Treadwell v. Salisbury Manufacturing Co.

Bigelow, J. The plaintiffs, in order to maintain this bill against the defendants, and bring their case within the limits of our present chancery jurisdiction, seek to establish their right to the aid of the court in their capacity as trustees entitled to protection and advice in the execution of certain trusts with which they are clothed under the provisions of the will set out in the bill. This is the sole ground on which they rest their claim to equitable relief. It is true that the frame of the bill seems to comprehend a much broader field of jurisdiction. It sets forth certain votes and acts of the defendant corporation, which are alleged to be unlawful and beyond the scope of the powers conferred on them by their charter, and seeks to have these votes declared inoperative and void, and the defendants restrained by injunction from carrying them into effect. But the plaintiffs do not now contend that these allegations, standing alone, would make a case within the reach of the equity powers of the court. Indeed, it is too well settled to admit of question, that a court of chancery has no peculiar jurisdiction over corporations, to restrain them in the exercise of their powers, or control their action, or prevent them from violating their charter, in cases where there is no fraud or breach of trust alleged as the foundation of the claim for equitable relief. Their rights and duties are regulated and governed by the common law, which in most cases furnishes ample remedies for any excess or abuse of corporate powers and privileges, which may injuriously affect either public or private rights. It is only when there is no plain and adequate remedy at law, and a case is presented which entitles a party to equitable relief, under some general head of chancery jurisdiction, that a bill in equity can be maintained against a corporation. And this rule is applicable to stockholders as well as to other persons. Angell & Ames on Corp. § 312. Grant on Corp. 71, 271. Morley v. Alston, 1 Phil. Ch. 790. Attorney General — 400 — v. Utica Ins. Co. 2 Johns. Ch. 371. Verplanck v. Mercantile Ins. Co. 1 Edw. Ch. 84. Attorney General v. Bank of Niagara, Hopk. 354. Hodges v. New England Screw Co. 1 R. I. 350. Looking then at the case presented by the bill as one in which relief is sought solely on the ground that the plaintiffs are trustees, and entitled to the advice and aid of the court in the execution of the trusts with which they are charged, the question is whether, on the facts stated and proved in the case, they show any title to a decree in equity against the defendants. There can be no doubt of the general power and authority of a court of chancery to entertain jurisdiction of cases in which trustees ask for protection in the performance of their duties. This court has often exercised such jurisdiction. But the cases which fall under this head of equity are those in which there are conflicting claims to the trust estate, or it is doubtful, upon the construction of the will, deed or other instrument creating the trust, to whom the property or the beneficial interest in it belongs. A trustee in such cases, by filing a bill in the nature of a bill of interpleader, to which he makes parties those who have, or claim to have, an interest in the trust estate, can ask the directions of the court as to the proper mode of administering the trust, and be protected by its decree in the disposal of the property in his hands. But the allegations in the present bill present no such case. The defendants are neither the owners nor claimants of any property in the hands of the complainants. The cestwis que trust, those who have an interest in the trust estate created by the will, are not even made parties to the bill. There are no adverse claimants of the trust estate or its income; nor is there any doubt or dispute concerning the interpretation of the will, under which the plaintiffs hold their title as trustees. The only allegation in the bill which in any way connects the defendants with the plaintiffs is that a portion of the trust estate is invested in certain shares of the corporation. If, then, the bill can be maintained at all against these defendants, it must rest on the single ground that trustees, who are stockholders in a corporation, can resort to the equity side of the court under a claim for protection and advice in the exe — 401 — cution of their trusts, and thereby subject the corporation and all their acts and proceedings to the jurisdiction of a court of chancery. But the objections to sustaining the bill in this aspect of the case are obvious and decisive. In the first place, it is clear that these defendants cannot be reached by any decree which the court can properly render on the case stated in the bill. The right of the plaintiffs to aid and advice from the court in the discharge of their duties as trustees is not in any degree dependent on the acts and proceedings of the defendants. It is not necessary in order to enable the court to give such aid and advice, that the defendants should be made parties, or that any decree should be entered against them. A court of equity, in the exercise of its legitimate jurisdiction, will inquire into and decide upon all questions of law and fact upon which the right of a party to equitable relief depends. It will take cognizance of collateral and incidental matters, although of themselves they may not be the subject of a direct suit in equity, if they arise in the exercise of an acknowledged chancery jurisdiction, and the decision of the cause renders it necessary that they should be considered and determined. But they must be essential to the principal inquiry