Summary
From the chancery court of, first district, Hinds county.
Hon. Robert B. Mayes, Chancellor.
Hinds and Adams counties, Mississippi, were the complainants in the court below; the Natchez, Jackson & Columbus Railroad Company; the Louisville, New Orleans & Texas Railway Company; the Yazoo & Mississippi Valley Railroad Company; the Farmer’s Loan & Trust Company; and the Union Trust Company were defendants there. From a decree in favor of the defendants the complainants appealed to the supreme court.
The charter -under which this controversy arises is the act incorporating the Natchez & Jackson Railroad Company. See •Laws 18.70, p. 221;- amended Laws 1872, p. 279, authorizing the name to be changed to Natchez, Jackson & Columbus Railroad Company. In 1871 Adams county subscribed $600,000 to the capital stock, paying therefor by county bonds, and thereby acquired 12,000 shares of stock, as against 160 shares held by all other subscribers. By January, 1873, twelve miles of roadbed had been completed, and depot grounds in Natchez donated by the city. The financial panic of 1873 came on, and the board of supervisors of Adams county made so much trouble about the $600,000 of aid bonds that a compromise was effected, whereby the county’s subscription was reduced to $300,000, and all bonds in excess of that amount were surrendered.
The work of construction progressed but slowly. The company had no resources except the Adams county subscriptions, paid in bonds as stated. It borrowed small sums of money on ordinary one-year mortgages from time to time. In 1878 the grading had reached Martin, but the track-laying was still eight miles short of that place. In that year Hinds county subscribed $200,000, payable in bonds, but required that two directors should be appointed from and by the county and also required •the subscription to be used on work in Hinds county; and the road was still nineteen miles from the county line. There was a nineteen-mile chasm, to bridge in some way. In March, 1880, a $600,000 second mortgage was authorized, of which, however, only $27,500 was ever negotiated. In June, 1880, a $200,000 consolidated first mortgage was authorized, which was to be, •and was, used in funding the previous mortgage debts, except the $27,500 second mortgage bonds. In 1881 the city of ■Natchez lent to'the company $225,000 of the city’s bonds, the company agreeing to protect the city against payment of either principal or interest, and depositing as collateral security for that agreement an equal quantity of stock, with voting power, and also the $600,000 second mortgage bonds above, less the $27,500 of which disposition was otherwise made.
In May, 1882, the company still urgently needed $150,000 .to complete the road to Jackson; but its resources were exhausted. The stock liabilities of the company were as follows:
Adams county, stock issued in 1871.......$300,000
Hinds county, stock issued in 1882........ 200,000
City of Natchez, stock issued in 1882...... 225,000
All other stockholders, issued various times. 35,807
Total amount stock..................$760,807
The company then authorized the sale of $1,500,000 of stock at ten cents on the dollar, in order to raise the $150,000 needed, with the right reserved to repurchase the same within eight months at the price paid. The stock so sold was to be exchanged for the purchasers’ notes, which in turn were to be discounted. In fact, and in effect, the plan was to borrow $150,000 of personal notes from friends of the company to meet the emergency and to secure those notes when discounted by $1,500,000 of ■stock as collateral. This plan was carried out, the money raised. The $150,000 of notes fell due in June, 1883, and in the meantime railroad securities of every kind depreciated.
And so, in the latter part of 1882, the road got into Jackson. Its bonded and floating debts were then $380,286; its interest payments were about $53,053 annually, or about $17,887 in excess of its net earnings. It was, therefore, getting deeper into debt every year.
A plan was devised for a new consolidated mortgage at a lower rate of interest and in better form; and President Martin was sent, in 1883, to New York to place the bonds. He failed to find purchasers, and only succeeded in making an arrangement in May, by which the company purchased from one J. W. Drexel, on credit, $320,000 of mortgage bonds of the New York, 'West Shore & Buffalo Railroad Company, then worth about 90 cents on the dollar, for which it gave its own notes to the amount of $304,000 at 8 per cent interest, due in'June, 1884, and pledged as’security therefor the same $1,500,000 of stock which had been previously pledged for the $150,000 loan aforesaid, and also the proposed $1,250,000 of new mortgage bonds. Those Lake Shore bonds the company afterwards sold for $250,730, and with the proceeds paid off the $150,000 loan before mentioned.
These Drexel notes were afterwards extended, from time to time, the interest being paid in part only, until the 1st of June, 1885, under an agreement that if not paid then, Drexel was to become absolute owner of the company bonds and stock pledged as security, upon the further payment by Drexel of about $425,-,000 needed to pay off prior liens and debts.
In January, 1887, the Drexel notes were still unpaid, time having been further extended under the above agreement. The city of Natchez then demanded a settlement; and in February, 1887, the company borrowed from Drexel a further sum of $226,050 on a note due April 7, 1887, with which to pay off the $225,000 Natchez bonds and interest due on them, according to its original agreement with the city set forth above. To secure this loan the company pledged to Mr. Drexel the same '$572,500 of mortgage bonds unsold out of the once proposed $600,000 issue, which had been pledged to the city, as above stated. In other words, Drexel paid off the city bonds for the company, and was subrogated to the city’s security. The city’s stock in the company was also delivered to him as collateral.
In April, 1887, Mr. Drexel called for a settlement, and the company directors authorized the president to issue $1,500,000 of stock to his order when he should surrender the stock certificates and evidences of debt following: The $304,000 note of the year 1883; the $226,050 note of February, 1887; bonds of the first mortgage of 1880 amounting to $174,400; all company bonds of the proposed $600,000 mortgage held as collateral (including the $27,500 thereof which had been actually sold) ; the $1,500,000 of company stock previously pledged as collateral as shown above.
