Ellerman v. Chicago Junction Railways &c. Co.

"First. That the parties of the second part cause to be conveyed to the Transit Company the premises known as the Central stockyards, including all of its appurtenances, rights, privileges and easements in fee simple, free and clear of all liens and encumbrances; the Transit Company to pay therefor the sum of two hundred and fifty thousand dollars in cash, or at its option a mortgage on the property, payable at any time within ten years, with interest at five per cent.

"Second. That said parties of the second part will, within the time specified, cause each and all of the said suits to be discontinued and abandoned, or dispose of them in such manner as the Junction Company may reasonably require, and that they will not, during the continuance of the agreement, set up against the Transit Company the claim and demand alleged in said suit, nor during that period bring, or cause to be brought, any similar suits at law or in equity on any similar claim or demand.

"Third. That the parties of the second part, within the time therein named, transfer to the Junction Company certificates for all the shares of the capital stock of the Tolleston company, fully paid and non-assessable, with the covenant that the Tolleston company shall then own in fee simple one thousand acres of the land at Tolleston, free from all encumbrances, except the mortgage securing the issue of the two millions of dollars of five per cent. bonds of the Tolleston Stockyards Company.

"Fourth. That during the period of fifteen years, unless the Transit Company yards are previously removed from Chicago, the parties of the second part and the Fairbank Canning Company will continue their several business at Packingtown, and that all cattle and live stock slaughtered by either of them, on their premises, or within two hundred miles of Chicago, during the said period, shall pass through and use said yards and pay the usual yardage and charges.

"Fifth. The parties of the second part guarantee that the Transit Company shall receive and collect from its yardage and charges on cattle and live stock, owned or consigned to the parties of the second part, or the Fairbank Canning Company, at said yards, the aggregate sum of at least two million dollars within six years, and if it does not, they covenant that they will pay whatever amount may be necessary to make up that sum.

"Sixth. The parties of the second part covenant that during the fifteen years they will not permit any portion of the remaining three thousand acres at Tolleston to be used for the purposes of stockyards, or for slaughtering, canning or packing-house purposes; that no portion shall be sold without having such a restriction inserted in the deed; that they will grant to the Tolleston company all reasonable easements and connections over the said three thousand acres, in order to enable the one thousand acres to be connected with the neighboring railways, canals or highways; the Tolleston company, as the owner of the one thousand acres, on its part, to grant to the parties of the second part such easements or connections over the one thousand acres as may be reasonably necessary to connect any part of the three thousand acres with the one thousand acres over the neighboring railways, canals and highways.

Ellerman v. Chicago Junction Railways &c. Co.

"Seventh. That the parties of the second part, as long as the Transit Company shall conduct the business of a general stockyards on its premises aforesaid, will not, within the present limits of Chicago, engage in or carry on, or suffer or permit their names to be used in carrying on, the business of stockyards for the general use of the public.

"Eighth. That the said parties of the second part, during the term of fifteen years, will not, in Chicago, or any place within two hundred miles thereof, engage or carry on, or permit their names to be used in carrying on, the business of public or private stockyards.

"Ninth. That the Junction Company, on its part, agrees to pay, at the time therein named, to the parties of the second part, the sum of seven hundred and fifty thousand dollars in cash or in shares of its present capital stock, or partly in cash and partly in shares, at its option, such shares to be held by the parties of the second part for five years; also to guarantee the payment of principal and interest of the two million dollars in bonds of the Tolleston company-the form and provisions of which bond, and the mortgage to secure the same, being particularly specified in said ninth and tenth covenants.

"Eleventh. That the one thousand acres at Tolleston shall be in one block, with certain provisions with reference to the designation of easements and settlements of dispute.

"Twelfth. Is for the execution of further assurance and other incidental matters."

The parties of the second part to said agreement have given to the Junction Company the option, if it so desires, to have the one thousand acres of land at Tolleston, referred to in said agreement, with its appurtenances and easements, conveyed to the Junction Company directly, and of issuing and delivering to the parties of the second part to the said contract $2,000,000 of five per cent. fifteen-year bonds of the Junction Company, secured by a purchase-money mortgage on said one thousand acres, instead of having said one thousand acres conveyed to the Tolleston company, and of guaranteeing the bonds of such latter company as provided in the said original contract, which option is still in force.

The bill charges that the said agreement

"Is not within the powers and franchises of the Junction Company to make, and that such agreement is ultra vires the corporation, and that the carrying out of the same would be a perversion of the franchises and privileges of the said corporation, and the creation of debts and liabilities on the part of said corporation, and the payment of moneys contrary to the rights of the stockholders and to law and equity."

Ellerman v. Chicago Junction Railways &c. Co.

Answers were filed by the Junction Company, and by Armour & Company, Morris & Company, and Swift & Company, and the hearing was on bill and answers.

Mr. Joseph D. Bedle, for the complainant.

