Morning journal and courier., 1889-02-28

All that railroad wreckers or spectators need to do is to get up joint stock company, have it to issue bonds and have them guaranteed by the railroad company.
 has ruled that railroad has no power to guarantee the contracts of another corpora ton.
 I submit, therefore, that the committee should report:
 First-That there has been an overissue of stock |
 of one million one hundred and seventy-fve thou
 secondEThat there has been an overissue of |
 bonds beyond the amount allowed by law to the
 Third-That there has been an unauthorized guar
 pany to the amount of $S00,O0o.
 Prof. Simeon E. Baldwin replied for the
 Housatonic. A portion of Prof. Baldwin's
 argument was devoted to insinuating that
 Attorney Perkins was paid by the Colsolida-
 ted road and was not the attorney of bona
 fide dissatisfied stoekholder. He said that
 Mir. Perkins, clients were sneaking before
 the company under an alias. and as one of
 the stockholders was an ex-president of the Consolidated and another director, he supp
 posed they had hired Mir. Perkins with the understanding that he should be paid ont of the Consolidated treasury. The substance of the argument was that the general act of 1878 did not repeal the private act of 1870 which gave the Housatonic authority to issue new
 stock. The important part of his argument was as follows:
 "The managers of the road, however, for, many years spent a large part of the net earnings in betterments on the railroad, in- stead of dividing them among the preferred stockholders. In this way the surplus shown on the books had rolled up in 1867 to nearly half a million, and the real amount expended in permanent improvements was largely in excess of this amount. As the surplus to be reserved in making any d1yl- Ixy 000 preferred stockholders complained that this course of action WAS wrong. In 1887, the ! directors to get rid of as much of the surplus on their books as they could, marked of over $400 000, of which $334 600 was taken l in one lump out of the credit to construction I account and changed off to profit and loss. In 1870 the arrears of guaranteed dividends amounted to about two millions and 8 half, and the legislature came to the rellef or the company by an act authorizing It 'to settie or compromise with the holders of the pre- ferred or guaranteed capital stock of said company for any and all claims which they may have for or on account of the back or unpaid dividends upon said stock, either by funding said claims or by the issue of addi- tional preferred stock therefor.
 For all the earnings put into permanent improvements the company was liable to suit by the preferred stockholders.
 In 1887 the total amount of claims for ar rears of guaranteed dividends was over $3,- TIT, 900. They were compromised and set \ tied for $1, ,175, 400 in bonds, and an exchange for each share of the old cumulative per cent. stock of two shares of non- cumulative ! per cent. stock. This was nearly $1, ,500, 900 less than the amount the company was \ authorized to give by the act Of 1870. It is now claimed by the Consolidated road | that 8 later statute, passed in 1878, repealed 80 much of the act of 1870 as authorized the issue of any new stock. This statute is sec II %~ 0of fhn Qfnfn | The company was advised by it's counsel I that those sections only applied to companies | who had no previous authority to increase \ their capital.
 The rule is perfectly we'll established that ! particular statutes are not repealed by sub- seuuent general statutes unless it be so ex- pressed in general terms. The votes passed by the stockholders, both as to the new stock and the new bonds, were drawn by \ leadiug firm of corporation lawyers in New York, Messrs. Sullivan and Cromwell, and their advice followed throughout. Their ! written opinion as to the validity of the issue up to the full limit of S3, 900, 900, fixed by the mortgage, was filed with the comp troller and obtained the written opinion of Hyde, Gross 6 Hyde. These bonds are now selling at 106 and were selling at 10S before the Consolidated road put in this revolution of inquiry.
 The certificate of value sworn to by Presi dent Starbuck agrees with the statement of H. D. Bulkeley, one of the leading account ants in the United States.
 The directors of the company are all we'll known men, and majority of them are citi Zens of Connecticut, namely, Hon. William H. Bsrnum of Lime Rock, formerly United States Senator; Hon. A. B. Mygatt of New ! Milford, recently National Bank examiner for Connecticut; Hon. William E. Downes, pres- ident of the Howe Manufacturing Co. of \ Birmingham, all of whom have been direc- tors for many years; and Hon. Samuel E. ! Merwin of New Haven, lieutenant governor | of the State, and Col. W. H. Stevenson of I Bridgeport, 8 practical railroad man who has spent his life on Connecticut | railroads both of whom came into the board ! in 1887. The other directors are President W, H. Starbuek, John R. Macauley, Thomas i Rutter and Henry Hentz, New York capital- ists The Housatonic and New England ! roads, acting under advice of Messrs. Evarts, | Southmsyd, Choate & Beaman of New York, l have jointly guaranteed the bonds of the New ! England Terminal company, Connecticut ! joint stock corporation located in Norwalk, to the amount of $500, 900. The Consolidated | does not like this because it does not want such line established.
 The Consolidated road few years ago guaranteed $1, ,OO0, 900 of the bonds of New York railroad, and sold them to provide means to buy a controlling interest in the | stock of the New Haven and Northampton | railroad at $100 share when the market | price was about $60. The way they used the ] money was wrong, but the guaranty by which | they got it was perfectly legal.
 The facts involved in this inquiry have | been fully laid before the committee, with | every document the Consolidated road has | called for. The company has shown, both on \ the facts and the law, that its issues of both | stock and bonds, as we'll as all the entries on | it's books of account and its guaranty of the | bonds of the New England Terminal compa- \ n.y. were one and all done in pursuance of | law, and t now respectfully submits that it \ is entitled to an early and explicit report to l this effect"
 1 Attorney Perkins took ten. minutes to re- | ply. He said that MT. Baldwin's argument | was largely devoted to statements about what | the Consolidated road had done or not done, which had nothing to do with the | case before the committee. The point was | that bonds and stock had been illegally is- ! sued.
 | Prof. Baldwin had claimed that for the | committee to find now that these bonds had | been illegal would be to repudiate debt and | create hardship for the bondholders. Mir. | Perkins said that according to this argument any corporation coul ddo any illegal thing in this manner and then say: Why you must
 not do anything about this for it hurt some \ widow or orphan. There was no question \ but that the road was liable to its bondhold- CTS for these bonds. The point was that Mr. | Starbuck had made up his mind to issue | these Donds some way ana ne trusteo III | Providence for way.
 At this point the hearing was adjourned 4 until tomorrow at o'clock, when the argu- ments will be resumed on the main spplica- | ton of the Housatonic.
 \ Just before adjournment Attorney Hyde of Hartford asked the committee for @ few hours right away to hear the petition of the New York and Connecticut Air Line for an extension of time to build their road. This road was not identified with either of the contestants and wanted the case heard SO it would not be affected by the decisions of | the other cases.
 Attorney Harrison called the committees | attention to the fact that President Starbuck had sworn that himself and friends controlled ! the stock of the prospective New York and | Connecticut Air Line and that the Housa- tonic had petitioned for an extension of time for it's building and to buy its charter. From all this it appeared that the two were | pretty closely identified.
 Lawyer Hyde said that MT. Starbuck did not own cents worth of their stock.
 | The comrniktea took tha reouest into eon-