
    METROPOLITAN ELEVATED Rw. Co. v. MANHATTAN Rw. Co.
    N. Y. Common Pleas, Special Term ;
    
    April, 1884.
    Action to Cancel Contract ; when maintainable.—Defenses, equitable and legal.—Pleading.—Parties.—Corporations. —Railroads ; directors’ power to modify lease. —Trusts and Trustees.—Fraud.—Injunction.—Laches.—Bill of Peace. —Former Adjudication.—Waiver.—Contracts, rescission of.—Charter of Corporation, and Construction of.— Stockholders.—Principal and Agent. — Attorney and Client.—Disabilities of Common Directorship.—Evidence.
    Since equitable defenses are available in actions of a legal nature, an action of an equitable nature cannot be maintained to cancel an instrument, if the circumstances are such that the plaintiff might bring a common.law action as if the impeached instrument did not exist, and then, should it be interposed as a defense, avail himself of the equitable grounds of cancellation in rebuttal.
    This rule applies, although the instrument which plaintiff seeks to enforce, and which defendant claims has been superseded by the instrument which plaintiff seeks to have cancelled, be a lease having a long unexpired term; because an action for a single installment of rent and an adjudication that the rent was due notwithstanding the instrument which plaintiff impeaches, would effectually establish the cancellation of that instrument.
    
    But if an equitable action be brought in such a case, and the facts proven show the plaintiff to be, entitled to the legal relief, it seems that the action should not be dismissed. [p. 208]
    
      But if the circumstances are such, that one who is a necessary party to an action for the equitable relief, is not a proper party to an action of a legal nature—as, for instance, where success in recovering rent from a lessee, depends on the cancelling of a tripartite agreement, involving a party in no way liable for the rent—an action in equity to cancel the instrument may be maintained.[p. 809]
    
      The cases of Allerton v. Belden, 49 N. Y. 373 ; Town of Venice v. Woodruff, 62 Id. 462 ; Fowler v. Palmer, Id. 533; Globe Mut. Ins. Co. v. Reals, 79 Id. 202 ; Troy and Boston R. R. Co. v. Boston Hoosac Tunnel, &c. Ry. Co., 86 N. Y. 107; Hamilton v. Cummings, 1 Johns. Ch. 517, followed; and the cases of Gould v. Cayuga County Bank, 86 N.Y. 75, 83 and McHenry v. Hazzard, 45 Id. 580, explained and followed, [p. 205-207]
    It is not a sufficient objection to an action by a corporation, for relief against acts of the directors in breach of their trust, that the corporation itself was, by their use of its name, a party to the fraud which they committed. [p. 209]
    Horis such an action defeated by the objection that the stockholders have not dissented, if the transactions are sought to be avoided because made without authority.
    If the transactions be voidable only, due diligence to disaffirm must be used; but it is not requisite that each particular stockholder should sue ; if some of them are suing, the others may await the result, [p. 310-313]
    A party who has enjoined others from suing, cannot object that their delay to sue, while so enjoined, is laches, [p. 313]
    If the directors of a corporation exceed their authority or are recreant to their trust, the corporation may elect a new board of directors, and through them repudiate the fraudulent transactions. [p. 212] The pendency of a bill of peace does not prevent the commencement of an action such as the bill of peace seeks to restrain, [p, 313]
    The doctrine of res adjudicata does not apply to interlocutory judgments or orders, which the court rendering them has power to vacate or modify. [p. 215]
    A judgment against a corporation, founded not on proofs but on the admissions made in its name by its directors, is not a bar to an action by the corporation; for it is nothing more than a judgment by consent;and its nullity, though it has not been set aside or reversed, may be established in another action. [p. 216]
    A denial of a motion to vacate such a judgment does not add to the force or effect of the judgment. [p. 223]
    When the other parties to an agreement, which is impeached for fraud, have put themselves in the position in which they find themselves, with full knowledge that the plaintiff claimed the agreement to be void and fraudulent, and the plaintiff has acted promptly, the rule that he cannot have relief unless he can restore the other parties to the same position which they occupied before they entered into the agreement, does not apply. [p. 224]
    The rules as to the remedy for one who seeks to rescind a compromise of a disputed claim on the ground of fraud are: 1, that to sustain an action of a legal nature founded on rescission, he must previously tender or restore what he has received ; 2, he may keep what he has received and sue to recover damages for the fraud ; or, 3, he may commence an action for equitable relief, and offer in his complaint to restore, in case he is not entitled to retain, what he has received. [p. 226]
    The rule that, if any party to the agreement has done what cannot be undone, or omitted what he might have done, rescission cannot be had, does not apply to things done or left undone by a party who had previous knowledge that the agreement was repudiated by the other party, or by those who have a right to contest its validity on his behalf.  [p. 227]
    The rule that retention of anything received upon a contract is incompatible with its rescission, does not apply where, if the contract had never been made, plaintiff would have been’ entitled to receive' all or more than what was received under it. [p. 229]
    Allerton v. Allerton (50 N. Y. 650), explained and followed.
    It is only where plaintiff has no claim to what he received, except by force of the contract, that he need return or offer to return it.’ [p. 231]
    Directors without assent of the stockholders, although they can compromise an existing claim, have not implied power, to make new agreements radically modifying previous agreements which they did not make and had no power to make. [pp. 231-8]
    A charter provision that the directors are to manage the business and. affairs of the company, does not confer the right to exercise every corporate power; but rather to manage the ordinary business and affairs for which it was organized, leaving the right remaining in the shareholders to set in motion or confirm corporate action extraordinary or unusual in its nature, [p. 239] ,
    The cases of McCullough v. Moss (5 Den. 575), and Hoyt v. Thompson (19 N. Y. 207), explained and limited, [pp. 240-1]
    Acts making organic or fundamental changes in the character or business of the corporation,-—such as the lease of its railroad for a term of 999 years,—cannot be done, either by the directors alone, or by the shareholders alone; but both the executive and administrative officers-must unite with the shareholders, [p. 251]
    The rule that a principal or cestui que trust may avoid a contract made by an agent or trustee having a personal interest opposed to his duty, is not limited to contracts of purchase and;sale.[p. 255]
    
      It seems, that the disability in respect to dealings between attorney and client is less strict than that in respect to dealings between trustee and cestui que trust. [p. 259]
    In this State, every contract entered into by a director with his corporation, may be avoided by the corporation within a reasonable time, irrespective of the merits of the contract itself; and the disability extends to the case of a contract between two corporations, having antagonistic interests, some of whose directors hold that office in each corporation, so that the directors of the one contracted with themselves as directors of the other. [p. 372]
    
      It seems, however, that the shareholders, since they hold no fiduciary relationship, might ratify such a contract, although some persons be shareholders in both companies, [p. 287]
    But the fact that the votes of those directors who were in both boards were not necessary to constitute the majority in either board, does not alter the conclusion; for the foundation of the rule is, that the corporation is entitled to all the knowledge and skill which each and every director can bring. [pp. 287, &c.]
    Nor is it enough to show that the shareholders of one company knew, before electing the directors, that they were also directors in the other company, [p. 294]
    Where the records of the corporation showed that a certain director was present and voted at a meeting, and the minutes recording the fact were afterwards read in his presence and approved unanimously —Held, that his testimony to the contrary, although unimpeached, was not sufficient to require a finding to the contrary, [pp. 297,&c.]
    This was an equitable action brought by the Metropolitan Elevated Railway Company, plaintiff, against the Manhattan Railway Company, the New York Elevated Railway Company, and others, defendants, to set aside the so-called “ October Agreements” of 1881.
    In April, 1866, the legislature of this State passed an act supplementary to the General Railroad Act of 1850 by which it provided for the incorporation of railways to be operated by means of a propelling rope or cable, attached to stationary power.
    Under this statute, in the summer of the above year, articles of association were filed by the West Side and Yonkers Patent Railway Company, which contemplated the building of a railway from the southerly extremity of the city of New York, through said city, to the village of' Yonkers, in the county of .Westchester, and State of New York.
    In April, 1867, the legislature passed an act to provide for the construction of an experimental line of railway in the counties of New York and Westchester.
    By this act, the West Side and Yonkers Patent Railway Company were authorized to construct an elevated (so-called) railway in the counties of New York and Westchester, in the manner and. upon the route therein specified.
    This act provided that the railway should be operated exclusively by means of propelling cables attached to stationary engines.
    The act provided for the construction of an experimental line of railway within one year from the passage of the act, commencing at the southern extremity of Greenwich street, and running along Greenwich street for half a mile, and that if the structure, plan and operation of the railway should be approved by certain commissioners, to be appointed as provided in the act, the company might extend its line of elevated (so-called) railway along Greenwich street to Ninth and along Ninth avenue and streets west of Ninth avenue to the Harlem river. But, if the commissioners should not approve of the railway, and its plan of construction and operation, then the constructing company should proceed immediately to remove the experimental structure.
    Subsequently, in the same month, the legislature passed an act,  that the corporate existence of any company formed under the General Railroad Act of 1850, should cease if it did not, within five years from incorporation, begin the construction of its road, and expend thereon ten per cent, on the amount of its capital, or finish its road and put it in operation in ten years from such incorporation.
    In 1868, the legislature passed an act extending the time for the construction of the experimental line of railway, six months, and provided for the payment of five per cent, of the net income of the railway, for the purpose of being expended in the improvement of the condition and appearance of the streets through which the railway should be constructed, and authorized the company to am'end its corporate title.
    The experimental railway having been built, subsequently, in the same year, the commissioners duly appointed approved of the structure, plan and operation of the same.
    In July, 1868, the corporate name of the West Side and Yonkers Patent Bail way Company was duly changed to the “West Side Elevated (patented) Bail-way Company (of New York City).”
    
    In 1868 the said company mortgaged its road and franchises and property, from the southerly extremity of Greenwich street to West Thirtieth street, to secure the payment of bonds to the amount of $750,000, and in August, 1870, executed a further mortgage upon its road, franchises and property, from the southern extremity of Greenwich street to Sixtieth street, to secure the payment of bonds to the amount of two and one-half millions of dollars.
    On November 15, 1870, the sheriff sold to Mr. Francis H. Tow, all the right, title and interest of the West Side Elevated Bailroad Company which they had on August 30, 1870, to their railroad, as constructed, from the Battery to Thirty-first street, and in the equipment thereof.
    In February, 1871, the commissioners, in pursuance of the act of 1868, gave the permission for the use of a dummy engine upon the Greenwich Street Railway.
    On October 27, 1871, the articles of association of the Hew York Elevated Railroad Company were filed, fixing the capital at $10,000,000 (of which $6,500,000 have been issued), and routes from the Battery, by a line through the westerly part of the city .of Hew York to Westchester county, and through the westerly part of said county to Putnam county, and also from said Battery, by a line through the central part of said city and through the central part of Westchester county, to Putnam county; and also from said Battery, by a line through the easterly part of said city, and through the easterly part of Westchester county to Portchester, in the said county.
    Actions having been instituted for the foreclosure of the above mentioned mortgages, a judgment of foreclosure upon the second mortgage was entered August 22, 1871, and upon the first mortgage September 8, 1871; and the referee appointed in the latter suit conveyed all the property mortgaged to Mr. James A. Cowing, by deed dated October, 1871. ,.
    The referee, appointed in the first action above mentioned, duly conveyed the property mentioned in the second mortgage to the Hew York Elevated Railroad Company, by deed dated December 7, 1871; and in January, 1872, Mr. James A. Cowing conveyed the property deeded to him, as above mentioned, to the Hew Y ork Elevated Railroad Company, 
    
    In June, 1872, the legislature passed an act to incorporate the Gilbert Elevated Railway Company, with a capital stock of $8,500,000, which was subsequently increased to $6,500,000, the whole of which was issued.
    
      The act provided, among other things, that “the business and offices (affairs probably meant) of said company should be managed by at least seven directors, and that the corporation should be empowered to construct and maintain an elevated railway over, through and along such streets, avenues, &c., in the city of New York, &c., as should be designated by a board of commissioners appointed by said act, except such streets, &c., as were situate between the easterly line of the Third avenue and the easterly line'of the Sixth avenue.”
    
    The commissioners having designated the route of the Gilbert Elevated Railway, the legislature, in 1873,  passed an act prohibiting the use of a certain portion of the route thus designated, and authorizing a commission to designate a new route.
    Such commission subsequently reported as the route designated by them, the following:
    “Commencing on the south shore of the Harlem river at Kingsbridge ; thence along River street to Eighth avenue; thence along Eighth avenue to One Hundred and Tenth street; thence along One Hundred and Tenth street to Ninth avenue ; thence along Ninth avenue to Fifty-third street; thence along Fifty-third street to Sixth avenue ; thence along Sixth avenue to Amity street; thence along Amity street to South Fifth avenue ; thence along South Fifth avenue to Canal street; thence crossing Canal street into West Broadway; thence along West Broadway to Chambers street; thence across Chambers-street into College place ; thence along College place to Murray street; thence along Murray street to Church street ; thence along Church street to New Church street; thence along New Church street to and across Morris street ; thence through private property to Bowling,, Oreen; thence around Bowling Oreen into Beaver street; thence along Beaver street to Pearl street; thence along Pearl street and New Bowery to Division street; thence along Division street to Allen street; thence along Allen street and First avenue to Twenty-third street; .thence along Twenty-third street to Second avenue ; thence along Second avenue to Harlem river; thence along River street to Eighth avenue. Also a connecting line through and along Chambers street from West Broadway to Chatham street; thence through Chatham street to Division street.
    “Also an extension from the junction of Fifty-third street through and along Sixth avenue to Fifty-ninth street.”
    Thereupon, in 1874, the legislature passed an act fixing the time within which the company should construct its roads as re-located.
    
    On June 17,1875, the legislature duly passed an act confirming the New York Elevated Railroad Company in its charter and acquired powers, and authorizing and requiring it to construct and complete at least one track within five years.
    
    The act further provided, that the commissioners appointed, in respect to the West Side and Yonkers Patent Railway Company, should have the same powers in respect to the New York Elevated Railroad Company, and that the latter company might make and adopt such alterations and improvements in structure, motive power, sideways, crossings, &c.,' as the commissioners should approve.
    On June, 18th,
      
       of the same year, the legislature passed what is called the Rapid Transit Act, by which it was provided, that where it appeared by the application of fifty reputable householders and tax-payers of any county in this State, that there was need in such county of a steam, railway or railways for the transportation of passengers, mails, or freight, if such proposed railway be wholly within the limits of any city within the State, the mayor should appoint five commissioners, who should, within thirty days after their organization, determine upon the necessity of such steam railway or railways, and if they found them to be necessary, within sixty days fix and determine their routes, which they should have exclusive power to locate, provided that the consent of the owners of one half in value of the property bounded on, and the consent also of the local authorities, having charge of the streets, &c., was first obtained, or in case the consent of such property owners could not be obtained, the determination of three commissioners appointed by the general term of the supreme court in the district of the proposed construction, confirmed by the court, that such railway or railways ought to be constructed, was to be taken in lieu of the consent of such property owners.
    
    The said commissioners were also empowered, not more than ninety days after their organization, to decide upon the plan or plans for the construction of such railway or railways, and fix and determine the time within which such railways or portion of the same should be constructed, and the maximum rates of fare, and the time during which special cars or trains should be run at reduced rates of fare ; and also to fix the amount of the capital stock of the company, to be formed for the purpose of constructing, maintaining and operating such railway or railways. The act
    
      further provided; that the commissioners should prepare appropriate articles of association for the company, which should contain certain stipulations—in the act mentioned.
    ■ The act then provides for the organization of this company, under the supervision of the commissioners, for the election of directors, defines the liabilities of the stockholders, regulates the manner in which the capital stock may be increased, gives the company power to acquire and hold real estate, regulates the manner of acquiring title, and gives the power to enter upon the streets and avenues for the purpose of construction. *
    The act further provides, that “Whenever the route or routes determined upon by said commissioners coincide with the route or routes covered lby the charter of an' existing corporation formed for the purpose provided for by this act, provided that said corporation has not forfeitéd its charter or failed to comply with the provisions thereof, requiring the construction of a road or roads within the time prescribed by its charter, such corporation shall have the like power to construct and operate "such railway or railways, upon fulfillment of' the requirements and conditions imposed by said-commissioners as a corporation especially formed under this act; and the said commissioners may fix and "del termine the route or routes by which any elevated steam railway or railways now in actual operation may,connect with other' steam railways or the depots thereof,- or with steam ferries, upon fulfillment by such elevated steam railway company, so far as it relates to such connection, of such of the requirements and conditions imposed by said commissioners under section four of this act, as are necessary to be fulfilled in such cases under section eighteen of article three of the Constitution of this State, and such connecting railway shall in such case possess all the powers conferred by section twenty-six of this act; and when any connecting route or routes shall be so designated, such elevated railway company may construct such connection with all the rights, and with like effect as though the same had been a part of original route of such railway.”
    Proper proceedings having been taken therefor, rapid transit commissioners were duly appointed by the mayor of the city of New York, who entered upon their duties, and on September 2, 1875, located the route of the New York Elevated Road, as follows : “Beginning at the intersection of Greenwich street and Battery place, to, over and across Battery place to "the edge of the Battery and State street; thence over, through and along the edge of the Battery and State street to Whitehall street; thence over, through and along Whitehall street to and connecting with the South Ferry, Hamilton Avenue Ferry and Staten Island Ferry ; and from the intersection of State street and Whitehall street over and across Whitehall street to Front street; thence over, through and along Front street to Coen ties slip ; thence over, through, along and across Coenties slip to the intersection of Coenties slip and Pearl street; thence over, through and along Pearl street to Hanover square; thence over, through and along Hanover square and Pearl street to John street; thence over through and along John street and Burling slip, to, over, along and across South street to and connecting with the Fulton Ferry; and from the intersection of John street and Pearl street, crossing John street over, through and along Pearl street and Franklin square to New Bowery ; thence over, through and along New Bowery and Chatham square to the Bowery ; thence over, through and along the Bowery to Third avenue ; thence over, through and along Third avenue to East Thirty-fourth street; thence over, through and along East Thirty-" fourth street to and connecting with the Thirty-fourth street Férry; and from the intersection of East Thirty-fourth street and Third avenue, crossing East Thirty-fourth street over, through and "along Third avenue to East Forty-second street; thence over, through and along East Forty-second street to and across Fourth avenue to and connecting with the depot known as the ‘Grand Central,’ occupied by the New York Central and Hudson River Railroad Company, the New York and Harlem Railroad Company, and the New York,' New Haven and Hartford Railroad Company; and from the intersection of East Forty-second street, and Third avenue, and crossing East Forty-second street, over, through and along Third avenue to Ninety-second street; thence over, through and along East Ninety-second street to and connecting with the Astoria Ferry ; and from the intersection of Third avenue and East Ninety-second street, crossing East Ninety-second street, over, through and along Third avenue to East One Hundred and Twenty-ninth street (there connecting with the' ferries, having landings at or near Harlem Bridge); then over, through and along East One Hundred and Twenty-ninth street to the intersection of East One Hundred and Twenty-ninth street and the" Harlem river; thence over and along the Harlem river to First avenue ; thence over and across the Harlem river, connecting with the depot of the Portchester Branch of the New York, New Haven and Hartford Railroad ; and from the intersection of Third avenue and East One Hundred and Twenty-ninth street, over and across Third avenue, and over, through, and along East One Hundred and Twenty-ninth street to Lexington avenue; thence over, through a’nd along Lexington avenue to River street and the Harlem river; thence over through' and along River street and the southerly shore of the Harlem, river to and connecting with, the railway of the New York and Harlem Railroad at Fourth avenue; with a branch and turnout from the intersection of New Bowery and Chatham square, over, through and along Chatham square to Chatham street ; thence over through and along Chatham street to Park row; thence over, through and along Park row to Tryon row (there to connect with the railway to be laid over the East River Bridge for cars to be propelled or operated by steam); thence over, through and along, or in front of and around Tryon row to the Park ; thence along the Park and over, through and along Centre street to Park street; thence over through and along Park street to Mott street, crossing over Mott street; thence over and through the block to Doyers street, crossing into Doyers street; thence over and through the block to Pell street, crossing over Pell street; thence over, through and along Pell street and intersecting the route hereinbefore fixed and determined over, through and along the Bowery ; and with a siding for a turn round, commencing at the intersection of Coenties slip and Water street ; thence over, through and along Water street to Whitehall street; thence over, through and along Whitehall street to and intersecting the route hereinbefore fixed and determined at the intersection of Front street and Whitehall street; and also a route of connection beginning at the intersection of Ninth avenue and West Ninety-second street over through and along West Ninety-second street to Eighth avenue ; thence over, through and along Eighth avenue to River street and the Harlem river; thence over, through and along River street, and over and along the Harlem river, over and crossing the Harlem river at or near High Bridge, to and connecting with the New York, Boston and Montreal Railroad, or the depot thereof, and to and connecting with the Spuyten Duyvil and Port Morris Railroad, or the depot thereof.”
    
      The commissioners at the same time also located the route of the Gilbert Elevated Railroad Company, as follows:
    “ Commencing'on the south shore of Harlem river, at Kingsbridge; thence running through and along River street to Eighth avenue; thence over, through and along Eighth avenue to • Ninety-second street; thence over, through and along Ninety-second street to Ninth avenue; thence over, through and along Ninth avenue to Fifty-third street to Sixth avenue ; thence over, through and along Sixth avenue to Amity street; thence over, through and along Amity street to South Fifth avenue ; thence over, through and along South Fifth avenue to Canal street; thence over, through and across Canal street into West Broadway; thence over, through and along West Broadway to Chambers street; thence over, through and across Chambers street into.College place ; thence southerly over, through'and along College place to Murray street; thence easterly over, through and along Murray street to Church street; thence southerly' over, through and along Church street to New Church street; thence' southerly over, through and along New Church street to, through, over and across Morris street to a point on the southerly line of Morris street, sixty-five feet from the southeasterly corner of Greenwich street and Morris street; thence southerly over and through private property parallel to the easterly line, of Greenwich street, a distance of thirty-five feet; thence over, and on a curve of one hundred and eighty féét radius, intersectirig the building line on the westerly side of Broadway, two hundred and two feet from the southerly corner of Morris street and Broadway to Bowling Green, west of the westerly line of Broadway, to and around Bowling Green park into Beaver street; thence over, through and along Beaver street to Pearl street; thence over, through and along Pearl street and New Bowery to Division street; thence over, through and along Division street to Chrystie street;. thence over, through and along Chrystie street and Second avenue to Harlem river; thence through and along River street to Eighth avenue.
    “Also an extension from the junction of Fifty-third street, over, through and along Sixth avenue to Fifty-ninth street.
    “Also, an extension from the junction of East Twenty-third street and Second Avenue, over, through and along Twenty-third street to the Third avenue.
    “Also, an extension from the junction of East Forty-second street and Second avenue, over, through and along East Forty-second street to the Third avenue ; thence to connect with the Grand Central Depot.”
    On October 4, 1875, the commissioners decided upon the plans for the construction of the railways upon the routes in the locations named.
    On September 2, 1875, the New York Elevated Company and the Gilbert Elevated Railway company entered into an agreement, reciting the fact, among others, that some portions of the routes of the respective companies, might be located in common; and whereby they agreed that the New York Company should have the right to construct so much of such common routes, as lay on the easterly side of the city, between the South Ferry and Chatham square, and that whenever the Gilbert Company should desire to use such part so constructed, it should have the right to do so, upon payment of one-half the cost. As to so much of their routes as might be located in common on Ninth avenue, between Fifty-third street and High Bridge, on the Harlem river, the agreement provided, that the road should be constructed jointly, or either company could construct the same, but the other company should not have the right to use the same without first paying one-half its cost. The agreement also contained provisions regulating the division of the earnings.
    On October 27, 1875, the commissioners adopted the form of articles of association for the company, to be organized under chapter 606, Laws of 1875, called it the Manhattan Railway Company, fixing the capital stock at $2,000,000, and. designating routes coincident with those previously fixed for the New York Elevated Company, and the Gilbert Elevated Railway Company ; and, on October 29, opened books for subscriptions to the stock of the company to be organized—previous announcement of the intention so to do having been given. Twenty thousand shares were subscribed for by twenty-six subscribers in various amounts, and one hundred thousand dollars were immediately paid in ; and, on November 10, pursuant to notice by the commissioners, the stockholders met and elected nine directors of the company. The balance of- the one hundred thousand dollars of cash paid in upon the stock subscription, remaining after the payment of the expenses of the Rapid Transit commissioners, was paid over to the Manhattan Company. ,
    On December 1, 1875, the New York Elevated Railroad Company presented its petition to the general term of the supreme court, held in and for the first department, alleging the refusal of more than one-half in value of the owners of property along their route to give the'consent required by law, and that the consent of the local authorities had been duly obtained, and asking the appointment of three commissioners to determine whether or not such railway ought to be constructed. The court thereupon appointed three commissioners, one of whom having resigned, his vacancy was duly filled, who, after hearing the parties interested, reported, on March 4, 1876, that the' road upon the route fixed by the Rapid Transit commissioners ought to be built, except that part which was called a route of connection, beginning at the intersection of Ninth avenue, and West Ninety-second street, which report was duly confirmed by the court-on April 15, 1876.
    
    On January 1, 1876, the New York Elevated Bail-road Company duly executed a mortgage upon its franchises and property, to secure bonds to be issued to the amount of $12,000,000 and interest at seven per cent., payable on the first days of January and July in each year; and upon this mortgage, bonds have been issued to the amount of $8,500,000.
    On December 21, 1877, the New York Elevated Bailroad Company, and the Gilbert Elevated Bail way Company, entered into another agreement in furtherance of the agreement of September 2, 1875, in which they provided among other things :
    “ That the following portions of the railway structures of the two companies are to be owned or used in common, viz.: The line from the intersection of Beaver and Pearl streets, along Pearl street, through the New Bowery and part of Chatham square, to and including the intersection of this line with the line of the Gilbert Elevated Bailway coming through Division street; the line along a part of the line of the Gilbert Elevated Bail way coming through Division street, to and including the intersection of this line with the line of the Gilbert Elevated Bailway coming through Chambers street, and a line on the Ninth avenue from Fifty-third street to One Hundred and Tenth street.” -
    The agreement further provides for the building of the common structures, and determines the manner in which payments are to be made for the same.
    This agreement was guaranteed by the New York Loan and Improvement Company, as owners of the stock of the Gilbert Elevated Bailroad Company.
    
      On the same day another agreement was made by the railway companies, and guaranteed by the New York Loan and Improvement Company, whereby the New York Company contracted to build the structure on Ninth avenue from Fifty-third street to Sixty-first streét.
    In March, 1878, the two companies made another agreement in respect to the tracks on Ninth avenue, which was guaranteed by the Loan and Improvement Company.
    On June 6, 1878, the corporate name of the Gilbert Elevated Railway Company was changed to the Metropolitan Elevated Railway Company.
    
    On the 10th of July, 1878, the Metropolitan Railway Company executed a mortgage upon its franchises and property to secure certain bonds to be issued, bearing six per cent, interest, payable on the 1st day of January and July in each year, and of which ten millions eight hundred and eighteen thousand dollars have been issued.
    During this summer, both of the roads were put into operation, although they were not fully completed.
    At this time the directors of the New York Company were:
    W. T. Felton, C. W. Field, A. S. Barnes, David Dows, John H. Hall.
    H. R. Bishop, A. H. Barney, E. M. Field, D. A. Bindley,. Josiah M. Fiske, J. A. Cowing, JohnD. Mairs, Benj. Brewster,
    And of the Metropolitan Company:
    Wm. R. Garrison, Horace Porter, John P. Kennedy, John Baird, J. F. Navarro, Fausto Mora,
    Wm. Foster, Jr., Geo. J. Forrest, Chas. H. Clayton', Geo. M. Pullman, Wm. Adams, Jr. . .
    
      And of the Manhattan they were :
    Wm. T. Pelton, Geo. H. Pullman, C. K. Garrison,
    C. W. Field, Horace Porter, A. H. Barney, David Dows, J. F. Navarro.
    In January, 1879, the following were elected directors of the New York Company :
    David Dows, Benj. Brewster, J. D. Mairs,
    C. W. Field, A. S. Barnes, D. A. Bindley,
    John H. HalJ, Nathan Guildford, E. M. Field,
    A. H. Barney, (Vice Cowing, res’d Heber It. Bishop, C. J. Canda, February 5th) Josiah M. Fiske.
    It being found desirable by the managers of both the Elevated Road Companies, that the elevated railroad system should be under one management, not only for the interest of the companies, but also for the interest of the public, a scheme was devised by which the charter of the Manhattan Company (whose capital stock was increased for that purpose to thirteen millions of dollars), was to be made use of, and an agreement was entered into between the three companies on the 20th day of May, 1879, called the Tripartite Agreement.
    
    
      This agreement recites that the said three' companies,-for the purpose of avoiding the dangers of crossing elevated railroad tracks upon the same level, and otherwise seeming to the public of New York the advantage of safer and more rapid transit through the action of one directing body, had agreed as follows :
    
      1st. That the New York and Metropolitan 'Companies should execute leases to the Manhattan Company, and after making certain agreements in reference to outstanding contracts; and to payments to be made by the New York and Metropplitan Companies, and to the issue of certain additional first mortgage bonds by the Metropolitan Company, the agreement provided as follows: [The learned judge here quoted the 10th section, which appears in the annexed note, containing the agreement in full at p. 128.]
    Leases were duly executed, bearing date May 20, 1879, by which the New York Company leased its road, &c., to the Manhattan Company, and the Manhattan Company agreed to pay, by way of rental, the sum of $10,000 annually to the New York Company, and to pay the principal and interest upon the first mortgage bonds issued by the New York Company, amounting to.$8,500,000, and also a dividend annually of 10 per, ' cent, upon the $6,500,000 issued by the New York Company, and also all taxes and assessments, &c., of every kind and nature.
    The said lease further provided, in case of a failure of the Manhattan Company to pay the above amounts, or to keep and perform any of the covenants and agreements therein contained, that the New York Company^ should have the right to re-enter.
    Upon the same day the Metropolitan Company,, executed a similar lease of its road, etc., to the Manhattan Company, containing substantially the same provisions as those contained in the lease by the New York Company.
    
    
      The Manhattan Company, upon the delivery of these leases, duly issued its bonds for $6,500,000 each, convertible into stock, to Messrs. Cowing and Baird, as trustees, as provided for by the Tripartite agreement; and on June 13, 1879, Cowing and Baird surrendered these bonds to the Manhattan Company, and each received 65,000 shares of the Manhattan stock. Cowing transferred the stock issued to him to the shareholders of the New York Company, and Baird transierred the stock issued to him to the shareholders of the Metropolitan Company. The leases by the Metro-' poli tan Company to the Manhattan Company, and the Tripartite agreement were duly approved by the stock holders of the Metropolitan Company on May 28, 1879, and also by the stockholders of the New York Company.
    
      On November 1, 1879, the Metropolitan Company-made a new mortgage, to secure bonds to the amount of $4,000,000, with 6 per cent, interest, payable in May and November, $2,000,000 of which bonds were issued.
    
      In July, 1879, the following persons were elected directors of the Metropolitan Company :
    Wm. E. Garrison, Wm. Foster, Jr., Geo. M. Pullman, Wm. Adams, Jr., J. F. Navarro, JohnP. Kennedy, Horace Porter, Fausto Mora, Chas. H. Clayton, John Baird, George J. Forrest.
    
      Pursuant to an act of the legislature, passed, during this year, the number of directors of the Manhattan Company was increased to thirteen, and at the election held in November, 1879, six were taken from the New York Board of Directors and six from the Metropolitan Board of Directors, and one was named who was disconnected with either company.
    The following persons were elected directors of the Manhattan Company:
    Wm. B. Garrison, Benj. Brewster, John Baird,
    C. W. Field, Horace Porter, George J. Forrest, Geo. M. Pullman, NathanGuildford,Heber B. Bishop, A. H. Barney, Bobert Harris, Josiah M. Fiske.
    J. F. Navarro,
    Mr. Harris being the thirteenth director, and not connected with either road.
    In January, 1880, the following persons were elected directors of the New York Company':
    Cyrus W. Field, David Dows,
    A. H. Barney, John H. Hall, Josiah M. Fiske,
    Jesse Hoyt,
    A. S. Barnes, J. D. Mairs,
    H. B. Bishop,
    Benj. Brewster,
    D. A. Bindley,
    E. M. Field,
    N. Guildford.
    And in July, 1880, the following persons were elected directors of the Metropolitan Company :
    John Baird, John P. Kennedy, Wm. Adams, Jr., Wm. B. Garrison, J. F. Navarro, Chas. H. Clayton, Geo. J. Forrest, Horace Porter, Mortimer Ward.
    Wm. Foster, Jr., Geo. M.Pullman,
    And in November, 1880, the following persons were elected directors of the Manhattan Company:
    C. K. Garrison, J. F. Navarro, Wm. B Garrison, Horace Porter, George J. Forrest, E. F. Winslow, A. V. Stout, Arthur Leary,
    John P. Kennedy,
    Wm. Foster, Jr., Mortimer Ward, B. M. Gallaway, H. F. Dimock. none of whom were directors in the New York Company, and six of whom were directors in the Metropolitan Company.
    In January, 1881, the following persons were elected directors of the New York Company, none of whom were in either of the other boards :
    David Dows, ■ O. W. Field, ' Benj. Brewster,
    „ A. H. Barney, John D. Hairs, D. A. Bindley,
    Josiah M. Fiske, E. M. Field, John H. Hall,
    Jesse Hoyt, H. R. Bishop, J. A. Cowing.
    A. S. Barnes,
    From the time of the lease above-mentioned, the Manhattan Company continued to operate the roads, but the results not proving satisfactory to the parties interested in the elevated roads, and probably foreseeing the disasters which subsequently beset the Manhattan Company, the directors of both the New York and Metropolitan Companies were desirous of affecting a complete union or merger of these corporations with the Manhattan Company, and negotiations w'ere had between the companies, during the early part of 1880 ; but in consequence of the great divergence in the view's of the persons interested, as to the values which should be fixed to the respective properties in the scheme of the merger, but little progress was made in the settlement of the difficulties.'
    In July 1880, however, all the parties agreed that the following question, namely :
    “ What are the comparative rates, under all the circumstances, of the stocks of the New York Elevated Railroad Company, and of the Metropolitan Elevated Railway Company, to be taken as the basis of merging with the Manhattan Railway Company, under chapter 508 of the Laws of 1879, to be submitted át the office Of the Manhattán Company on Thursday,'the 5th of August, at 10 a. m., each company to have four hours ior producing evidence, and one hour for any argument it chose to submit by counsel or other representatives, the relative rates of said stocks to be expressed in percentages, so that the sum of the two shall be 300 —should be submitted to Mr. John A. Stewart, President of the United States Trust Company, Mr. R. Gr. Rolston, President of the Farmers’ Loan and Trust Company, and Mr. Henry F. Spaulding, President of the Central Trust Company, who should hear the parties and their evidence, and determine the same as arbitrators ; and the various boards of directors stipulated to abide by the decision, so far as to recommend it to the stockholders for approval. The arbitrators met, took a large amount of evidence, heard the parties, and on the 15th of September, 1880, made the following report:
    “Award of Johr A. Stewaet, R. Gr. Roestor, and Herey F. Spatjldirgi, arbitrators:
    “ The subscribers, to whom as arbitrators has been submitted by the New York Elevated Railroad Company and the Metropolitan Elevated Railway Company the question:
    “What are the comparative rates, under all the circumstances, of the stock of the New York Elevated Railroad Company, and of the Metropolitan Elevated Railway Company, to be taken as a basis of merging with the Manhattan Railway Company, under chap. 503, Laws of 1879 %
    
    “Having heard and weighed the testimony presented by both companies, and having given due consideration of the matter, decide
    6 ‘ That the comparative rate at which the stock of the New York Elevated Railroad Company shall be taken is 110 ; and that the comparative rate at which the stock of the Metropolitan Railway Company shall be taken is 90, as the basis of merging with ‘the Manhattan Company, under chap. 503, Laws of 1879.
    “ John A. Stewart,
    “B. Gr. Bolston,
    “ Henry F. Spaulding-,
    “Arbitrators.]
    “ New. York, September 15, 1880.”
    This .decision was accepted by the directors of the companies, and recommended to the stockholders to be carried into effect.
    Stockholders’ meetings were held, but the scheme seems to have had no vitality, and was allowed to drop; and no action was taken.
    The profits arising from the elevated roads,-not by any means meeting the great expectations which had. been indulged in, and taxes having been levied upon the properties of the New York and Metropolitan Companies, as well as upon the Manhattan, which do not seem to have been anticipated, the Manhattan Company, in the early part of the year 1881, found that it would be impossible, from the revenue derived from the roads, to meet the various engagements which they had undertaken, in the leases above mentioned, and that company became insolvent and unable to meet its obligations—the Metropolitan road earning barely sufficient to pay all fixed charges upon the road, leaving nothing for a dividend to the stockholders; while the New Yoik road earned sufficient to pay its fixed charges, and also a dividend to its stockholders.
    In April, 1881, Mr. Callaway, the president of the Manhattan Company, sent an open letter to the mayor of the city of New York, arguing that some measures should be taken to relieve the Manhattan Company of the load of taxes which had been imposed upon if, otherwise it would be driven into hopeless insolvency; Upon this confession being brought to the notice of the attorney-general of this State, he, on May 18,1881 upon a bill alleging many of the facts above mentioned, and that the Manhattan Company, at the time of the making the leases above mentioned, was not a T)onafide existing corporation, and that it was hopelessly insolvent, obtained an order to show cause, from one of the judges of this department, returnable on May 27, 1881, why a receiver of the property of the Manhattan Company should not be appointed. This motion was adjourned from time to time, and, finally, on July 8, 1881, an order was entered discontinuing the said action.
    In the meantime, and on June 29,. 1881, Prank M. Weiler, by Lawrence & Waehner, his attorneys, commenced an action in the court of common pleas against the Manhattan Railway Company, and the Metropolitan Railway Company, and the Central Trust Company of New York, claiming to be the holder of five of the first mortgage bonds of the Metropolitan Railway Company, and, after alleging certain facts, and the insolvency of the Manhattan Company, in his complaint, demanded, among other things, that the said companies be enjoined from paying out any moneys to the stockholders of the Metropolitan ComjDany. This complaint was verified by Mr. Prank R. Lawrence, and an order to show cause, with a. preliminary injunction, was granted thereon, returnable on July 6, and was adjourned to July 27, when the motion was argued ; and on October 6th, a consent to discontinue was duly given, and the motion never decided.
    On the said June 29,1881, an action was commenced in the said court of common pleas, by Mr. George S. Lespinasse, claiming to be a bondholder of the New York Company, by a summons and complaint alleging default in the payment of interest upon the bonds, and the insolvency, &c., of the Manhattan Company, and praying that the defendant companies might be restrained from distributing any of the income derived from the New York road among the stockholders of the New York Company ; and an order to show cause, returnable July 6, 1881, was granted, with an injunction in the meantime restraining the companies from distributing any of the income derived from the New York Company’s properties among the stockholders of said company. There appeared to be no evidence as to what became of this order ; but the injunction seems still to have existed at the time of the answer served in the superior court suit hereinafter mentioned, and was probably argued at the same time as the motion in the Weiler suit, as it seems to have been adjourned to the same day.
    On June 30,1881, Mr. S. H. Kneeland, a stockholder in both the Manhattan and Metropolitan Companies, sent to the Manhattan Company the following letter: '
    “ New York, June 30, 1881.
    “ To the Board of Directors of the Manhattan Railway Company.
    “ The undersigned, a stockholder of the Manhattan Railway Company, for himself and others similarly interested, now formally propose to your company to buy one million, par value, of an income bond to be created by the Manhattan Railway Company, secured by its property and franchises, bearing cumulative interest warrants at the rate of six per cent, per annum, to be paid out only from the income of the Manhattan Railway Company ; the length of the bond and other details to be arranged to mutual satisfaction, and to pay for the same at sixty per cent, of the par value of said bonds. This offer is upon the conditions following :
    “1. That the said bonds be first offered upon reasonable notice for subscription to stockholders of the Manhattan Bail way Company, the undersigned and his associates obligating themselves to take all the bonds not subscribed for by the stockholders.
    “2. That you will arrange that seven persons, stockholders of the Manhattan Bailway Company, to be nominated by the undersigned and his associates, shall, immediately after the creation of such bond, be elected to the board of directors of the Manhattan Company.
    “In view of this crisis in the affairs of the company, it is important that we have immediate action upon this request.
    (Signed) “ S. II. Kneeland.”
    Mr. Kneeland was very positive that this letter was sent at a much earlier date, but Justice Van Brunt was of opinion that it was proven with reasonable certainty that June 80 was the true date. This proposition seems to have been deemed entirely inadmissible, and was not accepted.
    On July 1, the Manhattan Corajjany made default in the payment of the interest on the bonds of the New York and Metropolitan Companies, and also in the payment of the dividends upon the stock. The interest upon the bonds was, however, paid out of moneys loaned to the New York and Metropolitan Companies by friends of the companies.
    The time for the election of a board of directors for the Metropolitan Company was early in July, 1881, and Mr. Kneeland, a large stockholder in the Metropolitan Company and the holder of proxies from numerous stockholders, deeming a change in the direction advisable, consulted with Mr. Sage as to the persons whom it would be best to secure, and Mr. Gould was mentioned, either by Mr. Sage or Mr. Kneeland, as a desirable person to interest in the elevated rail road enterprise; and Mr. Kneeland saw Mr. Gould and after repeated interviews with Mr. Gould and Mr. Sage, it was agreed that Mr. Gould and his friends, Mr. Sloan, Mr. Sidney Dillon, Mr. G. M. Dodge and Mr. W. E. Conner (the latter of whom was a partner of Mr. Gould), and also Mr. Sage, should become directors, making a majority of the board, and Mr. Kneeland duly qualified, Mr. Sloan, Mr. Dillon and Mr. Dodge by transferring stock in their name, and on July 5, 1881, the following were elected directors of the Metropolitan Company:
    Jay Gould, Bussell Sage, Samuel Sloan, Sidney Dillon,
    Wm. B. Garrison, Horace Porter,
    J. F. Navarro,
    S. H. Kneeland,
    J. S. Stout,
    G. M. Dodge, W. E. Conner.
    three of whom, Messrs. Garrison, Porter and Navarro, were directors of the Manhattan Company.
    On July 2, 1881, the Attorney-General commenced a second action in the county of Albany on behalf of the people against the Manhattan Bailway Company, alleging the insolvency of said company, the complaint in which action was verified by Mr. Frank B. Lawrence. Upon this complaint and certain affidavits thereto annexed, Mr. Justice Westbrook, on July 5, granted an order requiring the Manhattan Company to show cause on July 13, at Kingston, Ulster county, why a receiver should not be appointed.
    On July 13, the motion was duly heard, and Messrs. John F. Dillon and Amos Lawrence Hopkins were appointed receivers of the Manhattan Bailway Company. The receivers duly qualified, and entered upon the discharge of their duties.
    On July 3, 1881, the New York Company commenced its action in the superior court of this city against the Manhattan Company, and the Metropolitan Company, claiming the right to take into its possesion again its property delivered to the Manhattan Company under the lease and tripartite agreement because of the insolvency of the Manhattan Company. Upon this complaint and affidavit annexed, an order to show cause was granted, returnable on July 6,1881, why the property of the plaintiff held by the Manhattan Company should not be delivered over to it, which motion was adjourned by several adjournments to November 28, 1881.
    The Metropolitan Company, on or about July 16, 1881, put in its answer setting up the proceedings in the court, as a reason why the relief asked for by the plaintiff should not be granted, and on July'25, the Manhattan Company also answered.
    On July 22, 1881, the New York Company presented its petition to the court, in the second action by the people against the Manhattan Company, alleging the defaults of the Manhattan Company, and praying that the Manhattan Company and its receiver might be directed to deliver up the property of the New York Company to that company.
    About this time it began to be rumored that the Manhattan Company had a claim of $13,000,000 against the New York and the Metropolitan Companies, because of the issue, to those companies, of $13,000,000 of the Manhattan stock, and for which these companies had paid nothing; and in August certain persons applied to ex-Justice James EMOTTand Messrs. Allison & Shaw, for their opinion upon the question, and opinions were given that the claim was well founded, because the Manhattan Company had received no value for its stock. That while there was no doubt but that a corporation might issue its shares for property, yet the shares would be paid only to the extent of the true value of the property received in exchange for them, and if that property was entirely valueless, then not to any extent. That the leases in question possessed no value, because of the large rental reserved in them, and that in point of fact the attempt to pay the charges provided for in tlieseleases had reduced the Manhattan Company to insolvency,  and a letter was sent by a Mr. Earl, claiming to be a stockholder of the Manhattan Company, to that company, requiring the enforcement of this claim. The company replied that the claim was a doubtful one, as they were advised, and its enforcement might involve a great deal of costly labor, and that they would prefer that the claim should be enforced by any stockholder who desired so to do.
    About September 1,1881, one John C. Watson, of Boston, filed his bill in the United States circuit court for the southern district of New York, as a stockholder of the Manhattan Company, against the New York, Metropolitan and Manhattan Companies, and Messrs. Billon and Hopkins, as receivers, claiming that the Manhattan Company should recover from the New York and Metropolitan Companies $13,000,000, the par value of the Manhattan stock issued to the New York and Metropolitan Companies, and divided among their stockholders, as above stated.
    On September 27,1881, the Board of Directors of the Manhattan Company passed a resolution requesting the receivers to issue certificates, in order to provide means to meet any deficiency that had arisen or might arise in the amounts due to the two lessor companies, and on September 29 an application was made by the receivers of the Manhattan Company to Mr. Justice Westbeook, upon a petition alleging that there had been default in the making of the payments under the leases, and that the period was fast approaching when the New York and Metropolitan Companies could retake possession of their property, by reason of this default, according to the terms and provisions of these leases, and asking leave of the court to issue receiver’s certificates at a rate of interest not exceeding twelve per cent, per annum, upon which to raise sufficient money to make the payments as to which default had been made. The New York Company opposed this application, upon the ground of inexpediency, and because it would be creating a new lien upon their property, in derogation of liens already existing.
    
