297 U.S. 288, 341 (1936)
In January 1934, the Tennessee Valley Authority entered into a contract with the Alabama Power Company for the purchase of transmission lines, substations, and auxiliary properties for one million dollars, real property for one hundred fifty thousand dollars, an interchange of hydroelectric energy, the sale of surplus power, and mutual restrictions on service areas.1 The contract was amended in February and May of that year.2 The Alabama Power Company, organized under Alabama law, generates and distributes electric energy across sixty-six counties in the state.3 The transmission lines extend from Wilson Dam on the Tennessee River into seven Alabama counties serving approximately one hundred ninety thousand people and ten thousand customers.4
Wilson Dam, a concrete structure one hundred feet high and nearly a mile long with locks and generators, was constructed between 1917 and 1926 under authority of the National Defense Act of 1916.5 The dam site and riparian rights belong to the United States, and the power plant generates electric energy from the falling water.6 The Alabama Power Company had purchased energy from the dam since 1925.7 Additional agreements involved cooperation with the Electric Home and Farm Authority, Inc., a subsidiary of the Tennessee Valley Authority, to promote the sale of electrical appliances, and an option for urban distribution systems that was later terminated.8
Preferred stockholders of the Alabama Power Company protested the contract to the board of directors in August 1934, demanding action to annul it on grounds of injury to corporate interests and constitutional invalidity.9 The board refused, and the holder of all common stock declined to call a stockholders' meeting.10 The stockholders filed suit on October 8, 1934, seeking to enjoin performance of the contract and broader declaratory relief against the Authority's activities.11
The District Court annulled the contract, enjoined the property transfers, and prohibited certain municipal contracts with the Authority.12 The Circuit Court of Appeals reversed the decree after limiting its review to the contract's validity.13 The Supreme Court granted certiorari on the plaintiffs' application.14
The contract provided for the Authority to acquire lines serving a limited area, with the electric energy from Wilson Dam sufficient to meet the contract needs without interconnection to other facilities.15 The plaintiffs own a small portion of the preferred stock but sued in the right of the corporation after their demand was rejected.16
Whether preferred stockholders of the Alabama Power Company have standing to bring suit challenging the January 4, 1934 contract with the Tennessee Valley Authority after the board of directors refused to act?17
Stockholders may bring a derivative suit in equity to challenge corporate transactions with a governmental agency when directors refuse to act, provided the suit is brought in good faith after demand and refusal, the transaction is alleged to be injurious and illegal under the Constitution, and no adequate legal remedy exists, as established in precedents such as Smith v. Kansas City Title Co. and Pollock v. Farmers' Loan & Trust Co.18
Yes. The plaintiffs, who own a small portion of the preferred stock of the Alabama Power Company, submitted a protest to the board of directors in August 1934 demanding annulment of the contract on grounds that it injured corporate interests and exceeded constitutional authority, after which the board refused and the common stockholder declined to call a meeting, leading to the filing of the suit on October 8, 1934 in the right of the corporation after showing real interest and good faith without any need to prove fraudulent intent by directors.19
The preferred stockholders have standing to maintain the suit challenging the contract.20
Related opinions on this issue
Joined by Justice Stone, Justice Roberts, And Justice Cardozo
Justice Brandeis concurred in the judgment.21 He maintained that the bill should have been dismissed without reaching the constitutional question.22 The plaintiffs, as preferred stockholders owning a tiny fraction of the securities, failed to show any danger of irreparable injury to their limited interest.23
They also failed to show bad faith by the directors.24 The directors acted with utmost good faith in what they viewed as the company's best interest.25 The suit was essentially an attempt by a small group to obtain an advisory constitutional ruling rather than to protect corporate property from a clear breach of duty.26
Whether the constitutional challenge is properly limited to the validity of the specific contract of January 4, 1934, rather than the broader pronouncements, policies, and programs of the Tennessee Valley Authority?27
The judicial power extends only to actual cases and controversies of a justiciable nature and does not encompass abstract questions, hypothetical future invasions of rights, or advisory opinions on the validity of legislative programs, as held in Muskrat v. United States, New Jersey v. Sargent, and Arizona v. California.28
Yes. Although the plaintiffs sought broad declaratory relief against the Authority's entire program of pronouncements, policies, and activities, those general allegations raised issues too vague and ill-defined for judicial determination under the established requirement of an actual case or controversy, so the inquiry is therefore properly confined to the concrete terms of the January 4, 1934 contract providing for the purchase of transmission lines and the disposition of power generated at Wilson Dam, as that contract alone presented an actual or threatened interference with the rights of the complaining stockholders.29
The constitutional challenge is properly limited to the validity of the January 4, 1934 contract.30
Whether Congress had constitutional authority under the war and commerce powers to construct Wilson Dam and its associated power plant?31
Congress possesses authority under the war power and the commerce power to construct dams for national defense and improvement of navigation on navigable rivers. The Wilson Dam was authorized by section 124 of the National Defense Act of 1916 for production of nitrates and navigation improvements on the Tennessee River.32
Yes. Construction of the Wilson Dam began in 1917 and was completed in 1926 pursuant to the 1916 National Defense Act, which authorized the President to select sites and build dams, power houses, and related facilities for munitions production and navigation, while the dam maintains national defense assets by ensuring an abundant supply of electric energy in wartime and eliminates a serious obstruction to navigation on the Tennessee River, a navigable stream whose improvement has been a national concern for over a century.33
Congress had constitutional authority under the war and commerce powers to construct Wilson Dam and its power plant.34
Whether the United States has constitutional authority to dispose of electric energy generated at Wilson Dam through the sale, interchange, and related transmission line acquisition provisions of the January 4, 1934 contract?35
Under Article IV, section 3 of the Constitution, Congress has plenary power to dispose of property belonging to the United States, including electric energy generated at a dam constructed in the exercise of constitutional functions. Congress may sell surplus power, provide for interchange, and acquire transmission lines as a reasonable means of reaching a market without invading rights reserved to the states.36
Yes. The United States acquired full title to the Wilson Dam site and riparian rights.37 This made the falling water and resulting electric energy property of the United States.38 The contract disposes of surplus energy generated at the dam through sale and interchange to the Alabama Power Company while acquiring transmission lines that serve as a facility to reach a wider market within fifty miles of the dam.39
This method of disposition is consistent with the public interest and does not constitute an invasion of state domain or an attempt to enter unrelated commercial enterprises.40
The United States has constitutional authority to dispose of the electric energy as provided in the January 4, 1934 contract.41