Livingston v. Lynch

| New York Court of Chancery | Aug 29, 1820

The Chancellor.

The object of the bill is to reinstate the plaintiff in certain rights which he claims under the resolutions of the 13th and 14th of April, 1817, relative to the appointment and removal of certain officers belonging to the North River Steam Boat Company, and relative to the security and distribution of the funds, and the general management of the concern.

The great point is, whether the resolutions of the 13th and 14th of April, were to be regarded as fundamental articles, or the constitution of the company, requiring the unanimous consent of all the members of the company, to alter, as well as to establish them, or whether they were to be regarded merely as by-laws, subject to the control of a majority in interest of the association. On the solution of this point depends the validity of the resolutions of the 5th of May, 1819, of which the plaintiff complains.

It appears to me most clearly, that the association is not, in judgment of law, a partnership with either the rights or responsibilities belonging to that commercial relation. If that were the case, each member would have a joint interest in the whole partnership stock and concern, and could aliene or bind the whole interest. One partner may pledge the credit of the others to any amount, and each partner commits his entire rights to the discretion of each of his co-partners. There is no colour for this conclusion in this case. The evident character of the members of the company is that of tenants in common, in which each has a distinct, though undivided interest in the establishment, and an entire dominion over his own share or proportion of the property,? but without any of right or power to bind the interest, or regulate the enjoyment of the property of the other members. The resolutions of the 13th and 14th of April, derived their binding force and obligation upon all the members of the company, from the fact that they were agreed to and signed by all. The members met, and acted on that occasion as independent tenants in common ? and from the nature and language of those resolutions, it is quite apparent they were intended to be permanent regulations for the future government of the company, and not subject- to alteration, but by the same united will by which they were ordained.

The three persons .owning, in 1814, the steam boat property and franchises on the Hudson river, were not partners under the articles of. agreement of the 25th of July of that year. They never intended to subject themselves individually, to the risks, and to the alarming powers given to each member of a partnership, by the policy of commercial law. They treated with each other, and acted in that case, in the regulation of their interest, as tenants in common. Though they speak of themselves as “ the sole proprietors and acting partners” in the steam boat rights and privileges, and of the Hudson river establishment as a “ partnership,” yet, it is evident, that they used the terms partner and partnership, in some popular, not. in a legal or technical sense, and without meaning to attach to their association any one quality or mark of a partnership. By those articles, the number of shares belonging to each member was ascertained, and it was added, that he might “ dispose of any number of said shares he may possess, that he should think proper; but if he should part with the whole of his shares, he should, from that time, cease to have any further management in the Hudson river concern.” This was declaring the true character and interest of a tenant in common. So, the provision that the shares of each of those members should, on his death, descend to his heirs, was founded entirely upon the contemplation of a tenancy in common. This agreement of 1814, regulated the amount and distribution of the capital, and the number of votes each member was to have during the joint lives of the contracting parties, and the variation that was to take place on the death of either of them, when the heirs or assignees came to vote; and it provided, that a majority of voices should then govern the concern ; But how govern it ? Certainly not in violation of those permanent provisions establishing the amount of shares in the North River Steam Boat navigation, as a distinct and separate concern, and providing, after the admission of the heirs or assignees of a party who may have died, that the surviving contracting parties should be considered equal to as many votes as he had shares allotted to him by the agreement. It is evident, that the majority of voices was to govern only in respect to the administration of the business of the concern under this agreement; and the provision was intended to dispense with the inconvenience of requiring, on every occasion, the consent of every member. The resolution of the majority, in pursuance of such a fundamental provision, stands for the will of the whole, it being the will of the whole that the majority should govern in such cases.

If, therefore, we were to recur to the agreement of 1814, for light or assistance in the construction of the resolutions of 1817, it would not afford any strength to the pretensions of the defendants under those resolutions. But, in fact, there is not any relation or connection between the two agreements; and the defendants, in their answers, have rested their rights entirely upon the resolutions of 1817.

The defendants, R. L. Livingston and Cornelia Juhel, have suffered the bill to be taken pro confesso; and they, with the plaintiff, own a majority of interest in the whole concern ; that majority, therefore, either contend or admit that the resolutions of April, 1814, were a new organization of the compan)', and composed a new constitution for its future government. Most of the defendants who have answered the bill must have formed the same conclusion, for they deny any knowledge, other than what is given by the bill, of the agreement of 1814, and they insist that it is “not binding or obligatory upon the company, farther than the same is recognized and adopted by the resolutions of 1817.” Nay, several of the defendants insist, that by the adoption of the resolutions of April, 1817, “ the articles of agreement before that time existing between the three parties to those of 1814, relative to the steam boat concern, were wholly abrogated, and rendered null and inoperative, and could, therefore, in no way bind or affect any of the proprietors in the Mete association formed in April, 1817.”

