Traer v. Lucas Prospecting Co.

Sherwin, J. The relief sought by the plaintiff is twofold: He prays that the contract between the Lucas Prospecting Company' and the Inland Coal Company, and the transfer of the Lucas Company’s property to the Inland Fuel Company pursuant to said contract, ’be set aside and declared void, because ultra vires, and that the mortgages executed by the Lucas Company to the coal company be declared void so far as they exceed the limit of indebtedness fixed by the articles of incorporation of the former company. — 112 — 1. Charters. On the first of these propositions, it is contended that the contract in question was an undertaking to convey all of the Lucas Company’s property, and that neither the directors nor a majority of the stockholders of that company had the' power to sell all of the corporate property, as against the dissent of a single stockholder, unless the corporation was insolvent or in a failing condition. The answer to this contention must be predicated upon the express or implied power conferred upon the Lucas Prospecting Company by its articles of incorporation,' and by the general incorporation laws of this State. • The charter of a corporation formed under a general law consists of its articles of incorporation, taken in connection with the law under which the organization takes place. The provisions of the law enter into and form a part of its charter, and the charter, thus construed, 'contains the “ terms of the agreement of the association between the shareholders, and indicates the character and extent of the business in which the company shall engage.” 1 Morawetz on Private Corporations, section 318; Cook on Corporations (5th Ed.), section 669. a Sale or corporate property. When a person becomes a shareholder in a corporation, he assents to the transaction of the business expressly or impliedly authorized by its charter; and therefore, if the charter authorizes the sale or other disposition property, he cannot complain. It js a well-settled rule that a strictly private corporation has the same right to dispose of its property that an individual has, and that, when insolvent or in a failing condition, it may sell all thereof without the consent of all of the shareholders, and this much is conceded by the appellant. It is the general rule, however, that “ neither the directors nor a majority of the shareholders of a corporation have power at common law to sell or otherwise transfer all its property while the corporation is a going, prosperous concern, * * * as against the dissent of any shareholder.” Cook on Corporations, section 610; 10 Cyc. 1139; Abbott v. — 113 — American Hard Rubber Co., 33 Barb. 578; March v. Eastern R. Co., 43 N. H. 523; Lauman v. Lebanon Valley R. Co., 30 Pa. 42 (72 Am. Dec. 685); Byrne v. Schuyler Electric Mfg. Co., 65 Conn. 336 (28 L. R. A. 304); Elyton Land Co. et al. v. Dowdell, 113 Ala. 177 (20 South. Rep. 981, 33 L. R. A. 264, 56 Am. St. Rep. 76); People v. Ballard, 134 N. Y. 269 (32 N. E. Rep. 54, 34 Am. St. Rep. 275). s. Exercise o? power. It is said by the appellees that because section 1609, paragraph 6, of the general incorporation law of the State, gives a corporation the power “ to make contracts, acquire and transfer property, possessing the same power in such respects as natural persons,” it has “ implied power to dispose of any or all of its property whenever this is deemed expedient in carrying out the purposes for which it was organized.” A part of this proposition may be conceded, so far as a private trading or manufacturing corporation is concerned, because of the very nature of its business. But it is evident that this statute only designates the powers which a corporation may provide for in its articles of incorporation, and exercise them only when it has so provided; otherwise articles of incorporation, no matter how limited the business they might provide for, would be no check upon the power of the corporation. It is argued further that such has been held to be the rule in this State,, and we therefore find it necessary to review the cases which it is claimed so hold. In Dunham v. Isett, 15 Iowa, 294, the sole question was whether a railroad company had the power to mortgage its property and earnings for borrowed money, and it was held that it had such power. In Buel v. Buckinham & Co., 16 Iowa, 284, the contest was between the creditors of the corporation and the purchaser of all of its property. It was held that its charter and by-laws impliedly authorized the sale. The proposition that all of the property of a private corporation may be sold, with the assent of the shareholders, is universally held. Thompson v. Lambert, 44 Iowa, 239, was a case where the corporation had — 114 — borrowed money and given security therefor, and the suit- was by a stockholder to declare the act ultra vires. It was held-that the power to borrow, impliedly existed, though not expressly given by the articles of incorporation. In Warfield, Howell & Co. v. The Marshall County Creamery Co., 72 Iowa, 666, the corporation was insolvent, and the suit was brought by a creditor to have a sale of all of its property declared ultra vires. It was said in the opinion that “ corporations can make contracts and transfer property, possessing the same power in such respects as individuals. Such is the rule in the absence of a statute, and therefore it has the right to prefer one creditor to another.” The holding in Mahaska County R. Co. v. Des Moines Valley R. Co., 28 Iowa, 437, was that a sale of property was valid where the articles of incorporation gave such power to the directors. Sawyer v. Dubuque Printing Co., 11 Iowa, 242, was a suit by a shareholder to set aside a sale of the entire property of the corporation because ultra vires and fraudulent. The corporation was .in a failing condition, and the sale was