Ryan v. McLane

Fowler, J., delivered the opinion of the Court. The bill in this case was filed by Thomas F. Ryan, of New York, against Louis McLane and others for the specific performance of an alleged contract and for an injunction to restrain the defendants from parting with, transferring or encumbering the possession of any certificates of stock held by them respectively of the Seaboard Company, a railroad company incorporated and existing under the laws of Virginia and North Carolina. Under powers granted by its charter this company operates not only its own line extending from Portsmouth, Virginia, to Weldon, North ■Carolina, with several branches connected therewith, but it also controls and operates eight other lines of railroad, the names and lengths and termini of which it is not necessary now to mention, but the bill alleges that by means of the ownership of its own chartered line, and the control of the other corporations just referred to, the Seaboard Company practically owns, controls and operates a railroad nearly a thousand miles in length, extending from Norfolk to Atlanta, the total capital stock of which aggregate $6,142,550, and the total bonded debts and rental charges amount to about $16,712,000 ; while the gross earnings of the whole system for the fiscal year ending June 30th, 1898, were officially reported to be $4,011,554.32. In the sixth paragraph of the bill it is alleged that on October 6th, 1896, the plaintiff was a stockholder of the Seaboard Company, and had, as was well known to the defendants, entered into contracts to purchase a large amount of such stock; that on the day just mentioned he entered ¹⁷⁹ into negotiations with three of the defendants, McLane, Robinson and Watts, for the purchase of a large amount of the shares of stock of the Seaboard Company from the defendants just named, they then and there representing that they were personal stockholders in said company, and also as a committee representing a large amount of stock in said corporation held by others ; that the three defendants represented to the plaintiff that the stock in the Seaboard Company owned by themselves and the associated stockholders, for whom they were authorized to act, amounted to upwards of 3,000 shares of the par value of $100 each, and that they were desirous of making a sale of all such stock in said corporation, reserving also the right to include in such contract a sale of the shares of any stockholders of said Seaboard Company as should join with them and deposit their stock with said McLane, Robinson and Watts prior to October 18th, 1896.

It was at the same time agreed, between the plaintiff and the defendants just mentioned, that the plaintiff was to pay $125 per share for all the said stock owned by said defendants, as well as for that owned by the stockholders, who were then represented by said defendants, and also for the stock of other stockholders of said company, “ who should agree to such contract of sale and deposit their stock for delivery to the plaintiff on or before October 18th, 1896.” It was further agreed as alleged that the plaintiff “ should then and there pay the sum of $60,000 earnest money upon such purchase of stock, the same to be forfeited as liquidated damages if the plaintiff should fail to receive, take and pay for all the stock of the Seaboard Company in such contract of sale. ” It is alleged in the following paragraph — the seventh — that on the same day on which the above verbal agreement was made, the plaintiff and said McLane, Robinson and Watts, in order to evidence such agreement and contract, entered into a written agreement, a copy of which is filed with and made part of the bill. Inasmuch as the whole object of this litigation appears to be to compel a specific performance of ¹⁸⁰ this written contract we will have to examine it carefully and for that purpose we will here transcribe it. “ Memorandum of understanding and agreement between Louis McLane, Moncure Robinson and Legh R. Watts, committee, parties of the first part, and Thomas F. Ryan, in behalf of himself and associates, party of the second part. “ Whereas, the parties of the first part are stockholders in the Seaboard and Roanoke Railroad Company, and also representa large amount of stock in said corporation held by others: “And, Whereas, the said committee, in behalf of themselves and associate stockholders, are desirous of making a sale of all their stock in said corporation, and also the shares of all such other stockholders as join with them prior to October 18th, 1896; “And, Whereas, the party of the second part, in behalf of himself and associates, is willing and desirous to purchase all the shares of stock held by said committee as the same may be pooled and deposited prior to said October 18th, 1896, on the terjms and conditions and for the price hereinafter stated. “ Therefore, to carry out such intended purchase of said stock the parties agree together as follows : “First. — The price which is to be paid for all such pool stock of the Seaboard and Roanoke Railroad Company is ■one hundred and twenty-five dollars per share. “Second. — The committee is to declare the amount of all stock deposited with the said pool and embraced in this contract of sale on October 18th, 1896. “Third. — The party of the second part makes this contract to purchase relying on the representation that the railroad companies comprising the Seaboard Air Line system are free of all floating debt due to any creditor other than some company in that system. Said party of the second part is to have forty days from this date within which to have an examination made into the condition and accounts of said corporation and system and to determine whether said representation is correct. ¹⁸¹ “Fourth. — The party- of the second part now deposits sixty thousand dollars cash with the committee, and agrees that that sum shall be forfeited and paid as liquidated damages in case he and his associates fail, at the expiration of said forty days, to accept, take over, and fully pay in cash for all such pool stock, at the price of one hundred and twenty-five dollars for each and every share thereof. If such liquidated damages are so forfeited by the second party, said sum shall be paid over by the said committee to the railroad company and distributed as a dividend among all the holders of common stock.

