Case Name: RAMSEY against ERIE RAILWAY COMPANY
Court: New York Supreme Court
Jurisdiction: New York
Decision Date: 1869-12
Citations: 7 Abb. Pr. 156
Docket Number: 
Parties: RAMSEY against ERIE RAILWAY COMPANY.
Judges: 
Reporter: Abbott's Practice Reports
Volume: 7
Pages: 156–192

Head Matter:
RAMSEY against ERIE RAILWAY COMPANY.
Supreme Court, Sixth District; Special Term,
Dec., 1869.
Injunction against Directors of a Railroad Company. — Motions and Orders. — Complaint by Creditor of Corporation.—Receiver.—Suspension of Directors.—Cause of Action. —Verification on Information and Belief.
A motion to vacate an injunction, and orders appointing a receiver and suspending directors of a corporation, which were granted ex-parte by a judge of the supreme court, need not be made before the judge who granted, the orders complained of, but may be noticed for the first special term at which it can properly and regularly be heard. Such a motion may, under section 225 of the Code, be made upon the complaint and the affidavits on which the injunction was granted, or upon affidavits upon the defendant’s part with or without the answer.
In a complaint by one alleging himself to be creditor of a corporation, seeking an injunction and receiver, allegations that he is the owner of a past due claim for money against it, and of various bonds of the company, and also of shares of its stock entitled to be standing in his name on its books, and of the right to dividends,—and that there are numerous other floating creditors of the company, and that plaintiff sues on his own behalf, and on behalf of others who shall come in,—are not sufficient to give the plaintiff such a standing in court as entitles him to an ex-parte injunction or ex-parte orders suspending the directors and appointing a receiver.
The complaint in such an action should state the nature and amount of any claim past due which plaintiff has against the company, by bill, account or bond, or on coupons, so that it can be paid by the directors; and it should state such facts as would show plaintiff's title to the claim and the bonds and stock mentioned.
The provisions of. 2 Rev. Stat, 462,—authorizing the court to suspend a director or officer .of a corporation,-—do not authorize an action by a stockholder to obtain such removal or suspension. And if in any case a creditor can maintain such an action under the statute, he must state in his complaint the nature of his claims, when and how they arose, and the amount due; and he should also demand payment before bringing such an action.
An order suspending directors in such an action should not be granted before trial, and without notice to the adverse parties, except in a case of necessity.
iTor should such suspension of directors be ordered, unless the proof of misconduct on which it is based is clear, and positively sworn to. Allegations on information and belief are not sufficient.
Stockholders who do not vote against the re-election of directors may be deemed to acquiesce, by such omission, in acts of such directors done prior to the re-election, and of which such stockholders had information sufficient to put them upon inquiry; and are not entitled afterward to have those directors suspended on the ground of misconduct previous to the re-election.
The court will not. interfere to suspend directors of a corporation, on the ground of their having made improper expenditures touching the business of the corporation, nor on charges of personal immorality.
Motion to vacate preliminary injunction and other orders.
This was an action brought by the plaintiff* James H. Ramsey, against Jay Gould, James Fisk, Jr., Frederick A. Lane, Abram Gould, M. R. Simons, George 0. Hall, Henry N. Smith, Charles G. Sisson, Henry N. Martin, James B. Bach, and the Erie Railway Company.
The commencement of the complaint was as follows :
“The plaintiff, by Eaton & Tailer, his attorneys, states to the court:
“ That he is a creditor of the Erie Railway Company, hereinafter mentioned, and the owner and holder of a past due claim for money against, and legally payable by said company ; that he is the owner of several one-thousand-dollar bonds, duly made and issued by said company, and known as c Buffalo Branch of the Erie Railway Company Bonds,’ of which large numbers are outstanding-in the hands of numerous holders; and is also the owner of several bonds, duly made and issued by said company, known as its sterling bonds, of which bonds there are thus made and issued and outstanding in the hands of very numerous holders, about ten thou, sand in number, of the par value of about five millions of dollars in all, said sterling bonds being of the denomination of five hundred dollars (or one hundred pounds sterling) each ; and said sterling bonds are especially imperiled, and the payment of interest on the same is made precarious by reason of the wrongful acts hereinafter mentioned ; and is also the owner of several bonds hereinafter mentioned as fifth mortgage bonds, of which about one thousand are outstanding, of the denomination of one thousand dollars each, in the hands of numerous holders, and said bonds have their market value greatly impaired, and the future payment of interest thereon made uncertain by reason of said wrongful acts ; and is also the owner of several shares of the preferred capital stock of said company, entitled to be standing in his name on the books of said company, and of the right to receive dividends thereon, of which entire stock, hereinafter referred to, there are numerous certificates for portions thereof outstanding in the hands of a very great number of owners and holders, and the past payment of dividends on said stock has been defeated, and the future earnings and payment of dividends on the same have been made, and now aré, doubtful, and the value of which has been impaired, by reason of said wrongful acts ; and is also the owner of several shares of the common capital stock of said company, so in like manner entitled to be standing in his name, of which stock there are also very numerous owners and holders, and the value of which has been greatly reduced, and the payment of dividends "upon which has been made, for a long time at least, almost hopeless by said wrongful acts ; and there are numerous other floating creditors of said company, most of whose claims are made less valuable by said acts, and the plaintiff brings this suit on his own behalf and on behalf of all others of the said stockholders and bondholders (so far as said stockholders are entitled to be beard herein), and on behalf of all other creditors of said company who shall join in and become parties to this action and contribute to the expense thereof.
“ And for a cause of action against- the defendants, the plaintiff, on information and belief, further states:”—
Then setting forth instances of alleged misconduct by some of the directors of the Erie Railway Company, who were members of the board in three successive administrations ; but specifying, as was claimed by defendants, no new and independent acts of maladministration since the last election, which was held in October, 1869.
The allegations of the complaint, which were very voluminous, concluded with stating that the three defendants, Fisk, Gould and Lane, with others, were wielding the powers of the corporation wrongfully for their own benefit to the injury of the corporation, and its stockholders and creditors ; that they were about to issue a large number of convertible bonds ; that plaintiff anticipated that they would resort to reckless and desperate measures to perpetuate' their power, and that they would by improper means procure a ratification by parties interested of their acts, misapply funds and property of the company, and make various engagements, or changes of organization, prejudicial to plaintiff,—such anticipated acts being specified in detail in the complaint. ' .
And the demand for relief included the suspension of trustees, directors and officers who were made defendants, the granting of injunctions against the acts anticipated, the compelling a discovery, the taking.of an account, the removal of defendants from office, a direction that new elections be had, the setting aside alleged illegal alienations of property, and the recovery and repayment of any moneys, &c., misapplied.
The complaint had the verification in the common form : that is to say, it stated that plaintiff swore, that “ the complaint is true to his knowledge, except as to the matters therein stated [to be] on information and belief, and as to those matters,” &c.
Annexed were four affidavits—one by plaintiff, which was purely upon information, and three others, which on a careful analysis appear to be wholly, or almost wholly, upon information.
