Court Opinion

ID: 5170394
Source: CourtListenerOpinion
Date Created: 2022-01-02 04:54:04.304437+00
Date Added: 2024-06-11T08:26:03.728370
License: Public Domain

SULLIVAN, J.,
Dissenting. — I am unable to concur in the conclusion reached by the majority of the court. The Twin Falls Canal Co. is an operating company on a Carey act project, and was not organized for the purpose of making a profit for its stockholders, but for the purpose of holding title to the canal system and water right belonging to the *396water users under said Carey act project, and to maintain and operate said system not for pecuniary profit. The majority lay more stress upon the title to chap. 14, title 4, in which are included secs. 3011 to 3026, than the provisions of the sections therein would warrant. Sec. 3011 provides as follows: “Any number of persons associated together for any purpose where pecuniary profit is not their object, may incorporate themselves as provided in that title,” and the majority say in their opinion that the Twin Falls Canal Company is neither religious, social nor benevolent, and at the same time concede that it is not organized for pecuniary profit. The codifier of the statutes gave that chapter a title, which title only expressed the views of the codifier and not of the legislature that enacted said law. The provisions of that chapter clearly include every corporation, the object and purpose of which is not pecuniary profit. See. 3016 of said chapter refers to all “corporations organized for purposes other than for profit,” thus clearly showing by that section that it was intended to include all corporations where pecuniary profit was not their object. Such a corporation cannot organize under the general law by simply so declaring in their articles of incorporation. If they are organized when pecuniary profit is not their object, they then come within the provisions of said chapter, regardless of what may be declared in their articles of incorporation.
The real object and purpose of said canal company was to hold the legal or paper title to said canals, etc., and operate the canal system and do all things necessary to be done in “conducting the business of supplying its stockholders with water for irrigation purposes.” It is simply an operating company — a trustee for those who own the equitable title to said < irrigation system and water rights.
Sec. 3015 of said chapter provides that directors or trustees of such corporation may mortgage or sell the real estate held by them whenever a majority of the members of said corporation present at a meeting called as therein provided may so direct by their vote. The directors of such a corporation have no authority to mortgage or sell the real estate *397belonging to it without a majority vote of its stockholders, and the board of directors of said canal company evidently understood that it required a majority vote of the stockholders to authorize them to mortgage all of the property belonging to it, for at a regular session of said board held on August 8, 1911, when the board considered the necessity of improving said canal system and establishing other reservoirs, a resolution was passed by the board directing a special meeting of the stockholders to ,be called for the 9th of October, 1911, at the hour of 10' o’clock A. M., at the offices of the corporation at Twin Falls, in Twin Falls county, for the purpose of deciding whether “the board of directors shall be authorized to issue the bonds of this corporation for said amount [$300,000] for the purposes mentioned, together with the rate of interest, time of maturity, and all other matters concerning the issuance of said bonds.” Said motion was carried unanimously by the five directors and the proper notice was given of such meeting and the meeting was held, and at said meeting the board was not authorized by a majority of the stock to issue said bonds. A majority of the stock was not represented at said meeting. The board evidently “took the bit in their own teeth, ’ ’ and determined they would saddle this indebtedness upon the property belonging to said shareholders without their consent, which, as I view it, they had no right or authority to do. Under said articles of incorporation, and under the law, the board of directors had no authority to mortgage or bond the property belonging to said corporation without the assent of those holding a majority of the stock, which assent must be procured in the regular manner. While the corporation has authority under its articles of incorporation and by-laws to borrow money, no such power is conferred on the board of directors under its articles of incorporation or by-laws. 'If they are permitted to mortgage this-property and the shareholders lose title thereto through foreclosure of the mortgage, the board of directors will be permitted to do indirectly what they are not authorized to do directly; that is, to sell or dispose of such property or put it in a position by mortgaging it that the title will be lost *398to the real owners. (See 3 Thompson on Corp., sec. 2563.) A different rule is applicable to ordinary business and commercial corporations whose object and purpose is pecuniary profit.
The majority hold if said mortgage should be foreclosed, the purchaser would take the entire property covered by the mortgage, which would include, in this ease, the canal system, dams, reservoir, water appropriations, easementseand rights of way, and the land owners would be left with their worthless paper certificates of stock in the defunct canal company, and that company would have no irrigation system and no water for distribution.
It is held by the majority that if the land owner should thereafter procure water from the purchaser, he would be under the necessity of paying such reasonable rates as might be established in conformity with law. In other words, he would be permitted to purchase another water right which might be taken away from him by another board of directors mortgaging the system, provided it was purchased by a corporation. This, no doubt, would be a great benefit to the stockholder to permit him to purchase his water right a second time.
It is a well-settled rule of law that no board of directors has the right and authority to dispose of all the property of the corporation, both real and personal, unless they are given such authority by the articles of incorporation or by by-laws or by a vote of the majority of the stock. Boards of directors of commercial corporations which are organized for the purpose of conducting a business and making a profit out of it are generally given authority by the articles of incorporation and by-laws to contract indebtedness and provide ways and means for the payment of it. But a different rule applies to said canal company, the sole purpose and object of which is to hold title to the property belonging to stockholders, and, as stated in the articles of incorporation, to conduct “the business of supplying its stockholders water for irrigation and domestic purposes.” The stockholders of this corporation had the right, under the law, to control, *399by a majority vote of the stock, the borrowing of money and giving of a mortgage to secure the payment thereof, but the board of directors had no such authority unless first authorized to do so by the stockholders. Said corporation ought not to be permitted to do anything that would nullify valid liens or encumbrances now existing against said property.
Much more might be said in regard to the board of directors of such a corporation not having autocratic power under the law to sell the property of the corporation outright or to dispose of it indirectly by giving a mortgage thereon, which may by foreclosure as effectually deprive the stockholders of their property as if the board of directors sold it directly, but I will refrain.
The judgment of the trial court ought to be reversed and the stockholders given the opportunity to pass upon the question of incurring said indebtedness, as said indebtedness is not intended to be incurred for the payment of any present indebtedness due from the corporation to anyone.