
    George A. Treadwell, Appellant, v. United Verde Copper Company and Others, its Directors, Respondents.
    
      Corporation — injunction to restrain a sale of the corporate property in dissolution proceedings until proper terms of sale are made and information, as to the property to he sold, is given.
    
    On a motion to continue a temporary injunction, granted in an action brought by a stockholder of a corporation against the corporation and its directors, restraining the sale of the corporate property in proceedings for its dissolution, it appeared that the corporation, which was organized in New York, was engaged in operating a copper mine in Arizona, and that it owned property valued at §90,000,000, the complaint alleging that the dissolution proceedings, while ostensibly intended to further a scheme to reorganize the corporation under the laws of West Virginia, were, in fact, taken to wipe out the interest in the property of certain minority stockholders.
    The terms of sale announced that the entire property of the corporation, including, in addition to the real estate, all the mining rights and buildings, the ore on the dumps and in transit, stores and supplies of every nature, pending contracts and the entire issue of the stock and bonds of a railroad company as well as bills receivable, would be sold together, and that the purchaser would be required to take the property as it existed at the time of taking possession, and to assume all contracts for supplies, etc., existing at the date of taking possession, and pay all bills' falling due on or after the day of taking possession, the purchaser to have the right to collect all amounts due to the company. The terms of sale also provided that the purchaser must, on any bid in excess of §3,000,000, at the option of the auctioneer, make a deposit of ten per cent in cash or certified checks, or a deposit of ten per cent of the shares of the capital stock of the company. The notice of the sale, together with the terms thereof, was published in an obscure place in the New York Law Journal on the 38th day of November, 1899, stating that the sale would take place on the
    . nineteenth of the following December, and no other notice of the sale was given except the mailing of the notice of sale and the terms thereof to the stockholders..
    It further appeared that the trustees of the corporation were still conducting the business of mining, making contracts and purchasing stores, and that no information was obtainable as to the pending contracts, the supplies or the ore on hand or in transit, or the obligations which the purchaser would be required to assume, and that whatever information had been asked for in this respect had been refused.
    
      Held, that, under the circumstances, a case was made out requiring the court to restrain the sale until such time as the terms of sale were so amended as to be unobjectionable, or until the information essential to the making of an intelligent bid for the property was made accessible to all persons desiring to bid at the sale thereof.
    
      Appeal by the plaintiff, George A. Treadwell, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 5th day of January, 1900, denying his motion to continue a temporary injunction, and vacating said injunction.
    
      Charles M. Demond, for the appellant.
    
      Henry G. Atwater, for the respondents.
   Rumsey, J.:

The action was begun on the 8th of November, 1899. The plaintiff is one of the stockholders of the United Verde Copper Company, a New York corporation, owning a large and valuable copper mine in the State of Arizona, which it has been engaged in operating. The defendants, other than the corporation, are its directors-and stockholders. It is alleged that on the 23d of August, 1899, the directors voted to. dissolve the corporation, pursuant .to section 57 of the Stock Corporation Law (Chap. 932, Laws of 1896), and that their action was confirmed by the stockholders on the 23d of September, 1899; that the certificate required by section 57 was filed in the office of the Secretary of State on the 2d day of October, 1899 ; and that, therefore, pursuant to the operation of the statute, the corporatioii was dissolved, and it became the duty of the directors to proceed to adjust and wind up its business and affairs, to carry out its contracts and to sell its assets at public or private sale, and to apply the same in discharge of debts and obligations of such corporation, and after paying and adequately providing for the payment of such debts and obligations, to distribute the balance of the assets among the stockholders of the company, according' to their respective, lights and interests.

The complaint states that the capital stock of the corporation was divided into 300,000' shares, of the par value of $10 each, of which ' the plaintiff is the ownér of about 700, the defendant William A. Clark of 244,026, and the other directors and Clark’s relatives of enough to bring their joint ownership to something over 299,000 shares. It is alleged in the complaint that the property of the corporation in the Territory of Arizona is of very considerable value ;. that for some time dividends have been paid at the rate of $1 a share a'month or at the rate of $3,600,000 a year; that the mines owned by the company are the most valuable copper mines in the world; that it has accumulated a very large surplus, in excess of $12,000,000; that a body of ore great enough to permit profitable mining for ■many years to come still remains to be mined; that the assets of the company are many times in excess of its liabilities; and that its property is worth more than $90,000,000. It is further alleged that the ostensible purpose of the dissolution of the company is to reorganize under the laws of the State of West Virginia and to transfer the property of the defendant to the new corporation after its reorganization, but that the real purpose is to wipe out the interest of the plaintiff and the smaller stockholders who are not in any way related to or controlled by Clark, in such a way that he shall become the owner of all of the property and assets of the company; that though the surplus assets of the corporation are much greater in value than the amount of its liabilities, it is the intention ■ of the directors to issue bonds to the amount of $3,000,000, thus imposing a liability to that amount on the corporation wl^ich does not exist now. It is alleged further that it is the intention of the directors to dispose of all this valuable property and the assets in such a way as to allow William A. Clark alone to obtain them, without regard to the rights or interests of the minority stockholders; that the defendant directors do not intend to have a fair and impartial sale of. the assets, but intend to sell them in Arizona or elsewhere at public or private sale without adequate or proper notice, and intend that all bidders for the. property shall be excluded except Clark or persons acting in his interest. It is said that the plaintiff’s stock, which is of the par value of $10 a share, is actually worth $300 a share, amounting in all to over $186,000. The complaint contains many other allegations' setting forth efforts which have been made to compel the sale by the plaintiff of his stock in the company and threats made by the directors to destroy the plaintiff’s interests in case he did not come into the proposed reorganization. As all those threats are denied, the case will be considered without reference to them.

