1. The main question in this case is whether a going business corporation can be closed out and dissolved upon the motion of the majority of its stockholders and against the protest of the minority. The question is a new one in this state, although *Page 354 it has frequently been considered (both in cases where it was necessarily involved and those where it was not) by the courts in other states. The decisions and dicta are conflicting and are quite evenly divided. In the following cases the existence of the power is denied, though in most of them the question was not necessarily involved: Abbot v. Rubber Co., 33 Barb. 578; People v. Ballard, 134 N.Y. 269; Kean v. Johnson, 9 N.J. Eq. 401; Forrester v. Mining Co., 21 Mont. 544. That the power exists is decided or declared in other cases: Treadwell v. Company, 7 Gray 393; Phillips v. Company, 21 R. I. 302; Black v. Canal Co., 22 N. J. Eq. 130,404 (overruling Kean v. Johnson, 9 N. J. Eq. 401); Merchants etc. Line v. Waganer, 71 Ala. 581; State v. Company, 115 Tenn. 266; Tanner v. Railway,180 Mo. 1; Arents v. Company, 101 Fed. Rep. 338.
The only case in this state having a direct bearing upon the subject is Dow v. Railroad, 67 N.H. 1. In that case there was an attempt to change the business of the corporation; and while any expression of opinion on the question here involved was carefully avoided, yet the opinion of Chief Justice Doe contains an exhaustive and illuminating discussion of the nature of a corporation and the source of the power of the majority to act for it. The majority have the agency which in a partnership each partner possesses. Do they, in addition thereto, have the power each partner has to compel a dissolution? The corporation being an outgrowth of the law of partnership, it would be reasonable to expect that so important an incident to the joint undertaking as the right to terminate the enterprise would not be lost by the change in the form of the association. The fiction that the corporation is a being independent of those who are associated as its stockholders is not favored in this state. Dow v. Railroad, supra, 3. Decisions based upon the idea that there is something sacred in the life of an ordinary business corporation, so that action looking to its extermination is in the nature of a fraud upon the state (People v. Ballard, 134 N.Y. 269), are not authority in a jurisdiction where a different view of the nature of the association is entertained. The question is not one of power granted by the state. It relates solely to the agreement of individuals with each other.
Did the stockholders who united to form the Jackson Company in 1830 understand that the business must be continued perpetually, provided a profit could be made and some stockholder objected to closing it out, or did they understand that the enterprise could be *Page 355 brought to an end at such time as the majority believed to be for the best interest of all concerned? The latter seems the more reasonable and probable conclusion.
Much has been said in the cases upholding the right of the minority to prevent a sale and dissolution, concerning the protection of their rights and saving their property from pillage by the majority. Just how the majority, which sells its own property at the same time and for the same price it sells that of the minority, gains an advantage over the latter is not readily apparent. Cases might be supposed, and undoubtedly occur, where the majority do obtain some undue advantage from the sale. No one contends that such a sale is valid. But because the power of the majority may be abused, it does not follow that it does not exist. If such a conclusion were to be drawn, minorities would always rule. The plain common-sense of the matter is that this is a business venture, to be carried on as such so long as it appears to be good business judgment to do so. When the time comes that a majority in interest believe that their affairs should be wound up and the proceeds distributed, the rational rule is that this should be done. And since the question here is of a business nature, and the limitations of the power of the majority are fixed by the understanding of the business men who made the original compact, business considerations have more than ordinary weight in determining what the contract was.
