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that its ordinance was valid, and to act upon 6. Where money was loaned by a corporation that assumption, which it has done.

holding a majority of the stock of various con.

stituent corporations to one of such companies, We think, moreover, that the question

neither the latter company, nor its stockholders, whether the use of the highway was a rea prior to the repayment of the debt, were entisonable one in view of the facts was for the tled to allege that the holding company had ilmunicipality, and not for the court.

legally charged such company with usury, in

the form of additional expenses incident to The application is denied.

making a loan, and interest thereon.

7. Where under an agreement between the holder of an option on certain distilling companies, which were to be sold to the K. Co.,

the option holder was entitled to apportion the 164 N. J. E. 537)

consideration received from the K. Co, among DITTMAN et al. v. DISTILLING CO. OF the different grantors, and under such reservaAMERICA et al.

tion a payment in cash and stock of the K. Co.

was delivered to one of such grantors, such (Court of Chancery of New Jersey. March 28,

payment could not be questioned in a subse1903.)

quent suit against a corporation into which the

K. Co. was subsequently merged, the TRUSTS-CORPORATIONS-HOLDING STOCK OF OTHER CORPORATIONS--POWERS - MONOPO

ground that it constituted a misappropriation LIES-SUIT BY STOCKHOLDERS-QUO WAR

or a diversion of the K. Co.'s assets. RANTO-DIVERSION OF ASSETS-USURY-UL 8. Where a corporation was authorized to TRA VIRES - BILL AMENDMENT MULTI manufacture and sell whisky and spirits either FARIOUSNESS.

at wholesale or retail, and to purchase the 1. Under Rev. Laws 1875, p. 6, § 10, provid stocks of other corporations for such purpose, ing that corporations may be organized for cer it had power to organize and hold the stocks tain specified purposes, “or any lawful busi of corporations in other states through which Dess or purpose whatsoever," and Corporation it sold its manufactured product. Act 1896, p. 294, § 51, providing that corpora 9. In the absence of evidence to the contrary, tions organized thereunder are authorized to it must be presumed that the laws of West hold shares of stock of any other corporation, Virginia are similar to the laws of New Jera corporation created for the purpose of hold sey, so as to authorize a corporation formed in ing stock and controlling the operations of oth New Jersey to exercise in West Virginia the er corporations was organized for "a lawful powers conferred _upon it by its charter and purpose,” and was entitled to purchase and the laws of New Jersey. hold such stock.

10. Where a bill was brought against a cor2. Where it was alleged that a corporation poration organized to hold and control tha organized for the purpose of purchasing, and stock of other corporations, to dissoive the holding stock in other corporations was illegal, same for illegality, and against the corpora. as organized to create a monopoly, but such tions whose stock was so held, a requested monopoly, if any existed, arose from the exer amendment to the bill alleging that complain. cise of the powers conferred on the corporation ants, as preferred stockholders of one of the by its charter or certificate of organization, constituent companies, were entitled to receive such question could not be determined in a a stated quarterly dividend from the net profits court of equity at the suit of a stockholder, of its business, and that such dividends had but could only be considered on quo warranto, been accumulated, but not paid, and praying on relation of the Attorney General, to oust the payment thereof, could not be allowed, since, corporation from its franchises,

as it affected but one of the parties to the suit, 3. Where it was alleged that a corporation it would have rendered the bill multifarious. authorized to purchase and hold stock in another corporation had created a monopoly, but

Suit by Henry I. Dittman and others such monopoly, if it existed, arose from the against the Distilling Company of America exercise of the corporation's power, expressly and others. On final hearing and application granted in its charter, to make contracts for the purchase of such stock, the exercise of

to amend bill. Application denied. Bills dissuch power could not be enjoined.

missed. 4. Where certain property of a corporation which was merged in another corporation, cre

J. 0. H. Pitney and Messrs. Lindsay and ated for the purpose of holding and controlling Kremer, for complainants. Messrs. Lindathe stock of such corporation and others en bury and Mayer and Alexander & Green, for gaged in the same line of business, was mort defendants. gaged to secure bonds, which were thereafter pledged to secure a loan on its becoming impossible to sell the bonds, which loan was ne.

