People v. North River Sugar Ref. Co.

• Decision Date: 24 June 1890
• Citation: 121 N.Y. 582,24 N.E. 834
• Parties: PEOPLE v. NORTH RIVER SUGAR REFINING Co.
• Court: New York Court of Appeals Court of Appeals

121 N.Y. 582

24 N.E. 834

PEOPLE

v.NORTH RIVER SUGAR REFINING Co.

Court of Appeals of New York.

June 24, 1890.

Appeal from supreme court, general term, first department.

Action in the nature of a quo warranto brought by the people of the state of New York for the forfeiture of defendant's corporate franchises, and for its dissolution. From a judgment affirming a decree for its dissolution defendant appeals.

John E. Parsons and James C. Carter, for appellant.

Chas. F. Tabor, Atty. Gen., and Roger A. Pryor, for the People.

FINCH, J.

The judgment sought against the defendant is one of corporate death. The state, which created, asks us to destroy, and the penalty invoked represents the extreme rigor of the law. Its infliction must rest upon grave cause, and be warranted by material misconduct. The life of a corporation is, indeed, less than that of the humblest citizen, and yet it envelopes great accumulations of property, moves and carries in large volume the business and enterprise of the people, and may not be destroyed without clear and abundant reason. That would be true even if the legislature should debate the destruction of the corporate life by a repeal of the corporate charter; but is beyond dispute where the state summons the offender before its judicial tribunals, and submits its complaint to their judgment and view. By that process it assumes the burden of establishing the charges which it has made, and must show us warrant in the facts for the relief which it seeks.

Two of the charges preferred in the complaint have dropped out of sight. They were of little importance, and have been prudently dismissed from the inquiry for that reason; and we are left to consider the one grave and serious accusation to which alone the proofs and argument have been directed. That accusation is adequate to the purpose for which which it was framed, but upon two conditions, which dictate the line of inquiry and limit the area of discussion. It appears to be settled that the state, as prosecutor, must show on the part of the corporation accused some sin against the law of its being which has produced, or tends to produce, injury to the public. The transgression must not be merely formal or incidental, but material and serious, and such as to harm or menace the public welfare; for the state does not concern itself with the quarrels of private litigants. It furnishes for them sufficient courts and remedies, but intervenes as a party only where some public interest requires its action. Corporations may, and often do, exceed their authority where only private rights are affected. When these are adjusted, all mischief ends and all harm is averted. But where the transgression has a wider scope, and threatens the welfare of the people, they may summon the offender to answer for the abuse of its franchise or the violation of its corporate duty. The Code of Civil Procedure authorizes an action for that purpose when the corporation has ‘violated any provision of law, whereby it has forfeited its charter, or become liable to be dissolved by the abuse of its powers.’ In Thompson v. People, 23 Wend. 583, the ground of forfeiture was tersely described as ‘some misdemeanor in the trust injurious to the public;’ and as recently as the case of Leslie v. Lorillard, 110 N. Y. 531, 18 N. E. Rep. 363, we said: ‘In the granting of charters, the legislature is presumed to have had in view the public interest; and public policy is * * * concerned in the restriction of corporations within chartered limits; and a departure therefrom is only deemed excusable when it cannot result in prejudice to the public.’

Two questions, therefore, open before us: First, has the defendant corporation exceeded or abused its powers? and, second, does that excess or abuse threaten or harm the public welfare?

