Pinkus v. Minneapolis Linen Mills and Others
| Decision Date | 04 June 1896 |
| Docket Number | 10,108--(156) |
| Citation | 67 N.W. 643,65 Minn. 40 |
| Parties | F. S. PINKUS v. MINNEAPOLIS LINEN MILLS and Others |
| Court | Minnesota Supreme Court |
Appeal by plaintiff from an order of the district court for Hennepin county, Belden, J., denying a motion for a new trial. Affirmed.
Order affirmed.
Judson L. Wicks and C. L. Lamb, for appellant.
The transaction complained of was beyond the authorization of the charter, and illegal unless ratified by all the stockholders. Morawetz, Priv. Corp. § 415; Black v. Delaware & R Canal Co., 24 N.J.Eq. 455. When a corporation has determined to go out of business, the directors must convert the assets into cash and distribute the cash among its members. Morawetz, Priv. Corp. § 415. They have no right to barter the assets for stock in other corporations. Id.; Frothingham v. Barney, 6 Hun, 366; McCurdy v. Myers, 44 Pa. 535; Taylor v. Earle, 8 Hun, 1.
Even if stock of fixed money value and convertible into cash may be exchanged, as said in Treadwell v. Salisbury Mnfg. Co., 7 Gray, 393, the court has not found the value of the stock or any facts constituting such exception. Byrne v Schuyler E. M. Co., 65 Conn. 336, 31 A. 833. Plaintiff never consented to take stock in a hosiery company. Mason v. Pewabic Min. Co., 133 U.S. 50, 10 S.Ct. 224. Plaintiff has disavowed the wrongful act and seeks to recover the value of the property converted. See Frothingham v Barney, supra; Byrne v. Schuyler E. M. Co., supra. Plaintiff may prosecute the action personally, since the corporation is in control of those who committed the unlawful act. Rothwell v. Robinson, 39 Minn. 1, 38 N.W. 772. He is not estopped. Califf v. Hillhouse, 3 Minn. 217 (311). See Village of Wayzata v. Great North. Ry. Co., 46 Minn. 505, 49 N.W. 205.
He has not lost his right by laches. Mere silence or failure to complain does not amount to acquiescence or ratification. Fitzgerald v. Fitzgerald & M. C. Co., 44 Neb. 463 62 N.W. 899; Wald's Pollock, Cont. 546; Pence v. Langdon, 99 U.S. 578; Montgomery v. Pickering, 116 Mass. 227; Tarkington v. Purvis, 128 Ind. 182, 25 N.E. 879; Moxon v. Payne, L. R. 8 Ch. App. 881; Foley v. Holtry, 41 Neb. 563, 59 N.W. 781; Tynan v. Warren, 53 N.J.Eq. 313, 31 A. 596.
Plaintiff is entitled to the appointment of a receiver. Frothingham v. Barney, supra.
Johnson, Leonard & McCune and Edward C. Gale, for respondent.
The act complained of was not unlawful, or ultra vires.
This is not the case of a going corporation attempting to dispose of all its property to another corporation, either in good faith or with some ulterior motive, as in Small v. Minneapolis E. M. Co., 45 Minn. 264, 47 N.W. 797; Byrne v. Schuyler E. M. Co., 65 Conn. 336, 31 A. 833.