Substantially all the allegations hereinbefore stated are conceded by the defendants, except those as to the value of the property and the intention of the directors as to the sale and the object of the dissolution. The defendants do not deny in their answer that portion of the complaint which states that the value of • the property is $90,000,000. They concede that the property is of very great valué, and while Clark and the other defendants deny that they have been offered $100,000,000 for the property and have-refused it, they do not undertake to say what the property is worth, so that it must be deemed to be admitted that, although the allegations of the plaintiff as to the value of the property may not be accurate, yet it is of exceedingly great value- and worth many times ' the par value of the stock. The allegations of the complaint that it is the intention of the directors that the sale shall not be- a fair one are denied, although the defendants concede that it is their duty to make a-sale and distribution of the assets among the stockholders.

In regard to the sale the undisputed facts are that the intention of the dissolution -was to further the scheme of reorganization, and ■ that' it was not originally intended that the property should be actually sold at all, but that the West Virginia corporation should be organized by the same parsons who are now stockholders of the New York corporation, and that each of them should receive a share of the new company’s stock for each share he now holds, so that in the end the company should exist precisely as it now exists and the business he carried on in precisely the same way, except that instead of being a New York corporation it would be a West Virginia one. As part of the scheme it was also proposed that $3,000,000 in bonds should he issued to represent the surplus, which the defendants admit to be upwards of that sum, and that one bond of $10 should be delivered to each stockholder for each share of stock he now owns, and that'as so delivered it should represent the surplus now owned by the- New York corporation and which should become the property of the West Virginia company. This scheme of reorganization depends of course upon the consent of all the stockholders, and as a minority holding about Í00 shares refused to join in it, it became impossible to carry it out, and it then became the duty of the trustees of that corporation to sell the property. The papers upon which the motion is made show that a notice of sale, including the terms of it, were published in the New Yorh Lam Journal in an obscure place on the 2Sth of November, 1899, announcing that the sale would take- place on the nine■teenth of December then ensuing; that no other notice of the sale was published, nor was any other notice given so far as appears, except the mailing of the notice of sale and the terms thereof to the stockholders. These facts are not denied. An examination of the terms of sale shows that the property to be sold comprised all the property of the company at Jerome, Arizona, including, in addition to the real estate, all the mining rights and buildings, the ore on dumps and stores and supplies of every nature used in connection with the mines and the works, and contracts for sale of metal, and also the entire issue of the stock and bonds of the United Verde and Pacific railway, running from the works to Jerome Junction, consisting of 3,000 shares of stock of the par value of $100 a share and 300 first mortgage bonds of the par value of $1,000 each, and that all these things are to be sold together and not separately, and the purchaser is required to accept tlpe property as it exists at the time of taking possession, with the ore,' stores and supplies on hand as they may then exist; he is also required to' assume all contracts existing at the date of taking possession made by the company for the purchase of stores, supplies, material and labor, or the sale of the products of its mines and works, and to pay all bills for the same falling due on or after the day of taking possession, and he shall have the right to collect and receive all amounts due the company for the product of its mines in transit to purchasers at the day of taking possession. He is required moreover on any bid in excess of $3,000,000, at the option of the auctioneer, to make either a deposit of ten per cent of the bid in cash or certified check, or a deposit of certificates of ten per cent of the shares of the capital stock of the company, and the auctioneer may refuse to accept such bid if such deposit is not made.

It appears, and is not denied by the trustees of the dissolved company, that it is still engaged in carrying on the business of the mines and making contracts,' and purchasing- stores and hiring labor necessary for that purpose; that there is in the possession of the company copper' ore amounting to thousands of tons; that there is also in transit to customers a large amount of ore' to fill contracts, and that there are due to the company considerable amounts upon these sales which vary from time to time and which cannot be accurately stated at any one time ; that no inventory has been made, and that no information is attainable by the plaintiff or by any one else as to the nature of the contracts, the supplies on hand, the copper on ' ' hand or in transit, or the amount due on the sales, or.m'e .«SÉqtónt of the contracts which 'by'the‘terms-mfisalei the.-purchaser will be required to assume. Whatever information has been.asked for on that behalf has been refused.