Those surrenders were made, and Mr. Drexel thereby became the owner of the company’s $1,250,000 consolidated (and only unsatisfied) mortgage, and $1,500,000 of stock out of a total issue of $2,035,800 (of which Adams county held $300,000 and Hinds county $200,000). Such stock and bonds, so acquired by him, cost Mr. Drexel in cash and in unpaid accrued interest due him about $758,750, which, it is claimed by appellees, was a'full value for the road in its then condition.
A new manager of the road was then appointed — Mr. T. J. Nichol — and in January, 1888,' a new board of thirteen directors was elected, by unanimous vote, of whom six had served on the previous' boards as constituted by the votes of the two counties.
In March, 1889, Mr. Drexel had died, and his stock and bonds were sold to the Financial Improvement Company for $800,000 of the first mortgage bonds of the Louisville, New Orleans & Texas Railway Company, the railroad of which had been constructed by the Financial Improvement Company, and paid for to that company by Louisville, New Orleans & Texas Railway Company bonds, of wbicli the said $800,000 constituted a part. This Financial Improvement Company was owned by C. P. Huntington and by R. T. Wilson & Co., in tbe proportions, respectively, of 60 per cent and 40 per cent of the whole. The $1,250,000 of bonds of the Natchez, Jackson & Columbus Railroad Company, which they so acquired, were by them placed as 'collaterals for the entire issue of first and second mortgage bonds of the Loiiisville, New Orleans, & Texas Railway Company.
In September, 1889, the new holders set about making the gauge of the road of standard width and adapting the road to an effective interchange of cars with the Louisville, New Orleans & Texas Railway Company. In January, 1890, at the annual meeting of stockholders, new directors were elected, all again unanimously, of whom a majority were connected officially with either the Louisville, New Orleans & Texas Railway Company or with the Financial Improvement Company.
Still the company continued to lose money each year, and in 1890 it sold its road to the Louisville, New Orleans & Texas Railway Company by a deed and by authority of an act of the legislature, approved February 19, 1890; the consideration expressed in the deed was $180,000, the sale being subject to the $1,250,000 mortgage. The road was thus converted into a pqrt of the Louisville, New Orleans & Texas Railway system.
In February; 1892, an entire change in the ownership of the Louisville, New Orleans & Texas Railway Company’s stock and bonds, formerly held by the Financial Improvement Company, occurred; and in October following the Louisville, New Orleans & Texas Railway Company and the Tazoo & Mississippi Valley Railroad Company were consolidated under the name of the latter company, which succeeded to all the rights and liabilities of the Louisville, New Orleans & Texas Railway Company.
The bill of complaint in this cause was filed in 1899 by Hinds county, Adams county joining later, for the purpose of setting aside the deed and sale of 1890, canceling the $1,250,-000 of bonds and the $1,500,000 of stock, reorganizing the Natchez, Jackson & Columbus Railroad Company (excluding the $1,500,000 of stock aforesaid), and for an accounting of profits, alleged to be large. Decree by the court below for defendants.
That Hinds county and Adams county were stockholders of the Natchez road by subscriptions to and payment upon shares of the capital stock under its charter, and that by the transactions recited they had lost their $600,000 so invested, and had been defrauded of the property, rights, and franchises of the Natchez road by a pretended sale of the Natchez road by the Louisville, New Orleans & Texas Railway Company to itself. That these counties subscribed and paid for nearly all of the capital stock of the Natchez road, and were, without their knowledge or consent, deprived of this property so owned by them. That, generally speaking, the method by which this was brought about was by the issuance of 30,000 shares of stock to Jesup, and called the “Jesup stock,” by the directors without authority, illegally, and in fraud of complainants’ rights to pay two alleged debts, one for $226,050 to Jesup, trustee for Drexel; the other promissory notes for $304,000 to Drexel. That the $226,050 claimed to be an indebtedness of the Natchez road arose under an ultra vires agreement between the directors of the Natchez road and the city of Natchez, whereby the city of Natchez voted to subscribe for shares of stock of the Natchez road for $225,-000 and to issue its municipal bonds therefor, under the power granted by the charter of the Natchez road; and then the direct- • ors, after the void agreement, whereby the Natchez road agreed to pay the principal and interest of said city of Natchez bonds for $225,000 and to deposit $600,000 of its bonds, authorized to be issued only for' construction, as collateral security to indemnify and save harmless' the -city of Natchez from its- said subscription to the capital stock. The other alleged indebtedness of $304,000 arose out of the “New York loan” by Drexel to the Natchez road in New York, and whereby was exacted as usury, out of the $304,000, face of notes, the sum of $95,873; in other words, to get $208,126.23 the directors of the Natchez road authorized the giving’ of the notes by the Natchez road for $304,000. The urgent necessity of raising this $208,000 was that a number of its directors had given their accommodation paper to the Natchez road for $150,000 face, and the affairs of the company were becoming’ embarrassed, and so these directors, constituting a majority of the board who authorized and voted on this $304,000 loan and the subsequent transactions pertaining thereto, to get the money to pay this accommodation paper authorized this usurious loan.
To get the money to perform the ultra vires contract to pay the city of Natchez bonds for $225,000, the board of directors of the Natchez road borrowed $225,000 from Jesup, trustee, and gave the $572,500 of the $600,000 issue of mortgage bonds as collateral. These were the two debts for which the 30,000 shares of “Jesup stock” were issued, and the $1,250,000 of first mortgage bonds of September 1, 1882, were claimed to be negotiated.
