Opinion
06-26-1901
MUMFORD et al. v. ECUADOR DEVELOPMENT CO. et al.
James E. Howell and George D. Mumford, for complainants. John W. Griggs and Wetmore & Sexton, for defendants.
Bill by George D. Mumford and others against the Ecuador Development Company and others to set aside certain conveyances, and for preliminary injunction to prevent transfers of the property pending the suit. Injunction denied.
James E. Howell and George D. Mumford, for complainants.
John W. Griggs and Wetmore & Sexton, for defendants.
STEVENSON, V. C. The main object of this bill is to have a certain conveyance of property from the defendant the Ecuador Development Company to the defendant the Ecuadorian Association, Limited, made September 6th, 1900, declared illegal and set aside. The preliminary injunction is sought in order to prevent transfers of the property thus conveyed pending the suit The complainants are stockholders of the Ecuador Development Company, and they make their complaint on their own behalf, and on behalf of other minority stockholders who may join with them, setting forth the reasons which justify their coming into court as stockholders on behalf of their company. The complainants, however, appear to be the only stockholders of the Ecuador Development Company who have not assented to the transaction which the complainants seek to set aside. The facts, all of which are derived from the complainants' motion papers,—no affidavits being presented on behalf of the defendants,—are as follows: In the year 1807 one Archer Harmon and his associates made a contract with and obtained a concession therein from the republic of Ecuador, in South America, which provided for the construction and equipment of a railroad nearly 300 miles long, between the cities of Guayaquil and Quito, in Ecuador, with terminal, wharves, docks, etc., and the formation of a company for that purpose. The contract provided that the railroad company to be formed should have a capital of $12,282.000, divided into shares of $100 each, and that about $5,250,000 of this stock should be 7 per cent. preferred stock, and the balance, $7,032,000, should be common stock; that the company should be authorized to issue its bonds, of the par value of $1,000 each, to the aggregate amount of $12,282,000, to be secured by a first mortgage upon all the property of the railroad company, including the concession from the government of Ecuador, and that these bonds should be guarantied by the government of Ecuador, and the guaranty secured by a lien upon ail the customs receipts of the port of Guayaquil, which amount to $2,000,000 or $3,000,000 per annum. The contract further provides that the railway company "should be authorizedto issue and sell, for the purposes of construction of said railway, all of said $12,282, 600 of bonds so guarantied by the republic of Ecuador," and that the government of Ecuador should have 49 per cent. of the common stock of the company, and Harmon and his associates should have the balance of the common stock and all of the pre ferred stock. The bonds and preferred stock were to be issued and delivered to the rail way company in certain amounts and proportions, as the work of construction progressed. The share of the common stock, 51 per cent. allotted to Harmon and his associates, apparently was deliverable immediately upon its issue, and subsequently is alleged to have passed into the possession and ownership of the defendant the Ecuador Development Company, and from that company to have been conveyed by the contract of September 6, 1900, above mentioned, to the defendant the Ecuadorian Association, Limited. In pursuance of the contract and concession, the Guayaquil & Quito Railway Company was organized, under the laws of the state of New Jersey, on or about September 1, 1897, "for the purpose of taking over the concession from the republic of Ecuador, so obtained by said Harmon and his associates." Subsequently the railway company, in November, 1898, entered into a supplemental contract with the republic of Ecuador, modifying in certain respects the original concession. The only modification set forth in the bill appears to be a provision for a monthly ascertainment of the amount of work done and the joint action of the engineer of the government, the minister of state, and the chief engineer of the railway company, "directing the depositary bank to deliver to the agents of the company bonds to an amount equal to the said valuation." It will be observed that the government of Ecuador in this grant specially devoted the entire issue of $12,282,000 of bonds, which it guarantied and secured, to the payment of the costs of the construction and equipment of this important public work, which, as appears from the papers, is intended to be a great highway of commerce through a rich territory at present practically inaccessible. The concession gave the railway company the right to operate its road, and to receive all the profits, for a period of 75 years from the date of completion of said railway to Quito, after which time the railway would become the property of the government Shortly after the organization of the Guayaquil & Quito Railway Company the South American Railway Construction Company was somewhere organized for the purpose of constructing the railway called for by the concession, and made a contract with the railway company for such work, under which contract the construction company was to receive as compensation "a very large proportion of the bonds and preferred stock of said railway company." Later a supplementary contract between the railway company and the construction company was made, but the bill states that in September, 1898, "both said railway company and said construction company were without funds to carry on the construction of said railway, and the said concession was in danger of lapsing." It may be remarked, in passing, that the mere right to receive these bonds and stocks does not appear according to the bill to have necessarily enabled the holder of that right to finance this large enterprise, so as to keep the work of construction going on and preserve the concession from "danger of lapsing."