      The following action was taken by the Metropolitan board on September 28, 1881:
    “On motion of Mr. S. Sloan, seconded by Mr. Sidney Dillon, it was resolved unanimously that it is not expedient for this company to appear in the application made by the Receivers of the Manhattan Railway Company for the issue of certificates.”
    The minutes continue, as follows :
    “The Board had under discussion the relation of this company to the New York and Manhattan Companies generally. No conclusion was arrived at. A committee, consisting of Messrs. Russell Sage, Jay Gould and Jose F. Navarro, was appointed to take legal advice if necessary, and such steps as may be expedient to protect the best interests of this company. On motion of Mr. Dillon, seconded by Mr. Sloan, and carried unanimously.”
    Affidavits were also read in opposition to this motion, made by Mr. Gould, Mr. Sage and Mr. Conner, all of whom concurred in the opinion that the Manhattan Company was hopelessly and irretrievably insolvent, and that the granting of the prayer of the petition would simply prolong, for a few months, a hopeless struggle on the part of the Manhattan Company for a continuance of its existence.
    Mr. Justice Westbrook granted an order for receivers’ certificates, not to exceed in amount $1,000,000, but refused to attempt to make them a lien prior to the liens already existing upon the various properties. These certificates could not be negotiated, and no money was raised by their means.
    The petition of the New York Company to get back its road was brought to a hearing on September 14, and had not been decided when, on September 30, the New York Company presented a supplementary petition, setting fo.rth that the ninety days mentioned in the leases had elapsed, that the payments reserved by the leases had not been made ; that they had demanded possession of their property from the Manhattan Company ; and they claimed that they were entitled to the possession of their property, and as it was in the possession of the court, they asked that it might be surrendered to them.
    The receivers of the Manhattan Company answered' on October 8, 1881, setting up the fact of the existence of the Watson suits, hereinbefore mentioned, and stating the claim which was being attempted to be enforced in that action against the New York Company, and that the legal rights and equities of the petitioning company and the Manhattan Company were involved in that cause; and that this was another attempt to enforce a forfeiture summarily, and not by the pursuit of a proper remedy, by an action at law ; and that the New York Company had then an action pending in the superior court of the city of New York to enforce the alleged forfeiture. The Manhattan Company also answered, setting up its claim for $6,500,000 against the New York Company, on account of the Manhattan stock issued to it, Messrs. Porter, Lowery, Soren and Stone had been acting as counsel for the Metropolitan Company, but at this time, pursuant to directions received from Mr. Sage, President of that company, Messrs. Lawrence and Waehner were substituted as attorneys for the Metropolitan Company in that action. This, motion was denied on October 14,1881, Mr. Justice Westbrook delivering an elaborate opinion,  in which lie adverts to the claim of the Manhattan Company against the Hew York and Metropolitan Companies, and suggests that the claim of the Manhattan Company may be well founded in law.
    
      During the progress of the hearing upon this motion, in September, a suggestion was made by the attorney-general that the parties interested ought to arrange a settlement of the various matters of difference between these companies, and negotiations were commenced between the parties, various propositions were broached and discussed, and various modifications of the leases, which would enable the Manhattan Company to continue the operation of the roads, were proposed. It seemed to have been conceded, early in the negotiations, that some settlement must and would be made, upon the basis of concessions to be made by both the New York and Metropolitan Companies ; but there tvas a great difference of opinion as to how great these concessions were to be, and whether in the new arrangement the New York Company, in view of its large earnings, should nob have some preference both in amount of rental and in order of payment. This claim of the New York Company was resisted by the Metropoli tan Company, Mr. Kneeland, one of the directors, persisting that this disparity of earnings did not exist, and that the prospects for the future were much more brilliant for the Metropolitan Company than for the New York Company, whose limit of accommodation had been reached. Mr. Kneeland also claimed that portions Of the Metropolitan road, particularly that on the Second avenue, were operated in such a manner— being stopped at Chatham square, and not running during the night—as to divert travel to the Third avenue road, and that this was one of the reasons why the earnings of the Second avenue line seemed so small. The officers of the Manhattan Company claimed that no unjust discrimination against any portion of Metropolitan roads was observed, and that the Second avenue line, when it ran through to South Ferry, made no better showing, after due allowance made for the passengers transferred to the Third avenue line at Chatham square.
    It was claimed by the New York Company and the Manhattan Company that the Second avenue line could not pay its way in years, if ever, because of the height of the stairs by which the stations were reached, which ' were very much longer than those upon the Third avenue road. Mr. Kneeland also claimed that the future of the Second avenue line was much greater than that of the Third, because it could accommodate four tracks, and- that some connection could be made across the Harlem river with the surface roads coming to the city at that point, and that their engines and cars could be run as through express trains over the Second avenue structure down to Twenty-third street. It is very doubtful if there was any foundation for this expectation, for the reason that the Second avenue struct ure was not strong enough to sustain the heavy engines and cars used on surface roads, and certain other difficulties not now necessary to mention.
    The Manhattan Company also urged its claim for $13,000,000 against the New York and Metropolitan Companies as a reason why large concessions should be made in case that claim was abandoned.
    These negotiations finally resulted, on the 13th day of October, 1881, in the appointment of. conference committees by each of the three companies. The members of the committee appointed by the Metropolitan Company were Mr. Russell Sage, the President of the Metropolitan Company; Mr. Jay Gould, Mr. Samuel Sloan and Mr. Sylvester II. Kneeland. The Manhattan Company appointed its President, Mr. Galloway ; Mr. Navarro, General Porter and Mr: Forrest as its committee, two of whom—Mr. Navarro and General Porter—were directors in the Metropolitan Company; and the New York Company appointed its President, Mr. Cyrus W. Field ; Mr. Hall and Mr. Bishop, its committee. These committees had two meetings at Delmonico’s, at one of which meetings— according to Mr. Kneeland’s testimony—the lunch provided was discussed with much more earnestness than the subject which brought them together, and it appears there was no special discussion of any terms of settlement. The other members of the committee, however, state that a meeting of the conference committees was held on October 13, 1881, at which all the members were present, and that at that time Mr. Cyrus W. Field, of the New York Company, submitted the following proposition as a settlement of the controversies, differences and claims between the three companies :
    “First.—Discontinuance of all suits, and payments to the New York Company of all moneys due and unpaid it on lease to date ; and payment to Metropolitan Company of interest due on its bonds July 1, 1881, this payment to be made from cash now on hand and first moneys received from the operation of the railways after payment of operating expenses.
    “ Second.—Lease to the Manhattan Company tobe modified, so that all moneys received by it from the operation of the roads shall be used (1) for the payment of operating expenses and maintenance of structures ; (2) taxes and assessments; (3) interest on bonds of the New York and Metropolitan Companies ; (4) payment to the New York Company of six per cent, per annum, payable quarterly on its capital stock ; (5) payment of four per cent, per annum, payable quartei ly on the capital stock of the Metropolitan Company, from the income derived by the Manhattan Company from the operation of the lines of railway owned by the Metropolitan Company, if earned, after payment of taxes thereon, operating expenses thereof and interest on its bonds; (6) all income remaining after payments as hereinbefore provided, to be distributed among the stockholders of the Manhattan Company until such distribution shall amount to four per cent, per annum on its capital stock, the balance over such four per cent, to be equally divided between the New York and Metropolitan Companies and the Manhattan Company.
    “ Third.—The three companies to execute an agreement to make the above modifications.”
    That this proposition was discussed by the members, and the meeting adjourned to meet at one o’clock on the next day, October 14. Upon the morning of the 14th, meetings were held at the boards of directors of all the three companies, at which the above proposition of Mr. Field was submitted.
    The minutes of the Metropolitan Company, in respect to the action of its board of directors, are as follows :
    “ The proposition was discussed f ully and freely by the board. The sense of the board generally favored the acceptance, in the main, of so much as is set forth in the first and third paragraphs, and also what is contained in sections 1, 2, 3 and 4 of the second paragraph ; but that it was desirable to amend seetions 5 and 6 of the said paragraph. On motion of Mr. Samuel Sloan, seconded by Mr. Sidney Dillon, it was resolved that the whole matter of the aforesaid proposition be referred to the same committee, Messrs. Sage, Gould, Kneeland and Sloan, with power.
    The minutes of the New York Company show the following action by its board of directors:
    “After a full discussion of the subject it was moved by Mr. Barnes and seconded by Mr. Dows, that the following resolution be adopted:
    “ Resolved, that the above proposition, suggested by Mr. Field, the president of this company, at a meeting of the representatives from the boards of directors of the New York, Metropolitan and Manhattan Companies, held October 13, 1881, is hereby ratified and approved, subject to ratification of the stockholders of all three companies; and the president.of this company is hereby authorized to execute any and all papers necessary to carry the same into effect, provided the same is ratified by the shareholders of all three companies as soon as it can be legally done.”
    Seven of the directors voting in favor of this resolution and three, Messrs. Barney, Bishop and Brewster, voting against it.
    The following appears to have been the action of the directors of the Manhattan Company :
    “The committee appointed October 13th to adjust the difference between the three elevated companies, reports that a meeting had been held and no action taken yet.” “On motion of Mr. Dimmock, seconded by Mr. Kennedy, the committee were continued with the same full powers.”
    Subsequently to these meetings of the boards of directors, on the same day, the conference committees had another meeting, and the following resolution was adopted by the votes of all the members of the conference committees, except Mr. Kneeland :
    “Resolved, that the proposition of the New York Company be and. is hereby approved, provided the Metropolitan and Manhattan Companies shall be at. liberty to adjust what shall be the share of their respective properties in the subdivision, such settlement not to affect the allotment named in the plan proposed by the New York Company to that company. All to be signed and agreed to on or before the first of November.” :
    
      Mr. Kneeland, during all this time, contended that the Metropolitan Company was entitled to better terms than those which, were -offered, and the Metropolitan Company did not assent to the propositions which had been agreed to by the conference committees.
    ■ On the 22d of October, 1881, at a meeting of the board of directors of the New York Company, the resolution of the 14th of October, 1881, was rescinded and the following resolution was adopted :
    “ Eesolved, that the president of this company be, and he is hereby authorized and requested to appoint an additional member of the committee heretofore appointed, to settle all matters of difference between this company and the Manhattan Company. That said committee be authorized to negotiate with the Manhattan Company and the Metropolitan Company, for a modification of the tripartite agreement and lease from this company to the Manhattan Company, upon such terms as to the committee shall seem best. That the president and secretary of this company be, and they hereby are, authorized and empowered to execute and deliver in triplicate, to the Manhattan and Metropolitan Companies, any and all contracts containing the terms and conditions of the modification of the said tripartite agreement and lease, as shall be agreed upon between said committee and said Manhattan and Metropolitan Companies, and which may be necessary to carry said agreement into effect.
    “ The presidént appointed Mr. George S. Scott a member of such committee.”
    Negotiations had been continued by the committees, and finally, on or about the said 22d day of October, 1881, the parties settled upon the form of an agreement, which,is called the agreement of Octqber 23, 1881,- as the basis upon which all differences were to be settled and adjusted. The principal changes made in the tripartite agreement and leases of May 20, 1879, being a reduction of the dividend rental from ten to 6 per cent., and a provision that the dividend rental to the New York Company should be paid before that to the Metropolitan Company.
    
      Upon the same day, October 22, a meeting of the board of directors of the Metropolitan Company, at -which all were present, except Mr. Garrison and Mr. Navarro, was held, and the following action was taken, as appears by the minutes of that company:
    
      “The president on behalf of the committee of four, with power, having charge of the proposition set forth at the last meeting of this' board, reported that an agreement had been made between the three companies, which was read to the board and submitted for approval. Having been discussed at length, on motion of Mr. Sloan, seconded by Mr. Gould, it was - Resolved, That the agreement now read between this company, the. Manhattan Company and the New York Elevated Railroad Company, dated October 22,1881, be and the same is hereby ratified and approved, and that the president and secretary be and they hereby are instructed to subscribe the said tripartite agreement with the corporate name of this company, to attach the corporate seal thereto, duly attested, and deliver the same, as the acts and deeds of this company, in exchange for a duly executed triplicate of said agreement on the part of the said Manhattan and New. York Companies, which resolution was carried. Eight directors, Messrs. Sage, Gould, Dillon, Connor, Dodge, Porter, Sloan and Stout voted aye ; one director, Mr. Kneeland, voted no.”
    The plaintiffs claim, that the vote of Mr. Stout is not correctly entered upon the minutes, that he also voted no.
    The board of directors of the Manhattan Company held a meeting on the same day, and the following action was taken:
    “President Gallaway, from the committee, appointed October 13, reported that said committee, after careful deliberation, had entered into an agreement with the other two elevated companies, dated October 22,1881, for the full adjustment of the differences between them, which agreement he submitted to the board.
    “ On motion of Gen. Winslow, the report of the committee was received, and the agreement ordered, entered in full on the minutes of the company.
    “ Upon reading the foregoing agreement, and after a due and .careful consideration thereof, it was, on motion of Gen. Porter, seconded by Mr. Dimock,'unanimously ■ ...
    
      “Resolved, that the said agreement between the three elevated companies, above recorded, bearing date October 22, 1881, be and the same is hereby-adopted, ratified and confirmed by this board.
    “Resolved, further, that the president of this company be and he is hereby authorized and instructed to sign said agreement on behalf of the company, and the secretary is hereby directed to attach thereto the seal of this corporation and attest the same.”
    On October 24, 1881, the board of the Metropolitan Company met. Present—Mr. Sage in the chair, and Messrs. Gould, Dillon, Navarro, Connor, Dodge, Knee-land, Stout, Porter and Garrison, and the following proceedings were had:
    “The minutes of the last meeting were read and approved. The secretary informed the board that after the signing and sealing of the aforesaid agreement by the president and secretary, an amendment was proposed in certain particulars, which was duly considered by the committee, and being deemed for the interest of the company, they were agreed to, and the agreement amended in the following form, with the supplementary agreement thereto appended, and duly signed, sealed and delivered by the president and secretary in exchange for a duly executed triplicate of said agreement by the New York and Manhattan Companies; it was
    “Resolved, that the execution and delivery by the officers of the company of the foregoing agreement, dated October 22, 1881, between the New York Elevated Railroad Company, the Manhattan Railway Company and this company, with the supplementary agreement of like date thereto annexed, be and the same is hereby ratified, approved and confirmed ; and
    “ Resolved, that the counsel of the company (under direction of the president), take such measures as may be necessary to carry the said agreements into effect, to procure the railways, property and moneys now- in possession of the receivers of the Manhattan Railway Company to be restored to the possession of the said company,'and to procure the Manhattan Railway Company to be relieved from any injunction, order or legal restraint which now prevents or interferes with the perfect discharge by said company of any of its functions, or restrains it from carrying on its business.
    “ Eight directors, Sage, Gould, Dillon, Navarro, Connor, Dodge, Porter and Garrison, voted áye ; one director, Mr. Kneeland, voted no; one director, Mr. Stout, declined'to vote, and the resolution'was carried.”
    By the supplemental agreement, the rental .divi-, dends to the New York Company were .made cumula-, live, and its claim under the leases were to be paid up to and including October 1, 1881.
    On the same day the directors of the New York Company met, and the following action was taken :
    “ The minutes of the meeting of October 22d were read and approved. Mr. Field reported the result of the negotiation of the committee with the Manhattan and Metropolitan Railway Companies, and the execution and delivery by him to them of the contract, modifying the tripartite agreement and lease made May 20th. Mr. Field presented the opinion of the Honorable George F. Comstock upon the question of the right of the directors of this company to make an agreement modifying the tripartite agreement of May 20, 1879, without submitting the same to the stockholders. His opinion was addressed to the counsel of the company, Mr. E. R. Bacon, who' concurréd in the same. Mr. Field also read á letter from Judge Com-stock, in which he stated that he considered the settlement a fair, and judicious measure under all the circumstances. . After a full discussion of the subject* -it was, upon motion of Mr. Cowing, seconded by Mr. Lane, unanimously
    “ Resolved, That the report of said committee be accepted, and that the execution and delivery of said contracts of October 22, 1881, be, and the same are hereby in all things approved, ratified and affirmed.”
    This agreement was never ratified in any manner by the stockholders of the Metropolitan Company, which was considered by the counsel of the respective parties,
      viz.: Judge Comstock, Mr. David Dudley Field, Mr. E. B. Bacon, Messrs. Lawrence & Waeliner, and Messrs. Alexander & Green, as unnecessary.
    
      i On October 25, there was a meeting of the directors of the Metropolitan Company, at which the following action was taken:
    
      “ The minutes of the last meeting were read and . confirmed.
    “Mr. Sloan proposed the following resolution, which was seconded by Mr. Conner and carried :
    
      “Whereas, The modified agreements require new certificates ; therefore, under the advice of counsel it is hereby Resolved, that the transfer books be closed forthwith and remain closed, from this date to' the first day of November next.” - ■
    
      The interest of the various directors of the Metropolitan Company, in the shares of the several companies, on October 22, 1881, seems to have been as follows:
    
      Mr. Gould held twenty-five hundred shares of the stock of the Metropolitan Company, bought along in September ; also five thousand shares of the stock of the New York Company, bought in September and October ; also twenty thousand shares of the Manhattan Company, bought as appears by the following statements: ■
    
      “ Statement of the amount of Manhattan Railroad Company’s shares, held by Jay Gould up to and in-’ eluding October 21, 1881, showing the amount held at the close of each day, the sto"ck being bought at'the market rate from day to day, as per statement:
    September 30 . . ’ . . . 600
    October 1 . . . . : . . 3,250
    ■ “ 4. . . , . . . . 4,900
    “ 5 . . / ; . ■. . 4,950
    “ 6........5,350
    “ . 7.......10,000
    
      Metropolitan El. Eiv. Co. v. Manhattan Bw. Co. October 8 . 12,500 66 13 . . . . • • • . 16,250 66 14 . 18,200 66 17 . . 18.950 66 21 . ' . . 20,000 ”
    Mr. Sloan held 100 shares in the Metropolitan, 100 shares in the New York, and 100 shares in the Manhattan Company.
    Mr. Bussell Sage held, at the time of the election, in July, over 2,000 shares of Metropolitan, about 200 shares in New York, and was short of Manhattan ; and on October 21, was short of Manhattan 5,200 shares ; on October 22, he bought 3,000 shares of Manhattan ; October 24, 200; October 25, 2,300, and sold October 25, 100 shares; on the 22 of October* 1881, he held 1,200 shares of Metropolitan, and about 900 shares of New York.
    Mr. Sidney Dillon held, October 22,1881, no Metropolitan ; 100 shares of Manhattan, and 100 shares of New York.
    Mr. Wm. B. Garrison held October 22, 1881,. 518 shares of the Metropolitan Company, 300 shares of the Manhattan Company.
    Gen. Horace Porter held in October, 1881, about 100 shares of Metropolitan, and on October 22, 1881, ten shares of Manhattan, having purchased 1,00,0. shares September 9, and sold them September 2.8 and 29 ; and 1,000 shares on October 3 and 4, and sold them October 7.
    Mr. Navarro held on October 22, 1881,1,000 shares ■ of the Metropolitan, 6,100 shares of the Manhattan, and 4,000 shares of the New York Company.
    Mr. Kneel and held on October 22, 1881, about 13,000 shares of the Metropolitan, and 7,100 shares of the Manhattan Company, which he sold out subsequently, at a profit of about $70,000. ¡
    
    
      Mr. J. S. Stout, according to the stock-ledger, held on the22d day. of October, 1881, 4,002 shares of Metropolitan, and 300 shares of Manhattan.
    Mr. Dodge does not seem to have held any stock in any of the companies on the 22d of October, 1881.
    Mr. Connor, according to the stock-ledger, held on the 22d of October, 1881,100 shares of the Metropolitan Company, and 1,000 shares of the Manhattan Company.
    The firm of W. E. Connor & Co. had standing in its name on October 8, 1881, 12,400 shares of the Metropolitan Company, a large portion of which it claimed was borrowed stock, and transferred for the purposes of the election.
    But little reliance is to be placed upon the evidence of the ledger, as to the condition of the holdings of any particular individual at any given time, as all the stock appearing upon the ledger may have been sold and resold, and sold again many times, long before any transfer of it is made upon the books of the company.
    On the 25th of October, 1881, the three companies presented their petition to the supreme court, in the suit of The People against The Manhattan Railway Company, at Monticello, Sullivan county, Mr. Justice Westbrook presiding, alleging the making of the agreement of October 2-2,1881, whereby all differences between the three companies had been settled and adjusted, and whereby it had been agreed that the Manhattan Company should obtain immediate possession of the property in the hands of the receivers, and that such possession was necessary in order that the provisions of said contract of settlement should be carried into effect, and praying a dissolution of the injunction theretofore granted in the action restraining the Manhattan Company from exercising any of its functions, and a restoration of the railways and property then in the hands of the receivers, except that the receivers should be permitted to retain such amount of money as might be necessary to defray the costs and expenses of the administration of the trust.
    The Attorney-General not opposing, but submitting the matter to the judgment of the court, upon the consent of the attorneys for the three companies, and also of the receivers, an order was made, granting the prayer of the petition; the injunction was dissolved, and all the property in the hands of the receivers was directed to be delivered to the Manhattan Company, except the sum of $75,000, which the receivers were directed to retain until the further order of the court.
    Prior to this time various actions had been commenced against the Mayor, Alderman and Commonalty of the city of New York to restrain the collection of the taxes imposed, as before mentioned, upon the railway property upon various grounds, and various sums had been paid into court by the Manhattan Company. Except, as here stated, none of the taxes had been paid by the Manhattan Company, except some amounts of capital tax.
    On the 27th of October, 1881, Messrs. Burnham and Berry commenced an action in the supreme court, as stockholders of the Metropolitan Company, against the three companies, to set aside the agreements of October 22, 1881, as null and void, upon the ground that the nine directors who approved these agreements had violated their trusts, in promoting the interest rather of the Manhattan (Company than of the Metropolitan Company; that three of the directors of the Metropolitan Company were also directors of the Manhattan Company, and because these agreements had never been submitted to the stockholders for ratification.
    On November 3,1881, Messrs. Gould and Sage were elected directors of the New York Company.
    On November 9, 1881, there was held the regular annual meeting of the stockholders of the Manhattan Company, at which Mr. Gfallaway, on behalf of the directors, reported to the stockholders the commencement of the People’s suit, the appointment of the receivers, the petition of the Mew York Company to get back its property, the denial of this motion on October 4, the application of the receiver for leave to sue the Mew York and Metropolitan Companies for $13,000,000. That negotiations were had with a view of settling all differences, and that these negotiations finally culminated in the agreement of October 22,1881; and that thereupon the court ordered the redelivery of the property into the hands of the company ; and that releases had been executed by the Manhattan Company to the other two companies, whereupon the following action was taken : »
    
    “ Resolved, that the stockholders of this company hereby ratify and confirm said agreement and supplemental agreement and releases;
    “Resolved, further, that while the stockholders of this company regard with satisfaction the settlement thus made with the Mew York and Metropolitan Companies, they recommend that means be taken to merge into the stock of this company the stock of the said two other companies, that is to say, that a surrender or transfer of the capital stock of the Mew York and Metropolitan Companies be made by their stockholders to this company and accepted by them, and for th?it purpose they approve and authorize the issue of a like additional amount of stock of this company, not exceeding in aggregate the stocks of the Mew York and Metropolitan Companies, that is to say, $13,000,000, on such terms and conditions as may be agreed upon by the two companies.
    “Which resolution was carried with unanimous consent.”
    
      At this same meeting of shareholders, the following were elected directors of the Manhattan Company :
    Jay Gould, Russel Sage, Samuel Sloan,
    Sidney Dillon, Wm. R. Garrison, C. W. Field,
    H. F. Dimock, E. M. Field, Geo. S. Scott,
    R. M. Gallaway, W. E. Connor, John H. Hall,
    Geo. J. Gould.
    On November 11, 1881, Benjamin W. Gillette commenced an action in the United States circuit court for the southern district of New York against the three railway companies, upon a bill filed, containing substantially the same allegations as those in the above complaint of Burnham & Berry, and praying for the same relief. An order to show cause for an injunction, with an ad interim stay was granted, which was disposed of at the same time that the motion for an injunction in the action of Flagg hereinafter mentioned was denied, and the defendants duly answered, and the complainant’s bill was, on April 26, 1883, dismissed upon his own motion.
    On or about November 14, 1881, an agreement was proposed to the directors of the three companies, for a complete merger of the capital stock of the New York and Metropolitan Companies into that of the Manhattan Company. This agreement provided that the Manhattan Company should take a surrender or transfer of all the shares of stock of the shareholders of the New York and Metropolitan Companies, and issue in exchange therefor the like additional amount of shares of the Manhattan Company, the shares thus to be issued to the shareholders of the New York Company, to be called first-preferred stock, and to be entitled to the payment of dividends at six per cent, per year, payable out of the net earnings, and if there should be in any year any deficiency, such deficiency was to be made up before any dividends were paid upon any other class of stocks. The. shares to be issued to the shareholders of the Metropolitan Company .to be called second-preferred stock, and to be entitled to the payment of dividends at six per cent, per year, payable out of the net earnings of the company during the year, after the first-preferred shareholders have received full dividends for all time previous; but, if the net earnings in any year, after the payment of dividends to the first-preferred shareholders did not amount to six per cent., the deficiency was not to be made up out of the earnings of any future year or in any manner whatever. The present shares of the Manhattan Company amounting to $13,000,000, were to be called commori stock and to be entitled to dividends out of the net earnings of the company, after payment of the dividends to the first and second preferred shareholders. ' On the 14th of November, 1881, Mr. Cyrus W. Field was elected a director of the Metropolitan Company in the place of Gr. M. Dodge, resigned, and at that meeting the above proposed agreement was read to the board, and the following action was taken ;•
    “On motion of Mr. Washington E. Connor, seconded by Mr. Samuel Sloan, it was
    “ Resolved, That the agreement now read between this company, the New York Elevated Railroad Company, and the Manhattan Railway Company, dated this 14th day of November, 1881, be, and the same is hereby, approved and adopted.
    “The yeas and the nays being called, Messrs. Sage, Dillon, Field,- Connor and Sloan, five directors voted 6 aye; ’ Mr. Kneeland and Mr. Stout, two directors, voted ‘no.’ The resolution was carried.
    “ On motion of Mr. C. W. Field, seconded by Mr. S. Sloan, it. was
    “ Resolved, That the agreement now approved and .adopted by this, board be executed by,the proper, .officers of this company. That the president and secretary be, and they are hereby instructed to subscribe the said tripartite agreement with the corporate name of the company, to attach the corporate seal thereto duly attested, and deliver the same to the New York and Manhattan Companies as the acts and deeds of this company, in exchange for a duly executed triplicate of said agreement on the part of the said New York and Manhattan Companies.
    “ Which resolution was carried, Messrs. Sage, Dillon, Field, Connor and Sloan, voting ‘ aye ;’ Mr. Knee-land and Mr. Stout voting ‘no ;’ Mr. Jay Grouid declined to vote on both resolutions.”
    On the same day, at a meeting of the board of directors of the Manhattan Company, the following action was taken in reference to the merger agreement, as it is called :
    “ The president stated that this was a special meeting of this board, called for the purpose of considering an agreement to consolidate the New York Elevated Railroad Company, the Metropolitan Elevated Railway Company, and the Manhattan Railway Company, into one company.
    “ This agreement was then read by David Dudley Field, Esq., when on motion of Mr. Sloan, seconded by Mr. Sage, it was unimously
    “ Resolved, That the said agreement between the three elevated railway companies, bearing date the 14th of November, 1881, and now read in our hearing, be and the same is hereby adopted, ratified and confirmed by the board ; and
    “Resolved further, That the president of this company be and he is hereby authorized and instructed to sign said agreement on behalf of this company, and the secretary is hereby directed to attach thereto the seal of this company and attest the same, and that the officers of the company be instructed to proceed to carry out the terms of the said agreement.
    “The vote was then, on motion, taken on the foregoing resolutions by calling the roll, resulting in the following persons voting aye, viz. : President Gould, Vice-President Galloway, Cyrus W. Field, Edward M. Field, Bussell Sage, Samuel Sloan, Sidney Dillon, John H. Hall, W. E. Conner and George S. Scott. Total ayes, ten. Noes, none.”
    The agreements were duly executed on this day, or on November 15, 1881.
    On November 21,1881, a special meeting of the stockholders of the Manhattan Company was held, pursuant to a call issued therefor by the board of directors, for the purpose of taking action upon a proposal to issue $13,000,000 of additional stock of the company, in order to carry out the merger agreement of November 14, and the following resolution, adopted by a vote of 92,583 shares in favor, and 500 shares' against its adoption. The following is the resolution :
    ‘ ‘ Besolved, That the stockholders of this company do hereby sanction and authorize the increase of the capital stock of this company by $13,000,000 making, with the existing capital stock, a total of $26,000,000.”
    On December 24, 1881, the State engineer and surveyor duly.approved the above-mentioned increase-of the capital stock of the Manhattan Company to $26,000,000.
    On the 10th of January, 1882, the regular meeting of the shareholders of the New York Company was held, at which the following were elected directors :
    Cyrus W. Field, David Dows, Jay Gould, Bussell Sage, John H. Hall, A. S. Barnes, George S. Scott, J. H. Lane, Jesse Hoyt, Daniel A. Bindley, Edward M. Field, James D. Smith, and James-A. Cowing. The following resolution was then offered by Mr. Cockroft, seconded by Mr. Russell Sage :
    “ Resolved, That the acts of the. directors of this company during the past year, including the agreements between this company and the Metropolitan and Manhattan Railway Companies, dated respectively, October 22, and November 14, 1881, are approved and ratified by the stockholders of this company.”
    Which was adopted by a vote of 25,904 in favor of the resolution, and 737 votes against it.
    Pursuant to this merger agreement, only 3,296 shares of Metropolitan stock have been converted into Manhattan second preferred; but a large amount of the stock of the New York Company has been converted into first preferred Manhattan stock.
    On November 17, 1881, the Manhattan Company put in a supplemental answer, in the People’s suit, setting up the agreement of October 22, and that the company was solvent. On the same day a trial of the cause was had in the rooms of the attorney-general, at the Delavan House, Albany (the attorney-general being then confined to his room by illness), some evidence taken, and the attorney-general being satisfied that by the agreements of October 22, the Manhattan Company had been made solvent, findings of fact were duly made, and a judgment entered, which, after reciting that the said agreements of October 22, were regarded by the court as a just settlement of the controversies between the parties, and removed all question as to the solvency of the Manhattan Company, adjudged that said agreements required no ratification thereof by the stockholders of said corporation or either of them, and confirmed and established the same as a final settlement and conclusion of all questions in the action.'
    On the 8th of October, 1881, Mr. Sage, President of the Metropolitan Company, wrote to the attorneys of the company as follows :
    “Messrs. Porter, Lowrey, Soren & Stone,
    “Dear Sirs:—Please send to Messrs. Lawrence & Waehner, 120 Broadway, a consent that they be substituted in your stead, as attorneys for the Metropolitan Elevated Bailway Comway, in the action. of the People, &c., against the Manhattan Bail way Company, and in the matters pertaining to that action. Also please send them all papers in, and relating to, the action. Be kind enough to give this matter your immediate attention.”
    A consent seems to have been given at this time.
    On the 25th of October, Mr. Sage wrote as follows:
    “Messrs. Porter, Lowrey, Soren and Stone,
    “Dear Sirs :—Please consent to discontinuance of action pending in the superior court, brought by the New York Company, and-to the vacating of the injunction therein, as desired by Mr. Baconwhich was given October 26, and an order entered the same day, dissolving the injunction.
    • And on the 26th of October, 1881, Mr. Sage wrote as follows:
    “Messrs. Porter, Lowrey, Soren & Stone,
    “ Gentlemen:—Please consent to vacate the injunction, and cancel the undertaking given thereon, in the suit of the 'New York Elevated Bailroad Company against the Manhattan and Metropolitan Companies, and cancel consent previously given to discontinue the action;” which was done ; and on the 22d of November Mr. Sage wrote as. follows:
    “New. Yobk, November 22,-1881.
    “ Messrs. Porter, Lowrey, Soren & Stone,
    “ Gentlemen:—Will you please deliver to Mr. Body,
    
      our secretary, the papers, with consent of substitution from your firm in favor of Lawrence & Waehner, in the case of The New York Elevated Railroad Company v. The Metropolitan Elevated, and Manhattan Railway Companies. It is important that the papers be delivered at once, as the suit is expected to be tried soon.”
    The consent for the substitution was signed the same day, and an order entered, substituting Lawrence & Waehner, as attorneys for the Metropolitan Company, in said superior court suit.
    On November 22, 1881, in the action in the superior court, wherein the New York Company was plaintiff and the Manhattan and Metropolitan Companies were defendants, hereinbefore mentioned, the Manhattan Company put in a supplemental answer, setting up the proceedings had in the People’s suit upon the application of the New York Company to receive back again its property and the denial of the application, and that on October 22, 1881, the Manhattan Company had entered into an agreement and supplemental agreement with the Metropolitan and New York Companies, whereby all the matters and things in dispute between the companies had been finally compromised and adjusted.
    On December 8,1881, the attorneys for the respective companies having appeared before the court, and the facts alleged in the supplemental answer of the Manhattan Railway Company being admitted to be true, the court made certain findings of fact, and entered a judgment thereon, adjudging that the agreements entered into by and between the said three companies on the 22d day of October, 1881, were just and valid agreements between the said three companies, and that the same were thereby established as a compromise settlement and adjustment of all matters in dispute between them, and a general settlement of all matters therein.
    On December - 5, 1881, one George A. Flagg and others filed a bill of complaint in the II. S. circuit court for the southern district of New York, against the three railway companies, alleging in the bill of complaint facts similar to those stated by Gillette in his bill of complaint, and praying for similar relief, and a motion was duly made for such injunction before Mr. Justice Blatciiford and was denied by him, he holding that the October agreements were within the power, of the board of directors to make, and that they were valid and binding contracts.
    
    On December 9, 1881, the Manhattan Company brought its action in the supreme court against the New York Company, the, Metropolitan Company, Berry & Burnham, and all others who had brought suits against it, and which has been called the bill of peace suit, the complaint after setting up the fact of the bringing the various actions, asking an injunction against the bringing of any more suits, and that all the matters in controversy should be therein determined. In this action a preliminary injunction was granted, which was made permanent at the special term on the 20th of June, 1882, and vacated by the general term in February, 1883, upon the ground that the case presented was not one in which a court of equity should interefere by bill quia timet.
    On the 28th of October, 1882, the Manhattan Company paid to the Metropolitan Company $339,540, in payment in full of the following account:
    “Manhattan Railway Company,
    To Metropolitan Elevated Railway Company, Dr. “1881.
    “For amount as per bill attached.
    “ For the following amounts, payable in accordance with the terms of agreement, dated October 22, 1881 :
    “ 6 mos. interest to July 1st 1881, on
    $10,818,000 first m. bonds, M. E. Ry.
    Co., at 6 per cent, per annum . . $324,540 00
    “6 mos. rental of roads to July 1st, 1881 50,000 00
    “ 6 mos. interest to November 1st, 1881, on
    $2,000,000 second m. bonds, Met. E.
    Ry. Co., at 6 per cent, per annum . 60,000 00
    “ 389,540 00
    “Paid on acc’t .... 50,000 00
    “$339,540 00”
    
      On January 3, 1882, the Manhattan Company also paid to the Metropolitan Company the sum of $5,000 for the rent of roads due January lj 1882, as per lease and modified agreements. Upon the same day a dividend was paid by the Manhattan Company to the holders of its first preferred stock, and on July 14 following, an amount equal to a one and a-half per cent, dividend, upon the shares of the New York Company which had not been converted, was paid to the N ew York Company, but no dividend was paid to the Metropolitan shareholders, or to the holders of the second preferred Manhattan stock.
    On January 31, 1882, the following resolution was adopted by the directors of the Manhattan company :
    “ Resolved, That- the directors of this Manhattan Railway Company do elect, to become ex-officio, the directors, of said New York Elevated Railroad Company.
    “ Resolved further, That the directors iof this com.; pany will now and from henceforth, manage and conduct the affairs of said New York Elevated Railroad Company as provided by law.
    
      “ Resolved, That a copy of the foregoing be sent to the New York Elevated Railroad Company.”
    On March 4,1882, there was a meeting of the directors of the Metropolitan Company, at which a proposed agreement between the three companies was submitted to the board, providing that the 4th article of the agreement of the 14th of November, 1881, should be so far modified as to provide that if the net earnings of the Manhattan Railway Company, in any year, after the payment of dividends to the first preferred stockholders, do not amount to six per cent., the deficiency shall be carried forward and paid out of the net earnings of future years, after payment in full of all dividends to the first preferred stockholders, as provided in the said agreement. But nothing herein contained should affect in any manner the New York Elevated Railroad Company, or the agreements heretofore made with it, or the priority of payment of dividends to the first preferred stockholders of the Manhattan Railway Company; nor should it give to any second preferred stockholder a right to dividends, except such as may be earned after he becomes such stockholder.
    ‘1 Which, having been read and duly considered, on motion of Mr. S. Dillon, seconded by Mr. S. Sloan, it was
    “Resolved, That the agreement now read between this company and the New York Elevated Railroad Company and the Manhattan Railway Company, dated this fourth day of March, 1882, be and the same is hereby approved and adopted. That the president and secretary be and they are hereby instructed to subscribe the said tripartite agreement with the corporate name of this company, to attach the corporate seal thereto, and deliver the same to the New York and Manhattan Conpanies in exchange for a duly executed triplicate of said agreement on the part of the said New York and Manhattan Companies.
    “ On the question being put, Mr. Joseph S. Stout declined to vote.
    “Messrs. Jay Gould, Russell Sage, Sidney Dillon, G. M. Dodge, Samuel Sloan and W. E. Conner, being six directors, voted aye, and the resolution was carried.”
    A similar resolution was, on the same day, adopted by the Manhattan Company. The agreement, however, for some reason, was never executed by the parties.
    On April 1, 1882, a quarterly dividend of one and a-half per cent, was paid upon Manhattan first and second preferred, and to the New York Company on July 14, for the New York unconverted stock, but no payment was made to the Metropolitan Company for its unconverted stock.
    On June 7, 1882, the directors of the Metropolitan Company adopted a resolution postponing the election of directors from the second Tuesday of June, 1882, to the second Wednesday of November, 1882.
    On July 1, 1882, a quarterly dividend of.one and a-half per cent, was paid on Manhattan first and second preferred, and to the New York Company for its non-assenting shareholders, and also $97,500 was paid to the Metropolitan Company, being one and a-half per cent, ón its stock, and the Manhattan collected the dividend from the Metropolitan Company upon the 3,296 shares of converted stock.
    A similar dividend was paid October 1,1882, in precisely a similar way.
    The Manhattan Company has- also paid the interest at the rate of six per cent., falling due January 1st and July 1st, on $10,818,000 first mortgage bonds of the Metropolitan Company, and also the interest falling due on the 1st of May and the first of November, on $2,000,000 second mortgage bonds of the Metropolitan Company.
    On November 8, 1882, the following were elected directors of the Metropolitan Company :
    ' “Mr. Joseph S. Stout, Mr. Jacob Berry, Mr. Elijah Smith, Mr. Thomas T. Buckley, Mr. Bufus IT. Gilbert, Mr. Sidney Shepherd, Mr. Joseph W. Burnham, Mr. Morrell H. Gillett, Mr. Chas. Duggin, Mr. Sylvester H. Kneeland, Mr. Benjamin W. Gillett.”
    There are several proceedings by the board of directors of the companies during the year 1882, which are not referred to, being immaterial to the controversies in this action.
    
