Manufacturers' Sav. Bank v. O'Reilly
| Decision Date | 18 February 1889 |
| Citation | 10 S.W. 865,97 Mo. 38 |
| Parties | Manufacturers' Savings Bank, Appellant, v. Big Muddy Iron Company |
| Court | Missouri Supreme Court |
Appeal from St. Louis City Circuit Court. -- Hon. W. H. Horner Judge.
Affirmed.
G Pollard and Krum & Jonas for appellant.
(1) The finding of the referee was erroneous. (2) The assignment by White and the transfer of the stock on the books of the corporation, vested the title to the stock in Harding, as trustee for the bank, and fixed and determined the relations of White, assignor, and Harding, the assignee, to the corporation. By that act White ceased to be, and Harding became, a stockholder in the company; and White lost, and Harding acquired, the right to vote the stock.
H. I D'Arcy for respondent, Whitman.
(1) Laches or delay of a stockholder is peculiarly fatal to his claim for equitable relief against directors. Kitchen v. Railroad, 69 Mo. 224-69; Watts' Appeal, 78 Pa. St. 370; Thompson v. Lambert, 44 Iowa 239-47; Richards v. Ins. Co., 8 Cranch, 84; Elman v. Kendrick, 1 Metc. [Ky.] 146; 9 Cent. L. J. 288. (2) Plaintiff cannot recover, because the defendant directors, in taking White's vote on the question of selling out, thought, and had every reason to think, there having been no transfer of his stock, on the books, to plaintiff, that he, and only he, was the proper party to vote the stock standing in his name. 6 South. L. Rev. 398; Denny v. Manhattan Co., 2 Denio, 115; Abbot v. Meriam, 8 Cush. 588; The State v. McDonald, 4 Harv. 555; Ex parte Murphy, 7 Cow. 153; Hoppin v. Buffern, 9 R. S. 513. It is even immaterial that an exhaustive examination of all the books and papers of the company might have revealed the fact that White had parted with all or some of his interest in the stock to plaintiff. Directors are not bound to search any but the proper record. Marlborough M. Co. v. Smith, 2 Conn. 579; Railroad v. McCormick, 10 Ind. 499. (3) Plaintiff cannot recover, because the majority of the stockholders of the manufacturing corporation have a right, notwithstanding the dissent of a minority, to sell out the assets of the corporation, in the exercise of their business judgment. Treadwell v. Man. Co., 7 Gray, 485; Sargent v. Webster, 13 Met. 504; Kean v. Johnston, 9 N.J.Eq. 401; Black v. Canal Co., 22 N.J.Eq. 404; Wilson v. Proprietors of Bridge, 9 R. I. 599; Lauman v. Railroad, 30 Penn. St. 48; Lord v. Governor, 2 Phillips, 739; Wilson v. Miers, 10 C. B. R. [N. S.] 366. Indeed the directors have a right to close up a business corporation. Chew v. Ellingwood, 86 Mo. 273. And in Missouri against the expressed will of the stockholders. Hutchinson v. Green, 91 Mo. 367.
Geo. A. Castleman for respondent, O'Reilly.
(1) The defendant company was insolvent in December, 1872, and had been so from the day of its organization, therefore defendants had a right, under the law, to sell out the property of the company. (2) The sale of the property by the old company to the new was not an annihilation of the business, but was tantamount to a reorganization, changing the basis of organization from one whose failure and ruin was demonstrated to one wherein it was hoped that the wreck might be resurrected. (3) Benjamin White was the owner of the one hundred and fifty shares of stock under the alleged right of which this suit is prosecuted, and the plaintiff herein was only pledgee thereof and did not become owner until the fall of 1873. Benjamin White had, therefore, the right under the law to vote this stock for the sale. White did vote the stock for the sale, and would have been estopped to complain of the defendants. Plaintiff, by its purchase after the sale, took with it only such rights as could have been enforced by White. Therefore, even if the company had been solvent, plaintiff could not recover. (4) Bulkley swears that notice of the transfer of this stock was served upon him and he knew it was absolute, but he did not inform the stockholders thereof, although he was present and saw White vote the stock, and kept silent as to White's alleged transfer. This was a violation of duty upon the part of Bulkley, was a wrong perpetrated by him upon the stockholders, and equity will not now permit him to speculate upon his own wrong.
OPINION
This is a suit begun by the plaintiff and now prosecuted in its name for the purpose of compelling the directors of Big Muddy Iron Company to account for property which it is alleged they fraudulently and secretly sold, and by reason of which alleged fraudulent and secret sale it is claimed the stock held by the plaintiff was rendered worthless. It is also alleged that the defendants converted to their own use pig iron of the value of $ 126,000.
It appears that Benjamin White owned seventy-five shares of preferred and one hundred and fifty shares of common stock in the Big Muddy Iron Company. He transferred this stock to Mr. Harding, president of the plaintiff, a banking corporation. The transfer is absolute on its face; but it was made to secure a debt owing by White to the bank. The transfer was made in November, 1872, and in the fall of 1873, the bank caused the stock to be sold and became the purchaser of it. This suit was commenced in 1874, and slumbered along until 1879, when the bank transferred the stock to Cook, who transferred the one-half to P. C. Bulkley, and this suit seems to be prosecuted by them in the name of the bank. It may be here stated that Bulkley was a director and the secretary of the Big Muddy Iron Company, during the entire time of its existence, though it seems he opposed the sale of which complaint is made.
The general facts are not disputed and they are these: The defendants, O'Reilly, Whitman, Mills, Lancaster and White and other persons purchased an iron furnace and certain personal property at an assignee's sale in bankruptcy, on the twenty-third of March, 1872, for $ 139,000. They were stockholders in and creditors of the bankrupt corporation. On the fifth of April, 1872, they organized the Big Muddy Iron Company, transferred the property so purchased to it, and the corporation became liable for the payment of the $ 139,000. The company was organized with 1,570 shares of stock of the par value of two dollars per share. But nine hundred and thirty shares of stock were ever taken, so that the company had a capital of only $ 1,860. The company conducted the business until the last of December, 1872, when it became involved, unable to pay its debts, and the directors sold the furnace to a new company by the same name. This new company was organized with a capital of $ 200,000 for the express purpose of buying the property of the old company, and the defendants were stockholders and officers in the new company, so that in effect the sale was one by themselves to themselves.
So far as the manufactured pig iron on hand is concerned, it is sufficient to say that it was sold by the directors in the usual course of business for about $ 105,000, and the proceeds were applied to the payment of the debts of the company. This they had a right and were in duty bound to do.
The sale to the new company included the furnace, machinery implements and raw material on hand. The new company paid for the furnace and existing contracts for material, the sum of $ 156,000. It also took the raw material on hand at the cost price. There were other assets, such as bills receivable, not included in the sale. It is this sale of which complaint is made. The plaintiff alleges that the...
To continue reading
Request your trial