72 Colo. 486 | Colo. | 1923
Lead Opinion
delivered the opinion of the court.
The Arkansas Valley Sugar Beet and Irrigated Land Company and the Fort Lyon Canal Company, the former in this opinion styled the Storage Company, the latter the Canal Company, are domestic corporations organized to acquire, and each of them has acquired, and now is, and
In the year 1896 the Canal Company was in the custody of the district court of Prowers county, through its receiver. Its stockholders, under the terms of a contract with the original builder of its canal, were about to become its legal, as well as equitable, owners, and the canal was to be conveyed to a new canal company. The Storage Company, desiring to build an irrigating and storage system of its own, entered into a contract with the stockholders of the old canal company, represented by the receiver, whereby, among other things, the Storage Company and the new canal company, thereafter to be incorporated, were to own, or, at least, were to use jointly a part of the existing physical canal, in consideration of which the Storage Company was required to, and it did, at considerable expense, rebuild and enlarge the same. To the old canal company stockholders the stock of the new canal company was to be, and was, issued, and for the purpose of giving some kind of representation to the Storage Company in the problems of maintenance and operation of the canal, or that part of it subject to joint use, the same contract by which this joint interest was created, further specifically provided that the stockholders of the new canal company, at their regular annual election of di
As a further effort to “cement” and fortify this election feature, the same was subsequently brought before the district court of Prowers county, and an order or decree was made which apparently sanctioned and approved of the making of this contract, by the receiver, which seems also to have been approved by some of the old stockholders. The approving decree was not rendered during the year 1896, but we designate it here as the decree of 1896. In La Junta & Lamar C. Co. v. Hess, 31 Colo. 1, 71 Pac. 415, this contract, so made and judicially approved, was before our own Court, and apparently there approved, insofar as it concerns the right to the use of the main canal and an uncompleted reservoir for the purpose of conducting and conserving water for storage. There was no reference in the opinion to, and no indication of approval of, the provision concerning the election of directors, and the court says in its opinion that the plaintiffs in error, who questioned the action of the district court in authorizing the receiver to enter into the contract, were not in a position to do so. However that may be, in our view, except as a part of the history of these unfortunate controversies,
• From this somewhat incomplete statement it would seem that these two systems were so interlaced in their operation that, as the Storage Company contends, if the parties in interest can agree, or if they have entered into an enforceable agreement, the joint operation might be' continued to the advantage of both systems. It is scarcely necessary to say, however, that it is not our province to advise these parties what plan of operation and management to adopt. Our duty is to decide the legal questions submitted for determination. It was not long after this agreement was made and the approving decree entered, that internal disputes arose between different factions of the Canal Company and the Storage Company, and some of the stockholders of the Canal Company repudiated this agreement and decree of 1896. For several years attempts were made to compromise their differences, and amicably continue the joint control. Finally, in the year 1912, after a long series of fruitless conferences, the Storage Company began a suit in the district court to assert and enforce its right under the decree of 1896. To this suit the Canal Company, and all of its stockholders were made defendants. The court was called upon to adjust and settle all the differences between the two irrigating systems and their stockholders in whatever method seemed appropriate. Not all of the individual stockholders were served with summons,, but a number of them appeared and some of them filed a motion to dismiss for lack of jurisdiction. For more than six years the action was allowed to rest. The motion was not passed upon until December 5, 1918, when it was overruled, and on the same day the court rendered a decree pursuant to a joint recommendation of the attorneys representing both the
“2. That in electing the director to be designated by The Arkansas Valley Sugar Beet and Irrigated Land Company, that Company at each meeting of The Fort Lyon Canal Company stockholders at which directors are to be elected, shall nominate two stockholders of The Fort Lyon Canal Company, one of whom shall be elected by the stockholders of The Fort Lyon Canal Company as the director to be designated by The Arkansas Valley Sugar Beet and Irrigated Land Company. Upon these two nominees a vote shall be taken by the stockholders, and in taking this vote The Arkansas Valley Sugar Beet and Irrigated Land Company shall vote the stock which it may then hold in The Fort Lyon Canal Company by casting its vote for one of its said nominees. The one of said two nominees who receives the higher number of votes shall be declared by the Chairman of the meeting to be elected as the director designated by the said The Arkansas Valley Sugar Beet and Irrigated Land Company. After such election of said director, The Arkansas Valley Sugar Beet and Irrigated Land Company thus having made its nomination, nominations for the remaining four directors to be elected shall be ma&e in the ordinary manner and from these nominees the remaining four directors shall be elected in the ordinary manner, all stockholders having a right to vote.”
