or hereafter be used; and to purchase and hold or sell the capital stock or purchase or lease or operate the property, plant, good will, rights and franchises of any gas works or gas company or gas companies, or any electric company or electric companies in the said city of Chicago, or elsewhere in said State, as said corporation may, by vote of the majority of the stockholders, elect; and to purchase, hold, sell, operate or anywise become interested in coal or other properties productive of material necessary or useful in the supply or manufacture of gas, or other agency or medium of light, heat, power or fuel; and to sell, improve, enlarge, extend, maintain, operate and demise any and all property, so purchased or leased.”’1 In the case of The People v. The Chicago Gas Trust Company, it was held that a corporation formed under the general law for a lawful purpose, such as the manufacture and sale of gas, cannot clothe itself with power to purchase and hold stock in similar corporations merely by naming this as one of the objects of its incorporation in the articles filed with the secretary of state. A corporation cannot become a stockholder in another corporation unless such power is expressly given or is necessarily implied, and this more especially when the object is to obtain the control or effect the management of such other corporation. The General Incorporation Law of this State does not, in express terms, confer upon corporations formed thereunder the power to purchase and hold shares of stock in other corporations, but it is silent on the subject. The only powers granted by it are the ordinary corporate powers, such as the right to be bodies corporate and politic, to sue and be sued, to have a common seal, etc. Section 5 of the General Incorporation Law expressly restricts the powers of a corporation formed under such law to such as are necessary to carry into effect the object for which it was formed. The purchase of stock in other companies not being necessary to enable a gas company to carry its object in making and selling gas into effect, is impliedly prohibited by the statute. Whatever 1 People v. Chicago Gas Trust Co., 130 Ill. 275. tends to prevent competition between those engaged in an employment or business impressed with a public character, is opposed to public policy, and, therefore, unlawful; and whatever tends to create a monopoly is unlawful as being contrary to public policy. All grants creating monopolies, and acts tending to prevent proper competition, are by the common law illegal and void. If grants and contracts, the tendency of which is to create monopolies, are void at common law, then, when a corporation is organized under a general statute, a provision in the declaration of its corporate purposes, the necessary effect of which is the creation of a monopoly, will also be void. The Chicago Gas Trust Company, being a corporation formed under the General Incorporation Law, for the purpose of erecting and operating gas works, and the manufacture and sale of gas, has no power to purchase and hold or sell shares of stock in other gas companies as an incident to such purpose of its formation, even though such power is specified in its articles of incorporation. The gas trust company mentioned was incorporated under the general law for two purposes, as expressed in its articles of association: First, for the purpose of erecting and operating gas works for the manufacture and sale of gas in Chicago and other places in this State; and second, "to purchase and hold or sell the capital stock, or purchase or lease or operate the property, plant, good will, rights and franchises of any gas works or gas company or companies, or any electric company or companies, in Chicago or elsewhere," etc. The company 1 People v. Chicago Gas Trust Co., 130 Ill. 275. See also Talmage v. Pell. 7 N. Y. 348; Berry v. Yates, 24 Barb. 200; Milbank V. New York, etc. R. Co., 64 How. Pr. 20; Mechanics' Sav. Bank v. Meriden, etc. Co., 24 Conn. 159; Central, etc. R. Co. v. Pennsylvania R. R. Co., 31 N. J. Eq. 475; Hazlehurst v. Savannah, etc. R. Co., 43 Ga. 13; Valley R. Co. v. Lake Erie Ins. Co., 46 Ohio St. 44; Hill v. Nisbet, 100 Ind. 341; Com pagnie Francaise v. Western Union Co., 11 Fed. Rep. 862; Solomons v. Laing, 12 Beav. 339; Franklin Bank v. Commercial Bank, 36 Ohio St. 350; Buford v. Keokuk C., 3 Mo. App. 159; McMillan v. Carson Min. Co., 12 Phila. 404; In re British Life Ins. Assn., L. R. 8 Ch. D. 679; Taylor v. Earle, 8 Hun, 1; Frothingham v. Barney, 6 Hun, 366; Joint-Stock Co. v. Brown, L. R. 8 Eq. 381; Sumner v. Marcy, 3 W. & M. 105; New Orleans Co. sought to exercise the powers claimed under the second clause, only, and for that purpose bought a majority of the shares of all the stock of all the gas companies in Chicago, being four in number, whereby it might have the control of all the gas companies in the city, and thus destroy competition and monopolize the gas business. It was held that the corporation so formed was not for a lawful purpose, and that all acts done by it towards the accomplishment of such object were illegal and void.1 In the opinion in this case, v. Ocean Dry Dock Co., 28 La. Ann. 173; Easun v. Buckeye Brew. Co., 51 Fed. Rep. 156; Buckeye Marble, etc. Co. v. Harvey, 92 Tenn. 115. 1 People v. Chicago Gas Trust Co.. 130 Ill. 268. A corporation authorized to conduct a lumber business is legally incapable of being a stockholder in a telegraph company. Peshtigo Co. v. Gt. Western Tel. Co., 50 Ill. App. 624. "We think it well settled as a result of the decisions in this State, as well as elswhere, that an incorporated company cannot, unless authorized by statute, make a valid subscription to the capital stock of another, that such subscription is ultra vires and void. Mr. Morawetz, in stating this to be the law, observes: The right of forming a corporation is conferred by the incorporation laws only upon persons acting individually, and not upon associations; moreover, it would, under ordinary circumstances, be a violation of the charter of an existing company to subscribe for shares in a new company and assume the resulting liabilities.' (Priv. Corp. $433.) There has been no direct decision upon the question by this court, but such has been the uniform holding elsewhere. Railroad Company v. Railroad Company, 31 N. J. Eq. 475; Franklin Co. V. Lewiston Savings Bank, 68 Me. 43; Railroad Company v. Collins, 48 Ga. 582. These cases all proceed upon the legislative principle that the powers of corporations organized under legislative statute are such, and such only, as those statutes confer, or that may be fairly implied therefrom. This doctrine was clearly announced and applied in Straus v. Eagle Ins. Co., 5 Ohio St. 59, and has been firmly adhered to in this court. Railroad Co. v. Hinsdale, 45 Ohio St. 556, 573. No claim