Mills v. Tiffany's, Inc.
| Decision Date | 01 February 1938 |
| Citation | 198 A. 185,123 Conn. 631 |
| Parties | MILLS v. TIFFANY'S, Inc., et al. |
| Court | Connecticut Supreme Court |
Appeal from Superior Court, Hartford County; Edwin C. Dickenson Judge.
Action by Thomas G. Mills against Tiffany's, Incorporated, and others to recover damages for the alleged destruction of the value of the plaintiff's stock in Mills Spa Incorporated, caused by a transfer of its assets without notice to him, brought to the superior court and tried to the court. Judgment for defendants, and plaintiff appeals.
Error and case remanded.
Walfrid G. Lundborg, of Hartford, for appellant.
James W. Carpenter, of Hartford, for appellees.
Argued before MALTBIE, C.J., and HINMAN, AVERY, BROWN, and JENNINGS, JJ.
The complaint in this case contained the following allegations: The plaintiff owns 10 shares of the capital stock of a corporation known as Mills Spa, Incorporated. On June 26, 1930, the corporation executed and delivered to him its note for $12,664.91. This note contained a provision that the furniture, fixtures, and equipment of the corporation was assigned as collateral security and also that it was secured by a certificate for 1,480 shares of the stock in the corporation standing in the name of Floyd E. Tiffany. This certificate of stock was indorsed in blank and delivered to the plaintiff. Default was made in payment of the note, leaving a balance of $1,440 with interest due upon it. Tiffany died and neither he nor his estate paid the note. By reason of the default in payment of it and the failure of Tiffany or his personal representative to redeem the stock, the plaintiff became the owner of the 1,480 shares although they were never transferred to him on the books of the corporation. On or after April 13, 1936, Mills Spa, Incorporated, hereinafter referred to as Mills Spa, transferred all its assets to another corporation known as Tiffany's, Incorporated, hereinafter referred to as Tiffany's without notice to the plaintiff of any stockholders' meeting held for the purpose of authorizing such a transfer. The defendant Harry B. Rosenblum, as attorney for the defendant Belle M. Tiffany, knew that the plaintiff was the owner of the 10 shares of stock and also of the 1,480 shares formerly belonging to Floyd E. Tiffany. The defendants Dora T. Rosenblum, Belle M. Tiffany, Henry J. LaFlamme, and Rosenblum were the incorporators and stockholders of Tiffany's. These defendants knowing that the plaintiff owned a substantial number of shares of stock in Mills Spa, fraudulently aided and assisted in the tranfer of its assets in order to deprive the plaintiff of the value of his stock. The defendant Tiffany's, by its officers and directors, had full knowledge of the fraud perpetrated on the plaintiff and they assisted the other defendants in their purpose of rendering the stock of the plaintiff valueless. The plaintiff has no adequate remedy at law. He claimed $5,000 damages, an injunction restraining the defendants from transferring or disposing of the assets of Tiffany's or the certificates of stock therein issued to them and such other relief as he might be entitled to in equity.
The facts found, so far as necessary to our decision, are as follows: The plaintiff was operating a restaurant in Hartford. A corporation known as Mills Spa was organized to take over the restaurant and 1,480 shares of its stock were issued to Floyd E. Tiffany and 10 shares each to Belle M. Tiffany and to the plaintiff. The corporation executed and delivered to the plaintiff the note described in the complaint which was payable in installments of $500 a month and contained a clause making the entire amount due at the option of the holder upon a default for ten days in the payment of any installment. The certificate for 1,480 shares of its stock issued to Floyd E. Tiffany was indorsed by him for transfer and delivered as collateral security for the note to an attorney in escrow for the benefit of the plaintiff. In 1932 the note was in default, but the plaintiff never attempted to foreclose his lien on the stock or to exercise any ownership over it. Floyd E. Tiffany died and the 1,480 shares of stock represented by the certificate, with other shares of stock in the corporation later issued, were inventoried as a part of his estate and later sold to Belle M. Tiffany. Thereafter the only stockholders in and directors of Mills Spa were the plaintiff and Belle M. Tiffany. In 1934 receivership proceedings were brought against the corporation. The plaintiff was appointed temporary receiver and later confirmed as permanent receiver. In the course of the proceedings he, as receiver, filed a stipulation as to the ownership of stock in the corporation in which it was stated that Floyd E. Tiffany owned 1,480 shares, and he and Belle M. Tiffany 10 shares each.