For convenience there is here inserted, from section
“The corporate powers shall be exercised by a board of directors or trustees of not less than three, or more than thirteen, who shall respectively be stockholders in said company, and who shall (except the first year) be annually elected by the stockholders, at such time and place as shall be directed by the by-laws of the company; * * *. Elections of directors or trustees shall be made by such of the stockholders as shall attend for that purpose, either in person or by proxy; Provided, A majority of the stock issued shall be represented; * * *.
When it is found that a majority of the stock is represeiited at such meeting or adjourned meeting, the stockholders shall proceed to nominate the number of directors, trustees or managers to be elected, each stockholder having the right to nominate. The election shall be by ballot, on which each person voting shall write the names of as many persons as are to be elected from the nominees. Each stockholder shall have the right to vote in person or by proxy for the number of shares owned by him or her, and in balloting for directors he or she may vote said number of shares for as many directors, trustees or managers as are to be elected, or he or she may cumulate such shares and give one candidate as many votes as the number of directors multiplied by the number of his or her shares of stock shall equal, or to distribute them on the same principle among as many candidates as he or -she may desire; and the persons having the highest number of votes in consecutive order shall be declared elected the board of directors, trustees or managers for that year, and such- directors, trustees or managers shall not be elected in any other way.”
At the annual election of the stockholders of the Canal Company for the years 1918 and 1919, the election was had in accordance with this provision of the decree, and not as the statute provides. In 1920 controversies again arose and the majority of the stockholders of the Canal Com
The question for decision, being the force and effect of the 1918 decree, may be thus subdivided: 1. Is the decree valid? 2. If invalid, is it void on its face, or merely voidable, and may it be questioned by the defendants or respondents in these actions, or in, either of them?
1. With the fairness or unfairness, the wisdom or folly, of these contracts and decrees, we are not concerned. If the parties might lawfully make the contract, and the court had the power to render the decree, they should not be disturbed. While the officers and some of the stockholders of the two corporations, after much controversy and many negotiations, compromised their differences by entering into these contracts, they are not now in accord; the owners of the storage system being determined to enforce, the owners of the canal system equally determined to annul, the later decree, into which the former decree is merged. Much has been said by learned counsel, and more might possibly be said, in support of their respective con
The Storage Company, which, by these two proceedings, seeks to enforce the provision of the 1918 decree, asserts, and the Canal Company denies, its validity. As already stated, this decree requires the stockholders of the Canal Company, in nominating and electing its directors, to observe the method provided by the decree and per force to disregard the method fixed by the statute. We first observe that this statute is mandatory. The requirements that each stockholder shall, (not maiy), have the right to nominate and vote for each director to be elected, that directors shall not be elected in any other way than that provided, are imperative. The entire section plainly shows that the law-making power is declaring the public policy of the state in the important matter of choosing corporation directors. The courts have no more right than have individual stockholders to ignore or set aside this public policy.
If the naked legal question for decision was as to the validity of the 1918 contract, notwithstanding the able and plausible argument of the Storage Company, our task
The sentence: “And such directors, trustees or managers shall not be elected in any other way” does not appear in the original statute, (G. L. 1877, Sec. 196), but first occurs in the amendment of 1895, (S. L. 1895, Chap. 66). From this, counsel for the Storage Company argues that the sentence has no bearing on the general law of irrevocable proxy, voting trusts, or other like problems, but is aimed solely at establishing cumulative voting. We do not think so. The language is plain and unambiguous. It is not susceptible of construction. It interprets itself. It is an absolute, unequivocal command that the directors shall not be elected in any other way than the way or ways which the section itself specifically provides. The sentence was not intended to establish cumulative voting. That object had been accomplished by previous provisions of the section. The inhibition is no more applicable or appropriate to cumulative voting than to voting by a stockholder of all his shares for as many directors as are to be elected. That is, two methods of voting — cumulative and non-cumulative — are provided, and the nominating and electing by either method is the same.
