60 W. Va. 143 | W. Va. | 1906
Lead Opinion
Triple-State Natural Gas and Oil Company was chartered by the State of West Virginia on the 5th day of May, 1898, “For the purpose of acquiring, owning, leasing, holding, developing and disposing of lands, and interest in lands containing, or supposed to contain, oil or natural gas, or both, or of acquiring, owning and operating all such pipe lines, and other instrumentalities as may be necessarj^ and desirable, or either, in the production, transportation, consumption, sale, and delivery of oil or natural gas, or both, and of doing all other lawful acts necessary or believed to be necessary or of use or believed to be of use in carrying out the objects of the said proposed company, and of the business which may be connected therewith in the production, transportation, sale and delivery of oil and natural gas, or either one hereof.” And was duly organized with a capital stock of two million dollars, with two hundred thousand dollars paid in, with privilege of increasing the capital stock to five million dollars in all, by the sale of additional shares of one hundred dollars each. On the 6th Ray of February, 1905, a special meeting of the stockholders was called, at which meeting one O. D. Bleakley made to said meeting of stockholders the following proposition:
"To the Triple-State Natural Gas and Oil Company:
“GeNtlemeN: — I hereby offer to purchase and acquire from you, each and all of the property, assets and things of' value belonging to your company, upon the following terms and conditions:
“l. By the term ‘property, assets and things of value,’ I mean all of the real property, all of the gas and oil leases, rights and privileges, mains, pipe lines, machinery, implements, apparatus, furniture, fixtures, supplies and every species of real and personal property; your books, bills, notes, stocks, bonds, moneys, bills receivable, accounts receivable, contracts, ordinances, franchises, rights of way, and
“2. A corporation is about to be organized under the laws of the State of West Virginia, which corporation will acquire the property and assume the liabilities of your company and of the Kanawha Natural Gas, Light & Fuel Company, the latter company having outstanding capital stock to the amount of $500,000 and bonds to the amount of $330,-000. The new corporation will be authorized to issue Three-Million Dollars ($3,000,000) par value of capital and Three Million Dollars ($3,000,000) six per cent, fifteen-year gold bonds secured by a consolidated mortgage upon all the property of the companies thus acquired; subject, however, to the lien of such of the outstanding bonds of your company and of the Kanawha Natural Gas, Light and Fuel Company as shall not be surrendered for the consolidated bonds of the-new company. For the property of your company which I hereby offer to purchase, I agree to pay you the sum of $1,-000,000, par value of the stock of the said new corporation fully paid and non-assessable.
“3. As a further consideration of the transfer of your property to me, or to said new corporation, I will also cause said new corporation to assume and agree to pay, discharge, ■ carry out and perform each and all of the debts, liabilities, contracts, obligations and undertakings of your company (other than the liability of your company to its stockholders on account of their respective stockholdings), including your outstanding bonded indebtedness.
“4. In order that your company and all its stockholders may be fully advised of my connection with the transaction, and of all profits to be derived by me therefrom, I beg to advise you that I have arranged, that I shall transfer, or cause to be transferred, the property of your company, and the property of the Kanawha Natural Gas, Light & Fuel Company to said new corporation, and to pay to said new corporation $1,249,000 in cash, in consideration of the issuance to me of $2,999,000 of its capital stock, ($1,000 having been
■“$956,000 par value thereof, for the purpose of being used' .at par to exchange for or retire the present outstanding bonds of your company, amounting to $626,000; and the present outstanding bonds of the Kanawha Natural Gas, Light & Fuel Company, amounting to $380,000; $794,000 of said new bonds are to be reserved for the future corporate needs of the new company.
“Of the stock to be issued to me, $1,000,000 thereof will be issued and delivered to me by your company in payment for its property, as provided in this offer; and $666,000 thereof will be issued and delivered by me to the Kanawha Gas, Light & Fuel Company in payment for the property of that company.
“$84,000 of said sto’ck and $1,000 par value of said bonds will be retained by me for my own individual use, as a profit derived by me out of the transaction.
“The $1,249,000 to be paid by me to the new company will be raised by the sale of $1,249,000 of the bonds issued to me and $1,249,000 par value of the stock which will be sold by me to various persons (most of whom are now interested as directors or stockholders, or both, in one of the other of the old companies above mentioned), at the rate of •one bond and ten shares of stock for each $1,000 subscribed.
