CONSUMERS' GAS TRUST CO. v. QUINBY, 137 F. 882

SEAMAN, District Judge, after stating the facts, delivered the opinion of the court. The questions raised by the assignments of error are: (1)' Whether the court possessed jurisdiction to entertain the suit; (2) whether prior suits pending in state courts arrest jurisdiction; and (3) whether the corporation defendant is empowered to construct works and operate for supplying the people of Indianapolis with artificial gas at cost. Specific reference to the 14 assignments is unnecessary, as all contentions are within one or the other of these inquiries. 1.

Jurisdiction of the bill is challenged because it appears that one of the final certificates owned by the complainant, of the par value of $2,500, was originally issüed to John and Edward Schmidt, citizené of Indiana, who assigned to the complainant, and the certificate thereupon, described in the bill, .was reissued, by the company to the complainant, so that, exclusive of such interest derived through assignment, the par value of his remaining certificates aggregates less than $2,000.

We are of opinion that the statutory-provision in reference to suits to recover the contents of choses in action in favor of an assignee [U. S. Comp. St. 1901, § 629, p. 508], on which this objection rests, is not applicable to the case at bar. The relief sought is against the use of the corporate assets for alleged ultra vires business, affecting not alone his interest, but that of all other stockholders. Primarily the cause of action is in the corporation; but, subject to the limitations of equity rule 94, a stockholder may prosecute the suit for the benefit of all. Dodge v. Woolsey, 18 How. 331, 15 L.

Ed. 401; 5 Rose’s Notes U. S. Rep. 587. Ownership of stock is an essential requirement to maintain the bill on behalf of the corporate interests, but the relief sought is for the benefit of all like interests, and not for that of the individual alone. The suit is not one to recover the contents of a chose in action, in the sense of the statute referred to, and it is deemed unnecessary to discuss the question whether the complainant holds the $2,500 certificate as assignee.

The further contention that the sháreholders retain no beneficial interest in the corporation, bej^ond 5 per cent, of their certificates, which has been set apart by the directors to make the amount repaid upon the principal equal to 100 per cent., is involved in the inquiry upon the merits, and will be considered under the third question for review. The objections urged of non compliance with equity rule 94, and that the suit appears to be collusive, under the allegations of the answer, are without force, and within the ruling of.this court in New Albany Water Works v. Louisville Banking Co., 58 C. C.

A. 576, 122 Fed. 776. In reference to verification of the bill, if the original verification was defective, the defect was cured by the personal verification subsequently, under leave granted by the court. The several assignments of error in respect of jurisdiction are overruled accordingly. 2. The answers aver the pendency in state courts of- two prior suits—one on behalf of the corporation defendant and the other against it—wherein “the principal questions are involved which are involved here,” and it is urged thereupon that rules of comity, at least, are violated by the procedure in the federal court.

The case at bar, and the prior actions so set up as well, are suits in personam. It is well settled that the right of a noncitizen to maintain sUch suit independently in the federal forum is not barred by the pendency of a prior suit of like import in another co-ordinate jurisdiction, and this view is conceded on behalf of the appellant.

As no interference with or conflict over property in custodia legis (actual or constructive) is involved, we deem it equally clear that the complainant cannot be deprived of his constitutional privilege to have the suit not only entertained, but adjudicated in due course, in the federal forum. The case of Farmers’ Loan & Trust Company v. Lake Street Elevated Railroad Co., 177 U. S. 51, 61, 20 Sup. Ct. 564, 44 L.

Ed. 667, and others cited in the brief for appellants upon this point, are plainly distinguishable, as neither of these pending actions is in rem, nor of a nature to vest the custody of specific property in one or the other court. No conflict of jurisdictions appears to have arisen, and we are satisfied that no invasion has occurred and that no room appears for conflict in the present aspect of the controversy. 3. The remaining inquiry goes to the merits of the, decree.

