#### Harvey Hoag, Suing on Behalf of Himself, The Acme Land Company, Etc., Plaintiff, *v.*James M. Edwards et al., Defendants.

(Supreme Court Erie Equity Term,

October, 1910.)

Corporations: Who may question corporate existence — Estoppel to deny corporate existence — Estoppel of shareholders or incorporators: Eights of stockholders and actions by them — In general: Interest of individual corporators in corporate assets; Right of shareholders to sell or transfer corporate assets; Rights of minority stockholders — Right to dictate policy of corporate action.

Where a corporation, after the expiration of its legal existence, maintained unchallenged a *ele facto*existence and organization, the plaintiff, in a stockholder’s •action brought not to avoid a conveyance of realty made by the directors in fraud of the corporation but to recover damages sustained by the corporation in consequence of such fraud, having thus recognized the corporate existence, is estopped from questioning corporate acts otherwise valid, on the ground of the expiration of the legal existence of the corporation.

A stockholder has no right to an individual share iof the assets on the winding up of the business of ilie corporation, but only a right to participate in the proceeds of a sale.

At common law neither the directors nor a majority of the stockholders have power to sell or otherwise transfer all the property of a going, prosperous corporation as against the dissent of a single stockholder; but, where the corporation is without available capital and without the means of procuring it and with its *(te jure*corporate existence at an end, where the further prosecution of its business will he unprofitable if not impracticable, a vote of the majority of the stockholders for a sale of the corporate property and the close of the business of the corporation is justified.

A single stockholder has no right in law to set up his judgment against the judgment of his associates and dictate the policy of the corporation acting within its corporate powers.

*238Stookholdeb’s action to recover damages for sale of real property by corporate directors in fraud of the corporation.

Trial by court without a jury.

George D. Judson, for plaintiff.

William Carter (E. A. Hash, of counsel), for defendants Edwards and others.

Pound, J.

This is the usual form of stockholder’s action brought in the right of the corporation. Plaintiff sues to recover the value of certain lands as damages alleged to have been sustained by the corporation (and, through it, by plaintiff) by reason of the sale by the directors, with authority of a majority of the stockholders, of the corporate realty, as it is claimed) for a grossly inadequate consideration and in fraud of the corporation.

The corporation was organized in the year 1889 to purchase, and did purchase, a tract of about thirty-four acres of land near the city of Buffalo, to be cut up into building lots and sold. It bought on a rapidly rising market; but, after a few lots were sold, the bottom' dropped out of the real estate market for such lots and traffic in them entirely ceased. The stockholders had put over $33,000 into the land and it was still encumbered for about $7,000. The term for which the corporation was originally organized had expired in the year 1899, although, as it maintained an unchallenged *de fado*existence and organization, plaintiff, at least, is estopped to question its corporate acts, otherwise valid, on that ground; for he brings this suit as a stockholder to recover damages, not to avoid the conveyance, thereby recognizing the corporate existence. A sale of the entire tract was had in the year 190é, on no other consideration than that the grantees would assume and pay the liens on the land. This was at the rate of about $200 per acre, a small fraction of the purchase price. Plaintiff owned about one-eighth of the capital stock when the conveyance was made, and he alone dissented from the action of the stockholders and directors: *first,*because a proposition on his part to participate in the trans*239fer of the land from the corporation to the extent of his proportionate share of the capital stock in consideration of his assuming his proportionate share of the liens was not accepted; *second,*because, as he claims, the property was unlawfully and unnecessarily sold as a whole, and not held for sale as lots, according to the original corporate purpose; *third,*because the consideration was grossly inadequate and the corporation was thereby defrauded.

As to the first proposition, the directors and the other shareholders, having no desire to cany the property themselves, might well consider it inexpedient to seek purchasers for -an undivided seven-eighths of the property on these terms, leaving plaintiff a tenant in common to the extent of his proportionate share interest. A stockholder has no right to an individual share of the assets on the winding up of the business, but only a right to participate in the proceeds of a sale.

As to the second proposition, it may he said that, at common law, neither the directors nor a majority of the stockholders have power to sell or otherwise transfer all the property of a going, prosperous corporation, able to achieve the objects of its creation, as against the dissent of a single stockholder. This doctrine is firmly established by the authority of adjudged cases, and rests upon the soundest principles. But, upon the facts found in the case before us, we see no reason to doubt that the vote of the majority of the stockholders, for the sale of the corporate property and the closing of the business of the corporation, .was justified by the condition of their affairs. Without available capital, and without the means of procuring it, and with their *de jure*corporate existence at an end, the further prosecution of their business would be unprofitable, if not impracticable. Under these circumstances, no rights of creditors interfering, .it was in furtherance of the purposes of the corporation to pay their debts and close their affairs on terms deemed most advantageous to them. Skinner v. Smith, 134 N. Y. 240, 250. The State has ratified and approved the conveyance as the corporate act of an existing corporation (Laws of 1910, chap. 320), but that act has no effect on this action.

*240A-s to the third proposition, which, is the vital one in this ease, as the property stood at the time of the sale, it had no present market value beyond its value as a single tract of land not very advantageously situated. Its speculative value had, for the time, wholly vanished. The interest and the costs and expenses of a foreclosure sale, added to the amount remaining due and unpaid on the mortgage, would in all probability have absorbed all the company's equity and quite possibly have resulted in a deficiency judgment against it. It does not appear that an additional dollar could have been borrowed on tlio company’s credit, and it bad practically no assets outside of the laud. The judgment of the stockholders, in making the sale instead of hanging on, may or may not have been poor. Enough to say that the case is devoid of proof that they acted in fraud of the company or of plaintiff. On the contrary, they seem to have acted after careful deliberation, at a large sacrifice to themselves, and in the exercise of their honest judgment.

The holding price or valuation of lots which could not be sold is mot satisfactory evidence of the market value of this tract in the midst of a long period of depression, and it is on such values that plaintiff’s case rests. Defendants were fully justified in resting their case on acreage values rather than on lot values. The company made a bad investment. Their speculation failed. Their equity had little or no value. The natural impulse of the majority was to see the speedy end of a disappointing deal.

A single minority stockholder has no right in law to set his judgment against the judgment of his associates and dictate the policy of the corporation within its corporate powers. The majority has no right to act fraudulently or oppressively against him, but he impliedly agrees that the will of 1lio majority shall govern in all matters coming within the limits of the charter or act of incorporation.

Plaintiff has failed to make out a case under the well-established rules of law controlling here, and his complaint must be dismissed on the merits. Submit requests to find and prepare decision accordingly.

Complaint dismissed.