Bergman Clay Mfg. Co. v. Bergman

Decision Date21 April 1913
Citation131 P. 485,73 Wash. 144
PartiesBERGMAN CLAY MFG. CO. v. BERGMAN et ux.
CourtWashington Supreme Court

Department 1. Appeal from Superior Court, Spokane County; E. H Sullivan, Judge.

Action by the Bergman Clay Manufacturing Company against M. L Bergman and wife, with answer by defendants asking the appointment of a receiver. From an order appointing a receiver, plaintiff appeals. Reversed, with instructions to discharge the receiver.

Twitchell & Wentworth, of Spokane, for appellant.

L. J Birdseye, of Spokane, for respondents.

CHADWICK J.

The Bergman Clay Manufacturing Company, a corporation, was organized in the year 1905. The capital stock was fixed at $25,000. The subscribers, the amount subscribed, and the amount unpaid on subscriptions are as follows:

M. L. Bergman $6,500 $258 (tendered on the trial)
C. A. Johnson 2,335
J. H. Evans 6,500 4,250
J. N. Hurd 6,000 3,750
J. T. Davie 2,000 1,000
Peter Erickson 1,665 665

Stock was issued to each stockholder to the extent of the payment. M. L. Bergman was elected president, and so continued until 1911. The company borrowed money upon its organization, and has since been indebted to the bank. Another corporation, the Idaho Lime Company, in which J. H. Evans and J. H. Hurd are active factors, has been marketing the products of the Bergman Company, and claims a debt against the Bergman Company of about $6,000. The evidence is not entirely clear, but we take it that the indebtedness, including the claim of the Idaho Lime Company, was at the time of the trial about $10,000. The value of the property of the Bergman Company is admitted to be considerably in excess of this sum. Defendants say, in their brief, that the assets of the corporation amount to $30,000, and that the debts do not exceed $4,000. They do not admit the $6,000 alleged to be due the Idaho Lime Company. After M. L. Bergman was ousted as president, this action was begun by the corporation to restrain him from interfering with and interrupting plaintiff's business. Defendants Bergman answered, setting up the facts we have here epitomized, and alleged further that the Idaho Lime Company was indebted to the plaintiff in a sum in excess of $19,000; that Hurd and Evans, together with the other stockholders, were conspiring to sell the property of plaintiff at less than its value to pay the sum owing the bank and the amount they alleged to be due the Lime Company, and to render defendants' stock worthless. They asked that the delinquent subscribers be compelled to pay the amounts unpaid on their subscriptions; that a receiver be appointed to bring such suits as might be necessary to collect these subscriptions and the amount alleged to be due from the Idaho Lime Company; and for general relief. After a trial the court appointed a receiver. Plaintiff has appealed.

A receivership in this case must be sustained, if at all, by reference to some one or more of the following propositions: That a receiver is necessary: (1) To recover the unpaid stock subscriptions; (2) to take charge of the property pending the litigation; (3) to expect the books and to compel an accounting with the Idaho Lime Company and to bring action for the amount found to be due; (4) to prevent the trustees from selling the property at less than its value and from winding up the affairs of the company; (5) to prevent the elimination of the plaintiff as a competitor of the Idaho Lime Company.

The power to appoint a receiver is a delicate one, and should always be exercised with caution. Roberts v. National Bank, 9 Wash. 12, 37 P. 26; Wales v. Dennis, 9 Wash. 308, 37 P. 450; Brundage v. Home Sav. & Loan Ass'n, 11 Wash. 277, 39 P. 666; Sengfelder v. Hill, 16 Wash. 355, 47 P. 757, 58 Am. St. Rep. 36; Spokane v. Amsterdamsch Trustees Kantoor, 18 Wash. 81, 50 P. 1088; Ridpath v. San Poil Transp. Co., 26 Wash. 427, 67 P. 229; High on Receivers (4th Ed.) 289, 294. This is the first rule confronting a chancellor upon an application, and the second is that a receiver should not be appointed if there is any other adequate remedy. Secord v. Wheeler Gold Mining Co., 53 Wash. 620, 102 P. 654, 17 Ann. Cas. 914; 34 Cyc. 21, 23. It has never been the purpose of the law to subject matters of purely private right to the uncontrolled and arbitrary action of the courts. Hutchinson v. American Palace-Car Co. (C. C.) 104 F. 182.

