Consumers' Gas Trust Co. v. Quinby

• Decision Date: 11 April 1905
• Docket Number: 1,099.
• Citation: 137 F. 882
• Parties: CONSUMERS' GAS TRUST CO. v. QUINBY.
• Court: U.S. Court of Appeals — Seventh Circuit

137 F. 882

CONSUMERS' GAS TRUST CO. v. QUINBY.

No. 1,099.

United States Court of Appeals, Seventh Circuit.

April 11, 1905

concert with other stockholders, who are citizens of the same state as the corporation, or that such stockholders contribute to the expenses of the suit, where the controlling majority in the stockholders and directors is opposed to the objects of the suit; and there is therefore no collusion, in the sense of the statute, or within the meaning of equity rule 94.

This cause was submitted upon the bill and answers as amended, and the appeal is from a final decree which sustains the bill and grants the relief sought against the appellants (defendants therein), the Consumers' Gas Trust Company and its trustees and directors, respectively.

The appellee (complainant), Byron C. Quinby, avers that he is a citizen of the state of Massachusetts and the owner of shares of capital stock in the Consumers' Gas Trust Company 'to the amount, par value, of $3,499.85,' and 'sues on behalf of himself and all others similarly interested,' and that the 'suit is not a collusive one to confer on this court jurisdiction of a case of which it would not otherwise have cognizance. ' As originally filed the bill was not verified by the complainant personally, but by George H. Evans, on information and belief. Subsequently it was verified only by Evans, as on information and belief. The defendants are citizens of Indiana; the Consumers' Gas Trust Company being a corporation organized under the laws of that state and having its principal place of business at Indianapolis. Substantially the following facts and circumstances are stated in the bill and amendment:

On June 27, 1887, the common council and board of aldermen of the city of Indianapolis adopted an ordinance, which was approved by the mayor, authorizing the use of the streets of the city for mains, pipes, and conduits for the purpose of supplying natural gas to its inhabitants at a schedule of prices therein specified, and requiring that any corporation or company should file with the city clerk its written acceptance of the ordinance to obtain the benefits thereof. On November 2, 1887, the defendant Consumers' Gas Trust Company was incorporated for the purpose of operating under such ordinance, under a general statute of Indiana providing for the organization of manufacturing and mining companies by the adoption of articles of association which provide substantially as follows: 'The objects of the formation of such corporation are to drill and mine for natural gas petroleum, and other minerals, and to purchase, lease, and otherwise acquire gas and petroleum wells and the product thereof, and to furnish the same to its patrons for use, and by manufacture to convert the same into gas for fuel and illuminating purposes and other articles of commerce, and the sale of the product to its patrons,' and to these ends to take, hold, convey, and mortgage real estate by fee simple or lesser title, and to own, operate, and maintain such machinery, works, lines of pipe, and appliances as the carrying out of the object above mentioned may require. That the capital stock of the company should be $500,000, to be divided into shares of $25 each. That the term of existence of the corporation should be 50 years. That the business and prudential concerns of the corporation should be managed by a board of directors, consisting of nine members, to be, after the first year, annually elected by the board of trustees hereinafter provided for. That 'the entire capital stock of the corporation shall be placed under the control of a board of five trustees and their successors, who shall be stockholders in said company, which said board of trustees shall have full, complete, exclusive, and irrevocable power during the continuance of this corporation to hold said stock and to vote the same as fully and completely as if they were the owners of said capital stock, to elect directors as above provided, and to fill any vacancy that may occur in said board of directors. Said entire capital stock shall be voted as a unit, and, in case said trustees shall not agree as to how said stock shall be voted, the majority of them shall cast the vote of the board. If a vacancy should occur in the board of trustees by death, resignation, removals from the city of Indianapolis, or otherwise, such vacancy shall be filled by the remaining members of the board; and, in the event of the failure of such board to fill such vacancy, the Marion circuit court shall, upon application of any stockholder, after said trustees shall have had ten days' notice in writing of such application and shall have in the meantime failed to fill such vacancy, appoint some competent person to fill the same. ' That 'said trustees shall issue to each subscriber to the capital stock of said company, upon full payment by each subscriber to said company of the amount of his subscription, and upon the stock therefor being issued to said trustees as above provided, a certificate, showing the amount of stock held by said trustees in trust for said subscriber; and said subscriber, or holder of said certificate by assignment, shall be entitled by virtue thereof to receive from said company all dividends which shall be earned by said stock, which dividends, not to exceed eight per cent, per annum so long as the certificates of the indebtedness of the company are not fully canceled, shall be paid in money, or may be applied in payment of any indebtedness of said holder to the company as a consumer of gas. ' That 'when said certificate holder shall have received, by dividends or otherwise, on said certificate, an amount equal to his subscription, with interest at the rate of eight per centum per annum thereon and after the payment of all indebtedness of the said company, then it shall be the duty of the directors of said company to reduce the price of gas so that the same shall thereafter be supplied to consumers at cost. ' That 'for the purpose of the development of the supply of gas and the construction of pipe lines, the board of directors shall have power to borrow money for the use of the company, and to issue therefor certificates of indebtedness, bearing interest at a rate not exceeding eight per centum per annum. ' That 'no indebtedness except for current expenses, shall be contracted by the board of directors in any other form than the certificates above mentioned, without the consent of the board of trustees herein above provided for, acting for the stockholders; and no indebtedness of any kind shall be contracted, except on the consent of two-thirds of said board of directors. ' That 'the principal place of business of the company shall be Indianapolis, Marion county, Indiana.'

A board of directors was named in the articles to serve for the first year. Such board adopted by-laws which provided: That the secretary should 'keep correct accounts, in books provided for that purpose, of all the dealings of the corporation with its stockholders, officers, creditors, and patrons, according to such system as may be provided by the board of directors. He shall attest and affix the corporate seal to all stock certificates, and keep a complete and careful record of certificates issued by the trustees to the subscribers to the capital stock and their assigns. ' Also that 'the committee on private consumers and rates shall attend to the business of fixing a schedule of prices, subject to the approval of the board of directors, at which gas shall be supplied to private consumers within the limits of the city of Indianapolis, and shall hear and decide on all complaints and grievances of said consumers, subject to the approval of the board of directors. If at any time said committee shall deem it advisable to furnish gas to private consumers at less rates than is provided in the city ordinance now in force on that subject, they shall report their recommendation in that behalf to the board of directors. ' Also that 'at the first regular meeting in November of each year the board of directors shall request of the trustees in writing the appointment of a committee of three stockholders, other than directors, to make thorough and careful examinations of all accounts of the company and verify the same; said committee to have the power to appoint such expert accountants as may be necessary. ' The board of directors then proceeded to solicit subscriptions for shares of the capital stock of the company, and with the consent of the board of trustees adopted a printed form for such subscriptions. All subscriptions to the capital stock, both as originally fixed and as subsequently increased by amendment, were made upon the form so adopted. Upon the payment of subscriptions the company 'issued to each such subscriber, to evidence his interest in said company by virtue of his said subscription and payment,' what is called a 'final certificate.' The subscription form referred to contains this agreement: 'I hereby agree that the stock above subscribed shall be issued to the board of trustees above named in perpetual and irrevocable trust, in the manner and according to the terms and conditions of the articles of incorporation under which said company is organized, and that when the indebtedness of said company is fully paid and the subscribers to stock shall have received an amount equal to the amount by them subscribed and paid, with eight per cent. interest, that the price for gas supplied by said company shall thereafter be fixed at cost. ' The subscription agreement also contained the names of the board of trustees and of the board of directors selected for such purposes.

The final certificate referred to as issued to the subscribers after stating the name of the...