Robert J. Roberts v. the W. H. Hughes Co.
| Decision Date | 10 June 1912 |
| Parties | ROBERT J. ROBERTS ET AL. v. THE W. H. HUGHES COMPANY ET AL |
| Court | Vermont Supreme Court |
[Copyrighted Material Omitted]
Special Term at Rutland, November, 1909.
APPEAL IN CHANCERY. Heard on the pleadings, master's report, and defendants' exceptions thereto, at the March Term, 1909 Rutland County, Waterman, Chancellor. Decree for all the orators. The defendants appealed. The opinion states the case.
Decree reversed and cause remanded with mandate that a decree be entered adjudging that as against the W. H. Hughes Company the conveyances of W. H. Hughes to the orators are an incumbrance prior to his deed to said company; that eighteen hundred and sixty (1,860) shares of the stock of the W. H. Hughes Company are held subject to the rights of the orators; that the trust deed of the W. H. Hughes Company and the bond issue of $ 32,000 are prior to the lien of the orators, but that as to the orators the bonds subsequently issued are invalid; that the orator Robert J. Roberts is estopped from asserting this invalidity as against the $ 10,000 loan; that the oratrix Ann Roberts has a separate interest of $ 2,550 in the decree; and that the orators have a decree of foreclosure in accordance with their several interests and rights as herein determined.
T. W. Moloney, H. L. Clark and S.E. Everts for the orators.
O. M. Barber and J. B. McCormick for the defendants.
Present: ROWELL, C. J., MUNSON, WATSON, HASELTON, and POWERS, JJ.
In the fall of 1901, W. H. Hughes of Granville, N.Y., a manufacturer of roofing slate operating quarries in Pawlet and Wells in this State, became embarrassed financially, and applied to D. D. Woodard, President of the Granville National Bank, for a loan of $ 30,000. Negotiations followed which resulted in an arrangement between Woodard, W. H. Hughes, his mother, Sarah Hughes, a resident of Easton, Pa., and Robert J. Roberts and his wife Ann, residents of Pawlet, that W. H. Hughes and his wife should execute notes for $ 30,000, that Sarah Hughes should indorse one-third of that amount and Roberts and his wife one-third, that W. H. Hughes should give the indorsers security, and that Woodard should procure the money. There was a further agreement between W. H. Hughes and Woodard, that Woodard should carry the remaining $ 10,000 without indorsers and continue the entire loan for two years, and that in consideration thereof Hughes should give Woodard twenty-four notes of $ 200 each. The notes so arranged for were delivered to Woodard on or about November 27, 1901, and those making up the $ 30,000 were discounted and the avails thereof paid to W. H. Hughes. Nothing was paid upon these by the makers, and they were finally taken up by the indorsers above named, who now hold them.
On the same twenty-seventh day of November, W. H. Hughes executed to Sarah Hughes, Robert J. Roberts and Ann Roberts, an assignment of a lease of certain quarry rights in Pawlet, and a mortgage of certain parcels of land in Pawlet and Wells, to secure them for their indorsements. At the time these papers were executed and delivered, Hughes suggested that they be left in the possession of Woodard for the benefit of the mortgagees, because the recording of them might injure his credit. No objection being made by Robert J. Roberts, the only one of the mortgagees present, Woodard took the papers and placed them in his safe, and they remained there until July 13, 1903, the day Hughes made his assignment as hereinafter stated, when Woodard handed them to Roberts, who took them to the clerk's office for record. The assignment and the mortgage were recorded in Pawlet, July 14, 1903, and the mortgage was recorded in Wells, December 19, 1904.
In the fall of 1902 W. H. Hughes began to confer with John Gilroy, his counsel, the orator Robert J., who was a foreman in his employ, and others, as to the advisability of forming a corporation to take his property and carry on the business; and on the second day of April, 1903, a certificate of incorporation of the W. H. Hughes Company was filed in the office of the Secretary of State at Albany. W. H. Hughes and Robert J. Roberts were two of the five persons named therein as directors for the first year. The capital stock was to consist of 2,500 shares of $ 100 each, 2,430 of which were subscribed for by Hughes, 25 by Roberts, and the remainder by the three other directors. The officers of the corporation were elected at a meeting of the directors held April sixth, W. H. Hughes being chosen president. At a meeting of the stockholders held April ninth, Hughes offered his property for 2,430 shares of stock and $ 7,000 in cash, with possession from May first; and the president and treasurer were thereupon authorized to issue 2,430 shares of the capital stock to W. H. Hughes upon his delivering to the treasurer a deed and assignment of leases of his slate property. The value of the property at this time is not found, but its value fifteen months later is put at $ 95,000. A warranty deed of the property was executed to the W. H. Hughes Company, April tenth, 1903, and was recorded in the clerk's office of Pawlet, May second, 1903, but was not recorded in Wells. This sale and transfer covered the property embraced in the mortgage and assignment given to Sarah Hughes, Robert J. Roberts and Ann Roberts as before stated.
