Blue Mt. Forest Ass'n v. Borrowe , 71 N.H. 69 ( 1901 )

One purpose of the founder of the park was to set aside a large tract of uncultivated land for the propagation of wild animals; and it is apparent that he deemed it essential that some degree of permanency and continuity should be given to the enterprise. He did not expend a half million dollars, as well as much valuable time and investigation, to establish and develop the park, with the expectation that upon his decease it would cease to exist and be divided in severalty among his heirs. He did not seek to provide for his personal pleasure and gratification alone, which might cease at any minute and which was sure to terminate in a few years. The continuance and maintenance of the park after his death was probably the most controlling consideration that induced him to undertake its establishment. And while the fact is not expressly found, it is a reasonable inference from the case that the members of his family who became stockholders in the plaintiff corporation knew that this was his purpose, and by accepting the stock as a gift were willing to co-operate with him.

It is also apparent that the corporation was not formed as a strictly business enterprise. It was not expected to yield any considerable income on the original investment. It was a private incorporated society or association of the members of a single family, formed for the purpose of conveniently managing a private park. Whether this object might have been as conveniently accomplished by an unincorporated partnership or association of individuals, it is not necessary to determine. The essential features of the enterprise were not made less apparent, or less binding in a legal sense upon the constituent members, by the formality of incorporation, than they would have been without that formality. Many unincorporated bodies or associations exist which exercise powers over the members and over the common property as extensive as those possessed by similar incorporated bodies. They adopt articles of association and are governed by regulations often termed by-laws. They also exist under corporate names and possess the attribute of indefinite continuity. People v. Coleman, 133 N.Y. 279; Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566; Hunt v. Wright, 47 N.H. 396. Whether they are regarded as partnerships or as quasi-corporations, no doubt is entertained that the obligations they impose upon the members rest upon the agreement of the members. It is their contract, express or implied, that gives legal force and effect to the by-laws to which they have assented and by which they are bound. How far strangers to the contract are bound by such regulations presents a different question. So far as the members are concerned, it is competent for them to make such contracts or by-laws as they desire, provided they are not repugnant to some positive rule of law or against public policy. Dawkins v. Antrobus, 17 Ch. Div. 615; Brown v. Stoerkel, 74 Mich. 269, 276; 1 Thomp. Corp., 8. 1047.

If the members of an unincorporated society, established by agreement, should by mutual consent become incorporated, making their original articles of agreement the charter of the corporation and readopting their old by-laws, a by-law which was binding as a contract between the unincorporated members would not be less binding as a contract between the same individuals under a corporate name. If it was competent for them to make a valid agreement with reference to a particular subject before, they are not now by the fiction of incorporation rendered incompetent to bind themselves by an identical agreement. Each member's contractual capacity is not impaired; and his assent to the terms of a corporate by-law imposes upon him the same contractual duties to the other members, represented by the corporation, as his assent to a similar regulation in an unincorporated society. Whether stockholders "are incorporated or not, their company is formed by their contract with each other, and it has such powers and duties as the law allows them to give it, and such as the law grants and imposes. . . . Neither party have any legal cause of complaint against their own agreement." Dow v. Railroad,67 N.H. 1, 4, 5.

Upon the ground of the contractual obligations resting upon stockholders as between themselves, unincumbered with questions relating to the rights of third parties, it was held in Costello v. Brewing Co., 69 N.H. 405, that a by-law of a corporation providing that the indebtedness of a stockholder to the corporation may be considered a lien on the shares standing in his name, to be enforced by a cancellation of such shares to the extent of the indebtedness, is binding upon a stockholder who is chargeable with knowledge of its existence. With reference to the by-laws the court say: "By them, the stockholders in effect agreed among themselves that the corporation should have a lien upon the shares of a stockholder for his indebtedness to the corporation, and his right to sell and transfer the shares should be subject to this lien; and that the corporation, by a two-thirds vote of its directors at a regular meeting, might apply the shares at the rate of $500 each to the payment of the debt, after it had been due for three months and payment had been demanded and refused. The stockholders were mutually benefited by this agreement. It tended to protect the property, of which they were beneficiaries, from loss. No reason is apparent why these by-laws were not valid as between the stockholders. . . . The by-laws and the acts of the parties constituting a contract, the transaction would not be within the prohibition of the statute against restraint upon the free sale of shares of corporate stock."

In New England Trust Co. v. Abbott, 162 Mass. 148, 151, it is said: "The defendant contends that these by-laws are void. We have not found it necessary to consider that question, and we express no opinion upon it. We think that the case well may stand on the ground that the defendant's testator entered into an agreement with the plaintiff to do what the plaintiff now seeks to compel his executor to do. It is manifest that a stockholder may make a contract with a corporation to do or not to do certain things in regard to his stock, or to waive certain rights, or to submit to certain restrictions respecting which the stockholders might have no power of compulsion over him." See other cases cited in Costello v. Brewing Co., supra.