It is admitted on all sides that the majority may sell out if the corporation is insolvent. And when brought face to face with the question whether they must wait until the stockholders' investment is all lost before taking action, the conclusion has been that if insolvency is imminent action may be taken And the same is true if it is imprudent to continue. 4 Thomp. Corp., s. 4489, and authorities cited. One reason only is given why the power exists in these cases: it is reasonable to suppose that such authority was contemplated, because this is what sound business judgment dictates should be done. The difference between these cases and the present one is a degree only, not of kind. the majority are not obliged to wait until all possibility that the corporation can go on longer has been negatived. Some of the cases have stated that such is the rule; but the result of this would be to compel the majority to continue a losing business until their investment was entirely wiped out. To avoid so absurd a result, it has been said they could close out when insolvency seemed to be approaching. And so *Page 356 various forms of expression have been used to indicate the time when the majority could take action. All these are fairly summed up in the statement that the majority may close out the affairs of the company when it can no longer make a reasonable profit. It is believed no court would now hold that the rights of the minority were more extensive than this rule implies.
If the majority may sell to prevent greater losses, why may they not also sell to make greater gains? Bearing in mind that this is purely a business proposition, with no public rights or duties involved, there seems to be no substantial difference between the two cases, as a matter of principle. In each case, the sale is made because it is of advantage to the stockholders. Whether the profit to be made is a reasonable one, must be a relative matter. Three per cent when others make two might be reasonable; but three per cent when a sale could be made which would yield the stockholder ten could hardly be thought an investment a reasonable person would retain. The loss to the stockholder by a failure to sell out on a basis which would yield him ten per cent instead of the three he is receiving is in fact much greater than it would be if a concern went on neither making nor losing when the investment would earn four per cent elsewhere. It does not seem reasonable that the majority should have power to make a sale in the latter case, and not in the former. In neither case would the sale prevent positive loss, but in each it would result in positive gain. And the question is one of future prospects. Its decision requires the exercise of business judgment, sagacity, and power to forecast coming events. It is not an issue appropriate for trial and decision in courts, but rather one to be settled by the judgment of the men conducting the business in question. In a limited sense, the majority act as trustees for all the stockholders. When their acts are impugned by the minority, it is not the function of the court to set its judgment against theirs in settling the wisdom or policy of proposed action. By the contract of association, all questions of this nature were committed to the majority for final decision. Gamble v. Water Co., 123 N.Y. 91, 99.
The whole difficulty is probably an outgrowth of the early idea that a corporation possessed peculiar attributes of longevity and sanctity. But as pointed out in Dow v. Railroad, 67 N.H. 1, 8, 26, no such theory prevails here. The business corporation is brought into being solely for the purpose of more conveniently carrying out the joint undertaking of the part owners. The line *Page 357 of distinction between this form of association and certain partnerships is but a shadowy one. Ib. 8. It is not reasonable or natural to expect that when this boundary is passed great changes in the relation of the parties will result. A more radical change than that here claimed could not easily be imagined. In the partnership, one partner may compel a winding up from mere whim. In the absence of an agreement to go on for a fixed period of time, nothing short of a fraudulent purpose will prevent his taking valid action to close out the firm at will. Fletcher v. Reed, 131 Mass. 312; Lind. Part.*570. By the rule here contended for, the change of the association into a corporation has carried the rule to the opposite extreme. The authority to wind up is lost, and the owner of the smallest share may prevent such action, though it is desired by all his associates. The practical reasons against such a proposition are apparent. The probabilities are opposed to the idea that the associates intended to enter into such a compact.
It is urged that the analogy of the partnership right does not apply, because the stockholder can sell his shares and so terminate his connection with a management with which he is dissatisfied. It is true he has this legal right; but it is not true that it is an adequate remedy, when a majority desire to retire from the business. The proposition is a practical one. It is not disposed of by offering to the majority a naked legal right the exercise of which will probably deprive them of a considerable share of their property. Partnerships are sometimes formed with transferable shares, but this does not impair the right to compel a dissolution. In the case of special or limited partnerships, the rule is that the general law of partnership applies unless modified by statute or special agreement. Tyrrell v. Washburn, 6 Allen 466. Accordingly it was held that where shares in the firm were transferable, and additional shares were issued from time to time, a partner who wished to retire could compel a dissolution and winding up of the firm. Ib. The fact that (as in a corporation) the dissatisfied owner could sell his shares, was not sufficient to take away his right to other remedies.
