Gamble v. Queens Cnty. Water Co.

• Decision Date: 07 October 1890
• Citation: 123 N.Y. 91,25 N.E. 201
• Parties: GAMBLE v. QUEENS COUNTY WATER CO. et al.
• Court: New York Court of Appeals Court of Appeals

123 N.Y. 91

25 N.E. 201

GAMBLE

v.QUEENS COUNTY WATER CO. et al.

Court of Appeals of New York.

Oct. 7, 1890.

Appeal from supreme court, general term, first department.

Action by James Gamble against the Queens County Water Company, R. V. W. Du Bois, R. F. Mullins, Henry P. Butler, Frank Keck, and Abram Du Bois, to enjoin the issuance of the company's stock and bonds to defendant Mullins in payment for a system of water-pipes, etc., which he had constructed at his own expense, and which was suitable for an extension of the company's works. Mullins was a stockholder in the company, and had voted upon his shares in favor of the purchase.

Wm. B. Hornblower, for appellants.

James W. Perry, for respondent.

PECKHAM, J.

The defendant corporation was organized under the Laws of 1873, c. 737, relating to the incorporation of water companies, as amended by chapter 213 of the Laws of 1881. The provisions of the general manufacturing act of 1848, and its amendments, as to payment for capital stock, were made applicable to corporations formed under the act of 1873. The so-called ‘Rockaway Beach Extension’ was not built by defendant Mullins under any contract with the defendant corporation. The plaintiff requested the court to find that he did so build it, but the court refused the request, and in the opinion delivered by the learned judge at the trial term it is distinctly stated that there was no contract between the parties for the building of such extension. Upon its completion, Mullins was the sole and absolute owner thereof, with power to operate it himself, or to sell it to others, or, in brief, to exercise such acts of ownership over the property as any other owner might have exercised. This is not the case of a trustee entering into a contract with himself, or purchasing from himself, where the contract is liable to be repudiated at the mere will, or even whim, of the cestui que trust. Having the rights of an absolute owner of this extension, Mullins was at liberty to make such contract in regard to its disposal as he should see fit, so long of course as he did not, while acting in his own interest on the one side, also act on the other in the capacity of trustee or representative, so that his interest and his duty might conflict. In this case, Mullins did not so act. He bases his right to the stock and bonds of the company defendant upon the vote of the majority of its shareholders taken at a regularly convened meeting, to purchase the property at the price named in the resolution adopted at such meeting, the price being $60,000 in bonds, and $50,000 in the stock of such company. At this meeting, 479 out of a total of 500 shares, into which the capital stock of the company was divided, were represented, and 467 shares were voted upon in favor of the adoption of such resolution, while the 30 of the plaintiff were voted upon by him in opposition thereto, and 3 shares were not voted upon. There were a majority of shareholders, and a majority of shares voted upon, in favor of such resolution, without counting the defendant Mullins or his shares, although he voted upon them in favor of such resolution. In so doing, he committed no legal wrong. A shareholder has a legal right at a meeting of the shareholders to vote upon a measure, even though he has a personal interest therein separate from other shareholders. In such a meeting, each shareholder represents himself and his own interests solely, and he in no sense acts as a trustee or representative of others. The law of self-interest has at such time very great and proper sway. There can be little doubt, too, that at such meetings those who do vote upon their own stock vote upon it in the light solely of their own interest, or at least in what they conceiveto be their own interest. Their action resulting from such votes must not be so detrimental to the interests of the corporation itself as to lead to the necessary inference that the interests of the majority of the shareholders lie wholly outside of and in opposition to the interests of the corporation, and of the minority of the shareholders, and that their action is a wanton or a fraudulent destruction of the rights of such minority. In such cases it may be stated that the action of the majority of the shareholders many be subjected to the scrutiny of a court of equity at the suit of the minority shareholders. These views are exemplified in the comparatively recent English case of Transportation Co. v. Beatty, L. R. 12 App. Cas. 589, where one of the directors in a company contracted with his colleagues to sell to the company a vessel which he owned for a price named. The contract was in fact a fair one, but it was admitted to be voidable, and it was held that the vendor director had a right at a meeting of the shareholders to vote in favor of ratifying such contract, and concluding such purchase, and that his conduct was not to be regarded as oppressive towards the minority of shareholders because he individually owned a majority of the stock. It was said that a resolution of the majority of shareholders, upon any question with which the company was competent to deal, was valid and binding upon the minority. A voidable contract, it was also said, might be ratified or affirmed by a majority of shareholders at a proper meeting, provided that such ratification was not brought about by improper means, and the contract itself was minority. BAGGALLAY, L. J., said that minority. BAGGALLAY, J. J., said that great confusion would be introduced in to the affairs of joing stock companies if the circumstances of shareholders voting in that character in general meeting were to be examined, and their votes practically nullified if they also stood in some fiduciary relation to the company.