“1 have arranged that all persons who are stockholders of .your company or of the Kanawha Natural Gas, Light & Fuel Company, shall be permitted, if they so desire, to share in ;the purchase of said bonds and stocks, so to be sold, upon .the following terms:
“The stock issuable to your company, and to the Kanawha Natural Gas, Light & Fuel Company, aggregates $1,666,000. .Each person who, at the date of the mailing of the notice ■hereinafter referred to, is a stockholder of either of said com■panies, shall be permitted, in the proportion which the stock ■of the new company issuable to him bears to the total amount ■of $1,-666,000, to subscribe for the bonds and stock issuable to raise said $1,249,000 cash as aforesaid, provided he makes .sutíh .-subscription and payment at the time, place and in the
“5. The conveyance of the property of your company shall, at my election, be made either to me, or my nominees, or to the new company.
“6. The acceptance of this proposition, in writing, will constitute a contract between us.
“Dated February 6, 1905.
“O. D. Bleakley.”
At said meeting of stockholders the proposition of Mr. Bleakley for the purchase was by resolution accepted by a vote of thirteen-thousand three-hundred and thirty-two shares against four-thousand nine-hundred and seventy-nine shares against the proposition. On the 17th of February, 1905, Edward G. Germer, in his own right and as administrator of the estate of Otto Germer, deceased, and of Otto Germer who sued for and on behalf of themselves and all other stockholders of Triple-State Natural Gas and Oil Company, and on behalf of themselves and all other holders of mortgage bonds of said company who might come in or be made parties to the suit and contribute to the cost thereof, filed their bill in equity in the circuit court of Cabell county against the Triple-State Natural Gas and Oil Company, W. O. Johnson, president and director, and J. B. Moorhead, secretary thereof, O. D. Bleakley, Charles Miller, trustee, and Charles Miller in his own right and as director in the said company, J. E. French, George Miller and George Maloney, directors of said company, the Central Trust Company of New York, a corporation, and all the unknown bondholders and creditors of the Triple-State Natural Gas and Oil Company, alleging
The defendants, Triple-State Gas and Oil Company, W. O. Johnson, president and director, and J. B. Moorehead, secretary of said company, O. D. Bleakley and Charles Miller, in his own right and as director of the Triple-State Company, filed their answer denying many of the material allegations of the bill, but admitted the attempted merger and transfer of the said Triple-State Company to the new company called the United States Natural Gas Company, and admitted the protest against such sale and merger on the part of the minority stockholders of the Triple-State Company. Affidavits were filed by the plaintiffs and the defendants and notice of motion was given to dissolve said injunction. On the 28th of February, 1905, the cause was heard in vacation on the bill and exhibits and the said answer which was treated as an affidavit, upon the several affidavits filed by the respective parties and upon the cross-examination of such of the affiants as were cross-examined, and the re-examination, upon which hearing the court dissolved the injunction granted in this cause. From which decree the plaintiffs appeal and say that the court erred to their prejudice in that the notice of the stockholders meeting was not given as provided by the statutes of West Virginia or by the by-laws of the said company and because the statute under which a sale was proposed to be made by section 83 added to chapter 54, by the Acts of 1901, was not passed until after the charter of the Triple-State Natural Gas and Oil Company was granted and after the contract rights between the stockholders had taken effect and because the said act of 1901, permitting the sale of all the property of a corporation organized under the laws of the State of West Virginia upon an affimative vote of sixty
As to the assignment in error, the want of proper notice of the meeting of stockholders at which action was taken, in relation to the sale and merger. The record shows that the plaintiffs were present and participated in the proceedings voting their stock against the proposition and entering their protest against the action of the majority, and none of the stockholders not represented at said meeting are complaining of the majority. “All who participate in a meeting are estopped to question the regularity, and the corporation itself may, as to third persons, be estopped to deny the legality of a meeting.” 26 A. & E. E. L. (2nd Ed.) 995; 10 Cyc. 326; Handley v. Stutz, 139 U. S. 417. This assignment is not well taken.
Did the stockholders have the right, under the laws of West Virginia, to vote and sell all the property of the corporation and take in payment the stock and bonds of another corporation? It is conceded that prior to the Act of 1901, no such power existed under our statute in the stockholders to so dispose of their property, but it is claimed that under section 83, added to chapter 54 of the Code, by chapter 35, Acts of 1901, full power was granted to so sell and dispose of the property of the corporation by the holders of at least sixty per centum of the outstanding stock of the corporation and to transfer the same, taking in payment therefor the stock of another corporation. It will be seen' that the said section 83 provides that holders of sixty per centum of the outstanding stock of the corporation may sell, transfer or assign in good faith all of its property and assets, and while it does not expressly and in terms, authorize the corporation to take in payment therefor the stocks or bonds of' another corporation; yet with the full power to sell, transfer or assign in good faith all of its property and assets under the said new section 83, it would seem clear that under the provisions of section 3, ■ chapter 52 of the Code, as amended by said chapter 35 of the Acts of 1901, the corporation has full power to subscribe for, or purchase the stock, bonds or securities of any joint stock company, this, it can do, upon a.
