137 F. 882 | 7th Cir. | 1905
Lead Opinion
after stating the facts, delivered the opinion of the court.
The questions raised by the assignments of error are: (1)' Whether the court possessed jurisdiction to entertain the suit; (2) whether prior suits pending in state courts arrest jurisdiction; and (3) whether the corporation defendant is empowered to construct works and operate for supplying the people of Indianapolis with artificial gas at cost. Specific reference to the 14 assignments is unnecessary, as all contentions are within one or the other of these inquiries.
1. Jurisdiction of the bill is challenged because it appears that one of the final certificates owned by the complainant, of the par value of $2,500, was originally issüed to John and Edward Schmidt, citizené of Indiana, who assigned to the complainant, and the certificate thereupon, described in the bill, .was reissued, by the company
The objections urged of non compliance with equity rule 94, and that the suit appears to be collusive, under the allegations of the answer, are without force, and within the ruling of.this court in New Albany Water Works v. Louisville Banking Co., 58 C. C. A. 576, 122 Fed. 776. In reference to verification of the bill, if the original verification was defective, the defect was cured by the personal verification subsequently, under leave granted by the court. The several assignments of error in respect of jurisdiction are overruled accordingly.
2. The answers aver the pendency in state courts of- two prior suits—one on behalf of the corporation defendant and the other against it—wherein “the principal questions are involved which are involved here,” and it is urged thereupon that rules of comity, at least, are violated by the procedure in the federal court. The case at bar, and the prior actions so set up as well, are suits in personam. It is well settled that the right of a noncitizen to maintain sUch suit independently in the federal forum is not barred by the pendency of a prior suit of like import in another co-ordinate jurisdiction, and this view is conceded on behalf of the appellant. As no interference with or conflict over property in custodia legis (actual or constructive) is involved, we deem it equally clear that the complainant cannot be deprived of his constitutional privilege to have the suit not only entertained, but adjudicated in due course, in the federal forum. The case of Farmers’ Loan & Trust Company v. Lake Street Elevated Railroad Co., 177 U. S. 51, 61, 20 Sup. Ct. 564, 44 L. Ed. 667, and others cited in the brief for appellants upon this point, are plainly distinguishable, as neither of these pend
3. The remaining inquiry goes to the merits of the, decree. It. involves, not only the property interests of the corporation and its shareholders, but rights asserted on behalf of the people of Indianapolis. The relief sought by the bill and granted by the decree rests upon these propositions: (1) That the corporate franchise does not authorize diversion of the business from supplying natural gas to the production and supply of artificial gas to the .people of Indianapolis at cost; (2) that the cessation of the natural gas supply in the fields tributary to Indianapolis has caused abandonment of the former business as no longer practicable, so that the corporate property is no longer available for the purposes of the incorporation; and (3) that the shareholders retain their interest therein and are entitled to relief against threatened diversion and for distribution of the assets. While the appellants concede the fact thus asserted as to the failure of natural gas supply and the necessary abandonment of that business, and the purpose of the trustees and directors to undertake use of the franchise, pipe lines, and property in the city of Indianapolis for the erection of works to produce artificial gas, to be supplied to the people at cost, both of the other propositions in support of the decree are earnestly disputed. Their contentions are tw.o-fold—referring to the purpose and scope of the incorporation, as disclosed in the circumstances, terms of the articles and subscriptions, and subsequent legislation—and in substance these: (1) That the organizers intended and created a charitable trust, in favor of the patrons and public, to provide for supply of gas in Indianapolis at cost, whenever their amounts invested in the work were repaid, with interest, and after such repayment no beneficial interest remained in the shareholders; (2) that such trust contemplated the production and supply of artificial gas, whenever the natural gas -fields were exhausted, and authority was extended to that end, by the terxps and intent of the articles, within the meaning of statutory provisions, either then existing or subsequently enacted.
