Court Opinion

ID: 9790314
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:51:00.500771+00
Date Added: 2024-06-11T07:37:28.477349
License: Public Domain

WORTHEN, Justice
(dissenting).
I dissent.
I am in agreement with Mr. Justice HENRIOD that the contribution of corporate funds to the Union Pacific Railroad Foundation cannot be sustained under the 1955 amendment to Sec. 16-2-14, U.C.A.1953 since to so hold would give retrospective effect to the same. I am likewise in accord with him that without the said amendment there is not in the statutes of this state any authority specifically authorizing such dona*108tion. I also am in concurrence with Justice HENRIOD that there is no express power in appellant’s Articles of Association dated July 1, 1897, nor is there any such express power contained in any of the amendments to appellant’s articles.
It is strange indeed that the majority opinion finds the exercise of the power here justified as incidental to or connected with the carrying into effect or the accomplishing of the general purposes of the corporation as expressed in the object clauses of its articles. Such power certainly is not necessary, usual or incidental to its business.
The Utah Constitution, Article XII, Section 10 provides:
“No corporation shall engage in any business other than that expressly authorized in its charter, or articles of incorporation.”
The objects and purposes of the appellant as authorized in the Articles of Association spelled out the powers of a corporation for pecuniary profit, and not of one without profit motive.
The articles also contained the following:
“It may also from time to time amend these Articles of Association by filing amended Articles of Association, increasing the capital stock, or otherwise, agreeably with law, enlarging or changing the powers of the corporation hereby formed.”
It should be observed that on eight occasions between 1899 and May, 1953, amendments were made to the articles but in none was the corporation given power to make contributions to the public welfare, or for charitable, scientific, religious or educational purposes.
The question then for our determination is this — May the directors without authority having first been given by the stockholders make such contributions.
The directors have such power if it has been expressly granted. All concede that no specific grant of such power is anywhere present in the articles or in any amendment. If, then, such power is lodged in the directors the same must be found in some implied power reasonably necessary or expedient to the conduct of the business of the corporation. But no such implied power can be carved out for the purpose of doing anything that is inconsistent with the articles or with the Constitution or laws of Utah. How then stands the case?
The entire argument of the majority opinion is devoted to the claimed need of the recipients of the charity and scant attention is given to the question of the legality of the gift. It adopts that questionable philosophy that the end justifies the means. But we are bound by the Constitution, statutes and prior decisions of this court holding that the gift in question is en*109tirely outside the present powers of the corporation.
I cannot say that I am in disagreement with the lofty purposes announced by certain directors of appellant corporation, but what I do say is this: That the worth-whileness of the end and the aim envisioned by the directors is no proper substitute for stockholder authority to act as proposed.
The entire argument of the court’s opinion is devoted to the crying need of the recipients of the charity. We are satisfied that great need exists for private contributions in increasing amounts in order that private educational institutions of the country may continue operating in the style to which they have become accustomed or better. Only among the inhabitants of Sherwood Forest has need been accepted as justifying the end. An apparent fallacy of reasoning in the majority opinion is the assumption without citation of authority that “Endowment rivers that yesteryear coursed into private educational, charitable and religious institutions have become but trickles,” provoking the conclusion that business corporations must provide the funds to perpetuate these private institutions.
At the trial E. Roland Harriman testified :
“Q. Was there, post-war, in your thinking a degradation in the individual concept of responsibility toward charitable or educational or public welfare contributions? A. A ‘degradation’ did you say?
“Q. Yes. A. In other words did individuals give less?
“Q. What I am saying, did individuals conceive that they had less responsibility? A. No, sir. I believe the contrary. There are more people giving now than ever before.”
The leading case and the only case cited by the majority opinion which sustains the concept of implied power of a corporation to make a charitable donation is A. P. Smith Mfg. Co. v. Barlow.1 In that case the court held that the common law afforded full warrant for the contribution by the directors to an educational institution. The New Jersey Court in justification of the power claimed, said:
“The genius of our common law has been its capacity for growth and its adaptability to the needs of the times. Generally courts have accomplished the desired result indirectly through the molding of old forms. Occasionally they have done it directly through frank rejection of the old and recognition of the new. But whichever path the common law has taken it has not *110been found wanting as the proper tool for the advancement of the general good.” (Emphasis added.)
