Garey v. St. Joe Mining Co.

• Decision Date: 26 June 1907
• Docket Number: 1854
• Citation: 91 P. 369,32 Utah 497
• Court: Utah Supreme Court
• Parties: GAREY et al. v. ST. JOE MINING CO

91 P. 369

32 Utah 497

GAREY et al. v. ST. JOE MINING CO

No. 1854

Supreme Court of Utah

June 26, 1907

APPEAL from District Court, Third District; C. W. Morse, Judge.

Action by Ellen Garey and others against the St. Joe Mining Company. From a judgment sustaining defendant's demurrer plaintiffs appeal.

REVERSED AND REMANDED.

Lawrence & Robertson and E. A. Walton for appellants.

APPELLANT'S POINTS.

It is an elementary proposition that positive laws which subsist at the time and place of the making of a contract, enter into and form a part of it as much as if they were expressly referred to, or incorporated in its terms. (Bishop on Contracts, 567, et seq.; Von Hoffman v. City of Quincy, 4 Wall. 535; Green v. Biddle, 8 Wheat 92; Bronson v. Kinzie, 1 How. 319; Ogden v. Sanders 12 Wheat. 231.)

The Legislature cannot authorize the majority to bind the minority in respect of the acceptance of a fundamental amendment. Railroad v. Harris, 27 Miss. 517; Mills v. Railroad, 41 N.J.Eq. 1; Ditch Company v. Moffat, 58 Neb. 642.)

"The property of a corporation cannot be taken by the exercise of the reserved power." (Detroit v. Plank Road Co., 43 Mich. 140.)

"These general powers of amendment of the certificate which originally fixed the relation between the stockholders inter sese, do not confer the power of altering the previous contract of the company itself, with the stockholders . . . such alteration would impair the obligation of the contract created by the stock certificate issued under the company's charter." (Keene v. Johnson, 9 N.J.Eq. 401; Schwarzwalder v. Insurance Co., 58 N.J.Eq. 589. The Railroad Tax Case, 13 F. 722.)

The notion that the provision reserving the power to amend, alter or repeal, becomes, like a subsisting positive statute, a part of the original contract so as to avoid the inhibition of the Federal Constitution is utterly dissipated by the cases of Harrison v. Paper Co. (C. C. A.), 3 L. R. A. (N. S.), 954; Webster v. Powers, 104 F. 627; Evans v. Nellis, 101 F. 920.

An amendment made under the reserved power cannot affect the rights of previous creditors of the corporation. (Bank v. McVeigh, 20 Gratt. 457; Woodworth v. Bowles [Kan.], 60 P. 331; Hawthorne v. Calif., 2 Wall. 10; Whitman v. Bank, 176 U.S. 559.)

D. H. Wenger and E. B. Critchlow for respondent.

RESPONDENT'S POINTS.

And the reservation in the Constitution at the time of the organization of the corporation reserved to the Legislature the rights to make any changes in the law, and that such changes are binding upon the stockholders even if the liability of the stockholders is thereby changed. (Tomlinson v. Jessup, 15th Wall. 454; Sherman v. Smith, 1 Black [U.S.] 587, 6 Rose Notes 175; Sleeper v. Goodman, 67 Wis. 577; In re Empire City Bank, 18 N.Y. 199; Bissell v. Heath [Mich.], 57 N.W. 587; Dartmouth College Case, 1 Rose Notes 937; Allen v. Mining Company [Mont.], 77 P. 47; Hinckley v. Schwarzchild, 95 N.Y.S. 357; Gregg v. Granby [Mo.], 65 S.W. 314; Venner v. U.S. Steel, 116 F. 1013.)

Thompson in his Commentaries on the Law of Corporations, Vol. 4, sec. 5417, states: "And so, it seems that if the power to alter or amend a charter has been reserved to the Legislature, that power may be exercised, in furtherance of the ends for which the corporation was created, by passing an act enabling the corporation, in the event of having sustained losses, to fill up those losses by making assessments against the shareholders, beyond what the corporation was originally empowered to do. Such a statute does not, it is held, impair the obligation of the contract between the stockholder and the corporation; but on the contrary, it is to be assumed that the stockholder entered into his engagement with the corporation in view of the fact that the legislature had reserved the right to exercise such power." (Gardner v. Insurance Co., 9 R.I. 194, 11 Am. 238; Bailey v. Trustees, 6 R.I. 491; Com. v. Essex County, 13 Gray [Mass.], 239; Railroad v. Veazie, 39 Me. 671; Meadow Dam Co. v. Gray, 30 Me. 547.)

