these earnings $559,650 were derived from the interest of the new company in the earnings of the Oregon Steam Navigation Company, including its appendage the Walla Walla & Columbia River Railroad Company. During the same period the total net earnings of the Oregon Steam Navigation Company, and including its share of those of the Walla Walla & ColumbiaRiver Railroad Company, were $687,807, while the earnings of the Oregon Steam-ship Company, the other constituent of the properties of the new corporation, during the same period, were $135,214. In a report made by the president to the stockholders of the Oregon Railway & Navigation Company, of the date of January 3, 1880, it is stated that a former estimate made by Villard that the annual earnings of the several companies to be controlled by the new cor· poration would be sufficient to pay the interest on $6,000,000 of its mortgage bonds, and a dividend of 10 per cent. on $6,000,000 of its capital stock, "had bAen more than realized by the traffic of the half year just closed, and that the prospects of the company for 1880 were even more promising than the results of the last six months would indicate. Early in February, 1880, the directors of the new corporation made a formal proposition to the directors of the Oregon Steam Navigation Company to purchase the property and franchises of that company at a valuation to be agreed upon between the two boards, or by two appraisers, one to be selected by each company. Thereupon the directors of the Oregon Steam Navigation Company adopted a resolution setting forth that the new company, being about to construct railroads which would render the most profitable part of the business afthe Oregon Steam Navigation Company nearly worthless, and would greatly depreciate the value of its property, had made a proposition that was greatly to the advantage of the Oregon Steam Navigation Company, and that it was advisable that such proposition be accepted, subject to ratification at a stockholders' meeting; and it was accordingly resolved to accept the proposition, and one Brooks was appointed an appraiser on the part of the corporation. One Biles was selected by the new company as its appraiser. Within a few days the two appraisers agreed upon the valuation of $2,300,000. These proceedings were followed by the meeting of the stockholders of the Oregon Steam Navigation Company of March 31, 1880, at which the sale was ratified, and the dissolution of the corporation voted. At that meeting 40,552 shares were voted by the new company in the name of its trustee; 5,161 shares were voted in the names of Harriott and Noyes, being stock actually belonging to the new company; and 536 shares were voted by other persons in the interest of the new company. At the time of the making of the Ainsworth contract, the property of the Oregon Steam Navigation Company was scheduled, as a basiB for the purchase, at a valuation of $3,320,000, exclusive of the franIt
ERVIN V. OREGON RY. & NAV. CO.
chise. No proposition was ever made by the defendants to the stockholders not in the combination with the Ainsworth and Villard parties, to allow them to come in on the same terms given to the Ainsworth parties. The original plan of Villard to acquire the property of the Oregon & California Railroad Company seems to have been abandoned, and, instead of acquiring this property, new railroads were projected and commenced by the new corporation. At the time of the sale the new company had expended about $2,100,000 in the construction of these new railroads, and upon the improvement of the property of the corporation generally. This is a history, in outline, of the facts upon which the complainants rely. The bill contains the following allegations: " A.nd your orators aver and charge that the proceedings by which the defendant the Oregon Railway & Navigation Company has pretended to fix the value of your orators' stock at 46 cents on the dollar, and to end the rights of your orators to participate in the profits of said busines8, were a device and it sham, for the reason, among others, that, in making the pretended purchase of the Oregon Steam Navigation Company property, the Oregon Hailway & Navigation Company was in fact both buyer and seller, and fixed the prices at which it bought, and for the reason that said price was grossly and fraudulently inadequate, and was fixed by means of a fraudulent scheme intended to apply to the minority of stockholders alone, of whom were your orators, and not to the majority stockholders, to-wit. said Oregon Hailway & Navigation Company itself." The proofs, which consist chiefly of the official records of the corporations, the repoFts and communications of their officers and agents, including those of Mr. Villard, and the oral testimony of Villard, and others person identified in interest with him, or with the corporation defendant, show very clearly that from the time of the organization of the Oregon Railway & Navigation Company it was the purpose of those who controlled it to absorb the Oregon Steam Navigation Company, and make the franchises, property, and traffic of that company a dominant factor-First, in floating the securities of the new corporation; and, secondly, in contributing to establish it permanently as a successful concern. They never contemplated winding up the business of the old company, and distributing the assets among its stockholders, otherwise than as a formal mode of doing what they could not do by legal sanction. What they intended to do, and what they practically did, was to effect a consolidation of the old company with the new, using as the means for the end the statutory power which authorized a majority of stockholders to dissolve the corporation, settle its business, and dispose of its property. This is manifest from Mr. Villard's statements. made in his report as president to the stockholders of the Oregon Railway & Navigation Company. This report presents a general review of the operations of the company for the year commencing July 1, 1879. He says: "An important problem calling for solution by the management during the past year was the change in the relations of our company to the several .:lorporations controlled by it from an indirect to a direct ownership. The