and to the relief sought by the bill; otherwise they are irrelevant and immaterial, and cannot be properly inquired into, much less form the basis of a decree. Assuming that the plaintiffs state a case entitling them to the aid and advice of the court in the performance of their duties as trustees, a suitable decree may be entered to meet fully this part of the prayer of the bill, without any inquiry concerning the legality of the proceedings of the corporation. Whether the acts of the defendants alleged in the bill are legal or illegal, they can in no degree affect the right of the plaintiffs to seek the advice and direction of the court in the performance of their duties as trustees. Nor can the plaintiffs make use of a bill, the main purpose of which is alleged to be to obtain such advice and direction, to bring into adjudication collateral and irrelevant questions, and thereby procure a decree against parties who have no rights or interests involved in the principal subject matter which forms the basis of the plaintiff’s case. — 402 — The plaintiffs seem to have proceeded on the ground that it was sufficient, in a bill framed for the purpose of obtaining protection and aid in the execution of their trust, to allege that certain acts of the defendants might injuriously affect the value of the shares -in the corporation held by them in trust, in order to bring their case within the cognizance of the court and subject the corporation and its proceedings to jurisdiction in equity. But if this were so, it would follow that the rights and remedies of stockholders against corporations would be made to depend on the capacity in which they owned shares in the corporate stock. One who held them as trustee would be entitled to a remedy, which would be denied to another who owned them in his own right. A corporation might be perpetually enjoined from doing certain acts, if any part of their stock, however small, happened to be held in trust, which, otherwise they could do without restraint. It is clear that no such distinction between different classes of stockholders can exist. They all stand on a perfect equality as to rights and remedies. Jurisdiction in equity over a corporation must be determined not by the capacity in which the plaintiff seeks relief, but by the case which is stated in his bill against the defendant. Besides, if the doctrine on which this bill can alone be main t'ained is sound, we do not see where it is to stop. If it is true that this suit will lie against a corporation solely on the ground that their acts tend to the injury of a portion of the trust estate, and to diminish its value, we can see no reason why a like remedy might not be enforced against an individual. The result would be to sweep within the reach of equity jurisdiction almost every right or claim which a trustee might have occasion to enforce in behalf of the trust estate. By filing his bill, asking the aid and advice of the court as trustee, and setting forth any acts of a defendant, which tended to injure or impair the value of the trust estate, he would state a case quite as much within the reach of equitable relief as the one now before us. Take an illustration. A trustee holds a promissory note belonging to the trust estate. He files his bill, alleging that he holds as trustee a note against the defendant; that when it is paid, it will be neces — 403 — sary for him to invest the amount according to the provisions of the will creating the trust; that he requires the aid and advice of the court in regard to the mode and kind of investment; that the defendant is about to dispose of property in a manner which the plaintiff deems improvident and unsafe; that the defendant is engaged in transactions which are unlawful, and which tend to impair his estate, and render him unable to pay the note when it shall fall due, and that thereby the value and amount of the trust estate will be diminished. Upon a case thus stated, it would hardly be contended that an injunction could issue to restrain the defendant from disposing of his property or engaging in unlawful transactions. And yet the case does not differ essentially from that stated in the plaintiffs’ bill. Another consideration is decisive on this question of jurisdiction. If the plaintiffs can sustain their case, so that the votes and proceedings of the corporation and its directors can be declared inoperative and void, and an injunction be granted to restrain the defendants from carrying them into effect, no aid or direction will be required by the trustees in the execution of their trusts. It is only in the event that the property of the corporation is sold and exchanged for stock in the proposed new corporation in pursuance of the votes set out in the bill, that any advice or protection is asked for by the plaintiffs. The chief object of the bill is therefore to enjoin the defendants. The aid and advice for which the plaintiffs ask is sought only as secondary to this main purpose, and as contingent upon a refusal to grant the principal relief prayed for. As a bill seeking a decree against the defendants, it cannot be maintained, for the reasons already given. As a bill in the nature of a bill of inter-pleader to obtain the direction of the court in the administration of a trust, it must fail, because the exigency has not yet arisen, and may not occur, to render any aid or advice necessary. A trustee cannot maintain such a bill quia timet, nor without joining as parties the cestuis que trust who have a direct interest in the subject matter of the bill. There is no aspect of the case, therefore, in which the title of the plaintiffs to equitable relief can be supported. It might have — 404 — been