Court Opinion

ID: 5548049
Source: CourtListenerOpinion
Date Created: 2022-01-10 21:22:45.885874+00
Date Added: 2024-06-11T08:34:58.613599
License: Public Domain

The Chancellor.
The act under which the commissioners opened books of subscription for the capital stock of the Utica and Schenectady Rail Road Company, did not create a corporation, eo instanti, when that act took effect as a law. It only constituted such persons a body corporate as should thereafter become stockholders, in the manner prescribed in the act. If the whole corporate stock, and no more, had been subscribed, within the three days during which' the commissioners were bound to keep the books open, then those persons who had thus subscribed, and paid their money to the commissioners, would have acquired legal rights as corpora-tors. And they would also have had the right to call upon the commissioners, not as their agents or trustees, but as agents or officers of the public, to notify an election of directors, and to preside as inspectors thereof, by a committee of their body, as directed by the act. But in the event which has happened, of an excess of subscription, no person can be a stockholder of the corporation, neither does any corporation exist, nor has any person any interest in the stock, as the legal owner thereof, so as to authorize him to vote upon it, or to transfer it as stock, until a majority of the commissioners have proceeded to apportion the same, and to designate the persons who are to be the stockholders, and the amount which each is to receive. It is evident, therefore, if the counsel for the complainant are right in supposing that the distribution in this case was absolutely void, and not merely voidable, that the election of directors, which they now seek to restrain by injunction, cannot possibly affect the rights of their client. As there could be neither a corporation nor stockholders in existence, until after the stock was apportioned, the commissioners did not hold the stock, nor did they act, in the character of officers, servants, agents or trustees of the corporation or of the subscribers. But they acted merely as officers or agents of the government, appointed by the legislature to assist in the organization of a corporation and to create a stock in the same. The legislature might by law have designated the stockholders, as they had done in the case of other corporations, or they might have delegated that portion of their authority to others. But as they did not delegate that power to the *246courts, neither this or any other court has the power to create a corporation, by designating who shall be the persons to hold stock in the same. The appropriate tribunal, however, upon a proper application, may compel the commissioners to open books, to apportion the stock in the manner prescribed by law, and to notify and by a committee of their body preside at the election of the directors. Such tribunal may also decide as to the proper construction of the act of incorporation, and can enforce a compliance with such decision. If the apportionment of the stock in this case was absolutely void, as the complainant insists it was, he has mistaken his remedy. He should in that case have applied to the supreme court for a mandamus, to compel these public officers, or agents of the legislature, to distribute the stock, as required by the statute. And if it was necessary to apply to this court, either for a discovery or an injunction, in aid of, or as ancillary to his remedy at law, he should have stated in his bill either that he had applied, or that he intended to apply to the legal tribunal for relief. (Jones v. Jones, 3 Meriv. Rep. 173.)
I apprehend, however, the complainant is under a mistake in supposing that the apportionment of stock in this case was absolutely void. It was at the most voidable, even upon the principles upon which the complainant supposes it was absolutely void. And if any portion of the stock has been apportioned to persons who ought not to hold it, or if any one has received more than his share, under circumstances which would amount to a fraud upon the commissioners, or upon the law, such persons must be deemed to hold it for the benefit of all or some of the subscribers who have received no stock, or who have not received stock to the extent of their subscriptions. Here, however, another difficulty presents itself upon the face of the complainant’s bill. He shows that from one third to one half of all the subscribers, and who had as much right to a portion of the stock as himself, were excluded from any participation in the same, by the apportionment of the commissioners. And it can hardly be presumed that even those to whom stock was assigned, obtained the full amount of their subscriptions. The complainant has shown by his bill that all these had relinquished their rights, or he should have filed *247his bill in behalf of himself and of all others who might choose to come in under the decree. (Baldwin v. Lawrence, 2 Sim. & Stu. 18. Egberts v. Wood, 3 Paige’s Rep. 520.) Again ; the complainant seeks an injunction which must necessarily affect the interest of