Pennsylvania Railroad v. Pennsylvania Co. for Insurance on Lives & Granting Annuities

Opinion by Mb. Justice Dean, At the argument of this case we had doubts whether the agreement of July 1, 1881, broad as is its language, implied a power to exact a proxy from the trustee, authorizing plaintiff to vote the remaining 160,000 shares of stock in favor of a merger of the Philadelphia, Wilmington & Baltimore Railroad, with two other railroads into a new railroad corporation to be known as the Philadelphia, Baltimore & Washington Railroad Company; that is, whether it could be fairly implied from the agreement that the trustee was bound to give to plaintiff a proxy, by which, in case the proposed merger should be accomplished, it was the duty of the trustee to accept in lieu of the original shares, 240,000 shares of the stock of the new company. By so doing, the original subject of the contract, the Philadelphia, Wilmington & Baltimore Railroad, although physically the same, would, as a corporation, pass out of existence ; and although not destroyed, would lose its identity as a distinct and independent company, and the new certificates received would no longer represent, as a security, the old Philadelphia, Wilmington & Baltimore Railroad, but a new corporation, theretofore without existence, the Philadelphia, Baltimore & Washington Railroad Company. We concede, that to carry the implication thus far, is somewhat startling, yet a careful analysis of the agreement renders it inevitable. The sixth clause of the agreement reads thus : “ Sixth. Until default shall be made in the payment of interest and minimum sinking fund or principal, as hereinbefore provided, the said trustee, or the trustees or trustee for the time being, shall permit and suffer the said party of the first part to retain all the rights, powers and privileges belonging or incident to the ownership of the stock hereby deposited, except as hereinbefore provided; and the said trustee, or the trustees or trustee for the time being, shall and will execute and deliver to the said P. R. R. Company, or to such person or persons as may be designated either by its board of directors or by the president thereof, such powers, authorities, proxy or proxies irrevocable, from time to time, as may be necessary or expedient for carrying into full effect the powers hereby expressly retained and reserved by the said P. R. R. Company, including, amongst other things, the right to appear at all [225] stockholders’ meetings and at all elections of the said P. W. & B. R. R. Company, and to vote upon said shares of stock at such meetings or elections, as fully as if these presents had never been made.” It will be noticed, that the railroad company retains “ all the rights, powers and privileges belonging or incident to the ownership of the stock, .... except as hereinbefore provided. ” The right of the owner to vote the stock as he chose, unless restricted by public policy or legislation, was undoubted; no public policy forbade him to vote for the merger or consolidation of his company with one or more others ; express legislation authorized him to so vote. The title of the trustee was created, defined and limited only, by the agreement under which it held possession of the stock, subject to the rights of plaintiff to demand proxies for the exercise of all the rights incident to ownership. If the owner could exercise the right to vote for a merger, the plaintiff could demand from the trustee a proxy authorizing it to appear at a stockholders’ meeting of the Philadelphia, Wilmington & Baltimore Company to vote upon the q uestion of merging this company with two others into a new company; this was a light, by the express terms of agreement, incident to ownership; the trustee was bound to give it, although such purpose was not specially mentioned in the agreement. If it desired to withhold this extreme exercise of power, it should have so restricted the sweeping general language of the agreement by expressly prohibiting the right to vote; to destroy the identity of the old corporation. But the trustee reserved the right to refuse the proxy upon but one contingency, default of the railroad company, to pay interest, sinking fund or principal. It is not alleged there was default in either particular. As if to guard against any liability of the trustee, because of the immense powers retained by the railroad company, in the sixth clause before quoted, the ninth clause is inserted thus: “ It is hereby further covenanted and agreed and this trust is accepted upon the express condition, that neither the said trustee, nor any successors in the trust, shall incur any responsibility or liability, by reason of permitting and allowing the said Pennsylvania Railroad Company to retain and reserve the power and authorities, heretofore provided for in regard to the stock [226] of the said Philadelphia, Wilmington & Baltimore Railroad Company.” The argument of appellant’s counsel tending to show that a trustee has no right to sell or pledge the trust estate, or to vote it out of existence in the shape it came into his hands does not meet the point. The argument and the authorities cited in support of it are pointedly applicable to simple trusts; they demonstrate in such case the power of the trustee and the rights of the cestui que trustent and show that the power of the trustee extends only to the preservation and protection of the trust property, and without the consent of the cestui que trustent he cannot incumber, sell, exchange or convert the trust property. But this is not a simple trust; every word of the agreement in which it had its inception and without which it does not exist, shows it was a special trust created by the parties for a special purpose and so accepted by the trustee; the duties of the latter were fixed by the contract, and its liabilities defined by the contract, and that is all we can look to, to ascertain them. We think the court below was right in its decree, and we therefore overrule all the assignments of error and affirm it.