American Elementary Electric Co. v. Normandy

delivered the opihiou of the Court:

The fact stands forth that the only possibility for a realization of any of the hopes of the stockholders of the defendant company lies in the successful exploitation of the Engle invention, and, for reasons which we shall state later, it is clear to us that to grant the relief prayed by this bill would be destructive of the enterprise. We make these general observations now to emphasize the necessity for a clear and unequivocal statement of facts relied upon by the plaintiffs before such a result will be made possible by the court. And where, as here, such statement is vague and indefinite, and the answer is specific and under oath, the evidential value of that answer must be kept in mind. Vigel v. Hopp, 104 U. S. 441, 26 L. ed. 765; Campbell v. Northwest Eckington Improv. Co. 229 U. S. 561, 574, 57 L. ed. 1330, 1336, 33 Sup. Ct. Rep. 796.

Turning now to the bill, we find that plaintiffs are not owners of a “large portion” of the capital stock of the District Company, but, on the contrary, are the holders of an almost infinitesimal number of shares. Of course, the holder of. but one share is entitled to full protection of his rights, but such an extravagant statement at the outset of a bill does not tend to increase the confidence of the court in the exactness of subsequent statements.

The next averment is to the effect that Engle’s holdings of stock were fraudulent and void because issued to him upon alleged false statements and misrepresentations regarding his invention. But plaintiffs’ holdings are of those very shares, and it is not even averred that purchase thereof was induced by any misrepresentations. It must be assumed, therefore, that plaintiffs were fully informed as to the facts when they purchased their stock, and that assumption does not leave plaintiffs in a position to challenge the original transaction.

Plaintiffs further aver that they are holders of “securities” known as “state option contracts, series A and B,” but the bill stops there. Turning to the answer we find that instead .of being securities, these so-called State option contracts were *339merely agreements entitling the holder thereof, upon the performance of his undertakings, to certain shares of stock as a bonus. But the bill does not specify any particular options, nor is there any allegation of performance by plaintiffs of the antecedent conditions. In other words, there is no averment from which the court can find that plaintiffs were entitled to receive anything from the District Company on account of their so-called securities. And the averment that Engle misappropriated $65,000, which it is alleged he received on account of such “securities,” likewise is open to criticism on the ground of vagueness. If, as appeal's from the answer, the amount received by Engle was in payment for 1ns own stock, and he defrayed the necessary expenses of the company as he had undertaken to do, there was no foundation for this averment.

We come now to the question whether, as minority stockholders, these plaintiffs may prevent the District Company from turning over its assets to the Arizona Company for the purposes indicated. That the articles of incorporation of the District Company were voidable is clear under the decision of this court-in Dancy v. Clark, 24 App. D. C. 487. A corporation may not be lawfully formed here to accomplish all the objects enumerated in those articles, and no primary purpose is expressed, nor is one deducible from the language used. Consequently, the objects enumerated must be viewed as a whole, and, when so viewed, it is apparent that there was no warrant in law for the incorporation.

Operating under a voidable charter, the situation was still further complicated by the change of name, and no one is subject to particular criticism on this score, because the change was the result of a court proceeding in which evidently there was a misconception of the law. It goes without saying that a corporation has no power, unless authorized by law, to change its name; and it has been held that an unauthorized change of name is an abandonment not only of the corporate name, but of the corporation itself. Cincinnati Cooperage Co. v. Bate, 96 Ky. 356, 49 Am. St. Rep. 300, 26 S. W. 538, 7 R. C. L. ¶ 98. The change of name destroys the identity of the corporation. *340The proceeding most frequently adopted to effect a change in the name of a corporation has been by special act of the legislature, unless there is a general provision authorizing such change. Illinois Watch Case Co. v. Pearson, 140 Ill. 423, 16 L.R.A. 429, 31 N. E. 400. In the present case, the supposed authority for the change of name is to be found in secs. 1298 to 1300, inclusive, of the Code [31 Stat. at L. 1394, chap. 854]. Section 1298 formerly permitted “any person of full age” and a resident of the District to change his name by appropriate petition. As amended, the section now permits “any person” who is a resident of the District to change his name by petition in equity, and “in case the applicant is an infant” the petition must bo filed by the parent, guardian, or next friend. In construing the Code the word “person” must be held to apply to partnerships and corporations, “unless such construction would be unreasonable.” In view of the language used in the sections referred to, we think it so plain that Congress was referring to natural persons that to include corporations would be an unreasonable construction of the provisions. Congress, of course, had in mind that an individual is not a creature of the statute, and that the consequence of a change of his name ¿s far different from that of a change of a corporate name. The intent to include corporations, therefore, should be clear. The attempted change of name by the District Company was abortive and constituted a still further infirmity.