upheld. In West v. Averill Grocery Co., 109 Iowa, 488, the precise question we are now considering was not involved. But it was there held that, if the articles of incorporation do not prohibit such contracts, corporations may purchase and surrender their own capital stock. In Price v. Holcomb, 89 Iowa, 123, it was said that where the business of a corporation had been operated at a loss, ’ and its works had been idle because the corporation was without necessary working capital, ánd because it was unable to secure it, and no' practical -plan for putting the ■ works in operation had been agreed upon, though fre-' quently discussed, and it was apparent that no agreement could be reached by which the works could be-operated or leased, a sale could be made of the property and business of the corporation against the protest of the minority. This ' case was decided on the peculiar facts appearing therein, and cannot be said to be authority for the broad claim made by — 115 — the appellees. We shall have occasion, however, to refer to it again later on. 4. sale oj? paroperty: charter construed. The question of the insolvency' or failing condition of the Lucas Prospecting Company must be eliminated from the case, because of its answer denying such condition, because the evidence wholly fails to prove- it; and we go to the charter of the company, to de- . termine whether it is therein given the power to sell and transfer all of its property.. The business of the Lucas Company, as disclosed by its articles of incorporation, was to “ purchase and own in fee simple or other freehold estate, or to purchase and hold by leasehold or license, any mineral or supposed mineral land, or rights in said land,” and “ to prospect lands for coal or other minerals or mineral products, and to do any and all such other matters and things as may aid and promote its aforesaid purposes of organization.” The controlling purpose of the corporation, as thus expressed, was not to conduct mining operations itself, but. to secure mineral or supposed mineral lands, and to prospect them. The power to sell and convey any rights thus acquired is expressly given. The dominant thought, as it seems to us, was to secure control of such lands, either by purchase or otherwise, for the purpose' of sale or lease to some individual or association desiring either to speculate further with such rights, or to actually mine the properties; otherwise no benefit could be derived from the business of the corporation. These provisions would alone indicate that it was the intent and purpose to sell any or all of these property rights whenever it might be to the advantage of the corporation to do so. This thought is further emphasized by the power given in the same article to receive and appropriate to its own use, or control or dispose of, any money, rents, royalties, profits, or other proceeds arising from such sales or transactions, and by the further authority given to the board of directors to “ sell, lease, or mortgage property and franchises, and all and singular the property rights and privileges ” of the corpora — 116 — tion. Tlie express power here given, construed in connection with the declared object and business of the corporation, and the general power to sell given by the terms of article 2, ^/clearly conferred the power to sell all of the property of the corporation, notwithstanding the dissent of any individual shareholder. Mahaska County R. Co. v. Des Moines Valley R. Co., supra; Town of Middleton v. Boston & N. Y. A. L. R. R. Co., 53 Conn. 351 (5 Atl. Rep. 706). 6. Sale os property: purchase of other stocks, It is undoubtedly the general rule that a corporation >/may not sell any part or all of its property for other than a cash consideration, unless authorized so to do by its charter. Here no cash was to be paid by the purchasing corporation, and no other consideration than its _ , stock, and it had no property otner than that-purchased of the Lucas Company. But the articles of incorporation expressly gave the Lucas Company'the right to purchase, sell, and deal in the corporate stocks of corporations ■authorized to conduct mining operations. It had mining rights and property for sale, but no power to mine; hence we think the power to exchange or sell its properties for the stock of a corporation which would engage in the business, clearly implied. Indeed, we have held that a trading corporation, unless prohibited by its charter, may buy and sell the stock of another corporation. Iowa Lumber Co. v. Foster, 49 Iowa, 25; West v. Averill Grocery Co., supra. In White et al. v. Marquardt & Sons, 105 Iowa, 145, it was said: “ The evidence shows that the defendant was organized for the purpose of doing the business of a dealer and jobber in jewelry, including all such kinds and classes of merchandise as are usually handled by the largest wholesale jewelry houses in the United States, and that it'transacted the business for which it was organized. It purchased the stock in the ordinary course of business, exchanging it for merchandise in which it was dealing. Its articles of incor-. poration did not impose any limitation as to the kind of property it might take in exchange for its merchandise, and — 117 — the. shares of stock it received were property.” It was held that the purchase of the stock was authorized and valid. And such was the holding in Calumet Paper Co. v. Investment Co., 96 Iowa, 147, and in Latimer & Inglis v. State Bank, 102 Iowa, 162. The Lucas Company having the power to sell and transfer all of its property, and the power to purchase the stock of another corporation, it follows that it had the power to so invest all of its property. Franklin Co. v. Lewister Savings Bank, 68 Me. 43 (28 Am. Rep. 9); Treadwell et al. v. Salesbury Mfg. Co. et al., 7 Gray, 393 (66 Am. Dec. 490); Booth v. Robinson, 55 Md. 