every bona fide stockholder to whom stock has been assigned, or who has purchased in good faith since the distribution. And I am not prepared to say, if this election is not held, that the commissioners have any power or authority to fix upon another day. The general provision in the revised statutes, (1 R. S. 604, § 8,) does not apply to the first election, before there is any president or directors to fix upon and notify the election on a future day. The defendants in this case are not the trustees, and do not represent the interests of oilier persons to whom stock has been assigned. On the contrary, for aught I can - legally know, they may have an interest adverse to that of the other stockholders. It would therefore be improper to grant an injunction which might eventually destroy the interests of those stockholders, without giving them a chance to be heard. This court unquestionably has the power to prevent this election, by an injunction operating upon the commissioners, restraining them from acting as inspectors of the election. And in a case of imperious necessity, where the complainant did not know and could not ascertain the names of the other stockholders, I might consider it my duty to prevent a great and irreparable injury to him, although the effect of that interference might be to destroy the charter of a corporation. But in the exercise of such a power, the court should require ample security from the complainant to pay all damages other persons might sustain, by the granting of the injunction, if it should be subsequently ascertained that it wras not warranted by the real facts of the case. The oath of the complainant that he is informed and believes the existence of a fact, may be a sufficient ground to authorize the issuing of an injunction, against a defendant who has had an opportunity to deny the allegation if it is unfounded. But it is not sufficient to justify the court in destroying or injuring the rights of others, who have had no opportunity to be heard either by themselves or by ■ those who are under a legal obligation to protect their rights. *248In such a case, in addition to the' usual allegation of the complainant, that he is informed and believes the fact, he should annex the affidavit of the person who knew that fact, from whom the information was derived. The complainant may honestly believe that some or all of these commissioners have been guilty of every thing which is charged against" them in this bill, and yet he may have obtained his information from those who had no more actual knowledge on the subject than himself; or’from one who has intentionally deceived him, for the purpose of depressing the stock of the company by this litigation, so that it might be obtained at a lower rate.
There is also another fatal objection to the granting of a preliminary injunction, in this case, which was not adverted to on the argument; which is, that there is no prayer for such process in the complainant’s bill A final injunction may be obtained upon the prayer for relief by injunction, or perhaps under the prayer for general relief: But to obtain a preliminary injunction, to restrain the defendants’ proceedings , pending the suit, there should be a formal prayer for such process, or some other prayer which is equivalent. Thus, in the case of Wood v. Beadell, (3 Simon's Rep. 273,) an injunction was asked for, as here, in the general prayer of the bill, but as there was no preliminary injunction asked for in the prayer of process, such injunction was refused. The complainant, however, was permitted to renew his application upon an amended bill. (a)
I am also inclined to think that the complainant has waived his right to question the correctness of the distribution of the stock, by voluntarily withdrawing from the hands of the commissioners the monies which were required to be paid on subscribing. On this point, however, I do not wish to be considered as having formed a definite opinion, as I have not had leisure to examine it fully. The opinion of Chancellor .Sanford, in the case of the Commercial Bank of Albany, is not decisive, as in that case the complainant acquired an abso*249lute right to a portion of the stock, by liis subscription; atid the corporation, when organized, could have recovered back the money, and have thus compelled him to take the shares of stock which belonged to him upon an equitable distribution. In that case, if the commissioners had any right tb apportion the stock otherwise than by a mathematical calculation, or by a division upon the principles of exact equality, it Was a power conferred upon them by implication of law, from the necessity of the case. Such power could not, therefore, extend farther than was necessary to prevent the division of a share between two or more stockholders, by determining to whidh"the whole share should belong. In the present Case, lio absolute right vested in the complainant by his subscription> and he might Waive his claim to a portion of the stock, by receiving back his deposit, at any time before he became the legal owner of any part of such stock, by the apportionment of the commissioners.