      And in December, 1883, this action was commenced by the Metropolitan Company against the Manhattan and New York Companies, to set aside the October agreements, upon the following grounds:
    1st. Because the Metropolitan directors had no power to modify the original lease and tripartite agreement of May 30,1879, without the cdhsent of the shareholders.
    3d. Because three Metropolitan directors were at the time of the making of the October agreements also directors of the Manhattan Company—one of the contracting parties whose interests were antagonistic to those of that company.
    3d. Because the personal interests of several of the Metropolitan directors were opposed to those of that company.
    4th. Because of actual fraud upon the part of certain Metropolitan directors, who entered into a scheme to benefit themselves at the expense of their corporation.
    The defendant corporations duly answered, denying the allegations of breach of trust, and that the directors of the Metropolitan Company had interests hostile to the company, and alleged that the October agreements were entered into in good faith. The answers further set up the merger agreement of November 14, 1881, as a defense, and the judgment in the People’s suit, and also the judgment in the action in the superior court suit, as a bar to this action.
    Upon the 19th of February, 1883, an order to show cause was duly obtained by the Metropolitan Company, represented by new attorneys, from the superior court, why the judgment above mentioned, entered in that court on the 8th day of December, 1883, should not be set aside, and why the Metropolitan Company should not be let in to answer or demur. The motion thereon was duly heard before Mr. Justice Freedmatt, on or about the 20th day of March, 1883, and denied with costs, upon the ground that when, the case came on for trial in its regular order, the counsel for the respective companies agreed as to the findings to be made, and the judgment to be entered, and the court settled the findings and gave judgment accordingly, and as there was no irregularity or want of jurisdiction, the parties to the judgment were bound by the adjudication made.
    The learned court further held, that as the applica-' tion rested substantially upon the claim that if the application were granted, the Metropolitan Company, in consequence of a change of - advisers, could present some considerations to the court which were not presented before, and which if they had been presented, might, and possibly would, have led to a different result, no ground was shown sufficient to call for the interposition of the equitable powers of the court. That the policy of the law was to end the litigation and to hold parties bound by the result, after they had had their day in court.
    The court further held, that a conclusive answer to the motion was, that at that late day it was impossible to restore the three corporations to the positions they respectively occupied toward each other at the time of the entry of the judgment.
    In April, 1883, the Metropolitan Company obtained another order to show cause why they should not have leave to renew the motion to set- aside said judgment of December 8, 1881, or if such leave was denied, why the judgment and findings should not be corrected and amended, by striking out the finding of fact that all matters in dispute between the three companies were compromised, settled and adjusted by the agreements of October 22; and the finding and judgment that said October agreements were valid.
    This motion was also heard before Mr. Justice Freedmak, and an order was entered denying the motion with costs, August 9, 1883, from which, order an appeal was taken by the Metropolitan Company.
    
    
      James Q. Carter, Robert Sewell and Francis C. Barlow, of counsel for the plaintiff, The Metropolitan Elevated Railroad Company.
    
      William M. Evarts, David Dudley Field, A. «7. Yanderpoel and W. A. Dicer, of counsel for the defendants.
    
      
       And upon the same principle in an action of a legal nature an equitable reply is available to defeat a legal defense- (Sheehan v. Hamilton, 4 Abb. Ct. of App. Dec. 211; Wadsworth v. Lyon, 93 N. Y. 201).
      But these rules are held not to apply in courts of the United States (Montejo v. Owen, 5 Abb. N. C. 110; Compare Kirk v. Hamilton, 102 U. S. [12 Otto] 68; Holland v. Challen, 110 U. S. [Davis] 15.
      The distinction between law and equity is recognized and established, for the national courts, by the constitution and the acts of congress regulating procedure, and cannot be obliterated, with respect to those courts, by any statutes of a State. Notwithstanding a reformed code of procedure of a State declares that the distinction between law and equity is abolished, and that there should be but one form of action—a civil action,—if a complainant resorts to a Federal court, he must proceed at law or in equity, according to the nature of his case. If he files a bill in equity, when he has an adequate remedy at law, his bill may be dismissed, even on appeal (Thompson v. Railroad Companies, 6 Wall. 134). To nearly same effect, Walker v. Dreville (12 Id. 440); Shuford v. Cain (1 Abb. U. S. Circ. Ct. 302); and see Ellis v. Davis (109 U. S. [Davis] 485).
      One who sets up an equitable defense in a common law action is in the position of a suitor in equity, and the equities of both parties must be considered and adjusted in the action (Hoppough v. Struble, 60 N. Y. 430; rev’g 2 Sup'm. Ct. [T. & C.] 664).
    
    
      
       Compare Jex v. Jacob, 7 Abb. N. C. 452, 459; Perry v. Dickerson, Id. 466; aff’d in 85 N. Y. 345.
    
    
      
       See note on this subject at the end of this cáse ; see also Murtha v. Curley, 12 Abb. N. C. 12; S. C., 90 N. Y. 372; Chatfield v. Simonson, 92 N. Y. 209, 216.
      On trial of an action of any kind, legal and equitable rules are to be applied indiscriminately (Code, §§ 69, 150; 12 N. Y. 156). The court is to inquire whether, taking into consideration all the prin-ciples of law and equity bearing on the case, plaintiff ought to recover (N. Y. Central Ins. Co. v. National Protection Ins. Co., 14 N. Y. 85; to same effect, Despard v. Walbridge, 15 N. Y. 374; Cole v. Reynolds, 18 N. Y. 74; Blair v. Claxton, Id. 529; Phillips v. Gorham, 17 N. Y. 270).
      In a purely legal action,—e. g., ejectment,—plaintiff may recover on equitable grounds (Phillips v. Gorham, 17 N. Y. 270).
      Objection that the cause of action, in a suit of an equitable nature, is in reality a trespass not recognizable in equity:—Held, not available, when interposed for the first time on an appeal (Reed v. Gannon, 3 Daly, 414).
      Though the facts stated in a complaint would sustain an action at law, if they also entitle plaintiff to equitable, relief, the character of the action must be determined by the frame of the complaint and the prayer for relief (Mills v. Bliss, 55 N. Y. 139).
      If the complaint states facts constituting a cause of action, and defendant answers, the court should afford the appropriate relief, Whether the frame of the complaint be legal or equitable (12 N. Y. 336; 20 Id. 64; 40 Id. 207; 42 Id. 493; Wright v. Wright, 54 N. Y. 437; affg 59 Barb. 505).
      A complaint is not fatally bad because not indicating whether the action is legal or equitable (Rindge v. Baker, 57 N. Y. 209; S. C., 15 Am. R. 475).
      If the facts set forth in the complaint entitle the plaintiff to any relief, legal or equitable, bis action, will not fail. So held, on demurrer (Price v. Brown, 10 Abb. N. C. 67).
      The prayer for relief is not conclusive as to whether the cause of action is legal or equitable in its character (Code, § 375; Williams v. Slote, 70 N. Y. 601).
      A plaintiff should not be turned out of court, when an answer has been interposed, because he has prayed for too much or too little, or for wrong relief (Citing Code Civ. Pro. § 1307) Murtha v. Curley, 12 Abb. N. C. 12; S. C., 90 N. Y. 372; 3 Civ. Pro. R. [Browne] 1; rev’g 47 Super. Ct. [J. & S.] 393).
      Under the rule that plaintiff can have any relief consistent with the complaint and embraced within the issue, plaintiff in a creditor’s action may have judgment for the amount due if no account is necessary (lb.).
      
      But notwithstanding the liberality of the new procedure, the plaintiff can have no relief that is not “consistent with the case made by his complaint and embraced within the issue ” (Code Pro. § 375). He must, therefore, establish his allegations (31 N. Y. 321; 40 Id. 504; 14 Id. 540), and if they warrant legal relief only, he cannot have equitable relief upon the evidence. He must bring his case within the allegations as well as within the proof (40 N. Y. 504; 62 Id. 508; 73 Id. 415; Stevens v. Mayor, &c. of N. Y., 84 N. Y. 296; aff’g 46 Super. Ct. [J. & S.] 374).
    
    
      
       In an action by a stockholder of a railroad corporation to redeem from a foreclosure and sale of the road, the plaintiff having sought to maintain the action as one to set aside the foreclosure and sale as fraudulent:—Held, that the company, not being a necessary party on the face of the complaint, could not be brought in (Harpending v. Munson, 91 N. Y. 650). See also the cases of Sawyer v. Chambers, 11 Abb. Pr. 110; and Webster v. Bond, 9 Hun, 437, and The “ Hudson ” [Dist. Ct., S. D. N. Y. Feb. 7, 1883], 15 Fed. Rep. 162, 174; S. C., 28 Alb. L. J. 148, 153, to the effect that a defendant in a common law action cannot, under the N. Y. Code, bring in another person as defendant, in order to obtain relief against him; but this rule is held, only applicable in common law actions.
    
    
      
       Even if a trustee has co-operated in a breach of trust, he may turn back, and call his fellows to account. Baynard v. Woolley, 20 Beav. 583. The dictum of Marvin, J., in Bartlett v. Hatch, 17 Abb. Pr. 461, 464, on this point needs qualification.
    
    
      
       As to actions in the nature of bills of peace, under the Code, see Bailey v. Briggs, 56 N. Y. 407; affirming 6 Lans. 356 ; Wallach v. Society for Reformation, &c., 67 N. Y. 23; Supervisors of Saratoga v. Seabury, 11 Abb. N. C. 461, and cases cited.
    
    
      
      
         This rule was very fully applied formerly. Since Dwight v. St. John, 35 A. 7. 303, a limited effect has been given some of such judgments or orders (Riggs v. Pursell, 74 N. Y. 370).
    
    
      
       As to power to waive defenses, see Lowndes v. Garrett, &c. Mining Co., 33 L. J., Ch. N. S. 418 ; and Matter of Orthodox Cong. Ch., 6 Abb. N. C. 398.
    
    
      
       See note on p. 66. ,
    
    
      
       See, to similar effect, Chapman v. Phoenix Bank, 5 Abb. N. C. 118; S. C., 44 Super. Ct. (J. & S.) 340.
    
    
      
       See also People v. Stephens, 71 N. Y. 527.
    
    
      
       See 3 Abb. N. C. 93, note and case cited.
    
    
      
       See Miller v. Barber, 66 N. Y. 558; aff’g 4 Hun, 802.
    
    
      
       See note on this subject at the end of this case. See also Harris v. Equitable Life Ass. Soc., 3 Hun, 724 ; S. C., 6 Sup'm. Ct. (T. & C.) 108.
    
    
      
       See also Hammond v. Pennock, 61 N. Y. 145; aff’g 5 Lans. 358; and see 24 Moak's Eng. 557, n.
    
    
      
       See also Rothschild v. Amer. Cent. Ins. Co., 11 Ins. L. J. 282 ; Stoddart v. Key, 62 How. Pr. 137; Murray v. Robinson, 7 Alb. L. J. 415; Worrall v. Munn, 5 N. Y. 229; Mackay v. Mackay, 1 Lans. 506, Pratt v. Hudson River R. R. Co., 21 N. Y. 305; Taylor v. Nussbaum, 2 Duer, 302; Dillon v. Anderson, 43 N. Y. 231; Adams v. M. & B. Fire Ins. Co., 19 Fed. Rep. 630.
    
    
      
      See cases cited in Note on Actions to establish a Trust, 13 Abb. N. C. 334.
    
    
      
       See also St. James Church v. Church of the Redeemer, 45 Barb, 356.
    
    
      
       See also Odgen v. Murray, 39 N. Y. 202, 207.
    
    
      
      
         L. 1866, p. 1491, c. 697.
    
    
      
      
        L. 1850, p. 211, c. 140.
    
    
      
      
        L. 1867, p. 1271, c. 489.
    
    
      
       2 L. 1867, p. 1398, c. 515.
    
    
      
       p. 211, c. 140.
    
    
      
      3 L. 1868, p. 2033, c. 855.
    
    
      
       By L. 1868, p. 2033, c. 855, § 5.
    
    
      
       2 L. 1868, p. 2033, c. 855.
    
    
      
       These transactions, were the subject of litigation in James v. Cowing, 82 N. Y. 449 ; rev’g 17 Hun, 256 ; S. C., 11 Weekly Dig. 289.
    
    
      
      2 L. 1872, p. 2179, c. 885.
    
    
      
      
        L. 1873, p. 1253, c. 837.
    
    
      
      
        L. 1874, p. 331, c. 275.
    
    
      
      
        L. 1875, p. 727, c. 595, § 2.
    
    
      
      
         L. 1875, p. 740, c. 606. For the history and construction of, this act, see the Elevated R. R. Cases, 70 N. Y. 327 ; S. C.. 3 Abb. N. C. 401 ; affi’g 7 Hun, 239.
    
    
      
       § 4.
    
    
      
       § 80.
    
    
      
       7 Hun, 239; aff’d in 70 N. Y. 327; S. C., 3 Abb. N. C. 401.
    
    
      
      
        L: 1870, p. 750, c. 322; am’d by L. 1876, p. 281, c. 280.
    
    
      
       The following is The Tripartite agreement of May 20, 1879.
      “ This agreement, made this 20th day of May, one thousand eight hundred and seventy-nine, between The New York Elevated Railway Company, of the first part, The Metropolitan Elevated Railway Company, of the second part, and The Manhattan Railway Company, of the third part.
      “ Witnesseth: That the said three companies, designated herein respectively as the New York, Metropolitan and Manhattan Companies, for the purpose of avoiding the danger of crossing elevated railway tracks upon the same level, and otherwise securing to the people of New York the advantages of safer and more rapid transit through the action of one directing body, have agreed, and do hereby agree, as follows:
      “1. The New York and Metropolitan Companies shall severally execute leases of their respective railways, and other property, rights and franchises of every description, including patent rights to the Manhattan Company, substantially in the form hereto annexed. '
      “2. The New York and Metropolitan Companies respectively agree, each to pay for all work done and property received by it on or before the thirty-first day of January, one thousand eight hundred and seventy-nine; but the Metropolitan Company shall be entitled to receive from the Manhattan Company, and the last named company agrees to reimburse to the Metropolitan Company, all sums paid by it on account of the west side line above Eighty-third street, and on account of the Metropolitan Company’s line built or in course of construction on the easterly side of the city. ‘
      “ 3. All outstanding contracts of the New York and Metropolitan Companies (except the Metropolitan Company’s contract with the New York Loan and Improvement Company for construction, which is to be canceled before this agreement shall take effect), and of the’ New York Loan and Improvement Company for the construction and equipment of railways upon the New York and Metropolitan Companies’ routes, are to be assumed by the Manhattan Company on the cash basis thereof, except the Ninth and Eighth avenue contracts above Eighty-third street; and the Manhattan Company agrees to fully perform and carry out all contracts hereby assumed by it, so as to enable the other companies, parties hereto, and the New York Loan and Improvement Company to realize all the benefits and advantages provided by said contracts to accrue to them or either of them.
      “4. All civil actions and proceedings and all judgments and cause of action, and all claims whatever, except as herein excepted, existing on the thirty-first day of January, one thousand eight hundred and seventy-nine, against the New York and Metropolitan Companies, shall remain chargeable against them respectively, and solely.
      “ 5. The Metropolitan Company shall pay to the New York Company one-half of the cost of the joint structures, stations and other property, on Pearl street, the New Bowery and Chatham square. All unsettled accounts between the New York and Metropolitan Companies for expenditures by either, upon joint lines, or by one for the other upon any part of a line to he owned solely by the other, shall be settled according to existing contracts between said last named companies.
      “ G. The Manhattan Company hereby assumes the contracts of the Metropolitan Company or of the New York Loan and Improvement Company for the iron structures on the Ninth and Eighth avenues above Eighty-third street, at four and one-half cents per pound, and promises and agrees to settle at that rate with all sub-contractors for that work.
      “ 7. The Metropolitan Company hereby agrees to pay in cash into the treasury of the Manhattan Company three millions of dollars, and shall be debited with that sum as cash on the thirty-first day of January, one thousand eight hundred and seventy-nine, with interest thereon until liquidation at six per cent, per annum.
      “8. The Manhattan Company shall assume and pay at maturity, the principal of and interest on an equal amount of first mortgage bonds of each company respectively, to wit; the full sum of eight millions five hundred thousand dollars for each; and the Metropolitan Company shall be entitled to increase its present issue of first mortgage bonds to an amount equal to the amount of the first mortgage bonds of the New York Company, which amount, as now authorized or outstanding, is eight millions five hundred thousand dollars, and no more; and no mortgage bonds of either company shall be issued in excess of the amount above named, except for purposes of constructing or equipping new lines on the routes of the company whose bonds are issued, and then only in the manner and upon the conditions hereinafter provided.
      “ 9. In addition to the three millions of dollars mentioned in article 7, the Metropolitan and the New York Companies shall pay each info the treasury of the Manhattan Company, at such time or times as may be called for by that company, three millions of dollars (making together the'sum of six millions of dollars); and if either company shall be in arrear of the other in such payments, the company in arrear shall be debited with the like amount at the time of the payments, and be charged with interest thereon until payment. Towards the last mentioned three millions of dollars the Metropolitan Company shall pay two million six hundred thousand dollars in its first mortgage six per cent, gold bonds at par, with accrued interest to date of payment.
      
        “10. In consideration of the premises, the Manhattan Company, in addition to á’ssuming payment of the principal and interest of the first mortgage bonds of the New York and Metropolitan Companies as above provided and the payment of cash rental and guaranteed dividend as provided in the lease, hereby agrees to issue and deliver to the New York and Metropolitan Companies its two bonds, each' for six millions five hundred thousand dollars, payable on demand, one to James A. Cowing, as trustee for the stockholders of the New York Company, and the other of John Baird, as trustee for the stockholders of the Metropolitan Company, with authority to the trustees respectively to use the same, if they see fit, in payment for stock of the Manhattan Company at par.
      “ 11. The amount of bonds of the Metropolitan and Now York Companies now existing and herein provided for, being not exceeding eight million five hundred thousand dollars for each company, may be increased at any time in accordance with the terms of the respective mortgages under which the same are issued with consent of all the parties hereto, but not otherwise; provided, however, that whenever the Manhattan Company shall, with the consent of both of the other companies, parties hereto, determine to construct or to have constructed more railway line than is provided for by existing contracts of either company, it may require the company upon whose route or under whose franchise such new construction is to be carried on to issue and deliver to it, as the means to raise funds therefor, such additional first mortgage bonds, duly issued under and secured by its first mortgage, as may be requisite for the purposes of the construction or equipment of such a new line not exceeding, however, the .maximum amount per mile limited by such mortgage; and any amount of mortgage bonds, including all income bonds of the Metropolitan Company-now outstanding in excess of the above-named sum of eight million five hundred thousand dollars shall be retired and canceled.
      “ 12-. The Metropolitan and New York Companies agree, whenever requested by the Manhattan Company, to authorize the use" of . their names for condemning rights of way and for all other proceedings requisite to the construction, maintenance or operation of the railways or any part thereof, belonging or pertaining to or authorized to be constructed or operated by them respectively, and that they will at any and all times, in such form as may be requested by the Manhattan Company, and do hereby authorize said last-named company to prosecute or defend in their respective names, and at its own cost, any and all actions or proceedings whatsoever, necessary or desirable in or about constructing, maintaining or operating said lines or any of them, or carrying on the business thereof.
      “13. The lines of railway and their appurtenances already constructed, and those hereafter to be constructed along the routes designated for or appropriated to the three parties hereto respectively, are to continue the exclusive property of those parties respectively, except as to their joint lines, which are to continue joint, that is to say, the lines already constructed or hereafter to be constructed on the routes of the New York Company, are to continue to be the property of that company, and if the means hereinbefore mentioned be not sufficient to complete the yet unfinished lines, the means for finishing them shall be provided by that company by the issue of its bonds to a sufficient amount; the lines as fast as completed to be the property of that company, subject to the use thereof by the Manhattan Company under the lease herein provided for ; and all the lines of the Metropolitan Company, finished and unfinished, shall be in like manner constructed, owned, and held. Lines on any part of the route of the Manhattan Company not coincident with any part of the route of either of the other companies must be constructed at the sole expense, and shall be the sole property, of the Manhattan Company.
      “14. Whenever in any fiscal year the Manhattan Company shall elect to declare a dividend of more than ten per cent, on its capital stock, it is hereby agreed that it shall pay to the New York and Metropolitan Companies a sum sufficient to enable them to pay as large a dividend in excess of ten per cent, on the stock of the New York Company and Metropolitan Company as it shall declare on the stock of the Manhattan Company.
      “In witness whereof,” etc.
    
    
      
       The following is the Lease of the Metropolitan Company.
      C.
      “ This Indenture, made the twentieth day of May, .eighteen hundred and seventy-nine, between “ The Metropolitan Elevated Bail-way Company,” a corporation duly organized and existing under the laws of the State of Mew York, hereinafter called the' ‘ Metropolitan Company,’ party of the first part, and the ‘Manhattan Bail-way Company,’ a corporation also duly organized and existing under the laws of the State of New York, hereinafter called the ‘ Manhat-. tan Company,’ party of the second part.
      “ Whereas, the party of the first part is authorized to construct and operate a line of elevated railway in the City of New York, over and along certain streets, avenues and places, a portion, of which railway, from Morris Street to Eifty-ninth Street at the Central Park, and from a point at the junction of Eifty-third Street and Sixth Avenue, to a poiut in Ninth Avenue, is now completed and in operation by it, and is engaged in constructing other parts of. its said elevated railways along portions of its route;
      “And whereas, a certain other railroad company, organized and existing under the name of the New York Elevated Bailroad C.ompany, is the owner of and engaged in operating certain lines of ele vated railway in the City of New York over routes heretofore established by law for said company, which railways and routes at various [daces unite with the railways and routes of the Metropolitan Company, and cross and connect and unite therewith at the same level;
      “ And whereas, the development of the business of passenger traffic on elevated railways in the City of New York has made it necessary for each of said companies to run trains in such manner, and with such speed and frequency, that the crossing of the trains of one company over and upon the tracks of the other company, and the running of trains of both companies upon the portions of track and route jointly owned or used by them, is deemed impracticable, except at the risk of inconvenience and delay to the public, and danger to human life;
      “And whereas, after protracted efforts to devise plans for operating all said lines so as to afford to the public perfect fullness of accommodation and safety, it is the opinion of both companies that such management cannot be assured while the trains of the two companies are run under the control of different managing officers, or otherwise than by placing the lines of both companies under one sole control, with power to change, from time to time, the termini of routes, to regulate and limit the passage of trains from the tracks of one company upon the tracks of the other at the connecting and crossing points, and to do such other things and make such other changes from time to time in the entire management of traffic upon the lines of both railways as experience may show to be necessary or desirable;
      - “ And whereas, the Manhattan Company is by law authorized to construct and operate elevated railroads in the City of New York, whether owned or leased by it, and is willing and desirous to accept, and the Metropolitan Company and said New York Elevated Railroad Company have agreed to execute and deliver to it, leases of all their respective railways and properties, as described in this instrument and in a similar instrument of even date herewith, to be executed by the New York Elevated Railroad Company as lessor to the Manhattan Company, upon all and singular the terms, agreements and conditions herein and therein mentioned and set forth;
      
        
        “ And whereas, the Metropolitan Company has heretofore executed to the Central Trust Company of New York its first mortgage, bearing date July 10, 1878, and recorded in the office of the Register of the City and County of New York, in Liber 1,886 of Mortgages, page 447, securing the bonds therein provided for, the total amount thereof now. issued and agreed to be issued being the sum of eight millions five hundred thousand dollars of principal;
      “ And whereas, the Metropolitan Company may be hereafter required by the Mahhattan Company to issue further amounts of the said bonds secured by said mortgage in excess of said eight million five hundred thousand dollars, for the purpose of constructing and equipping extensions of the line of the Metropolitan Company, pay-' ment of all which bonds, principal and interest, is to be assumed by the Manhattan Company;
      “And whereas, the Metropolitan Company has issued and agreed to issue its capital stock to the amount at its par value of six millions five hundred thousand dollars, upon which stock the Manhattan Company has agreed to guarantee the payment of a dividend of ten per cent, per annum as hereinafter provided:
      “Now, therefore, this indenture witnessetli: That, the Metropolitan Company, tor and in consideration of the rents, covenants and agreements hereinafter mentioned, reserved and contained on the part and behalf of the Manhattan Company to be paid, kept and performed, hath granted, demised and leased, and by thése presents doth grant, demise and lease unto the Manhattan Company all and singular the railroad or railway now opened, operated, or constructed by it in the City of New York, as above11 described, and all and sin- ■ guiar the unfinished portions thereof now under construction, together with all its franchises, rights and privileges relating thereto or to the ' construction and operation of its entire railway as authorized, subject to the said mortgage and to the terms and conditions under which said franchisés are held by the company, with all and singular the right, title, estate and interest which the Metropolitan Company has in any real estate in the City of New York heretofore acquired by it, or which it may hereafter acquire under contracts. already made therefor, being all and singular the entire' property and estate of said Metropolitan Company, excepting such of its franchises, rights and privileges as are or may be necessary to preserve its corporate existence or organization, and its interests in the covenants and conditions of this indenture.'
      “To have and to hold the said railways, premises and appurtenances unto the Manhattan Company and.its successors for the term of nine hundred and ninety-nine years from the date of organization of the Manhattan Company, to wit, from November first, eighteen hundred and seventy-five, or so long as it shall continue to exist as a corporation and be capable of exercising all the functions herein stipulated on its behalf, the Manhattan Company and its successors yielding and paying therefor unto the Metropolitan Company, its successors an'd assigns, yearly in each and every year during the term hereby granted, the yearly rent of ten thousand dollars, payable semi-annually on the first days of January and July during the said term; the first payment of five thousand dollars to be made on the first day of July, eighteen hundred and seventy-nine, and keeping and performing all and singular the covenants and agreements hereinafter set forth, to be by the Manhattan Company kept and performed.’
      “ Article First.—The Manhattan Company hereby assumes and covenants and agrees to pay, as the same respectively become due, the principal and interest of the above recited first mortgage bonds of the Metropolitan Company, and keep it safe and harmless at all times, from all claims and demands against it arising from or.under the said bonds or any other of them.
      “ Article Second.—The Manhattan Company guarantees to the Metropolitan Company an annual dividend of ten per cent, on the capital stock of the Metropolitan Company to the amount of six millions five hundred thousand dollars, that is to say: the Manhattan Company will, each and every year during the term hereby granted, beginning with the first day of October, eighteen hundred and seventy-nine, pay to the Metropolitan Company six hundred and fifty .thousand dollars, free of all taxes, in equal quarterly payments of one hundred and sixty-two thousand five hundred ■ dollars each, on the first days of January, April, July and October, in each year, the first of such payments to be made on the first day of January, eighteen hundred and eighty; and the Manhattan Company will, from time to time, execute in proper form a guaranty to the above effect, printed or engraved upon the certificates of stock of the Metropolitan Company; and, as such stock certificates are surrendered for cancellation and reissue, ■will from time to time, upon request of the holder, renew such guaranty upon all reissued certificates.
      “Article Third.—The portions of the railway of the Metropolitan Company, which were completed on the thirty-first day of January, eighteen hundred and seventy-nine, shall be deemed to have been operated from the close of business hours on that day by the Manhattan Company, and all such operation from and after that time shall be for the account of the Manhattan Company.
      ' “ Article Fourth.—The Manhattan Company shall, at its own proper
      cost, from time to time, and whenever necessary for the use of the Metropolitan Company, make out and furnish to said Metropolitan Company any and all reports and statements which the latter shall or may hereafter be by law required to make or file.
      “Article Fifth.—The Manhattan Company shall, at its own proper cost and expense, operate and run the demised railways during the said term in the same manner as the Metropolitan Company is now or shall at any time hereafter be required or authorized by law to doand shall and will maintain, preserve and keep the railways and premises hereby demised and every part thereof in thorough repair, working order and condition, and supplied with rolling stock and equipment,, so that the business of the said demised railways shall be preserved,encouraged and developed, the business thereof done with safety and expedition, the public be accommodated in respect thereto with all practicable conveniences and facilities, and the future growth of such business as the same may arise, or be reasonably anticipated, be fully provided for and secured.
      “ Article Sixth.—In addition to the rental hereinabove provided, the Manhattan Company shall also pay and discharge as the same may become due any and all taxes, assessments, duties, imposts, dues, and charges whatsoever, which shall become payable by or be levied, assessed or imposed during the said term by any lawful authority upon the Metropolitan Company, or upon the demised railways, premises or any part thereof, or the business earnings or income of the same. ■
      “ Article Seventh.—Possession of the demised railways and premises shall be given by the Metropolitan Company to the Manhattan Company on the fifth day of June, eighteen hundred and seventy-nine; and upon delivery of such possession, the Metropolitan Company shall transfer and deliver to the Manhattan Company for use upon the said demised railways and premises, all machinery, tools, implements, furniture, fuel, material or other railroad supplies belonging to the Metropolitan Company, which shall have been procured for the use of the said railway; and the Manhattan Company shall and will, at the end of the term aforesaid or other sooner termination of this lease, transfer and deliver in return to the Metropolitan Company all such machinery, tools, implements, furniture, fuel, materials and other railway supplies, as may have been procured for the use of said railways or any of them as shall then remain on hand, and which shall be at least equal in quantity and value to those received by it from the Metropolitan Company hereunder.
      “ Article Eighth.—The Manhattan Company shall and will, at all times during the term aforesaid, hold, save, and keep harmless and indemnify the Metropolitan Company from and against all expenses of operating the demised railways and premises, and from all damage, liabilities, actions, causes of actions, suits, claims and demands for injuries to persons or property, or for causing the death of any per, son, or for any other thing in the operation or management of the demised property, or for any breach of contract or wrong done or suffered by the Manhattan Company in the carrying on of the business pertaining thereto, and shall and will defend all suits and claims brought against the Metropolitan Company in respect to any matter or thing arising out of the management or operation of the said railways since the thirty-first day of January, eighteen hundred and seventy-nine.
      “Article ¡Ninth.—In case the Manhattan Company or its successors shall, at any time during said term, fail or omit to pay in full the cash rental hereinbefore mentioned, or the guaranteed dividend aforesaid, as the same shall become payable, or fail or omit to keep and perform the covenants and agreements herein contained, or any of them, and continue in default in respect to the performance of such covenant or agreement, or payments, for the period of ninety days, then, and in either and every such case, it shall be lawful for the Metropolitan Company, its successors or assigns, at its or their own option, to enter upon the railways and premises hereinbefore demised, and any and every part thereof, and to remove all persons therefrom; and from thenceforth the said demised railway and premises, with the equipments and appurtenances thereof, and all additions and improvements which shall or may have been made to the same, to have, hold, possess and enjoy, as of the first or former estate of the said Metropolitan Company, and upon such entry for non-payment of cash rental or dividend, or breach, or non-performance of any covenant or agreement herein contained, all the estate, right, title, interest, property, possession, claim and demand whatsoever, of the Manhattan Company or its successors in or about the said demised railway and premises, or either, or any part of either thereof, shall wholly and absolutely cease, determine and become void, anything hereinbefore contained to the contrary in anywise notwithstanding: but no re-entry shall waive or prejudice any claim or right of the Metropolitan Company fo or for damages against the Manhattan Company on account of such non-payment or non-performance or bread), and all. such claims and rights are hereby expressly reserved to the Metropolitan Com-, pany.
      “ Article Tenth.—The Metropolitan Company hereby covenants and agrees that it shall and will, at any time when requested by the Manhattan Company or its successors, execute, acknowledge and deliver to the Manhattan Company or its successors, at their proper cost and expense, any and all such other or further instruments and assurances in the law for the better granting, demising, and sealing of the said railways and premises to the Manhattan Company and its successors, upon and subject to all and singular the rents, covenants, agree-’ nients and conditions hereinbefore reserved .and mentioned, as by the Manhattan Company or its successors, or by its or their counsel learned in the law, shall reasonably be advised, devised or required; and the Manhattan Company covenants, promises and agrees to" and with the Metropolitan Company, its successors and assigns, that it and its successors shall and will, whenever thereunto requested by the Metropolitan Company, its successors or assigns, execute, acknowledge and deliver any and all instruments for the more effectually assuring unto the Metropolitan Company, its successors or assigns, the payment of the cash rental and dividends hereinbefore reserved or agreed to be paid, and the performance of the promises and agreements herein-before set forth on the part and behalf of the Manhattan Company to be performed, as by the Metropolitan Company, its successors and assigns, or by its or their counsel learned in the law, shall be reasonably advised, devised or required.
      “Article Eleventh.—This lease, the agreements herein contained, the term, property and franchises hereby granted and demised, shall not nor shall any or any part of the same be released, transferred, sub-let, assigned or incumbered, except with the written assent of the 31etropolitan Company and of the Hew York Elevated Railroad Company thereto first had and obtained; but nothing in this article contained shall extend to the case of a disposition by the Manhattan Company of any equipment or supplies replaced by it with oilier, equivalent property, or to the case of a continuance or renewal of the corporate existence of the Manhattan Company, which continuance or renewal for the whole of said term hereby granted, the 3£anhattan Company hereby agrees to procure before the expiration of the term of its existence now fixed in its articles of association.
      “ Article Twelfth.—The 3Ianhattan Company agrees that it will establish and maintain a sinking fund for the payment of the said first mortgage bonds, and for that purpose, will, on or before the first day of January, eighteen hundred and ninety, and on or before each first day of January thereafter, during the currency of any of the said bonds, pay to the trustees of the said mortgage a sum equal to one per centum of the largest aggregate amount of the principal of said bonds which shall have been outstanding at any time preceding such payment; which sum, with the interest accrued thereon, shall be applied by such trustee to the purchase in open market, within ninety days after receipt thereof, of as many of the said bonds with their unmatured coupons as the trustees shall be able to acquire at the market price thereof, but not exceeding the rate of twelve hundred dollars for each such bond with ts coupons, which bonds and coupons shall thereupon be canceled by the trustee and delivered to the 3Ietro-politan Company so to remain; and in case and to the extent that such purchases cannot be so made, then the trustees shall notify the 31etro-politan Company thereof, and any sums so remaining, with all accumulations thereof, shall be invested and reinvested from time to time by the trustee in such first-class railway securities, or other sufficient securities, as shall from time to time be designated by the Metropolitan Company, and approved by the trustee, all which investments and reinvestments shall be made in the name of, and be held by, the trustee until the said bonds'mature, and thereupon the trustee shall apply the fund toward the payment of the bonds then outstanding: And as to all bonds not extinguished under the operations of the said sinking fund, it shall be at the option of the Manhattan Company, by written notice duly served upon the Metropolitan Company at any time within six and not less than three months before the maturity of the present bonds, to require the Metropolitan Company to renew or extend the time of payment of the whole or any part thereof, by agreement with the holders, and do all acts and things, and execute and deliver all instruments or writings requisite for such extension or renewal, or to execute and deliver to the present or any other trustee agreed upon by the parties, its mortgage upon all its then property, securing its bonds to be issued thereunder to an amount equal to the amount of its present bonds then outstanding, and not provided for by said sinking fund, and the said new bonds to issue and deliver to the trustee, to be sold or disposed of according to the direction of the Manhattan Company, and the funds thus realized shall be applied to the payment and retirement of all said outstanding and unprovided for first mortgage bonds of the present issue.
      “ Said mortgage shall contain a sinking fund clause substantially like that herein, and shall be substantially in the terms of the present mortgage, and the bonds secured thereby shall be similar in terms to the present bonds of the Metropolitan Company, and shall be due at such time or times and with such rate of interest as may be directed by the Manhattan Company, and payment of the principal and interest on all of said bonds shall be assumed by, and chargeable upon the Manhattan Company in all respects as is herein provided as to the present outstanding bonds.
      ‘ ‘ Article Thirteenth. —For the better carrying into effect the provisions of this instrument, the Metropolitan Company hereby constitutes the Manhattan Company its agent and attorney to do in its name any and all things necessary to be done for the complete execution of this instrument. - ,
      “ In witness whereof,” &c.
    
    
      
      
        L. 1879, p. 459, c. 395.
    
    
      
       The following opinion was given by the Hon. Jambs Emott :
      New Yoke, August, 1880.
      “The Manhattan Railway Company issued its entire capital stock, amounting to $13,000,000, to two other corporations, the Metropolitan Elevated Railway Company and the New York Elevated Railway Company, one-half to each, in the consideration of the surrender of two of its bonds each for $6,500,000, which were by their terms convertible into stock at the pleasure of the holders. The consideration for these bonds was the execution by the Metropolitan and New York Companies to the Manhattan Company of leases for 999 years, of their respective railways and franchises. These leases stipulated for a rent in each case equivalent to the interest on the indebtedness of the lessor company, and a ten per cent, dividend on their stock. The bonds wore thus given as a bonus or price for these leases, subjecting the -lessee to these rents. The conversion of the bonds into stock took place at once, and in the consideration of any questions arising out of the transaction the bonds may be left out of view, and the whole capital stock of $13,000,000 must be treated as having been issued for these leases, which were the only payment ever made for the shares. These leases were worth no bonus or price whatever to the lessee. It would be singular if they had been of any value beyond the large rents which they exact. But, in point of fact, the attempt to pay these rentals, after meeting the taxes and running expenses, lias reduced the Manhattan Company to insolvency, which has resulted in the appointment of receivers. The issue of some $13,000,000 of stock, certified and declared to be fully paid without receiving any other payment for it than these leases, was a fraud. According to the uniform decisions of our courts, these shares of stocks were only paid up to the extent of the true value of the property received in exchange for them, and if that property was entirely valueless then not to any extent (see 73 JV. T. 100). The shares thus issued are understood to have been divided by the Metropolitan and New York Companies among their stockholders. By the latter they have very generally been sold in open market, and are now held by innocent bona fide purchasers, whose certificates declare the stock to be fully paid. A question has been suggested as to the power of the Manhattan Company to take these leases, and the validity of the whole, transaction. If the court should ever hold, or if the fact be, that the leases were ultra vires and -wholly void, there can hardly be a doubt that the persons concerned- in the transaction would be individually liable in damages to the tona fide purchasers and holders of the shares. But assuming that the leases are valid, or that the Metropolitan and New York Companies cannot deny their validity, a case is presented where there has been an issue of stock which has not been paid up, and the question is raised whether the creditors of the Manhattan Company and others interested in the payment of its debts have any recourse, and if so, against whom ? Judges Cliffobd and Lowell held, in the United States circuit court, in a case reported in 4 Cliff. 543, that the present Iona fide holders of shares in such a case were not liable to assessment upon their stock.
      ‘‘ Judge Cliffobd’s opinion reviews the cases and sustains the proposition that where the officers of a corporation have issued certificates of stock to innocent parties, purchasing Iona fide, in which certificates the stock is declared to bo fully paid, the corporation or its representatives cannot demand the payment to which it is entitled from these purchases. As to them it is estopped.
      “But the stock of a corporation cannot lawfully and properly be issued except upon the receipt of an amount of money or of property which is absolutely equivalent to the value of the shares. A person who retains or receives shares of the stock of a corporation without paying anything for them, or without paying for them justly and fairly in full, is liable to be called upon to pay or contribute the full amount of the shares. No formal subscription to the stock, is necessary to this liability. It arises at once upon the issue and acceptance of the shares without payment, or upon insufficient or inadequate payment. If, as I said before, the lease, made by the Metropolitan and New York Companies are valid, or if they cannot assert their invalidity, I am unable to see wdiat defense these companies can either of them make to an action to compel them to pay up this §13,000,000 of stocks. If this be so, it follows that the receivers of the Manhattan Company can and should enforce that liability. That company is insolvent and in default upon its obligations. Its receivers are bound to look to every resource in their power or within their reach to satisfy the creditors, for whose benefit they were appointed, and to protect the innocent stockholders of tlicir company. Here is in fact and in law an unpaid stock subscription of §13,000,000, which they can collect. I see no reason to doubt that the court which appointed these receivers would not only authorize, but require them to prosecute such a demand.”
    