The next inquiry naturally is: Does the decree purport to provide a way of voting for directors other than that established by the statute? Indeed, that was virtually conceded by the Storage Company by the institution of these two actions. Their only purpose is to compel stockholders of the Canal Company, in electing directors, to observe the way commanded by the decree, and to disregard the way provided by the statute. If the two ways are not different, no such suit would have been brought. Our law-making body clearly manifested its intention to vest in the board of directors of a corporation all corporate powers, and to confer upon the stockholders the exclusive power to elect, either in person or by proxy, the
Now, what does this decree say about the election of directors? It purports to give to the Storage Company, a rival corporation system, which may or may not be a stockholder, who has no property interest in the stock of any other stockholder, not giving to any other stockholder any consideration therefor, not for a reasonable period of time, but forever, at all corporate meetings for electing directors, the absolute and unlimited right and power to nominate two stockholders of the Canal Company, one of whom shall be elected by the stockholders of the Canal Company as the director to be designated by the Storage Company. Upon these two nominees a vote shall be taken by the stockholders, and the Storage Company shall vote stock of the Canal Company which it owns, for one of its own nominees. The one of the two so designated, who receives the highest number of votes, shall be declared as the director designated by the Storage Company. When the Storage Company has thus made its nominations, nominations for the four other directors to be elected shall be made in the ordinary manner, and from these nominees the remaining four directors shall be elected in the ordinary manner, all stockholders having a right to vote. The decree does not define what the ordinary manner is, but
The Storage Company, however, says that the provision for electing directors, embodied in the 1918 decree, is, in legal effect, not different from an irrevocable proxy, or from a voting trust agreement which a minority or a majority of stockholders of a corporation may make for pooling their stock and thus controlling the corporation,
In a note to Morel v. Hoge, 16 L. R. A. (N. S.), 1136, at page 1140, the doctrine of cases of this character, as to separation of voting power from ownership, has been thus concisely stated:
“Probably the prevailing tendency is toward the view that such an agreement is not per se void as against public policy; in other words, that the agreement cannot be declared void irrespective of the propriety of the ultimate purpose to be accomplished, merely because it seeks to accomplish that purpose by means of severing the voting power of the stock from the beneficial ownership thereof.”
In the Smith case, (California), in one of the strongest opinions upon the subject, (which is criticized in the notes, 56 Am. St. Rep. 119), the court itself recognizes the soundness of those cases “in which it has been said that the stockholder could not divest himself of the voting power of his stock, and that it should not be separated from the ownership of the stock, were cases which involved either the sufficiency of the agreement by which the voting power was transferred, or the validity of the purpose for which the power was to be exercised.”
This seems to be the test applied in a number of the cases cited. Among them which support agreements of this character, we find none which approves of an irrevocable proxy, without limitation as to time, nor has any such agreement been sustained when the transaction contravenes some positive statute or some well established rule of law. The authorities, without exception, say that, where a contract is contrary to the declared public policy
“ ‘Public policy’ is a term of vague and uncertain meaning, which it pertains to the law-making power to define, and courts are apt to encroach upon the domain of that branch of the government if they characterize a transaction as invalid because it is contrary to public policy, unless the transaction contravenes some positive statute or some well-established rule of law.”
That being the doctrine of all the cases, so far as we have examined them, this California case is authority for the contention of the Canal Company that this contract which is approved by the decree of 1918, necessarily contravenes the public policy of this state, as declared by the legislature when it emphatically said that directors shall not be elected in any other way than that prescribed by the statute, since the method approved by the decree is an entirely different way.
Of the cases which condemn agreements of this character, some go to the extent of declaring them to be void per se; as contrary to public policy; some, on the other hand, say that they are not void per se. Some of these leading cases are: Blue v. Capital Nat. Bank, 145 Ind. 518, 43 N. E. 655; Luthy v. Ream, 270 Ill. 170, 110 N. E. 373; Durkee v. People, 155 Ill. 354, 40 N. E. 626; Shepaug Voting Trust Cases, 60 Conn. 553, 24 Atl. 32; Warren v. Pim, 66 N. J. Eq. 353, 59 Atl. 773; Clowes v. Miller, 60 N. J. Eq. 179, 47 Atl. 345; Kreissl v. Distilling Co., 61 N. J. Eq. 5, 47 Atl. 471; Morel v. Hoge, 130 Ga. 625, 61 S. E. 487; Haldeman v. Haldeman, 176 Ky. 635, 197 S. W. 376; Harvey v. Linville Imp. Co., 118 N. C. 693, 24 S. E. 489; Bridgers v. First Nat. Bank, 152 N. C. 293, 67 S. E. 770. See also: 3 Clark & Marshall, Private Corp., p. 2019, et seq., 3 Fletcher Cyclo. Corp., Section 1697, et seq.
