Lauman v. Lebanon Valley R. R. Company

Supreme Court of Pennsylvania · 1858 · Corporations

30 Pa. 42 (1858)

Updated August 22, 2026

Corporationscorporate dissolutionmergerconsolidationdissenting stockholderprivate corporationalienability of corporate propertydue course of law

Facts

The Lebanon Valley Railroad Company proposed to enter a consolidation contract with the Philadelphia and Reading Railroad Company under an act of assembly authorizing the arrangement. Under the proposal, the Lebanon company would lose its name and corporate existence, while its members, property, privileges, and liabilities would pass into the Reading company. George M. Lauman, a stockholder in the Lebanon company, objected to being forced into the new corporation and to having his interest converted into Reading stock. He sued to stop the transaction unless his rights were protected.

Issue

Whether a legislatively authorized corporate consolidation may be carried out over the objection of a dissenting stockholder of a private corporation, and specifically whether the majority may force him to exchange his interest in the old corporation for stock in the new one without judicial protection of his rights.

Rule

A private corporation may, with legislative consent where public duties are involved, dissolve itself and sell or exchange all of its property, even if that ends its active existence. But neither the legislature nor a corporate majority may compel a dissenting stockholder to become a member of another corporation or accept substitute stock for his interest; his title may be divested only by due course of law, and before a transfer-and-dissolution that destroys his stock is effected, he must be secured for the value of his interest.

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Granite Spur Milling Company, a private grain-processing corporation based in Wichita, votes by 78% of its shares to transfer all of its assets to Prairie Summit Foods Company of Topeka. In exchange, Prairie Summit will issue its own shares directly to Granite Spur's shareholders, and Granite Spur will cease to exist under its own name. Elena Brooks, a minority shareholder, objects and refuses to accept Prairie Summit stock.

If Elena sues to stop the transaction unless her interest is protected, which argument is strongest under the governing rule?

Explanation. The majority opinion allows a private corporation to dissolve and dispose of indivisible property, but it does not allow a majority to force a dissenting shareholder into a new contractual relation as a member of another corporation. Substitute stock in a different corporation cannot simply be imposed on the dissenter. Before a transfer-and-dissolution that destroys her stock is completed, her interest must be protected through due course of law and prior security.