Traer v. Lucas Prospecting Co.

• Decision Date: 16 April 1904
• Citation: 99 N.W. 290,124 Iowa 107
• Parties: GLENN W. TRAER, Appellant, v. LUCAS PROSPECTING COMPANY et al
• Court: Iowa Supreme Court

99 N.W. 290

124 Iowa 107

GLENN W. TRAER, Appellant, v. LUCAS PROSPECTING COMPANY et al

Supreme Court of Iowa, Des Moines

April 16, 1904

Appeal from Wapello District Court.--HON. ROBERT SLOAN, Judge.

SUIT in equity, praying that the defendant Lucas Prospecting Company be restrained from selling or transferring its property, and that certain notes and mortgages executed by it be adjudged void and canceled. The Lucas Prospecting Company was incorporated under the general incorporation law of this State (Code, title 9, page 587) on the fifteenth day of January, 1898, with a capital stock of twenty thousand dollars. Its articles of incorporation provided as follows "The business of this corporation shall be to purchase and to own in fee simple or other freehold estate, or to purchase and hold by leasehold or license any mineral or supposed mineral lands or rights in such lands in the State of Iowa or elsewhere. Also the right to sell and convey such lands or lease the same, or sub-lease its leasehold rights in the same, for mining purposes or for any other purposes and to receive and appropriate to its own use or contract or dispose of any money, rents, royalties, profits or other proceeds therefrom arising, to purchase, sell and deal in the corporate stocks of corporations authorized to conduct mining operations, or stores for the selling of merchandise, powder or mine supplies or any business in or about mines, and said corporation shall have full power to prospect lands for coal or other minerals or mineral products, and to do any and all such other matters and things that may aid and promote its aforesaid purposes of organization." It "shall have power * * * to make contracts, own, acquire and transfer real and personal property, and generally to have the same rights and powers in such respects as natural persons." The "board of directors shall have power * * * to sell lease or mortgage property and franchises, and all and singular the property rights and privileges of this corporation." For some time prior to the incorporation of the Lucas Prospecting Company, Mr. William Haven, one of the incorporators thereof, had prospected for coal in Lucas county, and had obtained option contracts on a considerable acreage of supposed coal land. This work was done under an agreement that, when the incorporation was formed, the property and the option contracts should be transferred to the corporation, which was done. After the prospecting company was incorporated, its officers, with the full knowledge and consent of all of its stockholders, made various attempts, but without success, to interest capital in the organization of a mining company for the development of its properties. The Inland Coal Company was incorporated late in December, 1900, and its articles of incorporation provided that "the business of this corporation shall be to acquire, purchase, lease, option, own, sell and mortgage coal lands, or supposed coal lands, mineral estates, in the State of Iowa or elsewhere; to buy and sell real estate; to prospect for coal and mine coal and other minerals or mineral products and generally to buy, sell, handle and deal in and market coal of all kinds; to purchase, acquire and contract all kinds of machinery, buildings, cars and appliances for mining and marketing coal; to construct and operate railways and tramways for mining and moving coal; to build and lease houses for the use of miners and others, including the purchase and sale of same; to purchase, sell and deal in corporate stocks of other corporations, including railway stocks and bonds; and to do such other acts and things as may aid and promote the general purposes of the corporation and as may be necessary and convenient in the proper and successful transaction of its business. The business of the corporation to be managed by a board of five directors."

