25 Wash. 492 | Wash. | 1901
Appellant Parsons, original plaintiff, brings suit as a stockholder of the Tacoma Smelting & Refining Company against the corporation and the trustees thereof and the Tacoma Smelting Company, a corporation. The other appellants intervened, likewise as stockholders, and united with the plaintiff. Appellants, as minority stockholders of the Tacoma Smelting & Refining Company, pray the cancellation of a lease executed by the Tacoma Smelting & Refining Company to the Tacoma Smelting Company. Their complaints allege substantially that the meeting of trustees who resolved upon the execution of the lease did not have a legal quorum of the board present to adopt the resolution; that a majority of the stock of the Tacoma Smelting & Refining Company had, in fact, been transferred to the Tacoma Smelting Company, and was controlled in the interest of the latter company; that at the stockholders’ meeting where the trustees were authorized to execute the lease the majority of the stock was controlled by the Tacoma Smelting Company, and voted by a trustee of that company, who 'was also trustee of the Tacoma Smelting Company; that by the execution of the lease the Tacoma Smelting & Refining Company ceased to perform the functions for which it was organized. After issue joined by the respondents, a trial was had, and a decree followed, dismissing the action. ISTo special findings of fact were made by the superior court. Upon an examination of the facts admitted in the pleadings and shown by the testimony at the trial, so far as deemed material to state, it appears that the Tacoma Milling & Smelting Company was organized under the laws of this state in Pierce county, in 1887, with a nominal capital of $1,000,000. Before commencing business, however, in March, 1890, .it amended its articles of
1. At the trustees’ meeting there were present four of the board- of seven, — Anderson, Oakes, Browne, and Rust, —of whom Rust was a promoter and trustee of the new corporation, and controlling a majority of the stock in the old company. Section 4257 Bal. Code, declares:
*497 “A majority of the whole number of trustees shall form a board for the transaction of business and every decision of a majority of the persons duly assembled as a board shall be valid as a corporate act.”
It is maintained by counsel for respondents that the statute makes every act of a majority of a quorum, when assembled, valid, and that the'statute is merely confirmatory of the existing rule at common law. This view of the validity of such action seems to omit a consideration of the trust held by the director. Each occupies a fiduciary relation to the corporation and to each stockholder. He must faithfully perform his trust. The ordinary obligation attending trust relations attaches to the trustee of a corporation. The policy of the law forbids a trustee to assume a double function where there are adverse interests considered. 1 Waterman, Corporations, p. 612, observes that they cannot, as agents or trustees, enter into or authorize contracts on behalf of those for whom they are appointed to act, and then personally participate in the profits. Morawetz on Corporations lays down the rule that the utmost good faith is required in the exercise of the powers conferred on trustees. In Munson v. Syracuse, etc., R. R. Co., 103 N. Y. 58 (8 N. E. 355), the court observed of a contract:
“But we are of opinion that the contract of September 14, 1875, is repugnant to the great rule.of law which invalidates all contracts made by a trustee or fiduciary, in which he is personally interested, at the election of the party he represents. There is no controversy as to the facts bringing the case as to Munson within the operation of the rule. He and his associates were dealing with a corporation in which Munson was a director, in a matter where the interests of the contracting parties were or might be in conflict. The contract bound the corporation to purchase; and Munson, as one of the directors, participated in the action of the corporation in assuming the obli*498 gation, and in binding itself to pay tbe price primarily agreed upon between tbe plaintiffs and Magee. He stood in the attitude of selling as owner and purchasing as trustee. The law permits no one to act in such inconsistent relations. It does not stop to inquire whether the contract or transaction was fair or unfair.”
In Curtin v. Salmon River, etc., Ditch Co. 130 Cal. 345 (80 Am. St. Rep. 132, 62 Pac. 552), it was held that where, at a meeting of the directors of a corporation, a quorum being present, the execution of a mortgage on the property of the corporation was voted to one who constituted one of the quorum, the mortgage was invalid, because, the mortgagee’s interest being antagonistic to the corporation, he was not a part of the board as concerned the mortgage, and hence there was not a quorum of the board present and acting. This conclusion was approved by the same court in Bassett v. Fairchild, 132 Cal. 637 (64 Pac. 1082). It was there observed of a resolution of the board of directors of a corporation allowing compensation to one of the board:
“In the opinion delivered in department it was held that the allowance of Fairchild’s claim by the board of directors on Hovember 9th was valid, notwithstanding the fact that the presence of Fairchild was necessary to constitute a quorum, and that, at all events, the allowance was an act that could be ratified by the stockholders, and that it was so ratified on January 10, 1893, as above stated. Since then it has been held in Curtin v. Salmon River, etc., Ditch Co., 130 Cal. 345 (80 Am. St. Rep, 132, 62 Pac. 552), that there is no legal quorum of directors present when action is attempted to be taken on a matter as to which one of the directors necessary to make the quorum is interested.”
