The New York herald., 1876-09-29
THE RAILROAD WAR.

STEPS BEING TAKEN ON THE PART OF THE
STOCKHOLDERS OF THE MICHIGAN CENTRAL
AND THE LAKE SHORE RAILROADS TO PROSE-
CUTE THE DIRECTORS.
petition is being prepared by stockholders Of tho
Michigan Central and Lake shore Railroad companies
directed 10 tho officers and directors Of those COM
panies calling attention to long series OF irreguar
ties and illegal transactions inaugurated by late
board OF directors and ratified and carried out by the
present management This preliminary step is indis
pensabc to the beginning OF an action against the
directors for msmanagement, for suit ut law cannot
be maintained by individual against the
directors OF corporation for mismanaeng It's affairs,
unless the directors FIRST refuse to begin tho action
themselves After majority Of the stockholders re-
ques; the directors to pegn such suit and she latter re-
fuse Court OF Equity will intervene, and any share
holder may nc bill In behalf Of himself and all tho
other Shareholders and either compel the directors
to perform their duty mako them defendants in an
action for damage and accounting. II has been settled
matter OF law that shareholder may sustain bn
In equity against the corporation, tho directors and
other stockholders allegation Of fraudulent prac-
dcprecang the value oi the stock aud withhold
ing dividends, and may pray Tor restoration OF what
has been fraudenty Withdrawn from tho common
stock. Rumor OF the street ravo as leaders in this
movement Mcssrs Rufus Hatch, A. s. Peabody, T. B.
Musgrave and Russell Sage. Somo OF these gentlemen
beng called upon admitted that thore such
movement but deemed 1t mprudont TO say any thing
further on the subject at present Tho petition re
ferrcd to- far its substance could be learned
outside parties sets forth that the real parties In
railroad corporations the shareholders and
bondhclders. whose interests the directors
protect; that under the common law the corporation
bound carry all passengers aud freight tho
ei..
any discrimination shown tho State that grants
the franchise bound intcrpose and protect the
public and compel tho corporate authorities respect
their rights But that is all the that the pub
lie the State has ia tho corporation in its work
ings. The interest, however, which the bondholdcrs
and tho stockholders have is distinct and 0elpitc
They own the property and they should control
It, subject, OF course, to tho rights OF the State. The
relation between the directors and shareholders is that
OF trustee aud by reason of tho hduciary relations
thus formed ana the power which the directors havo
TO abuse their and encroach upon the rights of
the the courts hold these directors
s,rc,est Accountability; and In the directors
naopt any antagonisiic to tho rights OF the
shareh the bound 10 intervene once
and reverse their action. But still is this duty
obligatory whenever the directors pursue any policy or
make any agreement which is not only against the
interests OF the stockholders but with TO al
the interests OF the directors then
the acts OF the directors became mlsdemeanor and
fraud, anu AL that they do Is not only invalid in
ilsc, but renders the directors personally liable
only IN damages but in penalty No director can
make any bargain with himself behalf OF his company
matter how advantageous to the company tho BAR
may be, He Is forbidden by law ke bargain
for company OF which he is director with another
company OF which he is also director. therefore
where corporations have conflicting interests it is i'm
possible that the same can DO trustee in BOTH and
perform equally his duty TO both. In the OF
Michigan Central Railroad Company 1t seems that
among numper OF nine directors. some OF them
were owners ot directors in another corporation
Those directors combiDed and concluded arrange
men be, those two corporations by which
rights OF the Michigan Central Railroad Company were
parted WITH and lease OF another road executed
which bound the Michigan Central Railroad Company
10 pay that corporation so much year, thus de-
priyinc tho shareholders of that company OF
legitimate earnings This arrangement and leased.
the law will deca.e 10 DO void for three
lcsOns--onc that the directors who executed II
unalthfui 10 their trust IN parting with the property
the company; another, that the rcia;tons OF The
directors to tho Two corpo atoms were such that
impossible for them 10 guard the interests OF both
equally. ana third that the arrangement has resulted
in disaster TO the Michigan Central Railroad Company
and IN divcrtng the legitimate earnings into tho
treasury OF another corporation when they should
have gone the pockets OF this corporation. Sub
seduent The Of the made by
varoua corporations TO the Michigan Cen Railroad
Company portion OF the directors in these various
CORPORATIONS including tho Michigan Central Railroad
Company, as they existed then and do now, made an
arrangement among themselves whereby OF these
directors, as individuals, were to deliver to somt OF
tors their railroad iron and other supplies IL Is
charged that exorbapt price charged these
corporations by these individuals, and very large
vantage OF tho corporation 1t Is maintained
that the policy adopted and pursued by
Company for several years hos BEEN not
only anagonstic to the interests OF the company but
TO tho sole advantage and individual profit OF tho
directors themselves; that by making such arrange
ment to bring their individual interests conflict
with the interests OF the company the directors havo
mado themselves personally liable III damages and all
their acts and instruments and bargains have become
absolutely void in law, and the stockholders have
right to control, cancel and overthrow them,
recover from zach individual director, IN behalf OF the
company, all OF tho profits which they have lost by
reason OF their relation. and all the damage winch the
corporation has suffered by ason OF their unlawful
ana fraudulent acts Previous TO the adoption of this
policy by the officers and directors OF The Michigan
Central Railroad Company. tho company doing
profitable business, deriving large revenues from
ircghts and fares, paid regular dividend to It's
stockholders But Immediately alter tins policy
adopted those dividends ceased, the income the road
was diverted TO other channels and The shareholders
left without dividends income. Nor Is this result
believe, by the universal depression IN The
country or from financial pressure, but
the contrary the gross tonnage and passenger traffic
have Gradually increased, AMI The tcxpcnscs OF
ning the road have materially dimtuishcd Bat in
proportion, however, as the profits OF the railroad
stockholders have decreased the wealth of
director has increased cannot be accounc cd
lor in any other than inat IN the policy pursued
and the various arrangements made they had tho in
drlduai prouts o The directors III view rather than
stockholders. II becomes, therefore, the petitioners
further assert; rot only he right but the duty OF each
stockho,dcr, not only for his interest. bat as
duty other stockholders other companies TO de.
inand in body their rights. To quietly by see
iheir pockets rlundcred by unfithul trustees is a
crime, and to permit unaithiul directors TO zurich
themselves by IA betrayal OF their trust furnishing
such immunity respectable thcvins cndangcrs the
morals OF the community and demoralizcs public sen.
tiincnt After stating that the law is clear and well
settled as 10 the right 10 compel tho directors
accounting Oi their trust the petition asserts that
he hp cty bul
crmina against trustee OF incorporated pro-
pctty, aud this whether he 10 appointed
by the Court elected by stockholders In
addition tn the foregoing statements OF the
stockholders petition, IT is claimed on their be-
ha tnst during the lew years past tho directors o the
have gone 10 tho benefit OF tho stock
holders; that tho directors arc also largely
INTERESTED in tho Rolling Car Company aud The sleep
ing Car Company, and that IN some unaccouDtablc way
VII lch the siockho.dcrs are now anXons and seek