Neither path mentioned in said opinion is availible to us. We are charged with giving due consideration to our statutes and not substituting the common law for the same.
Our statute respecting the common law and statutory construction is stated in Section 68-3-2, U.C.A.1953, which provides :
“The rule of the common law that statutes in derogation thereof are to be strictly construed has no application to the statutes of this state. The statutes establish the laws of this state repec-ing the subjects to which they relate, and their provisions and all proceedings under them are to be liberally constmed with a view to effect the objects of the statutes and to promote justice. Whenever there is any variance between the rules of equity and the rales of common law in reference to the same matter the rules of equity shall prevail.” (Emphasis added.)
It is admitted that there was no statutory power for corporations to make charitable gifts in the laws under which appellant was organized, even though those statutes spelled out in considerable detail the power of corporations
The objects and purposes of the Union Pacific authorized in its Articles of Association are:
“ * * * to purchase, own, hold, enjoy, maintain, operate and further extend the railroad. * * * ”
This court has declared that only those powers necessary to the fulfillment of the express powers granted to the corporation will be implied. I cannot discern wherein the proposed gift is necessary, or even remotely calculated, to the fulfillment of the express (or implied) powers and purposes authorized by the corporate charter. It is stated by Fletcher 2 “A gift of its property by a corporation not created for charitable purposes is in violation of the rights of stockholders and is ultra vires however worthy of encouragement or aid the object of the gift may be.”
This court has held that our Constitution requires a strict interpretation of the articles to narrowly restrict the objects and purposes of the corporation to those stated in the articles.3 In that case the court quoted approvingly from an earlier Utah case and said:
“Implied powers of a bank, or of any corporation for that matter, are those incidental to and connected with the *111carrying into effect or the accomplishing of the general purposes of the corporation, as expressed in the object clause of its articles. When it has been determined that the acts done, or attempted to be done, are not within the powers of the corporation to do, no implied powers can validate such acts.” (Emphasis added.)
The main opinion observes that Congress has encouraged corporate contributions to charitable institutions by allowing a deduction for tax purposes. It is also observed that the American Bar Association Committee on Business Corporations has also encouraged, by resolution, legislation empowering corporate donations to charitable, scientific, religious and educational institutions. But the opinion does not observe or contend that the position of Congress or the American Bar Association suggests that such corporations go forward with a giving program without legal authority or, in the absence of such authority, without authorization from the real parties in interest, the shareholders.
I have searched both the majority opinion and the record in vain, to find the necessary facts or circumstances that constitute the basis for the conclusion that there is present the implied power to make the contribution.
It appears that the author of the majority opinion has become hypnotized by the directors who sought to justify the donation, “men heretofore known for their administrative and executive experience and ability.” Mr. Justice HENRIOD observes, “There seems to be no good reason to challenge the convictions of these men, the bona fides of their support for the contribution in question or their belief that it was for the best interest of the company and its shareholders. * * * ”
The directors who testified are men of national reputation, men of vast business experience and men whose motives are not in question; still the backbone- of every corporation is the army of less prominent persons, who' invested the funds that were essential to the growth and success of the company — the stockholders.
The bona fides of the directors cannot make legal the donation in question if the appellant had no power to make the same. As was observed by Lord Justice Bowery in Hutton v. West Cork Ry.4 cited in the majority opinion:
“ * * * The test there again is not whether it is bona fide, but whether, as well as being done bona fide, it is done within the ordinary scope of the company’s business and whether it is reasonably incidental to the carrying on of the company’s business for the company’s benefit.”
The main opinion suggests that the directors of appellant are “confident that *112their company presently and directly, or within the foreseeable future would receive a quid pro quo as the resultant of good will engendered by contributions.” In my opinion it is impossible to declare that good will of any size or dimension or any good will whatsoever will result from the giving. In my opinion the real purpose, of these public spirited directors, is their desire to aid worthwhile causes that need their assistance. Why such studied effort to avoid permitting the stockholders to act and to avoid extensive litigation? Is there fear that the stockholders would withhold consent, or that they would place reasonable limitations on the donations?
