Allen v. Ajax Mining Co.

ME. JUSTICE, HOLLOWAY delivered the opinion of the court. On May 3, 1904, the respondent, as plaintiff, commenced an action in the district court- of Lewis and Clarke county, the object of which was to- secure an injunction restraining the defendants from disposing of certain mining property belonging — 500 — to the defendant, Ajax Mining* Company, a Montana corporation, to the National Prospecting & Development Company, a Neiv Jersey corporation. The defendants Babcock, Marlow, Larson, Tracy and Smith own and'control 81,900 shares of the outstanding capital stock of the Ajax Mining Company, that being all the capital stock outstanding, except 100 shares owned by the1 plaintiff. This mining company is a prosperous, going concern, operating certain properties in Broadwater county, Montana. The defendants. Babcock, Marlow, Larson, Tracy and the plaintiff are the directors of the company, which was organized and empowered to “carry on the business of mining, purchasing, selling and dealing in mining property, running tunnels, appropriating ground for other necessary mining purposes; and the mining, smelting, reduction and shipment and selling ores, building mining improvements, constructing mills, and all other purposes incident to the business of mining or connected therewith.” In April, 1904, the National Prospecting & Development, Colmpany made a proposal to purchase all the property of the Ajax Mining Company, paying therefor forty per cent, of the capital stock in the New Jersey company1. After consideration of this proposal, the defendant directors passed a resolution calling a meeting of the stockholders of the Ajax Mining Company for the purpose of considering the question of accepting such proposal to purchase and acquire all the property and assets of every kind belonging to: that company upon the terms proposed, and directing notice of such meeting to' be given as required by law. Pursuant to this, resolution the defendant directors caused a notice of such stockholders’ meeting to be published, but, before this meeting was held, this action was commenced by the plaintiff, who did not consent to such sale. The plaintiff alleged that the defendant stockholders intended to accept the offers of the National Prospecting, & Development Company, and intended to sell and convey to it all the property of the Ajax Mining Colmpany, and would do so unless restrained by the court. 1 Npon the filing of this complaint and the issuance of summons, the district court, on the — 501 — application of the plaintiff, issued a temporary injunction restraining the defendants from voting- or allowing to be voted any of the capital stock of the Ajax Mining Company in favor of the sale of the property, and from taking any steps or proceedings preparatory to, or looking towards, the consummation of such sale. From the order granting- this injunction, the defendants appealed. It is conceded that the only question involved is the constitutionality of an Act of the Sixth legislative assembly, entitled “An Act to enlarge the powers of mining corporations to dispose of, sell, lease, mortgage, exchange, or otherwise convey, all or any part of the property of such corporations, and to authorize and empower such corporations to dispose of, sell, lease, mortgage, or otherwise convey, the whole or any part of the property of such corporations, and to protect stockholders dissenting from such action of such corporations,” passed over the governor’s veto February 28, 1899 (Session 'Laws 1899, p1. 113), and commonly known as “House Bill 132.” That Act, in substance, provides that the board of directors or trustees of any mining corporation organized under the laws.of either the territory or state of Montana, whether before or after the passage of the Act, and whether the same is solvent or insolvent, or is a going or prosperous concern, or otherwise, shall have the power, and, upon request of stockholders representing at least one-half of the outstanding capital stock, it shall be their duty, to call a meeting of the stockholders for the purpose of considering the question of selling, leasing, mortgaging, exchanging, or disposing of the whole or any part of the property of such corporation for other property, or of the whole or part of the capital stock of any other corporation, whether domestic or foreign. Provision is then made for the method of calling-such stockholders’ meeting, and, upon the concurring’ vote of holders representing two-thirds of the outstanding capital stock, the directors shall have full power and authority to carry out the sale, lease, mortgage or exchange or other disposition or conveyance of the whole or any part of the property of said — 502 — corporation, to the same extent as if all the stockholders of the corporation had consented thereto. Section 2 provides that, if a disposition of all the property of the- corporation shall be made, the corporation shall thereby be dissolved. Section 3 provides