Bank of China, Japan & the Straits. Ltd. v. Morse

• Decision Date: 01 November 1901
• Citation: 61 N.E. 774,168 N.Y. 458
• Parties: BANK OF CHINA, JAPAN & THE STRAITS, Limited, v. MORSE.
• Court: New York Court of Appeals Court of Appeals

168 N.Y. 458

61 N.E. 774

BANK OF CHINA, JAPAN & THE STRAITS, Limited,

v.MORSE.

Court of Appeals of New York.

Nov. 1, 1901.

Appeal from supreme court, appellate division, First department.

Action by the Bank of China, Japan & The Straits, Limited, against William Morse. From an order of the appellate division (61 N. Y. Supp. 268) reversing a judgment in favor of plaintiff entered on a verdict directed by the court, and from an order denying a new trial, plaintiff appeals. Affirmed.

At the close of the plaintiff's evidence the defendant moved to dismiss the complaint upon numerous grounds stated in the record. That motion was denied. An exception was taken by him to its denial and ‘as to each ground of the motion separately.’ After the evidence was closed, he moved to dismiss the complaint, and that the court direct a verdict in his favor. He also asked to go to the jury upon the whole case, as well as upon certain specified questions of fact. Both were refused, the defendant excepted, and the court thereupon directed a verdict for the plaintiff. The defendant then moved for a new trial, which was also denied, and a proper exception taken. Upon appeal to the appellate division it reversed the judgment of the trial court. It also reversed the order of that court denying the defendant's motion for a new trial, and awarded a new trial. Thereupon the plaintiff appealed to this court, and stipulated for judgment absolute if the order granting a new trial was affirmed. All the questions raised upon this appeal are presented by the defendant's exceptions taken on the trial, and to the denial of his motions. The nature of the action and the facts, so far as material, are stated in the opinion.Stephen H. Olin, for appellant.

Alexander Tison, for respondent.

MARTIN, J.

This action was to enforce a claim against the defendant as a shareholder of the plaintiff company under an alleged scheme or agreement for winding up the plaintiff and transferring its property and business to another company. The plaintiff seeks to recover a personal judgment against the defendant as the holder of 685 shares in the plaintiff company for the whole amount unpaid thereon for the benefit of a new corporation in which he has no interest. The plaintiff has retired from business, is being voluntarily wound up, and all its creditors have been paid. A new company was organized, which has taken to itself the business and property of the plaintiff. It claims to have thereby acquired the right to enforce payment of calls against the defendant and other shareholders to the full amount unpaid on their shares, or, rather, to indirectly enforce such payment through an action by the plaintiff, a recovery in which would alone benefit the new corporation and its stockholders.

