State ex inf. Hadley v. Missouri Pacific Railway Co.

141 S.W. 643, 237 Mo. 338, 1911 Mo. LEXIS 264

• Court: Supreme Court of Missouri
• Decided: November 27, 1911
• Status: Published

Opinion

VALLIANT, C. J.

The information is in quo warranto. The respondents are Missouri corporations; the business for which each was incorporated is indicated by its corporate name, a railroad company, two coal mining companies, and an elevator company.

The charge in the information is that the railroad company has acquired the capital stock- of the three other corporations and is engaged in conducting the business for which they were incorporated. More specifically stated, the charge is that the Western Coal & Mining Company was organized under the laws of this State in 1879, with a capital stock of $500,000, for the purpose of carrying on a general coal and mining business in Missouri, Kansas and elsewhere, with power to purchase, lease or otherwise acquire mineral and other lands for the purpose of •mrniug coal and other minerals, buying and selling coal, etc., and owning and operating machinery and appurtenances necessary to carry on that business; and that after its organization the corporation entered upon the business for which it was chartered and continued to conduct the same until the acquisition of its capital stock by the Missouri Pacific Railway Company, whereupon it ceased to perform its functions and the business has since and is still being conducted alone by the railroad company, to the injury of the interests and welfare of the people of the State.

Like specifications are made in relation to the Rich Hill Coal Mining Company, and, varying only in reference to the character of the business, relating also to the Kansas-Missouri Elevator Company. The conclusion from those facts drawn in the information is that the two coal companies and the elevator company have lost their integrity and individuality and are rendered incapable of exercising the franchises granted by their respective charters, that each had become a mere cover for the unlawful exercise of power by the railroad company, and their further existence is of injury to the people of the State.

The prayer is that the two coal companies and the elevator company be ousted of their charters, that the railroad company be ordered to cease operating the business of those three companies, and failing to heed such order, that it be ousted of the corporate rights granted by its charter.

The respondents filed a joint answer to the following effect: They admit the origination of each of the corporations as stated in the information and the purpose for which it was organized, and they admit that a majority of the capital, stock of the three other companies is owned by a trustee who holds the legal title thereto for the use and benefit of the railroad company, but aver that there are four other persons who each own at least one share of the stock. Referring to the averment in the information to the effect that the railroad company holds its charter from the State and has only the powers granted to it as a railroad company by the laws of the State, which are only such powers as are necessary, convenient and incident to the construction, maintenance and operation of a railroad as a public highway, and that under the Constitution it can engage in no business other than- that expressly authorized -by the charter or the law under which it may have been organized, the answer avers that the railroad company has offended in no respect the provisions of the law referred to and has not gone beyond the lawful power conferred by its charter; that the acquiring of the stock in the coal companies was for the purpose only of securing for its use in operating its railroad the necessary supply of coal for fuel, and the acquiring of the stock in the elevator was to facilitate the shipping and transportation of grain over the railroad. They deny that since the acquisition of the stock by the railroad company the coal companies and the elevator company have ceased to do business under their respective charters or that such business is or has been conducted by the railroad company; on the contrary, they aver that since the acquisition of the stock, as before, the business of the coal companies and the elevator company have been conducted exclusively by their respective boards of directors duly elected by the stockholders. They deny that there has been any abuse of their charter powers or any conduct on the part of the directors injurious to the interest or welfare of the people of the State, or that the interests or welfare of the people would be promoted by a dissolution of the corporations named or a forfeiture by the railroad company of its beneficial interest in the stock of the other compames.

To that answer the Attorney-General filed a reply in which, after denying that any persons other than the trustee for the railroad company owned any of the stock and denying that the stock was acquired for the purposes stated in the answer, went on to aver that, since the acquisition of the stock in the coal companies, the railroad company “through the management, conduct and control of the said coal companies, engaged in the business of selling coal to the general public and did sell large amounts through and under the name of said coal and mining companies to the general public in Missouri and elsewhere.” An averment of like character was made in reference to the business of the elevator company. These averments differ from those in the information in this, to wit: in the information it was stated that the railroad company itself was, under cover of the charters of these other companies, carrying on the business of mining and marketing coal and a general warehouse and elevator business, whereas the averments in the reply are that the railroad company was doing those acts through the management of the coal and elevator companies, by virtue of its ownership of the stock in those companies. On motion of the respondents the court struck out those averments in the reply, construing them to be the pleader’s inference from the fact of the ownership of the stock, and since the ownership of the stock was admitted in the answer, or return, the inference to be drawn was but a legal conclusion.

The State then moved for judgment on the pleadings and that is the form in which the cause is now submitted for final judgment.

For the purposes of this motion the statements in the answer (or return) of respondents must be taken as true, and the statements in the information admitted by the answer will also be taken as true; the legal conclusions that either party draws from those facts are open for discussion.

The organization of the corporations as stated in the information, and the several purposes for which they were respectively organized, are admitted, and it is also admitted that the majority of the stock in the coai companies and in the elevator company is held by a trustee for the railroad company.