419. In the case of Elyton Land Co. et al. v. Dowdell, 113 Ala. 177 (20 South. Rep. 981, 59 Am. St. Rep. 105), the charter of the land company authorized it to buy and sell lots, “ with the view to the location, laying off, and effecting the building of a city at or near Elyton, and to build, own, rent, lease buildings, * * * and. issue bonds, * * * and take stock in other corporations.” It was said by the court that “ by the sale and transfer of the property the Elyton Land Company divested itself of all its property and capacity to continue the business for which it was organized,” and it was held that such act virtually worked a dissolution of the corporation, and for that reason and others not necessary to here mention the sale was ultra vires. There is a well-marked distinction, however, between that ease and this. There the business of the corporation was to build, own, and lease houses, etc., and upon the sale of all of its property the corporation was in fact practically dissolved, while here the purpose and business of the Lucas Company was, as its name indicates, to prospect for and own mineral lands, which could be of no value unless they were to be eventually developed and worked by some one; and, as we have heretofore said, the Lucas Company had no such power. In Mason v. Pewabic Mining Co., 133 U. S. Rep. 50 (10 Sup. Ct. Rep. 224, 33 L. Ed. 524), the corporation had expired by limitation, and it was held that its property could not be sold to another cor — 118 — poratio-n for its stock at private sale, and for much less than its value. Many other cases are cited by the appellant on the proposition under consideration. We-have carefully examined each of them, and find that they were made to depend so largely upon the charter — as, indeed, they must have been — that they axe not controlling here, and we do not take the time to review them. It is said, also, that the transaction in question amounts .to a consolidation of the two corporations, and that, if upheld, it virtually compels the plaintiff to enter a corporation with greatly enlarged powers, and subjects him to liabilities .which he did not undertake to assume; in other words, that it makes a new contract for him. There is nothing in- the transaction which prohibits the Lucas Company from still prosecuting the business for which it was organized, but, if it be conceded that the sale of this property amounted to a consolidation of the two ■ corporations, in fact, it was entirely competent for them to consolidate, if the charter so provided, or if the power therein conferred naturally and inevitably led to such a result. Mayfield v. Alton Ry., Gas & Electric Co., 198 Ill. 528 (65 N. E. Rep. 100). The plaintiff does not become a shareholder in the fuel company. Nor is he obliged to take any of the stock issued by it He does not assume any of its liabilities by retaining his stock in the Lucas Company, because his liability is fixed and determined by its charter. It is true that the prosperity of the Lucas Company may depend upon the earning capacity of its fuel company stock, and that through this channel the plaintiff’s. stock in the Lucas Company may he affected. But the value of the plaintiff’s stock, has at all times depended upon the property and prosperity. of the Lucas Company, and, unless it has been guilty of fraud which will affect the value of his stock, he must take his chances in its investments. There is nothing in the record in this case even tending to show that the transaction was not fair and honest, and for the .best interests of the Lucas corporation and its stockholders. Indeed, — 119 — the record presents very nearly such a case as was before the court in Price v. Holcomb, 89 Iowa, 123. The prospecting company held properties, in the form of options, leases, etc., which it believed valuable, but was without means to fully prospect and develop. It made many efforts to interest capital in the venture, with the assent and co-operation of all the stockholders, including those then owning the stock now held by the plaintiff, and it was imable to accomplish anything until the Inland Coal Company took hold of it.. Under very similar circumstances, it was held in the case last cited that the sale was warranted, and not a fraud upon the minority stockholders. And in this case it is shown that the value of the plaintiff’s stock has been very materially increased by the transaction. We reach the conclusion that the sale and transfer were not beyond the charter powers of the corporation, and that it was fully authorized to sell the same for the stock of the other corporation. See, also, Miners’ Ditch Co. v. Zellerbach, 37 Cal. 543 (99 Am. Dec. 300). 6. Loans in excess OP limit: validity. The appellant’s contention that the indebtedness of the Lucas Prospecting Company, represented by the notes and mortgages in trust for the Inland Coal Company, should be declared void because in excess of its authorized indebtedness, cannot be sustained. The money was advanced by the Inland Company and paid out for the benefit of the prospecting company and its stockholders. They have received the full benefit' of this money in the protection of their rights and property, and none of the stockholders can now question the validity of the transaction. Beach v. Wakefield, 107 Iowa, 567; Marshall Field & Co. v. Ruffcorn Co., 117 Iowa, 162; Cook on Corporations, section 760, and notes. Nor can the fact that.the money borrowed was used for an ultra vires purpose affect the rule. Cook, supra. In view of the conclusions which we have reached on the main proposition urged by counsel, we do not deem it necea — 120 — sary to consider the appellees’ contention that the plaintiff is estopped by the acquiescence of his assignors, and that this suit was instituted for the benefit of a rival corporation. The judgment is affirmed.