for the protection of dissenting stockholders by paytment of the. appraised value of their stock; the appraisers thereof to- be appointed by the district court of the county wherein is situated the principal p-lace of business of the corporation; all expenses to be borne by the corporation, its grantee or vendee. Section 4 provides for an appeal to the district court from such award, and the ascertainment of the value of the stock by a jury, as in condemnation proceedings provided for by law, and for the rendition of judgment and execution in favor of the dissenting stockholder for the award and expense and cost of the proceedings, which judgment shall be a lien upon all the real property so disposed of, superior to the rights of the grantee or vendee, the claims of dissenting stockholders being equal liens- upon the property. Upon the payment of the claims, the dissenting stockholder shall cease to have any further interest in the corporation, and his stock shall become the property of the party satisfying the judgment or appraisement. If this Act is valid, the district court erred in issuing the injunction. It is contended by respondent that the- Act is invalid, for the reason that its enforcement would impair the obligation of corporation contracts, and therefore the Act violates- Section 10, Article I, of the Constitution of the United States, and Section 11, Article III, of the Constitution of Montana. By the decision of the Supreme Court of the United States in the Dartmouth College Case in 1819 (Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 4 L. Ed. 629), it was finally determined in this country that a, charter granted by a state to a corporation became, when accepted by the corporation, a contract, within the meaning of the Federal Constitution, and — 503 — that any legislative enactment which attempts to alter or amend dt in any substantial particular impairs the obligation of that contract, and is void, unless the power or authority to alter or amend such charter is reserved by the state which granted it. In his concurring opinion in that case, Mr. Justice Story, after citing with approval Wales v. Stetson, 2 Mass. 143, 3 Am. Dec. 30, to the effect that the legislature cannot modify the charter of a corporation unless the power is reserved in the act of incorporation, emphasizes his approval of that doctrine by saying: “If the legislature mean to claim such authority, it must be reserved in the grant.” It is a part of the history of our jurisprudence that the states were quick to seize upon the suggestion of Mr. Justice Story, and have, with singular unanimity, adopted constitutional and statutory provisions reserving to themselves the right and authority to alter or amend all corporation charters. Prior to the adoption of the Constitution, the territory of [Montana had made such reservation as early as 1811, and a like provision was carried forward in the revision of 1819, in which is comprised a comprehensive article containing all the then existing laws with reference to the organization of corporations for industrial and productive purposes, and in which is found this provision: “Sec. 261. The legislature may at any time alter, amend or repeal this article. * * *” This remained in force until the compilation of 1881. Chapter 25, Fifth Division, Compiled Statutes, was. then adopted, embracing the laws then in force respecting the organization of such corporations; and this included Section 166, which reads as follows: “Sec. 166. The legislature may at any time alter, amend or repeal this chapter. * * *” This chapter remained in force until superseded by Division I, Part IV, of our Civil Code of 1895, which furnishes a complete system of laws relating to- the formation of corporations in this state. Sections 391 and 550 of that part of the Civil Code read as follows: “Sec. 391. Every grant of corporate power is subject ic alteration, suspension or repeal, in the discretion of the legislative assembly.” — 504 — “Sec. 550. The legislative assembly may at any time amend or repeal this part, or any title, chapter, article or section thereof, and dissolve all corporations created thereunder. * * *” That there mig'lit not be any question as to' the authority of the legislature to make such reservations, the Constitution (Article XV, Sec. 2) provides: “Sec. 2. No charter of incorporation shall be granted, extended, changed or almended by special law, * * " but the legislative assembly shall provide by general law for the organization of corporations hereafter to be created: provided, that any such laws shall be subject to future repeal or alterations by the legislative assembly.” It is apparent, then, that when the Ajax Mining Company was organized, some time between 1889 and 1898, there existed and was read into and made a part of its charter the then existing statute, which gave notice to all concerned that the legislature of Montana, acting under the constitutional provision above, might at any time