Crichton v. Webb Press Co., Ltd.

• Decision Date: 06 June 1904
• Docket Number: 14,740
• Citation: 113 La. 167,36 So. 926
• Court: Louisiana Supreme Court
• Parties: CRICHTON et al. v. WEBB PRESS CO., Limited

36 So. 926

113 La. 167

CRICHTON et al. v. WEBB PRESS CO., Limited

No. 14,740

Supreme Court of Louisiana

June 6, 1904

Rehearing denied June 29, 1904.

Appeal from Second Judicial District Court, Parish of Webster; John Thomas Watkins, Judge.

Action by Thomas and J. E. Crichton against the Webb Press Company Limited. Judgment for defendant, and plaintiffs appeal. Reversed.

Sutherlin & Barret, Stewart & Stewart, and Alexander & Wilkinson, for appellants.

Lynn Kyle Watkins (Wise, Randolph & Rendall, of counsel), for appellee.

PROVOSTY J. BREAUX, C.J., concurs in the decree.

OPINION

PROVOSTY J.

This suit is brought by two minority stockholders to compel the defendant corporation to declare a dividend. Incidentally, and in order to increase the dividend, the further relief is prayed that certain allowances of salary and certain contracts allowed and made by the majority to and with themselves be annulled. The individuals composing the majority are made parties defendant, together with the corporation itself. The history of the case is this:

In May, 1895, the two brothers, Samuel J. and Robert D. Webb, obtained a patent for a cotton compress of the invention of S. J. Webb. They valued it at $ 50,000. Not having command of the capital or credit required to put the invention to an actual test by building one of the compresses and putting it in operation, they offered to sell a half interest in the patent to one of the plaintiffs and certain other parties. The latter preferred an arrangement by which they should go security for the Webbs for the building of the press, and in consideration thereof should have an option to buy within a limited time. This was done and the press was built. It proved successful; but the option was permitted to run out without having been availed of -- why, is not explained. After the option had expired, the two Webbs sold to the two plaintiffs, Thomas and James Crichton, a 16 per cent. interest in the patent for $ 8,000. The Webbs and the Crichtons then proceeded to exploit the patent by launching a business of compress building, under the firm name of S. J. Webb & Bro. The venture proved in a high degree successful. In the very first year, 1895, a net profit of $ 16,942.26 was realized. It was then deemed advisable to organize a corporation to carry on the business, and this was accordingly done. The date of the incorporation was the 2d of January, 1896. The incorporators were the same parties who were owners of the patent, with the addition of J. Y. Webb, a nephew of S. J. and R. D. Webb, who took one share. The name of the corporation was S. J. Webb Company, Limited. Its capital stock was fixed at $ 100,000, divided into $ 100. The entire stock was subscribed by the incorporators, owners of the patent, and in the same proportion in which they were owners, except, as already stated, that one share was taken by J. Y. Webb. It may be as well to mention here that the parties continued thereafter to hold the stock in the same proportion -- that is to say, as follows: Thomas Crichton, 10 shares; James E. Crichton, 6 shares; R. D. Webb, 20 shares; S. J. Webb, 63 shares; and J. Y. Webb, 1 share -- and that they so hold it up to the present time. It may also be mentioned here that shortly thereafter J. Y. Webb acquired an interest in the patent corresponding with his interest in the corporation; that is to say, a 1 per cent. interest.

While the immediate purpose of the organization was to exploit this patent, the scope of the corporation was not so limited, but was made more comprehensive; the language of the charter being as follows:

"That the purpose and object of this corporation is to buy, sell, build, erect, operate, lease, or rent out compresses or compress machinery under such patent rights as this company may buy, lease, or acquire the agency of, or use and own in its own corporate right, and to procure, own, manufacture, or cause to be manufactured or be made such machinery as may be necessary or useful for carrying out the purposes stated, and to own such necessary warehouses, tools, equipments, lands, and property, real and personal, for the furtherance of the business of the corporation."

