Opinion
01-11-1901
RUSLING et al. v. MOSES.
Chauncey H. Beasley and W. D. Holt, for complainants. James Buchanan and G. D. W. Vroom, for defendant.
Bill by James F. Rusling and others against James Moses. Dismissed.
Chauncey H. Beasley and W. D. Holt, for complainants.
James Buchanan and G. D. W. Vroom, for defendant.
REED, V. C. This bill is filed by James F. Rusling and 10 others, for their own benefit and the benefit of such other stockholders of the Trenton Light & Power Company as may come in, to compel the defendant to account for the moneys he received from the sale of 2,500 shares of the stock of the Trenton Light & Power Company. The gravamen of the bill is that the defendant held these 2,500 shares as a trustee for the preferred stockholders of the Trenton Light & Power Company. On January 8, 1883, the Mercer & Burlington Electric Light & Power Company of Trenton was incorporated, with a capital stock of $25,000. On February 2, 1885, the name of the company was changed to the People's Electric Light Company of Trenton, N. J., and its capital stock increased to $100,000. The capital stock was subsequently, on April 10, 1890, increased to $200,000. The par value of each share was $100. This company used the Westinghouse system of electric illumination. On May 17, 1890, another corporation, under the name of the Edison Electric Light & Power Company, was incorporated, with a capital of 2,000 shares, of the par value of $100 each, to carry on the business of electric lighting in Trenton. This company was to use the Edison system of illumination, which system was controlled by the General Electric Company of New York City. The Edison Electric Light & Power Company was formed as a competitor of the People's Electric Light Company. The president of the former was Frank Magowan, and of the latter James Moses, the defendant The People's Electric Light Company feared the competition threatened by the Edison Company, because its own right to use the Westinghouse system was then in litigation, and because the Edison Company had secured a license from the city of Trenton to operate its plant therein. A meeting of the stockholders of the People's Company was called, the result of which was that Mr. Moses was directed to communicate with the General Electric Company of New York, and try to acquire a license from that company to use the Edison apparatus. The officers of the General Electric Company declined to give such a license on the ground that they had entered into an arrangement with Mr. Magowan by which they felt they were bound to give him the exclusive right to use its patents. They, however, suggested a combination of interests of the People's Company and the Edison Company, so as to avoid competition, and put in exclusive use in Trenton the Edison system. In pursuance of this suggestion a new company was formed under the name of the Trenton Light & Power Company, with a capitalization of $760,000. To this company all the property and franchises of the People's Company were turned over, for which the stockholders of the latter company were to receive 2,600 shares of the preferred stock of the new company. To the new company were also turned over the license and other interests of the Edison Company, for which, apparently, 4,000 shares of the common stock of the new company was to be issued. One thousand shares of the common stock, or such parts as were necessary, were also to be issued and used by the new company to satisfy the General Electric Company for the license to use its apparatus; and for such apparatus as were necessary for the replacement of the Westinghouse apparatus, and for extensions of the 4,000 shares of the common stock issued, Mr. Magowan received 1,500 shares, and Mr. Moses, the defendant, 2,500 shares. In 1890 all the stock of the new company was bought up by Messrs. Barr & Kuser, and for the money received by Mr. Moses for his block of stock he is now called upon to account to the complainants. The complainants insist that he held this stock as a trustee for the stockholders of the old People's Company. The defendant insists that it belonged to him personally.