alter, amend or repeal the law under which it existed. Respondent contends that the contractual relation respecting a corporation is of a threefold character, namely, first, a contract between the state and the corporation; second, a contract between the corporation and its stockholders; and, third, a contract between the stockholders inter sese, and that, while the state might properly reserve to itself the right and the authority to change the contract between itself and the corporation, it cannot, and it was never intended that it should, in any manner interfere with or impair the obligation of the contract existing almong the stockholders themselves, and that any attempt to do so is a violation of the Federal Constitution, and authorities are cited in support of this position. But it is to be observed that in all these legislative enactments the state did reserve to itself the right to repeal the laiv under which this corporation was organized, and, had it done so, the corporation would have been destroyed, except for the purpose of winding up its business. Tet it cannot be said that the state did not have this power, for the statute authorizing it was in existence when the — 505 — corporation was organized, and was read into and became as much a part of the charter as if expressed in terms in that instrument itself. And if the state reserved the right and power by a repeal of the law creating the corporation to destroy it, it certainly did less when, instead of repealing the law, it amended it by House Bill 132. It is true that at the time of the formation of the- Aj ax Mining Company, and for several years thereafter, the majority stockholders of a corporation could not dispose of all the property of a prosperous, going concern without the consent of the minority. (Forrester et al. v. Boston & Montana C. C. & S. M. Co., 21 Mont. 544, 55 Pac. 229.) But-that doctrine prevailed only because the state had not seen fit to exercise the right which it possessed to call into activity this dormant power theretofore reserved to itself. And it is likewise true that the plaintiff, Allen, when ho subscribed for stock in this company, did so, charged with the full knowledge of the constitutional and statutory provisions then existing, under which the legislature might at any time alter, amend or repeal the provisions of the law which waslmade a part of its charter; and he must therefore be treated as having given his tacit consent that such changes might be made at any time as in the wisdom of the- legislature might be necessary, and this as fully as if he had signified such consent by a writing duly subscribed by himself. It cannot be said, then, that the enforcement of the provisions of House Bill 132 will impair the obligation of any contract which the plaintiff entered into when he became a stockholder of this company, for the reason that the reservation of this authority to alter, amend or repeal the law under which the company was organized became as much a part of the law of its creation as any other provision respecting it, and becalme a part of the charter, modifying what would otherwise have been an absolute grant. (4 Thompson on Corporations, 5408.) It is to' be understood, too-, that this reservation possesses equal vigor, whether contained in the charter of the particular corporation itself, or in the Constitution or general laws of the — 506 — state under which, the corporation is organized. While there may be some slight conflict in the authorities, the great weight of authority clearly and unequivocally sustains such statutes. (Market Street Ry. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225 ; Looker v. Maynard, 179 U. S. 46, 21 Sup. Ct. 21, 45 L. Ed. 79, and cases cited, Northern Central Railway Co. v. Maryland, 187 U. S. 258, 23 Sup. Ct. 62, 47 L. Ed. 167; Venner Co. v. Steel Corporation (C. C.), 116 Fed. 1012.) The theory upon which these statutes are upheld is that whatever rules or regulations for the management, operation or control of a corporation which the legislature might have incorporated in the law under which the corporation was organized may afterwards properly be ingrafted on its charter by virtue of this reserved power existent at the time of the formation of the corporation. (Sinking Fund Cases, 99 U. S. 700, 25 L. Ed. 496; Spring Valley Wafer Works v. Schottler, 110 U. S. 347, 4 Sup. Ct. 48, 28 L. Ed. 173; Market St. Ry. Co. v. Hellman, above; McGowan v. McDonald, 111 Cal. 57, 43 Pac. 418, 52 Am. St. Rep. 149; Williams v. Nall, 108 Ky. 21, 55 S. W. 706.) A review of the authorities citing numerous instances of the enforcement of such statutes is found in 4 Thompson on Corporations, Sec. 5411. We are therefore of the opinion that the statute is not open to the attacks made upon it, and that the district court erred in-granting an injunction. The order is reversed and the cause remanded. Beversed and remanded. Mr. Justice Milburn, not having heard the argument, takes no part in this decision.