present. These associations are what ate generally known as "car trust associations,"formed for the purpose of owning freight cars, and leasing them to railroad companies. They are not corporations, but are unincorporated associations, the nominal capital of which is r presented by certificates of stock, and the owners of these certificates are shareholders in the association. The associations resemble that class of partnerships which are not dissolved by the death or bankruptcy of a member, or by the assignment of his interest. Kahn v. Smelting 00., 102 U. S. 641; Bwsell v. Foss, 114 U. S. 252; S. C. 5 Sup. Ct. Rep. 851. By the articles of litssociation of each company, the title to its property was vested in a board of trustees, upon whom exceedingly large powers were conferred. Mr. Hurd and Mr. Mills were the original trustees. The former was president and treasurer, and the latter was the secretary, of each company. Hugh K. Ritchie. of Montreal, Canada, was subsequently appointed a third trustee. In the spring of 1884 serious dissatisfaction existed among the stockholders of all the companies in regard to Hurd's management, and a bill for an injunction, an accounting, and the appointment of a receiver, was brought in the superior court for Fairfield county against Hurd and Mills. They represented the calamitous results which would happen from a receivership. David Trubee and H. C. Cogswell, both of Bridgeport. were appointed additional trustees, and the suit was withdrawn. . The dissatisfaction did not subside, and an advisory committee of stockholders was appointed, who reported, on August 19, 1885, that it was best to obtain from the legislature of some state a charter incorporating the stockholders of all the companies as one corporation, which should take all the cars, each stockholder in the new corporation receiving one share for each two shares in the old companies. The other assets of each trust were to be divided among the stockholders therein. A printed copy of this report was sent to each stockholder, with a printed form of assent to the proposed reorganization. This assent was directed to the trustees of the four companies, and was as follows: "The subscriber, a stockholder in one or more of the above companies, hereby consents to the reorganization and consolidation of said companies under the plan suggested in the report of the advisory committee."
412
About 991 per cent. of the shareholders in the New England Company, about 99! per cent. of the shareholders in the Boston & Maine Company, about 90 7-10 per cent. of the shareholders in the Bridgeport Company, and about 87 8-10 per cent. of the shareholders in the Housatonic Company, signed and forwarded these assents to Mr. Deacon, the bookkeeper of said four companies. This plan of consolidation, under a charter, for the purpose of relieving said Hurd from the exclusive control of said business, and placing the control in the hands of the stockholders, was thus received with favor by 92t per cent. of all the stockholders in said companies. The general assembly of the state of Connecticut granted a charter, approved April 13, 1886, by which all the stockholders in said four companies were constituted one corporation, hythe name of the Consolidated RoIling-stock Company. The charter provided, among other things, as follows: "Sec. 9. Upon the organization of this corporation, it shall be capable of receiving, and the trustees of the rolling-stock associations mentioned in the first section hereof are hereby authorized to transfer to this corporation, its successors and assigns, any or all the property of every kind of the said rollingstock associations; and upon such transfer this corporation, its successors and assigns, shall become the owner of all said property, and shall thereby and thereupon acquire and be entitled, in law and iIi equity, to avail itself of every right, title, claim, and interest which before fluch transfer belonged, either in law or in equity, to either of said rolling-stock associations, or to the trustees thereof. Payment for said property may be made by this corporation issuing, to the holders of the shares of stock in either of said rolling-stock associations, its stock in the proportion of one share of stock of this corporation to two shares of stock in either of said rolling-stock associations." "Sec. 11. All executors, administrators, conservators. guardians, and trustees may surrender and assign any stock in either of the associations mentioned in the first section hereof, held by them as such, to such new corporation, in exchange for its stock, in the manner above provided; and the trustees of any of said rolling-stock associations are hereby anthorized and empowered to sell, assign, and convey to this corporation any assets in their hands, as such, for cash, or the stock of this corporation." Another section provided that the cash value of the stock of any nonassenting stockholder should be appraised by appraisers appointed by the superior court for Fairfield county, and, on tender of the sum fixed by the appraisal, such stock should be surrendered and assigned to the corporation. At a meeting of the corporators in Bridgeport, on August 11, 1886, the charter was accepted, by-laws were adopted, and direr-tors were chosen, Mr. Mills being one of the numbel', who met on August 18, 1886, and elected the officers of said corporation, Mr. Mills being present. At a meeting of the trustees of each of said four companies, on May 19, 1886, the following vote was passed, three of said trustees voting in favor thereof, the said Mills not voting, and said Cogswell not being present: "Hesolved, that John Hurd be, and he is hereby, appointed agent of this company, to transfer to the Consolidated Rolling-stock Company, upon demand
MILLS V. BURD.
