Moore v. Waterbury Tool Co.

• Decision Date: 08 April 1938
• Court: Connecticut Supreme Court
• Parties: MOORE v. WATERBURY TOOL CO. et al.

199 A. 97

124 Conn. 201

MOORE v. WATERBURY TOOL CO. et al.

Supreme Court of Errors of Connecticut.

April 8, 1938

Appeal from Superior Court, New Haven County; Kenneth Wynne, Judge.

Action by Warner Moore against the Waterbury Tool Company and others to recover damages for the alleged conversion of shares of stock of the named defendant pledged to it by the plaintiff wherein, upon plaintiff's death, Warner Moore, Jr. executor of the estate of Warner Moore, was substituted as plaintiff. From a judgment for defendants, plaintiff appeals.

No error.

Richardson Bronson, of Waterbury, for appellant.

William W. Gager, of Waterbury, for appellee Waterbury Tool Co.

Argued before MALTBIE, C.J., and HINMAN, AVERY, BROWN, and JENNINGS, JJ.

AVERY Judge.

This action was originally brought by Warner Moore, as plaintiff, against the Waterbury Tool Company, a domestic corporation, and Francis H. Clergue, as defendants. Pending the action, and before trial, the plaintiff died and his son, Warner Moore, Jr., was substituted as plaintiff. The complaint was originally in three counts. The first count set up that on May 11, 1931, the plaintiff was the owner of 3,166 shares of common stock of the tool company and was indebted to the company on two promissory notes, one dated December 11, 1930, payable four months after date, for $10,000, and the other dated April 27, 1931, payable on demand for $5,000; and that prior to that date the plaintiff had pledged 1,978 shares of his stock as collateral security for the payment of the debt evidenced by the two notes; and that on that day the defendant corporation, in accordance with a resolution passed at a meeting of its directors, took over the plaintiff's stock, which then had a value in excess of $80,000, held by it as collateral, to liquidate the plaintiff's indebtedness to the corporation. By an amendment to the complaint offered at the trial it was alleged that this was done without the authority of the plaintiff, and the defendant thereby converted the property to its own use. The second count was for money had and received; and the third count was against Clergue, individually. At the opening of the trial, the second and third counts were withdrawn and the case was tried upon the issues raised under the first count. These issues were three: First, that there was no conversion of the stock on May 11, 1931; second, that, if the defendant was without authority to take over the stock on that date, its action in so doing was subsequently ratified by Moore; third, that, even if there was a conversion and the action of the company in taking over the stock was not ratified by Moore, the plaintiff was estopped from asserting his claim thereto by reason of events that had happened subsequent to the time when the stock was taken over. The case was tried to the jury upon these issues and a verdict returned in favor of the defendant, from which the plaintiff has appealed, claiming errors in the charge of the court to the jury.

