(dissenting). We have no quarrel with the facts as stated in the majority opinion and see no need to restate them.
The stockholders of Mahoning for a period of over 75 years have been in the position of landlords of a property whose only function has been to receive the rent which Central guaranteed to them. During all this period Central controlled Mahoning and despite this fact, and despite the fact that Mahoning’s board of directors were, as the majority points out, the nominees of Central, the lease has continued to the great profit of Mahoning, in eluding its minority stockholders. In 1957 Central acquired additional stock of Mahoning. There can be little doubt that this acquisition was for the purpose of allowing Central to include Mahoning in the allocation agreement and to file consolidated returns. Nór can there be any doubt that this is a perfectly legitimate and proper transaction, authorized and approved by the taxing authorities.
Prior to Mahoning’s becoming a party to the agreement, Mahoning perforce paid in full its Federal income tax, and the *389return to its stockholders was diminished by the amount of that tax. For the years under consideration, pursuant to the agreement, Mahoning paid no taxes. This was due to the circumstance that in each of these years Central had operating losses which exceeded Mahoning’s profits. By the terms of the agreement Mahoning paid the amount it would have had to pay as taxes to Central. If the agreement had no further provisions, it will be seen that the resulting situation Avould be that 20% of Mahoning’s stockholders Avould be in no worse position than they would have been in had there been no agreement, and Central, as the 80% stockholder, Avas in a better position. But that is not as far as the agreement Avent. By the formula provided in the agreement Mahoning received back a portion of the overall tax saving effected. This sum, whatever it might have been, or whatever percentage of the amount that would otherwise have gone as taxes, represents income that Mahoning’s minority stockholders Avould neArer have realized had there been no agreement.
To speak of the payments made by Mahoning to Central as dividends or gifts is a total misconception of the relationship of these parties. The tax proATisions in effect mean that Avhere there is a consolidated railroad system, that is, Avhere one of the roads oaviis all or virtually all of the stock of the others, the systems may file a consolidated return. “ Virtually all ” means 80% or more. Advantages will accrue to the taxpayer only in the event that one road has a loss Avhicli can be offset against profits of the other. In this situation the taxing authorities allowed, Avhere the conditions AA'ere met, a realistic tax to be calculated. But this is necessarily on the theory that there Avas a single, consolidated operation.
It must be remembered that Mahoning is entirely dependent on Central for its income. As long as Central can pay the rent, Mahoning Avill prosper. If Central should ever become unable to do so, Mahoning is in an unenviable position. It is therefore greatly to Mahoning’s interest that Central should continue to be in a position to pay the rent called for in the lease. By being-in a position to strengthen Central financially Arithout loss to itself, and being- able at the same time and by the same means to increase its oaa-ii income to some extent, Mahoning is obtaining a very material advantage. To say that there is no consideration for the agreement is to overlook the realities.
The majority opinion points to the composition of Mahoning’s board and concludes that the agreement was one made by Central with itself. No one can dispute the fact or the conclusion. But this is the kind of agreement that only can be made by a board so *390dominated. Unless Central owned at least 80% of Mahoning’s stock it could not file a consolidated return, and no agreement was possible. And 80% of the stockholders in any corporation can certainly elect the directors. And while those directors are, in a sense, fiduciaries of the minority, they are entitled to contract for the benefit of the corporation, which is, by definition, largely the majority. In making this agreement the directors imposed no burden on the minority that they did not already have. Their return was to no extent diminished. In fact, it was increased. It was not increased to the extent that the majority, Central, benefited. But this fact does not imply that the directors were false to their trust. And this' is so even if the disparity is great.* Even if this were an arm’s length transaction, it would be extremely difficult, if not impossible, to determine what would be fair. Here both corporations have an asset or, more accurately, are in a situation where by joint action they can benefit, but neither can benefit without the other. And further, neither could get the same or even remotely similar benefits by the participation of any third party. So there is no possibility that the terms to be agreed upon would be ascertained by what someone else would offer in a competitive situation. Traditionally, what is fair is what these two parties would agree on. But actually in such a situation the terms of agreement would depend almost entirely on the bargaining ability and the personal characteristics of the parties. Such factors defy the making of an estimate of the result that would be reached. Both parties to this suit recognize this. A great part of the energy expended by counsel was in an effort to show that the burden of proving fairness or unfairness was on the other side, and each having established (at least to his own satisfaction) that it was on his adversary, each relied on the fact that it was impossible for the other to make the proof. When the factor is added that this agreement could not be made by disinterested parties, it must be the rule that anything short of gross and palpable overreaching does not warrant court interference.
It would be hard to imagine, if a plan were presented to any taxpayer whereby he would have his tax obligation discharged, by the simple device of paying to X (any third person) the amount of his taxes, and receive a rebate of 6 or 7% of the tax, that this would be refused. Nor could the taxpayer be deemed to be overreached because he did not get a larger róbate.
*391■ Furthermore, the relief awarded .is not in accord with any equitable principle. The agreement is rescinded and Central is to account to Mahoning for all tax benefits received, that is, for all that Mahoning has paid. The consequences of this determination are in some doubt, dependent on the attitude to be taken by the Department of Internal Revenue. If that department of the Federal Government takes the decision literally, then neither Central nor Mahoning ever had the right to file a consolidated return and Mahoning is in default for failing to file a return and pay its taxes. The consequence, particularly if interest is assessed, may well result in a serious loss to Mahoning, and must result in some loss. By so doing the minority suffers, and its gratification with the result can only be that the majority suffers more. If the returns are accepted as filed, Mahoning is then in the position of paying no taxes and having the money also. The principle of equity by which it becomes entitled to this outcome escapes us.
The judgment below dismissing the complaint should be affirmed.
Breitel, J. P., and Stevehs, J., concur with McNally, J. ; Steuer, J., dissents in opinion, in which Eager, J., concurs.
Judgment reversed as to defendant-respondent New York Central Railroad Company, on the law and on the facts, with costs to plaintiffs-appellants, and an interlocutory judgment granted directing said defendant-respondent to account for all sums received from Mahoning Coal Railroad Company consequent on tax benefits resulting from consolidated returns reflecting the earnings of Mahoning Coal Railroad Company. Settle order on notice.
The transaction here allows of many different ways of calculation of the net gains to the parties involved. The figures given in the majority opinion are on a basis which would show the greatest disparity. According to other methods, the benefit to the minority would be considerably enhanced.