The action taken by a majority of the stockholders of the Jackson Company whereby, as a part of the process of winding up the company, they voted to sell all its property to the Nashua Company, was within the power impliedly given to them when the company was formed. The charges that there was fraud in the sale and that it was for an inadequate price have been disproved. Two other causes of complaint remain to be considered. *Page 358
2. It is urged that because the payment for the property of the Jackson Company was to be made in stock of the Nashua Company, therefore the sale was invalid, because the stockholder never agreed to embark in the Nashua Company's business. It is not necessary to examine this question now. Assuming for the purposes of this decision that the position is well taken, its effect is avoided by the provision that a stockholder may have cash instead of Nashua stock. Arrangement having thus been made whereby any stockholder can receive his share of the proceeds of the company's assets in money, his rights are not infringed by a stipulation (in the benefits of which he can share if he so elects) that stockholders may receive Nashua stock instead of money. Koehler v. Brewing Co., 228 Pa. St. 648.
The plaintiffs now suggest that the Trust Company option is not a sufficient guaranty that the cash will be paid to them. The defendants say that they procured the option as the best available proof of their good faith in making the offer to pay cash to the dissenting stockholders. Until it was settled that the agreements were to be carried out, it would not be expected that the money to pay for the stock would be paid over, or deposited as security. It is assumed that this will now be done by the defendants, under such an order as to details of the transaction as the superior court may make, or the parties may agree upon.
The claim is also made that a purchase by the Jackson Company of Nashua Company stock is ultra vires and voidable. But the substance of this transaction is not a purchase of stock by the Jackson Company. That company is to be dissolved, and in the process of dissolution the proceeds of its property are to be divided among its shareholders. The Nashua Company pays $585,000 for the property. Those who desire to receive payment in stock can do so, and cash will be paid to those who do not wish to invest in the stock. So far as the Jackson Company takes the stock at all, it is merely to transfer it to those who elect to take it, or to sell it for the guaranteed price and pay the proceeds to those who wish to receive money instead of stock. If the form of the agreements and offers, taken as a whole, infringes the rule here invoked, the substance is not open to such objection. In such a case equity ought not to interfere.
3. The legality of the votes passed at the meeting of the Jackson stockholders is questioned on account of the nature of the trust agreement under which the majority of the stock was then held, *Page 359 and because the trustees voted more than one eighth of the entire stock. While the decisions upon the first question are not entirely in accord, yet substantially all of them recognize that an agreement to vote stock in a certain way may be valid. The rule is well stated in the case chiefly relied upon by the plaintiffs. "If the transfer of the legal title to the stock is made and accepted under an agreement of the stockholder Which deprives him of all power to direct the trustee, and all opportunity to exercise his own judgment in respect to the management of the affairs of the corporation, then whether the transaction is open to the objection of other stockholders, as depriving them of the right they have to the aid of their co-stockholders, must be dependent upon the purposes for which the trust was created and the powers that were conferred. If stockholders, upon consideration, determine and adjudge that a certain plan for conducting and managing the affairs of the corporation is judicious and advisable, I have no doubt that they may by powers of attorney, or the creation of a trust, or the conveyance to a trustee of their stock, so combine or pool their stock as to provide for the carrying out of the plan so determined upon. But if stockholders combine by either mode to entrust and confide to others the formulation and execution of a plan for the management of the affairs of the corporation, and exclude themselves, by acts made and attempted to be made irrevocable for a fixed period, from the exercise of judgment thereon, or if they reserve to themselves any benefit to be derived from such a plan to the exclusion of other stockholders who do not come into the combination, then in my judgment such combination and the acts done to effectuate it are contrary to public policy, and other stockholders have a right to the interposition of a court of equity to prevent its being put into operation." Kreissl v. Distilling Co., 61 N. J. Eq. 5, 14.