EMERY, V. In this case an original gotiated to provide a working capital for all bill was filed August 17, 1900, and an amend. the constituent companies, and thereafter the

ment to the bill on March 6, 1902, and on the holding company issued its own collateral bonds to raise money for the same purpose, a

argument on final hearing at the close of the part of which had been loaned to the merged proofs an application for a further amendment corporation as working capital, and on pay to the bill was made. This application to ment of which such corporation was entitled to a return of the bonds issued on security of the

amend is opposed. The issues raised upon the mortgage so executed, an allegation in a stock pleadings and proofs are substantially as folholders' action that the assets of the merged lows: Complainants are owners and holders of corporation were being improperly diverted, by preferred stock of the Kentucky Distilleries reason of such mortgage, for the benefit of the holding company, was not sustained.

& Warehouse Company, organized under the 5. Where a corporation organized to hold and laws of this state on February 3, 1899. On control the stock of other corporations nego July 11, 1899, the Distilling Company of tiated a loan to obtain a working capital for the corporations merged, one of the constituent

America was organized also under the laws companies, to which a portion of the money so

of this state. Among the designated objects raised was loaned, was properly charged with for which this latter company was formed its proportion of the expenses incurred by the was (article 3i) the purchase and holding holding company in negotiating the loan.

of the shares of stock or property of other 11 See Corporations, vol. 12, Cent. Dig. $$ 16, 17. corporations of this state or elsewhere, and

the operation of such properties, exercising That the assets of the Kentucky Company the rights of owners of the stock, including have been unlawfully and improperly divertthe right to vote thereon. Although one of ed for the benefit of the Distilling Company. the objects for which it was organized was to Fourth. That the directors of the Kentucky manufacture, sell, and distribute whisky and Company have unlawfully diverted its assets spirits, the Distilling Company has not in and property, by the organization and manfact engaged in such manufacture or sale, agement of subsidiary companies, to which but is altogether a company holding the the Kentucky Company has conveyed porstocks of several constituent companies, thus tions of its assets in consideration of stock managing or controlling the business of all in the subsidiary companies. the companies. These constituent companies In reference to the first question-the auare five in number, all engaged in the manu thority of the Distilling Company to hold the facture, sale, or distribution of whiskies or stock of the Kentucky Company and of the spirits. They are the Kentucky Distilleries other constituent companies, and to act mere& Warehouse Company, the Spirits Distribut- ly as a holding or operating company-the ing Company, and the Standard Distilling & status of our legislation and decisions is as Distributing Company, three companies or follows: Previous to 1893, corporations organized under the laws of New Jersey; the ganized under the general corporation law American Spirits Manufacturing Company, (Revision of 1875, p. 3) had no express statuorganized under the laws of New York; and tory authority to purchase or hold the stock the Hannis Distilleries Company, organized of other corporations, or to vote thereon. under the laws of Maryland. All of these This Revision of 1875, p. 6, § 10, specified companies are parties defendant to this suit, the numerous purposes for which corporaexcept the Hannis Distilleries Company. The tions might be organized, adding at the end Distilling Company is the owner of over 90 of the specified purposes “or any lawful busiper cent. of the capital stock of each of these ness or purpose whatever.” In Ellerman v. companies, and of substantially all of the Chicago Junc. Ry. Co., 49 N. J. Eq. 217, 23 stock of the Hannis Company. It became Atl. 287 (Green, V. C., 1891), it appeared that such owner by issuing its own shares for the Junction Company was incorporated to the purchase from the individual holders of purchase, hold, sell, etc., and deal in, the the stock of the constituent companies; the stock of a company called the Transit Comrelative values of the stock of the several pany, incorporated under the laws of the companies, and the amount of Distilling Com state of Illinois, and also, in the promotion pany stock issued therefor, being fixed by of its corporate business, to purchase the an agreement dated June 21, 1899, called stock of any corporation, and in respect to it the “Deposit Agreement,” under which stock exercise the rights and privileges of ownerholders in each of these companies desiring | ship. The stock of the Transit Company, to to sell their stock deposited it with a trust the extent of about 130,000 of the entire company, through which the deliveries or 132,000 shares, was purchased by the Juncexchanges were carried out upon the subse tion Company for about $22,600,000, the monquent incorporation of the Distilling Com ey being raised by the issue of bonds of the pany. Complainant and other stockholders Junction Company, secured by the Transit of the Kentucky Company to the amount of stock purchased and the sale of about $12,about 4,000 shares have not consented to ex 500,000 of the entire capital stock ($13,000,change their preferred stock, but complain-000) of the Junction Company. Ellerman, a ants have exchanged their common stock for stockholder of the Junction Company, filed a like stock of the Distilling Company.

