Hennessy v. Muhleman

Marean, J.

_Motion for injunction restraining the consummation, pendente lite, of an agreement made by the board of directors to lease the company’s mines for five years.

If the ability of the proposed lessee to pay the proposed rent were shown, I should be strongly of the opinion that the proposed lease was in the interest of the company. Even as the case stands, I am not convinced that it is not so, and am far from being satisfied that the directors are acting in bad faith and not in pursuance of their judgment of what is for the .interest of the company. The question, therefore, which must determine the motion is whether the proposed lease is within'the powxer of the board of directors without the consent of all the stockholders.

There am cases in which expression has been used by judges which seem to go to the length of declaring that anything whatsoever which the corporation may do; that is, which may be done by the unanimous concurrence of all its stockholders, may be done by its board of directors without such concurrence, and even against the will of the stockholders. See Beveridge v. N. Y. Elevated R. R. Co., 112 N. Y. 1-22, etc., and cases there cited. But I apprehend that the proposition is not to be extended, even in case of a business corporation having no public duties, to such acts as in their nature involve a practical' abandonment of the prosecution of the purpose for which the corporation was created; that though, for example, such a corporation having no creditors may, by the combined action of all the stockholders, discontinue its business, convert its assets into money and divide the same among stockholders, such action- is beyond the power of the directors, as such, no matter how comprehensive the charter definition of their powers, and will be enjoined at the suit of any stockholder not consenting. Pickering v. Stephenson, 14 L. R. Equity Cas. 322-340; Railway Co. v. Allerton, 18 Wall. 233; see Eidman v. Bowman, 58 Ill. 444; Finley Shoe & L. Co. v. Kurtz, 34 Mich. 89.

The cases in which a contrary view may seem to have been taken are cases where railroad companies have leased their entire property to other roads for a long period of years, abandoning altogether the exercise of their franchises so far as such franchises involved the operation of their roads; but in those cases the right to make such leases and so abandon the operation of any railroad was expressly a part of their franchises, and the collection of rentals and the distribution of the same in dividends among stockholders was as truly a prosecution of the business for which they ■ were created as would have been a continued operation of their roads.

I do not think the making of the lease in question in this case was beyond the powers of the corporation in the sense that- if made with the concurrence of all the stockholders, it was void so as to vest no legal title in the lessee for the term. The stockholders’ ownership of the property, subject to any rights of meditáis which are not here involved, was an absolute ownership, sub modo, and the right to lease their property involved that ownership, whether -or not expressly enumerated among the corporate powers; but whether tfie lease was within the powers of the board of directors, without the plaintiff’s concurrence, is another matter; it involves a practical abandonment, for five years, of the prosecution for the purposes for which the corporation was created. It was created “ for the purpose of acquiring, etc., mineral lands and- other real property on Baranoff Island, Alaska, and elsewhere in the United States and territories that may be determined by the company, to mine, etc.,' such lands.” It does not appear that -the company has determined to prosecute their business elsewhere, and it is doubtful whether it .is within the power of the directors to so determine. The Baranoff Island property, the Pande Basin mine, covered by the proposed lease, was acquired by the company adopting the name of the mine as its corporate name, in exchange for all its stocks, except $100, and all contributions to its treasury, amounting to at least $50,000, have been expended in the development of that company. All the hopes and expectations of the stockholders are based upon its supposed mineral richness. Its promise in that regard has been the moving cause of all investment in stock of the company.

I am unable to distinguish this case in principle from the case of People v. Ballard, 134 N. Y. 269, and the other cases there cited with approval, and I have to conclude that the proposed lease is not within the power of the board of directors without the concurrence of all the stockholders, and that the injunction should be granted.

If the case shall not be tried’and determined by the end of April, a motion to increase the security will be entertained.

Motion granted.