    
      
       The learned judge in stating the facts in that opinion set forth that the New York Elevated Railroad Company asked for the surrender to it of its railroads and structures, upon the following grounds:—“JFirst. That the lease has expired by its express terms, it being stipulated in the habendum clause that the holding was not to continue absolutely for nine hundred and ninety-nine years, but it was likewise to termínate and end by the failure of the Manhattan ‘ to exist as a corporation,’ and also by its becoming incapable ‘ of exercising all the functions ’ specified in said lease on its part, to be observed and kept. The termination is claimed to have been reached: 1st, by the appointment of the temporary receivers; and 2d, by the actual insolvency of the corporation Second. By the failure of the Manhattan Company to pay the taxes levied and imposed. Third. By reason of its not performing certain other stimulations and agreements in the lease; and, Fourth. By supplemental petition, presented since the argument upon the original application, the grounds of which have been stated, the restoration .of the property is sought for the reason that the Manhattan Itailway Company is now in default ninety days upon its payments, and that the petitioner is consequently entitled to a surrender of the property.”
      The grounds of the application were then considered, by Mr. Justice Westbrook, in his opinion in that order, and as follows:—
      “ First.—Has the term ended by reason of the appointment of temporary receivers, or the actual insolvency of the Manhattan Company if it is insolvent ?
      “The argument urged in favor of an affirmative answer to the first branch of this question is founded upon the habendum clause of the lease, which provides ‘ the Manhattan Company and its successors ’ may have and hold ‘ the said railways, premises and appurtenances . . . for the term of nine hundred and ninety-nine years from the date of the organization of the Manhattan Company—to wit, November first, eighteen hundred and seventy-five—or so long as it shall continue to exist as a corporation, and be capable of exercising all the functions herein stipulated on its behalf;’ and such argument is in brief this: An order has been issued in this action enjoining and restraining the Manhattan Company, its officers and agents, from interfering with its corporate property, and placing such property in the hands of temporary receivers, as provided by section 1788 of the Code of Civil Procedure, and therefore the company is not now capable of exercising the functions stipulated and provided for in the lease. The soundness of this argument depends, of course, upon the meaning of the clause in the lease which has just been given. Did the contracting parties intend that any order made by any court or judge which had power to grant it, and which temporarily, and perhaps erroneously, disabled the Manhattan Company from fulfilling its obligations under the lease, should at once put an end to its existence; or did they contemplate a termination thereof only with the existence of the corporation, or the happening of some other event, which, like its corporate death, would make the fulfillment of its stipulation a legal impossibility forever? The former construction certainly involves a most supreme trust by the contracting parties in the infallibility of human intellect and human integrity. The lease and the tripartite agreement are evidently the productions of careful counsel familiar with legal proceedings, who were fully aware that during the many years they were to continue the lessee company would again and again be subjected to injunctions and orders, which would for a time at least suspend its functions, and during such period make the fulfillment of its stipulations impossible. The thought, therefore, cannot be entertained that the parties intended that the term upon which property representing millions of dollars depended should rest upon so frail a tenure. The other construction must, therefore, be adopted, because it is evidently more in accordance with the intent of the parties. The expiration of the lease by lapse of time was first provided for, and then another, which depended upon the actual ability of the corporation to fulfill its agreement, to be determined by its corporate existence and its capacity to exercise tile functions which the lease provided it should exercise. Such capacity, however (applying to it the maxim “ noscitur a sociis ”), from its joinder with the preceding clause of the same senten'ce, is to depend not upon a temporary disability, but upon one which, like its corporate death, makes it forever incapable of exercise. This conclusion is also rendered necessary by the fact that other parts of the lease have carefully and distinctly declared the stipulations which the Manhattan Company is to keep and fulfill, and the consequences to it from their non-fulfillment. All these agreements might be faithfully kept; and yet because a temporary injunction, afterwards dissolved, has for a time tied its hands and incapacitated it from fulfilling its agreement, it must, if the argument of the petitioning company is sound, surrender its property and estate. Such a conclusion cannot be adopted. The Manhattan Company has not yet been dissolved, nor declared incapable of fulfilling its covenants. The issues involving that result remain to be tried in the mode prescribed by law. For the protection and security of all persons interested in the corporation, the court has taken its property for preservation, to use the language of the statute (Code, § 1788), 1 until final judgment is entered.’ It is impossible that the step which the law authorizes to be tak.en (using again its own language) ‘to preserve the property,’ shall destroy it. Such a • result the parties to the agreement never contemplated, and such a holding would defeat an express enactment of the law-making power of the State.
      “It is claimed, however, that even though the appointment of the receivers has not terminated the lease, that the Manhattan Company is actually insolvent, and that consequently its term is ended, because it is no longer 1 capable of exercising all the functions ’ stipulated in the lease on its part to be observed and kept. This proposition presents the second ground upon which the expiration, of the lease is claimed, and it again involves the meaning of the clause in the lease, which has already been partially discussed. In what sense is the word 1 capable ’ therein used ? Was the lease to expire whenever, from financial embarrassment, the company was unable to meet its engagements, or was it to terminate only when the corporation from some legal cause became incapable to fulfill its agreements ? Erom the connection of this expression by the copulative conjunction ‘and,’ with the provision that the lease should continue for nine hundred and ninety-nine years, ‘or so long as it shall continue to exist as a corporation,’and from the further fact that the consequences of the non-fulfillment of its pecuniary obligations to the landlord companies are elsewhere in the same instrument distinctly provided for and staled, it has already been intimated that it refers to the legal and not to the financial inability of the tenant company to perform its covenants, As the question is one of importance, it may not be improper to add in this connection a few words upon this point.
      “ The precise word used will he noted. It is ‘ capable, ’ and the clause containing it reads, ‘ or so long as it shall continue to exist as a corporation, and be capable of exercising all the functions herein stipulated on its behalf.’ There is, it seems to me, both in law and common speech a difference between the words ‘ capable ’ and ‘ able.’ An individual, for instance, may be capable of conveying or devising property, though he may not be able to do so because he has none; he may also be capable of exercising the functions of a citizen, though from his physical surroundings he may not be able to exercise them. These illustrations show that the word 1 capable ’ has reference to the legal capacity of parties, while the other, ‘ able,’ though sometimes used in the same sense as the former, involves, in addition, the exterior surroundings. Bouvier thus defines the word ‘ capacity ’: 1 Ability, power, qualification or competency of persons, natural or artificial, for the performance of civil acts depending on their state or condition, as defined or fixed by law; as the capacity to devise, to bequeath, to grant or convey lands, or to take and bold lands; to make a contract and the like.’ This definition completely covers the point under discussion. The lease of the Manhattan Company continued for nine hundred and ninety-nine years, or so long as the corporation was legally capaple of fulfilling its stipulations in the lease contained. No other expiration and ending of the term by lapse of time is provided for, though it is true that by subsequent provisions of the same agreement the rights acquired thereunder might become lost and forfeited by failure to do that which it had covenanted to perform.
      “In addition to the difficulties to the surrender of the property, on the grounds now under consideration, which have been presented, there is also another. The Code, §§ 1788,1789, defines the duties of the trust, which the court has assumed through its receivers. The primary object is the preservation of the property for the benefit of those persons or parties who may be entitled thereto. The present proceeding is really an attempt to settle summarily, on motion, grave questions between the New York Elevated Bailroad and the Manhattan Baihvay Company involving immense pecuniary interests, concerning which the facts as well as the law are disputed. What power has the court to settle and determine these questions in this manner ? Do not the constitution and the .laws of this State both require trial according to the prescribed rules to decide such complicated rights between parties ? If the property sought was still in the possession of the Manhattan Company, it is clear that the petitioner would be compelled to institute a suit for its recovery. Has the appointment of the receivers made such a course unnecessary ? If, by any process known to the law, the rights of the Manhattan Company in the property sought to be obtained by this motion had been adjudged to be ended, and the court had taken possession of it for the purpose of distribution, tlien, in a summary way, it could, doubtless, ascertain its owner and award to such owner that which belonged to him. But no such adjudication has been made, and cannot be made until the issues, which the pleading in the action present, have been disposed of according to due form of law. In a land of law, courts have no arbitrary power. The possessor of property cannot be permanently deprived of its possession except by proceedings which are well defined. It is true that the court has taken the property into its custody, but it has not yet determined that the Manhattan Company’s rights therein have been extinguished, and it is powerless so to decide except by a trial of the action. This application, therefore, so far as it depends upon the alleged insolvency of the corporation, must fail, because, as the law forbids the court to forever deprive it of its property upon that ground without a trial, it cannot indirectly, on motion do in effect that which is equivalent thereto, to wit, surrender and award it to another as owner for that reason, when the insolvency is denied, and upon it a trial according to the regular course of procedure is demanded. It is only when the rights of the Manhattan Company have been extinguished in the manner and according to the proceedings prescribed by our statutes, that they can be permanently deprived of their right to enjoy the property they possess, and until such extinguishment the court is powerless to afford the relief which the petitioner asks.
      “As to the alleged forfeiture of the lease by the failure of the Manhattan Company to pay the taxes which have been imposed, and which is the second general point the motion presents, there are two answers, either of which must be fatal to the demand of the property upon that ground: First, the petitioner, the New York Elevated Railroad Company, has, by the consent of its officers and legal advisers, approved and urged the resistance to their payment, and that which it has encouraged cannotbe claimed as a forfeiture of the lease. Second, the Manhattan Company has paid all taxes which it is advised are legal, and the attempt by lawful means to avoid the payment of a greater sum cannot be a violation of the terms of the lease, for it is only required to pay taxes duly and properly assessed.
      
        “ In regard to the third point made by the petitioner, the nonperformance by the Manhattan Company of provisions of the lease— the keeping of the railroad of the petitioner in repair, and the preservation of its property—it is only necessary to observe that the affidavits upon this point are too conflicting to justify a conclusion upon the facts, and the remedy must be sought by action.
      “ The concluding and fourth ground upon which the petitioner’s right to recover possession of the property is based, is that the Manhattan Company is now in default for the non-payment of its rent, and has been for the space of ninety days, which default, by the express terms of the lease, works a forfeiture of the estate and justifies a re-entry and resumption of possession by the Mew York Company. Without discussing now the power of the court to afford relief for the reasons already stated, or how far the injunction and receivership in this action would prevent a forfeiture, the answers which the Manhattan Company and the receivers have made thereto will be at once considered.
      “ On July 2, 1881, a suit was commenced in the superior court of the city of Mew York, by the petitioner, the Mew York Elevated Railroad Company, as plaintiffs, against the Manhattan Railway Company and the Metropolitan Elevated Railway Company, as defendants, in which action an injunction order was obtained, which is still in force, whereby the Manhattan Company, its officers, agents, attorneys and servants, ‘ were enjoined from parting with any moneys then in their possession or under the control of the said Manhattan Railway Company, which had been received or might thereafter be received by it from passenger or other traffic on any of the railways of the said Mew York Elevated Railroad Company, except as required strictly for the operation of the railways belonging to said Mew York Elevated Railroad Company and leased to the said Manhattan Railroad Company.’ It is difficult to see how the petitioner is in a position to enforce a forfeiture arising frem the non-payment of money, when it has itself enjoined the tenant company from using the principal part of its revenue for any such purpose.
      “Waiving, however, this point, there is another of great importance also made by said answers of the Manhattan Company and the receivers, which will now be stated.
      “ It will be remembered that the capital stock of the Manhattan Company is $13,000,000. This entire stock was transferred and given to the Mew York Company and the Metropolitan Company in professed payment of the leases made to the Manhattan Company— $6,500,000 to each. It is true this was not directly done, for the form was the execution of two bonds by the Manhattan Company of $6,500,000 each, the one to a trustee for the benefit of the Mew York Company, and the other to a trustee for the benefit of the Metropolitan, which bonds were exchangeable for the stock of the Manhattan Company at par, and such exchange was immediately made. The directors of the Manhattan Company were persons who were directors of the other two companies. By the terms of the lease the Manhattan Company was to pay the bonded debt of the other companies, with the interest, and also an annual dividend of ten per cent, on the capital stock of the lessor companies in quarter yearly payments. The plain effect of this transaction is manifest. The lessor companies being the owners of the stock of the lessee company, and their directors being its directors, the individuals owning the stock of the former, really agreed with themselves to pay themselves a largo and liberal rental for the use, by themselves, of their own property. This was the real transaction; but as individuals were concealed under the cloak of corporations, the apparent transaction, which the general public would be apt to see, was a leasing from two independent corporate bodies to a third equally independent. Such leasing, however, was at a rental, which, if the estimates of the earning capacity of the leased roads submitted upon this motion by the petitioner to prove the bankruptcy of the tenant company are accurate, it was impossible for such company to pay. The individuals who had thus extracted the life from the lessee company by the provisions for the payment to themselves of liberal dividends and the absorption of its entire stock, proceeded to divide, and did divide, such stock among themselves, and then disposed of it to the general public, thus shifting the burden of paying rent from themselves to others, and actually receving from such strangers to the original transaction large sums for the privilege of assuming burdens they could not discharge, and which could only result in the restoration to them of the property leased, and the absolute loss by the buyers of Manhattan stock of their whole purchase price. To recover payment for this stock from the two lessor companies, an action is now pending in the United States circuit court for the Southern District of New York, brought by John C. Watson, a stockholder of the Manhattan Company, to which suit, by permission of this court, the receivers appointed in this action are parties. The existence of this action and the grave question which it presents, are urged both by the Manhattan Company and the receivers as reasons why, in advance of the determination thereof, this court should not surrender the property it holds by its receivers.
      
        “ It would perhaps be improper to express an opinion upon the merits of this action, further than to say that it presents reasonable grounds for judicial inquiry. As a rule, stock purchased of a corporation must be paid for either in cash or its equivalent, and if not so paid for, the money which it represents can be recovered. The answer of the petitioning company is, of course, that the stock was paid for by the lease which it gave. Whether, however, this was a bona fide exchange of a substantial thing, which the law can treat and regard as a payment for the stock transferred, or the contrary, is the point which that suit presents. Leaving out of view the very grave question of the power of the lessor companies to lease its roads, and of the lessee company to accept them—which is not considered because not presented nor argued, but which leases, if illegal because ultra vires, would lealve the stock of the Manhattan Company entirely unpaid for—is it not most apparent that the innocent holders and purchasers of stock of the Manhattan Company have, grave questions to submit to the courts both as against the lessor companies and also their stockholders, who placed the Manhattan stock upon the market to their great injury ? It is enough for present purposes, with put .passing directly upon the merits of the Watson suit, to say that that which is unjust is unlawful, and for every unlawful act done to another to his injury, the law affords a remedy. Whether any of the apparently bald facts which have been mentioned can be explained so as to give them a different color, is a question for the tría!. As they appear upon this motion to me, it is plain that they should not be ignored and the property asked for surrendered upon the ground of non-payment of obligations incurred by the lease, when, perhaps, á trial of the action pending may determine that tlie Manhattan Company is not a debtor to, but a creditor of the petitioner.
      “Thus far, the questions which this application involves have been considered ypon their merits, and a conclusion adverse to the relief sought has been reached. There is another ground, however, upon which the petition should be denied. Confessedly, it is one addressed to the discretion of the court. In People v. Erie Railway Co. (54 How. Pr. 59), I expressed an opinion adverse to the disposal of grave and difficult questions of law and of fact upon motion r&ther than by action; and in that case refused the relief sought upon that ground, leaving the party petitioning to his remedy by action. There is nothing to distinguish this motion favorably from the one to which allusion has just been made. On the contrary, the present motion presents graver legal difficulties, more controverted questions of fact and much severer consequences than the other. In adhering to a former opinion, and denying this application upon the ground that the granting thereof would not be a wise exercise of judicial discretion, I follow convictions long since carefully adopted, strengthened by subsequent reflection, and in accordance with judicial precedents (Angel v. Smith, 9 Ves. Jr. 335; see opinion of Lord Eldon, p. 333; Emperingham v. Short, 3 Hare, 461, 469, 470; Hauselt v. Velmar, 3 Weekly Dig. 31; Iselin v. Port Royal R. R. Co., 6 Weekly Dig. 130; Palys v. Jewett, 32 N. J. Eq. 202). To the general objection of deciding such grave questions as this application involves so summarily, is added one growing out of the tripartite agreement hereinbefore detailed. A sort of quasi partnership was thereby formed between the three contracting parties. The Metropolitan Company joins its objections to those of the Manhattan Company, and protests against the granting of the petition, and claims the right to be heard by a formal suit upon the issues which have been presented. Their request is reasonable, and the relief asked for must be denied upou the ground of discretion also, without prejudice, however, to the right of petitioner to bring an action against their receivers, leave to do which will be granted.”
      Mr. Swayne, of counsel for the receivers, hereupon applied for leave to commence actions against the Metropolitan and Mew York Companies, to recover from each the sum of $6,500,000 and interest, and the court directed that such actions be accordingly commenced. ¡
      
    
    
      
       Which is as follows :
      “This agreement, made the twenty-second day of October, one thousand eight hundred and eighty-one, between the New York Elevated Railroad Company, hereinafter called the New York Company, of the first part, the Metropolitan Elevated Railroad Company, hereinafter called the Metropolitan Company, of the second part, and the Manhattan Railway Company, hereinafter called the Manhattan Company, of the third part, witnesselh:
      “Whereas, on the twentieth day of May, 1879, the parties hereto made a certain agreement, a copy of which is hereto annexed, marked 1 A,’ and which forms part of this agreement; and
      “ Whereas, on the same day the New York Company made a certain lease dated on said day, a copy of which is hereto annexed marked ‘ B,’ and forms part of this agreement; and
      “ Whereas, on the same day the Metropolitan Company made a certain lease of like date, a copy of which is hereto annexed, marked ‘ C,’ and which forms part of this agreement; and
      “Whereas, possession of the railways and property described in said agreement and leases was delivered to the Manhattan Company pursuant to the terms thereof, and said company continued in the possession and operation thereof until the fourteenth day of July, 1881, on or about which date, possession of said railways and properties was delivered to John F. Dillon and Amos Lawrence Hopkins, as receivers, duly appointed in a certain action then pending in the Supreme Court of the State of New York, Albany County, brought by the People of the State of New York against the said Manhattan Company, and said railways and properties have ever since remained, and still continue, in the hands of said receivers, and are operated by them; and,
      “ Whereas, it has been found impracticable to carry out the various terms and conditions imposed by the said agreement and leases on the said Manhattan Company ; and,
      “ Whereas, the interests of each of the parties to this agreement, as well as the interests of the public, still require that the lines of railway mentioned and described in said agreement and leases shall continue to be operated under a single management; and,
      
        “Whereas, the parties to this agreement for the purpose of settling all the matters of'difference between them, and for continuing- the operation of said properties and railways by a single management, have agreed to modify the said agreement and leases as hereinafter set forth—
      “Now7, therefore, in consideration of the premises, the mutual covenants herein contained, and of the sum of one dollar by each of said parties to the others in hand paid, and other valuable considerations, the receipt whereof is hereby acknowledged, the parties aforesaid have agreed, and they do hereby agree to and with each other:
      “First.—The Manhattan Company shall continue to possess and operate the properties and railways mentioned and described in the aforesaid agreement and leases, and in each of them, for the period and upon the terms and conditions in the said leases specifically covenanted and agreed, except as the said leases or the covenants therein contained are herein modified or changed, such possession to commence as soon as the properties and railways can be obtained from the said receivers.
      “Second.—The Manhattan Company, from moneys received by it on acquiring possession of said railways and properties, and all moneys hereafter acquired by it from the operation of the railways and properties, after the payment of operating expenses and of al taxes and assessments which have been justly levied or imposed against either of the parties to this agreement, or the property of them, or either of them, and before paying the sums mentioned and' provided in the third clause of this agreement, shall pay:
      “1. To the New York Company all sums of moneys due and -owing it under the terms of said lease ‘B,’ on the first day of July, 1881.
      “2. To the Metropolitan Company in the same manner, and out of said moneys the interest due on its bonds as provided in its lease ‘ C,’ from the first day-of January, 1881.
      “ Third.—After making the payments provided for by the second clause of this agreement, all moneys received by the Manhattan Company from the operation of the said railways and properties shall be paid, used and applied by the Manhattan Company.
      “1. Eor the payment of operating expenses and maintenance of structures and equipments.
      '“2. For the payment of all taxes and assessments lawfully imposed upon, or against either of the parties of this agreement, or their, or either of their railways, properties or enfranchises, or the income therefrom.
      “ 3. For the payment of the interest upon the bonds of the New York Company and the Metropolitan Company.
      “ 4. For the payment to each of the said companies of the rental of ten thousand dollars per annum at the times and in the manner set forth in the said leases.
      “ 5. The said Manhattan Company shall pay to the New York Company annually, during the continuance of the said leases, a sum of money equal to six per cent, per annum upon the amount of the present capital stock of said New York Company, to wit : $6,500,000, such sum to be paid in equal quarterly payments on the first days of January, April, July and October, the first of such payments to be made on the first day of January, 1883.
      “6. The said Manhattan Company shall pay to the Metropolitan Company annually, during the continuance of said leases, a sum of money equal to six per cent, per annum, upon the amount of the capital stock of said Metropolitan Company, such sum to be paid in equal quarter yearly payments of $97,500, on the first days of January, April, July and October, in each year, the first of such payments to be made on the first day of January, 1883.
      “7. The several payments enumerated in the foregoing six subdivisions of this third clause of this agreement, shall be made and shall have preference over one another, in the order in which they are herein enumerated, and all moneys received by the Manhattan Company from the operation of the railways and properties mentioned and described in the said agreement and leases, or either of them, after the making of the foregoing payments, shall be the property of the said Manhattan Company, and shall be retained by it to and for its own use and benefit, subject to the covenants herein contained and the provisions and covenants of said leases not herein modified.
      “ 8. The sums provided to be paid in and by the fifth and sixth subdivisions of the third clause of this agreement, shall only be payable out of the moneys received by the Manhattan Company from the operation of said railways and properties prior to the dates respectively at which said payments by the terms of this agreement become due.
      “ Fourth.—The provisions of the agreement and leases herein-before referred to, bearing date the 20th day of May, 1879, and each and every of said instruments are hereby in all respects modified, so as to conform to the provisions of this agreement, and the New York and Metropolitan Companies do, each for itself, hereby release, and forever discharge the Manhattan Company from all covenants, agreements and obligations to pay to the said New York and Metropolitan Companies, or either of them, the sum or sums of money as is particularly provided in the fourteenth article of the agreement herein-before referred to, marked “A,” and article second of each of the said leases.
      
        11 Fifth.—The Manhattan Company hereby covenants and agrees to and with the New York and Metropolitan Companies, and each of them, that it will keep a just and true account of all moneys received by it from the said properties and the operation of said railways, and will faithfully apply the same to the payment and discharge of the obligations and covenants in the manner and at the times and in the order as in hereinbefore specifically provided.
      “ Sixth.—Each of the parties hereto does hereby for itself, its successors and assigns, release and forever discharge the other parties hereto, and each of them, and their and each of their successors, officers and directors of, and from all and all manner of action and actions, cause and causes of action, suits, debts, dues, sums of money, claims and demands whatever, whether in law or in equity, against either of the other parties hereto, except such as are embraced in and created by the terms of said agreement and leases as modified, and by the terms and provisions of this agreement.
      “ Seventh.—The said parties hereto, each mutually covenant and agVee, that each of said parties shall and will at any time hereafter, upon reasonable requ.est, at the proper cost and charges in the law of the party hereto making such request, its successors and assigns, from time to time, make, do and execute, or cause to procure to be made, done and executed, all and every such further and other reasonable acts, releases, conveyances and assurances in the law for the better and more effectually carrying out the agreement hereinbefore set' forth, as by the said party hereto making such request, its successors or assigns, or its or their counsel learned in the law, shall be reasonably advised, devised or required.
      “In witness whereof, the parties hereto have hereunto (and unto triplicates thereof) caused their official seals to be fixed and the same to be attested by the proper officers thereto, duly authorized by the respective parties, the day and year first above written.
      “ The New York Elevated Railroad Company,
      [seal.] By Cyrus W. Field, Attest : J. A. Cowing, Secretary. President.
      
      “Metropolitan Elevated Railway Company,
      [seal.] By Russell Sage,
      Attest : John E. Body, Secretary. President.
      
      “Manhattan Railway Company,
      [seal.] By R. M. Callaway, Attest: F. E. Worcester, Secretary. President.
      
      “For value received it is hereby further agreed that the Manhattan Company will pay to the New York Company all sums due and owing it under its lease to Manhattan Company, up to and including the 1st day of October, 1881.
      “ And further, that the Manhattan Company will pay to the New York Company the sum of six per cent, on its present capital stock, in the manner and at the times stated in the foregoing agreement, and the payment thereof shall be cumulative, notwithstanding any provisions in the eighth subdivision of the third clause thereof.
      “Dated October 22d, 1881.
      “ The New York Elevated Railroad Comp ant.
      [seal.] By Cyrus W. Field, Attest : J. A. Cowing, President.
      
      
        Secretary.
      
      “Metropolitan Elevated Railway Company,
      [seal.] By Russell Sage,
      Attest: John E. Body, - President.
      
      
        Secretary.
      
      “Manhattan Railway Company,
      [seal.] By R. M. Callaway, Attest : F. E. Worcester, President.
      
      
        Secr.etary,"
      
    
    
      
       Opinions were obtained from counsel : the following was given by ex-Judgo Comstock, and was concurred in by Wager Swayue.
      “ Syracuse, October, 1881.
      “ To the New York Elevated Railway Company:
      
      “ J comply with your request to examine and give my opinion upon the question whether the Elevated Railway Companies in the City of New York can make a legal and binding agreement with each other readjusting their relations under the leases and tripartite instrument which bear date May 20, 1879, without submitting such agreement for the approval of the stockholders of the respective companies. The foundation and reason for a new adjustment of the terms and conditions under which the respective railways of the New York and Metropolitan Companies have been held and operated by the Manhattan Company as their lessee, I understand to be, first, tiie convenience and desirableness with reference to the safety of the public of operating these railways under a single united control ; and second, the fact, ascertained by trial and experience, that the burdens of rent and other compensations imposed by the leases are greater than the lessee is able to carry. This I believe to be so palpably true that all existing relations are in imminent danger of destruction. Undoubtedly these are causes sufficient to justify prompt action by tiie companies to avert a result which cannot be otherwise long delayed.
      “The strictly legal question which you submit to me I do not think difficult of solution. Whatever the judgment which ought to be formed as to the original validity of the existing leases, none of the parties have disaffirmed them as invalid. In the measures whicli have been taken by one or both of the lessor companies to recover possession of their property, they have proceeded upon grounds entirely consistent with the leases themselves. Tiie Attorney-General, in the suit of the people against the lessee company, has raised no question of this nature. . I therefore assume' that the leases are valid for the practical purpose of modifying their terms so as to preserve the original object of operating the railways under one management and at the same time adjust the rent and compensations for the use of the properties on a basis just to all parties, and so moderated in the terms of arrangement, as to relieve the situation from present embarrassments.
      ‘‘Under this assumption, there is, in my opinion, no defect in the power of the respective Boards of Directors to enter into such an agreement as is proposed. It is an original and elementary proposition in the law of corporations that all their powers are wielded by their boards of directors, and that shareholders can take no part- in the government or management except in the choice or election of the managing body. The idea is familiar in public or„ political corporations. The constituent voter performs no personal function in the government of the State, the city, or the town beyond exercising his right of suffrage, except in the occasional instances when a question is constitutionally submitted to the body of the electors ; so in the case of private as distinguished from public corporations. . By general law as well as general usage the shareholder is the constituent, exercising his power only in the choice of the body which wields the corporate powers. The statute laws may provide, and in some instances do provide, for the submission of important measures to.a vote of the stockholders; but in the absence of such provisions the general rule is as I have stated.
      “ Some twenty years ago, when I was a member ¡of the court of appeals in this State, it happened to be my duty to prepare and deliver the judgment of the court in the case, of Hoyt v. Thompson’s executors, as reported in 19 N. Y. 207-216. The question now considered arose incidentally in that case ; and I think I am excusable for quoting what was then said, because I have no language at my command, which will better express my present views. ‘ The; board of directors of a corporation do not stand in the same relation to the corporate body which a private,agent holds,to his principal. In. the strict relation of principal and agent all the authority of the latter is derived by delegation from the former, and if the power is not conferred in the appointment it cannot exist at all. . But in corporate, bodies the powers of the board of directors are, in a very important sense, original and undelegated. The stockholders do not confer nor can they revoke those powers. They are derivative only in the sense of being received from the State in the act of incorporation. The directors convened as a board are the primary possessors of all the powers which the charter confers.’
      “ Not less to the purpose is the language of Senator Lott in the court for the correction of errors, as reported in 5 Den. 575, He said: ‘ When a charter invests a board with the power to manage the concerns of a corporation, the power is exclusive in its character, the corporators have no right to interfere with it, and courts will not, even on a petition of a majority, compel "the board to do an act contrary to its judgment. The stockholders as such in their collective capacity could do no corporate act. The directors were their representatives,and alone authorized to act. It is one of the fundamental conditions of the contract into which the corporators have entered, by becoming members of the corporation, that its concerns shall be managed in the manner prescribed by the act of incorporation, and from this no essential departure can be made.’ In Como v. Port Henry Manuf. Co., 12 Barb. 27, the lease of a corporation appears to have been held void because it was the act of the stockholders instead of the directors. See also Brice’s Ultra Vires, with notes by Green, pp. 390, 391, note.
      “In reference to the matter now under consideration, no requirement of statute law is found which makes it necessary to consult the stockholders of the elevated railway corporations in relation to the new business arrangements which have been proposed or suggested, and I am of the opinion that the vote or consent of any number of stockholders would add nothing to the legal validity of such arrangements. I also reach the conclusion that the proper authority to act in the emergency which has arisen is vested in the several boards of directors, who, in the exercise of their best judgment and acting in good faith, can modify the terms of the existing leases in such manner as the necessities of the situation and common interests may require.”
      The following opinion was given by Messrs. Lawrence and Waeliner.
      New York. October 26, 1881.
      “ Hon. Russell Sage, President Metropolitan Elevated, Railway Company.
      
      “Dear Sir—In reply to our request for our opinion upon the question whether the agreement entered into on the 22d inst. by the three companies interested in the management of the elevated railways in this city, modifying the tripartite agreement and leases of May 80, 1879, is valid and effectual without the assent or ratification of the stockholders of the several companies, we beg to say: By the tripartite agreement and leases of May 20, 1879, the railways of the New York and Metropolitan companies were leased to the Manhattan Company upon certain terms and conditions. Among the obligations entered into by the Manhattan Company was a covenant by which it agreed to pay to the Metropolitan and New York companies respectively, annually during the continuance of the leases, a sum of money equal to 10 per cent, upon the capital stock of each of said companies. Among the chief reasons for the making of the leases was the fact that the public safety and covenience imperatively required that the railways of the Metropolitan and New York companies should be operated under a single management. The Manhattan Company entered into possession of the demised lines of railway and continued their operation until a recent period. After the system created by the tripartite agreement and leases bad been in practical operation for between two and three years, it became clear that the burden imposed by the leases were beyond the ability of the lessee corporation to bear.1 The Manhattan Company, unable to meet- the excessive obligations which it had assumed, failed, among other things, to make certain of the payments already referred to, and passed into the hands of receivers. The lessee corporations, seeking to enforce their supposed remedies for the non-payment of sums claimed to be due them, the Manhattan Company interposed a claim against the Metropolitan and New York companies for a sum much greater than the actual amounts claimed by them under the leases. Under these leases, the boards of directors of the three companies authorized the execution by their • proper officers respectively of an agreement, by the terms of which all the claims and demands existing between the companies, or any of them, were settled and adjusted. The Metropolitan and New York companies were released from the claims made against them by their lessee, the Manhattan Company was discharged from its covenants to pay to the Metropolitan and New York companies an annual sum equal to 10 per cent, upon the amount of their capital stock, and new and less onerous terms were imposed upon the Manhattan Company, upon the performance of which it was to continue in possession of the demised railways under the leases of May 20,1879, which, except so far as expressly modified, were to remain in full force and effect. Agreements containing substantially the foregoing provisions have accordingly been executed and delivered. The public interest still continues to require that the railways of the Metropolitan and Mew York companies should be operated under a single management, and this fact was one of the circumstances which necessitated the making of the new arrangement.
      “In our opinion the agreement of October 22, 1881, is entirely valid and effectual without ratification by the stockholders of either of the companies, and their ratification or approval, if given, would add absolutely nothing to the legal effect of that instrument as it now stands. The law is well settled that the board of directors is the agent of the corporation and not of the stockholders, and that, in the absence of limitations or restrictions in the charter or constating instruments, it possesses all of the powers of the corporation, except the power to make organic or fundamental changes (see Field on Oorp. § 146, and cases cited). The powers of these statute agents are given by the charter. The nature of their office is determined at the creation of the corporation, and it does not ordinarily lie in the power of the stockholders either to limit the authority of the board or to superintend its exercise (see Dana v. Bank of United States, 5 W. V. S. 246; Hoyt v. Thompson, 19 N. Y. 207 ; Bank of United States v. Dandridge, 12 Wheat. 113, cases cited; Field on Corp. § 149; Green's Brice's Ultra Vires, 493). Mo statutory or other limitation upon the general powers of the directors of either of the three companies is found.
      “ The agreement of October 22 was in effect simply a readjustment of the business relations between the Manhattan Company and the two lessor corporations, over which the boards of directors, under their general power to manage the affairs of the corporations, had absolute control and discretion. The magnitude of the transaction has no bearing upon the legal powers of the directors (Hoyt v. Thompson, 19 N. Y. 216, 217, 218). Had the transaction involved the making of any fundamental or organic change in the corporation, the rule would be different; but inasmuch as the recent agreement only involved a rearrangement of the terms and conditions under which the Manhattan Company is to continue to hold the demised lines of railway, we do not only regard the power of the directors as being ample, but furthermore consider the question of the existence of such power as being entirely free from doubt.”
      The following opinion was obtained from Messrs. Field & Bacon, and was concurred in by Alexander & Green. . .
      “ New Yoke, Oct. 36, 1881.
      “ To the New Yorlc Elevated Railroad Company and Manhattan Railway Company:
      
      
        • “ Our opinion is asked upon the question whether the agreement between the New York, Metropolitan and Manhattan Elevated Railway Companies, made by the boards of directors of these companies, respectively, on the 22d instant, requires the ratification of the stockholders,-in order.to make it valid. The New York Company was first organized under the general railroad act of 1850 (chapter 140),. the fifth section of which, as amended in 1854, provided that fhere should be a board of directors ‘ to manage its affairs.’ There is nothing in the special acts relating to the company which takes away this power. The charter of the Metropolitan Company (chapter 885 of the Laws of 1872, § 3), declares that this corporation shall ‘ possess all the rights, powers, and privileges, and be subject to all the provisions’ of the same general railroad act, except so far as they were modified by the charter, and that makes no modification in this respect. The rapid transit act (ch. 665 of the Laws of 1875), has not the same expressions, but we think it implies as much. It is entitled ‘An act further. to provide for the construction and operation of a steam railway- or railways in the counties of the State,’ thus connecting it with the general 'system of railway corporations already in existence, 'file eighth and tenth sections provide for the election of directors without indicating any difference betw'een their functions and those of other railway corporations. The fourteenth section provides for the intervention of stockholders in a particular circumstance, and the fortieth section declares that this act ‘ shall.not be construed to repeal or in any manner to affect’ the general railroad act or any-of its.amendments. Considering the provisions of these various acts, and the •decisions which our-courts have made in Hoyt ». Thompson.(19 N. Y. •207); - and McCulloch ». Moss (5 Ben. 575), we are of opinion that 'the agreement of- October 22, 1881, does not require the ratification of the stockholders of any of t-lie companies to render it valid;”
      
        At this time the following further opinion was given by the Hon. James Emott.
      “New York, Oct. 21, 1881.
      “ If I could see that the repudiation of the agreement of May 20, 1879, by the three corporations—the Manhattan, the Metropolitan, and the New York Elevated Railroad Companies—concerned those three companiés alone, I might agree that the contract of October 22, 1881, was valid without the assent of the stockholders of either of those companies. With the doctrine laid down by Judge Com-stock, when speaking for the court of appeals in Hoyt d. Thompson, 19 N. Y. 207, I certainly have no wish, as I have no right, to quarrel. It is true, as was held in that case, that a corporation can only act by its directors, and the stockholders must commit themselves to their control, and that any act done by them in good faith, in the management of the ordinary business of the corporation, needs not the sanction, and cannot be validated by the consent of the shareholders. Within the powers of the corporation, no doubt, the directors are supreme, and the remedies of the stockholders are against them personally. I do not care to discuss this question; and although the instrument of October, 1881, makes great changes in that of May, 1879, and all to the prejudice of the holders of shares in the Metropolitan Company, I will admit, for the purposes of this question, that, if there were no one concerned but these two corporations—the Metropolitan and the Manhattan—if there were no contract made by the Manhattan with any one, or that could inure to the benefit of any one, besides the Metropolitan Company, the directors of that company might take the responsibility of annulling that contract, if not making a new one much less favorable to their constituents.
      “ But this is not the whole case nor the whole contract. By the second article of the lease, dated May 20, 1879, the Manhattan Company not only guarantee and agrees to pay to the Metropolitan Company an annual dividend of ten per cent, on the capital stock of the latter, but it also agrees from time to time to execute in proper form a guarantee to that effect, printed or engraved upon the certificate of stock of the Metropolitan Company ; and as such certificates are surrendered for cancellation and reissue, from time to time, at the request of the holder, to renew such guaranty upon all reissued certificates.
      
        “In pursuance of this agreement a guaranty was engraved or printed, and is borne upon all the certificates of the Metropolitan Company’s shares, to this purport : “ The Manhattan Railway Company for value received, has agreed to pay to the Metropolitan Elevated Railway Company an amount equal to ten per cent, per annum on the capital stock of the latter company, that is, on $6,500,000 payable quarterly, commencing January 1, 1880.
      “ I think this endorsement, made in pursuance of the agreement of May, 1879, and taken with that agreement and the accompanying papers formed a contract, not merely between the two corporations, but between the Manhattan Company and every stockholder who held a certificate upon which this guaranty was endorsed. I think that this contract could not be altered or annulled without the consent of every stockholder in his own case. And on this ground, without considering the powers of the directors in an ordinary case of contract of the corporation with another, I agree with Mr. Nash that what has now been done in October, 1881, was absolutely inoperative against non-assenting shareholders of the Metropolitan Company, be they few or many, provided they hold certificates in the form I have stated.”
    
    
      
       Flagg v. Manhattan R’y Co., 10 Fed. Rep. 413.
      The learned judge set forth the history of the litigations between the three companies, and the material facts in relation thereto, and, citing at length from Judge Westbbook’s decision in N. Y. Elevated R. R. Co. v. Manhattan R’y Co. (reported in note at p. 152 of this vol.),—Feld, that the power of corporations to contract with each other, and of their directors to make and modify such contracts, without control of the stockholders, is well established in New York by authorities and by statutes (citing Hoyt v. Thompson, 19 N. Y. 207-216; McCullough v. Moss, 5 Den. 566-575; L. 1839, c. 218, p. 195); and where sucii power was, under and in view of all the circumstances, fairly exercised by the directors in their discretion and judgment, as the evidence presented seemed to warrant, no court will undertake to interfere, even though on (he same facts it or the stockholders might have arrived at a different conclusion.
    
    
      
       Manhattan R’y Co. v. N. Y. El. R’y Co. and others, 29 Hun, 309; S. C., 16 Weekly Dig. 404; rev’g N. Y. Daily Reg., Dec. 2,1882; where appears a decisionpf Judge Donohue in supreme court chambers, restraining, under tiode Civ. Pro. § 603, the defendant, the Metropolitan road, from issuing Metropolitan stock having thereon a memorandum reciting that ten per cent, interest is payable under the tripartite lease agreement.
    
    
      
       The learned judge, who prepared the statement of facts in the text, added: “The foregoing statement contains, I believe, a substantially correct narrative of the events which led up to the October agreements, and which followed them, as nearly as possible in their chronological order ; and also sets forth the interests which the various directors of the Metropolitan Company, whose action is sought to be attacked, had in the three companies who were parties to those agreements. I may have omitted some of the circumstances attending these transactions, as the evidence and exhibits are very voluminous, and parts of the same transactions are scattered in many different parts of the record, and I have not been aided in any degree by the submission by either of the parties, of any statement of the facts which are claimed to have been established by the evidence; and it has, therefore, required an immense amount of time to extract from this mass of evidence and exhibits the history of these transactions as they appear upon the record.”
    
   Van Brunt, J.

This action is brought by the Metropolitan Railway Company to set aside the agreements of October 22, 1881, upon the following grounds:

1st. Because the Metropolitan directors had no power to modify the original leases and tripartite agreement of May 20, 1879, without the consent of the shareholders.

2d. Because three of the Metropolitan directors were, at the time of the making of the October agreements, also directors of the Manhattan Company—one of the contracting parties, whose interests were antagonistic to those of the Metropolitan Company.

3d. Because the personal interests of several of the Metropolitan directors were opposed to those of that company.

4th. Because of the actual fraud upon the part of certain Metropolitan directors, who entered into a scheme to benefit themselves at the expense of their corporation.

The defendants admit that the October agreements were not assented to by the stockholders of the Metropolitan Company, and claim that such assent was not at all necessary to the- validity of the contract. They further admit that three of the Metropolitan directors were also, at the time of the making of the October agreements, directors of the Manhattan Company, but they deny that this circumstance in any way invalidated the action taken. They deny that the personal interests of any of the Metropolitan directors were opposed to those of that company; and they also deny that there was any actual fraud; and aver that the agreements of October, 1881, were for the best interests of all the parties concerned, and that they presented the only solution of the difficulties and embarrassments which surrounded the Elevated Bailway system in the summer and fall of 1881.

In addition to the above defenses, the defendants also present certain preliminary objections to the maintenance of this action, and.also certain affirmative defenses.

The preliminary objections are as follows :

1st. Ho case is presented in this action for the interference of a court of. equity. .

2d. If the October agreements are fraudulent, as the plaintiff contends, then the plaintiff itself was a party to the fraud.

3d. The plaintiff, in its complaint, alleges that the agreements and leases of May 20,1879, which it seeks to reinstate, wére a nullity, being made without authority of law.

4th. That the October agreements have never been disaffirmed by the stockholders of the Metropolitan Company, in any way, nor even by the directors, by any direct vote.

The fifth and last preliminary objection is the lapse of time ; and the acquiescence of the plaintiff.

The following affirmative defenses are also urged:

1st. That the Manhattan Company had, at the time of the commencement of this action, already brought its action in the supreme court against the New York Company, the Metropolitan Company, and all the persons who had brought actions to set aside the October agreements, in the nature of the old bill of quia timet, asking in its complaint that all matters relating to the October agreements should be determined in that action, and that the defendants and all others should be restrained from bringing any actions on account of these agreements.

2d. The judgment of the supreme court in the action of the People against the Manhattan Railway Company entered on the 17th day of November, 1881.

3d. The judgment of the superior court of the city of New York, entered on the 8th of December, 1881, in the action wherein the New York Elevated Railroad Company was plaintiff and the Manhattan Railway Company and the Metropolitan Railway Company were defendants.

4th. That restitution cannot be had.

I will first consider the preliminary objections and then the affirmative defenses, and lastly, will discuss the four questions upon which the plaintiff bases the right to equitable relief in this action.

The first preliminary objection urged is, that the facts elicited upon this trial do not present a case for the interference of a court of equity.

It is claimed by the defendants, that the plaintiff has a complete remedy at law, and, therefore, cannot seek the intervention of a court of equity. That the plaintiff could have sued for the rent which is claimed: to be due under the leases and agreements of May 20, 1879, and if the October agreements were set up as a. defense, they could have been attacked upon precisely the same grounds as they have been in this action.

, In Grand Chute v. Winegar, 15 Wall. 373, it was held, that a municipal corporation, obligor in a bonds cannot ask in equity that the obligee be enjoined from proceeding at law, and that the bond be surrendered when the bill alleges that the bond was issued without authority in violation of law, and in fraud of the plaintiff ; that the obligee knew this when he took it ; that the obligee’s possession is merely colorable, and that he gave no value to it, and never had any right or title to it. Such allegations show a complete defense to the bond at law; and a judgment against the ' obligee at law would give as full protection in every way to the obligor as a decree in equity.'

Mr. Justice Hunt, in this case, uses language us follows:

“And the result of the argument is, that wherever' a court of law is competent to take cognizance of a right, and has power to proceed to a judgment which affords a plain, adequate and complete remedy, without the aid of a court of equity, the plaintiff-must proceed at law, because the defendant has a constitutional right to a trial by jury. The right to a trial by jury is a great constitutional right, and it is only in exceptional cases, and for specified causes, that a party may be deprived of it.”