The solution of the questions thus propounded depends mainly on what occurred at the meeting of the stockholders of the People's Company held at the office of Mr. Lowthorp, in the city of Trenton, on June 3, 1892. To understand the significance of this meeting, it is essential to trace more in detail the course of previous events which led up to it it is admitted that an informal meeting of the stockholders, in response to a notice, was held in a room over the store of Messrs. Sinclair & Van Ness some time between May 13 and May 26, 1892. At this meeting the danger threatened by Mr. Magowan's newly incorporated Edison Company was presented to the stockholders and discussed. It wasfinally determined that Mr. Moses should go to New York and try to see what could be done in the matter. He suggested that he should have some written authority to act for the stockholders of the People's Company. A paper was afterwards prepared and given to Mr. Moses. He had an interview with the officers of the General Electric Company, and at first had hopes of obtaining a license from it. He obtained a proposal and a letter under date of May 21st signed by S. D. Green, for the General Electric Company. This proposal included a license to use the Edison apparatus. Before another meeting was held the General Electric Company discovered that they were bound up so closely with Mr. Magowan that they could not give a license, and recalled the proposal before its acceptance. As already remarked, this led to a suggestion of a combination of the interests of the two companies; and the suggestion led to an interview between Mr. Moses and Mr. Magowan, which interview was resultless. Then Mr. Coffin, an officer of the General Electric Company, proposed the formation of a new company. The General Electric Company gave Mr. Moses a letter, under date of May 26, 1892, containing a proposition. The letter proposed that if the stock of the People's Company could be exchanged for preferred stock of the new company, bearing 5 per cent. interest, on a basis of 175 preferred stock, or 150 of the preferred stock with 50 common stock additional, for each 100 of the People's Company's stock, the General Electric Company would guaranty that $70,000 in cash would be invested by the new company in the extension of its plant. This proposition was presented to a meeting of the stockholders of the People's Company held at Mr. Lowthorp's office on the evening of May 26th. By a paper then signed the stockholders empowered Mr. Moses to close the arrangement in accordance with that proposition. It was, however, verbally suggested that Mr. Moses might obtain better terms by further negotiations. The result of a further interview was that the General Electric Company raised the offer from 175 to 185 of the preferred stock of the new company for each $100 worth of stock of the People's Company. This was upon the assumption that the stockholders of the People's Company would, as they had intimated, accept only preferred stock, and not preferred stock with common stock in addition. This proposition was reported to a meeting of the stockholders of the People's Company held at Mr. Lowthorp's office on June 3d, and the proposition was accepted. At this meeting came up the question of the disposition of the common stock of the new company, and the important question in the case springs out of what was then said concerning it.
It is necessary to again recur to the history of the common stock which the new company was to issue. Mr. Moses testifies that Mr. Coffin, who seems to have had the matter in charge for the General Electric Company, proposed that the new company should be capitalized at 5,000 shares of common stock and 2,100 shares of preferred stock if the stockholders of the People's Company accepted part of the common stock for their shares; if not, and they insisted upon all preferred stock, then at 2,600 shares of preferred stock. The latter alternative was accepted. Mr. Magowan was the principal promoter of the new company. The General Electric Company obviously relied upon him to raise the money guaranty. Mr. Moses says that, on the afternoon preceding the meeting of the evening of June 3d, Mr. Magowan called upon him at his office, and proposed to him that he (Moses) should join with him in the organization of a new company. He says that Mr. Magowan stated that he was very busy in other matters, and that Mr. Moses had a great deal of influence with Mr. Coffin, the president of the General Electric Company. He said: "They want us to put in a whole lot of cash. That the taking out of all the Westinghouse apparatus was a great waste of valuable property. That, of course, some of it was worn pretty badly, but after it was worn a little more it would be well to change it. There was no necessity for destroying it all. He thought that the General Electric Company wanted too much money put into it, in replacing machinery." He then said: "You could get them to take common stock for their patent rights and exchange of machinery." He offered Mr. Moses as much common stock as would enable him to control the new company. Mr. Moses said that he demurred to involving himself with the risk and care and responsibility of a controlling interest in the new company, for stock which at that time had no value. Now Mr. Moses says that he repeated this conversation with Mr. Magowan to the stockholders at their meeting on the evening of June 3d. At that meeting the minutes kept by Mr. Lowthorp, who acted as its secretary, show that a proposition to exchange shares of the People's Company for shares of the preferred stock in the new company at the ratio of 100 to 185 was reported by Mr. Moses and accepted. Then the following appears: "General Rusling moved that the proposition made by Frank A. Magowan to Mr. James Moses this afternoon, that Mr. James Moses should join with him in taking such an amount of stock as may be necessary to retain the control of the company, meets with our approval, and that we recommend the same to Mr. Moses, if he shall deem it advisable and for the best interests of all concerned." This was carried unanimously. It appears that upon the subsequent organization of the new company, of the block of 4,000 shares of the common stock, 1,500 shares were issued to Mr. Magowan, and 2,500 shares to Mr. Moses. Of the persons who were present at thatmeeting, and who were sworn at the hearing, was Gen. Rusling. Gen. Rusling testifies: "I made a motion that Mr. Moses be requested to take as many shares of the common stock as he could get, in order to control the company, and that he take it for the benefit of all concerned." Gen. Rusling's account of the report made by Mr. Moses in respect to the common stock is substantially this: Mr. Moses reported that the outcome of his negotiations with the New York company was that they were to form a new company, to be called the Trenton Light & Power Company; that 2,600 shares of preferred stock were to be given to the old stockholders of the People's Company, and 5,000 shares of common stock were to be issued, of which 1,500 shares were to be given to Mr. Magowan for his interest in his new Edison Light & Power Company, and 650 shares or thereabouts were to be given to the General Electric Company for their patents, extensions, and improvements, and that would leave a balance of 2,850 shares