Cardiff v. Johnson
| Decision Date | 14 September 1923 |
| Docket Number | 17744. |
| Citation | 126 Wash. 454,218 P. 269 |
| Court | Washington Supreme Court |
| Parties | CARDIFF v. JOHNSON et al. |
Department 1.
Appeal from Superior Court, Yakima County; Geo. B. Holden, Judge.
Action by Ira D. Cardiff against A. P. Johnson, the Yakima National Bank and others. From a decree in favor of plaintiff, all defendants except defendant bank appeal. Reversed.
Voorhees & Canfield, of Spokane, and Richards, Fontaine & Gilbert, of Yakima, for appellants.
D. V Morthland and Grady, Shumate & Velikanje, all of Yakima, for respondent.
The amended complaint of respondent seeks to have a certain contract for a conveyance, executed by the Washington Dehydrated Food Company, a corporation, to the Perham Fruit Company, a corporation, deposited with the defendant Yakima National Bank, a corporation, for delivery to the Perham Fruit Company upon the payment of the balance of $29,500 of the purchase price after the cash payment of $500 by the Perham Fruit Company, in accordance with the contract, to be decreed void and of no effect, as in fraud of the rights of respondent, and the same restrained and enjoined. Upon the filing of the complaint a temporary restraining order was issued by the trial court, returnable on a certain day which was afterwards continued in force until the case was tried. Upon trial the court below granted a permanent injunction against the completion of the transaction; this appeal resulting.
The proposition of law insisted upon by respondent, and the theory upon which the injunctive relief was granted, is that a solvent corporation, which is a going concern, cannot against the objection of a single stockholder, sell its entire property or capital assets, and thereby denude itself of the means and powers necessary to carry on the purposes for which it was organized. Respondent and the appellants Johnson, Roberts, and Hathaway are brothers-in-law. The evaporating plant had been organized by a corporation known as the Washington Evaporated Food Products Company, in 1917, managed by respondent which continued in operation until February 1918. It had then become bankrupt, its liabilities amounting to about $100,000, a receiver was appointed, and its property sold at receiver's sale for $50,000. This included all the plant, equipment, book accounts, finished products, and personal property on hand. Respondent then interested his brothers-in-law, appellants here, who furnished money, and respondent bought the property from the receiver, and conducted the business for a time under the name of Ira D. Cardiff & Co. The operations of the partnership continued until October, 1918. At that time the corporation known as the Washington Dehydrated Food Company was organized, with a capital stock of $100,000, the stock being divided equally, one-fourth thereof being held by each of the brothers-in-law, including respondent. It appears that the partnership had an apparent profit of $36,000 on hand at the time the corporation was organized. This profit was turned in to the corporation, together with the plant, machinery, and real estate. The corporation continued the operations of the 1918 season, and ran the plant during 1919 and the early part of 1920. The 1919 operations were unprofitable, respondent claiming that to have been the result of the turning back onto the market by the government of large quantities of evaporated and dehydrated foods. All that was done in 1920 was to dispose of stock accumulated in the 1919 operations. No evaporating was done, the buildings being used for storage purposes.
In 1921 respondent rented the entire plant and operated it in dehydrating fruits. He paid as rental therefor the sum of $4,000 per year which seems to have been barely sufficient to pay real and personal taxes and the upkeep of the plant. Respondent claims to have made a profit of a little more than $14,000 during that year for himself. Prior to ceasing operations the company had become indebted in excess of $100,000, when it shut down and turned the property over to respondent on lease, because the business was uprofitable and heavily involved. While there were no incumbrances upon the property, it had been financed by the credit of Johnson, Roberts, and Hathaway, who had indorsed the paper of the company. The obligations had been greatly reduced by the collection of the indebtedness due the company, and the application of these collections to its debts from time to time, until it amounted to $38,900 principal at the time of the transaction in question represented by notes indorsed by Johnson, Roberts, and Hathaway, held by the Yakima National Bank, and by the Union Securities Company. This indebtedness all matured August 4, 1922. In the spring of 1922 the manager of the Securities Company notified appellant Johnson that this indebtedness would not be further carried, and would have to be paid when due. This notification covered the indebtedness to the Yakima National Bank also, as that bank was controlled by the Securities Company. Appellant Johnson and others unsuccessfully tried to dispose of the property. There were no assets out of which to meet the indebtedness, except the plant in question.
Negotiations were brought about by the manager of the Yakima National Bank, between Johnson and the Perham Fruit Company. Through its president and manager, the Perham Fruit Company first offered $27,000 for the entire plant, deducting the equipment of the evaporating plant. Appellant Johnson made a counter proposition to accept $30,000 for the property. Respondent was not then in Yakima, but appellant Johnson assured Perham that he had authority to make the deal. On May 27, 1922, he entered into the contract whereby he agreed to sell the real estate, building, and certain personal property to the Fruit Company for $30,000 and certain local improvement taxes totaling $453.18. Under the contract the Dehydrating Company was to have three weeks within which to remove the machinery, boilers, oil tanks, scales, conveyors, etc. which constituted the evaporating plant. When respondent returned to Yakima he objected to the sale, and tried to induce Perham to withdraw his offer for the purchase, offering him $1,000 if he would do so. This was declined, Perham stating that he had bought the property for use, and not for speculation. On June 17, 1922, a meeting of the directors of the Dehydrating Company was held in Yakima, which is the principal place of business of the company, at which 75 per cent. of the stock voted not to ratify the sale. Subsequently, on June 21, 1922, a meeting of the stockholders and of the trustees of the Dehydrating Company was held in Spokane, without notice, but by the consent of all the stockholders, that being legal and permissible by the by-laws of the company, all of the stockholders and trustees being present. At the stockholders' meeting 750 shares, or 75 per cent. of the stock, voted to ratify the sale negotiated by Johnson. At the trustees' meeting four out of five trustees so voted. Respondent, who was present and consented to the holding of the meeting, voted in the negative, both as a stockholder and as a trustee. Pursuant to the action of the stockholders and of the trustees, a deed was prepared, and Johnson went to Yakima to deliver it. Before it was delivered, and the money in the bank paid over, this action was brought to enjoin its consummation.
Among other powers of the corporation organized by the respondent, Hathaway, Roberts, and Johnson, as incorporators, according to its articles, was:
'To buy and sell, and in any manner to deal in, real estate and personal property of all kinds, and all kinds of fruit, berries and vegetables, and all kinds of food and food products, hay and feed; to borrow money either with or without securities, and to make, execute and deliver mortgages, pledges and hypothecations therefor.'
The term for which the corporation was organized was 50 years from and after September 23, 1918. Under the articles of incorporation it cannot be controverted that it was intra vires the corporate powers to sell the real estate belonging to the company, unless the sale was made in fraud of the rights of any of the stockholders. Logie v. Mother Lode Copper Mines Co., 106 Wash. 208, 179 P. 835.
Respondent claims that the sale was made in fraud of his rights, because made for a sum greatly...
To continue reading
Request your trial