Majority
Headnote
Under the provisions of the Code of Civil Procedure, in relation to the “judicial supervision of a corporation, and of the officers and members thereof,” an action may be brought by the attorney-general in the name of the people, without a relator, against a domestic business corporation and its trustees to remove the latter from their position, for misconduct, and to compel them to account for and pay over to the corporation the value of property belonging to it transferred by them to others in violation of their duty, whenever he deems that the action can be maintained and that the interests of the public will be promoted thereby. (§§ 1781, 1782.)In 1880, the Spring Valley Hydraulic Gold Company was organized as a corporation under the General Manufacturing Act of this state, and shortly thereafter it invested substantially all its capital in certain mines in the state of California, and until the year 1886 operated the same as its sole business. The object for which it was formed, as stated in the certificate of incorporation, was to carry on the business of mining various precious ores and to smelt, refine and sell the product.
In July, 1886, the defendant, trustees transferred all its property, both real and personal, including said mines, to a corporation organized at the time under the laws of the state of California, for the purpose of carrying on the business theretofore conducted by the defendant company and of talcing title to its assets. This was done with the approval of stockholders holding a majority of the stock, in good faith, to save the property from sacrifice, but without the consent of the holders of a large number of shares and against the protest of some of the stockholders. The sole consideration for such transfer was an agreement by the California company to pay the debts of the Hew York company and to issue to it certain shares of its capital stock. A majority of the directors of the former company were, and still are, residents of California, and the only object of the transaction was, without a dissolution, to reorganize the defendant company under the laws of another state in order -to obtain some real or supposed advantage afforded thereby. The attorney-general commenced this action to remove the trustees and to compel them to account for the property thus transferred, but the Special Term dismissed the complaint because no one was joined as a relator and the General Term affirmed the judgment, one of its learned justices dissenting.
This appeal presents two questions of grave importance:
1. Whether an action for the judicial supervision of a business corporation, its officers and members, can be maintained by the attorney-general in the name of the people without a
2. Whether a corporation created by the laws of this state can be reorganized under the laws of another state without the process of lawful dissolution.
The first question has been twice considered, but never decided by this court. In the People v. Lowe ( 117 N. Y. 175 , 190), the present learned chief judge of the court, after a thorough and able discussion of the subject, reached the conclusion that the people have no right to maintain such an action, but, as a majority of the court were unable to agree with him in that conclusion, the judgment was reversed upon another ground. The question was again considered by the court in the very case now before us and an opinion, unfortunately not published, because it is exhaustive in research and persuasive in reasoning, was prepared, sustaining the right of the people to sue without a relator, but, as one of the members of the court was the attorney-general who commenced the action, only six judges could act, and they were equally divided upon the question, so that no judgment was rendered.[1]
* The opinion referred to is that of Pecioiam, J. As its publication is desired by the second division, with the consent of the judges of the Court of Appeals, I insert it here as a note.— [Rep. Pecioiam, J. The complaint in this case alleges an illegal transfer by its trustees of all of the property of the Spring Valley Hydraulic Gold Company, a New York corporation, to a California corporation called the Spring Valley Gold Company, and it alleges that by reason of such transfer the property of the corporation has been wasted and lost to the stockholders. It sets forth some other alleged illegal agreements, but the transfer to the California corporation is the chief ground of complaint. The relief demanded is that the individual defendants, who were the trustees of such company and made the transfer, be compelled to account for the disposition of the property of the company committed to their charge, and that they be compelled to pay to the company whatever money and the value of whatever property they have acquired to themselves, or transferred to others, or lost, or wasted by a violation of their duties, and that each of them be removed from his office as trustee of said company, and for such other relief, etc. Answers on the part of the defendants were put in and issue joined upon many of the allegations of the complaint. The case came to a hearing at Special Term, and the court, after *273 hearing the case, dismissed the complaint, with costs. There is no substantial contest as to the facts, and from the evidence, I should think there could be very little as to the entire good faith of the defendants’ trustees in malting the transfer of the property for the consideration they obtained. But the complaint alleged that the transfer was illegal, and that in law the trustee defendants were liable to account, and so the question of good faith may not be an answer to that allegation. The learned court at Special Term dismissed the complaint on the ground that the action could not be maintained by the attorney-general in the name of the people, as no legal interest in the subject-matter of the litigation on the part of the plaintiff was shown by the complaint. The General Term affirmed the judgment, and upon substantially the same ground taken at the Special Term. The opinions of the learned judges at Special and General Terms are certainly exceedingly able presentations of the views taken by the respective courts, and nothing but what seems to me the inexorable command of the statute could prevail against them. We may here assume that upon general principles of equity, unaided by any statutory enactment, the people could not maintain this action, and that assuming the transfer of the property to have been illegal, the people show no right to set it aside, or to compel the trustees to account, outside of that which may be found in the statutes of our state. In Attorney-General v. Utica Ins. Co. ( 2 Johns. Ch. 371 ), which is the leading case in our state upon the subject of the original jurisdiction of chancery over corporations and the trustees or directors thereof, and which was decided in 1817, Chancellor Kent held that chancery was without jurisdiction to restrain individuals from carrying on a banking business in violation of a statute, and the motion of the attorney-general on an information filed by him ex-officio, for an injunction for such purpose was denied. He stated that if the defendant in that case had exercised banking porvers, if such powers were not given it by charter, the people, by their attorney-general, had a complete and adequate remedy at law, either by the common-law writ of quo warranto, or by an information in the nature of such writ. This is all that was decided in that case. In the course of his opinion, the learned chancellor proceeded to state what he *274 thought the general powers of the court over which he presided were in regard to corporations, whether at the suit of the attorney-general or of private parties. He concurred in the views of Lord Chancellor Eldon, as explained hy him in Mayor v. Lowten (1 Vesey & Beames, 226), that no trust attached by which to give chancery jurisdiction to prevent the alienation by a corporation of its lands, upon the ground of a misapplication of funds, except in the case of corporations 'holding to charitable uses. In the above cited case, Eldon, Lord Chancellor, expressed a doubt as to the jurisdiction of chancery in a case of the application of funds or property of the corporation to purposes clearly not corporate. The