On the thirty-first day of December, 1900, the Lucas Prospecting Company and the Inland Coal Company entered into a written contract wherein the latter company was authorized to enter upon the property of the former for the purpose of sinking shafts, driving entries, and doing other things necessary to determine whether the land contained coal worth mining. The Inland Company agreed to expend not to exceed ten thousand dollars in prospecting the property, and to protect the prospecting company's options, leases, and deeds. The prospecting company agreed, on its part, that it would secure the repayment to the Inland Company of the amount so expended, by executing its notes, secured by a mortgage on all of its property, to a trustee, for such purpose. In the same contract an option was also given the Inland Company to purchase an undivided fifty-five and one-half per cent interest in the property, and, in case it decided to exercise such option, it was agreed that a new corporation should be formed, to which all of the property was to be transferred and forty-four and one-half per cent. of its stock delivered to the Lucas Prospecting Company in full payment of its interest in said property. It was further agreed that the new corporation should issue its bonds to the amount of one hundred and twelve thousand and five hundred dollars due in twenty years, drawing six per cent. interest, and secured by mortgage or trust deed on all of its property; the Inland Company binding itself to take or market the bonds at eighty cents on the dollar, to provide funds for a working capital, and to built a short-line railroad for the purpose of transporting the coal from the mines to another road. In consideration of these agreements, the Inland Company was to receive fifty-five and one-half per cent. of the stock of the new corporation. The amount of money which the Inland Company agreed to furnish was subsequently enlarged by agreement, and notes aggregating twenty-five thousand dollars were executed and delivered to said company, all of which were secured by mortgages on the property of the prospecting company. The Inland Fuel Company was incorporated in this State on the twenty-eighth of April, 1902, with a capital stock of two hundred thousand dollars. The incorporators were the four incorporators of the Inland Coal Company and William Haven, one of the incorporators of the Lucas Prospecting Company. Its object, business, and powers were practically the same as those of the Inland Coal Company. On the fourteenth of August, 1902, the latter company elected to purchase the property in question under the option heretofore referred to, and, by resolution, requested the Prospecting Company to transfer its property to the Inland Fuel Company. This was done, and the Inland Fuel Company issued to the prospecting company the amount of stock it was to receive by the terms of its agreement with the Inland Coal Company. Of the remainder of the stock, there were issued to the Inland Coal Company one thousand one hundred and five shares, and to C. H. Smith, Wm. Haven, S. H. Mallory, and W. Beckwith, four of the incorporators of the Inland Fuel Company, one share each, and to W. H. Warren, one share. The fuel company also assumed, as a part of the consideration for the transfer, the twenty-five thousand-dollar mortgage indebtedness to the coal company, and certain other mortgage indebtedness of the prospecting company, aggregating about six thousand dollars. The plaintiff is the owner of stock issued by the Lucas Prospecting Company, which was purchased for him by one of his attorneys herein; all but four and seven-eighths shares thereof having been bought after January 1, 1900. There was a decree dismissing the plaintiff's bill for want of equity, and he appeals.

Affirmed.

J. C. Mitchell and Wm. McNett, for appellant.

Babb & Babb and Jaques & Jaques, for appellees.

OPINION

SHERWIN, J.

The relief sought by the plaintiff is twofold: He prays that the contract between the Lucas Prospecting Company and the Inland Coal Company, and the transfer of the Lucas Company's property to the Inland Fuel Company pursuant to said contract, be set aside and declared void, because ultra vires, and that the mortgages executed by the Lucas Company to the coal company be declared void so far as they exceed the limit of indebtedness fixed by the articles of incorporation of the former company.

On the first of these propositions, it is contended that the contract in question was an undertaking to convey all of the Lucas Company's property, and that neither the directors nor a majority of the stockholders of that company had the power to sell all of the corporate property, as against the dissent of a single stockholder, unless the corporation was insolvent or in a failing condition. The answer to this contention must be predicated upon the express or implied power conferred upon the Lucas Prospecting Company by its articles of incorporation, and by the general incorporation laws of this State. The charter of a corporation formed under a general law consists of its articles of incorporation, taken in connection with the law under which the organization takes place. The provisions of the law enter into and form a part of its charter, and the charter, thus construed, contains the "terms of the agreement of the association between the shareholders, and indicates the character and extent of the business in which the company shall engage." 1 Morawetz on Private Corporations, section 318; Cook on Corporations (5th Ed.), section 669.

When a person becomes a shareholder in a corporation, he assents to the transaction of the business expressly or impliedly authorized by its charter; and therefore, if the charter authorizes the sale or other disposition of all of its property, he cannot complain. It is a well-settled rule that a strictly private corporation has the same...