Where the business of a corporation is a failure and the best interests of the stockholders require the sale of the assets of the company so as to wind up the business, the majority of the stockholders have power to do so even against the protests of the minority. Morawetz, Priv. Corp. §§ 413-417; Beach, Priv. Corp. §§ 357-359; Cook, Stock & Stockh. § 667; Rothwell v. Robinson, 44 Minn. 538, 47 N.W. 255; Price v. Holcomb, 89 Iowa 123, 56 N.W. 407; Hayden v. Official Hotel Directory Co., 42 F. 875; Lauman v. Lebanon R. Co., 30 Pa. 42; Sawyer v. Dubuque Printing Co., 77 Iowa 242, 42 N.W. 300; Skinner v. Smith, 134 N.Y. 240, 31 N.E. 911. Under the circumstances, the majority of the stockholders had power, as a step in closing out the business, to sell in good faith a portion of the corporate assets for shares of the capital stock of another manufacturing corporation, a going concern, whose authorized business was permitted to be done by the selling company under its articles of incorporation, the statutes of the state and the articles of incorporation of both corporations being silent on the subject. Beach, Priv. Corp. § 359; Hodges v. New England Screw Co., 1 R. I. 312; Treadwell v. Salisbury Mnfg. Co., 7 Gray, 393; Young v. Toledo & S. H. R. Co., 76 Mich. 485, 43 N.W. 632; Sawyer v. Dubuque Printing Co., supra; Buford v. Keokuk Packet Co., 69 Mo. 611; Howe v. Boston Carpet Co., 16 Gray, 493; Booth v. Robinson, 55 Md. 419; Miners' Ditch Co. v. Zellerbach, 37 Cal. 543; Evans v. Bailey, 66 Cal. 112, 4 P. 1089; Easun v. Buckeye Brewing Co., 51 F. 156; Byrne v. Schuyler E. M. Co., supra.
Assuming the act complained of to have been ultra vires, plaintiff has not been injured in a legal sense, and cannot, therefore, recover any personal judgment against defendant directors; and, under the pleadings of this action, there could be no recovery for the benefit of defendant corporation. Fitzgerald v. Fitzgerald & Mallory Const. Co., 41 Neb. 374, 59 N.W. 838; Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 15 S.W. 448; Davis v. Gemmell, 73 Md. 530, 21 A. 712; Howe v. Barney, 45 F. 668; Smith v. Hurd, 12 Metc. (Mass.) 371; Conway v. Halsey, 44 N.J.L. 462; Davenport v. Dows. 18 Wall. 626; Porter v. Sabin, 149 U.S. 473, 13 S.Ct. 1008; McMullen v. Ritchie, 64 F. 253; Beach, Priv. Corp. §§ 255, 256; Cook, Stock & Stockh. §§ 701, 737, 748; Pratt v. Bacon, 10 Pick. 123; Peabody v. Flint, 6 Allen, 52; Cunningham v. Pell, 5 Paige, 607; Allen v. Curtis, 26 Conn. 456; Smith v. Poor, 40 Me. 415; Craig v. Gregg, 83 Pa. 19; Evans v. Brandon, 53 Tex. 56; Carter v. Ford Plate Glass Co., 85 Ind. 180; Beach v. Cooper, 72 Cal. 99, 13 P. 161; Greaves v. Gouge, 69 N.Y. 154; Hirsch v. Jones, 56 F. 137; Oliphant v. Woodburn Coal Co., 63 Iowa 332, 19 N.W. 212; Hodgson v. Duluth, H. & D. R. Co., 46 Minn. 454, 49 N.W. 197; Bjorngaard v. Goodhue Co. Bank, 49 Minn. 483, 52 N.W. 48; Horn Silver Min. Co. v. Ryan, 42 Minn. 196, 44 N.W. 56. Corporate officers are not liable for acts ultra vires which they have done or sanctioned, but in good faith without knowledge of their ultra vires character. Beach, Priv. Corp. § 252; Cook, Stock & Stockh. §§ 702, 703; Hodges v. New England Screw Co., supra; Spering's Appeal, 71 Pa. 11; Watts's Appeal, 78 Pa. 370; Williams v. McDonald, 37 N.J.Eq. 409; North Hudson B. & L. Assn. v. Childs, 82 Wis. 460, 52 N.W. 600; Briggs v. Spaulding, 141 U.S. 132, 11 S.Ct. 924.
The directors of a corporation are its agents and occupy a fiduciary relation to it, and in relation to their possession or control of the corporate property they are treated as quasi trustees. Horn Silver Min. Co. v. Ryan, supra; Patterson v. Stewart, 41 Minn. 84, 42 N.W. 926; Jones v. Morrison, 31 Minn. 140, 16 N.W. 854; Morawetz, Priv. Corp. § 516; Thompson v. Lambert, 44 Iowa 239.