distinction seems to have been on the question whether alienation were simply illegal or committed with a fraudulent misapplication of the trust funds. If no fraud were present and the alienation were simply for a non-corporate purpose, Lord Eldon would or did not say that his court had jurisdiction in such a case. He cited the case in the King’s Bench of The Zing v. Watton (2 Durn. & E. 199), and said it must be regarded as the opinion of the whole Court of King’s Bench, that in such a case the Court of Chancery had jurisdiction. Chancellor Kent in the Utica Ins. Co. case also discussed the power of visitation by the Court oí Chancery oí this state and he was rather of the opinion that such power over corporations did not exist in the state court in the English sense of that power, as emanating from the royal prerogative and founded on discretion. “I should rather conclude,” he says, “that under the constitutional administration of justice in this state, all corporations of whatever name or description, were amenable to the Supreme Court and to that court only, according to the course of the common law, for non-user or misuser of their franchises. But, at the same time, I admit that the persons who, from time to time exercise the corporate powers, may, in their character of trustees, be accountable to this court for a fraudulent breach of trust; and to this plain and ordinary head of equity, the jurisdiction of this court over corporations ought to be confined. Thus, for instance, if the directors of the Htica Insurance Company were to appropriate the funds or capital of the company to their own private emolument; or if, disregarding the business of insurance, they were to divert the funds to the destruc *275 tion of that object by making roads or canals, or building theatres or churches, I have no doubt this court would have a right, and would he bound, to interfere and check the abuse. But when the question is whether a corporation has forfeited its charter, or has usurped a franchise,, or has broken a penal law, the case is widely different; this court is not the proper tribunal to sustain the prosecution or to inflict the punishment.” In the case of a private eleemosynary lay corporation, where the founder had appointed no special visitor, the right of visitation in default of heirs of the founder devolved upon the king to be exercised by the great seal. (The King v. Masters, etc., 4 Durn. & E. 233.) But whether in chancery or the King’s Bench, in the case of a corporation holding to charitable uses the visitatorial power was that of the king, in the absence of a special visitor, and it was exercised sometimes on appli-" cation of the attorney- general without a relator, or an information was filed by him ex officio, and a relator was added, and sometimes by mandamus on like information. (See Rex v. Gregory, in note to King v. The Masters, etc., 4 Durn. & E. 233, at 240.) There was some division of opinion in relation to this class of corporations as to which court was the proper tribunal to grant the relief sought in the particular case, but the relief was frequently asked for by the attorney-general acting as attorney for the king, and sometimes with and sometimes without a relator. (Atty.-Genl. v. Mayor of Dublin, 1 Bligh W. S. 312, 337, 347; Atty.-Genl. v. Brown, 1 Swan, 265 , note pp. 305, 306; Atty.-Genl. v. Bucknall, 2 Atk. 328; Atty.Genl. v. Oglender, 1 Ves., Jr., 246; Cooper’s Pl. 106, 107; Atty.-Genl. v. Powel, 1 Dick. 355.) The relator was joined in many cases for the simple purpose of securing to the defendants their costs in case the bill should be dismissed, and the presence of a relator was in no way necessary to the maintenance of the prosecution or information. (Cases above cited.) Charitable uses were thus regarded as matters of public concern, although in many cases in addition to the right of the attorney-general to ask for their enforcement by the courts, performance without his intervention would sometimes be decreed at the instance of a town or parish, or of its inhabitants, or of an individual of the class intended to be benefited, such as one of the poor of *276 the parish, or one of tile sick or maimed individuals for whom the charity was intended. The extent of the jurisdiction of our Court of Chancery in these matters was somewhat doubtful so far as regarded corporations. The extract which I have taken from the opinion of Chancellor Kent would seem to show the jurisdiction of chancery to have been quite narrow in regard to corporations and their trustees. It was under these limitations that the Court of Chancery remained, as was assumed, until the adoption of our Revised Statutes. The subject of the jurisdiction of chancery over corporations was treated in those statutes, and in regard to the matters under discussion, provision was made for the exercise by chancery of jurisdiction in the cases therein mentioned. By section 31 of the 2d R. S. 462, upon a bill filed in chancery by the attorney-general, the chancellor was given power to restrain by injunction any corporation from ¡issuming, etc., any franchise not allowed by its charter, and the chancellor could in the same manner enjoin any individuals from exercising any corporate rights, etc., not granted to them. The revisers in their notes said that the proceedings at law by quo warranto or scire facias, wore so dilatory that a summary remedjr was necessary, and it was given by the section already cited, because of the decision of Chancellor Kent in the case of the Attorney-General v. Utica Ins. Co., which held that the Court of Chancery in this state did not possess such jurisdiction. Then by section 33 of 2d R. S. 462, chancery was invested with jurisdiction over directors, managers and other trustees and officers of corporations in many cases, wliich are specified under eight different subdivisions of such section. By those subdivisions, among other things, power was given to the chancellor to compel directors to account for their official conduct in the management and disposition of the funds and property committed to their charge and to compel payment by them to the corporation of all sums of money and the value of all property which .they might have acquired or transferred by a violation of their duties. Also the power was given to suspend or remove the trustees for gross misconduct, and to order new elections, and to set aside alienations of property *277 contrary to law or for purposes foreign to the lawful business of the corporation, and to prevent such alienation where there was reason to apprehend it. This section in its subdivisions greatly enlarged the power of chancery regarding directors of corporations over what it was said to have been in the Utica Ins. Co. case. The thirty-fifth section then proceeds to state that the jurisdiction thus conferred should be exercised “at the instance of the attorney-general, prosecuting in behalf of the people of this state, or at the instance of any creditor of such corporation, or at the instance of any director, trustee or other officer of such corporation having a general superintendence of its concerns.” Reading sections S3 and 35 together and construing them according to the ordinary meaning of language, who can reasonably doubt that the attorney-general is invested with the power to invoke the jurisdiction of chancery in any of the cases mentioned in the thirty-third section ? The statute declares it in so many words and without condition or qualification. The question of parties was a vital one, and that distinct question was treated of and provided for in the thirty-fifth section. Both sections were the work of most eminent lawyers who carefully weighed their words and the meaning thereof, and they -were engaged in clothing the Court of Chancery with powers until then not possessed by it, and in providing for the parties at whose instance those powers were to be exercised. It is scarcely conceivable that under such circumstances and by such men a section should be produced which, by the ordinary construction of its language, leaves out a most vital and material condition upon which the attorney-general may bring the action in the name of the people of the state; that condition being that when the proceeding is instituted to compel an accounting by trustees or to prevent their alienation of