bill attacking the validity of an agreement The grounds for relief set up in the original made by the Junction Company with Armour and amended bill which were relied on at and others subsequent to the acquisition of the argument on final hearing may be classi his stock; one objection being that the comfied as follows: First. That the Distilling pany agreed to purchase the stock of a cerCompany is not authorized, under its cer tain other company--the Tolleston Company, tificate of organization or under the laws a corporation of the state of New Jersey. of the state of New Jersey, to purchase and Vice Chancellor Green held (page 245, 49 N. hold the stock of the Kentucky Company or J. Eq., page 297, 23 Atl.) that inasmuch as the other constituent companies for the pur by its certificate of organization the corporate pose of controlling their operation. Second. business of the Junction Company was to That one of the objects of the organization acquire and deal in stock of the Transit of the Distilling Company, and of the trans Company, and to do anything authorized by fer to it of the controlling interest in the its charter to increase the value of this stock, stock of the constituent companies, was the and inasmuch as the purchase of the Tolcreation of a monopoly in the manufacture leston stock was shown to have been for the and sale of spirits, alcohol, and whiskies; purpose of increasing the value of the Transthat such monopoly has been in fact created; it Company's business, it was within the powthat such monopoly is unlawful, and renders er contemplated by the charter certificate. the Kentucky Company liable to the pains The right of the Junction Company to purand penalties of the laws in restraint of chase and hold the shares of the Transit monopoly, and endangers its property. Third. Company-the principal object of the creation

of the company-was not questioned in the is in general a lawful act; and the organizaEllerman suit (opinion, page 231, 49 N. J. tion of a partnership for the purpose of such Eq., page 292, 23 Atl.), and the validity of ownership and control, either alone or in conthis purchase seems to have been assumed nection with other objects, is unquestionably by complainants as the basis of their own a lawful object or purpose of association of claim (opinion, page 239, 49 N. J. Eq., page individuals. The only theory upon which the 294, 23 Atl.) that the right to purchase stock formation of corporations for the purpose of was by the certificate limited to stock of the holding stock of other corporations can be Transit Company, and could not be extended held not to be a “lawful purpose," within to the stock of the Tolleston Company. In the meaning of the act, is that an authority the subsequent suit brought by another stock to own the stock and control the manageholder of the Junction Company (Willoughby ment of other corporations must be given v. Chicago Junction Railway Co., 50 N. J. expressly and in terms in the section authorEq. 656, 25 Atl. 277; October, 1892) attack izing the formation of companies, in order ing the validity of the same agreement which to be lawful. This power to own and conhad been sustained in the Ellerman Case, trol stock of other corporations is expressly complainant attacked the validity of the in given by a subsequent section to all corpocorporation of the Junction Company upon rations, when organized, and to the same the ground that the purchase and holding of extent as individuals. Such ownership of the stock of another company, and the con stock is therefore a lawful act. This legistrol of such company, were invalid and con lative declaration as to the lawfulness of the trary to law. The conclusiveness of the de ownership of stock by corporations precludes cree in the Ellerman Case, affirming the va the courts, as it seems to me, from declaring lidity of the agreement, was impeached by that such ownership cannot be included withreason of the alleged collusive character of in the “lawful purposes" for which a corthat suit. Unless so impeached, the court poration may be formed, merely for the reaheld the decree in the Ellerman suit to be son that it is not expressly and specially conclusive upon this and other points in authorized in the section of the act defining volved. Vice Chancellor Green (page 675, the purposes of incorporation.