The fact that a trust was created by the organizers for certain purposes is unquestionable. It was distinctly provided- in' the articles of association to place the entire capital stock under the control of five trustees, selected from the stockholders, with irrevocable powbr to “vote the same [as a unit] as fully and completely as if they were the owners,” elect directors, and fill vacancies, while “the business and prudential concerns” were to be managed by a board of nine directors. The trustees were to issue to the subscribers for capital stock, upon full payment, certificates thereof, which entitled the holder to certain dividends; but the articles provided that when the holder shall have received in dividends or otherwise “an amount equal to his subscription,” with interest at 8 per cent, per annum, and.all indebtedness of the company was paid, “it shall
• The final question thus presented is whether the incorporation extends to the conceded purpose of constructing and operating works to manufacture artificial gas from coal or other minerals, not the product of natural gas or petroleúm wells owned or leased by the company, and supply such gas to consumers in lieu of the original supply of natural gas from its wells, now exhausted. While the answer does not in terms admit the precise allegations of the bill that the manufacture intended was from coal or other minerals, not the product of its wells, no other inference is admissible under the general statements contained in the answer and the rules applicable to the pleadings when the case is submitted thereon. The single issue then arising is whether the intended change to the manufacture of gas, as the exclusive or primary business, is an ultra vires undertaking. Its solution rests upon the legislation under which the corporation was created and the articles and acts of organization. Various facts aliunde are set up in the answer and pressed in the argument on the part of the appellants as affect
“Whenever three or more persons may desire to form a company to carry on any kind of manufacturing, mining, mechanical, or chemical business, or to furnish motive power to carry on such business; or to supply, any city or village with water; or to form union stockyards and transit companies, and operating, maintaining, and transacting the business incident to such companies, or to form grain elevator companies, and constructing, maintaining, and operating elevators, and transacting the business incident thereto; or to i form companies for the purpose of buying and selling dry goods, carpets, boots and shoes, millinery goods, fancy goods, or jewelry, in connection with the manufacture of such goods, and articles into any articles for which they are suitable, and for the sale of such articles, when they are so manufactured—they shall make, sign, and acknowledge, before some officer capable to take acknowledgment of deeds, a certificate, in writing, which shall state the corporate name adopted by the company, the object of its formation, the amount of capital stock, the term of its existence (not, however, to exceed fifty years), the. number of directors and their names, who shall manage the affairs of such company for the first year, and the name of the town and county in which its operations are to be carried on, and file the same in the office of the recorder of such county, which shall be placed upon the record, and a duplicate thereof in the office of the Secretary of State.”
The purposes of the organization are thus stated in the articles:
“Art. 2. The objects of the formation of such corporation are to drill and mine for natural gas, petroleum, and other minerals, and to purchase, lease, and otherwise acquire gas and petroleum wells and the products thereof, and to furnish the same to its patrons for use, and by manufacture to convert the same into gas for fuel and illuminating purposes, and other articles of commerce, and the sale of the product to Its patrons, to these ends to take, hold, convey, and mortgage real estate, by fee simple or lesser title, and to own, operate, and maintain such machinery, works, lines of pipe, and appliances as the carrying out of the objects above mentioned may require.”
When organization was completed thereunder, the directors accepted the terms of an ordinance of the city of Indianapolis, which ’ authorized any corporation “to pipe the streets and public places and supply natural gas to the people for both fuel and light” at fixed rates. Leases were then acquired of territory in natural gas fields
That the operations thus far in obtaining and supplying natural gas are not manufacturing businesses within the statutory meaning is unquestionable. That the undertaking “to drill and mine for natural gas” and furnish the product “to its patrons for use” was within the objects expressed in the articles is plain. If the business so declared and carried on were not otherwise within the classification of “mining,” as employed in the so called “manufacturers’ and miners’ act” (section 5051, supra), it is clearly so established by the declaratory act of the Legislature of February 23, 1889 (section 5099, Burns’ Ann. St. 1894), adopted at the instance of the organizers, which defined the term “mining,” as used in the former statute, to “cover and include the sinking, drilling, boring, and operating wells for petroleum and natural gas,” arid made it applicable to the organization in question. Tested alone by the statement of the corporate objects contained in the articles, no purpose is indicated to manufacture artificial gas to be supplied to consumers, either as exclusive or primary business of the corporation. The contemplation “by manufacture to convert” the product of its gas and petroleum wells “into gas for fuel and illuminating” purposes” is specified, but that is merely incidental to the primary “mining” object, and as such within its classification as the primary business. So that, under the established general rules for construing corporate powers, we are constrained to the view that neither the above-mentioned provision nor the cognate term “works,” subsequently mentioned, confers authority to erect works and manufacture artificial gas from materials not “the product of its gas and petroleum wells.” With the “mining” object and powers thus expressed as primary, “the exclusion of all others not fairly incidental” is strictly implied. Central Transp. Co. v. Pullman’s Car Co., 129 U. S. 24, 48, 11 Sup. Ct. 478, 35 L. Ed. 55, 11 Rose’s Notes U. S. Rep.