In 49 N. Y. 373, Alter ton e. Belden, it was held that the right to apply to a court of equity to have a contract annulled, exists only when, from the form of the security, the defense cannot be made available at law, or where the instrument sought to be avoided is a cloud upon the title to land, or some other necessity for the interposition of the court of equity is shown.

The opinion of Judge Rapallo, page 377, has this:

“Theallegation in his complaint discloses a perfect defense at law to any action which might be brought against him on his endorsement, and no fact is stated showing any necessity for the interposition of a court of equity, or entitling the plaintiff to become an actor in the matter. The most usual ground for going into equity in such cases formerly, was the necessity for a discovery to prove the usury.

“ Bills of discovery being now abolished, some ground which formerly would have justified the filing of a bill for relief, must appear in the complaint, or it shows no right of action. No authority has been cited sustaining an equitable action on such ground ; but, on the contrary, it has been uniformly held, that where a perfect remedy, both as to the discovery and relief, can be had at law, the action in equity cannot be maintained, and that this objection is available on demurrer.”

In 62 N. Y. 462, Town of Venice v. Woodruff, the court said, at page 467:

“ Whether, therefore, the question is regarded as one of jurisdiction or practice, it is established by the later decisions that some special ground for equitable relief must be shown, and that the mere fact that the instrument ought not to be enforced is insufficient, standing alone, to justify a resort to an equitable action.”

In the same book, 62 N. Y. 533, in Fowler v. Palmer, which was the case of an action to compel the surrender of a note past due, on the ground that it had been.paid, but not taken up, the court held that the action could not be maintained in equity, that the defense of payment was perfectly available to the plaintiff, in an action upon the note, and no transfer could prejudice it.

In 79 N. Y. 202, Globe Mutual v. Reas, it was held that an action to procure the cancellation of' a written instrument cannot be maintained unless some special circumstance exists establishing the necessity of a resort to equity, "to prevent an injury, which might be irreparable, and which equity alone is competent to avert. It is not sufficient that a defense exists against the instrument, or that evidence may be lost.

In the case of Troy and Boston R. R. v. Boston, Hoosac Tunnel and W. Ry. Co., 86 N. Y. 107,127, it is said by the court, Mr. Justice Dáneortii speaking:

“Although the form of actions and suits, and the distinction between actions at law and suits in equity has been abolished, a party, to entitle himself to the equitable remedy by injunction, must still make' such a case as would, while the distinction existed, have made an equitable cause of action. This is well settled.”

In Hamilton v. Cummings, 1 Johns. Ch. 517, the Chancellor states as his conclusion from the authorities, that a resort to equity to compel the cancellation of written obligations, to be sustained, must be expedient either because the instrument is liable to abuse from its negotiable nature, or because the defense not arising upon its face may be different or uncertain at law, or from some other circumstances peculiar to the case, and rendering a resort to a court of equity highly proper, and clear of all suspicion of any design to promote expense and litigation.

These authorities seem to establish, with great distinctness, the rule which has obtained in our courts, since the practice of allowing equitable defenses in actions at law, has been established, and none of the cases cited by the plaintiff, at all conflict with it.

In the case of Gould v. Cayuga Bank, 86 N. Y. 75-82, it is true that the court say, that the party might have brought his action in equity to rescind the contract, and in that action might have had full relief ; but in the next paragraph of the opinion the necessity of bringing in other parties is adverted to, which was to be the basis of the relief to be granted by a court of equity, and which could not be done in a court of law.

The Aberdeen Railway case {H. L. Cases, 1 Mac-queen, 461), has no application to the question now under discussion, as equitable defenses were not available in actions at law, in English courts.

Equity jurisdiction of the court was applied in the case of McHenry v. Hazzard, 45 N. Y. 580, because the rights of all the parties could not be determined in any one action at law, and also because the defendants could not be allowed at their election to postpone the litigation of the question, and subject the plaintiff to the vexation of a litigation at a distant period when the means of defense might be lost or impaired, and when he might be disabled from contesting the validity of the claim with the same ability as at the present time. The latter ground for the entertaining of jurisdiction does not at all apply to the case at bar, because the plaintiff here can sue at once to recover rent under the May agreements. The defendants have no rights to be enforced against the plaintiff, but the plaintiff, the aggrieved party, can at any time enforce the rights which they think they have. In order to test the question as to the validity of the October agreements, the plaintiff has only to bring its action for the rent due under the May agreement,- and the matter is at once brought up.

Equitable jurisdiction cannot be entertained in this case on the ground that otherwise there will be a multiplicity of suits. No such result would ensue. If an action had been brought upon the May"agreements for rent due since the making of the October agreement, and a final recovery had been had for the amount of rent due, according to the terms of the May agreement, that final judgment would have ended, as far as the Manhattan Company is concerned, the October agreements as effectually as any final judgment which can be rendered in this action can do. The fact that the agreements extend over a long period of years does not alter the question. A final recovery is just as effectual, whether it be in a court of law or a court of equity.

Even if I, however, could find that there was no ground for equitable relief, yet, if the facts proven showed that- the party was entitled to legal relief, the-bill could not be dismissed (Sternberger v. McGovern, 56 N. Y. 12).

But there is another ground upon which the bill in equity can be sustained, and that is, that there could be no determination as to the validity of the October agreements without the presence of the New York Company, a party to them. The New York Company had a right to be heard upon the question. One party cannot be released by legal proceedings from a tripartite agreement, in an action against one other party. All the parties must be brought before the court, as all have a right to be heard upon the question as to whether the agreement which is mutual shall be broken up. Therefore, the New York Company is a necessary party to any action seeking to avoid the October agreements, that company being one of the parties to them. If an action was brought upon the lease of May 20, 1879, the New York Company could not have been broughtin, as has been done in this case, and which was the reason given in Gfould v. Cayuga County Bank, for the entertaining of a bill for rescission. It seems, therefore, that the first preliminary objection is not well taken.

The second preliminary objection is, that if the October agreement is fraudulent, as the plaintiff contends it is, then the plaintiff itself was a party to the fraud.

The defendant claims, that as this is not a suit by a stockholder to set aside an agreement which is chargeable with fraud, but a suit by the corporation itself— one of the parties to the fraud—a court of equity will not interfere; and we are referred to the ojfinion of Mr. Justice McCrary, in the case of Lewis v. Meier (14 Fed. Rep. 311, 312, 313), as an authority to sustain the proposition. The case cited, however, is not analogous to the one at bar.

That action was to avoid railroad bonds in the hands of innocent holders, upon the ground that the directors had issued them fraudulently. The bondholders were innocent parties, and not in any manner privy to the fraud perpetrated by the directors, and had no knowledge of such fraud. A stockholder could not maintain an action to set aside any fraudulent contract made by the corporation, without alleging a refusal, or good reason to suppose that the corporation would not bring any action. If this rule is to prevail, the directors of corporations may act as fraudulently as they please, and it is impossible to redress the wrongs which the corporation may have received at their hands, unless some stockholder is willing to undertake the labor and expense of an action therefor. Such cannot be the rule. Where directors are faithless to their trust and have acted without any authority, the corporation may repudiate the acts so done, because the stockholders not only may claim, but must claim their rights by and through the corporation, unless the corporation refuses to assert such rights. The directors are the agents of the corporation, and if they act wdthout authority in making a contract for their principal, or fraudulently, certainly the principal may repudiate it. That it is the sanie principal who made the contract that seeks to repudiate it, is no bar to the relief.

The next preliminary objection is, that' the plaintiff claims that the agreement and leases of May 20, 1879, which it seeks to reinstate, were a nullity, being made without authority of law.

I understand that the claim that the agreements and leases of May 20, 1879, were void, was abandoned upon the argument, it being conceded that under the statute of 1839, a corporation may lease its road.

But this is not at all necessary to answer the. objection made. The plaintiff, by its complaint, does not seek to reinstate anything; it simply asks that the agreement of October 22, 1881, may be declared null and void ; whether such judgment will reinstate anything or not, is not a question involved in this action.

The next prelirninary objection is, that the October agreements have never been disaffirmed by the stockholders of the Metropolitan Company in any way, nor even by the directors, by any direct vote.

If the directors had no authority to make the October agreements without the consent of the stockholders, then, certainly, no expression of dissent was necessary by the stockholders, because the agreements were void unless ratified by the stockholders, or confirmed by action upon the part of the stockholders, which amounted to ratification. But if it is sought to set aside these agreements because of the fraud either actual or constructive, then the contract is a voidable one, and due diligence must be used in electing to avoid it. What constitutes due diligence necessarily depends upon the facts of each particular case. Immediately after these agreements, were made, various stockholders commenced their actions to set them aside, and it is well settled, that where one stockholder is asserting by suit the rights of the stockholders as a class, it is not required that each particular stockholder should sue.

In the case of Boardman v. Lake Shore & M. S. R. R. Co. (84 N. Y. 157-183), it is said :

66 It is not required that each particular stockholder should sue for his share of the dividends, to preclude the defendant from claiming an acquiescence and estoppel; and it is quite sufficient that they were advised of the character of the claim of the respective stockholders. The plaintiffs and other stockholders were entirely justified in awaiting the result of suits pending, without incurring the hazard of losing their rights on account of the lateness of their demand.”

The stockholders had no power to meet and act as a body, except as the statute and the by-laws prescribe, and must be called together in the manner provided by law, otherwise they have no power to act.

In the case at bar, the only way in which the stockholders were required to act was, upon the first oppor- - tunity to appoint other agents Avho Avould assert their rights, if they had any. Moreover, the Manhattan Company, on December 9, 1881, commenced its bill of peace suit, and all stockholders were enjoined from suing, which injunction continued in force until February, 1883. Can the Manhattan Company now claim laches, because no other stockholders have brought suit to set aside these agreements, when they were prevented by so doing by reason of the injunction which that company had obtained %

It is urged that because a new board of directors has been elected, no right is given to impeach the acts of a previous board, as the corporation is the same.

I am unable to appreciate the force of this objection. If my agent has entered in my name into a fraudulent agreement, I know- of no reason why I may not appoint anew agent and through him repudiate the fraudulent contract. In the case supposed, I am the party acting in both instances. I have never heard that a man was bound by the fraudulent contract made by his agent in his name, because he—the same person in whose name the fraudulent contract was made—sought to set aside the contract. The directors of the corporation are its agents and executive officers; they, as such agents, manage the business and affairs of the corporation, and when the business and affairs' of the' corporation are to be managed by directors, 1 do not think that the stockholders can do any act or make any contract except by the use of the means provided by law, viz., its directors. Therefore, if one set of-agents act beyond their authority or are recreant to their trust, the principal—that is, the corporation—may appoint a new set of agents, and through them seek redress for the wrongs which it has suffered. The corporation being able to act only through its directors, at the very first opportunity after the October agreements were made, the shareholders of the Metropolitan Company elected a new board of directors, such change in the board being evidently made because of the fact that the old directors had made these agreements; and within one month thereafter this action was brought, and within one week after these agreements were executed shareholders had commenced their actions to set them aside. I do not know how, if the most extreme diligence had been required, any more prompt action could have been taken; and thus is answered the last preliminary objection—that of laches.

We are now brought to the consideration of the four affirmative defenses urged by the defendants. The first is:

1st. That the Manhattan Company had, at the time of the commencement of this action, already brought its action in the supreme court, against the New York Company, the Metropolitan Company and all the persons who had brought actions to set aside the October agreements, in the nature of the old bill of quia timet; asking in its complaint that all matters relating to the October agreements should be determined in that action, and that the defendants and all others should be restrained from bringing any actions on account of the October agreements.

The commencement of this action could not in any way interfere with the rights of the Metropolitan Company, to file its bill for a rescission. The mere filing of the bill by the Manhattan Company restrained nobody, and the plaintiffs in that action knew this, because they asked for, and obtained an injunction preventing the bringing of any more suits, which was set aside by the general term. Merely because the Manhattan Company .had filed a bill of peace against all the world in general, and the Metropolitan Company and its stockholders in particular, the latter company did not lose any rights which it might acquire to the protection of the court. The Metropolitan Company had the right to file its bill for rescission, and the Manhattan Company could not deprive it of this right by filing a bill asking the court to adjudicate upon the question involved. Before such an action can restrain anybody’s proceedings, the right to an injunction must be established, either preliminarily or by final judgment.

The second affirmative defense is the judgment of the supreme court in the action of People v. Manhattan Railway Co., entered November 17, 1881.

I have searched in vain in the judgment-roll in the case of People v. Manhattan Railway Co.,, for anything which could in any way operate upon any rights which the Metropolitan Company had. This company was not a party to the action, and in the findings and judgment is not treated as a party. The second finding speaks of agreements made with the defendant, by certain other corporations, to wit: The. New York Elevated Railroad Company and the Metropolitan Railway Company. So also, in the fifth finding, similar language is used. In the judgment, also, the New York Company and the Metropolitan Company are treated as strangers to the record, and they evidently were so con-, sideréd by the court. The only question at issue in that action' was the solvency of the Manhattan Company. With that issue the New York and Metropolitan Companies had nothing to do. That question was one existing between the people on the one side, and the Manhattan Company on the other, and nobody else had any interest in it. It is true that this question of solvency depended upon the October agreements, but an adjudication by the court in that action could only affect the parties to it, and as to them only to the extent of the question involved.

But it is said that the three companies united in a petition to have the property delivered back to the Manhattan Company. The order of restoration made upon that petition in no way adjudicated upon the question of the validity of the October agreements. No such question was presented to the court. The union of the New York Company and the Metropolitan Company in that petition, operated only as a consent upon their part that restoration might be made. And no order that the court did make, in that proceeding, could have had the force of an adjudication, because the doctrine of res acl/judieata does not apply to interlocutory judgments or orders, which the court which rendered them has power to vacate or modify at any time. The order of restoration in the people’s case, expressly reserved to the court the power of alteration and modification. These companies did not become parties to the record, and as has already been shown, they were not treated by the court, in its findings and judgments, as parties whose rights were being determined. Therefore the judgment in that action barred no rights which this plaintiff might have.

The third affirmative defense rests upon the judgment of the superior court of the city of New York, entered on December 8,1881, in the action wherein the New York Elevated Railroad Company was plaintiff, and the Manhattan Railway Company and the Metropolitan Railway Company were defendants.

In considering this question, it is necessary that we should have plainly before our minds the facts relating to that action and the proceedings therein.

The action was commenced upon July 2 by the New York Company against the Manhattan Company and the Metropolitan Company, and the plaintiff claimed the right to recover possession of its property from the Manhattan Company, because of its breach of the terms of the lease between the New York and Manhattan Companies, and no relief whatever is asked for against the Metropolitan Company. The Metropolitan Company, in its answer, denies the right of the New York Company to get back its road, and the Manhattan Company put in a similar plea.

On November 22, 1881, the October agreements having then been made, the Manhattan Company put in a supplemental answer, setting up the proceedings in the people’s suit, and also the October agreements above-mentioned, alleging them to be an adjustment of all the controversies between the parties' to the action, the parties then went before the- court, and without the plaintiff offering any proof whatever, the parties admitting the facts alleged in the supplemental answer of the Manhattan Company to be true, obtain certain findings of facts and conclusions of law, all of which are expressly stated to be founded on the admissions of the parties, adjudging these October agreements valid, and a judgment to the same effect is entered thereon.

I fail to see how this judgment can operate as a bar to the rights of the Metropolitan Company to contest the validity of the October agreements. If those agreements are fraudulent and this judgment should be held to preclude the Metropolitan Company from rescinding them, then the law would be used for the purpose of fortifying a wrong, and not for the purpose for which it was instituted, viz.: the redress of wrongs. When such a manifest injustice would result from the application of any rule of law as that a fraud would be protected, we may be sure that there is something wrong in our premises, if they lead to such a conclusion, as equity and justice go' hand in hand together.

If this judgment o-f the superior court is a bar to the right óf this plaintiff to maintain this action, we have this state of things, as a necessary result: directors of a company may make an agreement which is absolutely void, and in the making of which there has been a plain violation of duty, and if their corporation is sued upon it, the same board of directors being in office—their term not having expired—may confess judgment, and then there is no power in any court to redress the wrong. The mere statement of the proposition, it seems to me, shows that such cannot be the law, and it is not the law.

In order that a judgment may be a bar, there must be a real controversy. There was no controversy in the superior court. The Manhattan Company alleged the making of the October agreements, and that they adjusted all matters in difference. The New York Company and the Metropolitan Company say : “We agree that that is true,” and the judgment is entered. This was nothing more than a judgment by consent. All the parties to the action consented that these agreements had been made and had adjusted the differences, and the court so ordered. If these agreements were voidable for want of power in the directors to make them, or fraudulent, then the obtaining a judgment affirming these agreements by the same directors who made them, was a fraud upon the court, not necessarily an intentional fraud, but a fraud in law ; and such a judgment binds no court, and its nullity upon that ground, though it has not been set aside or reversed, may be established in'another action (Webster v. Reid, 11 How. U. S. 437).

In Earl of Bandon v. Becher (3 Cl. & Fin. 479, at p. 510), Lord Brougham adopts the language of Wedderburn, in the Duchess of Kingston’s case, as follows :

“A sentence is a judicial determination of a cause agitated between the real parties, upon which a real interest has been settled. In order to make a sentence, there must be a real interest, a real argument, a real prosecution, a real defense, a real decision. Of all these requisites, not one takes place in the case of a fraudulent and collusive suit; there is no judge, but a person invested with the ensigns of a judicial office, is misemployed in listening to a fictitious cause proposed to him ; there is no party litigating, there is no party defendant; no real interest brought into question.”

In the case of Gaines v. Relf (12 How. U. S. 472), the principle was distinctly enunciated that in order that a judgment should be a bar there must be a real controversy, and that a judgment entered by consent to be used in the future cannot affect the parties to it, because-there was no controversy carried on in earnest. In that case the defendant admitted the decree, but contended,

“ That said decree was designed as no honest exposition of the merits of the case, but was brought about, allowed, and consented to, for the purpose of pleading, the same as res adjudícala upon points in litigation not honestly contended.”

The court say:

“That this proceeding on the part of Patterson and General and Mrs. Gaines was amicable, and that no earnest litigation was had, is too manifest for controversy. They agreed to go to trial at once, on the depositions found in the probate court; and as Patterson was to lose nothing' by the event he was of course indifferent as to what evidence might be introduced on the hearing.

“ It also appears by his evidence that when a decree was obtained in the circuit court against him, his name was used to carry up an appeal to this court, but it was in fact brought up by General and Mrs. Gaines. Patterson employed counsel here, who of course had .to take the record as they found it, and make the best of it they- could, and it is conceded on all hands they did so, and made the best exertions for Patterson they could do, on the record brought up by him, as they supposed. Nevertheless, an affirmation of the decree was had in this court. It could hardly be otherwise in a case managed as this was ; the object of the complainants below being to obtain a favorable opinion and decree on the law and facts of a case made up at their own discretion.”

In the case of Moses v. McDivitt (88 N. Y. 62, at page 68), the same principle is enunciated. The court say:

“The judgment does not stand upon the same footing as a judgment obtained in the usual course in a hostile suit, in which the defense of usury was either overruled or omitted to be interposed. It was a mere arrangement between the parties put by their mutual consent in the form of a judgment for the purpose of evading the statute.”

It seems, from the evidence in this case, that the judgment in the superior court was obtained for future use. Claims had then been advanced by shareholders that these October agreements were fraudulent and void, and this judgment would appear to have bee», obtained by and with the consent of the very directors whose acts were attacked in' the suits by the shareholders, in order that it might be interposed as a bar to any relief to which the shareholder might show his corporation was entitled.

The denial of the motion to vacate the judgment before Mr. Justice Freedman gave such judgment no greater force or effect than it had before. It left the judgment in precisely the same position that it was before, with the same force it befDre had, and no more (Schrauth v. Dry Dock Savings Bank, 86 N. Y. 390-395). .

The judgment, therefore, of the superior court does not operate in any way as a bar to the assertion of its rights by the Metropolitan Company in this action.

The fourth and last affirmative defense is, that res-, titution cannot be had.

It is claimed that because by any judgment in this case the receivers cannot be put again in possession of the property of the Manhattan Company:

That because the people’s suit in the supreme court cannot be restored to the condition in which it then stood:

That because we cannot restore the bondholders’ suit to the position it then had, with its injunction :

That because the superior court suit cappot be restored to the condition it would have occupied had not so much time been lost; that, therefore, no rescission can be had.

It is urged that we would have to undo the increase of Manhattan stock. That it has been proved that this stock has been increased with the sanction of the state engineer and surveyor, pursuant to law, from $13,000,000 to $26,000,000. What can we do with that ? shall we reduce it ? what will we do with the stockholders who hold it ? shall they be paid or will we take their stock away without payment? Then we would have to re-exchange the first preferred stock for New York stock, and the second preferred stock for Metropolitan stock. How is that to be done? Then we would have to dismiss the Burnham suit and the quia timet suit, and the merger suit; enter an order denying the New York application in the people’s suit, take an appeal from the order; put it on the calendar of the general term for argument; pay back the interest which the Manhattan Company had paid on the mort1 gage bonds of the other two companies ; make a question of the insolvency of the Manhattan Company; restore to the other two companies their earnings since October, 1881; in short, undo everything that has been done since October 22,1881, pursuant to the settlement. But that is impossible. The New York Company cannot be restored to the condition it then held. It parted with its whole earnings, and if they could be ascertained and received back, there is no corporation or person to pay them ; a portion of them have been paid over to the Metropolitan Company and distributed to. its bondholders and stockholders ; they are not parties to any pending suit, and if they were, they are under no obligations to pay back. Each company has been released from the six and a half million claim ; that release must be canceled, but it cannot be canceled without imperiling the interests of the stockholders of the constituent companies.”

Certainly, if all these things are to be done, as a condition of relief, then the plaintiff in this action is remediless, because it would be impossible for the plaintiff to comply with such a judgment.

But I do not understand the rule to be that a plaintiff is deprived of all relief, because he cannot restore the other parties to the same position which they occupied before they entered into the void or voidable agreements, when the other parties to the agreement have put themselves in the position in which they find themselves, with full knowledge that the other party •claims the agreement to be void and fraudulent, and every means had been taken at once by those who have the right to question the legality of the proceedings to restrain the wrong.

Long before any of these things .were done, in respect to which restoration may now be impossible, suits had been brought by more than one stockholder seeking to avoid the October agreements, and indeed, the first suit was begun within one week after the agreements had been made, by a stockholder to annul them and to have them declared void. These suits multiplied so rapidly that as early as December 9,1881, the Manhattan Company filed its bill of peace for the purpose of restraining the increase of this cloud of suits with which it was threatened by stockholders of the Metropolitan Company. The Metropolitan Company could commence no action itself, because it was in the hands of the very directors who, it was claimed, had either exceeded their powers or acted fraudulently, in fact or in law, in the making of these agreements ; and the stockholders, therefore, necessarily were required to assert their own rights. If, in the face of all these facts, the other parties to the agreement went on and acted in such a way that they cannot be set back to the position which they occupied at the time of the making of the alleged fraudulent agreements, it cer-. tainly is not the fault of the plaintiff or of the court-. They have only themselves to blame. Their heedlessness cannot deprive the plaintiff of any rights to which it otherwise would be entitled. If this is not the rule,' then, all that a party has to do, who has procured the execution of an agreement by fraud, even after the fraud has been discovered, and the party defrauded has informed him that as. soon as possible an action for rescission will be begun, to defeat such an action, is to hasten and put himself in such a position that his steps cannot be retraced. I do not understand this to be the rule. Where, however, a party has, without any knowledge of any intention to rescind, and for no ulterior purpose, acted upon "the faith of the agreement and has lost rights thereby, and such rights cannot be restored, the injured party can obtain no relief except such imperfect reparation as his action at law to recover the damages occasioned by the fraudulent deceit will afford. The court would, however, compel the plaintiff to do everything that lay in its power to restore the then statu quo.

As to the people’s suit, I do riot know that the Manhattan Company is in any respect harmed by the discontinuance of a suit brought against it on account of insolvency, nor is it injured in any decree by not being in the possession of receivers.

As to the bondholders’ suit, it was not discontinued because of the October agreements ; the discontinuance having taken place October 6, more than two weeks before the agreements were made.

As to the superior court suit, the judgment and findings can be vacated, the injunction restored and then the action will be in the same condition in which it was at the time of the October agreements.

With the increase of the capital stock of the Manhattan Company and the result flowing therefrom, this plaintiff has nothing to do ; all those things' were done by the defendants with fall knowledge of the claim presented in this action, and they acted at their peril.

As to the payment back of the moneys which have been received: Before disposing of that part of the question, it will be necessary to examine a few of the authorities upon this question of rescission.

The principles upon which rescission must proceed are laid down with great distinctness in the case of Gould v. Cayuga County Bank, 86 N. Y. 75-79. The court holds that

One who seeks to rescind a compromise of a disputed claim, upon the ground of fraud, must promptly, upon the discovery of the fraud, restore or offer to restore to the other party whatever he has received by virtue of it, if any, in full: the tender must be without qualifications or'conditions.”

The court makes a distinction in this case, which should be borne in mind, between a suit in equity to rescind, and a suit at law upon a rescission, holding,, that if younsue at law you must offer to restore before you bring suit; if you sue in equity you may make the offer in your complaint. The defrauded party has ample remedies. One situated as the plaintiff was in that case, can rescind by tendering or restoring what he has received, and then commencing his action ; he may keep what he has received, and sue to recover damages for the fraud ; or he may commence an action to rescind, or for equitable relief, and offer to restore, in case he is not'entitled to retain what he has received. If, however, the plaintiff cannot restore absolutely, he cannot come into a court of equity for relief. This rule is illustrated by the learned court, in its opinion, by the following :

“ Suppose A. goes abroad, leaving in the hands of his agents debts to be collected against various debtors, among whom is B., a debtor for $1,000, and before his return, his agent dies. Upon his return he finds, among his papers, no evidence that B. paid his agent, and then he calls upon B. and he claims that he paid the agent the whole debt. A. disputes this, and they finally agree to compromise the dispute, B. paying $500. Afterward A. concludes that B. did not, in fact, pay his agent, and claims that he was induced by fraud to enter into the compromise.' So long as the compromise remains in force, no action based upon the original indebtedness can be maintained. The bar can be removed only by rescinding the compromise agreement, and that can be rescinded only by a restoration of the 8500, so that they can resume their dispute upon a footing of equality, just where they left it before they entered into the compromise. When A. sues upon the original indebtedness, B. must be permitted to renew his dispute, and set up payment of the entire debt to A’s agent. If he can establish that, the $500 will be again in his hands, where it belongs. If he fails, A. will recover his whole debt. If A. can maintain Ms suit without first returning the $500, he will have all the game in his own hands. If he wins the suit he will retain the $500 and get $500 more. If he loses the suit, in consequence of proof that the whole debt has been paid to Ms agent, he will still have the $500. He will thus in effect hold B. to the compromise, but himself be released. Such inequality and injustice cannot be tolerated by correct principles of law.”

It is plainly stated in the above case that the reason why restoration is made a condition of rescission is, that the retaining of that which has been received is inconsistent with the abrogation of the contract.

But the rule, that if any party to the agreement has done anything which cannot be undone, or has omitted to do anything which he might have done, no rescission can be had, does not apply to things done or left undone by such party to the agreement, who has knowledge before anything is done or omitted to be done, that the agreement is repudiated either by the other party or by those who have a right to contest its validity on his behalf.

It is claimed, that as a condition of rescission all the moneys paid out since October 22, 1881, by the Manhattan Company, both to the bondholders and shareholders of the New York Company, must be restored ; that the New York Company cannot be restored to the condition that it then held; that it has parted with its whole earnings and they cannot be got together again and paid back; they have been paid out and distributed to bondholders and shareholders who are not parties to this action, and if they were, they are under no obligation to pay back.

As far as the distribution of the earnings of the New York Company by the Manhattan Company is concerned, such distribution was not only permitted, but connived at by the New York Company—they well knowing of the claim that was made by the Metropolitan shareholders, that the October agreements were void or voidable, and that they would not be accepted by the stockholders of the latter company.

I say, that the distribution of its earnings was connived at by the New York Company, because, with the full knowledge above stated, they consented to the dismissal of the action in the superior court, and to the entry of a judgment in that court affirming the validity of the October agreements. They did all these things, not in ignorance, but with full knowlege of every claim which has ever been advanced, affecting the validity of these agreements. Therefore, if they have empowered tho Manhattan Company to distribute, their earnings, and they cannot now get them back, it has not been done in reliance upon anything which the plaintiff has done—in ignorance that there was any claim of wrong affecting the validity of these agreements. They knowingly took the risk of the success of the attacks upon these agreements, and they cannot now complain if they have lost the battle.

Upon the question of the restoration of the money received by the Metropolitan Company, it will be necessary to advert again to the rule governing restoration upon rescission.

The rule is very distinctly laid down, that to retain any part of what has been received upon a contract is incompatible with its rescission (Cobb v. Hatfield, 46 N. Y. 533-537).

To retain the whole, or a part only, of what has been received upon the contract, is incompatible with its rescission, and hence the necessity of restoring what has been received upon it (Mason v. Bovet, 1 Denio, 69). The same rule was held in the case of Gould v. Cayuga County Bank, supra.

In all these cases, however, there was but one contract, and the right to retain the money received depended entirely upon the contract which it was sought to avoid, and, therefore, its retention was incompatible with its rescission. But this rule does not apply where, if the contract sought to be rescinded had never been made, the plaintiff would have, been entitled to receive more than the payments made under the said contract. In such a case, no offer to return is necessary, nor is it proper for the court to order restitution. This principle was distinctly held in the case of Allerton v. Allerton, 50 N. Y. 670. In that case, the complaint alleged that plaintiffs, defendant and one McPherson, were partners in conducting certain stockyards at Pitts-burg, Pennsylvania; that plaintiffs, induced by the fraudulent representation of defendant (who had the management of the business), that the business was not profitable, and that he, in conjunction with them, would sell out to McPherson, consented to unite with him in such sale upon being refunded the amount invested by them, and that thereafter the defendant represented that he had sold out, and paid to plaintiffs the money advanced by them ; that, in fact, defendant did not sell, but retained his interest and subsequently acquired McPherson’s interestthat the business had been profitable, and defendant had received large gains and profits. Plaintiffs asked that the sale be declared void, that defendant account for all moneys received by him, and that they have judgment for their portion of the profits under the copartnership agreement, less the amount they had received. The case was tried by the court, who found the fraud as alleged, and decided that the plaintiff was entitled to the share of the profits which they could have origi-' nally claimed, less the amount received by them on the sale; and that the defendants execute a retransfer" to plaintiff of the interest they had prior to the sale. Judgment was entered upon the decision, which was reversed by the general term, upon the ground that no fraud was- shown ; that McPherson, or his representatives should have been joined as defendants, and that the plaintiffs should have tendered back the sums received by them on the sale. The court of appeals reversed the judgment of the general term, and af-' firmed that of the special term, holding that the fraud alleged was established ; that no tender of the amount received was necessary before suit brought, as the judgment"sought for and given, allowed it to the defendant-, and this was, in fact, an actual return of the consideration paid ; that the question as to misjoinder or non-joinder of parties, not having been raised by the pleadings or upon the trial, could not be raised upon appeal. .The principle contended for was clearly applied in the above case.

"If the plaintiff is entitled to recover the money of the defendant, contract rescinded or not, no tender or offer to return is necessary. It is only where the plaintiff has no claim to the money received, except by force of the rescinded contract, and, therefore, its retention is incompatible with the rescission, that a return or offer to return is deemed to be necessary.

I am of the opinion therefore, that there are no obstacles which prevent the plaintiff from making all the restitution which the law requires, in case it has been shown that the plaintiff is entitled to relief, in this action.

It is now necessary to consider the grounds upon which the plaintiff claims relief.

The questions of law involved are of the greatest importance to the community at large ; to the innumerable trading corporations with which our country is filled, and to such of our citizens as hold the shares of stock of such corporations. The respective rights, duties and obligations of both directors and shareholders in these corporations must be determined, unaided by any authoritative adjudications in our own State upon the subject. [His honor here considered and disposed of the question of fact presented by the evidence, as to whether there was any actual fraud upon the part of the plaintiff, holding that no such charge was sustained ; and then continued.]

The next question to be considered is :

Had the Metropolitan directors the power to modify the original leases and tripartite agreement of May 20, 1879, without the consent of the shareholders %

In the disposition of this important question, I am but little aided by any of the authorities in the courts of this State or of the United States.

It is true that Mr. Justice Blatciiford, in the U. S. Circuit Court, in the case of Flagg, held that these October agreements were valid, upon the authority of Hoyt v. Thompson, 19 N. Y. 207, and. McCullough v. Moss, 5 Denio, 567; and that the general term of this department sustained the same in the case of Content, upon the ground that the October agreements were nothing more than a compromise -and adjustment of claims, which the Metropolitan and New York Companies held against the Manhattan, and that the boards of directors having charge of the management of the affairs of a corporation, can always exercise this power of adjustment in their administration of the affairs of their corporation. The weight to be given to the decision by Mr. Justice Blatciiforu has been much shaken by opinions given in our own courts ; and the ground upon which the decision of the Content case was based does not seem to be relied upon by the counsel for the defendants in the case at bar, although the case is presented as an authority in their favor. If the October agreements are to be held to be simply as a compromise and adjustment of an existing claim, then I am clearly of the opinion that the board of directors of the Metropolitan Company without the assent of its stockholders, had the power to make them, within the principle involved in the case of Hoyt v. Thompson, 19 N. Y. 207. But, in my opinion, these agreements are not susceptible of any such limitation. They are rather new agreements, radically modifying and changing previous agreements which, for the purposes of the discussion in the present view, it must be conceded the directors of the Metropolitan Company had no power to make without the consent of the shareholders, and as to, all the terms and provisions of which such shareholders had been consulted and to which they had given the.ir assent. It appears to necessarily follow that if the directors have no power to lease without the assent of the shareholders, such shareholders might determine the terms and conditions of the lease to be given. If their consent is necessary it must be because they are to be consulted as to the advisability and desirability of leasing their property, and that question depends almost always upon the terms and conditions of the lease proposed. Therefore, how can they intelligibly act unless they know what is to be done? They might give their assent to a lease upon certain terms and refuse it upon other conditions. The stockholders could, if they chose, give a power, to lease to their directors, leaving the latter to determine the terms and conditions ; but that was not done in respect to the agreements and leases of May 20, 1879. The stockholders approved of these instruments after they were executed and- after they had been read and considered. They consented to lease upon these terms and no other, and to say that if the board of directors had no original power to lease they could, whenever they thought the exigency of the situation required, radically change and alter the terms and conditions of a lease granted by authority of shareholders, would be to deprive the shareholders of intelligent action.

If these agreements had merely been a settlement of existing claims due, or about speedily to become due, they might be considered as mere compromise agreements ; but when they change in many substantial particulars the leases of May 20, 1879, and that, too, for a period of over 900 years, I cannot see how they can be called mere compromise agreements.

But it is urged that, conceding the fact that shareholders have a voice as to the transaction of extraordinary business, the extraordinary business of leasing the railroad for nine hundred and ninety-nine years had been approved by the shareholders.

“ This action settled the question of parting with the possession of the property for nine hundred and ninety-nine years. This having been done, what business, ordinary or extraordinary, was then left for the directors of the lessor road to do ? They had no railroad to run or manage. The usual ordinary business of the directors of a railroad as such had ended. Those in office and those afterward elected were empowered, and in fact employed in looking after the affairs and interests of the lessor under the lease and nothing else. Although called directors of a railroad company, they had no railroad to direct,. all the property of the railroad company having passed into other hands for a long period of time, with the assent of its shareholders. The ordinary business which remained for the directors to. attend to was the collection and distribution of the rents falling due under the lease. Would it be extraordinary business and in excess of their powers to accept and receive a less amount than that reserved in the lease, if unexpected difficulties and complications arose ? In other words, to waive part of a demand if it appeared clear that the interests of their principals called for it. Although leasing may be extraordinary business, the element of leasing did not enter into the October agreements ; and therefore were not the subsequent modifications as to rent, &c., a mere matter relating to money affairs and ordinary business, as that term is generally understood? It clearly appearing that the carrying out of the terms of the lease as to amount of rent to be paid had beqome an impossibility, what was to be done ? A modification was necessary, and the October agreements’ "were simply modifications.

“ If it be said that if the lessee could not perform,, it was the duty of the directors of the lessor to have insisted upon the taking possession of the property, and to do anything else was extraordinary and not within the power ; it must be remembered that all parties liad agreed that the running of the roads under one management was a necessity ; that they could not be run otherwise, except at the risk of inconvenience and delay to the public and danger to human life.

“To insist upon breaking up the lease because the lessor could not pay the full rent; to resume the old status which all concerned had agreed could not be maintained, except at the risk above mentioned, would have been directly opposed to the expressed views of the shareholders. Therefore, if the lessee was unable to pay all, it was the part of wisdom to agree to take less, when to maintain the former agreements was an impossibility and was fairly within the meaning of ordinary business.”

That there is great force in the above argument . must be conceded, but I think that its fallacy arises from overlooking the fact that, if the shareholders had the right to determine the terms and conditions upon which their property was to be parted with, such terms and conditions form the consideration for the assent, and the consideration cannot be taken away without destroying the assent. The assent depended upon and was supported by the terms and conditions, it sprang from such terms and conditions, and when they were removed the foundation of the whole structure upon which the assent rested was removed, and the assent necessarily fell. Although it might have been within the powers of the directors to have made temporary arrangements for relief from the difficulties, and such arrangements would be called ordinary business, yet they could not make radical changes in the terms and conditions of the lease, as to which the stockholders had never been consulted.

The result of the October agreements certainly was a permanent and radical change in the terms and conditions of the lease.

If the board of directors could not make a new lease upon different terms and conditions, then clearly they could not radically modify the old lease.

If they could not make a new lease directly, then they could not in effect make a new lease by striking out of the old lease substantial covenants, upon the part of the lessee, and inserting others ; what would be unlawful, if done directly, cannot be legal because done indirectly. It is undoubtedly true that directors may compromise a debt due to their corporation ; but the October agreements went much further than this. They changed the lease in many radical and substantial particulars, and took away rights which may have been the very things that induced the shareholders to assent to a leasing of their properties, and without the presence of which such assent would never have been given.

It is true that all conceded the necessity of united management, and this concession might have justified the directors in the making of temporary arrangements to continue such management, if the leases could not be complied with, until they had an opportunity to consult with their principals ; but such concession could not possibly have given the directors power to radically change the old lease for all time, which was in effect done by the October agreements, simply because the corporation, through its shareholders had consented to the leasing of its road upon certain other specified terms.

. Directors, as I shall hereafter attempt to establish, are the agents of the corporation, having as such, exclusive authority to act within their sphere.

But they are also in some respects merely the executive agents of the shareholders, and as such may perform certain other acts if specially authorized thereto by. their principals, and in respect to such action they are simply the agents of the shareholders as well as of the corporation. •

'■ - The shareholders, the principals, having fixed the terms and conditions, which they had a right to do, upon which the directors, their agents, were authorized to part with the possession of the property without change and to commit the possession and managements thereof into other hands, what right have the agents to radically change or alter those terms and conditions without consulting their principals ?

Suppose an agent parts with the principal’s property upon certain terms which have been determined upon by his principal, and the principal has the right to recover back his property if these terms are not complied with; can it be said that the agent, simply because he had a general authority to compromise debts due to his principal, could have the right to alter the terms upon which his principal had authorized him to part with his property, and which were the inducements, and the only ones, which led the principal to give such authority ?

In other words, in case of a failure to comply with the terms upon which the property had been parted with, who is to elect whether the property shall be taken, back or not ? Is it not the principal % And how can the agent claim any power to make this election simply because he has a general authority to compromise debts %

This would be exercising a widely different authority in the name of the principal from that which would be called into action by the mere taking of a smaller sum in settlement for a larger sum due.

The principal might much prefer to have his property back again rather than to take a smaller sum for it, and he would have the right to determine that question for himself.

So in the case at bar; the Metropolitan stockholders fixed the terms upon which they would consent to part with their property, and they stipulated that in case those terms were not complied with they should be entitled to recover back their property. Can there be any doubt but that in case of a failure to comply with the terms which they had fixed, it is a question for them to determine whether they would prefer to take the property again into their possession, and manage it for themselves, rather than to accept different terms from those which had originally induced them to part with their property %

But it is not necessary to pursue further the discussion of this question, because I do not understand that the defendants base their claim of the validity of these agreements upon any such ground ; but that they insist that the directors of the New York Company, and those of the Metropolitan Company, did make, and had the right to make, their leases of May 20, 1879, without any assent upon the part of the shareholders of their respective companies, and that the subsequent submission of the leases to the stockholders was merely to obtain their moral support.

That the directors of a corporation are agents, seems to be clearly recognized in all the cases in which the relations of directors and shareholders to their corporation have been discussed.

It is said in Twin Lick Oil Co. v. Marbury, 91 U. S. (1 Otto), 587, 589, that the directors are the officers or agents of the corporation, and represent the. interests of that abstract legal entity, and those who own the shares of its stock.

In Cumberland Coal Company v. Sherman (30 Barb. 553, 571), the court say :

“There can be no question at the present time that a director of a corporation is the agent or trustee of the stockholders.”

In Angell and Ames on Corporations, sec. 771, it is stated that,

“The stockholders compose the company, and the managers, directors, or officers are their agents, necesr sary for the management of the affairs of the company, bnt they are not essential to its existence as such, not forming one of the integral parts.

In Abbot v. Hard Rubber Co. (33 Barb. 578), at foot of page 591, the court say :

u Boards of directors are agents of the corporation to manage its affairs, and carry out the purpose and object of its formation.”

The directors thus being the agents of the corporation, what are their powers and from whence are they derived, and how must corporate powers residing in the corporation, the right to exercise which is not vested in the directors, be brought into operation. These questions are so intimately connected that they must be disposed of together.

The powers of directors are such as are conferred by the charter of their corporation, and the laws pertaining thereto, and such corporate powers as are not conferred by law upon the directors, remain in the corporation to be exercised, or at least set in motion by its component parts, the shareholders.

In the case at bar, the charter provided that the directors were to manage the business and affairs of the company ; and the question involved in this branch of the case is whether this language conferred the right to exercise every corporate power possessed by the corporation, or merely to manage the ordinary business and affairs of the company for the carrying on of which it was organized, leaving the right remaining in the shareholders composing the company to set in motion or confirm corporate action wfithin the limits of its powers, but extraordinary and unusual in its nature.

Within the sphere of their duties, the right of the directors to act is undoubtedly exclusive, and further, all corporate acts must be done through them, as they are the exclusive executive and administrative authority, but nevertheless all corporate powers do not reside in the board of directors.

