Court Opinion

ID: 6580332
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:37:46.383845+00
Date Added: 2024-06-11T15:57:15.343347
License: Public Domain

The opinion of the court was delivered by
Redfield, J.
This is a petition of the state’s attorney for this county, for leave to file an information in the nature of a writ of quo warranto against the respondents for usurping and exercising the rights of directors of the Central Vermont Railroad. A rule to show cause having been obtained and served on the respondents, the question now comes up whether this court will grant the leave asked. A preliminary question has been discussed, whether, if insufficient cause be shown and leave is granted, a judgment of ouster will be awarded as a matter of right or as a matter of course. It is not denied that at the time our statute was enacted, and down to the present time, the practice was settled and uniform in the courts of England, that after leave was granted and the information filed, the respondents had time and opportunity to plead to the information'. The nature of the application is summary, and requires speed; and the court will see to it that there be no useless delay. The 4th sec. of the statute of Anne, required “ proceeding at the most convenient speed that may be,” and “an appearance and pleading as of the same term at which the information shall be filed.” But the practice in the English courts, under that statute, was, when the information was filed, if there was not voluntary appearance, to require such appearance by venire facias or compel it by distringas. The rule requires the respondents to show cause why an information should not be filed against them: if they omit to show cause, as they may, the rule becomes absolute, and the information is filed. In The People v. Robinson, 4 Cow. 97, the respondent had been adjudged guilty upon default of appearance to show .cause, and ouster awarded. The court held the judgment irregular, and without due process of law, and set it aside, as irregular and void. It is noticeable as having been ably argued by the attorney general on the one side, and John C. Spencer on the other, and thoroughly sifted by the court. We think, when an information is allowed to be filed, it is the duty of the court to fix some time, ordinarily *282during the same term, for the respondents to appear and plead ; and if they do not voluntarily do so, their appearance will be compelled by due process of law. In State v. Hunton et al. 28 Vt. 594, the court, Bennett, J., questioned the propriety of rendering final judgment of the guilt or innocence of a party on a rule to show cause why an information should not be filed ; and maintained that the rule of practice was otherwise, unless the court should, of its own motion, institute a new and independent practice of its own. But in that case, no question was raised, and by mutual consent the parties submitted the whole case upon its merits. In Hale v. Bradford, 32 Vt. 50, the respondents disclaimed any right or title to the offices in question; and the pretended and de-facto corporation appeared, but made no answer, and asked to have the case decided upon the proofs of the state’s attorney. There was no relator upon the record, as the court said should have been. The proof being ample, and the parties appearing and making virtual confession of the truth of the allegations and disclaimer of title to the offices, the court, by implied consent, made an order for the dissolution of the pretended corporation, and the ouster of the disclaiming officers.
The statute gives merely jurisdiction to this court of these prerogative writs, and prescribes no forms or rules for proceeding; but, by manifest implication, adopted the function and manner of use of the proceedings then uniformly practiced in the common-law courts of England. The analogy of practice in certiorari is urged upon us. The analogy is not obvious. The inquiry in the application for certiorari, is based on the record, and is a substitute in sessions matters, for the writ of error, which applies only to common-law procedure. The court examine copies of the record upon which it is claimed that an erroneous judgment has been rendered in the inferior court, and 'if the court find error, they will order the record to be certified into this court, and render thereon such judgment as should have been rendered. The record imports verity, which neither party can dispute.
II. This proceeding is criminal in its form, but civil in its nature; and is addressed to the judicial discretion of this court. *283It may be allowed or denied, in consideration of rights and consequences, tbe condition of tbe property and its owners, and its relation to tbe public.