The 30,000 shares so issued were, under the resolution of the board of directors, to take up all the indebtedness shown by the June 4th contract, then held by the Farmers’ Loan & Trust Company, and under this the $1,250,000 of first mortgage bonds should have been surrendered and canceled; but, instead, they were delivered to Jesup, without any consideration whatever, and he and associates, then in practical control of the road, through the 30,000 shares of stock held by them, treated these bonds as their private, personal property, and as if they had been issued to them; and thus the $1,250,000 of bonds became outstanding in the hands of Jesup and associates. With possession of the 30,000 shares, Jesup and associates, through Nichol, took charge of the Natchez road, and ran it in their own interest and to suit themselves. On March 2, 1889, Jesup made a private deal for the railroad, as if his private property, with the Financial Improvement Company, alias Wilson, Huntington, and associates, alias Louisville, New Orleans & Texas Railway Company, a copy of which is attached to R. T. Wilson’s deposition, and recited in the bill, whereby it was agreed that Jesnp had sold, and on or before May 1, 1889, would deliver, to the Financial Improvement Company the $1,250,-000 first mortgage bonds, and $1,500,000 of capital stock par value (30,000 shares), being all that was owned or controlled by Jesup out of a total of $2,028,000 par value of the capital stock of the Natchez road, and “would on or before said date cause a majority of the board of directors of the Natchez, Jackson & Columbus Railroad Company to be reconstructed by successive resignations, so that said parties designated by the said Financial Improvement Company shall constitute a majority of the board of directors, it being understood by this that Jesup shall place in the hands of the Financial Improvement Company a written resignation of a majority of said directors. (2) That upon such delivery of said bonds and stocks and said reconstruction of said board of directors the said Financial Improvement Company will pay to said Jesup $800,000 par value of the first mortgage 4 per cent gold bonds of Louisville, New Orleans & Texas Railway Company, carrying coupons maturing September 1, 1889, and subsequent coupons less the accrued interest from March 1, 1889. (3) That Jesup is entitled to all cash in hand and accounts receivable of the said Natchez road up to and including April 30, 1889, and is to pay, indemnify, and save harmless said Financial Improvement Company and its successors against all debts against the Natchez road (‘debts’ to include all existing indebtedness of operation, construction, and equipment and acquisition of right of way) up to and including April 30, 1889, except the $1,250,000 of first mortgage bonds. (4) That Financial Improvement Company has assumed in behalf of Natchez road its existing contracts with Joliet Steel Company for about 300 tons of steel rails at $33 a ton. (5) That Jesup shall not sell or dispose of the $800,000 of bonds for five years; but if R. T. Wilson and C. P. Huntington and associates shall, during said five years, make a sale of their bonds, issued under the same mortgage, then Jesup to have the privilege of participating pro rata in such sale. (6) That if Jesup, prior to May 1, 1889, shall find it will cost more than $10,000 to pay for the right of way and other claims, other than the current indebtedness of Natchez road, and the Financial Improvement Company will not pay the excess over that amount, then Jesup to have right to cancel this contract.”
This contract was performed, and after May 1, 1889, the Louisville, New Orleans & Texas Railway Company was in possession of the Natchez road, and its auditor audited its accounts, and on July 1, 1889, the two were managed by common executive officers.
In January, 1890, the stockholders’ meeting of Natchez, Jackson & Columbus Railroad Company was controlled through the “Jesup stock,” then held by the Louisville, New Orleans & Texas Railway Company, or by its alter egos for it, and the control of the Natchez, Jackson & Columbus Railroad Company was made effective by the election of its own board of directors. Being thus in actual control, the Louisville, New Orleans & Texas Railway Company, through its attorney, drew a bill to authorize Natchez, Jackson & Columbus Railroad Company to sell its property or to consolidate the same, and it was passed by the legislature through the instrumentality of Glen. Martin, then attorney of the Natchez road, and under this act the authority was claimed whereby the Louisville, New Orleans & Texas Railway Company, then in possession and control of Natchez road, pretended to purchase it under a contract made with itself, under ultra vires, illegal and fraudulent resolutions, for a recited consideration of' $180,000 cash, which was not paid, and subject to the said $1,250,000 of bonds so unlawfully outstanding, and the Louisville, New Orleans & Texas Railway Company to provide for the payment of all the indebtedness and obligations incurred since May 1, 1889, tbe date of its taking possession under the contract with Jesup.
The agreement by the board of directors to pay the. $225,000, city of Natchez bonds, given in payment of the subscription of Natchez to $225,000 of the shares of the capital stock of the Natchez road, and the payment of these bonds by the loan of $226,050 from Jesup, trustee, were ultra vires and void.
The powers conferred by the charter of the Natchez road (Laws 1870, p. 221) upon cities and counties were expressly limited to subscriptions to the capital stock and to the issuance of city or county bonds in payment for said subscription. Sec. 15 expressly limits the power to “may subscribe to the capital stock.” By sec. 16: “No such subscription shall be made until the question has been submitted to the legal voters” upon petition, “in which petition the amount proposed to be subscribed shall be stated” for the purpose of voting for or against such subscription. By sec. 17: If two-thirds of the legal voters vote “for subscription,” “it shall be the duty of . . . the chief executive officers of such incorporated city ... to subscribe to the capital stock of said railroad company in the name of such . . . city . . . the amount so voted to be subscribed, and to receive from said company proper certificates therefor. He shall also execute to said company, in the name of such city, . . . bonds bearing interest at 7 per cent per annum, . . . said bonds shall be delivered to the president . . . of said company for the use of said company.” By sec. 19 : A tax is required to be levied to pay the same. Article XII., sec. 14, Constitution 1869, provides: “The legislature shall not authorize any county, city, or town to become a stockholder in, or to lend its credit to, any company, association, or corporation, unless two-thirds of the qualified voters of such county, city, or town at a special election or regular election, to be held therein, shall assent thereto.”