What pur676, 50 N. J. Eq., pages 284, 285, 25 Atl.) poses are "lawful,” within the meaning of and Vice Chancellor Van Fleet, who sat with this section, must be ascertained by reference him (page 701, 50 N. J. Eq., page 294, 25 to the scope of the laws in force declaring Atl.), declined to consider the question of the the lawful character of acts; and, taking the right to organize a company for the purpose whole scope of the act, it would seem that of holding stock of another company, upon the ownership of stock in other corporations, the grounds (1) that, as a rule, such questions either alone or in connection with other obcan only be presented by the Attorney Gen jects, as the purpose of the corporation, is a eral, acting on behalf of the state; and (2) purpose of incorporation authorized by the that the failure to raise this question in the act. I have considered this question as one Ellerman suit, which was based on the va which the complainants had the right to lidity of the incorporation, was certainly not raise, on the assumption that, as owners of evidence of collusion in the Ellerman suit. the Kentucky Company stock, they might The decree in the Ellerman suit was there have the right to question the control of the fore held to be conclusive on the question as Kentucky Company by another corporation to all of the stockholders, as I understand which had no right to hold or vote upon its the opinion. After these decisions, and on stock. The status of the complainants may March 14, 1893, a supplement to the corpora be different from that of the complainants tion act was passed (P. L. 1893, p. 301), au in the Ellerman and Willoughby suits, and thorizing corporations organized under the these cases may, perhaps, not control this act to purchase and hold shares of stock of any case upon this point. But there are unother corporation of this or any other state, doubtedly very grave difficulties as to the and to exercise, while such owners, all the trial or settlement of this question in a suit powers, including the right to vote thereon, like the present, or as to giving herein the which natural persons, as owners, could ex appropriate relief, if the holding of the stock ercise. This provision was included in the and control of the Kentucky Company by the Revision of 1896, p. 294, as section 51 of the Distilling Company had been found to be corporation act, and is the law now in force. illegal, and in this decision I do not intend

to

ration act was repealed, the specification of The second claim for relief is that one of

the purposes of incorporation made in the previous acts was omitted, and incorporation was authorized "for any lawful purpose or purposes whatever other than savings banks,” and other specified purposes, such as railroads, canals, etc., not important for present purposes. The ownership of stock, and control of corporation by means of such ownership, by either an individual or partnership,

the objects of the organization of the distilling company, and of the transfer to it of the controlling interest in the stock of the constituent companies, was the creation of a monopoly in the manufacture and sale of spirits, alcohol, and whiskies, and that such monopoly has been created. This claim is not well founded, and for two reasons: First, the proofs fail to establish the monopoly

charged; and, second, the monopoly, if any exists, arises from the exercise of powers given by the charter or certificate of organization. Where no right of property in complainant is at stake, a court of equity has do power to declare unlawful the exercise by a corporation of the powers conferred by its charter, even though the purpose of the organization may have been unlawful. The right of the Attorney General, on behalf of the state, to question in a court of equity the exercise by corporation of its powers under its charter for the purpose of creat

ing a monopoly was expressly denied by • Vice Chancellor Reed in Attorney General