The charge of the court is tested by the claims of proof of the parties, which may be summarized as follows: The plaintiff was throughout all the period covered by this controversy vice-president and a director of the company. He owned 3,178 shares of its stock. In April, 1931, he was indebted to the company to the amount of $15,000, represented by notes which were overdue, and the company held 1,270 shares of his stock as collateral for the loan, and it claimed also to hold an additional 498 shares as collateral, but he claimed that the note for which these shares were given as security was never accepted by it. On April 13, 1931, the company caused the 1,978 shares to be transferred to its name. On May 4, 1931, the secretary of the company notified Moore that a meeting of its directors was to be held at its office on May 11, 1931, for the purpose of acting upon loans to him, and on the same date the secretary advised him in writing that the directors had decided to offer the collateral for sale at its office on that day. On May 5, 1931, a conference was held between the plaintiff and Clergue, the president of the company. The plaintiff claimed that at this conference they failed to reach an understanding as to the disposal of the collateral, although each party left the conference feeling that an agreement had been reached; that he did not agree to allow his stock to be taken over in liquidation of the company's claim against him or that the 498 shares should be held as collateral security for any of his notes; and that after the conference he believed that Clergue had agreed that the stock was to be held by the company and the dividends declared thereon were to be applied to the liquidation of the indebtedness. The defendant, on the other hand, claimed that at this conference it was decided not to make a public offering of the stock but that the company should take it over in full satisfaction of the notes, in order to avoid having the shares go into the hands of strangers and to keep the stock of the company closely held, and because the sum received by its sale could hardly be expected to liquidate the debt. At the meeting of the board of directors held on May 11th the secretary reported that the plaintiff had expressed a wish to surrender to the company the collateral and receive back his notes duly canceled, and it was voted that this proposal be accepted, and the secretary be instructed to return the notes, canceled, the shares having already been transferred to the company. The plaintiff, being notified of this action, remonstrated against it as not representing the agreement reached at the conference between himself and Clergue, and a series of letters passed between the two, Clergue contending that the arrangement was in accordance with the agreement between them and stating that, subject to confirmation by the directors, the plaintiff might have the stock back upon paying the indebtedness to the company. On May 25, 1931, the secretary of the company sent a memorandum to the plaintiff showing the balance due with accrued interest as of May 11, 1931, of $14,311.95, and the application of the 1,978 shares of stock having a par value of $49,450 as received in full payment of the indebtedness. The plaintiff refused to pay that sum and claimed that the taking over of the shares by the company was in violation of his rights and so advised Clergue as president of the company. The notes were canceled and returned to the plaintiff and he retained them and neither he nor his executor has offered to pay any interest or principal on them or return them to the company.

The defendant further offered evidence to prove the following facts: On February 23, 1932, Moore personally attended and signed the minutes of the annual stockholders' meeting reciting him as owning 1,188 shares of stock, containing a resolution approving all actions taken by the board of directors during the past year, and approving an audit of the company's books disclosing that Moore's 1,978 shares had been taken over in cancellation of his indebtedness and was held as treasury stock. He attended other stockholders and directors meetings, approved financial statements showing the result of the transaction of May 11, 1931, signed minutes disclosing him as owner of 1,188 shares only, and, except for remonstrances addressed to Clergue personally, in no way signified to any other director any disagreement with the action taken by the company. All correspondence between Clergue and Moore relating to the transaction was treated as personal and did not remain in the files of the company and there was nothing in its records to indicate that the transaction was other than bona fide acquisition by the company of the 1,978 shares of stock as treasury stock in satisfaction of the debt owing by Moore.

For some time previous to 1934, with the full knowledge and consent of Moore, Clergue had been endeavoring to sell the Waterbury Tool Company; and, on November 1st, acting on behalf of the company and its stockholders, he accepted an offer of the Sperry Corporation to acquire the entire assets of the company for the sum of $450,000. It was uncertain until the final contract was prepared whether the sale would take the form of a conveyance of the assets or of a transfer of the stock. Moore was kept informed of the progress of the negotiations. On November 26, 1934, a special meeting of the stockholders of the company was held at which Moore was personally present. At that meeting the stockholders by unanimous vote authorized the sale of the tool company to the Sperry Corporation for $450,000, the details of the contract other than the price to be worked out by Clergue and counsel for the company. A proposed draft of a contract in substance, particularly as to warranties, the same as the contract finally executed, was submitted to Moore and approved by him; and on that same date Moore executed a formal power of attorney authorizing Clergue to transfer 1,188 shares of stock standing in his name which was all of his stock as disclosed by the corporate records. It was explained to Moore that, if the sale was consummated, he would receive his pro rata of the purchase price based upon his ownership of 1,188 shares and the Sperry Corporation would take over all the assets of the company through its stock purchase, including the 1,978 shares formerly belonging to Moore and then held by the company as treasury stock.

Thereafter the Sperry Corporation caused an examination to be had of the corporate records of the tool company, including an audit approved by the stockholders, February 23, 1932. All these records showed that the 1,978 shares formerly belonging to Moore had been regularly acquired in cancellation of his...