In pursuance of a resolution adopted by the directors of Trimountain Mining Company, they filed their petition in the Houghton circuit court, on October 25, 1916, praying for an order dissolving said corporation. The resolution is as follows:
"Whereas, the average annual net earnings of this company for the 14 years next preceding the present year have been only $2.22 for each share, without making any deduction for depletion of the mineral deposits in its mine;
"And, Whereas, the Copper Range Company, operating mines adjoining that of this company, is the holder of more than 99/100 of the capital stock of this company, and has offered to buy from the holders thereof the remainder of said stock and to issue in payment therefor, an equal number of shares of its own stock, which offer the holders of said stock refuse to accept, although the net earnings of the Baltic mine, one-half of the net earnings of the Champion mine, and the net earnings of the Copper Range railroad, all of which belong to said Copper Range company, have been, for said 14 years previous, and still are, nearly twice as much per share as the net earnings of this company;
"And, Whereas, said Copper Range Company has offered, and still offers, to bind itself to bid for the mine and property of this company, in case of dissolution and public sale of its property, the sum of $6,000,000, amounting to $60 per share of its capital stock;
"And, Whereas, the earnings of this company as aforesaid, amount to only 3 7/10 per cent. per annum on the sum that would be realized on such sale, if made on the bid of said Copper Range Company, and will cease with the exhaustion of the mine, while the money so realized on such sale would yield at least 5 per cent. interest in perpetuity, thus yielding a larger annual return in perpetuity to each stockholder than can be realized by them from the operation of the mine for only a limited period;
"And, Whereas, this company has no railroad for the transportation of its rock to stamp mill, and is dependent upon the Copper Range railroad therefor;
"And, Whereas, the stamp mill of this company has been destroyed by fire, making it necessary to build a new mill, at an expense of about $500,000, if it continue to operate its mine, or to pay for the treatment of its rock, in either case materially reducing its earnings, at least until a new stamp mill can be built;
"Therefore, Resolved that the directors of this company deem it highly beneficial to the stockholders that it should be dissolved, and that its mine and other property be sold under decree of court and that the proceeds thereof be distributed among the stockholders."
Saulsbury and Foley, the respondents, answered, denying certain conclusions stated in the petition, and denying that the resolution of the board and petition contain sufficient reasons why the company should be dissolved. And they charge that because of interlocking directors in the Trimountain and Copper Range companies, the directors of Trimountain company were in no position to act or vote on the foregoing resolution.
At the hearing some additional facts to those set up in the petition were shown, which are in substance:
(a) That respondents bought their stock consisting of 300 shares as an investment prior to the year 1900, and they have ever since held it as an investment, believing that it was a good investment, and are desirous of retaining it.
(b) That four of the directors of Trimountain company are directors and constitute a majority of the board of directors of Copper Range company. That the four directors have only nominal interests in the Trimountain but have large investments in Copper Range.
(c) That the Trimountain Mining Company produced 8,302,896 pounds of refined copper in the year 1915, and 8,720,000 pounds in the year 1916.
(d) That the company's net earnings in 1915 were $654,746.52, and that it earned over 12 per cent. in 1916, and no dividend was paid in either year.
(e) That at the time of the hearing its cash surplus over and above its indebtedness amounted to approximately $2,000,000, which stood to its credit in a Boston National bank.
(f) That the outlook for the production of copper is very promising and the price received therefor higher than for many year.
(g) That within recent years the mine has been developed and is now fully equipped with modern iron
shaft houses, boiler houses, stores, mine residences and numerous other buildings at its stamp mill site and at its mine site, and that the mine has been sunk to a considerable depth and miles of drifting has been done through the lode to develop and locate the copper deposits.
(h) That Copper Range Company is not a mining corporation but a holding company, owning at the present time all of the Baltic, one-half of the Champion, and all of the Trimountain except the 300 shares owned by respondents. That it also owns all of the stock of the Copper Range railroad.
These proceedings are statutory and are dependent upon chapter 40 of the judicature act (Act No. 314, Pub. Acts 1915, 3 Comp. Laws 1915, §§ 13563-13577). This law first came into our statutes by force of Act No. 56 of the Laws of 1839, and has remained without substantial change until the present time. The principal use made of the statute during the intervening years has been to aid in dissolving corporations that were insolvent, or in failing circumstances, or where the object for which they had been incorporated was at an end. The act is now invoked to aid in dissolving a solvent corporation, a prosperous going concern with a large cash surplus. These circumstances make it incumbent upon the court to examine the reasons stated in the petition for dissolution with much closer scrutiny than it would had the question of insolvency or threatened insolvency been involved. (White v. Kincaid, 149 N.C. 415, and cases cited.)
