On Application for Eehearing.
Blanchard, J.Plaintiffs — thirteen in number — are minority shareholders in the defendant company, and their holdings aggregate 159 shares out of a total of 1,250 .shares. The shares are each of the par value of $100.00.
It appears that when the corporation was chartered and the shares subscribed for, not a dollar of the subscription was paid in cash at that time, nor at any subsequent time, and no notes or other evidences of debt for amounts subscribed were taken. In a word, none of the subscriptions were ever paid, nor was it ever contemplated, it would seem, Uiat they should be paid. This is not the way to launch corporations upon -the business world in the State" of Louisiana, nor was it at the dme this company was organized. This is said, merely, in passing.
The application for the appointment of a receiver is based on Act iTo. 159 of 1898, and the parts of the act immediately pointed to as authorizing the action taken are paragraphs 2 and 11 of Section 1.
The first is to the effect that the court may, at the instance of any stockholder or creditor, appoint a receiver to take charge of the property and business of a corporation when the directors or other officers of the corporation are jeopardizing the rights of stockholders, or creditors, by grossly mismanaging the business, or by committing acts ultra vires, or by wasting, misusing, or misapplying the property or funds of the corporation; and the second is to the effect that a receiver may be appointed at the instance of any stockholder when a majority of the stockholders are violating the charter rights of the minority and putting their interests in imminent danger.
*154The question presented is whether or not a case is made out, under these provisions of the law, justifying and making advisable the appointment of a receiver.
The District Judge held there had been. Our conclusion on the first hearing was the same, and on this second hearing and consideration we are constrained to confirm it.
The corporation was chartered in 1892; its domicil was Monroe, Louisiana; its business to supply water service and electric lights to the town and the inhabitants thereof.
Bright & Gravely were awarded the contract to. supply the materials and construct the works. This they agreed to do for one hundred thousand dollars, for which first mortgage gold bonds, running thirty years with 6 per cent, per annum interest, were to be issued by the company and delivered to them.
They enlisted William E. Hawks of Bennington, Vermont, in the enterprise, and through his aid the works were constructed. The bonds were issued and turned over to Hawks, together with a large majority of the stock.
In fact, Hawks, his son, and a few associates, to whom were transferred some shares of stock, became the Water Works and Light Company, supplanting the original incorporators and holders of stock, with the exception of plaintiffs herein, who, as we have seen, hold only 159 shares of the 1,250 issued.
Hawks became President and Treasurer of the Company; his son Secretary, and these, together with one other, chosen by Hawks, constituted the Board of Directors.
The affairs of the corporation have thus been under the sole control and management of Hawks from about the year 1893 down to the present time.
He, too, was its creditor, for the mortgage bonds that had been issued and from the proceeds of which the works had been constructed, had passed into his hands.
We find that beginning, when Hawks took charge in 1893, with this indebtedness of one hundred thousand dollars of bonds, the liabilities of the corporation had so increased that when the present proceeding was initiated in April 1901, they aggregated, according to the figuring of Mr. Hawks, more than $229,000.00.
This represented the first mortgage bonds ($100,000), a second series of bonds, known as the second mortgage bonds, for the same amount, *155which he had caused to be issued, and which he had absorbed in pay - ment of a floating indebtedness incurred under his administration and due to him, and the remainder represented a still further floating indebtedness outstanding against the corporation and likewise due to Hawks.
No sufficient enlargement of the plant or extension of its scope appears to have been made in .the eight or nine years of Hawks’ administration to justify this more than doubling of the indebtedness with which the concern started out.
Neither does it appear that extensive repairs or betterments ar« responsible for the large increase, for it is shown by the evidence tha: the works had not been maintained at a high standard of efficiency, that their condition when .the case was tried was by no means what it should have been, and that a competent expert employed for the purpose of examination and report had estimated the deterioration .to be as great as 33 1-3 per cent.
Nor was it necessary to increase the indebtedness to meet the running expenses of the plant. It was more than self-sustaining. Its annual revenues exceeded its annual expenses. The receipts are shown to have averaged about $20,000.00 a year from 1896 to the time of the filing of this suit, and during all the years Hawks controlled the corporation its revenues from water and light rentals and dues aggregated about $140,000.00.
Our examination of the charges found upon the books of the corporation kept by TIawks, and going to make up the large increase otf indebtedness referred to, has satisfied us that much of .the same would not 6tand the test of judicial scrutiny were it applied.