the property of the corporation, the bill or petition must show some pecuniary interest on the part of the people with regard to the property or funds of the corporation alleged to have been, or to be in danger of being, illegally or improperly lost, wasted or transferred by the directors or officers of the corporation, or else that the corporation must be a public one, or clothed with public duties. The question of the proper *278 parties in such cases cannot but have been present to the minds of those learned lawyers who were the real authors of the Revised Statutes, and if the)r had intended that the attorney-general should not bring an action or institute a proceeding under the 33d section of the statute in cases relating to property, unless the state had a pecuniary interest in it, or the corporation were a public one, undoubtedly they would not have left it to be a matter of conjecture to be painfully spelled out from unreliable surrounding circumstances against the otherwise plain meaning of the statute. A resort to the notes of the revisers leaves the case, as it seems to me, still perfectly' clear. They say in regard to the 33d and 35th sections that they were drawn to supply what they considered to be important defects in some cases, and to remove doubts entertained respecting the power of the court in others. The first subdivision, they said, of section 33, which authorized the court to compel the directors of a corporation to account for their official conduct.in the management and disposition of the funds and property committed to their charge, was intended, in connection with section 35, to give the Court of Chancery in this state the same power that is exercised by that court in England in cases of charitable corporations, and in other cases, the possession of' which power is doubted by Chancellor Kent in the Utica Ins. Co. case. The power exercised by the Court of Chancery in England in cases of charitable corporations, we have seen, was frequently exercised at the instance of the attorney-general on an information filed by him, and either with or without a relator. It seems to me the plain language of the note by the revisers means to authorize the Court of Chancery to exercise, in regard to corporations created within this state, the same power which is exercised by that court in England in cases of charitable as well as other corporations, and that the language of the statute does, as matter of fact, clothe the court with the powers therein enumerated, and provides that they may be exercised in all such cases at the instance of the attorney- general as well as of a creditor or director. To say that the statute permits the attorney-general to prosecute in behalf of the people regarding an illegal transfer of property, etc., only *279 in the cases of charitable or municipal corporations, is to import a condition into the statute which is not therein expressed, and is to fly in the face of its plain language, and is in brief judicial legislation. Such legislation may be good in itself, but it is difficult to sustain in opposition to a statute making contrary provisions. , In 1870, by chap. 151, § 3 of the laws of that year, it was enacted that no officer or director of a corporation or joint-stock association should be suspended or removed from office other than by the judgment of the court in a civil action in the cases prescribed by the Revised Statutes, and such an action having the object of suspension or removal in view was to be brought only by the attorney-general in the name of the people. The fifth section of that act excepted corporations organized under the general manufacturing laws of the state from its provisions. The legislature thus, in the case of a large number of private corporations, restricted actions brought under the Revised Statutes to suspend or remove a director, to those which should be brought in the name of the people and by the attorney-general. The act narrows the right to bring such actions as given by the Revised Statutes, and places the power exclusively in the hands of the attorney-general. It shows a legislative policy towards placing certain powers exclusively in the hands of a public officer, and to be exercised by him in the interests of justice. The provisions of the Code of Civil Procedure as to the jurisdiction of the court are substantially those of the Revised Statutes. The Code provides for the maintenance of an action against one or more trustees, etc., for the purposes enumerated in six subdivisions of section 1781. Subdivisions 3 and 4 relate to the suspension or removal of a trustee or director from office. Section 1783 provides that “an action may be brought as prescribed in the last section by the attorney-general in behalf of the people of the state; or except where the action is brought for the purpose specified in subdivision third or fourth of that section, by a creditor of the corporation, or by a trustee, director, manager or other officer of the corporation having a general superintendence of its concerns.” Section 1811 provides that a trustee, etc., of a corporation shall not be *280 suspended or removed from office by a court or judge otherwise than by the final judgment of a competent court, in an action brought by the attorney-general, as prescribed in section 1781. This section enlarges the provisions of the act of 1870, already alluded to, by omitting the exception therein contained and making the prohibition applicable to all corporations. In the courts below this case seems to have been regarded as one which in any event might have been commenced in the name of a director, etc., of the corporation. But this depends upon the question whether the action was brought, as prescribed in section 1781, for the suspension or removal from office of the trustees of the corporation. The complaint alleges a fraudulent transfer of the property of the corporation by the trustees, defendants, to a foreign corporation. It asks that they be compelled to account for their conduct and compelled to pay the company the amount of the property transferred, wasted or lost by a violation of their duties, and that they, and each of them, be removed from their offices as trustees, and for such other relief, etc. It is seen that the complaint does, in so many words, state a cause for the removal of the trustees, by alleging a fraudulent transfer by-them of the property of the corporation. It also asks for their removal from office. It does not, however, ask that the court order a new election, and the complaint shows that the action is not brought solely to obtain the removal of the trustees, but in connection with such removal it asks that they bo compelled to account and pay over, as already stated. It does not seem to me that it is necessary, in order to maintain an action for a removal of a trustee, that it should be brought solely for that purpose. The statute does not so state, and I know of no reason why such condition should be inserted by the courts. Nor does it seem necessary, that in order to maintain the action to suspend or remove a trustee, the complaint should contain the prayer for judgment, directing a new election to supply the vacancy created by the removal. That power is vested in the court and it can grant such a direction when it makes 'the removal without a special prayer to that effect being contained in the complaint. *281 If there are facts alleged and proved sufficient to call for the removal of a trustee, whether an election shall be ordered is a matter for the court to determine upon a consideration of all the facts in the case. If all were removed, then by virtue of the power vested in the court by section 1781 it could direct the removal to be reported to the governor in order that he might fill the vacancies. The right to exercise this power would not depend upon the question whether the complaint contained a prayer asking for that specific relief. In this view the action so far as the removal of the trustee is concerned, could only be brought by the attorney-general. Section 1808 provides that when the attorney-general has good reason to believe that an action can be maintained in behalf of the people as prescribed in article second, third, or fourth (which includes section 1781), he must bring an action accordingly, or apply to a competent court