is made by the defendant that the iron company bad any express statutory authority to use its capital or assets in aid of the construction of a railroad by subscription to its capital stock or otherwise. The only averment as to this, is, the iron company conceived that it would be benefited by the reduction of the price of coal at Cleveland, its place of business, and the market which the construction of the road would afford for its manufactures, and by these considerations was induced to make the subscription. But all of this can be of no avail in the face, at least, of the prohibition contained in § 3266, of the Revised Statutes. that no corporation shall employ its stock, means, assets or other property. directly or indirectly, for any the court said: "Of what avail is it that any number of gas companies may be formed under the General Incorporation Law, if a giant trust company can be clothed with the power of buying up and holding the stock and property of other purpose whatever, than to accomplish the legitimate objects of its creation.' There was, then, as we think, no authority whatever in the iron company to make a valid subscription to the capital stock of the railway company, and no recovery can be had upon it." Valley Railway Co. v. Iron Co., 46 Ohio St. 44, 49. "The purpose for which the agency company united, as expressed in their articles of association, was to do a general insurance agency, commission and brokerage business, and such other things as were incidental to, and necessary in, the management of that business. So far as that company was concerned the proper officers of the company had power to act and bind the company. But if they departed from that business, and entered into contracts not authorized by the company, such contracts would not be binding. A subscription to the stock of a building association has no legitimate connection with the business of an insurance agent, commission merchant or broker, and was not, therefore, authorized by the defendants' articles of association. It is said that the defendants had power to borrow money, mortgage their real estate for its security, and, if necessary, to obtain a loan, as in this case, become a stockholder in a building association. We are not disposed to question the right of the defendants to borrow money, and mortgage their real estate for its security. This may be one of the powers in cidental to, and necessary in, the prosecution of their business, and the successful management of the same. We are inclined to think the power is implied in their articles of association. But when the directors of the company subscribed for stock in a building association, whatever may have been their motive, whether to obtain a loan of money, or for purposes of speculation, they transcended the powers conferred upon them, and departed from the legitimate business of the company, as much so as if they had subscribed for stock in a manufacturing or steamboat company. Such subscription, in our opinion, is not binding upon the defendants, and any payments made upon it to the plaintiffs would be money received by them without consideration." Mutual Sav., etc. Co. v. Meriden Agency Co., 24 Conn. 159, 163. A railroad company chartered for the purpose of building and maintaining a railroad from Savannah to Macon, with general powers to purchase and hold personal estate, of any character whatever, is not authorized to become a stockholder in a railroad from Savannah to Bainbridge. Such a purchase is wholly beyond the purposes of the charter. It is a part of the public policy of the State, as indicated by the charter of several railroads from the seaboard to the interior to secure a reasonable competition between said roads for public patronage, and it is contrary to that policy such companies, and through the control thereby attained can direct all their operations and weld them into one huge combination? The several privileges or franchises intended to be exercised by a number of companies are thus vested exclusively in a single corporation. To create one corpora for one of said roads to attempt to secure a controlling interest in another, and any contract made with that view will be set aside by a court of equity as illegal, beyond the objects of the charter, and contrary to the public policy of the State. Central R. R. v. Collins, 40 Ga. 582. See also Hazlehurst v. Savannah, etc. R. R. Co., 43 Ga. 13. Though a railroad company may take title to all kinds of personal property, including stock of other railroad corporations, to secure debts due it, the investment by a railroad company of its corporate funds in the purchase of the stock of another corporation is not necessary in the exercise of any of its corporate powers, and is unauthorized and in violation of the statute and is consequently ultra vires. While a railroad corporation remains the owner of the stock of another corporation, it may collect and receive dividends thereon and has the right to sell and dispose of the same, but has no right to vote thereon; and the stockholders of the company whose stock is thus held, have the right to have the company holding such stock enjoined from so voting, in case it threatened to do so. Milbank v. New York, etc. R. R. Co., 64 How. Pr. 20. A corporation cannot, in its own name, subscribe for stock, or be a corporator, under the general railroad law; nor can it do so by a simulated compliance with the provisions of the law through its agents as pretended corporators and subscribers of stock. Any attempt by a corporation to avail itself unlawfully of the general railroad law to build a railroad, will, on complaint of the party injured, be enjoined as an abuse of the law. Central R. R. Co. of New Jersey v. Pennsylvania R. R. Co., 31 N. J. Eq. 475. The trustees of the Lewiston Institution for Savings subscribed for $50,000 of the capital stock of the Continental Mills, and having no power to pay for it, the Franklin Company, another corporation, paid that amount to the Continental Mills, taking the notes of the savings institution therefor, and a certificate of the stock in their own name as collateral security for the payment of the notes. Held, that the action of the trustees of the savings institution was ultra vires; that it was not within the authority of savings institutions, at a time when they have no funds for investment, to purchase stocks or other property, not needed for immediate use, on credit, and thus create a debt binding upon the institution; that the Franklin Company, having participated in the illegal transaction, could not claim the privileges of a bona fide holder of commercial paper; and that the savings institution, having received no benefit from the transaction, was not estopped to set up the defense of ultra vires. Franklin Co. v. Lewiston Savings Bank, 68 Me. 43. |