In this situation of affairs, in September,
1898, the defendant the Ecuador Development Company was organized under the laws of New Jersey, "for the purpose of taking over the rights of the said construction company, under its contract with the said railway company, and of taking over the rights of all other parties interested in the enterprise." The Ecuador Development Company absorbed all the assets of the former construction company, and of the railway company, "except the contract of concession." It made a new contract with the railway company for the construction of the railway, by which it was to receive all of the $12,282,000 of bonds, all of the $5,250,000 of the common stock, "as well as all its other assets, contracts," etc. The Ecuador Development Company then proceeded with the construction of the railway, in compliance with the contracts of the railway company with the government of Eucador. The capital stock of the Ecuador Development Company is $200,000, consisting of 2,000 shares, of the par value of $100 each, of which 1,300 shares are preferred stock, and 700 shares are common stock. The complainants, as the holders of 111 shares of common stock, are alleged to be entitled to about one-sixth of the entire profits of the Ecuador Development Company from the performance of its contracts, or, in the event of an exchange of some of the preferred stock for common stock, the complainants' share of the profits would be about one-thirteenth. These profits are, of course, predicated upon the discharge of all obligations in respect to the construction and equipment of the railway. The defendant The Ecuadorian Association, Limited, was organized in or about March,
1899, under the laws of the kingdom of Great Britain. This foreign corporation gradually acquired preferred and common stock of the Ecuador Development Company, until, by the month of April, 1900, it became the holder of record of a majority of both kinds of stock, and thereby obtained control of the development company. We now come to the particular transaction which is the basis of the complainants claim for relief in this suit. On September 15, 1800, the annual meeting of the stockholders ofthe Ecuador Development Company was held in its New Jersey office. This meeting had been called originally for June 18th, but, there being no quorum, inasmuch as the majority stockholder, the Ecuadorian Association, Limited, did not appear, the meeting was adjourned from time to time, until September 15th, when the majority stockholder appeared by the defendant William Lyon Mackenzie, its proxy, prepared to vote upon its holdings of stock, and thus control whatever action the stockholders' meeting might wish to take. At this meeting, according to the allegation of the complainants' bill, the president of the company, Mr. Elliott C. Smith, presented, as a part of his report as president to the stockholders, a contract entered into by him, as president of the Ecuador Development Company, with the Ecuadorian Association, Limited, bearing date the 6th day of September, 1900, executed by the said William Lyon Mackenzie on behalf of the Ecuadorian Association, Limited, as the agent in fact of said Ecuadorian Association. This contract, which is the one which the complainants seek to have set aside, purported to transfer to the Ecuadorian Association, Limited, "all of the cash, assets, securities, contracts, and property, of every kind and description, belonging to the said Ecuador Development Company, at that time," in consideration of the assumption by the Ecuadorian Association, Limited, of certain obligations of the Ecuador Development Company, which are declared to be unknown to complainants, and the engagement of the Ecuadorian Association to pay to the Ecuador Development Company one-tenth of the net profits from the whole enterprise, which should be ascertained at the completion of the contract with the government of Ecuador. Thereupon Mr. Mackenzie, the agent of the Ecuadorian Association, Limited, and its attorney in fact in the execution of the contract, as proxy of the Ecuadorian Association, Limited, the majority stockholder, moved the adoption of a resolution to the effect "that the president's report be and the same hereby is accepted and approved and ordered on file with the records of this company; that the agreement dated September 6, 1900, between this company and the Ecuadorian Association, Limited, be and the same hereby is in all respects ratified and approved." The resolution was adopted, Mr. Mackenzie voting for the Ecuadorian Association in favor of it on the majority stock held by that company, while the proxies and representatives of complainants voted against the resolution, and protested against its adoption. It seems unnecessary to set forth the matters contained in the complainants' motion papers, which go to show that the complainants, the minority stockholders, had no knowledge of the affairs of the Ecuador Development Company, could not get access to its books, and had no notice of this proposed contract by which the development company practically stripped Itself of its property and handed over its great project to another corporation, until the contract was sprung upon them at this meeting. The complainants deny that the Ecuador Development Company was insolvent at the time of this attempted transfer, and present facts and arguments which are entitled to consideration, in the absence of any denial or explanation from the Ecuador Development Company or the Ecuadorian Association, Limited, pointing to the conclusion that the assets surrendered by the development company were of great value, as compared with the consideration which it received or was promised under the contract of transfer with the Ecuadorian Association. How this contract, which, so far as appears, was merely executed by the president of the Ecuador Development Company, could become operative when ratified by a majority of the stockholders of the company, is not made to appear in any way further than this,—that counsel for the complainants stated distinctly upon the argument that the certificate of incorporation of the development company contained a clause enabling a sale of all the assets of the company to be made in some way, or through some prescribed form of corporate action, and that the sole objection which the complainants now make to this particular sale is based upon the fact that the sale was made under the circumstances set forth for an inadequate consideration to the majority stockholder, the Ecuadorian Association, Limited, which controlled the whole organization of the development company and effected the sale to itself. How a conveyance like this, even if made to a party not connected with the grantor company, could pass title to property of the company is not explained in the bill or affidavits. The certificate of organization of the Ecuador Development Company is not set forth. We have a contract signed by the president of a company, and ratified by a majority of the stockholders, purporting to convey all the assets of the company in such a manner as to render the company incapable of further carrying out the objects for which it was created. In view, however, of the admission of counsel for the complainants, it may be assumed, in favor of the defendants, that the contract of September 6, 1900, was, in respect of form, when ratified as above stated, a valid and binding contract of the Ecuador Development Company.
