Tanner v. Lindell Ry. Co.

• Decision Date: 24 February 1904
• Citation: 79 S.W. 155,180 Mo. 1
• Parties: TANNER et al. v. LINDELL RY. CO. et al.
• Court: Missouri Supreme Court

79 S.W. 155

180 Mo. 1

TANNER et al. v. LINDELL RY. CO. et al.

Supreme Court of Missouri.

February 24, 1904.

CORPORATIONS — DISSOLUTION — SALE OF ASSETS —MINORITY STOCKHOLDERS — RIGHTS — INJUNCTION—VACATION OF SALE—ELECTION OF REMEDIES—BILL—DEMURRER.

1. An injunction will not be granted, at the suit of minority stockholders of a street railway company, to restrain the company from selling its assets to, and consolidating with, another company, over such stockholders' protest, where

such minority stockholders by their own laches have made it impossible to grant the injunction without inflicting serious injury on the parties to be enjoined.

2. Where majority stockholders, against the will of the minority, sell all the corporation's property, and thereby work a practical dissolution, the minority stockholders are not bound to take a pro rata share of the proceeds of the sale in payment for their stock, or the stock of another corporation in substitution therefor, but, at their election, may have the market value of their stock at the date of the sale, or their proportional share of the proceeds, or may follow their interest in the property; and, if the transaction is made in bad faith, they may, under some circumstances, have the transaction set aside.

3. After the passage of Act June 19, 1899 (Laws 1899, p. 374), giving the state's consent to the consolidation of street railroad companies, two-thirds in value of the stockholders of the L. Railway Company authorized the sale of all its property to another corporation. The L. Company's capital stock was $2,500,000, and at the time it was doing a successful business, and paying dividends at the rate of 5 per cent. After the sale the purchasing corporation, which was organized for that purpose, increased its capital stock to $45,000,000, and issued mortgage bonds for the same amount, over $57,000,000 of which were divided among the previous stockholders of the L. Company. Held, that a bill by minority, dissenting, nonparticipating stockholders, who had no actual notice of the meeting at which the sale was authorized, and were not present, seeking to have such transaction set aside, failing to allege that it was a bad business venture as a whole, and resulted to the injury of the stockholders who participated therein, or that complainants were denied the privilege of participating on equal terms, was demurrable for want of equity.

4. Though such sale was a breach of the implied contract entered into between the stockholders of the corporation that it should be operated for the purposes for which it was incorporated, such dissenting stockholders had an adequate remedy at law for damages for the injury sustained.

5. Where the only relief demanded in a bill by minority stockholders was the vacation of the sale of the corporation's property to another corporation, and the bill did not state facts entitling complainants to such relief, the bill could not be retained to award complainants other relief, depending on an affirmance of the sale, which the bill expressly repudiated.

In Banc. Appeal from St. Louis Circuit Court; D. D. Fisher, Judge.

Suit by Charles L. Tanner and another against the Lindell Railway Company and others. From a judgment in favor of defendants, plaintiffs appeal. Affirmed.

Hamilton Grover, for appellants. H. S. Priest, Boyle, Priest & Lehmann, and Geo. W. Easley, for respondents.

VALLIANT, J.

This is a suit in equity. The plaintiffs are stockholders in the Lindell Railway Company, a corporation chartered by an act of the General Assembly approved January 26, 1864, for the purpose of constructing and operating certain lines of street railways in the city of St. Louis and the county of St. Louis. The defendants are the Lindell Railway Company, the United Railways Company of St. Louis, the St. Louis Transit Company (the two last named being street railway corporations), the St. Louis Trust Company, and certain individuals who compose the officers and board of directors of the Lindell Company, and who compose, also, the officers and board of directors of the two other street railway companies. In the circuit court a demurrer to the plaintiffs' second amended petition was sustained, and, plaintiffs declining to plead further, there was a final judgment for defendants, from which the plaintiffs prosecute this appeal.