The first question requires us to ascertain what the defendant corporation has done in violation of its duty, or omitted to do in performance of its duty. We find disclosed by the proof that it has become an integral part and constituent element of a combination which possesses over it an absolute control, which has absorbed most of its corporate functions, and dictates the extent and manner and terms of its entire business activity. Into that combination, which drew into its control 16 other corporations engaged in the refining of sugar, the defendant has gone, in some manner and by some process, for as an unquestionable truth we find it there. All its stock has been transferred to the central association of 11 individuals denominated a ‘board.’ In exchange it has taken and distributed to its own stockholders certificates of the board, carrying a proportionate interest in what it describes as its capital stock. The new directors of the defendant corporation have been chosen by the board, made eligible by its gift of single shares, and liable to removal, under the terms of their appointment, at any moment of independent action. It has lost the power to make a dividend, and is compelled to pay over its net earnings to the master whose servant it has become. Under the orders of that master, it has ceased to refine sugar, and by so much has lessened the supply upon the market. It cannot stir unless the master approves, and yet is entitled to receive from the earnings of the other refineries, massed as profits in the treasury of the board, its proportionate share for division among its own stockholders holding the substituted certificates. In return for this advantage, it has become liable to be mortgaged, not for its corporate benefit alone, but to supply with funds the controlling board when reaching out for other and coveted refineries. No one can look these facts fairly in the face without being compelled to say that the defendant is in the combination, and it to stay. Indeed, so much is with great frankness admitted on the part of the appellant. Its counsel concedes that the stock was transferred ‘to the board mentioned in the agreement, and on the terms and for the purposes mentioned in the agreement; and that this action effectually lodged the control of the defendant company, so far as such control can be secured by the voting power, in that board.’

But that truth does not alone solve the problem presented. We are yet to ascertain whether the corporation became the subordinate and servant of the board by its own voluntary action, or the will and power of others than itself; by force of a contract to which it was in reality a party, or as the simple consequence of a change of owners; by its fault or its misfortune; by a sale or by a trust. For if it has done nothing,-if what has happened and all that has happened is ascertained to be that the stockholders of the defendant, one or many, sold absolutely to the 11 men who constituted the board their entire stock, and the latter, by force of their proprietorship and as owners, have merely chosen directors in their own interiest, and are only managing their property in their own way as any absolute owners may,-if that is the truth, and the entire and exact truth, it is difficult to see wherein the corporation has sinned, or what it has done beyond merely omitting for a time to carry on its business. That is the theory upon which the appellants stand, and which they submit to our examination. On the other hand, it is contended that there never was a sale, but a trust constituted by mutual agreement; that they who agreed were the whole body of stockholders in each corporation, necessarily representing and binding the corportation itself; that they transferred their shares to the board upon the trusts declared in the deed; that the certificates issued sued by the board were the formal declaration of the trust; that the corporate stockholders parted with the legal title of their stock to the chosen trustees with the power to vote upon it, but retained, nevertheless, its beneficial ownership through the operation of the certificates; and so the corporations entered into a partnership with each other, vesting the partnership power in a board of control.

I have brought these two theories face to face, where they may confront each other, because, when a choice is made between them, we have gone a long distance towards the end of the controversy. In making that choice, we must necessarily analyze and construe the deed or contract which formed the terms of the combination, and which not only dictated its character, but brought it into existence. That contract, on the theory of sale, is an unexpected and unaccountable document. A sale presumes vendors on the one side and vendees on the other, each having life and existence, and the power and ability to contract. Here there was no joint-stock association existing or organized until the vendors themselves created it, and they were obliged to construct their vendee in the very act of transfer. A contract of sale implies some negotiation between buyer and seller, each consulting his own interest, and acting independently and of his free choice. Here there was no negotiation with the board, but the vendors, having created their vendee, themselves alone dictated the terms on which they should sell and it should buy. The selling stockholder explicitly swears that the board had nothing whatever to do with fixing the price. In a contract of sale covering property valued at some $50,000, and containing a patient statement of the terms of the trade, we should naturally expect that at least the buyer would give it his signature, and bind himself to the purchase. This contract of sale is not signed by the vendees at all, and their assent is left to be supplied by inference from the action. In an ordinary sale, the vendee becomes owner, and has the rights of an owner, and may do what he pleases with his own; but this contract tells the owners what they shall do with the property bought, and how they shall hold it, and inferentially, at least, forbids its further...