When the Triple-State stock was subscribed for by the stockholders they did so charged with a full knowledge of the statutory provisions then existing under which the legislature might, at any time, alter, amend or repeal the provisions of the law which were made a part of the charter. The powers reserved to the legislature are plain and distinct and any amendment or alteration made subsequent to the formation of the corporation and made within the scope of the reserved powers were written into the charter as certainly as the restrictions and rights and powers of the stockholders and the corporation itself existing at the time of the incorporation. It is contended by appellants that section 83 added to chapter 54, and the amendment to section 3 of chapter 52 being enacted subsequent to the organization of the Triple-State Company said corporation and the stockholders thereof are not subject to the provisions thereof; in other words, corporations, existing prior to the enactment of chapter 35, Acts of 1901, are not affected by it, or subject to its provisions. If this proposition were correct we should have two classes of corporations operating and subject to two sets of laws. This question seems to be well settled in the case of Cross v. Railway Company, 35 W. Va. 174. By act of the
At the election of directors in the winter of 1891 by this ¡system, provided for in the Constitution and the statute made in pursuance thereof, W. Irvine Cross was elected a member of the Board of Directors of the said railroad company, whose name had been changed to that of the West Virginia Central & Pittsburg Railroad Company; while Thos. B. Davis had been declared elected under the old system of voting the stock in vogue at the time of the incorporation of the company, he and the company contending that the new provision did not apply to the corporations which already existed at the time of the adoption thereof. Cross sued out his writ of mandamus nisi to require the company and its officers to recognize him as a director in said company in the place of said Davis, and the court held that the new provision was applicable and that Cross was duly elected thereunder, and the peremptory mandamus was issued accordingly.
The broad reservation to the legislature to “Amend, alter ■or repeal” the provisions of the statute under which corporations operate are as though written into every charter issued thereunder, and every subscriber to the stock of any such corporation is charged with full knowledge of the provisions of the law then existing, under which the legislature might, at any time, amend, alter or repeal the provisions of the law which were so made a part of the charter, and such .subscriber must be held to have given his consent that such
For the reasons herein stated, we conclude there is no error in the decree and the same is affirmed.
Affirmed.
Dissenting Opinion
(dissenting:)
E. G. Germer, in his own right and as administrator, and Otto Germer have appealed from an order made in vacation
Said proposition, submitted on the 6th day of February, 1905, represented that a corporation was about to be organized, under the laws of the State of West Virginia, to acquire the properties and assume the liabilities of the Triple State Natural Gas and Oil Company and of the Kanawha Natural Gas, Light and Fuel Company, and would be authorized to issue three million dollars par value of capital stock and three millions of six per cent, fifteen year gold bonds, to be secured by a consolidated mortgage upon all the property of the companies so to be acquired by it, subject to the lien of such of the outstanding bonds of the Triple State and Ka-nawha companies as should not be surrendered in exchange for the consolidated bonds of the new company. The amount offered for the Triple State property was one million dollars, payable in the stock of the new corporation fully paid and non-assessable, at its par value; and the company was to assume and agree to pay all the debts and liabilities of the Triple State Company and discharge and carry out and perform all its contracts, obligations and undertakings, except the liability of the company to its stockholders on account of their respective stock holdings. At that time, the capital stock of the Triple State company was two million dollars and it had a bonded indebtedness of $626,000. The bonded indebtedness of the Kanawha Natural Gas, Light & Fuel Com-
The object sought to be attained by the combination of the properties, franchises and rights of the two companies in the hands of the United States and Natural Gas Company, was the uniting of two large gas fields for the supplying of natural gas to the cities of Charleston and Huntington, West Virginia, Ashland, Kentucky, and Ironton, Ohio, and many small towns and villages in the vicinity of these places. The .gas field of the Triple State Company was located partly in Kentucky and partly in West Virginia, on both sides of the Big Sandy River. That of the Kanawha company was in Roane county, West Virginia, some distance from the city of Charleston. The new company contemplated the laying of .a large pipe-line from the Roane county field to Huntington, where connection with the pipe-line of the Triple State Company was contemplated.