It is true that the court say in McCullough v. Moss (5 Denio, 567, 575), that:

“ When a charter invests the board with the power to manage the concerns of the corporation, the power is exclusive in its character. The corporators have no right to interfere with it, and courts will not, even on the petition of the majority, compel the board to do an act contrary to its judgment.”

That case was" an action to recover upon a promissory note, which the corporation in the exercise of its legitimate business, could have made, and the question presented was whether execution was proved. The note was signed by the president and secretary of the company, but no authority from the board of directors, who by the charter were to conduct the affairs of the company, to the president and secretary, was shown. Some resolution of the shareholders was shown, but it had no relation to this question, and then the court uses the language above quoted. This case nowhere decides that the directors are clothed with all the corporate powers. It may be cited as an authority for the proposition, that the shareholders cannot compel the directors to act in any manner against their judgment in the exercise of a corporate power which remains in the corporation.

For example : If the power to lease was vested in the corporation, but the directors could not, because of the limitation in the charter, exercise this power, the shareholders could not cause the lease to be executed and delivered, nor could they compel the directors to execute and deliver the same against their own judgment ; all that the shareholders could do would be to authorize the directors to act, or confirm an act of the directors, which would be incomplete without such ratification.

The case of Hoyt v. Thompson (19 N. Y. 207), is also claimed to be an authority against the suggestion made above; but upon an examination it will be seen that much is said in respect to the relation of directors to their corporation, and their rights and powers, and the source from which they are derived, which was not at all necessary to the decision of the question involved, and is directly contrary to the principles announced in the United States supreme court, in a case where the direct question was presented.

The adjudication in the case of Hoyt v. Thompson had necessarily to be put upon the ground that the act under -investigation was u ordinary business,” and in that case a distinction was plainly recognized between “ ordinary business” and such as was within the corporate powers, but unusual and not coming within the general business of the corporation. The court held that, although the charter of the corporation declared that its powers should be exercised by a board of directors, consisting of a specified number, yet the board might delegate its authority to agents or to a quorum of less than a majority of the number.

The court further held, that when a by-law of the corporation declared that five directors should be a quorum for the transaction of “ ordinary business,” the general business of the corporation was embraced in the authority thus delegated, including, as incident thereto, the power of pledging or assigning assets of the corporation for the purpose of securing a debt, it appearing that such pledge was made for the purpose of enabling the corporation to continue its. business ; and this is all that this case decides which is pertitient to the questions involved in the case at bar.

It is true that the learned judge who wrote the-opinion in the case of Hoyt v. Thompson uses the following language:

“The board of .directors of a corporation do not stand in the same relation to the corporate body, which a private agent holds to his principal. In the strict relation of principal and agent, all the authority of the latter is derived by delegation from the former, and if the power is not conferred in the appointment it cannot exist at all. But in corporate bodies the powers of the boards of directors are, in a very important sense, original and undelegated. The stockholders do not confer nor can they revoke those powers. They are derivative only in the sense of being received from the State in the act of incorporation. The directors convened as a board are the primary possessors of-all the powers which the charter confers.”

The whole of this argument was devoted to establishing the power of the board of directors to delegate the authority to manage the ordinary business of. the corporation to five of their number and had no other purpose.

That the directors convened as a board are not the ■primary possessors of all the powers which the charter confers, is expressly held by the United States supreme court in the case of the Railway Company v. Allerton, 85 U. S. (18 Wall.) 233. In that case the charter provided-as follows :

“ -Section 3. The capital stock of said corporation shall be one hundred thousand dollars, and may be increased from time to time at the pleasure of said corporation.

‘6 Section 4. All the corporate powers of said corporation shall be vested in and exercised by a board of directors, and such officers and agents as said board shall appoint.”

An increase of the capital stock of the corporation by the directors without the assent of the stockholders, was held to be void, .as beyond the power of the board of directors, although the charter provided that all the corporate powers of the corporation should be vested in and exercised by a board of directors, etc., and that the powers thus granted to the directors refer only to the ordinary business transactions of the corporation. The necessary conclusion to be drawn from the reasoning employed in that case is, that the board of directors are the managers of the business which the corporation is chartered to carry on, and they have the control and management of that business ; but that they have no power to affect organic and fundamental changes in the corporation or its business without the consent of the corporation. The Metropolitan Company was chartered for the purpose of making, constructing, maintaining and operating a railway upon certain streets, avenues, thoroughfares and places in the city of New York. This was its business, and this was all the business upon the execution of which it entered. Could it be imagined that a change more fundamental could possibly be made, than that a corporation chartered for the above purpose should lease its road and properties to another corporation, and deliver possession of the same for all time, and thus change its business from that of making, constructing, maintaining and operating a railroad, to that of receiving rent for the use of such road %

In considering this question, it is not at all improper to look for a moment at the result arising from a rule, that the directors are the primary possessors of all-the powers which the charter confers. If the board of directors have the power without the assent of the shareholders to lease the properties of the corporation for all time, then the shareholders may be deprived of not only the administration of their property through its agents, the directors, but its very possession, without a moment’s warning. A board of directors are elected for one year to manage the business and affairs of the corporation, such business being the operation and maintaining a railroad. At the time of their election the shareholders have no intimation that anything else is to be done by the directors, and the expectation is that such directors at the end of their year in office will turn over the property committed to them to their successors in office, with an. account of their stewardship. Can it be possible that this board, elected for only one year, without any notice or warning, has the power to terminate the business of the corporation, and transfer all the properties to another corporation ? It seems to me clearly not. This is not the management of the business of the corporation. It is terminating the business, to carry on which it was incorporated. It is justas fundamental and radical a change as an increase of its papital stock, or the entering upon a new business by a corporation authorized by its charter can possibly be. Although I have not intended to quote as an authority any decision, except those of our own State, or of the United States supreme court, I must refer to the language used by the learned court, in the case of Cass v. Manchester (13 Reporter, 167), in which it was held that directors had no power to make a lease, even for five years, without the consent of the shareholders. The court say:

“But if this conclusion is the result of too strict a construction of the charter, we are of the opinion that the power in question is not exercisable independently of the judgment of the stockholders. The directors and officers of a corporation are its exclusive executive agents, and, as it can only act by and through them, the powers vested in the corporation are deemed to be-conferred upon its representatives, but they are, never theless, trustees for the stockholders. The law recognizes the stockholders as the ultimately controlling power in the corporation, because they may at each authorized election entirely change the organization, and may at any time keep the trustees within the line of faithful administration by an appeal to a court of equity. Hence, it has been held that the directors of a corporation cannot alone increase its capital stock, where such increase was. authorized by its charter ‘ at the pleasure of said corporation,’ and where it was provided that ‘ all powers of such corporation shall be vested in and exercised by a board of directors,’ etc. ; and this for the reason that the general power to perform all corporate acts refers to the ordinary business transactions of the corporation, and not to a change so fundamental and organic (18 Wall. 234).

“The change proposed is not organic, but it is thorough and fundamental, as it affects the administration of the company’s affairs. It involves a withdrawal from the control and management of the stockholders of the entire property of the corporation for at least five years ; it will preclude, for a like period, the exercise by the stockholders of their judgment as to the particular character and method of conducting the business affairs of the corporation ; and it denied to the stockholders any right of suggestion or disapproval of the conditions, when such a relinquishment of important corporate faculties may be conceded. Surely a power which will be attended with such consequences does not relate c to the ordinary business transactions,’ nor ‘ to the orderly and proper administration of the affairs ’ of the company ; and hence cannot be exercised by the directors without express authority to them.’’

In opposition to this view is cited by the learned counsel for the defendants, the matter of Excelsior Fire Ins. Co., 19 Abb. Pr. 8, 14, in which it was said:

“ The statute says the company is authorized to-reduce the number of its directors, etc. It makes no provision for a meeting of the stockholders!or that purpose. In the absence of any provision of that character, the power is vested in the board of directors; stockholders, as such, possess no powers in the management of the corporation, except when specially authorized so to do by their charter. Their power ends with the selection of directors.”

Also in Elwell v. Dodge, 33 Barb. 336-339, the court says:

“A general resolution of the directors delegating power to transfer property or choses in action to meet the exigencies of the company, or a ratification of' this particular transfer by act or resolution of the board, or acceptance and appropriation of the fruits of the transaction if a special resolution authorizing the transfer and use of this vote was wanting, would be sufficient to sustain the endorsement as the act of the company, even against the company, and might have been proved had the precise point now made been then taken.”

The language of Judge Selden, in the case of Robertson v. Bullions, 11 N. Y. 243, 250, is also referred to. He says:

What, then, are the powers, rights and obligations of this class of corporate officers, and to what extent has this court jurisdiction over them ?

• -s * * * These officers are trustees in the same sense with the president and directors of a bank or of a railroad company. They are the officers of the corporation to whom is delegated the power of managing its concerns, for the common benefit of themselves and all other corporators, and over whom the body corporate retains control, through its powers to supersede them at every recurring election.”

In the Matter of St. Ann’s Church, 23 How. Pr. 285, Judge Emott says :

“The officers thus chosen are not trustees in the sense in which an individual becomes, or is made a private trustee. They are simply officers of the corporation. As such officers they represent the corporation ; they are its managing agents, and they may act for the corporation as fully as the directors or agents of an ordinary corporation may act in its behalf. A corporation ordinarily acts through its officers, and through them only. The power of managing its concerns is delegated to its officers, and they are to manage them for the common benefit of themselves, and all the other corporators. These officers are liable, it may be, to judicial proceedings to control their action where it is fraudulent or destructive of the rights and interests of the corporation. They are responsible, however, more directly and practically to the corporate body itself, through the power of the corporators to supersede them at their elections.”

In the case of Dana v. Bank of United States 5 W. & S. [Pa.) 223-246, the following passage occurs :

“This I take (that is to say, the election) is the utmost that the stockholders can do according to the tenor and design of the act under which they must all act until an election of the directors shall come around, when the former, if dissatisfied with the conduct of the latter in managing the affairs of the bank; may turn any one, or more, or the whole of them out of the direction, and place it in other hands.”

The claim made by virtue of these decisions is, that the stockholders have no power to do anything in relation to any matter whatever, pertaining to their corporation, except that if dissatisfied with the conduct of their directors in managing the affairs of the corporation, they may turn them out at the next election ; and this is certainly the language of all the above decisions. But how inapplicable is such remedy to an act of the directors which has terminated the business of the corporation and placed all its property in other hands for a thousand years. Will that give back the property to the corporation ; will that set right any mal-administration if the directors had the power to thus act? Clearly not, and the language was intended to apply to cases where the action taken was neither radical nor fundamental in its character. . For mismanagment-of the ordinary business of the company, the turning out of the directors is a reasonably adequate redress ; but when the directors have divested the company of all its property, it is difficult to see hów any remedy is afforded by turning them out. Further, the courts of this State, as has already been seen, expressly recognize the fact, notwithstanding the decision above mentioned, that the shareholders have certain other rights and privileges besides that of electing directors, viz. : the right to be consulted in respect to change of business, increase of capital stock, dissolving and winding up the affairs of the corporation, sale of any portion of its property necessary for the transaction of its business, etc.

It need hardly, therefore, be necessary, in view of the principles which have controlled the decisions already quoted, to discuss further the question that there are powers reserved to the corporation which cannot be exercised by the directors, 'without the assent of the shareholders, and that the shareholders under some circumstances at least, may' éx'eicisé other functions than simply those oí electing their board of directors. Nor is it necessary now .to dwell upon the-scopé of the act of 1839, or to attempt to show that by this act the Metropolitan Railway Company had the power to lease its road and properties. That. such power existed is now conceded by the counsel for the plaintiff, in view of the decision of the court of. appeals in thé cáse of Woodruff v. Erie R. R. Co. (93 N. Y. 609).

It is claimed by the counsel for the defendants that as far as this State is concerned, at least, the .power of a board of directors to lease without the ..assent, of shareholders, has been expressly recognized, by the legislature of this State, and various acts of . the legislature are cited, in which leases of railroads- and consolidation of railroads are authorized to be made, as the directors shall determine. It seems to me that instead of these acts being an evidence of a legislative construction, that under the act of 1839, directors had the power to lease without the assent of the shareholders, it was only because such acts could not be performed, by the directors alone that it was thought necessary to confer express powers upon the directors. If the power was conferred upon the corporation, the directors alone could not exercise it, and, therefore, the legislature conferred the power expressly upon the directors.

Attention has also been called to various cases where the assent of stockholders is provided for as a condition of corporate action.

It will be seen that in every case it is a limitation upon corporate action, by requiring more than a majority of stockholders to assent, or the conferring of a new power upon corporations and affixing the conditions upon which such power is to be exercised.

I fail to see that legislation of this character in any way aids us in the determination of this question. If, however, a solution of the problem is to be reached by the light of legislative interpretation, chapter 349 of the Laws of 1880, seems to clearly indicate the necessity of stockholders’ assent, given at a stockholders’ meeting to the leasing of the property of a railroad corporation, otherwise, what necessity for legislative intervention in the terms of the act referred to ?

The cases of Fisher v. New York Central R. R. Co. 46 N. Y. 644, and the Central Cross Town Company v. Twenty-third Street R. R. Co., 54 How. Pr. 168, 183, are cited as deciding that a lease may be made without the assent of the shareholders. I have failed to find any such adjudication in either of those cases. All that can be claimed for those cases is that they decide that a lease of its road, made by a railroad corporation, is not ultra vires, and they decide nothing more upon the question of power.

No question is raised or discussed as to the manner of the exercise of its power by the corporation. There was no person before the court seeking to impeach the lease, who could be heard upon the question of stockholders assent. The only question was whether the lease was not actually void not voidable.

There is no question, but that admitting that a board of directors alone have no power to lease the property of their corporation, yet if such lease is executed by the directors without the assent of the stockholders, such stockholders may accept the lease or repudiate it; and that if they allow the parties. to the lease to go on under the lease without any action being taken in respect thereto within a reasonable time they will be held to have acquiesced in the lease and ratified it. Therefore, conceding that the corporation has the power to lease, when the action is taken and the stockholders have acquiesced, no third party can raise the objection that the stockholders have not formally assented.

In the cases cited, the leases had long been in operation, and the time for dissent had long passed, and therefore, the only question that could be raised, was the power of the corporation to act at all. After an examination of the reasoning in all the adjudicated cases (which has been by no means cursory), after a consideration of the principles governing the relations of shareholders of a corporation and its directors, conceding that a corporation can do no act unless specially authorized thereto, except through its board of directors, J am irresistibly brought to the conclusion that acts making organic or fundamental changes in the character of the business of the corporation, cannot be done either by the directors alone, or by the shareholders alone ; but that both the executive and administrative officers of the corporation must unite with the shareholders of the corporation who confer the right to act upon the individuals entrusted with the office of directors. That directors are merely temporary officers of the corporation by virtue of their office, entitled to manage the business and affairs of the corporation during their term of office without interference from the stockholders, but they cannot say that a new board of directors, although duly elected by the stockholders, shall never thereafter interfere with the management of the properties of the corporation, because they have placed their possession and management into other hands forever.

This brings me to the consideration of the remaining question:

Were the agreements voidable at the option of the Metropolitan company, because three of its directors were also directors of theManhattan company; or because'Metropcflifan directors- held.' also stock in the Metropolitan company .?

-' In' considering-this question, it must be conceded at the outset, that the interests of the Manhattan company were directly antagonistic to those of the Metropolitan Company.

■ In the negotiations which resulted in the October, agreements, it was for the- interest of the Manhattan Company, to get as large a reduction of rental as possible; and it was the interest of the Metropolitan Company, to secure as advantageous terms as the Manhattan Company could comply with and a similar interest pertained to the New-York Company ; but it was to the interest of neither to secure such terms as would bring about again the disasters under which the whole elevated system was then suffering.

Three propositions are urged in answer to the claim of the plaintiff, that the conflicting interests rendered the October agreements voidable. The first is, that although conflicting interest may disqualify an agent, strictly so called, from acting, that this rule does not apply to trading corporations, so many of them have common directors. Secondly, if such conflicting interests induce any incapacity, it' is not fatal to the agreement if such agreement can be proven just and fair ; and thirdly, that if any of the directors were disqualified because of an adverse interest, enough voted for the adoption of the agreement who were not disqualified, to have carried the measure, even if all the disqualified directors had voted no.

It will not be denied, I imagine, that as between natural persons, where an agent or trustee has a personal interest opposed to that of the principal, or where a man acts as agent of both parties to the contract, although he may have no personal interest on either, side, that the principal or cestui que trust may avoid the contract at.will, even.if there he no actual fraud or damage. ■ . ' ’,.... . ;•

. The cases in this' state and in England seem' to. be very explicit tipon'this point, and .lt might, perhaps, be necessary only, to refer to-the language of the chancellor, used in the case of Davoue v. Fanning, 2. Johns. Ch. 252, p. 260, which sets forth.in the clearest langúáge the principle upon which that rule is founded. He says: " ...■

“However innocent the purchaser may be in the given case, it is poisonous in its consequences, . The cestui que trust is not bound to prove, nor is the court bound to judge, that the trustee has made a bargain advantageous to himself. The fact may be so, and yet the party not have it in his power distinctly and clearly to show it. There may be fraud, as. Lord Hardwicks observed, and the party not able to prove it. It is to guard against this uncertainty arid hazard of abuse, and to remove the trustee from' temptation, that the. rule does and will permit the cestui que trust to come at his option,-and- without showing, actual injury, and insist upon having, the experiment of another sale. This is a remedy which' goes deep and touches the very root of the evil,”

In Taussig v. Hart, 58 N. Y. 425-428, the court say:

“ It is no answer that the intention was honest and that the brokers did better for their principal by', selling him their own stock than.they could have done by going into the open market. The rule is inflexible, and although its violation, in this particular case, caused no damage to the principal, he cannot be compelled to adopt the purchase.”

In N. Y. Central Ins. Co. v. Nat. Protection Ins. Co. , 14 N. Y. pp. 85, 91, it was said:

’“It is not necessary for a party seeking to avoid a contract on this ground to show that an improper advantage had been gained over him. It is at his option to repudiate or to affirm the contract, irrespective of any proof of actual fraud.”

In Conkey v. Bond, 36 N. Y. pp. 427, 429, it was said:

“It is not material to inquire whether the defendant had any actual fraudulent purpose. The making of a purchase from himself without authority from the plaintiff, was a constructive fraud, in view of the fiduciary relations which existed between the parties. In such a case, the law delivers the agent from temptation by apreswnptio juris, et de jure, which good intentions are unavailing to repel.”

In the case of Greenlaw v. King, 3 Beav. 49, p. 61, Lord Eldon says:

“If a trustee can buy in an honest case, he may in a case having that appearance, but which, from the infirmity of human testimony, may be grossly otherwise. The impossibility of detecting the conduct of parties placed in such situations, is the reason which imposes upon the court a necessity, which I believe has always been acted on, of saying that such transactions shall not stand at all. You have not the means of finding out all the modes in which advantage can be taken; and, therefore, it is safer, and the interests of society require, that you should forbid such transactions altogether.”

Also in Exp. James, 8 Vesey, 337, p. 344 :

“ This doctrine as to purchases by trustees, assignees and persons having a confidential character, stands much more upon general principle than upon the circumstances of any individual case. It rests upon this, that the purchase is not permitted in any case, however honest the circumstances; the general interests of justice requiring it to be destroyed in every instance, as no court is equal to the examination and ascertainment of the truth in much the greater number of cases.”

In Gillett v. Peppercorne, 3 Beav. 78, 84, it is said:

“It is not necessary to show that fraud was intended, or that loss afterwards took place in consequence of these transactions, because the defendant, though he might have entertained no intention whatever of fraud, was placed in such a situation of trust with regard to the plaintiff, that the transaction cannot in the contemplation of this court, be considered valid.” We might multiply authorities upon this point, but these are sufficient to show how stringently the rule has always been applied, and that under no circumstances should it be departed from.

It was intimated, that although this rule was so stringent as to purchases and sales, yet that it was not applied with the same rigor to other contracts. I have failed to find any foundation for this distinction, either upon principle or authority. It maybe true that most of the adjudicated cases have arisen in reference to purchases and sales, but no distinction has been made by any court between contracts of this nature and any others which were tainted with the same infirmity. There is no reason for any such limitation, and I do not find that it has ever been attempted to be enforced.

In the case of Aberdeen Railway Company v. Blaikie Brothers {H. L. Cases, 1 Macqueen, 461), the same point was.r's.ugges ted,: arid the court .say upon this point:. . '. '

■ .‘‘It is true that, the-questions, have generally arisen on agreements for--purchase', or lease of land, and not as here, on- a. contract-of .a mercantile character.- But that can; make.no-difference in principle.-; The inability to contract depends not on the subject matter' of the agreement, but- on the fiduciary-character of the contracting party, nnd.I cannot entertain a.doubt of its being applicable to' the case of a party, who is acting .as manager of a mercantile or trading business for the.benefit of others, no less than to that of an agent or'trustee employed in selling or letting land.”

■ :-But-it is urged, that ..this incapacity does .not apply to the directors .-of -a corporation. That a.director of a corporation may contract with his corporation, - and •such contract will be' held valid. if such contract is shown, to be just and fair, because a director.-of a -corporation .is-- not the agent or trustee in the ordinary sense.' '.He is--not.a- trustee of the shareholders, but a trustee of ■ the corporation ; and in support of this proposition attention is called to the language used in the case, of . Duncomb v. New-York, Housatonic & Northern R. R. Co., 84 N. Y. 190, 198. .The. court say:

.‘‘Whether a-director of a corporation is- to be called; a-trustee--or-not;:in the strict sense,- .there can -be rio doubt tha'this character is fiduciary. The doctrine is, in; equity,.that confidence .shall not be abused by -the.party in whom-itis reposed.

WBub /the- rule-wás adopted. to. secure justice, and riot-: to .work -injustice.;, and to prevent wrong, not to substitute .one; wrong. for- another ; and hence have arisen-limitations upon its operation, intended to guard it against'.ev-ir-results 'as inequitáble as those it was designed .to-prevent.”-■ ■ -•

This language must be interpreted having in view the facts of the case under consideration, and what wrong it was proposed to commit under the alleged forms of law. The court was speaking in reference to a claim made by the defendants of its right to keep the money loaned- by the director to the corporation, and to avoid the security given for its repayment. The court adds: “Thus, the beneficiary may avoid the act of the. trustee, but cannot do so without restoring what he has received,” and applied the rule that before it could repudiate its contract of security it must return that which it had received.

Reference is further made to the language used in Angelí & Ames on Corporations, § 233, which is as follows:

“ By the common law, and by the Civil Code, too, as a corporation aggregate may contract witli persons who are not members, so it may contract with persons who are members of it; and the contract is not on this account invalid ; a member of a corporation contracting with it being regarded, as to that contract, a stranger. Hence, a vote of the corporation affecting a contract between it and a member cannot bind the member without his assent to it. And, though the . member of the corporation be also one of the trustees of the corporation, it would seem that this would not incapacitate him from contracting with it; but he may recover against the corporation for his services rendered under a contract with the other trustees, in a case where there is no evidence of such gross partiality in the contract as amounts to fraud. And where the members of three distinct corporations were the same, yet, in the Proprietors of the Canal Bridge ». Gordon, it was held by the supreme court of Massachusetts that contracts between the several corporations were valid, and might even be implied from corporate acts. The banking associations of Hew York, under the general Bank Law of 1838, are to be regarded for this purpose as bodies corporate ; and hence, in a suit at law by such an association against one of its members for debt, the fact of membership presents no objection to recovery.”

t And also the case of Jackson v. New York Central R. R. Co., 2 Sup'm. Ct. (T. & C.) 653, and affirmed in the court of appeals upon the opinion of the court below, 58 N. Y. 623, in which a director' was allowed, to recover from the corporation for the value of certain professional services outside of atnd beyond those pertaining to his office, rendered to the corporation of which he was a director. This latter case may be sustained upon the ground, that as the corporation had received the services of this director, had availed themselves of them, and could not restore, it was bound to pay their value. No such ground is mentioned in the opinion of the learned court which decided this case, but there is no statement of the principle upon which the right to a recovery rests, and the judgment of the court was founded, probably, entirely upon the concession of counsel. It is true that the court say that the authorities are quite clear upon the subject; but in those cited, no such question was involved, except in the case of Chandler v. Monmonth Bank, 1 Green {N. J.) 255, which asserts the law, but does not define in any way upon what principle it is founded. The view that a contract between a director and his corporation is voidable absolutely, is distinctly held in the case of Cumberland Coal Co. v. Sherman, 30 Barb. 553-563, where the court says : “ The cases relating to the dealings of an agent or trustee with the property in reference to which his agency or trust exists, may be arranged into two classes : First. Cases in which a trustee buys or contracts with himself, or several trustees qf which he is one, or a board of trustees of which he is one ; and it will be seen, by reference to the authorities hereinafter cited, that the incapacity to purchase applies to all these cases. Second. Cases in which a trustee buys of or contracts with his cestui que trust, who is sui juris and is competent to deal independently of the trustee in respect to the trust estate.

“As to the first class of cases, the purchase or contract is voidable at the option of the cestui que trust, without reference to the fairness or unfairness of the purchase or contract. For the reasons before given, the disqualification of the party purchasing or contracting is a conclusion of law, and is absolute.”

Some confusion seems to have arisen in the enunciation of the principle under discussion because of a failure to distinguish between the two classes of cases. The disability as to dealings between trustee and cestui que trust being absolute, while that in respect to dealings between attorney and client is less strict. Story, in his Equity Jurisprudence, section 811, says : “In this respect there is said to be a distinction between the case of an attorney and client, and that of a trustee and cestui que trust. In the former, if the attorney retaining his connection contracts with his client, he is subject to the onus of proving that no advantage has been taken of the situation of the latter. But, in the case of a trustee, it is not sufficient to show that no advantage has been taken, but the cestui que trust may set aside the transactions at his own option.”

The ground upon which the decision of the case of Jackson v. New York Central It. R„ Co., supra, may well have proceeded is well stated in the opinion in the case of Gardner v. Butler, 80 N. J. Eq. 702-721, where it is said:

“The rule is, that the trustee cannot fortify himself by a contract which he makes with himself, or for his own interest, and set it up, either at law or in equity, as a valid obligation. It is of no binding force as a contract, and the cestui que trust may repudiate it at will. The agreements, therefore, which the directors made with themselves, must be pronounced to be illegal, and can furnish no support to their defense, as contracts. But while the express undertaking is without legal force, the directors of a company have a right to serve it in the capacity of officers, agents or employees, and for such services the law will enable them to recover a just and reasonable compensation. The law restrains them from making a contract where their own gain intervenes between their exercise of judgment and their duty as trustees; but it does not operate to deprive the company of the services of those who, in many cases, may alone possess the skill requisite to the successful management and conduct of the corporate business, and who may have thechiefest interest in its prosperity. Stockholders, because they are directors, are not compelled to commit the success of their company to strangers, or else render their own services gratuitously. No claim which they may make against their company can acquire any support or validity from the fact that they have expressly sanctioned it; it must, rest exclusively upon its fairness and justice, and be enforced upon the qioantum meruit. That such is the full scope and effect of the rule, and the extent to which the transaction is annulled, will be found by an examination of the cases.” *- * * *

V-The same principle must apply, whether it is property conveyed or services rendered, to the company. The cupidity and avarice of the trustee is guarded against by giving the cestui que trust the right to repudiate the contract at all times, where it is executory, and to allow simply a just remuneration, without reference to the contract price where it is executed. The trustee thus derives no advantage from his breach of duty, and the company can suffer no detriment from his service in their behalf.”

In the case of Thomas v. Brownsville, Fort Kearney & Pacific R. R. Co., decided in the supreme court of the United States in October last, the right to recover upon a quantum meruit for services rendered and materials furnished under a voidable contract, is distinctly enunciated. The court say :

“ But we are asked to reverse the decree so far as to permit the trustees in this case to recover such a sum as the Construction Company actually earned in building the road. The matter was referred to a master, who, on this hypothesis, reported that the contractors had done work for the Railroad Company, which it had accepted, to the value of $205,947.66, beyond what they had received payment for, except as it was paid by these bonds. He also reported that this work was of that much advantage to the company, and its value or cost is estimated on a quantum meruit, without regard to the prices fixed by the contract.

“We are of the opinion that the appellants’ view of this part of the transaction is sound.

“The bonds and mortgages in the hands of the trustee were issued in payment for this work. To the extent of $205,947.66, the consideration is good, and no sound principle is seen on which they cannot, to that extent, be enforced. To this extent they do not rest on the original contract, but on work, labor and materials actually furnished to the company, and received by it. These services and materials are not estimated by the prices named in the contract, but by their real value to the company.”

In the case of Wardell v. Union Pacific R. R. Co,5 103 U. S. (13 Otto), 651-659, the incapacity of a director to contract with the company is recognized, and also his right to recover for services and materials upon a-quantum meruit.

The language used in the above section quoted from Angelí & Ames on Corporations, is certainly broad enough to cover the proposition in question; but I have examined with care the authorities cited to sustain the broad language of the text, and none go so far as to hold that a corporation may contract with one of its directors, or that two corporations, having common directors, may contract with each other.

In the case of the Proprietors of the Canal Bridge v. Gordon, 1 Pick. 297, which is the authority cited, the question decided was that the contract might be implied from corporate acts and nothing more. But in any event the contrary rule seems to be clearly established by the decisions of this State founded upon the rule as laid down in the English courts, and the United States supreme court.

In the case of Hoyle v. Plattsburgh & Montreal R. R. Co. (54 N. Y. 314, 328), it was held, that the office of director of a railroad company is fiduciary in its character, and, as a consequence, he is incapacitated from dealing in his own behalf in respect to the corporate property or in respect to any matter involving his powers and duties as such director ; that this incapacity is not limited to the particular times when he is acting as such director, but continues during the period of his directorship, and that, therefore, a director (considering that relationship only) cannot become purchaser of the property of the corporation upon a sale under an execution against it, except subject to the right to disaffirm and demand a resale. Actual fraud or actual advantage in such case need not be shown.

The foregoing rule is approved in the case of Dun-comb v. New York, Housatonic & Northern R. R. Co., 84 N. Y. 190-198, above referred to. The court uses the following language:

“It is not intended to deny, or question, the rule that whether a director of a corporation is to be called a trustee or not, in a strict sense, there can be no doubt that his character is fiduciary, being entrusted by others with powers which are to be exercised for the common and general interests of the corporation, and not for Ms own private interests, and that he falls, therefore, within the doctrine by which equity requires that confidence shall not be abused by the party in whom it is reposed, and which it enforces by imposing a disability, either partial or complete, upon the party entrusted to deal, on his own behalf (Hoyle v. Plattsburg & Montreal R. R. Co., 54 N. Y. 328 ; Gardner v. Odgen, 22 Id. 327 ; Twin Lick Oil Co. v. Marbury, 1 Otto, 587; Smith v. Lansing, 22 N. Y. 531 ; Aberdeen Railway Co. v. Blaikie, 1 Macq. 461).

“Nor is it at all questioned that, in such cases, the right of the benificiary, or those claiming through Mm, to avoidance, does not depend upon the question whether the trustee in fact has acted fraudulently, or in good faith and honestly, but is founded upon the known weakness of human nature, and the peril of permitting any sort of collision between the personal interests of the individual and his duties in his fiduciary character,”

In the case of Barnes v. Brown, 80 N. Y. 527, 535, the question as to the inability of a director to contract with Ms corporation was distinctly presented, and it was claimed in that case that the disability went so far that an assignment of an interest in a contract made to an independent party was absolutely void, and that such director could not transfer any title by a subsequent assignment. The court say, referring to this point: “ We must assume, therefore, here, that it was, when made, a legal contract, such as the corporators could make. It is claimed, however, that the assignment of the interest in that contract to the plaintiff, while he was a director, was void, as being contrary to public policy. It is true that the plaintiff, while acting as a director of the corporation, held-a fiduciary-relation to it. He was a trustee of the corporation, and was under the same disability which attaches to all trustees in dealing with trust property, and in transacting the business pertaining to the trust. He could not act as trustee and for himself at the same time, and he would not be permitted to make a profit to himself in his dealings with the corporation. It is against public policy to allow persons occupying fiduciary relations to be placed in such positions as that there will be constant danger of a betrayal of trust by the vigorous operation of selfish motives. The rules upon this subject are illustrated in many cases, but few of which are here cited (Risley v. Indianapolis, B. & W. R. R. Co., 62 N. Y. 240 ; Butts v. Wood, 37 Id. 317; Stewart v. Lehigh Valley R. R. Co., 9 Vroom, 506 ; Gardner v. Butler, 30 N. J. Eq. 703; Foster v. Oxford W. & W. Ry. Co., 14 Eng. L. and Eq. 306 ; Aberdeen Ry. Co. v. Blaikie, 1 Macqueen H. L. 461).

“The assignment of a portion of the Byrne contract to the plaintiff did not render that contract void. There was nothing done under the contract. If the plaintiff had attempted to do anything under it, so that his interest under it might come in conflict with his duty as trustee, then the principle of the above cases could have been invoked against him. The corporation could have permitted him and Byrne to perform the contract, and then could make him account to it for all the profits he made by such performance. If he had attempted to perform the contract while he was director, the shareholders could probably have intervened, by some suit in equity adapted to the nature of the case, to nullify the contract as to him, or to restrain him from the performance thereof, or to compel him to elect to resign his office of director or to give up the contract. In any view of the case the assignment to him was not absolutely void ; it was at most voidable at the election of the corporation or its stockholders. Besides, the assignment to him did not destroy the Byrne contract, and before he attempted with Byrne to perform it, and before any objection was made by the corporation or any of its stockholders to his connection with it, he assigned, as he was perfectly competent to do, all his interest therein to Brown and Seligman, who were perfectly competent to take.”

In Aberdeen Railway Company v. Blaikie, H. L. Cases (1 Macq.) 461, which is the leading case in England upon this point, the question was as to the validity of a contract made by the plaintiff with the defendants, a firm, one of whose members was a director in the railway company, and the court say :

11 The directors are a body to whom is delegated the duty of managing the general affairs of the company. A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal, and it is a rule of universal application, that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.

So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into. It obviously is, or may be, impossible to demonstrate how far, in any particular case, the terms of such a contract have been the best, for the interest of the cestui que trust, which it was possible to obtain.

“It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interest of those for whom he is a trustee, have been as good as could have been obtained from any other person ; they may even at the time have been better.

“But still so inflexible is the rule that no inquiry on that subject is permitted. The English authorities on ■> this subject are numerous and uniform.” -~

The decision in this case seems to me to have been based upon principle and not upon the 85th, 86th and 87th sections of the act of 8 & 9 Vic. ch. 16, which provide that:

“Ho person interested in any contract with the company shall be capable of being a director, and no director shall be capable of being interested in any contract with the company during the time he shall be director and that “ if any director at any time subsequent to his election be directly or indirectly concerned in any contract with the company, then the office of such director shall become vacant, and he shall cease from voting or acting as directorand that “no person being a shareholder or member of any incorporated joint stock company shall be disqualified or prevented from acting as a director by reason of any contract entered into between such joint stock company and the company incorporated by the special act: but no such director, being a shareholder or member of any such joint company, shall vote on any question as to any contract with such joint stock company.”

In the case of Foster v. Oxford, &c. Railway Co., 13 Com. Bench, 200, this act was construed as imposing at law the penalties prescribed in the act, viz.: the loss of his office by any director becoming or being interes ted in any contract with the corporation during his term of office. The contracts being valid at law, no greater penalty could be imposed by a law court than was provided by the act.

In the case of Aberdeen Railway Co. v. Blaikie, supra, this case is referred to, and the decision is sustained upon the ground that at law the contract was valid, while in equity it was voidable. The Lord Chancellor says:

“ The statute, i. e., the Company’s Clauses Act, it was argued, has impliedly, if not expressly, recognized the validity of the contract, by enacting that its effect shall be to remove the director from his office, indicating thereby that a binding obligation would have been created which would render the longer tenure of the office of director inexpedient, and reference wa,s made to the case of Foster v. Oxford, Western & Wolverhampton Railway Co. This was an action for breach of a contract under seal, whereby the defendants covenanted writh the plaintiffs to purchase from them a quantity of iron. The defendants pleaded that at the time of the contract one of the plaintiffs was a director of their company, and to this plea there was a general demurrer. That such a contract would in this country be good at common law, is certain. The rule which we have been discussing is a mere equitable rule, and therefore all that the court of common pleas had to consider was how far the contract was effected by the statute. The decision was that the statute left the contract untouched, and that its operation was only to remove the. director from his office. The 85th and 86th sections of the English statute, 8 and 9 Vie., eh. 16, on which the court proceeded, are in the same words as the 38th and 39th sections of the Scotch statute, and the counsel relied on this decision as being strictly applicable to the acts now under appeal; but there is a clear distinction between them. In Scotland there is no technical division of law and equity the whole question, equitable as well as legal, was before the court of sessions All that the court of common pleas decided was, that a contract, clearly good at law, was not made void by an enactment that its effect should be to deprive one of the contracting parties of an office. This decision will not help the respondents unless they can go further and show that the statute has had the effect of making valid a contract which is bad on general principles, that is to say, principles enforceable here only in equity, and not recognized in our courts of common law.”

Lord Brougham, in his opinion, states: “I, also, concur with my noble and learned friend, that the decision in the case of Poster v. Wolverhampton Co., in the court of common pleas, upon which great reliance was placed, and which appears, to a certain degree, at least, to have been the ruling decision in the court below, does not apply to this case, because there the transaction was past all doubt valid at common law, though not in equity. But had the court of common pleas had an equitable jurisdiction as well as a common law jurisdiction, the anomaly could never have happened of a transaction being found legal and valid in that court which could not stand an examination on the other side of Westminster Hall.”

The language used by the court in its opinion in Twin Lick Oil Co. v. Marbury, 91 U S. (1 Otto), 587, seems certainly to sustain the views of the learned counsel for the defendants upon this point. The court say: “ That a director of a joint stock corporation occupies one of those fiduciary relations where his dealings with the subject matter of his trust or agency and with the beneficiary or party whose interest is confided to his care, is viewed with jealousy by the courts, is a doctrine founded on the soundest morality and which has received the clearest recognition in this court and in others (Koehler v. Black River Falls Iron Co., 2 Black, 715 ; Drury v. Cross, 7 Wall. 299 ; Luxemberg R. R. Co. v. Maquay, 25 Beav. 586 ; Cumberland Co. v. Sherman, 40 Barb. 553; 16 Md. 456.)

The general doctrine, however, in regard to contracts of this class is, not that they are absolutely void, but that they are voidable at the election of the party whose interest has been so represented by the party claiming under it. We say, this is the general rule; for there may be cases where such contracts would be void ab initio; as when an agent to sell buys of himself and by his power of attorney conveys to himself that which he was authorized to sell. But, even here, acts which amount to a ratification by the principal may validate the sale.

“ The present case is not one of that class. While it is true that the defendant, as a director of the corporation, was bound by all those rules of conscientious fairness which courts of equity have imposed as the • guides for dealing in such cases, it cannot be maintained that any rule forbids one director among several from loaning money to the corporation when the money is needed, and the transaction is open, and otherwise free from blame. No adjudged case has gone so far as this. Such á doctrine, while it would afford little protection to the corporation against actual fraud or oppression, would deprive it of the aid of those most interested in giving aid judiciously, and best qualified to judge of the necessity of that aid, and°of the extent to which it may safely be given.

“ There are in such a transaction three distinct parties whose interest is affected by it, namely, the lender, the corporation, and the stockholders of the corporation.

“ The directors are the officers or agents of the corporation, and represent the interests of that abstract legal entity, and of those who own the shares of its

stock. One of the objects of creating a corporation by law is to enable it to make contracts, and those contracts .may be made with stockholders as well as with others. In some classes of corporations, as in mutual insurance companies, the main object of the act of incorporation is to enable the company to make contracts with its stockholders, or with persons who become stockholders by the very act of making the contract of insurance. It is very true that, as a stockholder, in making a contract of any kind with the corporation of which he is a member, is in some sense dealing with a creature of which he is a part, and holds a common interest with the other stockholders who, with him constitute the whole of that artificial entity, he is properly held to a larger measure of candor and good faith than if he were not a stockholder. So, when the lender is a director, charged with others with the control and management of the affairs of the corporation, representing in this regard the aggregated interest of all the stockholders, his obligation, if he becomes a party to a contract with the company, to candor and fair dealing, is increased in the precise degree that his representative character has given him power and control derived from the confidence reposed in him by the stockholders who appointed him their agent. If he should be a solé director, or one of a smaller number vested with certain powers, this obligation would be still stronger, and his acts subject to more severe scrutiny, and their validity determined by more rigid principles of morality, and freedom from motives of selfishness. All this falls far short, however, of holding that no such contract can be made which will. be valid, and we entertain no doubt that the defendant in this case could make a loan of money to the company, and.as we have already said that the evidence shows it to have been an honest transaction for the benefit of the corporation and its shareholders, both in the rate' of interest and in the security taken, we think it was valid originally, whether liable to be avoided after-wards by the company or not.”

But I think that a careful examination of this case will show that the learned court’s language was intended to show that such a contract was not absolutely void, so as not under any circumstances to afford the basis for future action, or subsequent rights. The last clause of the language above quoted, seems clearly to indicate this, which is, “ we think it was valid originally, whether liable to be avoided after-wards by the company or not.” In other words, ie was valid at law but subject to avoidance in equity by the company, if such right was exercised within a reasonable time; and the sale in that case was upheld expressly upon the ground of laches. One of the grounds upon which it was sought to set aside the sale was because of certain declarations made by the defendant that he only designed to purchase the property for the benefit of all or a part of the shareholders, and the court say : “But we need not decide

whether any of these declarations raised a legal obligation to do so or not; nor whether without such declarations the sale and deed were voidable at the election of the complainants—a proposition "which is entitled to more consideration, resting solely on the fiduciary relations of the defendant to the plaintiffs than on the evidence in this case of the declaration referred to. We need not decide either of these propositions because plaintiff comes too late with the offer to avoid the sale.”

This language is entirely consistent with the view that the court did consider such contracts although valid at law, voidable in equity at the option of the corporation, and the decision, as above stated, is put distinctly upon the ground of laches. This ease, therefore, decides nothing whatever which is in any respect in hostility to the rule as laid down by the decisions in the courts of our own state. The learned court, in its language referring to the fact that a contract to repay money loaned made by a corporation with one of its directors has been held to be valid, seems to have overlooked the fact, that, in any event, 'such a contract could not be repudiated by the corporation without the return of the money received by it; and, therefore, the result would be precisely the same if the transaction was open and free from blame, whether the contract was held to be voidable or binding, as the corporation could hot disaffirm without returning the money loaned to it, and this seems to be the foundation of those cases holding such contracts valid.

