Herring v. Ruskin Co-Op. Ass'n.

• Decision Date: 18 February 1899
• Citation: 52 S.W. 327
• Parties: HERRING et ux. v. RUSKIN CO-OP. ASS'N.
• Court: Tennessee Supreme Court

52 S.W. 327

HERRING et ux. v. RUSKIN CO-OP. ASS'N.

Court of Chancery Appeals of Tennessee.

February 18, 1899.

Appeal from chancery court, Dickson county; Andrew J. Abernathy, Chancellor.

Bill by J. C. Herring and wife against the Ruskin Co-operative Association to recover the par value of two shares of stock, of $500 each. From a decree for complainants for $500, both parties appeal. Reversed, and bill dismissed.

W. T. Crotzer, for complainants. Morris & Cook and F. C. Maury, for defendant.

WILSON, J.

This case is a novel one. The bill was filed by complainants, as former members of the defendant association, to recover from it the par value of two shares of stock in it, of $500 each, held by them. The chancellor gave complainants a decree for $500, and both parties have appealed, — the complainants, because the decree was not for $1,000; and defendant, because a decree for any sum was rendered against it.

The bill avers, in substance: (1) That the defendant is a corporation under the law of this state, and engaged, in Dickson county, in publishing a newspaper, manufacturing, and farming, and owns considerable property in said county, both real and personal. (2) That it issued shares of stock, of the par value of $500 each, and sold them to members joining it, and the complainants each had a share; the bill giving the number of the certificate. (3) That it was the rule and practice of the defendant, when a member desired to withdraw from it, to permit him or her to do so, and for it to take up the stock of the withdrawing member by paying the face or par value of the same, although payment was sometimes delayed for want of funds. (4) That many members had withdrawn, and been paid for their stock, and that, in view of this rule and practice of the defendant, complainants, between July 20 and August 20, 1895, asked permission to withdraw, which was granted, and thereupon offered their shares of stock for sale to it, and left the community, and went to Kansas City, Mo. (5) That several members had withdrawn from the defendant association since complainants withdrew, and had been paid for their stock, but that it had refused to pay complainants, although often requested to do so. (6) That they had asked pay for their stock, or to be permitted to return and again join the association, but both had been denied, and complainants had been warned not to come to the community, accompanied by the information that there was much feeling in the community against them. (7) That they cannot realize on their shares in any way, except from the defendant, as no outsider would buy at anything like the face value of the shares, if at all, and that the defendant is able to pay them for their shares, according to its rule and custom observed with respect to other withdrawing members. Upon these averments a decree is asked against the defendant for $1,000 and costs; and, if this cannot be granted, they ask that a receiver be appointed to take charge of and wind up its affairs, to the end that they may receive their share of its assets. The defendant, in its answer, admits that it is an incorporated institution under the laws of this state, and says that it is operating under its charter for the purpose of charity and the convenience and comfort of its members, and that it is, in intent, a quasi charitable and social organization. It exhibits with its answer its by-laws controlling its operation, which it is alleged are signed by all parties joining it, and which were signed and agreed to by complainants. One of its articles shows the advantages to be obtained by becoming a member of the association, and it alleges that parties are not bound to remain in it, and that they can withdraw, and that complainants did so voluntarily. It denies that there is or was any contract or guaranty on its part to purchase the stock of complainants, and avers that whether it purchased the stock of a withdrawing member is at its option. It denies that complainants had been refused admission into the association. It alleges that the association was organized upon the idea that a combination of labor and capital operating upon the co-operative plan confers a benefit upon a member of the association which cannot otherwise be obtained. It further alleges that the $500 required under the by-laws to be paid in as an admission fee, and for a share of stock, is nothing more or less than a ticket of admission or certificate, conferring upon the holder the benefits of the association; that it calls for no dividend, and has no money value, and was never intended to have any. It further avers that, after a member has voluntarily withdrawn his membership or has been expelled, there is no law for his admission again. Complainants filed an amended bill, — just when, the record fails to disclose. We presume, however, from its place in the record, that it was at or after the August term, 1898, of the court below, and after all the proof had been taken. There is no additional relevant matter in this amended bill, except the averment that, before complainant withdrew from the association, it had become its invariable rule to pay withdrawing members for their stock (which on its face was made not transferable, except to the association) as soon as funds were in the treasury, and that there was an implied agreement on the part of the association to take up the stock of a retiring member, and pay for it, as soon as funds were in its treasury to do so. It is further averred that they applied to withdraw in the usual way, which was granted, and that a committee was appointed to see what arrangement could be made with complainants; and it is averred that to permit it to refuse to pay for their stock, in violation of its uniform rule and practice, and at the same time refuse them admission to membership, would be equivalent to permitting it to perpetrate a fraud upon them and to confiscate their property. They say that they are no longer members of the association; it having permitted them, upon their application, to withdraw. They close their amended bill by alleging that defendant, in allowing them to withdraw without giving them notice that it would not take up and pay for their stock, when this was its custom, and after their withdrawal to pay for their stock; and to deny them the benefits and privileges of members, would be iniquitous, reprehensible, unconscionable, and a fraud upon them. The defendant answered the amended bill, denying all of its inculpating charges, and alleging that complainants joined the association, coming with the original organizers of the association, that they paid nothing for their so-called shares of stock, that they withdrew of their own accord, and that, under the rules governing the association, which complainants had signed and agreed to, it owed them nothing. It also denies that its assent to their withdrawal created an implied contract on its part to pay them for their stock. It alleges that its settlements with other members were optional on its part, and created no obligation on it to pay complainants for their stock.

The chancellor heard the case September 20, 1898. He decreed as stated in the beginning of this opinion. Both parties appealed, and have assigned errors. These errors raise the point for the complainants that the decree should have been in their favor for $1,000 and costs, instead of for $500; and for the defendant, that the bill should have been dismissed, with costs. Elaborate arguments have been presented by able counsel on both sides.

The facts appearing in the record bearing upon the issues in the case are:

(1) August 16, 1894, J. A. Wayland and 19 others applied to the state for a charter for a corporation, to be known as the Ruskin Co-operative Association, and they were constituted a body politic and corporate by that name. Its object, as stated in its charter granted by the state, was "for the purpose of owning and operating manufactories, and acquiring land, and building and owning houses for the members of the association, and providing educational and recreative facilities for the members." And its charter says, "It shall have and may exercise all powers conferred by the laws of Tennessee upon mining and manufacturing corporations."

(2) The charter, following our statute, sets out its general powers, and among them is the power "to establish by-laws and make all rules and regulations for its government, not inconsistent with the laws and constitution, deemed expedient for the management of corporate affairs." It was also given power to regulate by by-laws the subscription for its stock and its transfer, and to fix the amount of its capital stock and its division into shares.

(3) The charter also provides that "nothing but cash shall be taken in payment of any part of the capital stock or land at a fair cash valuation, or patents to the amount of their value, as agreed on by the subscriber and the corporation, and no loan of money shall at any time be made to any stockholder thereof; and any such loan shall render the directors consenting thereto individually liable for the payment thereof, the liability to extend in favor of innocent stockholders as well as creditors." The charter also provides: "If the indebtedness of said company shall at any time exceed the capital stock paid in, the directors assenting thereto shall be individually liable to the creditors for said excess. The stockholders are jointly and severally liable individually at all times for all moneys due and owing to the laborers, servants, clerks, and operatives of the company in case the corporation becomes insolvent." The charter further provides: "If the directors declare and pay any dividends when the company is insolvent, or which declaration of dividends would diminish the amount of the capital stock, they shall be jointly and severally liable to creditors for the amount of dividends thus declared. Any director may avoid...