Jackson v. Hooper

• Decision Date: 28 February 1910
• Citation: 76 N.J.E. 692,75 A. 568
• Parties: JACKSON v. HOOPER et al.
• Court: New Jersey Supreme Court

75 A. 568

76 N.J.E. 692

JACKSON

v. HOOPER et al.

Court of Errors and Appeals of New Jersey.

Feb. 28, 1910.

Appeal from Court of Chancery.

Bill by Walter M. Jackson against Horace E. Hooper and others. From an order granting an injunction (74 Atl. 130), defendants appeal. Reversed.

Henry W. Taft, Robert H. McCarter, Jacob Newman, Benjamin V. Becker, and Henry Wollman, for appellants.

Sherman L. Whipple, Richard V. Lindabury, and Sherrerd Depue, for respondent.

DILL, J. The bill and injunction in this case rest upon the theory that the complainant, who united with the defendant Horace E. Hooper in acquiring in equal shares all the stock of two foreign corporations, pursuant to an agreement claimed to create a partnership or joint adventure, is entitled to treat the two corporations, organized under foreign laws, as mere agencies or instrumentalities in the conduct of the joint business, and to subject, not only the stock owned by both parties, but all the corporate property to the control of the Court of Chancery according to the principles of the law of partnership. The Vice Chancellor held that "the complainant and the defendant Horace E. Hooper were engaged as principals in a joint undertaking"; that "the English and Illinois corporations were respectively agencies by which they accomplished their results"; and that, as the rules governing partnerships applied, a preliminary injunction should be granted. From the injunction order the defendants appeal.

We are constrained to differ radically from the learned Vice Chancellor in his views of the power and scope of the Court of Chancery in dealing with corporate property, and we reach the conclusion that neither the bill nor the Injunction can be sustained. As we place our decision on broad grounds, which are dispositive of the whole case, we treat the allegations of fact in the bill as favorably as upon a demurrer and without reference to the denials contained in the answer and affidavits submitted by the defendants. The record in this case is voluminous, covering over 600 pages, but the salient facts are as follows: Prior to 1900 the complainant and the defendant Horace E. Hooper had been associated in London, England, in the business of publishing and selling subscription books "through the agency of a company known as 'The Clarke Company, Ltd.,'" an English corporation. In 1900 they acquired in equal portions all the stock of that company under an agreement that "upon the acquisition of the Clarke interests, and so long as they might be associated together in business, their general policy in respect of their joint undertakings should be determined by mutual assent," each to "have and exercise the authority and control of equal partners." In 1902, to avoid the English tax law, the business transacted in England was separated from that conducted elsewhere. The Clarke Company, Limited, was dissolved, and its assets and all the business carried on by the parties in interest were conveyed to two corporations, one, "Hooper & Jackson, Ltd.," of England, to carry on the business in the United Kingdom; the other, a New York corporation, the "Encyclopaedia Britannica Company," to operate elsewhere. The stock and securities of these corporations were issued to the two parties equally in payment for the property thus acquired by the corporations from these parties. The bill alleges that both these corporations were "intended to become merely instrumentalities or agencies for carrying out certain partnership purposes" and to be subject to the original agreement. In 1903, for reasons of their own, the parties dissolved the New York corporation, and transferred its assets to an Illinois corporation of the same name and under the same general understanding that the business should be carried on as a partnership, with five directors, of whom the complainant and Hooper were two; the other three being "nominal" directors. As to the "nominal" directors, the bill alleges in the plainest language that they were mere dummies, both in the New York company and its successor the Illinois corporation, and says: "it was clearly understood that the election of particular persons to these three positions was not intended to and did not confer upon them any authority or control or the management of the business of the plaintiff and Hooper, but that at all times such persons, employés or others, should have no right or authority whatever in corporate matters other than to vote as directed by Hooper and the plaintiff acting jointly." From 1902 to 1908 the business in which the companies were engaged, including the publication of the Encyclopaedia Britannica, extended all over the civilized world and ran up into millions; the accounts receivable alone, at the time of the filing of the bill, amounting to over $2,000,000. During all this time, according to the bill, the business was conducted in the names of corporations, but always in accordance with the original agreement as to equal ownership, interest, authority, and control; the three nominal directors being mere employés and automatons of the parties, and the existence of the corporations being always disregarded "except as agencies and instrumentalities created by them for carrying out certain of their copartnership purposes." In 1908 the complainant and Hooper quarreled as to the business policy, and, their differences having become irreconcilable, the theretofore dummy directors voted with Hooper and against the complainant. This, as the bill puts it, constituted a breach of the so-called partnership agreement that Jackson and Hooper should have equal control and equal voice in the management of the companies, and that the other three directors should be and remain dummies. The charge of the bill is that Hooper and the three nominal directors passed corporate resolutions and amended by-laws which changed the complainant's alleged partnership control, contrary to his wish; or, in other words, that the three dummy directors, assisting Hooper, practically ousted the complainant from his alleged partnership control over the corporation. This was done by the passage of resolutions, as, for example, requiring checks to be signed by two officers, thus putting it out of the complainant's control to draw on the assets of the company, as a partner would, whenever be saw fit and by his own check.