That part of the act calling for construction is sections 1 and 4.
"SECTION 1. Whenever the directors, trustees or other officers having the management of the concerns of any corporation, or the majority of them, shall discover that the stock, property and effects of such corporation have been so far reduced by losses or otherwise, that it will not be able to pay all just demands
to which it may be liable, or to afford a reasonable security to those who may deal with such corporation, or whenever such directors, trustees or officers, or a majority of them, shall, for any reason, deem it beneficial to the stockholders that such corporation should be dissolved, they may apply by petition to the court of chancery for the county wherein said corporation is located for a decree dissolving such corporation, pursuant to the provisions of this chapter: Provided, that the provisions of this chapter shall not extend to any incorporated library or lyceum society; to any religious corporation; to any incorporated academy or select school not organized for pecuniary profit; nor to the proprietors of any burying ground incorporated under the laws of this State."
"SECTION 4. On the day appointed in such order such court or circuit court commissioner shall proceed to hear the allegations and proofs of the parties and shall take testimony in relation thereto, and in case of a circuit court commissioner shall, with all convenient speed, report the same to the court with a statement of the property, effects, debts, credits, engagements and conditions of such corporation.
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In pursuance of a resolution adopted by the directors of Trimountain Mining Company, they filed their petition in the Houghton circuit court, on October 25, 1916, praying for an order dissolving said corporation. The resolution is as follows:
"Whereas, the average annual net earnings of this company for the 14 years next preceding the present year have been only $2.22 for each share, without making any deduction for depletion of the mineral deposits in its mine;
"And, Whereas, the Copper Range Company, operating mines adjoining that of this company, is the holder of more than 99/100 of the capital stock of this company, and has offered to buy from the holders thereof the remainder of said stock and to issue in payment therefor, an equal number of shares of its own stock, which offer the holders of said stock refuse to accept, although the net earnings of the Baltic mine, one-half of the net earnings of the Champion mine, and the net earnings of the Copper Range railroad, all of which belong to said Copper Range company, have been, for said 14 years previous, and still are, nearly twice as much per share as the net earnings of this company;
"And, Whereas, said Copper Range Company has offered, and still offers, to bind itself to bid for the mine and property of this company, in case of dissolution and public sale of its property, the sum of $6,000,000, amounting to $60 per share of its capital stock;
"And, Whereas, the earnings of this company as aforesaid, amount to only 3 7/10 per cent. per annum on the sum that would be realized on such sale, if made on the bid of said Copper Range Company, and will cease with the exhaustion of the mine, while the money so realized on such sale would yield at least 5 per cent. interest in perpetuity, thus yielding a larger annual return in perpetuity to each stockholder than can be realized by them from the operation of the mine for only a limited period;
"And, Whereas, this company has no railroad for the transportation of its rock to stamp mill, and is dependent upon the Copper Range railroad therefor;
"And, Whereas, the stamp mill of this company has been destroyed by fire, making it necessary to build a new mill, at an expense of about $500,000, if it continue to operate its mine, or to pay for the treatment of its rock, in either case materially reducing its earnings, at least until a new stamp mill can be built;
"Therefore, Resolved that the directors of this company deem it highly beneficial to the stockholders that it should be dissolved, and that its mine and other property be sold under decree of court and that the proceeds thereof be distributed among the stockholders."
Saulsbury and Foley, the respondents, answered, denying certain conclusions stated in the petition, and denying that the resolution of the board and petition contain sufficient reasons why the company should be dissolved. And they charge that because of interlocking directors in the Trimountain and Copper Range companies, the directors of Trimountain company were in no position to act or vote on the foregoing resolution.
At the hearing some additional facts to those set up in the petition were shown, which are in substance:
(a) That respondents bought their stock consisting of 300 shares as an investment prior to the year 1900, and they have ever since held it as an investment, believing that it was a good investment, and are desirous of retaining it.
(b) That four of the directors of Trimountain company are directors and constitute a majority of the board of directors of Copper Range company. That the four directors have only nominal interests in the Trimountain but have large investments in Copper Range.
(c) That the Trimountain Mining Company produced 8,302,896 pounds of refined copper in the year 1915, and 8,720,000 pounds in the year 1916.
(d) That the company's net earnings in 1915 were $654,746.52, and that it earned over 12 per cent. in 1916, and no dividend was paid in either year.
(e) That at the time of the hearing its cash surplus over and above its indebtedness amounted to approximately $2,000,000, which stood to its credit in a Boston National bank.
(f) That the outlook for the production of copper is very promising and the price received therefor higher than for many year.
