Brown v. Florida Southern Railway Co.

Mr. Justice Westcott delivered the opinion of the court: In this case an injunction granted in the Circuit Court upon bill and exhibits was subsequently dissolved, and from this order, and an order refusing to reinstate the injunction, Brown appeals to this court. There was a demurrer to the bill by the company, which being overruled — 488 — the company appeals. This opinion covers both appeals. The bill concerns two subjects: the capital stock of the company, in which Brown was an incorporator, and a grant of land made by the State to the company. The allegations as to each subject are not, as they should be, placed together in the bill, but we find allegations as to the stock followed by statements as to the land, and then statements as to stock. Thus framing a pleading serves no other purpose than to embarrass those whose duty it is to examine and analyze it. We first discuss the case as to the stock. As to the stock, the plaintiff sets up in his bill, original and as amended, and in exhibits a part of the bill, that the plaintiff, Brown, FT. R. Gruelle, B. F. Matthias, H. C. Howard, G. B. Phinney, James Hunter, George H. Packwood and Thomas C. Lanier, on the 10th of May, A. I). 1876, signed articles of association as incorporators of the Gainesville,-Ocala and Charlotte Harbor Railroad Company ; that the name of the company was subsequently changed to the Florida Southern Railway Company, and that the capital stock of the company was fixed at $3,250,000 ; that the above-named parties subscribed for shares “ one thousand dollars ” each, and were declared Directors. On the 6th of May, 1879, we find from an exhibit showing a meeting of the Directors that Brown, Phinney, Whitney, Matthias and Gruelle were five of them, and that Brown was Vice-President of' the Company. Plaintiff alleges that in May, 1879, “ stock was voted by the corporation five hundred shares each to the following corporators: H. C. Howard,G. B. Phinney,B.-F. Matthias, H. C. Whitney, FT. R. Gruelle and J.. B. Brown, each 500 shares now valued at $50,000 that in December, A. D. 1879, the company and himself agreed to give ten parties of Boston, Massachusetts, viz: Charles Francis, A. H. — 489 — Bachellor, Edward Avery,‘Charles Whitney, D. N. Skillinger, Gr. B. Nichols, W. R. Duper, J. R. Hall, John M. Candler and A. D. S. Ball, each $150,000 worth of stock, and that seven of their number might be elected Directors “ if they would raise money enough to build the road,” and that this arrangement was agreed to and carried out; “ that in August, 1880, these ten parties from Boston, together with H. C. Whitney,” (who held, as before stated, five hundred shares of stock valued at $50,000,) “ divided the balance of stock unappropriated by said company to-wit: stock to the amount of $2,856,000, in the following manner : $150,000 each to the ten Boston parties before named, making $1;500,000, and three hundred and thirty-nine thousand dollars to each of the following named parties : H. C. Whitney, C. A. Boardman, Isaac Taylor and W. L. Candler, making $1,856,000, which plaintiff alleges “ consumed all of the unappropriated stock of said company.” Plaintiff alleges that he never consented to “ this distribution of stock ” to these four parties ; that this distribution was made at a meeting of the ten Boston parties and Whitney; that he was represented at that meeting by Charles Eraneis, who was authorized to act for him in the distribution of stock with special instructions that plaintiff would not agree to any arrangements made with Boardman, Taylor and Candler, and that the said Eraneis was only to represent him in the fair and just distribution of the stock of the said corporation among those entitled to receive stock, and affirms that by virtue of his relation as an original incorporator he was entitled to $113,000 worth of stock (in addition to the $50,000 he had already received), which is one-twelfth of the amount left of the two million eight hundred and fifty-six thousand dollars’ worth of unappropriated stock after deducting the one million five hundred thousand dollars awarded to the ten parties in Boston. — 490 — Plaintiff alleges that he claims this because there were twelve incorporators outside of the ten parties from Boston, and avers that even if Boardman, Taylor and Candler are proper and legitimate corporators, they and H. C. Whitney are not in any way entitled to the large amount of stock received by them, while he, one of the original incorporators, was entirely excluded ; and that should they be entitled to a fair distribution of stock plaintiff’ would then be entitled to the sum of $90,400 worth of stock, which is the one-fifteenth of $2,856,000 less $1,500,000 for the ten Boston parties. Plaintiff alleges that the failure to allot him his just share of stock was a fraud, and that the principal actors agreed at one time to adjust the stock, but now refuse. Plaintiff alleges that all of the incorporators were not pi’esent at this meeting, personally or by proxy. Plaintiff, in his amendment to the original bill, alleges that, in the latter part of the year 1879, H. C. Whitney made a contract of sale of all of the franchises of the Gainesville, Ocala and Charlotte Harbor Bailroad Company to C. A. Boardman, Isaac Taylor and himself, and that they afterwards admitted W. L. Candler, each of the parties paying therefor the sum of one thousand dollars; that this was done without the knowledge of plaintiff', and that in 1880, when he became aware of it, he notified Francis and Boardman that Whitney had no right to make any such disposition of the franchises of the company ; that notwithstanding such notice, after obtaining the power of attorney to distribute stock, the said parties endeavored to enforce said fraudulent sale, and they continued to recognize and enforce the same to the injury of the plaintiff and the other incorporators. Plaintiff alleges that prior to the holding of the meeting of August, 1880, said Whitney sent to