Summary
In Matter of Timmis (200 N.Y. 177) a corporation engaged in the business of lithographing and printing sought to sell what was known as its "calendar department."
Summary of this case from Trulock v. Kings County Iron Foundry, Inc.Opinion
Argued November 16, 1910
Decided December 6, 1910
Harold Otis for appellant.
Harold Bunker for respondent.
This appeal involves the construction of sections sixteen and seventeen of the Stock Corporation Law. Section sixteen, which is entitled "Voluntary sale of franchise and property," provides that "A stock corporation * * * with the consent of two-thirds of its stock, may sell and convey its property, rights, privileges and franchises, or any interest therein or any part thereof to a domestic corporation, engaged in a business of the same general character * * * and such sale and conveyance shall, in case of a sale to a domestic corporation, vest the rights, property and franchises thereby transferred * * * in the corporation to which they are conveyed for the term of its corporate existence. * * * Before such sale or conveyance shall be made such consent shall be obtained at a meeting of the stockholders called upon like notice as that required for an annual meeting." The provisions authorizing a sale of property only to a foreign corporation are not now material.
Section seventeen, entitled, "Rights of non-consenting stockholders on voluntary sale of franchise and property," provides that "If any stockholder not voting in favor of such proposed sale or conveyance shall at such meeting, or within twenty days thereafter, object to such sale, and demand payment for his stock, he may, within sixty days after such meeting, apply to the Supreme Court * * * for the appointment of three persons to appraise the value of such stock, and the court shall appoint three such appraisers, and * * * also direct the manner in which payment for such stock shall be made to such stockholder. * * * When the corporation shall have paid the amount of such appraisal, as directed by the court, such stockholder shall cease to have any interest in such stock and in the corporate property of such corporation and such stock may be held or disposed of by such corporation." (Stock Corporation Law [L. 1909, ch. 61], §§ 16 and 17; Consolidated Laws, ch. 59, §§ 16 and 17.)
The appellant claims that the sale of the calendar department is in the line of its ordinary business; that it is a lawful corporate act regardless of section sixteen and that it did not give to the dissenting stockholder the rights created by section seventeen.
The substance of the sections in question was first enacted by chapter 638 of the Laws of 1893, probably to meet the situation as it was left by a line of judicial decisions ending in 1892. The valuable opinion of Judge ALLEN in Abbot v. American Hard Rubber Co. (33 Barb. 578), after standing the test of time and criticism for thirty years, was followed by People v. Ballard ( 134 N.Y. 269). These cases and those which intervened established the law that a corporation cannot sell all its property, or even a part thereof so integral as to be essential for the transaction of its ordinary business, because such a sale is wholly or partly an act of self-destruction and a practical dissolution without compliance with law.
The discussion of the subject in the various opinions suggested two evils: (1) The injustice to the bulk of the stockholders from want of power in a corporation to sell its business or an essential part thereof to another corporation organized for the purpose, frequently from its own membership, on terms deemed advantageous by the holders of a large majority of the stock. (2) The injustice to minority stockholders of requiring them to abandon, change or limit their business if the majority should have the power to direct such a sale. An incidental evil was the power of a dissenting stockholder to compel the majority to buy him out on his own terms in order to secure unanimous consent with no one left to question the transaction.
These evils could be remedied only by legislation, for the courts cannot provide against inherent defects in the creation of corporations. The act of 1893 is reproduced and amplified by sections sixteen and seventeen of the statute now in force. This legislation was designed to meet the evils pointed out by the courts by enabling a majority of two-thirds to sell if they deemed it was the best policy, and at the same time to protect the minority, if they regarded the sale as opposed to their interests. The situation when the original act was passed points to the purpose of the legislature and throws light on the meaning of the words used to express its intention. Notwithstanding the broad language of section sixteen, it is obvious that it was not addressed to ordinary sales by a corporation, nor even to those extraordinary in size but still in the regular line of its business, for such sales would have been valid without amending the Stock Corporation Law. We are not now called upon to lay down a rule embracing all the cases covered by the statute, but simply to decide whether the facts of this case bring it within the sections under consideration.
The sale before us was not made in the ordinary course of the business of the corporation, for it was not organized to sell calendar departments, or any department that would involve going out of business pro tanto. It was not a sale of calendars over the counter or on the road, but of the "business assets and property," including the good will, of an independent and important branch of its business, and the large price agreed upon indicates the actual value of what was sold. The parent company lacked capital to carry on the department, and, as the learned counsel for the appellant states, "the sale was a business necessity," which implies that it was not in the ordinary course. By the sale of the good will the corporation would be prevented from ever engaging in that kind of business again, and while not in form a sale of its franchise to that extent, it would be in effect, because it could no longer exercise its franchise to make and sell calendars. One of the powers conferred by the charter would thus be parted with, and the right to carry on a line of business authorized by the law of its being would be permanently gone. It could not do a kind of business duly authorized by its charter as it had before. As an arm of a living man may become paralyzed and useless, so an arm of the appellant would become paralyzed and useless by a sale such as the one described. As the living arm could no longer lift, or touch, or exercise its cunning, so the arm of the artificial being could no longer make calendars, or sell them, or enter into contracts relating thereto. Its own action would result in complete paralysis of every power required to conduct a calendar department and to this extent it would go out of business. Such a sale would, therefore, be corporate suicide to a certain extent, and to that extent a sale or abandonment of the charter. While a natural person may do anything within the limits of his physical and mental capacity not forbidden by law, an artificial person can do nothing except as authorized by law. The sale in question would not be valid without resorting to section sixteen, and by resorting to that section the appellant opened the door for the respondent to enter and demand his rights under section seventeen. The claim that the earlier section was not invoked by specific mention in the notice calling a meeting of stockholders to authorize the sale, is met by the statement therein that "under the charter of the corporation the calendar department cannot be transferred to a separate corporation without the authorization of the holders of two-thirds of the capital stock." While this did not refer directly to the Stock Corporation Law it did indirectly, for every statute which adds to or takes from the power of a corporation is a part of its charter.
As the appellant availed itself of the privilege conferred by the statute, it must comply with the condition prescribed for the exercise thereof.
The order appealed from should be affirmed, with costs.
CULLEN, Ch. J., GRAY, HAIGHT, WERNER, WILLARD BARTLETT and CHASE, JJ., concur.
Order affirmed.