128 Tenn. 505 | Tenn. | 1913
delivered the opinion of the Conrt.
The bill of complaint in this canse was filed by complainant Adams and others,- as the owners of abont 8,000 shares of a total issne of 60,000 shares of the common or ordinary shares of the Chattanooga Com
So far as material to the disposition of the errors assigned in this court, the bill may be said to contain allegations as follows:
Complainants were formerly holders of blocks of the preferred stock of the Chattanooga Land, Coal, Iron & Railway Company, predecessor of the defendant Chattanooga Company, Limited. The predecessor company issued $1,300,000 of mortgage bonds, upon which it defaulted. The bonds were held by residents of Great Britain. Pending a sale in foreclosure, the bondholders and the holders of the preferred stock entered into a reorganization agreement, by the terms of which it was stipulated that a new corporation should be organized, under the laws of Great Britain, to acquire the mortgaged estates at such sale, the capital stock of the new corporation to be issued in two classes : 12,000 of six per cent, preferred shares of twenty-five shares each, and 60,000 common shares of five each, the preferred shares to go to the bondholders, and the
The Chattanooga Company, Limited, accordingly was organized and acquired the mortgaged estates, and its capital stock was so distributed. After holding the properties for about nineteen years (during which practically nothing was done towards developing its lands for profit), defendant company sold and conveyed 12,000 acres of its holdings to defendant Durham Coal & Iron Company, receiving as consideration $120,000 in cash, $300,000 in the seven per cent, preferred stock, and $150,000 in the common stock of this vendee corporation. The entire remaining realty of the company, 8,000 acres was conveyed to the defendant Chattanooga. Estates Company in consideration of $200,000 in cash, $1,000,000 in the preferred stock, and $1,300,000 in the common stock of this vendee corporation; the total consideration received in the two transactions being $3,000,000 in cash and stocks.
The charter of the Chattanooga Company, Limited, was prepared by or at the instance of the preferred stockholders in Great Britain, and provided for the' lodgment of the voting power in the preferred stock until that stock was, by payments made, reduced to the
As to the locus of the assets of the company:. It is alleged that the Chattanooga Company, Limited, has “no property or assets in England or elsewhere, saving and excepting the lands in Hamilton county, Tennessee;” that the defendant Chattanooga Savings Bank, located in Hamilton county, “has for a long time been, and is now, the financial agent and depository of the company, and, as such, now has in its possession a large amount of cash notes, accounts, and various stocks and bonds belonging to said defendant company,” which the bill seeks to impound; that “said cash proceeds from the sale of said lands have been unlawfully distributed pro rata among the preferred stockholders” as interest on their shares- of stock.
Touching the place or places where the company’s business was transacted: The city of Chattanooga “was the place of the principal office and business headquarters. of said company in the state of Tennessee, where it kept its books, conducted all its business transactions, and kept and used its corporate seal.” The principal officers and directors all lived in G-reat Britain, where corporate meetings were held.
The charter of the Chattanooga Company, Limited— memorandum and articles of association under the
To purchase and otherwise acquire land and other properties in America and the capital or other stocks of any companies owning property or doing business in Tennessee.
To enter into and carry into effect, as the company may determine, any agreements for the purchase or acquisition of. the properties or stocks so acquired.
To take or otherwise acquire stock, shares, and securities of any company carrying on, engaged in, or about to carry on or engage in any business or transaction which this company is authorized to carry on or engage in, or any business or transaction capable of being conducted so as directly or indirectly to benefit this company, and to sell, hold, reissue, or otherwise deal with such stock, shares and securities.
To sell the undertaking of the company, or any part thereof, for such consideration as the company may think fit, and, in particular, for shares, debentures, or securities of any other company having objects altogether, or in part, similar to those of this company.
To issue preference shares and ordinary shares, and to attach to said preference shares and ordinary shares such preferential, deferred, or special rights, privileges, or conditions as may be determined by, or in accordance with, regulations of the company.
The bill charges in general terms that the Chattanooga Company, Limited, is insolvent; but its exhibits show in detail that the company is solvent, and
It is alleged that the company, upon the sale of said lands to the purchasing companies, “ceased to do any business, to use its franchises, or to’ be a going concern;” but this is refuted by the corporate records exhibited, which show that the company was, in the exercise of its British franchises, proceeding to the transaction of business in course claimed by it to be regular. That business was being transacted in Great Britain by the company, complainants elsewhere in their bill allege.
It is charged that the directors purpose to hold the proceeds of the land sales, particularly the stocks of the vendee corporations, in the treasury, and not to distribute to the shareholders; that they further purpose arbitrarily and unjustly to favor the preferred shareholders in so doing, in this, that the six per cent., stipulated to be paid on the preferred stock, may accumulate thereon until in the end all claim of the common shareholders in the purchase-money fund is wiped out. It is further charged that the said fund is in no sense “earnings,” and that only earnings may be applied, lawfully, in payment of interest on the preferred stock; that the payment so made out of the cash consideration sums is a diversion; and that any payments out of capital (such as the consideration cash and stocks) must be made to all shareholders pro rata, without preference as between the two classes.