In Burke v. Mead the question arose in a suit for specific performance of a contract whereby Mead & Co. agreed to transfer certain property to Burke and another, in consideration of a transfer of certain paid-up capital stock in a corporation called the “Marion Electric Company.” One of the defenses was that the alleged corporation was not a legal organization, so that the capital stock was worthless. The purposes of incorporation, as stated in the articles, were “of manufacturing, storing, selling, delivering, and distributing electricity for light, heat, and power, and for all such other chemical purposes as electricity can be applied to, and for the purpose of manufacturing and selling all kinds of electrical appliances, apparatus, and supplies.” The court upheld the contention that it was not competent to combine these purposes in a single incorporation; that while the “generating of electricity is manufacturing, within our manufacturing and mining companies act,” the manufacture and sale of “all kinds of electrical appliances, apparatus, and supplies is not a business incident thereto”—citing Franklin National Bank v. Whitehead, 149 Ind. 560, 49 N. E. 592, 39 L. R. A. 725, 63 Am. St. Rep. 302, and Williams v. Citizens’ Enterprise Company, 25 Ind. App. 351, 57 N. E. 581. It was ruled accordingly that the articles “disclosed a purpose to engage in lines of employment and business more diverse than the statute authorized” and that the incorporation was invalid.
In Williams v. Citizens’ Enterprise Company, supra, the Chief Justice delivered the unanimous opinion of the court, denying the right of the corporation to recover upon a subscription to its capital stock for like defect in the diversity of objects stated in the articles of association, under the same statute. After remarking, “It is conceded that several objects and purposes are stated in the articles for which a corporation may be organized under the manufacturing and mining act,” and disposing of the contention that this was permissible under a former ruling of the court in Shick v. Enterprise Company, 15 Ind. App. 329, 44 N. E. 48, 57 Am. St. Rep. 230, the opinion states:
“To adopt appellee’s view, we must change the reading of section. 5051, supra, and wherein it specifies the classes of business set out we must use the word ‘and’ where the Legislature used ‘or.’ This would lead to the result that it was the legislative intent that all the businesses enumerated in the section might be carried on by one corporation; for it must be admitted that, if more than one class may be included in one corporate organization, then all the classes may be included. The Legislature has seen proper to provide in separate acts for corporate organizations to do banking, building and loan, railroad, and some other businesses. It is clear that under*899 these acts a corporation could not he organized to do both banking and railroad business. They have no necessary relationship with each other. Neither one is a mere incident of the other, and the Legislature has expressly separated them. And under section 5051, supra, there is no necessary relationship betwen supplying a city or village with water and maintaining and operating elevators; nor is either one a mere incident of the other. And the same may be said of all the classes of business named in the section. It is not to be inferred, from the fact that all these classes of business are included in one act, that they may be conducted by one corporation. The Legislature, by placing banking and railroad business in separate acts, and thus providing for separate corporate formations, has no more effectually separated corporate organizations for conducting those businesses than it has the classes of business enumerated in the above section. The use of the disjunctive ‘or’ makes a complete enactment as to each class of business named. * * * The act expressly requires that the certificate shall state the corporate name and the ‘object’ of its formation. This means that the certificate shall state the particular class of business to be carried on under one of the designated heads; that the limitation of the business must be shown by a statement in the articles.”
Then, referring to the purposes stated in the articles under consideration, the opinion proceeds:
“We must, then, give to the articles the construction that the corporators intended to conduct these various enterprises under one organization. There is no statute in this state authorizing a single corporate organization for the purpose of carrying on all, or any two, of these businesses. The objects of neither are incidental or secondary to the objects of either of the others, but the objects and purposes of each are primary. Each is entirely separate and distinct from the others. Either would properly be the subject of corporate organizations; but the intention of the corporators, which must be gathered solely from the articles, does not indicate which was to be the exclusive purpose. * * * It is manifest, from the reading of the statute, that it was not the legislative intent to authorize a corporate organization for all the purposes named in the statute, nor for any two or more of the purposes named.”
After reviewing and citing numerous authorities, the opinion concludes:
“As there is no statute authorizing the organization of a corporation for the purposes named, it follows that the articles of association are void.”