For instance, while the domicil of the company is fixed in its charter at Monroe, there are found upon its account many items for traveling expenses from his home in Vermont to Monroe to attend to the business of the corporation and to participate in the meetings >of its stockholders and directors.
The same is true of his son, who was a director and the secretary of the company. His traveling expenses from Vermont to Monroe through eight or nine years are likewise entered up as legitimate charges against the company. These items aggregate a large sum.
The father was on the rolls as a paid official, to whom a salary of $2000.00 a year as President and Treasurer was voted. This salary was fixed to be paid him at a meeting of the Board of Directors held in Ben*156nington, V ermont, at which only the father and son were present. The minutes of .that meeting are dated at Monroe, but it is shown that the meeting itself was held in Vermont.
If the father and son lived in Vermont for .their convenience, their traveling expenses to the place of domicil of the Company, to attend stockholders’ and directors’ meetings and to look after the affairs of the Company, were not legitimate charges against the corporation. The appropriate place for officials in charge of the business of a corporation is the domicil of the Company. If they live away from its domicil they have no right to charge ¡the Company for traveling expenses to and fro.
There are other items of expense on the account against the Company, such as overcharges of discount, interest, expenses relating to services rendered by Hawks to Bright & Gravely, etc., which go unduly to swell its aggregate.
The charter provides that the office of Treasurer shall be combined with that of Secretary. Yet William E. Hawks caused himself to be elected as President and Treasurer. He blended in himself the two offices, whereas the direction of .the charter is otherwise.
The Treasurer’s office was in Vermont, and his books were kept there. So, also, the stock books of the corporation and the seal of the Company were kept there. And it is reasonably certain that the funds of the Company, or a large part thereof, were kept in Vermont. Bilk were sent on for inspection and payment there.
These are objectionable features in the conduct of the business of this corporation.
The charter provides that directors shall be chosen from among the stockholders. Yet it appears that in 1893 S. B. Hawks and I. E. Gibson were elected directors before they had become shareholders, and, after-wards, they were made eligible by the transfer to them by William E. Hawks of a share of stock each, which transfer was ante-dated by his direction.
But before their eligibility was thus assured, one or more meetings of the Board of Directors had been held whereat important business of the corporation had been transacted.
Subsequently, at ■ a stockholders’ meeting held at the domicil of the Company, in May 1893, prior acts of the Board of Directors were, in general terms, apprpved and ratified, and this is pointed to by defendants as curing anterior irregularities.- But .the testimony of W. A: Bright, one of plaintiffs, and the only one of. the plaintiffs present at-*157the ratifying meeting, shows that the minutes of the previous actiop, referred to as ratified, were not read to the meeting, nor was it explained what that action was.
These are matters, however, of small moment, particularly so because they relate back to a period as remote in the affairs of this corporation as 1893.
We find that continuously through the years that Hawks has controlled the corporation, down to the present time, certain shareholders, acting with and for him, have been the recipients of favors from the Company in the way of water service and electric lights free of compensation. No charges were made against them; no bills presented; no payments demanded. They were apparently on the free list. Dues for service so rendered gratuitously would amount to a large sum in the aggregate. Plaintiffs knew nothing of this.
It was a discrimination, against which they may justly complain. Officials and majority stockholders have no right to extend favors Lc certain of the shareholders at the expense of the corporation, or of the body of the stockholders.
In November 1896 the Board of Directors authorized the issuance by the Company of one hundred thousand dollars of second mortgage bonds. It was explained by the President that a floating indebtedness of over $63,000.00 existed which should be liquidated. It is not made clear what part of this indebtedness, if any, was incurred for improvements, additions, or extensions of the plant.
The President, William E. Hawks, was authorized to sell a sufficient amount of the bonds to settle the floating indebtedness at a price not less than eighty cents on the dollar. It seems he disposed of them all and is now the holder of the bonds and the creditor of the Company for the full amount thereof.
The same day the directors’ meeting, which authorized this issue of bonds, was held, a meeting of stockholders was also held. Four stock, holders only were present. They were Hawks, his son, and two others acting with and for him — the four representing 984 shares out of the 1250. None of the plaintiffs were present, and the only notice of the meeting which appears to have been given was ten days’ publication in a newspaper in Monroe.
This meeting ratified the action o.f the directors in authorizing the issuance of the $100,000.00 second mortgage-bonds.