The bill of complaint was demurred to on grounds to be later indicated rather than formally stated; the demurrer was sustained by the chancellor, whose decree was affirmed by the court of civil appeals. The cause is before this court on writ of certiorari.
The errors assigned by complainants are two in number.
1. The court of civil appeals was in error in holding that the courts of Tennessee have no jurisdiction to wind up the affairs of the defendant company, at the instance of stockholders, because it has been domesticated in Tennessee, and it fairly appears from the- bill that all its assets are in Tennessee.
2. That court was in error in holding that the bill does not allege such facts as would warrant a court of equity, at the instance of stockholders, in winding up the defendant corporation and distributing its assets, because (1) it appears that the original scheme is now impossible of consummation; (2) such nonuser and assignment to others of the powers and franchises of the corporation are alleged as entitle complainants to relief under our statutes; (3) the complainants are entitled to a distribution in specie under the charter; (4)
There arises for determination, under these assignments of error, the question whether a court of equity of this State will assume jurisdiction of a proceeding to wind up the defendant corporation on the grounds set forth in the bill of complaint.
This, in turn, involves a consideration of the status and nature of this defendant as a corporation complying with and domesticated under the provisions of our foreign corporation statutes. Acts 1877, ch., 31; Acts 1891, ch. 122¿ Acts 1895, ch. 81.
It was held by this court, in Coke & Coal Co. v. Steel Co., 123 Tenn., 428, 442, 131 S. W., 988, 991 (31 L. R. A. [N. S.], 278), that the result of the first-named act, as amended by the two last named, was in effect a legislative pronouncement that such corporations shall be ‘ ‘ deemed and taken to be corporations of this State, the said corporations may sue and be sued in the courts of this State, and shall be subject to the jurisdiction of the State as fully as if created under the laws of Tennessee.”
The true concept, as indicated by our decisions, based upon the statutes referred to, appears to us to be that a corporation so domesticated becomes, not a new and distinct entity, but only a corporation of this State quoad hoc any property and acts within its jurisdiction. Ohio & Miss. R. Co. v. Wheeler (Ind.), 1 Black, 297, 17 L. Ed., 130; Young v. Iron Co., 85 Tenn., 189, 197, 2 S. W., 202, 4 Am. St. Rep., 752; 19 Cyc., 1204. It differs essentially from such corporations as were under consideration in Grangers’ Life Ins. Co. v. Kamper, 73 Ala., 325, and Memphis, etc., R. Co. v. Alabama, 107 U. S., 581, 2 Sup. Ct., 432, 27 L. Ed., 518, which were corporations with distinct incorporators, stock issues, or directors, in the respective domesticating States.
The doctrine now is that “one State may make a corporation of another State, as thus organized and conducted, a corporation of its own, as to any property in its territorial jurisdiction. Illustrations of
This court, in Coke & Coal Co. v. Steel Co., supra, cited and quoted opinions of the supreme court of the United States in support of the ruling there made that it was competent for a State- to make a foreign corporation complying with its legislative acts so providing a domestic corporation, and commented, without disapproval, on the statement of limitation in St. Louis R. Co. v. James, 161 U. S., 545, 16 Sup. Ct., 621, 40 L. Ed., 802, that such domestication was “in regard to property and acts within the territorial jurisdiction,” and also on the ruling in the James Case to the effect that a domestication of a corporation, after the
That the defendant Chattanooga Company, Limited, became a domestic corporation quoad hoc, and not for all purposes as a wholly separate and unrelated entity, is further shown by the fact that by our Acts 1891, sec. 5, above cited, provision is made that, when a comply^ ing foreign corporation has no agent in this State upon whom process may be served, its property may be attached as that of a nonresident, thus affirmatively showing that the legislature did not conceive or intend that compliance should ipso facto work a creation of
In In re Standard Oak Veneer Co. (D. C.), 173 Fed., 103, that able jurist, Judge Sanford, sitting in the United States district court in this State, held that a foreign corporation, so complying with our foreign corporation acts did not become a resident of this State, where the corporation retained its principal office in the State of creation, and its presented claim was based upon transactions conducted through such foreign office, so far forth as to be entitled to the priority awarded to creditors who are resident in Tennessee in the distribution of the assets of a foreign corporation itself also domesticated in this State under the cited statutes. Notwithstanding compliance and consequent domestication, it was held that the claimant corporation remained also a resident of the State of its creation, and, as such, was constitutionally to be denied its claim of right to share in priority, under the rulings in Blake v. McClung, 172 U. S., 239, 19 Sup. Ct., 165, 43 L. Ed., 432; Blake v. McClung, 176 U. S., 60, 20 Sup. Ct., 307, 44 L. Ed., 374, overruling McClung v. Embreeville Co., 103 Tenn., 399, 52 S. W., 1001, and Sully v. American Nat. Bank, 178 U. S., 289, 20 Sup. Ct., 935, 44 L. Ed., 1076.