At the expiration of said forty days the party of the second part agrees to purchase and take over from such committee not to exceed one hundred and seventy-five shares of the stock of the Baltimore Steam Packet Company and to pay therefor the sum of fifteen hundred dollars cash for each share. “Fifth. — Simultaneously with the closing of said option by the party of the second part, and the payment in cash for all such pool stock of the Seaboard and Roanoke Railroad Company, less the sixty thousand dollars deposited with the execution of this contract, which is to be treated in that event as a part of the purchase money. And also to pay in cash for the shares of the Baltimore Steam Packet Company above specified. The committee are to provide, if requested by the second party, the resignation of the president and directors of the Seaboard and Roanoke Railroad Company and of their controlled corporations and the Baltimore Steam Packet Company and procure the nominees of the party of the second part to be elected in their places, so as to give control of said corporation to said second party. “ Witness the following signatures and seals to this memorandum of agreement, which is executed in triplicate this sixth day of October, A. D. eighteen hundered and ninety-six. Louis McLane, Moncure Robinson, Legh R. Watts, Thomas F. Ryan.” ¹⁸² Subsequent to the filing of the bill the plaintiff filed several exhibits in addition to the above agreement, consisting of records of two suits in equity, both brought by him, one in the Circuit Court of the United States for the District of Maryland on the nth of May, 1897, against McLane, Watts, and the executors of Robinson, and the other in the Circuit Court for the Eastern District of Virginia on 2nd of October, 1897, against the.

Seaboard and Roanoke R. R. Co. and others. We shall have occasion to refer to some of these exhibits presently. In the seventh paragraph of the bill the plaintiff further alleges, that in part performance of said written agreement, he paid to the said committee $60,000 in cash as part of the purchase money for said said stock, and that, under said written agreement, as construed by him, he agreed and bound himself to purchase, accept and pay $125 per share for all the shares of stock held by others than the said committee and their associates who should, prior to October 18th, 1896, join in said contract of sale on the terms and conditions therein stated, and should deposit their stock with said committee, and that the latter thereby bound themselves to declare on October 18th, 1896, the amount of all stock deposited with them and • embraced in such contract of sale. It is further alleged that said committee represented that the shares of stock owned by them and those then associated and represented by them in said contract amounted- to over 3,000 shares, but that they refused to give any information as to the amount of stock held by them and their associates respectively ; that said committee did not inform the plaintiff that any stockholders of said company not associated with them prior to October 6th, 1896, had elected to join with said committee in the said contract of sale or to deposit their stock before October 18th, 1896, and the plaintiff, therefore, avers that said committee had not prior to that date received any deposit of stock which he was bound to take, except the stock of said committee owned and held by them individually, and the stock of ¹⁸³ those actually associated with them on October 6th, 1896 ; it is also alleged that the certificates of the stock the plaintiff was bound to take had been deposited with the defendant McLane and were in his possession in Baltimore, Md. at the time of filing of the bill; that the plaintiff has offered to take and pay for all the stock covered by said contract, but that said committee refused to deliver the same.

In the fourteenth paragraph of the bill, it is alleged that the refusal of the committee to deliver the stock claimed by the plaintiff was based upon the terms of the contract or pooling agreement between themselves and other stockholders, dated October 2nd, 1896, under which said stock had been deposited with them, which contained a provision that no sale should be made without the concurrence of the holders of three-fourths of the stock held by all the signers of the pooling agreement, without reference to the question as to whether it had actually been deposited or not prior to the date mentioned. By the terms of the pooling agreement just referred to, dated the 2nd October, 1896 — four days before the execution of the contract here sought to be enforced — it was for their mutual protection agreed between the stockholders of said company who should sign it, that for the period of five years from the date of said agreement, or until thirty days after it was abrogated by the written assent of the parties thereto holding three-fourths of the said stock, none of said stock should be sold or transferred for voting purposes unless with the written concurrence of the same number of such stockholders as were authorized to abrogate said agreement. The plaintiff further alleges, that being advised that the pooling agreement was void as against public policy and for other reasons, he instituted suits in the Circuit Courts of the United States for the District of Maryland and the Eastern District of Virginia to have said agreement set aside so that the defendants might be without excuse for their refusal to carry out their contract of sale. ¹⁸⁴ But a few days before the hearing in the Court below the plaintiff amended his bill by adding several additional paragraphs, the most important of which and the one most relied upon by the plaintiff, is paragraph xivA. We shall have occasion to refer to this amendment more particularly hereafter.

