of the business, is no contract to continue it forever, any more than articles of partnership without stipulation as to time." 62

The corporation involved in the litigation before the Chancellor was a prosperous corporation.

It is submitted that the holders of a majority of the stock of a corporation organized for profit have the power to cause a transfer of all the corporate assets and a distribution of the proceeds (after satisfying creditors) to the stockholders whenever, for legitimate business reasons, they deem such a course wise. Financial embarrassment is not the only legitimate business reason for such a transfer. If such a corporation is engaged in a public employment, the consent of the state to the transfer becomes necessary; but this is simply an additional requirement, and in no wise affects the relation of the majority of the stockholders toward the minority.

Some questions remain as to the mode of such transfer.

1. Each minority stockholder should receive in cash his fair proportion of the price paid for the corporate assets, if he desires cash. In the Treadwell case, the purchasing corporation was to pay nothing but stock; the selling corporation simply proposed to sell such shares as the minority were unwilling to receive and to give the proceeds of those shares to the minority. This strikes the writer as unfair. The corporate assets, as a whole, might have a market value of $250,000, but if this is paid in stock having a par value of $250,000, and some of that stock is then sold, it does not follow that this minority stock will bring par in cash - it probably will not. The price must be a fair price, and it should be computed on a cash basis. Then all stockholders may use their cash to make such new investments as they please. If the majority wish to use their cash to purchase stock in the purchasing corporation, it is proper for them to do so. Therefore it is proper

for the purchasing corporation to give an option of its own stock instead of cash to those of the stockholders of the selling corporation who desire it.

In Kean v. Johnson no provision was made for the minority stockholder to receive anything but the stock of the purchasing corporation.

62 Pages 404-05.

2. The terms of the sale should not be more advantageous for the majority stockholders than for the minority. The majority must not, directly or indirectly, appropriate the corporate assets to themselves. Therefore if the purchasing corporation offers any option or right to the majority stockholders, it must offer such option or right to all the stockholders.

3. On the dissolution of a partnership, the court usually orders the partnership assets to be sold at public auction, unless all the partners have otherwise agreed. But the power of a single partner, we have already seen, is much greater than the power of a single stockholder. As the majority stockholders may determine whether the corporate assets are to be transferred, they should also determine on what terms the transfer is to be made. A specific offer is made for the corporate assets. The question is: should that offer be accepted? The majority should have power to close with the offer.

A prospective purchaser may be willing to pay a specified price, if the corporation will contract to convey for that price. But it by no means follows that he will be willing to make that offer at public auction when he is exposed to the competition of others.

It is common experience that sales at public auction are usually not so advantageous to the seller as private sales. The majority of the stockholders should not be stripped of the power of making a private sale.

If a minority stockholder questions the propriety of a private sale the court must inquire whether the price is a fair one — whether there is so great a chance that the property will bring more at a public sale than at this private sale that it should not abide by the judgment of the majority as to the mode of sale.

It is impossible within the scope of this article to discuss adequately all the authorities. In support of the opinion of the master in Kean v. Johnson, see Abbot v. American Hard Rubber Co.,63 People v. Ballard,64 Forrester v. B. & M. Co.,65 Theis v. Spokane Gas Co.66

On the other hand, the reasoning of the court in the Treadwell case has often been approved, and in some recent cases the courts

have recognized that the majority may cause all the assets of a corporation to be sold, even if the corporation is prosperous, and that the sale may be a private sale. See Beidenkopf v. Insurance Co.,67 Bowditch v. Jackson Co.68

IV

We return to the second case put at the opening of this article. A corporation, X, formed in state R, has sufficient liquid assets to meet its obligations as they mature and is making large net profits. But its business is being transacted chiefly in state S, and both R and S are collecting large sums in taxes from it. The directors and the holders of a large majority of its stock wish to form a corporation, Y, in state S and transfer the assets of X to Y. If a minority stockholder objects, is there any way in which such object can be accomplished? The writer knows of no way in which this object can surely be accomplished; but if the suggestions made below are sound, the majority may either (1) accomplish this object, or (2) retire with the value of their shares in cash.