A court will not interfere merely to settle disputes between stockholders, or to substitute its judgment for that of the majority of the trustees. Men differ in their judgment, and the law is that a majority of the stockholders, or in the interim between stockholders' meetings the trustees, shall manage and control the affairs of the corporation. Some controlling equity must intervene to warrant the interposition of the court. In the case of Theis v. Spokane Falls Gaslight Co., 49 Wash. 477, 95 P. 1074, this court recognized and adopted the rule just stated. The court there quoted the text, 2 Cook on Corporations (5th Ed.) p. 684, a part of which is as follows: 'The discretion of the directors or a majority of the stockholders as to acts intra vires cannot be questioned by single stockholders unless fraud is involved. * * * A partner in a copartnership may prevent action which he disapproves, but corporations are formed very largely to avoid that very danger and disadvantage. The corporate directors, so long as they act within their powers, may use their own discretion as to what ought to be done. * * * A court of equity cannot, however, restrain the corporation from proceeding with business and using its funds for that purpose, even though a minority of the stockholders show that sound business discretion and judgment would dictate a different policy.' See, also, Elliott v. Puget Sound Wood Products Co., 52 Wash. 637, 101 P. 228.

Proceeding, therefore, with that caution which the law imposes, the inquiry must be, Have the respondents an adequate remedy at law or in equity for the wrongs enumerated in their cross-complaint? We will take up and discuss the several propositions above stated in their order.

1. Is a receiver necessary to recover the unpaid stock subscriptions? We know of no rule, nor has any been brought to our notice, that would justify the appointment of a receiver to collect unpaid stock subscriptions where a corporation is solvent. The first object of all receiverships is to preserve the assets. High on Receivers (4th Ed.) 344. Primarily the debts of a corporation are not to be paid out of the capital stock. If the assets of the corporation are sufficient, no one can complain if the debts are paid out of them. This is especially so in this case. The stock was issued in proportion to the amount paid in money by the several subscribers, and theoretically each stockholder is bound for the corporate debts in proportion to his holding. A majority of the stockholders can wind up the corporation if they so will. If in so doing one or more of the stockholders have suffered a wrong, an action for an accounting and for contribution will afford the aggrieved stockholder ample remedy. Lee v. Steinhart Lbr. Co., 66 Wash. 572, 119 P. 1117.

A subscriber to the capital stock of a corporation is in virtue of his promise a debtor, and the same principle that sustains the right of a stockholder to bring an action for the benefit of the corporation will sustain the suit of a stockholder to compel the payment of unpaid subscriptions. In fact, the right of a receiver to sue for unpaid subscriptions has been put on the ground that in so doing he is doing only that which the stockholder might have done. In Lathrop, Receiver, v. Knapp, 37 Wis. 307, the right of a receiver to maintain an action for unpaid subscriptions was challenged. In meeting the objection of the defendant, Chief Justice Dixon said: 'The other subscribers might have maintained an action against him upon it [the subscription]; and as they might, so, I think, the receiver may.' The statute (Rem. & Bal. Code, § 3694) provides that the stockholders of a corporation may, in the by-laws of the company, prescribe the times, manner, and amounts in which payments of the sums subscribed by them, respectively, shall be made. '* * * But in case the same shall not be so prescribed, the trustees shall have the power to demand and call in from the stockholders the sums by them subscribed, at such time and in such manner, payments or installments, as they may deem proper.' The statute does not confer autocratic powers. The power here conferred is one that must be reasonably exercised for the benefit of the corporation and its stockholders. The directors could not continue from 1905 to 1912 to borrow money and pay interest, making the same a charge against the corporation, to the prejudice of the respondents who had paid their subscriptions. When it became evident to the directors that the corporation was in need of funds to carry on its business, and after a reasonable time had elapsed, it became their duty to make the call upon the stockholders for their unpaid subscription, and, if the call was not complied with, to enforce payment in the manner provided by law. In short, it was their duty to exercise good faith to all the stockholders. Having failed to do this for so long a period of time, the principles of equity will permit the respondents to make and enforce the call in the name of and for the benefit of the corporation.

2. The second proposition, that a receiver should be appointed to take charge of the property pending the suit to recover the stock...

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