It hardly seems necessary to cite authorities for the proposition that the transaction of which the complainants complain in this case was fraudulent, and grossly violative of the complainants' rights, and voidable at their election. From the number and apparent character of the men concerned in this sale, and the mode in which the business was tiansacted, it would seem to be probable that the Ecuadorian Association and its friendsknew well that no transfer of the kind attempted to be effected could have any validity against a dissenting stockholder, and that the unanimous ratification of the contract by the stockholders was all that could give it any force. However this may be, when the Ecuadorian Association, Limited, came from abroad and undertook to seize all the property of the Ecuador Development Company, and appropriate to itself the opportunities for profit in this great South American enterprise, it ran the risk of dissent among the stockholders of the development company, and, meeting that dissent, it should have paused before carrying out its plan. This case is not of the class to which Gardner v. Butler, 30 N. J. Eq. 702, cited by counsel for defendants, belongs. In this case directors or stockholders controlling corporate action have not merely undertaken to make a contract between themselves and their company by which they engage to carry on the business, or some part of the business, of the company in the accomplishment of its corporate objects. In this case the only possible inference from the facts stated is that the sale of all the corporate assets made or attempted to be made on September 15, 1900, was a sale in liquidation, precisely like a receiver's sale,—a sale which involved the abandonment of the objects of the corporation and the winding up of its business. The Ecuadorian Association, and its agents controlling the Ecuador Development Company, stood in the position of trustees to sell, and their trust, in view of the magnitude of the business" of the Ecuador Development Company, with its possibilities for profit, and the magnitude of the assets of that company, was a most delicate and important one, calling for the exercise of the highest degree of care, skill, and fidelity. The proposition that trustees in such a position could not effect a sale to themselves against the will of any portion of their beneficiaries hardly requires argument. Even if the Ecuadorian Association could sustain this transfer of assets upon payment to the Ecuador Development Company of their fair value, to be fixed by the court, which I do not concede to be true, still the burden of proving that the consideration which they offered to their beneficiary was adequate and fair is upon them, and they are silent. The complainants, on the other hand, make out a prima facie case of gross inadequacy of the consideration. The principal effort of counsel for the defendants to meet the charge of fraud in this transaction of September 15, 1900, seems to be directed towards a criticism of the proofs presented by the complainants, but, in my judgment, the complainants, for the purposes of the present motion, have fairly made out prima facie their charge of fraud by the use of such evidence as is entirely proper upon such a proceeding as this. Having reached this conclusion, it becomes unnecessary, for the purpose of disposing of the present motion, to distinguish further between matters proved and matters only alleged in the complainants' motion papers. Upon the ratification of the contract of September 6, 1900, the Ecuadorian Association appears to have taken the place of the Ecuador Development Company, assuming its obligations and proceeding to perform the contracts with the railway company and the government of Ecuador. A further contract was made by the new construction company with the railway company, and the construction work appears to have been carried on continuously down to the commencement of this suit, and presumably is still being carried on. Two days after the so-called contract of September 6, 1900, was ratified, these complainants, or one of them, brought an action in the supreme court of the state of New York, as the bill alleges, "against the Ecuador Development Company, the Ecuadorian Association, Limited, and William Lyon Mackenzie, to set aside said transfer, and for other relief." This action was removed by the defendants into the United States circuit court for the Southern district of New York (111 Fed. 639), where it is now pending upon a demurrer to the complaint. The Guayaquil & Quito Rallway Company was not made a defendant in this action, nor is there any evidence whatever that this railway company over had any notice of the pendency of that action, or of the grievance of the complainants, until after the filing of the bill of complaint in this suit on June 12, 1901. For more than nine months the complainants stood by and permitted the railway company, the government of Ecuador, the bankers, and all parties concerned, to proceed with this great enterprise, recognizing the Ecuadorian Association, Limited, as the construction company and financial agent through whom the bonds of the railway company guarantied by the republic of Ecuador were to be used in accordance with the terms of the original contract, and concession "for the purpose of the construction of said railway." The complainants do not claim that they were ignorant of the nature of this concession and the interest of the government of Ecuador, and of the railway company, 49 per cent of whose common stock was owned by the government of Ecuador, in the financial operations which were based upon these bonds. The complainants stood by and allowed the Ecuador Development Company practically to pass out of existence so far as this great work was concerned, and the Ecuadorian Association, Limited, to take its place in all respects, and make new contracts with the railway company and with the bankers who held the bonds and stocks, which were given out, from month to month as the work progressed, and to pledge such new issues of bonds and stocks for moneys expended in the work.
It is important to ascertain, as far as possible, the status of the three classes of securities—the bonds, guarantied by the Ecuador government and its customs receipts atGuayaquil, the preferred stock, and the common stock. The bonds, as we have seen, were to be issued and sold "for the purposes of the construction of said railway." The bonds and preferred stock were to be delivered to the railway company for certain purposes specified, and in certain specified lots, and the specification shows that both bonds and preferred stock were to be issued in installments, to pay for successive portions of the work. The banking house of Glyn, Mills, Currie & Co., of London, whose eight partners, including men of title and rank, are made defendants in this bill, was the depositary bank to whom all the bonds and preferred stock were delivered, and by whom these securities were to be issued from time to time as the work of construction proceeded upon the certificate of the officials of the Ecuador government and of the railway company, as above mentioned. The bill alleges that on January 10, 1900, the Ecuador Development Company and the railway company made a contract with this firm of bankers, by which they pledged to said bankers, not only all the bonds and preferred stock which the bankers held as depositaries, but also the 51 per cent. of common stock, which until that time apparently had not been used, as the basis of a loan or otherwise, in the work of constructing the railway. The pledge included all the bonds and preferred stock which afterwards might be earned, and was made "as security for advances to be made to the said Ecuador Development Co. by said firm of Glyn, Mills, Currie & Co., for the continuation of the work of construction of the said railroad." Under this contract of pledge, Messrs. Glyn & Co. advanced to the Ecuador Development Company $250,000, and afterwards made further advances, the amount of which the complainants say they do not know. The bill further alleges that these sums of money were used by the development company "for the general purposes of its business, and for the payment of the cost of the work of construction" of the railway, which was "carried on by the said Ecuador Development Company from the tenth day of January, 1900, down to the fifteenth day of September, 1900." Thus it distinctly appears that all the securities which are the subject-matter of this litigation were pledged to Messrs. Glyn & Co., and it does not appear that they, or any of them, have been relieved from that pledge. It also appears that the work of railroad construction was carried on by the Ecuador Development Company, and that large amounts of bonds and preferred stock were earned under the terms of the contract of concession, and that all these securities so earned were held by Messrs. Glyn & Co., as security for the advances which they were making from time to time to the Ecuador Development Company, and which the latter company required for carrying on its work, The Ecuador Development Company, with its small capital, evidently had no means for carrying on so vast and expensive an enterprise as the construction of this railway, with its appurtenant docks and equipment, excepting the bonds and stock which it would earn in the work, and which it was obliged to use with some party controlling a large capital, as a basis of credit. While the complainants, or one of them, were swift to bring their action in New York to annul the contract of September 6, 1900, they made no effort to interfere in the slightest degree with the performance of this great public work by the railway company and by its new construction company and agent, the Ecuadorian Association, Limited, although they must be charged with knowledge of the situation, and must have foreseen that the securities already pledged with these bankers for the necessary advances might be pledged with other bankers, or used in some other ways in financing the enterprise. The first construction company had abandoned the work and surrendered its position to a successor, who had made new arrangements for carrying on the work. One pledge of securities to the Colonial Trust Company of New York had been substituted by a pledge of the same securities to Messrs. Glyn & Co., the debt to the trust company being paid by the $250,000 which Messrs. Glyn & Co. then advanced. The complainants, without giving the slightest notice of their grievance to the railway company or to the government of Ecuador, stood by, and, so far as they were concerned, apparently assented to the substitution of the Ecuadorian Association, Limited, for the Ecuador Development Company in the business of making the large financial arrangements with capitalists in Europe, based upon these bonds and stocks and the doing of the actual construction work with the moneys so procured. The complainants stood by and permitted all the bonds, preferred stock, and also the common stock, to become more and more involved by advances of money in the accomplishment of the work of the railway company and of the government of Ecuador.
