
    Missouri Pacific Railway, Plaintiff, v. Mercantile Trust Company, Defendant.
    (Supreme Court, New York Special Term,
    March, 1912.)
    Corporations—liability of stockholders to creditors — mode of corporate action and representation by officers and agents — mode of entering ■ into obligations and power of officers to make contracts — who may raise question of power of officers to transfer corporate assets.
    Where plaintiff’s predecessor, a railway corporation having the same name, by a trust indenture transferred to defendant, a trust company, all its shares of stock, for which certificates indorsed in blank, or accompanied by instruments of transfer in blank, were from time to time to be deposited with defendant as trustee by said corporation, subject to the trust agreement which did not contemplate that any additional security should be deposited, except par value stock for par value of bonds issued, and it is clear that the parties intended that the" stock should be pledged only in the amount of the bonds issued, the delivery of stock in excess of the par value of bonds called for does not place such stock under the operation and lien of the trust agreement. Until bonds were called for, the delivery of such stock constituted merely a bail- . ment, the stock being held subject to ihe order of the plaintiff, which could take the form either of call for bonds which would subject stock of equal par value to the lien of the trust agreement, or a call for the return of any balance of stock that had not been made subject to such lien.
    A provision of the trust agreement that said railway corporation should have no right to secure the withdrawal and release of any of the stock pledged under the agreement, except upon the redemp-' tion and payment of all the bonds, did not affect stock held by the defendant as bailee.
    Where, in an action to recover the possession of 27,450 shares of said stock against which no bonds had been delivered to defendant trustee, it appears that, deducting the stock in controversy, more than a majority of the stock any time issued and outstanding had been deposited with and was held by defendant in pledge against an equal amount of bonds which had been delivered, and no claim is made that plaintiff has not the right to call for bonds against the stock sought to be recovered, and there is no question of estoppel in the ease, the plaintiff is entitled to judgment.
    As the acts of plaintiff’s officers could not be fairly construed as an attempt to subject the stock in question to the operation of the trust agreement until the delivery of bonds against such stock should be called for, a claim that the stockholders at each annual meeting since the execution of the trust agreement had, by resolution, ratified said acts, is untenable.
    Action to recover possession of stock.
    Chadbourne & Shores, for-plaintiff.
    Alexander & Green (Charles C. Deming and William Woart Lancaster, of counsel), for defendant.
   Giegerich, J.

The action is brought to recover possession of 27,450 shares of the aggregate par value of $2,745,000 of the stock of the St. Louis, Iron Mountain and Southern Railway Company. The defendant claims the right to retain the stock as trustee under a trust indenture- made between the defendant and the plaintiff’s predecessor, which was a corporation bearing the same name as the plaintiff. The trust indenture referred to is dated February 15, 1905, and, among other things, contains the following: “ Whereas the Railway Company has duly determined and resolved to secure the payment of the principal and interest of said •bonds by executing this trust indenture and by depositing with the Mercantile Trust Company, as trustee, subject to the trusts and conditions hereof, ten (10) shares of the capital stock of St. Louis, Iron Mountain & Southern Railway Company for every $1,000 par value of said bonds issued hereunderand the following: “Article Second. The bonds authorized to be issued under and secured by this trust indenture shall immediately upon the execution and delivery hereof, or as soon thereafter as may from time to time be required by the Railway Company, be certified by the trustee and delivered to the Railway Company, or upon its written order under its corporate seal, executed by its president or one of its vice-presidents and by its secretary or treasurer, as follows: Whenever the Railway Company shall tender or cause to be tendered to the trustee hereunder certificates for any of the shares of the capital stock of St. Louis, Iron Mountain & Southern Railway Company in amounts of one thousand dollars ($1,000) par value or any multiples thereof, accompanied by instruments of transfer in blank or indorsed for transfer in blank, the trustee shall receive said certificates and in exchange therefor shall certify and deliver to the Railway Company or upon its order, as aforesaid, an amount of bonds issued under this trust indenture equal in face value to the par value of the shares of capital stock so tendered and received, but the total amount of bonds at any one time issued and outstanding under this trust indenture shall never exceed the principal amount of $50,000,000. Such shares of capital stock received by the trustee under this section shall be held by it subject to all the terms and provisions of the trust indenture as security for the pro rata payment of the bonds from time to time issued and outstanding hereunder, together with the interest thereon.” The railway company further agreed to cause at least a majority of. all the capital stock of the'said St. Louis, Iron Mountain and Southern Railway Company to be pledged under the trust indenture and deposited with the trustee. Shortly after the