Farwell v. Houghton Copper Works

• Decision Date: 12 July 1881
• Parties: FARWELL v. THE HOUGHTON COPPER WORKS and others.
• Court: U.S. District Court — Western District of Michigan

8 F. 66

FARWELL v. THE HOUGHTON COPPER WORKS and others.

United States Circuit Court, W.D. Michigan, Northern Division.

July 12, 1881

Dan. H. Ball and G. V. N. Lothrop, for complainant.

T. L Chadbourne and Ashley Pond, for all defendants except the Houghton Copper Works.

WITHEY D.J.

The Houghton Copper Works was organized under the laws of Michigan in 1871, among other things, for the purpose of manufacturing copper, with a capital stock of $250,000 divided into 10,000 shares of $25 each. Complainant is a stockholder, and brings this suit to set aside a sale made by a majority of the directors to defendant Edwards, October 6 1879, for the price of $10,000. The sale comprised all the real estate, works, and property of the company. The object sought to be accomplished was to close out the property and wind up the business, and such is manifestly the effect if the sale is valid. The sale is attacked principally upon three grounds:

(1) That it was made without authority of the stockholders inasmuch as three-fifths in interest of the entire stock of the company, at a meeting called for that purpose, did not vote to authorize the sale; (2) that a majority of the directors, convened without notice to all the directors, possessed no power to make the sale; and, lastly, that the sale was fraudulent, it being made with intent to deprive complainant of his rights as a stockholder.

According to the records of the company, the stockholders, September 20, 1875, authorized a sale of all the property of the corporation; but it is said that three-fifths in interest of the entire stock was not represented and did not vote in favor of authorizing the directors to sell. Comp. Laws, Sec. 2888. Whether this objection is valid depends upon two questions:

(1) Whether certain of the capital stock owned by the company, and carried in the name of the treasurer, was to be counted in determining the three-fifths in interest of the entire stock, part of it having been subscribed and immediately transferred to the company to be subsequently disposed of in the interest of the corporation, while other of the stock so held had been purchased at a sale of stock delinquent for non-payment of assessments; (2) whether the prima facie evidence made by the records of the stockholders' meeting, stating the 3,387 shares-- more than three-fifths, excluding shares owned by the corporation--voted in favor of authorizing the directors to sell has been rebutted.

The entire capital stock was subscribed at its par value, but, as stated, nearly one-half of the subscriptions were intended to be merely nominal, and such stock was at once transferred to the treasurer for the company, on which, of course, no assessments were paid. None of this stock was, in my opinion, to be counted in determining whether three-fifths in interest of the entire stock voted to authorize a sale. It was stock only in name, and therefore not entitled to vote. As to the stock bought by the company for non-payment of assessments, there would be less objection; but if voted it should be in such a manner as to represent the interest of every stockholder, for every one of them had an interest in the stock, and was entitled to have his interest voted according to his own views. If the treasurer should exercise the right to vote such stock, it might result in making the action of the meeting adverse to the views of the majority of the stockholders; and it is not seen how it would be practicable to have the stock voted in harmony with the views of all, unless all the stock was represented at the meeting and all consented to have the treasurer cast the vote, and such was not the case.

If the stock owned by the company was not entitled to be voted, the next inquiry is whether the requisite three-fifths of the remaining stock was voted in favor of the resolution authorizing the directors to sell. The record, after setting forth the resolution to be acted on, states that a vote by ballot was taken, and sets it forth after this manner, viz.: 'T. W. Edwards, 316 shares; T. W. Edwards, proxy, 5 shares;' and so on until the vote in person and proxy is shown to be 3,387 shares in favor of the resolution, being more than three-fifths, excluding stock owned by the company. Of the stock thus voted, 1,561 shares were voted by proxies. This record is prima facie evidence, certainly against stockholders, of the acts of the corporation therein recorded. The officer making up the minutes was the agent of the stockholders, and it is therefore their record of their own action. It may not be conclusive, but if a stockholder seeks to discredit this evidence he must do it by proofs conclusive character and weight.

Excluding stock owned by the company, it is claimed that three-fifths of the shares did not vote in favor of a sale. The evidence from which such conclusion is urged is mainly that of the 3,387 affirmative votes, 1,561 of the shares were voted by...