It. involves, not only the property interests of the corporation and its shareholders, but rights asserted on behalf of the people of Indianapolis. The relief sought by the bill and granted by the decree rests upon these propositions:

(1) That the corporate franchise does not authorize diversion of the business from supplying natural gas to the production and supply of artificial gas to the .people of Indianapolis at cost; (2) that the cessation of the natural gas supply in the fields tributary to Indianapolis has caused abandonment of the former business as no longer practicable, so that the corporate property is no longer available for the purposes of the incorporation; and (3) that the shareholders retain their interest therein and are entitled to relief against threatened diversion and for distribution of the assets.

While the appellants concede the fact thus asserted as to the failure of natural gas supply and the necessary abandonment of that business, and the purpose of the trustees and directors to undertake use of the franchise, pipe lines, and property in the city of Indianapolis for the erection of works to produce artificial gas, to be supplied to the people at cost, both of the other propositions in support of the decree are earnestly disputed.

Their contentions are tw.o-fold—referring to the purpose and scope of the incorporation, as disclosed in the circumstances, terms of the articles and subscriptions, and subsequent legislation—and in substance these:

(1) That the organizers intended and created a charitable trust, in favor of the patrons and public, to provide for supply of gas in Indianapolis at cost, whenever their amounts invested in the work were repaid, with interest, and after such repayment no beneficial interest remained in the shareholders; (2) that such trust contemplated the production and supply of artificial gas, whenever the natural gas -fields were exhausted, and authority was extended to that end, by the terxps and intent of the articles, within the meaning of statutory provisions, either then existing or subsequently enacted.

The fact that a trust was created by the organizers for certain purposes is unquestionable. It was distinctly provided- in' the articles of association to place the entire capital stock under the control of five trustees, selected from the stockholders, with irrevocable powbr to “vote the same [as a unit] as fully and completely as if they were the owners,” elect directors, and fill vacancies, while “the business and prudential concerns” were to be managed by a board of nine directors.

The trustees were to issue to the subscribers for capital stock, upon full payment, certificates thereof, which entitled the holder to certain dividends; but the articles provided that when the holder shall have received in dividends or otherwise “an amount equal to his subscription,” with interest at 8 per cent, per annum, and.all indebtedness of the company was paid, “it shall be the duty of said directors of said company to reduce the price of gas, so that the same shall thereafter be supplied at cost.” This provision for reducing the price of gas to cost, when the subscribers had received dividends to the amount prescribed, was carried as well info the subscription agreements and the certificates issued to the shareholders.

In all other respects the purposes of the corporation are for the business undertakings stated in the articles, within the statutory authority, and it is not organized as a charitable or public corporation. The shareholders have plainly agreed by these terms that the business shall be conducted without profit to the corporation, and for the benefit of consumers, after dividends have been received to the extent of the capital stock and interest.

In other words, they stipulate in such event that the operation and use of franchises and property for the purposes of the incorporation shall be carried on to furnish gas to consumers at cost, instead of profit to the shareholders. The shareholders retain their shares, nevertheless, with any beneficial interest in the corporate assets which remains when the use is terminated by expiration of the franchise or other legal cause.

By the articles the trustees are vested with mere voting powers, as representatives of the body of stockholders, and the directors are their representatives alike in conducting the business in conformity with the incorporation and mutual agreements.

It is true that the stockholders cannot interfere in such operation and use within the purposes so delegated, but we are of opinion that they have not parted with their title as shareholders and owners, so that no foundation exists for the application of the well-recognized cy pres doctrine, invoked on behalf of the appellants, beyond the use expressed in the terms of the agreement and within the limits of the corporation.

Their interest, therefore, is sufficient to support the bill and decree, if the allegations and admissions of fact as to the contemplated future use of the corporate property show that use within the incorporation limits is no longer available and that diversion therefrom is intended by the trustees and directors. • The final question thus presented is whether the incorporation extends to the conceded purpose of constructing and operating works to manufacture artificial gas from coal or other minerals, not the product of natural gas or petroleúm wells owned or leased by the company, and supply such gas to consumers in lieu of the original supply of natural gas from its wells, now exhausted.

