Case Name: The People of the State of New York, Respondents, v. The Northern Railroad Company, John L. Lovering, Frederick Clapp, A. W. Chamberlin, and C. C. Chamberlin, impleaded with others, Appellants
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1870-03-17
Citations: 42 N.Y. 217
Docket Number: 
Parties: The People of the State of New York, Respondents, v. The Northern Railroad Company, John L. Lovering, Frederick Clapp, A. W. Chamberlin, and C. C. Chamberlin, impleaded with others, Appellants.
Judges: 
Reporter: New York Reports
Volume: 42
Pages: 217–243

Head Matter:
The People of the State of New York, Respondents, v. The Northern Railroad Company, John L. Lovering, Frederick Clapp, A. W. Chamberlin, and C. C. Chamberlin, impleaded with others, Appellants.
In an action, in the nature of quo warranto, the complaint alleged the insolvency of a corporation, mortgage of its franchise and property to trustees to secure certain bonds, surrender of possession of its road to the trustees, foreclosure of the mortgage and sale thereon to such trustees, the incorporation of the bondholders under a new name, pursuant to a special act of the legislature, conveyance of the road and property to the new corporation, pursuant to an order of the Supremo Court, and its possession and operation of the road since, and that the original corporation had neglected to pay its debts, and entirely suspended its ordinary and lawful business ever since the surrender to the trustees. The complaint further charged that certain defendants named, claiming to be stockholders of the original corporation, had usurped the franchise, pretended to elect directors, and commenced an action to obtain title and possession of the road.
The answer recited the mortgage, foreclosure and sale, incorporation of the new company, surrender and conveyance to, and possession and operation of the road by it; but alleged that the decree of foreclosure and judgment for deficiency in that action, the act of the legislature and order of the Supreme Court, surrender and conveyance, and the incorporation of the new company, were all obtained and procured fraudulently, and without valid notice to or service upon the corporation or defendant, and were void; that the original corporation was not dissolved; that the trustees held the property as mortgagees in possession and for several years after the foreclosure, and after the passage of the act of the legislature had made their reports in the name of the original corporation, and that valu-. able property of that corporation was not included in the mortgage, and had never passed from it. It also contained numerous allegations of fraud and misconduct on the part of the trustees and various persons in connection with the conduct of the affairs of the corporation, both before and after the new organization, and denied every allegation of the complaint not specifically admitted. The answer further alleged that the defendants answering were bona fide stockholders, had elected directors in good faith, their action had been commenced under advice of counsel, and they had never undertaken to obtain possession of the road, property or franchise otherwise than through the courts.
Meld (Foster, Ingalls and Sutherland, JJ., contra), that no issue of fact was formed by the pleadings; and judgment, as prayed in the complaint) and also appointing a receiver of the original corporation, was properly rendered at Special Term, on a motion for judgment upon the pleadings, or for other or further relief.
(Argued January, 1870;
decided March 17,1870.)
Appeal from an order of the General Term of the Supreme Court, in the fourth district, affirming a judgment entered by the direction of a single judge at Special Term, in that district.
On the 29tli of May, 1867, upon presenting to a justice of the Supreme Court the complaint duly verified, leave was granted to the Attorney-General, pursuant to section 430 of the Code, to bring this action. Afterward, the defendants above named, who are appellants, appeared; but whether the summons was served on any other of the defendants named in the complaint, the record does not show.
The complaint alleged, in substance, that the Northern Railroad Company was a corporation, created by an act of the legislature of this State for the purpose of constructing a railroad ; and, in pursuance of said act, the corporation constructed a railroad from Ogdensburgli to Rouse’s Point, at an expense of about $6,000,000, which was opened in October, 1850, and continued to be used by the corporation until October, 1854. The nominal capital was $2,000,000, of which only about $1,600,000 was ever paid in ; and the residue of the means to build the road was obtained upon two classes of bonds of the company, known as first and second mortgage bonds. The first class amounting to $1,500,000, was secured by two mortgages of different dates, upon the railroad and all the property of the corporation, real and personal, and its franchises, and was executed to three trustees, one of which mortgages bears date in February, and the other in April, 1850.
The second class of bonds were likewise secured by two mortgages upon all the property and franchises, to three other trustees subject to the security for the first mortgage bonds, and which were dated, the one in December, 1851, and the other in April, 1854, and all the mortgages were duly recorded.