There is no pretense that the primary object of this effort to combine the two fields and take over the assets of the two companies was other than what is above stated. Though the answer of the Triple State Company represents a decreasing supply of gas in its field, in consequence whereof it is predicted that, in the course of a few years, the income will probably not exceed the operating expenses, it is not, :and cannot be, denied that the business is a growing and prosperous one at this time. As shown by the books of the company, its net earnings for the year ending May 31, 1903, were $111,778.68, and for the year ending May 31, 1904, $139, 116.91. It increased its surplus to $449,007.57, as of that date. At a meeting of the stockholders held June 13, 1904, the president, W. O. Johnson, submitted a report in which, among other things, he represented the plant to be worth two million dollars with a bonded indebtedness of only $650,000; and in which he estimated the probable future earnings of the company until the year 1917, at $295, 000 annually until the year 1910, and "at' $300,000 annually for the balance of the period, making a total of $3,875.000, which, after paying all operating expenses, interest and bonded indebtedness, would leave a surplus of $1,847,000. There had been some complaint on account of the meager
The controlling question in the case is whether these dis--senting stockholders may prevent, by injunction, the sale of the company’s entire plant, all its property, rights and franchises in the manner proposed. That a corporation, on an affirmative vote, in person or by proxy, of stockholders holding at least sixty per cent, of the outstanding stock may sell all of its property and assets is not denied. Section 56-of chapter 53 of the Code gives such power in express terms, but it is said that statute has no application to this-corporation because it was passed after its organization. That more than sixty per cent, was voted for the acceptance of the proposition made by Bleakley is a fact uncontroverted. The total number of shares represented in the meeting was 18,311, of which 13,332 were voted in the affirmative. 20,000 being the total number of shares, 12,000 would have been sufficient, had all the shares been voted. Conceding, for the argument, the power of a majority to sell and dispose of the property and their desire to do so, the plaintiffs deny that they have any power to make the sale in the manner in which they are attempting to effect it. They say the authority vested by the statute contemplates a sale for cash or on a credit for money, and not a barter or exchange for the stock of another company. In other words, their contention is that the stockholders representing sixty per cent, of stock, in executing the power of sale vested
Every private corporation includes the element of contract among the stockholders. Its distinctive characteristics are the limited nature of that contract, the power of representation conferred by it and the special privileges, granted by the state, in allowing the parties to make and execute such a contract. The law, conferring the privileges, enables natural persons to associate themselves together, in a relation of contract with one another, for the accomplishment of one or more purposes specified and defined by that contract. It is not in all respects the creature of law. Even when a legislative act, special in its nature, authorizes certain persons to form a corporation, for the purpose of carrying on certain business, and confers upon them the requisite powers, the corporation is not, by force of that statute, created. The persons who are thus enabled to form the corporation must •come together, accept the provisions of the act, and associate
Though in the case of a co-partnership, each member of the firm may, by his contract made on behalf of himself and the others, bind his co-partners, the contract which he makes must be within the scope of the partnership business. He is not their representative for all purposes, but only for the purposes of conducting the business for the transaction of which they have united. He is their agent or trustee to that
A trustee holds the legal title to the property which constitutes the subject of the trust. He may convey it and pass that title contrary to the terms and limitations of the trust. The purchaser from him will take the legal title to the property, but it will be subject in his hands to the equitable title in the cestui que trust. Atkinson v. College, 54 W. Va. 32, 43; Perry on Trusts, sections 321, 334. But any such abuse of the trust and of the powers of the trustee will be promptly restrained by a court of equity, if, before the accomplishment of the act, cestui que trust comes into such court and shows by his bill that the trustee is about to misappropriate the property. The operation of these principles is frequently varied and limited by the conduct of the parties. Estoppel operates as fully and freely against an equitable right as it does against a legal right. If the cestui que trust allows an abuse of the powers of the trustee, and the rights of innocent third parties, such as bona tide purchasers for value without notice, have attached and become fixed, the negligence, acquiesence or laches of the holder of the equitable right may prevent him from having any relief in a court, of equity, or may limit and restrict the relief which such a court would have given him, had he been diligent and prompt in the assertion of his rights. It sometime happens, too, that courts of equity will refuse relief at the instance of the trustee, seeking to undo his own act, or to be relieved from the consequences thereof, when it would not refuse to grant relief to the cestui que trust himself, if he had presented the complaint on account of the abuse of powers vested in the trustee. These elementary principles are stated here, not by way of contradiction of any position taken by counsel or any member of the Court, but because they are operative in this case and will be referred to in what, is to follow.
