1. The Anti-Trust Act of 1890 provided the exclusive remedies
for the rights it created, and it did not enable a private party to
set aside a sale because the purchaser bought in pursuance of a
purpose to restrain interstate commerce in a commodity. P.
254 U. S.
593.
2. Although the federal question which was the basis of the
jurisdiction of the district court became settled adversely to the
plaintiff's contention by decisions of this Court rendered in other
cases after this suit was begun, the jurisdiction nevertheless
continues to decide the other questions in the case.
Id.
3. The evidence fails to show that defendants constituted in
1911, when this suit was begun, such a combination in monopoly or
restraint of interstate or foreign trade in copper, within the
terms of the Anti-Trust Act of 1890, as would justify granting an
injunction to the plaintiff under § 16 of the Clayton Act.
Id.
4. When the business of a purely private corporation has proved
so unprofitable that there is no reasonable prospect of conducting
it without loss, or when the corporation has not, and cannot
obtain, the money necessary to pay its debts and to continue its
business, even though it may not be insolvent in the commercial
sense, the owners of a majority of the capital stock, exercising
their discretion in good faith, may authorize a sale of all the
corporate property for an adequate consideration and distribute
among the shareholders the net proceeds after payment of debts,
even over the objection of the minority shareholders. P.
254 U. S.
595.
5. Such a sale, if otherwise valid, will not be set aside upon
the ground that the consideration is not money, but shares in
another corporation if the shares received as the consideration
have such an established value in a general market that the
shareholder receiving them may convert them at once into a cash
consideration adequate for his interest in the corporate property
sold. P.
254 U. S.
598.
6. Where the minority shareholders of a corporation seek to set
aside a sale of its property to another corporation negotiated and
made
Page 254 U. S. 591
by boards of directors having a member in common, the burden is
upon those who would maintain the transaction to show its entire
fairness and the adequacy of the consideration. P.
254 U. S.
598.
7. Unless clearly erroneous, a concurrent finding of the
district court and the Circuit Court of Appeals that the
consideration for the sale was inadequate will be accepted by this
Court. P.
254 U. S.
600.
8. When it appears from the evidence in a suit to set aside a
sale that the consideration was inadequate, the court is not
justified in affirming the transaction merely because no greater
amount is bid upon offering the property at public auction.
Id. Mason v. Pewabic Mining Co., 133 U. S.
50, distinguished.
9. In a suit by minority shareholders to set aide for inadequacy
of consideration a sale of all the property of their corporation to
another corporation for a price paid in shares of the latter's
stock,
held that, under the pleadings, the court, having
found the price inadequate, should have set the sale aside, and was
without power to depart from the parties' contract by selling the
property at auction for a cash price found adequate. P.
254 U. S.
602.
245 F. 225 reversed.
The case is stated in the opinion.
MR. JUSTICE CLARKE delivered the opinion of the Court.
With formalities, which are not assailed, a special meeting of
the stockholders of the Alice Gold & Silver Mining Company, by
resolution, ratified a contract in writing theretofore authorized
by the board of directors and executed by the officers of the
company for the sale to the Anaconda Copper Mining Company of all
the property, of every kind, of the Alice Company. The officers
were authorized and directed to execute such deeds and assignments
as should be necessary to complete the sale, and a deed in form
conveying all of the Alice property to the Anaconda Company was
executed and delivered by
Page 254 U. S. 592
them on May 31, 1910. The consideration, 30,000 shares of the
capital stock of the Anaconda Company, was paid, and the purchaser
took possession of the property.
Almost a year later, on April 15, 1911, at a special meeting of
the stockholders of the Alice Company a resolution was adopted, by
the vote of more than two-thirds of the issued capital stock, in
favor of dissolving the corporation, and the board of directors was
authorized to take the court action prescribed by the laws of Utah,
under which the company was organized, to accomplish such
dissolution. Suit for this purpose was instituted in the
appropriate state court.
