Granite Brick Co. v. Titus

• Decision Date: 14 September 1915
• Docket Number: 1307.
• Citation: 226 F. 557
• Parties: GRANITE BRICK CO. et al. v. TITUS.
• Court: U.S. Court of Appeals — Fourth Circuit

226 F. 557

GRANITE BRICK CO. et al. v. TITUS.

No. 1307.

United States Court of Appeals, Fourth Circuit.

September 14, 1915

[Copyrighted Material Omitted]

Wm. H Lyles and D. W. Robinson, both of Columbia, S.C. (Lyles &amp Lyles, of Columbia, S.C., on the brief), for appellants.

Robert W. Shand and B. L. Abney, both of Columbia, S.C. (Shand, Benet, Shand & McGowan, of Columbia, S.C., on the brief), for appellee.

Before KNAPP, Circuit Judge, and WADDILL and CONNOR, District Judges.

CONNOR District Judge.

Appeal from decree for plaintiff and dismissing defendant's cross-bill. The District Judge, in his opinion in the record, found the facts. Plaintiff alleged: That the defendant Granite Brick Company was chartered under and pursuant to the laws of South Carolina, for the purpose of making and selling, what it alleged to be, a superior quality of brick. That on, or about, September 15, 1910, on representation made to him by F. H. Hyatt, president, of the valuable shale and clay deposits, belonging to the company, adapted to the manufacture of vitrified brick, and on other statements made in the prospectus issued by the company, and by said Hyatt, plaintiff was induced to sign a subscription for 200 shares of the capital stock of the corporation, at and for the sum of $20,000, which was, in fact, intended as a memorandum of a sum agreed to be loaned to said company. That notes were executed by the president and secretary of the company for the amounts advanced. That said notes were thereafter marked paid upon the issue of certificate of stock as security for the money so advanced. That thereafter, at various dates and pursuant to the agreement made with the company, set out in resolutions adopted at meetings of the stockholders and directors, which resolutions are set forth in the bill, and for the purpose of enabling said company to complete and operate its plant, he advanced large sums of money to said company. That, for the purpose of securing to him the payment of said sum, so advanced, the company, pursuant to its contract and agreement made with him, issued certificates of its stock, aggregating 1,179 shares, to be held by him as collateral security, with the option to him, if he should so decide, to hold the said stock in discharge of such loans. That at a meeting of the board of directors, held June 26, 1911, it appeared that the company then owed plaintiff $35,000, upon notes and open accounts, and a further sum of $5,000, upon a note indorsed by plaintiff. That the sum of $6,000 was needed to complete the plant. Plaintiff stated that he desired to limit the amount which he would advance to $50,000. At a meeting of the stockholders, held July 20, 1911, it was resolved:

'That it is the sense of the stockholders, that the resolution contained in the minutes of the directors' meeting of March 27, 1911, in regard to giving Mr. Edward H. Titus option and privilege of taking stock in lieu of money advanced by him, be ratified; that it is the understanding and meaning of said resolution, and of the stockholders' meeting, that said Edward H. Titus is to have the option of taking for all moneys advanced or paid, or liabilities incurred for the corporation, with the option of taking payment of said notes either in money or in stock, and if taken in stock, that he shall have the right to two shares of stock of the par value of $200, for every $100 of money so paid or advanced, or liability incurred; and that this shall apply to all moneys paid or advanced, or liabilities incurred by said Edward H. Titus, whether heretofore marked subscription to stock or not. That stock shall be forthwith issued to him by said corporation, upon said basis of two shares of stock of the par value of $200 for each $100 so advanced or paid, or liability incurred by him, with the privilege of holding such stock as collateral security to such indebtedness and with the power to vote said stock during the time he holds it.'