Here are two powers that may be authorized by the legislature upon a two-thirds vote: One, a subscription to stock; the other, to lend its credit.
This sec. 14 was • construed in■ Hawkins v. Carroll Co., 50 Miss., 737, to prohibit the legislature from authorizing a subscription to the capital stock or a lending of credit, without an antecedent vote of two-thirds of the voters; and that “assent” meant “agreement or consenting to,” “and this can be manifested in an election only by an affirmative action, by actually voting.”
The answer does not claim that the acts of. the city of Natchez were a subscription to the capital stock, but that it was the lending of the city’s credit to the railroad company through the form of the subscription of stock. If the city of Natchez was merely a stockholder, then it is manifest that the directors could not mortgage the road to pay off a part of the stock; and so the claim is now made that.it was a loan of the city’s credit. . Hill v. Memphis, 134 IT. S., 198; Hawkins v. Carroll Co., supra; Johnson City v. Railroad, 100 Tenn., 138; Lewis v. City of Shreveport, 108 IT. S., 282; TJ. S. v. Macon, 99 IT. S., 589; Lewis v. City, 108 U. S., 282, supraj Central Trans. Co. v. Pullman, 139 IT. S., 48; German Safety, etc., Co. v. Boynton, 71 Fed. Rep., 797; St. L. R. Co. v. Terre Haute R. R: Co.,, 145 U. S., 404; L. & N. R. R. Co. v. Ky., 161 U. S., 692; 2'Clark & Marshall, Oorp., sec. 539, and cases; Chicago v. Cameron, 22 111. App., 91 (120 111., 447) ; Id., secs. 393, 397.
The contract voted on was, as shown by the mayor’s proclamation for the election, a subscription of $225,000 to the capital stock of the Natchez road upon the terms and conditions:
“To subscribe” for $225,000 of stock, and to pay “the amount of the subscription of the city,” etc. “Upon the execution and delivery of said bonds by said city, and the delivery to the said city of the certificates of stock for which said bonds are to be in-payment,” said Natchez road “is to deliver to Britton & Koontz, bankers, as agents and trustees, $600,000 in the 7 per cent mortgage bonds of said company, issued the first day of April, A.D. 1880, in manner and form according to law,” . . . “to be held as collateral by said agents and trustees for the purpose of indemnifying and saving harmless said city from any damage or risk arising from said subscription to said capital stock by paying the principal and interest of said bonds; and prevent any levy of tax to pay any part of the principal or interest of said bonds.” “That said railroad company may, at any time, pay and redeem said mortgage bonds so pledged and hypothecated, and thereby repurchase from said city said certificates of stock, and may also negotiate said collaterals for any part thereof in payment of the city bonds or in payment of any mortgage existing on the road at the date hereof.”
That, as recited in the minutes, it became the mayor’s duty under sec. 1Y of said act, entitled, “An act to incorporate the Natchez, Jackson & Columbus Railroad Company,” to subscribe to the capital stóck of said Natchez road, in the name of the city of Natchez, the said amount of $225,000 so voted to be subscribed, and to receive certificates therefor.
This $600,000 of mortgage bonds were authorized to be issued, as recited in'the resolutions authorizing their issuance, for “the purpose of constructing and maintaining the railroad . . . between the cities of Natchez and Jackson, a loan be negotiated and money be borrowed upon the credit of said company,” etc.; and yet, with these recitals in the face of the mort-gage, this issue of $600,000 is diverted from the authorized purpose of issuance to be used as indemnity against this stock subscription.
“Construction” means' the building of tracks; side tracks, switches, terminals, etc., and it refers to the building of the railroad itself, and not to equipment. 23 Am. & Eng. Ency.’ Law (2d ed.), Y10; Phil. R. Oo. v.' Williams, 54 Pa. St., 103; 23 Am. & Eng. Ency. Law (2d ed.), Y20; Mellon v. Morristown R. R. Go. (Tenn.), 35 S. W., 464Brown v. Buck, 54 Ark.; 453; Pac., etc., Go. v. James Gon. Go., 68 Eed. Rep., 966; Miss., etc.; R. R. Go. v. Brown, 14 Kan., 5YY; Atchison, etc., B. B. Co. y. McDonnell, 25 Kan., 370; Commonwealth v. Smith, 10 Allen, 457, 458; Jones on Corp., Bonds & Mort., sec. 10; L. & N. B. B. Co. v. Ky., 161 IT. S., 685.
In So. Pac. By. Co. v. Esquirol, 36 Am. & Eng. Ed. Oas., 418, it was held: “The power to procure means to construct the road in question was not a general power; it was a particular power to be exercised for a special object.” Frazer v. East Tenn. B. Co. (88 Tenn.), 40 Am. & Eng. E. E. Oas., 365; Thomas v. West Jersey B. B. Co., 101 IT. S., 7; State v. Morgan, 28 La. Ann., 482; Atkison v. Marietta B. Co., 15 Ohio St., 21; Pittsburg B. Co. v. Allegheny Co., 63 Penn., 126; note to Glouinger v. Pittsburg B. Co., 46 Am. & Eng. Ed. Oas., 292, et seq.; Louisville By. Co. y. Louisville Trust Co.) 174 IT. S., 552; Citizens & Co. v. Perry Co., 156 IT. S., 709, 710; Suiless y. Lake Co., 147 IT. S., 238; Central Trust Co. y. Pullman Co.j 139 IT. S., 48.