The corporation was insolvent in October, 1854, and then ¡surrendered possession of all its- property, real and personal, to the trustees, for the second mortgage bondholders, and ever since that time the corporation had remained insolvent and neglected to pay its notes and other evidences of debt, and entirely suspended its ordinary and lawful business.
The mortgages to secure the second class of bonds were foreclosed, judgment of foreclosure having been rendered in April, 1856, and pursuant thereto, all the property of the corporation of every kind (except one bond for §100,000), was sold to the second mortgage trustees, in trust for the second mortgage bondholders, subject to the first mortgages; and the road continued to be operated by the second mortgage trustees until August 1st, 1865.
Pursuant to an act entitled “ An act to authorize the formation of a corporation in place of the Northern Railroad Company dissolved,” passed March 31, 1857; and an act amending the same, passed April 8,1864, the second mortgage bond holders organized a new corporation, by the name of the “ Ogdensburgh and Lake Champlain Railroad Company,” and were .the owners of the railroad, with its franchises and property; and pursuant to an order of the Supreme Court made at a General Term thereof, on the 1st day of August, 1865, they received a conveyance of all the railroad property and franchise and the possession thereof, and have ever since managed its affairs and fulfilled the purpose for which the franchise was originally granted.
Subsequently, in pursuance of an act of the legislature, the last named company had issued preferred stock to the amount of $2,000,000, of which $1,500,000 was to extinguish the first mortgage bonds, and the residue to pay the floating debt of the company and to furnish cars and locomotives.
It then charged, that the persons named in the complaint as defendants, with divers others unknown, falsely claimed that the Northern Railroad Company was an actual, legal and existing corporation, and owners of a railroad, and that they could obtain possession thereof, if they were furnished with money, and had thereby pursuaded large numbers of the stockholders of the Northern Bailroad Company to pay them large sums of money, amounting to $4,000 and over, for such alleged purpose.
The persons named as defendants, and the other persons whose names were unknown, had usurped for more than twelve months last past, and still usurp and use without any lawful warrant or charter, the franchise of being such Northern Bailroad Company, and by that name sue and claim that such pretended corporation owns the property then in the possession of the Ogdensburgh and Lake Champlain Bail-road Company.
Said defendants, in March, 1866, held a pretended election of directors of said Northern Bailroad Company, and threatened to hold another; and had, in the name of the Northern Bailroad Company and Frederick Clapp, commenced an action in the Supreme Court against the Ogdensburgh and Lake Champlain Bailroad Company and others, to obtain title and possession of the before mentioned railroad and property, and these acts tended to impair the benefit of the franchise, and to depreciate the market value of the stock of the Ogdensburgh and Lake Champlain Bailroad Company, and to hinder it from carrying out the purposes of the aforesaid act of the legislature.
The complaint then asked the judgment of the court:
“1st. Adjudging and deciding that said Northern Bailroad Company has remained insolvent for more than one whole year; has for one year and more neglected to pay or discharge its notes and other evidences of debt, and for more than one year has suspended the ordinary and lawful business of such corporation; has surrendered all the rights and privileges, and franchises, granted by any act of incorporation, or acquired under any laws of this State; and has been dissolved ; and that it be forever excluded from all corporate rights, privileges, and franchises.”
“ 2d. That the several persons named or referred to aa defendants in this complaint, have occupied and used, within this State, the franchises of a corporation, contrary to the laws of this State, to the injury of the people of the State, and in violation of law ; and that they, and each, and every of them, be forever excluded, prohibited, restrained, and enjoined by the order of this court from occupying, setting up, or exercising any of the corporate rights, privileges, or franchises formerly possessed by the said Northern Railroad Company, and that a temporary injunction to the above effect may be immediately granted.”
“ 3d. That said persons named as defendants, or referred to as such, be fined in the sum of $2,000 each, for their said usurpation, pursuant to section 441 of the Code, and may be compelled to pay the costs of this action.”
“ 5th. That the people of the State of New York, may have in this action such other, or such different, or such further relief, as may be agreeable to law and equity.”
