Knoop v. Bohmrich

• Decision Date: 24 November 1891
• Citation: 49 N.J.E. 82,23 A. 118
• Parties: KNOOP v. BOHMRICH et al.
• Court: New Jersey Court of Chancery

23 A. 118

49 N.J.E. 82

KNOOP

v. BOHMRICH et al.

Court of Chancery of New Jersey.

Nov. 24, 1891.

(Syllabus by the Court.)

Suit by Ludwig J. Knoop against Louis J. Bohmrich, Max Brand, and the Saxonian Manufacturing Company to compel Bohmrich to pay into the treasury of such company the par value of stock issued to him. On final hearing on bill, answer, and proofs.

James A. Gordon, for complainant.

John W. Bissell, for defendants.

VAN FLEET, V. C. The complainant is the owner of 50 shares of the capital stock of the Saxonian Manufacturing Company. The defendants are Louis J. Bohmrich, Max Brand, and the Saxonian Manufacturing Company. Bohmrich is the president of the defendant corporation, and Brand is secretary and treasurer. The corporation was organized on the 11th day of June, 1890, under a general statute of this state, with a capital of $20,000, divided into 200 shares of $100 each. No subscriptions to the stock were made, but two days after the organization certificates for the whole number of shares were issued. Fifty shares were issued to the complainant, for which he paid $5,000 in cash; 48 shares were issued to the complainant's wife, for which she gave her note, payable on demand, which the corporation still holds; 50 shares were issued to the wife of Bohmrich, for which she also gave her note, which is still held by the corporation; and 1 share was issued to Brand, for which he also gave his note. The 51 remaining shares were issued to Bohmrich. He paid nothing for them in money; nor did he, at the time of their issue, make a written transfer of any property for them; nor has he since. The complainant says that he has not paid for them in any way, but that they were issued on his promise to pay for them in money. This suit is brought to compel Bohmrich to pay into the treasury of the corporation the par value of the shares issued to him. The complainant's right to maintain this suit is disputed. The contract which he is asking to have enforced was made by Bohmrich with the corporation; and hence it is said that nobody but the corporation can maintain an action on it. That would unquestionably be so if it did not appear that the corporation is under the control of managers, who cannot bring a suit in the name of the corporation, for the purpose for which this suit is brought, without accusing one of their number, and he their chief, of an attempt to defraud the corporation. If they could be induced to consent to sue, it is manifest that their bias would constrain them to so conduct its prosecution as to insure defeat, rather than success. When the complainant first insisted that Bohmrich should pay for the stock issued to him, and also when he instituted this suit, Bohmrich and his wife, Brand, and the complainant and his wife were the directors of the corporation. Brand is the partisan of Bohmrich. He was a witness for him, and gave substantially the same acccount respecting the means by which Bohmrich acquired his stock that Bohmrich himself did. It may be safely assumed, without proof, that Bohmrich's wife would not have voted that a suit should be brought to compel him to pay for his stock. She would undoubtedly have insisted, as he does now, that the corporation had no right of action against him, and that, if a suit should be brought, it would result in nothing but a useless expenditure of money. So that it is obvious that, had the complainant, before bringing this suit, requested the directors to sue for the same cause of action, his request would have been denied by a vote of three to two. Bohmrich and his partisans had control of the corporation. They held 102 of the 200 shares of stock, and had three votes out of the five in the board of directors. In this condition of affairs the complainant was under no duty, before bringing his suit, to ask the directors to sue in the name of the corporation. The rule is settled that such application need not be made when the interest or bias of the managers of the corporation makes it certain that, if it was made, it would be denied, or, if granted, that the litigation following would necessarily be under the control of persons opposed to its success. Ackerman v. Halsey, 37 N. J. Eq. 356, 362, on appeal 38 N. J. Eq. 501; Brinckerhoff v. Bostwick, 88 N. Y. 52,59; Peabody v, Flint, 6 Allen, 52, 56; Brewer v. Boston Theater, 104 Mass. 378, 387; Mor. Priv. Corp. § 242. Nothing can be such more certain than that justice will not be done in any case where the person against whom redress is sought by suit is in a position where he has power to control both sides of the litigation,—to act both as plaintiff and defendant. The reason of the rule which controls in cases like the one under consideration was stated by Judge Rapallo in Brinckerhoff v. Bostwick, supra, in this wise: "In such cases [that is, where the managers are the wrong-doers, and must be made defendants in the suit] a demand upon the corporation to bring the suit would be manifestly futile. A suit, prosecuted under the direction and control of the very parties against whom the misconduct is alleged and a recovery is sought, would scarcely afford to the shareholders the remedy to which they are entitled; and the fact that the delinquent parties are still in control of the corporation is of itself sufficient to entitle the shareholders to sue in their own names. If they could not be permitted in such cases to assert their rights in their own names, the directors, so long as they remained in office, could set them at defiance." And where, as in this case, the directors, opposed to suing, hold a majority of the stock, they would have it in their power, if a stockholder could not sue in his own name, to defeat justice absolutely and forever. Where the directors are themselves the wrong-doers, or a majority of them are the partisans of the wrong-doer, they are, in the language of the supreme court of Massachusetts in Brewer v. Boston Theater, supra, by the very nature of the case, incapacitated for the service of representing the corporation in an action against the wrong-doers. To say that no redress can be had in such a case except by a suit in the name of the corporation, prosecuted by its managers, would amount to a plain denial of justice to the injured stockholders. There can be no doubt, therefore, that the complainant has a clear right on the facts stated, to maintain this action.

Bohmrich does not pretend that he has paid for his stock with money, nor that he has made a written transfer of property to the corporation in payment of it. His certificate is not stamped, as the statute says certificates of stock issued in payment for property purchased shall be. Revision, p. 187, § 55. It does not declare upon its face that the stock for which it was issued had been paid for by property, and not by money. Nor does Bohmrich pretend that the corporation agreed with him that he might pay for his stock with property, as distinguished from money. It is admitted that the corporation did not agree, by a vote of its directors, or in any other way, that he might pay for his stock with property. There was no corporate action on the subject, and, so far as appears, the question as to whether or not he should have the right to pay for his stock in a manner different from the other stockholders was never suggested or mentioned in the presence of either the directors or stockholders. These are matters about which there is no dispute. Bohmrich rests his right, as against the complainant, to the stock he holds on this ground. He says, prior to the formation of the corporation, and also on the day the corporation was formed, it was agreed between the complainant and himself that he should transfer to the corporation a business in which he was then engaged, together with the machinery used in such business, his stock on hand, fixtures, books of account, and the lease of the premises where...