In re Interborough Consolidated Corp.

MAYER, Circuit Judge (after stating the facts as above). In the case at bar, claimant acquired her stock after the statute authorizing consolidation of corporations had been enacted. She thus held her stock with the advantages and the burdens of the statute, and the statute was read into the contract between her and the corporation. The difference in status between one who acquires slock-prior to the existence of such a statute and one who acquires stock subsequent to its enactment is well illustrated in Clearwater v. Meredith, 1 Wall. 25, 40, 17 L. Ed. 604. and Nugent v. Supervisors of Putnam Co., 19 Wall. 242, 22 L. Ed. 83. See also Town of East Lincoln v. Charles Davenport. 94 U. S. 801, 24 L. Ed. 322; Township of New Buffalo v. Cambria Iron Co., 105 U. S. 73, 26 L. Ed. 1024; Livingston County v. Bank of Portsmouth, 128 U. S. 102, 9 Sup. Ct. 18, 32 L. Ed. 359. At the time when Inter-Met. was organized, and at the time when the claimant acquired her interest in the preferred stock therein, section 8 of the Business Corporations Eaw provided for the consolidation of the corporation with another corporation organized for similar purposes and objects, by the approval of the holders of two-thirds of the outstanding stock, and section 9 of the Business Corporation Eaw provided the remedy for the dissenting stockholder, to wit, a proceeding to have the value of his stock appraised by judicial action and for the payment to him of the value ascertained. E'pon the consolidation of the Business Corporations Eaw in 1909, section 8 became section 7 and section 9 became section 8. The statutes, however, are identical in form. When the statute here concerned was originally adopted in 1890, it carried with it the provision for a remedy to the dissenting stockholder, 'fills was on the theory that, having deprived him of the right to prevent a consolidation, and having abrogated the rule at common law requiring unanimous approval to a consolidation, he would have a remedy in the event that he disapproved the consolidation. [1] The theory' of the statute was that a dissenting stockholder would be protected, so far as his legal rights were concerned, if procedure was established by which he could obtain the value of his holding in the event that he was not agreeable to the proposed consolidation. A corporation being the creature of the state, brought into being only by virtue of the state’s permission, it is fundamental, as pointed out supra, that the statute is a part of the contract and that, when a person buys stock, he buys the same with all the obligations imposed by the statute. Colby v. Equitable Trust Co., 124 App. Div. 262, 108 N. Y. Supp. 978, affirmed 192 N. Y. 535, 84 N. E. 1111 [2] It has been held in various jurisdictions that an action at law or in equity will not lie for the recovery of the value of the stock. [458] Mayfield v. Alton Gas Co., 198 Ill. 528, 65 N. E. 100; Mansfield v. Brown, 26 Ohio St. 223; Bish v. Johnson, 21 Ind. 299; Noyes on Intercorporate Relations, pp. 90, 91. The Mayfield Case, supra, contains an admirable exposition of the particular question here discussed. Without analyzing what may be the difference between the principle as set forth in the cases just cited and that of the Pennsylvania decisions (Barnett v. Phila., etc., Market Co., 218 Pa. 649, 67 Atl. 912, and Winfree v. Riverside Cotton Mills, 113 Va. 717, 75 S. E. 309), the latter cannot be accepted as sound in principle, if construed as contrary to the Mayfield Case and to the observations well stated by former Judge Noyes in section 46 of his book on Intercorporate Relations. In addition to' the views here expressed is the authority of the New York Supreme Court, per Mr. Justice Hotchkiss, for whose opinions I entertain great respect. In a suit brought by this plaintiff against Inter-Met., Mr. Justice Hotchkiss said in the course of the argument: “The statutes which provide for the consolidation of corporations have to that extent deprived minority stockholders of certain common-law rights; that is, it deprives them in a sense, for they are made subordinate to the right of the prescribed majority to carry the corporation and its assets over into the amalgamated corporations. But a minority stockholder has his rights protected' under the statute. He does not need to go into the consolidation if he protests. By all the statutes I have ever had occasion to examine, it is provided that if a stockholder objects a commission shall be appointed to determine .the value of his distributive share of the assets. * * * Tour rights were protected by the provision of law which permitted you to have appraisers appointed and to be paid the value of your holdings. That you did not do. Whether you have irretrievably lost your right, to do that I do not pretend to say. But, having failed to object to the consolidation, your rights have been determined' by virtue of the statutory proceedings to which you were a party, and the benefit of which was extended to you. But you have not done that. Tou have remained silent.” I think the foregoing is all that need be said upon this point. [3] In respect of the claim filed for cumulative dividends on the preferred stock, it appears that at the time of the consolidation no assets whatever of Inter-Met. were segregated or set apart for the dividends on the preferred stock. Again, Mr. Justice Hotchkiss said all that is necessary on that point: “There is nothing in the complaint to show that there was ever a dollar of the estate of the Interborough-Metropolitan Company segregated or set apart for dividends for the preferred stockholders. Until that was done they were all general assets, on which you had no lien, but an inchoate right.” Further, on the facts as they existed, the directors would not have been justified in paying any dividends, and might have subjected themselves to personal liability, if they had done so. In brief, there is no theory upon which plaintiff’s application may be sustained, nor any theory upon which the claim is preferred. As a review of my decision is probably by petition to revise, and as the Circuit Court of Appeals on a petition to revise examines only questions of law, I find as facts the facts in the paper, entitled “Agreed Statement of Facts in re Alleged Claim Filed by Agnes M. F. Reilly [459] (Claim No. 2750).” Of course, the claimant still has the right considered in the case of In re Interborough Consolidated Corporation (D. C.) 267 Fed. 914. Submit order on three days’ notice.