.HILI{
GLASGOW
R.
., "
.
( (Circuit CO'UIT.t; D. Kentueky;August 17, 1888;); '.' .i
1.
'U'tiJWlioBsi()l' OORPORATlON. ' , "'",','11',1"" "", r,'2I' Bt,';"U,.S.'c.876. limlt,ing 't-h.\l",jUriSdietion of Oire,uttcourts to suits in 'lJ I.' fCb"'the'matter in disputeexceeds:$2;OOO, the oircuit cOlll:'t·hasjurisdlctionof a 'i , l)i'Ought·byastockholder for thebel1etlt of the corporation atldanl other stock· ." .Millers wlwmar choose t/) Mine in, torestl'8inthe diredtors from 'l>aYing ouUssets of the corporation to the·' amount of '100,000, though the comPlainant holds less than '1,000 worth of stock,the matter in dispute in such, case.befug the wrong done, :. ·i1ihe,oOrporation.· <.: . " 'W '.
IROUIT,"
C,9J!R'TS.--;rURISDIOTION-U-
AMOUN1'-BILL TO RESTJtAIN,':PATtN.,·GO'l7'l' AS8BTI
9. CONSTITUTIONAL LAW-AlmNDlIfJ!lNTOI',CllAM'ER&-RIGHTS 61f. BTOO1dl0LDERS. Under Gen. St. Ky. c. 68, § 8, which reserves to the legislature power to amend
or repeal any corporate charter granted by it, tl!at, 1\0 01' repeal shall impair other rights previously vested," the legislature'has no POWlll,' to amend the charter of a l'8ilroad corporation So as to 'direct that the proceeds arising J\(lad shall, aftIlrpayingth,e be applied from the lease or in payment of muniCipal Donds given In exchange for corporate stOck issued to the municipality, since such application of the corporate funds would be unconstitu: . t,ionalj1-.$ inter1ering thi:l vested rights, of the otll.llr ' OJ!' !\P;NJ;>S B"t CoRPORATION. ',',., " ,: "
I$.
"
, 'Such'application of the eorporate funds is not validated fact that the cor· poration lhQS indorsed the bonds, since such indorsement does not make the corpo-. ; debtor. \ . ' , ,. " , ," . ''o " :A stOCkholder may enjiiill' the
mlsapplicatioll of corporate fulids under an agree. intll' !>efore hls, stock, was iBSUeda where ,9-e had a ve!jted l'ightw restock before pla e., ' ", ' ('
Oll' CORPORAT, FUNDs.
,deD;lu'#,erto bill. · ': ; ' : :i;' , :, & Ha7'r'l8, f()r complalnl:l,Qt., PorterI!cMcQv,01!J1l ant Walter Et'O,1UJ, for defendants., &
JACKSON, The a!5& in.t1l,e Glasg()w road Company, brings this suit to restrain the directors'of said company from the misappropriationl.of the fundllof:said corporation. The case ill this;;,: ,;., ,":, ,,', "r.r;h >GIl.\s,gpw, ;;IHJ,ilroa.(l ,(fpmpal1Y e of iID: act aPPl'pveci ft'411chises ,and, line: l)f road JI1, Bar,ren cqUl1ty be,. IpI)ging. to Ommty C9;rnpanY,;1\'pipl) l}ad, vious!y chartE¥:e<l, in . was mage) ,I.\pd. :the 'the J;igh!lJ,: franchisEls, : lltl1t,er ,.By, aq of thll 2p;,: 1&69, ,the,Glllsgow Railroaq ,Wlleiso,lll.menqed te;l, out put: of might to. of. :8,y, ;the; t,O:wn; lof the Q9u,n,tyof :aarrau) \Vere 1;Ipon,p,IJOWJ;'M9,te,Qi' the to for the :9f;AAid, , the, ,to'fP. of Glasgow 1 ;Q.QP shares, 1 o(llaid county. to sharesj said shares being each for tht sum 9f$25,' "SJ¥Q '" , .i
t· _ '/
when the terms !,f the bonds of sajd 'town and precinct' respectively. Said bondl!. were to be made to the president and directqrs sail;l. Glasgow"na,.ilroad Company, and were made negotiable by tbeir:wdttenindorsement,were to be taken and received by the company in satisfaction of said SUbscription; and were to mature in 20 years after dllte, bearing 7 per .oent. interest, payable semi-annually. In pursuariceQfsaid authority, ,and after proper vote of the citizens thereof, said were duly said tow-nand .precinct, and the bonds in Pltyment thereof were issued to the railroad company, and were by ,the president and directors thereof indorsed and negotiated. The bonds so Issued by'tbe town of Glasgow, in payment Of its subscriptioritothe capital stock qfthe road,amounted to $25,000; while those issu.ed by the ,precinct iripaymerit of its subamounted to $100,000. Stock of the railrbad company for said amounts,)Vas issued to the town of Glasgow alld .precinct No.1 of Barren county, respectively, for said subscriptions so made ,and paid for, and said town and precinct thereby became and were regular stockholders in said railroad company for said Bums. . , ,1.. Other subscriptions to the capital stock of the company were mape by individuals to the amount of some $9,000. Said amendment of 1869 further provided that; for the taxes levied and paid by the tax-payers of said town and precinct to pay the interest on said bonds, said taxpayers should also be entitled, to be stockholders in the railroad company to the extent of or for the amount of taxes so paid. Tax-receipts were receipts were made negotiable. to be issued to the Certificates ofstock were duly issued to the town of Glasgow and precinct No.1 of Barren county, to the individual subscribers, and to numerous holders of such tax-receipts prior to the year 1880. The railroad company maintained its organization and operated itaHne ofroad, under said original and amendatory acts, until April 8, 1880, when another amendment of its charter was made by the legislature. Said amendment, so far as material to this case, was as follows:
or
. "Section 1. That at the annual election of directors of the Glasgow. Railroad Company, hereafter held. the judge of the Barren county court aJ:!d the two justices of the peace for the Glasgow precinct of said county shall hate authority, in conjunction. to appoint on behalf of said precinct live persons, and the Glasgow city council two persons, to act as directors of s'aid company fOT"one year. and until tbeirsuccessors are qualified." , "Sec. 4. That the, president; and directors of 8/lid company. are hereby authorized and empowered to contract with any other. incorporated company,-or with indh;iduals, for the sale of sil.id road, and the property, real and personal, and the righ'ts, franchises, and privileges, possessed and owned by said com. pany, or to contract with another company or individuals for either leasing their said road,: or for uniting and consolidating with such other .company upon such,termsand conditions as may be agreed upon; and, in case of such sale or consplidation, said p,resident and directors are hereby autborized. to convey by deed to tbepurc\laser, or to sucb comp!'IlY as may unite and Bolidate witb the Railroad Company,the"title. thereof to said property. and. by virtu,irof said 'the franchises, rights, and grantee shall have, own, and control all the property, -rights,and
FEDERAL REPORT.ER,
vol. 41.
now, held, owned, and hy SI'W Glasgow Railroad Company: provided, the proceeds of such sale, ,lealie',9r consolidation shaH be first applied towards the liquidation and of the bonds issued by the Glasgow precinct and by the town of GJasgowto aid in building said road; and, in case of such consolidation, proviSiolls3nd stipulations sball be first made for the discharge of debts due' by said com.paey. and tbe proceeds, profits, or income from such sb,a,lLbe then applied tow,ards the payment of said precinct and town bond,S: ,provide<l,furtber, that said president and directors shall, by virtue of this act, ha,ve 110 autbority wbl'tever, either to sell, orconsoJidate and'unite with another lease for a.longer time than six company, until the question of iicceplling and confirmIng such sale, lease, or the ,,"ote of the qualified voters of said preconsolidation be first I(inct, and a majority of vomat the precinct voting"and a majority of the voter!! of ,said city vqting, Ilballvote in favor thereof. That, for tbe purpose the wish of of said precinct and of said city, it sball of be the duty of the judge of the ,COUtlty court, when requested to do so by said president and directors, to ' datuie to be printed and poated, for at least ten days, a notice of such electiQn, in which shall be set forth the terms, conditions, and stipulations of such sale, lease, or consolidation, aa may be the case. Thllt said election sball be: q;eld, and the vote of the people of said precinct and of said town be taken, at tbe court-house in Glasgow, after reasonable qualified, as now reqUired by law in case notice by the officers Qf election of county or stat(lofficers." Under and by virtue of the conferred by said amendment the town of Glasgow and precinct No 1 thereafter alone elected the board of directors for the>company, and the directory so elected by these two stockholders subsequently leased the road to the Louisville & Nashville Railroad Company for aw,J;m of years, at a stipulated annual rental. This rental, as received, was first applied to the paYlQent of the debts of the company, which were extinguished by the sUtl;lmerof 1885,aftet which the directors commenced applying the proceeds or rental arising from the lease of the road t;otlle payment of the, bonds issued as aforesaidhy the town of Glasgow anq aa,idprecinct IS"01, pro rata. i ,This application of the, funds is tbe,1Disappropriation or part of the direct()ry' which the bill combreach of trust and duty on of, and. seeks, to ,!he corn,plainant alleges that he ,was a sald,town and preclllct fratU 1870 to 1887; that paiq. taxes to meet on said bonds issued by said to\yn and precinct in paYJU,entof theirsubscriptions to the capital stock of; said that ,by reason oLhis payment of such taxes he held tax-receipts which entitled himt<!>the rights of a stockholder; that he also purchased other were under the law convertible intostock; and that he was,in addition to said tax·receipts, the holder ofcei'tifica,tes of insliid r/!-iltoad company wbEm said directors, in 18&5, commenced applying tbecornpany's funds to, the payment of the issued as /!-foresaid by .said -town and precinot. He alleges that beicomplained of the action of said directors, in so appropriating the company's assets., as being illegal and unauthorized by any validl/iw,and urged'arid requested said directory to desist from so bui qave have steadily and persistently refused to re$pectpif;l .. ,a:nd 4.ave continued, and are continuing, to so ap-
RILL fl. GLASGOW R. CO.
613
propriate the company's funds as received, in disregard of the rights of himself, and other minority stockholders; that said town and precinct, holding. a large majority of the stock, have the exclusive control of the company's affairs, with the sole and exclusive authority under the amendment of 1880 to select the seven directors of the company, and are thus wrongfully applying the funds of the corporation to the payment of their private debts incurred in obtaining the stock, which now enables them to assert the power of misapplying funds,belonging equally to all the stockholder's, to their exclusive right and benefit. The complainant further alleges that said directors and stockholders refuse him any relief, or to change their action in the premises, after repeated applications on his part; that he brings this suit without collusion, for the benefit of the company, and of any and all stockholders who may choose to accept the benefits thereof; that the funds of the company already so misapplied by said directors amount to over $15,000; and that said bonds to that extent have been taken up with the means of the company. It is further alleged that, if said action and ]5roposed C'.ontinued action of the directors is not enjoined, the company's assets will be used and appropriated to the payment of the remaining outstanding bonds of said town and precinct, which are $100,000 in amount. The complainant further alleges that on the 23d April, 1887, he surrendered to the company all his taxreceipts, original and assigned, and all his certificates of stock, and then received from the company certificates of stock, for 387 shares, which, at $25 each,aggregated the sum of 89,075, .as the amount of his holding. The bill seeks to have the bonds already taken up declared assets of the company, and to restrain the directors from making any fur.ther payments in that direction. To the bill as amended, and embodying the foregoing allegations, but in more detail, the detendants have interposed a demurrer, setting up two grounds of defense: 1. That the amount involved is not sufficient to give this court jUTisdiction. The bill having been filed since the act of March 3, 1887,· (24 St. U. S. c. 373,) went into operation, the position assumed by the demurrants is that the complainant's interest in the litigation or controversy must amount to the value of $2,000, exclusive of costs and inter.e&t, in order to confer jurisdiction upon the court, and that, as it distinctly appears from the bill that such interest of the complainant does not exceed half that amount, the suit cannot be maintained. This position is not well taken. It overlooks and mistakes the true theory and principle of the bill, which is not the assertion of the complainant's private rights, but rather those of the company in which he has an interest. When suit is necessary to enforce corporate rights to avert wrongs threatening the corporate interests, the general rule is that the suit m.ustbe brought by the corporate management in the nama of the corporation. Individual shareholders. ordinarily are not the proper parties to sue or defend On behalf of corporate interests. It is, however, well settled that if the corporate management refuses or fails to enforce corporate interests is corporate rights, and an irreparable injury to.
threatened; asharebolderj! in: 'a ,ease'where the' (j()'tportttion itself'would .be entitled to ,an injilnctioti, ;nlaybring suit, on: behalf of himself and others interested: who maY'joitf, .to enjoin the thtea:tenetl'injury. I 'Under the ninty-fourth ,eqllity:J.!ule, and the of the supreme 'court in lIa'W68 v. Oakla.nd; l04U.8. 450, the' sharehold6r so interposing required to set forth in his for the protection bill theeffortSne,has made, 'to hlduce the corporate management to act or 'change,itsa<lti'(jtdnthe'matter'compla;ined of, andmu$tallege its failure or refusalto 8Ue'j di\'d t11Ust malte theiCorl>tlration Ii party defetidant to the auit. ,The Irightof the stockholder to sue under such, circumstances' was Dodge 'V.' WoWJey,18 Hmv:33L In that case, directors of: a bank hiivingdeclined to enjoin the> collection of an illegal tax under circumstances"th,*t,made' their refusal a breach of trust; a 'shareholder was held to be 'entitled to maintain the Buit. The princi.. pIe announced in this ease has repeatedly followed a.nd applied by thesuprenie oourt. In Davenport v.: Dow8, 18 Wall. 626, the court say that "such It :suit can only be maintained on t.he ground that the rights of the corporation are involved. . 'Fhese rights the individual shareholder is allowed to; assert in behalf' of- hirhself and assooiates, because the'di" rectors of the corporation decline to take the proper steps to assert them. * : The relief is askedori behalf of the cor.poration, not the indi:"idual shareholder, and if it be' granted the oomplainantderives only an incidental:benefit from it." It is the province and' duty' ofth'e body corporate or corporate management to'protoot,the interests- of,all the shareholders against the consequences of lllleonstitutionalaction on the part of the state. When, therefore, the corporate management fails or neglects, after proper, request ord:emand, to act in rights and interests, a. shareholder' may'institute and maintain a suit for that purpose, making the corporation and its directory parties defendant. In such cases it is not necessarY' :fo1' the sharehdMer to show that his private interestS or damage, aotuaIor'threatened, an1()unts to the sUm: which is required to give the federal courts jurisdii:ltiGt1';: That jurisaiction is tested by the value of theob.jeet to be gained by the suit, as was held by the 'supreme court in Ra1lu1a,i! 'Co; v; 485. . Now, applying those rulest&' the present case; the corporate rights and and interests 'which the bill seeks tOfl,ssert and pi-otect' against threatened breaches of trust on the pl1Tt of the corporate management is largel.Y'in excess, in joint \781ue; :over the l1mount necessary to COIl fer jurisdiction.: The bill shows that over $15,000 of the corporateJunds have been a1relldyused in taking up the ,bonded indebtedness of two of the stockholders, and that the directory are proceeding and claim the right toap#y $uoh funds to the; ful'ther payment of said outstanding $100,000. If that action is not bonded warranted by law, 'if such, afiplicatlon is wrongful, and constituted a breach of truSt on' thepai-t oHne' directory, then it is clear that theobject'to be ll.ttaitled bythebill,'$o,faras corporate rightsllre is largely tin; excess 'of the amount ,required to confer jurisdiction upon
alu to. GLASGOW R.' CO. ;
thiE\QOourt. It follows that this ground of d,emurrer iSl10t well taken, and must be ovetruled and disallowed. 2. Under the second ground of demurrer, setting up, generally, a want of equity in the bill, it is claimed that by the; fourth section of the act of April 8, 1880, amending its charter, thedireotors of the company were authorized to make the application of its funds complained of. proceeds of 8uchsale, The prst proviso to said section provided that lease, or consolidation (which ,the company by said amendment are authorized to make) shall be first applied to pay off debts said company may owe, and the balance applied towards the liquidation and discharge, ratably, of the bon.ds, issued by the Glasgow'preci09t and by the town ,of ,the proof Glasgow to aid iIi building said road." This latter viso, in terms, directs the application of the corporate funds, after payfng off 'debts owing by the company, to liquidation and: discharge ratably of the bonds issued by said town and precinct in paymetit of t6'the capital stock of said railrOli:dcompany;,qand, if that of the act can 'be sustained as a valid exercise of legislative .power,it will dearly constitute a complete answer to complainant's' suit, and deprive him, and, others similarly situated, of all right to relief. The constitutionality of said provision is asserted by the defendants under the provisiorisof a general law enacted' by the legislatllreof Kentucky in 1856, which has since been in force, and isnowemhodied in section8,c. 68, Gen. St. Ky., and reads as: follows: ".All charters and grants of 'Or to corporations or amElndments thereof, enacted or granted since the 14th of February. 1856. and all other statutes. shaU be subject to amendment or repeal, at the will:otthe legislature, unless a .oontrarr intent. be therein plainly expressed: prov;ided. that, whilst priv:i1",gell and francl)isfS 80 granted may be changed Qr no amendment or repeld shall other rights previously vested." . The,charter of the Glasgow Railroad Company contains no plainly expressed intent contrary to the right thus reserved to. the to amend or repeal its charter, and it may be .conceded that such amendment or repeal may be made at the will or pleasure of the legislature, without the action or consent of the corporation. ,But the question here presented is,. was the amendatory act of April 8, 1880, in so far as it undertook to direct that the corporate funds, after paying off pany'sdebts, should be applied towards the liquidation anddiseharge of,the·indebtedness of two oUhe principal,stockholders of the company, a valid, exercise of the reserved power to amend, alter, 'or repeal the. company'scharter, or its privileges. and franchises? 'rhe!statute terms limits and confines the'power oLamendment or repeal to the "priv:ilegesand franchises granted" the and provides thatj,inliealing with. such privileges and franchises, "other rights: previously vested" shallnot be impaired. In the.8bsence of·this clearly expressed intent of the legislature not to.affeot,or impair other rights previously vested, in dealing with theprlvileges and franchises of byway of: amendment or repeal, it ie well settled by the authotitiesthat the po'W'er of the legislature, under a reservation of the right to alter, amend, or
FEDERAI:. REPORTER,
peal 'charters, 'is riot unlimited; and that urider such authority-changes and alterations cannot be constitutionally made by the legislature which private contracts or rights acquired under such charters before the of amendment or repeal was exercised. As said by Justice SWA:YNE, giving the opinion of the court in Shields v. Ohio, 95 U. S. 319324: ' , "'The power of alteration and amendment is not without limit. The alterationsmilst be reasonable. Theymllst be made in good faith, and be con· ·the scope and .object of the act of, incorporation. Sheer opprescan,not inflicted under the guise of amendment or alterathe of the reserved POWlilfS, the vested rights of property otcorporations insucb.cases are surrounded by the same sanctions and are all inviolable as in other cases." . , , G1'eenwood v. Freight Co., 105 U'. S.13-18, Mr.. JusticE! MIL;LER, speaki,ng: f«;>r the court on the same says: "Personal and 1'1:'1101 property acquired ,by the corporation d)lring its lawful existence, rights of contriLct or choses in action so acquirl:'d, and which do not in tbeir natUre depend upontbe general,Powers conferred by the charter, are not destroyed PY ,sucb repeal; and the courts lnay, if the legislature does not provide some special remedy, enfOl'ell such rights by the means within their power.' ,]her.ights of thesbareholders of such a corporation to their interestsin its property arel).ot annihilated by such a repeal. and there must remain, in tb.e the power to protect those .rights." The principle of theS6 and other decisions upon the subject of ing a reservation of power ,so to do, is that thelegislatu,remay change or modify the privileges and franchises which the state bfis, granted ,to the corporation, and whicheohCern the interests ras bestowed, efther by way"of withdrawal or'of alteration, the stf!,te may not go ttitther,and so late as to disturb, affect, or impai'rrights either of the corporation or of its shareholders, previously acquited, while the cOrporate functions were being lawfully exercised. All rights thus acquired,> of whatever character, are surrounded and protected by constitutional sanctions and guaranties higher and superior to the legislative power of amendment or repeal. . The q,emsionsln the court of appeals of this.state clearly nize these general principles. Then, in the case of Gity of Covington v. BridgeC'o.;:·10Bush, 76, the court say, in reference! to the power of amendment,: that "it is settled, by au'unbroken line of.authority that the charter of a private corporation may vest such rights in the corporat9rs and stockholders that n()subsequent legislation can impair or diminish, and it is equally as well settled that suchamendIl1ents of a charter may be made as are necessaty to carry into effect or accomplish the purposes for whicH·tlieeharter was obtained." So in Griffin v. Insurance Co., 3 Bush, 594, it is said that "the proviso [to art of 1856] was intended'to secure the rights of beneficiaries and others, vested under the charter before its amendment or repeal, and does not affect the mere power to repeal the frf;lnchises;" See, I1lso, Orr v. Bracken 00., 81 Ky. 596. The right reservedby,the General Statutes to amend or repeal privileges and franchises :conferred by the charter is one thing, but the power
BiLL ".GLASGOW R. 00.
617
to take from the stockholders or others rights or property interests, acquired or vested before such repeal or amendment, is another and quite a different thing. The first comes within the legislative authority; the second lies beyond the limits of such authority, because the legislature cannot defeat or impair other rights previously vested, which have Rprung up or grown out of such corporate privileges and franchises while the corporation was allowed to exercise the same. Applying these principles to the case made by the bill, the conclusion seems to be irresistible that the amendment of April 8, 1880, in so far as it directed that th,e proceeds arising or to arise from the sale or lease of the road should be applied, after paying:the company's debts, to the liquidation of the indebtedness of two of the company's stockholders, to theexdusion of the otherstockholdersi was beyond the legislative power. If the legislature had, under the reserved powers, repealed the charter, and given the assets and property of the company, after the payroentof its debts, to only two of its stockholders, designated by name, can it admit of any question that such legislation would have been unconstitutional arid .void, so far as it undertook to· dispose of the surplus corpomte propett)'? We think not. After the payment of debts, corporate sets, belong and must be distributed equally and ratably among·tbe stockholders therein, as the beneficial owners thereof. , This equality ,of ownership and right of ratable distribution in surplus assets of the corporation, acquired before amendment Of repeal of the company's charter, cannot be defeated or impaired by such amendment or repeal. It is a valid right of property, which does not fall within the power to deal withtlie privileges and franchises ,of the corporation. The legislature co.uld.no!jby repeal or amendment of the charter, bestow all the sur-plus property of the corporatioll upon certain stockholders to the exclusion of others; nor could it lawfully direct that such corporate property ,or funds should be applied to the payment of the indebtedness of a portion Qf the stockholders of the COIlJpany. This is what the provi80 to the amendment of April 8, 1880, attempts, and what the directory of the corporation have done, and declare they will continue to do, in appropriatingthe earnings of the company, arising from the lease of its road,to the payment of the bonded indebtedness of the town of Glasgow and precinct No. 1. Said town and precinct incurred said indebtedness in securing the stock in the company which now enables them to elect its directory and control its affairs. They could legally, as stockholders, take theirsbare of such earnings, leaving to other stockholders the right, and, after receiving such share. could apply the same to the payment of their own indebtedness. But for the legislature to empower them to select the corporate managemE'nt,and then direct such management to apply the corporate funds, after paying debts, to tbediscbaJ:ge of the indebtedness of said two stockholders, is a clear violation of the vested rights of other stockholders, and is wanting in constitutional authority. , . , It is suggested by counsel for defendants' that, inasmuch as the company had to i?dors,8 these bonds of said towa and, ,precinct at the time
FEDERAL ,'REPORTER,
vol. ;41.
'pll$dings that the l!has become liable to the: holders of said bom$' by" redsonof such' indorsement. It ddes appear that said bonds 'n0t,yet due, [and"if thtHioinpal1'y; incurredlany liability by reason of, ifB': indofseQlent ufthe bonds,;wch 'liability is contingent, aridlcannot '&Flegally 'fiixedasa settled:i1ldebtWness until. thematnrityand non·}lltytnElnt:of theboods by the maker.' from this,'iasbetween ,the.eompa6y and [said town and precinct, the latter are primarily liable for fRCe ;oftha bonds and' .interest. LEthe' 'indorsersshould' take .them up;,:it coulddemandthe'payment thereof from the maker. These rights the legislature could not'impair, undeI: the guise <ifllmending the ,cb.8l18ll.<rt could not lawfully direct the indorsers to discharge the obligMitmJfortQeexoneration :of thetnakers. Tbiswould be just asviolIathe tif rights of the other'stookholders as 'to give the.corporate funds 'to(t"o lfav:ored and preferred aiookbolders; :I think it has :been decided, I cannot MwreealljtiJie ,preeieeCe8Sei that a 'state cannot, by legi!lativeaction; secure' or ((irectr'the payment of the co'ri.1ingent liabiliriso!vent"corpc)i'atilon out"()f itS assets, nt·. the expense' or to ,and injury of 'matured, legal,andsu'bsisting, debtsofthe corporation. But, :aside wom' thiS Jeature ()f the ql1esti6n",the :attempt ,mfimPnBeUpQn:the railroad compl1nythe duty 'of liquidating' and dis'charging {the indebtedness incurred by two of dts stockholders in paying . fO!btheir stockin:thecorpom.tion:isnot aconstitutiopal exeroise oithe legislative power of ;amendmoent;:when, as in the ,present there are other· it:itockholders, entitled' tOi share proportionately in the corporate . · '. funds with the,twofavored :stoakholders. 'It f:rom the allegations of the' bill that the directors, against the pt0tesfHof'corilplaintmt, enforcing said amendment .in .favor'of sauttow'n and precinct I in 188.7. The'complainantaversthat he was' then in the 'eorparatioh, having vested rights in its as· sets:' ,He,allegeEi that he was then a shareholder, and that by virtue of his,tax,,;redeiptS,i0riginalahd purchased, he had the right to; further stock. This latter1rightisclaimedunder the twenty4irst section <)f the amendatdry.aet'of 1869rwhich provided I'that it shall be the duty of the collector of taxes' for said town to' :give to each'tax-pliyer a receipt for the amount Qf.taxes paid by him, which shall be negotiableby-indorseulentj and upou'thf1,presentationof a receipt or receip'tsamonnting to -$25, to the 'president'&ild oirectol'Sof said road, or such: officer or agent as they mayselect:,{Qr that purposefby an1,person, he sbllUbe '6ntitled to receive 'it' certitroate(oist6ck, a'nd to be entered on· the'bOob ofsaid company'as ' The holder of astoekholder\"to:,tbe 'amount ot1freceipts so the provisions of the la:w,a\l'Elsted right to an which was required to be issued to him, when he presented receipts amounting to $25.%i8 'rightcot:i1plainant had as' a· taix-payer and 'as a purchaser'of prior to the! amendment of i+'\pril S,;.1880i*rid' prior to 1885, l I 1
's'licp !indorsers; and the' legislature could lawfully 'reqUire itrHllanage'ment!, tkq:iay 'such bonds 'for that reason. . It nowhere appearsin the I
of. us.ing 'br: negotia:tingthefu; ;tbe, company' thereby. bedame, liable as
... JULL, .,. GLASGOW RoCO.
first colJ.lmenced making .the application of ·the corporate. :f1inds complained of. As an actual shareholder, whether thecertificatesi'stood in his own name or not, he oan, on behal:fof the company, cOIl.'lplainof the misappropriations as breaches of trust from the date of their comAs a tax-receipt holder entitled ,toha.ve stock certificates issued to him, and which were issued April 23, 1887, he may, on behalf of .the Corporation,complain of the misapplication of corporate funds since that date, if not before, and inbbth respects he may properly enjoin future misapplications of the company's funds. The proposition is not sound that, 80 far as the stock was obtained by virtue of the surrender' of his tax-receipts,he is precluded from allY relief, because the amendment of Ap.ril8,1880, had then! been aocepted. Its acceptance could not make it constitutional, nor defeat the right of complainant to have stock, with all the incidents attaching thereto, issued to him for said receipts; and when issued, if,not before, his right to a proportionate share of and interest in the corporate property, not previously legally appropriated, attached; and if. t4,e ,corporate management, against his protest and in disregard of his complaint, continued, or threaten to continue, a misapplication of theoorporate funds, he"IIl/!-Yinvoke the aid of the court to restrain such continued breach of trust. If, therefore, itbeconoeded that, in respect to his tax-receipts, compluinant'only becalllEla sf()(lkholderon. the ·23d 4pnl;1887,.llS ,claimed by defendant's counsel, under the provisions of sections 15 and 27 ,of the act of 25; 1869 ,still his right to agltinst future or misapplicatioDsand brea.chesof trust, is not defeated; for he had a vested right to become such stockholder at that'time by 'reason of his holding and ownership of such tax-receipts) and thenceforward, if not sooner, he could invoke the aid of a court of equity to restrain the corporate management from making other or further miSappropriations of the porporil.te funds. His delay in obtaining suchcertificateR, to which he waEr entitled, could, atmost, only affect his righUo pomplain of past misa,pplications. It in D? valid!1ted the unconstiLu#onallegislation, ' Or it operative and biQ-ding upon ,him in respect to futUre misapplications. So, both as an actual stockholder wherithe misapplication complained of commenced, in 1885, and as a stockholder by virtue of his tliJt-receipts convettedirito stoilk certificates on April 23, 188.7, the complainant is in position to claim the. interposition of the court. 'He has, by his amended bill, fully compli'Eidwith the requirements of the law and rule of practice, in setting forth the efforts made to secure proper action in the premises on the part of the corporate management, and their failure ;and refusal to desist from the illegal couri>e they were pursuing, in misapplying the' corporate funds., He further shows, and the court can readily see from th¢ situation of the parties;that anl1ppelll to thesharehold61J:s would be useless 'and idle, and prdductiveof 0:0 relief· . After a caref\ll consideration of the, case in all itsaspectsand,l>earings t the court .is clearly. of the opinion thali :the bill, as amended, presents a calle prpperlycaUing for the, interpollitionof the alll.dentitlingthe complainant,' of,the. corporation and other sblJ,reholders, to the
620
I'El>ERAL BEPORTER,
relief sought. :It follows :that the demurrer must be overruled and disallowed on both grounds. It is accordingly so ordered and adjudged, at the cost of defendants. It is further ordered that an injunction issue restraining and enjoining the defendant the Glasgow Railroad Company, and its directors, 'or their successors in office, from making any other or further applications of the corporate funds of said company, however derived, to the payment, liquidation, and discharge of the bonds here.. tofore issued by said town of Glasgow and precinct No. 1 of Barren county, Ky., in payment of their subscriptions to the capital stock of said Glasgow Railroad Company; such injunction to continue in full force till the further,order of this oourt in the premises. The defendants will be allowed until the October 1'ules, 1888, to file their answers to the bill.
WALL 11. THOMAS "r.:.,
et al. 4, 189O.};
Oourt,i S.D. NeliJyork.
FEDEnAL COURTIl;...PUTrBs.....TnuBTS-AoTION8 AGAINsT'TnusTIIIIII.
" of Rev. St. U. ,So S 781, where tnere : ' several ,soIlle ,of whom are not found in the district and do not appear, 1, , the court may prl>cead to trial betweetr'We parties properly be-fore it, 'but the decree , sRlI-'lnot prejudice 1)holle, npt sllrved or appearing, t!).e cpurt, cannot proceed to ,' final decree in a suit b1 a beneficiary against foUr of nine trustees of an unincorpo'rated,association, ohargIng an abuse of their powe1'S, and seeking to restrain an ai, leged attempt to windpp the trUst.
.re
In, Equity. : lor. injunction. there are several defendants in , Rev.l!)t. p'. 8.§ 737, is as follows: anysu.it at or. in eqUity, and onll or more of them are. neither inhabitants or nor found within the in whic,h tbesuit is brought, and do not voluntarily 'the cotirt may ,entertain jurisdiction, and proceed to the trial and adjudicatiot1 of the 'suit between the parties who are properly before it; but the or decree rendered therein shall not conclUde or prejUdice other palties Iiot regUlarly: ser,ved with process, nor volulltilrily appearing to nQn"jQinder ,of"partieil who are not inJuwitantsof nor found 'Yit.hin the,dlstrict, as shall not constitute qlatter, of abatement or the suit."· ..',' , " . . Strong &' Mathew8on, foS: cotnplainap.t· .· $ttllivan &' OrfHnwell. for defep.dap.ts. .,' , 'I
On
,WALLACE,
J.' The amendinents to this bill, made since the hearing
oUbe. motion for an injunction,eliminate from the case the question requisite.. ,diversity of citizenship to give this court jurisdic-' tio,J,l exists' between' the, parties. In its present form, the bill is· One brQ'qgM:bYft and 'resident of Virginia against four defendants, and'l'esidentS of this i stata. The defenda.nts are four of the trustees of theCotton Oil Trust, an unincorporated associatioD, ppssessing property of largeva]qe, situate in several states, the