On July 9, 1935, there was a meeting of the stockholders and also of the directors of Mills Spa, of neither of which the plaintiff had notice. On the same day the corporation executed a petition to the federal court under section 77B of the Bankruptcy Act, as amended, 11 U.S.C.A. § 207 and note requesting reorganization, which was filed the next day. This petition was prepared by its attorneys, one of whom was the defendant Rosenblum; the practice under the section had not been settled, no forms were available, nor were there guiding decisions of the court; and the attorney acted pursuant to the advice and with the approval of the judge of the United States District Court. It stated that of the 3,700 shares of stock in the corporation 3,690 were owned by Belle M. Tiffany and the remaining 10 shares were outstanding in the name of the plaintiff for qualifying purposes only, and that the filing of the petition had been authorized by the owner of all the outstanding shares except these 10. On July 10, 1935, a trustee was appointed. The corporation at this time was insolvent. On March 19, 1936, Rosenblum, as attorney for the corporation, presented to a special master a plan for its reorganization. No meeting of stockholders or directors of the corporation had been held for the purpose of passing upon this plan and the plaintiff did not know of it prior to presentation to the master. The terms of this plan are not found except as to certain payments to be made to creditors. On April 2, 1936, the court passed an order that the plan ‘ hereby is recommended to be accepted,’ that upon approval of the recommendation the debtor was to deliver to the trustee sufficient money to meet the necessary expenditures, and that thereafter an order might be entered by the special master ‘ for the debtor or its nominee’ to again assume possession of the business, the proceedings then to be dismissed without further order. On June 5, 1936, an order was entered by the federal court directing the trustee to turn over to Rosenblum ‘ nominee and attorney for the debtor’ or any one designated by him, all its assets. Yvonne M. Hemmings advanced $2,400 to the corporation for the purpose of effecting the reorganization. On April 23, 1936, the trustee, under direction of Rosenblum, conveyed all his right, title, and interest in the assets of Mills Spa to her.
The defendants Belle M. Tiffany, Harry B. Rosenblum, and Henry J. LaFlamme became incorporators of Tiffany's, Incorporated, which was organized to take over the assets of Mills Spa, Incorporated. Stock of this corporation was issued to the amount of 2,400 shares, 2,397 to defendant Dora T. Rosenblum and 1 share each to Belle M. Tiffany, Harry B. Rosenblum, and Henry J. LaFlamme. All the assets of Mills Spa, with certain others, were transferred to Tiffany's without consideration, although they were valued by the directors at $24,000. This transfer was never approved by any stockholders' or directors' meeting of Mills Spa. Throughout these proceedings Rosenblum knew that the plaintiff owned 10 shares of stock in Mills Spa, and claimed to own the 1,480 shares originally issued to Floyd E. Tiffany, as did also the defendant Belle M. Tiffany, and he acted as attorney for her, for Mills Spa, and for Yvonne M. Hemmings. At some time during the proceedings the certificate for 1,480 shares of stock in Mills Spa was delivered to the plaintiff by the attorney who was holding it in escrow. There is an unpaid balance of $1,440 due on the note.
The claims of the plaintiff at the trial, leaving out some which are merely incidental, were that the plaintiff had exercised his option to declare the entire amount of the debt due upon default in the payment of an installment; that the plaintiff as a stockholder was entitled to notice of the proceedings of the corporation under which the petition for reorganization was presented to the federal court; that the defendants Harry B. Rosenblum and Belle M. Tiffany had perpetrated a fraud upon the plaintiff in transferring the assets of Mills Spa to Tiffany's without notice to him as a stockholder and director and without consideration; that Tiffany's was organized to acquire the assets of Mills Spa as an instrumentality of the defendants to whom stock in the latter corporation was issued; and that Tiffany's and the several defendants took with notice of the rights of the plaintiff as a stockholder of Mills Spa. The conclusions of the trial court were that, the acceleration clause in the note not being self-executing and a demand for payment being necessary to make the unpaid amount due, which the plaintiff had never made, the unpaid balance never did become due; that the plaintiff still holds the 1,480 shares in Mills Spa as a pledge, but has no interest in it except as security for the note; that the plaintiff was not entitled to notice of the proceedings for reorganization; and that the defendants perpetrated...
To continue reading
Request your trial