I think, therefore, that the undoubted rule of law in this state is, that every contract entered into by a director with his corporation may be avoided by the corporation within a reasonable time, irrespective of the merits of the contract itself.

But we are asked, does this disability extend to the case of a contract between two corporations some of whose directors hold that office in each corporation ?

I can see no difference in principle between the case of a director contracting with his corporation and that of directors of one corporation contracting with themselves as directors of another corporation. The evils to be avoided are the same, the temptations to a breach of trust are the same, the want of independent action exists, and the divided allegiance is just as aparen t. The fact that there is no such distinction is expressly stated in the case of Wallace v. Long Island R. R. Co., 12 Hun, 460-464. The court say :

‘£ The rule that all persons acting in a fiduciary capacity shall not, directly or indirectly, make any profit by means of such acts, or be interested in ■ contracts made by their principals, undoubtedly applies to directors of corporations. It is a valuable principle, and ought not to be impaired by any subtle or refined distinctions. Still, the mere fact that the same persons were directors of the corporation which made the lease, and of that which took it, is not of itself sufficient to avoid the contract at the instance of one or more stockholders against the will of the corporation. That fact alone might entitle either corporation to avoid the lease, but I apprehend it does not give that right to a stockholder.”

The principle is here recognized that the majority of the shareholders may ratify a lease made by the directors, and that a minority cannot disaffirm. That, therefore, it must be the majority of the shareholders acting through the corporation who repudiate, and no shareholder has the power to exercise that right against the will of the majority.

The case of United States Bolling Stock Co. *. Atlantic & Great Western R. B. Co., 34 Ohio St, 450, is relied upon by the defendants’ counsel as conclusive upon this point. It seems to be necessary that this case should be referred to at length, as it is claimed to decide, and upon a cursory examination appears to decide, much more than was intended by the court:

“The action below was brought by the plaintiff against the defendant, to recover the sum of $985,934.02, most of which sum was a balance alleged to be due the plaintiff from the defendant for the use of the rolling stock furnished by the former to the latter, from February, 1872, to December 10, 1874, under an express contract. It appears from the record that the plaintiff was incorporated under the laws of New York, on October 31, 1871, with a board of five directors, empowered to manage its affairs, and that on December 11, 1871, the defendant was organized as a consolidated railroad company, under the laws of New York, Pennsylvania and Ohio, with a Board of thirteen directors; that at the date of the organization of the railroad company, the five directors of the Bolling Stock Company, George B. McClellan, Samuel L. M. Barlow, James B. Hodgkins, William Butler Duncan, and Lawrence Wells, were elected and became five of the thirteen directors of the railroad company. That said five persons continued to be the sole members of the plaintiff’s board of directors and five of the thirteen members of the defendant’s board until December 11, 1873, and that one or more of said directors of the plaintiff continued to be directors of defendant until the termination of the contract on which suit was brought. It further appears that on November 6,1871, a provisional contract was entered into by James McHenry, purporting to act for plaintiff, and Leonard J. Woodman, purporting to act for and on behalf of the executive committee of the Atlantic and Great Western Bailroad Company, by the terms of which the plaintiff agreed to supply to the defendant, and the defendant to receive, at an agreed monthly rental for the period of seven years from January 1, 1872, the rolling stock mentioned in a schedule thereto annexed.

“On July 19,1872, this contract with a certain modification, was ratified and adopted by the' plaintiff’s board of directors, and on August 2, 1872, was as modified, adopted and confirmed by the defendants’ board of directors. It farther appears that at the meeting of the defendants’ board at which said contract was ratified and confirmed, only eight of the thirteen members were present, two of whom, McClellan andJHodgkins, were the directors of the plaintiff.

“ The question presented by the record arises upon the exception to the charge of the court upon the point of the defendants’ right to avoid the contract upon which the action was founded. The rule that an agent or trustee in matters touching his agency or pertaining to his trust, cannot bind the principal or cestui que trust, without his consent, by a contract in which the former is adversely interested, rests upon a very satisfactory foundation, and is supported by a great weight of authority (Wade v. Pettibone, 11 Ohio, 57 ; Morison v. Thompson, L. R., 9 Q. B. 480; 1 Lead. Cas. Eq. 210).

6 6 In Story on Agency, § 210, the rule is said to be founded ‘upon the plain and obvious consideration that the principal bargains, in the employment, for the exercise of the disinterested skill, diligence and zeal of the agent for his own exclusive benefit. It is a confidence necessarily reposed in the agent, that he will act with a sole regard to the interest of his prin cipal as far as he lawfully may.’ And in 2 Kents Com. 618, the same principle is asserted, and in the following language: 6 An agent acting as such, cannot take upon himself at the same time an incompatible duty. He cannot have an adverse interest or employment. He cannot be both a buyer and seller, for this would expose his fiduciary trust to abuse and fraud.3 In Bennett, Ex parte, 10 Ves. 393, Lord Eldor, commenting on a sale of the trust property to the trustee, stated the reason of the rule denying the right of the trustee to buy the-trust property to be, ‘ That it would not be safe with reference to the administration of justice in the general affairs of the trust that a trustee should be permitted to purchase ; for human infirmity will, in a very few instances permit a man to exert against himself that prudence which a vendor ought to exert in order to sell to the best advantage, and which a purchaser is at liberty to exert for himself, in order to purchase at the lowest price. The rule which prevents the agent or trustee from acting for himself in a matter where his interest would conflict with his duty also prevents him from acting for another whose interest is adverse to that of the principal; and in all cases where (without the assent of the principal) the agent has assumed to act in such a double capacity, the principal may void the transaction at his election.’ No question of its fairness or unfairness can be raised. The law holds it constructively fraudulent and voidable at the election of the principal (Aberdeen Ry. Co. v. Blaikie, 1 Macqueen, H. L. Cas. 461; York Bldgs. Co. v. Mackenzie, 3 Paton, H. L. 378 ; Bispham's Princ. Eq. 106 ; 18 Ohio St. 182).

“ But, does the present case fall within the operation of this principle. The right to avoid the contract because the agent has a personal interest in its subject matter adverse to that of the principal, or has assumed an incompatible duty, is one arising in equity for the principal’s protection. He may avail himself of the right to avoid the contract, or he may waive it, at his option. That the agent may represent two persons, with their assent, in a transaction relating to or embracing a subject matter respecting which their interests may be adverse or conflicting, admits of no doubt. In Adams Mining Company v. Senter (26 Mich. 73), upon the question of ho$v far the double agency of one affected, his relation to his employer or third persons, it was held that where the same person - is made the agent of two mining corporations in the same vicinity, ■and it becomes necessary for one to deal with the other, he must be presumed to have the same power to act for both that he would be possessed of if there were two agents acting separately, and may dispose of the property in the same way ; and such double authority would dispense with such formalities as could not be complied with where one man acts for both companies. The court, in announcing its opinion, say: ‘ The authority of agents, where no law is violated, is as large as th.eir employers choose to make it. There are multitudes of cases where the same person acts under powér from different principals in their mutual transactions. Every survey of boundaries by a' surveyor jointly agreed upon would come within similar difficulties. There can be no presumption that the agent of two parties will deal unfairly with either.’ ”

“ So, where the subsequent assent is given to the acts of the agent, the same resul-t follows ; that is, if the principal, with full knowledge of all the facts affecting his rights, ratifies the acts of his agent, the right to avoid the contract or transaction is gone.”

The learned court then points out that dissent must be made within a reasonable time, and that a principal who has an option to avoid or stand by- the contract of Ms agent, is not permitted to await the issue of events and then adopt or reject the contract as he may think most for his interest, and that an acceptance of the benefits of a transaction imposes the obligation to assume its burdens and operates to confirm it as a whole ; but that if the contract in question was absolutely void because agents in common of the two corporations'participated in making it, there could be no ratification by acquiescence. The learned court then calls attention to the fact that at common law a contract between two corporations having common directors made by their respective boards, or between a corporation and an individual director or a firm of which he is a member, is valid, and cites the cases of Foster v. Oxford, &c. Railway Co., supra; Ernst v. Nichols, 6 H. L. Cases, 401; and Murray’s Ex’rs’ Case, 5 De Gex, Macn. & G. 746. This is undoubtedly the rule at common law, but it is equally well settled in equity that all such contracts are voidable at the option of the corporation. The learned court then argues, that, conceding the contract was voidable in equity at the election of the company, for the want of the presence at that meeting of a quorum of directors who were not directors of the plaintiff, that—

“ It nevertheless appeared that the board was composed of thirteen persons, a clear majority of whom were affected with no incapacity to act for the best interests of the company, and who sustained no fiduciary relation to the plaintiff whatever. This majority possessed ample power to restrain and control the action of the minority, and if the contract was voidable at the option of the company, it had full power to express the company’s election if it saw fit to avoid the con- ' tract. The fact that one of the persons composing this majority might vote with those who were members of both boards and thereby create a majority in favor of the contract, would in nowise affect the validity of the transaction, nor relieve the board from the duty to move in the matter, if they desired the company’s escape from liability.

“We have not, upon the most diligent research been able to find a case holding a contract made between two corporations by their respective boards of directors invalid, or voidable at the election of one of the parties thereto, from the mere circumstance that a minority of its board of directors are also directors of the other company. Nor do we think such a rule ought to be adopted. There is no just reason where a quorum of directors, sustaining no relation of trust or duty to the other corporation are present, participating in the action of the boa,rd, why such action should not be binding upon the company, in the absence of such fraud as would lead a court of equity to undo or set aside the transaction. If the mere fact that a minority of one board are members of the other, gives the company an option to avoid the contract without respect to its fairness, the same result would follow where such minority consists of but one person, and notwithstanding the board might consist of twenty or more. In our judgment, where a majority of the board are not adversely interested and have no adverse employment, the right to avoid the contract or transaction does not exist without proof of fraud or unfairness ; and hence the fact that five of the defendants’ board of directors were members of the plaintiff’s board, whatever may have been its effect on the defendant’s right to disaffirm or repudiate the contract if exercised within a reasonable time, did not disable the defendant from subsequently affirming the contract if satisfied with its terms, or rejecting it, if not, nor did it relieve it from the duty to exercise its election to avoid or rescind within a reasonable time, if not willing to abide by its terms.

“That it did not do this, nor take any steps towards its disaffirmance, but continued to act under it for nearly two years and a half, receiving the rolling stock for .the use of which it stipulated, and with which it operated its road for the whole of said period making payments for such in accordance with the rate fixed by the contract, very clearly appears from the admitted facts.”

It will be observed that no question as to a minority of common directors was involved in that case, and the discussion was based entirely upon failure,to repudiate within a reasonable time, and in the discussion of the minority question "the learned court overlooked the principle which seems to me to be well established by authority, as I shall attempt to show hereafter, that the corporation is entitled to all the knowledge and skill which each and every director can bring to bear upon the subject before the directors of such corporation.

The court further says, that'“ the instruction given by the court to the jury as applied to the undisputed facts, was therefore erroneous.” Why? Because “ the jury were told that the fact that the said directors of the plaintiff were five of the thirteen directors of the defendant, with the further fact that two of said five were two of the quorum of eight directors of the defendant who confirmed the contract, rendered such contract in law invalid and voidable at the election of the defendant, irrespective of the motive of the directors participating. This was intended and understood to mean that such election could then be made, notwithstanding the admitted facts, constituting in law a complete affirmance of the contract.” In other words, although the contract was voidable in equity for the reasons given in the instruction above stated, yet it not having been repudiated within a reasonable time that right had been lost. And all that was decided in the above case was that such a contract although voidr able in equity was valid at law, and unless repudiated" within a reasonable time could be enforced.

Attention is also called to Ashhurst’s Appeal, 60 Penn. 290-314, in which it is said :

“ I come then to consider the facts that the purchasers were the same persons as those who, as directors, sold, and, as stockholders, authorized the sale. It is often said, and truly, that the same persons cannot be both buyers and sellers in one transaction. They were not strictly in this. All the purchasers were not directors who made the sale. But I make no account of that. Still, why may not directors of a corporation sell to themselves ? Each director has an interest distinct and antagonistic to his interest as, a mere man. There is identity of persons, but not of interest. There must be many things which directors can do for their individual benefit which are binding upon a corporation of which they are directors. • If they have advanced money I cannot doubt they may pay themselves with corporate funds. If they have become liable as sureties for the corporation they may provide for their indemnity. And though ordinarily the law frowns upon contracts made by them in their representative character, with themselves - as private persons, such contracts are not necessarily void. They are carefully watched and their fairness must be shown. But I repeat the question, why may not directors sell to themselves in any case % It is because of the danger that the stockholders may suffer, if such sales be permited, for want of antagonism between the parties to the contract. But such sales are supported in equity where the fiduciary relations of the purchaser has ceased before the purchase, when the purchase was made with full consent of the stockholders, or where the stockholders have, by their acquiescence, debarred themselves from questioning the transaction.”

The doctrine here is again enunciated that such contracts are valid in law, and although voidable in equity may be affirmed by actual ratification or acquiescence.

In the case of Bill v. Western Union Tel. Co., the same distinction is taken, and it is nowhere held that such a contract is not voidable in equity even if valid at law. *

The case of Booth v. Robinson, 55 Md. 419-438, it is claimed, also decides that a contract is not voidable between corporations because of common directors. That case was an action brought by the stockholders of a corporation against some of its directors who were common directors in another corporation, upon an allegation that they, with an intent to cripple the corporation in which the plaintiffs were stockholders, made certain arrangements with another corporation in which they were directors and in which the plaintiffs were not stockholders. The corporations were made parties defendant upon an allegation that these directors had control of the corporations, and by means of that control they could frustrate and defeat any attempt to induce the corporation to take action for the redress of the wrongs alleged. The court in that case say:

“In these cases the proper and primary party to complain and call the directors to an account in a court of equity for fraud or breaches of trust in the management of the affairs of the corporation, is the corporation itself, because the duty is owing and the wrong is done directly to the corporation and only indirectly to the shareholders ; and therefore, to enable a shareholder, either for himself alone, or for himself and others, to maintain a bill against the directors for such fraud or breaches of trust, he must allege and show not only the violations of duty or breach of trust on the part of the directors, but that he as a stockholder had been damnified thereby, and that the corporation has failed or refused to take the proper legal steps for the redress of the wrong.”

The nature of the action, it will thus be seen, was entirely different from that which is now before the court. It was an attempt upon the part of 'stockholders to assert their individual rights independent of the corporation, upon the ground of absolute fraud and mismanagement of the affairs of the corporation by certain of its directors. The fact that these directors held also the same offices in the other company had nothing whatever to do with the cause of action involved, because independent of that fact a cause of action existed, if such fraud and gross mismanagement was shown. It is clearly stated in that case that the fraud must be proven, and that mere indiscretion, want of skill, or deceit or mistake of judgment in the conduct of the affairs of the corporation affords no ground of personal liability on the part of the directors. The court therefore, say that two directors representing both corporations, this fact alone, while it should subject their conduct to rigid scrutiny by the court, does not afford ground of presumption against the legality and fairness of the dealings and transactions between the two companies. In other words, that upon the issue of fraud—actual fraud and gross mismanagement—the fact that these two directors had conflicting interests would be considered in determining that issue, and nothing else was meant by the court in the use of this language. The court then go on and say:

£<The two companies were certainly competent to contract, the one with the other, and the two directors whose conduct is in question were interested in both companies, and by their relation to and official position in them they owed duties and were bound to be faithful alike to both ; therefore, while acting within the scope of the affairs delegated to them by the stockholders of the corporation, there is no presumption of illegality or unfairness in their dealings and transactions as between the two companies. They were the chosen agents of both, and tobe sucoeessful in any attempt to impeach the validity of their acts with a view of making them personally responsible either to the corporation or to the stockholders, there must be distinct charges of misconduct, fully supported by proof” (Adams Mining Co. v. Senter, 26 Mich. 73; United States Rolling Stock Co. v. Atlantic & Great Western Rw. Com., 34 Ohio St. 450).

Thus it will be seen that the court, in the use of this language, had in mind only the fact, that in order to make trustees personally responsible, it was necessary to prove actual misconduct, and that the mere fact that som. of the directors of the two contracting corporations were common directors did not necessarily establish that proposition. It must be fully supported by proof. And, in support of this proposition are cited the cases to which reference has previously been had—the one of which referred to the fact that an agent might act for both parties where his agency was known and his action approved, and- the other that the mere fact that two contracting corporations had common directors did not make their contract void in law, but simply voidable in equity, which right might be lost by lapse of time. The court goes .on and says:

“This case is altogether unlike that of a trusted agent or director bargaining in a matter of personal advantage to himself, individually, with .the party reposing the confidence in him and where it is incumbent in him to show that a fair and reasonable use has been made of that confidence, as in the case of the Hoffman Steam Coal Co. v. Cumberland Coal & Iron Co., 16 Md. 456 ; Cumberland Coal & Iron Co. v. Parrish, 42 Md. 598; Jackson v. Luddling, 21 Wall. 616 ; aud other cases of that class to which reference .igh't be made. In that class of cases the law proceeds upon the principle of constructive fraud irrespective of fraud in fact; and hence the onus of proof is upon the party seeking to maintain the transaction. But in a case like the present, where the effort is to make the defendants personally liable for alleged injuries occasioned by conduct willfully fraudulent, in intent and purpose amounting to breaches of trust, the proof in support of the allegations must be other than mere constructive fraud or breaches of trust; there must be affirmative proof of the misconduct charged, going to establish the fraud in fact.”

Therefore, all that seems to be established by the case above cited is that in order to hold directors personally responsible, affirmative proof of fraud, absolute fraud is requisite. The power of corporations having common directors to loan and borrow money, one from the other, and to give and to receive security therefor, is recognized and upheld, the court, however, not referring to the fact that such contracts, although voidable in equity, cannot be repudiated without the return of the money borrowed, and, therefore the contract is allowed to stand, as there can be no object in entertaining an action for rescission, the borrower having a right upon tender of the money received to get its securities back without the intervention of a court of equity, which is all the relief a court of equity can give.

These cases, therefore, cannot be held to overcome the adjudications of our own State, nor should they be held to have, in the slightest degree, shaken a principle so deeply imbedded in the rules governing the action of trustees with their cestui que trust. In none of the cases has there been any attempt, as far as I have been able to discover, to distinguish between the disqualification of interest as applicable to contracts between a director and his corporation, and such disqualification as applicable to contracts made between two corporations having common directors, they being treated as resting upon the same basis.

It seems to me that it has been conclusively shown, by the authorities both in England and this State, that any contract which may be entered into between a corporation with one of its directors, is voidable at the option of the corporation, although it may be entirely valid at law. The question as to what the condition of affairs may be in case a contract is entered into between two corporations, one or more of the directors of one of which might have been at the time of the contract a director of the other, has not been so distinctly met or disposed of by any adjudications to which I have referred. But the principle seems to me to be the same, as has been already suggested, and the dangers to be overcome and to be met are of an analogous character, and the only rule which can be adopted by the court in dealing with such contracts is to apply that which has always obtained in the cases of contracts between a director and his corporation.

It may be urged that the position of a director in a corporation does not give him the same degree of personal interest in its success as would be the fact were he simply entering into the contract to be personally benefited thereby; that he is one of many, his interests are divided with that of the other shareholders, and his influence may be counteracted by his co-directors. But the fact that he has an adverse interest to the one or the other of the corporations is apparent, and that he is attempting to serve two masters is also equally plain. It must necessarily happen, according to the rules which have been laid down by the courts' of equity in reference to the action of agents, that he will in nine cases out of ten serve the interest of the one principal and betray those of the other; and in order to remove persons so situated from all temptation, in order that there may be no uncertainty in the law in reference to such contracts, courts of equity have held that where there is such a conflict of interests between an individual and a corporation, or between corporations having common directors, that the contract shall be voidable as matter of equity without any evidence whatever of misconduct upon the part of the agent or director. If the rule is to be so far relaxed that common directors may participate in the contracts between corporations, or if common directors may allow contracts to be made between the two corporations that they represent, it would present the same field of speculation and the same uncertainty of results for courts to attempt to investigate the motives of the common directors ; to determine the influences which they failed to exert upon their associates ; to determine the fairness and reasonableness of the contract; to investigate all the influences which were at work which led to the entering into the contract, which have been so severely condemned by the cases passing upon the rights of cestui que trusts in reference to contracts made by common trustees. Contracts of this kind would be left involved in a sea of doubt, and a prediction as to the result of an investigation as to their fairness and honesty would be the merest speculation. It was to relieve the court" from such investigations, and to let parties understand precisely the ground upon which they stood, that the stringent rules in regard to agents and principals were adopted, and the same reasons require that in order that there may be reasonable certainty in reference to the results to be arrived at in investigating the contracts between two corporations who have common directors, and therefore conflicting interests and conflicting duties, the same rule must be necessarily adopted, namely, that at the option of the cestui que_ trust of the corporation, such contraéis may be avoided.

It is urged against this rule that if common directors are disqualified from acting, so are common shareholders incompetent to ratify agreements between their companies, and that the holders of one share of stock in each of the companies could prevent any action at a shareholder’s meeting, relating to the two companies, no matter how advantageous such action might seem to the holders of every other share of stock. I do not say that the disqualification extends to a shareholder. I can see no reason why it should. The disability rests entirely upon the fiduciary relationship. A shareholder is trustee for nobody ; he has only his own interests to look after as such shareholder, closely connected as they undoubtedly are in practice with the interests of the othershareholders ; but he holds no such fiduciary relation to the corporation as pertains to the office of director ; and I think that it is carrying the rule to a much greater length than the reasons which have given it existence require, and in this respect the New Hampshire case of Pearson v. Concord Railway, extends the disqualification too far, and beyond all reason.

This brings us to the consideration of the question, whether this infirmity does exist in the October agreements, a number of uncommon directors sufficient to constitute a majority having voted for them, even if all of the common directors had voted? No such question as this was presented in the Content case, as it is called, nor was the question of common directors at all discussed.

The general tenor of all the authorities is that this fact does not cure the infirmities in the contract. It is true that some cases, like those above cited, may be found where such a proposition has been stated ; but I can find no adjudication to that effect in any case where the question was directly involved, and where its discussion was necessary to the decision of the case. The foundation of the rule lies in the fact that the corporation, as has been before stated, is entitled to all the knowledge and skill which each and every director can bring to bear upon the subject before the directors of such corporation. This rule is clearly recognized in respect to various statutory boards. In order that valid action may be taken by such a board (unless different provision is made by statute), all the members of the board must meet, although a majority may control the action of the board. The argument being, that the arguments and reasoning of one man of a number, may convince and frequently has convinced the minds of many associates as to the propriety or impropriety of contemplated action, and whose 'votes would have undoubtedly been just the opposite of what they were had such member been absent. This was the point upon which turned the decision of the case In re East Norfolk Tramway Company, L. R. 5 Ch. Div. 963. There the articles of association provided that no man should be eligible as a director unless be was recommended to the shareholders by the board of directors. Six out of seven of the directors were present at a shareholders’ meeting at which Mr. Barber was chosen a director, and it was claimed that this was a virtual “ recommending of" him.” Sir George Jessel, Master of the Rolls, says : “ First of all, he was not recommended by the board of directors. Six directors out of seven met in a friendly capacity, and for a different purpose, and such a meeting does not make them a board of directors.”

-/<■ 'X* -X* *X* -X' 'X*

“ It by no means follows that if a board meeting had been summoned, and the seventh had attended, the seven would have come to the same conclusion as the six without him. People are very apt to change their minds when they hear arguments. . . . Then it might well be that the absent director might have known something against the person proposed, and that if he had stated it to the board of directors they would have entirely changed their minds.”

Again, in the Aberdeen Railway Company case, upon this point, the Lord Chancellor says: “Iobserve that Lord Fullerton' seemed to doubt whether the rule would apply where the party whose act or contract is called in question is only one of a body of directors, not a sole trustee or manager.”

“But, with all deference, this appears to me to make no difference. It was Mr. Blaikie’s duty to give to his co-directors, and through them to the.company, the full benefit of all the knowledge and skill which he could bring to bear on the subject. He was bound to assist them in getting the articles contracted for at the cheapest possible rate. As far as related to the advice he should give them, he put his interest in conflict with his duty, and whether he was the sole director, or only one of many, can make no difference in principle.”

In the case of the Imperial Mercantile Credit Association v. Coleman (6 Ch. App. Cas. 558), this point is also discussed, and the Lord Chancellor says :

“ The ordinary operation of the rules of this court lay down firmly that no director of a company can, in the absence of any stipulation to the contrary, be allowed to be a partaker in any benefit whatever from any contract which requires the sanction of a board of which he is a member. The reasons are given fully by Vice-Chancellor Knight Bruce, in Benson v. Heathron (1 Y. & C. Ch. 326), cited by the Vice-Chancellor in his judgment, and amount to this: that the company have a right to the services of their directors whom they remunerate by considerable payments.; they have a right to their entire services ; they have a right to. the voice of every director, and to the advice of every director in giving his opinion upon matters which are brought before the board for consideration ; and the general rule that no trustee can derive any benefit from dealing with those funds of which he is a trustee, applies with still greater force to the state of things in which the interest of the trustee deprives the company of the benefit of his advice and assistance.”

. In the case of Paine v. Irwin (16 Hun, 390), which came upon a demurrer before me, and which was affirmed at the, general term, this question was distinctly presented, and in respect to the trustee not having voted at the meeting authorizing the contract, it was said:

- “I have not thought it necessary to discuss the .question as to the defendant’s presence at the meeting at which it was resolved to purchase this property, because his presence or absence at such a meeting would in no manner affect his disability to deal with the corporation. This confidential relation existed, whether he was at the meeting which directed the purchase or not.”

- In the case of Cumberland Coal Co. v. Sherman, 30 Barb. 553, the court sets forth with great clearness, the reasons upon which the rule is founded. It says: “Neither are the duties or obligations of a director or trustee altered from the circumstance that he is one of a number of directors or trustees, and that this circumstance diminishes his responsibility, or relieves him from any incapacity to deal with the property of his cestui que trust. The same principles apply to him as one of a number, as if he- was acting as sole trustee. It is not doubted that it has been shown that the relation of the director to the stockholders is the same as that of the agent to his principal, the trustee to his cestui que trust; and out of the identity of these relations necessarily spring the same policy of the law. In the language of the plaintiff’s counsel it is justly said: 6 Whether it be a director dealing with the board of which he is a member, or a trustee dealing with his co-trustees and himself, the real party in interest, the principal, is absent—the watchful and effective self-interest of the director or trustee seeking a bargain, is not counteracted by the equally watchful and effective self-interest of the other party, who is there only by his representatives; and the wise policy of the law treats all such cases as that of trustee dealing with himself.’

The number of directors or trustees does not lessen the danger, or insure security that the interests of the cestui que trust will be protected. The moment the directors permit one or more of their number *to deal with the property of the stockholders, they surrender their own independence and self-control. If five directors permit the sixth to purchase the property intrusted to their care, the same thing must be done with the others if they desire it. Increase of the number of agents in no degree diminishes the danger of unfaithfulness. ■

“ Whichcote v. Lawrence, 3 Vesey, 740, was a case of several trustees. In this case Lord Loughborough says: ‘ There was more opportunity for that species of management which does not betray itself much in the conduct and language of the party, when several trustees are acting together. I am sorry to say there is greater negligence where there is a number of trustees.’ ”

The fact of the importance of individual influence, was recognized in the judiciary amendment to the constitution, wherein it was provided that a judge could not sit in an appellate court in review of his own decision, although he might be only one of seven composing the court.

In Duryea v. Traphagen, 84 N. Y. 652, a judgment of the general term was reversed on the ground that Judge Beady improperly sat in review of his own decision, although he was only one of the three judges in the general term, and Judges Davis and Barrett (the other judges present), constituted a good court.

In Regina v. Justices, 6 Adol. & Ellis (Q. B.) N. S. 753, it was held that the fact that an interested magistrate sat in a court, vitiated the decision, even when' there was a majority in favor of the decision without counting his vote.

Lord Dermar says:

“It is contended that, as tne majority, without reckoning his vote, was in favor of the confirmation, the order is not vitiated. But after making every possible deduction from the strength of my opinion, in defense to that of my brother Pattesor, still, in my judgment, a decision is vitiated by any one interested person taking part in it. We cannot enter into an analysis of the different motives which may have produced the decision; it is enough to say that a single interested person has formed part of the court.”

Patteson, J.

“I suppose that in Regina v. Cheltenham Commissioners, 1 Q. B. 457, I was not satisfied that the interference of a single interested party was sufficient to invalidate the decisions; in fact, the interference of the interested parties did there turn the majority; and I suppose that I was satisfied with limiting my decision to that ground. But, on consideration, I think this is unsound; I think that it is very dangerous to allow an interested person to join, whether the majority turn on his vote or not. The magistrates discuss the question among themselves ; and it is impossible to say what effect that discussion may have on the decision. The real question is, has an interested person taken any part at all? ”

Coleridge, J.

“ I will merely add, as I was not present at the decision of Regina v. Cheltenham Commissioners, 1 Q. B. 467, that I agree in the view now taken by my lord, and my brother Pattesow; Whether there is a properly constituted court, is a question which must be prior to the' decision. My brother Patteson does not appear to have differed very decidedly, in Regina v. Cheltenham Commissioners, from our present view; he there intimates that a magistrate who knows that he is interested, and still takes part in the discussion, is not justified in saying that, because so many other magistrates were present, he could not have influenced the decision.”

Wightman, J.

“ I agree and I meant, in Regina v. Cheltenham Commissioners, to rest upon the principle on which we are now deciding ; that we cannot enter into a discussion as to the extent of the influence exercised by the interested party.”

In our own courts the disqualification of interest is as strictly upheld. . A judge, the holder of one share of stock out of one million shares in a corporation, is just as certainly disqualified to sit in a cause in which that corporation is interested, as though he held one thousand shares. It is not the amount of the interest which works the disqualification; it is the existence of any interest, however slight.

The rule, therefore, seems to be clearly established, that the question of minority cannot be considered in determining the right in equity to avoid a contract. ■ The presence of one disqualified director is just as fatal ‘ to action which cannot be repudiated, as the existence of a dozen. It being impossible to ascertain the amount of influence which each director exerts, or' which he fails to exert in opposition to action in which he is interested, the only rule which can be adopted, or which can be applied with any. certainty, is that if there is even one director who is disqualified; the whole-action of the board is subject to repudiation.

But it is urged that the Metropolitan shareholders knextf that at the time Messrs. Garrison, Navarro and Porter were elected directors of' the Metropolitan’ Company, they were also directors of the Manhattan Company.

I have been unable to find proof of any such knowledge ; but if they had, I do not see how it can affect the question under consideration.

There is no proof that the shareholders of the Metropolitan Company had any reason to suppose that any new agreements were to be made between the Metropolitan and the Manhattan Companies, by xvhich virtually a nexv lease was to be made. There is nothing to show that such shareholders, in any degree, contemplated the making by this board of permanent-changes in the terms and conditions by which the Manhattan Company was to hold their property. Tf the shareholders, knowing that new arrangements would have to be-made betxveen the Manhattan Company and the Metropolitan Company, had elected directors, some of whom they knew to be directors in the Manhattan Company, then the case presented would have been similar to those cited. But this element of knowledge upon the part of the shareholders of the Metropolitan Company, that the lease was to be substantially altered to the advantage of the Manhattan Company, is entirely absent in the case at bar! They knew nothing of it. They elected a board simply to manage the affairs of the Metropolitan Company under the lease, affairs which were of the most limited nature, and not to radically change the whole basis upon which the shareholders had assented to the lease to the Manhattan Company. After the leases were made then all antagonism of interest between the companies had ceased, no more contracts or agreements were to be made between them, and common directors were, therefore, entirely proper. But when unexpected contingencies arose, by which the sharp conflict of interest which existed before the leases was revived, a state of affairs was presented which had not been anticipated by the shareholders ; and it is fair to assume, if they had been foreseen, such shareholders would have preferred directors who had no divided allegiance, and whose sole interest would have been to maintain the right of their company. In order that an agent or trustee may act for two principals, the principals must each know not only that he is the agent of each, but also that action by the agent is contemplated, in which such agent is to represent the hostile interests of both principals, and if such knowledge is not shown, the principal may repudiate. MTone of the cases have gone further *han thr\

I hav brefore, been lead to the conclusion that the direc s had no power to modify the leases of May 20, lfc 9, in the manner that they did by the October agreements, without the assent of the stockholders ; and that, even if they had such power, that the presence of directors in the Metropolitan board, who were also directors of the Manhattan Company at the time of the adoption of these October agreements, gave either company the right, in equity, to repudiate those contracts within a reasonable time, although the contracts may have been perfectly valid at law.

The Metropolitan Company certainly did repudiate these agreements within a reasonable time, having com,-’ menced this action within one month after the shareholders of that company had an opportunity to elect a new board of directors who could take action in the matter.

The plaintiff, therefore, is entitled to a judgment relieving all the parties in this action from the October agreements, upon making such restitution as is suggested in a former portion of this opinion.

It has been said that this conclusion, if reached, would cause great confusion and conflict of interest among a vast number of railroads in this country, so many of whom have common directors, and also traffic arrangements with each other. This evil is not so great by any means as has been depicted. Agreements of this character are not void, but simply voidable, and if the corporation wishes to avoid them, as has been shown, it must act within a reasonable time. If.the shareholders are dissatisfied with the acts of their directors, they, must repudiate them within a reasonable time, which in most cases would be held to mean at the next meeting for the election of directors, wrhen they can elect a new board, who can take the necessary action to annul the voidable contract; and it must, therefore, be the dissatisfaction of the majority of the shareholders, and not that'of a minority, which can call the power into operation. If the shareholders renew the terms of office of the directors who have made the voidable contract, or if they take no action showing plainly their dissent, the contract will become binding by acquiescence.' 'As in most corporations, boards of directors are elected by the shareholders annually, the right to annul can seldom exist for more than one year. Thus it will be seen that there can be but few cases in which the decision of these questions nan affect past action, whatever influence it may have in shaping the proceedings of trading corporations hereafter.

Although it is not necessary for me to decide the question of fact, in reference to Mr. Stout’s vote, in view of the conclusion to which I have come above, yet, in order that, if I should have been mistaken in my view, the whole case may be disposed of by the appellate court, I will briefly state why I shall find that Mr. Stout voted in the affirmative, on the 22d of October, at the meeting of the board of directors of the Metropolitan Company ; and for the purposes of this question I am willing to concede that every director present supposed that he voted no.

I am satisfied from the evidence that notone of the members of the board present at that meeting remembers the physical fact of hearing Mr. Stout’s voice when he voted. I do not think Mr. Stout himself recollects the precise act of voting. It is not a circumstance which he would be likely to recollect. It was at the time, probably, not thought of much consequence how he voted. He was, if he voted with Mr. Kneeland, in a hopeless minority, and he undoubtedly thought it was not of much consequence how he voted, as is shown by his action at the next meeting, on the 24th of October. The minutes record his vote as in the affirmative ; and at the next meeting of the board, held two days after, when these agreements are being canvassed and all sorts of motives impugned to their supporters, these minutes, in wffiich his vote is recorded in the affirmative, are read in his presence and that of Mr. Kneeland, the latter of whom had voted “no,” and they are approved unanimously. It is not claimed that he or anybody else then voted no. It seems to me that after Mr. Stout had allowed those minutes to be approved it is too late for him now to say that they are incorrect. He has voted that they are correct-There is no claim that the minutes of the meeting of October 24th are incorrect. They state the true facts, and as it seems to me under these circumstances it would take, not only more than two, but more than half a dozen witnesses to prove the record of that vote false, the party himself having voted it correct.

I am referred by the counsel for the plaintiff to the case of Hun v. Cary, 59 How. Pr. 426-430, as to the effect of a record of a vote in the minutes of a board-. The learned j ustice who wrote the opinion in that case fell into an error as to the effect of the testimony of a party. In that case one of the questions submitted to the jury was whether the defendant Smith was present at a meeting of directors. The court says :

“There was no evidence, other than the .minutes, of his attendance at the meeting which authorized the purchase. He, himself, denied such attendance in the most positive terms, and asserted his entire ignorance of the transaction until after it was closed. We think this entitled Mr. Smith to a dismissal of the complaint There was no conflict of evidence and, nothing to go to the jury. If the secretary, or anyone else, had testified to Mr. Smith’s attendance, that, of course, would have involved a conflict. But the prima facie evidence made by the secretary’s unsworn declaration, contained in the minutes, was absolutely overthrown by Mr. Smith’s testimony ; that is, unless such testimony is to be disregarded. But it cannot be disregarded by either court or jury, for it was not impaired on cross-examination, nor was Mr. Smith’s credibility in anywise impeached or affected.”

There is no such rule.governing the evidence of a party. The evidence of a party may be disregarded by a jury or á court trying questions of 'fact, although it.may in nowise be impeached or affected ; a different rule obtaining, however, in respect to the evidence of disinterested witnesses (Lessler v. Wunder, 9 Daly, 70 ; Nicholson v. Connor, 8 Id, 212 ; Elwood v. W. U. Tel. Co., 45 N. Y. 549 ; Hodge v. City of Buffalo, 1 Abb. N. C. 356 ;Kavanagh v. Wilson, 70 N. Y. 177).

But in the case at bar, we have the positive evidence that Mr. Stout was present at the meeting of October 24th, and that the minutes of the previous meeting were read in his presence and in his hearing, and that such minutes were approved without any dissent whatever.

If the records of the proceedings of corporations are to be thus lightly regarded, then no man can be safe in dealing with a corporation. It is impossible for a stranger to prove anything about the minutes ; and to say that they can be impeached after they have been regularly approved, by the testimony of the very men who sat by and allowed their approval, would be opening the door wide for the gravest" perjury and fraud.

In the case of Ashhurst v. Mason, 20 Eq. Cases L. R. 225, Vice Chancellor Bacon says :

“It would be in the highest degree dangerous to permit directors or other persons having the management of companies to say when any particular incident arises or there comes to be a pinch upon it, ‘At that moment my thoughts were elsewhere—I did not hear it—in fact I was thinking of something else !’ ”

Stout heard and approved, and now he cannot be allowed to say that he did not.

Therefore, notwithstanding the fact that the learned counsel for the plaintiff believes it to be impossible for the court, on the evidence, to find that Mr. Stout voted aye, I must "find according to every rule of evidence, and according to nay own conviction, founded upon the evidence, that he did vote “ Aye.” 'Hr. Stout’s excuse that he was not permitted to see the minute-books, is too flimsy to need much comment-. He did not try to see them, and as far as I know, there was no reason why he should have done so. Even if his vote was wrongly recorded, if his evidence is to be believed, he had no reason to suspect it. His lame attempt to find what he believed to be a necessary excuse for not examining the books, showed a disposition to rely, where he deemed it important, upon the imagination rather than upon the recollection.

The enormous length of this opinion certainly needs some apology ; but I have in vain endeavored to condense it. It-has frequently been necessary to make long quotations from cases cited, because it seemed impossible otherwise to present the precise attitude of the court toward the subject under discussion.

I have deemed it proper, in view of the, large interests involved, and the magnitude of the questions to be disposed of, and the divergent views entertained by the eminent counsel engaged in the cause, to consider all the questions involved at much greater length than was perhaps necessary, because I did not desire that there should be any misunderstanding as to the grounds upon which my decision was based.

After a most laborious and critical examination pf all the principles and authorities to which my attention has been called, or which I could find, I have satisfied my own mind, that the conclusions to which I have arrived, are those which must be reached by every impartial mind, upon a careful examination of the questions involved in this action, and that they . best accord with those great principles of equity by which the injustice and hardships of the strict letter of the law are remedied.

[No appeal vas taken.]

Hote on Rescission oe Contracts.

There is an important difference between the doctrine recognized in England, as to the jurisdiction of courts of equity to entertain suits for the rescission and cancellation of contracts, and the decisions of the American courts on the same subject.

It is elementary law that a party, defrauded by a contract for sale of chattels, and in some cases of lands, has at law, his election either to sue for the damages suffered by the fraud, or to treat the contract as rescinded, and recover, in an appropriate action, the consideration paid by him, and that he can if sued on the contract, set up the fraud as a defense. The legal judgment in such a case proceeds upon the assumption that one of the parties had himself rescinded 'the contract or conveyance prior to the suit and that he was justified in doing so (see Pomeroy Equity Jurisprudence, § 110, note). The remedy of cancellation is not expressly asked for as in an equity action, but its effects are obtained indirectly. The action of “ assumpsit,” which in a majority of cases will be the one adopted, has, for this reason, been likened to a bill in equity in its spirit and objects. Lockwood v. Kelsea, 41 N. II. 185, 187 ; Moore v. Mandlebaum, 8 Mich, 433, 448; Wright v. Butler, 6 Wend. 284, 290. See Bowen v. Mandeville, 95 N. Y. 237.

In England, however, it is settled that the special jurisdiction of courts of equity to order the cancellation of an instrument is not affected by the probability or practical certainty that the plaintiff in equity would have a good defense to an action on the instrument. “ lie is entitled not only not to have the contract enforced against him but to have it judicially annulled.” Pollock on Contracts, 519.

A different rule is adopted in this country. The great majority of cases hold that equity will Only interfere when the remedy at law is not complete and adequate. In some States the courts of equity decline in such a case to entertain a suit for rescission on the ground that the statutes of the state do not give them all the powers of the English court of chancery, but expressly limit their power to cases where the remedy at law is not complete and adequate. Jones v. Hewhall, 115 Mass. 244, 251; Suter v. Matthews, 115 Mass. 253. The same reason is given in the Federal courts. Hopp v. Babin, 19 How. 271; Insurance Company v. Bailey, 13 Wall. 616; Grand Chute v. Winegar, 15 Id. 373; Girard Ins. Co. v. Guerard, 3 Woods, 427. In several of these cases where the bill was dismissed there was either a suit at law actually pending or the matter stated in the bill might have been pleaded as a defense in a former suit (Ins. Co. v. Baily, 13 Wall. 616), and it is suggested in Mutual Life Ins. Co. v. Beals, 50 How. Pr. 236, 240, that this was the reason for dismissing the bill. While it is true that in many cases, the reason given for the refusal to entertain suit is that the pendency of the action at law or the neglect to plead the matter in defense, must be considered as an election on the part of the plaintiff to abide by his legal remedy or as a waiver (Green v. Spaulding, 76 Va. 411; Harvy v. Fox, 5 Leigh, 444; Dambmann v. Schulting, 51 How. Pr. 337), the language of the majority of cases shows that adequacy of the remedy of law, even if no action has been brought or threatened, is considered a sufficient reason for refusing to entertain the suit. On the other hand, where the remedy is not adequate, the bringing of an action at law does not in all cases preclude the party, from bringing a suit in equity. Porter v. Jones, 6 Coldw. (Tenn.) 313.