The charter provided that the stockholders should meet at the office of the company on the first Monday of January of each year without special call; that postponed and called meetings of the stockholders could be held on due notice by the president, setting forth the object of the meeting. The charter also provided that a board of directors, to consist of five stockholders, three of whom should constitute a quorum, should be elected at the regular meeting on the first Monday of January of each year; the first board, however, to be composed of the five incorporators, viz., S. J., R. D., and J. Y. Webb, and Thomas and James Crichton, who should hold office until their successors were elected and had qualified. The charter further provided that the board of directors should conduct the business and affairs of the company, and elect the officers of the company, and fix their salaries, and should prescribe the powers and duties of the officers, with the condition, however, that their said acts in respect to the powers and duties and salaries of the officers should be subject to ratification by the stockholders. The officers were to be a president, a vice president, a secretary, and a treasurer, and such other officers as the board of directors might deem necessary to conduct the business of the company.

On the day of the organization, January 2, 1896, the board of directors met and elected the following officers: S. J. Webb, President; Thomas Crichton, Vice President and Treasurer; R. D. Webb, Secretary -- and adopted resolutions to the following effect:

First. A resolution leasing the compress patent from the owners thereof. That is to say, the two Webbs, S. J. and R. D., and the two Crichtons, leased the patent to the corporation, whereof they themselves held the entire stock, except the one share held by J. Y. Webb. The rental was fixed at $ 5,000 for each compress the company should sell or build, or cause to be sold or built, and $ 1,000 for each "movement" the company should put, or cause to be put, into a Morse or any other compress; payment to be made upon erection of the machinery.

Second. A resolution authorizing the president and the secretary to make and sign all contracts for the company.

Third. A resolution accepting the proposition of S. J. Webb to work for the company during the year 1896 for $ 150 a month, "reserving to himself the right to all new inventions or improvements of whatsoever nature he may make."

Fourth. A resolution to the effect that S. J. and R. D. Webb "should have all the profits on any press of their patent in Cleburne, Texas."

On the next day, a meeting of the stockholders was held, and all the proceedings of the meeting of the board of directors of the preceding day were approved and ratified. J. Y. Webb was not at that time a part owner of the patent, but, as already stated, he afterwards acquired an interest in it corresponding with his interest in the corporation; that is to say, a 1 per cent. interest. The necessity of such an interest being transferred to him in the patent arose from the fact that the agreement to pay $ 5,000 per press to the owners of the patent was not intended by the parties to be carried out, but was a mere convenient arrangement for transferring the net profits of the company, which would approximately be of that amount per press, from the company to the owners of the patent; in other words, from the stockholders as stockholders to themselves as individuals. As shall be seen presently, the profits of the company on the 90-inch press soon fell below $ 5,000 per press, so that, if that contract had been genuine, the company would soon have had to retire from it, which it had the right to do at any time under the terms of the contract, unless it chose to run with the certainty of a loss.

No other meeting, either of stockholders or of directors, seems to have taken place until the 30th of November of the same year, 1896, when there was a meeting of stockholders. S. J. and R. D. Webb had in the meantime attended to the business of the company and with brilliant success. At that meeting resolutions were adopted to the following effect:

First. A resolution changing the name of the corporation to that of Webb Press Company, Limited; the charter and business of the company to remain unchanged and unaffected.

Second. A resolution transferring to the corporation the assets of the partnership of S. J. Webb & Bro., by which the business had been conducted previous to the organization of the corporation.

Third. A resolution levying an assessment upon the stockholders in proportion to their holding, so as to produce a sum of $ 5,000; each stockholder to furnish for his share of the assessment his note falling due March 1, 1897.

The stockholders did not meet again until the 29th of January, 1901, which meeting was very important, and will be duly noticed. The only meetings of the board of directors were in February, March, and December, 1898. At these meetings, the following resolutions were adopted:

First. A resolution ratifying certain contracts entered into by the president and the secretary of the company.

Second. A resolution fixing at $ 3,700 and $ 3,000, respectively, the salaries of S. J. and R. D. Webb, "reserving all inventions or discoveries to themselves, same as if not employed by the company."

Third. A resolution authorizing S. J. Webb "to place new presses as he thought best."

The regular stockholders' meetings of January, 1897, 1898 1899, 1900, and 1901, were not held, owing to the absence of a majority of the...