*158Plaintiffs contend- that this action of the majority shareholders was ultra vires; that -the charter of the Company must be construed with reference to the laws in force when it was adopted; and that at thar. time Act No. 80 of 1890, and other statutes in force, limited the issu-. anee of bonds by waterworks and light companies to purposes of construction, repair, or acquisitions of property, or franchises.
They also contend that when the 'bonds were authorized do be issued nothing was due for construction, repairs or acquisitions, of property, and that no part of the floating debt then due had been contracted for such purposes.
It is not our purpose to here pass definitely on these contentions. Whatever rights the holders of these bonds may have under the law is reserved to them. But we do say that the suggestion of their ultra vires character comes with a force sufficient, united with the other circumstances herein set forth, to justify the receivership sought.
In September 1900, a meeting of the Board of Directors was held whereat a resolution was adopted authorizing the President and Secretary to sell and convey to a New Jersey corporation, known as the, Monroe Water Works & Light Company of Jersey City, New Jersey, the entire plant, works, franchises and everything pertaining to the Monroe Water Works and Light Company of Monroe, Louisiana. :
On the same day a meeting of stockholders was held. This meeting, assembled pursuant to fifteen- days’ notice published in newspapers in, Monroe. The notice announced the meeting was called to consider the question of selling the plant and property of the Company. ,
The only shareholders present in person were Hawks and his son,, and two others acting with and for them. There was present by'proxy,, held by Hawks, three others who.se- holdings of stock aggregated 67% shares. These also were in the Hawks interest.
Twenty-one other shareholders, aggregating 236 shares, were not present and no notice, other than, newspaper publication,, was given, them.
This meeting ratified the action of the directors ordering the sale of the property to the New- Jersey corporation.
This New Jersey corporation had been organized by Hawks and liis friends for the purpose of absorbing the Louisiana corporation. It was really Hawks and his friends, organized into a .foreign corporation, proposing .to buy from Hawks and his friends, organized and holding property as a Louisiána corporation.
*159It is explained in the evidence, on behalf of defendants, that the purpose of accepting the proposition of the New Jersey Company was to change the domicil of the Louisiana corporation in order that, in case of legal proceedings, which were apprehended, taken by the City of Monroe to expropriate the plant and works,' the jurisdiction of the Federal Courts in Louisiana could be invoked and longer delays in reaching final results could thereby be had .than was considered possible in the State Courts.
But whatever the purpose, the facts substantiate the averments of plaintiffs’ petition that defendants were seeking to remove the assets of the Company beyond the jurisdiction of the State courts. ■ •
Besides, it will be noted that the public newspaper notice of the meeting of stockholders, called to authorize this sale to the New Jersey corporation, stated the question to be considered was the selling of the plant and property of the Company. This meant, of course, the dissolution of the Louisiana corporation in (the event of the sale to the New Jersey corporation. ' ' ■
Yet the eighth article of the charter of defendant Company expressly provides that the act of incorporation may be dissolved by.the assent of ■three-fourths of the stock represented at a general meeting of the stockholders convened for that purpose after thirty days’ prior notice of such meeting shall have been given by.the Secretary and Treasurer .by mail to each shareholder. ■
The meeting referred to'was held.after fifteen days’ notice only, and that, too, published only in newspapers. There was no mailing of notices to the stockholders.
This was a palpable violation of the charter rights of the' minority stockholders and a putting of their interest^ in imminent danger— grounds for the appointment of a.receiver by the very letter of the Act of 1898. . ...... .
Some six months following -the meeting held as aforesaid, a-t which it was resolved to sell out to the New Jersey corporation, another meeting of stockholders was called.
, Notice was given of this meeting by publication for thirteen or fourteen days in a newspaper at Monroe. This notice recited that the meeting was called “for the purpose of considering the sale of the water works and light plant and property of the Company to the City of Monroe, and dissolving the company and liquidating its business and affairs.” Notice of the meeting appears also to have been mailed to *160each stockholder, and these notices to the shareholders recited that the action to he taken meant the dissolution and liquidation of the corporation.
The meeting took place April 1, 1901. There were present in person William E. Hawks, his son, and the two parties who were acting with them. There were present 'by proxy held by the Hawks three other shareholders who represented between them 67 % shares. The number of shares represented in person and by proxy was 1014. Twenty-one shareholders, aggregating 236 shares, were not present. All of the plaintiffs herein were of those not present.