The resolutions of 1817 purport, upon the very face of them, by their language, by the whole detail of the provisions, and by the unanimity required and given, to have been fundamental articles, or the constitution of the company. Every distinguishing character of the former association was destroyed. It was a meeting of the stockholders ^ . “ convened for the purpose of organizing the company, and of adopting rules and regulations for the well managing the concerns of the said company.” The capital stock, under the former establishment, was reduced, a new stock rented, and the number of shares designated into which it was to be divided. There was to be an annual president, to preside at all meetings, and a secretary, to be annually chosen, with a declared salary, and whose duties were prescribed. There was to be a clerk, whose duties were also prescribed. The monthly meetings were regulated; and at such meetings, the absent stockholders might be represented by proxy or attorney. The captains of the steam boats were directed where to deposit their moneys, and the mode of drawing and distributing the funds was specially provided. The general duties of the captains were also particularly noticed, and all the officers of the company were appointed by name, and their compensation fixed. And it was finally provided, that all propositions for an alteration of any of the resolutions of the company, were to be submitted at one of the monthly meetings, and not to be acted on until the next meeting.

I think there cannot be a doubt upon any mind, after perusing these articles, and connecting them with the admissions in the answers, that they are of the character and authority of permanent constitutional provisions, binding upon all the members, when adopted by all, as a solemn private contract; and that they can only be abolished by the like concurrent will by which they were adopted. If these are not of the nature, and do not partake of the force of fundamental articles, it is not in the power of any private association to have any. None can be drawn more essentially specific in their details, or more stable and directory in their views. When it is declared in one of these resolutions, prescribing the duties of the secretary, that he was “to see that the resolutions of a majority of the interest of the concern be carried into effect,” it certainly could have referred only to resolutions passed in the ordinary transactions of the concern, and in perfect subordination to all and each of these articles of the original compact. We are not to intend, without express words, that each of these tenants in common, especially where the interests were so unequal and so momentous, surrendered his invaluable right, founded on settled principles of law, not to bfe controlled in the government of his individual interest, without his consent.

The general principle of law is, that in such private associations, the majority cannot bind the minority, unless it be by special agreement.

Lord Coke (Co. Litt. 181. b.) took the distinction between public and private associations, and admitted, that in matters of public concern, the voice of the majority should govern, because it was for the public good, and the power was to be more favourably expounded than when it was created for private purposes. In Viner, (tit. Authority B.) we have several cases marking the same distinction; and it is now well settled, that in matters of mere private- confidence, or personal trust or benefit, the majority cannot conclude the minority ; but where the power, is of a public or general nature, the voice of the majority will control, on grounds of public convenience ; and this is, also, part of the law of corporations. (Attorney General v. Davy, 2 Atk. 212. The King v. Beeston, 3 Term Rep. 592. Withnell v. Gartham, 6 Term Rep. 388. Grindley v. Barker, 1 Bos. & Pull. 229. Green v. Miller, 6 Johns. Rep. 39. 5 Co. 63. a.) In Lloyd v. Louring, (6 Vesey, 773.) there, was a suit by three persons, on behalf of themselves and all the other members of a lodge of free masons, and Lord Eldon observed, “ that if he considered them as individuals, the majority had no right to bind the minority. One individual has as good a right to possess the property as any other, unless he can be affected by some agreement.” Mr. Abbott (Law of Shipping, part 1. ch. 3. s. 2.) admits the extreme inconvenience, under the law of England, of enjoying personal chattels vested in several distinct proprietors, without a common consent and agreement among them.

But the case most applicable to the one before us, is that of Davies v. Hawkins. (3 Maule & Selw. 488.) A company was formed for brewing ale, and by deed they confided the conduct of the business to two persons who were to be trustees of the company. General quarterly meetings of the company were to be held. It was resolved by the K. B., that one person only could not be appointed at a general quarterly meeting, in place of the two originally appointed under the deed, unless such alteration was made by the consent of all the subscribers. Lord Ellenborough said, that “ a change had been made in the constitution of this company, which could not be made without the consent of the whole body of the subscribers. It was such a substituted alteration in its constitution, as required the assent of all.”

The resolutions of the 5th of May, 1819, were irregularly passed, even assuming them to have been passed by a majority. There was not a majority of the stockholders in interest present on that day, nor was the meeting a regular one, according to the constitution of the company. Though the resolutions may have been signed by a majority in interest, (which, however, does not appear,) the signatures or assent of members were obtained separately, in detail, and not given by them in their collective capacity. They had not the advantage of mutual discussion; and all the checks provided by the resolutions of 1817, against abuse, and to ensure mature deliberation, were prostrated. It was an ex-' tremely precipitate proceeding, and to make out the assent of even a majority in interest, the defendants refer to a letter of one of the stockholders, as amounting to such assent. It would be impossible to afford sanction to the resolutions of the 5th of May, upon any known principle of law, or with due regard to the rights of property, or to the binding nature of a solemn private association and compact, having great interests under its care. The meeting which passed, or the members whe signed those resolutions, seemed to be sensible, that the alterations they made in the permanent organization of the company, ought not to be left to rest upon the declared will of a majority, for “ the signatures of all the stockholders was to be solicited.”