Nevertheless the defendants insist that when the sale is made it will be fair, because they say that the “ stockholders’ purchasing and reorganization committee will protect the stockholders’ interests and bid in the property unless some outsider bids more than they think it is worth, and the committee’s bid will be for the benefit of every stockholder who desires to join with them,” It is further stated that if any stockholder refuses to take the stock of the new corporation, all the directors can do is to give him his pro rata share of what the property brings át the sale. In view of the fact that the trustees are made trustees for all of the. stockholders, and in view of their statement that they will act only for the "benefit of those stockholders who choose to join them, it is quite apparent that so far as that' committee is concerned they will bid off the property •Only in the interest of those who desire to become owners in the new corporation, and will not exert themselves to secure .any larger ¡Drice than" is'necessary .to enable them to become the owners of the new Corporation ;-and, as subsequently stated in the affidavit, if 'the plaintiff does not choose' to come into the reorganization, he will receive, on his stock only'his share of the price they-get.

It is made to appear, and affidavits were hardly necessary to establish the fact, that no person who was desirous of bidding on this ■very valuable property could safely do so unless he had information as to the.-extent and nature, not-only .of. the visible" property in ■Arizona, but of the property which is represented by the copper in transit and the bills receivable, and also as to the extent of the liabilities which he is bound to assume pursuant to the terms of the sale. It is also clear that to enable the proposing bidder to. get such information a considerable (time .would be necessary, and it must be conceded, also, that where the property to be sold is of so great valué ■as this, and comprises so many different things, it cannot be expected that bidders would be prepared to attend the sale who had received : simply a notice of sale less than four weeks beforehand. It is necessarily to be inferred from these papers that this sale so made could not begin to produce anything like the value of the property.

The notice of salé also provided that on. any bid in excess of $3,000,000 the auctioneer might require a deposit of cash or certified check, or a deposit of a certificate of ten per cent of the capital stock of the company, as stated above. While this provision authorizes the auctioneer to require only one or the other at the option of the purchaser, it is quite apparent that it gives to anyone who happens to own ten per cent of the stock a great advantage over all other persons, and all bidders of $3,000,000 or over must put up either the cash or the stock. As the law requires the trustees to sell the property so as to produce a fund to be distributed, it is apparent that allowing a purchaser to deposit ten per cent of the bid in stock is not within the intention of the statute.

The property which is to be sold at this auction is not only real estate and personal property, but also bills receivable, presumably from solvent debtors and probably presently payable. What reason there can be for including in this sale such quick assets, whose amount can necessarily only be known to the directors of the corporation, cannot be conceived, and for this alone the sale should be restrained until the amount of these assets can be ascertained, so that one bidding on them can know what it is. Taking into consideration the great value of the property to be sold, which is confessedly many millions of dollars; the short time of the advertisement ; the comparative secrecy in regard, to the time and place of sale; the absolute ignorance in which every one, except the directors, is kept as to the value of a large part of the property to be sold; the nature of the property which is to be sold together, including real estate, supplies, tools, ore on the dumps and in transit, .assets receivable and subject to liabilities unascertained and practically unascertainable; the terms of sale which are more favorable to the trustees who desire to bid for the consenting stockholders than for any one else; and the fact .that the reorganization committee which proposes to bid in behajf of the stockholders for the purpose of protecting their interests alone are not disposed to secure any larger price for the property than is necessary to merely bid it in, it seems' to us that, without going any further, a case is made which would not only authorize but require the court to restrain this sale until such time as the terms of sale are so amended as to be unobjectionable, or such information made accessible to all persons desiring to bid so that an intelligent, bid can be made for the property.

It is necessarily to be inferred from the facts alleged in the complaint, which are not denied, that this cannot at present be done, and, therefore, the complaint sets out a cause of action in that behalf at least and shows that the plaintiff is entitled to a temporary injunction in regard to these matters.

' By the statute the directors are made trustees for the stockholders, and as such it is their duty to administer the affairs of this trust in the interest of all to the same extent and in the same manner as other trustees are required to administer the estate in thé interest of their cestuis que trust. While all charges of unfairness and of any intention to destroy the plaintiff’s interests are denied and have not been considered upon this appeal, yet it does not appear that the plaintiff will not be able to establish them on the 'trial; and if he should there can be no doubt that the .court not only would haye power but it would be its duty to take this property out of the hands of the trustees and place it in the hands of a receiver in order that the rights and interests of the stockholders might be alike properly protected. Not only, therefore, does the complaint state a cause of action, but the undisputed allegations in it, coupled with the facts conceded by the defendants themselves, show that the plaintiff’s rights absolutely require an injunction to restrain this sale, which, if conducted in the manner proposed, must necessarily produce a great sacrifice of the property of the corporation and a great destruction of the plaintiff’s interests. The order vacating the injunction should, therefore, be reversed, with ten dollars costs and disbursements, and the injunction continued, with ten dollars costs of the motion.

Van Bbunt, P. J., Babeett, Ingraham and McLaughlin, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and injunction continued, with ten dollars costs.

- Nóte.— The rest of 'the cases of this term will be found in the next volume, 48 App. Div.— [Rep.  