It is sufficient to say that the pooling agreement, so far as is disclosed by the bill in this case, has never been set aside either by the concurrence of the parties thereto or by the decree of any Court. We have thus stated so much of the very elaborate bill as we think is necessary to a discussion of the controlling questions presented by this appeal. The defendants demurred to the whole bill as amended upon the grounds : (i) that it is without equity; (2) that the Court is without jurisdiction to grant the relief prayed. The Court below passed a decree sustaining the demurrer, dismissing the bill and dissolving the injunction.

From this decree the plaintiff has appealed. Although the discussion at the hearing took a wide range, and the arguments of the distinguished counsel for both plaintiff and defendants were characterized, if possible, by more than their usual ability and research, yet, after all, the plaintiff’s case must rest upon the contract alleged to have been made by him with the defendants. A good deal was said as to the effect of the demurrer in this case, that is to say, how far and in what sense it admits the allegations of the bill. It is sufficient to say that the demurrer does not admit the construction the plaintiff has, in his bill, placed upon the alleged .contract of sale to be correct, nor the correctness of the construction he has placed upon the pooling agreement, on which the defendants rely to justify their refusal to consummate the agreement relied on by the plaintiff.

In other words, the demurrer admits that there were such contracts as are set out in the exhibits, and raises the question as to their true construction. It follows, therefore, that our principal duty in this case, waiving the question of jurisdiction, will be to ascertain what is the true ¹⁸⁵ meaning of the contract of October 2nd, 1896, in the light of the traversable averments of fact not contradicted or shown to be untrue in one or other of the exhibits filed by the plaintiff But before considering this controlling question it may be proper to pause for a moment to enquire more particularly as to what is the case presented to us by this bill. It is simply this. The plaintiff comes into a Court of Equity asking for the specific performance of a contract which upon its face shows that, so far as the parties to it were concerned, it was entered into for the purpose of enabling him to get control of this great corporation.

He was to become the owner of stock, according to his construction, of just enough stock to make him master of the situation, so that upon his request those who had been placed in authority by the stockholders were to resign and place him in control not only of the Seaboard Air Line, but of the eight other corporations connected with and operated by it. But whatever may be the construction of this contract by the plaintiff, it also appears upon its face that the intention of the committee was to make terms in relation to, and were desirous of making a sale of, not only their own stock but as well that of their associates and the stock of all such other stockholders »as should join with them prior to October 18th, 1896. We say this is apparent from the contract itself. Such a course was, without regard to the pooling agreement, demanded by the plainest dictates of ordinary fair dealing.

In short, the course which the plaintiff is here contending the defendants are bound to pursue, would have resulted in selling their own stock, and at the same time in selling out the minority stockholders. While we do not wish to be understood as saying that never, under any circumstances, will a Court of Equity enforce a contract for the purchase of a controlling interest in a corporation, yet we are clearly of opinion that this contract, showing as it does upon its face, an evident intention on the part of the Committee to protect all the stockholders who should join in the pool before ¹⁸⁶ October 18th, 1896, should not be enforced by a Court of Equity in such manner as to prevent the carrying out of that intention. It may be that the position of the plaintiff in this respect may be legal, but it is certainly far from equitable. He relies upon the provision in the contract that he was to take and pay for only such shares of stock as were both pooled and deposited before 18th October, r8<p6, while he must have known from the face of the contract itself, that the object of the committee was to sell, not only their own stock, and the stock of those who had joined the pool on October 6th, but also all the stock of other stockholders who should join before the 18th of that month.

This is shown, as we have said, not only by the contract itself, but also by the circular letter signed by R. C. Hoffman, dated October 7th, 1896, the day after the execution of the alleged contract of sale. This letter, or a copy of it, was filed by the plaintiff with his bill in the Circuit Court of the Eastern District of Virginia, and that bill alleges that it was sent to all the stockholders of The Seaboard Company, of whom he was one. It informs them and informed him that the pool is for the benefit of all, and requests them all to join on or before the 18th October. It is sufficient for the purposes of the aspect of the case we are now discussing that, whatever may have been the plaintiff’s views in regard to his legal