On November 6, 1911, five months after the resolution in favor
of dissolution was adopted, the bill in this case was filed by
minority stockholders, praying for a decree that the deed of May
31, 1910, be declared void, that it be delivered up and cancelled,
that the consideration for it be returned to the Anaconda Company,
and that all court proceedings to dissolve the Alice Company be
stayed pending final decree in the case. The district court
approved and confirmed the sale, and its decree was affirmed by the
circuit court of appeals. The case is here on appeal.
The appellants claimed in the courts below and argue here that
the sale was voidable for four reasons,
viz.:
(1) Because the purchase was made in pursuit of the purpose of
the Amalgamated Copper Company and the Anaconda Company to
monopolize the production of copper in the Butte Camp and to
restrain the sale of it in interstate commerce and in the markets
of the world, in violation of the Sherman Anti-Trust Act;
(2) Because the owners of less than all of the capital stock of
the Alice Company could not authorize the sale of all of the
property of the corporation over the protest of owners of a
minority of the stock;
Page 254 U. S. 593
(3) Because the Alice Company could not lawfully acquire stock
in another corporation; and
(4) Because the sale was negotiated by two boards of directors
with a common membership, and for an inadequate consideration.
We shall consider these claims in the order stated.
With respect to the first contention. It is now the settled law
that the remedies provided by the Anti-Trust Act of 1890 for
enforcing the rights created by it are exclusive, and therefore,
looking only to that act, a suit such as we have here would not now
be entertained.
Wilder v. Corn Products Refining Co.,
236 U. S. 165,
236 U. S. 174;
Paine Lumber Co. v. Neal, 244 U.
S. 459,
244 U. S. 471;
United States v. Babcock, 250 U.
S. 328,
250 U. S. 331.
But the law has become thus settled since this suit was commenced
in 1911, and the lower courts, upon the allegations in the bill,
properly assumed jurisdiction and disposed of the case.
Busch
v. Jones, 184 U. S. 598,
184 U. S. 599;
Clark v. Wooster, 119 U. S. 322,
119 U. S.
326.
It is, however, argued that § 16 of the Clayton Act (38 Stat.
730, 737), passed in 1914, was intended to, and does, modify the
prior law, as declared by this Court, and, since our decision will
result in remanding the cause to the lower court, we shall consider
its bearing upon the case.
The applicable provision of the Clayton Act is as follows:
"Sec. 16. That any person . . . shall be entitled to sue for and
have injunctive relief, in any court of the United States having
jurisdiction over the parties, against threatened loss or damage by
a violation of the antitrust laws . . . when and under the same
conditions and principles as injunctive relief against threatened
conduct that will cause loss or damage is granted by courts of
equity, under the rules governing such proceedings. . . ."
The contention of the appellants is that they will suffer
irreparable loss by the sale of the Alice properties to the
Page 254 U. S. 594
Anaconda Company, and that the sale should therefore be enjoined
because that company and the Amalgamated Copper Company constitute
a combination in restraint of interstate commerce within the
prohibitions of the Sherman Anti-Trust Act.
The Amalgamated Copper Company, organized in 1899, is a holding
company, and in 1911, when this case was commenced, it controlled
by capital stock ownership the Anaconda Company which, in turn,
held the title to the physical property which had been owned by
other corporations the union of which in this manner in the
Amalgamated and Anaconda Companies constituted the alleged unlawful
combination in restraint of interstate trade or commerce.
The evidence in the case renders it probable that the promoters
of the Amalgamated Company, when it was organized in 1899,
entertained schemes or dreams of controlling the supply and price
of copper in the interstate markets of this country and in the
markets of the world, and that they did what they could to make
that company rich and powerful.
But we are dealing with the Anaconda Company as it was in 1911
and with the extent to which its control of production and of
prices appears in the record before us.
There is evidence that the total production of copper in the
United States and Alaska in 1899, was 581 million pounds, and of
the Anaconda Company 1 million pounds (probably an error, 100
million pounds being intended); but the total production of the
world at that time is nowhere stated. The production in the United
States in 1910, the year before the suit was brought, was 1,086
million pounds, and of this Butte Camp, in which there were several
mines other than those of defendants, produced 238 million pounds,
or approximately 22 percent. Here again, there is no statement as
to the total production of the world for that year.