A principal may ratify the unauthorized or ultra vires acts of an agent by subsequent acquiescence; and mere silence for a sufficient length of time after knowledge of the unauthorized act done in his name will amount to such ratification. Stearns v. Johnson, 19 Minn. 470 (540); Story, Agency, §§ 255-8; Hoyt v. Latham, 143 U.S. 553, 12 S.Ct. 568; Turner v. Kennedy, 57 Minn. 104, 58 N.W. 823; Cairnes v. Bleecker, 12 Johns. 300; Minnesota L. Oil Co. v. Montague, 65 Iowa 67, 21 N.W. 184; Story, Agency, § 243. Dissenting stockholders must show themselves prompt and vigilant in the assertion of their rights as such stockholders. Morawetz, Priv. Corp. §§ 630-1; Cook, Stock & Stockh. § 732; Martin v. Pensacola & G. R. Co., 8 Fla. 370; Watts's Appeal, supra; In re Pinto Silver Min. Co., L. R. 8 Ch. Div. 273; Gregory v. Patchett, 33 Beav. 595; Hodges v. New England Screw Co., 3 R. I. 9.
Plaintiff is barred by his continuous failure to object. He is guilty of laches as synonymous with acquiescence or ratification by equitable estoppel. Lindsay Petroleum Co. v. Hurd, L. R. 5 P. C. 221; Hall v. Otterson, 52 N.J.Eq. 522, 28 A. 907; Dunphy v. Traveller Newspaper Assn., 146 Mass. 495, 16 N.E. 426; Chaudiere Gold Min. Co. v. Desbarats, L. R. 5 P. C. 277; Gernsheim v. Olcott, 7 N.Y.S. 872; Descombes v. Wood, 91 Mo. 196, 4 S.W. 82; In re Magdalena S. Nav. Co., 6 Jur. (N. S.) 975; Thompson v. Lam bert, 44 Iowa 239; Sheldon H. B. Co. v. Eickemeyer H. B. M. Co., 90 N.Y. 607; Ashhurst's Appeal, 60 Pa. 290; Twin-Lick Oil Co. v. Marbury, 91 U.S. 587; Kent v. Quicksilver Min. Co., 78 N.Y. 159; Phosphate of Lime Co. v. Green, L. R. 7 C. P. 43; Allen v. Wilson, 28 F. 677; Taylor v. South & N. Ala. R. Co., 4 Woods, 575, 13 F. 152; Squair v. Lookout Mountain Co., 42 F. 729; Kitchen v. St. Louis, K. C. & N. Ry. Co., 69 Mo. 224; Snow v. Boston B. B. Mnfg. Co., 158 Mass. 325, 33 N.E. 588; International & G. N. R. Co. v. Bremond, 53 Tex. 96; Graham v. Birkenhead Railway, 2 Macn. & G. 146; Cook, Stock & Stockh. §§ 728-732.
Plaintiff is not entitled to a receiver. Rothwell v. Robinson, 44 Minn. 538, 47 N.W. 255.
This is an appeal by the plaintiff from an order denying his motion for a new trial, and the only question for our consideration is whether the conclusion of law of the trial court, to the effect that the plaintiff is not entitled to any relief in the premises, is justified by its findings of fact.
The controlling facts found by the court may be summarized as follows: The defendant Minneapolis Linen Mills was organized as a corporation of this state on October 14, 1890, and its co-defendants are, and were at the time herein stated, the directors of the corporation, and managed its affairs. The corporation became the owner of a tract of land in the city of Minneapolis, with a brick building thereon, with machinery and appliances for the manufacturing of linen fabrics, which it used for that purpose. This plant constituted its principal property. The corporation commenced its business of manufacturing linen in the spring of 1891, and so continued to do until November 1, 1892, during which time its business was honestly and economically conducted, but it resulted in a loss of $ 30,000. The enterprise proved a failure, and on the day last named...
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