The petition copies in full the act of 1864 by which the Lindell Company was incorporated, and next states that, under the provisions of sections 2779-2781, Rev. St. 1889, the charter of the corporation was amended to enable it to extend its business, and add to its lists certain other lines of street railways in the city and vicinity. The pleader then draws the legal conclusion that the original charter and the amendment mentioned constituted a contract having three relations, viz., it was, first, a contract between the state and the corporation; second, one between the corporation and the stockholders; and, third, one between the stockholders inter sese. The further conclusion is drawn that all the rights and powers of the parties to that contract are to be found within the terms of the charter and its amendment, and that among them is not found the "power to convey away all the property and franchise of said Lindell Railway Company, and to abandon its corporate business, without the unanimous consent of all its shareholders." The petition further states: That on January 26, 1899, plaintiffs became the owners of certain shares of the Lindell stock, which on that day stood, and still stand, on the books of the corporation in plaintiffs' names. That at that time the individual defendants were the owners of two-thirds of the shares of stock, and constituted the board of directors and managing officers, of the corporation. That during that month those defendants conspired with a certain banking concern in New York, and other persons unknown to plaintiffs, to sell all the assets, franchise, and property of every description of the Lindell Railway Company to a corporation to be formed, to be controlled and managed by themselves, as stockholders and directors and officers, for their own profit, without regard to the rights of other stockholders. That the scheme was kept secret from the plaintiffs, and was not known to them until September 30, 1899. That in pursuance of that scheme the individual defendants purchased and acquired control of a corporation called the Central Traction Company, and changed its name to United Railways Company, and on 16th September, 1899, increased its capital stock from $5,000,000 to $45,000,000; and on September 19, 1899, they, as directors of the Lindell Company, executed a quitclaim deed, whereby, for the nominal consideration of $1, they attempted to convey to the United Railways Company all of the "assets, franchises and property of every kind and nature whatsoever" belonging to the Lindell Railway Company. That the deed was executed without the knowledge or consent of plaintiffs, against their wishes, in fraud of their rights, and was not discovered by them until it was put on record, September 30, 1899. That at the date of the deed the Lindell Company owned 75 miles of street railway in the city and county of St. Louis, and other property, "worth many millions of dollars"; it had a capital stock of $2,500,000, divided into 25,000 shares, of the par value of $100 per share; its assets were largely in excess of its liabilities; its business was being profitably conducted and increasing; and it was paying a dividend of 1¼ per cent. quarterly on its capital stock. But by that deed the corporation was incapacitated from doing the business for which it was created, and its earning power totally destroyed. That, besides the property of the Lindell Company, the United Railways Company about the same time bought "the property, capital stock, and franchises of a number of other street railways in the city of St. Louis." The aggregate capital of all the companies so bought was $19,275,000, carrying a bonded indebtedness of $13,980,000; making a total liability of $33,255,000. That the United Railways Company had no other property except that so purchased, yet thereupon it predicated an issue of its capital stock to the amount of $45,000,000, and a bonded indebtedness of the same amount; making a total of $90,000,000; being an excess of $57,744,900 over and above the aggregate amount of stock and bonds which had been predicated on the same property and franchises in the hands of the original companies, of which excess the individual defendants took a large share to themselves. That the bonded indebtedness just mentioned is secured by a deed of trust to the defendant the St. Louis Trust Company, as trustee, which company took the deed with full knowledge of the facts above stated. The deed of trust covers all the properties acquired by the United Railways Company as above stated, including that of the Lindell Company, and is on the records in the office of recorder of deeds in the city of St. Louis and in the county of St. Louis. That on September 30, 1899, the United Railways Company leased all the property so acquired by it to the St. Louis Transit Company, by a deed recorded October 19, 1899, for a term beginning October 1, 1899, and ending April 1, 1939, and all the property is now in the possession of, and being operated by, the transit company, which company was organized for that purpose by the same men who organized the United Railways Company, and is under the same management and ownership. The petition then goes on to state facts to show that it would be useless to ask the officers of the Lindell Company, or the directors or the stockholders, other than the plaintiffs themselves, to bring this suit; hence they bring it in their own names, for the benefit of themselves and such other stockholders, if any, as may see fit to join herein. The petition then proceeds, rather in the form of an argument...