Court Opinion

ID: 6639583
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:44:21.335707+00
Date Added: 2024-06-11T15:59:11.624140
License: Public Domain

ON RE-HEARING.
Per Curiam. Appellants have moved for a re-hearing on several grounds, which we shall very briefly consider.
1. It is insisted that respondents have no standing in equity, for the reason that the shares standing in their names were not held by them at the time the acts complained of were committed, and have not devolved upon them since by operation of law. This contention was fully presented on the hearing, is discussed in subdivision 2 of the opinion, and held untenable, because respondents were the owners of the shares when they sought to obtain the injunction restraining appellant from voting the stock controlled by them in favor of ratifying the transfer theretofore attempted to be made, and from authorizing a transfer in the name of the Montana company to the New York company. Counsel seem to labor under the impression that the court has overlooked the fact that respondents were not owners at the time the directors made the transfer, and urge that this alone is sufficient to defeat them. We cannot agree with counsel. The statement of facts preceding the opinion discloses that the shares were never voted in favor of the transfer, and that the former owners m no wise assented thereto; hence the stock reached respondents free from any such burden or taint in respect to the proceedings taken by the directors as perhaps might have *566followed upon consent or acquiescence in the transfer by the former owners. Appellants fail to recognize the distinction between the right of the holder of shares to complain of an ultra vires act committed before he acquired them, which the former owner neither participated in nor assented to, and the attitude of one acquiring shares with knowledge that the former owner had voted them in favor of the act afterwards sought to be annulled by the later holder. In the one case the present holder is not estopped or debarred from maintaining suit, unless by force of some statute or rule of court, while in the other case it would seem that the assignee of the shares would succeed to, and be affected with, the disability of the prior owner to object to the act which theretofore had been approved by him. [See Morawetz on Private Corporations, Sections 261 — 268.)
Counsel assert that so much of equity rule 91, promulgated by the Supreme Court of the United States, and quoted in the opinion, as requires the complaint to contain an allegation that, the plaintiff was a shareholder at the time of the transaction of which he complains, or that his share has devolved upon him since by operation of law, is but declaratory of the equity practice. No such principle, however, has ever prevailed in courts of equity. On the contrary, the transferee in good faith, who has acquired his shares after an ultra vires act has taken place, obtains, to say the least, the rights possessed by the prior holder, and the transferee’s right of action is derived by purchase of the shares from the former owner; and if the former owner has neither voted the shares in favor of, nor acquiesced in, the unauthorized act, the transferee is not disqualified from maintaining a suit to annul such act, upon the ground' that he was not a shareholder at the time of the transaction of which he complains. The doctrine is so well established, and rests upon such solid foundations, that citation of authorities seems useless. We venture, however, a quotation from the opinion in Winsor v. Bailey, 55 N. H. 218, one case out of the multitude which recognize the doctrine: “It is contended for the defendants that the bill is *567defective, in not showing that they were owners of stock at the time of the alleged wrongful payment to some or all of the defendants. No authority is referred to in support of this position', and I see no sound reason upon which it can be sustained. To hold so would seem to involve the singular consequence that the transfer of stock in a corporation extinguishes the right to inquire into the previous fraudulent conduct of its officers, whereby its funds have been misappropriated. * * The plaintiffs allege that they are stockholders in the Hooksett Manufacturing company, and specify the number of shares owned by each, but do not allege that that they were stockholders at the time the dividend was paid the defendants. But that is not necessary, and it is immaterial whether they were or not. The transfer of the .stock conveyed to them, not only the ownership of the shares, and the right to the future dividends thereon, but also placed them on an equal footing with the other stockholders in respect to the right to call the officers and agents of the corporation to an account for their fraudulent conduct.”