for leave to bring an action, as the case requires; if in his opinion the public interests require that an action should be brought. The rest of the section requires that in a case where an action can be brought only by the attorney-general in behalf of the people, if a creditor, stockholder, etc., of the corporation applies to the attorney-general for that purpose and furnishes the security required by law, the attorney-general must bring the action or apply for leave to bring it, if he has good reason to believe that it may be maintained. Where such an application can be made section 1986 applies to the action to be brought. That section provides that the complaint must allege, and the title of the action must show that it was brought upon the relation o£ some person having an interest in the question, and in such case the attorney-general must demand security, and when it is given him he is entitled to compensation for his services, to be paid by the relator in like manner as the attorney or counsel for a private person. The effect of section 1808, is as it seems to me to permit the attorney-general to bring an action in those cases where only the attorney-general can bring it, where he has good reason to believe that it can be maintained, provided that in his opinion the public interests require that such an action be brought. *282 In such case he need join no relator with the people, but his belief that the public interests require such an action to be brought is reason enough to bring it, provided he thinks it can be maintained. But in a case where he only can bring the action, if he be of the opinion that the public interests do not require it to be brought, he must nevertheless still bring it if he have good reason to believe it can be maintained, provided a creditor, stockholder, director or trustee of the corporation applies to him for that purpose and furnishes the security required by law. The fact that the attorney-general, in a case where he alone can bring the action, does so in the name of the people without joining a relator, is conclusive that in his estimation he had good reason to believe he could maintain the action and that the public interests required he should bring it. In such case no relator is necessary. In any event, whether this action be one which the attorney-general can alone bring, or whether it be one which a creditor or director of the corporation could also bring, I see no escape from the language of the statute investing the attorney-general with power to bring any action for the purposes named in section 1781, in the name of the people, even in cases, where the people have no pecuniary interest in the property and where, the corporation is of neither a public nor a quasi public character. I think the legislature, by adopting the Code of Civil Procedure and by sections 1781 and 1783, has substantially enacted the rule prevailing under the Revised Statutes, but it has done so in language even more plain and definite, in reference to the right of the attorney-general to bring an action, than is that of the Revised Statutes. Indeed, the policy of the state seems, to have been changed by the Revised Statutes and to have been made still plainer by the act of 1870 already cited and by the passage of the Code of Civil Procedure. That policy seems to be of a nature to extend the right of interference by the attorney-general to those cases which heretofore no one would have regarded as being of a class in which the people had the smallest right or interest. Such, for instance, are the cases of interference by the attorney-general under the provisions of special statutes with the general conduct of receivers of all insolvent corporations, no matter how private. He may *283 now at any time he deems it for the interest of stockholders, creditors, policyholders, etc., make a motion, in the case of any insolvent corporation, for an order removing a receiver and compelling him to account, and appointing another, and for such additional orders as may seem to the attorney-general proper to facilitate the closing up of the receivership. This was the provision of the act of 1882, chapter 331, and hy its third section the provisions of such act were limited to actions and special proceedings theretofore instituted hy the attorney-general and to such as should he thereafter instituted by him. This limitation was, however, omitted in the same kind of an act passed the following year (Chap. 378, Laws of 1883, § 7). By the same act it was made necessary to serve on the attorney-general a copy of all motion papers and a copy of any other applications to the court in every action or proceeding for the dissolution of any corporation or a distribution of its assets and no receiver of a corporation was permitted to pay any person any money directed to he paid by any order or judgment made in any action until a certified copy of such order or judgment had been served upon the attorney-general. It is to be supposed that the attorney-general could appeal from such orders as were made upon notice to him and which could not be made without such notice, and where he appeared and opposed the granting of them. It seems to he the policy of the state to assume a certain amount of supervision over the affairs of all corporations and the officers thereof, created under its laws, no matter whether such corporations he public or private, and regardless of the question whether the state as such has any pecuniary interest in the matter of property or assets involved in the subject. The corporation is the creature of the state; it exists only hy virtue of its permission and it is subject in many things to its will, and the officers thereof are elected to enable the corporation to perform the duties for which it was created. These facts may have had some effect in forming that policy of the state which seems now to be in the ascendant. The general rule, of course, still prevails that a plaintiff must show some interest in the controversy which he asks the court to decide. But where a statute expressly authorizes the people by their attorney-general to sue in certain named cases, such suit may be maintained in those cases, *284 even though the plaintiffs fail to show such an interest in the controversy as would enable them to maintain it were it not for the provisions of the statute. The cases cited by the counsel for the respondents are of a nature which depended upon the people showing some interest in the controversy, the same as an ordinary plaintiff who sued without the benefit of any statute giving him a right of action. It is true the case of People v. Albany & Susquehanna Railroad Co. ( 57 N. Y. 161 ), was brought under the statute permitting an action in the name of the people in the nature of quo warranto, and it was held to have been properly brought for that purpose. But the plaintiffs joined with such action several causes of action of an equitable nature in regard to which the people had no interest, and for which they had not been authorized by any statute to sue, and the court held that, in regard to such causes of action, the people, like any other plaintiff, must show some interest therein, or they could not maintain the action, and as they showed no such interest their claim for relief on those grounds could not be upheld. The judgment was reversed and a new trial ordered of the issue as to the title to office of the antagonistic boards of directors, and that issue was to be tried by a jury. Hone of the cases cited by counsel or by the courts below is of the class where the plaintiff is authorized by statute to sue for the purposes mentioned in the complaint. By section 1804 of the Code, articles second, third and fourth of that title do not apply to the corporations mentioned in such section, but the corporations excepted do not embrace corporations of the character of the defendant corporation in this action. "We agree with Hr. Justice Daniels, in his dissenting opinion at General Term in this case, that the transfer of all the property by the trustees of the defendant corporation to the California corporation was illegal, and for the reasons ho states and upon the authorities he cites. We also agree with that learned judge in the opinion that the liability of the trustees to account is limited to those stockholders who