him a power of attorney to sign, which was as follows: “ Know all men by these — 491 — presents, that we, James B. Brown and N. R. Gruelle, of Gainesville, Florida, hereby constitute and appoint Henry C. Whitney to be true and lawful attorney for us, and in our names and stead to appear at any Directors’ meeting of the Gainesville, Ocala and Charlotte Harbor Railroad Company, at any time or at any other meeting, or at any time hereafter, or in any place, and either verbally or by writing, under seal or not, and in our names, places and stead, as fully as we might or could do if personally present doing the same ; to agree and consent to any allotment, division or vesting of title and ownership of, in and to the capital stock of the Gainesville, Ocala and Charlotte Harbor Railroad Company to or in any person or persons, and by any method, and to receive any such stock for us, and to receipt in any mode therefor irrevocably, with full power of substitution, hereby granting unto our said attorney full power and authority to act in and concerning the premises as fully and effectually as we might do if personally present, ratifying and confirming all that our said attorney may lawfully do or cause to be done by virtue of this power hereby granted or intended to be. In witness,” &e., &c. The power is dated in August, 1880 ; that he refused to sign said power of attorney ; that soon thereafter Charles Francis telegraphed plaintiff from Boston asking him if he had signed and forwarded the power, and Boardman wrote to him asking him the same question. Upon these facts and the acts of the parties in distributing the stock the plaintiff charges fraud and combination against him. Plaintiff alleges that he appointed Francis to act for him at said meeting at the instance and request of Boardman, who represented that Francis was a very correct man and would protect plaintiff’s interest, and that he empowered said Francis by power of attorney to act for him “ only in the division of stock.” Upon these facts — 492 — plaintiff, as against Whitney, Boardman, Francis and Candler, charges fraudulent combination to deprive him of his rights. Plaintiff in his amended bill alleges that the four parties named pretended at said meeting to represent most of the incorporators and the corporation, and that they appropriated to themselves the entire amount of the remaining capital stock of the company without paying any consideration therefor or doing any act that was of any benefit to said corporation. Then follows a charge that all the other parties present at the meeting participated in the fraud of these parties with full knowledge that said Francis was empowered and authorized only to “ allot ” the unappropriated stock fairly and justly among those entitled thereto. Plaintiff in his amended bill prays that- Boardman, Taylor, Candler and Whitney be made parties defendant, and that they may be enjoined from encumbering or disposing of the stock held or claimed to be held by them. In his original bill he prayed that the officers of the company and the company be enjoined from allowing any transfer of the stock of the company or of the individual members thereof; that the company be decreed to convey to plaintiff absolutely and unconditionally, and free from all encumbrances, $113,000 worth of stock. Reading this bill carefully it will be perceived that the appellant, Brown, bases his whole claim to the relief he asks upon the ground that at the meeting of the company in 1880, at which he had a representative, the acts of the company and its officers then present were in violation of his rights as an original incorporator. These acts all culminated in what he calls distribution of stock. The charter fixes his right as an incorporator, prescribes the method of the organization of the company, and regulates the matter of the capital stock both as to its amount and as to sub — 493 — scriptions thereto after the organization of.the corporation. As an original incorporator he signs his name to the articles of association, stating the “ number of shares of stock he agrees to take ” in the company, and upon filing the articles, affidavits and other matters required to be filed m the office of the Secretary of State, and the issuing the certificate by the Governor, the law provides that “ the persons who have so subscribed such articles of association, and all persons who shall become stockholders in such company, shall be a corporation by the name specified by such articles of association, and shall possess the powers and privileges granted to corporations and be subject to the provisions contained in this act.” The language “ the persons who have so subscribed such articles of association and all persons who shall become stockholders in such company ” shows that others in addition to those signing the articles and agreeing in the articles to take stock may become stockholders, and the law provides how they may become stockholders. The statute provides that when the articles, affidavits, &c., are filed and recorded in the office of the Secretary of State, “the Directors may, in case the whole of the stock is not before subscribed, open books of subscription to fill up the capital stock of the company in such places, and after giving such notice as they may deem expedient, and may from time to time receive subscriptions until the whole capital stock is subscribed.” It is thus seen that after the organization of the corporation the matter of subscriptions to stock is under the control of the Directors in the respects indicated, that as to this matter the right of an incorporator is merged into that of a stockholder, .and that a stockholder has no authority to control the matter of subscriptions to stock as against the company, but that the Directors “ may receive subscriptions ” therefor. At the meeting of the Directors — 494 — in Boston the fact that plaintiff had signed the articles of association of the company gave him no right to demand at such meeting, either in person or by