Coon v. Schlimme Dairy Co.

• Decision Date: 03 June 1940
• Docket Number: No. 107.,107.
• Citation: 292 N.W. 560,294 Mich. 51
• Parties: COON v. SCHLIMME DAIRY CO. et al. In re SCHLIMME et al.
• Court: Michigan Supreme Court

294 Mich. 51

292 N.W. 560

COON

v.SCHLIMME DAIRY CO. et al. In re SCHLIMME et al.

No. 107.

Supreme Court of Michigan.

June 3, 1940.

Action by Harold R. Coon against the Schlimme Dairy Company, a Michigan corporation, William F. Schlimme and others, and Ernest J. Schwanbeck to enjoin the issuance of certain corporate stock and to enjoin the removal of plaintiff from office as secretary of defendant corporation, wherein cross-bills of complaint were filed by defendant corporation and William F. Schlimme and others and by defendant Ernest J. Schwanbeck. The action was consolidated on trial with proceedings in the matter of the petition of William F. Schlimme and others for the dissolution of the Schlimme Dairy Company. From a decree enjoining issuance of the stock and enjoining removal of plaintiff from office, all of the defendants except Ernest J. Schwanbeck appeal.

Affirmed.

Appeal from Circuit Court, Wayne County, in Chancery; Arthur Webster, judge.

Argued before the Entire Bench.

William L. Thorp, of Detroit, for defendants-appellants.

Toy & Newman, of Detroit, for plaintiff-appellee Coon.

Robert S. Beach, of Saginaw, for defendant and cross-plaintiff Schwanbeck.

McALLISTER, Justice.

On September 15, 1937, at a meeting of the board of directors of the Schlimme Dairy Company, a Michigan corporation, the following resolution was passed: ‘Resolved, that a dividend be declared of $5 per share on outstanding stock on record as of September 15, 1937-said dividend to be made payable in common stock, or cash, or optional for the shareholder.’

There were only three stockholders in the corporation: William F. Schlimme, Harold R. Coon, and Ernest J. Schwanbeck, who with Bernard W. Cruse and Roy I. Brown constituted the board of directors.

On December 18, 1937, William F. Schlimme, the president of the corporation, procured some blank promissory notes and delivered them to Mr. Coon, the secretary, who prepared three promissory notes payable to the stockholders in varying amounts. These notes were then signed by Mr. Schlimme, as president. One of the notes in the amount of $1,350, representing a dividend of $5 per share on 270 shares of stock of the company, was given to Mr. Coon; another note for $750, representing the same dividend on 150 shares of stock, was delivered to Mr. Schwanbeck; and the third note, in the amount of $1,400, representing the dividend on 280 shares of stock, was taken by Mr. Schlimme. The notes all bore 3 per cent. interest. On August 23, 1938, Mr. Schwanbeck's note, with interest, was paid by the company; and Mr. Coon's note, with interest, was paid in two payments on September 17 and 19, 1938.

Subsequently, at a meeting of the directors on October 28, 1938, Mr. Schlimme demanded 143 shares of stock in the company for his dividend, claiming a right thereto under the resolution of the meeting on September 15, 1937. He was opposed in this demand by Mr. Coon and Mr. Schwanbeck, but Mr. Cruse, as a director, offered the following resolution: ‘Resolved, that 143 shares of stock of the corporation be issued to William F. Schlimme in payment of his note made by the corporation and dated December 10, 1937.’

The resolution was passed by a vote of three to two; Schlimme, Cruse, and Brown in favor of it, and Coon and Schwanbeck voting against it. Mr. Coon, as secretary, refused to sign the certificate of stock for the issue which had been voted at the meeting; and upon notice to him that a special meeting of the directors was to be called on November 12, 1938, for the purpose of removing him from the office of secretary, he filed a bill of complaint to enjoin the meeting and his removal from office; and a restraining order was issued on an order to show cause. The corporation and the other directors were joined as defendants in plaintiff's action, and on answers filed, and cross-bills, the trial court heard the case, and by decree granted plaintiff the injunctive relief prayed.

A substantial part of the case on appeal and of the trial court's opinion and decree is concerned with issues arising out of a petition for dissolution of the corporation, filed by Schlimme, Brown, and Cruse, subsequent to the filing of the bill of complaint. This petition was consolidated with the plaintiff's action on trial. All matters with regard to the dissolution proceeding, however, were expressly abandoned by defendants on the argument in this court and, therefore, need not be considered. The single question, therefore, to be determined is whether defendant Schlimme is entitled to the issuance of stock pursuant to the resolution declaring a dividend, or whether his right is...