The plaintiff is an English company, and on December 6, 1889, was incorporated, by virtue of the English companies act, under the name of the ‘Trust and Loan Company of China, Japan and The Straits, Limited.’ Its main office was in London, but it had branches and agencies in China, Japan, India, and other Eastern countries. The plaintiff was not organized to do banking, but to loan money, make advances on mortgages and other securities, and to do a general trust and agency business. The plaintiff's memorandum of association seems to contain no provision authorizing it to do a banking business. At first it did not attempt it, and until 1891 did not even post in its office the notice required of all English banks under the companies act. Its original capital was £1,000,000, divided into 99,875 ordinary shares of £10 each, of which £1. 5s. was paid, and 1,250 founders' shares of £1 each which were fully paid up. In February, 1891, it declared a dividend of 16 per cent. on ordinary shares and 800 per cent. on founders' shares, besides carrying £ 55,000 to its reserve fund. At the same time it voted to increase its capital to £2,000,000 by issuing 100,000 additional shares of £>>10 each, on which £1. 5s. was to be paid up, and to change its name to its present title. At that time it was stated that the business of the company would continue on its former lines. At the end of the second year the company reported a surplus of £ 223,629, besides its paid-up capital, and a dividend of 8 per cent. on the ordinary shares was declared February 29, 1892. In January, 1893, in the report of the company, it was announced that it had lost its entire reserve fund and a part of its capital. In September, 1893, the plaintiff's directors sent out a call of 20 shillings per share, stating in their notices that it was made in consequence of the company having arranged to do general exchange business in China and Japan. This call was quite generally resisted by shareholders, as being a departure from the plaintiff's business, and beyond its powers. The defendant received no notice of that call. In 1891 the defendant, in Yokohama, Japan, purchased through brokers 650 ordinary shares of the plaintiff's stock. They were paid for in Japan, and dividends were paid there. These shares, with those purchased through an agent elsewhere, were registered in Hong Kong, and comprise the 685 shares, to recover a call upon which this action was brought. Late in 1894 the plaintiff having practically abandoned the trust and loan business, and, its shareholders having refused to pay calls for doing banking business, its directors decided to adopt a scheme which provided for a new company to take over the business and property of the plaintiff, and to carry on banking in all its branches. The scheme adopted in effect provided that any stockholder of the plaintiff who did not go into the new company taking share for share should pay the total amount unpaid upon his old shares; but, if a stockholder took shares in the new company, no calls upon the old shares were to be paid to the plaintiff, and only £3. 15s. were to be paid to the new company. Nominally, the new shares were £>>8 each, but 5 shillings were to be paid for each share in the plaintiff company surrendered by those coming into the new scheme, leaving £>>4 which might be called up; but the stockholders in the new company were informed it would never be needed, and it has never been required. December 3, 1894, this scheme was outlined to certain shareholders and creditors. On the same day an extraordinary meeting of shareholders was called for December 12th to consider, and, if thought best, to adopt by special resolution, under section 161 of the companies act, the scheme for the so-called reconstruction. The meeting was held December 12th in London, but the defendant was in New York, and had no notice of it. No shareholder from any other country was present in person or by proxy. Out of 200,000 shares, over 125,000 were on the eastern register for China and Japan, and less than 75,000 on the London register. The notices of the meeting of shareholders were not mailed for transmission to the plaintiff's agents at Yokohama, where the defendant's address was registered, until December 7, 1894, so that a notice could not reach there until after the meeting was held, five days later. The only notice that it is pretended the defendant had of this meeting was a posting of it on the wall of the plaintiff's office in London some time in December. There is no evidence that even one-thenth of the capital issued was represented at that meeting. Still three resolutions were voted by it: (1) That the company be voluntarily wound up with a view to reconstruction, and that its secretary be named as liquidator; (2) that the liquidator be authorized to consent to the formation of a new company under such name as the directors approved, with a memorandum and articles already prepared with the privity and approval of the directors; and (3) that the draft agreement submitted between the company, its liquidator, and a blank company be approved, and the liquidator be authorized, pursuant to section 161 of the companies act, to enter into an agreement with such new company in the terms of the drafted agreement, and to carry it into effect with such, if any, modifications as he might see fit to assent to. Notices convening meetings at which resolutions are to be submitted in favor of proceedings to wind up a corporation under section 161 of the companies act are required to clearly inform the shareholders that it is proposed to proceed under that section. The notices in the proceedings to wind up the plaintiff contained that statement. A new company under the name of ‘The Bank of China and Japan, Limited,’ was registered December 28, 1894, the day of the confirmatory meeting. The same persons were directors of the new company as were directors of the plaintiff, and the memorandum and articles previously prepared by them were adopted. On the same day the agreement was signed, and the liquidator applied to the court to summon a meeting of the creditors, and to procure the court's sanction to the scheme, so that the creditors would be bound. At the same time a supervision order in the winding-up proceeding was sought from the court to enable it to continue as a voluntary winding up as distinguished from a compulsory one by the court, which was asked for by some of the creditors. The scheme made certain provisions for creditors, which, when approved by a majority and sanctioned by the court, were binding upon them. An investigation of the accounts of the old company disclosed that on December 31st there was an apparent deficit of only £280,000, instead of £>>800,000, as was claimed by the chairman at the stockholders' meeting less than three weeks before. The scheme was modified in the interest of creditors to avoid an attack by them under section 161. By May 14, 1898, they were paid in full, and only £180,000 in addition to the tangible assets of the plaintiff was required for that purpose. No account was taken of the good will of the old company, which was received by...