The place of trial was laid in Delaware County, and there, on November 23, a justice of the court granted, ex-parte, the three following orders :
[Date, and title of the caused
“ On reading and filing the complaint herein, and the affidavits of Joseph H. Ramsey, Charles W. Douglas, Jackson S. Schultz and Ossian D. Ashley, and it thereby appearing to this court that money, property and claims of and in favor of the Erie Railway Company and its creditors are allowed by said company and its directors and officers, as set forth in the complaint, or otherwise, to be left with one or more of the defendants or other persons therein referred to, or not collected or properly cared for, and whereby the same are in peril of being lost, and it being uncertain to whom the same will belong when collected,
“ Now, on motion of Mr. Henry Smith, of counsel for the plaintiff, it is ordered :
“ (1.) That David Grroesbeck, of the city of New York, be and he is hereby appointed special receiver of all said money, property and claims (and the proceeds thereof), to be collected, realized, held and disposed of for the benefit of the Erie Railway Company or its creditors herein provided, or as the court may order herein; the said money, property and claims to include all sums which any defendant holds, owes or should pay, or is responsible for by reason of any wrongful act, abuse or trust, or omission of duty mentioned or referred to in the complaint, or which may or might be recovered or be adjudged in this or a like suit.
“ (2.) That said special receiver be authorized to demand and receive all said money and property and the payment of all said claims ; and that with the leave of the court in this suit, he be authorized to institute and maintain suits and proceedings in his name as special receiver in aid of the objects of this suit for the collec tion and possession of any such claim, money or property ; and that he may pay from the same his own proper expenses and disbursements for services and otherwise in this suit, in any such suit or proceedings, and in and about the discharge of his duty as special receiver.
“ (3.) That said special receiver, by himself, and persons to be employed by him, make examination of the books, records, vouchers and papers of the Erie Railway Company, its directors and officers, and for such purpose have access to the same, and to its offices and apartments, and those it has occupied, so as to enable him to ascertain the facts as to the issue of its stock, the time, amount, price and particulars of the creation, conversion, issue and sale of bonds, and as to their proceeds, and as to the subject-matter of his special receivership generally; that he make report to this court of the result of such examination ; that the Erie Railway Company, its directors, officers and agents, allow and facilitate such examination ; that its treasurer and other financial officers and agents, and its secretary and stock transfer agents give said special receiver all the aid and information in their power In respect of the subject of his examination.
“ (4.) That said special receiver afford all information in his power, and aid as he may be able, in the proper prosecution of this suit, and be at liberty to apply to this court for directions from time to time in the discharge of his duty.
“(5.) That any moneys received by him as such special receiver (beyond any amount needed for his payments) be kept by him on deposit in suitable banks, or trust companies, to his order as- special receiver.
“(6.) That said special receiver execute his bond to the people of this State in the sum of one million of dollars, conditioned for the faithful performance of his duty as special receiver herein, with one or more sureties ; said bond to be approved by a justice of this court, and to be filed in the office of the clerk of the county of Delaware.
“ Secondly.—And it further appearing to this court, that if the board of directors of the Erie Railway Company should omit to meet, or neglect to take charge of, and give necessary attention to its affairs, for the protection of its property, and the discharge of their functions ; or if such number of the unsuspended directors should resign, or omit or refuse to attend meetings of the board, so that no quorum and legal action could be secured, that in either event the public interests would be seriously prejudiced, and said company and its creditors would suffer great loss :
“And it further appearing to this court that said company is in a perilous condition, and that there is imminent danger of some such event, and that upon the happening thereof, there should be a receiver of this ‘court ready and competent, and whose right and duty if ‘Shall then be, to enter at once into possession of the property, and upon the exercise of the franchises of said ‘company, with the powers hereinafter mentioned, but that said receiver should not demand such possession nor exercise such powers until the happening of any such event,
'“Now, therefore (subject to the limitations last aforesaid as to taking possession), it is further ordered that a receiver be, and the said David Gfroesbeck is hereby ap- ‘ pointed receiver of the Erie Railway Company, and of the railroad, real and personal property and estate and franchises of said company, and of all powers, rights, privileges and authority thereto appertaining (except ■the franchise of being a corporation), and of the rents, tolls and income of said corporation, and of its title •deeds, leases, contracts and leased property, and of the rights thereunder, wherever any or all of the said property, income, tolls, rents, powers and franchises may be .situated, collected, exercised or enjoyed, and whether •in the State of New-York, Pennsylvania or New-Jersey (as the laws of the two last named States allow), •and of all the funds, assets, deposits, claims, choses in action, books, papers and vouchers of or belonging to said company, excepting those of which a special receiver is herein appointed; all power and authority hereunder to be held and exercised for the public convenience, and for the protection of those interested in said company. And that said receiver be, and he is hereby authorized to run and operate said road, and all roads and branches and ferries, steamboat lines, including the Pavonia ferry, now leased or operated by the Erie Railway Company, or under its control; to exercise said authority and franchises; to preserve such property in proper condition ; to repair and renew all existing structures, and to make all requisite additional structures as may be needful and proper for safe and efficient transportation on said roads and branches; and to do all proper acts and take all proper measures for protecting and securing the possession, use and enjoyment of what he shall or should receive hereunder, and for promoting the business of said company ; and he is hereby authorized to retain and employ all such persons, and to take such advice as may be reasonably needful and proper in and about the discharge of his duties under this order, and generally to do and cause to be done, in respect of the property, franchises, rights and contracts, and of whatever else of which he is appointed a receiver, any and all things which, but for this order, might be or should be done by said company, or by any one on its behalf, including the compromise and adjustment of all claims (save those of which a special reciver is appointed), and the direction and control, on behalf of said company, of all suits and legal proceedings now or to be pending by or against said company ; and all attorneys and counsel now representing said corporation are required to act in the prosecution and defense of such suits and proceedings 1 under the direction of said receiver, and on his request to give place to others.
“That he be authorized to settle and adjust and satisfy all claims for damages, injuries and loss to persons and property, or otherwise, that may arise under or be claimed against him as receiver (in any case where he has not been guilty of a breach of trust), and that he be authorized to pay such sums from the property of his receivership.
‘1 That the said receiver is authorized to institute such suits and proceedings in this State, and elsewhere, as in his judgment and by the advice of counsel shall be proper and for the advantage of the property and rights to him committed, and to pay the proper expenses of the same, and also any judgment that may be recovered against him as such receiver in any such suit, and to defend all suits and proceedings affecting his receivership ; and in all cases in which he has any' reasonable doubt as to his duty, to apply to this court in this suit for instructions.
“ That in and about the discharge of his duties, such receiver shall not dispute the validity of any of the mortgages of the said corporation (or of the New-York & Erie Railroad Company), or of the bonds secured thereby, or of its sterling bonds.
“ Said receiver is hereby authorized, upon taking possession as receiver, to at once enter into and upon, and take possession of, the apartments and offices of, or occupied by said company, and of the contents thereof, of all the property, premises, erections, ferry-boats, and of whatever is thereon or therein belonging to said company, or of which it has the right of possession or control, and whether the same be held by lease or otherwise, and of everything of which he is appointed receiver ; to require of its president, directors, officers and agents and employees, a delivery and surrender to him of whatever they or either of them have or hold by virtue of their relations to said company or belonging thereto, and that said receiver may take all proper proceedings tor the recovery of the same, in whatever States it may be necessary to proceed.
“And it is further ordered, that the Erie Railway Company, its directors, officers, employees and agents, and also all persons, banks and other corporations, having in their possession, or under their control, any of the money, funds, property or estate, real or personal, of the Erie Railway Company, (or deposited, to its credit), or any bank books, papers, vouchers, securities or effects of any nature or kind whatsoever belonging to or used by the Erie Railway Company, do forthwith, upon such receiver demanding possession under this order, deliver the same to said receiver, and recognize his authority ; and he is hereby authorized to" take possession thereof; and his receipt given to any holder of any money, books, papers, or other property of said company, or of any other thing of which he is appointed receiver, surrendered to him, shall be a sufficient voucher and discharge to such holder, and to the person so surrendering the same.