While the answer does not in terms admit the precise allegations of the bill that the manufacture intended was from coal or other minerals, not the product of its wells, no other inference is admissible under the general statements contained in the answer and the rules applicable to the pleadings when the case is submitted thereon. The single issue then arising is whether the intended change to the manufacture of gas, as the exclusive or primary business, is an ultra vires undertaking. Its solution rests upon the legislation under which the corporation was created and the articles and acts of organization.

Various facts aliunde are set up in the answer and pressed in the argument on the part of the appellants as affecting the

interpretation of these creative acts, namely:

(1) The public want and movement of citizens which- preceded the organization; (2) preliminary expressions of purpose on the-part of the organizers and the exalted character and professional ability of several ; and (3) the obvious benefit to the community of a supply of artificial gas at cost with the corporate power so extended. We are of opinion, however, that neither of these allegations can be considered in ascertaining the powers conferred by the incorporation, which are necessarily limited by thq legislative grant of authority and the specification and acts of the organizers within such grant.

No extension beyond terms so authorized and adopted can receive judicial sanction, either for the benefit of the public, a community, or individuals. For

interpretation of the legislative acts ■which govern the incorporation, the decisions of the Indiana courts of final resort are, of course, controlling, in so far as applicable to the case presented.. The organization was made (as stated in the brief for appellants) “under the manufacturers’ and miners’ Act,

chapter 35, Rev. St. 1881,” and the material provision appears as

section 3851 (section 5051, Burns’ Ann.

St. 1901), reading: “Whenever three or more persons may desire to form a company to carry on any kind of manufacturing, mining, mechanical, or chemical business, or to furnish motive power to carry on such business; or to supply, any city or village with water; or to form union stockyards and transit companies, and operating, maintaining, and transacting the business incident to such companies, or to form grain elevator companies, and constructing, maintaining, and operating elevators, and transacting the business incident thereto; or to i form companies for the purpose of buying and selling dry goods, carpets, boots and shoes, millinery goods, fancy goods, or jewelry, in connection with the manufacture of such goods, and articles into any articles for which they are suitable, and for the sale of such articles, when they are so manufactured—they shall make, sign, and acknowledge, before some officer capable to take acknowledgment of deeds, a certificate, in writing, which shall state the corporate name adopted by the company, the object of its formation, the amount of capital stock, the term of its existence (not, however, to exceed fifty years), the. number of directors and their names, who shall manage the affairs of such company for the first year, and the name of the town and county in which its operations are to be carried on, and file the same in the office of the recorder of such county, which shall be placed upon the record, and a duplicate thereof in the office of the Secretary of State.” The purposes of the organization are thus stated in the articles: “Art. 2.

The objects of the formation of such corporation are to drill and mine for natural gas, petroleum, and other minerals, and to purchase, lease, and otherwise acquire gas and petroleum wells and the products thereof, and to furnish the same to its patrons for use, and by manufacture to convert the same into gas for fuel and illuminating purposes, and other articles of commerce, and the sale of the product to Its patrons, to these ends to take, hold, convey, and mortgage real estate, by fee simple or lesser title, and to own, operate, and maintain such machinery, works, lines of pipe, and appliances as the carrying out of the objects above mentioned may require.” When organization was completed thereunder, the directors accepted the terms of an ordinance of the city of Indianapolis, which ’ authorized any corporation “to pipe the streets and public places and supply natural gas to the people for both fuel and light” at fixed rates.

Leases were then acquired of territory in natural gas fields available for the purpose, wells were drilled which furnished^ a supply of natural gas, pipe lines to convey such gas to the city and a system of lines for its distribution therein were established, and the operations were carried on and exclusively confined to supplying such natural gas, until recently, when the gas fields became exhausted.

Operations then ceased, except for incidental and occasional sales of petroleum which appeared in the wells when gas failed, and the company has disposed of certain leases in the gas fields and “part of its lines of mains and pipes.” The original capital of the corporation was exhausted in the work, further means were borrowed, and the indebtedness, together with further investments in construction, were met by an increase of the capital stock, authorized to furnish “the means to complete and fully equip the plant of said company,” and substantially all the capital is so invested.