They are involved in the enforcement of rights under that principle of corporation law by which certain acts are de-
Ultra vires acts, on the part of the-board of directors, or of the majority of the stockholders, may be relieved against in equity, at the instance of a stockholder, after he has first made application, in proper manner, to the corporation
In view of the foregoing principles, it must be apparent that, if the sale of the entire plant and property of the Triple State Company, by a majority of the board of directors, for the sum of one million dollars, payable in the capital stock of the United States Natural Gas Company, at its par value, is an act which is not within the contract existing between the stockholders of the Company, it is an ultra vires act, and any stockholder, who has not consented to it, may prevent such sale by injunction. He has an equitable interest in the property of that company and the corporation is, in effect, his trustee, and its officers are its agents, for the purpose of executing that trust, when they are empowered to act for and on its behalf, and, as to such of its powers as are vested in a majority of the stockholders, the stockholders, proposing to act on its behalf, in such instance, are the agents of the trustee, the’ corporation. Its discretionary powers are somewhat more ample than those of an ordinary trustee, whose
The proposed action involves several different things. One is the sale of the entire property of the corporation, for a price fixed and determined by the corporation, acting through a majority of the stockholders. Another is the acceptance, as consideration therefor, of the capital stock of another corporation, instead of money. The consummation of these two things works an abandonment and discontinuance, on the part of the corporation, of its large and growing business and the cessation of the exercise of the priv
Passing, for the time being, the question of the constitutionality of section 83, added to chapter 54 of the Code, by chapter 35 of the Acts of 1901, and assume that it is valid and applies to all corporations, we must determine how the power thereby conferred may be exercised. For what does it authorize a sale? What do the term's “sell, transfer or assign” mean? Do they mean that the corporation, acting through those holding the specified number of shares of its stock, may sell for anything other than money? There is no express authority to do so. If there is any such authority, it must be an implied authority. If it can be done, then this statute confers the power to trade and barter away, as well as to sell, the property of the corporation. What is to be the standard by which the price shall be fixed? Is the property of the corporation to be measured by the legal standard, the dollar, or is some other .property to be first substituted therefor, at a valuation, believed by a portion of the stockholders to be of equal value, and the substituted property measured by said legal standard of value? On this subject, we are not without authority. In Mason v. Mining Co., 133 U. S. 50, the Supreme Court of the United States quoted with approval the following from Lindley on Partnership: “In the absence of a special agreement to the contrary, the right of each partner on a dissolution is to have the partnership property converted into money by a sale, even though a sale may not be necessary to the payment of debts. This mode of ascertaining the value of the partnership effects is adopted by courts of equity, unless some other course can be followed consistently with the agreement between the partners, and even where the partners have provided that their shares shall be ascer
The same principle is asserted by Judges Taft and Hammond of the United States Circuit Court of Appeals, in the case of Loan & Trust Co. v. Toledo &c. Co., 54 Fed. Rep. 759, 776, 788. Judge Taft said: “Under the statute of Michigan permitting the sale of an uncompleted railroad by its stockholders to another road, the words of which are quoted in the foregoing opinion, there is no. power in two thirds in interest of the stockholders to bind one third to a sale for any consideration but money or money credit. * * * There is no doubt whatever of the proposition argued in the foregoing opinion, — that a minority stockholder is bound by the acts of the majority so long as that majority acts within its charter powers, — nor is there any doubt that neither the majority nor.the entire body of stockholders of the corporation can do a corporate act which its charter forbids; but there are corporate acts which are not within the charter power of the majority of the stockholders, and yet which are not beyond the power of the corporation. They are acts of the corporation, which the state, as the grantor of the corporate franchise, has no interest to invalidate, provided all the stockholders consent thereto. They are acts which, if