The force of these decisions is not impaired by either of the suggestions to that end in the brief for appellants: (a) The validity of the incorporation for the primary object of supplying natural gas is neither questioned nor questionable, and it is diversion only to a manufacturing business that is declared ultra vires, (b) The case of Marion Bond Co., Trustee, v. Mexican Coffee & Rubber Co., 160 Ind. 558, 65 N. E. 748, cited as inconsistent with theSe rulings, impresses us as neither applicable, nor in any sense modifying the construction upheld in the previous cases, (c) An act of the Legislature, approved March 3, 1903 (Acts 1903, p. 147, c. 73), amends the statute in question in various particulars, so that several objects may be included in one incorporation; and then declares that prior incorporations stating several objects are thereby “legalized and validated.” The contention that this and other enactments subsequent to the incorporation authorize the change of business is untenable in either aspect of the controversy. Under the foregoing construction of the articles, irrespective of the statutory power, the
We are of opinion, therefore, that no error is well assigned, and ihe decree of the Circuit Court should be affirmed.
Dissenting Opinion
(dissenting). I concur in the opinion of the court to the extent that it holds that the Circuit Court had jurisdiction of the cause. I agree, also, that the stockholders of- the Consumers’ Company have an ultimate interest in the Company’s assets—the trust to the people of Indianapolis first being exhausted—that would entitle them to bring this suit. My dissent is based solely on my view that under the articles of incorporation, and the statute of Indiana, the- Company is not without corporate power to manufacture fuel and illuminating gas.
In interpreting these articles and the statute, some general facts must not be overlooked. One of these is that the’life of natural gas fields is a limited life. Natural gas does not replenish itself. Another is, that gas and oil are so nearly related in origin, that when the natural gas supply fails, oil may be expected to follow. Still another is, that oil is readily converted into gas. And still another, that upon calculations based on these facts, millions of dollars have been invested in distributing systems and pipe lines; which but for oil or other gas producing mineral, available as a substitute when the natural gas supply was exhausted, would not have been invested at all. We must, I think, assume that these well known facts were in the mind of the incorporators of the Consumers’ Company; and that they ought to enter into the interpretation that should be given to the Indiana statute. With this in mind, let us look at the articles of incorporation, and the Indiana statute.
The expressed object of the corporation is “to drill and mine for natural gas, petroleum, and other minerals; ’ and to purchase, lease and otherwise acquire gas and petroleum wells, and the products thereof, and to furnish the same to its patrons for use; and by manufacture to convert the same into gas for fuel and illuminating purposes, and other articles of commerce.” Whether the power to convert “the same,” by manufacture, into gas for fuel and illuminating purposes was intended to go back to the first clause, thus including, as the material out of which the gas should be manufactured, both petroleum and other minerals; or was intended merely to go back to the clause immediately preceding, thus including, as the raw material, petroleum only; is a question we need not now decide. Unquestionably, the statutory power to manufacture out of either or both existing, the articles of incorporation could, in this respect, be amended; for though stockholders have a right to stand upon the contract, they have no right to defeat the paramount purpose of the incorporation, even though to carry out that purpose an .amendment to the articles may be necessary.
Will any fair reading of these articles disclose, that one means —natural gas—being exhausted, no substitute was to be.accepted? Why, then, the clause “and by manufacture to convert the same into gas for fuel and illuminating- purposes ?” Can any reasonable construction of the articles omit that clause? Can the clause, in view of the general facts stated, be shunted off into some side or incidental meaning, such as that it referred only to the commercial products of petroleum or other minerals? I think not. I think that if this enterprise had been launched as an ordinary corporation for profit, there would be- no doubt of what the promoters contemplated—a substitution of means when that became necessary; and I cannot agree to hold, considering what was plainly written inr to the articles, that the promoters of this public enterprise are to be considered as less far sighted than would have been the promoters of an enterprise strictly for profit.
The opinion of the majority does not expressly, at least, controvert this interpretation of the articles. That opinion turns on the point that under the statute of Indiana, a corporation could not lawfully be organized that would include both the power to mine and the power to manufacture, where neither power is strictly incidental to the other. Generally speaking, the point is perhaps well taken. But applied to this case, it ignores the salient facts of the case. The salient purpose of the incorporation, as already stated, is to furnish the people of the city with a fuel and illuminant. The sole contribution of natural gas to that purpose is that natural gas brings to the consumers’ burner the carbon needful to a fuel or illuminant. But petroleum and coal contain this carbon also. The only difference between natural gas and petroleum or coal, in this respect, is, that in the case of natural gas the carbon comes to the burner in its natural state—-on the back of its own horse—while in the case of coal or petroleum, the carbon must be carried by a gas evolved, by manufacture, out of- the coal or petroleum. But in either case, the carbon is mined, and, in either case, it performs the same function, when the burner of the consumer is reached. Now does the mere fact, that in one case the carbon reaches the burner in almost precisely the state it left the mine, while in the other it must be transferred, in transitu, to a carrier that will bring it up to the burner, make any difference in the incorporability of the enterprise as a whole? Is the mere converting process, pursuant to the ultimate end in view, a thing essentially separate from, and,
Take Williams Company v. Citizens’ Enterprise Company, for illustration. In that case the articles of incorporation stated the purpose of the company to be “to promote and aid the growth of the City of Muncie and vicinity in Delaware County, Indiana; to locate, establish, carry on, maintain and assist all kinds of mining and manufacturing companies, and to furnish power, motive power, machinery, and buildings therefor; to buy, sell and manufacture all kinds of merchandise; to sink, operate, buy and sell gas wells; to take stock in other corporations, loan and donate money, etc.”
