Fisk v. Chicago, Rock Island & Pacific Railroad

Cardozo, J.

I shall not follow the counsel over the extended field of discussion in which they indulged on the argument of the motion in these cases. The statement of a very few plain and well-recognized propositions is all that is necessary to dispose of the question really involved. My views may be briefly expressed, as follows :

1. Even if my reflection and examination led me to a different opinion, which they do not, I should not feel at Liberty to deny the existence of the jurisdiction which it is sought to have the court entertain in these actions, since the point has been fully and distinctly decided by the general term of this court in Griffiths v. Scott, cited in the argument. My views accord with that decision, but, in any event, I should consider myself bound to follow it. In that case Judge Ingraham said: “I think there can be no doubt but that a citizen of this State can maintain an action against a foreign corporation for any cause connected with the recovery of or protection to his property or rights in said corporation. Judge Leonard, in the same case, held that this court “has not the power to remove or appoint the trustees or directors of a foreign corporation, but it can enjoin them action when illegal, or when acting fraudulently or unlawfully, E they are personally within our jurisdiction.” These remarks are apposite to the present suits, and dispose of the points as to jurisdiction raised by the defendant’s counsel.

2. The issue of the 49,000 shares complained of was ultra vires. Neither the corporation .nor its directors had, in any view, the right to make certificates purporting to represent capital stock, which had not in fact been subscribed and paid for, and to put them on the market as stock and sell them below par. if they might do so, and sell them at a discount of 1 or 2 per cent., they might sell them at 50 per cent., or any greater discount. It is not a question of good faith, or of honest intention, or of wise policy, or skillful or discreet management upon the part of the directors; it is a question of power. Every paper issued purporting to represent stock which had in fact no existence, was a false certificate; and the directors were not authorized to make false certificates. No such power attaches to their office, and the stockholders have the right to complain that they have assumed a power which was not conferred upon them. These views are controlling of the case, and are so familiar that they do not require the citation of authorities to support them.

3. The statute passed by the legislature of Iowa (Laws of Iowa, 1868, ch. 13) cannot alone ratify the act of the directors. The State of Iowa has not exclusive jurisdiction over this corporation. The certificates do not purport to represent stock in the original corporation created by the State of Iowa, but assume to represent stock of the consolidated company consisting of that corporation and the one formed under the laws of Illinois. The latter State, therefore, has quite as much control of the present matter as the State of Iowa. Certainly the act of either alone will not aid the defendants.

4. I see no reason why any injunction should have issued to restrain the defendants, except so far as the 49,000 illegal certificates are concerned. The transfer of the illegal issue was properly enjoined, and the proceeds should be held by the court to protect the company against damages in favor of the holders of the false certificates, or to enable it to retire them ; but nothing is disclosed in the papers which satisfies me that it is either proper or necessary to prevent dealings in the genuine stock or to interfere with the business of the corporation, except to the extent I have mentioned.

5. Respecting the motions to attach the defendants, I have only to remark that I do not think that any breach of the injunction has been established by the affidavits submitted to me, calling for any present action.

6. I shall appoint Hugh Smith, Esq. (the deputy city chamberlain), receiver of the proceeds of the 49,000 illegal shares, requiring from him a bond with surety, to be approved in $500,000, and directing that each half million of dollars which shall come to his hands as such receiver, shall be deposited alternately in the United States Trust Company, and in the Union Trust Company.

7. The costs of these motions will be costs in the actions, and abide the event of the same.

8. An order in accordance with these views, and containing such provisions as "may be deemed necessary to carry them into effect, will be prepared by the plaintiffs’ attorneys and presented to me for settlement.

Ordered accordingly.