The testimony of Mr. Harriman, chairman of the Board of the Union Pacific Railroad Company, would indicate that the directors had grave doubt that they had the power to make the contribution until the amendment of 1955, and likewise doubted that such donation would give a business benefit. Mr. Harriman stated:
“ * * * For instance I am reliably informed some 100,000 corporations now participate in charitable giving and of these some 10,000 do so on an organized basis, but we have restricted our giving in the past to organizations that may have direct business benefit to our company.
* * * * * *
“We have also felt that the Federal Government and 36 states, including Utah, have encouraged corporations, the Federal Government by making their contributions tax deductible, and the States have passed legislation which declares a public policy in favor of corporate giving.
“We have also come to the conclusion there is a general public acceptance of the idea that corporations should act like public-spirited citizens, and cannot seek always to put the gift on a quid pro quo basis.
******
“As the Court has been informed, we started this investigation in 1953, and have brought it on, so we have not been precipitate in our action or at all speedy. That is why we are so interested when we learned that the Legislature of the State of Utah had joined the other 35 states in passing the relieving action.” (Emphasis added.)
Plaintiff’s Exhibit 2 introduced in connection with the taking of the deposition of John S. Sinclair, a director of appellant is a consideration of company-sponsored foundations and states:
“Because of the fear that if under common law no direct return can be shown, a dissenting stockholder may successfully charge the directors with giving away money that does not belong to them, legal counsel prefers to have legislative support for making *113contributions directly and through a company-sponsored foundation. In fact there are very few instances of company-sponsored foundations being set up in states that have not enacted so called permissive legislation expressly authorizing corporations to make gifts to welfare, scientific, and educational institutions.
* * * * * *
“Judging by reports from corporate counsel there is a far greater chance of justifying donations if enabling legislation has been passed than when full dependence must be placed upon interpretation of the common law.” (Emphasis added.)
The directors have proceeded on the assumption that the enabling legislation of 1955 gave full authority for their donation. But the majority opinion in holding, and I feel rightly, that the 1955 Act is ineffective to aid appellant since it can have no retrospective effect undercuts appellant’s principal support.
With this crutch gone appellant has left only the crutch of common-law power which I am sure cannot afford the warrant needed.
We cannot obliterate the line of demar-kation between desirable and lawful. The stockholders only can make lawful that which is desirable.
Nor is the argument persuasive that under the permissive legislation in 35 other states it is assumed that donations made in said states are legal. There is no disagreement among the members of this court that the amendment of 1955 gives no warrant for the donation.
I am of the opinion that the key to the proper determination of this case is found in the following statement from appellant’s brief :
“That the statutory power to donate does not constitute a change in fundamentals, but represents a mere incidental change in appellant’s charter may be demonstrated from the fact that it could have been engrafted on the appellant’s charter by shareholder amendment rather than by legislative amendment and in such case unanimous consent of shareholders would not have been required.” (Emphasis added.)
However, since the statutory power to ■donate is impotent to the accomplishment of the donation the appellant should pursue the alternative course and engraft on its charter the power to donate by shareholder amendment.
The trial court so viewed the matter, and I see no occasion for us to. see it differently.
I am not yet ready to acknowledge that it is good public policy to permit exploitation by each monopolistic corporations, in permitting them to put their corporate hands into the pockets of their patrons, in order to take more than they need for a reasonable return on their investment by a rate structure established and permitted by a public agency. Such practices are dangerous, against public policy and constitute *114a method of indirect taxation for such private charitable institutions.
Such a course may well lead to the granting of extensive congressional relief to .corporations similar to that recently granted by repeal of the 3% excise tax on railroad freight. It would seem that Congress was convinced (by some one) that the railroads needed assistance more than the government needed revenue.
The judgment should be affirmed.

 1953, 20 N.J.Super. 106, 97 A.2d 186, affirmed 1953, 13 N.J. 145, 98 A.2d 581, 586.

. Cyclopedia of Corporations, Perm.Ed. Sec. 2939, page 667.

. Zion’s Sav. Bank & Trust Co. v. Tropic & East Fork Irr. Co., 102 Utah 101, 126 P.2d 1053, 1055.

. 23 ChJD. 654 (1883).