THE AURORA AGRICULTURAL AND HORTICULTURAL SOCIETY OF AURORA v. PADDOCK ET AL.

1875. IN THE SUPREME COURT OF ILLINOIS. So Ill. 263-274.

CRAIG, J. This was a bill in equity, brought by appellees, to foreclose a mortgage executed by the Aurora Agricultural and Horticultural Society of Aurora, on the 28th day of December, 1870, to secure the payment of $6,000 loaned by John R. Coulter to the society. The court, on a hearing of the cause, rendered a decree directing a sale of the mortgaged premises in satisfaction of the mortgage debt.

The society has prosecuted this appeal, and, in order to obtain a reversal of the decree, it is insisted by the counsel for appellant: First. That the society had no power whatever to mortgage. Second. That the mortgage in question was wholly unauthorized. The appellant was organized on the 6th day of March, 1869, under an act approved February 15, 1855, which authorized the incorporation of agricultural societies. (Gross' Statutes, 1869, page 119.) By the third section of the act the society was made a body corporate, with power to sue and be sued, to acquire and hold real estate not exceeding five hundred acres, to construct the necessary improvements and buildings for its purpose, to have and employ capital, machinery, live stock, etc., not exceeding in value $10,000.

While it is true no section of the act confers direct authority upon the society to sell or mortgage its property, except upon a dissolution of the corporation, yet the act does not prohibit or restrict the society from selling or giving a mortgage upon its real estate. The power to mortgage, when not expressly given or denied, must be regarded as an incident to the power to acquire and hold real estate and make

contracts.

We understand it to be the common law rule that corporations have an incidental right to alien or dispose of their lands and personal property unless specially restrained by the act under which they are organized or by statute.

It is said in Angell & Ames on Corporations, p. 153: "Independent of positive law, all corporations have the absolute jus disponendi, neither limited as to objects nor circumscribed as to quantity." The same doctrine is clearly laid down by Kent, vol. 2, page 280.

We are, therefore, of opinion, as the society was not prohibited from mortgaging its lands, it possessed the power to do so as an incident to the power to purchase and hold real estate and make con

tracts.

In regard to the second point relied on by appellant that the directors of the society had no power to authorize its president and secretary to mortgage the premises, such power, if it existed at all, being

in the stockholders-a complete answer to this position is that the action of the directors was ratified by the stockholders.

Decree affirmed.

Note. Corporations have the power to alienate property, generally without special authority, and to any extent, if creditors, or dissenting shareholders, are not injuriously affected: 1838, Ref. Prot. Dutch Church v. Mott, 7 Paige Ch. (N. Y) 77, 32 Am. Dec. 613; 1840, Burrill v. Nahant Bank, 2 Metc. (Mass.) 163, 35 Am. Dec. 395; 1856, Old Colony R. Co. v. Evans, 6 Gray (Mass.) 25, 66 Am. Dec. 394; 1856, Treadwell v. Salisbury Mfg. Co., 7 Gray (Mass.) 393, 66 Am. Dec. 490, infra, p. 1787; 1869, Miners Ditch Co. v. Zellerbach, 37 Cal. 543, 99 Am. Dec. 300; 1888, State v. Western, etc., Co., 40 Kan. 96, 10 Am. St. R. 166; 1891, Finch v. Ullman, 105 Mo. 255, 24 Am. St. R. 383; 1891, Holmes Mfg. Co. v. Holmes Metal, etc., Co., 127 N. Y. 252, 24 Am. St. R. 448; 1892, Union Pacific R. Co. v. C., R. I. & P. R., 51 Fed. Rep. 309; 1894, Benbow v. Cook, 115 N. C. 324, 44 Am. St. R. 454; 1897, Bartholomew v. Derby Rubber Co., 69 Conn. 521, 61 Am. St. R. 57; 1898, Central Trust Co. v. W. N. C. R. Co., 89 Fed. Rep. 24; 1898, Risdon Iron & L. W. v. Citizens' Traction Co., 122 Cal. 94, 54 Pac. Rep. 529 (rolling stock); 1899, Stockton v. Am. Tobacco Co., 55 N. J. Eq. 352; 1899, Michigan Tel. Co. v. City of St. Joseph, 121 Mich. 502, 80 N. W. Rep. 383; 1900, City of Spokane v. Amsterdamsch, etc., Wash., 60 Pac. Rep. 141; 1900, Hamilton v. Menominee Falls Quarry Co., . Wis. 81 N. W. Rep. 876; 1900, Advance Benev. Order v. Penn. Safe D. & T. Co., Pa., 46 Atl. Rep. 102. But see, infra, § 619, as to power of majority to sell without consent of minority of shareholders. Also infra, § 639, as creditors' rights to complain.