The case discloses that said corporation has, by the Court of Chancery, been made receiver, and holds in trust the Vermont Central and Vermont & Canada Railroads, and is operating, under leases, several other railways in this and other states. The trust duties thus imposed are active, and executive in their nature, involving important duties and responsibilities, both to the cestui que trust and the public, and incurring, necessarily, from day to day, large liabilities in intricate and often complicated transactions in the administration of the trust, which, from the nature of the case, must be largely outstanding and unsettled. One of the incidents of a receivership is a bond, commensurate with the magnitude of the trust, approved by the Court of Chancery, and to respond to that court for the property, its income, and for all laches of administration. Such bond is presumed to have been furnished by those who have assumed the duties and have been the active administrators of the trust. If the present incumbents should be ousted, they would have the right to require that their personal liability by bond or otherwise, should cease with the ouster; and the chancellor would, doubtless, require new bonds, to respond any laches of administration. How far personal character, capacity, and responsibility, induced the appointment of this corporation receiver of this large property and executive trust, is known only to the chancellor. The Court of Chancery has absolute control of the trust and its administrators, and may so temper any order, as to restrain wrong and insure justice. While this court has no power upon this application, but to grant or refuse the petition, without discrimination as to the fitness or unfitness of men for the administration of so important a trust, it is easy to foresee that it is possible for complicated questions to arise between the outgoing and incoming directors as to liability and responsibility, and for a litigation to spring up, subjecting the trust to new burdens, without benefit to the parties or the public. We have no warrant for saying that such mischief would, necessarily, follow; but to some extent it is possible, and perhaps *284probable; and.though not of controlling weight when there is satisfactory proof that the office has been usurped by force or fraud, yet they are proper matters for consideration in the exercise of that judicial discretion which the petitioners invoke.
III. The right of the respondents to hold and exercise the office of directors of this corporation, depends upon the legality of the 2850 votes cast by Langdon and Millis on the stock in question. If such votes were lawfully cast, the respondents were duly elected directors, otherwise not.
Waiving, for the present, all consideration of the alleged conspiracy on the part of the respondents to forestall by fraud the majority of the stockholders in the election of the 19th of May last, and assuming that the transaction had wholly occurred six months before, and without reference to an immediate election, we inquire whether Langdon and Millis stand as purchasers and owners of such stock in this corporation. Mr. Park and associates in Now York had agreed with Governor Smith and associates in Vermont, that they would subscribe for 20,000 shares' of stock in this corporation, in certain agreed proportions. Park, in executing his part of the contract, signed in the name of two friends in New York, for 1500 shares without authority, which they repudiated. Whereupon Park assumed such subscription as his own, and the stock was entered upon the books of the corporation as belonging to Park. • It is urged that this stock having first been subscribed in the name of Meyer and McKinney, was then-stock, and Park, showing no written assignment, had no title or property in it. But Meyer and McKinney repudiated the subscription for the reason that Park was without authority to bind them by such contract. Park having subscribed for stock by an assumed agency not founded in fact, failing to bind the principal, bound himself. The five per cent, paid by Park was then placed to his credit, by the corporation, and the subscription placed on the books as a subscription by Park in his own right. Park was then not only the equitable owner, but the original subscriber for the stock. The corporation had been made receiver of this large property, upon the representation that 20;000 shares of stock had *285been, bona fide, subscribed. Park claimed that the corporation ought to relieve him from holding and carrying the stock subscribed in the name of Meyer and McKinney, and certain other parties made similar claims. For certain reasons (and we have no right to assume that such reasons were inadequate or improper) the corporation purchased 2850 shares of such stock, and placed it on the books as stock belonging to the corporation like other assets. It is claimed that thereby said stock became merged and extinguished. The intent of the parties, and especially of the- corporation, is important in determining the character of such transaction. The corporation had no right to diminish its capital stock, and especially so under the circumstances of its receivership; and the evidence concurs, that the corporation purposed, under advice of counsel, to hold the stock thus purchased as not merged, but subsisting as assets on the books of the company. We think the legal effect of such transfer of the stock is fairly and correctly stated by the court in Williams v. Savage Mfg. Co. 3 Md. Ch. Decis. 451, to which we'have been referred by counsel for the petitioners ; and in the case of Bank of Columbus v. Bruce et al. 17 N. Y. 507, referred to by the respondents. In the latter case, Selden, J., says: “ It might or might not have that effect [extinguish the stock], at the option of the company. I think some manifestation of such intent should be proved, to produce that result.” And again he says: “ I see nothing to prevent the re-issue and sale by the company of the stock so transferred ; and, in the absence' of any proof to the contrary,' the presumption is that the directors intended to act within the scope of their powers by selling the stock on hand instead of issuing new stock which they had no power to create.” In the former case, the chancellor says, after reviewing the cases on the subject, “ But it does not follow that though the shares transferred to the corporation are merged for the time being, that they may not bo subsequently revived ; * *' *' and whatever may be the temporary legal effect of the transfer, it has always been supposed, and the practice has always been with such general understanding, that they were authorized to revive the stock when they saw fit to do so.”
*286The sale and transfer of stock, if done by proper authority, and was actual and not colorable, and not affected by any secret trust, if a bona-fide and absoluto sale, vested in the purchasers the title to the stock with all the incidents of title, including the right to vote upon it.
