237 F. 966 | 8th Cir. | 1916
(after stating the facts as above).
The order challenged by this appeal dismisses the complaint against all the defendants named therein without leave to the plaintiffs to amend. The facts set forth in the complaint appear at first view to entitle the plaintiffs to an avoidance of the last extension of the lease at least, to an accounting and recovery of the amounts found owing, an injunction and possession of the property, and if these averments are sufficient to entitle the plaintiffs to any relief, and therefore to require an answer from the defendants, it is, in the opinion of this court, unnecessary, and unwise to attempt to determine at this time the extent of the relief which the plaintiffs may have against any of the defendants. That question will be more wisely and justly determined after the defendants have answered and after the facts of the case have either been specifically admitted or proved. There is no
The plaintiffs are Rufus C. Elder and Erank E. Mann, executors of the will of George W. Elder, deceased, and Prank E. Mann, and they bring this suit as stockholders of the Adams Company, for themselves and all others similarly situated. Counsel for defendants say that, since Elder and Mann were appointed as executors by a court of the state of Pennsylvania, they cannot maintain this suit because they have not complied with the provisions of sections 7951, 7952, Mills’ Ann. Statutes of Colorado 1912. But if that position is sound it constitutes no ground for the dismissal of the complaint against these defendants, because. Mann in his own right has owned since 1899, and still owns, 3,000 shares of the stock of the Adams Company, and he can maintain this suit if the executors cannot.
If the plaintiffs are entitled to any relief against the last extension of the original lease, the acts and possession of defendants under it, the order of dismissal was erroneous, whatever may be the extent of the relief to which the plaintiffs are entitled against the original lease, the first extension, and the acts and possession under them. The discussion of this case, therefore, may be confined to the consideration of the rights of the plaintiffs under this last extension. The claim- of the plaintiffs to the avoidance of this extension, to an accounting from the defendants for the ore extracted under it, to an injunction against the further extraction of ore, and to the possession of the Adams property, rests upon two grounds: (1) The invalidity of the extension as against the plaintiffs under section 865, Revised Statutes of Colorado 1908; and (2) the acts of the defendants knowing its invalidity in overruling and disregarding the majority vote of the shareholders at the annual election in December, 1913, whereby a new board of directors was elected, in maintaining the old board in office and themselves in possession of the Adams property under the invalid extension, and in continuing to extract ore from that property.
“The board of directors or trustees of a mining or manufacturing corporation shall not have power to incumber the mines or plant of such corporation, or the principal machinery incident to the production from such mine or plant until the question shall have been submitted at a proper and legal meeting of the stockholders and a majority of all the shares of stock shall have been voted in favor of such proposition; and any mortgaging or incumbering of such property, without such consent shall be absolutely void, and the vote upon such proposition shall be entered on the minutes of the corporation.”
A lease is an incumbrance. A lease which is subject to this statute made by a corporation without a legal vote of the majority of its shares of stock approving it is voidable by the stockholders of the corporation and the right of action to avoid it is in them and not in the corporation. Westerlund v. Black Bear Mining Co., 203 Fed. 599, 610, 613, 121 C. C. A. 627, 638, 641; Dillon v. Myers, 58 Colo. 492, 146 Pac. 269, 272, 274, Ann. Cas. 1916C, 1032.
“The vote of authorization which the statute provided is the vote of the majority. The majority may authorize in the first instance regardless of the wishes of the minority. It can lie quiescent and the lease remain binding as against the entire body of stockholders. The majority cannot be compelled to act, but they can fail to repudiate, and the lease remains valid until they do repudiate. * * * If the majority must affirm where the thing requires affirmance, the majority must avoid where the thing requires avoidance. Otherwise a minority would control the corporation.”
