Page:Federal Reporter, 1st Series, Volume 10.djvu/433

FLAflG V. MANHATTAN EY. CO. 421 �lease, nor did the insolvency of the Manhattan, if it were insolvent; that the court had no power to settle the questions involved sum- marily, or otherwise than in an action regularly instituted by the New York to recover the property ; that the failure to pay the taxes did not forfait the lease, because the New York had approved the non-payment, and because there was a proper question as to the lawfulness of the taxes not paid; and that the testimony as to a breach of the lease by not keeping the road of the York in repair was conflicting. As to the default for 90 days in paying the rent, the judge remarked that the New York had obtained the said injunction against the Manhattan, and could not enf orce a forfaiture arising from the non-payment of money, when it had itself enjoined the Manhattan from using the principal part of its revenue for any sueh purpose. The judge then proceeds to say: �" 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 Man- hattan Company is $13,000,000. This entire stock was transferred and given to the New York Company and the Metropolitan Company in professed pay- mentof 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 New York Company, and the other to a trustee for the ben- eflt of the Metropolitan, — which bonds were exchangeabl^for the stock of the Manhattan Company at par, and such exchange was immediately made. The direetors 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 10 per cent, on the capital stock of the lessor companies, in quaiter-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 large 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 corpora- tions, the apparent transaction, which alone the general public would be apt to see, was a leasing from two independent eorporate 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, submilted 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 provision for the payment to themselves of liberal dividends and the absorption of its entire stock, pro- ceeded to divide and did divide such stock among themselves, and then dis- posed of it to the general public, thus shifting the burden of paying rent from ��� �