Directors must refer to the stockholders the question of accepting an amendment to the charter. 1 Cook on Stockholders, sec. 499; 1 Cook on Stockholders, secs. 500 (note 1), 501; N. O., J. & G. B. B. Co. v. Harrisj 27 Miss., 517; Hester v. Memphis, etc., B. B. Co., 32 Miss., 381; Knoxville y. Knoxville B. B. Co., 22 Eed. Eep., 763; Stevens v. Butland B. B. Co., 29 Vt., 5; State v. Accommodation Bank, 26 La. Am., 288; Alexander v. Atlanta B. B. Co., 15 Am. & Eng. Ed. Oas., 377; 1 Thompson on Corp., sec. 76; Clearwater v. Meredith, 1 Wall., 25; 2 Am. & Eng. Ency. Law (2d ed.), 680, 681.
A dissenting stockholder has the right to stand upon the contract of association, as made, and equity will grant him relief, either preventing or annulling, against any acts of the majority beyond their powers. Mason v. Pewabic Min. Co., 133 IT. S., 50; Dodge v. Wolsey, 18 How., 331; Hawes v. Oakland, 104 IT. S., 450; Central B. Co. v. Collins, 40 Ga., 617; Carson v. Ioiua, etc., Co.j 80 Iowa, 638; Erwin v. Oregon B. Co., 27 Fed. Eep., 625; Pender v. Pusbington L. B., 6 Oh., 70.
The question of power of the legislature to fundamentally amend charters, without unanimous consent, under general statutes reserving the power to amend, alter, or repeal, was considered in a clear opinion, precisely in point, in Mills v. Central B. B. Co., 41 N. J. Eq., 1; and also in Zabriskie v. Hackensack B. Co., 18 N. J. Eq., 178 (s.c., 90 Am. Dec., 617) ; Black v. Delaware Co., 24 N. J. Eq., 468.
The rule is uniform in this state that counties can be bound only by acts of boards of supervisors entered upon their minutes in all classes of cases — governmental or private and as a public body.
In Jefferson County v. Grafton, 74 Miss., 435, it was held that the board of supervisors had no power to convey or deal with the property of the county, whether public or private, unless expressly authorized by statute, and that these county matters differed from municipalities proper, and that where the board of supervisors had sold and conveyed a piece of land owned by the county for private, as contradistinguished from public, purposes, under Code 1880 there existed no power in the board to sell it, and that the deed conveying it should be set aside, even as against subsequent purchasers for value; and this when the sale was made in 1883 and the bill was filed in 1896, or thirteen years afterwards. '
In Adams v. N. J. & C. B. B. Co., supra, it was held that these counties were owners of the stock in their private capacity, under this charter, and free from legislative control, and that the legislature had no power to appoint an agent to bring suit to protect the counties’ interests therein.
In Monroe County v. Strong, 78 Miss., 565, it was held that the county was not bound by an ultra vires contract for a bridge, after full performance, because the limitation on its power of payment was disregarded in the contract.
Blodgett v. Seals, 78 Miss., 522, 524, held: “The property rights vested for management in public boards can only be passed by them by appropriate action taken by them in open session and by a majority vote of those present. .' . . Such assignment, if made, could only be evidenced by its minutes to that effect. Here only some random talk was had with or between the members of the board or of its executive committee,” etc.
Hence,.we insist that there could be no estoppel as to the ultra vms act of the board of directors-in hypothecating said $600,000 of bonds to indemnify Natchez, and in promising to pay the $225,000 Natchez bonds, even though the president of the board of supervisors of Adams county was present when the agreement so to do was reported to the stockholders of the Natchez road, and his failure to vote against it, or even his voting for the report, being beyond the power delegated to him.
It is not even claimed that the president of the board of supervisors of Adams 'county ever reported this agreement to indemnify Natchez to the board of supervisors of Adams county, or that the board ever made an order approving of the ultra vires change of contract, or the ultra vires use of the $600,-000 of bonds. The alleged estoppel rests upon the mere fact that the president of the board of supervisors of Adams county was present, and that it does not appear that he voted against the report of the president of Natchez road stating that that agreement had been made by the directors.
It was ultra vires the charter to borrow money to consolidate the debts, liens, and incumbrances. The two then pressing debts were that of the city of Natchez for the $225,000 and the $150,000 accommodation paper. These were not construction debts, or even valid debts of the company, for the reasons stated, supra.
The directors who had made this accommodation paper for $150,000 with themselves and the city of Natchez became, in 1883, urgent for the payment of their debts. Gen. Martin went to New York to borrow money to discharge these pressing debts, and being unable to sell the bonds to do this, he, with the authority and procuration of these creditor-directors, made a loan, couched, to hide usury, in the form of a sale of N. Y, West Shore, etc., R. R. bonds from Drexel of. $320,000 for. the company’s note of $304,000 and 8 per cent interest and commissions, and which cost to obtain, in nsnry, commissions, etc., over $95,000. That this was grossly usurious and shocking to the conscience goes without saying. And yet these creditor-directors authorized and ratified this transaction to pay themselves. That this transaction was a “loan” is shown by the minute book 2, where Gen. Martin reports it as ■ a “loan.” That Drexel knew that it was a “loan” is conclusively shown by the contract of June 4, 1883, evidencing the transaction, and by the agreement between Drexel and Jesup, Ex. 11, to the deposition of Samuel Sloan, and where it is recited as a “loan.”
These directors then, to pay themselves, had the called meeting of April 20, 1883, at which there were present six out of ten of these accommodation-paper directors, and they, by their votes, granted this authority. Then, at the called meeting at which this Drexel loan was again considered and authorized of May 17, 1883, five out of the ten present were accommodation-paper directors.