have not assented to the transfer. In such an action the people are really, for the purpose of compelling an account, the representatives of the non-assenting shareholders only. *285 The trustees are to account for their official conduct in the management and disposition of the funds and property committed to their charge, and they can be compelled to pay to the corporation which they represent, or to its creditors, any money and the value of any property which they have acquired to themselves, or transferred to others, or lost, or wasted by a violation of tlicir duties. If there be no creditors, the account they must render is for the benefit of the shareholders who did not assent to such transfer. Nominally, the account is to the corporation, but in reality it is as I have said, where there are no creditors, tq the non-assenting shareholders. I think there is no radical difficulty in so limiting the accounting in such an action as this. The assent of a shareholder estops him from claiming the account, and the people having no interest in the controversy other than as a representative for those who did not assent, would be bound by the estoppel to the same extent that the assenting shareholders would be in case the action were brought by a non-assenting director or officer. In the latter ease, the assenting shareholders would not be parties, but the trustees would have the right to show upon the accounting just what number of shareholders did assent, and v^liat amount of shares they held, and as to that proportion of the stock the judgment would provide for the proper deduction to be made. The. same difficulty which is spoken of by-the judge delivering the prevailing opinion at General Term, would exist in case the action were brought by a non-assenting director or officer. Could the court compel, in that action, the trustees to pay only a proportionate sum to the corporation for the use and benefit of the non-assenting shareholders'! If not, then the form of the action would have no effect so far as that feature of the case is concerned. If it could, I see no difficulty in making such a provision in the case where the action is brought by the people representing only the same interests which in the other case would be represented by the non-assenting director or officer. If there be an estoppel in one case, there would be in the other. These questions are not now properly before qs further than to express a general opinion upon the way in which an accounting should be ordered and proceeded with. Upon on accounting,.if one should be entered upon, *286 these questions might arise, and their proper solution would be matter for careful consideration as they should be presented. We can only say that the form of the action does not alter its essential nature so far as an accounting is concerned which shall affect property in which the shareholders have an interest and where the people have none. Of course, where the action is brought for relief in those cases where the people alone can sue, other questions would arise concerning such interests as were not private or were not of a pecuniary nature. The general conclusion which we have reached is based upon what we conceive to be the plain language and intent of the statute. The policy of the legislature seems to provide for such a suit as this in the name of the people. "As to whether that policy be good or bad is not for this court to determine. It is true that cases of this character have ever since the adoption of the Revised Statutes been almost uniformly brought by parties interested in the property wasted or illegally transferred, and it is comparatively a new departure for an action such as this (excluding the claim to remove the trustees), to be brought by the attorney-general. It is not at all plain how any public interest can be affected by the action of the trustees in transferring the property to the California' corporation under the circumstances, and for the consideration detailed in the evidence and found by the court. Of -course the facts were not presented in this light to the attorney-general when he was asked to commence the action, and he would have now the same right to discontinue it which is possessed by a private plaintiff. We think it not inappropriate to say that in coming to the conclusion to bring an action of this nature in the name of the people in those cases where the parties interested could themselves bring it, the attorney-general ought to be fully convinced and entirely clear that the public interests demand that the action should be brought in the people’s name. Where the corporation is a purely private manufacturing, trading or other business corporation, the case would, as we think, have to be a most extraordinary one to warrant the attorney-general, in the interests of the public, in bringing an action to set aside alleged illegal transfers of property in which the people had no interest and a recovery in which would benefit *287 only those who claimed to own the property or some part, or portion, or interest therein. In People v. Lowe ( 117 N. Y. 175 ), Earl, J., in a very strong opinion, has said all that can he said in favor of the view that the people have no right to maintain such an action as this, regarding it simply as an action to compel an accounting in a private corporation for property in which the people have no interest. But a majority of the court did not then concur in those views and the case was decided upon another and perfectly satisfactory ground to the whole court. Eor the reasons alleged in the foregoing opinion we are compelled to the conclusion that the learned courts erred in holding that the plaintiffs could not maintain this action on the ground of a lack of interest in the subject matter thereof, and the judgment must, therefore, be reversed and a new trial ordered, with costs to abide the event.
The revisers had in mind the decision in the Utica Insurance case (supra), when they reported that part of the Revised
The revisers, in then- note to this section, say that it was “ drawn to supply what are conceived to be important defects in some cases, and to remove doubts entertained respecting the power of the court in others. ' The first subdivision is intended,
This legislation was doubtless induced by said decision of the chancellor, and as he gave prominence to the supposed defect
Thus, as it seems to us, the legislature intended to greatly increase the power of the Court of Chancery in regard to the supervision of corporations, and to authorize the attorney-general, on his own motion, to call upon the court to act. The revisers intended, as we gather their meaning from the language used, that the Court of Chancery, in this state, should have the same power in regard to corporations generally that
The next legislation upon the subject, after the ¡Revised Statutes, appeared in the Oode of Procedure, which provided that an action might be brought by the attorney-general in the name of the people in various cases. Such actions were in the place of writs of scire facias and quo warranto and of proceedings by information in the nature of quo warranto. fOode of Procedure, §§ 428-447.)
These provisions have but little bearing upon the question under consideration, except as they reflect the general policy of the state in allowing the attorney-general to interfere with the affairs of corporate bodies without a relator “ in every case of public interest ” and with a relator “ in every other case in which satisfactory security shall be given.” ("Code of Pro. § 430.)
Attention is also called to an act passed in 1870 “ to regulate proceedings against corporations by injunction and otherwise,” which provided that “all actions and proceedings against a corporation, when the relief sought or which can be granted therein, shall be the dissolution of such corporation or the removal or suspension of a/ny officer or director thereof, shall be brought by the attorney-general in the name of the people of the state.” (Laws 1870, chap. 151, § 2.)
In 1874 two cases were decided by this court holding that, under the peculiar circumstances therein appearing, the state could not sue in its name of sovereignty without some specific interest in the subject of the action. (People v. A. & S. R. R. Co., 57 N. Y. 161 ; People v. Ingersoll, 58 id. 1.)