V. Was the property sold and transferred to the purchasers by such authority as should bind the corporation ? We think the majority of directors who assembled on the directors car, and passed the resolution authorizing the sale of this stock to meet a liability becoming due on the first of June after, cannot lawfully be claimed as organized under the call of the clerk to meet at Bellows Falls at an earlier hour of the same day. If we should hold that the call of the clerk by telegraph was in accordance with the by-laws, and the time sufficient, we think the attempted adjournment by a minority to a point fifty miles distant, was irregular, and did not transfer the place of legal venue under the call, to White River Junction. But a quorum of the directors, regular in form, assembled on the car, and by resolution authorized the sale of this stock, and under that authority the stock was sold, and, as the proofs stand, for adequate and full consideration received by the company.
In Bank of Middlebury v. R. & W. R. R. Co. 30 Vt. 169, the court held that the action of a majority of the directors of a corporation, without any notice to the other directors, if within the scope of their authority, was legal,- and bound the corporation. And the court say, that “ if the authorized agents of a company have extended its business beyond the strict limits of their functions for which the charter was granted, the company would be bound by the extension, unless the corporators interfere to restrain such extension at the earliest moment ” See also Stark Bank v. U. S. Pottery Co. 34 Vt. 144.
The railroad law of our statute provides, p. 216, s. 3, “ that the government and direction of the affairs of every such corporation, shall be vested in a board of not less than five * * * and a majority of the directors shall form a board, and shall be competent to transact the business of the company.” By the *287express language of the statute, a majority of the directors are constituted a board, with full authority to do what all the directors, when assembled, could do in “ the affairs of such corporation, and in the transaction of the business of the company.” In Edgerly v. Emerson, 3 Foster, 555, in a very well-reasoned .case, it was held that when a majority of bank directors are by the statute constituted “ a board for the transaction of business,” that “ such board, when assembled, possess all the powers of the entire board of all the directors.” The statute of New Hampshire declared that “ no less than four directors shall constitute a board for the transaction of business.” In that caso, Bell, J., says: “ There was before no difficulty, except as to the point of notice, and the only useful effect of the statute provisions relative to a quorum or the powers of a majority, is, to give them the authority to act in the absence of the others, and without notice to them. We are therefore of the opinion that when the quorum of a bank meet, and unite in any determination, the corporation are bound, whether the other directors are or are not notified.” We think that the vote of the majority of the directors thus assembled was a lawful vote of the “ board of directors competent to transact the business of the company.” And if this transfer of the stock was not a transfer merely, but a sale beneficial to the company, and Iona fide, it vested in the purchasers title to the stock; and though the “ board ” of directors which authorized the sale was under no regular call, and the two members of the finance committee who effected the sale may have been personally interested, and moved by partisan influence, yet, if the stock was the principal, available assets to meet an impending liability, and was sold for full value, the sale was, at most, voidable only, and could be impeached for cause only on the seasonable motion of the party claiming to be injured.
The case discloses that the relator was not only a large stockholder, and representing, as he claims, a majority of the stock, but was himself elected one of the directors on the 19th of May, and had been up to that time, vice president, and chairman of the finance committee. He was aware of the resolution of the directors, and the claim therein that the stock was sold and the *288money paid to meet the installment due by contract in a few days for the purchase of the property of the Vermont & Canada R. R. Co. Whether it was necessary to sell this stock, is left, in the proof, to the parties to the sale, who aver that it was necessary, and that the sale was actual, bona fide, made for that' purpose, without any secret trust or understanding that the purchase-money was to be returned, or that the purchasers had any other equivalent for their money than the stock thus purchased. So far as this case discloses, there is no question that the money paid for the stock went to the use of the corporation ; and all parties have acquiesced in the sale, unless this proceeding may be supposed to have brought it in question. The relator could, then, elect to challenge the validity of the sale, and take proceedings to avoid it, and demand that it should bo annulled by a return of the consideration to the purchasers; or he could acquiesce in the sale, and allow the consideration to go to the use of the corporation. But if a member of a corporation and associate director claims that- the director^, as agents, have exceeded their functions in selling property in derogation of the rights of the corporation, that claim must be seasonably asserted i'n a manner that shall bind the parties to such sale: acquiescence would confirm the sale; and allowing the consideration to be appropriated to the use of the corporation would adopt and ratify it.