Page 254 U. S. 595
Whatever the fact may have been, it is obvious that from such
evidence as this it is not possible to determine to what if to any
substantial extent the defendants restrained or monopolized the
production of copper in the United States, much less in the
world.
The evidence with respect to price control, although meager, is
more definite. The average price of copper in 1899, the year before
the Amalgamated Copper Company was organized, was 17.6 per pound;
in 1900 it was 16.1; in 1902, 11.6; in 1904, 12.8; in 1907, 20; in
1908, 13; in 1909, 12.98; 1912, 16, and in 1913, the last year for
which the price is given, 15 cents.
It is obviously impossible to say that these fluctuating prices
prove monopolistic control of the price of copper by the
defendants.
No claim is made that the Anaconda Company restrained or
restricted the production of copper, but, so far as there is any
evidence at all upon the subject, it is to the effect that it
maintained and perhaps increased the production in the Butte
Camp.
Upon the case here made by the evidence, it is impossible to
conclude that the defendants constituted in 1911 such a
combination, within the terms of the Anti-Trust Act, as would
justify the granting of an injunction to the plaintiffs even under
the provisions of § 16 of the Clayton Act which we have quoted.
The decree of the lower courts as to this first claim must be
affirmed.
The second contention is that the owners of less than all of the
capital stock of the Alice Company could not authorize the sale of
all of the property of the corporation over the protest of owners
of a minority of the stock.
It is, of course, a general rule of law that, in the absence of
special authority so to do, the owners of a majority of the stock
of a corporation have not the power to authorize the directors to
sell all of the property of the company, and
Page 254 U. S. 596
thereby abandon the enterprise for which it was organized. But
to this rule there is an exception as well established as the rule
itself --
viz., that when, from any cause, the business of
a corporation, not charged with duties to the public, has proved so
unprofitable that there is no reasonable prospect of conducting the
business in the future without loss, or when the corporation has
not, and cannot obtain, the money necessary to pay its debts and to
continue the business for which it was organized, even though it
may not be insolvent in the commercial sense, the owners of a
majority of the capital stock, in their judgment and discretion
exercised in good faith, may authorize the sale of all the property
of the company for an adequate consideration, and distribute among
the stockholders what remains of the proceeds after the payment of
its debts even over the objection of the owners of the minority of
such stock. Thompson on Corporations (2d ed.) §§ 2424-2429; Noyes
on Intercorporate Relations, § 111; Cook on Corporations (7th ed.)
§ 670, p. 217, note.
The rule that owners of a majority of the stock may not
authorize the sale of all of the property of a going and not
unprofitable company rests upon the principle that exercise of such
power would defeat the implied contract among the stockholders to
pursue the purpose for which it was chartered. But this principle
fails of application when a business, unsuccessful from whatever
cause, is suspended without prospect of revival, and the law
recognizes that, under such conditions, the majority stockholders
have rights as well as the minority, and that it should not require
the former to remain powerless until the creeping paralysis of
inactivity shall have destroyed the investment of both.
The case before us is a typical one for the application of this
exception to the general rule. The Alice Company was organized in
1880, under the general incorporation laws of the then Territory of
Utah, with authority
Page 254 U. S. 597
to buy, sell, lease, hold, own and operate mines, mining claims,
etc., with many enumerated incidental powers. It acquired the
mining properties in controversy in this case and conducted
prosperously the mining chiefly of silver ores until 1893, when its
business ceased to be profitable and was suspended. Extensive
shafts and underground workings were permitted to fill with water,
and for 17 years before the sale, the only business done by the
company was leasing the upper workings of the old mines and limited
parts of the surface for shallow workings to "tributors," who
operated in such a small way that, although the expenses of the
company, chiefly for caretakers, were very small, its income was
less, so that, when the sale was made, an indebtedness of about
$35,000 had accumulated. The stock of the company was
nonassessable, it had no resources but the real estate which was
sold to the Anaconda Company, and the evidence is clear that to
reopen and operate the mines on its property, or to open new mines,
would have been very expensive, and the prospect of profitable
operation of them wholly problematical. Although its properties had
a large speculative value, and therefore the company cannot be said
to have been insolvent, yet it must be accepted as established by
the evidence that there was no reasonable prospect of the company's
being able to profitably resume the mining business for which it
was incorporated, and that the only way in which the stockholders
could realize anything from their investment was by sale of its
property. Under such circumstances as these, the sale of all of the
property of the company, if authorized, in good faith and for an
adequate consideration, by the owners of a majority of the stock
would be a valid sale which could not be defeated or set aside by
the minority stockholders.