An examination of the cases generally will disclose that in nearly all of them where the agreement was held invalid there were stipulations or covenants which infringed this rule. The propositions that "it is as legitimate for a majority of stockholders to combine as for other people," and that the combination is unlawful only if "the gain was to be at the expense of the corporation, or in some way was to work a wrong to the other stockholders" (Brightman v. Bates, 175 Mass. 105, 110), are generally recognized as sound law. Chapman v. Bates, 61 N. J. Eq. 658; Faulds v. Yates, 57 Ill. 416; Smith v. Railway, 115 Cal. 584. Even the cases holding the particular agreements then under consideration to be invalid usually *Page 360 recognize the proposition that there may be a valid voting trust. Shepaug Voting Trust Cases, 60 Conn. 553, 579; Gage v. Fisher, 5 No. Dak. 297.
Judged by these standards, the agreement in the present case seems unobjectionable. The trust is to terminate at the end of a year in any event. It contemplates the winding up of the corporation within that time, and sets out in detail the plan of sale and dissolution for which the trustees were authorized to vote. It further provides that the trustees shall not vote so as to substantially change the company's business, except as specifically authorized. There is nothing here which seeks to work a wrong to the corporation, to confer a benefit upon those joining in the trust, or to turn the management of the stockholders' affairs over to strangers. Judged by the strictest rule of a stockholder's right to the free and honest judgment of his co-stockholders, the agreement here made by more than three fourths of the stockholders is a legitimate arrangement for carrying out their purpose to close out the affairs of the company.
The argument that each stockholder is entitled to the presence of his associates to the end that they shall reason and be reasoned. with is not of weight here. The rule of the common law was that no member of a corporation could vote by proxy. 1 Thomp. Corp., s. 875, and cases cited. But the charter of this company introduces a different doctrine. "Absent members may be represented and vote at such meetings by an agent for that purpose duly authorized by writing, signed by the member or members to be represented." Act to establish a manufacturing corporation, by the name of the Jackson Company, 32 Ms. Laws 197 (1830). It is not necessary to now consider what effect the act of 1842, forbidding all proxy voting, giving one vote for each share up to ten, one vote for every two shares between ten and twenty, and no more (R. S., c. 146, s. 20), had upon this right. Dow v. Railroad, 67 N.H. 1, 25, et seq. The act of 1842 was repealed four years later, and the principle of general proxy voting was adopted. Laws 1846, c. 321, s. 5. The limitation of the right, incorporated in the revision of 1867 (G. S., c. 134, s. 21), was removed in 1901, c. 68. Whether the charter or the general law applies here, the rule is that one or many stockholders may be represented at the stockholders' meeting by an agent.
The claim that the votes cast by the trustees were invalid because *Page 361 they were in effect votes by proxy, and that one stockholder cannot act as proxy for another stockholder, nor can a proxy act for more than one stockholder (P. S, c. 149, s. 22), is answered by the act heretofore referred to. The statute has been repealed. Laws 1901, c. 68. If the statutes authorizing voting by proxy do not apply to a corporation chartered in 1830, then the charter of this company plainly confers rights as broad as those here exercised.
The trustees voted more than one eighth of the whole capital stock, but such action did not affect the result. In any event, they lawfully voted seventy-five shares. Forty-four other shares were voted the same way, and 104 shares were voted against the sale. It is therefore unnecessary to consider whether the statute, passed after the charter was granted and restricting the right to vote on large holdings of stock (Laws 1846, c. 321, s. 5), can affect the rights of these stockholders. As the result was not affected by the action complained of, the vote to sell cannot be set aside for such cause. Attorney-General v. Folsom, 69 N.H. 556.
Case discharged.
All concurred.
After the foregoing opinion was filed, on January 2, 1912, the plaintiffs moved for a rehearing upon the legality of the sale, and further argument was invited upon the method of liquidating the assets.