his representative, Francis, a conveyance to him by the company “ absolutely and unconditionally, and free from all encumbrances, $113,-000 worth of stock, nor does the fact that he was an original corporator give him the right to enjoin the company from permitting any transfers of stock. The plaintiff not only bases his bill upon an erroneous idea as to his rights as an original incorporator, but it is apparent that he misconceives entirely the relations of the stockholders to the company and to each other. Subscription to the stock of a corporation is a contract between the stockholder and the company by which the person taking stock acquires an interest in the property and franchises of a corporation in the proportion the stock subscribed by him beai’s to the aggregate amount subscribed by others, and this interest is controlled by the charter which creates the corporation. Having subscribed for stock, the party becomes subject to that section of the law which provides that “ the Directors may require the subscribers to the capital stock of the company,” not the signers of the ax’ticles, “ to pay the amount by them variously subscribed in such manner and in such installments as they may deem px-oper,” and the stockholder contracts so to do. The plaintiff by limiting the authority of his agent and x’epx’esentative, Francis, “ to act in his name only in _ the division of stock,” (the small capitals are the plaintiff’s) did xiot authox’ize him to subscribe for stock or to make any contract with the company similar’ to that of a subscription to stock. His authority and agency was to receive a gi’ant of stock absolutely and unconditionally, which plaintiff claims by virtue of the fact that he was one of the signers of the articles of incorporation. While the plaintiff admits knowledge of the time and place of the — 495 — meeting, and has an agent there, it was not within the power of the company to do what this agent was authorized to demand or receive, as it was and is beyond the power of the company to make a donation of stock not subject to calls to either an incorporator or stockholder, or any one else. We do not mean to say whether the company might or might not pay for services to the company in stock. That question is not here raised. The plaintiff makes no case of an application by him to the company to subscribe for stock, and for that reason, even if it was the duty of the company to receive such application and to grant it, he has not placed himself in a position where he can ask the aid of a court of equity to direct the company or its Directors to issue stock to him. Eor all that appears in this bill he may not be willing to enter into a contract to pay installments upon the call of the Directors which is involved in a stock subscription. As to the stock claimed to be held by Whitney, Board-man, Taylor and Candler. There are no facts alleged here which negative the view that the Directors at the meeting in Boston, at which plaintiff had an agent, did not receive subscriptions for stock to the amount of $339,000 from each of them, and if this be the fact we know of no cause of action which the plaintiff has against the company for such act. The plaintiff made no application for stock, and the Directors, so far as thq facts are stated in this bill, exercised a power plainly granted to them by the law which defined their powers and duties. The complaint is that these parties received stock “ without paying any consideration therefor, or doing any act that was of any benefit to said corporation.” Under the charter and under the general law of corporations it is not necessary that the payment of any money or the doing of any act beneficial to the corporation shall precede a subscription to stock. We have al — 496 — ready explained the nature and method of such subscription so far as it is necessary to define it in this case. It is unnecessary to repeat. As to the allegation that plaintiff was defrauded of his rights by the parties present at this meeting — the right which he claims had no existence, and he could not therefore be defrauded of it. As to the allegation in the amended bill that in the latter part of the year 1879 Whitney made a sale of all the franchises of the G-ainesville, Ocala and Charlotte Harbor Railroad Company there is nothing to show that the company recognized such sale, or that it even knew anything of the matter; on the contrary, plaintiff in his bill admits the fact that the company has constructed a portion of its road and is in the active exercise of the franchise to be a corporation and to operate the road as a common carrier, and one of the grounds of complaint is that the company is about to receive a grant of land from the State. Our conclusion, so far as the matter of the stock of the company is concerned, is that there is no equity in the bill, and that the plaintiff shows no right, as against the company, to any more than five hundred shares of stock; and as to that, he is under obligation to pay calls when made by the Directors. As to the land— The allegation as to the stock he holds and his relation as an original signer of the articles of association, need not here be repeated. They go, however, as a matter of course, to make up the case as to land. Plaintiff alleges that on the 4th of March, A. D. 1879, an act was passed by the Senate and Assembly of the State of Elorida granting to the corporation the alternate sections of land on each side of the proposed line of road ‘< and ten thousand acres per mile in addition, and that it was provided in said act that said corporation should not be entitled to any of — 497 — the benefits of this act or any rights thereunder until J. E. Lipscomb, B. E. Matthias, H. C. Whitney, GT. B. Phinney, J. B. Brown, J. E. Young and T. O. Lanier, NT. R. Gruelle, J. W. Hendry, D. Hughes and E. A. Hendry, or such of them as are not already corporators in said company, shall become such that upon the completion of the grading and laying on the cross-ties of ten miles of said