In the Kreissl case is a long opinion by Mr. Justice Pitney, later a member of the Supreme Court of the United States, in which he condemns these agreements with sever
It should be said in conclusion on this branch of the case, that in the article in the Columbia Law Review by Prof. Wormser, who favors agreements of this character, he states that while at first the courts generally looked with disfavor upon them, in the course of time, when the large business interests of the country came under corporate control, the trend of opinion was in their favor, but that now apparently, as indicated by the decision of the Supreme Court of Illinois, in the Luthy case, supra, and by the Public Service Commission of Missouri, in its opin
2. The more difficult and important question is, whether the decree of 1918 is void, even though the contract upon which it is based is an absolute nullity. The rule is familiar that where a court has jurisdiction of the subject matter and of the parties, and to pronounce the particular judgment in the given case, its decree, although erroneous, is not void in the sense that it may be impeached, except in a direct proceeding instituted for that purpose. It may be erroneous, or voidable merely, and might be set aside for that reason in a direct proceeding, like a writ of error or appeal, but when called in question collaterally, it is not vulnerable to such attack. It is really not necessary to determine whether the attack here is direct or collateral. However, in Wilson v. Hawthorne, 14 Colo. 530, 533, 24 Pac. 548, this Court said that an action brought upon a judgment, pronounced without obtaining jurisdiction of the person of the defendant, may be defeated by a proper answer, under a system of procedure allowing equitable defenses to be interposed in all civil actions, and that the recitals of the record will not be taken to import absolute verity. This means that such an attack is direct, not collateral. In Hallack v. Loft, 19 Colo. 74, (34 Pac. 568) at page 83, it is said: “The right to attack a judgment for jurisdictional infirmity, or for fraud, is not confined to the complaint; it extends as well to the answer and replication.” That it extends to a demurrer where the infirmity appears affirmatively from the complaint, would seem logically to follow: The doctrine as to void and voidable judgments, is summarized in Mortgage Trust Co. v. Redd, 38 Colo. 458, 464, 88 Pac. 473:
“While the right to attack a judgment in a collateral*503 proceeding for a jurisdictional infirmity — that is, error in assuming jurisdiction — is well settled in this jurisdiction, on the other hand, it is equally well settled that a judgment cannot be questioned collaterally for an error committed in the exercise of jurisdiction.”
In Kavanagh v. Hamilton, 53 Colo. 157, 125 Pac. 512, this Court, on page 163, in speaking of direct and collateral attacks, says that an equitable action to cancel, or enjoin the enforcement of, a judgment is a direct attack, and that it may be made either by answer or cross-complaint, citing, with approval, Wilson v. Hawthorne, su/pra. If such be the doctrine in this State, it would seem that this ouster proceeding, being an action whose object is to enforce the decree of 1918, may be defeated by a demurrer for jurisdictional infirmity which affirmatively appears on the face of the complaint. The ouster case having been decided on the demurrer, and the contempt on a motion to quash, no evidence was produced. But if this decree is void, it is so on the face of the record, and not because of any showing de hors the record. We may then safely assume, but do not decide, that this is a collateral attack. Unless, therefore, the judgment is void on its face, the attack must fail. The complaint, in the ouster case, and the affidavits on which the contempt proceeding is based, upon their face show the true nature of the contract in question, and disclose that the court had not jurisdiction to enter the decree upon a contract which is void as against public policy, which we have already determined the contract to be. It is true that courts generally, in discussing the question of the sacredness of a judgment and its invulnerability to a collateral attack, say that where jurisdiction of the parties and of the subject matter attaches, no mistake, however serious in its character, thereafter committed by the court in the exercise of its unquestioned jurisdiction of the parties and the subject matter, can be taken advantage of in a collateral attack. This doctrine was announced in the Kavanagh case, supra; Stokes v. Kingsbury, 63 Colo. 27, 164 Pac. 313, and many other cases
These cases from the Supreme Court of the United States, counsel for the Storage Company says, are based upon the proposition that the judgments there condemned as void, were so because the court pronouncing them exceeded its jurisdiction in that the ordinary procedure prescribed by law for such cases, was not observed. That may be true, but the legal principles laid down in those cases are just as applicable to judgments which are in excess of the power of a court to render as to judgments where there is a'departure from the established procedure. The highest authority itself has expressly so declared.
