McManus v. Philadelphia & Reading Railroad , 58 Pa. 330 ( 1868 )

The opinion of the court was delivered, July 2d 1868, by

Sharswood, J.

By an Act of Assembly, passed March 9th 1856 (Pamph. L. 295), the Reading and Lehigh Railroad Company was incorporated to construct a railroad from Reading to some point on the railroad of the Lehigh Valley Railroad Oom.pany, either in the county of Lehigh or Northampton, and was made subject to all the provisions and restrictions prescribed by the General Railroad Law — the act entitled “ An Act regulating railroads,” approved February 19th 1849. By the 2d section the capital stock was fixed at $500,000; and the company was authorized from time to time, by vote of the stockholders, to increase it, if it should'be deemed expedient, in order to complete the road. By an Act of April 21st 1857 (Pamph. L. 368), the name of the corporation was changed to that of “ East Pennsylvania Railroad Company” ; and by another Act of April 15th 1863 (Pamph. L. 462), they were authorized to extend their road to the river Delaware, and it was provided that in making the said extension they should be entitled to all the privileges and be subject to all the provisions and restrictions of their original charter.

By an Act of Assembly, entitled “ A supplement to the general law relating to railroad companies,” and which was approved March 24th 1865 (Pamph. L. 43), it was declared that any company having authority to construct a railroad under the General Railroad Law, should be authorized “ from time to time to receive subscriptions for, and issue such additional shares of capital stock as may be necessary to construct and fully equip with suitable locomotive engines and rolling-stock, such railroad or railroads; the par value of which additional shares shall be the same as that of the then existing shares of said company, and the stock so issued shall stand, in all respects, upon the footing of the original stock thereof”; and by another Act of April 10th 1867 (Pamph. L. 61), it is provided “ that in all cases where any railroad company is authorized to increase its capital stock, and such increase has been or may be authorized by the stockholders, it shall and may be lawful for the president and directors to determine, by resolution, in what manner and by whom the same shall be subscribed or to whom the same shall be issued or sold, and the amounts of the several instalments to be paid thereon, and the times and manner in which the same shall be paid.”

At the annual meeting of the stockholders of the East Pennsylvania Railroad Company, held January 9th 1865, a resolution was adopted giving to the president and directors “ full power to increase the capital stock and dispose of the same ” for the purposes of the extension of the road to the river Delaware, and bridging the same, as well as of the location and construction of branch roads, and all other affairs of the company. At the| annual meetings of the stockholders of 1866 and 1867 the powers and authorities theretofore granted to the president and directors were continued. Under the legislative authority thus conferred and this course of proceedings by the stockholders, we have to determine whether the stock issued in pursuance of the preamble and resolutions of the board of directors, at an adjourned meeting held January 11th 1865, to the defendants McManus, Coleman and Brooke constituted them lawful stockholders of the East Pennsylvania Railroad Company so as to entitle them as such to vote at the election for directors held in pursuance of the charter on the 13th day of January 1868. If they were not, it cannot be and has not been denied that the plaintiffs were entitled to the preliminary injunction, which they prayed for and obtained at Nisi Prius, to restrain them from voting.

This is a mere question of law — of construction of the Acts of Assembly. The arguments by the counsel in the case took a much wider range, in which it is neither our duty nor inclination to follow them. With the wisdom of legislation a court of equity has no inore to do than a court of -la,w. It would be to usurp the province of another department of the government. The legislature have seen fit by the Act of April 23d 1861 (Pamph. L. 410), to allow any railroad company to purchase and hold the stock of any other railroad company, without limit, and it follows that by becoming the owners of a majority of the stock one railroad company may legitimately control the operations of another. Whether a court of equity will not interpose in this state under its broad powers “ for the supervision and control of corporations ” to prevent such control from being exercised for the benefit of the controlling body in utter disregard of the rights and interests of the other stockholders, is a question which does not arise in this case. The Philadelphia and Reading Railroad Company are the lawful owners of seven thousand three hundred and seventeen shares of the stock of the East Pennsylvania Railroad Company. They stand before this court with as strong an equity to call upon it to protect them in their rights as stockholders, as if they were that many individual stockholders. If a court of equity can stretch out the strong arm of injunction to prevent regulations and management looking solely to the benefit of the Philadelphia and Reading Railroad Qompany, to the injury and destruction of the East Pennsylvania Railroad Company, that object cannot be effected by suffering the minority of the stockholders to elect the board of directors and thus usurp the entire control and management themselves.

Many points of interest and importance were raised and discussed with great ability on the oral and in the printed arguments which we pass over in silence as unnecessary to the decision.

We are unanimously of the opinion that the terms of subscription as prescribed by the resolution of the directors of January 11th 1868, for the additional stock subscribed for, and certificates for which were issued to the three defendants McManus, Brooke and Coleman, were unauthorized by the resolution of the stockholders of January 9th 1865, or by the Acts of 1865 and 1867. One of the terms was “that interest at the rate of six per cent, shall be paid semi-annually, on the first day of January and July, on all instalments paid, until the completion of the extension.” According to this stipulation, the holder of a share of the new stock, besides his proportion of the annual profits upon his instalments paid up, will be entitled to receive an additional' sum as interest. Thus if the dividend should be ten per cent, on the capital he would receive sixteen per cent., while the original stockholder would receive only ten per cent.; and this difference is to continue not merely to the period when the full amount shall be paid in on the new stock, but “ until the completion of said extension;” making it evidently the interest of the new stockholders, holding a majority of the stock, that it should never be fully completed. It was urged, indeed, on the part of the plaintiffs, that the profits of the road must be divided equally to all the shares of stock, and not by a percentage upon the amounts paid in. That, however, would be too gross an inequality and monstrous an injustice to be ever tolerated in a court of law or equity. But upon the only fair and reasonable construction which can be given to the terms of the charter and of the subscription, it cannot be denied that the holders of the new stock have a real and valuable advantage or preference over the old. The stock so issued does not stand, as the Act of 1865 contemplates, in all respects upon the footing of the original stock. The resolution of the stóckholders authorizing an increase of the capital stock evidently intended no such preference, and the Act of 1867, in conferring on the president and directors power to determine “ in what manner and by whom the same shall be subscribed,” certainly did not authorize them under such a general resolution of the stockholders to create a preferred stock.

The learned counsel for the defendants felt the force of this objection, and producing the certificates of stock issued to his clients, offered, as he stated, by their authority, to endorse upon them a waiver of this term of the subscription. But this cannot avail. The question presented on this appeal is whether the subscribers were entitled to vote at the election of January 13th 1868. If the stock was unlawful then, it would not help them even if it could now be legalized by such a waiver. The decree awarding the preliminary injunction was right and must be affirmed. We are not now called on to make a final decree, or to grant or refuse the prayer#of the bill that the said issue of twenty thousand shares of stock may be decreed to be illegal, null and void, and that the certificates thereof may be delivered up and cancelled.

Decree affirmed.