road, its branches or extensions, the title to said alternate sections opposite said ten miles of road so graded and furnished with cross-ties shall vest in said company, and a deed therefor shall be issued by the Trustees of the Internal Improvement Eund to the said company; that the company claims to have furnished twenty miles of said road from Palatka towards the town of Gainesville, and have demanded that the State Surveyor inspect the same, and the Board of Internal Improvement has ordered an inspection by said Surveyor, and the Board say that if the completion of the twenty miles towards -Gainesville comes up to the requirements of the law they will deed the land to the company, as provided by the act, immediately upon a favorable report being filed by the Surveyor; that the Surveyor was sent by the Board to inspect said road two weeks ago, and he says that he will finish the examination and report within two weeks; that the completion of the twenty miles from Palatka is in compliance with the law so far as his information and observation extend, and that plaintiff is firmly of'the opinion that the Surveyor will report such to be the case within the next day or two, if he has not already done so; and that the Board of Internal Improvement Eund of the State will make deeds to the company to the lands as provided by law, and the members of said Board openly proclaim that they will do so; that this twenty miles is all that has been finished of said road, and that the said company started work at Palatka end of — 498 — Palatka branch of said road, and that the whole line of said road is estimated by said company to be two hundred and ninety-three miles long ; that the land grant from the State is a large and valuable one, and would never have been obtained from the Senate and Assembly of the State of Elorida but for the persistent and untiring efforts of your orator; that in a few days, by agreement between the corporation and the Board of Internal Improvement of the State of Elorida, deeds will be made to said company to all the lands they are entitled to upon completion of twenty miles of said road, which is a very large quantity; and that plaintiff is entitled to his share of said land, and he fears and believes that when the company get deeds to this land they will at once hypothecate the said lands or transfer or dispose of the same in some way into the hands of strangers, and thus deprive complainant of his just rights in the premises ; “ that he is entitled to his share of said land as an original incorporator of said company; that the State made him a corporator; that he accepted the same, and he has never resigned or transferred his right thereto; that he is. entitled to a share in the land in the proportion of $168,000 of capital stock, his share is, to the total capital stock of said company $3,250,000. Plaintiff prays that the corporation be enjoined from mortgaging or encumbering the lands which may be deeded to them in pursuance of the land grant enactment,” and that the company may be decreed to hold and preserve the land exactly and precisely as it may be deeded to them without change, transfer or hypothecation. We discover no prayer that the company or the Trustees be decreed to make a title to plaintiff of the land; the prayer is only to restrain the company from doing anything with it. These are the facts with reference to which the demurrer is to be considered, except that the statement that the act granting the land — 499 — did not provide absolutely that the corporation should not be entitled to the land unless Lipscomb and the others named should become corporators. That clause of the act was followed by a promise to the effect that if any of such persons should die or refuse to become a corporator the fact of such death or refusal should not prevent any rights from vesting under the act. The company under its charter is authorized to make contracts, and if they see proper to make this land the basis of credit by executing a mortgage upon it, the company has such right. The grant here made is to the company, and it has authority to receive the land. Brown as an incorporator is not entitled to the proportion of the lands claimed. The grant is to the company, not to him. A grant of land to a corporation with power to make contracts in reference thereto for the purpose of accomplishing corporate purposes is not a grant to the original corporators in the proportion in which they have subscribed for stock in the company organized. The title vests in the company for the purpose of accomplishing the end and object of its creation, and not in the individual stockholder in the proportion that his shares bear to the whole stock for his private benefit and disposal. To the extent that the corporation here would be enjoined from receiving this land as a means of promoting the construction of the railway and controlling it in its stock interests, to that extent would it be equivalent to a judgment of forfeiture of its rights upon a quo warranto. So far as the land grant is concerned we, therefore, see that there is no equity in the bill. In the case of the appeal in Brown vs. The Florida Southern Railway Company and others, the orders of the Circuit Court appealed from are affirmed. In the ease of the appeal of The Florida Southern Rail — 500 — way Company and others vs. Brown, the order overruling the demurrer is reversed and the case will he remanded, with directions to enter an order sustaining the demurrer and dismissing the bill. At the January Term, 1882, at which the above case was submitted, a motion was also made by Brown for the appointment of a receiver to take charge of the railroad and other properties of the company during the pending of the suit. Mr. Justice Westcott delivered the opinion of the court thereon as follows : In this case the court having determined that there was no equity in the bill, as a matter of course it cannot be made the foundation of a motion for receiver and injunction. The motion is denied.