It distinctly appears, from the allegations of the bill and of the prospectus annexed thereto, and marked "Exhibit B," and "made a part of the thirtieth allegation of the bill," that the Ecuadorian Association has carried on the work of building the railway since it assumed that work in September, 1900, to such an extent that it has earned several millions of dollars in bonds and preferred stock, which apparently have been held by Messrs. Glyn & Co. as security for large advances used in this construction work. There is no evidence presented in this case to show that the Guayaquil & Quito Railway Company was in any way implicated in the illegal conduct of the Ecuadorian Association in respect of the transfer of the assets of the Ecuador Development Company under the contract of September 6, 1900This is not a case where the railway company and its construction company can be treated in equity as constituting one party who has conveniently assumed the disguise of two separate corporate existences. The government of Ecuador not only owns 49 per cent of the common stock of the railway company, but, according to the statement of counsel for complainants, nominates a certain proportion of the board of directors. We are saved the necessity of discussing the distinctions between notice to directors and notice to the corporation, because there is no allegation that any director of the railway company ever had notice of the complainants' grievances. It is true that on September 26, 1900, the railway company made a new contract with the Ecuadorian Association, which, manifestly, recognized the Ecuadorian Association as the successor to the Ecuador Development Company. But it does not appear that the railway company knew that the Ecuadorian Association was a stockholder of the Ecuador Development Company, or as such stockholder had procured this transfer to itself. The infirmity in the title of the Ecuadorian Association, Limited, under the contract of September 6, 1900, seems to have been latent. I think, therefore, that the railway company stands before this court as an innocent party. It would seem that the complainants must base their demand for an injunction against the railway company upon the theory that it is not equitable for the railway company to go on aiding the Ecuadorian Association to acquire securities by a title fraudulent and voidable as against the interests which the complainants represent. The railway company is thus placed somewhat in the position of an innocent depositary who is or ought to be ready and willing to pay over property in his custody to the rightful owner, whoever that owner may be. The ease, therefore, presents distinctly the question whether a preliminary injunction can be issued which will benefit the complainants and at the same time will not greatly injure the interests of the railway company. The complainants for nine months have, as we have seen, acquiesced in all that the railway company has done in recognizing the title of the Ecuadorian Association, Limited, and the complete substitution of that association for the Ecuador Development Company. Now, however, the complainants suddenly declare that the railway company must stop aiding the wrongdoer, and these are the circumstances which are presented as the grounds for this demand. The Ecuadorian Association, Limited, has recently advertised a new scheme for carrying on its business and accomplishing this construction work in South America and getting out of that work the great profits which have been the object of three successive construction and financial companies. This scheme I shall not state in detail. The important feature of it is a mortgage of all the "securities acquired or to be acquired" under the construction contracts, to secure an issue of £1,000,000 par value of 6 per cent. debentures, in denominations of £100 and £200 each, which debentures shall be payable to bearer, and shall be offered for sale to the public at 90 per cent. of their par value. The prospectus of the Ecuadorian Association, which the complainants make part of their hill of complaint, sets forth that the debenture bonds are to be issued "for the purpose of procuring all the additional capital required for the completion of construction and equipment of the railway." No effort is made to show that the proceeds of this issue of debentures are to be applied to any other purposes than those set forth in the prospectus, nor is it even alleged that as a matter of practical finance the issue of these bonds is not wise and prudent The bill alleges, on Information and belief, that the Honorable Sidney Carr Glyn, Alfred S. Harvey, and Frank Dawes are the trustees designated in the deed of trust from the Ecuadorian Association, Limited, which is to secure the proposed issue of £1,000,000 debenture bonds. The whole transaction and all the parties to it are foreign to the state of New Jersey, excepting so far as the defendant the New Jersey corporation, the Guayaquil & Quito Railway Company, has some part in carrying out the scheme, by reason of its control over the transfer of its stock. The affidavit of Mr. Mumford, one of the complainants, alleges that the complainants have notified the defendants who are directors of the Ecuadorian Association, and have also notified the abovementioned three proposed trustees under the deed of trust, that the Ecuador Development Company is the rightful owner of all of the securities sought to be pledged to said trustees, but that, notwithstanding such notice, the Ecuadorian Association and the three trustees are proceeding with the issue of these debenture bonds. The complainants practically make it appear that the three trustees are equally guilty with the Ecuadorian Association, Limited, of carrying out a scheme for floating £1,000,000 in bonds secured by a pledge of property acquired by fraud.
