Jones v. Morrison

• Decision Date: 29 September 1883
• Citation: 16 N.W. 854,31 Minn. 140
• Parties: Richard H. Jones v. Dorilus Morrison and others
• Court: Minnesota Supreme Court

16 N.W. 854

31 Minn. 140

Richard H. Jones v. Dorilus Morrison and others

Supreme Court of Minnesota

September 29, 1883

Appeal by defendants from an order of the district court for Hennepin county, Lochren, J., presiding, overruling their separate demurrers to the complaint.

Order affirmed.

H. J Horn, C. K. Davis and Geo. B. Young, for appellants.

Warner & Stevens and Gordon E. Cole, for respondent.

OPINION

Gilfillan, C. J.

The court below overruled a demurrer by each defendant to the complaint, and from the order this appeal is taken.

The complaint sets forth that the Minneapolis Harvester Works is a corporation created as a manufacturing corporation under the act of March 7, 1873, and the acts amendatory thereof, to continue, according to its original articles, for five years from September 1, 1876, with a capital stock of $ 100,000 and power to increase it to $ 500,000. April 30, 1878, the articles were amended so as to increase the capital stock to $ 150,000, with power to increase it to $ 500,000. September 1, 1881, by articles executed by all the stockholders and filed, the corporation was renewed for the period of 25 years, with the capital stock and power to increase as before. The business of the corporation was prosecuted at Minneapolis with such success that, on September 1, 1881, the value of its property exceeded all its liabilities by at least $ 450,000, or $ 300,000 over and above the par value of its capital stock outstanding, that sum being the amount of its accumulated profits. The capital stock -- 3,000 shares at the par value of $ 50 per share -- was then owned as follows: By the defendant Dorilus Morrison, 1,500 shares aggregate par value, $ 75,000; by the defendant Clinton Morrison, 240 shares, aggregate par value, $ 12,000; by the plaintiff, 920 shares, aggregate par value, $ 46,000; and 340 shares, aggregate par value, $ 17,000, had been purchased by the three stockholders, paid for with the money of the corporation, and transferred to, and was then held by, Clinton Morrison, in trust for the three stockholders, in proportion to the number of shares held by them respectively. The stock continued to be so held until the acts complained of in the complaint.

The complaint alleges that the defendants Dorilus and Clinton Morrison combined, confederated, and conspired together to cheat and defraud the corporation and the plaintiff, by appropriating and converting to their several uses, so far as practicable, the accumulated profits, and undervaluing the property of the corporation, and increasing the capital stock and appropriating the increase among themselves to the exclusion of plaintiff, (connivance therein or knowledge thereof by each of the other individual defendants being alleged,) and that the several specific acts alleged were done in the accomplishment of such fraudulent plan. During the time when these acts were done, the plaintiff, on account of ill health, was in Europe. He had no knowledge of them till his return to Minneapolis in September, 1882, and during his absence his inquiries by mail as to the business of the corporation were answered evasively by Dorilus or Clinton Morrison, so as to furnish him no information of what was being done.

The first of them, in order of time, was the voting, by the board of directors, consisting of Dorilus Morrison, Clinton Morrison, H. G. O. Morrison, and one Richard D. Jones, at a meeting held November 19, 1881, of $ 7,500 per annum, from September 1, 1876, to December 1, 1881, to Dorilus Morrison, the president of the company, for the reason, as alleged in the resolution, that he had devoted much time and thought to the business from its organization, and had assumed great personal liability for the same by the indorsements of its notes, and to sustain its credit, for which he had never been paid any compensation; and also the voting, at the same meeting, to Clinton Morrison the additional sum of $ 2,400 per annum for his services from December 1, 1878, to December 1, 1881.