STRAUP, J., FRICK, J. McCARTY, C. J., FRICK, J., STRAUP, J., concurring.

OPINION

STRAUP, J.

This action is brought by plaintiffs against the defendant, a mining corporation organized under the laws of the state of Utah, to restrain it from selling certain full-paid capital stock of the corporation owned by plaintiffs for the nonpayment of an assessment levied against the stock by the board of directors. It is alleged in the complaint, among other things, that the capital stock of the corporation is divided into one million shares, of the par value of $ 1 each, of which the plaintiffs are the owners of 149,881 shares; that all the outstanding capital stock is fully paid; that by the terms of the original articles of agreement of incorporation it was agreed by all of the incorporators that "the stock of this company shall be non-assessable;" that under the laws of Utah in force at the time the articles of agreement were made the articles could not be amended so as to make the full-paid capital stock of the corporation assessable without the consent of all the stockholders, and that defendant issued and sold to its stockholders its fully paid and nonassessable shares, represented by certificates signed by its officers, and that each certificate on its face provided that the shares were and are nonassessable; that in pursuance of a call made by the board of directors a stockholders meeting was held on February 5, 1907, for the purpose of amending the articles so as to authorize the board of directors, for the purpose of paying the expenses, conducting the business, and paying the debts of the corporation, to levy and collect assessments in the manner and form as provided by law, and so that such assessments might be levied and collected before the working capital stock of the corporation was exhausted; that at said meeting 819,636 shares of the outstanding capital stock were represented, of which 635,464 shares voted for the amendment and 184,172 shares voted against the amendment, 122,364 shares of the outstanding capital stock not being represented, the holders of which, it is alleged, withheld their consent to the amendment by not voting for it, and that the holders of the 635,464 shares, in violation of the terms of the articles of agreement of incorporation, wrongfully and illegally assumed to declare the pretended amendment approved and adopted; that in pursuance of the amendment and of the pretended authority conferred upon them thereby, the board of directors, on February 15, 1907, levied an assessment of two cents per share upon all the outstanding full-paid capital stock payable immediately and declared it delinquent on the 25th day of March, 1907, and directed that delinquent stock be advertised and sold on the 16th day of April, 1907, unless the assessment was sooner paid; that the levy of the assessment was illegal and wrongful, and that, unless restrained, the defendant will sell plaintiffs' stock for nonpayment of the assessment. The court sustained the defendant's demurrer to this complaint for want of facts. The correctness of this ruling is questioned by this appeal.

It is alleged that the defendant was organized in the year 1897. It was organized under the laws of 1888 and 1894. So far as concerns this case the laws of 1896 relating to corporations are a mere re-enactment of the laws of 1888, and in no manner repealed or affected the laws of 1894. The laws of 1888, as re-enacted in 1896, provided that the name of the corporation might be altered, the number of its directors or officers changed, and that the articles of agreement of incorporation might be otherwise changed or amended, provided such amendment did not alter the original purpose of the incorporation, but no such change should be made except by a vote representing at least two-thirds of the capital stock at a stockholders meeting called for that purpose. Section 2393 of the Compiled Laws of Utah of 1888 provided that:

"Any person who is the holder of full-paid up capital stock, shall not be liable for any assessments or for any indebtedness of the corporation otherwise than by sale of his or her stock, as herein provided, unless distinctly provided for in the articles of incorporation, which articles, or incorporation shall not be changed in this respect without the consent of all the stockholders in writing."

This section was amended by the Legislature in the year 1894 (chapter 70, p. 119, Sess. Laws 1894) to read:

"Any person who is the holder of full-paid up capital stock of any corporation hereafter organized under the laws of Utah Territory, shall not be liable for any assessments upon such capital stock or for any indebtedness of the corporation, nor shall any assessment be levied upon such capital stock for any purpose whatever, nor shall any such holder be liable for assessments or indebtedness of the corporation, except it shall be provided in the articles of incorporation or the agreement in writing specified in section 2268, subd. 2, of said Compiled Laws, that such capital stock shall be liable for assessments or for the indebtedness of the corporation, then the corporation shall be and is authorized to levy assessments upon such stock, to be collected as in the articles provided. The articles of incorporation, in this respect, shall not be changed without the consent of all the stockholders."

The section as amended was not repealed nor modified by the Laws of 1896. This section as amended was substantially incorporated into sections 331 and 354 of the Revised Statutes of 1898, which are as follows:

Section 331: "The property of the corporation and the unpaid stock shall be liable for the debts of the corporation; but the individual property of...