413
by said company, so much of the money, choses in action, bills receivable, claimS, demands, or rights of any and every kind whatsoever, as, with cars already transferred to said Consolidated Company, shall make the assets of this company transferred to said ConRolidated Company. share for share, equal t() the assets of the Housa. R. S. Co." . On October 8,1886, at a meeting of the trustees of each of said ations, the Yote was passed by each board, said Mills not being present: "Whereas, the legislature of the state of Connecticut has incorporated a company by the name of the Consolidated Rolling-stock Company, to and receive from this association its rolling st{)ck, and other property and assets, and to hereafter manage, control, and administer the same; and whereas, I;laid corporation has been duly organized; and whereas, about ninety per cent. of the shareholders of this association has assented to the transfer of the assets of this a@sociation to said corporation: "Now, therefore, resolved that the possession and title of the assets of this association, hereafter mentioned, be, and the same hereby are, in consideration of the premises, transferred and made over to, and conveyed to and vested in, said Consolidated Rolling-stock Company, and its successors and assigns, forever, namely, all freight cars and rolling stock of every kind, and parts thereof, and the material for the repair or manufacture thereof; all buildings and structures; all leases, contracts. and agreements; so much of the other assets of this association as shall make the whole assets transferred to said corporation, as compared with its stock now issued and outstanding, of a value equal to the value of the assets as compared with their stock, of either the [in the yote of the trustees of each of the four associations the names of the other three associations than the one voting are here inserted] rolling-stock companies, which have been or may be transferred to said corporation, to carry out the purposes of its incorporation. "Resolved, that John Hurd be, and he hereby is, appointed agent of this association, to make, execute, and deliver to said corporation, in due form, the conveyance and transfers herein provided for, and to take proper receipt therefor." On October 16, 1886, by authority of said votes, the said Hurd executed bills of sale by each of said companies to the new corporation. Each bill of sale contained a sched ule of the cars which were transferred, and also conveyed "all contracts and agreements, leases, rights, buildings, and structllres, and all interest in and to the same, all parts and portions of cal's, and all materials of every kind for the construction or repair of mrs." Said Consolidated Rolling-stock Company is now managing said cars, and the business connected therewith. All the assets of neither company were transferred. Each company has still to settle its account with said Hurd. On October 20, 1886, the subpcenas, bills, and restraining orders in these cases were served upon the defendants. Until after the first meeting of said directors, on August 18, 1886, the said Mills had indicated no hostility to the formation of said new corporation, or dissatisfaction with the scheme of consolidation and reorganization,but, on the contrary, was actively in favor thereof. He owns 315 shares in said companies, and also claims to be a creditor of each company. The plaintiff's counsel state that ano,ther stockholder, who owns 101 shares, wishes to become a co-plaintiff with Mills.
414
counting betaken of the dealings of the other trustees; that all the defendant trustees may be enjoined against selling or disposing of any of the assets of said companies to the new corporation, or to any other perSOD, and from collecting any dues belonging to said companies; that the Consolidated Rolling-stock Company may be enjoined against purchasing or receiving the cars or other assets of said old companies. The bills further ask for the appointment of a receiver to take possession of all the property of said four companies, for a winding-up of their affairs, a sale of their property, and a distribution of the proceeds among the shareholders. The bills allege, as the grounds of their prayers, the great mismanagement by said Hurd of the four companies, which improper conduct is described at length; that any transfer of their assets to the new corporation is without consideration, is an actual and intended fraud by said Hurd upon the stockholders of the said companies, in which intention the other trustees participate; that very few of the shareholders have any knowledge of or have consented to the proposed transfer; that no stock has as yet been surrendered; and that non-consenting stockholders will be injured by the transfer. In the argument the further points were made that the trustees had no rightful authority to make such a transfer,without previous assent of the stockholders thereto, and before surrender of all of the old stock; that no transfer ever had been made, because said Mills had neither joined in the votes nor in the bills of sale; and that the legislature of Connecticut had no authority to incorporate the members of four partnerships, which were located in another state; and that the charter was without validity as to any non-assenting shareholders. In the affidavit of said Mills it is stated as his belief that the scheme of reorganization was for the purpose of freeing said Hurd from liability to the old stockholders for his mismanagement, and of continuing his control in the future, under cover of a friendly board of directors. The looseness of the vote under which said Hurd made the transfer is also commented upon. The Consolidated Rolling-stock Company and the said Ritchie, Trubee, and Cogswell, trustees of the old companies, take no issue with the plaintiff as to the mismanagement of said Hurd, and his improper conduct in the past. From the affidavits it clearly appears that the plan of reorganization through a consolidated company was devised and pushed through by those stockholders who were dissatisfied with Mr. Htud, for the purpose of divesting him or any trustees from the supreme control which they could exercise under the articles of association, and of placing the control in the hands of the stockholders generally. The whole plan was adverse to Mr. Hurd; and, while the new directors judiciously retain the benefit of his knowledge of the details ofmanagement, they seem to be striving to conduct the businells wisely, and for the benefit of all the owners of the property. The idea of fraud in the transfer, or of fraud in the new cor-
allbis financial dealings with said respective companies; that a like ae-
The prayer of each of the four bills is for an account by said Hurd of
MIU,s t'. HURD.