That at a meeting of the board of directors, held on the same day, pursuant to said resolution of the stockholders, stock was issued to plaintiff at the rate named therein, which was, at the time of filing his bill, held as collateral security. That thereafter plaintiff made further advances to said company and received stock as collateral security therefor. That the president and secretary executed to plaintiff the notes of the company for all of said amounts. An itemized list, with dates and amounts, are set forth, aggregating, November 1, 1911, $61,972.95. That since said date he has been required to pay two notes aggregating $7,500 of the company, indorsed by him. That, becoming convinced that the further development of defendant's plant was impracticable, without additional funds, which plaintiff was not willing to furnish, and which the company was unable to secure, from any other person, and having learned that the representations, on the faith of which, believing them to be true, he had advanced the said sums, were misleading and untrue, he called for some settlement of the notes held by him, then past due. That liberal offers for settlement were made by him, as appears by the minutes of the meetings of stockholders, all of which were rejected. That, claiming that the issuing of said shares of stock as collateral security, for the money thus borrowed from plaintiff, was ultra vires, the officers of the company have undertaken to disavow their action and refuse to recognize the validity of said stock, and to hold meetings, pass resolutions, amend the charter, and issue bonds, secured by a mortgage on the property of the company upon the assumption that the stock issued to complainant is invalid. That, on December 21, 1911, at a meeting at which complainant's stock, although represented, was excluded from voting, a resolution was adopted authorizing and empowering the board of directors to issue bonds and execute a mortgage on said property. That at a stockholders' meeting, held on February 3, 1912, plaintiff was excluded from voting the stock issued to him, pursuant to the resolutions above set forth, having been given to him as collateral security for the loans made by him, and upon which he made said loans. With the remaining stock, of which the president, F. H. Hyatt, owns a very large majority said meeting adopted a resolution by a minority of stock vote, for an issue of $50,000 in bonds, secured by a mortgage on its entire plant for the purpose of obtaining money for its use and excluding plaintiff from receiving any part of the proceeds thereof. At said meeting a minority of the stockholders assumed to elect three directors, who are now in office, thereby creating discord and confusion to the great injury of the corporation. That, acting under the said pretended authority of the stockholders' meeting, the corporation is about to issue $50,000 in bonds of said company and to execute a mortgage on its entire plant, to secure the payment therefor, with the intention of selling said bonds, or of negotiating a loan by depositing them as collateral security therefor. Complainant is informed and believes that it is the purpose of said corporation to use no portion of the proceeds of said bonds, in paying his claim or part thereof. Complainant further alleges that the corporation is insolvent and has been sued, on several debts.

He makes further allegations regarding the management of the affairs of the corporation, all of which he avers are wrongful and injurious to himself and his rights as a stockholder and creditor. He prayed that the company be enjoined from issuing the bonds and executing the mortgage on its property, and for general relief.

Upon the filing of the bill, service of subpoena, and upon notice, the judge made a temporary restraining order, enjoining defendant company from incumbering its property, with an order to show cause why a temporary injunction should not issue. Upon the return of this order and hearing, an injunction was issued, and upon defendants' appeal the order of the judge was affirmed. Granite Brick Co. v. Titus, 203 F. 659, 122 C.C.A. 55.

Defendant filed a demurrer which was overruled, whereupon defendant filed an answer, to which plaintiff filed its replication. Defendant, by leave of the court, filed a cross-bill. The matters and things set up and relied upon by defendant in its answer and cross-bill are substantially the same, the purpose of the cross-bill being to obtain affirmative relief. Defendant denies that plaintiff was misled by any representations of its president, in regard to the value of its property, or of the quality and value of the brick which it proposed to manufacture. It alleges that plaintiff subscribed and paid for 200 shares of its stock, and denies that, at the time he did so, there was any agreement that the amount paid was to be regarded as a loan, or that plaintiff was to have the option of so treating his subscription. It admits the adoption of the several resolutions by its stockholders and directors set out or referred to in the bill and, in regard thereto, avers that plaintiff entered into an agreement with defendant, whereby he agreed to lend, or to secure for it, upon notes indorsed by him, whatever sum might be necessary to complete and equip its plant, the repayment of said sums to be secured by notes of defendant, with an option to plaintiff to take payment therefor, in stock of the defendant. That plaintiff entered upon the performance of his part of this agreement and subsequently undertook to supervise, design, and erect a plant suitable for the purposes of defendant, the erection of which was to be paid for by plaintiff, out of the funds advanced by him. That, at the request of plaintiff, and to allow him full opportunity to perform his agreement,...