Chicago Hansom Cab Co. v. Yerkes

Mr. Justice Scholfield delivered the opinion of the Court: From the foregoing statement it is clear that when Needham entered into the contract with Springer, the former was a director in the Chicago Hansom Cab Company, and its secretary. As director he owed the duty to the company to preserve its property and protect the company against loss, so far as that could be done by the exercise of ordinary care and diligence, and he could not himself become the purchaser of any property of the corporation which it was his duty to sell. (Wardell v. Railroad Co. 103 U. S. 651.) The contract between Needham and Springer requires the purchase of all the property of the cab company, and the subsequent transfer of the personal property to Needham. It is an entire and indivisible contract, and Needham is therefore directly interested in every part of the claimed contract of sale by the company to Springer. But it is claimed the authority to make this sale is derived from a vote of a majority of the stockholders. That vote was given at the stockholders’ meeting on the 6th of May, 1889, in these words: “Therefore be it resolved, that a committee, consisting of the president and secretary, be appointed to mortgage or sell all or part of the property of the company, at their discretion, and be authorized to sign, seal and deliver any mortgage, deed or bill of sale necessary, and to report at an adjourned meeting, May 8, at 2:30 P. M., at the same place.” This required the exercise of judgment and discretion by both the president and the secretary, and, being a special power, it could not be exercised by one, only; (Perry on Trusts, sec. 413; Hartford Fire Ins. Co. v. Wilcox, 57 Ill. 180;) and so, necessarily, if one was disqualified to act, neither could act. The resolution of the stockholders invested Need-ham, as well as Pullman, with a special confidence and trust, which required that he should act solely with a view to the best interests of all the stockholders. But he was disqualified to thus act by reason of his previous contract with Springer, which gave him a personal interest to be promoted by his action under the resolution. The rule is familiar that a trustee is disqualified to act by the intervention of a personal interest in the performance of his duties as trustee. He can not obtain title to property where he has a duty to perform inconsistent with the character of a purchaser on his own account. Borders v. Murphy et al. 125 Ill. 577. It is, however, contended, that this sale was ratified by a vote of a majority of the stockholders at their meeting on the 8th of May. Whether, in any case, a ratification is effective, depends upon whether those assuming to ratify might have legally authorized the act to be done in the first instance. At the time this vote was taken, Springer either really owned or had contracted to purchase, and by virtue thereof was entitled to and did control, a majority of the shares of stock,—indeed, all except those owned by Yerkes; and so, upon the record of the meeting of the 8th of May, the names and votes of Pullman, Himrod, Haggerty, Cotton and Cutler, being the votes in favor of the ratification of the sale, are but another form of expressing the name and votes of Springer in favor of it. The question is therefore presented, whether, after it is determined to wind up a corporation and settle its business, it is competent for a holder of a majority of its shares of stock to make or ratify a sale of all its property to himself, against the protest of a holder of a minority of its shares, and in disregard of his rights. That a holder of a majority of the shares of stock in a corporation may, where the law authorizes a vote of stockholders, so vote, upon any matter of policy in the conduct of the corporation, as to best subserve his own interests, and that this may relate to the ceasing to do corporate business, the winding up of its affairs and the sale of its property, we .do not question. But the authorities cited by counsel for appellant (Gamble v. Queens County, 123 N. Y. 91, and Transportation Co. v. Beatty, L. R. 12 App. Cases, 589,) concede that even in such cases the action resulting from such vote must not be so detrimental to the corporation itself as to lead to the necessary inference that the interests of the majority of the shareholders lie wholly outside of and in opposition to the interests of the corporation and of the minority of the shareholders, and that their action is a wanton or a fraudulent destruction of the rights of such minority. In the cases cited, and, so far as we are informed, in all other cases where the majority of the stockholders may by their votes lawfully affect the interests of the minority of the stockholders, the interests of the minority are, theoretically at least, protected either by directors or trustees of the corporation, who it will not be presumed will betray their trust by acting in the interest of one stockholder to the prejudice of another, or by reason of the transaction being such as