Cowling v. Zenith Iron Co.

CANTY, J. This is an action under G. S. 1894, c. 76, and a defendant stockholder appeals from an order overruling his demurrer to the complaint, on the ground that it does not state facts sufficient to constitute a cause of action. The question involved is the Important one of whether the stockholders of a corporation organized to mine iron ore are exempt from the stockholders’ “double liability.” In article 10 of the constitution it is provided (section 3): “Each stockholder in any corporation, excepting those organized for the purpose of carrying on any kind of manufacturing or mechanical business, shall be liable to the amount of stock held or owned by him.” The general nature of the business of the defendant corporation, as expressed in its articles of incorporation, is “the mining, smelting, reducing, refining, and working of iron ores and other minerals, and the manufacture of iron, steel, copper, and other metals.” The only business actually carried on was that of mining. We cannot hold that mining is a “manufacturing” business, in any proper sense of the word. See Byers v. Franklin Coal Co., 106 Mass. 131. If this corporation comes within the exception, it must be because the business of mining iron ore is a “mechanical business,” within the meaning of the constitution. But, if the stockholders of a mining corporation are exempt, why are not the stockholders of a corporation organized to grade and construct railroads, or a corporation to build houses, or one to grade streets, or one to build sewers or ditches, or one to fence, clear, and break farms? Thus, the list of the corporations carrying on different kinds of business more or less of a mechanical nature could be expanded [269] until the exception contained in the constitution would he the rule, and the rule the exception, — until the corporations whose stockholders were exempt would be far more numerous than those whose stockholders were not exempt. Clearly, this was not the intention of the makers of the constitution. On the other hand, we cannot wipe the word “mechanical” out of the constitution; we must give it some effect. What, then, is the proper interpretation of this constitutional provision? We must determine that by considering what object the makers of the constitution had in view when this exception was inserted by the amendment of 1872. The exemption provided for by this amendment was intended to foster manufacturing within this state, and, to that end, to promote the establishment of manufacturing corporations. This is a matter of common knowledge. We are of the opinion that it was the intention of the makers of the constitution to exempt from liability the stockholders of corporations organized to carry on any such kind of mechanical business as is incidental to or closely allied with some kind of manufacturing business. Thus, a concern engaged in the business of manufacturing iron might well, as a mere extension of that business or as incidental to it, mine its own ore, especially so if the manufacturing plant and the mines were in the same locality. In any event, the mining of iron ore and the manufacturing of iron are allied industries; the prosecution of the former tends to promote the latter. It is true that, up to the present time, the iron ore mined in this state has all been carried out of it, to promote manufacturing elsewhere, and the vast development of our iron mines has not appreciably increased the manufacture of iron within this state. But that does not change the principle. And, besides, the conditions may in time change so that a large portion of the iron mined in the state will also be smelted and manufactured here. Then, we are of the opinion that corporations organized to mine iron ore come within the exception in the constitutional provision, and the stockholders of such corporations, holding none but fully paid-up stock, are exempt from further liability. G-. S. 1894, § 2834 (being one of the sections of the act under which the defendant corporation was organized), provides: [270] “Any corporation organized under this act may take, acquire and hold stock in any other corporation, if a majority in amount of the stockholders shall so elect.” This section seems to authorize the corporation, by such election, -and without regard to what its articles of incorporation may provide, to engage in the business of owning and holding the stock of •other corporations, of any and all kinds. Eespondent contends that, therefore, a corporation organized under this act is not a corporation organized for the purpose of carrying on an exclusively manufacturing or mechanical business, and its stockholders are not exempt. This is certainly a peculiar statutory provision. But as section 2829 (one •of the sections of the same act) attempts to exempt from liability the stockholders of all corporations organized under the act, and as this .section could not be given effect if it was held that every corporation organized under the act was necessarily “organized” to hold stock in all other kinds of corporations, we must hold that it is not so “organized” until “a majority in amount of the stockholders shall •elect” to take and hold such other stock. In other words, we are ■of the opinion that, under the different provisions of the act, it is proper to regard the election of such stockholders to take and hold such other stock, under section 2834, as an amendment to the articles of the corporation. It does not appear that the stockholders •of the defendant corporation ever made any such election. Therefore it is not organized for any such purpose. This disposes of the case, and the order appealed from is reversed.