done by a majority only, infringe upon the charter rights of the minority. In this case the power to sell for money was conferred by statute upon two thirds of the stockholders of the uncompleted road. The sale could not - be for stock in another company,' against the objection of the minority stockholders. ' No such powet was vested by the statute in the two thirds majority.” Judge Hammond said: “I do not think any corporation can go out of business, and sell its properties and franchises in entirety, (outside of sales made in the ordinary course of business,) and bind a minority of the stockholders, by the will of the majority, to such a sale, upon any principle of the public welfare or like consideration; certainly, not to compel the minoriry, on such a sale,
Bather conceding that the word “sell,” used in the statute does not include any power to barter, counsel for the ap-pellees insist that the words “transfer or assign,” used in connection therewith, afford latitude for such power by implication; the argument being that although a transfer or an assignment, as well as a sale must be upon a consideration, the consideration need not be a price in money. They say each term- was intended to be a separate grant of power, designed to embrace every form of contract by which property can be passed from one owner to another. Nothing in the context indicates any intention to give any of these terms any meaning other than that which they have by law. They are modes of alienation, disposition of property and rights. “Sell” usually applies to tangible property. It is a technical term applicable to the alienation of that kind of property and especially to personal- property. “Transfer or assign” are applicable to choses in action, rights and privileges,
The principal argument in favor of the power claimed, ihowever, is that the legislature, while giving the power of .sale by section 83 of chapter 54 of the Code, vested in the ■corporation the power to purchase, with the consent of a majority of the stockholders, stock in other corporations. For this latter proposition, section 3 of chapter 52 of the Code, as amended by chapter 35 of the Acts of 1901, which, .as so amended, has been hereinbefore quoted, is relied upon. I submit here the following reasons for grave doubt, on .my part, that said section confers any such power: Said
But, if it be conceded, that said section 3 of chapter 52 confers, upon one corporation, power to subscribe for or purchase stock of another, it does not follow that, in the case of a given corporation, the purchase of stock by the directors, with the assent of a majority of the stockholders, would be intra vvres. To give an act of the corporation such a status, it must be, not only within the powers .allowed, by general law, to such corporations as may have seen fit to provide, by contract of the stockholders in organizing it,. for the exercise thereof, but also within the contract made by the stockholders in the organization of the corporation. It takes two things to make an act intra vires:
There is a limited power in the majority to alter the contract by amendment of the agreement. The legislature has conferred this power by section 10a of chapter 54 of the Code which says “Any corporation, except railroad companies, may agree to and adopt a new agreement, so as to enlarge or diminish the objects and purposes for which it was incorporated, by signing and acknowledging a new agreement, in all respects as the original agreement was signed and acknowledged. Such new agreement must be signed and acknowledged by the holders of a majority of the stock of the corporation.” But this power is a limited one. It does not extend to the substitution of entirely new objects and purposes for those originally inserted in the contract. It is only a power to enlarge or diminish the objects and purposes existing, at the time of amendment, as originally agreed upon. There are many decisions which say that it is competent for the legislature to make limited alterations in the charter without the consent of the stockholders and to permit a majority of the stockholders to bind the minority in. that respect. Nugent v. Supervisors, 19 Wall. 241; Bishop v. Brainerd, 28 Conn. 299; Plankroad Co. v. Thatcher, 1 Kernan 102; Railroad Co. v. Dudley, 4 Kernan 336; Meadow Dam v. Gray, 30 Me. 547; Railroad Co. v. Winchester, 13 Allen 32; Noyes v. Spaulding, 27 Vt. 420; Railroad Co. v. Renshaw, 18 Mo. 210; Fry v. Lexington, 2 Metc. 314; Railroad Co. v. Beers, 27 Ill. 189; Railroad Co. v. Earp, 21 Ill. 292. To the same effect see the long list of cases cited in the note in Green’s Brice’s Ultra Vires, at pages 96 to 99, inclusive. There, it is shown that the cases are far from unanimous even on that proposition, when the legislative act is merely permissive and not mandatory. See also Cook on Stock and Stockholders, section 501, and the numerous cases cited there.
