80 W. Va. 653 | W. Va. | 1917
This is an appeal from decrees of the circuit court of Greenbrier county enjoining the officers of the defendant company from making sale of its property and appointing a receiver to take charge of the same, and operate the defendant company’s railway. The plaintiff claims to be the owner of forty-seven shares of the capital stock of said company out of. a total of five hundred shares thereof. In the month of March, 1917, a general meeting of the stockholders of the defendant company was held after proper notice, and a resolution was unanimously adopted, all of the stock of said company being present and represented at said meeting, providing for the dissolution of the defendant corporation, and for the surrender of its franchises and the sale of its
The Bank of Lewisburg and the Bank of Greenbrier were made defendants to this bill as the owners of a lien against the property of the defendant company secured by a deed -of trust thereon. These defendants filed a cross bill reiterating the allegations of the plaintiff’s bill, and asking also for the appointment of a receiver and an injunction as prayed for in the bill of plaintiff. The defendant company and the defendants Van Sickler and Coursey answered the plaintiff’s, bill and the cross bill of the defendant banks. Their answers show the history of this railroad. It is shown that from its beginning it was a losing venture; it had been constructed at a cost of more than one hundred and twenty thousand dollars, and four or five years thereafter it became so involved that it was sold under a decree of the Federal District Court for the sum of thirty-five thousand dollars. It was then reorganized on a basis of a capital of fifty thousand dollars ; additional money was spent; but the receipts arising from the operation of said railroad have never been sufficient to pay the expenses of operating and maintaining the same. The defendants show that by dismantling said railroad and selling the material in the same they will be enabled to pay all the debts of the defendant company and have a substantial surplus for distribution among the stockholders because of the extraordinary prices which they would now be able to obtain for these railroad materials. They deny all the allegations of fraud and embezzlement of the funds of the company and they set up the. dissolution of said company by its stockholders, and assert the same to be authorized by the law of the land. They also aver the appointment of Henry Gilmer and R. B. Holt as trustees to administer
A large number of affidavits are filed, from'which it conclusively appears that no one has ever been able to operate this railroad advantageously. During the ten years of its operation it has continuously lost money for its stockholders, and it is shown that it is now in a very unsatisfactory physical condition, notwithstanding no dividends have ever been paid out of its earnings to the holders of stock.
The plaintiff contends that the circuit court of Greenbrier county had jurisdiction to appoint the receiver herein, and to enjoin the sale of the property of said company upon two grounds: First, because the defendants IT. L. Van Sickler and W. S. Coursey were grossly mismanaging the affairs of said company, and were misappropriating its assets; and. Second, because the defendant company, being a public service corporation, could not dissolve and surrender its franchises, but that the same must be sold as a going railroad; company, including in such sale not only the physical property but the franchises thereof; and that the attempt to dissolve the same, dismantle and sell the physical properties in. this way, was an ultra vires act upon the part of said stockholders which could be enjoined by any stockholder. The defendant banks in their cross bill make the same contentions, and they further insist that having a first lien upon said property, and the debts evidencing said lien being due, they are entitled to have the aid. of a court of equity to enforce said lien. The allegations in the bill as to the fraudulent-conduct upon the part of the defendants Coursey and Van Sickler are in the main general in their character.
A minority stockholder of a corporation, in order to take the possession and control of its assets from the duly authorized board of directors and officers, must show specific acts of mismanagement Or misappropriation of the company’s assets, -and must support the same by proof thereof. He must ordinarily further show that he has applied to the board of directors and, failing to get relief therefrom, to the stock
Where, however, the parties charged to be guilty of the acts of mismanagement and misappropriation are the board of directors, and they have the absolute control of the stock of said company, and it appears that it would be useless to apply to them to rectify their own wrongful acts, it is not necessary to make such application, but said stockholder may at once apply to a court of -equity for relief. It is a generally recognized rule that the right of action to vindicate corporate rights, or threatened'injury of property of the corporation, is vested in the corporate authorities and must be prosecuted in the name of the corporation. However, this rule ean hardly be said to have application when the directors <of the company themselves are the parties guilty of the misappropriations and fraudulent usé of the company’s property, or the ultra vires acts complained of, and where they have the absolute control of the stock of said corporation, as is shown to be the case here. Crumlish’s Adm’r v. Railroad Co., 28 W. Va. 623; Virginia Passenger & Power Co. w. Fisher, 104 Va. 121; Cook on Corporations, §741.