most direct mode or transforming the control into an actual ownership was the formal consolidation of the controlled companies with our own. As regards the Oregon Steam-Ship Company our ownership of this entire stock rendered this an easy matter. But in the case of the Oregon Steam Navigation Company the fact that there was a minority of outstanding stock made a consolidation a more complicated transaction. Arrangements were first made to purchase for the company as much of the minority stock as could be obtained in the open market at reasonable pricps. Finally it was decided, under the advice of counsel. to effect the object definitely, in accordance with the Oregon law, by the purchase of the pl'operty of the Oregon bteam Navigation Company for a proper consideration. "
The plan of Villard and his coadjutors was practically accomplished early in July, 1879, when the new corporation acquired four-fifths of the stock of the old, and, by its officers and agents, assumed control of the affairs of the old compaqy. It was then within the power of the new corporation to do at any time what was done by its vote at the meeting in the following March. It was expedient, however, in the interests of those who controlled the situation, to postpone decisive action until more of the outstanding shares of the old company could be acquired on terms satisfactory to the purchasers. But for all substantial purposes, from July, 1879, to the time of the dissolution, the franchises, property, and business of the old corporation were embarked in a joint venture with those of the new concern. The defendants have adjusted their own interests on the basis of a consolidation of the two corporations and a continuance of their business as a joint venture; but they now insist that the interests of the minority stockholders, who have not been permitted to participate with them, shall be adjusted on the basis of a dissolution and a cessation of the business which they originally associated together to conduct. More than this, the defendants insist that the value of the assets, for the purpose of determining the interests of the minority, is fixed by the appraisal of persons selected by the defendants themselves, in whose selection the minority had no voice; and they have assumed to deny all recognition to those of the minority who will not consent to surrender their stock and accept a final dividend upon the basis of this appraisal. Plainly, the defendants have assumed to exercise a power belonging to the majority, in order to secure personal profit for themselves, without regard to the interests of the minority. They repudiate the suggestion of frand, and plant themselves upon their right as a majority to control the corporate interests according to their discretion. They err if they suppose that a court of equity will tolerate a discretion which does not consult the interests of the minority. It cannot be denied that minority stockholders are bound hand and foot to the majority in all matters of legitimate administration of the corporate affairs; and the courts are powerless to redress many forms of oppression practiced upon the minority under the guise of legal sanction, which fall short of actual fraud. This is a consequence of
ERVIN V. OREGON RY. &: NAV. CO.
the implied contract of association, by which it is agreed, in advance, that a majority shall bind the whole body as to all transactions within the scope of the corporate powers. But it is also of the essence of tlle contract that the corporate powers shall only be exercised to ac.. complish the objects for which they were called into existence, and that the majority shall not control those powers to pervert or destroy the original purposes of the corporators. Livingston v. Lynch, 4 Johns. Ch. 573; Hutton v. Scarborough Cliff Co., 2 Drew. & S. 514; Brewer v. Boston Theatre, 104 Mass. 378; Keane v. Johnson, 9 N. J. Eq. 401; Rollins v. Clay, 33 Me. 132; Clinch v. Financial Corp., 4: Ch. App. 117; Clearwater v. Meredith, 1 Wall. 25. It is for this rea· son that the majority cannot consolidate the corporatio,n with another corporation, and impose responsibilities and hazards upon minority not contemplated by the original enterprise, unless express statutory authority for this purpose is conferreel upon the majority. It is no more repugnant to the purposes of the association to permit the majority to merge and consolidate the corporation with another corporation than it is to permit them to dissolve it, and abandon the enterprise for which it is created, when no reasons of expediency require this to be done. A dissolution under such circumstances is an abuse of the powers delegated to the majority. It is no less a wrong beclJ,use accomplished by tbe agency of legal forms. In the language of BLACKBURN, J., in Taylor v. Chichester By. Co., L. R. 2 Exch. 379:
"As the shareholders are, in substance, partners in a trading corporation, the management of which is intrusted to the body corporate. a trust is, by implication, created in favor of the shal'eholdars that the corporation will manage the corporate affairs, and apply the corporate funds, for the purpose uf carrying out the original speculation."
When a number of stockholders combine to constitute themselves a majority in order to control the corporation as they see fit, they become for all practical purposes the corporation itself, and assume the trust relation occupied by the corporation towards its stockholders. Although stockholders are not partners, nor strictly tenants in common, they are the beneficial joint owners of the corporate property, having an interest and power of legal control in exact proportion to their respective amounts of stock. The corporation itself holds its property as a trust iuncl for the stockholders who have a joint interest, in all its property and effects, and the relation between it and its several members is, for all practical purposes, that of trustee and cestui que trust. Peabody v. Flint, 6 Allen, 52, 56; Hardy v. Metropolitan Lnnd Co., L. R. 7 Ch. 427: Stevens v. Rutland R. Co., 29 Vt. 550. When several persons have a common interest in property, equity will not allow one to appropriate it exclusively to himself, or to impair its value to the others. Community of interest involves mutual obligation. Persons occupying this relation towards each other ale under an obligation to make the property or fund pro·