The relief asked for is that the court appoint a receiver of all the assets and joint property of the complainant and the defendant Horace E. Hooper, including their stock in the two corporations, such receiver to have the usual powers of receivers of assets of a copartnership; that the defendants—directors of the Illinois corporation—be restrained from selling any of the assets of the copartnership, including such stock, or from voting upon the same, from withdrawing from the business heretofore conducted by Hooper and the complainant or from any one of their bank accounts, in whatever name the same may be, any money otherwise than in the ordinary course of business; that defendant? be restrained from preventing complainant from participating as prior to 1908 in the conduct of the business carried on by the complainant and Hooper, whether the said business is carried on in the name of themselves or their companies; that the defendants be enjoined from causing any assets of the copartnership to be transferred to or by the Illinois corporation, irrespective of the name in which such assets stand, from selling either the English or American rights of the Encyclopaedia Britannica, Eleventh Edition, or disposing, except in the ordinary course of business, of any other assets of the copartnership, whether they stand in individual or corporate names; that the copartnership be dissolved, an account taken and the assets of the copartnership sold and distributed between the complainant and Horace E. Hooper.

After a careful review of the facts, the Vice Chancellor concluded that, while the complainant had been unable to establish the existence of a copartnership between himself and Horace E. Hooper, he did prove that "the series of transactions set out in the bill * * * belonged to that class of transactions which are known by the name of joint adventures," and are subject to the same rules of law which apply to partnerships. He held that the complainant was entitled to a preliminary "injunction broad enough to hold the status quo, and yet so limited as not to interfere with the orderly, regular, and usual conduct of the business." He granted an injunction which, although reciting that nothing therein should "interfere or be deemed to interfere with the integrity or autonomy of the two corporations mentioned in the bill of complaint, to wit, Hooper & Jackson, Ltd., an English corporation, and the Encyclopaedia Britannica Company, an Illinois corporation, or either of them, or to interfere with the business or property of either of said corporations, except as herein specifically stated," forthwith proceeds to enjoin the defendants, who with the complainant constitute the entire board of directors of the English and Illinois corporations, from transferring any of the shares of stock therein, from withdrawing from the business of the complainant and Hooper or "from any one of the bank accounts of the said business, in whatever name the same may be, any money or moneys for the private or personal use of the defendants * * * or otherwise than in the payment in the ordinary course of business," except that such defendants as are employés may receive their respective salaries. He further issued a mandatory injunction that the complainant and the defendant Horace E. Hooper may withdraw such sums for their private use as they may mutually agree upon, or, in absence of an agreement between them, that each may draw $5,000 per month; that either complainant or said Hooper shall have the right to sign checks for such amount, except that any debt of the...