WALKER v. DEVEREAUX ET AL.1

1833. IN THE COURT OF CHANCERY OF NEW YORK. 4 Paige's Chancery (New York) Reports 229-257.

[Application for an injunction to restrain defendants from holding an election of directors of the Utica and Schenectady Railroad Company, and also from disposing of stock which had been apportioned to them, or in which they were interested. The defendants were commissioners named in the act to incorporate the railroad company, to open books, receive subscriptions to the stock, distribute the same, and call a meeting for the election of directors, the act providing that: All persons who shall become stockholders pursuant to this act shall be and they are hereby constituted a body corporate by the name, etc. (Laws of 1833, p. 462, et seq.) There were, within the time limited, 2909 subscriptions received, and the stock was distributed to only 1423 of those who subscribed, and the others were notified to receive back the preliminary deposit paid. Plaintiff had received his money back. Some of the shares that had been distributed had been sold to bona fide purchasers. The complaint was that the commissioners had wrongfully recognized themselves as subscribers and had arbitrarily distributed the stock to themselves and their friends.]

THE CHANCELLOR (WALWORTH). The act under which the commissioners opened books of subscription to the capital stock of the Utica and Schenectady Railroad Company did not create a corporation, eo instanti, when that act took effect as a law. It only constituted such persons a body corporate as should thereafter become stockholders in the manner prescribed in the act. If the whole corporate stock, and no more, had been subscribed within the three days during which the commissioners were bound to keep the books open, then those persons who had thus subscribed and paid their money to the commissioners would have acquired legal rights as corporators. And they would also have had the right to call upon the commissioners, not as their agents or trustees, but as agents or officers of the public, to notify an election of directors, and to preside as inspectors thereof, by a committee of their body, as directed by the act. But in the event which has happened, of an excess of subscriptions, no person can be a stockholder of the corporation, neither does any corporation exist, nor has any person any interest in the stock, as the legal owner thereof, so as to authorize him to vote upon it, or to transfer it as stock, until a majority of the commissioners have proceeded to apportion the same, and to designate the persons who are to be the stockholders, and the amount which each is to receive. It is evident, therefore, if the counsel for the complainant are right in supposing 1 Statement of facts abridged. Arguments and part of opinion omitted. 25-WIL. CASES.

that the distribution in this case was absolutely void, and not merely voidable, that the election of directors, which they now seek to restrain by injunction, can not possibly affect the rights of their client. As there could be neither a corporation nor stockholders in existence until after the stock was apportioned, the commissioners did not hold the stock, nor did they act in the character of officers, servants, agents or trustees of the corporation or of the subscribers. But they acted merely as officers or agents of the government, appointed by the legislature to assist in the organization of a corporation and to create a stock in the same. The legislature might, by law, have designated the stockholders, as they had done in the case of other corporations, or they might have delegated that portion of their authority to others. But as they did not delegate that power to the courts, neither this or any other court has the power to create a corporation by designating who shall be the persons to hold stock in the same.

The appropriate tribunal, however, upon a proper application, may compel the commissioners to open books, to apportion the stock in the manner prescribed by law, and to notify and, by a committee of their body, preside at the election of the directors. Such a tribunal may also decide as to the proper construction of the act of incorporation, and can enforce a compliance with such decision. If the apportionment of the stock in this case was absolutely void, as the complainant insists it was, he has mistaken his remedy. He should, in that case, have applied to the supreme court for a mandamus to compel these public officers, or agents of the legislature, to distribute the stock, as required by the statute. And if it was necessary to apply to this court, either for a discovery or an injunction, in aid of, or as ancillary to his remedy at law, he should have stated in the bill either that he had applied, or that he intended to apply to the legal tribunal for relief. (Jones v. Jones, 3 Meriv. Rep. 173.)