Although, perhaps, the dates do not distinctly appear, very shortly after this plan of raising money by an issue of debenture bonds became known to the complainants they applied for an injunction in their suit then pending in the United States circuit court for the Southern district of New York. On June 3, 1901, the Honorable E. Henry Lacombe, United States circuit judge, made an order to show cause, with a restraining order, returnable on Friday, June 7th, "requiring the defendants in said action to show cause why a preliminary injunction should not issue restraining them from making an issue of one million pounds debenture bonds secured by the securities which complainantsin said action were seeking to have re-transferred to the Ecuador Development Co." On June 4, 1901, a motion was made before Judge Lacombe to vacate the restraining order, and thereupon the restraining order was vacated, upon conditions that the defendants should give to the complainants, i. e. to both the complainants in this suit, a bond in the sum of $50,000, as partial security for any judgment that the said complainants might be able to recover in said action, which bond it appears was in fact given. The complainants' sole objection to this course of judicial action in the United States circuit court is expressed in the statement "that the complainants consider that the bond provided by the order of the Honorable E. Henry Lacombe is inadequate to fully protect said complainants against the effects of said debenture issue." The bill further alleges that it is because of this inadequacy, in their judgment, of the protection afforded to them by the United States circuit court that they have filed their bill in this cause for an injunction in New Jersey. The bill prays that the contract and transfer of September 6, 1901, may be set aside, that the defendants may be enjoined from transferring to the trustees under the proposed deed of trust any bonds, stock, or property of the Guayaquil & Quito Railway Company, or any interest therein received by the Ecuadorian Association as the result of the transfer of September 6, 1900, or under any subsequent contract, etc. It is unnecessary to specify the minute and comprehensive terms of the injunction which is asked for. The bill seeks to stop all the transactions of the various parties defendant which affect the bonds and stock of the Guayaquil & Quito Railway Company under the present arrangements by which the construction of this railway line in Ecuador is now being carried on. The injunction prayed for here, if it could become operative, would put a stop to the whole scheme of financing this enterprise which the Ecuadorian Association is engaged in promoting by the proposed issue of debenture bonds. Apparently recognizing that a court of equity might pause before issuing such a destructive mandate, the bill also prays that the Ecuadorian Association, Limited, may be restrained from paying out any profits to its shareholders in the form of dividends derived from the construction or operation of the railway, and that, in the event of the inability of the Ecuadorian Association to retransfer to the Ecuador Development Company the securities in dispute, "the amount of damage and loss" sustained by the Ecuador Development Company "by reason of the fraudulent acts, transactions, contracts, and doings of the defendants herein, or any of them, may be ascertained by the decree of this court," and paid into the treasury of the Ecuador Development Company "by such of the said defendants as shall be found liable therefor." Upon the filing of the bill in this cause on June 12, 1901, an order to show cause was made upon all the defendants, including the Ecuador Development Company, the Ecuadorian Association, Limited, the Guayaquil & Quito Railway Company, William Lyon Mackenzie, and others, officers and agents who took part in the transaction of September 15, 1900, the three trustees under the deed of trust to secure the proposed million pounds of debentures, and the eight partners in the banking firm of Glyn, Mills, Currie & Co., as well as others whose relation to the litigation need not be particularly defined. All of these defendants were required to show cause on June 17, 1901, why an injunction should not issue according to the prayer of the bill, and such further relief granted as may be just. Upon the return day, June 17th, the complainants appeared, having succeeded in serving only the two New Jersey corporations, the Ecuador Development Company, and the Guayaquil & Quito Railway Company, who appeared by counsel, who announced themselves ready for the argument. The complainants by their counsel refrained from asking for any extension of the order to show cause in order to serve it or give notice of it to the other defendants, but elected to abandon their motion against all the other defendants, including the principal wrongdoer, the Ecuadorian Association, Limited, and thereupon the motion for an injunction against the railway company was argued, counsel for complainants admitting, what is apparent, that no injunction against the Ecuador Development Company could be of any advantage to their clients. The principal wrongdoer, the Ecuadorian Association, Limited, whom the complainants attack in this suit, and practically all the property which they seek to recover, are far beyond the jurisdiction of this court, and, as the case now stands, could never be affected by any order or decree which might be made herein. Apparently the only operation of such order or decree would be upon the Guayaquil & Quito Railway Company, the innocent party. The slightest reflection will show how meager and inefficacious would be any relief against this railway company on behalf of the complainants as compared with the grievances which they set forth in their bill, and the relief for which they pray therein. The single question before this court at the present time in this cause is whether a preliminary injunction in any form should issue against the Guayaquil & Quito Railway Company. In my judgment it is not necessary to decide many important questions which have been raised upon the argument of this motion in order to reach the firm conclusion that no such injunction should issue.
