Town of Middletown v. Boston & New York Air Line Railroad

*Beardsley, J. This case comes before this court by appeal from the judgment of the Superior Court that the complaint is insufficient. The plaintiff alleges, in substance, that it is the owner of eleven hundred and twenty shares of the common stock of the defendant company; that said company is about to lease its railroad to the New York, New Haven & Hartford Railroad Company for the term of ninet3,,-nine years, at the annual rental of $>120,000, to be paid by the lessee to the preferred stockholders of the defendant company, in proportion to the amount of stock held by them respectively; praying for an injunction against the proposed lease. A preliminary injunction was issued upon this complaint by the Superior Court, which was after-wards dissolved, and the lease was executed. The plaintiff now seeks to have the same set aside, claiming that it violates its rights as such holder of common stock b3r depriving it of any participation in the earnings of the defendant company for the period of the lease and rendering its stock of little or no market value. Whether the defendant has the right to make this lease [358] must of course depend upon the provisions of its charter. If the charter authorizes the lease, the fact, if it be so, that it will reduce or destroy the market value of the plaintiff's stock, cannot defeat the right of the company to make it. The plaintiff, as a stockholder in the defendant company, is subject to all the conditions contained in its charter affecting its relation to the other stockholders as well as to the public. By the defendant’s charter the bondholders of the New Haven, Middletown & Willimantic Railroad Company were incorporated into a new company, which succeeded to all the property and rights of the old one. The charters of both these companies, and the lease in question, are made part of the plaintiff's complaint. The charter of the New Haven, Middletown & Willimantic Railroad Company provided that the company might lease its road to any railroad company with whose road it might intersect. (Sec. 7 of charter.) The defendant’s charter provided that it should not so lease without the approval of three fourths of the stockholders of the company. (Sec. 9 of charter.) The defendant’s charter also provides that the capital stock shall consist of not over forty thousand shares, of which not exceeding thirty thousand shares shall be preferred stock, and not exceeding ten. thousand shares shall be common stock, (secs. 2 and 3 of charter,) and that no dividends shall be declared upon the common stock until dividends have been declared upon all the preferred stock, equal to seven per cent a year thereon. (Sec. 5 of charter.) The shares of stock being of the par value of $100 each, the rent received will amount to only four per cent upon the preferred stock. But it is claimed that although there is no restriction in the language of the charter as to -the term for which the company may lease its road, or as to the rent to be received, yet it is unreasonable so to construe it as to enable three fourths of the stockholders to -make a lease which deprives the other fourth of any chance for dividends for so long a period, and hence that the lease in question is not a rightful and lawful exercise of the power given by the charter. We [359] see no ground for this claim, especially in view of the fact that leases of railroads are, and from the nature of the case must generally be, made for long terms. Railroads are leased, as they are built, with a view to the advantages to arise in the distant future from the development of population and business in the neighborhood by the facilities for transportation which they afford. The complaint also charges that by the provisions of the lease the entire resources of the defendant company from which income can be derived are fraudulently appropriated for the benefit of the holders of the preferred stock. This is not a charge of fraudulent conduct or intent in the making of the lease, but only that by its operation the income will be fraudulently appropriated for the benefit of the preferred stockholders. This is simply an allegation that this appropriation of the income will be disastrous to the common stockholders and wrongful; not that the preferred stockholders have acted fraudulently. If the company had the right, as it clearly had by its charter, to make the lease upon a three fourths’ vote, the court can not regard the effect of the lease as wrongful, or in any proper sense fraudulent. Van Weel v. Winston, 115 U. S. Reps., 237. The complaint also charges that certain of the bondholders in the old company have not converted their bonds into stock, and deny the validity of the organization of the new company, and that by the contract of lease no provision is made for the payment of certain creditors of the company. If this be so, we do not see upon what principle the plaintiff can avail himself of it as a ground of relief in this case. Injuries done to bondholders or creditors can only be made apparent and redressed when they complain of them. The questions arising between the defendant company and a bondholder who claimed that he had not converted his bonds into stock, were determined adversely to the bondholder at the present term of this court. Gates v. Boston & N. York Air Line Railroad Co. (supra, p. 333.) There is no error in the judgment of the Superior Court. In this opinion the other judges concurred. Footnotes [*] Judges Beaedsley and Stoddard of the Superior Court sat in the places of Judges Pardbe and Granger, disqualified by interest.