The New York herald. [volume] (New York [N.Y.]) 1840-1920, 1868-12-17
NEW YORK CITY.
TIRE cogETs.
UNITED STATES CIRCUIT COURT


sug Jay GonId observation-disclosures and Lucke
Made Parties ia the WheIplcy Suit.
Before Judge Nelson.
W7lelplev rs The Erie Ratcdy Conpang.-This is
khe case which, it Will be remembered, argued al
great length before Judge Nelson couple OF weeks
ago on motion to vacate Judge Blatchford's order
appointing Jay Could receiver and on a motion to
make Belmont and Lucke partners in the suit.
Judge Nelson, in his opinion, decides that Bemon,
and Lucke be permitted to join as parties to this
suit that the injunction be dissolved, and the order
appointing receiver by the Judge in United States
Court, Chambers, be vacated and set aside.
The decision virtually leaves the control Of the
road in the hands of the directors pending the de-
csion Of Judge Cardozo in the matter OF appointing
Judge Davies receiver. The following Is the opin-
t0n:--
Judge Nelson-The bill il filed In this case against
she Erie Railway Company by stakeholder, cnarg-
stock that they are part OF two hundred thousand
shares OF over issues by said company, In violation
OF Its charter and contrary to law ana pTays tnat
iegaliry be established and II 1t is held that the
said issue was illegal and void then that the COM
pS Ss n@ ol this Spurious soc
also that the company pending the suit, be entotned
from dspOs9g o. s pert or SO maCn q as
pointed and the company De decreed 70 convey TO
him suricient amount OF moneys or securities
che 's advance made for said stock, with
interest. This bin is filed on behalf OF
alleged e over issue Of stock The Judge at Chasbers
and APPOINTED receiver. August Belmont and Er-
setting forth that they are the holders Of portion
OF this over issue OF STOCK ana ask to be made par
Interested in the question to Be Determined BY the
court and also charge that the person appointed
Ceiver Is an unit and disqualified person for the
flicah nf Jnfi nff hnt NH
question involved in this alleged over issue Of stock
depends upon the construction OF several pro-
the powers and duties Of railroad corpora s
tons. The first section OF the act Of April 2.
1850, authorizing the formation Of railroad corpora
lions and to regulate the same, provides that
any number Of persons, not less than twenty-five,
may form company for the purpose OF constructing,
maintaining and operating railroad, &c, and for
ton, In which shall be stated the name Of the cOmpa
ny, &C, 1.-The amount Of the CAPITA stock OF the COM
pany, which shall not be less tnan $40 900 for every
mile OF the road constructed, or proposed to be con-
Etructed and the number OF shares or which the
capital stock OF the company shall consist &c. The
ninth section provdes:- "ln case the capital stock
OF company formed under this act Is found 70 be
insufficient for constructing and operating its road
such company may, with the concurrence Of lwo-
thirds amount OF all Its stockholders, increase its
capital stock, from time to time, to any re-
CURED for the purpose aforesaid: such in
crease must be sanctioned by vote in per-
son. or by proxy, OF two-thrtis iii amount or all
the stockholders OF the company, at meeting
OF such stockholders called by the directors Of the
company for the purpose, by "A notice in writing to
each stockholder, To be served him personally or
by deposing the same properly folded, and directed
to him at the pest office nearest his usual place OF
residence, least twenty days prior such meet
ing. suca notice must state tns time anu place Of
II Is proposed 10 increase The capital stock" The
twenty eighth section provides that "every corpora
hon formed under this act SHALL In addition 10 the
powers conferred corporations in the third title OF
the eighteenth chapter Of the first part OF the revised
statutes, have power subdivision 10Y from time to
m hSs
necessary for completing and finishing or operating
their railroad, and 10 issue and dispose OF their
bonds for any amount SO borrowed, and to mortgage
their corporate property and franchises to secure
the payment OF any debt contracted by the company
for the purpose aforesad and the directors OF the
company may confer on any holder OF any bond
issued for money borrowed as aforesaid the right to
convert the principal due or owing thereon into
stock OF the said company at any time not exceed.
ing years from the date OF the bond under such
regulations as the directors may sec 1T TO adoptn
On the part OF the Erie Company 1t Is claimed that
under this provision the directors possess the right
70 what Is called convertible bonds for the
e Of an was aae nnar oa
pursuance OF this authority that the stock held by
the complainant in this suit and by Belmont and
Lucke was stock issued by the company to bondhod-
who desired To convert their bonds INTO STOCK and
which stock, 1t Ia Insisted, Is legal and valid On the
other hand, the original stockholders insist that the
power conferred by this tenth subdivision upon the
directors should be restrained TO the case where the
capital stock OF the company has not been filled by
subscriptions OF stock and Tor the purpose or en-
aDling the company to anticipate these subscrip-
tons, by borrowing money on bonds convertible
into stock ut the option OF the holders and not
intended 10 authorize Indirectly an unlimited issue
or stock, and thus TO increase tine capital OF the COM
pany Indefinitely. aud withou. compliance with the
nnfh section, which expressly requires the concur
renee twothirds In amount OF Its stockholders or
this purpose. These dlGerent and conflicting con-
OF the several provisions OF the statute
20 the powers OF railroad companies formed under It
must necessarily come up for consideration and dis
posa, on the nnal hearing on peadings and proofs;
but in the view we have taken OF the case
IL Will not be necessary nor, perhaps,
proper, TO express an opinion In respect TO
them on this preliminary motion. We are satisfied
on an examination OF the BILL as well as upon the
papers In opposition, that case has not been made
out that will authorize the Court TO uphold the order
for the Injunction, or for the appointment OF re-
cever, even, assuming the stock in question 70 be
part OF Illegal over issue. We agree that the
moneys received on the issue OF the convertible
bonds had been kept apart ana separate from the
general funds OF the company, and could be traced
and identified, an equity might wen arise IN behalf
OF the derauded stockholders against the particular
FUND, and attach 70 the same In equity and con-
science the money paid and thus traced and iden-
into which the bond had been converted, and who
represented the bond on which the money was paid,
would stand In the same relation 70 the und
the complainant to follow the money advanced on
these alleged fraudulent issues OF stock on the
Securities therefor, were kept separate and apart
from the general funds OF the company; but ON
tie contrary upon the right to have set apart from
himself for these advances, thereby implicedy OF
least admitting that they have been commingled
with the general mass Besides the opposing pa
pers show that this Is the fact Judge story states the
prInciples:-"Where,r he observes, 'there II fraud
touching property they courts OF equity VIII
interfere and administer wholesome aud some
times even stern justice In favor OF lnno-
cent persons who are sufferers BY 1t without
any fault on their own side. This Is done
by converting the offending party into trustee
and making tao property ITSELF suoservlent to
the proper purposes Of recompense by way OF
equitable trust lien. Thus o fraudulent pur-
chaser viii be held mere trustee for the honest but
de,uded and cheated vender." And, as stated by
Lord marlborough In Taylor W.. Plumer % N. and
Selw 575l IL makes no difference In reason or law
In whatever form different from the original the
change may have been made, whether it be into that
OF promIssory notes for security OF money which
produced from the sale OF the goods, &c, .for the
product OF or substitute for the original thing stl
follows the nature OF the thing ITSELF as long s IT can
be scerained to be such, and the right only ceases
when the means OF ascertainment fall which IL the
care when the subject IA turned into money ana
mixed and confounded In . general mass of the
same description" tsce also Mason, 1913, and
StorJ's Equity, sec. 1,25g and sec, 1,2o5.)
IN the latter condition Of things the az
in rUlv