It may be claimed that this proceeding to oust certain directors on the ground that they were elected fraudulently by votes upon ihis stock, is virtually a proceeding to avoid this sale. The purchasers are not made pai’ties: Langdon’s-election is conceded ; Millis never was director, and claims to be a stockholder by virtue of the ownership of this stock. Whatever may be the order of the court in this case, it- could haVe no effect upon the rights of Langdon and Millis Suppose a new election should be' ordered, as under statute law is the practice in many of the states, and Millis, offering his votes on this stock, should be challenged. It could not be claimed upon any evidence or suggestion in this case, that if the purchase of this stock was voidable, it had not been fully confirmed by acquiesence and allowing the purchase money to go the use of the corporation.
*289VI. It is insisted that there was a pre-emption right in all the stockholders to purchase a proportionate share of this stock. We are referred to Gray v. The Portland Bank, 3 Mass. 364, and Angell Corp. ss. 554-5. The two sections in Angelí seem entirely based upon the former case, and the text is but a quotation from the opinions of Sewall and Sedgwick, JJ., who gave the opinions of the court in the case. In that case, the plaintiff Gray was a large owner of stock in a banking corporation-, under a charter that authorized the corporation to issue stock not less than 1100,000 nor over $300,000. The corporators organized under the lesser capital, purchased a banking house, and had accumulated a surplus of profits. The stockholders then voted to enlarge their capital and issue the residue of the stock allowed by the charter and constituted the directors a committee to issue and distribute the residue of such stock to the existing stockholders. . The plaintiff being a large owner of the stock first issued, and a proportionate owner of the surplus profits of the bank, which was an incident of his stock, tendered the money to said committee, and demanded his proportionate share of the new issue of stock, and was refused. He then sued the bank in assumpsit for his share of the dividends on such stock and for damages for such refusal, claiming it to be a breach of contract. The court held that the plaintiff could not recover dividends because the stock was not owned by the plaintiff; but a good title thereto was vested in the subscribers to whom the directors had distributed it. Second, the court held that the directors in issuing new stock to strangers, and thereby making them shareowners in the existing surplus profits, a fixed share of which then was owned by plaintiff, was a wrong to him, for which he might recover. When new stock is issued, that shares equally with the existing stock, the shareowners have a right that it shall be so distributed as not to divest any stockholder of his present vested right in property; and the proportionate share of the accumulated profits is represented by the shares, and is vested property, as much so as the shares themselves. We entirely accord with the reasoning of this case. And if the cases were analogous in their facts, by this authority Langdon and Millis became and are *290the undisputed owners of the stock in question. But this was not a new issue of stock, but ¿ portion of the original subscription, and its identity has been preserved, as we have shown. The transfer of the stock to the corporation suspends the right to vote upon it, and may be a merger if so understood by the parties. The right of the directors to reissue or sell such stock for honest purposes, and for the benefit of the corporation, is reasonable, and amply sustained by authority. See opinion of Davies, J., in Hartridge et al. v. Rockwell et al. R.M. Charlton (Ga.), 260.
VII. t is insisted that this stock was transferred for the purpose of giving the preponderance of votes to the respondents. We have no doubt that such motives were strong inducements at the time, and that the respondents were determined to resort to every lawful agency to maintain their position, and repel the movement of the relator. We have no opinion of the merits of the controversy, or of the wisdom or propriety of the acts of the parties, as disclosed by the testimony. There are some matters disclosed which, in the forum of conscience, would be obnoxious to criticism, that are not unlawful and are not properly brought in question in this proceeding. The case shows that this stock was not merely transferred, but sold, and that the sale was actual, not colorable; and that there was no secret trust or condition ; that the sale was for a necessary purpose, and beneficial to the company ; that the full value was paid to the corporation, which has gone to its use. We think such sale is not void, but like any other sale, can be impeached only for cause; and, that the controlling inducement for the purchase at the time, of this stock, was, to enable the purchaser and his friends to outvote the relator and his friends, does not vitiate the sale, if otherwise for honest purposes and for full valuej We think, also, that the consideration having gone to the use of the corporation without challenge or seasonable proceeding to rescind or avoid the sale, the sale has become ratified and adopted by acquiescence. And we do not think that the reasons and principles that have guided this decision, are the novel and sinister outgrowth of some abnormal state of things in this state, as was remotely hinted in the *291argument, and peculiar to Vermont, but are universal as jurisprudence, and fundamental as justice.
Thfe rule to show cause is therefore discharged, and the petition dismissed.