The next act was a resolution passed at a meeting of stockholders, held January 3, 1882, at which were present Dorilus Morrison, Clinton Morrison, H. G. O. Morrison, and Sabin S. Murdock, providing for an increase of the capital stock by the issue of 7,000 additional shares at $ 50 per share, making the whole stock $ 500,000, the new stock to be issued at such time and in such amounts, and upon such terms and conditions as to payments, as the board of directors might from time to time order and direct, provided that none of it should be disposed of but to holders of the old stock until after June 14, 1882, and that any such holder should have the option and privilege of subscribing to the new stock in proportion to the old stock held by him, as the new stock should be ordered to be issued, upon filing with the president, on or before January 14, 1882, a written application, stating the number of shares he would subscribe for. At a meeting of the board of directors, held January 28, 1882, at which were present the three Morrisons and one Whitmore, then a director, a series of resolutions were passed, reciting that none of the new stock had been subscribed for; resolving that subscriptions to it be received from any person who might subscribe therefor at par, and that notes of responsible parties, bearing interest at 8 per cent. per annum, payable six months after date, approved by the board of directors, be received in payment of such new stock, the stock issued to be held as collateral security for such notes; and that the subscriptions of Dorilus Morrison for 2,920 shares, of Clinton Morrison for 1,760 shares, of Sabin S. Murdock for 1,920 shares, and of J. F. Appleby for 400 shares, be accepted, and the stock issued to them, upon their executing and delivering their notes in accordance with the resolutions of the board. At a meeting of the stockholders held on the same day, after this meeting of directors, the action of the board of directors was ratified, and the board was instructed to sell at par the 340 shares of old stock held by Clinton Morrison in trust, as above stated. The new stock was issued to the persons and in the proportions mentioned in the resolutions of January 28th, and, at a meeting of the board of directors, present the three Morrisons and Whitmore, the issue of the new stock was ratified and confirmed.

The third of these acts was that, February 3, 1882, at a meeting of the board of directors, -- present, the three Morrisons and Sabin S. Murdock, -- a resolution was passed fixing the salary of Dorilus Morrison, as president, for the year 1882, at $ 15,000; of Clinton Morrison, as vice-president, for the same period, at $ 10,000; of Sabin S. Murdock, as general manager, for the same period, at $ 10,000, -- the year to commence January 1, 1882.

All these resolutions were entered on the books of the corporation.

The complaint alleges that the plaintiff alone actively conducted, managed, controlled, and built up the business of the corporation from a losing business to such a prosperous and profitable one that, when the corporation was renewed, in September, 1881, all the parties supposed and believed that, at the close of the business season of 1881, there would be a surplus capital of over $ 300,000; and all then foresaw that the net profit of the business for the season of 1882 would exceed $ 300,000, and that the net profits for that year did exceed that sum; that the services of Dorilus Morrison for the corporation, prior to November 19, 1881, consisted only in attending 12 brief meetings of the stockholders, and 15 brief meetings of the directors, and indorsing with plaintiff divers notes of the corporation for its accommodation, and were not worth more than $ 500; and that, before the business of the corporation began, it was understood and agreed by and between said Dorilus, the plaintiff, and the corporation, that such services should be rendered gratuitously; that the services of Clinton Morrison for the corporation, from early in the year 1879 to November 19, 1881, were merely as assistant to plaintiff, at a stipulated salary paid him by the corporation.

The complaint also alleges that, after 1881, a reasonable salary for Dorilus Morrison, the president, would not exceed $ 1,200 per year, and for Clinton Morrison, vice-president and acting treasurer, would not exceed $ 5,000 per year. It also sets forth an agreement between the corporation, the stockholders and Murdock, by which, if he should elect -- as the right to do was given him -- to purchase at par one-fifth of the stock, his salary should be $ 6,000 per year; but as he never purchased, nor elected to purchase, one-fifth of the stock, it is unnecessary to consider the effect which such purchase would have had on the resolution placing his salary at $ 10,000 per year.

There are various other allegations in the complaint, intended to characterize the transactions, but it is unnecessary to refer at length to any of them, except the allegation made in respect to each meeting of stockholders and of the board of directors -- that it was wrongful and unlawful. The meeting of stockholders of January 3, 1882, was held pursuant to a call of the president, at the written request of two stockholders; and the meeting of stockholders, January 28th was held by adjournment of the meeting of January 3d. The meeting of the board of directors of November 19, 1881, was not a regular or stated meeting, and it is alleged to have been held without notice of any kind to plaintiff, who was one of the directors. The meeting of the board of January 28, 1882, -- the meeting at which the issue of new stock was ratified, -- and also the meeting of February 3, 1882, were all held pursuant to...