It was not necessary in this case that the commissioners should give to each subscriber an equal, or any other amount of stock. Wheie a distribution, or apportionment, is to be made between or among airy number of persons, or a class of individuals, and no discretion is vested in those who are to execute the power of making the distribution, or apportionment, each individual of the whole number, or class of persons named, is entitled to an equal share. But if the designation of a class or number of persons is made merely for the purpose of pointing out those from whom the selection is to be made, giving to the person entrusted with the power a discretionary right of distvibxtting among that particular class as he shall think proper, then the whole may be allotted to one, or more of that class, to the exclusion of the others. Formerly the question as to the right of the person entrusted with the power, to exclude any one of the class designated, by giving what was called an illusory portion, was frequently agitated in the courts, and produced much litigation. But the revised statutes have forever put that question at rest in this state. By the 98th and 99th sections of the article relative to powers, it is declared, that where a disposition under a pow*250er is directed to be made to, or among, or between several persons, without any specification of the share or sum to be allotted to each, all the persons designated shall be entitled to an equal portion. But when the terms of the power import that the estate, or fund, is to be distributed between the persons so designated, in such manner or proportions as the trustee of the power shall think proper, the trustee may allot the whole to any one or more of such persons, in exclusion of the others. (1 R. S. 774, and Revisors’ Report on ch. 1, pt. 2, p. 61.)(a) Although the power in the present case was to be exercised by these commissioners as the officers or agents of the public, and not strictly in the character of mere trustees of a power in trust, yet, as the legislature had established this general principle as one of the fundamental rules of construction, in reference to powers, I must presume they meant the same rule of construction should be adopted in relation to the power granted to or conferred upon these commissioners. The only restriction imposed upon them, therefore, was that they should exercise the power according to the best of their judgment, and apportion the' stock to such of the subscribers and in such proportions as a majority of them- should deem most advantageous to the interests of the corporation. And there is no allegation in this bill from which I have a right to infer that the complainant believes they have- not distributed the stock in this manner. Although it is alleged that the complainant is informed, and believes, they have distributed the stock principally among themselves and their relatives and friends, it would only be in accordance with the principles of human nature, were we to conclude, from that circumstance alone, they honestly believed that they and their friends would be more likely to appoint directors who would manage the concerns of the corporation well, than others would if the control of the corporation should be given to their opponents. In this perhaps they may have acted under a mistake, but that alone is not sufficient to authorize an interference with their distribution. Where a discretion is to be exercised according to certain fixed legal principles, especially *251when that discretion is to be exercised by a person, or body, acting as a court of justice, if the person or body entrusted with the power has mistaken the law, or violated such fixed legal principles, it may be a proper case for review and correction by the appropriate tribunal. But if the legislature has entrusted the exercise of the power to the sole judgment and discretion of a particular person or body of individuals, no court is authorized to interfere with or control that discretion ; provided it is exercised in good faith. In the recent case of The King ex rel. Scales v. The Mayor and Aldermen of London, (3 Barn, & Adolph. Rep. 271,) the late Lord Tenterden says, “ if a matter is left to the discretion of any individual, or body of men, who are to decide according to their own conscience and judgment, it would be absurd to say that any other tribunal is to inquire into the grounds and reasons on which they have decided, and whether they have exercised their discretion properly or not.” The same principle is recognized in the case of The King v. The Justices of Norfolk, (1 Nevile & Man. Rep. 67,) and in a variety of cases in our own courts. This point was also expressly decided by the vice chancellor of the first circuit, in the case of The Brooklyn Bank, (1 Edward’s Ch. Rep. 371,) where the powers of the commissioners were the same, substantially, as in the present case. Chancellor Sanford also admitted the correctness of this principle, in the case which was before him relative to the distribution of the stock in the Commercial Bank of Albany; although he very properly decided that it was not applicable to tire case then under consideration. (Meades v. Walker, 1 Hopkins’ Rep. 591.) It is not necesnary for the decision of the present motion that I should consider the question whether the commissioners could themselves become subscribers for the stock of the corporation. But as that question has been fully argued, it may save expense to the parties and prevent further litigation in this case, if I proceed to dispose of that objection to the distribution, at this time. The general principles, that a trustee cannot traffic in the subject of his trust, that no person shall be a judge in his own cause, and that a public officer cannot do an act which is inconsistent with the duty he owes to another, or to the public, are well understood. And it cer*252tainly does seem to be inconsistent with these principles, that the legislature should, in any case, permit commissioners for the distribution of stocks, to decide between themselves and others what portion of such stocks shall belong to the commissioners, and what part they shall- award to other subscribers. It certainly would better accord with these leading principles of law, were the legislature to state, in express terms, what portion of the whole stock each commissioner should be permitted to take; and to prohibit him from taking, either directly or indirectly, any greater share, except in a case of deficiency in the amount subscribed. But where it was in the power of the legislature to give all the stock to certain individuals, who had already become subscribers therefor, as was the case in relation to many