These cases are said to have led to the passage of chapter 49' of the Laws of 1875, which conferred upon the people the right to sue without a specific interest and authorized the attorney-general to prosecute such actions in their name.
We have thus reviewed the law as it stood prior to the-enactment of the Oode of Civil Procedure, in order to learn the history of legislation and judicial decision, together with the general policy of the state upon the subject, so that the
Title 2 of chapter 15 of the Code of Civil Procedure treats of “ actions relating to a corporation ” and the second article is entitled the “ judicial supervision of a corporation and of the officers and members thereof.” This action was brought under sections 1781 and 1782, which appear in the article headed by that significant title. Section 1781 is a re-enactment, in substantially the same language, of section 33, already quoted from the Revised Statutes. (2 R. S. [1st ed.] p. 462.) In plain terms it confers jurisdiction upon the court over the subject-matter of such an action as this, leaving it to the next section, to prescribe by whom the action is to be brought in the following language: “ An action may be brought, as prescribed in the last section, by the attorney-general in behalf of the people of the state, or, except where the action is brought for the purpose specified in subdivision third or fourth of that section, by a creditor of the corporation, or by a trustee, director, manager or other officer of the corporation having a general superintendence of its concerns.” (Code Civ. Pro. § 1782.) The excepted subdivisions relate to the suspension or removal of a defendant from office. To this section the commissioners attached the following note: “ 2 R. S. 462, § 35, amended as required by the changes of the judicial system and forms of proceeding and by Laws 1870, chap. 151, § 2.” Thus section 35, already quoted from the Revised Statutes, is pointed out as the basis of the section reported, amended, however, as required by the act of 1870, so as to provide that all actions in which a part of the relief sought is the suspension or removal from office of any officer or director of a corporation, “ shall be brought by the attorney-general in the name of the people of the state.” (Laws 1870, chap. 151, § 2.) This is an action of that character. Section 1786 applies only to actions to dissolve a cor
This section provides for two classes of actions, each of which requires two facts to exist before the action can be brought, but only one of which is common to both. Each class requires that the attorney-general should have good reason to believe that the action can be maintained. In addition to that the first class requires that he should be of the opinion that the public interests demand that an action should be brought, and the second class, that one of the persons named should apply to him to bring the action and furnish the security required by law. It is not enough to warrant the commencement of either action for the attorney-general to be satisfied that it can be maintained, for, in the one case he must also be satisfied that the public interests require him to act, and in the other, one of the designated persons must ask him to act and give security. In the first class no security is required, and in the second the public interests need not be consulted, but simply private interests. If a relator were required in the first class, the attorney-general might not be able to procure one, and hence could not obey the command of the statute. If a relator were not required in the second class, costs might be thrown upon the people in litigation in which the
We have now examined all the sections of the Code to which our attention has been called, except 1811, which provides that a director or other officer of a corporation cannot be removed otherwise than by final judgment in an action brought by the attorney-general. This section, also, had its origin in chapter 151 of the Laws of 1870, as the commissioners state in their note thereto. Section 1986 has no bearing, because it is limited to title 1 of chapter 16, which relates to a different subject, except where a creditor applies to the ■attorney-general to sue under section 1808, when a relator is to be joined if the application is granted and the action commenced.
Considering the history of the law upon the subject, the origin, object and language of the statute, we think that the legislature intended to authorize the attorney-general to bring such an action as this whenever he was convinced not only that it could be maintained, but also that the interests of the public would be promoted thereby. We appreciate the force of the argument that it is contrary to the prevailing rule to permit an action to be brought in the name of one who has no direct interest in the result. This, however, bears upon the question of construction only, for what the legislature has authorized may lawfully be done, in the absence of some
The suggestion is made that while an action may be brought by the attorney-general in the name of the people without a relator, still it is for the court to decide whether the public interests, in fact, required the action to be so brought, and if it
We think that the question as to what the public interests require is committed to the absolute discretion of the attorney-general, and that it cannot be made the subject of inquiry by the courts. If he abuses the great power intrusted to him, a remedy may be found in his removal from office, or in the election of a successor worthy of the high position.
The statute authorizes an action to remove the trustees of a corporation for misconduct; to compel them to account for their official acts in managing and disposing of the property committed to their charge, and to require them to pay to the
A corporation is purely artificial, having no natural or inherent power, but only such as its charter confers. The charter of the corporation in question was the statute under which it was organized. Upon tiling the certificate of incorporation it came into existence with power to do only that which is-expressly or impliedly authorized by the statute. It had m> power to act except through its trustees, who were authorized to manage its “ stock, property and concerns,” and a majority of whom were required to be citizens of this state. (Laws of 1848, chap. 40, as amended by Laws of 1869, chap. 269.) While they were authorized to conduct its affairs, they were not authorized to terminate its existence, although, under special circumstances, the courts could dissolve it upon their application. (Oode of Oiv. Pro. § 2419.) A corporation cannot cease to exist of its own will. Its life continues until either the charter period has exjfired or the court has decreed a dissolution. The law made it and the law only can put an end to it. As it cannot take its own life directly, it cannot do* so indirectly, for that would be a fraud upon the law and against public policy. By the transaction complained of the defendant company was stripped of all its property, and thus prevented from going on in business and deprived of all means of carrying into effect the object of its existence. While a corporation may sell its property to pay debts, or to carry on its business, it cannot sell its property in order to deprive itself of existence. It cannot sell all its property to a foreign corporation organized through its procurement, with a majority of non-resident trustees, for the express purpose of stepping into its shoes, taking all its assets and carrying on its business. |That would he the practical destruction of the corporation by its own act, which the law will not tolerate.*^ Whether the process by which it was sought to convert the" Hew York corporation into a California corporation is called reorganization, consolidation or amalgamation, it was the exercise of a power not delegated and was void. It was corporate
The case of Abbott v. American Hard Rubber Company ( 33 Barb. 578 ), is the leading authority upon the subject in this state, and it is also recognized as the leading authority in most of the states. In that caso a majority of the trustees of a business corporation, without the consent of some of the stockholders, transferred all its personal property, which was especially adapted to its business, to two persons, who forthwith caused another corporation to be formed, and transferred such property to it. It was held that, as such transfer practically terminated the corporation by taking from it the power to fulfill the object of its organization, it was a violation of that object, was not within the power of the trustees, and was hence void as ultra vires. The case was elaborately ered both at General and Special Term, and we regard it as a sound and valuable authority.