Mr. Cortlandt Parker (Mr. William D. Guthrie and Mr. Clarence A. Seward, of the New York bar, with him), for the Junction Company.

Mr. Cortlandt Parker, Jr., and Mr. Barker Gummere, for Armour & Company, Nelson Morris & Company, and Swift & Company.

GREEN, V. C.

The bill is filed by a stockholder in behalf of himself and any other applying stockholders against the corporation to prevent its carrying a contract, made by the directors, into execution, on the ground that the same is not legally within the powers conferred by its charter. No question is raised as to the validity of the organization, or the legality of the purposes stated in the certificate of incorporation as not contemplated by the Corporation act, if, indeed, such questions could be raised by a private person in this court. National Docks Co. v. Central R. R. Co., 5 Stew. Eq.755; Elizabethtown Gas Light Co. v. Green, 1 Dick. Ch. Rep. 118. He appeals not through or by the attorney-general, but bases his claim for relief solely upon his ownership of certain shares of the stock of the Junction Company. The theory of the suit is, that the agreement will be an injury, primarily, to the company and, incidentally, to him as a stockholder; that appeal to the present directors to protect the company and stockholders will be futile, as they have decided otherwise, and, therefore, he asks to be permitted to act for himself and others in like position. The only damages with which complainant, as a stockholder, can be threatened are to the security of his investment, and to the dividends he expects to receive-whether the latter is imminent depends mainly upon the probable results of the arrange

Ellerman v. Chicago Junction Railways &c. Co.

ment challenged, as a business operation. As a holder of preferred stock, his fixed yearly dividend is secured by the articles of incorporation, while the dividend on his common stock must depend on the success of the business and the action of the directors, for such dividends may be lawfully diminished if the diversion of the same be for a purpose which is within the corporate powers, unless the non-declaration of them be in fraud of the rights of the stockholders. Beach Corp. p. 601. Nor is his right to challenge action which he may deem dangerous to his investment absolute. Individual stockholders cannot question, in judicial proceedings, the corporate acts of directors, if the same are within the powers of the corporation, and, in furtherance of its purposes, are not unlawful or against good morals, and are done in good faith and in the exercise of an honest judg ment. Questions of policy of management, of expediency of contracts or action, of adequacy of consideration not grossly disproportionate, of lawful appropriation of corporate funds to advance corporate interests, are left solely to the honest decision of the directors if their powers are without limitation and free from restraint. To hold otherwise would be to substitute the judgment and discretion of others in the place of those determined on by the scheme of incorporation Park v. Grant Locomotive Works, 13 Stew. Eq. 114; affirmed, 18 Stew. Eq. 244; Elkins v. Camden and Atlantic R. R. Co., 9 Stew. Eq. 241; Rutland and B. R. Co. v. Proctor, 29 Vt. 93; Morawetz Corp. § 243; Beach Corp. p. 388.

By the Corporation act (Rev. p. 177 § 1 ¶ 6) power is given to corporations to make by-laws for the regulation and government of its affairs.

By the by-laws of the Junction Company, article 2, section 1, it is provided that the business of the company shall be managed and conducted by a board of ten directors.

The bill alleges that the board of directors of the Junction Company did, by a resolution, order and direct the execution of the contract in question, and the answer of the company states that each and every director of the company has voted in favor of the agreement as being for the best interests of the company.

Ellerman v. Chicago Junction Railways &c. Co.

The agreement, then, has the unanimous sanction of the board of directors, to whose judgment and determination the management and control of the affairs of the company has been entrusted without restriction.

If the prudence of the contract were open to question by the complainant, a moment's consideration of the condition of affairs would demonstrate not only its advantages to both parties, but that it was well-nigh vital to the interests of the Transit Company, and of the Junction Company, its principal stockholder.

The directors were confronted with the fact that the extensive and remunerative business of the Transit Company, at its stockyards, was threatened with the loss of the custom of its principal patrons; that these parties whose business had contributed from fifty to sixty per cent. of the earnings of the transit company, representing annually over $850,000 of profits, were not only about to withdraw their trade to their own yards, limited in capacity, but were engaged in preparations to establish a general plant on an extensive scale at Tolleston, only twenty-five miles distant. They must have known that this was a move which was dictated not only by business motives, but from wellfounded apprehension that sooner or later interference by state or municipal legislation with the continuance of stockyard business in the limits of the city of Chicago was to be expected, action which, of course, threatened the business of the packers and of the Transit Company at their respective stockyards alike, and which would result not only in incalculable injury to the plant, but would be ruinous to the business if prudent foresight did not prearrange for its continuance elsewhere. Whether such adverse legislation was passed or not, the packers, by their suits, sought to enforce the performance of alleged duties, which, it was claimed, the Transit Company, as a carrier, owed to the public. We cannot say that a decision adverse to the company in these cases might not be reasonably apprehended by the directors, a result by which they would have been forced to contribute the use of their facilities of transportation to the carrying on of a rival establishment. The development of such conditions could mean nothing but damage to the property and business of the company,