(g) That within recent years the mine has been developed and is now fully equipped with modern iron
shaft houses, boiler houses, stores, mine residences and numerous other buildings at its stamp mill site and at its mine site, and that the mine has been sunk to a considerable depth and miles of drifting has been done through the lode to develop and locate the copper deposits.
(h) That Copper Range Company is not a mining corporation but a holding company, owning at the present time all of the Baltic, one-half of the Champion, and all of the Trimountain except the 300 shares owned by respondents. That it also owns all of the stock of the Copper Range railroad.
These proceedings are statutory and are dependent upon chapter 40 of the judicature act (Act No. 314, Pub. Acts 1915, 3 Comp. Laws 1915, §§ 13563-13577). This law first came into our statutes by force of Act No. 56 of the Laws of 1839, and has remained without substantial change until the present time. The principal use made of the statute during the intervening years has been to aid in dissolving corporations that were insolvent, or in failing circumstances, or where the object for which they had been incorporated was at an end. The act is now invoked to aid in dissolving a solvent corporation, a prosperous going concern with a large cash surplus. These circumstances make it incumbent upon the court to examine the reasons stated in the petition for dissolution with much closer scrutiny than it would had the question of insolvency or threatened insolvency been involved. (White v. Kincaid, 149 N.C. 415, and cases cited.)
That part of the act calling for construction is sections 1 and 4.
"SECTION 1. Whenever the directors, trustees or other officers having the management of the concerns of any corporation, or the majority of them, shall discover that the stock, property and effects of such corporation have been so far reduced by losses or otherwise, that it will not be able to pay all just demands
to which it may be liable, or to afford a reasonable security to those who may deal with such corporation, or whenever such directors, trustees or officers, or a majority of them, shall, for any reason, deem it beneficial to the stockholders that such corporation should be dissolved, they may apply by petition to the court of chancery for the county wherein said corporation is located for a decree dissolving such corporation, pursuant to the provisions of this chapter: Provided, that the provisions of this chapter shall not extend to any incorporated library or lyceum society; to any religious corporation; to any incorporated academy or select school not organized for pecuniary profit; nor to the proprietors of any burying ground incorporated under the laws of this State."
"SECTION 4. On the day appointed in such order such court or circuit court commissioner shall proceed to hear the allegations and proofs of the parties and shall take testimony in relation thereto, and in case of a circuit court commissioner shall, with all convenient speed, report the same to the court with a statement of the property, effects, debts, credits, engagements and conditions of such corporation. Upon said hearing before the court or upon the coming in of the report of the circuit court commissioner, if it shall appear to the court that such corporation is insolvent or that for any reason a dissolution thereof will be beneficial to the stockholders and not injurious to the public interest, a decree shall be entered dissolving such corporation and appointing one or more receivers of its estate and effects; and such corporation shall thereupon be dissolved and shall cease." * * *
Both counsel have devoted much space in their briefs to the precise physical and financial condition of the Trimountain company; also its relative value to the Copper Range company. The purpose of petitioner in so doing was to show that the offer of exchange made to respondents was a fair and equitable one. From the same data respondents' counsel argue that the offer is inequitable and unfair. We shall not attempt to follow counsel in these discussions, but will content ourselves with the conclusion, which is amply supported
by the testimony, that the Trimountain company which is sought to be dissolved is a solvent corporation, a prosperous going concern, earning large dividends at the present time and capable of earning a reasonable return on the capital invested for many years to come.
Counsel are not in accord as to the power of the court to inquire into the motive of the directors in asking for a dissolution under a statutory provision like the present one. The rule of construction in such cases has been stated as follows:
"At the present time there are statutory provisions in many jurisdictions in this country and in England which expressly provide for the voluntary dissolution of business corporations at the instance of the directors, usually with the consent of a certain proportion of the stockholders. Such a statutory provision enters into every charter, and every stockholder takes and holds his stock subject to this power of voluntary dissolution, and when the board of directors have determined, in their best judgment, that the corporation should be dissolved, and are pursuing the methods specified by the statute, it is only in rare and exceptional cases that their action will be stayed or interfered with by the courts. On the other hand, if it clearly appears that the action is in bad faith, that the resolution for dissolution has been superinduced by undue influence or fraud, or if it is clearly established that the resolution was not taken for the benefit of the corporation or in furtherance of its interest, but for the mere purpose of unjustly oppressing the minority of the stockholders, or any of them, and causing a destruction or sacrifice of their pecuniary interests or holdings, giving clear indication of a breach of trust, such action may be restrained." 7 R.C.L. p. 709, citing White v. Kincaid, supra.