And so on June 12, 1883, when- the report of Gen. Martin was made of the Drexel loan of $304,000, and his act in making the contract of June 4, 1883, was confirmed, six out of the nine present were accommodation-paper directors.
Aside from the grossly usurious character of this transaction, it was void because by it these directors voted to borrow money to pay themselves, and to issue $1,500,000 of stock and $1,250,-000 first mortgage bonds as security therefor, and which stock and bonds were to become, upon condition, the absolute property of Drexel upon default in payment of the $304,000 notes. Thus these directors bargained away, practically, the whole corporate property to pay themselves.
It was void because usurious.
Chap. 4, Tit. 111., N. Y. Rev. Stat. 1882, pp. 2253-4 makes void all notes, etc., for more than six per cent interest.
The hypothecation of the bonds and stock as collateral security to the usurious loan under the statute of New York and its decisions was void and recoverable in trover by the pledger. Colebrooke, Goliat. Sec., secs. 135, 136, 137.
The answer does not set up that the transaction, though usurious as to individuals, was not usurious, because the statute of New York does not permit corporations to plead usury. It defends on the ground that the transaction was a sale, and not a loan. The very allegations of the answer itself, properly interpreted, show it was a loan, and not a sale.
The rule of public policy prevails and makes this class of contracts void as unlawful; and it would seem that in a controversy between a stockholder, claiming adversely to the act of the corporation, and the parties, wrongdoers, claiming under the unlawful act against the stockholder, such claimant should not be allowed to set up the disability of the corporation to plead usury to defeat the suit of the stockholders. The positions are reversed: Drexel claims under the unlawful act of the Natchez road, the stockholders seek to annul that unlawful act; Drexel claims, in privity under the unlawful act, the stockholders adversely to and in denial of it. Under such circumstances we insist that Drexel should not be allowed to take advantage of the unlawful act. The directors here have done an act forbidden by law. McWilliams v. Phillips,. 51 Miss., 196.
This contract, aside from the usury statute, was void as being a fraudulent, unconscionable bargain. Inge v. Building Ass’n, 79 Miss., 20.
A mortgagee whose security is tainted with usury cannot claim any rights as a Iona fide holder against secret equities. Mayer v. Ooolc, 85 Ala., 417; Smith v. Lehman, lb., 294; Webb on Usury, sec. 392; Banks v. Flynt, 10 L. R. A., 459; Oolebrooke, Goliat. Sec., secs. 135, 136, 137; Union Nat. Bank v. Fraser, 63 Miss., 232.
A void usurious contract cannot constitute a valid consideration for a subsequent assumpsit. Beauchamp v. Leagan, 14 Ind., 401, supra; Hendrickson v. Godsey, 54 Ark., 193, supra.
This amendment to the charter authorizing a sale or consolidation was a fundamental change, and required the unanimous consent of the stockholders.
Where a corporation is created without power to consolidate, either under its charter or general laws, a grant of authority to consolidate, either under its charter or general laws, except in the form of an enabling act, makes a change of a material and fundamental character in its charter. The exercise of the power conferred under such condition requires the unanimous consent of the stockholders. Noyes, Inter. Oorp. Rel, sec. 42.
The legislature has no power to authorize a consolidation except by unanimous consent. Zabriskie v. Hackensack B. B., 18 N. J. Eq., 178; Black v. Delaware, etc., 24 Id.,-, 468; Mills v.' Central B. B., 41 Id., 1. In Hale v. Cheshire, 161 Mass., 443, and Market St. v. Heilman, 109 Calf., 571, it was held that the legislature had power to authorize a majority of the stockholders to accept a fundamental amendment. No such power was attempted to be exercised here. All the cases concur that unless the legislature does expressly authorize the majority to accept the amendment, it requires unanimous consent. 2 Oook, Stock and Stock. (3ded.), sec. 896.
Power to sell or consolidate must be express or by necessary implication. “Any ambiguity in the terms of the grant must operate against the corporation.” Am. Trust Co. v. M. & W. B. Co., 115 111., 651; Black v. Del. Canal Co., 24 N. J. Eq., 455. The withholding of a power to sell is a denial of the right to exercise that power. Am. Trust Co. v. M. & W. B. Co., 157 111., 652; 3 Wood Ry., see. 486.
This act of 1890, being a fundamental change of the charter, if it was mandatory in its terms, which it is not, would have to be accepted unanimously by the stockholders, and as thjs was not done, the deed made under it was ultra vires and void.
This act of 1890, Acts 1890, p. 676, was a mere enabling act, and as such required unanimous consent of the stockholders. It merely gave the corporation power to do the acts recited, if its stockholders desired; and, hence, the legislative intent was that the stockholders of the Natchez road might or might not, as they might elect, sell or consolidate their railroad..
This act of 1890 did not confer power to sell to Louisville, New Orleans •& Texas Railway Company.
Proposition 1. — The bill is based throughout on the postulate that because complainants are counties they .are not bound by the ordinary rules of law generally applicable to similar transactions, but have greater rights based on sovereignty. But there is no element of sovereignty in the case. The counties, quoad hoc, had precisely the same rights, and were subject to the same liabilities and obligations as natural persons. Adams v. Railroad Co., 76 Miss., 714; 1 Cook on Stockholders, sec. 9; Shipley v. Terre Haute, 74 Ind., 297; Marshall v. Railroad Co., 92 N. C., 822; Bank v. Planter’s Banlc, 9 Wheat., 904; Curran v. Slate, 15 How. (IT. S.), 304; Murray v. Charleston, 96 TJ. S., 432 ; Western Society v. City, 31 Pa., 175; Same v. Same, 31 Pa., 185.