A transfer of the assets of X to Y at private sale should, it is submitted, be enjoined. X and Y are controlled by the same human beings - they are on both sides of the bargain. There are no two legal units dealing with each other at arms' length, each selfishly striving to make the best terms possible. To permit such private sale would be to permit the majority to appraise the corporate assets at their own figure and to give the minority stockholder only his share in the value of the assets as so appraised. In Natusch v. Irving, Lord Eldon said that it was not competent for a majority of partners, who proposed to form a new partnership on different terms, "to effect that formation by calling upon some of their partners to receive their subscribed capital and interest and quit the concern; and, in effect, merely by compelling them to retire upon such terms to form a new company." Such summary liquidation, at values fixed by the say-so of the majority, is not permissible. There must be a winding-up under the rules of law, and such winding-up must include "converting all the property, means and assets of the partnership existing at the time of dissolution, as beneficially as may be for the benefit of all who were partners."

67 160 Iowa 629, 142 N. W. 434 (1913). 68 76 N. H. 351, 82 Atl. 1014 (1912).

The associates have disagreed. The minority believe that a further prosecution of the venture, under the original terms, is wise; the majority do not. Under these circumstances the majority have the right to say whether the venture, under the original terms, is to be terminated; but, if it is terminated, the minority as well as the majority must be given a chance to bid for the assets. The majority must take the risk of losing control of the assets. Therefore the sale must be at public auction. If Y wins the assets, it must be because Y has outbid all others at such a sale.

There are two other requirements which, it is submitted, the majority should satisfy.

First. If the assets are exposed to sale at public auction, there is danger that there will not be any active competition from any outsiders against the bidding by Y and that the minority stockholders will not have the means to make effective competition. The result would be that the assets would go for a low figure, and the minority stockholders would receive only their share of the small proceeds realized by the sale. If this were permitted, it would put the majority in a position to say to the minority: consent to the variation of the original agreement with us, or we will sell all the assets at auction, buy at a low figure, and you will have nothing but your share of the small proceeds. This would subject the minority to great pressure to consent to the variation of the original agreement. This could, and should, be prevented by fixing an upset price which the court (if the matter is tested) finds is the present value in cash of the assets, treated as the assets of a going concern.

Second. The minority (who waive the right to bid, or to be interested in any bid, adverse to the majority) should have the right to subscribe to the securities of Y on the same terms as those enjoyed by the majority.

Under these conditions the liquidation sale would be conducted in a manner entirely fair to the minority. If a shareholder desires it, he retires with the fair value of his share in cash. If he wants to go on with the new venture, on equal terms with the others, he stands no danger of being squeezed out. If he wants by himself or with associates to bid for the assets, that is open to him.

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There are two cases which are sometimes spoken of by lawyers as holding that there can be no sale of the assets of a prosperous corporation to another corporation controlled by the majorityTheis v. Spokane Gas Co. and Riker & Son Co. v. United Drug Co.70 In Theis v. Spokane Gas Co. three financial houses desired to purchase all the bonds and stock of a corporation. They purchased all the bonds and all the shares of stock except eight, but the holder of the eight refused to sell. By statute the holders of two thirds of the stock could institute proceedings for voluntary dissolution; if specified acts were done the statute provided that the court "must" decree dissolution. The holders of two thirds of the stock voted to sell the corporate assets, and they were sold at public auction to a representative of the majority; it was intended that he should transfer the assets to a new corporation, and that the owner of the eight shares should be excluded from any interest in the new corporation. The appellate court upset the transfer.

The writer cordially agrees with this result. It follows from what has been said above that such a transfer was made in a manner that was not fair to the minority stockholder.

But the court said many things which, it is submitted, are erroneous. "It is conceded," said the court, "that at common law a corporation had no power to dissolve except by universal consent of stockholders." In the first part of this article we carefully examined the common law on this point and found that, contrary to what the court here says, at common law the majority of the members had power to surrender the corporate franchise. This statement was made at the opening of its discussion of the law applicable to the case, the court started with a conception fundamentally wrong. The court quoted extensively from Kean v. Johnson and adopted the conception that the stockholders of a corporation impliedly agree with each other that the assets of the corporation shall not be sold, so long as it is prosperous, without unanimous consent. If one starts with the conception that the corporate franchise cannot be surrendered without the unanimous consent of the members, it is easy to adopt the second conception that the assets may not be transferred without unanimous consent. As, however, a majority of the members have a right at common law to surrender the 70 34 Wash. 23, 74 Pac. 1004 (1904). N. J. Eq. 580, 82 Atl. 930 (1911).

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