1. The laches of the complainants in waiting nine months before seeking to arrest this vast and complicated enterprise, is, in my judgment, without explanation and excuse,'and of itself constitutes a bar to any preliminary injunction, if not, indeed, to all injunctive relief at any stage of this cause. By their conduct they justified the government of Ecuador and this railway company, in which the government of Ecuador is largely interested, and the bankers who were risking large sums of money on the successful accomplishment of this great work, in supposing that all parties interested, as stockholders or otherwise, in the Ecuador Development Company, acquiesced in the substitution of the Ecuadorian Association, Limited, precisely as the Ecuador Development Company had itself been formerly substituted for the South American Railway & Construction Company. Some one had to do this work. Some agent—some construction company—was probably a necessary factor; and it is plain that the work would not wait. Just as the Ecuador Development Company made a new contract with the railway company when the South American Construction Company was cast aside, so the Ecuadorian Association, Limited, made a similar new contract with the railway company on September 26, 1900, a few days after the Ecuador Development Company had been displaced and rejected. If the Guayaquil & Quito Railway Company could upon any theory be charged with notice of the defect in the assignment and conveyance of September 6, 1900, which I do not think can be conceded, the failure of the complainants, or any other stockholder of the Ecuador Development Company, to notify the railway company of any protest or objection, would, in my judgment, fully justify the railway company in accepting the substituted services of the Ecuadorian Association. The railway company and the government of Ecuador could not stand idle and wait for objection to be made to this transfer of September 6, 1900, if, indeed, they were bound to discover and take notice of the fact that the ratification of the transfer by the stockholders had not been unanimous. From the point of view of the railway company, its agent upon whom it depended, the Ecuador Development Company, had abandoned its contract, deserted its post, and turned over, so far as it could, the discharge of its duties and the performance of its contracts to the Ecuadorian Association, Limited. The bill of complaint intimates that, while the Ecuador Development Company was able to go on with the performance of its contract, the Ecuadorian Association, Limited, and its agents, so managed the business of the Ecuador Development Company that same colorable excuse might be presented for the abandonment and substitution which were made; but neither the government of Ecuador nor the railway company were responsible for the causes which lead to the change. The fact was that their construction company abandoned its enterprise and surrendered its contracts to another construction company without the dissent of a single stockholder, so far as the railway company and the government of Ecuador had any notice. But even if it might be deemed that the government of Ecuador and the Guayaquil & Quito Railway Company, before accepting the Ecuadorian Association, Limited, as the assignee of the contracts of the Ecuador Development Company, were bound to learn of the proceedings of the stockholders of the Ecuador Development Company, and took the risk of the action of the stockholders in ratifying the contract of September 6, 1900, not being unanimous, I do not think that we are led to any different result in dealing with the complainants' laches. In my judgment this is plainly a case where the dissenting stockholder cannot simply make his protest and then remain silent while large expenditures of money are being made and new rights are being created, all predicated upon his apparent acquiescence,—acquiescence which he has it in his power at any time to give in fact, even though he leave his protest on file. It is true that the complainants promptly commenced their action in the United States circuit court for a rescission of the contract of September 6, 1900, "and for other relief," probably including injunctive relief, but, as we have seen, they did not make either the Guayaquil & Quito Railway Company or Messrs. Glyn & Co., the bankers, parties to this action, nor does it appear that the railway company, the bankers, or the government of Ecuador had notice of it. The complainants, however, refrained for nine months from undertaking to obtain any injunctive relief in that action. It may be remarked, without pursuing this subject further, that both of the complainants' suits, the one in the United States circuit court and this suit in this court, may yet be prosecuted for a part of the relief for which the complainants pray, without even giving the complainants injunctive relief of the kind for which they now apply. That the complainants in a case like this cannot rest upon their protest, but must seek the summary interference of a court of equity promptly, if such summary interference will be afforded to them at all, is illustrated by a large number of well considered cases. Great Western Ry. Co. v. Oxford, W. & W. Ry. Co., 3 De Gex, M. & G. 341; Rabe v. Dunlap, 51 N. J. Eq. 40, 47, 48, 25 Atl. 959; Kent v. Mining Co., 78 N. Y. 159; Oil Co. v. Marbury, 91 U. S. 587, 23 L. Ed. 328; 4 Thomp. Corp. § 4534; 2 Cook, Corp. (4th Ed.) p. 1586. Referring to cases of the class to which the above cited belong, Vice Chancellor Van Fleet in Rabe v. Dunlap, supra (page 47, 51 N. J. Eq., and page 962, 25 Atl.), says: "The doctrine they establish is that, where an act is done openly, and especially on notice and without evil intent, though clearly in excess of the power of the corporation, a nonassenting stockholder willnot be allowed to pause to speculate upon the chances,—to wait until he can see whether such act is likely to result in profit or loss,—but, to be entitled to the summary interference of the court, he must ask for it promptly, and before the act of which he complains has become the foundation of rights or equities which must be destroyed or greatly impaired if the act be nullified or undone. Or, stated with greater brevity, and in its simple essence, the rule is this: If he wants protection against the consequence of an ultra vires act, he must ask for it with sufficient promptness to enable the court to do justice to him without doing injustice to others." In September, 1900, the complainants in this case had the option either, on the one hand, to acquiesce in the transfer of September 15, 1900, so fatas third parties were concerned, and to allow the Ecuadorian Association, Limited, to take the place of the Ecuador Development Company, in the construction of this railroad and the large financial operations connected therewith, while they prosecuted their action for accountings and damages from the wrongdoers, or, on the other hand, to come forward promptly with a definite plan, by a receivership or otherwise, for carrying on the complicated business which a large majority of their costockholders had attempted to transfer to the Ecuadorian Association. The complainants were bound to act before new rights were created, new contracts entered into, larger advances of money made by the Guayaquil & Quito Railway Company, Messrs. Glyn & Co., the government of Ecuador, and other parties who had taken no part in the transaction of September 15, 1900, of which the complainants complain. The complainants exercised their option. They made no effort to interfere with the Ecuadorian Association, Limited, while it proceeded to act as the assignee of all the rights of the Ecuador Development Company. It is true that the complainants commenced a suit to annul the transfer of September, 1900, in which suit, at the end of perhaps a long litigation, they might possibly get an accounting for profits from the Ecuadorian Association, Limited, and an assessment of damages against that corporation and other parties. Presumably they prayed for an injunction in that suit, but they moved for no injunction for nine months, and gave no notice of the existence of their suit to the innocent parties who were entering into large contracts and risking large sums of money upon the faith of the title which the Ecuadorian Association, Limited, had apparently acquired. It would be very inequitable to allow the complainants to hold their option for nine months while they experimented with the situation and studied the question whether they could probably get a better result to themselves by practically assenting to the transfer of September, 1900, so far as third parties were concerned, or by attacking that transfer and all after-acquired rights based upon it, whenever they saw fit to do so by motions for injunctions and receivers.