While there are observations by some of the text writers and expressions in some judicial opinions refining upon acts which may be merely voidable, and not per se void,
2. The objects of the incorporation of the Tacoma Smelting & Refining Company are stated in its articles to be the building, acquiring, owning, and constructing and operating of works and buildings for the purpose of milling, reducing, smelting, and refining gold and silver ores, purchasing and handling of such ores, advancing moneys thereon, and acquiring, purchasing, owning, and operating of such appliances and adjuncts as may be necessary or convenient for the prosecution of the business; the purchasing, owning, and acquiring of mines and all other lands that may be necessary or convenient in operating said business; and generally to do all other acts which, in the judgment of the trustees, may be proper or essential to the successful carrying on of the purposes and objects of the corporation. It is apparent that no express power to lease all the property of the corporation is contained in the articles. The articles of incorporation, as observed, are a contract. Each individual stockholder assumed the liability of the payment of his subscription to the capital stock in money or money’s worth, and the corporation engages to carry on the business for which it is organized. Its business is managed by the board of trustees, but always within the fundamental limitations of the articles of incorporation. Morawetz, Private Corporations, § 511, ob* serves:
*500 “The authority of the board of directors is derived from the unanimous agreement of the shareholders, expressed in their charter or articles of association; and hence those powers which it is intended shall belong to the directors exclusively cannot be impaired by the majority, or any other agent. Each agent is supreme within the scope of the powers delegated to him by his principal. ... A lease executed in pursuance of a resolution of the shareholders of a corporation was void, because the power of managing the business of the company was vested solely in the board of directors.”
The stockholders have equal rights to participate in the profits of the business according to the value of the stock owned by each, and each stockholder is entitled to the protection of his charter rights. He may insist that the business be conducted according to the articles; and, while the wishes of the majority of the stockholders are potent in the administration of all the business of the corporation, and, where exercised without fraud or oppression, are controlling upon the minority, yet the action of the majority cannot prevail where it impairs the contract right of a stockholder. The reasons urged for the necessity of the lease in question are that the Tacoma Smelting & Refining Company was unable to procure capital to conduct its business efficiently; that it had liabilities which were pressing, and had no available funds to make payment. It may be well to suggest an inquiry into the condition of the corporation at the time the proposal to lease the property was made. It had a plant of considerable value. It apparently exceeded in value the liabilities, and, while the amount is not definitely shown, it appears that a large portion of the subscriptions to the capital stock had not been paid. Mr. Rust testified that some of the subscribers to the capital stock had been requested to advance capital to conduct the business, but that no such advancements had been made. It is nowhere intimated that the board of trustees had
“In the case now -under consideration, the corporation was organized, not for the exclusive purpose of mining, as seems to have been assumed by the learned justice, but, as its charter declares, for the purpose of ‘acquiring and holding, by purchase, lease, or otherwise, mineral land and other real property, . . . and to mine, transport, and dispose of the mineral and other products of such lands.’ The company has acquired, and is now holding, by purchase, mineral land and other real property;- and, while its charter permits it to conduct mining and other enterprises, there is nothing in the charter which makes it necessary that the company itself should do the mining, or that it should be done.under its direction. ... It has not disposed of its property, nor has it suspended the active life of the corporation.”
Ardesco Oil Co. v. North American Oil & Min. Co., 66 Pa. St. 375, was an endeavor to avoid a contract, and the court merely, observed :
“The remaining errors complained of in the sixth and*503 seventh assignments may he considered together, namely, that the directors of the corporation, plaintiffs, had no power to make the lease sued on. It is supposed that a company chartered for the purpose of manufacturing and refining oil cannot lease its entire property and so defeat the very purpose for which its charter was granted. But corporations, unless expressly restrained by the act which establishes them or some other act of assembly, have and always have had an unlimited power over their respective properties, and may alienate and dispose of the same as fully as any individual may do in respect to his own property. Hence an insolvent corporation may make a general assignment for the benefit of its- creditors, and this power may be exercised by the directors, unless special provision to the contrary is made in the charter. Dana v. The Bank of the United States, 5 W. & S. 223. If they can alienate absolutely, they may lease, which is but a partial or temporary alienation. Omne majus continet in se minus.”
Another and well-considered case is Plant v. Macon Oil & Ice Co., 103 Ga. 666 (30 S. E. 561). This was a suit by minority stockholders to prevent the corporation from carrying into effect a lease of all its property and franchises for the term of one year. It was shown there that the Macon Oil & Ice Company was in failing condition, and liabilities were pressing for payment; that among the claims was one for ground rent, which was vigorously pressed; that it was absolutely impossible to run the oil mill; that the lease was temporary, in order to secure money with which to meet pressing claims; that the lease was under profitable terms to all the stockholders; that it was made solely for the purpose of relieving the company of temporary embarrassment; and that the manager of the Macon Oil & Ice Company was to remain at the company’s office, and supervise its property, and look after its interests while paid for his services by the iessor. The court observed:
*504 “Reason, as well as authoritv, we think, will sustain the position that neither a majority of stockholders nor the directors of a corporation as such, without special authority for that purpose, can .generally do an act which, to all intents and purposes, terminates the corporation; that they could not, for instance, while the company was in a prosperous condition, upon their own mere caprice, sell out the whole source of their emoluments and abandon their enterprise, where a minority desire a prosecution qf the business: . . . Upon a cursory glance at the authorities above cited, and a number of others we have investigated upon the subject, there would seem at first to be an irreconcilable conflict upon the powers and rights of a majority and a minority of stockholders in a private corporation, touching its authority to alienate or lease its property and franchises. But we think that nearly if not quite all of the authorities upon the subject can be reconciled, and that from a careful consideration of all of them together can be deduced the following principles: . . . (2) But a private corporation, limited as to duration, while doing a successful business, cannot sell out and abandon its enterprise, over the protest of a minority of its stockholders, who have the right to insist upon a continuance of its business. (3) While a minority of stockholders have the right recognized in the paragraph just above, it cannot compel a majority to continue indefinitely in the business of the corporation, provided a majority, in arrangements to discontinue the business, fully protect the interests of the minority by payment in full of the value of their shares, should it be demanded.”