It is next argued that the sale here in controversy is void for
the reason that the Alice Company could
Page 254 U. S. 598
not lawfully acquire and hold title to the stock in the Anaconda
Company, in which the consideration for the sale was paid.
Here again, the general rule is that while, under the
circumstances of this case, a sale of all of the property of a
corporation could be authorized by the owners of less than all of
the stock for an adequate consideration, it must be for money only,
for the reason that the minority stockholders may not lawfully be
compelled to accept a change of investment made for them by others,
or to elect between losing their interests or entering a new
company.
But it has been suggested that this rule, also, should be
subject to the exception that, when stock which has an established
market value is taken in exchange for corporation property, it
should be treated as the equivalent of money, and that a sale,
otherwise valid, should be sustained. Noyes, Intercorporate
Relations, § 120 and cases cited. We approve the soundness of such
an exception. It would be a reproach to the law to invalidate a
sale, otherwise valid, because not made for money when it is made
for stock which a stockholder receiving it may at once, in the New
York or other general market, convert into an adequate cash
consideration for what his holdings were in the corporate
property.
In this case, the trial judge determined without difficulty the
market value of the stock received in payment for the Alice
properties, and it is, of course, public knowledge that there was a
wide and general market for Anaconda stock. This third contention
of appellant must be denied.
Finally, it is argued that the sale of the Alice properties is
void because negotiated and made by two boards of directors having
a member in common and for an inadequate consideration.
John D. Ryan, at the time of the sale, was president and a
director of the Alice Company; he was also a director
Page 254 U. S. 599
and general manager of the Anaconda Company, and had been its
president from 1903 to 1909; he was elected a director and
president of the Amalgamated Copper Company in 1909, and had been a
director of each of the subsidiary companies of the combination
prior to that year. In 1905, he obtained an option on the majority
of the Alice stock for $600,000, and carried it until it was
purchased by the Butte Coalition Company, an Amalgamated subsidiary
of which he was a director, and that company voted a majority of
the Alice stock in favor of the disputed sale.
The record shows beyond controversy that Ryan was the
representative of the chief investors in the enterprise involved in
this litigation, that he dominated the conduct of the practical
administration of the affairs of the Amalgamated and Anaconda
Companies, and that he very certainly was in control of the boards
of directors of the companies which were parties to the sale of the
Alice properties.
The relation of directors to corporations is of such a fiduciary
nature that transactions between boards having common members are
regarded as jealously by the law as are personal dealings between a
director and his corporation, and where the fairness of such
transactions is challenged, the burden is upon those who would
maintain them to show their entire fairness, and, where a sale is
involved, the full adequacy of the consideration. Especially is
this true where a common director is dominating in influence or in
character. This Court has been consistently emphatic in the
application of this rule, which, it has declared, is founded in
soundest morality, and we now add in the soundest business policy.
Twin-Lick Oil Co. v. Marbury, 91 U. S.
587,
91 U. S. 588;
Thomas v. Brownville, Ft. Kearney & Pacific R. Co.,
109 U. S. 522;
Wardell v. Railroad Co., 103 U. S. 651,
103 U. S. 658;
Corsicana National Bank v. Johnson, 251 U. S.
68,
251 U. S.
90.
Page 254 U. S. 600
The district court found that the price agreed to be paid by the
Anaconda Company was not an adequate one, and the circuit court of
appeals refused to disturb that finding. With this conclusion we
agree, applying the settled rule of this Court that, in suits in
equity, a concurrent finding by two courts on a question of fact
will be accepted unless it be clear that their conclusion is
erroneous.