2. A consideration of the advantage to the complainants from any possible preliminary injunction against the Guayaquil & Quito Railway Company in this suit, as compared with the probable injuries which would flow from such injunction to this railway company and other innocent parties, might of itself determine this present application. As we have seen, the principal subject-matter of the suit, the bonds and the stocks, as well as the principal wrongdoer itself, the Ecuadorian Association, Limited, are beyond the jurisdiction of this court, and apparently hopelessly so. At any rate, they are not brought within the jurisdiction of this court on this present application, and there is no indication that this situation can be changed. No matter what injunction might issue against the railway company, it does not appear that the making of the deed of trust to secure the million pounds of debentures or the issuing of those debentures to hundreds of innocent investors throughout Great Britain would be interfered with. It is not shown that any injunction against the railway company could afford any direct substantial aid to the complainants in securing the relief for which their bill is filed. Such an injunction could apparently aid the complainants only by working such loss and injury upon the parties who are alleged to be the cause of the complainants' grievances as to constrain them to accede to the utmost demands for relief which the complainants might see fit to make. This court might not hesitate on that account to issue an injunction to enforce any well-established right of the complainants, provided the wrongdoers only were injured thereby. But such is not the case. The injury to the railway company and to other innocent parties from any restraint upon the issue and use of these bonds and stocks in the course of this great construction work and the financial operations connected with it is quite apparent it is also highly probable that any injunction against the railway company would do the complainants themselves a great injury. In fact it is difficult to see how, if all the parties defendant named in this bill were brought into court, a preliminary injunction would be advantageous to any party interested in the securities in question. The complainants, although disaffirming the contract of September 6, 1900, by their prompt suit in the United States circuit court, made no effort to notify parties who were vitally interested in the performance of this large contract, and made no effort by a preliminary injunction to restrain the use of all these securities by the substituted financial agent or construction company, the Ecuadorian Association, Limited, for the prosecution of the work out of which any profits toany party must finally come. The complainants take the position that they might well pause and do nothing until nine months later, when the issue of these debentures was threatened and the mortgage made to secure the same. But no effort is made to show that any situation is created by the issue of these debenture bonds differing materially from the situation which existed at the time of the contract and transfer of September G, 1900. In September, 1900, the complainants allowed these bonds and stocks to be used by the Ecuadorian Association, Limited, for the accomplishment of the work for which the bonds were specially devoted by the government of Ecuador, while they contented themselves with filing a bill in the United States circuit court, which eventually might end in a decree awarding them the profits, or a share of the profits, which would result from the construction of the railway by the Ecuadorian Association, Limited, and perhaps also a decree for damages. The proposed new pledge of the bonds and stocks in litigation to secure these debenture bonds does not seem to differ materially in character or purpose from the former pledges of these bonds and stocks. The proceeds are devoted to the construction, and equipment of the railroad No charge is made that there is any wrongful diversion of these proceeds. The inability of the court of chancery of New Jersey to administer any actual relief to the complainants by way of injunction alone, even if all the defendants named in the bill were brought into court, seems to be recognized in the brief of counsel for complainants where it is stated that such injunction "need not in any way really stay the progress of the enterprise," and that the "complainants are quite willing, and desire, that an officer of this court shall proceed with the work of construction under these contracts, and that all these securities and property should be transferred to him for that purpose, and for that reason complainants have prayed for the appointment of a receiver," etc. Thus the complainants reach the conclusion that the court of chancery of New Jersey would appoint a receiver to endeavor to get the control of these millions of bonds and stocks which are in the hands of bankers in England, and engage in the business of raising money on them, and with this money carry on the work of constructing a railroad in South America. The complainants might well pause in seeking the relief prayed for in their bill if they rely upon any such action of the court of chancery of New Jersey for rendering their relief or any part of their relief effectual. But, returning to the exact situation which is now before the court, which presents a motion for a preliminary injunction against the Guayaquil & Quito Railway Company alone, without regard to what might or might not be done if the other defendants were in court, it is, in my opinion, clear that the direct advantage to the complainants from such an injunction is slight compared with the probable injuries to the railway company and other innocent parties. Had the complainants made the Guayaquil & Quito Railway Company a party to their suit in the United States circuit court, or had they obtained, upon commencing that suit, a preliminary injunction upon the Ecuadorian Association, Limited, and given notice of all these proceedings to the railway company and all other parties concerned, the present situation might be very different. In connection with this branch of our inquiry it may be observed that the bill charges a personal liability on account of the complainants' grievances against large numbers of men who appear to be men of great financial strength, and none of whom are alleged to be insolvent. Suits at law for damages, both in this country and in Great Britain, as well as equitable suits in Great Britain affecting directly the bonds and stocks in question, would seem to be more efficient remedies for the complainants than this meager action in the court of chancery of New Jersey, which can operate in so slight a degree either upon the principal defendants directly or upon the property which the complainants seek to recover. It is worthy of note that apparently all the stock of the Ecuador Development Company assents to all those transactions of which the complainants complain except the 111 shares which the complainants hold. Of these 111 shares of stock, 110 are held by the complainant, Mr. Pitt, who resides in London, England.
