Lowman v. Harvey R. Pierce Co.

• Decision Date: 12 February 1923
• Docket Number: 130
• Citation: 120 A. 404,276 Pa. 382
• Parties: Lowman v. Harvey R. Pierce Co. et al
• Court: Pennsylvania Supreme Court

120 A. 404

276 Pa. 382

Lowman v. Harvey R. Pierce Co. et al

No. 130

Supreme Court of Pennsylvania

February 12, 1923

Argued January 17, 1923

Appeal, No. 130, Jan. T., 1923, by Gustave A. Gussmann, from decree of C.P. No. 3, Phila. Co., June T., 1921, No. 4181, on bill in equity, in case of John B. Lowman v. Harvey R. Pierce Co. et al. Affirmed.

Bill in equity to compel cancellation of notes, and annulment of resolution of directors. Before McMICHAEL, P.J.

The opinion of the Supreme Court states the facts.

Decree for plaintiff. Gustave A. Gussmann, one of defendants appealed.

Error assigned, inter alia, was decree, quoting it.

The decree is affirmed at the cost of appellant.

David Wallerstein and Abraham Israel, with them George B. Hawkes and H. James Sautter, for appellant. -- The bill should have been dismissed for want of a proper party plaintiff Wilson v. Brown, 269 Pa. 225; Kelly v. Thomas, 234 Pa. 419; Wolf v. Railroad Co., 195 Pa. 91; McCloskey v. Snowden, 212 Pa. 249.

The bill should have been dismissed because (1) there was nothing upon which to base a finding of fraud; (2) plaintiff was guilty of such laches as to deprive him of any standing in a court of equity; (3) plaintiff ratified the acts of the directors of the company.

Even if plaintiff was entitled to a decree against appellant, the decree should have been for plaintiff's proportionate part only of the alleged unlawful salary.

Francis Rawle, with him Joseph W. Henderson, for appellee. -- The case is ruled by Sotter v. Boiler Works, 257 Pa. 411.

Plaintiff was a proper party to the bill: Hawes v. Oakland, 104 U.S. 450; Weir v. Gas Co., 91 F. 940; Penn Bank v. Hopkins, 111 Pa. 328; Kelly v. Thomas, 234 Pa. 419; Wolf v. R.R., 195 Pa. 91; Com. T.I. & Tr. Co. v. Seltzer, 227 Pa. 410; McCloskey v. Snowden, 212 Pa. 249; Glenn v. Brewing Co., 259 Pa. 510; Wilson v. Brown, 269 Pa. 225.

It is too late now to raise the question of whether plaintiff was a proper party: Edgett v. Douglass, 144 Pa. 95; Bennett v. Bullock, 35 Pa. 364; Watts' App., 78 Pa. 370, 389; Kelley v. Kelley, 182 Pa. 131, 139.

Plaintiff was not guilty of laches: Galliher v. Cadwell, 145 U.S. 368.

Plaintiff did not by his proxy ratify the action of the directors: Seichrist's App., 66 Pa. 237; Russell v. Patterson, 232 Pa. 113.

As to appellant's contention that plaintiff if entitled to a decree was entitled only to his proportion of the unlawful salaries, we cite: Kelly v. Thomas, 234 Pa. 419.

Before MOSCHZISKER, C.J., WALLING, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE SADLER:

The Harvey R. Pierce Company began its business of dealing in surgical instruments in 1911, with a capital of $25,000, represented by 250 shares of stock, and the three directors, chosen in 1916, were the holders of a majority. One Pillings had an equitable interest in 72 shares, not assigned on the books of the corporation, and Lowman, the present plaintiff, owned 50, purchased in 1913, which amount he still holds. In 1914, the directors, and defendants here, increased their salaries from $30 to $35 per week, and in 1916 added $10 more. In 1917, the rate was fixed at $100, and in 1918 a definite sum of $10,000 per year for each was named. This was decreased in 1919 to $6,000, and in 1920 still further, to $4,500. The earnings of the company did not permit the payment of these amounts in cash, and a certain proportion was evidenced by notes given, increased from time to time, by reason of balances unpaid, until in 1920 obligations were outstanding in favor of Pierce for $8,350; Jones, $8,900, and Gussmann, $8,767. During the ten-year period of operation the net profits of the corporation were slightly less than $39,000, the larger portion of which was earned during the war. For seven of these years, the salaries paid the three directors amounted to $98,725, and there was disbursed in dividends, the sum of $11,340.

Lowman did not reside in Philadelphia, the company's place of business, and during 1917 and 1918 was engaged in war service abroad. He relied upon Pierce to look after his interests, and from time to time sent him a proxy, authorizing representation at the stockholders' meetings, and his vote was cast to approve generally the actions of the board of directors. This continued until February, 1921, when he complained of the excessive expenditures, and was subsequently asked by Gussmann to come to the next meeting and voice his objections. He did not appear personally, nor was he there represented by proxy. Soon thereafter he filed this bill, praying that the resolutions fixing salaries be annulled and that the corporation notes, given for unpaid balances, be surrendered and cancelled.

Answers were filed by all of the defendants. Pierce and Jones admitted they had acted wrongfully toward the minority stockholder, and surrendered the notes held by them. Gussmann, however, insisted on the payment of his obligation, denying any fraud or unfair conduct. A hearing was had, and findings of fact, justified by the evidence, and conclusions of law, were made. The learned court below determined the defendants guilty of overreaching, and fixed the amount of salaries fairly earned during the disputed period. The result was a decree reducing the claim of Gussmann to $2,232, and a direction to Pierce and Jones to repay certain amounts received. From the adjudication, the former alone appealed.

It is first suggested that plaintiff has no standing to bring this action as a minority stockholder, without previous demand that the corporation proceed, followed by its refusal. Ordinarily, the rule stated is to be enforced: Kelly v. Thomas, 234 Pa. 419. But there is an exception recognized, where, as in this case, such request would be futile, since the suit would necessarily be instituted by the directors on behalf of the company against themselves: Wilson v. Brown, 269 Pa. 225; Glenn v. Kittanning Brewing Co., 259 Pa. 510; Com. Title, etc., Co. v. Seltzer, 227 Pa. 410. Whether this principle be applicable or not, it cannot be invoked in a case such as this, where no preliminary objection was made, but the parties proceeded to trial without complaint, and took the chances of a determination in their favor. Had the defendants desired to avail themselves of the want of a proper party plaintiff, a demurrer should have been filed, and the matter thus brought to the attention of the court in the first instance.

The findings of fact here made are justified by the evidence, and...