Appellants rely upon the remarks of the court in Alexander v. Searcy, 81 Ga., at page 550, S. E. 630, to the effect that, by the weight of authority, a person who did not own stock at the time of the transactions complained of cannot maintain suit to have them declared illegal, to which are cited some federal decisions. The view of the Georgia court is founded upon an erroneous assumption that the rule peculiar to the federal courts is declaratory of equity practice, or is to be observed in state courts. That portion of equity rule 94 which appellants say ought to govern here, and which, so far as the United States courts are concerned, obliterates the ivell-founded distinction indicated, was adopted by the federal supreme court, after the decision in Hawes v. Oakland, 104 U. S. 450, as a measure tending to prevent the bringing of suits in federal courts which the jurisdiction of those courts is not intended to embrace, and which are properly cognizable in the state courts. But neither the rule nor the peculiar reason upon which it rests should be followed by state courts *568in administering the general principles of equity. The following quotation from section 269 of the treatise of Mr. M or a wet z on Private Corporations is pertinent: “The supreme court has authority, under the judiciary act, to establish rules of practice, but not to alter the substantive law, Equity rule 94 is mainly declaratory of the existing law. The only material change which it makes is to require the plaintiff to show that he was a shareholder at the time of the transaction of which he complains, or that his share has devolved upon him since by operation of law. This require, ment was evidently designed as a rule of practice merely, and was deemed by the supreme court to be necessary in order to guard the courts from being imposed upon by collusion of the parties.” To the same effect, see Cook on Stock and Stockholders, Sec. 737; Wait on Insolvent Corporations, Sec. 628; Spelling on Private Corporations, Sec. 467. Were equity rule 94 applied in all courts, the holders of shares purchased after the doing of an act ultra vires would be remediless; for no tribunal could take cognizance of, or undo, the wrong perpetrated.
2. It is next claimed that “the evidence conclusively, and without contradiction, establishes that Forrester and MacGinnis bought this stock for the purpose of bringing this action” in the interest of a rival corporation, and that the court below did not make a finding to the contrary. As to the point that the evidence does not justify the conclusion which was reached by the court below, we quote from subdivision 3 of the opinion: “The court below found that plaintiffs owned the shares, and that they were acting in good faith, and we cannot say that the evidence received on the hearing so clearly proves the contrary as to warrant us in deciding that the lower court erred in determining the question as it did. On the hearing of the application for the injunction pendente lite, the matter was one peculiarly within the discretion of the court below.” This we reaffirm. We have again examined the testimony preserved in the record, and now add that the inferences deducible therefrom would *569have justified the court below in determining either that plaintiff's, in acquiring the shares and bringing the suit, were prompted by improper motives, or that they did so in good faith. Whether or not there was a formal finding sufficient to withstand technical objections of the most refined subtlety, we do not pause to discuss; nor is it necessary to decide whether express findings of fact are recognized in practice as properly the basis of an intermediate order, since the presence or absence of such a finding in the present case is not material. Where the evidence is in substantial conflict, or (which is the same thing) where the evidence is reasonably susceptible of different inferences, the trial court must (at least, in the absence of express findings) be presumed to ■ have impliedly found every fact necessary to support its interlocutory injunction order, or, rather, in a case on appeal from such order, is presumed to have determined the question upon which the conflict exists in favor of the prevailing party. We again refrain from intimating any opinion as to whether a purchase of stock with the intention of suing in the interest of a rival corporation, and not for the benefit of nonassenting shareholders only, would entitle plaintiff to relief. The facts disclosed do not demand the expression of an opinion upon that question.
3. Our attention is called to the opinion in Campbell v. Argenta Gold and Silver Mining Co., 51 Fed. 1, in which it was held that the act of the president and secretary in making a mortgage of the entire property of a mining corporation in pursuance of the unanimous vote of stockholders at a meeting not called or held in conformity with Section 468 of the Fifth Division of the Compiled Statutes of 1887 is not ultra / ires, but as against all the world, except the corporation and its stockholders (who were, under the facts, estopped), is valid; and, in commenting on this opinion, counsel say: “As we understand it, the act ultra vires is one that under no circumstances could a corporation perform, and that, if the act is such as is within the power of the corporation to perform under the circumstances, it is not ultra vires, but intra vires.' ’ *570There should be no question as to the sense in which this court employed the term, for we declared in paragraph 6.of the opinion: “The defendants claim that the power so to transfer exists, while plaintiffs assert that the action intended to lie taken is ultra vires the corporation; employing that term in its strict sense, as designating acts which are- beyond the powers of a majority, or of any number less than all, of the stockholders, as against the minority.”