This was a private corporation, formed solely for the pecuniary benefit of its stockholders. Had all the stockholders assented, therefore, the sale of assets of the District Company to the Arizona Company might have been accomplished, for no question of public policy was involved. The question, then, is whether these few stockholders may control the policy of the many, when the latter are acting in good faith and in the apparent interest of all. It now is settled law that a minority of the stockholders of a corporation cannot hold a majority to an unprofitable and hopeless enterprise. “By accepting a charter they do not undertake to carry on the business for which they are incorporated indefinitely, and without any regard to the condi*341tion of their corporate property. Public policy does not require them to go on at a loss. On the contrary, it would seem very clearly for the public welfare as well as for the interest of the stockholders, that they should cease to transact business as soon as, in the exercise of sound judgment, it is found that it cannot be prudently continued.” Treadwell v. Salisbury Mfg. Co. 7 Gray, 398, 66 Am. Dec. 490.

In Bowditch v. Jackson Co. 76 N. H. 351, L.R.A.1917A, 1174, 82 Atl. 1014, Ann. Cas. 1913A, 366, after a statement of the rule that a majority may close out the affairs of the company when reasonable profits no longer can be made, the court-said : “If the majority may sell to prevent greater losses, why may they not also sell to make greater gain ? Pearing 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.”

Beidenkoph v. Des Moines L. Ins. Co. 160 Iowa, 629, 46 L.R.A.(N.S.) 290, 142 N. W. 434, contains a careful discussion of the question. It there was ruled that where a majority of the stockholders of a going and solvent insurance company, acting fairly and upon reasonable grounds, and for substantial business reasons, decide that the interests of all concerned require a sale of all of its assets to another company, equity will not interfere by the issuance of a temporary injunction at the suit of a minority stockholder.

In Tanner v. Lindell R. Co. 180 Mo. 1, 103 Am. St. Rep. 534, 79 S. W. 155, the right was recognized of a majority of the stockholders to rule within reasonable bonds, and it was held that “because all the stockholders have not' consented to the sale (of the assets) it does not follow that the sale will be set aside regardless of the consequences.” The court stated the general rule to be that an injunction will not be granted “when it will be productive of greater injury than will result from a refusal of it.”

In Bartholomew v. Derby Rubber Co. 69 Conn. 521, 61 Am. St. Rep. 57, 38 Atl. 45, a manufacturing corporation, being unable to raise the capital necessary to continue its business with *342profit, in good faith leased its plant for a term of years, with a privilege of purchase. The minority stockholders attempted to have the lease adjudged void and set aside, but it was upheld by the court. See also Post v. Beacon Vacuum Pump & Electrical Co. 28 C. C. A. 431, 50 U. S. App. 271, 84 Fed. 371; New Hampshire Sav. Bank v. Richey, 58 C. C. A. 294, 121 Fed. 956; Levering v. Bimel, 146 Ind. 545, 45 N. E. 775; Phillips v. Providence Steam Engine Co. 21 R. I. 302, 45 L.R.A. 560, 43 Atl. 598; 1 Morawetz, Priv. Corp. Sec. 413; 4 Thomp. Corp. Sec. 4443; 7 R. C. L. Sec. 287.

In the present case the majority stockholders, finding that they were operating under a voidable charter, that the attempted change of the name of the corporation had still further complicated the situation, and that under the laws of the District of Columbia it would be impossible to carry- out their so-called State option contracts, were compelled either to take the action they did take or permit the corporation to come to an immediate and disastrous end. That something was necessary to be done is apparent, and we are unable to perceive anything irregular or suspicious in what actually was done. All the assets of the old company were turned over to the new, and all the obligations of the old were assumed by the new company. . The rights of the minority stockholders were as carefully provided for and safeguarded as were the rights of the majority. The question therefore resolves itself into one of power, and under the rule announced in the ease to which we have referred there is no room to doubt that power, and no ground for holding that it was unlawfully exercised.

The exercise of discretion by the trial court in issuing writs of certiorari, appointing receivers pendente lite, and the like, must be in accordance with established rules and precedents. Billings v. Field, 36 App. D. C. 16. And when, as here, it appears that there has been a departure from such rules and precedents, the appellate court will not hesitate to act. It follows that the decree must be reversed, with costs, and the cause remanded for further proceedings not inconsistent with this opinion. Reversed and remanded.