3. The recent proceedings for an injunction in the United States court, which have resulted in giving the complainants a bond for $50,000 as security for any judgment which the complainants may be able to recover in the action in which those proceedings were taken, present a very strong objection to the issuing of any preliminary injunction in this case. Such objection is not based upon the fact that a suit for substantially the same cause of action is pending in the state of New York between substantially the same parties, as counsel for the complainants seem to suppose. It is well-settled law that the pendency of a cause in the United States circuit court in New York is no bar to the prosecution of a suit either at law or in equity in New Jersey for precisely the same cause of action between the same parties. Fulton v. Golden, 25 N. J. Eq. 353; Kerr v. Willetts, 48 N. J. Law, 78, 2 Atl. 782; Fairchild v. Fairchild, 53 N. J. Eq. 678, 34 Atl. 10, 51 Am. St. Rep. 650. But it is equally well settled, as laid down in the above-cited cases, that the defendant who is harassed by successive suits in different jurisdictions may apply to the court in which the subsequent suit is brought for relief, and the court may, in its discretion, stay proceedings, or refuse to permit final judgment untilthe prior suit has been determined. This principle has a very important application to the case before us. In how many jurisdictions could these complainants bring suits and obtain $50,000 bonds? Could they bring suit in two, or in three, or in four, or a dozen different states, and have preliminary injunctions or indemnity bonds in all? The motion for a preliminary injunction in a case like this is analogous to the attempt of a plaintiff who is prosecuting proceedings for the same cause of action in different jurisdictions to hold the defendant to bail on a ne exeat or a capias ad respondendum, in each suit. While the decisions on this subject are somewhat variant, the established American doctrine seems to be that such double harassment in different jurisdictions within the United States should not be allowed, at any rate where the bail in the different courts is equally beneficial to the plaintiff. Mitchell v. Bunch, 2 Paige, GOO, 620, 22 Am. Dec. 669; Walsh v. Durkin, 12 Johns. 99, 101 Insurance Co. v. Meshural (N. Y.) 7 Rob. 308, 314. The older English view, which ignored the prior arrest in the foreign jurisdiction, is illustrated by the case of Maule v. Murray (1798) 7 Term R. 470, and its modification is indicated in Imlay v. Ellefsen, 2 East. 453 (1802). Lambert v. Moore, 6 N. J. Law, 131: In this case our supreme court, in 1822, decided that the rule that bail shall not be required in an action of debt on a judgment if the defendant gave bail in the action in which the judgment was recovered applied in full force where the judgment was recovered in Pennsylvania and the arrest and holding to bail had therefore taken place there. In Insurance Co. v. Meshural, above cited, Judge Jones, in the New York superior court (1868), after examining the authorities, educes the principle that the permission to bring several actions for the same cause in different jurisdictions at the same time does not carry with it "the right to use in each jurisdiction all the remedies and processes allowed by its laws to be used in aid of such action." The complainants in their New York suit brought the guilty party—the principal offender—into court, and the matter of a preliminary injunction, the terms upon which such injunction should be granted, and the conditions upon which such injunction should be denied, were litigated between the parties. It was decided by the court that at that time, in the then condition of affairs, if the principal defendant, who is responsible primarily for all the complainants' grievances, would give a bond for $50,000, equity did not require that any preliminary injunction should issue. The bond was given; the injunction did not go. This court is boldly asked, in the absence of the Ecuadorian Association, Limited, to decide that the United States circuit court made a mistake and committed an injustice. It is not pretended that there are any material facts before this court on this motion which were not before the United States circuit court. It is true that, as this motion now stands in this court, the only party sought to be enjoined is the railway company, which was not a party to the New York suit. But I do not think that this consideration makes it any the less the duty of this court, in the exercise of its discretion, to take notice of the fact of the preliminary injunction which the complainants applied for in their New York suit, brought for the same cause of action as that which is set forth in the bill filed herein. The splitting of the proceeding for an injunction does not help the complainants' case. Although the complainants, abandoning, or being compelled to abandon, their first purpose, make no motion in this cause for an injunction against the Ecuadorian Association, Limited, still the whole object and purpose which they seek in endeavoring to enjoin the railway company is to reach the Ecuadorian Association, Limited, and interfere thereby, as far as possible, with those transactions which they vainly endeavored to enjoin in the New York suit. Instead of the preliminary injunction stopping these transactions, the complainants in their New York suit got a $50,000 indemnity bond. This present application for an injunction against the railway company—the only injunction which this court has jurisdiction at present to grant— is manifestly a second harrassment of the Ecuadorian Association, Limited. The United States circuit court in New York has acted upon the whole question of the preliminary injunctive relief which the complainants seek against the Ecuadorian Association, Limited, and the complainants stand with the fruits of that action in their possession in the shape of a $50,000 indemnity bond. That court adjudged that the Ecuadorian Association, Limited, might, pendente lite, upon giving the abovementioned indemnity bond, go on and do the things which the bill of complaint in this cause seeks to have enjoined. In one sense the Ecuadorian Association, Limited, bought the right to be free from the injunction which the bill in this cause prays for. The complainants, without offering to surrender their indemnity bond, first endeavored to obtain from this court the very injunction against the Ecuadorian Association, Limited, which they had endeavored to obtain in their New York action. Failing to bring the Ecuadorian Association, Limited, into this court, the complainants now move for an injunction against a party who was not brought into the New York suit, to restrain such party from aiding the Ecuadorian Association, Limited, in doing the things which the adjudication of the United States circuit court in New York left the Ecuadorian Association free to do. This is substantially the situation. The injunction against the railway company is to restrain the doing of things which are manifestly collateral or incidentalto or parts of the main transaction which the Ecuadorian Association, Limited, in the judgment of the United States circuit court, should be allowed to do upon a condition which it has performed. Under all the circumstances of this case, the New York proceedings, which resulted in giving the complainants this large indemnity bond, which, according to the bill of complaint, stands as "partial security for any judgment that the said complainants might be able to recover in said action," constitute of themselves a strong reason against the granting of any preliminary injunction against any of the defendants in this cause.
I shall advise an order denying the motion for a preliminary injunction, with costs.