The application of these principles to the present case is obvious. If Mr. Corbin had conveyed to the defendant an undivided sixth interest in the park, stating in the deed that it was made subject to certain terms and conditions contained in some, other instrument fully described and easily accessible to the grantee, where it was provided that each one-sixth interest should be held as security for the payment of one sixth of the expenses of managing the park, and that any owner of an interest desiring to sever his connection with the association or partnership should first offer his interest for sale to his associates, no serious doubt is suggested that the terms and conditions referred to would be valid and binding upon the defendant. Burbank v. Pillsbury, 48 N.H. 475; Emerson v. Mooney, 50 N.H. 315; Winnipesaukee Camp-Meeting Ass'n v. Gordon,63 N.H. 505. Instead of executing deeds of one sixth of the park to his wife and each of his children, one whom was the defendant, the grantor conveyed the legal title to the land to an artificial corporate body, and gave or allotted to his wife and children in equal shares five sixths of the beneficial interest of ownership in the park, in the form of stock, "subject, however," as expressly provided in the certificates, "to the terms of the original subscription, and transferable only in accordance with the by-laws of said association." An examination of the by-laws subject to which the stock was allotted would have disclosed to the defendant the provisions which the plaintiff is seeking to enforce against her. If such provisions referred to, but not set out, in deed would bind the grantee as a contractual obligation, nothing but the most unsubstantial technicality can be assigned as a reason for denying their contractual force when referred to, but not set out, in a certificate of corporate stock. As a by-law enacted by majority of stockholders it may not be valid. The statute (G. L., c. 148, ss. 15, 16; P. S., c. 149, ss. 16, 17), if interpreted to mean that in a dividend-paying corporation no assessment for any purpose can be made on stock which has been fully paid, does not prevent the stockholders from contracting among themselves for an additional assessment which would be binding on all of them, if all assented to it. Such a regulation, as a technical by-law enacted by a majority of the stockholders, might be void or voidable; while as a contract entered into by all the stockholders, it might be valid. A void by-law may become a valid contract.

The defendant being an original stockholder, and having accepted her stock certificate without objection, which she still holds, is estopped to say that she did not agree to the terms of the contract evidenced by the certificate. The certificate in terms referred her to the existing by-laws for information as to her duties stockholder. In those regulations it was provided that "every certificate of stock shall refer on its face to the provisions of the by-laws and shall be taken by the purchaser subject to all the by-laws." Was she willing to become a stockholder under the conditions therein contained? In the absence of fraud, undue influence, or misrepresentation practiced upon her, her acceptance of the certificate as a gift from her father, without a suggestion of dissent from the conditions imposed, which were reasonable perhaps necessary for the success of the enterprise, furnishes conclusive proof of her contractual engagement which she is not liberty to disregard. She cannot insist that she is an innocent stockholder, opposing the enforcement of an unjust and illegal bylaw passed after her acquisition of the stock, against her dissent or without her knowledge. Such a by-law is void because it violates the dissenting stockholder's contract with the corporation (Dow v. Railroad, 67 N.H. 1); but if it has the opposite effect, and furnishes the evidence of the contract to which he assented, either expressly or by implication, when he received his certificate, as in this case, its invalidity as a by-law as against some other party cannot be successfully urged as a reason for relieving him from the legitimate consequences of his contract.

The defendant's contention, that the contract under which she the stock is rendered void by the rule against perpetuities, and that it cannot be enforced for that reason, is unsound. Her agreement was, in part, that in case she desired to dispose of her stock she would first offer it to the association for a specified sum; if the association declined to take it, she would offer it to the stockholders for the same sum; and if they declined it, she free to sell it to anybody and st any price she saw fit. Upon this agreement she obtained the stock which she now holds, claiming, in effect, that the contract was sufficient to transfer to her the title, but that it was ineffectual to restrict her right of disposing of it. But whatever effect, if any, the restricted right of alienation of the stock might be held to have upon the validity of the contract (Hunt v. Wright,47 N.H. 396), the defendant is not in a position to interpose that defence. There is in fact no contest in regard to her ownership of the stock. She claims to be the owner, and the plaintiff does not dispute her claim. She does not seek to rescind the contract and surrender the stock for which she paid nothing; nor is the plaintiff seeking to enforce a forfeiture of her title. Under these circumstances common justice forbids that she should be permitted to retain the stock and enjoy the benefits incident to its ownership without incurring the burdens she agreed to assume by such ownership. If the contract is valid so far as it conferred benefits upon her, it is equally valid so far as it imposed obligations upon her. M. L. Railroad v. Railroad, 66 N.H. 100, 127; McDonald v. Insurance Co.,68 N.H. 5, 6; Scholey v. Rew, 23 Wall. 331; Branch v. Jesup, 106 U.S. 468,481; Woburn v. Henshaw, 101 Mass. 193, 200; Jacobs v. Miller, 50 Mich. 119,126.

As the manner of disposing of the stock is explicitly pointed out in the by-laws and agreed to by the defendant, and as it is not contrary to public policy (Cook Stock Stockh. s. 332), no other method can be adopted, as between the parties, for a sale of it in the enforcement of the plaintiff's lien thereon. If the defendant declines to discharge the lien, it is evident the stock must be sold in order to render the lien effective (Brent v. Bank, 10 Pet. 596) and to enforce the contract. Neither the plaintiff nor the defendant can insist that it should be sold at auction or in some other way to third parties, until the association and the stockholders individually have declined to pay $20,000 for it. As the association is willing to pay that sum, the defendant cannot sell it to other parties, for she has agreed to give the association the first option to purchase it; and as it is the duty of the court to enforce the contract between the parties, the following decree will be entered: If the defendant shall not pay to the plaintiff the amount of the several assessments with interest thereon, within such time as the superior court shall find to be reasonable, the defendant is ordered to transfer her certificate of stock in the Blue Mountain Forest Association to the association, upon its tender to her of the sum of $20,000, in accordance with the terms of the by-laws.

Case discharged.

PARSONS, J., did not sit: the others concurred.