New York Elevated Railroad Co. agt. Manhattan Railway Co. indirectly on motion do in effect that which is equivalent thereto, to wit, surrender and award it to another as owner for that reason, when the insolvency is denied, and upon it a trial according to the regular course of procedure is demanded. It is only when the rights of the Manhattan Company have been extinguished in the manner and according to the proceedings prescribed by our statutes, can they be permanently deprived of their right to enjoy the property they possessed, and until such extinguishment the court is powerless to afford the relief which the petitioner asks. As to the alleged forfeiture of the lease by the failure of the Manhattan Company to pay the taxes which have been imposed, and which is the second general point the motion presents, there are two answers, either of which must be fatal to the demand of the property upon that ground: First. The petitioner, the New York Elevated Railroad Company, has, by the consent of its officers and legal advisers, approved and urged the resistance to their payment, and that which it has encouraged cannot be claimed as a forfeiture of the lease. Second. The Manhattan Company has paid all taxes which it is advised are legal, and the attempt by lawful means to avoid the payment of a greater sum cannot be a viclation of the terms of the lease, for it is only required to pay taxes duly and properly assessed. In regard to the third point made by the petitioner, the non-performance by the Manhattan Company of provisions of the lease the keeping of the railroad of the petitioner in repair and the preservation of its property-it is only necessary to observe that the affidavits upon this point are too conflicting to justify a conclusion upon the facts, and the remedy must be sought by action. The concluding and fourth ground upon which the petitioner's right to recover possession of the property is based, is that the Manhattan Company is now in default for the nonpayment of its rent, and has been for the space of ninety days, which default, by the express terms of the lease, works New York Elevated Railroad Co. agt. Manhattan Railway Co. a forfeiture of the estate, and justifies a re-entry and resumption of possession by the New York Company. Without discussing now the power of the court to afford relief for the reasons already stated, or how far the injunction and receivership in this action would prevent a forfeiture, the answers which the Manhattan Company and the receivers have made thereto will be at once considered. On the 2d day of July, 1881, a suit was commenced in the superior court of the city of New York by the petitioner, the New York Elevated Railroad Company, as plaintiff, against the Manhattan Railway Company as defendants, in which action an injunction order was obtained, which is still in force, whereby the Manhattan Company, its officers, agents, attor neys and servants "were enjoined from parting with any moneys then in their possession or under their control, or under the control of the said Manhattan Railway Company, which had been received or might thereafter be received by it from passenger or other traffic on any of the railways of the said New York Elevated Railroad Company, except as required strictly for the operation of the railways belonging to said New York Elevated Railroad Company and leased to the said Manhattan Railway Company." It is difficult to see how the petitioner is in a position to enforce a forfeiture arising from the non-payment of money, when it has itself enjoined the tenant company from using the principal part of its revenue for any such purpose. Waiving, however, this point, there is another of great importance also made by said answers of the Manhattan Company and the receivers, which will now be stated. It will be remembered that the capital stock of the Manhattan Company is $13,000,000. This entire stock was transferred and given to the New York Company and the Metropolitan Company in professed payment of the leases made to the Manhattan Company-$6,500,000 to each. It is true this was not directly done, for the form was the execution of two bonds by the Manhattan Company of $6,500,000 each, the one New York Elevated Railroad Co. agt. Manhattan Railway Co. to a trustee for the benefit of the New York Company, and the other to a trustee for the benefit of the Metropolitan, which bonds were exchangeable for the stock of the Manhattan Company at par, and such exchange was immediately made. The directors of the Manhattan Company were persons who were directors of the other two companies. By the terms of the lease the Manhattan Company was to pay the bonded debt of the other companies, with the interest, and also an annual dividend of ten per cent on the capital stock of the lessor companies in quarter-yearly payments. The plain effect of this transaction is manifest. The lessor companies, being the owners of the stock of the lessee company, and their directors being its directors, the individuals owning the stock of the former really agreed with themselves to pay to themselves a large and liberal rental for the use by themselves of their own property. This was the real transaction, but as individuals were concealed under the cloak of corporations, the appaарраrent transaction, which the general public would only be apt to see, was a leasing from two independent