T. American Tobacco Company, 55 N. J. Eq. 352, 369, 36 Atl. 971 (1897), and his opinion was adopted on appeal (Miller v. Tobacco Co., 56 N. J. Eq. 847, 42 Atl. 1117 (1898). In this suit, also, the right of an individual to equitable relief was denied. Attorney General v. Tobacco Co., 55 N. J. Eq. 378, 36 Atl. 971. The reason upon which this decision as to want of equitable jurisdiction is based is that any order or decree of a court of equity restraining a corporation exercising private, and not public or quasi public, franchises, from acts which are within the powers conferred by its charter or certificate of incorporation, is pro tanto an annulment of its charter. It is therefore to that extent an ouster from its franchises, and such ouster is rightful and legal only when made by judgment upon quo warranto-a proceeding brought to test the very question on behalf of the state in the Supreme Court, which has, under the Constitution, exclusive jurisdiction. Attorney General v. Tobacco Co., 55 N. J. Eq. 367, 36 Atl. 971. This rule does not prevent a court of equity from restraining quasi public corporations from acts beyond their corporate powers, where such acts involve a public nuisance or other public injury. Id., 55 N. J. Eq. 366, 36 Atl. 971. This decision is conclusive upon the right of the complainants to raise the question that the effect of the charter and acts under it is to create a monopoly. If, however, it should be considered that this question is now properly before the court for determination, the decision of the Court of Errors and Appeals in Trenton Potteries Co. v. Oliphant, 58 N. J. Eq. 507, 43 Atl. 723, 46 L. R. A. 255, 78 Am. St. Rep. 612 (1899), would seem to be fatal to the complainants' contention. It was expressly decided in that case (see pages 524, 525, 58 N. J. Eq., pages 729, 730, 43 Atl., 46 L. R. A. 255, 78 Am. St. Rep. 612) that where a monopoly results or may result from the exercise of the power of making contracts expressly granted by the Legislature to corporations, such exercise of power cannot be enjoined. This is upon the ground that the Legislature granting the power must be taken to have made a final and authoritative decision upon the question of public policy as to the creation of the monopoly thus resulting.

The third claim for relief is the unlawful and improper diversion of the assets of the Kentucky Company for the benefit of the Distilling Company. The only specific charge of such diversion of assets made in the bill was in paragraph 12, which charged that the directors of the Kentucky Company, acting under the control of the Distilling Company, on or about January 1, 1900, caused a mortgage or trust deed of $5,000,000 to be executed by the Kentucky Company upon all its property and assets, present and future, to secure bonds of that amount, and that contrary to the usual course of business, and contrary to the interests of the Kentucky Company, a considerable portion of these bonds were hypothecated by the directors of the Kentucky Company (five of its seven directors being also directors of the Distilling Company), and have been pledged in the proportion of $1,000 of bonds to secure $100 of loan; that no proper occasion existed for borrowing money for the Kentucky Company; and that the execution and pledging of the bonds was part of the general scheme for a diversion of the assets of the Kentucky Company, and the purpose of executing this deed and making these loans was to bring about the foreclosure of the mortgage on a comparatively small loan, so that the interests of complainants and other stockholders of the Kentucky Company might be cut off. The answer claims that this mortgage or trust deed did not cover the whisky, book accounts, and personal property of the Kentucky Company, worth many millions of dollars; that the mortgage was duly authorized by two-thirds of each class of stockholders, as required by the articles of association, and that, with the exception of $1,500,000, all the bonds were at the time of the answer still in the possession of the Kentucky Company; that the bonds and deed were authorized to provide additional working capital which was necessary; that the bonds could not be sold at a satisfactory price, and therefore part of the bonds were used as collateral security for loans, not over $1,500,000 being deposited at any time, and that amount is held as collateral securi. ty for a loan of $500,000 made February 16, 1900, to run for two years, payable by the Kentucky Company at any time on 30 days' notice. It appears by the proofs that this loan of $500,000 has since been paid off, and that the $1,500,000 bonds were returned to the Kentucky Company. Subsequently, and on the recommendation of a committee of the stockholders of the Distilling Company, called the “Protective Committee," a plan for securing necessary working capital for all the constituent companies was recommended and carried out, under which the Distilling Company issued its own collateral trust bonds for $5,000,000, and has disposed of something over $4,000,000 at 80 cents on the dollar. The proceeds of the sale of these bonds have been turned over to the Distilling