I apprehend, however, the complainant is under a mistake in supposing that the apportionment of stock in this case was absolutely void. It was, at the most, voidable, even upon the principles upon which the complainant supposes it was absolutely void. And if any portion of the stock has been apportioned to persons who ought not to hold it, or if any one has received more than his share, under circumstances which would amount to a fraud upon the commissioners, or upon the law, such persons must be deemed to hold it for the benefit of all or some of the subscribers who have received no stock, or who have not received stock to the extent of their subscriptions.

It was not necessary in this case that the commissioners should give to each subscriber an equal or any other amount of stock. Where a distribution or apportionment is to be made between or among any number of persons, or a class of individuals, and no discretion is vested in those who are to execute the power of making the distribution or apportionment, each individual of the whole number, or class of persons named, is entitled to an equal share. But if the designation of a class or number of persons is made merely for the purpose of

pointing out those from whom the selection is to be made, giving to the person intrusted with the power a discretionary right of distributing among that particular class as he shall think proper, then the whole may be allotted to one or more of that class, to the exclusion of the others. Formerly the question as to the right of the person intrusted with the power to exclude any one of the class designated, by giving what was called an illusory portion, was frequently agitated in the courts, and produced much litigation. But the Revised Statutes have forever put that question at rest in this state.

By the 98th and 99th sections of the article relative to powers, it is declared, that where a disposition under a power is directed to be made to, or among, or between several persons, without any specification of the share or sum to be allotted to each, all the persons designated shall be entitled to an equal portion. But when the terms of the power import that the estate or fund is to be distributed between the persons so designated in such manner or proportions as the trustee of the power shall think proper, the trustee may allot the whole to any one or more of such persons, in exclusion of the others. (1 R. S. 774, and Revisors' Report on ch. 1, pt. 2, p. 61.) Although the power in the present case was to be exercised by these commissioners as the officers or agents of the public, and not strictly in the character of mere trustees of a power in trust, yet, as the legislature had established this general principle as one of the fundamental rules of construction in reference to powers, I must presume they meant the same rule of construction should be adopted in relation to the power granted to or conferred upon these commissioners. The only restriction imposed upon them, therefore, was that they should exercise the power according to the best of their judgment, and apportion the stock to such of the subscribers, and in such proportions, as a majority of them should deem most advantageous to the interests of the corporation. And there is no allegation in this bill from which I have a right to infer that the complainant believes they have not distributed the stock in this manner. Although it is alleged that the complainant is informed, and believes, they have distributed the stock principally among themselves and their relatives and friends, it would only be in accordance with the principles of human nature, were we to conclude, from that circumstance alone, they honestly believed that they and their friends would be more likely to appoint directors who would manage the concerns of the corporation well, than others would if the control of the corporation should be given to their opponents. In this, perhaps, they may have acted under a mistake, but that alone is not sufficient to authorize an interference with their distribution. Where a discretion is to be exercised according to certain fixed legal principles, especially when that discretion is to be exercised by a person or body acting as a court of justice, if the person or body intrusted with the power has mistaken the law, or violated such fixed legal principles, it may be a proper case for review and correction by the appropriate tribunal.

But if the legislature has intrusted the exercise of the power to the sole judgment and discretion of a particular person or body of individuals, no court is authorized to interfere with or control that discretion, provided it is exercised in good faith. In the recent case of The King, ex rel. Scales, v. The Mayor and Aldermen of London (3 Barn. & Adolph. Rep. 271), the late Lord Tenterden says, “if a matter is left to the discretion of any individual or body of men, who are to decide according to their own conscience and judgment, it would be absurd to say that any other tribunal is to inquire into the grounds and reasons on which they have decided, and whether they have exercised their discretion properly or not." The same principle is recognized in the case of The King v. The Justices of Norfolk ( 1 Neville & Man. Rep. 67), and in a variety of cases in our own courts. This point was also expressly decided by the vice-chancellor of the first circuit in the case of The Brooklyn Bank (1 Edwards' Ch. Rep. 371) where the powers of the commissioners were the same, substantially, as in the present case. Chancellor Sanford also admitted the correctness of this principle in the case which was before him relative to the distribution of the stock in the Commercial Bank of Albany; although he very properly decided that it was not applicable to the case then under consideration. (Meades v. Walker, 1 Hopkins' Rep. 591.) It is not necessary for the decision of the present motion that I should consider the question whether the commissioners could themselves become subscribers for the stock of the corporation. But as that question has been fully argued, it may save expense to the parties, and prevent further litigation in this case, if I proceed to dispose of that objection to the distribution at this time.