is presumed to be alike beneficial to all stockholders,—as, where the corporate property is in good faith appropriated to the payment of the corporate debts, or is sold at a "fair sale; and no case cited or within our knowledge goes to the extent of holding that a majority of the stockholders may take the property of the corporation and retain it, if the minority shall elect to deny its right to acquire title to it in that way. Undoubtedly, if in such case the minority of the stockholders shall elect to treat the majority as purchasers, they may do so, and require them to account for the value of the property. Here, Springer, who through Pullman, Himrod, Haggerty, Cotton and Cutler assumes to ratify this sale, is the same Springer who with Needham is the purchaser of the property,—in other words, he assumes to ratify a sale to himself. But a man can not be both buyer and seller in the same transaction, and where he assumes to be such, his action simply amounts to a taking of the property, and would be quite as valid without as with the circumlocution of the form of a sale through dummies. The right of a majority of the stockholders to sell the corporate property can by no reasonable construction be held to involve the right to seize the property to their own use. A sale conducted, as it must be, fairly and openly, can not, theoretically, operate to the prejudice of one stockholder more than to another. There is in such case no presumptive antagonism between the different stockholders. But where, under pretense of a sale to themselves, the majority seize the property and undertake to invest themselves with title, their interests are wholly hostile, for the gain of the one is the loss of the other. It is a general rule, administered by courts of equity, that where one person has the power of disposition of the property of another without the consent of that other, he shall not be allowed to become personally interested in it himself,—and this without regard to any question of fairness in the immediate transaction,—for he shall not be allowed to occupy a position where self-interest would tempt a betrayal of duty. This rule is plainly applicable here, and it has been so applied in adjudicated cases. It is said in Cook on Stockholders, sec. 656: “It is illegal and fraudulent for the majority of the stockholders to purchase the property of the company at a sale authorized by themselves. Such a purchase by the majority may be set aside in the same way and to the same extent that a purchase of corporate property by a director may be set aside.” See, also, Bigelow on Frauds, (vol. 2, p. 645,) where it is said, “no act of the majority can purge the fraud” of appropriating the common property to their own benefit by any portion of the corporators; and to like effect is the ruling in Meeker v. Winthrop Iron Co. 17 Fed. Rep. 49, and Ervin v. Oregon Railroad and Navigation Co. 20 id. 577; and see, also, Menier v. Hooper’s Telegraph Works, 9 L. R. Ch. App. Cases, 350; Brewer v. Boston Theater, 104 Mass. 378; Preston v. Grand Collier Dock Co. 11 Sim. 327; Hodgkinson v. N. L. S. Ins. Co. 26 Beav. 473; Atwood v. Merryweather, L. R. 5 Eq. 464, and note. The action of the board of directors on the 8th of June, as affecting the validity of the sale, is not, under the pleadings, properly before us for consideration. Counsel for appellant are mistaken in saying, as they do, that appellee in his supplemental bill relies upon it. The allegation of the supplemental bill to which reference is made, is this, only: “Your orator further shows, that a majority of the stockholders of said corporation having resolved to discontinue the business of said corporation, the directors of said corporation, since the filing of said bill, have ratified such action of the majority of the stockholders.” There is no reference whatever to the sale of the property. “Such action” means, plainly, the resolution to discontinue the business of the company. We think it unimportant whether the money furnished by Springer, and used by Needham in purchasing the stock of the corporation and in paying for the property claimed to be purchased from it, was that of Bose Abernethy, as said by Springer at the time he began negotiating with Needham, or whether, as the evidence strongly tends to prove, it was in fact that of Springer, for in either view the money was furnished and used, as is shown, in performance of the contract between Needham and Springer, and Bose Abernethy can therefore only take subject to that contract, and she must be affected by whatever has been done by Needham and Springer to acquire title to the property. It appears from the evidence that the directors of the corporation were in the interest and under the control of Springer, so that a demand upon the corporation to bring suit against him would have been unavailing, and the suit is therefore properly brought by Yerkes. Chicago v. Cameron, 120 Ill. 447. We are unable to perceive any sufficient reason for reversing the decree below. It is therefore affirmed. Decree affirmed.