execution of the trust indenture the plaintiff delivered to the defendant 250,000 shares of stock of the par value of $25,000,000, and received from the defendant bonds to. the amount of $25,000,000. Thereafter, at various times, the plaintiff delivered to the defendant three several certificates of stock for'50,000 shares each, and in each case such delivery was specified to be as follows-: “ To you ” (meaning the defendant) “ as trustee, as aforesaid, to be held by you subject to all the terms and conditions of the above named trust indenture.” With the delivery of the first df such three certificates there was a request made upon the defendant in the following form: “ Will you please certify and deliver to this company $1,656,000 par value bonds under said trust indenture against an equal amount in face value of said shares deposited with you, namely, $1,656,000.” Thereafter, on identical requests for deliveries, except as to the amounts, stretching over an interval of several months and in varying installments, other deliveries were called for until upward of $3,500,000 of bonds had been delivered against the $5,000,000 of stock so deposited. Then on May 22, 1908, the plaintiff deposited another certificate of the par value of $5,000,000' with a similar letter of transmittal, and the next day called for and received a delivery of upward of $4,000,000 in bonds, and thereafter, stretching over a period of several months and in various installments, the plaintiff called for and received various other deliveries until the aggregate amount of bonds so delivered approximated the value of the stock up to that time pledged. Thereafter and on ¡November 16, 1908, the plaintiff, with a like letter of transmittal, delivered to the defendant another certificate of stock of the par value of $5,000,000, the receipt of which was acknowledged by the defendant in the following form:

“ ¡New Toeic, November 16, 1908.
“ The Missouei Pacific Railway Company, A. H. Calef, Esq., Treasurer, No. 195 Broadway.
Deab Sie.—■ We beg to acknowledge the receipt of your favor of even date handing us certificate ¡No. 03218 for 50,000 shares of the capital stock of the St. Louis, üron Mountain & Southern Railway Company in the name of George J. Gould, trustee, and indorsed in blank, to be held by this company, trustee, as collateral to your company’s mortgage securing the 40-year 4/o gold loan bonds.
“ Very truly yours,
“(Sgd.) Guy Richards, Secretary.”

Thereafter, pursuing the same course as previously followed, and in each case upon similar orders for deliveries of bonds, specifying the amount and the fact that they were to .be against an equal amount in face value of the stock,” the plaintiff called for and the defendant delivered bonds in numerous installments and comparatively small amounts stretching over a period of upward of a year until bonds of the par value of $2,255,000 had'been "issued against the last certificate of stock so deposited, leaving 27,450 shares of stock of the aggregate par value of $2,745,000 against which no bonds had been issued and delivered. The aggregate amount of bonds up to that time delivered was $37,255,000, and the aggregate amount of stock deposited and held in pledge against such bonds, if the amount of stock in controversy is' deducted, would leave a similar total, namely, $37,255,000 of stock, which amount constituted a majority of the stock then or at any time issued and outstanding. In fact it seems to be conceded that the first deposit of $25,000,000 of stock constituted a majority of the outstanding stock. The defendant claims that it is its right and duty to retain the stock in controversy. One ground upon which this claim is based is the broad character of the granting clause contained in the trust indenture, which is as follows: “ The Missouri Pacific Railway Company, party of the first part hereto, has granted, bargained, sold, assigned, transferred and pledged, and by these presents doth grant, bargain, sell, assign, transfer and pledge unto the Mercantile Trust Company, as trustee, upon the trusts and subject to the terms and conditions in this trust indenture expressed, all and singular the shares of the par value of $100 each of the capital stock of St. Louis, Iron Mountain & Southern Railway Company, for which certificates, indorsed in blank for transfer or accompanied by instruments of transfer in blank, shall from time to time be deposited with said trustee by the Railway Company subject to the provisions of this trust indenture.” I cannot agree, however, that the clause just quoted has the sweeping effect claimed for it. The meaning of the contract must be arrived at by a consideration of it in its entirety, keeping in view its object. To my mind it is quite clear that the intention of the agreement was that stock should be pledged in the amount of the bonds issued and in no greater amount. Por purposes of convenience the plaintiff did at various times deliver to the defendant stock in excess of the par value of the bonds called for, but such delivery did not place the stock so delivered under the operation and lien of the trust agreement. Until bonds were called for against the stock so delivered such delivery constituted merely.a bailment, and siich stock was held by the defendant subject to the order of the plaintiff, and such order could take the form either of calling for bonds, which would thereby subject stock of an equal par value to the lien of the trust indenture, or it could call for the return of any balance of stock that had not thus been brought under such lien. Even if the officers of the defendant company had attempted in plain terms and by unequivocal acts (which they did not) to transcend the terms of the trust indenture