At this meeting resolutions were adopted for the sale to the City of Monroe of all the plant, works and property, real and personal, rights and franchises, including a claim of the Company against the City of Monroe for lights and water furnished the city, for the aggregate sum of $75,000.00. Three liquidators were appointed to wind up the affairs of the corporation, who, with the President, were authorized to make conveyance of the property to the City of Monroe.
On the same day a meeting of the Board of Directors was held and a resolution was adopted by that body ratifying and endorsing the sale, as proposed by the stockholders, to the City of Monroe.
It will be observed that this meeting of stockholders and directors took direct action not only to sell out the corporation and all its property and rights to the City of Monroe, but also for its dissolution and liquidation. It will also be observed that it was proposed to do this after less than fifteen days notice of the meeting given to stockholders.
Yet Articles 7 and 8 of 'the charter distinctly require thirty days prior notice of a meeting for such purpose, to be given each shareholder through the mails.
These provisions of the charter are mandatory, and for the holders of the majority stock to attempt to sell out the corporation, dissolve and liquidate it in disregard of the same, was a usurpation of authority, and an infringement of the rights of the minority shareholders.
Besides, the minority stockholders, plaintiffs herein, complain at the price at which it was proposed to sell to the City of Monroe, and point to an estimate of the value of the plant, works, etc., made by an expert employed by the President of the Company, and brought from New York for the purpose a short time before, which estimate was very largely in excess of the sum offered by the City of Monroe.
*161We are not deciding that the price at which the City of Monroe proposed to buy the works is an adequate one. It may be it is the full value of the same. But after the estimate made as aforesaid plaintiff's are not without grounds for questioning the action of the holders of the majority stock.
Especially is this so when according to defendant’s contention the plant and works of the Company have cost over two hundred thousand dollars — two issues of mortgage bonds of one hundred thousand dollars each, besides an outstanding floating indebtedness now due of over $25,000.00; and they further contend that the works and plant have been all the time maintained in a good state of repair and preservation, and not allowed to waste, or deteriorate, or decay.
On the whole, we -think abundant justification is found in this record for the action of the trial judge in appointing a receiver. Indeed, we agree with him that the situation, from the standpoint of advisability and even necessity, required this action. It was a prudent and conservative step to take.
It will not do to say that because a corporation may be insolvent and nothing be eventually coming to the stockholders, they are without interest to take action to prevent abuses. Such a doctrine would permit the holders of the majority stock to wreck a corporation and, when the holders of the minority stock ask the court to intervene, to forestall the action -of the court by proclaiming the insolvency of the company and the consequent lack of interest in the outcome on part of those seeking the court’s action.
Defendants contend for the right of stockholders to dissolve and liquidate the corporation pursuant to the direction of -the charter, and urge that this right should not be defeated by the appointment of a receiver.
True, the charter does provide how the corporation may be dissolved and, upon its dissolution, in what way its affairs shall be liquidated.
But this corporation has never -been legally dissolved and no appointment of liquidators has as yet been legally made.
Meanwhile, the application for the appointment of a receiver finds, as we have seen, justification.
Eor the present, at least, this company and its affairs will be safer in the hands of a receiver than it can be in the hands of those who have dealt with it in the manner as herein pointed out.
*162It may be that the stockholders, or the holders of 'three-fourths of the stock, represented at a general meeting called for the purpose, pursuant to Article 8 of the charter, may dissolve the corporation and appoint liquidators as provided in Article 1 of the charter, and it may be that after such dissolution shall have been legally accomplished and after the due appointment of such liquidators shall have been made, they (the liquidators) may apply to the court and on proper showing made ask the termination of the receivership and the turning over to them of the property and affairs of the corporation for liquidation and final settlement.
It may be that the court, on this application, and first securing the safety of creditors and shareholders by the exaction of adequate bond, might be authorized to grant such an application, end the receivership and put the liquidators in charge.
The rights of all parties in respect to these matters are reserved.
It is urged as grounds for not granting the receivership applied for that it will entail large costs and expenses to come out of an insolvent corporation, to the detriment of creditors and all concerned, except the receiver and his attorneys and the recipients of court costs.
The State Courts of Louisiana will not permit the spoliation of estates and corporations in the way of the allowance of exhorbitant charges for commissions, fees, costs, etc. Nor is it believed that, In the present case, there is any purpose or design on the part of any ona to attempt this.
Rehearing refused.