Richardson v. Buhl

• Decision Date: 15 November 1889
• Citation: 43 N.W. 1102,77 Mich. 632
• Court: Michigan Supreme Court
• Parties: RICHARDSON v. BUHL ET AL.

43 N.W. 1102

77 Mich. 632

RICHARDSON v. BUHL ET AL.

Supreme Court of Michigan

November 15, 1889

Appeal from circuit court, Wayne county; GARTNER, Judge.

Bill by David M. Richardson against Christian H. Buhl and Russell A Alger to recover certain money paid to defendants under a contract. There was a decree for plaintiff, and defendants appeal.

SHERWOOD C.J.

In 1879 the Richardson Match Company was located at Detroit. It was organized under the laws of this state, and the complainant owned or controlled all of its stock. Its business was manufacturing matches, but for 16 months previous to the 3d day of July, 1879, its factory had not been in operation. The capital stock of the company then was $75,000 consisting of 3,000 shares of $25 each. On the representations of the complainant to defendant Buhl as to the earning capacity of the match factory, the defendants became security for complainant on his bond to the government for $80,000, and indorsed the commercial paper of the company to the amount of about $50,000. To secure the defendants on these liabilities Mr. Richardson assigned to defendant Buhl 1,800 shares of the stock in the Richardson Match Company and received from him therefor the following receipt and agreement. "Received of Mr. D. M. Richardson one thousand eight hundred shares of the stock of the Richardson Match Company, to be held by me for three years from July 1 1879, as trustee, for the following purposes: To vote the same at all stockholders' meetings, both regular and special; to receive the dividends paid thereon, and retain the same, except one-sixth portion thereof, which I am to pay to D. M. Richardson. At the expiration of said three years, if all the obligations which I or R. A. Alger have assumed for said company are fully paid and satisfied, I am to transfer said stock to said D. M. Richardson. [Signed] C. H. BUHL. Detroit, July 3d, 1879." The 1,800 shares of stock thus assigned to Buhl gave him and Alger control of the Richardson Match Company, and the agreement that they should retain five-sixths of the dividends made upon that stock gave them one-half of all the dividends or profits earned by the company. After the receipt was given, Gen. Alger became president of the company and a director, and Mr. Buhl and two of his sons, with Mr. Richardson, were the other directors. Frank Buhl, one of the sons, was made secretary and treasurer, at a salary of $1,200 per year. The Richardson Match Company was conducted under the arrangement above stated until December 24, 1880. The paper indorsed by Buhl & Alger was discounted at 7 per cent. at the Detroit National Bank, in which they were interested, and the interest paid by the company in its ordinary course of business.

The Diamond Match Company was organized on the 3d day of December, 1880, under the laws of the state of Connecticut, for the purpose of uniting in one corporation all the match manufactories in the United States. Its object was to monopolize and control the business of making all the friction matches in the country, and to establish the price thereof; and it became necessary to buy many plants which had become established in the business, or were preparing therefor, and all the property used in connection therewith, and to obtain promises from the owners and manufacturers that they would not engage in the business themselves, or indirectly, through others, for 10 or more years thereafter; and, for the purpose of obtaining the control and good-will of such factories and their properties, large powers were given by the legislature to the Diamond Match Company when organized, and under the by-laws by which it was controlled. The extent to which it was allowed to go in this direction in the accomplishment of its purposes appears in the articles of incorporation, in which it is stated, among other things, that the business of the company is "to manufacture, buy, sell, and deal in friction matches of all kinds, and all articles entering into the composition and manufacture thereof; to manufacture, buy, sell, and deal in machines and machinery, whether applicable to the manufacture of friction matches or to other purposes; to purchase, own, and sell exclusive rights under letters patent relating to the manufacture of friction matches, and to machines and machinery, whether applicable to the manufacture of friction matches or to other purposes; to manufacture, buy, sell, and deal in animal pokes, tobacco pipes, curry combs, brushes, shoe-blacking, and shoe-dressing, and all articles entering into the composition and manufacture thereof; to purchase, own, and sell exclusive rights under letters patent relating to the manufacture of all the articles herein enumerated, and to machines and machinery applicable to the manufacture thereof; to buy, sell, own, and deal in any real or personal property necessary or convenient to the prosecution of said business,-and generally to do all things incidental to said business, and the proper management thereof."