“And it is further ordered, that Philo T. Ruggles, of the city of New York, Esq., a counselor of this court, be and he is appointed referee in this action for the purposes of this order, and that the directors, officers, employees and agents of said company, and its and their clerks, attorneys and agents, and every otlmr person or corporation having in his possession, or under his or its control, any of the money, funds, securities, books, papers and property or effects of said company, or derived for its benefit from the sale of its stock or bonds or other property, and all persons who may be summoned by said referee, or subpoenaed to attend before him, do attend personally before him at such time or times, and at such place or places as he may designate, and produce such books and papers as may, by any subpoena approved by him, be required, and then and there, and at the times to which such examination may be adjourned, and from time to time, before him submit to examination on oath touching the affairs of s&id company, all such property, books, papers, stock and effects, and the ' custody, disposition and proceeds thereof and state his and its knowledge or information of the same, and do forthwith deliver to said receiver or special receiver, (as may be proper under this order,) all property, funds, books, papers, security and effects of said company which may be in the possession or under the control of the party or parties so summoned or subpoenaed, and also the proceeds of any property or effects, stock or dioses in action of said company which may have been received by such person or persons, or may be under his or their control, and that these provisions as to such reference and attending, being examined, and the production of books and papers before him, apply as well to matters relative to such special receivership as to such receivership.
“ And it is further ordered, that said receiver do pay the interest on the mortgage bonds of the Erie Railway Company, and on the bonds secured by mortgage on the real estate of said company, or of the Long Dock Company; that he pay the proper rents and all sums payable to the State of Pennsylvania, and all assessments and taxes, and a proper compensation for, and the expenses of the proceedings for his appointment in either capacity hereunder ; and that he be authorized to refund all back freights and charges on property received, and all ticket balances, and generally that he make all payments reasonably necessary and proper for the security and protection of whatever he is appointed receiver of, or may be reasonably needful about the discharge of his duties as receiver, and the efficient operation of said road and leased roads.
“ That moneys received by said receiver, so far as not used about his trust, be kept on deposit to his order in some secure bank or banks or trust companies in the city of New York.
“And it is further ordered, that the said receiver, acting under or in pursuance of this order, in good faith and with ordinary care and prudence, shall not be individually liable fg>r any breach of, or upon any contract entered into by him as such receiver, or for any injury to persons or property, or for the faults or negligence of his subordinates, or for any loss, damage or liability not occasioned by his own gross neglect or willful misconduct.
“And it is further ordered, Firstly: That said re ceiver, or special receiver, do cause to "be pre-pared and file a statement containing a list of all the stock of said company, and convertible bonds made or issued since September, 1868, stating the time the same was issued, and the leading facts relative to the creation and issue thereof.
“ Secondly : That said receiver do prepare and file a statement to be verified by him, of all the money and 'funds which he shall receive upon entering upon the discharge of his trust as receiver, stating therein where he found and from whom he received the same respectively.
“ Thirdly: That said receiver do cause to be prepared and file a general schedule, under oath, of the rolling stock, specifying the amount of each kind, and generally of the supplies, fuel, material, furniture and other miscellaneous personal property of said Erie Railway Company, which he may receive as receiver. And that he also file a statement of what he shall receive as special receiver. That the same be filed, when made, with the clerk of said county of Delaware.
“And it is further ordered, that the directors, officers, agents and employees of said company, and all other persons,. do refrain from interfering with or obstructing said receiver, or his possession or use of all said offices, premises, franchises and property, and in taking possession of the same.
‘ ‘ That said receiver, at the end of the month next succeeding that in which he shall take possession as receiver, do file with the clerk of said county an account, entitled in this suit, and under oath, of the moneys, earnings and income received by him, and of the disposition made of the same, during the month in which he took such possession ; and that at the end of each succeeding month, he do file a like account for the month next succeeding that covered by the last account.
“And it is further ordered, that said bond be conditioned for the faithful performance of the duty of said receiver as well as special receiver ; and that said special receiver keep books of account of his money, property and transactions separately, in his capacity as special receiver and receiver.”
[Date, and title of the cause.]
“A motion having been made on the complaint herein, and on the affidavits of Joseph H. Ramsey, Charles W. Douglas, Jackson S. Schultz and Ossian D. Ashley, for the suspension severally of Jay Gould,James Fisk, Jr., Frederick A. Lane, Abram Gould, M. R. Simons, George C. Hall, Henry H. Smith and Charles G. Sisson, as directors of the Erie Railway Company, and for the suspension of each of said persons as officers of said company, by reason of gross misconduct and abuse of their respective trusts and offices; and good cause having been shown to the court for so doing, and on motion of Mr. Henry Smith, on behalf of the plaintiff, it is ordered, that said several last named persons, viz: Jay Gould, James Fisk, Jr., Frederick A. Lane, Abram Gould, M. R. Simons, George C. Hall, Henry H. Smith and Charles G. Sisson, be, and they are, and each of them is hereby suspended, both as directors and as officers of the Erie Railway Company, and that each and all the last named persons, directors and officers of the Erie Railway Company, and that each and all the last named persons, directors and officers, have and ex-e else no right, privilege or authority in respect of said company, or its franchises, rights or property, in any capacity whatever, till t.ie further order of this court in this case.
“Secondly.—And it further appearing to the court that before the further or final exercise of its authority in n spect to the suspension and removal of the directors and officers of the Erie Railway Company this day suspended, it will be necessary for the court to have before it the facts and proof th it either party may desire to present upon the questions of fact that are raised by the affidavits herein -referred to, and in reference to such suspension or removal: It is ordered that Philo T. Buggies, E;q, counselor at law, of the city of Hew-York, Tbe, and he is hereby, appointed a referee, with authority and direction to take the evidence upon said questions, and the proofs that the respective parties may offer relative thereto, and to the further exercise of the powers of this court in reference to any' such suspension or removal, and report the same with all convenient dispatch to this court.
“And it is further ordered, that such evidence and proofs be taken at such times and places, and from time to time, as said referee may direct, and that on his summons, or as may be required by subpoena, the respective parties defendants, and other persons not parties hereto, to whom any such subpoena or summons may be directed, do, pursuant thereto, attend before such referee, and submit to an examination before him touching all the matters to which this reference relates, and as such referee shall direct.”
[Bate, and title of the cause.]
“ On reading and filing the complaint herein, and the affidavits of Joseph H. Ramsey, Charles W. Douglas, Jackson S. Schultz and Ossian D. Ashley, and on motion of Mr. Henry Smith, on behalf of plaintiff, and it appearing to the court that there is good cause for so doing, it is ordered, and the several defendants (and all other persons to whom this order relates) are severally enjoined and restrained (till this court shall otherwise order), as follows:
“1. That no creditor of the Erie Railway Company do institute or promote any legal proceeding or suit (other than this) against the Erie Railway Company or against any other defendant herein instituted under (or intended to secure any relief authorized by) title four,, of part three, chapter eight, of the Revised Statutes.
“2. That no defendant do, by himself or itself, or by any attorney, counsel or agent, institute or promote any suit or proceeding intended or having for its object to embarrass or delay this suit.
“3. That no director, officer or person, herein named as a defendant, do accept or admit service for or on "behalf or in the name of the Erie Railway Company, of any summons, complaint, notice or other paper, either in this suit, or in any other suit or proceeding against said company, or in any suit against any director or officer of said company, in respect to their official conduct in such capacity.