For resumption of business as proposed, an extensive manufacturing plant must be erected in the city to produce artificial gas, from coal or other minerals, with means obtained on the corporate credit or property, utilizing alone the pipe system within the city for distribution, and operating under such new license as may be granted by the city. That the operations thus far in obtaining and supplying natural gas are not manufacturing businesses within the statutory meaning is unquestionable.

That the undertaking “to drill and mine for natural gas” and furnish the product “to its patrons for use” was within the objects expressed in the articles is plain. If the business so declared and carried on were not otherwise within the classification of “mining,” as employed in the so called “manufacturers’ and miners’ act” (section 5051, supra), it is clearly so established by the declaratory act of the Legislature of February 23, 1889 (section 5099, Burns’ Ann.

St. 1894), adopted at the instance of the organizers, which defined the term “mining,” as used in the former statute, to “cover and include the sinking, drilling, boring, and operating wells for petroleum and natural gas,” arid made it applicable to the organization in question. Tested alone by the statement of the corporate objects contained in the articles, no purpose is indicated to manufacture artificial gas to be supplied to consumers, either as exclusive or primary business of the corporation.

The contemplation “by manufacture to convert” the product of its gas and petroleum wells “into gas for fuel and illuminating” purposes” is specified, but that is merely incidental to the primary “mining” object, and as such within its classification as the primary business.

So that, under the established general rules for construing corporate powers, we are constrained to the view that neither the above-mentioned provision nor the cognate term “works,” subsequently mentioned, confers authority to erect works and manufacture artificial gas from materials not “the product of its gas and petroleum wells.” With the “mining” object and powers thus expressed as primary, “the exclusion of all others not fairly incidental” is strictly implied. Central Transp. Co. v. Pullman’s Car Co., 129 U. S. 24, 48, 11 Sup. Ct. 478, 35 L. Ed. 55, 11 Rose’s Notes U. S. Rep. 1135.

Irrespective, however, of this construction of the articles under the general doctrine, the authorities in Indiana are decisive that the statute under which this organization was made limits the business to be adopted thereunder to a single class of the several classifications enumerated in the section, and that it was not competent to combine two or more of the purposes so classified in a single incorporation, as primary business. Burke v. Mead, 159 Ind. 252, 64 N. E. 880, and cases cited; Williams v. Citizens’ Enterprise Co., 25 Ind. App. 351, 57 N. E. 581. In Burke v.

Mead the question arose in a suit for specific performance of a contract whereby Mead & Co. agreed to transfer certain property to Burke and another, in consideration of a transfer of certain paid-up capital stock in a corporation called the “Marion Electric Company.” One of the defenses was that the alleged corporation was not a legal organization, so that the capital stock was worthless.

The purposes of incorporation, as stated in the articles, were “of manufacturing, storing, selling, delivering, and distributing electricity for light, heat, and power, and for all such other chemical purposes as electricity can be applied to, and for the purpose of manufacturing and selling all kinds of electrical appliances, apparatus, and supplies.” The court upheld the contention that it was not competent to combine these purposes in a single incorporation; that while the “generating of electricity is manufacturing, within our manufacturing and mining companies act,” the manufacture and sale of “all kinds of electrical appliances, apparatus, and supplies is not a business incident thereto”—citing Franklin National Bank v.

Whitehead, 149 Ind. 560, 49 N. E. 592, 39 L. R. A. 725, 63 Am. St. Rep. 302, and Williams v. Citizens’ Enterprise Company, 25 Ind. App. 351, 57 N. E. 581. It was ruled accordingly that the articles “disclosed a purpose to engage in lines of employment and business more diverse than the statute authorized” and that the incorporation was invalid. In Williams v.

