Opinion
07-31-1895
STICKLE et al. v. LIBERTY CYCLE CO. et al.
Mahlon Pitney, for the motion. James E. Howell, opposed.
Bill by George W. Stickle and others against the Liberty Cycle Company and others. Complainants move for preliminary injunction. Heard on bill and affidavits and answer and affidavits. Motion granted.
Mahlon Pitney, for the motion.
James E. Howell, opposed.
EMERY, V. C. In this case I will advise an injunction, until the hearing of the cause, restraining the defendant company and the defendant directors from removing the manufacturing plant of the company outside of the state. I will state briefly the steps by which I reach this conclusion, leaving a fuller statement and opinion for a future occasion, if desired:
Under our general laws for the incorporation of manufacturing companies, fundamental changes in the objects or powers of the company, as prescribed by the certificate of incorporation, cannot be made without the consent of every shareholder. The principles laid down in Black v. Canal Co. (Err. & App., 1873) 24 N. J. Eq. 455, and the cases there cited, are applicable to this case, to this extent. Whether the changes proposed are material or fundamental changes is a question of law, to be decided by the court in each case, on a construction of the written certificate. 1 Thomp. Corp. § 85. The place within this state where a manufacturing business is to be carried on is not, it seems to me, a material or fundamental feature of the certificate, unless expressly made so by the certificate itself. The incorporators, however, have the right to make this place of manufacture within the state a material part of the contract, and to prevent the removal to any other place within this state than the one fixed by the certificate, by express provisions to this effect included in the certificate itself, under the power given by section 11, subd. 5, of the act of April 7, 1875. This section provides that the certificate may contain any limitation upon the powers of the corporation, the directors, and the stockholders that the parties signing may desire. The certificate in this case contained no such limitation on the power of removal of the manufacturing business, and therefore, in my judgment, the power of the corporation to remove their manufacturing plant and business to any place within this state should not be restrained. A company organized for the purpose of manufacturing is not a corporation of a local character, within the rule applied to banks, saving institutions, and insurance companies in Booth v. Wonderly (Sup. Ct. 1873) 36 N. J. Law, 250, and to railroad companies in Kean v. Johnson, 9 N. J. Eq. 407, and Zabriskie v. Railroad Co., 18 N. J. Eq. 183, both approved in Black v. Canal Co., supra. Whether the location of the manufacturing plant and business of a company organized under New Jersey laws for manufacturing an article of sale should be located within the state, or outside of the state, is, however, as it now seems to me a material and fundamental part of the certificate or contract of incorporation. The parties to the incorporation certificate have, if they so choose, the right to the protection of the property and plant of the company, and of their interests in it as shareholders, either as a going concern or in liquidation, under the laws of New Jersey, rather than those of other states or countries; and where, as here, the certificate provides for the location of the manufacturing plant and business within this state, and specifies that the business to be carried on without the state is the sale of the manufactured articles, the removal of the manufacturing plant and business out of the jurisdiction of the state seems to be a material and fundamental change in the object and purpose of the company.
The certificate of incorporation in this case was made under the form prescribed by the act of May 9, 1889 (P. L. 412), which provides that any corporation organized under the general law may carry on a part of its business out of this state, and have one or more offices of business outside of this state, and may hold, purchase, and convey real and personal property out of this state, the same as if such real and personal property were situated in the state of New Jersey, provided, that the certificate of organization of such company shall state what portion of its business is to be carried on out of this state. * * * The certificate here stated "that the place in this state where the business of such company is to be conducted is the borough of Rockaway, in the county of Morris, and the principal part of the business within this state is to be transacted in said borough of Rockaway. * * * The objects for which the company is formed are the manufacture of bicycles, &c. * * * The portion of the business of the said company which is to be carried on out of this state, in the cities of New York and Brooklyn, and elsewhere, is the selling of the manufactured products of said company." This certificate, therefore, as to the part of the business to be done out of the state, seems to be a material part of the contract of incorporation, to the observance of which the incorporators have a right, under this law of 1889, to hold the company and its directors, in the absence of an express provision in the contract of incorporation itself that the company may carry on, outside of the state, other portions of the business than that specified. The subsequent act of March 10, 1892 (P. L. 90), is relied on as giving this right, notwithstanding the above specification in the certificate. This act provides (section 1) that it shall be lawful for any corporation of this state, incorporated under any general or special act, to carry on and conduct its business outside of the state of New Jersey, although not provided for in the act or certificate ofincorporation: provided, however, such incorporation shall have an office in the state of New Jersey. Section 2 repeals previous inconsistent legislation, and it is claimed by counsel for defendants that the present corporation, being organized subsequent to this law of 1892, may carry on any part of its business outside of the state, notwithstanding the previous laws, and the provisions of the certificate which was made under them, expressly define what portions of the business shall be carried on outside of the state. But, as it now seems to me, this act of 1892 was not intended to affect in any wise the legal status which would exist between corporators who had expressly provided in their certificate what part of the business should be done outside of the state. The act of 1892 did not prevent such statement in the certificate, nor deprive it of its legal operation if made.
The real question is, I take it, whether, since the law of 1892, a manufacturing corporation which, in its certificate, states that its manufacturing plant and business shall be located in this state, and that the outside business is the sale of the manufactured articles, can, under cover of this law, change materially and fundamentally the objects of the company and rights of the company and its shareholders, as stated in the certificate, by removing the manufacturing plant and business beyond the limits of the state and the protection of its laws. My present view is that it cannot, and that the removal of the plant and manufacturing business beyond the state is a change in a material object of the company, as stated in the certificate, and should be restrained until the right is determined on final hearing. If the proposed removal is effected, the injury to the complainants, as stockholders, would be irreparable, and they could not be restored to their present position by any action of the court should the final decree be in their favor. In the cases where our courts have protected like fundamental rights of shareholders against action of the company or directors, the protection has been constantly afforded by preliminary injunction pending the final hearing. In Black v. Canal Co., 24 N. J. Eq. 455, a preliminary injunction was denied by the chancellor, but allowed by the court of errors and appeals, as the appropriate remedy. In Zabriskie v. Railroad Co., 18 N. J. Eq. 178, and Elkins v. Railroad Co., 36 N. J. Eq. 5, preliminary injunctions were granted. In England, where a shareholder merely questions a payment of money as ultra vires of the company, the practice seems to be settled that on an application for interlocutory injunction the courts are bound, if there is even difficulty about the question of its validity, to restrain the payment until final decree. Tomkinson v. Railway Co., 35 Ch. Div. 675, 680 (Kay, J., 1887).
The preliminary injunction against removal of the manufacturing plant and business outside of the state, pending the final hearing, seems to be the appropriate relief in the present case, and is granted solely on the grounds above stated. I have not considered the question whether, if the corporation have power to make the removal, it should be sanctioned by the corporation itself, at a meeting of the stockholders, or whether the directors have the power to remove, without such action or direction of the corporation. And, so far as the removal is a mere question of business management or judgment, the court would not be justified in interfering with the judgment of the directors by a preliminary injunction. Nor have I considered the right of removal as at all affected by the facts or proofs submitted by complainants in their affidavits, and outside of the certificate, to show that the location of the plant at Rockaway was to them personally a material or fundamental part of the contract of incorporation. My present view is that the materiality of the change proposed must be determined from a construction and application of the certificate itself, and that the power of a corporation, given by its certificate, cannot depend on, or be limited by, extrinsic evidence as to the intentions or motives of the corporators or shareholders. The injunction, therefore, should not extend to a removal to any place within this state.