Company, which has loaned to the Kentucky cent. for redeeming the bonds, and to be Company for working capital over $3,500,000, credited with the proportion of the price which is still unpaid. The $5,000,000 bonds paid, under 80, for the redemption. Up to of the Kentucky Company constitute a por the time of the hearing, none had been retion of the collateral for the collateral trust deemed under 80, and the additional sum of bonds of the Distilling Company. The col $15,000 had been charged as the Kentucky lateral trust agreement or mortgage, how Company's share of the expense of redeemever, provides that, when the Kentucky Com ing the bonds payable during the first year. pany pays off what it owes to the Distilling It is claimed that these charges against the Company of America, these $5,000,000 Ken Kentucky Company are usurious, inequitatucky bonds are to be returned to the Ken ble, and unfair. The objection as to the tucky Company. As the $5,000,000 Kentucky equity of the charge appears to be unfoundCompany bonds were originally deposited ed, and I can see no equitable reason, unwith the Distilling Company to secure mon der the circumstances disclosed by the eviey due and to become due to it from the dence, why the Kentucky Company should . Kentucky Company, this company would not pay its proportion of the expenses inci. seem to be fully protected against the diver dent to loans made for its benefit, as well sion of any of its assets secured by the as that of the other companies, and which mortgage to pay any other loans or indebt it has secured and used for its own purposes. edness than its own indebtedness to the Dis It must be borne in mind that since the act tilling Company for money borrowed and of April 3, 1902 (P. L. p. 459), corporations used for its own purposes. The questions can no longer set up the plea of usury on to be considered at the hearing as arising any obligations executed by them, even if out of this transaction were therefore re this transaction between the companies duced to two. The first is whether the loan comes within the scope of the usury acts. from the Distilling Company to the Ken But these questions as to the liability of the tucky Company was within the proper ex Kentucky Company for interest alleged to ercise of the judgment and discretion of the be usurious, or for charges for expenses directors of the Kentucky Company, acting

claimed to be inequitable, are plainly prefor the interest of the company and all its mature. None of these charges or expenses stockholders, or whether it was an abuse of have been in fact paid, and the Kentucky their authority and control, exercised for the Company has not yet paid or offered to pay benefit of the Distilling Company only. The its loan of $3,500,000—the money actually proofs fail to establish any case of the abuse received, with legal interest-all of which is or fraudulent exercise of the directors' pow undoubtedly due; and, until it does so, all ers in the management of the company in questions as to the legality of charging admaking this loan, or to show any reason for ditional expenses or additional interest beinterference by this court with their judg fore returning the bonds or other evidences ment, which appears to have been made with of debt to the Kentucky Company are preentire good faith. The second objection to mature. When the Kentucky Company has this loan is one made by the amended bill in fact paid, or offers to pay, the admitted after the facts relating to the mortgages debt, with legal interest, the question whethand loan had been developed. This is, that er any additional payments or charges can in addition to 6 per cent. interest on its be enforced against it by the Distilling Comloan to the Kentucky Company, the Dis pany, or, if actually made by the Kentucky tilling Company has charged to the Kentucky Company, should be returned to it, may, perCompany the sum of $217,591.35 for ex haps, be brought in question in appropriate penses on procuring the loan, and that the

proceedings brought to test the question; but, Kentucky Company is still liable to pay a until payment of the admitted debt is made further large amount-between $400,000, and or tendered, decision upon the question is pre$500,000. This item of $217,591.35, as ap mature, and therefore unnecessary. By the pears by the answer and the evidence, is amended bill two other classes of diversion the proportion of the entire expense of ob of assets of the Kentucky Company are altaining the loan on the Distilling Company leged. One is that in 1899, and shortly after collateral trust company bonds (about $292, the organization of the Kentucky Company, 000), which is chargeable to the Kentucky this company paid over to the American Company on the basis or proportion of the Spirits Manufacturing Company more than amount of the proceeds received by the Ken $1,000,000 in money or in the capital stock tucky Company. The latter company bas of the Kentucky Company; that this was not as yet paid to the Distilling Company done in anticipation of the organization of any portion of this amount of $217,500. The the Distilling Company, which organization $4,000,000 bonds issued by the Distilling Com was then contemplated by the persons now pany were sold at 80, were payable in ten controlling the three corporations, in order years, $500,000 are redeemable each year, that the Distilling Company, as the owner and, by the arrangement or accounts of the of the large majority of the stock of the lean kept between the companies, the Ken Spirits Manufacturing Company, might se tucky Company is to be charged with its cure the benefit of this misappropriation of proportion of the price paid, over 80 per the assets of the Kentucky Company. These

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