“4. That no director, officer or person herein named defendant do directly or indirectly appear for, or authorize or request, or make any attempt to procure, any person or firm to appear for, represent, or assume to act for the Erie Railway Company, either in this suit or any other suit or proceeding to "be hereafter commenced ;' and that no such director, officer, or person do use any persuasion or other means to prevent said corporation selecting and authorizing those "by whom it will "be represented in this suit, and in any other suit or proceeding that has "been or may "be instituted against such cor* poration.
“5. That from the date of the suspension of any director or officer of the Erie Railway Company, and during the continuance of such suspension, each and all such suspended officers and directors do not assume to have or undertake to exercise any authority, right, or privilege, as such officers or directors, and do not in any way or capacity interfere with the funds, business, property, affairs, directors, officers, agents, or employees of said company, or remove, conceal, or interfere with the books, records, vouchers, or papers of.said company, or with the books, records, vouchers or papers in which its accounts or business transactions are entered; and do not, without the consent of said company, enter upon or into its grounds, premises, buildings, apartments or offices, or into or upon those it holds by lease, or has in its occupancy or possession for the purposes of any part of its business ; and do not retain or withhold any records, vouchers, paper, key, or other thing acquired by any defendant in his capacity as such director or officer, and necessary to and rightfully belonging to said company, or to any officer or person who may rightfully act in its behalf.
“ 6. That neither the directors of the Erie Railway Company, nor said company do elect or appoint any one of the persons named defendant herein as a director or officer of said company, and do not give either of said persons any authority or agency in respect of said company, and do not authorize or confirm any act of said persons, or any or either of them, heretofore undertaken, done in its name or on its behalf, and do not recognize any authority in either of said persons hereafter in respect of said company, and do not discharge or settle any claim against either said person or officer during the period of their suspension respectively, or that of either of them.
“ 7. That neither the Erie Railway Company, nor the directors or officers thereof, not suspended, allow any suspended director or officer of said company, or their agents (except pursuant to some specific order of the board of directors), to have access to any of the books, records, vouchers, funds, or papers of said company; and do not in any event allow any such suspended, persons or their agents to obliterate, alter, remove, conceal, destroy, make entries or erasures in, or have access to, save in the presence of some proper officer of said company, any such books, vouchers, records, or papers or funds.
“ 8. That no new member of the board of directors of the Erie Railway Company be elected by the board, except pursuant to permission given by this court in this case.
“ 9. That no director of the Erie Railway Company, not made a defendant herein, do, after notice of this injunction, resign as such director, without giving at least three days’ written notice of such intended resignation to the plaintiffs’ attorneys herein, stating when such proposed resignation is intended to be "offered and t® take effect.
“10. That no director, officer, or agent of the Erie Railway Company, or said company itself, do remove any of its books, records, papers or property beyond this State, unless the same be strictly according to proper usage, and necessary in the due discharge of duty and the proper administration of the company’s affairs.
“11. That the Erie Railway Company, and the directors not suspended, do not omit to take promptly, according to their duty, the proper action for causing said company to be faithfully and adequately represented in this suit, and in other suits and proceedings to which it may be or become a party.
“ 12. That no more stock or bonds of the Erie Railway Company be created, issued, or converted, until the further order of this court.
“ 13. That no action to carry into effect the (pretended) resolution of said company, of October last, for narrow gauge track, be taken or authorized.
“ 14. That until the further order of this court, no reclassification of the board of directors of the Erie Railway Company be made.
“15. That till the further order of this court, no stock, moneys, bonds or other securities, or the proceeds thereof, owned by the Erie Railway Company, or in which it is interested, nor the bonds, stock, or proceeds thereof, being part of the five millions created or issued since October last, be sold, pledged, transferred or parted with, by any person or persons named as defendants, save to said company, or to a receiver or special receiver, appointed in this suit.
“ 16. That neither of the persons named defendants herein do buy, pledge, sell, assign, transfer, convert or in any way part with any stock or bonds of the Erie Railway Company not now outstanding in the hands of ~bonafide holders, or not made, sold and converted, pursuant to the direct and express authority of the board of directors of said company, except to deliver the same to a receiver appointed in this suit.
“17. That neither of the persons named defendants herein, in their respective capacities as directors, managers or officers of the ferry company running or nominally owning ferry-boats on the Hudson river, used for transportation for the Erie railway, or in their capacity as officers or directors of the Buffalo, Bradford & Pittsburgh Railway Company, or of the Long Dock Company, or of a line of steamers on Lake Erie, aid, promote or consent to the doing or omission of any act or thing that will prejudice or embarrass the business or interests of the Erie Railway Company in any particular as to which said interests and business should be protected.
“18. That the persons named defendants, their attorneys, counsel and agents, and each of them, refrain from doing or allowing any act that will interfere with or embarrass the operation of the Erie Railway Company, or those who operate the same, or injurious to its interests or business.
“19. That no person, firm or bank, having, the possession of any money or deposits of the Erie Railway Company, do recognize any authority or right of any person named defendant in or to the same, or omit to allow the same to be used and enjoyed by said company, or by any officer authorized to act for said company.”
Defendants now moved for an order vacating these orders and this injunction.
Hiram Gray, David Dudley Field, and T. G. Shear-man, for the defendants.
I. The orders were made before service of summons, hence before any action was pending, and hence the order of suspension and for a receiver at least were absolutely void (Exp. Whitfield, 2 Atk., 315, 765).
II. An order of suspension (and the injunction depends entirely upon that order) is not one of the provisional remedies authorized by the Code, and cannot be made before trial.
III. The' statute does not give the court power to grant such relief upon an interlocutory proceeding in the course of an action (see 1 Barb. Ch. Pr., 580 ; 2 Rev. Stat., 462, § 33).
IV. The order of suspension, and the order for a receiver were irregular, because ex-parte. (1.) Ho order affecting the rights of an adverse party can be made without notice or order to show cause, except such as are allowed by statute, or by the settled usage of the court, to be made ex-parte (Supreme Ct. Rules, No. 39 ; Isnard v. Cazeaux, 1 Paige, 39; Devoe v. Ithaca & Owego R. R. Co., 5 Id., 521 ; Hart v. Small, 4 Id., 551). (2.) On application for a receiver, notice is imperatively required, even where a clear case is made out, upon evidence practically indisputable (Devoe v. Ithaca & Owego R. R. Co., 5 Paige, 521; see, also, McCarthy v. Peake, 9 Abb. Pr., 164; Field v. Ripley, 20 How. Pr., 26; Verplanck v. Mercantile Ins. Co., 2 Paige, 438 ; Sandford v. Sinclair, 8 Id., 373 ; Gibson v. Martin, Id., 481). (3.) The exceptions to this rule only make the rule itself stronger (People v. Norton, 1 Paige, 17; Dayton v. Borst, 7 Bosw., 115, which simply holds that an appointment thus made is not void ; Sandford v. Sinclair, 8 Paige, 373 ; 3 Edw., 393 ; Gibson v. Martin, 8 Paige, 481).
Y. This irregularity cannot be overlooked nor cured, so as to leave the original orders standing (Johnston v. Bloomer, 3 Edw., 328 ; Finch v. Carpenter, 5 Abb. Pr., 225 ; Brooks v. Purton, 4 Beav., 494 ; Pearce v. Gray, 4 Id., 127).
yi. Ho provisional remedy can be granted, upon allegations made only upon information and belief. The material facts must be sworn to positively by some one (Hecker v. Mayor, &c. of N. Y., 18 Abb. Pr., 369 ; Crocker v. Baker, 3 Id., 183; Rateau v. Bernard, 12 How. Pr., 464; Pomeroy v. Hindmarsh, 5 Id., 439 ; Roome v. Webb, 3 Id., 328 ; Bank of Orleans v. Skinner, 9 Paige, 305).