The Diamond Match Company, in carrying out its purposes, found it necessary, in many instances, to buy a large quantity of useless material, and to pay large and exorbitant prices for the property purchased, which they could not make available; and in many cases in no other way was it possible to purchase the inactivity of manufacturers, and those who intended to enter into the business, and who would otherwise become competitors of the company in the trade. For the purpose of showing upon the books of the company the amount it was obliged to pay for unnecessary and useless property, and the excess in prices for the property they could use, and to silence and prevent all competition, the company opened two accounts,-one headed "Real Estate and Machinery," and the other "Purchase Account." The capital stock of the company consisted of $2,250,000, divided into $1,400,00 of common stock, and $850,000 of preferred stock. For five years the preferred stock was entitled to an annual dividend of 10 per cent. before any dividend was to be paid on the common stock. All corporations and individuals in the country, engaged in the business of making friction matches, desiring or consenting to transfer their property to the Diamond Match Company, did so upon valuations agreed upon, and received their pay therefor in the stock of the Diamond Match Company at par, and gave a bond to the company of the tenor and effect of that given by the Richardson Match Company when it entered the company, a copy of the condition of which reads as follows: "And the Richardson Match Co., hereby covenant and agree to and with the said the Diamond Match Company, that it shall not and will not at anytime or times, within twenty years from the date hereof, directly or indirectly engage in the manufacture or sale of friction matches, and that it will not aid, assist, or encourage any one else in said business, in the state of Michigan or anywhere else, where its doing so may conflict with the business and interests, or diminish the sales, or lessen the profits, of the Diamond Match Co.; and it is understood by it that the above covenant not to engage in the match business is a valuable and influencing consideration, without which the Diamond Match Company would not have purchased the above property; and for the true and faithful performance of said covenant it hereby binds itself, its successors and assigns, heirs, executors, and administrators, unto the said the Diamond Match Company in the sum of fifty thousand dollars, to be recovered and paid as and for liquidated damages." Mr. Richardson's individual bond is in substantially the same form, in a penalty of $25,000. Each proprietor subscribed for a certain amount of preferred stock, which he paid for by transferring to the company such matches and match materials as he or it had on hand when they entered the company, at an appraised value, and, if this was insufficient to pay for such stock, the balance was paid in cash; but common stock was paid for all real estate, machinery, patents, good-will, bonds to stay out of the business, and all other property transferred to the company at the valuation agreed upon when the proprietor or proprietors came into the company, except matches and match materials, for which preferred stock was issued. Under the arrangement by which any party sold and conveyed a match factory or other property to the company, he was to buy at its par value one-half as much preferred stock as he had received in common stock for his property. This was intended as the working capital for the new company, and every person who conveyed property to the company was obliged to give to the company a bond, such as is hereinbefore mentioned.

Under the policy above stated, through the energy of its officers and managers, the Diamond Match Company succeeded in securing control, substantially of all the factories in the country with their several properties, and the owners thereof were brought under its dictation, and the great monopoly became complete, and, as was expected by its proprietors, the gains realized by the company were enormous. Schedule A of the testimony shows that among the match factories that passed into the control of the Diamond Match Company at the time of its organization was that of the Richardson Match Company of Detroit, and at that time the agreement of July 3, 1879, between Richardson and Buhl, hereinbefore referred to, was in full force, as was the bond to the United States, and the liability of defendants, as Richardson's indorsers, was also in existence. One was for $65,000, and the other about $30,000 or $35,000, and as security against the payment of which defendants held 1,800 shares of the Richardson Match Company's stock; and, as...