Post v. Beacon Vacuum Pump & Electrical Co., 216.

• Decision Date: 19 January 1898
• Docket Number: 216.
• Citation: 84 F. 371
• Parties: POST et al. v. BEACON VACUUM PUMP & ELECTRICAL CO. et al.
• Court: U.S. Court of Appeals — First Circuit

84 F. 371

POST et al. v. BEACON VACUUM PUMP & ELECTRICAL CO. et al.

No. 216.

United States Court of Appeals, First Circuit.

January 19, 1898

Edward P. Payson, for appellants.

William H. Dunbar, George E. Bird, and Louis D. Brandeis, for appellees.

Before COLT and PUTNAM, Circuit Judges, and BROWN, District Judge.

PUTNAM Circuit Judge.

The complainants are stockholders of the Beacon Vacuum Pump &amp Electrical Company, which, for convenience, we will call the 'Pump Company.' They bring this bill against that corporation and the Beacon Lamp Company, which we will call the 'Lamp Company.' The capital stock of the Pump Company is $1,000,000, divided into 40,000 shares, of the par value of $25 each, all of which are outstanding. Complainants hold 2,580 shares, being a fraction over one-sixteenth part of the entire issue. They assume to bring their bill in behalf of themselves and of all others in like interest; but as the case stands, there are no others in like interest. It is maintained that the cause of action which the bill presents exists, if at all, only in the right of the corporation, and not in the right of the stockholders themselves; but we will not find it necessary to determine this proposition.

The bill was demurred to by both respondent corporations assigning various grounds of demurrer, and, among the rest, a want of equity, which is the only one to which we will have occasion to refer. It shows that the Pump Company is a manufacturing corporation, and had been making electric lamps. It seeks to set aside a transfer from it to the Lamp Company, made pursuant to a scheme of reorganization, and executed in July, 1895. The bill alleges that 'on or about March, 1895, the assets of' the Pump Company 'exclusive of letters patent, were shown by the corporation books to be about $130,000'; and that the entire liabilities of that corporation, not including the capital stock, were about $60,000, 'leaving the said company with about $70,000 worth of personal property, and said letters patent'; and, further, that, 'of said $60,000 indebtedness, over $38,000 had been incurred upon loans for which the corporation issued bonds due and payable about 1902, thus leaving its then current indebtedness, in bills payable and accounts, some $22,000.' It also alleges that the Pump Company had in 1895 'sufficient assets to enable it to make further loans, if any such were required, and also the legal right to amend its charter to increase its capital, so as to enable it to issue more stock'; and that it 'was neither insolvent nor without power to obtain the necessary refunds to continue in business.' It also alleges that, in the event the Pump Company had been wound up and its assets sold to pay its debts, the value of its letters patent would have added 'a large sum to the $70,000 of property held above its indebtedness,' and that the value of the letters patent appears, from the circular to the stockholders setting out the scheme of reorganization, to have been estimated at over $400,000 for use in exchange for $400,000 of the capital stock of the Lamp Company. There are no allegations showing that the old corporation had any existing available working capital.

It may well be questioned whether there is sufficient in these allegations to show that the Pump Company was financially capable of pursuing its business, or that its assets, if it had been wound up, would have yielded any substantial dividend to its stockholders. For example, the first, which refers to the books of the corporation for values, without any direct allegation about them, is, of course, insufficient on any rule of pleading governing the construction of a bill in equity to receive the consideration of the court. Again, the allegation to the effect that the value of the letters patent, if sold would have added 'a large sum' to the $70,000 of property held above its indebtedness by the corporation, is equally ineffectual, because it is based on the defective statement of values which refers to the books of the corporation. So, also, the allegations that the Pump Company had sufficient assets to enable it 'to make further loans,' meaning thereby to borrow money and that it might obtain power to issue more stock, without some definite statement as to its available resources, result in what is purely problematical. The allegation that the corporation was not insolvent, nor without power to obtain the necessary funds to continue in business, might properly as the bill is framed, be regarded as a mere deduction from the other matters stated in the bill to which we have referred, and not at all as a positive, distinct allegation; and, in view of the insufficient character of the allegations with reference to the assets of the corporation to which we have called attention, it might well be held too general.

A bill seeking a result which may be so disastrous to the interests of other stockholders as this might be if its principal prayer were granted should support itself by decisive allegations. The general rule is that the essential parts of a bill in equity should be stated positively and with precision. Story, Eq. Pl. (10th Ed.) Secs. 255, 256. This is especially insisted on where a remedy is sought by an injunction or a rescission, the result of which may not only compensate the party injured, which is all the common law ordinarily gives, but may impair the interests of the adverse party to a vastly disproportionate extent. The underlying principle is stated in the following cases, although applied there from an aspect different from that at bar: Grymes v. Sanders, 93 U.S. 55, 62; U.S. v. American Bell Tel. Co., 167 U.S. 224, 241, 17 Sup.Ct. 809. The common law gives relief on a mere preponderance of proofs; but it is certain that, in cases of the class we are considering equity does not act unless the proofs are clear. The underlying reasons which require this require also that the allegations which the proofs are to sustain be clear to the effect that the complainant has suffered, or is threatened with, an injury so substantial as to demand, not only compensation, but also specific relief by rescission, even while this may cause a loss to others as to which his own...