of the early acts creating joint stock companies, the legislature might unquestionably confer the power upon such individuals of deciding how much of such stock they would keep themselves, and how much they would apportion to others. The question here is, whether the legislature, in the case now under consideration, expected or intended'that these twenty-one commissioners, named in the act of incorporation, should be permitted to subscribe for, and receive a part of the stock of this company. The fundamental principle to be observed in the construction of statutes, is to discover if possible the true intention of the lawgiver. And when that intention is ascertained, the court is bound to give effect to such intention, whatever opinion the judge may entertain as to the wisdom or policy of the law; provided such intention does not contravene any principle of the constitution, or transcend the powers of the legislature. Every thing which is within the intent of the makers of the act, although it be not within the letter, is as much within the act as if it were within the letter and intent also. (Stowel v. Lord Zouch, 1 Plow. Rep. 366. Dwarris on Stat. 691.) Statutes are also to be construed in reference to the law as it existed, or was supposed to exist, at the time of making Of such statutes.. Thus, if certain expressions in a statute have a settled and determinate meaning at the common law, or by a settled judicial construction of the same words in a former statute, the court is bound to presume the legislature intended they should *253have a similar meaning, or receive the like construction in the new statute. And as one part of a statute is to be referred to for the purpose of ascertaining the meaning of another part, so may other laws, made by the same legislature or upon the same or similar subjects, be referred to for the same purpose. It is therefore proper to refer to the provisions of the several acts authorizing commissioners, and others, to receive subscriptions for and to distribute the stock of monied and other corporations, and to the known usage under such statutes, for the purpose of ascertaining whether the legislature intended that the commissioners in this case should be excluded from subscribing or receiving any portion of the stock, on account of the peculiar nature of their official duties in the distribution of the stock in case of an excess. The case of Haight and others v. Day and others, (1 John. Ch. Rep. 18,) came before this court, in 1814, upon a complaint against the commissioners for the distribution of the stock in the Cattskill Bank, under a provision in the act of incorporation very similar to that which is now under consideration. The complaint in that case was, that there was a gross inequality in the apportionment among the subscribers; and that the distribution was principally confined to the commissioners themselves, their relations and favorites. The bill also charged that the apportionment was unjust, fraudulent and corrupt. Yet, upon the answer of the defendants merely denying that they were governed by any improper motive in the execution of their trust, and alleging that they had apportioned the stock as they deemed discreet and proper, Chancellor Kent dissolved the injunction and permitted them to proceed, and to elect themselves directors to control and manage the institution.
It is suggested by the complainant’s counsel that it does not appear by the report of that case that the objection was there raised, that it was inconsistent with their character as commissioners to distribute the stock—to subscribe for and apportion a part thereof to themselves. It appears to me, however, impossible to suppose the chancellor could have overlooked this general principle, if he had considered it as applicable to the case; for, upon looking into the pleadings in that cause, on file in the register’s office, a more appropriate case for the *254enforcement of that principle can hardly be conceived. The whole stock to be distributed was 6000 shares; and more than six times that amount was actually subscribed, by one hundred and twenty-three persons, including the twenty-two complainants who subscribed between five and six thousand shares. Yet the four commissioners took about one half of the stock to themselves, and gave all of the residue, except 108 shares, to nine of their nearest relatives by blood and marriage, and to two or three other persons connected with them in business. And they distributed the 108 shares among the complainants and others, by giving one share to each. In a case so glaring, I cannot believe my learned and now venerable predecessor would have forgotten or have hesitated to apply this principle, if he had not been satisfied from the course of legislation which had been adopted in relation to the distribution of the stocks of incorporated companies, that there was something which took the case of commissioners and trustees for the distribution of such stocks, out of the operation of the general rule. Whether he was right in his construction of the law as to the powers of the commissioners in such a case, it is useless now to inquire, as his decision has been received and acted on as law ever since that time. And the numerous prohibitions contained in subsequent acts of incorporation, restricting the commissioners as to the number of shares they shall be permitted to distribute' to themselves, but without giving them in terms the power to take any, show the understanding of the legislature that such was the established law. I must therefore conclude, from these circumstances, and also from the fact, of public notoriety, that commissioners have always been in the habit of apportioning a part of the stock to themselves, that the legislature did not intend the commissioners in this case should be excluded from a participation in the stock of the company. As to the amount taken by them, they have restricted themselves far below the smallest maximum which has ever been adopted by the legislature in a similar case. I cannot, therefore, say they have abused the right of appropriating a portion of the capital stock of the company to themselves. Indeed, when we consider that the statute has made no provision for compensating them for their *255services, and that they must necessarily encounter the risk of the expenses of litigation with those who might honestly suppose their rights had been violated in the distribution of the stock, I can hardly believe the profits on a hundred shares will afford an adequate indemnity to any one of these commissioners ; considering them as having some claim to a portion of the stock, independent of their services and responsibilities as commissioners.
