Malone v. Lancaster Gas Light & Fuel Co.

Opinion by Mr. Justice Mitchell, There is very little contest in this case over the facts or the law, the real controversy turning on the inferences to be drawn from the facts proved. It is a stockholder’s bill to enjoin the issue of new stock and the increase of the corporation’s bonded indebtedness, upon two grounds, first, that the increase is not in good faith for the purposes and in the interest of the corporation, but in pursuit of a scheme to acquire control of the corporation and run it in the interest of a rival; and secondly, that [321] the new debt is to be created for the purchase of certain patent appliances, not for the manufacture or distribution of gas, but for its consumption, the dealing in which appliances is not within the company’s charter purposes. It is beyond dispute that the increase of the stock and the bonded debt was duly authorized by the stockholders under all the formal requirements of the law, but plaintiff charges, on the first branch of the case, that the increase was procured fraudulently by the defendants, other than the Gas Company, who being stockholders, owners and directors in the Edison Company, a rival electric light and heat company, acting through their agent, Shaw, bought up a majority of the shares in the Citizens’ and also in the Lancaster Company, and having thus obtained control of the latter, issued the new stock and bonds nominally to buy the Backus patent heating apparatus, but in reality to raise money to pay’' for the stock of the Citizens’ Company, previously secured on options, and intended to be merged in the Edison for the profit of the latter. Of course, the burden of proof of such charge was upon the plaintiff, and it is sufficient to say that we agree with the learned court below that there was no evidence which in any degree sustained it. The agency of Shaw for the other defendants was affirmatively disproved both by him and them, and it was shown that ten of the fourteen defendants were not stockholders, owners or directors of the rival company, the Edison, at the time Shaw acquired the control of the stock of the Lancaster Company, charged to be in the interest of the Edison. On this branch the complainant’s case entirely failed of proof. The second branch of the case raises a mixed question of law and fact, namely, the authority of the Lancaster Gas Company to purchase the right to use and deal in the steam heater, radiating mantel and gas consuming appliances covered by the Backus patents. It is argued for plaintiff that the charter purpose of the Gas Company is limited by the words “ manufacturing and supplying illuminating and heating gas,” and that nothing can be included which is not a necessary part or appliance for manufacturing or supplying. This is too narrow and literal a construction, and overlooks the fundamental object of the corporation, the manufacture and supply of gas to customers for profit. It would be of no use-to manufacture gas if there [322] were not customers to buy, and hence the company may fairly supply not only the gas itself, but incidentally such appliances and conveniences as will induce new customers to use gas or old ones to use more. This is a legitimate mode of extending the company’s business, in direct furtherance of its charter object. In considering such questions, much weight must be allowed to the judgment of the parties most interested, the officers and stockholders of the corporation itself, and while they will not be permitted, as against the commonwealth or a dissenting stockholder, to go outside of their legitimate corporate business, yet where the act questioned is of a nature to be fairly considered incidental or auxiliary to such business, it will not be unlawful, because not within the literal terms of the corporate grant. This is the general rule even where corporate privileges are most strictly construed. “ Corporations may transact, in addition to their main undertaking, all such subordinate and connected matters as are, if not essential, at least very convenient to the due prosecution of the former: ” Green’s Brice’s Ultra Vires (2d ed.), ch. 3, sec. 2, p. 86. The illustration given by Mr. Brice is that railway companies may erect refreshment rooms or book stalls, and “ adopt other similar measures for both providing for the comfort of their customers and adding to their own receipts.” The American illustrations in the same line, which have revolutionized modern travel will occur to everyone. In Brown v. Winnisimmet Co., 11 Allen, 326, it was held that the contract of a ferry company to charter one of its boats for temporary use in another business was valid. Many illustrations are suggested in the opinion of Bigelow, C. J., who said, “We know of no rule or principle by which an act creating a corporation for certain specific objects, or to carry on a particular trade or business, is to be strictly construed as prohibitory of all other dealings or transactions not coming within the exact scope of those designated. Undoubtedly the main business of a corporation is to be confined to that class of operations which properly appertain to the general purposes for which its charter was granted. But it may also enter into' contracts and engage in transactions which are incidental or auxiliary to its main business, or which may become necessary, expedient or profitable in the care and manage [323] ment of the property which it is authorized to hold.” See also Lyndeborough Glass Co. v. Mass. Glass Co., 111 Mass. 315. And in our own case of Watts’s Appeal, 78 Pa. 370, a land company’s charter purpose was to sell a large tract of land, but it was authorized inter alia “ to aid in the development of the minerals and other materials,” and also “ to promote the clearing and settlement of the country.” The directors, among other things, built sawmills and a hotel. It was held that their acts were not ultra vires, Gordon, J., saying (page 392) “We know of no other material upon these lands more abundant or more obviously requiring development than the timber. Neither can we conceive of anything better calculated to develop this kind of materials than sawmills. So we regard a hotel of some kind in so large a territory of wild lands, as not only a convenience adding greatly to the settlement of the country, but a necessity.” In the present case the stockholders of the Gas Company by an almost unanimous vote, decided that the purchase of the Backus patents was to the advantage of the company’s business as a manufacturer and distributor of gas, and the court below has found as a matter of fact that they were right. We cannot say as matter of law that they were wrong. Decree affirmed with costs.