The language of the answer perhaps justifies the inference also that all the stock in those companies except four shares in each is held by a trustee for the railroad company, and that those four shares are held by individuals to enable them to qualify as directors as the law requires. Against those admissions we have the statements in the answer that the purpose of the railroad company in acquiring the stock in the coal companies was to secure to itself a supply of coal to be used as fuel in running its trains, and the purpose in acquiring the stock in the elevator company was to facilitate the handling and shipping of grain to be carried over its road; also the statements that the railroad company does not operate or control the operation of either of the coal companies or the elevator company, but on the contrary each is controlled and operated by its own board of directors and officers appointed by the board, and that each company is performing the duties required by its charter and serving the public impartially as the law requires. Those, statements must be taken as true with only this qualification, to-wit, the law presumes that the railroad company has exerted its power as a stockholder in electing the directors and to that extent influences the policy of each company.

Under the state of facts above mentioned the only question of law in this case is, may a railroad company own the majority of stock in a coal company adjoining or near its fine of road, or in an elevator company offering a convenient means to aid it in the handling and shipping of grain? The question is not, can a railroad company be held to account in a proceeding in quo warranto for an abuse of the power which the ownership of a majority of such stock gives? for perhaps no one would doubt that it would be amenable to such an inquiry, but where there has been no abuse of power, where the business of the corporation is being conducted in the usual way of such 'business concerns, is it unlawful for the railroad company to own the stock?

The only written law to which we are referred as sustaining the contention tha't it is unlawful for a railroad company to own stock under such conditions is section 7 of article 12 of the Constitution, in which is the following: “No corporation shall engage in business other than that expressly authorized in its charter or the law under which it may have been or hereafter may be organized.” That clause in the Constitution does not refer to the ownership of stock in another company; the thing forbidden is the engaging in business not authorized by its charter. It would doubtless be a violation of that clause of the Constitution if a railroad corporation should acquire and use the stock of another corporation in whose business a railroad company could not lawfully engage, as a cover behind which to. carry on such business, that is, as a mere means of evading the letter of the law, still, in such case, the offense would be the carrying on of the business, not the owning of the stock.

It would perhaps not be contended that a railroad company could not lawfully own a coal mine and operate it if necessary for the sole purpose of obtaining fuel for its' own use, or that it could not own and operate an elevator in the handling of grain to be transported over its railroad. The business therefore of mining coal or operating an elevator is not business of such a character as the clause in the Constitution above quoted forbids. If the railroad company could do that business with its own means, why could it not secure itself in the matter of obtaining, coal for fuel or a convenience in handling grain by acquiring stock in a coal or elevator company, if it would be more convenient, and if the public was not injured thereby? The more stock a corporation owns' in another concern the more power it has in the election of directors and through, them in influencing the policy of the other corporations, but that is not in fact taking the management of the business in its own hands. We are not overlooking the fact that where a corporation owns practically all the stock in another concern it may, if so minded, dictate through the board of directors the method of the business, which would be equivalent to indirectly conducting the business; but that consequence does not necessarily follow; the directors may be chosen with an eye to their ability and honesty and left to conduct the business according to their best judgment, and the law will presume that such is the case until the contrary is shown; if it should be shown that directors áre conducting the business in the interest alone of a stockholder who elected them and to the injury of the other stockholders or to that of the public in general, a case of fraudulent mismanagement would appear, calling for the arm of a court of equity; but such is not this case. We therefore conclude that section 7 of article 12 of the Constitution does not forbid a railroad company to own stock in a coal company or an elevator company, and we hold that the mere fact that the railroad company does own a majority or all but a few shares of the stock in those companies, does not authorize a judgment of dissolution of the corporations and ouster of their franchises.

It is charged in the information that the charters of the coal companies and the elevator company have become a mere cover for the railroad company under which to hide its unlawful usurpation of the corporate franchises, that those companies by such unlawful usurpation by the railroad company have been rendered incapable of conducting their business, and that their businesses are being conducted by the railroad company. But those statements are denied in the answer of respondents. It is there stated that the business of each of those companies is and has been from the beginning conducted under the direction and control of its own board of directors. Those statements are to be taken as true and, taking them as true it leaves the State’s case nothing to rest on but the bare fact that the railroad company owns the majority of stock in those other companies.

There is no use for us to go further and decide whether or not a railroad company may lawfully acquire and hold any or all the capital stock of another corporation whose business has no influence in aiding it in operating its railroad, because there is no such question before us. ■ The court will take judicial knowledge of the fact that coal for fuel is a necessity in the operation of a steam railroad and that an elevator, although not an absolute necessity, is an assistance in the handling and shipping 'of grain, and we hold that a railroad company may acquire stock in coal and elevator companies when the purpose is, as in this case it is, to facilitate the business for which it was chartered.

Our judgment is that the ouster demanded in the information should be denied and the respondents discharged. It is so ordered.

All concur, except Kennish, /., not sitting, having been of counsel.