In the last case cited after stating the foregoing rule, it is observed that:
"Such cases almost invariably arise when the management of a solvent concern, going and prosperous,
ceases operations and determines to dissolve and sell out, with a view of continuing the same or similar business under different control, and when there is indication given that the sole purpose was to oppress some of the stockholders and confiscate their holdings, or when it is done in furtherance of some scheme to promote the pecuniary interest of the actors, and to the detriment of the corporation, giving indication of a breach of trust on the part of the authorities in charge and control of the corporate affairs."
The testimony of directors Paine and Denton, together with the frankness of counsel, are very persuasive that the sole purpose of the application is to get rid of respondents as stockholders and acquire their holdings, and that, had the Copper Range company been able to purchase or exchange its own shares for respondents' holdings, the petition would never have been filed. The testimony of Mr. Paine shows that the Copper Consolidated Company, a New Jersey corporation, and predecessor of the present Copper Range Company, began to acquire Trimountain mining stock in the year 1903; that in that year a large amount of stock was acquired by exchange of shares. That the offer was renewed in the year 1915 in order to acquire the balance of the outstanding stock, the offer being to exchange Copper Range stock for Trimountain stock, share for share, and that all of the stockholders of Trimountain accepted the offer save these two respondents. Upon this phase of the case a portion of the cross-examination of Capt. Denton is interesting. He testified that:
"The matter of dissolving the Trimountain Mining Company was talked over by the directors of the two companies. It would be mutually advantageous and I presume would be the better way to get the outstanding stock. We were advised that that would be the better way to get the outstanding stock. Buy the whole thing. I think that is it essentially, we advised the directors of the Copper Range and the directors
of the Trimountain that it would be a good plan. It was a mutual arrangement made at one time. We only had to see the directors of the Copper Range, only had to see two of the directors of the Trimountain who were not on the Copper Range directorate. Four of us are directors on the Trimountain and Copper Range. The majority of the Trimountain directors were directors of the Copper Range and were dealing with the Trimountain as directors of the Copper Range with themselves as directors of the Trimountain. That was the situation. * * * Yes, it is still the desire of the Copper Range to acquire title to the Trimountain and I have encouraged the action of the Trimountain directors.
"Q. But you do know the Trimountain can be made profitable mine?
"A. I think we have made it profitable.
"Q. You have made it profitable already, and were it not for the fact that the Copper Range Company desired it in connection with its own operations, if it stood alone without any mine near it, you would still think it a mine that could be profitably worked if well managed?
"A. Certainly, it is a profitable mine and should be operated.
"Q. That is standing alone and without anything else, you would not think it should be dissolved and the proceeds divided?
"A. Not standing alone. It should be operated."
We, therefore, have before us a petition to dissolve a corporation under the statute in order that a holding company, another corporation, may acquire, by force of dissolution proceedings, what it has been unable to acquire by purchase or exchange in the open market. It does not appear to be the intention to dissolve the corporation and discontinue the business of mining and distribute its assets among the stockholders, because beneficial to them, nor does it appear to be desired because of any inherent physical or financial weakness in the organization or its property, but it appears to be desired for the reason that the Copper
Range Company may become the owner of all the shares instead of a portion of them. The idea back of this desire is said to be that the cost of operation can be materially reduced if the property can be operated as a unit with Baltic and Champion. This may be so and perhaps is commendable as a business proposition, but it is no measure of respondents' rights. The respondents made their investments when the mine was more or less of a speculation. They have been loyal and retained their investments through the years of physical development and financial vicissitudes, and now when the project has proved to be a success, if counsel's contention is to prevail, they may be driven out by a forced sale of their investment for no better reason than that a larger stockholder desires to acquire it in the interest of economy. It is not conceivable that the legislature ever intended that the statute should be used for such a purpose. To give the statute this construction would open the way to the majority interest of every corporation in the State to dispose of an offensive minority in the same way if it saw fit. Such a construction would be injurious to the public interest and not beneficial to the stockholders as a whole. For a similar case upon the law and facts and one which answers many of the arguments of the petitioner in this case, see Theis v. Gas Light Co.,34 Wash. 23.
Counsel have argued the second contention of respondents that the petition is of no legal force because after the four interlocking directors had sat around the Copper Range table and determined that it was for the best interest of the Copper Range company to acquire all the shares of the Trimountain company, they were in no position, mentally, to gather around the Trimountain table and determine what was best for that company. As our view of the first question disposes of the case it will be unnecessary to consider
this one further than to say that the action of the directors in this respect has contributed to our conviction that the application is not a good faith application under the statute.
The order of the trial court must be set aside and the prayer of the petition denied. Respondents will recover their costs in both courts.
BROOKE and KUHN, JJ., concurred with BIRD, J.
OSTRANDER, C.J. The peculiar facts in this case lead me to concur in the result reached by my Brother BIRD.
MOORE and STEERE, JJ., concurred with OSTRANDER, C.J.