of common stock in the treasury. Mr. Moses said that the General Electric Company, for the 650 shares, were to supply patents, extensions, and improvements to the amount of $50,000 or $60,000; that he and Mr. Magowan were each to take 250 shares of the common stock at par, making $25,000 apiece, and the stock was to be deposited with Hugh H. Hamill as trustee, and that they were to advance all cash to him, and he was to turn it over to the new company from time to time as required for extensions and improvements; that in addition there was to be a large number of shares of common stock left in the treasury of the new company, and he (Moses) wished the advice of the stockholders as to what disposition should be made of those shares; that it was important that they should not go into the hands of the unscrupulous Mr. Magowan, for if, together with the 1,500 shares issued to him, he could get control of the stock issued by the General Electric Company, and also a part of these 2,500 shares of common stock, he would obtain the control of the new company, and elect officers, including himself, and thus ruin the stockholders; that Mr. Moses asked what was to be done; that some stockholder thought it should be divided up among the stockholders pro rata, that they had put in what money and brains were in it and that the stock belonged to the shareholders. He says it was objected that if the stock was broken up it would be hard to control, and it would be better to keep it altogether, so as to have it solid against Mr. Magowan. He says, finally, a resolution was passed— "I don't know whether it was in writing, for the discussion took place eight years ago." It is to be remarked that this testimony Was delivered before the written resolution was produced in evidence by the defendant The substance of Gen. Rusling's testimony is, it is perceived, that Mr. Moses was to take all the stock he could get by an arrangement with Mr. Magowan, and hold it in bulk for the stockholders of the People's Company. Mr. Moses says that the proposition of Mr. Magowan, as reported by him to the meeting, elicited expressions of satisfaction from the stockholders of the People's Company, because they believed that with proper management of the new company their interest in the preferred stock would be safe, and that it would not be safe if the new company was improperly managed. They therefore urged him to accept Mr. Magowan's proposition. He says that he demurred to accept the responsibility of the management of the company, which a controlling interest in the new company would impose upon him, for what he would get out of the common stock; that it was worth nothing then, as the preferred stock would practically take the profits, and if it should be worth anything in the future, which was problematical, some of the stockholders would grumble and find fault with him. He says the sentiment expressed was that they would not find any fault; that it would cost them nothing, and was for them a great element of safety. Mr. Moses afterwards accepted the arrangement with Mr. Magowan, and June 16, 1892, entered into a written agreement with him by which Mr. Magowan agreed, for 1,500 shares of the common stock, to procure the incorporation of the new company, and turn over to it any contracts for lighting, and use his influence for it, and to take no interest in any competing business. Mr. Moses agreed, in consideration of $1 and the transfer of the 2,500 shares of the common stock of the new company, to turn over the 1,400 shares of the People's Company and its franchises for 2,600 shares of the preferred stock of the new company. It was also agreed that 1,000 shares of the common stock should be left in the treasury, to be sold at par for improvements and extensions; and each agreed to purchase 250 shares of the said common stock at par, to be paid over in money as needed, by installments, on the call of president. Each agreed to leave with Mr. Hugh H. Hamill five acceptances, for $5,000 each, and to deposit with him 1,250 shares of the common stock in trust, so that neither could sell out that part of his interest without the consent of the other. The stock was transferred and the acceptances were deposited as agreed. The General Electric Company got 650 shares out of the 1,000 shares of the common stock left in the treasury, for property purchased, and this arrangement was procured by Mr. Moses in accordance with his agreement with Mr. Magowan to get the General Electric Company to take stock instead of cash. The remaining 350 shares of the common stock were subsequently changed into second preferred stock; a part of it sold by the company, and the remainder remaining in the treasury at the time of the sale to Messrs. Barr and KuserNow, it is transparent from the testimony that the formation of the new company was in the hands of Mr. Coffin, the officer of the General Electric Company, which company was interested in installing the Edison plant in Trenton, to the exclusion of the Westinghouse apparatus, and Magowan, who had, in his own interest, and possibly others, incorporated the Edison Company. Mr. Moses' interest was to sell out to the new company the stock of the People's Company. The purpose of his negotiations was to get as much 5 per cent. preferred stock of the new company as he could for himself and the other stockholders of the People's Company. It is entirely clear that up to June 3d neither Mr. Moses nor the stockholders of the People's Company had any interest whatever in the amount or the disposition of the common stock of the new company. Their only interest was to get as large a block of the preferred stock as possible. When the proposition was made to give them 185 of the five per cent. preferred, stock for each $100 worth of the old stock, they were satisfied, for by it they would receive, if earned, 9 1/4 per cent. upon their old holdings; and until this was earned the holders of the common stock would receive nothing. Not a word had been said about the issuance of any of the common stock to those stockholders since the original alternative proposition to give them part common stock, with less preferred stock, which proposition they had rejected. It is also to be observed that the negotiations had theretofore been with Mr. Coffin, representing the General Electric Company. The negotiations were limited, as just stated, to a consideration of the amount of preferred stock which should be given to the stockholders of the People's Company. The amount of common stock to be issued was apparently a matter between the General Electric Company and Mr. Magowan, and between them it was understood that the amount of 5,000 shares should be issued. It is manifest that the offer to share this stock with Mr. Moses came from Mr. Magowan, and the consideration of such offer was to be services rendered by Mr. Moses to Mr. Magowan in inducing the General. Electric Company to take stock for their license instead of cash, and so relieve the new company from an immediate payment for the license and for an entirely new Edison apparatus. It is in the highest degree unlikely, therefore, that he intervened with the General Electric Company to have Mr. Magowan relieved from the payment of cash, or that he deposited his own acceptances for $25,000 for the exclusive benefit of the stockholders of the People's Company.
