Weed v. Little Falls & Dakota Railroad Co.
| Decision Date | 03 October 1883 |
| Citation | 16 N.W. 851,31 Minn. 154 |
| Parties | James H. Weed and another v. Little Falls & Dakota Railroad Company and others |
| Court | Minnesota Supreme Court |
Plaintiffs, on behalf of themselves and all other stockholders of the defendant corporation aggrieved by the proceedings complained of, and who should come in and contribute, etc., brought this suit in the district court for Ramsey county, to restrain the company, its directors and officers, from issuing or transferring to the defendants De Graff & Co., Henry Villard, or W. H. Starbuck, and to restrain the last-named defendants from receiving, under the contracts mentioned in the opinion, any of the unissued stock or mortgage bonds of the company or any of its municipal aid the complaint charging that the contracts were a fraud upon the plaintiffs and upon all the shareholders except the defendant Villard.
The action was tried by Brill, J., who found the facts stated in the opinion, and also the following:
The company was organized in 1879, to build a railroad from Little Falls, via Sauk Centre and Morris, to the western boundary of the state, a distance of about 130 miles. Its capital stock was fixed by its articles at $ 2,000,000, in 40,000 shares of $ 50 each, and the highest limit of its indebtedness at $ 1,500,000. In September, 1879, the then shareholders agreed with De Graff & Co. that the latter should subscribe for and receive, at their par value, 126 shares of the stock, (being a majority of the 250 shares then authorized to be issued,) and should have control of the organization of the company. This was done, and the defendant Crooks (a partner in De Graff & Co.) became president of the company, and so continued until July, 1881. De Graff & Co. were railroad contractors of large experience, and the agreement with them was made, and control of the company placed in their hands, in order to secure the building of the road. De Graff & Co. (by defendant Crooks) made unsuccessful attempts to induce the Northern Pacific Railroad Co. (to whose lines the railroad, when completed, would be a feeder) and other capitalists, to furnish means for building the road; and at length, in June, 1881, they sold their 126 shares to defendant Villard, (who had shortly before acquired control of the Northern Pacific Railroad Co.,) for $ 90,000. It was also in evidence that, in addition to paying this sum Villard agreed to give to one Livingston, (who had aided De Graff & Co. in effecting the sale,) one-tenth of the profits which should be realized in building the road, and De Graff & Co. agreed to procure resignations of directors, and the election of Villard's nominees in their places sufficient to give him a majority in the board. Those changes were effected at and prior to a meeting of the board held at St. Paul, July 4, 1881.
At this meeting the defendant Villard was present. The subject of the building of the road was informally discussed. There was evidence tending to prove, and the plaintiffs requested the court to find, that Villard, in answer to questions from defendants Barnum and Simmons and another of the directors stated in conversation and informally the plan by which he proposed that the road should be built, viz., that the mortgage bonds of the company should be issued to the amount of $ 20,000 per mile, and the balance of the unissued stock (39,768 shares) should be issued to the purchasers of the bonds, as a bonus "to float" the bonds, and the road should be built with the proceeds of the stock and bonds. And in the same conversation, after inquiries as to the effect of this issue of stock upon the value of the shares already issued, Villard assured the shareholders present that any shareholder in the company should be permitted to contribute ratably towards the cost of building the road, and receive a proportionate amount of the stock and bonds, and share proportionately with Villard in any profits to accrue from building the road under this plan, and stand in this respect on the same footing with him. In refusing to make this and the other findings specially requested by the plaintiffs, the court placed its refusal on the ground that the findings made covered all the issues, and the additional findings requested were, some of them, immaterial, and some of them matters of evidence.
At this meeting of July 4th, a resolution was passed, amending the articles of incorporation by fixing the highest limit of the company's indebtedness at "$ 20,000 for each mile of its line of railroad, or of any branch or branches thereof, including side-tracks, as the same may hereafter be located."
On August 4, 1881, was held the directors' meeting mentioned in the opinion. There was evidence tending to prove, and the plaintiffs requested the court to find, that the draft of the contract between the company and De Graff & Co. was first submitted, without any mention of the contract between De Graff & Co. and Starbuck, nor was the latter mentioned until Barnum and Simmons had objected to approving the former contract, and then only for the purpose of removing those objections. Before Barnum & Simmons voted to approve the contract with De Graff & Co., they inquired whether Villard's assurance given July 4, 1881, to the minority shareholders would be fulfilled under the two proposed contracts, and they were then assured on behalf of Villard and by his authority that he would carry out any assurances he had previously given; and Barnum and Simmons then voted to approve the contract, relying on the assurances so given, and on Villard's assurance given July 4th, and believing that all the shareholders would be entitled to contribute proportionally to the amount needed to carry out the two contracts, and share proportionately in the profit to be realized therefrom by the persons represented by Starbuck. The court refused to make this finding.
As conclusions of law the court held, inter alia, that the contract between the company and De Graff & Co. was not ultra vires, and not absolutely void; that the assent of Barnum and Simmons to the contracts, with knowledge of the facts, precluded plaintiffs from avoiding them; and that if Barnum and Simmons assented to the contracts, induced by the expectation of sharing in the profits of the contractor, then if the contracts are a fraud on the company, Barnum and Simmons are parties to the fraud, and the plaintiffs, who stand in the same position with them, cannot have relief in equity. Judgment was accordingly ordered for defendants, a new trial was refused, and the plaintiffs appealed.
Order affirmed.
W. P. Warner and Geo. B. Young, for appellants.
The construction contract is ultra vires. The original articles of the company limit its indebtedness to $ 1,500,000. Under this contract, an indebtedness of $ 20,000 per mile for 130 miles (or $ 2,600,000) is incurred. The attempted amendment of the articles at the meeting of July 4th is invalid. An article limiting the indebtedness to "$ 20,000 per mile, including side-tracks," of a railroad not yet located, does not comply with nor fulfil the purpose of the statutory requirement that the articles of a corporation shall express "the highest amount of indebtedness or liability to which said corporation shall at any time be subject." Gen. St. 1878, c. 34, § 3.
The evidence shows that Villard, when he bought the 126 shares of De Graff & Co., meant to secure to himself the profits to accrue from building the road under the scheme embraced in the two contracts, and that he never meant to keep the promise made to the minority shareholders at the meeting of July 4th. The scheme, then proposed, of building the road from the proceeds of bonds and stock, with the right secured to each stockholder to contribute pro rata to the cost and...
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