As the law had entrusted the commissioners with a discretionary power, to apportion the stock in such manner as should be deemed by them most beneficial to the interests of the corporation, it would undoubtedly be a fraud upon the commissioners, and upon the law, for an individual to subscribe for stock in his own name, under a secret agreement or understanding with another that the stock which might be apportioned to him should be held in trust for the benefit of the latter; provided it was done for the purpose of deceiving the commissioners, and thus inducing them indirectly to give to a person stock, when they would not have considered it for the interest of the corporation to have apportioned the stock to such nominal subscriber, if they had known he was to hold the same in trust for another person. In such a case, however, as the trust would be illegal, and not authorized by the laws of the land, as between the parties to such fraudulent arrangement, the legal title to the stock awarded to such nominal subscriber would be vested in him. If such stock, therefore, could be reached by a suit in this court, for the benefit of all or any of the real subscribers, it would be necessary for that purpose to proceed aginst the person in whom the legal title to the stock was vested. It would be equally a fraud upon the law and upon the other commissioners, if one of their number should subscribe for stock in the name of another person, and conceal that fact from his co-commissioners, for the purpose of obtaining indirectly more stock than the majority of the commissioners would have thought proper to have awarded to him, had they been informed he was to be the beneficial owner of the stock thus subscribed for in the name of another. On the contrary, as the statute in this case had imposed no limitation whatever upon the amount which any *256individual subscriber should be permitted to receive, provided a majority of the commissioners honestly believed it was for the interest of the corporation that he should have the same in preference to others, and inasmuch as it had not prohibited one person from subscribing for the stock, indirectly, in the name of another, it could be no fraud upon the law or upon the commissioners to subscribe in that manner, provided the commissioners actually knew for whose benefit the Subscription was made, previous to the apportionment of the stock. The fraud in such cases does not consist ih subscribing for stock in the name of another person, but in concealing the knowledge of that fact from those whose duty it is to distribute the stock as they shall deem most beneficial to the interest of the corporation, having a regard to the situation of those who are to be the real owners of the stock apportioned to the nominal subscribers. As it is a general principle that no' Wrong should be permitted to exist without a remedy, I ant inclined to think a fraud of this kind may be reached. But whether it should be by a bill filed by one of the subscribers, in behalf of himself and all others standing in a similar situation, to have the stock thus fraudulently obtained restored to the control of a majority of the commissioners, to be distributed by them in conformity to the principles of the statute; or by a bill in the name of those commissioners who were not parties to the fraud; or by an information in the name of the attorney general, as the protector of the rights of the public; are questions which cannot arise in this cause, and which I am not prepared to decide without argument; It is alleged iti this case that some or one of the commissioners subscribed for stock in the name of another person. But it is not stated who those commissioners were, and it is not alleged that the knowledge of the fact was concealed from the other commissioners ; neither is the person, in whom the legal title to the stock is vested, made a party to the suit. This part of the bill is manifestly defective; as the complainant is not permitted* by any rule of pleading, to charge some one or more of a larger number of individuals with a fraud* or with any other violation of the rights of the complainant, and .then to call upon *257each one of the whole number to disclose whether he is the person, who has been guilty of the fraud or injury charged.
The complainant’s supposition that certain portions of the stock were set apart as a separate fund for state officers, and editors, and was distributed to them without reference to the fact that they were subscribers for the stock, is contradicted by the affidavit of Mr. Townsend, the chairman of the board, who swears that the whole capital stock was apportioned to 1423 persons who were subscribers for the same.
As the complainant’s bill is defective, both in form and substance, and states no sufficient grounds to authorize the interference of this court with the distribution of the stock, as made by the commissioners, the application for an injunction must be denied, with costs.

 See also Savory v. Dyer, Amb. Rep. 70; and Davile v. Peacock, Barnad. Ch. Rep. 27.

 As to personal estate, see 1 R. S. 773, § 2.