Citizens’ Enterprise Company, supra, the Chief Justice delivered the unanimous opinion of the court, denying the right of the corporation to recover upon a subscription to its capital stock for like defect in the diversity of objects stated in the articles of association, under the same statute. After remarking, “It is conceded that several objects and purposes are stated in the articles for which a corporation may be organized under the manufacturing and mining act,” and disposing of the contention that this was permissible under a former ruling of the court in Shick v. Enterprise Company, 15 Ind.

App. 329, 44 N. E. 48, 57 Am. St. Rep. 230, the opinion states: “To adopt appellee’s view, we must change the reading of section. 5051, supra, and wherein it specifies the classes of business set out we must use the word ‘and’ where the Legislature used ‘or.’ This would lead to the result that it was the legislative intent that all the businesses enumerated in the

section might be carried on by one corporation; for it must be admitted that, if more than one class may be included in one corporate organization, then all the classes may be included. The Legislature has seen proper to provide in separate acts for corporate organizations to do banking, building and loan, railroad, and some other businesses. It is clear that under these acts a corporation could not he organized to do both banking and railroad business. They have no necessary relationship with each other. Neither one is a mere incident of the other, and the Legislature has expressly separated them. And under

section 5051, supra, there is no necessary relationship betwen supplying a city or village with water and maintaining and operating elevators; nor is either one a mere incident of the other. And the same may be said of all the classes of business named in the section. It is not to be inferred, from the fact that all these classes of business are included in one act, that they may be conducted by one corporation.

The Legislature, by placing banking and railroad business in separate acts, and thus providing for separate corporate formations, has no more effectually separated corporate organizations for conducting those businesses than it has the classes of business enumerated in the above section. The use of the disjunctive ‘or’ makes a complete enactment as to each class of business named. * * * The act expressly requires that the certificate shall state the corporate name and the ‘object’ of its formation.

This means that the certificate shall state the particular class of business to be carried on under one of the designated heads; that the limitation of the business must be shown by a statement in the articles.” Then, referring to the purposes stated in the articles under consideration, the opinion proceeds: “We must, then, give to the articles the construction that the corporators intended to conduct these various enterprises under one organization. There is no statute in this state authorizing a single corporate organization for the purpose of carrying on all, or any two, of these businesses.

The objects of neither are incidental or secondary to the objects of either of the others, but the objects and purposes of each are primary. Each is entirely separate and distinct from the others.

Either would properly be the subject of corporate organizations; but the intention of the corporators, which must be gathered solely from the articles, does not indicate which was to be the exclusive purpose. * * * It is manifest, from the reading of the statute, that it was not the legislative intent to authorize a corporate organization for all the purposes named in the statute, nor for any two or more of the purposes named.” After reviewing and citing numerous authorities, the opinion concludes: “As there is no statute authorizing the organization of a corporation for the purposes named, it follows that the articles of association are void.” The force of these decisions is not impaired by either of the suggestions to that end in the brief for appellants: (

a) The validity of the incorporation for the primary object of supplying natural gas is neither questioned nor questionable, and it is diversion only to a manufacturing business that is declared ultra vires, (

b) The case of Marion Bond Co., Trustee, v. Mexican Coffee & Rubber Co., 160 Ind. 558, 65 N. E. 748, cited as inconsistent with theSe rulings, impresses us as neither applicable, nor in any sense modifying the construction upheld in the previous cases, (

c) An act of the Legislature, approved March 3, 1903 (Acts 1903, p. 147, c. 73), amends the statute in question in various particulars, so that several objects may be included in one incorporation; and then declares that prior incorporations stating several objects are thereby “legalized and validated.” The contention that this and other enactments subsequent to the incorporation authorize the change of business is untenable in either aspect of the controversy.

Under the foregoing construction of the articles, irrespective of the statutory power, the amendment of Í903 is inapplicable; as several objects are not stated. Construing the statute under which the incorporation was made as the decisions require, no undertaking to engage in manufacturing, otherwise than incidental to the primary “mining” business, can be imputed to the organizers, and their contract rights so established cannot be impaired by subsequent legislation. We are of opinion, therefore, that no error is well assigned, and ihe decree of the Circuit Court should be affirmed.