And the court observed, with reference to the contention that the right to rent for one year would involve the right to rent indefinitely, and thus permanently transferring the business, that, “should a scheme of this sort in the future .be attempted without the necessity for such alienation, plaintiffs could doubtless then have redress of their grievances.” . But, on the other hand, there are well-adjudged eases holding that a lease of all the property of a corporation cannot be made. That the stockholders can-
“We do decide that such a surrender of the property, and, so far as possible, of the functions, of a corporation, in order that, while it is to still continue in existence, its business may be carried on by another corporation, to which such transfer is made, would violate the rights of a nonassenting stockholder arising from the contract, implied, if not expressed, in the creation of such an organization, and he would be entitled to have such acts restrained by injunction.”
The same declaration is made in Black v. Delaware & R. Canal Co., 24 N. J. Eq. 455. In Byrne v. Schuyler Electric Manufacturing Co., 65 Conn. 336 (31 Atl. 833), a corporation was organized for the purpose of succeeding to and carrying on the business of an insolvent corporation. The court declared that this could not be done; that such a transfer would be sustained only when the purpose was a bona fide winding up of the business of the existing corporation, and that any dissenting stockholder could maintain an action to enjoin such a disposition of the corporate property. A distinction may be observed between a sale of all the property and a lease of all the property. In that of a sale no further liability rests upon the stockholder. The corporation is in fact discontinued. In that of the lease the business is discontinued, and the profits derived by the lessee, but the stockholders’ obligations may continue. Under our statutes the corporate existence is limited in time. This was not usual in the older cases. And, further, § 4275, Ballinger’s Code, contains the com
3. As has been observed, the new company holds a majority of the stock of the old company. Some confusion arises upon the investigation into the right of one corporation to hold stock in another, or become a member thereof, when the inquiry is made into prohibitions upon the powers of a corporation, rather than directed to the enumeration of powers conferred upon it. It has always been true that corporations have only such powers as are granted to them by the state, and, when a corporate act is questioned, the affirmative is upon the corporation to show its authority. It is not entirely correct to draw a right line between corporations which are quasi public and another class designated as private. The state will more readily interfere, perhaps, when the duty of a corporation is public than when it is merely a trading, or manufacturing, or commercial company; hut we apprehend that the rights of stockholders are equally protected in both. It was said by this court in Spokane v. Amsterdamsch Trustees Kantoor, 22 Wash. 172, 179 (60 Pac. 141):
*507 “It may also be further observed that a corporation cannot enlarge its powers beyond legislative grant by any statement in its articles of incorporation. The corporation may be differentiated from the natural person thus: The natural person may make any contract or do any business not inhibited by law or public policy. The corporation cannot make any contract or do any business except as authorized by legislative grant.”
Morawetz, Private Corporations, § 431, says:
“A corporation has no implied right to purchase shares in another company for the purpose of controlling its management. Dor may a corporation hold shares in another company as an investment, unless this be the usual method of carrying on its own proper business.”
And in § 434 it is further said:
“Shares in a corporation, which have been purchased by the company itself, either in its own name or the name of a trustee, cannot be voted on by either the trustee or the company’s officers.”
Thompson, Corporations, § 6405, states the rule:
“One corporation has no power, in the absence of an express grant, to purchase the shares of another corporation for the purpose of owning, possessing, and controlling its property and business.” Where such corporations have such power, he says, they hold such shares “only as the owners of paper securities, and not as stockholders or corporators in the corporation whose shares they are; and, consequently, they do not acquire the right to vote in respect of such shares at corporate elections. In the absence of an enabling statute, authorizing the formation of a corporation with such powers, it cannot acquire them merely by assuming them in its articles of incorporation.” In First National Bank v. National Exchange Bank, 92 U. S. 122, it was said:
“Dealing in stocks is not expressly prohibited, but such a prohibition is implied from the failure to grant the power.”
The judgment is reversed, with direction to the superior court to adjudge the lease void, and that it be canceled, and that the Tacoma Smelting Company be enjoined from voting the stock held by it in the Tacoma Smelting & Eefining Company.
Durbar, Eullertor, Ardees and Wi-iite, JJ., concur.