The defendants, who are appellants, put in an answer to the complaint, which professed to give a history of the organization of the Northern Railroad Company. Stated the issuing of the first and second series of mortgage bonds, their aggregate amount, and set out as part of their answer, the several mortgages in full. It alleged that the mortgage which was last issued to secure the second mortgage bonds, was fraudulently made and issued; the transfer of the road to the trustees of the second mortgage bonds alleged in the complaint was a transfer of the possession to them as mortgagees ; and, thereafter, they, at all times, held the road and personal property, and franchises, only as mortgagees in possession; and were bound to account for the issues and profits thereof to the railroad company. It alleged divers frauds committed against the company by the trustees and others, who conspired with them to cheat and defraud the railroad company. That fraudulent debts were created by them while so using the road; they kept to their own use large sums of money which came to their hands as such trustees, for the use of the road and of the bondholders; caused the books of the company, and of the trustees to be conveyed and kept out of this State, -and refused to return them, or to let them he inspected. The foreclosure of the second mortgage was fraudulent and void, on the ground that the trustees caused the summons to he served upon a person, who they well knew, was not an officer of the company, or in its employ, hut was in the employ of the trustees; and fraudulently concealed from those interested in the road as stockholders and officers, the knowledge that such suit was commenced, and that proceedings were being had therein. They denied that the acts of the legislature mentioned in the complaint, by which it was claimed that the corporation was dissolved, and by which the Ogdensburgh and Labe Champlain Railroad Company was claimed to have succeeded to their rights and franchises, were procured by the said Northern railroad, or with its knowledge, or assent in any way; and they alleged that the legislature had no power by enactment, to dissolve the corporation, or as against it, without its consent, to transfer any of its rights or franchises to another corporation. They alleged various other acts of the trustees, in eonnection with other persons, and of the Ogdensburgh and Lake Champlain Railroad Company, in violation of the rights of the Northern Railroad Company, of which .the persons above named as defendants were stockholders, by which they were injured, and by which large sums of money were diverted from the proper use of the Northern Railroad Company. That the said trustees fraudulently caused other actions to be commenced, and fraudulently caused the process to be served on their own employes, who were not officers, or in the employ of the company; and caused such suits to be prosecuted to judgment without being defended, and without the knowledge of the company, whereby unjust judgments were obtained against it. That the proceeding by which the Supreme Court, at General Term, granted the order transferring all the rights and franchises of the Northern Railroad to the Ogdensburgh and Lake Champlain Railroad"Company were fraudulent and void. That such proceeding» were had upon a service of the papers therein upon an employe of the said Ogdenshurgh and Lake Champlain railroad, and who was not in any way connected with the Northern Railroad Company, and such proceedings were fraudulently kept secret from that corporation, and were continued and conducted without its knowledge.
That there was a large amount of the funds of the Northern Railroad Company in the hands of the trustees and of the Ogdenshurgh and Lake Champlain Railroad Company, which should he accounted for and paid over to the Northern Railroad Company, and which would with the avails of the use of the road, enable it to continue the road in operation and pay all its just debts. The answer then stated in separate paragraph : “ And these defendants deny each ct/nd every allegation and a/oerment in the 'complaint in this action contained not herein specifically admittedf and averred as follows: “And these defendants, for a further and other defence to this action, aver that they are and have been directors of the said defendant, the Northern Railroad Company. That the said company has never been legally dissolved, and has never forfeited its right as a corporation under the laws of the State of New York. That these defendants were, at the time alleged in the said complaint, bona fide stockholders of the said Northern Railroad Company, having paid value for their said stock; and that these defendants, being such stockholders, and being advised by their counsel that the property and franchises of said Northern Railroad Company still ■ belonged to the original stockholders of said company, subject only to such equitable rights as the first and second mortgage bondholders might be deemed to possess, did participate in an election and were duly elected directors of said Northern Railroad Company, and as such directors dial commence aii action in the Supreme Court of the State of New York against the Ogdenshurgh and Lake Champlain Railroad Company, and against all others who were or could be interested in the questions involved, which action is now pending and undetermined. That these defendants have never undertaken to obtain possession of the said railroad property or franchises except upon a determination of the courts of this State, that they were entitled thereto. That such election of directors and such suit was had and brought in good faith, and for the simple purpose of determining by the courts of this State the rights of the stockholders of said Northern Railroad Company. That these defendants are pressing said action, so brought by them as aforesaid, to an early determination, to the end that all questions between them may be settled and determined. That the several issues in the said action brought by this defendant, the Northern Railroad Company, cannot be determined in this action unless the Ogdensburgh and Lake Champlain Railroad Company, said trustees in this answer named, and the other persons named as defendants in the action brought by this defendant, the said Northern Railroad Company, be made parties hereto, and these defendants insist that this action should be stayed until the determination of the said action brought by this defendant, the said Northern Railroad Company, wherein it will be determined which is the legally existing company, and entitled to the property and franchises of said road. And these defendants demand that it be adjudged and decreed that the present board of directors and officers of said Northern Railroad Company are the duly elected and proper representatives of said company, and that they are, as the representatives of said company, entitled to the immediate possession, management and control of said Northern railroad, and of all the rolling stock, fixtures and other corporate property, and also of all of the property of any kind or description acquired by said trustees while in possession of said road or by the said Ogdensburgli and Lake Champlain Railroad Company since they acquired possession thereof, and that for all the reasons in this answer contained, this action be dismissed with costs. And defendants ask such further and other order, judgment, decree or relief in the premises as to the court may seem just and proper in the premises.”
