Steinway v. Steinway & Sons

New York Supreme Court · 1896 · Corporations

CorporationsUltra ViresShareholder AcquiescenceInjunctive Reliefultra viresincidental corporate powerscorporate purposeemployee welfare expenditures

Facts

Steinway & Sons was incorporated to manufacture and sell pianofortes and other musical instruments and took over, among other assets, about 400 acres at Astoria that had been acquired with a view toward transferring the manufacturing plant there. The trustees developed the Astoria property by erecting factory buildings and employee housing and making moderate contributions of land and money for a church, school, free library, and free bath, while also improving streets, sewers, and water supply and selling parts of the remaining land. The plaintiff, an original stockholder and longtime employee who had close access to the corporation's books and management, knew of these practices for years, sometimes commented on them, helped supervise some of the improvements, attended meetings, voted for the trustees, and raised no formal objection except as to an accommodation account that had already been discontinued before suit. No fraud or bad faith was shown, and the corporation had prospered substantially during the period in question.

Issue

Whether the trustees' expenditures and activities relating to employee housing and welfare, development and sale of excess land, and certain business-promotional and accommodation transactions were ultra vires or otherwise improper so as to justify an injunction, accounting, or personal liability. Also, whether the plaintiff's long-standing knowledge and acquiescence barred him from obtaining equitable relief.

Rule

A corporation must act within its charter, but whatever under the charter and general laws, reasonably construed, may fairly be considered incidental to the purposes for which the corporation was created is as much granted as what is expressly stated. An act is within incidental corporate power if it is lawful in itself, done for the purpose of serving corporate ends, and reasonably tributary to promoting those ends in a substantial, not remote or fanciful, sense. A stockholder who, with full knowledge and without timely, effective objection, acquiesces in such conduct cannot later in equity call trustees to account for acts done in good faith under a management policy he practically assented to.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakefront Instrument Works, a Wisconsin corporation formed to manufacture precision violins, moves its main workshop to a sparsely populated area outside Duluth, Minnesota. To keep skilled luthiers near the facility, its board builds modest rental cottages and contributes a small sum and land for a day school and bathhouse used primarily by employees' families.

A minority shareholder sues, claiming the housing and community-facility expenditures are ultra vires because the charter authorizes only manufacturing and sales. Which is the best answer?

Explanation. The majority treated incidental powers broadly: an act need not be expressly authorized if it is lawful, intended to serve corporate ends, and reasonably tributary to those ends in a substantial rather than remote sense. Modest housing and facilities addressing employees' material needs in an isolated manufacturing community may be directly related to business success by helping secure faithful and efficient service.