44 Iowa 239 | Iowa | 1876
At the annual fair of the Agricultural Society, in 1870, there occurred a violent storm which rendered egress therefrom difficult, and much inconvenience was experienced. Shortly thereafter, and on November 19th, 1870, there was held a meeting of the stockholders of the society, for the purpose of passing on certain proposed amendments to the articles of incorporation; all of the intervenors being present except Mr. Davenport. At the meeting the subject of organizing a corporation for pecuniary profit for
Afterward, on the 16th day of March, 1871, the board of directors of the Agricultural Society passed the following resolutions:
“Whereas, This society, on the 21st day of November, 1870, adopted a resolution authorizing the borrowing of twelve thousand dollars, and executing notes and mortgages for the same, under certain conditions; therefore, be it
“ Resolved, That said resolutions authorizing the borrowing of said twelve thousand dollars be, and are hereby rescinded.
“Resolved, This society take stock in the Central R. R. of Davenport, to the amount-of ten thousand dollars, and the President is hereby authorized to subscribe for the same.
“ Resolved, That this society shall borrow of Mrs. Clarissa C. Cook the sum of ten thousand dollars, and that to secure the payment thereof, this society shall assign to her the six several notes of the Davenport Central Railway Company for ten thousand dollars, and the mortgage of said company to be executed to this society, and shall guarantee the payment of said notes; and that to further secure the guarantee of this Society upon said notes, there shall be executed the mortgage of the Society to Mrs. C. C. Cook, on its fair-ground property in Scott county, Iowa; and the form of said mortgage and
“Resolved, This Society do and hereby authorize the President to borrow a sum of money sufficient to take up and pay the note and mortgage, now 'due and unpaid, against this Society, and the President and Secretary be and are hereby authorized to execute a note, or notes, and mortgage to secure the same.”
The railway company had been previously organized substantially on the plan heretofore referred to, and executed the-notes and mortgage referred to in the resolutions* and the notes were guaranteed, and a mortgage execnted by the Agricultural Society as therein contemplated, and thereunder the money was obtained of Mrs. Cook, and $2,100 applied to the payment of a note and mortgage, given to the Savings Bank by the Agricultural Societj1', and the balance paid to the railway company, and with such funds and the amounts subscribed and paid by the stockholders in the railway company, the road was built and in operation about July 1st, 1871. For the purpose of obtaining funds to build the railway, a subscription paper was circulated among the stockholders of the Agricultural Society, which on its face showed that it was expected the society would donate ten thousand dollars to the railway company, and such paper was signed by all the intervenors except Thompson and Cressler.
It satisfactorily appears from the testimony that the two corporations, Mrs. Cook, and all persons' consenting to the transactions above' alluded to, understood the loan was to be made to the Agricultural Society, and that it was regarded as the principal debtor; it is true Mrs. Cook insisted she should also have a mortgage on the railway.
It also appears from the testimony that all these parties
The main distinction between public and private corporations, is that the general assembly has the “ exclusive and unrestrained control ” of the former, and can in no manner interfere with the right of property in the latter. Angelí and Ames on Corporations, § 31.
In the absence of any such prohibitory provision the power
Eor the purpose of effecting the objects of the corporation its powers are as broad and comprehensive as those of an individual, unless the exercise of the asserted power is expressly prohibited. Code of 1851, § 708, 674; Rev. § 1187, 1151. R. R. Co. v. Howard, 7 Wall., 412; Curtis v. Leavitt, 15 N. Y., 9; Green’s Brice’s Ultra Vires, 115, 121; Angell and Ames on Corporations, § 110.
It therefore follows that the power existed to guarantee the notes and execute the mortgage, and borrow or obtain money if it was necessary to do so in order to effectuate the purposes of the corporation. If the money was applied to a proper corporation object, the intervenors cannot justly complain.
The lender may justly be required to examine the source of power, and ascertain whether the claimed or asserted power exists or not; but can he be required to follow the money and see that it is applied to a corporate purpose? To so require, it is said, would be “ pressing the doctrine of ultra vires to an extent that can never be tolerated.” Bradley v. Bullard, 55 Ill., 413.