The plaintiff gave notice, of thirteen days, that at a Special Term of the Supreme Court, to be held at the cham bers of Hr. Justice James, it should, “ upon the pleadings and proceedings in this action, and the records referred to in the complaint and answer, move the court for judgment, as prayed for in the complaint, or for such farther or such other order as to the court may seem proper.”
The hearing took place before Mr. Justice James at an adjourned Special Term, at his chambers, on the 19th of May, 1868.
Previous to that time, the defendant gave notice to the plaintiff of a motion to be heard at that Special Term “ upon the affidavit served, and on the pleadings and proceedings in the action for an order staying all further proceedings therein until after the trial, or iinal determination of the action referred to in said affidavit ” (and which is also referred to in the said answer) in which the ¡Northern Railroad Company and another are plaintiffs, and the Ogdensburgh and Lake Champlain Railroad Company and others are defendants, and for such other and further order as mayr be just. On the hearing of such last mentioned motion, the court at Special Term denied it with costs.
When the motion on the part of the plaintiff was brought on, the counsel for the defendant objected to the hearing preliminarily. 1st. That an application for judgment upon the pleadings could not be brought on as a non-enumerated motion. 2d. That such an application could only be made in a case triable by the court without a jury. 3d. That this was a common law action, and the defendants were entitled to a trial by jury. 4th. That before an application for judgment could he heard, the plaintiffs must show that the cause was at issue as to all the defendants, or that such of the defendants as had not answered were in default for not answering. The justice reserved the objections, and proceeded to hear the motion on its merits upon the pleadings and exhibits alone, and afterward rendered a judgment in favor of the plaintiffs “ upon the complaint and answer,” that the Northern Railroad Company had surrendered and forfeited all the rights, privileges and franchises granted by any act of incorporation, or acquired under the laws of this State, and adjudged it to he dissolved. That the government of the State had, by the before mentioned act of March 31, 1857, accepted such surrender, and resumed the franchise of the said Northern Railroad Company. That the defendants, John L. Lovering, Frederick Clapp, A. W. Chamberlain and C. C. Chamberlain, were guilty of having usurped, within the State, the franchises of a corporation contrary to its laws, and that a fine of $500 be imposed upon them therefor. And it was further adjudged and decreed, that the defendants desist and refrain from occupying, using or claiming, or pretending to use,- any franchise under the nárne óf the Northern Railroad Company, or any other name, on the pretence of owning or having authority or control Over the railroad extending from Ogdensburg to Lake Champlain; or from Holding, or pretending to hold, any election of directors Of any such company, or doing any act or thing as such corporation. That the plaintiff recover of the defendants the sum of $119.40 costs and disbursements of the action; and that William J. Averill be appointed receiver of the stock, property, things in action and effects of said Northern Railroad Company, on his giving security in the sum of $20,000.
The defendants excepted to the decision, that the plaintiffs were entitled to bring the cause to a hearing, as a non-enumerated motion, and without placing the same on the calendar.
Also to the decision, that the case was triable by the court at Special Term, aiid that the defendants were not entitled to á trial by jury. They also excepted to each and every part óf the judgment rendered at the Special Term.
