Allen v. Francisco Sugar Co.

• Decision Date: 06 April 1920
• Docket Number: No. 47-678.,47-678.
• Citation: 110 A. 37
• Parties: ALLEN v. FRANCISCO SUGAR CO. et al.
• Court: New Jersey Court of Chancery

110 A. 37

ALLEN

v. FRANCISCO SUGAR CO. et al.

No. 47-678.

Court of Chancery of New Jersey.

April 6, 1920.

Bill by William N. Allen against the Francisco Sugar Company and others. Conclusions for complainant.

McCarter & English, of Newark, for complainant.

Lindabury, De Pue & Faulks, of Newark, for defendants.

FIELDER, V. C. The defendant the Francisco Sugar Company is a corporation organized under the General Corporation Act of New Jersey, by certificate of incorporation dated February 20, 1899, and filed in the office of the secretary of state three days later. Complainant has been the owner of 1,500 shares of the company's stock, of the par value of $100, since 1915. Practically all of the company's property consists of valuable sugar plantations in the island of Cuba and its business has been very profitable, a dividend of 20 per cent. having been declared in 1919 on its capital stock, which is a million and a quarter dollars. Its directors have adopted a resolution, subject to the approval of the stockholders, proposing to form a Cuban corporation, in which the defendant corporation will own all the capital stock and to then lease to the Cuban corporation the defendant company's land and personal property for the term of ten years and eight months from November 1, 1919, at a fixed annual rental which, it is estimated, will be sufficient to pay interest on the New Jersey company's outstanding bonds; meet its sinking fund requirements; pay its taxes and expenses and substantial dividends on its capital stock. When complainant received notice of the meeting of stockholders to which the resolution of the directors was to be submitted for approval, he filed his bill of complaint, alleging that the directors and stockholders of the defendant company are without power to make such lease, and praying that the company and its stockholders be enjoined from acting in the premises. An order to show cause, with a temporary restraint, was issued, and the matter now comes on for hearing on bill, affidavit, and answering affidavits. The bill does not allege that the purpose of the proposed plan is to avoid the payment of large federal income taxes to the United States, but the answering affidavits disclose such purpose, and on the hearing the question whether the plan was illegal as against public policy was fully argued.

Defendants rely on P. L. 1899, p. 334, as the statutory authority for leasing its property. I quote so much of the act as is applicable:

"Any corporation of this state * * * may hereafter, with the assent of two-thirds in interest of its stockholders, either in person or by proxy, lease its property and franchises to any corporation, and every corporation of this state is hereby authorized to take the lease or any assignment thereof, for such terms and upon such conditions as may be agreed upon. * * *"

Before the passage of this act, any scheme by which it was attempted to turn over the business and assets of a New Jersey corporation to any other corporation, without the consent of all the stockholders, was illegal. Our courts have said that each stockholder owns a share in the company's property and assets and is entitled to have a proportionate share in its profits. They have invested their capital in it and in it alone, and they are entitled to every dollar that it earns. This is the agreement of the stockholders among themselves. They each contract with the other that their money shall be employed for the purposes specified in the certificate of incorporation and for no other purpose. What the majority determine within the scope of their mutual contract, they each agree to abide by, but there their mutual contract ends; and no majority, however large, has a right to divert one cent of the joint capital to any purpose not consistent with and growing out of this original fundamental joint intention. Kean v. Johnson, 9 N. J. Eq. 401; Black v. Del. & Raritan Canal Co., 24 N. J. Eq. 455; Mills v. Central R. R. Co., 41 N. J. Eq. 1, 2 Atl. 453; Colgate v. U. S. Leather Co., 75 N. J. Eq. 229, 72 Atl. 126, 19 Ann. Cas. 1262; Riker v. United Drug Co., 79 N. J. Eq. 580, 82 Atl. 930, Ann. Cas. 1913A, 1190.

The question is then presented whether, under P. L. 1899, p. 334, this lease is authorized. I am of the opinion that because this act was passed about a month after this company was organized the act does not apply, and, further, as...