It is urged, however, that since a court of equity has jurisdiction of the abstract question of corporate elec
“The doctrine invoked by counsel, that, where a court has once acquired jurisdiction, it has a right to decide every question which arises in the cause, and its judgment, however, erroneous, cannot be collaterally assailed, is undoubtedly correct as a general proposition, but, like all general propositions, is subject to many qualifications in its application. * * * If the action be for a libel or personal tort, the court cannot order in the case a specific performance of a contract. If the action be for the possession of real property, the court is powerless to admit in the case the probate of a will. * * * The doctrine stated by counsel is only correct when the court proceeds, after acquiring jurisdiction of the cause, according to the established modes governing the class to which the case belongs, and does not transcend, in the extent or character of its judgment, the law which is applicable to it.”
The doctrine of this case was expressly recognized, and applied, in Hovey v. Elliott, 167 U. S. 409, 446, affirming the judgment of the Court of Appeals of New York, 145 N. Y. 126. The Supreme Court said that the Hovey case is within the principle of the decision in Windsor v. McVeigh, supra. The notes to the Hovey case, 39 L. R. A. 449, contain a good discussion of the subject. It is now the better and prevailing doctrine in this country that though a court has jurisdiction of the parties and subject matter, it “is still limited in its modes of procedure and in the extent and character of its judgments.” Ex parte Lange, supra, and Ex Parte Rowland, supra, are to the same effect. This doctrine is applicable to the facts of this case and makes the judgment of the Prowers county district court one which, in its extent and character, transcends the law which is applicable to it.
It is also said that a contract, or a decree enforcing a contract, which is prohibited by statute, is not necessarily wholly void. In Catlin v. Christie, 15 Colo. App. 291, (63 Pac. 328), at page 295, it is said:
“It has been repeatedly held that' contracts made in violation of this statutory provision, which exists generally in the states having a public school system, are wholly void. Any attempted act of the school board in contravention of this section is absolutely null and of no effect.”
But in Casserleigh v. Wood, 14 Colo. App. 265 (59 Pac. 1024) at page 272, the court says:
“It has been held in this state, following the United States supreme court, that a contract to do a thing prohibited by statute is not necessarily void if the statute visit the unlawful act with a penalty; if the thing prohibited is malum in se, the contract will not be enforced, not because of the statutory prohibition, but because of its being against public policy and good morals.”
The same observation was made by us in the same case, in 30 Colo. 287, 291, 71 Pac. 360. Stated otherwise, the rule is that where the law itself provides a penalty for its violation, and it is manifest that the legislature intended that no other or further consequence should attend its violation, then a contract against the positive prohibition
In an action between this Storage Company and this Canal • Company, reported in 173 Fed. 601, this very contract was submitted to the court for decision, but the Circuit Court of Appeals, in an able opinion by Circuit Judge Hook, declined to pass upon it, because it concerned the rights of the stockholders as such, and as contradistinguished from the rights of the corporation, and since the stockholders were not parties to that suit, the question could not be determined in their absence. However, the court at considerable length, clearly indicated that it was against public policy. After stating that: “Were it not complicated by the orders of the state court respecting the making of the contract, it would be an interesting question whether the provision relating to the designation of directors is consistent with public policy,” the Court proceeded to say:
“That a part of its governing board should, under mere contract to that effect, be dictated by another corporation, irrespective of any stockholding interest, at once attracts attention. * * *
It is altogether right for corporations to contract for the joint control and management of properties upon which each has expended its funds and in the operation of which they are mutually interested; but it is not usually done by allowing one to dictate the selection of members of the other's board of directors, which under the law (Rev. Stat. 1908, § 865) has the management of its corporate affairs, its duties to the state and its own stockholders, and its business relations with other corporations. Such a course is quite distinguishable from the pooling by stockholders