Proposition 2. — Passing by, for the present, any discussion of the lawfulness or the alleged fraudulent character of the several transactions assailed by the bill, we submit that these complainants cannot successfully assail them, for the reason that what was done was done by them. All the early history of the Natchez, Jackson & Columbus Railroad Company was made by them absolutely. Until 1881 Adams county alone owned and voted $300,000 of the total $335,809 of stock; in 1881 that county owned and voted $300,000 and the city of Natchez $225,000 out of a total of $560,809; in 1882, and until February, 1887, Adams county owned and voted $300,000, Hinds county $200,000, and the city of Natchez $225,000, out of .a total of $760,809. Wherefore, until 1882 the county of Adams controlled the company and all of its dealings absolutely; and from 1882 until Mr. Drexel closed his contracts and took charge, in April, 1887, the two counties did the same. What was done previous to the latter date was in effect done by complainants themselves; afterwards what followed was the logical and certain result of their action. Pearsall v. Great Northern Railway, 161 U. S., 646, 671.
Proposition 3. — The contract of 1883 with Mr. Drexel is assailed as grossly usurious and oppressive, but it was not. Section 22 of the company’s charter expressly empowered it to sell its notes, bonds, and stock at such rates as its directors considered would best advance its interests, and expressly declared that when sold they should be valid as if sold at par. Railroad Oo. v. Ashland Rank, 12 Wall., 226. Nor was it usurious, considered as a New York transaction, under the statutes of that state, for by these very statutes it is declared that no' corporation shall set up the defense of usury. The Vigilancia, 68 Fed., 781; Railroad Co. v. Bank, 12 Wall., 226; Hubbard v. Todd, 171 H. S., 474; Lane v. Watson, 51 N. J. Law, 186; Trust Co. v. Auten, 68 Ark., 229. But, moreover, it would not have beep usurious under the law of New York, even between natural persons. No difference what might have been Mr. Drexel’s designs and motives, the evidence shows uncontradictedly that President Martin intended, not a loan with a contrivance to cover up usury, but a bona fide and final purchase of the West Shore bonds. Bank v. Snodgrass, 4 How. (Miss.), 573; Bass v. Patterson, 68 Miss., 310; Chaffe v. Hughes, 57 Miss., 256; Matlock v. Cobb, 62 Miss., 43; Ayvault v. Chamberlain, 33 Barb., 229; Bank v. Waggoner, 9 Pet., 378, 404; Smith v. Beach, 3 Day, 268, 271; Mills v. Crocker, 9 La. Ann., 334; Selby v. Morgan, 3 Leigh., 577; Culver v. Bigelow, 43 Vt., 249; Willoughby v. Comstock, 3 Edw. Oh., 424; Kelly v. Sprague, 58 Hun., 611; Brockenbrough v. Spindle, 17 Gfratt., 21; England v. Moore, 3 Houst., 289; Stuart v. Bank, 19 Johns., 508; Thomas v. Murray, 32 N. Y., 605; In re Kellogg, 113 Fed. Rep., 120, 129.
The mere wisdom or unwisdom of the transaction is not open for judicial examination. Thompson on Corp., sec. 4003; 21 Am. & Eng. Ency. Law, p. 865.
Proposition 4. — Complainants urge further that the agreement of 1883 was fraudulent and void as to them because made in great part in order to pay off the $150,000 debt, as to which certain of the directors were practically indorsers. But the rule that directors of an insolvent corporationpnay not prefer themselves has no application. The agreement of 1883 was made by a “going” concern, not in contemplation of insolvency or a cessation of business, but to carry on its construction and in furtherance of the ends of its creation. By that agreement the company was enabled to pay off, debts lawfully incurred, for which $1,500,000 of stock was lawfully pledged; and thereby the ownership of two-thirds of the property and the complete control of the company were saved, for, as it turned out, four years longer. The discharge which the directors got from their contingent liability was merely incidental. Sells v. Grocery Co., 72 Miss., 590; Richardson v. Davis, 70 Miss., 219; Love Mfg. Co. v. Queen City Qo.,\ 74 Miss., 290; Twin Lick Co. v. Mar-bury, 91 IT. S., 587; Hanchett v. Blair, 100 Fed., 817, 823; Fitzgerald Co. v. Fitzgerald, 137 IT. S., 98, 110; Garden v. Butler, 30 N. J. Eq., 721; Harts v. Brown, 77 111., 226; Mullanphy Bank v. Schott, 34 111. App., 500; Glouninger v. Railroad Co.,-139 Pa. St., 13.
Proposition 5. — Complainants maintain that the condition attached to the Natchez subscription — to wit, that the company should pay off the bonds and interest — was void; that the subscription was in effect unconditional, and that the act of the directors in borrowing’ money in 1887 with which to pay those city bonds led to the loss of the road to the original stockholders, and avoided the whole transaction as to the counties. Even if otherwise well taken, that point cannot be successfully made by these complainants or at this late day. But there is nothing in it, in any event. No special authority, in any statute; was needed in order to enable the counties to impose conditions on their subscriptions. Ciarle v. Rosedale, 74 Miss., 543; Converse v. City, 92 IT. S., 503; 20 Am. & Eng. Ency. Law, 1118. Moreover, if such authority had been necessary, its absence was cured by Laws 1882, p. 1027, which recognized the subscription and its conditions.