415
poration, is baseless. The general plan of reorganization was assented to by about 90 per cent. of the stockholders of the four companies, and except by the plaintiff and one has not been publicly dissented other stockholder. It is true that the transfer '''to the' new corporation was made hefore the old stock was called in to be exchanged. Ordinarily, a different order of procedure would have been the natural one, but it is manifest that the managers of the corporation had a great desire to obtain the title to a.nd' general control ofthe property, and to be in a position where they could have an audible voice and an energetic hand in the management; and, instead of waiting for 3,000 shareholders to send in their certificates, trusted to their previously expressed willingness to make the exchange.. It seems not improbable that, having two evils to choose from, the directors selected the lE-ast. I find frotn the affidavits no such equity on the part of the plaintiff as should lead to an arrest of the plan of reorganization. a sale of the assets, and a division of the avails among the stockholders. Thus far, nine-tenths of them apparently prefer an altogether dift'erent course, which now promises to be much better for their pecuniary advantage than a llale under the authority of a receiver would be. The plaintiff insists that the transfer, or any transfer which is not authorized by all the trustees, is void. "When a trust or authority is delegated for mere private purposes, the concurrence of all who are intrusted with the. power is necessary for its due execution." Sinclair v. Jackson, 8 Cow. 543. This is the general and well-settled rule; but I am not prepared to say that the rule is applicable to a board of trustees, under these articles of association, which seem to treat the trustees as acting under the system which belongs to a board of directors of a corporation. I have serious doubts whether the technical rules in regard to trustees are applicable to these boards, and whetber they do not act by resolution passed by the votes of those present at a legally called meeting, a quorum being present, '!;ather than by unanimous action. as to any nonThe riextpoint is that .the charter is a void assenting stockholders. If it is seen that danger of actual harm to stockholders will ensue, unless the action of the new corporation is arrested by an injunction, it would be proper, in deciding these motions, to pass upon the legal questions which may be made under the charter. But unless the occasion is niore urgent than it appears to be in the present case, it would be unwise, upon these motions, without careful discussion of the subject by counsel, to go into the question of the validity of an , act of the legislature, and to express an opinion 'upon a subject of such importance. The motions for injunction pendente lite, and for a receiver, are denied, and the restraining orders are dissolved.
416
ADRIOAN LOAN &TRuBT CO.
v. TOLEDO, others.
C. &
S.Ry.
CO.
and
((Jircuit Oourt, N.D., ,Ohio. December 6,1886.)
t.
R.ur..ROAD CoMPANIEs-FoRECLOSURE OF MoRTGAGE-APPOINTING RECEIVE:Re.
Although there has been default in the payment of the interest coupons secured b:y & railroad mortgage, yet"if it appear that there is a fair and reasonable claIm by the defendant company, growing out of contemporaneous contracts, that the time oJ payment has been extended, or that the plaintiffs are precluded from relying on the default,-a receiver will not be appointed, until the court shall determine that the right of exists. The mere disagreements of the parties as to the management of the property furnish no foundation for the appointment of a receiver. That can only be done as an incident to some relief falling within the jurisdiction of the court in relation to the contracts of the parties. The appointment of a receiver simply to manage the property is not within the power of a court of equity.
2.
SAME-MISMANAGEMENT OB' PROPERTY BY MORTGAGOR.
InEquity. On motion for the appointment of receivers. The defendant Brown, being largely interested in a railroad then undergoing foreclosure in this court, entered into negotiations in New York with the American Finance Company, J. B. Mason, and F. Jillson for the purpose of raising the money to re-establish the enterprise. These negotiations resulted in a contract between Brown and the American Finance Company whereby the hitter undertook, for certain considerations, to raise the necessary funds to relieve the property, reorganize it under a new company which should operate the road already built, connect it with another road near to it, secure certain terminal facilities, and extend it to the Ohio river. The scheme comprehended the issuance of stock and bonds at so much of eaeh per mile, a mortgage to secure the bonds, etc. Mason and Jillson agreed to lend the money immediately required to relieve the property from the pending suit to foreclose. This transaction, by what is called a tripartite agreement between Brown, the American Finance Company, and Mason and Jillson, took the form of a loan by the latter to Brown upon his notes, secured by the deposit as collateral, of his securities in the old company, to be substituted however by the securities in the new company when organized. In this way over $300,000 was realized in cash, and, the parties proceeded to carry out the scheme of reorganization. Brown went into control of the new enterprise, as it was contemplated he should, but subsequently the parties disagreed, and a struggle commenced for a control of the directory. Injunction suits were instituted, and Brown maintained his control, the bill charges, by fraudulent practices. This struggle depended upon a disputed right on each side to vote the collateral stock. Subsequently this bill was filed by the trustee in the mortgage, and asked the appointment of a receiver, and an injunction against negotiating any further bonds. It charges Brown and his assooiates with fraudulently obtaining control of the election