Baker v. Schofield, 243 U.
S. 114,
243 U. S. 118,
and cases cited.
But the district court, notwithstanding this finding of
inadequacy of price, did not set the sale aside, but ordered that
the Alice properties should be offered at public auction by a
master, and that, if no bid should be received for an amount
greater than that which the Anaconda Company had agreed to pay, the
sale should be confirmed. The offer at public sale was made, no bid
was received, and the private sale to the Anaconda Company was
thereupon confirmed. The circuit court of appeals, by a divided
court, affirmed that decree.
Both courts relied upon
Mason v. Pewabic Mining Co.,
133 U. S. 50, as
authority for approving the sale for a price which they found was
inadequate, after a greater amount could not be obtained for the
property when offered at public sale, and in this we think they
fell into error.
In the
Pewabic case, the charter period of the
corporation having expired, a majority of the stockholders favored
the organization of a new company, with the same amount of capital
stock as the old, to take over the whole of its property, and that
there should be allotted to the stockholders the same number of
shares which they held in the old company, or, in the alternative,
that those who did not desire the stock should receive the value of
their shares computed on a basis of $50,000 for the entire property
of the company. The minority stockholders favored sale of the
property and division of the proceeds.
Page 254 U. S. 601
On bill filed by the minority stockholders, the Circuit Court
enjoined the transfer to the new company and ordered a public sale
of the property by a master, with a proviso in the decree that, if
no bids were offered in excess of $50,000 above the debts of the
company, then the proposal of the majority should be carried into
effect under the direction of the master. Before the property was
offered for sale, each of the parties appealed to this Court from
separate parts of the decree. On that appeal, in addition to a
question of accounting not material here, this Court considered and
decided only the question whether, on such a winding up of the
affairs of a corporation, the majority of the stockholders could
lawfully compel the minority to either take stock in a new company
or accept for their stock a value to be fixed by the majority. No
mention is made in the opinion of the Court of the alternative
character of the order of sale, and, although it was subsequently
shown that the price proposed was an inadequate one, there had not
been any finding by the lower court that such was the fact when the
case was decided here. It is probable that there was no objection
to this feature of the decree. The minority stockholders, praying,
as they were, for a public sale, for obvious reasons would not
object to it, and the contention of the majority was that no sale
at all should be ordered, but that their reorganization plan should
be adopted. The decree of the Circuit Court that the property
should be sold at public sale was confirmed without any reference
being made to the action ordered if the upset price should not be
obtained, and we must conclude that that part of the decree was not
considered by this Court.
As an original proposition, we cannot think that the amount
offered for property at a public sale for cash is such a measure of
its value that the failure to obtain a bid at such sale for more
should be accepted by courts as a sufficient reason for affirming a
sale for a price which they
Page 254 U. S. 602
found, on other evidence, to be inadequate. In business life,
forced sales for cash are such a last resort for obtaining money
that a sale "under the hammer" is synonymous with a sale at a
sacrifice, and prices obtained at such sales have usually been
rejected by courts when tendered as evidence of value.
In this case, from evidence as to the character of the Alice
properties, their location and surroundings, and from the opinions
of experts, the trial court concluded that the price paid for them
was inadequate, and we cannot doubt that, from like or other
evidence, a more trustworthy conclusion could be obtained as to
what their value was than would be derived from an offer at a
public sale for cash.
To this it must be added that the resolutions of the Alice
Company to sell and of the Anaconda Company to purchase were for a
price named to be paid and received in designated stock. Neither
contemplated a public offering of the properties, and that a sale
should be made at another price, greater than an amount decreed by
the court, if it should be offered. Under the pleadings, the court
had power to confirm the sale if it was found to have been lawfully
made, but only upon the terms on which the parties had contracted
to make it, and when the price was found to be inadequate, a decree
should have been entered vacating and setting it aside, as prayed
for by the appellants.
It results that the decree of the circuit court of appeals must
be reversed, and the case remanded to the district court for
further proceedings in conformity with this opinion.
Reversed and remanded.
MR. JUSTICE McREYNOLDS concurs in the result.