otherwise, if any fraud or breach of trust had been alleged in the bill. But the case shows that the defendants, who are directors of the corporation, have acted honestly, with entire good faith, and with a single purpose to carry out the will of a majority of the stockholders. The views which we have taken dispose of the whole case. It is therefore unnecessary to go at large into a consideration of the other branch of the cause, which was fully and elaborately ' discussed at the bar. But we entertain no doubt of the right of ; a corporation, established solely for trading and manufacturing ¡ purposes, by a vote of the majority of their stockholders, to wind i: up their affairs and close their business, if in the exercise of a ¡ sound discretion they deem it expedient so to do. At common \law, the right of corporations, acting by a majority of their stock/holders, to sell their property is absolute, and is not limited as to objects, circumstances or quantity. Angell & Ames on Corp. § 127 & seq. 2 Kent Com. (6th ed.) 280. Mayor &c. of Colchester v. Lowton, 1 Ves. & B. 226, 240, 244. Binney's case, 2 Bland, 142. To this general rule there are many exceptions, arising from the nature of particular corporations, the purposes for which they were created, and the duties and liabilities imposed on them by their charters. Corporations established for objects quasi public, such as railway, canal and turnpike corporations, to which the right of eminent domain and other large privileges are granted in order to enable them to accommodate the public, may fall within the exception; as also charitable and religious bodies, in the administration of whose affairs the community or some portion of it has an interest to see that their corporate duties are properly discharged. Such corporations may perhaps be restrained from alienating their property, and compelled to appropriate it to specific uses, by mandamus or other proper process. J But it is not so with corporations of a private character, established solely for trading and manufacturing purposes. Neither 'the public nor the legislature have any direct interest in their I business or its management. These are committed solely to ¡ the stockholders, who have a pecuniary stake in the proper con-l duct of their affairs. By accepting a charter, they do not under — 405 — take to carry on the business for which they are incorporated, indefinitely, and without any regard to the condition of their corporate property. Public policy does not require them to go on at a loss. On the contrary, it would seem very clearly for the public welfare, as well as for the interest of the stockholders, that they should cease to transact business as soon as, in the exercise of a sound judgment, it is found that it cannot be prudently continued. If this be not so, we do not see that any limit could be put to the business of a trading corporation, short of the entire loss or destruction of the corporate property. The stockholders could be compelled to carry it on until it came to actual insolvency Such a doctrine is without any support in reason or authority The case of Ward v. Society of Attorneys, 1 Collyer, 370, cited by the plaintiffs, does not support it. They were not a trading corporation ; nor were their affairs in an embarrassed condition. It was the case of the majority of a corporation, attempting to surrender the old charter, and to pervert the corporate funds to a different purpose, by passing them over to a new association. Besides, the questions raised in the case were not finally determined by the vice chancellor. They were only considered so far as it was necessary to decide the question of granting an injunction preliminary to the hearing. Upon the facts found in the case before us, we see no reason to doubt that the vote of the majority of the stockholders, for the sale of the corporate property, and the closing of the business of the corporation, was justified by the condition of their affairs. Without available capital, and without the means of procuring it, the further prosecution of their business would be unprofitable, if not impracticable. Under these circumstances it was in furtherance of the purposes of the corporation, to pay their debts, close their affairs and settle with their stockholders on terms most advantageous to them. Sargent v. Webster, 13 Met. 504. Nor can we see anything in the proposed sale to a new corporation, and the receipt of their stock in payment, which makes the transaction illegal. It is not a sale by a trustee to himself, — 406 — for his own benefit; but it is a sale to another corporation for the benefit and with the consent of the cestuis que trust, the old stockholders. The new stock is taken in lieu of money, to be distributed among those stockholders who are willing to receive it, or to be converted into money by those who do not desire to retain it. Being done fairly and not collusively, as a mode of payment for the property of the corporation, that transaction is not open to valid objection by a minority of the stockholders. Hodges v. New England Screw Co. 1 R. I. 347. It was urged by the plaintiffs that the common law right of a corporation to sell their property and close their business, had been taken away by St. 1852, c. 55. But we do not think that such is its true interpretation. It is not restrictive in its terms, but only permissive. It was intended to provide a mode in which the charter of a corporation might be dissolved without a resort to the legislature. But it did not take away the right of a corporation to proceed in the sale of their property preparatory to a surrender of their charter, which is all.that the defendants undertook to do. Bill dismissed.