Proposition 6. — Complaint is also made because at the annual meetings of 1888 and 1889 the directors were elected and the practical control of the road was taken by the holders of the $1,500,000 of stock issued, as aforesaid, in April, 1887, to the order of Mr. Drexel. The argument seems to be that such stock was wrongfully issued and was fraudulent in effect, as against the other stockholders. The idea seems to be that when the $150,000 borrowed in 1883, and for which $1,500,000 of stock had been in effect pledged as security, was paid, the company’s title to the stock so pledged was cleared, and the stock should have been canceled. But, as already shown, the lender of the money which paid off the $150,000 (and more) required and took the stock as collateral for his loan, and the company’s title to it was not cleared; it was a mere change of pledges. Moreover, the complainants themselves voted for those very directors, and cannot now complain of their own nominees. Wmdmuller v. Distributing Co., 114 Eed., 491, 494; Farmers L. & T. Co. v. Railroad Co., 163 TT. S., 31, 44; Pender v. Lushington, L. R., 6 Oh. D., 70; Camden R. R. v. Flleinsj 37 N. J. Eq., 273; Hodge v. U. S. Steel Corp., 60 L. R. A., 742, 747; Rogers v, Nashville R. R., 10 Am. & Eng. Corp. Cas., 82, 106.
Proposition 7. — The consideration of the sale of the road to the Louisville, New Orleans & Texas Railway Company was not fictitious, as is claimed by complainants. Mr. Drexel paid for his stock and the $1,250,000 of bonds over $788,000. The evidence shows clearly that sum was the full value of the road in its then condition, and certainly the stock and bonds conld not be worth more than the road. In fact, he exchanged all of both stock and bonds so purchased by him with the Financial Improvement Company for $800,000 of Louisville, New Orleans & Texas Railway Company’s four per cent bonds. The bonds and stock so acquired by the Improvement Company therefore cost it $800,000 of Louisville, New Orleans & Texas Railway' bonds and $180,000 cash. Neither is there anything in the claim that the $180,000 cash payment was a fiction, because the amount having first been credited to the Oanton, Aberdeen & Nashville Railroad Company, was afterwards credited to the Louisville, New Orleans and Texas Railway Company. The undisputed evidence shows that the Oanton, Aberdeen & Nashville Railroad Company owed the Louisville, New Orleans & Texas Railway Company more than that amount for moneys advanced for betterments, and the debt was thereby canceled, and no creditor has ever complained.
Proposition 8. — The sale of 1890 to the Louisville, New Orleans & Texas Railway Company was not void for want of authority in the directors to make it without the special consent of the stockholders. Section 9 of the charter gave such authority, in effect, and in such case the stockholders .have consented in advance, it is their charter contract. 3 Thomp. on Oorp., sec. 3983; Oity v. Gas Go., 70 Mo.,. 69, 98. .
Proposition 9. — Nor was the sale of 1890 void because in the stockholders’ meeting which ratified it one of the stockholders voted fifty-four shares against it. Unanimous consent is not necessary to the sale by a private corporation of its entire property when its business is unsuccessful. Bei-ry v. Broach, 65 Miss., 450; Wilson v. Miers, 100 E. C. L., 348; Treadwell v. Mfg. Go., 7 Gray, 393; Sargent v. Webster, 13 Mete., 497; Sewell v. East Gape Go., 50 N. T. Eq., 717; Hodges v. New England Go., 1 R. I., 347; Peabody v. Waterworks, 37 Atl. Rep., 807; Hayden v. Official, etc:, 42 Fed., 875. Nor is the rule different because tbe corporate property is affected with a public use. 7 Am. & Eng. Ency. Law, p. 474; Gibbs v. Gas Go.j 130 TJ. S., 396; Lanman v. Railroad Go., 6 Casey, 42; Grate v. Railroad Go., 5 Wright, 447; Commonwealth v. Railroad Go., 53 Penn. R., 9; Treadwell v. Salisbury G.o., 7 Gray, 393; Grant on Corp., 68; Blade v. Delaware Go., 22 N. Y; Eq., 130; Berger v„ U. S. Steel Gorp.,-. 53 Atl. Rep., 14, 68.
The state’s consent to tbe sale was, moreover, given by tbe act of Eebruary 19, 1890. ' '
■Proposition 10. — Complainants are estopped on all tbe points of objection now made by’them; estopped by participation, by acquiescence, by laches — in every way' possible. Step by step the two counties in effect managed the road, and step by step took part in its affairs. And that was true as to Adams county,, from 1871 until tbe end, acting by tbe president of tbe board' of supervisors, as provided in the charter; and as to Hinds county,, from 1882 until the end, acting by its own two directors. Berry v. Broach, 65 Miss., 450; Railroad Go. v. Graham, 60 N. É. Rep., 405; Bradford v. Railroad Go., 142 Ind., 383; Grump v. Golf ax Go., 52 Miss., 107; Handley v. State,) 139 TÍ. S., 417; Ins. Go. v. School Dist., 80 Eed., 366; Broolchaven v. Lawrence Go., 55 Miss., 187; Houston v. Building Ass’n, 80 Miss., 31, 42; Smith v. Duncan, 16 N. J. Eq., 240; Smith v. Olay, 3 Bro. O. O., ,640, note; Terry v. Eagle Go., 47 Conn., 141; Alexander v. Searcey, 81 Ga., 536; Robe v. Dunlap, 51 N L. Eq., 40; Boston, etc., v.. Railroad Go., 13 R. L, 260; 18 Am. & Eng. Ency. Lawr, pp. 114, 115, 126; 2 Cook on Oor.p., sec.. 732; Harwood v. Railroad Go., 17 Wall., 78; State v..Bailey, 19 Ind., 452; State v. Milico 11 Eed., 389; Johnson v. Transit Go., 156 TJ. S., 618. • . .
Syllabus and headnotes are prepared by the reporter or publisher, not the court, and are not part of the opinion.