Sec. 307. (b) Limits.

PEOPLE v. BALLARD ET AL.1

1892. IN THE COURT OF APPEALS OF New York.

Rep. 269-305.

134 N. Y.

VANN, J. In 1880 the Spring Valley Hydraulic Gold Company was organized as a corporation under the general manufacturing act of this state, and shortly thereafter it invested substantially all its capital in certain mines in the state of California, and until the year 1886 operated the same as its sole business. The object for which it was formed, as stated in the certificate of incorporation, was to carry on the business of mining various precious ores, and to smelt, refine and sell the product.

In July, 1886, the defendant trustees transferred all its property, both real and personal, including said mines, to a corporation organized at the time under the laws of the state of California, for the purpose of carrying on the business theretofore conducted by the defendant company and of taking title to its assets. This was done with the approval of stockholders holding a majority of the stock, in good faith, to save the property from sacrifice, but without the consent of the holders of a large number of shares and against the protest of some of the stockholders. The sole consideration for such transfer 1 Part of opinion of Vann, J., and all of dissenting opinion of Landon, J. (with whom Brown, J., concurred), omitted.

was an agreement by the California company to pay the debts of the New York company and to issue to it certain shares of its capital stock. A majority of the directors of the former company were, and still are, residents of California, and the only object of the transaction was, without a dissolution, to reorganize the defendant company under the laws of another state in order to obtain some real or supposed advantage afforded thereby. The attorney-general commenced this action to remove the trustees and to compel them to account for the property thus transferred, but the special term dismissed the complaint because no one was joined as a relator and the general term affirmed the judgment, one of its learned justices dissenting.

This appeal presents two questions of grave importance:

1. Whether an action for the judicial supervision of a business corporation, its officers and members can be maintained by the attorneygeneral in the name of the people without a relator? (People v. Lowe, 47 Hun 577; People v. Bruff, 9 Abb. [N. C.] 153.)

2. Whether a corporation created by the laws of this state can be reorganized under the laws of another state without the process of lawful dissolution.

(After holding that the New York statutes allowed the proceeding by the attorney-general alone, proceeds:)

A corporation is purely artificial, having no natural or inherent power, but only such as its charter confers. The charter of the corporation in question was the statute under which it was organized. Upon filing the certificate of incorporation it came into existence with power to do only that which is expressly or impliedly authorized by the statute. It had no power to act, except through its trustees, who were authorized to manage its "stock, property and concerns, and a majority of whom were required to be citizens of this state. (Laws of 1848, ch. 40, as amended by Laws of 1869, ch. 269.) While they were authorized to conduct its affairs, they were not authorized to terminate its existence, although, under special circumstances, the courts could dissolve it upon their application. (Code of Civ. Pro., § 2419.) A corporation can not cease to exist of its own will. Its life continues until either the charter period has expired or the court has decreed a dissolution. The law made it, and the law only can put an end to it. As it can not take its own life directly, it can not do so indirectly, for that would be a fraud upon the law and against public policy. By the transaction complained of the defendant company was stripped of all its property, and thus prevented from going on in business and deprived of all means of carrying into effect the object of its existence. While a corporation may sell its property to pay debts, or to carry on its business, it can not sell its property in order to deprive itself of existence. It can not sell all its property to a foreign corporation organized through its procurement, with a majority of non-resident trustees, for the express purpose of stepping into its shoes, taking all its assets and carrying on its business. That would be the practical destruction of the corporation by its own act, which the law will not tolerate. Whether the process by which it

was sought to convert the New York corporation into a California corporation is called reorganization, consolidation or amalgamation, it was the exercise of a power not delegated, and was void. It was corporate burial in New York for resurrection in California. While

the stockholders who consented may be estopped by their acts, those who did not consent can take advantage of this violation of their rights, and in the state of New York can demand that those who did the wrong shall make restitution.

In

The case of Abbott v. American Hard Rubber Company (33 Barb. 578), is the leading authority upon the subject in this state, and it is also recognized as the leading authority in most of the states. that case a majority of the trustees of a business corporation, without the consent of some of the stockholders, transferred all its personal property, which was especially adapted to its business, to two persons, who forthwith caused another corporation to be formed, and transferred such property to it. It was held that, as such transfer practically terminated the corporation by taking from it the power to fulfill the object of its organization, it was a violation of that object, was not within the power of the trustees, and was hence void as ulta vires. The case was elaborately considered both at general and special term, and we regard it as a sound and valuable authority.