corporate bodies to a third equally independent. Such leasing, however, was at a rental, which, if the estimates of the earning capacity of the leased roads submitted upon this motion by the petitioner to prove the bankruptcy of the tenant company are accurate, it was impossible for such company to pay. The individuals who had thus extracted the life from the lessee company by the provisions for the payment to themselves of liberal dividends, and the absorption of its entire stock, proceeded to divide and did divide such stock among themselves, and then disposed of it to the general public, thus shifting the burden of paying rent from themselves to others, and actually receiving from such strangers to the original transaction large sums for the privilege of assuming burdens they could not discharge, and which could only result in the restoration to them of the property leased, and the absolute loss to the buyers of Manhattan stock of their whole purchase-price. To recover payment for this stock from the two lessor companies, an action New York Elevated Railroad Co. agt. Manhattan Railway Co. is now pending in the United States circuit court for the southern district of New York, brought by John C. Watson, a stockholder of the Manhattan Company, to which suit, by permission of this court, the receivers appointed in this action. are parties. The existence of this action and the grave question which it presents are urged by the Manhattan Company and the receivers as reasons why, in advance of the determination thereof, this court should not surrender the property it holds by its receivers. It would, perhaps, be improper to express an opinion upon the merits of this action further than to say that it presents reasonable grounds for judicial inquiry. As a rule stock purchased of a corporation must be paid for either in cash or its equivalent, and if not so paid for the money which it represents can be recovered. The answer of the petitioning company is, of course, that the stock was paid for by the lease which it gave. Whether, however, this was a bona fide exchange of a substantial thing which the law can treat and regard as a payment for the stock transferred, or the contrary, is the point which that suit presents. Leaving out of view the very grave question of the power of the lessor companies to lease its roads, and of the lessee company to accept themwhich is not considered because not presented nor argued, but which leases, if illegal, because ultra vires, would leave the stock of the Manhattan Company entirely unpaid for is it not most apparent that the innocent holders and purchasers of stock of the Manhattan Company have grave questions to submit to the courts both as against the lessor companies and also their stockholders who placed the Manhattan stock upon the market to their great injury? It is enough for present purposes, without passing directly upon the merits of the Watson suit, to say that that which is unjust is unlawful, and for every unlawful act done to another to his injury the law affords a remedy. Whether any of the apparently bald facts which have been mentioned can be explained so as to give them a different color is a question for the trial. As they New York Elevated Railroad Co. agt. Manhattan Railway Co. appear upon this motion to me it is plain that they should not be ignored and the property asked for surrendered upon the ground of non-payment of obligations incurred by the lease, when, perhaps, a trial of the action pending may determine that the Manhattan Company is not a debtor to, but a creditor of the petitioner. Thus far the questions which this application involves have been considered upon their merits and a conclusion adverse to the relief sought has been reached. There is another ground, however, upon which the petition should be denied. Confessedly it is one addressed to the discretion of the court. In The People agt. The Erie Railway Company (54 How., 59) I expressed an opinion adverse to the disposal of grave and difficult questions of law and of fact upon motion rather than by action, and in that case refused the relief sought upon that ground, leaving the party petitioning to his remedy by action. There is nothing to distinguish this motion favorably from the one to which allusion has just been made. On the contrary, the present presents graver legal difficulties, more controverted questions of fact and much severer consequences than the other. In adhering to a former opinion, and denying this application upon the ground that the granting thereof would not be a wise exercise of judicial discretion, I follow convictions long since carefully adopted, strengthened by subsequent reflection and in accordance with judicial precedents (Angel agt. Smith, 9 Ves. Jr., 335 ; see opinion of lord ELDEN, p. 338; Emperingham agt. Short, 3 Hare, 461, 469, 470; Hauselt & Schroeder agt. Velmar, 3 Weekly Dig., 31; Iselin & Hunter agt. Port Royal R. R. Co., 6 Weekly Dig., 130; Palys agt. Jewett, 32 N. J. Eq., 302). To the general objection of deciding such grave questions as this application involves so summarily is added one growing out of the triparte agreement hereinbefore detailed. A sort of quasi partnership was thereby formed between the three contracting parties. The Metropolitan Company joins its objections to those of the Manhattan Company, and protests against the VOL. LXIII 5 |