VII. The papers in this case are peculiarly objection* able in this respect (Truscott v. Dole, 7 How. Pr., 221; Ricketts v. Green, 6 Abb. Pr., 82 ; Hecker v. Mayor, &c. of N. Y., 18 Id., 369 ; Denny v. Dater, MSS., Cardozo, J., at special term, N. Y.).
VIII. The suspension of directors, and appointment of a receiver in this suit, even if made by final judgment, could not be sustained by any reference to the plaintiff’s title as a stockholder (Howe v. Deuel, 43 Barb., 504 ; Belmont v. Erie Railway Co., 54 Id.).
IX. Plaintiff does not state facts sufficient to show that he is a creditor (McKyring v. Bull, 16 N. Y., 297, 303 ; Buffalo v. Holloway, 7 Id. [3 Seld.), 493 ; People v. McCumber, 15 How. Pr., 186 ; Lienan v. Lincoln, 2 Duer, 670; Schenck v. Naylor, Id., 675 ; Merritt v. Millard, 5 Bosw., 625 ; Chaine v. Wilson, 1 Id., 686 ; Depew v. Leal, 2 Abb. Pr., 136; Webb v. Goldsmith, 2 Duer, 418 ; Niblo v. Harrison, 7 Abb. Pr., 452 ; Gilbert v. Covell, 16 How. Pr., 34 ; Pindar v. Black, 4 Id., 95 ; Frost v. Willard, 9 Barb., 440 ; Vanderpool v. Kissam, 4 Sandf., 715).
X. The allegations of the complaint do not justify the appointment of a receiver, either provisionally or as part of the final judgment (2 Rev. Stat., 462, 463 ; Galwey v. United States Sugar Refinery, 36 Barb., 256 ; affirming S. C., 13 Abb. Pr., 211; see, also, Howe v. Denel, 43 Barb., 504).
XI. The powers of the court to interfere with the internal management of corporations is purely statutory (Robertson v. Bullions, 11 N. Y. [1 Kern.), 243, 252 ; Galwey v. United States Sugar Refining Co., 36 Barb., 256, 259 ; Attorney-General v. Utica Ins. Co., 2 Johns. Ch., 370 ; Attorney-General v. Bank of Niagara, Hopk., 354 ; Verplanck v. Mercantile Ins. Co., 1 Edw. Ch., 84 ; Ferris v. Strong, 3 Id., 127; Bangs v. McIntosh, 23 Barb., 598.
. XII. The injunction granted in this case is the most extraordinary ever known, and is wholly unwarranted and unjustifiable, in any point of view (2 Rev. Stat., 462, §§ 33, 66 ; Howe v. Deuel, 43 Barb., 504; Laurie v. Laurie, 9 Paige, 235 ; Sullivan v. Judah, 4 Id., 445 ; Moat v. Holbein, 2 Edw. Ch., 189).
XIII. A reference can only be ordered when a question of fact arises {Code, § 271). Here was no motion, and no question of fact had arisen.
P. W. PecTcTiam, Jr., and Henry Smith, for the plaintiff, opposed, insisted ;
I. That the court had the power to appoint a receiver ex-parte, and the exercise of that power was a matter of judicial discretion, vested in the tribunal before whom the application for the appointment was granted, and was not to be reviewed or set aside unless gross abuse were shown ; and that the court at special term, upon the same papers, should not interfere, but the motion should be regarded in reality as an appeal from one special term to another, and should therefore not be entertained.
II. The provisions of the Revised Statutes give the power to suspend trustees or officers of a corporation, whenever it appeared that they have abused their trust; and the settled practice of the courts sustain the pow< r to order such suspension upon an ex-parte application.
III. The affidavits on which the orders were made show sufficient ground therefor.
IV. The fact that the defendants have been re-elected, does not preclude the minority of the corporation from appealing to a court of equity, and bringing them to account for the acts committed in securing their re-election.

Opinion:
Balcom, J.
The place of trial of this action stated in the complaint is Delaware county. But neither the complaint nor any other paper before me in the case informs me where the parties or any of their witnesses reside ; and I cannot act upon any knowledge I have -personally in respect of such matters. I am, however,' permittéd to take judicial notice of the fact that only one term of this court is appointed to be held in a year in Delaware county, at which actions like this are usu ally tried; and that term is held on the last Tuesday of July.
The injunction and orders in the action were granted' on the twenty-third day of last November, at a special term of this court in said county, without any previous notice to the defendants, and without any opportunity on their part to be heard. T3ie injunction prevents each and every of eight directors of- the Erie Railway Company (there are seventeen in all) doing any act whatever as director of the company ; and it forbids the whole seventeen doing many acts which they might legally do, were they not enjoined. One of the orders suspends eight directors, named as defendants in the action, so they cannot have or exercise any right, privilege or authority in respect of said company, or its franchises or property, in any capacity whatever. That order also appoints Philo T. Ruggles, Esq., as referee; and it gives him inquisitorial powers, and authorizes him to take evidence for certain purposes in the case. The other order appoints David Groesbeck special receiver of certain money, property and claims, and the proceeds thereof, to be collected, realized, held and disposed of. The most extraordinary powers are conferred upon Groesbeck. He is authorized, upon the happening of a certain event, of which he is made the judge, to control all the affairs of the Erie Railway Company, and run the road. He is commanded to afford all information in his power, and aid, as he may be able, in the prosecution of this suit. And in the order appointing him, Ruggles is also made a referee, with authority to do a number of acts. The injunction and orders contain over thirty folios, and they are very sweeping and extraordinary for ex-parte orders. No well considered precedent has been cited for such ex-parte orders or injunction ; and I am certain none can be found. This injunction and these orders were obtained as above stated, without the knowledge of the defendants, eight months, and perhaps twenty, in advance of a trial of the action on the merits, when i't may appear from the evidence that the plaintiff was not entitled to either the' injunction or orders.
The summons, complaint, injunction and orders were served upon the Erie Railway Company on the twenty-fourth day of last November, and on that day I granted an order staying the plaintiff's proceedings, -except the service of summons and complaint in the ac-1ion on defendants not previously served, not exceeding twenty days, to enable the defendants to make a motion in some.proper county, to have said injunction and orders vacated. On the twenty-sixth day of said November, I discovered that my order did not permit the service of the injunction and orders accompanying it on defendants who had not been served with the same, and -on that day I modified ° my order so as to allow such •service to be made. I need not cite any authority to show that it was my "duty, as a judge of the district in which the place of trial of the action - is laid, or the duty of any judge in the State to grant such a stay of the plaintiff's proceedings. Every judge and lawyer in the State knows that my order was regular and proper, except, perhaps, in respect to the above mentioned -omission, which injured no one, and which I promptly •supplied, without being asked so to do.
Clerke and Parker, JJ., also very properly granted orders, staying all proceedings by Receiver Groesbeck.
The defendants were not obliged to make their motion before the judge who granted the injunction and orders of which they complain. They noticed it for the first special term of the court where it could be properly and regularly heard. And pursuant to a stipulation of the attorneys for the respective parties, the motion was adjourned to be heard where it has now been argued.
The plaintiff's counsel made a motion before Justice Murray, at Delhi, on the seventeenth day of the present month, to have -my order, staying the plaintiff's proceedings, vacated. But he held that such order was .regular, and denied the motion.
-The defendants could" not appeal from the injunction or orders in question, because they were granted ex-parte (8 Paige, 481). They were compelled to make such a motion as this, or submit to them. But the party who shall be defeated on this motion can appeal from my decision.
Section 225 of the Code authorized the defendants to make this motion, upon the complaint and the affidadavits upon which the injunction was granted, or upon affidavits on their part, with or without the answer. '
The defendants' counsel have made the point that the plaintiff has not such an interest in the stock of the Erie Railway Company, or such claims or demands against the company, as entitle him to the injunction or orders in question, if they were to concede that the same were regularly granted, which they deny.
It clearly is necessary that the complaint should state facts sufficient to show that the plaintiff has such an interest in the controversy, as entitles him to the relief demanded in the complaint, or the injunction and orders in question cannot be sustained, whatever the eight suspended directors of the Erie Railway Company may ha ve done, or may have omitted to do.
It is alleged in the complaint that the plaintiff is "a creditor of the Erie Railway Company," and "the owner and holder of a past due claim for money, against and legally payable by said company," and that he is the owner of several fifth mortgage bonds of the company— also the owner of several sterling bonds of the company —also the owner of several other thousand-dollar bonds of the company—also the owner of several shares of the preferred and several shares of the common capital stock of the company, " entitled to be standing in his name on the books of said company, and of the right to receive dividends thereon." It is further alleged that "there are numerous other floating creditors of said company." And the plaintiff avers that he brings the action "on his own behalf and on behalf of all others of the said stockholders and bondholders (so far as said stockholders are entitled to be heard herein), and on behalf of all creditors of said company who shall join in and become parties to this action, and contribute to the expense thereof." But I am not informed that any other creditor or bondholder or stockholder has manifested any disposition to come into the case on the part of the plaintiff. .
The complaint does not show when the plaintiff became the owner of his claim for money against the company or its amount, or its character, or how it accrued. hTor does it state when he became the owner of any bond of the company, or when or for what the same was issued, or when the same becomes due ; or whether anything is due on any bond he has, or the amount of his bonds. It fails to allege that the plaintiff has any scrip or certificate for stock of the company, by assignment or otherwise; and it does not state facts, from which any legal inference can be drawn that he is ' ' entitled" to have any stock stand in his name on the books of the company, or which show a right in him to receive dividends on such stock. He has contented himself with stating conclusions of law respecting his title to his alleged claim and bonds and stock of the company.
Common.sense, as well as law, would indicate that the plaintiff should have stated in his complaint the nature and amount of any claim past due which he has against the company, by note, bill, account, or bond, or on coupons, so that the directors could pay the same and relieve themselves from suspension, or at least so that the directors who are not suspended or enjoined could pay it.
And I take it to be clear that such/«efe should have been averred in the complaint as would show the plaintiff's title to the claim, bonds and stock mentioned iu.it, which he says he owns. In respect to the stock, none is shown to b§ standing in his name on the books of the company. The court of appeals decided in City of Buffalo v. Halloway (7 N. Y. [3 Seld.], 493), that a statement in a complaint, " that by means of a contract" (which was set forth), " it became the duty of the defendant to perform certain acts, is not sufficient, unless the facts necessary to show the duty are stated." Judge Seldeo" said, in McKyring v. Bull (16 N. Y., 303), when speaking of the Code : "It was evidently designed to require of parties, in all cases, a plain and distinct statement of the fasts which they intend to prove."
For aught the complaint shows, the plaintiff is a mere volunteer in bringing the action, and purchased his alleged claim and bonds and stock, or pretended right to the same, immediately before commencing it. And he has not alleged that he has demanded payment of any "past due" claim that he has against the Erie Railway Company, or that payment thereof has been refused.
No authority has been cited to establish that a complaint like this gives the plaintiff such a standing in court as entitles him to such an ex-parte injunction o.r such ex-parte orders as he has obtained.
It was held in Galwey v. United States Steam Sugar Refining Co. (36 Barb., 257), "that the statutes provide for but three cases in which a receiver of the property of corporations (other than moneyed corporations) can be appointed: 1. Upon the application of a creditor py judgment or decree, on the return of an exetion unsatisfied. 2. When the corporation has been insolvent for a year, or has neglected or refused, for a year, the payment of its debts, or has suspended its business for a year. 3. Upon the application of the directors or trustees, when in their judgment the condition of the corporation makes a voluntary dissolution desirable." In this case there are nine directors in office, who are not suspended, and are capable of acting, and were they simply trustees, the rule would partly apply, that "where there are two or more trustees, the court will not appoint a receiver upon the death, absence, disclaimer, or misconduct, &c., of some or one of them, nor as long as there remains any trustee to act in the trust" (Hill on Trustees, 3 Am. ed. with Notes, 318).
I am constrained by authority to hold that the plaintiff Las not shown by his complaint that he has any standing in court as a creditor or bondholder or stockholder of the Erie Railway Company, so that he could have a receiver or referee appointed ex-parte in the action (see Howe v. Deuel, 43 Barb., 504 ; Belmont v. Erie Railway Co., 52 Id., 637; MSS. Opinion of Nelson J. ; People v. Erie Railway Co., 36 How. Pr., 129). I appointed a referee in the last mentioned case, but it was after hearing both parties, and with their consent. If they had not consented to the appointment of a referee therein, I should not have appointed one, for it would have been unprecedented and unauthorized. Since the decision of Belmont v. Erie Railway Co {supra), the order in People v. Erie Railway Co., has been modified, upon a stipulation, nunc pro tunc, so that it conforms, respecting the right of the company to convert bonds into stock, to the opinion in Belmont's Case, and the opinion of Justice Ingraham therein cited.
Two questions were pretty well settled about a year ago by this court, when an effort was made by some stockholders of the Erie Railway Company to have ex-Judge Davies made receiver of the company : 1. That a receiver of the company could not be properly appointed in an action brought by a stockholder or a creditor who had no judgment (52 Barb., 637 ; 36 How. Pr., 129). 2. That the directors of the company, acting in good faith, have power to issue convertible .bonds in the name of the corporation for the amounts they may borrow to complete and finish, or to operate the road, with the right to authorize their conversion into stock, although it increases the amount of capital stock beyond that fixed by the charter. And that being so, the right of the directors to issue stock in convention of such bonds, is clear (Belmont v. Erie Railway Co., supra).
Chancellor Walworth held, in People v. Norton (1 Paige, 17), that, "as a general rule, a receiver should. not Tbe appointed without notice to the parties interested." He also held, in Devoe v. Ithaca & Owego R. R. Co. (5 Id., 521), that a receiver ought not to he appointed ex-parte, and without giving the corporation an opportunity to be heard. And the same rule is laid down in several other well considered cases (see Gibson v. Martin, 8 Paige, 481).
In regard to the plaintiff's claim that he is "entitled" to have some stock of the company stand on its books in his name, I will say that if he had certificates for the same duly transferred to him (which is not alleged), he could have surrendered such certificates to tbe transfer agent of the company, and requested that the stock be transferred to him on the books of the company ; and upon a refusal of the agent to do it and issue certificates to him for such stock, he could have maintained an action against the company to recover damages for such refusal (see Commercial Bank v. Kortright, 22 Wend., 348). But he could not compel such transfer of the stock by mandamus. This was held by Broils oír,. J., in Exp. Fireman's Ins. Co. (6 Hill, 243).
It seems to me that it would have been wise at least for the plaintiff to have seen that he was a stockholder on the books of the Erie Railway Company before bringing this action.
The defendants' counsel have argued that the ex-parte order, suspending eight directors of the company, was entirely void; and that the court has no authority to suspend them from the exercise of their offices, except by judgment after a default, or after a regular trial of the action upon the merits. .One of the grounds for this position is that suspension of directors is not a provisional remedy authorized by the Code. It is not expressly authorized therein, and if the court has such power, it exists by implication, or must be found in the Revised Statutes, or be based upon some principle outside of any statute of the State. By the Revised Statutes the court has power to suspend any director or officer of a corporation from exercising his office, whenever it shall appear that he has abused his trust; and to remove him from office upon proof or conviction of gross misconduct. But it is further provided that this "jurisdiction shall be exercised as in ordinary cases, on bill or petition, as the case may require, or the supreme court may direct, at the instance of the attorney-general prosecuting in behalf of the people of this State, or at the instance of any creditor of such corporation, or at the instance of any director, trustee or other officer of such corporation having a general superintendence of its concerns" (3 Rev. Stat., 5 ed., 762, 763, § 40, 43 ; 2 Id., 1 ed., 462, 463, § 33, 36).
Mo authority is .conferred by these statutes upon a .stockholder of a corporation to maintain an action for the removal or suspension of a director. If the plaintiff can sustain such an action, his right must rest upon the alleged fact that he is a creditor of the Erie Railway Company. I am not aware of any decision as to whether a creditor at large, without a judgment, can maintain such an action under the above statutes (see remarks of Nelson, Ch. J., on another statute, in Frisbee v. Thayer, 25 Wend., 398). But it is unnecessary to express an opinion on that question. For I think if such a creditor can maintain such an action under those statutes, he must state in his complaint more facts than are alleged by the plaintiff herein. He must state the nature of his claims or demands constituting him such a creditor, and when and how they arose, and the amount due him, &c., so that the corporation can readily determine their validity, and see what they owe him, and settle the same. It is obvious that a corporation has the right to pay its creditors, and thus avoid the removal, or suspehsion of its directors from office. And common fairness requites that payment of a debt should be demanded of a corporation before such an action as this should be commenced.
It is unnecessary to determine the question whether the court had power to suspend eight directors of the Erie Railway Company from exercising their offices, in this action, "before a regular trial, without previous notice to them or the company. I will, however, say that no such power is directly conferred "by statute. But there is a statute which expressly gives the court jurisdiction to issue an injunction "before the coming in of the answer," to restrain any corporation from assuming or transacting any business not allowed by its charter. And this is in the same article in which the statutes are, that I have quoted (2 Rev. Stat., 462, § 31, 32).
Now, if the court had the power to suspend directors (as exercised in this case), I am of the opinion that proper caution required that they should have had reasonable previous notice of the time and place of the application for the order suspending them.
In Ogden v. Kipp (6 Johns. Ch., 160), the plaintiffs were stockholders of the bank, and in their bill of complaint they charged the defendants with fraud and corruption in the control of the election for directors, and prayed for an injunction against nine of the directors, to restrain them from all further interference as directors with the management and agency of the bank. But Chancellor Kent (upon due notice given to the defendants) refused to grant an injunction to restrain, the defendants, whose election was colorable in law, from the exercise of their powers, or to appoint a receiver to take charge of the affairs of the bank before the coming in of the defendants' answers to the complaint. He saidj "A trustee is rarely, if ever, divested of his trust until he has been heard in answer to the charges against him. And that nothing but the necessity of the case—such as the danger of irreparable loss—can justify a departure from this rule of common justice."
It is difficult to see what irreparable loss the plaintiff in this case would have sustained if he bad been required to give the defendants eight days' previous notice of his application for the order suspending the eight directors who are made defendants herein, from exercising their offices, unless it would have been the denial of his application, after such defendants had been heard ; and I am of the opinion that he will not sustain any irreparable loss, as a creditor of the Erie Railway Company or otherwise (within the m'eaning of the rule), if he should not have any injunction in the action until he establishes his alleged cause of action on a regular trial of the case.
I think there is another fatal defect in- the plaintiff's case; which is the want of legal proof to sustain his complaint. Abuse by the suspended directors of their trusts, or gross misconduct by them, or fraud in the exercise of their offices, cannot be presumed without proper proof. No such charge can be sustained on hearsay evidence. Very few, if any, of the material allegations of the complaint of misconduct on the part of the suspended directors are positively sworn to by the plaintiff or sustained by the affidavits of his three witnesses. The complaint, except as to the alleged interest of the plaintiff in the stock of the Erie Railway Company and his claims against it, is made (as therein stated), " on information and belief." The verification by the plaintiff, at the end of the complaint, is, "that the same is true to his own knowledge, except as to matters therein stated on information and belief ', and that as to those matters, he believes the same to be true." The letter of Director Diven, annexed to the complaint, if regarded as material, is not sworn to. He is not a defendant in the action, and whatever he wrote was mere hearsay evidence as against the suspended directors or the company itself; for the reason that it was not written in the transaction of any business by him as a director of the company. I need only say, respecting the three affidavits, annexed to the complaint, that nearly all, if not all the material portions of them, are as the deponents were informed and believed, or consist of opinions they could not legally give.
Chancellor Walworth held, in Bank of New Orleans v. Skinner (9 Paige, 305), that "Upon the exparte application for the allowance of an injunction, if there is any material allegation, upon which the right to the in junction rests, which is not within the personal knowledge of the complainant, or of the agent or attorney who verifies the bill, the officer to whom the application is made should require to be annexed to the bill the additional affidavit of the person from whom the information is derived, verifying the truth of the information thus given." Justice Ingraham said, in Hecker v. Mayor, &c. of N. Y. (18 Abb. Pr., 369), that "itis only where the verification of the complaint is positive that it will suffice as the affidavit." But I need not multiply authorities on this point; for it is plain common sense and common justice that no officer of a corporation should be suspended from exercising his office, except upoh clear and positive proof.
It was said in Woodward v. Harris (2 Barb., 440), that " The power of a court of equity to issue preliminary injunctions ought to be exercised with extreme caution, and applied only in very clear cases." The late Ch. J. Gibson used language still stronger on the same question (17 Pa., 9). In 2 Barb., it was also said, " The writ will not be awarded in doubtful cases, or in new ones not coming within well-established principles."
I will here say, that in order to prevent conflicts in decisions and orders of different judges, and to protect corporations and their officers against suspensions and injunctions that may be procured ex-parte for sinister purposes, and which cannot be sustained, our legislature, in my judgment, should adopt a law of the United States (so far as corporations and their directors are concerned), which provides, that "No injunction shall be granted in any case, without reasonable previous notice to the adverse party or his attorney, of the time and place of moving for the same" (1W. Eden, 12). I have not made this suggestion to reflect on any judge; and I claim no exemption from blame myself for granting injunctions or orders ex-parte in such cases. I think every judge has supposed (as I have), he was acting fairly and in furtherance of justice whenever he has granted an injunction or order ex-parte in such a case.
Some such act of our legislature seems to he necessary to secure harmony in the decisions of judges, and what Chancellor Kestt called " common justice" to litigants.
If I have been able to understand the whole three hundred and forty folios of the plaintiff's complaint, it contains no important charge of improper acts against any defendant in thé case, since the stockholders of the Erie Railway Company elected the defendants directors in October last past, except those touching the issue of five millions of dollars' worth (at par) of convertible bonds of the company to defray the expense of laying a narrow gauge track on its road bed, so that narrow cars can be run from Chicago to Jersey City. I should say if that proposition were fairly and honestly carried into effect, it would be a benefit instead of a loss to the stockholders and creditors of the company ; and that there could be no reasonable objection made to it, unless by competing railroad companies, or the owners of stock in them.
Four of the eight suspended directors, as I read the plaintiff's complaint, were never directors prior to their election in October last. But those four have been suspended and enjoined in various ways, because of the plaintiff's fears, and of acts alleged to have been done previous to that month by other directors, one of whom is a brother to one of the four, and related by affinity to another of them. I think nothing need be said to show the impropriety (to use no other word) of their suspension without previous notice of the motion for that purpose. To sustain the order suspending them, the Scripture rule, that visits the sins of fathers upon their children unto the third and fourth generation, must be extended laterally.
If the plaintiff was the owner of the stock of the company previous to the election of directors in October last (which is not alleged), he should have procured a proxy from the person in whose name it stood on the books of the company, and voted against the directors who he now alleges are unfit for their offices. Many millions of dollars of the stock, perhaps forty, or fifty, or more, may then have been voted upon ; and yet, according to the complaint, only "a few" stockholders voted against the defendants. And, in my judgment, a sufficient excuse for any stockholder's failure to vote is not set out in the complaint.
It is an elementary principle of law that "a court of equity will not interfere by injunction where the suit is brought on behalf of any stockholders who have sanctioned or acquiesced in the acts complained of." (Angell & A. on Corp., 6 ed., § 312). It is also laid down that, " the remedy in case of loss by a corporation, by misjudgment merely of the directors, is to be found, not in the courts, but in the corporation itself; in its power by new elections to confide its interests to other managers" (Id., §314; also, see Hill on Trustees, 3 Am. ed. with Notes, 292). In the case of Vestry, &c. v. Barksdale (1 Strobh., 202), Duncan, Ch. J., said: "It is quite clear this court has no authority to interfere with or control the discretion of the vestry and wardens, •unless they transgress the limits of their charter ; however unwisely they may exercise • their }30wer, they are responsible only to their constituents, in whose hands a complete remedy exists through the quiet operation of the ballot-box." It has been adjudged in Maine, and asserted in Eden on Injunctions, that "it is only when the plaintiff in equity has exercised due precaution to prevent an injury, that he can be relieved by injunction" (Burr v. Wilson, 9 Me., 207 ; W.'s Eden, 3 ed., 12).
I think the plaintiff nowhere claims in his complaint that he was ignorant of the alleged misconduct of any of the eight suspended directors, prior to their election in October last, or that he or any stockholder or bondholder or creditor of the comjiany from whom he derives title, ever remonstrated agaiiist such alleged misconduct, or took measures to prevent it. Nor does it appear that either of the nine airee ors, who are not suspended, have used reasonable efforts to have more frequent or regular meetings of the board of directors than have "been held. If or have any considerable portion of the stockholders made any effort in that direction.
Stockholders, who did not vote against the suspended directors, at the last eleciion of directors, must be deemed to have acquiesced in all acts of extravagance or improvidence, and all acts arising from misjudgment by any of such directors, done prior to such election, of which such stockholders had information sufficient to put them upon inquiry.
Stockholders who will not look after their interests out of court, should not come into court for favors or orders resting in the discretion of the court.
There may be differences of opinion respecting the propriety and amounts of expenditures for depot buildings, offices, shops and equipments for railroads, and touching their connections and extensons, and also as to changes in the locations of their offices, shops and other buildings; and courts cannot interfere with the discretion ot' directors in such matters.
The neglect of stockholders to vote at the last election of directors was tantamount to a consent on their part that such stockholders as did vote at that time, might elect whomsoever they saw fit, directors of the company, whether they were moral or immoral men, or wasteful or extravagant, or improvident in the management of affairs of the company. The law does not prescribe the moral qualifications of directors of corporations.
Uniil I saw the charges of immorality in the complaint against some of the suspended directors, I had supposed that if a majority of the stockholders of the Erie Railway Company prefer to have immoral men or speculators for directors (and I fear many railroad companies have some directors of that character), they had the legal right to elect them directors ; and that they could choose as depraved a person as a libeler, "whose heart (to use the language of a former chief justice of Pennsylvania) is more dark and base than that of an assassin, or than his who commits a midnight arson" (Oswald's Case, 1 Dall., 329).
The law is so familial* that I hardly need to say that stockholders of the company, who have not expressly sanctioned a fraud or abuse of trust on the part of the directors, can compel such directors to account for the same, and that merely voting for such directors, or neglecting to vote against them, would not estop stockholders from making directors account for their frauds or abuses of trust. But when directors are only unwise, or merely extravagant or improvident, or slightly negligent, or merely misjudge in the performance of their duties, the remedy of stockholders is to elect other persons directors in their places.
The fact that the complaint is not positively verified, or positively sustained by affidavits (as has already been seen), relieves me from making any extended remarks upon it. But I will say that it contains many serious allegations of fraud and corruption against three of the suspended directors, who are defendants in the case. It also contains matter that should have been left out, which is better calculated to degrade the suspended directors, and lower other directors of the company, and the judiciary, in estimation of the people, and cause insubordination and strikes among the employees of the company, than for any other purpose. Ignorant persons who read such matter may be led to suppose the defendants have no rights, which courts are bound to respect.
If plaintiff purchased whatever interest he has in or against the company since the last election of directors (and the complaint does not aver the contrary), for the purpose of bringing this action,¡he should surely be compelled to wait for any injunction or other extraordinary order in it until it shall be regularly tried on the merits, when justice can be done according to the evidence, and not be guessed at from ex-parte allegations or affidavits.
It is my duty to decide this motion as I think it ought to be decided, within the legal rules applicable to it, and precisely as the judge who granted the injunction and orders in question should have decided, and undoubtedly would have decided, if he had heard the defendants' counsel before lie made any order in the case.
It is due to the able and worthy judge who granted the injunction and orders in question, to say that any other judge might have granted the same injunction and orders upon an ex-parte application therefor. But I do not doubt he would have refused to grant either the injunction or orders if he had heard defendants' counsel in opposition thereto, on the questions in the case, and had had his attention called to the authorities applicable to it.
I have omitted to speak of the smallness of the plaintiff's alleged interest in this controversy (the amount of which I infer from what took place on the argument, is less than ten thousand dollars in value, and perhaps not over half of that sum), when compared with the great interests and rights in jeopardy on-the part of the defendants. I have done so because there are other and controlling questions in the case.
My decision will not prevent plaintiff moving, on due notice, for an injunction to restrain any of defendants irom doing wrongful or illegal acts as directors of the Erie Railway Company during the pendencyof the action.
For the foregoing reasons I am of the opinion that the injunction and orders in question should be vacated and annulled, with costs, and I so decide. There is a ground I have not noticed, on which I think it probable I should have vacated the injunction and orders in question, if it had been presented and discussed on the argument.
I greatly regret that the illness of brother Parker has cast the responsibility of hearing and deciding this motion on me. I can only hope I have determined it as he would have done had he been able to hear it.
This ground is the improper interference of the press in the case, to aid the plaintiff and prejudice the defendants with the courts, which interference is believed to have been caused by the plaintiff or his attorney, or some person interested on his side of the case (see Forum by David Paul Brown, vol. 1, pp. 336-339). B.