A somewhat similar question was under consideration in Frothingham v. Barney ( 6 Hun, 366 ), where the court said: “ This, as a business arrangement, was wise, discreet and sagacious. As such it should be sustained if it legally is possible. The interests of one or two small stockholders should not enable them to work the destruction of the interests of co-owners, or compel the purchase of their stock at fictitious or unreal prices, if it can be avoided. * * * Upon the dissolution of the association, it became the duty of the trustees to convert the assets into money and distribute the proceeds among the stockholders. To a certain extent this has been done. A portion of such assets have not been distributed, and another portion, including the good will of the old association, has been exchanged by the trustees for the corporate stock of a new Wells, Fargo & Co. This, as I understand, the trustees had no right to do. They had no right to exchange the assets of the old association for the corporate stock of any corporation
In Taylor v. Earle ( 8 Hun, 1 ), a New York corporation, by the vote of a large majority of its stockholders, sold all its' property, except cash on hand, mills and franchises, to a Vermont corporation and took in payment shares of stock in the latter company. The court said: “ The whole scheme of the transfer and its execution was illegal. There is no power given by the acts under which the Burlington Cotton "Milla (the Hew York corporation) were incorporated to transfer all its property and thus terminate its existence, and take in payment stock in a company carrying on the same business with a different name, charter and stockholders, and being a foreign corporation. The corporation, by the Hew York law, could increase or diminish its stock, or extend its business to other objects, but that falls far short, I think, of the sweeping power exercised on this occasion. The sale was not real. It was a mere form to turn a Hew York corporation into a Vermont one, and thus escape the scrutiny into the affairs of the company permitted by the Hew York law to the stockholders.”
All the authorities in this state are uniform in holding that the trustees of a corporation cannot so dispose of its property as to virtually end its existence and, preventjt from carrying on the business for which it was incorporated. (Blatchford v. Ross, 54 Barb. 42 ; Copeland v. Citizens’ Gas Light Co., 61 id. 60 ; Smith v. N. Y. Consolidated Stage Co., 18 Abb. Pr. 419 ; Metropolitan El. Ry. Co. v. Manhattan Ry. Co., 14 Abb. [N. C.] 303; Hartford, etc., R. R. Co. v. Croswell, 5 Hill, 383 .)
Other courts of the highest standing have laid down the same rule. (Railway Co. v. Allerton, 85 U. S. 233 ; Stevens v. Rutland, etc., R. R. Co., 29 Vt. 545 ; New Orleans, etc.,
Dissent
The fact that the trustees acted in good faith did not empower them to do an illegal act; and the fact that there may he some difficulty in the final adjustment of rights, because some of the stockholders consented, while others did not, constitutes no defense to the action. We see no greater difficulty, however, than would exist if the action were brought by a trustee who had not consented to the act complained of, and no reason why “ the liability of the trustees to account” should not be “ limited to those stockholders who have not assented to the transfer.”
We think that the transfer was unauthorized and void as to the non-assenting stockholders, and as to the state, and that the people can maintain the action in their name of sovereignty.
The judgment should, therefore, be reversed and a new trial granted, with costs to abide event.
(dissénting). The learned trial judge, after finding the facts in detail, found as a conclusion of law as follows : “ There is no evidence in this action of a public grievance, and the people, having no interest in the subject-matter of the action, or in any of the acts herein complained of, cannot maintain this action.”
It is clear from the complaint and from the detailed findings of fact, that the grievance sought to be redressed is a private and not a public one. It is equally clear that the people have no interest in the subject-matter of the action, or in any of the acts complained of, except in the sense that the people, as a body politic, always have an interest in promoting obedience to the laws and the performance of legal duties and obligations. But this public interest is the political and moral one attaching to sovereignty, and is widely differenced from a private and special interest in particular things. The conclusion of the learned trial judge, that the people as a body politic cannot
But the learned counsel for the appellants contend that the people can maintain this action, because, and only because, the language of the statute permits it. (Code of Civil Pro. §§ 1781, 1782, 1808, 1976.) The historical review of the law upon the subject is presented in the learned opinions of Judges Peokham and Vann in the case at bar, and in the opinion of Judge Earl in People v. Lowe ( 117 N. Y. 175 , 190). This review shows that, but for the statute, the action in cases not affecting the public interests could not be maintained by the people without a relator. The question, therefore, is whether the statutes have removed this objection.
This review, I think, also clearly shows that the reasons moving to the enactment of the statutes enlarging the chancery power of supervision of corporations, and the intention of the statutes themselves, were the protection and promotion of interests public in their character. Chancellor Kent, in Atty.-Genl. v. Utica Ins. Co. ( 2 Johns. Ch. 371 ), the case which led to the provisions of the Bevised Statutes upon the subject,, admitted that stockholders, aggrieved by the fraudulent breach of trust by the trustees, could resort to equity in default of an adequate remedy at law. They did not need the statutes for their protection.
Fully concurring in the views expressed by Earl, J., in People v. Lowe, I venture to add a few suggestions which seem to me to support the conclusion that in this case, under a. reasonable construction of the statutes, the complaint was properly dismissed.
This corporation was created to conduct private business, and it conducted no other. Some of the stockholders seem to have conceived that by reason of the management of the trustees, not strictly authorized by the letter of the law, a technical cause of action accrued against them in favor of such
Is there any good reason why the individual should call upon the sovereign for help, when the sovereign has afforded him ample methods and liberty to help himself ?
I concede that it is within the legislative power, in the absence of constitutional restriction, to provide for governmental intervention in private affairs; and also that cases exist in which private affairs are so connected with the public interests that the government may wisely interfere and regulate them. It m§,y also be conceded that the tendency of the cruder efforts at legislation is to enlarge the field of governmental intervention so as to embrace many subjects which it were better to leave to individual control.