In New Jersey it was held that where a release had been fraudulently given, a court of equity will declare it void, even though the fraud be such as might avoid the effect of the instrument at law. Monmouth Ins. Co. v. Hutchinson, 21 N. J. Eq. 107, 117. The facts of that case were somewhat peculiar, because the invalidity of the release was set up not by any of the parties to it, but by a third person in bpposition to whose rights it had been given. See also Card v. Brier, 10 Weekly Law Bulletin, 88.

In New York the jurisdiction of a court of equity in all cases of fraud is not denied (Hamilton v. Cummings, 1 Johns. Ch. 520-522), but it will not be exercised unless some circumstance be shown establishing the.necessity of a resort to equity in order to prevent an injury which might be irreparable. Town of Venice v. Woodruff, 62 N. Y. 462, 467.

The fact that where land has been conveyed, and the legal title has passed, a court of law does not generally, in case of mistake or fraud, treat the contract as rescinded, but leaves the parties to their action for damages on the covenants, has been held to confer jurisdiction on a court of equity to entertain a suit for rescission in such cases. So in Emigrant Co. v. Wright, 97 U. S. 339, the court held that it had jurisdiction to set aside an executed contract between a corporation and a county of the state, on the ground of inadequacy of the consideration, and ignorance of the county officers of the value of what they were selling. Sec also Schiffer v. Dietz, 83 N. Y. 800.

While the - jurisdiction to rescind executed contracts of this kind in case of fraud is undoubted, the cases differ where there is an innocent misrepresentation. In the recent case of Huffner v. Ridley 16 Rep. 282, it was held that where the contract for a sale of land is executed, equity will entertain a suit for rescission, even if there is only an innocent and mutual misapprehension as to the quantity conveyed, where the deficiency is so large as to amount to a failure of consideration; and in Baptiste v. Peters, 51 Ala. 158, a suit was entertained where the title proved to be defective, though no fraud was proved. See Cullum v. Bank, 4 Ala. 35, and cases cited. On the other hand, in Smith v. Hughes, 12 Centr. L. J. 17, it was held that where there was a warranty of title, possession had been given, and the title proved to be defective, equity would not interfere in the absence of fraud, but would leave the parties to their legal remedies. And in Bruner v. Meigs, 64 N. Y. 506, where the purchase was made at an auction, and it was proved, after part of the purchase money had been paid, that no good title could be given, it was held that no action in equity to rescind the sale would lie, as there was a good defense at law, but that an action at law could be brought to recover the money paid on the ground of failure of consideration.

In the majority of the cases where equity interferes, the reason is either to prevent a multiplicity of suits (McHenry v. Hazard, 45 N. Y. 580), or because the contract, which it is asked to rescind, might be made use of to harass the party who asks the cancellation. As a general rule, a suit will not be sustained to cancel an executory, non-negotiable instrument, like a policy of life insurance, where there are no special circumstances which would prevent the defense from being available; it is not sufficient that a defense exists, and that the evidence might be lost. Globe Ins. Co. v. Neals, 79 N. Y. 202, Allerton v. Belden, 49 N. Y. 373.

Some decisions in this State, however, recognize that the contract of life insurance is a peculiar one, and that, when doubts as to the rights of the parties under it exist, it is often desirable to bring an action in equity to have it decided what those rights are in advance of any action at law. Cohen v. New York Life Ins. Co., 50 N. Y. 610; Mausbach v. Metropolitan Life Ins. Co., 53 How. Pr. 496. It is true that in those cases the action was brought by the insured to have the policy declared valid, but the reasoning seems to be applicable when action is brought by the insurer to have the policy canceled.

But when the instrument is perpetual in its nature, and the keeping of it in force, is a fraud against the party complaining, the case is one for equity, though there may bo an action at law for damages. It was held in Jones v. Bolles, 9 Wall. 364, that a stockholder of a corporation who had been induced to buy his stock by representations that the property was unincumbered was entitled to an injunction restraining the person who had made such representations from enforcing a certain contract in his favor, which constituted an incumbrance on the property of the corporation.

So in Fuller v. Percival, 126 Mass. 381, it was decided that where a member of a firm had fraudulently made a promissory note in the name of the firm and delivered it to a third person, who had knowledge of the fraud, a bill in equity brought by another member of the firm, after dissolution of the firm, to have the note canceled, would lie, though no suit was brought upon the note, and though it was overdue. As the-court founds its decision on Commercial Ins. Co. v. McLoon, 14 Allen, 351, where a suit to cancel a policy of life insurance was entertained under substantially the same circumstances under which it was dismissed in this State, in Globe Ins. Co. v. Reals, 79 N. Y. 202, the decision above quoted would probably not be followed in New York.

The remedy in all such cases depends on the circumstances. The court can order the instrument to be canceled, or if the contract has not been executed, enjoin the party guilty of the fraud from enforcing it. Dale v. Roosevelt, 5 Johns. Ch. 173, 181.

It is not a sufficient reason to justify the interference of a court of equity that the contract which is sought to be set aside might be transferred to parties who are qualified to bring suits in the federal courts, where such instruments may be adjudged valid, contrary to-the decisions in this State. Town of Venice v. Woodruff, 62 N. Y. 462. Nor will a promissory note be canceled where no fraud is alleged, for the mere purpose of preventing an anticipated erroneous judgment by a court of concurrent jurisdiction, in which the plaintiff’s action at law is pending. Quebec Bank v. Weyand, 30 Ohio St. 126.

While the mere fact that there are numerous' holders of instruments similar to that asked to be cancelled, does not warrant the interference of a court of equity, yet when the instrument creates also a. prima facie liability and requires an affirmative defense, the combination of all those circumstances makes out a case for "the interference of a court of equity. Town of Springport v. Savings Bank, 75 N. Y. 897, 402; Metzger v. Attica R. R. Co., 79 N. Y. 171. So' it was lield that an action -would lie to set aside'a lease executed by one of the city departments^ which was claimed to be invalid ón account of certain informalities. The presumption of law as to the regularity of all acts of public officers was held to afford a sufficient reason for the maintaining of an equitable action. Mayor v. Staten Isl. Ferry Co., 9 Hun, 620 ; see Mayor v. Union Ferry, 55 How. Pr. 138.

Mistake and accident are grounds for a rescission of a contract in equity. Some New York cases hold, that in order to invoke the aid of a court of equity to rescind a contract, it is enough, even if no fraud has been practiced by the other party, that the plaintiff alone has acted under a mistake which prevented the uniting of the minds, and that mutuality of mistake is only necessary where reformation of the contract is asked. Smith v. Mackin, 4 Lans. 41 ; Mills v. Lewis, 55 Barb. 179. But the later cases hold that “a court of equity relieves parties from a mutual mistake of fact, but not when ignorance or mistake is confined to one party, and no unconscientious advantage is taken by fraud or concealment by the other.” Matter of Potter, 10 Daly, 139; Moran v. McLarty, 75 N. Y. 25. Relief will also be granted when the mistake is one of law, but has been induced by inequitable conduct of the other party, even if not fraudulent or intentionally misleading. Burrows v. Peck, 19 W. D. 15, cf. Snell v. Ins. Co., 98 U. S. 85; Taylor v. Holmes, 14 Fed. Rep. 498.

While, in the absence of fraud, a contract for a specific object cannot be rescinded in the case of a mutual mistake as to quality, but the rule of caveat emptor applies, an exception is recognized in England by courts of law, in case the difference between what the object was thought to be and what it really was, is so great as to make it substantially a different object. Kennedy v. Panama Mail Co., L. R. 2 Q. B. 580, 587.

The reasoning in that case seems to warrant the application of the same rule where the mistake is only on one side. The case of Smith v. Hughes, L. R. 6 Q. B. 597, quoted in Bulloch on Contracts, 423, to sustain a different view docs not decide this point, as the mistake there did not go to the substance of the thing sold.

An action of an equitable nature to rescind the contract without indicating any claim to damages, cannot, by amendment on the trial, be changed into an action for damages. Sinclair v. Neill, 1 Hun, 80.

The New York cases on the question whether a party defrauded is in all cases debarred from maintaining a suit in equity for the rescission of the contract, if he is unable to restore the consideration received, are somewhat contradictory. In Sinclair v. Neill, 1 Hun, 82, it is held, that the ability to restore the consideration received is a condition precedent to the bringing of an action, based on or asking for rescission, both in law and in equity. See also Van Lieuw v. Johnson, 6 T. & C. 648. But it is doubtful whether these cases state the law correctly. This is well settled, that there is a distinction between suits at law and in equity, in so far that while in the former an actual tender of the property is necessary as a condition precedent for the bringing of an action based on the rescission, no such tender is necessary in an equitable suit for cancellation. Dusenbury v. Lehmnier, 46 How. Pr. 417; Gould v. Cayuga Bank, 86 N. Y. 75, 83. It is certainly enough in an equity action to make the offer to restore in the complaint. (See cases quoted.) The reason of this distinction is stated in the latter case to be, that in an action at law the return of all the property obtained under the contract is a part of the act of rescission. In equity, “ however, the action does notproceed as upon arescission, but proceeds for a rescission.” The only reason it seems, therefore, why a return of the property can be required in an equitable suit is, in virtue of the maxim, that he who seeks equity must do equity. But that maxim is satisfied when the property actually in possession of the plaintiff is returned, and does not call in all cases for a restoration of all that has been received. If this were not so it would be difficult to see on what ground the distinction pointed out in Gould v. Cayuga Bank, 86 N. Y. 75, between suits at law and suits in equity could be maintained at all. The language of the court of appeals in Getty v. Devlin, 54 N. Y. 403, 415, seems to favor this view. In that case the action was brought to have an agreement by which plaintiffs bound themselves to contribute a certain sum for the payment of some real estate which belonged to defendants, declared void on the ground of fraud and for an accounting of the money received under it. The property bought under the agreement had been transferred to a corporation, and a certain number of shares given to plaintiff, which he offered to surrender in his complaint. After the discovery of the fraud, and before beginning the action, the plaintiff had caused the property to be sold,- in satisfaction of some claims against the corporation.

The court held that the tender of .the shares did not place the defendants in the position they were in before the real estate was conveyed, because -what they parted with was the real estate, and it held also that the plaintiffs, by their own acts, had made it impossible to restore this property to the defendants. The court then says: “It is a rule, quite uniform, that a party who seeks to recover money which he has been induced to pay for property by fraud, must restore the property before he can rescind the contract and recover the money paid. It matters not, as far as I can discern, that it is difficult or even impossible for him to do so, as long as he is not prevented by the act of the wrongdoer. Before he can adopt this form of remedy he must do it, and the action in such case may he at law.” .... “In this case, if the tender of the release of the stock was sufficient, no resort to equity was necessary or proper.”

But the court., though holding that the action could not be maintained on the theory that the plaintiffs had restored to the defendants all they parted with, gave relief in a mode which practically amounted to a rescission of the contract, by ordering defendants to account for all the money they had received for the property, beyond the original cost price. The fact, therefore, that the plaintiffs had, by their own act, made it impossible to tender back what they had received, was not held to debar them from equitable relief; nor did the fact that they could have sued the defendants to recover damages for the fraud prevent equity from taking cognizance of the case. (See p. 451.) The reason for granting equitable relief was found exclusively in the fact that the strict rule of the common-law, as to restoration of the property received, made an action at law impossible.

A question closely connected with this subject is whether a bill in which an offer to do equity is not made is open to a demurrer. In Gould v. Cayuga Bank, 86 N. Y. 83, it was held that in an equitable action such an offer was sufficient, but the question whether an omission made the bill demurrable was not before the court. In the case of Hay v. Hay, 13 Hun, 353, the question was answered in the negative. The court held that, while the condition to return the property received will be imposed whether there be an offer in the complaint or not, it must be considered as merely a condition for granting relief, not of instituting the suit, this seems to be in harmony with the general rule of equity pleading, see Town of Venice v. Woodruff, 62 N. Y. 462, 471 ; Quin v. Brittain, 1 Hoff'm. Ch. 353; Whelan v. Reilly, 61 Mo. 569 ; 2 Story Eq. 693, 694.

The differences, as to the necessity of tender, between suits at law and in equity and also the rule of pleading thus laid down by New York cases are sustained by authority both in England and in America. So it was held in the English courts that an action of assumpsit would not lie to recover money paid for shares in a company organized on the cost book plan, if between the sale and the discovery of the fraud, the company has been reorganized and it was therefore impossible to place the parties in statu quo (Clarke v. Dickson, E. B. & E. 148 ; Western Bank v. Addie, L. R. 1 Se. & D. 145). On" the other hand, in a suit in equity brought in behalf of an insurance company to rescind a policy of life insurance, where no tender had been made of the premiums received and no express offer to restore them was made in the complaint, Lord LangdaIjE expressed a doubt whether it was necessary that a bill should contain any offer to do equity, but even if it were necessary he held that the mere form in which the prayer for relief was made “ that the plaintiffs maybe relieved in such manner as the court may think fit,” was a sufficient offer to do equity. Barker v. Walters, 8 Beav. 92, 96.

In Garner v. Leverett, 32 Alab. 410, the court says: “In a court of law a restoration of the property or an offer to restore it would ■be necessary before the contract could be treated as annulled. But a court of chancery, unlike a court of law, may .require as a condition precedent to the rescission an abandonment of the lánd and the payment for the use and occupation by the purchaser, and therefore, does not adopt the same principle which prevails at law,” citing Coffin v. Newson, 2 Kelly, 640. See also Martin v. Martin, 35 Ala. 560, 569; Keefer v. Rogers, 19 Minn. 32; Whelan v. Reilly, 61 Mo. 565.

In Indiana the distinction pointed out is recognized (Harper v. Terry, 70 Ind. 264; Gatling v. Newell, 9 Ind. 572); although it was held that even in a suit in equity a demurrer, may be sustained, unless an offer to restore the property is made or a sufficient excuse is shown for not making the offer. McCormick v. Malin, 5 Blackf. 533. The reasoning in that case clearly shows that the restoration is not considered as an element of the cause of action, but that the omission of the offer under the circumstances made the bill indefinite and embarrassed the court, as to the mode of administering it. No demurrer having been interposed the court granted relief but did not allow plaintiff any costs as a penalty for the “inexcusable frame of the bill.”

It may well be doubted whether under the system of pleading of the New York Code, the principle laid down in this decision would have authorized the interposing of a demurrer and whether the remedy would not have been a motion to make the complaint more definite and certain.

The above quoted case is approved in Wiscorsin (Dunn v. Amos, 14 Wisc. 106 ; Hollenback v. Shoyer, 16 Wisc. 499), while in that State in actions at law the strict obligation to tender back all that has been received is recognized (Weed v. Paige, 7 Wisc. 503.)

■ In 'Illinois the restoration of the consideration is required both for* actions at law and suits in equity. Wolf v. Dietzch, 75 Ill. 205; Smith v. Brilttenham, 98 Ill. 197.

The rule requiring restoration applies only to actions based on rescission and not where the action is brought for damages for the fraud, Horton v. Dorr, 19 W. D. 224. But, before an offer is made to return the property no damages can be recovered for the expense of keeping it, West v. Anderson, 9 Conn. 107 ; Caswell v. Coare, 1 Taunt. 566. In Harris v. Ins. Co., 64 N. Y. 196, it was doubted whether the rule applied where fraud was pleaded as a defense.

The rule, is moreover, subject to several exceptions.

Where the action is brought by an infant, there is no obligation to restore the property received by him, in so far as he has consumed it or parted with it during infancy, Green v. Green, 69 N. Y. 553. The same rule applies to a person not compos mentis. Price v. Furman, 27 Vt. 268. In so far as Bartlett v. Cowles, 15 Gray, 445, holds a different doctrine, it is expressly overruled in Bartlett v. Drake, 100 Mass. 174, 176.

But in order to absolve the infant from the duty to restore, it must appear affirmatively that he has squandered or lost his property. In the absence of such proof it was recently held that a request to charge the jury, that a mortgage made by an infant could not be avoided without the restoration of, or at least, an offer to restore, should have been granted. Haugen v. Hachmeister, 16 Week, Dig. 552.

Where the conveyance is absolutely void, as in the case of a married woman under the common law disabilities, it can be dis-affirmed at law without an offer to restore the consideration money. Bartlett v. Cowles, 15 Gray, 445. But equity in such a case will interfere at the instance of a bona fide purchaser and decree the payment of the purchase money, making it a first lien on the land. Pilcher v. Smith, 2 Head, (Tenn.) 208.

So where a statute declares the assignment of a married woman’s life insurance policy void, she can sue at law, in opposition to her assignment, without restoring the consideration received. Eadie v. Slimmons, 26 N. Y. 9; Wilson v. Lawrence, 13 Hun, 238; but if she brings an action in equity to set the assignment aside, no relief will be granted unless the money is returned. Wilson v. Lawrence, 8 Hun, 593.

A return as a condition for bringing the action is not necessary where the property received is of no value. So it was held that where suit was brought, upon a consideration for which, the defendant’s promissory notes have been subsequently taken, an offer to restore on the trial was sufficient, as by the bringing of the action the notes became valueless. Armstrong v. Tuffts, 6 Barb. 432; Thurston v. Blanchard, 22 Pick. 18. And see Parks v. Evansville R. R. Co., 23 Ind. 571. So where the consideration received for a note was an interest in an insolvent partnership, it was held that fraud could be set up as a defense without any tender to restore. Smith v. Smith, 30 Vt. 139. But see Ahrens v. Adler, 33 Cal. 616.

Where the fraud itself is the cause that no tender was made, a tender at the trial is sufficient. So where at the trial of an action for a personal injury, the defendant put in evidence the plaintiff’s receipt of a sum of money in full satisfaction, and the plaintiff testified that the receipt was obtained by fraud, that she did not know its contents till it was read, and that she thought the money was given her in another account, an offer to return, during defendant’s argument to the jury, was held sufficient. Smith v. Holyoke, 112 Mass. 517.

If the right to what was received does not depend necessarily on the disaffirmed transaction, return may be dispensed with, as where a mortgage debtor pays his creditor partly in cash and partly in a worthless security, fraudulently representing it to be good, the creditor is not bound to return the cash as a condition to reinstating the lien of the mortgage to the extent of the amount of the security thus transferred and interest. Hollenbeck v. Thayer, 16 Wisc. 499. Nor • is it necessary to restore property not mentioned in the contract, although received under it. Harper v. Sherman, 14 W. D. 12. Rut where money had been paid on a compromise and not because it was conceded to be due, and a release was executed, it was held that no action at law could be brought disaffirming the release, without an offer to restore the money received under it. McMichael v. Kilmer, 76 N. Y. 36, 46. -There is no necessity in order to establish a rescission to prove a return or offer to return, as against a third party, claiming under a fraudulent vendee. Clough v. L. & N.Y. R. Rd. Co., L. R. 7 Ex. 26; Kinney v. Kiernan, 49 N. Y. 164; Pearse v. Pettis. 47 Barb. 276.

The latter case also holds that where the fraudulent party has paid a small amount of his own means as one of the instruments to effect his purpose and by such means has secured to himself a large amount, the defrauded party is not bound to restore what he has received as a condition precedent to his right to disaffirm. This seems to be an application of the equitable doctrine to actions at law. See Watts v. White, 13 Cal. 323; Allerton v. Allerton, 50 N. Y. 670; North Pac. R. R. v. Kindred, 14 Fed. Rep. 77, also Smith v. Felton, 43 N. Y. 419.

The reasonable doctrine stated in Pearse v. Pettis, on the authority of a dictum in Ladd v. Moore, 3 Sandf. 589, that ¿a party defrauded may, in an action at law, always make his offer to restore conditional, on his being restored to his original condition, is -subjected to some doubt in view of the later cases quoted which lay down the rule quite generally that an absolute tender is necessary to succeed in this form of action. The case of Ladd v. Moore is also disapproved in Weed v. Page, 7 Wise. 512, in so far as it holds that it is sufficient to show that an effort has been made to make a tender, but that the defendant could not be found. It is a different question whether where an unconditional tender has been made and refused, the plaintiff is bound to keep it good. The question was answered in the negative in Mich. Cent. Rd. v. Dunham, 30 Mich. 128.

If impossibility to restore what has been received results from the act itself of the fraudulent party, it is enough even in an action at law if the party defrauded does whatever is in his power, to undo what has been done. Masson v. Bovet, 1 Den. 69; Hammond v. Pennock, 01 N. Y. 146, 152. Where damaged goods had been mixed with other goods, though a stipulation had been made that no damaged goods should be included, it was held that the plaintiff could recover the price paid for the damaged goods, without tendering the other goods. Vernol v. Keeler, 47 N. Y. 674.

Another class of cases where the necessity of tendering the consideration received is dispensed with is where a title is acquired by actual fraud, at an execution or sheriff’s sale. McCaskey v. Graff, 23 Penn. St. 321; citing Sands v. Codwise, 4 Johns. 597. In that case the money was paid to the sheriff and reduced liens on the estate, and the action in ejectment was brought against the purchaser by the debtor’s assignee for creditors. The same rule was applied to a purchaser by actual fraud from an administrator, when the administrator de bonis non sues to recover the property. (Forniquet v. Forstall, 34 Miss. 87), and to a creditor’s bill to set aside a fraudulent mortgage for an exaggerated amount. Wheeler v. Hawes, 10 Conn. 50. In a recent New York case, it, was held that section 1440 of the Code of Civil Procedure,—which provides that if the title of one claiming under a sheriff’s deed is adjudged void in an action brought by the judgment debtor, the judgment shall have no force unless the purchase money be returned within a specified time,—is not applicable to the case of a fraudulent purchaser. McIntyre v. Sanford, 89 N. Y. 634.

In a case where restoration of the property received is necessary, a mere redelivery of the deed received is not effectual (Nichols v. Halsey, 1 Johns. Ch. 417, 422), but a tender of it may, under the circumstances, show an offer to reconvey and a refusal. Mitchell v. Moore, 24 Iowa, 394. A grant or quit-claim deed (where such a deed is effectual as a grant) with covenants against encumbrances and warranty against all lawful claims, is a sufficient reconveyance and it is no objection that the consideration expressed is less than the value. Kiefer v. Rogers, 19 Minn. 32, 38.

Where it is sought to have a contract rescinded on the ground of fraud, the facts constituting the alleged fraud must be clearly stated so that it may appear to the court whether the transaction was fraudulent or not and how and by what practices the plaintiff was imposed upon. Bell v. Lawrence, 51 Ala. 160; Bailey v. Litten, 52 Al. 282; Kilgo v. Castlebery, 38 Ga. 512. An allegation that a deed was fraudulent is a mere conclusion of law and not sufficient. Bryan v. Spruill, 4 Jones (N. C. Eq.) 27. But it is sufficient to allege the facts and it is not necessary to allege the fraud in so many words. Grove v. Rentch, 26 Md. 367, 377. So it was held in Whelan v. Whelan, 3 Cow. 537, 571, that, although in the complaint there is no -specific allegation of “undue influence,” the relief prayed for will be granted if it appears from the facts that the respondent necessarily exercised undue influence.

In Byard v. Holmes, 5 Vr. (N. J. L.) 296, the court went so far as to hold that if a representation is alleged to be false, the allegation must show in what respect it is false, otherwise it would be uncertain whether a denial would not merely be of time and circumstance.

But where by reason of concealment, practiced by the defendants, the plaintiff cannot make an allegation sufficiently specific to sustain a decree, a general■ allegation coupled with an allegation of concealment, -is sufficient on demurrer and the defect may be cured by amendment after the facts have been discovered. Northern Pac. R. R. v. Kindred, 14 Fed. Rep. 77.

The mere fact that the defendant has been guilty of fraud is not sufficient to entitle the plaintiff to a decree for rescission; the bill must contain allegations that plaintiff has been injured by the fraud. Crittenden v. Craig, 3 Bibb {Ky.) 474; Cole v. Miller, 60 Ind. 463; Byard v. Holmes, 5 Vroom (N. J.) 296. In Martin v. Martin, 35 Al. 560, an allegation of great inadequacy of price was hesitatingly held good as an allegation of injury. This rule does not, of Course, apply where a rescission is sought on the ground of constructive fraud arising out of the relations of the parties ; in such a case damage is presumed by law.

Where it is sought to set aside a decree for fraud, the decree itself and the proceedings which led to it with the circumstance of the fraud must be stated so as to enable the defendant to traverse them. If plaintiff pleads as if there were no decree, and defendant sets it up by answer,' and plaintiff only interposes a denial, evidence of the fraud is not admissible. Davis v. Landcraft, 10 W. Virg. 718, 739, 743. See Naltion v. Cameron, 11 N. W. Rep. 525.

But it is not necessary to state the history of the title, prior to the conveyance by the fraudulent'deed. Wilson v. Miller, 16 Iowa, 11.

The same rule as to allegation exists where the relief is sought on the ground of mistake or accident. The mistake must be alleged with precision, and be established by clear proof. Stover v. Poole, 67 Me. 217 ; Jenkins v. Netherland, 3 Ky. Law Rep. 538.

It must be shown that but for the mistake the complainant would not have assumed the obligation from which he asks to be relieved. Grymes v. Sanders, 93 U. S. 61. See Caton v. Willis, 5 Ired. (Eq.) 335.

Where fraud is set out in the complaint and relief is asked-on that ground, the complaint cannot in this State in the absence of-proof of fraud, be sustained on the ground of mutual mistake. Elwood v. Gardner, 45 N. Y. 349 ; Barnes v. Quigley, 59 N. Y. 265 ; McMichael v. Kilmer, 76 N. Y. 36.

The same rule is recognized in other States. Hoyt v. Hoyt, 27 N. J. Eq. 399 ; affirmed 28 N. J. Eq. 485 ; Pasman v. Montague, 30 N. J. Eq. 385. Nor, it seems, can a bill charging actual fraud be sustained on constructive fraud being proved. Wilde v. Gibson, 1II. L. Cases, 605. Under this rule it was doubted whether where a suit was brought to have a promissory note canceled and an action upon it restrained on the ground that defendant knew that the person from whom he received it had stolen it, could be sustained on proof merely that the defendant knew that the bill was an accommodation note. Parr v. Jewett, 1 K. & J. 671. See Brown v. Bulkely, 14 N. J. Eq. 451, 459. But where several charges of fraud are made, and some of them are disproved, the bill will not be dismissed, if the charges proved are sufficient to show that the court has jurisdiction. Hilliard v. Effe, 7 L. R. H. L. Cases, 39, nor, it seems, where fraud and another distinct ground of relief arealleged, and the charge of fraud fails. Parr v. Jewett, 1 K. & J. 671. See Pearsoll v. Chapin, 44 Penn. St. 917.

It has been held that one who seeks to have an instrument set aside as invalid, cannot in the same action ask relief on the theory of any right which he can claim only if the instrument is valid; such causes of action are inconsistent. Wilkinson v. Dobbie, 12 Blatchf. 298. The rule that a bill may be framed with a double aspect, or in the alternative applies only when either of the aspects or alternatives entitles plaintiff to the same relief, but where the allegations are inconsistent and repugnant, there must be at least some allegation of ignorance of the facts showing a necessity for discovery in order to ascertain the proper aspect or alternative. Wilkinson v. Dobbie, 12 Blatchf. 298, 302; Micou v. Ashurst, 55 Alab. 607, 612.

But in Goodenow v. Curtis, 33 Mich. 505, it was held that where a bill is filed to cancel a mortgage past due, and the court finds the mortgage to be valid, a decree for redemption will be made, even if no such relief is asked for in the complaint, on the principle that a plaintiff coming into a court of equity must come prepared to do equity.

Where a bill asked that a certain mortgage might be declared void, or that it might be foreclosed, and there was also an averment that the mortgage was satisfied, it was held that this averment prevented the relief being granted, as it was inconsistent with a prayer for foreclosure. Walthall v. Rives, 34 Ala. 91.

But where the different kinds of relief asked are not inconsistent with the theory on which the complaint is based, they may be joined in the same action. So,it was held, that a complaint, seeking to set aside a deed under which the defendant claims possession, may include a claim to recover the possession of the premises. \ Lattin v. McCarty, 41 N. Y. 107; Bockes v. Lansing, 74 N. Y. 437; or a claim of rents collected by the grantee, they having been secured through the deed of conveyance. Coleman v. Phelps, 57 How. Pr. 393; see also Elliott v. Lamon, 1 McArthur, 647; Miller v. Jamison, 24 N. J. Eq. 41.

If a party who has the right to rescind a contract continues to treat the property as his own, after discovery of the fraud, he will be considered to have elected to ratify it, and no action' to disaffirm it will lie either at law or in equity. Schiffer v. Dietz, 83 N. Y. 300, 308; Grymes v. Sanders, 93 U. S. 55, 62.

But performance by thq plaintiff of what was required by the contract is not necessarily a waiver, unless intended as such. Montgomery v. Pickering, 116 Mass. 227.

Mere lapse of time before bringing the action, however, without any affirmative acts, will not generally be construed as amounting to a ratification. So where an exchange of policies was sought to be set aside, and the second policy was so obscure that it could only be understood by experts, a lapse of five years was not considered as sufficient evidence of ratification. Knauer v. Globe Mutual Life Ins. Co., 48 Sup. Ct. (J. & S.) 454. Nor does it lie in the mouth of those who have withheld necessary information to say that the fraudulent act has been ratified. New Sombr. Phosph. Co. v. Erlanger, L. R. 3 App. Cases, 1248.

The influence of lapse of time in granting equitable relief was thus stated in England : “Where it would be practically unjust to give a remedy, either because a party has by his conduct done what might be fairly regarded as equivalent to a waiver of it, or where by his conduct or neglect he has, though not perhaps waiving the remedy, yet put the. other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted in either of those cases, lapse of time and delay are most material.” Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 240.

The provision in the Rev, St. (now embodied in § 383 of the Code-of Civil Procedure) limiting the time for bringing a suit for relief on the ground of fraud to six years after the discovery of the. fraud, does not take away the right of equity to refuse relief in a proper case even if the action is brought within that time ; the granting of relief is discretionary. See Hay v. Star Ins. Co., 77 N. Y. 235. The dictum of Russell, J., to the contrary in Knauer v. Globe Ins. Co., 48 N. Y. Super. Ct. (J. &. S.) 454, is not supported by the case he quotes (Matter of Manhattan Savings Bank, 82 N. Y. 142), as that was a special proceeding, and the decision was put expressly on that ground. See also Harper v. Terry, 70 Ind. 264, 270, where it is held that if the property is returned with due diligence after discovery of the fraud, the plaintiff can always wait the full statutory time before bringing the action.

But in the absence of acts showing ratification, equity in this State will not deny the relief on the ground of laches, if the party against whom the action is brought is not injured by the delay. Platt v. Platt, 58 N. Y. 646; McMurray v. McMurray, 66 N. Y. 175.

The rule in equity pleading was that a party who seeks to have a contract or conveyance set aside on the ground of fraud, after a long period, must set out specifically the facts showing that the fraud could not, by due diligence, have been ascertained by him. Buckner v. Calcote, 28 Miss. 432, 434; Cole v. McGlathry, 9 Me. 131; Underhill v. Nelson, 1 Lea (Tenn.) 98. And the same rule was applied in Wood v. Carpenter, 101 U. S. 135, where a statute gave a period of six years to begin an action after the fraud was' discovered" but only if the fraud had been concealed by the defendant.

In New York a different rule prevails, and it is not necessary, •where fraud is charged, to aver in the complaint that the discovery was not made till within six years of bringing the suit. The statute must be set up in the answer, and this throws the burden of proof on the plaintiff to show that the discovery was not made till within six years of bringing the action. Baldwin v. Martin, 14 Abb. Pr. N. S. 9. See Ericsohn v. Quinn, 3 Lans. 304. It would seem, under the words of the statute, that it is enough if the plaintiff proves the time of the discovery, and that it is not a part of his case to show that the discovery could not have been made sooner. It is for the defendant to show that the right which, prima facie, the statute confers on the plaintiff has been lost by his laches. This is the rule in England. Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221.

All persons whose rights or relations would be affected by the cancellation or rescission must be made parties to the suit. Pomeroy on Remedies, § 379, and cases quoted. So where an action was brought by a stockholder to set aside a lease made by a railroad corporation to another railroad, it was held that both corporations were necessary parties. Dinsmore v. Atlantic & Pacific R. R. Co., 46 How. Pr. 193.

In an,action to set aside a judgment obtained through fraud, the person who is alleged to have profited through such fraud, is a necessary party. Wiedersun v. Nauman, 10 Abb. N. C. 149. See Alexander v. Katte, Id. 449. But where a sale is sought to be set aside on the ground that defendant induced plaintiff, who was his partner, by fraudulent representations to make the sale, at an inadequate price, to defendant and three others, it was held, in the absence of charges of fraud against the three others, that they were not necessary parties. Palmer v. Stevens, 100 Mass. 461. In that case it apj>eared, .on the face of .the complaint, that an effectual decree could be made without joining these parties to the transaction sought to be impeached, and it was held that the correct modern practice was not to make them parties -to the bill. 
      
       Rev’g 3 Lans. 492.
     
      
       S. C., 20 Am. R. 445.
     
      
       Compare previous proceeding in point in 50 How. Pr. 237; aff’g 48 How. Pr. 502.
     
      
       S. C., 13 Weekly Dig. 341 ; compare different proceeding in 13 Hun, 60.
     
      
       S. C., 13 Weekly Dig. 244 ; aff’g 21 Hun, 293.
     
      
       The same exception still exists in the courts of the United States. Montejo v. Owen, cited on p. 103 of this volume.
     
      
       S. C., 15 Abb. Pr. N. S. 257 ; rev’g 4 Daly, 456 ; and applied in Van Voorhis v. Kelly, 65 Hoto. Pr. 300, upon the point, that, where the plaintiff is entitled to some equitable relief, the action must be retained for that purpose.
     
      
       This case, together with Manning v. Quicksilver Mining Co. (24 Hun, 361), is followed in Jermain v. Lake Shore & M. S. R’y Co. (91 N. Y. 483; aff’g 14 Weekly Dig. 166), upon the point that an assignee of guaranteed stock has the right to payment of unpaid dividends that, fell due before he acquired his title. Compare as to necessity of demand, &c. another proceeding, in 23 Alb. L. J. 433.
     
      
       S. C., 14 Weely Dig. 504; rev’g 2 Abb. N. C. 47.
     
      
       In an opinion by Hon. Theodobe W. Dwight, Referee, in Marie v. Garrison, upon the Admissibility of Evidence, rendered April 24, 1884, there is the following consideration as to under what circumstances a former judgment is a bar to another action : “ There must have been a judgment on the same matter in issue by a court having jurisdiction of the matter, and making a judicial examination into the merits of the question (2 Parsons Cont. 7th ed. 807, bottom paging). The great and leading case on the subject is Duchess of Kingston’s case ( 20 How. St. Tr. 355-538). It is there laid down that the judgment of a court of concurrent jurisdiction directing upon the point, is as a plea a bar or as evidence conclusive between the same parties upon the same matter directly in question in another court. This rule has met with general recognition and adoption. When all the ingredients above stated exist, it is quite immaterial as to the form of action being identically the same. One might be in trover and the other in replevin, and yet the rule would be applied (Doty v. Brown, 4 N. Y. 71). The words used in the Duchess of Kingston’s case, that the same matter must be in question, are now held to mean that the same question must be litigated in the respective actions. Doty v. Brown (supra), may be referred to also on this point. There the question was whether a bill of sale of goods was fraudulent. The first action was brought to determine this question as-to a part, of the goods, the other for the residue. It was held, that though the goods weré not the same, yet the question of fraud was the same, and the former judgment was a bar. The same rule was established in Gardner v. Buekbee, 3 Cow. 120, and other cases cited in the opinion in Doty ». Brown (supra). No cases have gone further, and it is perfectly well settled that the doctrine of res adjudicata does not apply, unless the question in the two actions is identically the same.
      This principle may now be applied to the case at bar. The decree itself in the Ketchum Case (Pacific R. R. Co. n. Ketchum, 101 U. S. [11 Otto) 289), to which I was referred, had in it no element of res adjudicata. The judicial mind was never applied to it. It got its force from the consent of the parties to the contract or compromise on which it was founded. Such a decree is never res\ adjudicata in the proper sense of the expression (Jenkins v. Robertson, L. R. 1 Scotch Appeal Cases, 117, 121, 122,125). Lord Eoiiillt said, p. 123, “that the court in such a case merely exercises an administrative function by recording the interlocutor (judgment) which had been agreed upon between the parties.” Still, the decree operates and is of force, not as a strict judicial decision, but by force of the compromise. The parties assenting to it are estopped by their admissions. Judicial admissions regularly create an estoppel against the "parties making them (1 Greenl. Ev. §§ 205, 180, 189).
      The testimony shows that after Mr. Garrison had entered into a contract with the plaintiffs to purchase the property, he declined, by telegram, to carry out the contract, at the same time indirectly purchasing the property for himself. One of the steps subsequently taken by the plaintiffs was to appeal from the forclosure decree entered into by their consent. This was a perfectly futile proceeding for any purpose of vacating the decree as long as their consent remained of record. The estoppel created by the consent still continued. The most that could be done on such an appeal was to determine whether the decrfee corresponded with the consent, and so the Supreme Court of the United States decided in Pacific Bailroad v. Ketchum, 101 U. S. (11 Otto) 289. In other words, the only questions •beyond that of‘jurisdiction over the parties before the court were, first, whether the Pacific Railroad Company as a corporation defendant, represented the plaintiffs’ interests, and, second, whether the decree conformed to the consent. There was not the smallest inquiry into the contract itself, as between the parties now litigating, nor as to whether it had been performed or not, ñoras to the liability of either party under it to the present action. The case, in fact, has none of the elements of a remedy upon the contract. It is quite doubtful whether an appeal in and by itself is a “remedy.” Its office is to correct errors and mistakes, and presupposes previous stages of proceeding. The “ remedy ” in this case was the action for foreclosure, to which the appeal applied itself as a subsidiary operation. That action was commenced before this contract existed. A remedy is not well defined in our law. The most approved definition is that of Johnson, J., in Belknap v. Waters, 11 N. Y. 477. It is that every original application to a court of justice for a judgment or an order, is a remedy. This definition is followed in Ex parte Cooper, 22 N. Y. 67-87. Tested by this principle, this appeal in the name of the Pacific Company, though promoted by the plaintiffs, was not a remedy upon the contract, as it was not an original application under it.
      But waiving this point, the relief to be obtained had none of the elements of res adjudicata as established Doty v. Brown, supra, and kindred cases. It was legally impossible for the court on appeal to do more than it did. It merely exercised a supervisory power which must exist and be exercised as to all judgments in its court, to see that they were not made instruments of fraud or mistake to the prejudice of the parties to them. It adjudicated nothing; it had no power to adjudicate anything. In the words of Lord Romjxly already cited, it was not acting in a judicial, but simply in an administrative capacity to record with correctness the ascertained wishes of the parties.
      The same general view must be taken even of a distinct proceeding to set aside the consent so far as unauthorized, e. g., the so-called Nugent suit. There is no estoppel or judicial bar to this action if that suit be successful or unsuccessful. Nothing of this kind would go to the very merits of this action except an overturning or upsetting of the consent as actually given so as to tend to an overturning of the foreclosure itself so as to make the contract void for want of consideration.
      Assuming that the Supreme Court of the United States had in the cause above referred to, found a discrepancy between the judgment assented to and the judgment actually entered, and had proceeded to correct it, that course of proceeding would have been no bar to the enforcement of this contract. That would have been no more than a proceeding to conform the decree to the consent. That is in aid of the decree as it should be and not in subversion of it. Such a result must be presumed to be equally beneficial to the defendant as to the plaintiffs, as it cannot be supposed that the defendant would be satisfied with a decree bottomed upon a mistake, much less upon a fraud. ■
     
      
       S. C., 13 Weekly Dig. 244; aff'g 21 Hun, 293.
     
      
       See note, p. 194.
      
        * Reported as People ex rel. Content v. Metropolitan Railway Co.,. 26 Hun, 82.
     
      
       S. C., 21 How. Pr. 193 ; aff’g 20 How. Pr. 199, and 11 Abb. Pr. 204.
     
      
       2 L. 1872, p. 2179, c. 885, § 2. “ The business and offices ” [probably meaning affairs] of said company shall be managed by a board of not less than seven directors . . .”
     
      
       As to what is deemed settled by this case, see Moss v. McCullough, 7 Barb. 279.
     
      
       p. 216.
     
      
       S. C., 38 Barb. 297.
     
      
       Aff’g 9 Barb. 64. Distinguished as to the distinction between corporation and church, in 16 Weekly Dig. 387.
     
      
       S. C., 14 Abb. Pr. 424.
     
      
       Rev’g 25 Hun, 246. See also 13 Abb. N. C. 210, and Attorney General v. South Eastern R. R. Co., L. R. 11 Chan. Div. 449 ; S. C., 27 Moak Eng. 672.
     
      
      
         Approved as a leading case on this subject, in Gardner v. Odgen, 22 N. Y. 327-349; in Cumberland Coal and Iron Co. v. Sherman, 30 Barb. 553, 564, 571; in Schwarz v. Wendell, Walk. Ch. {Mich.) 297; also in 8 Cowen, 361-373; 4 Id. 717-744; Clarke Ch. 465-466, with note at p. 89, collecting cases; 1 Bradf. 321-325; 10 Barb.. 356-364; and see 1 Paige Ch. 393-397. See also note, collating cases, 23 Moak's Eng. 38.
     
      
       Previous decision in point, 49 N. Y. 201. S. P., 85 Id. 365.
     
      
       Rev’g 20 Barb. 468.
     
      
       S. C., 3 Abb. Pr. N. S. 415; aff’g 34 Barb. 276.
     
      
       Modifying 22 Hun, 133.
     
      
       Followed, as to confilmafcion by cestui qv,e trust, in Luers v. Brujes, 5 Redf. 32; citing 74 N. Y. 534.
     
      
       S. C., 13 Am. R. 595; rev’g 51 Barb. 45; which aff’d 47 Id. 104.
     
      
       Aff’g in part, and rev’g in part, 11 Hun, 15.
     
      
       Aff’d in 59 Id. 439 ; and in S. C., 82 N. Y. 65. See also discussion in 15 Am. L. Rev. 159, upon “ Trustees as Tdrt-Feasors.”
     
      
       Approved on this point in 92 N. Y. 490; 27 Hun, 378.
     
      
       With note.
     
      
       The same change is seen in the history of the civil- law, where the extraordinary remedy of restitution in integrum for fraud fell into disuse, when fraud and mistake became available as defenses in the ordinary proceedure (Savigny, System of Roman Law, VII. 90, 114).
     