and to deposit stock in excess of the amount of bonds called for they would have been clearly without authority to bind the corporation by such acts. The authority of. the officers in the matter under consideration is contained in a resolution of the board of directors of the plaintiff company adopted on the 8th day of December, 1904, and being as follows: Further resolved that upon the authorization of said trust indenture by the stockholders of this company and the execution and delivery thereof by the proper officers of this company, said officers be, and they are, hereby authorized to deposit and pledge with the trustee thereof from time to time such amounts of the capital stock of St. Louis, Iron Mountain & Southern Railway Company owned by this company as may be necessary to secure the certification and delivery of bonds under said trust indenture in such amounts as may be required.” Thereafter the stockholders adopted a resolution on the same subject as follows: “ Further resolved' that upon the execution and delivery of said trust indenture by the proper officers of this company said officers be, and they are, hereby authorized to deposit and pledge with the trustee thereof from time to time such amounts of the capital stock of St. Louis, Iron Mountain & Southern Railway Company as may be necessary to secure the certification and. delivery of bonds under said trust indenture in such amounts as may be required.” There is nothing in the by-laws of the company which could be construed as enlarging the authority thus conferred upon the officers. It is plain, therefore, that their authority was limited to depositing and pledging with the trustee only so much stock as might be. necessary to secure the certification and delivery of bonds in such amounts as might be required from time to time, and the only amount of capital stock that was ever necessary to deposit and pledge to secure the delivery of any bonds was an amount equal to the amount of the bonds, and any attempt to deposit and pledge any stock in excess of such amount would have been unauthorized and null. It might be further remarked that there is no provision whatever anywhere in the trust indenture. indicating in any way that it was contemplated by the parties that any additional security of any character should be deposited except par value of stock for par value of bonds issued. If there were any such provision in the trust indenture in its original form, or any such had been added by subsequent modification, then any further security thus deposited and pledged would be for the benefit of the bonds up to that time issued and could not be wiped out or absorbed by the subsequent issue of bonds against such additional security. The defendant does not, however, make any claim that the plaintiff has not a right to call for bonds against the stock in question. It should be further observed that there is no question of estoppel in this case. The value of. the ' bonds already issued would be the same whether the plaintiff were permitted to withdraw the stock in controversy or should call for the delivery of bonds against it. In either event each bond of $1,000 would have as security ten shares of' stock, nothing more and nothing less, just as the trust indenture specifies and contemplates. The only provision of the trust indenture relative to the amount of stock that should be pledged is that a majority of the issued and outstanding stock should be so pledged, and there is' no dispute but that this requirement has been complied with, thus placing in the hands of the trustee what was stipulated for, namely, control of the company through 'the possession of a majority of-its stock. The trust indenture contains a provision that the railway company shall have no right to secure the withdrawal and release from the trust of any of the stock pledged tinder the agreement except upon the redemption and payment of all the bonds; but this does not affect the stock in question because, as I have endeavored to show above, that stock has not been pledged, but merely delivered to the defendant as bailee. The defendant also claims that the stockholders have ratified the acts of the officers by virtue of the following resolution adopted at each annual meeting held since the execution of the trust indenture, namely: “ Resolved, that each and all of the resolutions, acts and proceedings of the board of directors and of the executive committee of the Missouri Pacific Bailway Company heretofore had and adopted at their several meetings respectively, whenever and wherever held since March 8, 1904, as shown by their records in the minute book of .this- company, and each and all of the acts of the officers of this company in carrying out and promoting the purposes, objects and interests of this company be, and the same are, hereby approved, ratified and cunfirméd, and fully adopted as and the same are hereby made the acts" and doings of this corporation.” The validity of the ratification claimed to have been given by such a resolution depends upon knowledge of the facts on the stockholders’ part (Bowers v. Male, 111 App. Div. 209), and such knowledge is not shown in this case. Furthermore, if it were, shown that the stockholders had been informed of every act of their officers there would still be no ground on which to base a claim that there had been a ratification of unauthorized acts; because, as pointed out above, the things done by the officers cannot fairly be construed as attempting to subject the stock in question to the operation of the agreement of indenture until the delivery of bonds against such stock should be called for. There should be judgment for the plaintiff, with costs.

Judgment for plaintiff, with costs.  