I think that where the action of the majority is plainly a fraud upon, or, in other words, is really oppressive to the minority shareholders, and the directors or trustees have acted with and formed part of the majority, an action may be sustained by one of the minority shareholders suing in his own behalf, and in that of all others coming in, etc., to enjoin the action contemplated, and in which action the corporation should be made a party defendant. It is not, however, every question of mere administration or of policy in which there is a difference of opinion among the shareholders that enables the minority to claim that the action of the majority is oppressive, and which justifies the minority in coming to a court of equity to obtain relief. Generally the rule must be that in such cases the will of the majority shall govern. The court would not be justified in interfering, even in doubtful cases, where the action of the majority might be susceptible of different constructions. To warrant the interposition of the court in favor of the minority shareholders in a corporation or joint stock association, as against the contemplated action of the majority, where such action is within the corporate powers, a case must be made out which plainly shows that such action is so far opposed to the true interests of the corporation itself as to lead to the clear inference that no one thus acting could have been influenced by any honest desire to secure such interests, but that he must have acted with an intent to subserve some outside purpose, regardless of the consequences to the company, and in a manner inconsistent with its interests. Otherwise the court might be called upon to balance probabilities of profitable results to arise from the carrying out of the one or the other of different plans proposed by or on behalf of different shareholders in a corporation, and to decree the adoption of that line of policy which seemed to it to promise the best results, or at least to enjoin the carrying out of the opposite policy. This is no business for any court to follow. I do not understand that these views are substantially drawn in question in the courts below, but there are facts found in this case upon which they have thought the plaintiff was entitled to their interference in his favor, to prevent the consummation of the action of the majority in providing for the issuing and delivering to Mullins of the stock and bonds mentioned in the resolution adopted by the shareholders. So far as fraud may be made the basis for an action like this, it is to be noted that there is no finding by the court that any fraud existed in fact, or that the individual defendants or any of them were actuated by any fraudulent intent in taking the action which they did. Therefore, if the action is to be sustained on the ground of fraud, its existence must be the necessary legal inference from facts which have been found. But the trial court made certain findings of fact from which the general term has inferred the existence of this fraudulent purpose, and to which findings an exception was taken by defendant Mullins, upon the ground that there is no evidence to support them. A question of law is thus raised which this court is called upon to decide. These findings and exceptions relate to the actual cost of the Rockaway Beach extension. The court found that such actual cost was not more than the sum of $65,000, including about $8,000 paid to defendants Mullins and Du Bois for disbursements and services rendered by them in relation to the work, while they were officers and trustees of defendant corporation. It was further found that the actual net cost of the work to defendant Mullins was less than the sum of $61,000, and that the work as completed was not worth more than $65,000, while the corporation, by the terms of this resolution, was to pay Mullins for the doing of such work in bonds and stock to the amount, in value, of $110,000. The evidence is uncontradicted in regard to the cost and worth of these works. It was shown that the actual expenditures for the work amounted to $59,055.79, which included labor and cost of material. There were also...