4. It is again urged that the New York company is not only a purchaser for value, but, in issuing its stock for the property, became a purchaser in good faith — as much so as if money had been paid for the property — and that, therefore, the court, in deciding that the transfer was not a sale, is in error as to the law. The opinion carefully considers this argument, and we are satisfied with the course of reasoning and the conclusion reached.
5. Appellants renew their contention that Sections 492} 493 and 494 of the Fifth Division of the Compiled Statutes of 1887 constitute an enabling act, which grants to stockholders owning two-thirds of the shares power to effect, through directors or officers, a disposal of all the property of a solvent and prosperous corporation, notwithstanding the dissent of other stockholders. No new reasons have been advanced in support of appellants’ position, and, upon further consideration, we are entirely satisfied with the determination heretofore made.
6. Section 405 of the Code of Civil Procedure provides: “An attorney and counselor must not, directly or indirectly, buy or be in any manner interested in buying, a bond, promissory note, bill of exchange, book debt, or other thing in action, with the intent and for the purpose of bringing an action thereon. ’ ’ In their brief upon this application, appellants invoke the provisions of this section. It appears that plaintiff Forrester, who resides and practices his profession without the state of Montana, is one of the attorneys of the Montana Ore Purchasing Company. Counsel say they “do not contend that section 405, literally construed, applies exactly to Mr. For-*571Tester’s position,” but suggest that a broad view of the statutes would include it. We might dispose of this contention by referring to what has been said in the original opinion, and here, in respect of the conflict of the evidence as to the purpose of plaintiff's in purchasing the stock and bringing the suit, but we prefer to state some of the reasons why section 405 is inapplicable. In the first place, plaintiff MacGinnis is free from the supposed disability alleged against Forrester. Again, the action was not brought upon a thing in action. Our statute seems to have been borrowed from New York, which 1 as a section identical in effect with section 405; and in Ramsey v. Gould, 57 Barb. at page 408, the court, in construing the section, said: “The chose in action intended by the statute is one on which a suit can be brought. This action is not brought upon the stock. That is riot the cause (subject?) of action; and although, in some respects, it may resemble a chose in action, it is not strictly such. The statute is a penal one, and cannot be extended to what is not expressly included in it. It is plain, I think, that the purchase of stock was not a violation of the statute, and that the complaint cannot be dismissed upon this ground.” And of this we approve. Moreover, the point that section 405 is applicable to Forrester was not made on- the argument upon which the case was submitted; and the general and well-founded rule is that the supreme court will not, ordinarily,' on application for a rehearing, consider grounds which were not presented on the hearing. (Merchants’ National Bank v. Greenhood, 16 Mont. 460, 41 Pac. 250, 851.) While there seems to be no reason why the rule should be departed from in this case, or why this motion should be excepted from its operation, yet the statute relied on is so manifestly without application that ive feel no hesitation in so declaring.
7. Another reason urged in support of the motion for a rehearing is that “the decision conflicts with the whole weight of authority of the best considered American cases. ’ ’ The result of attentive examination which we have given to the citations furnished us by appellants fails to sustain their assertion.
*572The foregoing disposes of every point made by appellants which is worthy of comment. After full discussion, participated in by all the justices, we are, upon mature reflection and deliberation, satisfied that the better reasons, as well as the established principles of law, sustain the decision heretofore ren.lered; and such is the unanimous opinion of this court. The motion for a rehearing is denied.

Motion denied.