Nor does there appear to have been the requisite subsequent ratification of the alterations of May, 1319. The plaintiff has given no such ratification; and though acts may have been agreed to by all not strictly within the scope of the resolutions of 1817, those acts were only a waiver, for the particular occasion or purpose producing them; and every member of the company has a right to recur, when he pleases, to his rights as they were secured by the fundamental articles of the association. It is not perceived, however, that any act, on any occasion, has been unani- • mously assented to, affecting materially the constitution of the company.

In short, there is no just foundation for the doctrine, that the articles of 1817 could be controlled or abolished by the will of a part of the association. If any one article might be abolished by a vote of the majority, so might every other article; and the rights and property of each individual member would be placed in the utmost jeopardy, at the control of others, without any security from compact, or the dictates of his own judgment. The law gives no such control to others over one’s own property, or undivided interest, except in the case of partnerships, and of ship owners, which stand on peculiar grounds of commercial and maritime policy ; and, even in those cases, there ' is particular protection provided for the dissenting owner.

I shall, therefore, declare, in this case, that the resolutions of 1817 are valid and binding, until altered by unanimous consent; and that the resolutions of May, 1819, are void ; and that the plaintiff is entitled to have the rights of the association replaced on their former basis.

.The following decree was entered:

“ It is declared, that the parties to this suit forming the association in the pleadings mentioned, are tenants in common, having distinct but undivided interests in the property and franchises belonging to the company; and that they have neither the rights nor responsibilities of partners, and no member has power, as a tenant in common, to dispose of any interest except his own, or to bind the association by his contracts. And it is further declared, that the resolutions in the pleadings mentioned, and stated to have been passed on the 13th and 19th of April, 1817, are the fundamental articles, or constitution of the company, passed by their unanimous voice, and requiring, upon established principles of law, the like unanimous voice to alter or repeal them; and that the articles of agreement of the 26th of July, 1814, are not obligatory upon the company, and were abrogated by the adoption of the resolutions of April, 1817, and so it is admitted generally, by the defendants in this suit. And it is further declared, that the resolution which directs the secretary of the company to see that the resolutions of a majority in interest of the concern be carried into effect, has reference to resolutions passed under the authority of, and in conformity to, the provisions contained in the said articles of the 13th and 14th of April, 1817, and not to resolutions altering the same, or any part thereof. And it is further declared, that the resolutions in the pleadings mentioned, and purporting to have been passed on the 5th of May, 1819, being repugnant to some of the provisions of the said fundamental articles, and not having received the assent of all the members of the company as was intended in and by the same, and as was required :by the rights belonging to each member, are null and void, and of no force or obligation, upon the said company; and that any acts of all the company, in any particular case, contrary to the provisions of the said fundamental articles, if any such there be, do not alter the force or obligation of the said articles, or the rights of the members of the company under them, in any other case in which the like unanimous consent may not have been given. And it is further declared, that the said resolutions of the 13th and 14th of April, 1817, and every part thereof, continue to be obligatory upon the company, and ought to be carried into specific, execution, in every respect in which the same have not been or may not be altered or varied by the unanimous consent of the said company duly declared. It is accordingly ordered, adjudged, and decreed, that the said resolutions of the 13th and 14th of April, 1817, are binding upon the said campáis, being the parties to this suit, until changed or repealed b3' unanimous consent as aforesaid, and that the said resolutions of the 5th of May, 1819, are null and void ; and that the said resolutions of April, 1817, be carried into specific execution, as to the deposit of moneys, and as to the drafls of those moneys, and as to the appointment and duties of the clerk, and in all other respects, unless they shall have altered or may alter the same in cases wherein they do not conform thereto, by unanimous consent as aforesaid; and that the injunction heretofore issued be continued, and the receiver heretofore appointed be continued, until the said company shall have so conformed to the said resolutions of the 13th and 14th of April, 1817, as aforesaid, with the exception as aforesaid. And it is further ordered, adjudged, cepd decreed, in pursuance of the provisions of the statute of the 10th of March, 1820, entitled, “an act to incorporate the North River Steam Boat Company,” that the rights, powers, and privileges of the plaintiffs, and of each proprietor or stockholder in the company aforesaid, under the said agreement of the 13th and 14th of April, 1817, as above declared, be continued and secured to them, until changed or repealed by unanimous consent as aforesaid, whether the said association shall act as a private company, or as a corporate body under the said statute. And it is further ordered, adjudged, and decreed, that the defendant pay to the plaintiff his costs of this suit, to be taxed, and to be paid as well by the defendants who have answered, as by those who have suffered the bill to be taken jiro confesso, and to be paid rateably, in proportion to their respective interest and shares, relatively to each other, in the said company.”