Bearing these suggestions in mind, it is submitted that, in the construction of the statutes in question, it is reasonable to presume, in the absence of controlling language to the contrary, that the legislature did not intend to extend the direct and voluntary intervention of the government to the champion
The statutes are as follows (Code of Civ. Pro. § 1781): “ An action may be maintained against one or more trustees, directors, managers, or other officers of a corporation, to procure a judgment for the following purposes, or so much thereof as the case requires: ‘ 1. Compelling the defendants to account for their official misconduct in the management and disposition of the funds and property committed to their charge. 2. Compelling them to pay to the corporation which they represent, or to its creditors, any money, and the value of any property which they have acquired to themselves, or transferred to others, or lost or wasted by a violation of. their duties. * * *
“ ‘ 4. Removing a defendant from his office upon proof or conviction of misconduct and directing a new election to be held by the body or board duly authorized to hold the same, in order to supply the vacancy created by the removal; or where there is no such body or board, or where all the members thereof are removed, directing the removal to be reported to the governor, who may, with the advice and consent of the senate, fill the vacancies.’ ”
§ 1782. “ An action may be brought, as prescribed in the last section, by the attorney-general in behalf of the people of the state; or except where the action is brought for the purposes specified in subdivisions third or fourth of that section, by a creditor of the corporation, or by a trustee, director, manager, or other officer of the corporation, having a general superintendence of its concerns.”
§ 1808. “ Where the attorney-general has good reason to believe that an action can be maintained in behalf of the people of the state, as prescribed in article second, third or fourth of this title, except section 1797 of this act, he must bring an action accordingly, or apply to a competent court for leave to bring an action as the case requires, if in his opinion the public interests require that an action should be brought.
§ 1986. “ Where an action is brought by the attorney-general, as prescribed in this title on the relation or information of a person having an interest in the question, the complaint must allege, and the title of the action must show, that the action is brought upon the relation of that person. In such a case, the attorney-general must, as a condition of bringing the action, require the relator to give satisfactory security to indemnify the people against the costs and expenses thereof. Where security is so given, the attorney-general is entitled to compensation for his services, to be paid by the relator in like manner as the attorney and counsel for a private person.”
I think the sections in question authorized the attorney-general to bring this action; that is to say, the people as a body politic or corporate, having a capacity to sue, authority was thereby conferred upon the attorney-general to make them a party plaintiff in this action, if, as was no doubt the case, in his opinion the public interests required the action to be brought.
But this amounts to nothing more than that the people may rightfully claim their day in court upon the alleged cause of action they present.
It is for the court to decide whether they present and establish a good cause of action. Section 1808 clearly implies that the attorney-general may not thus bring the action unless in his opinion the public interests do require it. If the legislature did not intend that the action should be brought unless in the opinion of the attorney-general the public interests should require it, it is clear that they did not intend that it
Evidence tending to show such interests thus becomes essential to a recovery. It will not he contended that the opinion ef the attorney-general is of any further force than to show that he did not exceed his authority in using the name of the people as a party plaintiff.
If, in fact, the people have no public interests to promote by bringing the action, the mistaken opinion of the attorney-general to the contrary will not reverse the situation and cure the material defect. He' can, in fact, have no opinion as to the public interests involved if there are none. It hence results that the sections in question may be construed to authorize a recovery in an action of this nature brought in the name of the people without a relator, where it appears or is established upon the trial that the public interests are thereby to he protected, or in some substantial way promoted, apart from the mere private relief to be awarded to individuals, and failing in this, that the action fails.
In People v. Lowe, Earl, J., said that municipal, religious and eleemosynary corporations “ which are public and discharge functions which might otherwise devolve upon the government” may become subject to chancery visitation. If, for instance, the trustees of an incorporated charitable institution, endowed by benevolent persons long since dead, should squander its funds, or divert them to purposes foreign to the charity, it might well be that if the state should not internóse no redress could be had.
The learned judge also suggested that quasi public corporations, like railroad, banking and insurance companies, might be subject, when the exigency should require it, to the like visitation. A life insurance company, holding millions for the benefit of policyholders, may be plundered by its trustees, or the rights of the policyholders jeopardized by unauthorized investments. The policyholders may have such an interest as would justify their intervention, but their interests in the. aggregate rise to a quasi public character.
The statutes are framed to provide respectively the public remedy as it may be needed, and the private remedy upon the relation of the private suitor in cases where it may be properly -extended. It is easy to avoid confounding the one with the other; and if it is true that the letter of the statute authorizes the attorney-general of his own motion to engross both remedies, such is not the intent of the statutes, and, therefore, not •within their authorization.
The rule is well settled that statutes should receive a sensible construction, such as will effectuate the legislative intention, and avoid an unjust or absurd conclusion. Tills rule is strikingly illustrated and applied in the recent case of the Holy Trinity Church v. United States ( 143 U. S. 457 ). An act of congress made it unlawful for any person or corporation to
The fact' that the removal of the trustees forms, at least-nominally, part of the relief sought, does not of itself warrant, a recovery. It should appear that the public interests require their removal.
Argument for making the people sole party plaintiff, deduced from the fact that the corporation is the creation of the government, would be applicable to an intervention upon public-grounds. Power given for public purposes is abused when perverted by loaning it to individuals for strictly private purposes.
The language of the Code does not require us to presume that the legislature intended either the favoritism to one individual or the prejudice to the other, which such a loan of power implies, and, without explicit language to that effect, we may safely refrain from imputing such intention.
All concur with Vann, J., except Bbown and Landon, JJ., dissenting.
Judgment reversed.
Cases cited
- People v. Lowe 117 N. Y. 175 at 190 p. 272, p. 298
- People v. Albany & Susquehanna Railroad 57 N. Y. 161 p. 288
- Abbot v. American Hard Rubber Co. 33 Barb. 578 p. 295
- Mann v. Butler 2 Barb. Ch. 362 p. 296
- Blatchford v. Ross 54 Barb. 42 p. 296
- Smith v. New York Consolidated Stage Co. 18 Abb. Pr. 419 p. 296
- Railway Co. v. Allerton 85 U. S. 233 p. 296
- Church of the Holy Trinity v. United States 143 U. S. 457 p. 303
- Tracy v. Troy & Boston Railroad 38 N. Y. 433 p. 304
- People ex rel. Attorney General v. Utica Insurance 15 Johns. 358 p. 304