Opinion
November Term, 1901.
E.L. Andrews [ Anderson Price and Charles H. Blair with him on the brief], for the appellants.
William D. Guthrie, for the respondent.
Present — GOODRICH, P.J., BARTLETT, WOODWARD, JENKS and SEWELL, JJ.
The Staten Island Rapid Transit Railroad Company was hopelessly insolvent. Its capital stock was $500,000. It transferred $255,000 of this stock to the Baltimore and Ohio Railroad Company. In consideration of this transfer the Baltimore and Ohio guaranteed the payment of $2,500,000 second mortgage bonds of the Staten Island company.
The Baltimore and Ohio thus acquired control of the Staten Island company and its property. There were upon that property first and second mortgages aggregating $3,500,000. The Staten Island company also had outstanding income bonds amounting to $4,500,000, more than half of which bonds were held by the Baltimore and Ohio. It also owed the Baltimore and Ohio more than $1,100,000 on open account.
The interest on the second mortgage came due. The Baltimore and Ohio did not have on hand sufficient assets of the Staten Island company to provide for the payment of this interest, unless it made default in the payment of other demands against the Staten Island company or unless it should forego payment of its own claim against the Staten Island. The Baltimore and Ohio consequently omitted to pay the interest on the second mortgage and, as the learned trial judge decided, "actively instigated" the foreclosure of the second mortgage with the purpose and intent of becoming the purchaser.
This intent was carried out indirectly. At the sale the property was bought by a new corporation — the Staten Island Rapid Transit Railway (instead of Railroad) Company — all the capital stock of which was transferred to the Baltimore and Ohio.
The plaintiffs represent the minority stockholders of the old Staten Island Rapid Transit Railroad Company, holding the forty-nine per cent of the stock which was not acquired by the Baltimore and Ohio. The court below has held that the conduct of the Baltimore and Ohio in instigating the foreclosure of the second mortgage was a technical wrong toward these minority stockholders, and that "under these circumstances the defendant (the Baltimore and Ohio) holds 49 per cent of the stock of the new company in trust for the minority stockholders of the old company."
In the view of the learned judge, the condition of the old company was such as to render liquidation inevitable, the stock of the minority stockholders had no substantial value, and they would probably have fared no better in the result if the Baltimore and Ohio, instead of furthering the foreclosure of the second mortgage, had suffered the affairs of the old company to be otherwise wound up. Therefore, while holding that some possible future value of their old stock entitled them to follow the new stock and charge it with their equity, he was of the opinion that they could not do this without bearing their pro rata proportion of the just claims of the Baltimore and Ohio against the property of the old company.
The argument of the learned counsel for the appellants has failed to convince us that the conclusion of the trial judge in this respect was erroneous. It is apparent from the decision that he found against the plaintiffs on their allegations of fraud, trick, device and deception. This is sufficiently evident from the declaration that the defendant was "technically wrong," an expression which could hardly accompany the idea of an actual fraudulent intent.
The judgment should be affirmed.
Judgment, so far as appealed from, affirmed, with costs.