It would be supererogation to comment on that case. In those articles it was attempted to consolidate into one corporation the business of mining, the business of manufacturing, the business of erecting buildings, the business of machinery making, the business of merchandising, the business of loaning money, and the business of a holding corporation, that is, a corporation whose function is to hold the stock of other corporations. Of course Indiana has granted no single corporation any such omnibus authority.
The other case—Burke v. Mead—was a case where a corporation organized to manufacture, store, sell, deliver and distribute electricity for light, heat and power, sought power also to manufacture and merchandise all kinds of electrical appliances, apparatus and supplies. Between the power to manufacture and merchandise electrical appliances, apparatus and supplies, and the power to install and operate an electric light, heat and power plant, there is no interdependent or functional connection. Neither power, in any just sense, is essential to the full exercise of the other. They are as separate from each other, functionally, as is the corporation that makes glass lamp chimneys from the corporation that pumps and refines lamp oil; or the corporation that manufactures steel rails, from the corporation that operates a steam railroad. True, they relate to each other, as matters of convenience—as businesses that might' profitably be carried on together—but in no appropriate sense can they be said to be co-operative means to the same end.
I cannot believe that the Supreme Court of Indiana will ever employ these cases as a pre-judgment, that though gas in its natural state, and gas bound up in petroleum, or coal, are to the business of supplying carbon to the burners of the consumers, means pretty nearly the same, to an end exactly the same; and though in financing an enterprise involving an outlay of a million dollars, these means must have been calculated upon interchangeably^ as substitutes for each other; a mining of these means, and the incidental conversion
“We know of no rule or principle,” says Chief Justice Bigelow in Brown v. Winnisimmet Company, 11 Allen, 326, approved by the Supreme Court of the United States; Jacksonville Company v. Hooper, 160 U. S. 525, 16 Sup. Ct. 379, 40 L. Ed. 515, “by which an act creating a particular trade or business, is to be strictly construed as prohibitory of all other dealings or transactions not coming within the exact scope.of those designated. Undoubtedly, the main business of a corporation is to be confined to that class of corporations which properly appertain to the general purposes for which its charter was granted, but it may also enter into, and engage in transactions which are auxiliary or incidental to, its main business, which may become necessary, expedient, or possible, in the care and management of the property which it is authorized to hold under the act by which it is created.”
To the extent of the doctrine thus laid down, we need not go. We need apply only what appears to me to be the most obvious principles of interpretation. The laws of Indiana provide that whenever three or more persons may desire to form a company to carry on any kind of manufacturing, mining, mechanical or chemical business, they may, upon following the formula therein prescribed, become a corporation. Under that authority the Consumers’ Gas Company was incorporated. Its business purpose, as already stated, was to furnish the people of Indianapolis with gas—its corporate purpose, as a means to that end, to mine natural gas, petroleum, and other minerals, and by manufacture to convert them (at least petroleum) into gas. To attain the end in view, the power to manufacture was just as-essential as the power to mine. The manufacture was indeed only a treatment or modification of the product mined—a treatment and modification essential to the purpose for which the product was mined. Without the co-operation of both of these powers—the mining,' and the modification, by manufacture, of one of the products mined—the whole investment would have been precarious. Could there be a case stronger for the unification, in one corporation, of these related powers? Has Indiana said that no' corporation that mines, shall, even incidentally to the purpose for which it is organized, manufacture also? Á prohibition so broad as that is not claimed; that mining and manufacturing may, in related instances go together, in one corporation, is conceded; and any such concession must necessarily include, in my judgment, the case now before us. Not to include it would, I cannot help thinking, be to apply to this corporation, organized to subserve a public trust, less latitude of interpretation than would be given to cases involving in the ordinary way purely vested interests.
The decree is affirmed.