Helliwell on Stock and Stockholders, at section 268, says: “Nor, under a reservation of power to amend, is the legislature authorized to change the object of the corporation,
It is true that, in that case, there was no reservation of power to alter the act under which the railroad company was incorporated, but it is not perceived that that would have made any difference if it had been; for the court said, in addition to what has been quoted: “The power of the legislature to confer such authority cannot be questioned, and with■out the authority, railroad corporations organized separately, ■could not merge and consolidate their interests. But in conferring the authority, the legislature never intended to compel a dissenting stockholder to transfer his interest, because :a majority of the stockholders consented to the consolidation. ” 'To the effect that, where the legislature has reserved the ■power .to .alter and amend, and has passed an act which merely
To show that the principle of these decisions is sound, in constitutional, as well as in common, law, reference may be had to those instances in which states have seen fit to repeal and alter charters under which property rights had vested in the corporations and their stockholders. The decisions unanimously hold that no legislature, in the exercise of reserved power, can destroy vested rights in property other than rights in the franchise itself, by repealing the charter of a corporation. In Greenwood v. Freight Co., 105 U. S. 13, 19, the Court said: “Personal and real property acquired by the corporation during its lawful existence, rights of contract, or choses in action so acquired, and which do not in their nature depend upon the general powers conferred by the charter, are not destroyed by such a repeal; and the courts may, if the legislature does not provide some special remedy, enforce such rights by the means within their power. The rights of the shareholders of such a corporation, to their interest in its property, are not annihilated by such a repeal, and there must remain in the courts the power to protect those rights. ” As an indication of the extent to which the reserved power of repeal and alteration may be exercised against the will of the corporation, and its stockholders, that court further said in the same case: “If the essence of the grant of the charter be to operate a railroad, and to use the streets of the city for that purpose, it can no longer so use the streets of the city, and no longer exercise the franchise of running a railroad in the city. In short, whatever power is" dependent solely upon the grant of the charter, and which could not be exercised by unincorporated private persons under the general laws of the state, is abrogated by the repeal of the law which granted
The Supreme Court of the United States, in Shields v. Ohio, 95 U. S. 319, a case arising under the reserved power of repeal and alteration, said: “Where an act of incorporation is repealed, few questions of difficulty can arise. Equity takes charge of all the property and effects which survive the dissolution, and administers them as a trust fund, primarily for the benefit of the creditors. If anything is left, it goes to the stockholders. Even the executory contracts of the defunct corporation are not extinguished. The power of alteration and amendment is not -without limit. The alterations must be reasonable; they must be made in good faith, and be consistent with the scope and object of the act of incorpora
The foregoing principles harmonize fully, not only with the theory of this opinion, but with the following decisions and expressions of judicial opinion: In White v. Railroad Co., 14 Barb. 559, Edwards, J., speaking for the New York Court, said: “A charter of incorporation, like a contract between individuals, is to be construed according to its spirit and meaning, as well as its letter. And in this point of view, when it is asked by the plaintiff’s counsel whether the legislature can convert the defendant into a banking, insurance or mining company, I answer, most unhesitatingly, that it cannot;. and for the obvious reason that such an act would create a new company, of a new and distinct character.” In Railroad v. Preston, 35 Ia. 115, 125, the court said: “If, under this charter, the corporation should undertake the construction of a lateral branch largely increasing the cost of the enterprise, and bearing an undue proportion to the original undertaking, they might be enjoined from so doing at the suit of a stockholder. And if such design should be accomplished, a stockholder might be released from liability.” Booe v. Railroad Co., 10 Ind. 93, holds that: “Where two or more railroad companies, with the consent of the legislature, granted subsequently to the subscriptions of stock, but without the
Every decision, relied upon in the argument for the appel-lees, adheres to these general principles. Not one of them ignores the element of contract in the charter of a corporation, and not one of them ignores the principle that an act done or attempted which is outside of the contract is ultra vires, and, therefore, not binding upon a dissenting stockholder, unless he has, in some way, consented to it, either expressly or by conduct which estops him. In Traer v. Lucas Prospecting Co.. 99 N. W. 290, decided by the Iowa court, in which the sale by a corporation of all its property in exchange for the stock of another company was held to be a valid transaction, the opinion expressly states that the business of that corporation, according to the express terms of its contract, was the purchase and sale of mineral lands. It was organized for the purpose, not of mining, but of merely dealing in mineral lands in connection with which prospecting was contemplated. The court said: “The dominant thought, as it seems to us, was to secure control of such lands, either by purchase or otherwise, for the purpose of sale or lease to some individual or association desiring either to speculate further with such rights, or to actually mine the properties; otherwise no benefit could be derived from the benefit of the corporation. These provisions would alone indicate that it was the intent- and purpose to sell any or all of these property rights whenever it might be to the advantage of the corporation to do so.” The court held this to be the contract, not merely something which the law authorized the parties to agree to do. Then proceeding, with reference to the right to take stock in another corporation, the court said: “ But the articles of incorportion expressly gave the Lucas Company the right to purchase, sell and deal in the corporate stocks of corporations authorized to conduct mining operations.” Both transactions, necessary to effect the thing done, were within the law and within the written specific contract of the stock
