Summary
In Bliss v. Matteson (supra) it is said that after the formation of the company the presumption is that the stock would be distributed among other persons to a greater or less extent.
Summary of this case from Koster v. PainOpinion
Argued December 8, 1870
Decided February 21, 1871
J.L. Cadwallader, for the appellant.
John E. Burrill, for respondent. Charles Tracy, for the respondent.
The plaintiff having been nonsuited upon the trial, upon the ground that the contract sued upon was illegal and void, and the judgment ordered in accordance with such nonsuit, that is the only question arising upon this appeal. The contract was to the effect that, in consideration that the plaintiff would aid and use his influence in procuring the mortage bondholders of the Chicago, Alton and St. Louis Railroad Company to fund the interest due and to fall due on their bonds within three years from the 2d of October thereafter, the defendants undertook that in case they got possession of the road of the company under arrangements then in progress, they would procure the directors of the company or of any new company to be formed under a proposed sale of the road, to agree, by vote, to pay the past due coupons upon $35,000 of third mortgage bonds and $8,000 of coupons on the first mortgage bonds owned by the plaintiff, and that if the defendants continued in the control of the road themselves, or through directors of either company named by them, that they would cause the company so controlling the road to pay said past due coupons with interest, one half in one year and the residue in two years, and the others as they shall fall due; and, further, that if the plaintiff should take bonds for the above, the above shall be binding, if he surrendered the bonds as fast as the coupons were to be paid as specified. The proof showed that the railroad company was at the time hopelessly insolvent; that it had no means for the payment of the past due coupons of the mortgage bonds already matured or prospect of being able to pay those thereafter maturing; that it was the intention of the defendants to purchase the road, together with its stocks and franchises, at a sale to be made by assignees of the company in trust for its creditors, and that upon such purchase, a charter for a corporation should be obtained, to which new company the defendants should convey the road and property so purchased; that it was indispensable to the success of this scheme that the past due coupons of the mortgage bonds and those that should mature within the time specified should be funded on time in the bonds of the existing company or the one thereafter to be formed. The plain inference from the contract and the other facts is, that there was to be a composition by all the holders of the coupons in question by funding them as provided in the contract, and the fair presumption is that the other holders were to be induced to comply with the terms under a belief that the plaintiff was to be a party thereto in respect to the coupons held by him. This presumption does not rest simply upon the idea that the contracting parties must have known that no one would enter into the arrangement, knowing that the agent negotiating it had already stipulated for much better terms in respect to his own coupons, but is strongly fortified by the clause inserted at the close of the contract, to the effect that, if the plaintiff shall take bonds for his coupons, the defendants should, upon his surrendering them to them, pay him as fast as the coupons were to be paid by the contract. There can be no reason whatever given for the plaintiff's funding his coupons in bonds, the same as the others, when the payment with interest of those past due in one and two years was provided for by the contract, except to convince the other holders that he was compounding his own upon like terms; that he was endeavoring to persuade them that it was for the mutual interest of all concerned to do. Any agreement made by one creditor for some advantage to himself over other creditors who unite with him in a composition of their debts, is fraudulent and void. ( Brady v. Cole, 4th Sand. Sup. Court, 79; Russell v. Rogers, 10 Wend., 473.) This is not the only infirmity of the contract. It was an undertaking by the defendants to control the action of the directors in such a way that the plaintiff should have a preference in the payment of his coupons over other holders, and in case the plaintiff had funded them on time in the bonds of the company, to cause the company to pay the amount of the bonds to the plaintiff before their maturity. Such payment might have embarrassed the company, and consequently been injurious to its creditors and stockholders. This provision, therefore, rendered the contract unlawful. The directors of corporations are trustees of the stockholders, and in a certain sense of its creditors. Any agreement to influence their action for the benefit of others and to the prejudice of the company is fraudulent and void. (1 Redfield on Railways, § 140.) In answer to this, it is insisted by the counsel for the plaintiff that the defendants were the only parties to be affected; that they were to purchase and run the road, and, in short, to own the entire stock of the corporation. This may be so, in case of the formation of a new company to the extent of the ownership of the road intermediate the time of its purchase and the formation of the new company; but after such formation the presumption is that the stocks would become distributed among other persons to a greater or less extent. The judgment appealed from must be affirmed with costs.
All concurring except FOLGER, J., who did not vote. Judgment affirmed.