In re Interborough Consolidated Corp.

3. Corporations ©=>583—Statute governing consolidation is read into slock contract. Business Corporation Law N. Y. § 7, which was in force when preferred stock in a corporation was acquired, and which authorized a consolidation of the corporation with another with consent of two-tliirds of the stockholders, must bo read into the contract between the stockholders and the corporation. 2. Corporations €=>584—Action does not lie to recover value of stock of corporation consolidated with another. An action at law or suit in equity will not lie to recover the value of stock iu a corporation which has consolidated with another corporation. 3. Corporations 584—Preferred stock of a corporation consolidated with another has no lien for accumulated dividends on assets not segregated. The preferred stock of a corporation, which had consolidated with another corporation with the consent of two-thirds of the stockholders, as required by statute, at a time when several of the dividends on such preferred stock had accumulated unpaid, gives to holder, who did not avail herself of the statutory procedure to have her stock appraised and the value allowed to her, no lien on the assets of the original corporation in the hands of the consolidated corporation, which had never been segregated for the payment of the preferred stock dividends. «SssFor oilier oases see same topic £ KEY-NUMBER in all Key-Numbered Digests & Indexes

In Bankruptcy. In the matter of the Interborough Consolidated Corporation, bankrupt. On claim of Agnes M. Th Reilly to recover dividends on preferred stock of a consolidated corporation as a preferred claim. For brevity, Interborough-Metropoliian Company will be referred to as Tutor-Met.; Finance & Holding Corporation, as F. & H. Co.; tbe bankrupt, as Consolidated Co. The claimant, acquired 300 shares of preferred stock of Inlor-Met. in 1906. Inter-Met. was organized under the Business Corporations Law of the state of New York in 1906. At the time of the organization of the Corporation, and at the time when claimant acquired her shares of the preferred stock of the corporation, section 8 of the Business Corporations Law (Consol. Laws, c. 4) of the state of New York (now section 7 of the Business Corporations Law) as amended by section 520 of the Laws of 1001, provided for the consolidation of any two or more corporations organized under the laws of New York for the purpose of carrying on any kind of business of the same or of a similar nature, and set forth the procedure by which such consolidations could be accomplished. Section 9' of the Business Corporations Law (now section 8) provided for the submission of the consolidation agreement to the stockholders of the respectivo corporations sought to be consolidated. and the consolidation became effective under those statutes when die agreement of consolidation received the approval of the holders of two-thirds of the outstanding stock. In 1915, Inter-Mot. and F. & H. Co. were consolidated pursuant to the provisions of section 7 of the Business Corporations Law of the state of New York as enacted by chapter 12 of the Laws of 1909 (formerly section 8 of the Business Corporations Law), and pursuant to the provisions of section 8 of the Business Corporations Law as enacted in 1909 (formerly section 9 of the' Business Corporations Law) the agreement was submitted to the stockholders of the respective corporations, and received the affirmative vote of the holders of 78 per cent, of the preferred stock and 81 per cent, of the common stock of Inter-Met. There were then issued and outstanding 457,400 shares of preferred stock and 932,261 shares of common stock of Inter-Met. ; '5,635 votes were east • against the consolidation, and of these 2,800 were preferred stock and 2,835 common. All of the preferred stock which voted against the consolidation has been converted into shares of stock of the Consolidated Co. The claimant did not avail herself of her right under the provisions of section 8 of the Business Corporations Law, as enacted by chapter 12 of the Laws of 1909 (formerly section 9 of the Business Corporations Law), to have her stock appraised and the value paid to her. The preferred stock of Inter-Met. was entitled to cumulative dividends at the rate of 5 pér cent, per annum. Only two quarterly dividends were ever paid on this preferred stock, to wit, the first two quarters in the year 1907. No dividends were ever paid upon the common stock of Inter-Met. By the agreement of consolidation a holder of preferred stock of Inter-Met. became entitled to exchange the same for a share of the preferred stock of the .Consolidated Co., which was entitled to non-cumulative dividends at the rate of 6 per cent, per annum. Prior to the consolidation of Inter-Met. Co. with F. & H. Co., the former had sustained losses through the shrinkage in value of its assets arising by the collapse of Metropolitan Securities Company and Metropolitan Street Railway Company. When the consolidation was brought about the first'balance sheet of Consolidated Co. reflected this loss. The assets were insufficient to pay the par value of the preferred and common stock of Inter-Met. Claimant here brought suit in the New York Supreme Court against Inter-Met. Co., asserting that she was entitled to 5 per cent, cumulative dividends upon her stock and demanding that Inter-Met. account to her for the earnings of the Consolidated Co. from and after the date of the consolidations. The action was brought to trial in 1918 and the complaint was dismissed on the grounds, first, that if there were any right of action at all it was against Consolidated Co.; and, second, that no action would lie against the Consolidated Co. because of the matters set forth in the complaint. The claimant does not allege fraud nor collusion to injure her rights, nor that any preferred stockholder was treated differently than she under the' consolidation agreement. Substantially all of the preferred stock of Inter-Met., with the exception of 1,325 shares, has been converted into stock of the Consolidated Co. Of the 1,325 shares not converted, claimant owns 300. The holders of substantially all the remaining 1,025 shares cannot be located. Consolidated Co. declared 12 quarterly dividends of 1% per cent, each, payable upon the preferred stock of Inter-Met. which remained outstanding, and under the decision of this court in Re Interborough (D. C.) 267 Fed. 914, the holders of such stock are entitled upon the surrender of their certificates of stock of Inter-Met. to receive shares of preferred stock of Consolidated Co., together with dividends aggregating 18 per cent, thereon. The funds for this purpose are held by the trustee, who, pursuant to the order of this court, is prepared to deliver the required amount of preferred stock of Consolidated Co. and the amount, payable as dividends with respect to the shares of stock of Inter-Met. held by claimant. No dividends were ever paid, nor was any other distribution ever, made, to the holders of common stock of either Inter-Met. or Consolidated Co. Claimant’s contentions are stated by her counsel as follows: “First. That she was not compelled to go into an appraisal, under the statute, of her preferred stock. “Second. That by virtue of the language of the certificate of preferred stock the corporation had made a contract with each ’preferred stockholder in the nature of a vested right guaranteeing dividends with interest thereon which was ‘a constituent, valuable, and an inseparable portion of.the stock,’ only awaiting the happening of the contingency provided for in the contract to become fixed; that this contract could not be canceled or ignored, but that the accumulated unpaid dividends had to be provided for in the consolidation, in addition to providing for the giving of new stock for the old stock, and that nothing was done in the consolidation making such provision.. “Third. That the claimant had an equitable right to have the value, not only of her stock, hut of her additional claim in the accumulative dividends ascertained, irrespective of any appraisal. “Fourth. That the claimant is not guilty of laches.”