And," when it is recollected that the power to borrow this money and execute the securities sued on existed, and that such power could be lawfully exercised, there is no legal or equitable principle, nor does sound morality require the lender to see to it that the money is applied to a proper and legitimate corpor*ate purpose. To hold otherwise would greatly embarrass corporations, and render it impossible for them to
It is urged that Mrs. Cook did not loan the money in good faith upon the security of the Agricultural Society, but that she refused to do so on the ground that the officers of the corporation had no right to divert its funds to the purchase of stock in a railroad. This is not a correct statement of Mrs. Cook’s objection; but she refused to make the loan under the first proposition, on the ground that the money was to be donated to the railway company, and the proposition was then changed to the present form, and Mrs. Cook required as additional security, a mortgage on the propérty of the railway company. But, as we have said, there was no fraud intended by Mrs. Cook, nor are we able to see the slightest evidence of bad faith on her part. The fact that she knew the purpose to which the money was to be applied, and no fraudulent purpose on her part being shown, is entirely immaterial, as was expressly held in Parish v. Wheeler and Bradley v. Bullard, supra.
It is insisted that the plaintiff, Weberns not a purchaser or holder of the notes and mortgages in good faith. Partly in support of this position, Mrs. Cook’s answer is relied on; but we are unable to see how this becomes testimony against the plaintiff Weber. But, admitting that it is, all that is shown is that Judge Grant informed Mrs. Cook that he would find a purchaser, and that she sold the notes through Judge Grant to some unknown person. Mr. Weber is in possession of the notes, and there is no testimony showing that he is not a holder in good faith.
The intervenors, who were stockholders in the railway company, having sold their stock in said corporation, and received all gains and profits that may have accrued to the railway company and its stockholders from the subscription to its stock by the Agricultural Society, cannot now, on the plainest principles of justice and equity, be heard to complain of the illegal act (if such it be), of which they had knowledge, and by which, it must be presumed, they were benefited, or at least which they at the time of the transaction must have supposed would benefit them.
It would be gross injustice to permit Mrs. Cook or the plaintiff Weber to be in the slightest degree prejudiced by parties occupying such equivocal position. Good faith required these parties to object before Mrs. Cook parted with her money, or forever hold their peace.
Cressler’s deposition was not taken, but Thompson testifies he never heard it proposed to make such donation until long after that meeting, and that he never consented thereto, but that he did hear some conversation at said meeting about taking stock to the amount of $10,000 he admits. The conversation he states was of a desultory character; “ that if each
Judge Grant testifies that between November, 1870 and March 1871, (which was before the loan was effected), he talked with Mr. Thompson in relation to taking stock in the railway company, and that he then knew it was proposed to have the Agricultural Society make a donation to the railway company. The report of the treasurer of the Agricultural Society for 1871 shows that upward of $10,000 had been obtained of Mrs. Cook on mortgage, and the dispositon thereof. The railway was built and in operation at the time of the fair in 1871.
Under these circumstances we are of the opinion that Thompson and Cressler had sufficient knowledge to put them on an inquiry. They knew it was proposed in some way to have the Agricultural Society aid in building the railway, and inquiry prosecuted with diligence and a fair degree of earnestness to obtain information, • would have developed the fact as to the proposal to guarantee the notes and .execute the mortgage. There is nothing tending to show there was any secrecy intended, nor was the proposition in any manner concealed. But knowing ^the matter was talked about and canvassed, Thompson and Cressler did nothing to prevent the consummation of the claimed illegal act, and to which they were opposed, until the commencement of this action in Decembei’, 1872. They had sufficient knowledge of what was proposed to be done to warrant them in applying for an injunction as early as March, 1871, and had they done so before the loan- was effected, their standing and the question for determination would have been very different.
The stockholder of a corporation who seeks to prevent the consummation of an illegal corporate act, or to avoid it, should be svñft to make known his desires and assert his rights
Y. No authority is cited by counsel in support of the claim that the Agricultural Society be subrogated to the rights of the plaintiff, Weber, as against the railway company. The Agricultural Society asks no such relief and makes no -such claim, and we are of the opinion under the facts in this case, the only relief the intervenors as stockholders can have, is in the nature of preventive remedies. That is to say, an illegal act may be prevented or avoided at the suit of a stockholder, but he can have no other or greater relief. The judgment of the District Court is
Affirmed.