In Young v. Iron Co., supra, it appeared that the city of Chattanooga was by the Iron Company’s bylaws made the general office of the company; that all of its books, including its stock books and seal, were
On the basis, therefore, of the defendant company being treated as a corporation domesticated only for purposes of jurisdiction in respect of property and transactions in this State, we have next for consideration whether a court of equity in this State will assume jurisdiction in a case where, as here, the corporation is not insolvent, at the instance of stockholders, to wind up the corporation on any ground stated in the bill of complaint.
Under the familiar rule that the court should make every reasonable presumption in favor of the bill of complaint when assailed by a demurrer, we are of opinion that the complainants must be taken to allege
Counsel of defendant company insist that the hill shows otherwise, and in accord with the truth, that the assets sought to be impounded are in Great Britain. If this appeared, or were made to appear, then we would have for further consideration whether a court of equity in this State, regardless of any question of potential jurisdiction over the defendant as a domestic corporation, would decline to assume or exercise jurisdiction. This, on the ground that, the governing officers and the property to he affected being out of the State, the court could render no effective decree, and would leave the claimants to seek their remedy in the jurisdiction where the corporation was created. Edwards v. Schillinger, 245 Ill., 231, 91 N. E., 1048, 33 L. R. A. (N. S.), 895, 137 Am. St. Rep., 308; Clark v. Mutual, etc., Ass’n, 14 App. D. C., 154, 43 L. R. A., 390; State v. North American, etc., Co., 106 La., 632, 31 South., 172, 87 Am. St. Rep., 309; Williston v. Mich., etc., R. Co., 13 Allen (Mass.), 400; Smith v. Mutual, etc., Co., 14 Allen (Mass.), 336; 19 Cyc., 1238, 1345.
Manifestly, as to the phase of insolvency, our cases which relate to the winding up, at the instance of Tennessee claimants, of insolvent foreign corporations (Smith v. St. Louis, etc., Ins. Co., 3 Tenn. Ch., 502; Id., 6 Lea, 564, and cases in accord) are aside. We have here no such case, whether the principal defendant be deemed a domestic or a foreign corporation for that assumed purpose.
“Sec. 5187. A corporation is not dissolved by the nonuse or assignment to others, in whole or in part of its powers, franchises, and privileges, unless all the corporate property has been appropriated to the payment of its debts, and any creditor, for himself and other creditors, whether he has recovered judgment or not, or any stockholder, for himself and other stockholders may file a bill under the provisions of this chapter, to attach the corporate property, and have such property applied to the payment of the debts of the corporation, and any surplus divided among-the stockholders.”
“Sec. 6103. The creditors of a corporation may also, without first having obtained a-judgment at lhw, file a bill in the court of chancery, to attach the property of the corporation, and subject the same, by sale or otherwise, to the satisfaction of their debts, when the corporate franchises are not used, or have been granted to others in whole or in part.
“Sec. 6104. In such cases the court may appoint a receiver, take an account of the affairs of the corporation, and apply the property and‘effects to the pay
In the case last cited the statute was construed to apply to creditors of a foreign corporation as well as a domestic corporation, and this, whether the effort of the creditors was to base their remedy on insolvency of the coropration or on its having ceased to do business and to use its franchise.
Chancellor Cooper said: ‘ ‘ The argument is that the provisions of our Code — sections 3431, 4294, 4295 (Shannon’s, secs. 5187, 6103, 6104) — apply to domestic corporations, and the property of foreign corporations is left to be seized by the more diligent claimants under other provisions of the law. . . . Both the statutes and the decisions speak of corporations, without drawing any distinction between domestic and foreign corporations, and the principle of the decisions, as shown by the authorities cited, is manifestly based on the nature of corporations and corporate funds generally. And it would be a curious departure from uniformity, so desirable in the administration of law, to hold that a different measure of justice should be meted out to creditors, dependent upon whether their debtor was a domestic or foreign corporation. y Most clearly there is nothing in the language of the Code or the decisions to give countenance to the distinction contended for.” 3 Tenn. Ch., 504, 505.
By parity of reasoning, the quoted sections of the Code sustain an action of like character on the part of stockholders there named along with creditors.
Having failed, first, to show insolvency, and, as just ^ demonstrated, to show discontinuance of the business ! of the corporation and nonuse of its franchises, in : neither aspect of the code section quoted above (Code, Shannon, sec. 5187) do complainants make out a case for the winding up of the affairs of the company.
All other matters assigned as error do not fall within the purview of the bill of complaint and the prayer for relief. No relief by way of injunction or otherwise is asked in respect of what are claimed to be ultra vires acts of the directors in Great Britain in respect to the payment of dividends on the preferred stock, to complainants’ prejudice.
An effort is also made in this court to convert the bill into one for a construction of the charter in relation to the rights of the preferred stockholders and the common stockholders, respectively, in a distribution of assets on dissolution; but, since there is a failure to show grounds for winding up, and the holders . of preferred stock are not before the court, no such issue arises for solution on the record. As said by the supreme court of the United States: “The duty of this court, as of every judicial tribunal, is limited to determining rights of persons or of property, which are actually controverted in the particular case before
The demurrer to the bill was properly sustained, and the decree of the court of civil appeals is affirmed.