In this case it sufficiently appears that the defendants H.. L. Van Sickler and W. S. Coursey, who are charged with the misappropriation of the company’s funds, and with the mismanagement of'its affairs, with the deliberate purpose of wrecking the same, are in the absolute control of the board of directors of said company, and of the stockholders thereof, so that any application to the directors or to the stockholders for relief would be but an application to the said Van Soclder and the said Coursey, and would be entirely useless.
Are the allegations of the plaintiff’s bill in this ease sufficient to justify the appointment of a receiver and the taking of this property away from the directors of the company? As before stated, these allegations are in general terms that the defendants Van Sickler and Coursey are acting with the deliberate purpose of wrecking and destroying the com
It is contended, however, that independent of any charges of fraud or embezzlement, the plaintiff is entitled to the relief granted- on the sole ground that the acts of the stockholders in dissolving said corporation and surrendering its
This does not mean, however, that such a corporation must continue to carry on the business for which it was incorporated and to exercise the franchises granted to it by the state regardless of the consequences to itself. To say that a railroad corporation must continue its operations indefinitely, regardless of the consequences to the stockholders, would in effect, in a case like this, permit the entire exhaustion of the property by its use. It would be a taking of the private property of the company for public use without compensation. There is no special provision in our statute for the dissolution of public service corporations. The provisions of law for the dissolution of private corporations generally must therefore apply, if it is held that such corporations can dissolve at all. We are constrained to hold that when it appears to the stockholders of a public service corporation that its business cannot be operated except at a loss, and that-a fair test has been made in order to determine this fact, they-have authority to discontinue the business of such a corporation and surrender its franchises. This seems to be supported by the authorities. Railroad Co. v. Transportation
Certainly a public service corporation is under no obligation to continue the service rendered by it to the public longer than the public interest demands such service, and it may be said that whenever the returns received by the corporation for the service rendered by it are insufficient to pay the expenses of furnishing the service there has ceased to be a public demand for the service. It may be that the stockholders of such a corporation determine this question at their peril, but can a stockholder question their decision in this regard? He stands in no different relation to the corporation than a stockholder in any ordinary private corporation. He cannot question the validity of the acts of the stockholders unless he shows that a pecuniary loss will result to him therefrom. There is no such showing in this ease, but on the other hand it appears that his stock will be worth more if the company is allowed to dissolve, as contemplated by the resolution of the stockholders, than it would be if it is compelled to continue operations as a public service corporation. The franchises exercised by this company were granted to it by the state. If it has violated any of the provisions of these franchises in attempting to dissolve and discontinue business, the state alone can raise that question, if indeed it can be raised at all. In Lumber Co. v. Ward, 30 W. Va. 43, it is held that a cause of forfeiture cannot be taken advantage of or enforced against a private corporation, except in a proper proceeding brought by the state for that purpose, and this goes upon the theory that the- contract is between the state and the corporation, and that for a failure of the corporation to perform its part of the contract no one is in position to take advantage except the state. Moore v. Schoppert, 22 W. Va. 282.
Some of the authorities seem to recognize the right of the state in a proper proceeding to review the action of the stockholders of a public service corporation in determining to dis
We are not called upon, however, to decide in this case whether the state can by writ of mandamus seek to compel the said railway company to continue its operations as a public service corporation, or have a judicial review of the question of whether such railroad can be operated advantageously to the stockholders.
It is contended by the defendants, Bank of Greenbrier and Bank of Lewisburg, that they have a right to have a receiver appointed for the purpose of having satisfaction of their liens out of the funds of the railroad company. It appears that these liens are secured by a deed of trust. The ground upon which it is asked that equity take jurisdiction at the instance of these banks, in addition to the grounds which we have already disposed of, is that the defendant company is making sale of its property, and that there is danger that the assets will be so misapplied by the defendants Van Sickler and Coursey that the debts of the defendants would not be satisfied. It appears from the record in this case that the stockholders and directors of this company have done the very thing which these banks desire to have done, that is, they have divested themselves of the right to administer the property and turned it over to trustees. It is in no way suggested in any of the pleadings in this case that these trustees are not entirely solvent or will not properly administer the trust imposed upon them, or that there is likely to be any loss because of their misconduct or misfeasance. In the absence of such a showing a court of equity will not undo the act of the stockholders of the corporation, but will allow the trustees appointed by the stockholders to carry out the trust for the benefit of the creditors and stockholders of the company. It appears from the record that part of the property of the company has already been sold for an amount largely in excess of the debts of the complaining banks, and
The decrees of the eircnit conrt of Greenbrier county complained of will be reversed, the injunction awarded in this case dissolved, the receiver discharged, and the cause remanded for further proceeding.
Decree reversed, receiver discharged, injunction dissolved> and cause remanded.