The General Term affirmed the judgment of the Special Term, and also the order refusing the stay of proceedings in the action. From both of which decisions the defendants appealed to this coui't.
John K. Porter, for the appellant.
Wm. M. Evarts & Wm. C. Brown, for the respondents.-

Opinion:
Lott, J.
Assuming that a denial by the defendants, in their answer, of each and every allegation and averment in the complaint in this action contained, not therein before specifically admitted, is sufficient to controvert the matters, if any, not so admitted, and put them in issue, it appears by an examination of its contents that no material fact is denied.
It is true, that there is no admission in express terms, as alleged in the complaint " that ever since October, 1854, the said corporation has remained insolvent and neglected to pay its notes and other evidences of debt and entirely suspended the ordinary and lawful business of such corporationbut the statements and admission of the defendants in controvertibly concede and prove each of those facts. They admit the execution of certain mortgages by the corporation on its property as stated in the complaint, that certain persons were elected directors thereof on the 26th day of July, 1854, and that they on the 6th day of October, 1854, surrendered the possession of its property to the second mortgagees, who took possession thereof and its franchise, and ran and operated the road until on or about the 1st day of August, 1865; that it was then transferred to the Ogdensburgh and Lake Champlain Railroad Company, and that it had possession thereof at the time of the commencement of this action, that prior to such transfer, and on or about the 20th day of February, 1856, proceedings were instituted in the Supreme Court of this State against the said corporation for the foreclosure of the mortgages given by them, that a judgment decreeing such foreclosure and directing the sale of the corporate property and the franchise of the company was, after an appearance by attorneys for the company, made and entered on the 8th day of April, 1856, that such sale was thereafter and on or about the 23d day of October, 1856, made to the said second mortgagees, and that a deed of the property was subsequently executed to them; that the proceeds of sale were insufficient to satisfy the amount adjudged to be due, and that a deficiency amounting to upwards of a million of dollars, on the 19tli day of December, 1865, remained unsatis fied. They also state, that by an act of the legislature of this State passed on the 31st day of March, 1857, the holders of the. second issue of bonds were authorized to form a corporation under the general railroad act and the several acts amendatory thereof, and that one was on or about the 1st day of December thereafter so formed by and under the name and style of the Ogdensburgh Railroad Company, and that directors thereof .were duly elected, that by a subsequent act of the legislature duly passed on or about the 15th day of April, 1858, the said Ogdensburgh Railroad Company was declared a duly incorporated company in pursuance of the said act of 1857, and they aver that the said company has never been dissolved, and that it is entitled to all the property and privileges given to it by said act or belonging to it as a corporation, and to all the property in the hands of the said trustees, if any corporation could be authorized by law to receive said property, that, the said trustees continued in the actual and continued possession of said property after the organization of the said company, and that the owners of the said second issue of bonds claiming to act under the said act of 1857, and an act amendatory thereof, passed on the 8th day of April, 1864, proceeded to form and did on or about the 1st day of August, 1865, organize the said Ogdensburgh and Lake Champlain Railroad Company, and that the said company since that time have been, and were, at the time of putting in the said answer " in the actual possession, use and occupation of all of the corporate property and franchises of the said ¡Northern Railroad Company," on a transfer thereof from the said mortgagees by the permission and in pursuance of an order of the Supreme Court. It is then stated that upon proceedings instituted by the holders of the first two mortgages for the foreclosure thereof, a judgment on or about the 12th day of December, 1859, was entered in the Supreme Court declaring the same to be valid and existing mortgages for the amount thereof, which by the terms thereof had become due on the 1st day of July, 1859.
After some further allegations not necessary to be noticed here, the following statement is made:
" And these defendants further aver, that on or about the 7th day of March, 1866, the stockholders of said Rorthern Railroad Company, in pursuance of a call for that purpose, met at- Ogdensburgh in the county of St. Lawrence, for the purpose of electing directors of said company, said company not having elected directors for several years prior thereto, their property having been in the hands of the mortgagees as aforesaid, and thereupon proceeded to the election of, and did elect thirteen directors in pursuance of the charter and by-laws of the company; that they elected the defendant, Lovering, president, and also elected a treasurer and secretary."
These statements fully establish the allegations in the complaint, that the said Rorthern Railroad Company has ever since October, 1854-, remained insolvent, and neglected toj>ay its evidences of debt, and been actually insolvent, and entirely suspended the ordinary and lawful business of such corporation; and the counsel of the appellants, in his points, states that the complaint and the answer both expressly allege, that the defendant's road was operated by trustees from 1854, to August 1st, 1865 ; the complaint and answer both also allege, that ever since August 1, 1865, the Ogdensburgh and Lake Champlain Railroad Company have carried on all the business of the said railroad, and the defendant's property and franchises have been in use by that company.
There can be no question upon those facts, that the plaintiff was entitled to a judgment declaring that the Rorthern Railroad Company had forfeited its charter, and that it should be dissolved.
It then remains to be considered, whether the answer of the defendant sets up any fact to prevent such a judgment. The principal and controlling ground relied on is, that the persons elected directors of the company, at the election held on the 26th day of July, 1854, were not eligible, because they did not own any of the capital stock of the said company, and none of its stock was standing on its books in the names of said persons, or in the names of any or either of them, and that therefore they were not in fact, or in law, a legally elected board of directors of said company, and could not bind it; that the summons and complaint in the action commenced in February, 1856, for the foreclosure of the second mortgages above referred to, were served upon one Samuel C. F. Thorndike, who it is alleged " was • the pretended treasurer of the said company in 1854, elected by said illegal directors as aforesaid, and who was not in 1856, and had not been for a long time prior thereto, an officer of said' company, and who was, on the 27th day of February, 1856, the day upon which he was served with said summons and-complaint, as appears from the judgment roll in said foreclosure suit, in the actual employ of the plaintiff in said action -to foreclose said mortgages; " that neither of the defendants, nor any of the other stockholders of the company, nor any director or officer of the company " was served with, or notified of the commencement of said action; " and that the attorneys who appeared for and represented the company were employed by the said Thorndike at the instance, and on the employment in fact of the said plaintiff, and claim that-such appearance " could not, and ought not to be allowed to prejudice or foreclose the rights of said company, or the stockholders thereof." And if is also alleged, that the refe-' ree who made the sale was the law partner of the attorneys of record for the plaintiffs and son of one of them j and some other acts tending to show irregular and improper action in the conduct of the proceedings and' sale.
It is a sufficient and perfect answer to these objections and grounds of defence, that there is nothing in the charter of the company requiring the directors to be stockholders; that the person appointed treasurer was an officer defacto, and that the judgment after an appearance assuming it to have-been procured as stated, was at most voidable, and not having been set aside or reversed, but remaining in full force and effect,it is conclusive, and cuts off all right of redemp tion by the company, and the title acquired under it is good in the parties claiming under it.
The facts stated by the defendants preclude an assumption or inference that those proceedings were unknown to any of them. The allegation that a meeting for the purpose of electing directors was held on or about the 7th day of March, 1866, " said company not having elected directors for several years prior thereto, their property having been in the hands of the mortgagees as aforesaid," is an admission of the knowledge of the fact of such possession, and that the stockholders had for that reason not even elected directors to take charge or protect the interests of the company, and must be held chargeable with notice of their acts. It is, in any aspect of the case, an admission that the company had for more than one year, prior to that election, suspended the ordinary and lawful business of the company, and that the Ogdensburg and Lake Champlain Railroad Company had been, during that time, holding adversely to them.
There are several charges of fraud alleged against the second mortgagees, which, if true, are.immaterial and irrelevant in this action.
Assuming that there might have been grounds of relief against the judgment and proceedings in the foreclosure suit, which would have warranted a judgment restoring the property to the company, they were not available in this action.. The parties to be affected thereby are not defendants in this action, and consequently no judgment can be made therein impairing their rights. These considerations show that there was no issue of fact to be tried either by the court or by a jury, and judgment could therefore be properly rendered on the complaint and answer. .
The judgment rendered thereon, declaring a forfeiture by the company of its rights and franchises, and its dissolution, was proper, and as the defendants, other than the company, have admitted the exercise of such rights, after a knowledge of the facts above referred to, the fines imposed on them were legally adjudged, and the views presented in the opinion '.delivered at General Term, in which I concur, show that a receiver was properly appointed.
I may add, that the refusal to stay proceedings in this action was discretionary, and is not reviewable in this court.
It follows that the judgment appealed from must be affirmed with costs.