Manufacturers' Land & Improvement Co. v. Cleary

Opinion by Judge O’Rear Reversing. Appellant corporation was organized under the’ general law in 1887, to endure for twenty-five years-unless sooner dissolved by its stockholders. The cor [405] poration’s business, as stated in its articles, was to deal in real estate and to buy, own, lease, improve and sell real estate. Its authorized capital is $100,-000, but It was provided that it might begin business upon $50,000 being subscribed. About $84,000 was subscribed, and was paid up, except three subscribing stockholders; appellees’ ancestor, W. W. Cleary, being one of the three. It invested its capital near about the time of its organization in certain unimproved real estate in the city of Covington. In addition it incurred debts of some $15,000 in buying .real estate, which are secured by mortgages on its property. Its real estate is rented out at about $3,100 per annum. Its salary list is $120 a year, payable to its secretary, the only salaried officer. Its taxes are about $900 a year. It has $7,000 of purchase money notes for land sold, and some $3,400 cash in its treasury. It is officered, and is a going concern. Appellees, representatives of W. W. Cleary, deceased, a stockholder, brought this suit for a dissolution of the corporation, because, it was alleged, it was doing nothing, had never made any money, its purpose was impossible of execution, and it was insolvent. As an incident to that final relief, appellees sought and obtained the appointment of a receiver of the corporate assets. This appeal is prosecuted from the order of the court appointing a receiver. Those who embark in a corporate enterprise as stockholders impliedly agree that its affairs shall, so far as they are confined to the scope of the business set out in the articles of incorporation, be controlled by a governing board, selected in the manner provided in the articles and in accordance with the law, and that the corporation shall endure for the purpose for which it was organized for the entire period fixed by the articles, unless sooner dissolved by [406] operation of law. The judgment or discretion of the governing body, usually a board of directors, as-to matters intra vires, is entirely beyond the control of the stockholders through the intervention of the courts, except for frauds committed or threatened against the corporation or the minority stockholders. An exception to this general rule is where the corporate enterprise is one impossible of execution. But whether the plan being executed by the governing body is wise, or even whether it may not involve the corporation in ultimate losses, is a matter that the-courts could not inquire into or remedy, without exercising a jurisdiction of espionage and censorship utterly inconsistent with the rights of property as recognized by the common law. The corporation owns-its property. It has the same right to manage it according to its judgment, which is evidenced hy the judgment of its directors, so long as it acts within the scope of its corporate powers, as any individual has his own property. No court is ever permitted to interfere with an owner’s control of his property so-long as it is lawful, no matter how foolish it may be. Corporate ownership of property is the same as-individual ownership, so far as the right of management is concerned, except that for certain purposes-the corporation is held to be a trustee of the corporate property for the benefit of its creditors and stockholders ; that is, of creditors to the payment of their debts, of stockholders to the honest employment of the assets in the corporate enterprise. Only in the-event of abuse of this implied trust is a court of equity warranted in interfering with the corporate management. In the case at bar the dissolution of appellant corporation before the time fixed in the articles is sought upon the alleged ground that it is dormant, has never [407] made money enough to pay a dividend, has encountered obstacles which make it certain that it will not be a paying investment, and, consequently, that the purpose for which it was organized, to wit, to make money for its stockholders, is one impossible of execution. "While it is true that trading or commercial corporations may be assumed to have been organized' solely to make money for their stockholders, it does not follow that the enterprise must be abandoned upon the first disappointment, at the complaint of a single stockholder. The fact that the corporators had fixed a definite period of existence is an implication that the venture shall be continued that long, unless-the corporation be sooner dissolved in the manner allowed by law. All business is not at once successful or even successful at all. Yet it may be pursued in thé hope of success, which is the mainspring of traffic.. It would be unwarrantable, as well as intolerable under a system of free government, that the courts should interfere to put a stop to all business ventures which within a reasonable time had not shown evidence of success or which were not, in the court’s opinion, being pursued with proper diligence and' wisdom. Whether the corporation’s purpose be one-impossible of execution, so that it may be terminated at the complaint of any stockholder, is not a matter to be determined by the weight of the evidence. It. must be -a certainty, as things are deemed to be certain in law. Then, as it is implied also that the corporation will pursue the execution of a possible and lawful purpose, the stockholders are absolved from their mutual undertaking, and the corporate assets will be distributed as if the event had happened when its existence should end. The facts of this case show that appellant corporation owned about $70,000 worth of property. It was [408] bought when such real estate had inflated values, which greatly depreciated during the panic of 1893-96. Whether the original expectations of the promoters .will ever be realized seems to be problematical. Yet it can not be said with any certainty that they will not be. Just what the future may hold for these properties is that uncertainty which gives value to all things speculated in, in the markets. It would never do, in our opinion, to say that, just because the chance of appellant’s realizing its expectations seemed now to be slim, its existence should be prematurely ended and the venture outlawed. No bad faith on the part of the officers or majority stockholders is shown. They are doing with this property, for aught the record shows, just what many a prudent owner might- well do — hold on, without actual evident losses, till a rising market has brought relief from what looked like, at one time, a disastrous investment. The cases and text-books cited by both litigants all really present these ideas in one form or another. It is not thought to be necessary to further ’elaborate them. We are of opinion that the judgment appointing the receiver was unauthorized, and it is therefore reversed.- Cause remanded for proceedings not inconsistent herewith.