* * * the contract purports to give defendant the perpetual right to nominate two of its five directors. The effect in this particular case would be to give defendant, * * * the power to dominate and control the complainant, so far as a board of directors can do so; for the record shows that, aside from the provision in the contract, the defendant was enabled, by a cumulative voting of stock which it controlled, to elect as members of complainant’s board of directors two persons whom it had not nominated under the contract. * * *
The statute of Colorado, (Section 865, swpra,) provides that each stockholder shall have the right to nominate directors to be voted for, and that he shall have the right to vote the number of shares held by him for as many directors as are to be chosen, or may cumulate the same upon one or 'more candidates. It is also specifically provided that the directors shall not be elected in any other way. Under such a statute the selection of the directors of a corporation belongs to the stockholders as such. * * * The right to vote for directors and the measure of it are specifically prescribed by the law under which complainant was organized, and do not proceed from any act, contract, or by-law of the corporation. In Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237, it was said:
‘The exercise of this power having been regulated by the statute, the corporation cannot, by its by-laws, resolutions, or contracts, either give or take it away. * * * the statute having expressly declared who shall be entitled to vote for directors, its provisions are imperative upon the corporation, constituting a part of the law of its being, and the corporation has no authority to extend or limit the right as regulated by the statute.’ ”
The court also said that the clause of this very contract is in effect a limitation upon the right conferred by the Colorado statute upon the stockholders. We have not
Concurrence Opinion
specially concurring.
I agree that the contract is unlawful and that it may be declared to be invalid in a suit like the present. I think, however, that the court had jurisdiction to render the decree of 1918, and that the reasons given for lack of jurisdiction are insufficient.
The effect of the argument on page 497 is that the court had no jurisdiction to direct an election of directors according to the contract in question because the law prescribes a method, forbids others, and the contract’s method is not that which is prescribed. This involves the premise that the court has no jurisdiction to direct anything to be done contrary to law, does it not? The conclusion, then, is based on the major premise that whatever a court orders that is unlawful is beyond its jurisdiction and void. But to render a decree contrary to law is mere error. All erroneous judgments do what the law forbids.
The illustration of the mandatory injunction (p. 507) is not apt, because the requirement of notice for such injunction is a restriction on the power of the court, not on the power of the litigant, to act.
Tegeler v. Schneider, cited in the majority opinion, was a suit in eminent domain to condemn a right of way for a ditch. The court enjoined the obstruction or interference with the flow of waste water claimed by plaintiff in the lateral whence the said ditch drew its water. Held beyond jurisdiction. Of course. Such a question was not involved in the case. The court had never acquired jurisdiction of the parties upon it.
The dictum in the opinion in Kilker v. People, 68 Colo. 174, 178, 188 Pac. 744, that a court has “no jurisdiction to punish him for contempt in doing what' he had a right to do” is, of course, a misuse of words. The question of jurisdiction was not before the court, but only whether the acts of the respondent constituted contempt.
Tebbetts v. People held that an injunction, against the board of aldermen was void because the court was without jurisdiction to control the action of the board, i. e., it had no jurisdiction of the subject matter.
In Newman v. Bullock the court states the law with absolute accuracy, that a court has no jurisdiction to decide matters which the parties neither submitted nor intended to submit for decision.
The statement that the court must, in addition to jurisdiction of the parties and of the subject matter, have jurisdiction of the particular question which it assumes to decide is true but inaccurate, or perhaps, rather, incomplete, because, if it has jurisdiction of the parties and subject matter, it has jurisdiction of whatever is involved in the controversy which those parties have brought before
But I agree with Judge Hook’s position, 173 Fed. 601, that the decree of 1918 concerned the rights of the stockholders as distinguished from the rights of the corporation, and on that principle I conclude that the decree was without jurisdiction except as to the stockholders who actually appeared or were personally served in the action in which that decree was rendered, that any other stockholder may have its enforcement enjoined in equity, or perhaps have it changed or annulled by bill of review and that it is such a unity that when annulled as to one stockholder it can be enforced by none. I consequently concur in the result. I am permitted to say that Chief Justice Teller and Mr. Justice Burke agree with this opinion.