It is a fraud, not only on the shareholders, but also on the legislature, that a company should be permitted to obtain its capital stock for a particular and special purpose, and then apply it to another. Bagshaw v. Eastern Union R. R. Co., 6 R. Coleman v. Eastern Counties R. Co., 4 R. Chapple v. Cadell, Jac., 537. Reg v. Eastern Counties R. Co., 2 R. Cases, Blakemore v. Glamorganshire C. Co., 1 My. & Gray v. Chaplin, 2 S. & S., 267. Natusch v. Irving, Gow on Partnership, Appendix, 398. In the case of Bagshaw v. the Eastern Union Railway Co., 6 Railway Cases, 129, which is directly in point, Bagshaw was the owner of two scrip certificates, only, out of a capital stock of over 300,000 pounds sterling, and he, as owner in behalf of himself and all others similarly situated, enjoined the company from applying the funds of the company to build some branch roads not specified in the charter, and the court, in deciding the case, said: "No majority of the shareholders, however large, could sanction the misapplication of the capital. A single dissenting voice would frustrate the wishes of the majority. Indeed, in strictness, even unanimity would not make the act lawful." See, also Burmester v. Norris, 8 Eng. L. & Eq., 487. In the case of Salomons v. Laing, 6 R. & Canal cases-above quoted-Salomons was the owner of 149 shares out of a capital of 1,420,000 pounds-the case is directly in point-and it was there contended, first, that the majority in interest ought to control-and that a shareholder who possessed so little interest ought not to be allowed to bring suit-and-second, that it was erroneous to make both companies and their directors parties; but the court held that the complainant brought his suit properly, and, that all who were particeps criminis were proper parties; and that in all illegal transactions the will of the majority could never bind the minority. In deciding this case, on final hearing, Lord LANGDALE saidthat "whether it was alleged in words or not it is perfectly clear that both the parties to this transaction (in the case at bar both the C. & N. W. R. Co., and G. & C. U. R. R. Co.,) are guilty of fraud and collusion. They are guilty of fraud against the legislature who gave them their powers for purposes entirely different from those which they are exercising; and they are guilty of collusion, in together uniting and combining for the purpose of completing that fraud. But it is not necessary to say that they have been guilty of fraud and collusion; it is enough to say they are parties to the same breach of trust, one in paying and the other in receiv ing moneys for a known illegal purpose; which moneys are now or ought to be in the hands of the Portsmouth Co. The question before me is whether the Portsmouth company ought to be made a party to this suit, which seeks a declaration of rights and the rerecovery of these moneys which the Portsmouth company have received with knowledge that they were trust moneys, and which ought to have been applied to a purpose entirely different. I have not the least doubt that they are properly made parties to this suit they have themselves received the moneys, knowing the purpose to which they were to be applied. Knowing, therefore, the persons to whom they rightly belonged (to-wit, the stockholders of the Brighton Co.,) they get them out of the hands of the persons who had the management of them, for the purpose of applying them to other and quite different purposes. I think there is no doubt that the Portsmouth company are proper parties to this suit." Where a bill is filed for relief in respect of a fraud alleged to have been committed by several persons, it is not necessary that all the persons charged with the fraud should be made defendants. Sedden v. Connell, 10 Simmons, 81. The power of the corporation, being limited by its charter, could not be extended by the stockholders-hence, the sale of the G. & C. U. R. R. and all its property, even by a majority of the stockholders, would be illegal and void against all who did not consent. Hood v. N. Y. & New Haven R. R. Co., 22 Conn. 507. Andrews v. Union Mutual Fire Ins. Co., 37 N. Y. F. 1. Co. v. Ely, 5 Conn. 560. Phoenix Bank v. Curtis, 14 Conn. 443. Welland Canal Co. v. Hathaway, 8 Wend. 484. Directors can't make a sale of the whole entire property of every character and kind. See-Rollins v. Clay, 33 Maine, 139. Neither can the shareholders of a corporation delegate their powers to another company and allow it to be worked and controlled by such company. See 1 Shelford on Railways, p. 251. Beaman v. Rufford, 1 Sim. (N. S.) 550. A corporation may institute a suit for setting aside transactions fraudulent against it, although carried into effect in its name by members of the governing body. The members of the governing body are agents of a corporation, and if they exercise their functions for the purpose of injuring its interests and alienating its property they are personally liable for any loss occasioned thereby. 1 Shelford on R's. 284-5. 1 Cr. & P. 1. 2 Mylne & Craig 621. 1 Swanst, 265. 1 Ves. & B. 226. A corporation cannot, except with the consent of the legislature, (and by the authorities above cited), by the consent, also, of all the stockholders, alienate its property and relinquish the control and management of its affairs to another company. York & Maryland & C. R. R. Co. v. Winans, 11 Howard, (U. S.) 30. In Abbot v. American Hard Rubber Company, 33 Barb. 589, ALLEN, J., says: "A bare statement of the case shows as conclusively as an elaborate argument could establish it, that the transfer was without power, and a violation of the trust and confidence reposed in the trustees and directors of the corporation. It is ultra vires. It would be strong evidence of fraudulent intent, under the circumstances, that a bare quorum of the body should undertake, by their acts, so seriously and radically to affect the future of the company and the interests of the stockholders, but waiving that question, and conceding that their acts stand as the acts of the whole board, I am of the opinion they were invalid for want of power. By the transfer, if allowed to stand, although the corporation still remained, in form, with property which might be applied to some lawful purpose, the existence of the corporation was nominal, its substance was taken from it, and its property was valueless; as a 'Hard Rubber Co.,' it had no rights, no franchises, and no existence. Its very title was a misnomer, and a false pretence." And SUTHERLAND, J., says: "The purchasers cannot be considered bona fide purchasers for value, without notice, for they did not give money or value, but their notes or promises to pay; and I must assume from the conceded facts of the case, that they knew the purpose and object for which the corporation was organized, and the only business which it had prosecuted; and as they must also be presumed to know the law, I must assume that they knew that directors, with or without the consent of a majority of the stockholders, had no right or authority to make the sale and transfer in question." In the case of the Troy & Rutland R. R. Co. v. Kerr, 17 Barb. 601, the court said: "As I understand the evidence, the whole line of the railroad of the plaintiffs has passed out of the charge of the corporation. It has been decided in England that one railroad corporation cannot lease its road, or give up the management of its line to another, nor delegate the powers conferred without the authority of the legislaThose acts are ultra vires—” ture. Beman v. Rufford, 1 Sim. (N. S.) 550. 6 Eng. Law & Eq. 106. Great Eastern Counties R. Co. v. Eastern Counties R. Co., 9 Hare, 313. 13 Eng. Law & Eq. 506. 1 Sim. (N. S.) 110. 16 Eng. Law & Eq. 180. and could not be done-"Not even with the assent of all the shareholders." East Anglian R. Co. v. Eastern Counties R. Co., 11 C. B. 775. MAINE CASES. The powers of a corporation are derived from the law. Rollins v. Clay, 33 Maine, 139.. A corporate body has no corporate existence beyond the limits of the territory or state which created it. Day v. The Newark India Rubber Co., 1 Caledonian R. R. Co. v. The Helmsburg Har bor Trustees, 39 Eng. Law & Eq. Blake v. Mowatt, 21 Beavan, 613, is in point to show that notwithstanding the parties are in such a position that they cannot be restored, still the court will, regardless of all consequences, set aside a fraudulent contract. X. The rights, privileges and franchises of a corporation are created by the sovereign power of a State-and are in fact a part and parcel of it-and on grounds of public policy, therefore, they cannot be bought and sold or bartered away like goods and chattels. |