The general principles, that a trustee can not traffic in the subject of his trust, that no person shall be a judge in his own cause, and that a public officer can not do an act which is inconsistent with the duty he owes to another, or to the public, are well understood. And it certainly does seem to be inconsistent with these principles that the legislature should, in any case, permit commissioners for the distribution of stocks to decide between themselves and others what portion of such stock shall belong to the commissioners and what part they shall award to other subscribers. It certainly would better accord with these leading principles of law were the legislature to state, in express terms, what portion of the whole stock each commissioner should be permitted to take, and to prohibit him from taking, either directly or indirectly, any greater share, except in a case of deficiency in the amount subscribed. But where it was in the power of the legislature to give all the stock to certain individuals who had already become subscribers therefor, as was the case in relation to many of the early acts creating joint-stock companies, the legislature might unquestionably confer the power upon such individuals of deciding how much of such stock they would keep themselves and how much they would apportion to others. The question here is, whether the legislature, in the case now under consideration, expected or intended that

these twenty-one commissioners named in the act of incorporation should be permitted to subscribe for and receive a part of the stock of this company.

The fundamental principle to be observed in the construction of statutes, is to discover, if possible, the true intention of the law-giver. And when that intention is ascertained, the court is bound to give effect to such intention, whatever opinion the judge may entertain as to the wisdom or policy of the law; provided such intention does not contravene any principle of the constitution or transcend the powers of the legislature. It is therefore proper to refer to the provisions of the several acts authorizing commissioners and others to receive subscriptions for and to distribute the stock of moneyed and other corporations, and to the known usage under such statutes, for the purpose, of ascertaining whether the legislature intended that the commissioners in this case should be excluded from subscribing or receiving any portion of the stock, on account of the peculiar nature of their official duties in the distribution of the stock in case of an excess. The case of Haight et al. v. Day et al. (1 Johns. Ch. Rep. 18), came before this court, in 1814, upon a complaint against the commissioners for the distribution of the stock in the Catskill Bank, under a provision in the act of incorporation very similar to that which is now under consideration. The complaint in that case was that there was a gross inequality in the apportionment among the subscribers; and that the distribution was principally confined to the commissioners themselves, their relations and favorites. The bill also charged that the apportionment was unjust, fraudulent and corrupt. Yet, upon the answer of the defendants merely denying that they were governed by any improper motive in the execution of their trust, and alleging that they had apportioned the stock as they deemed discreet and proper, Chancellor Kent dissolved the injunction and permitted them to proceed, and to elect themselves directors to control and manage the institution.

It is suggested by the complainant's counsel that it does not appear by the report of that case that the objection was there raised that it was inconsistent with their character as commissioners to distribute the stock-to subscribe for and apportion a part thereof to themselves. It appears to me, however, impossible to suppose the chancellor could have overlooked this general principle, if he had considered it as applicable to the case, for, upon looking into the pleadings in that cause, on file in the register's office, a more appropriate case for the enforcement of that principle can hardly be conceived. The whole stock to be distributed was 6,000 shares; and more than six times that amount was actually subscribed by one hundred and twenty-three persons, including the twenty-two complainants, who subscribed between five and six thousand shares. Yet the four commissioners took about one-half of the stock to themselves, and gave all the residue, except 108 shares, to nine of their nearest relatives by blood and marriage, and to two or three other persons connected with them in business. And they dis