Bergman Clay Mfg. Co. v. Bergman

• Court: United States State Supreme Court of Washington
• Writing for the Court: CHADWICK, J.
• Citation: 131 P. 485,73 Wash. 144
• Parties: BERGMAN CLAY MFG. CO. v. BERGMAN et ux.
• Decision Date: 21 April 1913

131 P. 485

73 Wash. 144

BERGMAN CLAY MFG. CO.
v.
BERGMAN et ux.

Supreme Court of Washington

April 21, 1913

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.

[73 Wash. 145] 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 [131 P. 486] 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 [73 Wash. 146] 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 [73 Wash. 147] 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. * * * [73 Wash. 148] 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 [131 P. 487] no rule, nor has any been brought to our notice, that would justify the appointment of a receiver to collect unpaid stock subscriptions where...