A somewhat similar question was under consideration in Frothingham v. Barney (6 Hun 366), where the court said: "This, as a business arrangement, was wise, discreet and sagacious. As such it should be sustained if it legally is possible. The interests of one or two small stockholders should not enable them to work the destruction of the interests of co-owners, or compel the purchase of their stock at fictitious or unreal prices, if it can be avoided.

Upon the dissolution of the association, it became the duty of the trustees to convert the assets into money and distribute the proceeds among the stockholders. To a certain extent this has been done. A portion of such assets has not been distributed, and another portion, including the good will of the old association, has been exchanged by the trustees for the corporate stock of a new Wells, Fargo & Co. This, as I understand, the trustees had no right to do. They had no right to exchange the assets of the old association for the corporate stock of any corporation without the consent of all the stockholders. (Mann v. Butler, 2 Barb. Ch. 362.) Equally were they without authority in making this partial exchange without such consent. Stockholders of the old association could not thus, against their will, be forced into relations with the new company. (Blatchford v. Ross, 54 Barb. 42; H. & N. H. R. Co. v. Croswell, 5 Hill 383, 386.)"

In Taylor v. Earle (8 Hun 1), a New York corporation, by the vote of a large majority of its stockholders, sold all its property, except cash on hand, mills and franchises, to a Vermont corporation and took in payment shares of stock in the latter company. The court said: "The whole scheme of the transfer and its execution was illegal. There is no power given by the acts under which the Burlington cotton mills (the New York corporation) was incorporated.

to transfer all its property and thus terminate its existence, and take in payment stock in a company carrying on the same business with a different name, charter and stockholders, and being a foreign corporation. The corporation, by the New York law, could increase or diminsh its stock, or extend its business to other objects, but that falls far short, I think, of the sweeping power exercised on this occasion. The sale was not real. It was a mere form to turn a New York corporation into a Vermont one, and thus escape the scrutiny into the affairs of the company permitted by the New York law to the stockholders."

All the authorities in this state are uniform in holding that the trustees of a corporation can not so dispose of its property as to virtually end its existence and prevent it from carrying on the business for which it was incorporated. (Blatchford v. Ross, 54 Barb. 42; Copeland v. Citizens' Gas Light Co., 61 Barb. 60; Smith v. New York Consolidated Stage Co., 18 Abb. Pr. 419; Metropolitan El. Ry. Co. v. Manhattan El. Ry. Co., 14 Abb. [N. C.] 303; Hartford, etc., R. R. Co. v. Croswell, 5 Hill 383.)

Other courts of the highest standing have laid down the same rule. (Railway Co. v. Allerton, 85 U. S. 233; Stevens v. Rutland, etc., R. R. Co., 29 Vt. 545; New Orleans, etc., R. R. Co. v. Harris, 27 Miss. 517; see, also, Morawetz on Corporations, § 413; Spelling on Corporations, § 1012; Cook on Stock and Corporation Law, § 667; Beach on Corporations, §§ 358, 430). ·

The fact that the trustees acted in good faith did not empower them to do an illegal act; and the fact that there may be some difficulty in the final adjustment of rights, because some of the stockholders consented, while others did not, constitutes no defense to the action. We see no greater difficulty, however, than would exist if the action were brought by a trustee who had not consented to the act complained of, and no reason why "the liability of the trustees to account" should not be "limited to those stockholders who have not assented to the transfer."

We think that the transfer was unauthorized and void as to the non-assenting stockholders, and as to the state, and that the people can maintain the action in the name of sovereignty.

The judgment should, therefore, be reversed and a new trial granted, with costs to abide event.

Note. Compare, 1889, People v. Chicago Gas Trust Co., 130 Ill. 268, 17 Am. St. R. 319, 8 L. R. A. 497, supra, p. 1054; 1895, Coleman v. Howe, 154 Ill. 458, 45 Am. St. R. 133; 1896, Buck v. Ross, 68 Conn. 29, 57 Am. St. R. 61, infra, p. 1977; 1898, Sprague v. National Bank, 172 Ill. 149, 64 Am. St. R. 17; 1899, Harding v. Am. Glucose Co., 182 Ill. 551, 74 Am. St. R. 190; 1899, De La Vergne Refrigerating Match Co. v. German Sav. Inst., 175 U.S. 40, 20 Sup. Ct. Rep. 20.