In view of these circumstances, the testimony in regard to the conversations had at the meeting of June 3d must be considered. The witnesses who detailed these conversations are speaking of what occurred eight years ago, and any thoughtful person knows how fruitless is the effort to reproduce the literal words then spoken. In attempting to recall such conversations the witness is unconsciously impressed with a conviction that certain things were said, because, in view of the circumstances as they have since developed, he thinks those were the things which would likely be said. With the utmost desire to accurately restate conversations occurring so long ago, it is impossible to resist the influence of shifting circumstances. For instance, if the new company had become insolvent, and the effort was now being made to hold the stockholders of the People's Company for unpaid stock by virtue of an issuance of common stock to Mr. Moses as their agent, the occurrences of the meeting of June 3d would present quite a different aspect. The conversation at the meeting of June 3d in respect to the matter under consideration is particularly liable to misrepresentation by a slight change in words. There was admittedly a talk about the common stock. Mr. Moses admittedly repeated the proposition made to him by Mr. Magowan. It was admittedly the sentiment of the meeting that it would be a good thing for the holders of the preferred stock if Mr. Moses should get all he could of the common stock of the new company; and it is undoubtedly the fact that, in the posture then occupied by the stockholders, it would have been regarded as a good thing, whether Mr. Moses held it in his own right or as trustee for the stockholders. It is apparent that Mr. Moses, being interested as a holder of preferred stock himself, had an interest in common with the rest of such holders, and would therefore naturally use the voting power which the possession of a block of the common stock would give him for the common interest of all the stockholders. The fact, therefore, that they wished him to take this stock for the purpose of equipping him with this voting power is not decisive at all of the question in hand. Nor is the fact that he reported the conversation to the stockholders, and asked for their advice, any more decisive. He says he reported it so that, if he should accept the proposition of Mr. Magowan, he could not thereafter be charged with having obtained a secret personal advantage as a sequence to a transaction which he had been conducting for the stockholders. Now, the fact that the stock was issued to him personally raises a presumption that it belonged to him personally. Again, if he was to hold it in trust, why is it that there was no written declaration of trust, when all the other powers and agreements are in writing? Besides, if it is true that Mr. Moses stated to that meeting his fear that if he should accept the proposition of Mr. Magowan, and the common stock should thereafter assume any value, fault would be found with him by the other stockholders, and he was assured that they would not find fault with him, the notionof the trust is entirely exploded. Now, the testimony seems overwhelming that Mr. Moses did make this statement and received this reply, and that nothing was said at that meeting about his holding the block of stock he was to receive from Mr. Magowan in trust for any one. Messrs. William B. Allen, Henry C. Buchanan, Clark Fisher, Walter S. Lennox, William D. Sinclair, and Francis S. Lowthorp, who kept the minutes of the meeting, all swore to that statement by Mr. Moses. In addition, Mr. William S. Covert and Mr. R. T. Fell say that nothing was said about Mr. Moses holding this common stock in trust. The testimony of Mr. Anistakl, called in behalf of the complainant, does not present any substantial support to their case. What he says is that a resolution was offered at the meeting of June 3d that "Mr. Moses was to get all that he could of the common stock. He was to keep it and vote for our interests, and to protect us from the hostile enemy, the Magowan crowd." As already observed, this protection would have resulted as well from a personal ownership of the stock by Mr. Moses as from an ownership as trustee. Therefore, while I am confident that each witness has stated the circumstances as he now recalls them, the great weight of the testimony compels me to conclude that the common stock held by Mr. Moses was his own. The bill must be dismissed.