This argument is ingenious, but is it sound ? If so, the statute which now reads that, “The board of directors or trustees * * * shall not have power to incumber * * * until the question shall have been submitted at a proper and legal meeting of the stockholders and a majority of all the shares of stock shall have been voted in favor-of such proposition; and any mortgaging or incumbering of such property, without such consent shall be absolutely void,” must be amended and transformed so that in effect it will read, “The board of directors or trustees shall have power to incumber * * * until the holders of a majority of the shares shall by vote or act affirmatively repudiate such incumbrance, and. any mortgaging or incumbering of such property shall be absolutely valid until such repudiation is made.” Is this the true construction of the statute? The object of the Legislature in its passage was to prevent the incumbrance of the mines, plant, and machinery of a mining corporationwithout the vote of a majority of the shares of its stock at a proper and legal meeting of the stockholders of the corporation, and to render any such incumbrance without such vote voidable by the stockholders. As the statute now reads, it secures to each stockholder the right, before the property of his corporation can be lawfully incumbered, to be present at a regular and proper meeting of the stockholders at which the question of the incumbrance of the property is to be submitted to their vote. It secures to him the right to oppose that incumbrance before it is approved by argument and conversatioh with other stockholders and by argument and protest in the open meeting of the stockholders before the vote is taken, and it secures to him the right to vote his stock against the incumbrance. The amended statute proposed would deprive him of the valuable right of defense against the proposition to incumber. It is far easier to defeat than to pass a bill or proposition through a legislative body. It would deprive him of the right to argue and protest against the incumbrance in open meeting where he could present at one time to all who were to act or vote upon the proposition his reasons for opposing it, and it would deprive him of the right to have the question determined by the vote of the stockholders in a regular and proper meeting thereof. Not only this, but it would impose upon him, without warrant of statute or of law, the burdensome handicap
The statute of 13 Elizabeth, c. 5, to which the statute under consideration is analogous, and with which it was compared in the opinion of this court in Westerlund v. Black Bear Mining Co., 203 Fed. 611, 121 C. C. A. 627, declared that a conveyance in fraud of creditors should be “utterly void, frustrate and of none effect.” Statutes to that effect exist in all the states. Such a conveyance, however, is voidable, and any creditor injuriously affected by it may maintain an action to avoid it without first securing its repudiation by a majority of the creditors so affected. Cook in his work on Corporations (6th Ed.) § 596, writes:
“Where notice of a meeting is not mailed 30 days before a meeting, as required by the by-laws, a stockholder who does not attend may have an election held at such a meeting set aside, even though his vote would not have changed the result. He is entitled to be present and argue with the other stockholders, or to buy their stock if he can and wishes to do so.”
And our conclusion is that, until the question of the approval of an incumbrance created by the board of directors or trustees upon the property of a mining corporation described in section 865 of the Revised Statutes of Colorado 1908 has been submitted at a proper and legal meeting of the stockholders and a majority of all the shares of stock have voted in favor of such proposition, the incumbrance is voidable by any stockholder, and .he may maintain a suit to set it aside without the assent of the majority of the stockholders or of any other stockholder than himself to a repudiation of the incumbrance. Rogers v. Nashville, C. & St. L. Ry. Co., 91 Fed. 299, 305, 316, 33 C. C. A. 517.
Counsel for the defendants cite in opposition to this conclusion Foss v. Harbottle, 2 Hare, 461, 67 English Reports, 189, 203, 204; Macdougall v. Gardiner, 1 Chan. Div. (1875) 13, 25, 26; Peters v. Waverly Water Front Imp. & Devel. Co., 113 Va. 318, 74 S. E. 168, 170; Macon, D. & S. R. Co. v. Shailer, 141 Fed. 585, 593, 72 C. C. A. 631; Venner v. Chicago City Ry. Co., 236 Ill. 349, 86 N. E. 266; Bill v. Western Union Tel. Co. (C. C.) 16 Fed. 14, 19; Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 827; Dudley v. Kentucky-High School, 9 Bush (Ky.) 576. The opinions in these cases have not failed to receive
The facts which have been stated negative any possible bar of this suit by laches, acquiescence, or ratification. The directors and officers of the Adams Company hold its property in trust for the plaintiffs its stockholders. The latter had the right to rely upon the faithful discharge by these trustees of their duty upon the legal presumption that they would not make or deliver a lease, or an extension of a lease, of the property of their corporation until it was first approved by a majority vote of the shares of its stock. No duty rested upon the stockholders to watch over or search out the acts of their trustees, and neither the trustees, nor those who secured or accepted leases from them knowing that these leases lacked the requisite statutory approval of the stockholders, may be permitted to defeat the suits of the stockholders to avoid them, because, while ignorant of the existence of them
The decree below is therefore reversed, with directions to the court below to deny the motions of the defendants therein named for a dismissal of the complaint and to permit them to answer.