These decisions are entitled to but little weight as against the solemn well-considered decision of the Supreme Court of the United States in Mason v. Pewabic Mining Co., 133 U. S. 50, and the carefully prepared opinions of Judges Taft and Hammond in Loan & Trust Co. v. Toledo &c Co., 54 Fed. Rep. 759. It is urged, however, that these two cases •ought not to be controlling here, because it appears that in the latter, there was no power in the selling' corporation ¡to hold stock in another corporation. The statute of Michigan, under which that case arose, did not give one corporation the power to hold stock in any other. I do not understand either Judge Taft or Judge Hammond to have attached ■ any importance whatever to that circumstance. It was a railroad company and the sale of its property necesssarily ¡put an end to its existence as a corporation. There was no ••reason why its stockholders, being for all practical purposes nothing more than private persons, interested in the proceeds of the property, and having no power to further ¡transact business, as a corporation, except to pay the debts ;and divide the remainder of the assets among themselves, •could not hold stock. Every reason of public policy which ¡inhibits one corporation from taking stock in another, had ¡ceased.to .exist. The taking of stock in the other corporation could have resulted in nothing except a re-sale of it to ■individuals, or a division of it among private persons. So, in the case of Mason v. Mining Co., the corporation had ■ expired by efflux of time. It had no power to transact any .more business as ¡a corporation, except to wind up. There was no reason of public policy why it could not take stock in another corporation, as an incident to the exercise of that power, and the Supreme Court of the United States never once, in the opinion, made any reference to the want .of .authority .to .take stock in .another corporation, as a basis
No courts in the Union, perhaps, have bestowed as much-attention, investigation and labor upon the subject of corporations as those of New Jersey. That state is known to be the most prolific one of corporations in the country. Its. courts are perfectly familiar with every phase of corporation, law, and their opinions relating to that subject, come from men who are not only familiar with it, but have had vast experience. In the case of Coler v. Railroad Co., 64 N. J.. E. 117, above cited and analyzed, Emery, Vice-Chancellor, stated the practice in that state, in such cases as this, to> be as follows: “My view is that this provision of the act as to credit would not include the right to sell for shares, in a new company organized to take the assets, with a view of distributing these shares among the stockholders, and that-the stockholder could not be obliged to share in such new enterprise if he did not wish to. In the case of such sales to new companies of the assets of a companv on dissolution which have come before me, and any stockholder or creditor has objected to receiving the shares in the new company, I have refused to approve sales of the assets for stock in a new company, except upon the terms that as. to every stockholder or creditor not desiring to take stock as his share on distribution, the purchasér must, as to such dissenting stockholder or creditor, pay in cash the same amount offered in stock, and that the total amount thus offered in stock is the fair value of the property in money. And if the status of the present case was that of proposed sale by trustees on dissolution, I should consider that a stockholder who declined to accept shares in the new company in satisfaction of his rights in distribution, must be offered in cash the par value of the new stock, and that
It remains now to consider certain other decisions which have been produced, in support of the proposition of the alleged power conferred upon corporations by section 3 of article 52, as amended, to purchase and hold stock in one another, authorizes a majority to sell for stock instead of. money. Upon them is predicated the argument that, independently of any act of acceptance on the part of the stockholders, a new subject of corporate power, created by subsequent law, is carried into the corporate contract, although the law makes it merely permissive. One of them is Cross v. Railroad Co., 35 W. Va. 174, by which a statute authorizes a minority stockholder to cumulate his shares in voting for the election of officers, was held to be applicable to a corporation organized before the passage of that statute. It was a mandatory statute. It granted to the minority stockholder a privilege which he was authorized to exercise. As to him it was permissive. He was not bound to
As the holders of sixty per cent, of the stock, claim the benefit of section 83, added to chapter 54 of the Code by chapter 35 of the Acts of 1901, it becomes necessary to answer the objection of unconstitutionality in that act, as ap
My conclusions, predicated upon the reasons above stated, are: first, that if section 3 of chapter 52, as amended, confers upon corporations any authority to purchase and hold stock in one another indiscriminately and without limit, it-was not intended by the legislature that such power should be used by a majority of the stockholders of a corporation, organized under a contract not providing for the exercise of such privilege, or any number of them less than the whole, so-as to work a fundamental change in the business, or purpose, of the corporation, without the consent of every holder of' stock in the corporation: second, that the statute, under the construction given to it by my associates, enabling the majority of the stockholders to so use it, is unconstitutional and void to that extent, because the amendment of the charter, so imposed, is fundamental, since it virtually destroys property rights of the dissenting stockholder without making:
