Maas v. Pa., Poughkeepsie & New England Railroad 1 Monag. 497

Maas v. Pa., Poughkeepsie & New England Railroad Co.

Bonds issued by a corporation, which show upon their face that they were issued the day after the corporation was organized, are void, under article xvi, § 7, of the constitution and the Act of April 18,1874, § 3, providing that sixty days’ notice of meeting to stockholders shall be given according to law.

Jan. 30, 1889.

Error, No. 51, Jan. T. 1889, to C. P. No. 2, Phila. Co., to review a judgment on a demurrer in favor of the defendant in an action of assumpsit by Charles E. Maas against the Pennsylvania, Poughkeepsie & New England Railroad Co., George W. McPherran, Pierce C. DeSaucjue, Trustees, and The Harrisburg & Eastern R. R.-Co., at March T. 1888, No. 347. McCollum and Mitchell, JJ., absent.

The plaintiff’s statement, with affidavit, was as follows :

“ The above action is brought to recover the amount of two certain coupon bonds of the Pa., Poughkeepsie & New England Railroad Co., dated June 2,1879, and numbered 6 and 23, of $1,000 each, amounting to $2,000, and for the amount due on coupons or interest certificates thereto attached, due April 15, 1888, amounting to $390. A copy of said bonds and coupons is hereto attached and filed. The*said Pa., Poughkeepsie & New England Railroad Co. is a corporation, chartered under the laws of Pa., on May 6, 1879, with an office in the city and county of Phila., as appears by its charter. And the day following the organization of said defendant company, to wit, May 7, 1879, the board of directors, at a meeting-held in the city of Phila., passed, inter alia, the following resolutions :

“ ‘ 1. Resolved, That, for the purpose of obtaining a loan of $1,000,000 to aid in finishing and equipping the railroad, the president be and is hereby authorized to issue 1,000 coupon bonds of the company for $1,000 each; to George W. McPherran and P. C. DeSauque, Esquires, trustees, to be dated June 2, 1879, payable June 2, 1909, with interest at the rate of six per centum per annum, payable semi-annually on the 1st days of June and December of every year during the existence of the loan, in lawful money of the Hnited States of America, at the National Park Bank, in the city of *498New York, clear of all taxes ; the said bonds to be numbered from 1 to 1,000, both inclusive; to be signed by the president, attested by the secretary, and have affixed thereto the corporate seal. The coupons or interest certificates to be $30 each, and attested by the signature fac simile of the secretary.

“ ‘ 2. Resolved, That to secure the payment of said bonds, with interest as aforesaid, the president of the company be and is hereby authorized to make, execute and deliver to the said George W. McPherran and P. C. DeSauque, trustees, a mortgage bearing even date with said bonds, covering all the property of said company, real, personal and mixed, consisting of the corporate franchise, with the rights, powers and privileges thereto belonging, the main line of railroad constructed and to be constructed, commencing at a point in or near Harrisburg, etc., embracing the right of way, road-bed, rolling stock, and all property whatsoever, now owned or hereafter acquired by the company, between the points above mentioned.’

“ The corporate franchise, rights and property of the said Pa., Poughkeepsie & New England Railroad Co., as recited in resolution herein just mentioned, was sold by the sheriff of Northampton county on June 12, 1886, to Luther L. Cheney, who, as purchaser, organized the Harrisburg & Eastern Railroad Co. in pursuance of the Act of Assembly in such cases made and provided, which said company has an office in the city of Phila.

“ Hnder and by virtue of the several provisions in a mortgage by the defendants, bearing even date with said bonds, and which said mortgage was given for securing the payment, which is recorded at Easton, Northampton county, in Mortgage Book No. 38, page 56, one of which provisions is as follows: ‘ If the said Railroad Co. shall at any time hereafter make default by neglecting or omitting, for the period of one year, to pay the semi-annual interest on the bonds aforesaid, intended to be hereby secured, or neglect or omit to pay the principal sums mentioned in said bonds or any of them, when the same shall become due as aforesaid, it shall be the duty of the said trustees, party of the second part hereto, or the survivor or survivors of them, upon the written request of the holders of said bonds, representing not less than $300,000 then outstanding, to sell and dispose of said mortgaged premises, with the appurtenances, by public sale, etc.’ And plaintiff further avers, that default has been made in the payment of the interest on said bonds, for one year after the time for the payment of the interest thereof, and still continues to be made, and that there are less than 300 bonds outstanding, only 200 ever having been issued by the corporation defendant, under the resolutions and mortgage hereinbefore mentioned.

“And therefore, a right of action hath accrued to him, the said plaintiff, on said bonds, and he asks judgment for the debt and interest, to wit, $2,390, which is justly due and payable to him by the said defendant.”

The defendant filed the following demurrer :

*499“The Harrisburg & Eastern Railroad Co., by its attorney, E. Y. Johnson, comes into court and says: that they have acquired, by virtue of a judicial sale, title to the corporate franchise and other property of the Pa., Poughkeepsie & New England Railroad Co., and are the real defendants in this case and demur to the whole of the plaintiff’s claim, and say that the same should not be paid. That the plaintiffs claim, as shown by himself in his statements, is illegal and never was a proper existing lien on the property of the said defendant. That the board of directors of said company authorized the president for the purpose of procuring the loan of money, to issue the bonds and mortgage, described in the plaintiffs statement, on May 7,1879, the day after the Company was organized, in direct violation of the § 7 of the article xvi of the Constitution, and of the Act of Assembly approved April 18,1874, entitled ‘An Act to provide for the manner of increasing the capital stock and indebtedness of corporations,’ which requires sixty days’ notice to be given to the stockholders and the consent of a majority in interest of the same.

“ Furthermore, the whole amount of the capital stock subscribed was not paid in at the time said bonds were made.

“ The said bonds mentioned in the plaintiffs statement were prematurely and illegally issued, have not now, and never had, any legal or valid existence, and the defendants pray the Honorable Court for judgment to that effect.”

The trustees also demurred on the ground that under the mortgage a remedy is provided for the bond-holders, which is exclusive of the right of bond-holders to sue at law.

The court entered judgment for the defendant on the demurrer.

The assignment of error specified the action of the court in entering judgment for defendant on the demurrer.

Henry Trumbore, for plaintiff in error.

-If these bonds are valid, plaintifE in error was entitled to judgment for the amount of interest due, as represented by the coupons sued upon; but under the ruling in Phila. & Sunbury R. R. v. Lewis, 33 Pa. 33; Phila. & B. C. R. R. v. Johnson, 54 Pa. 127, and kindred cases, the principal of bonds became payable, entitling plaintiff to judgment therefor, in addition to accrued interest.

Where a corporation has lawful power to issue bonds and has exercised it, a bona fide holder has the right to assume that the power was properly exercised, and is not bound to look beyond the question of its existence. Pompton v. Cooper Union, 101 U.S. 196; Orleans v. Platt, 99 U.S. 676.

E. Y. Johnson, not heard, for defendant in error.

The bonds were issued in direct violation of mandatory provisions and are clearly void. Pittsburgh State Line Case, 4 Cent. R. 107; Borough of Millerstown v. Frederick, 114 Pa. 435.

Jan. 30, 1889.