April 29, 1903, the W. H. Hughes Company authorized the execution of a mortgage of its entire property to the Security Trust Company of Troy, N.Y., to secure an issue of its bonds to the amount of $ 100,000; and the mortgage so authorized was executed May 1, 1903, and was recorded in Pawlet, May second. There was an early issue of $ 32,000 of bonds, as to which no question arises. There was a subsequent issue of bonds amounting to $ 18,000, authorized as hereinafter stated, which were placed with the Adirondack Trust Company as security for funds obtained for the payment of employees; and this indebtedness and collateral are now held by the Farmers' National Bank.
The 2,430 shares of stock voted to Hughes were issued to him April 30, 1903. Twenty-five shares had already been issued to Roberts. The only others who held stock previous to May second were the remaining directors--H. J. Stevens, the treasurer, W. C. Clark, the secretary, who was Hughes' clerk, and E. C. Whittimore. There was an original issue of ten shares to Stevens, and one of five shares to Clark. The report states, in separate findings, that the only consideration for the Stevens issue was service rendered in the organization of the company, and that the only consideration for the Clark issue was service rendered to Hughes in the organization of the company. There was also an issue of 25 shares to Whittimore, of which ten shares and five shares were transferred to Stevens and Clark respectively on the following day. In connection with this issuance and transfer, Whittimore credited Hughes $ 1,000 on an old note, and Stevens gave Hughes a check for $ 1,000. Nothing further appears regarding the matter of consideration.
The company went into business in Vermont, May second, 1903. The only person then holding stock, other than those above named, was D. D. Woodard, who received on that day a transfer from Hughes of fifty shares. From May fourth to July seventh Hughes made about fifty transfers of stock, covering nearly all his holding. Four hundred forty-seven shares went to about 35 different persons, in amounts ranging from one to fifty. Five hundred shares were transferred to Sarah Hughes, May sixth, and 760 shares July seventh. The Farmers' National Bank received 250 shares May eleventh as collateral on notes indorsed by Hughes, and July seventh it received 100 shares to secure an overdraft. There was a further transfer on July seventh of 360 shares to H. B. Nelson.
W. H. Hughes made an assignment for the benefit of his creditors July 13, 1903; and C. C. Van Kirk was appointed trustee of his estate in bankruptcy in the following September. His assets and liabilities are not given, but it appears incidentally that his estate paid about sixteen cents on the dollar. Sarah Hughes was adjudged a bankrupt on her own petition September 10, 1903, and Frank Reeder was appointed trustee of her estate on the twentieth. Her estate paid her debts in full, including her $ 10,000 liability on the W. H. Hughes notes, and on receiving her discharge these notes were reassigned to her. Van Kirk received as a part of the W. H. Hughes estate 1,645 shares of the capital stock of the W. H. Hughes Company, and sold them at auction June 21, 1904, for $ 33,900, to one who bid by the direction of Eugene R. Norton, in behalf of said Eugene, his brother James E. Norton and certain others, all of whom are still holders of the stock. The Sarah Hughes claim and the Roberts claim were each reduced by the sum of $ 1,650.80, received from the trustee of W. H. Hughes.
The day after Hughes made his assignment the directors of the W. H. Hughes Company took measures looking to the appointment of a receiver and a voluntary dissolution of the corporation, and their petition in that behalf was filed July 16, and Ellis Williams was appointed receiver on the 18th. Williams was subsequently appointed receiver in ancillary proceedings in this State, and January 9, 1904, he procured a certificate of authority for the corporation to do business in this State, none having been had before this. The dissolution proceedings and the receivership were closed soon after the Nortons obtained control of the corporation by their purchase of the Hughes stock.
The original bill was brought by Robert J. Roberts, Ann Roberts and the trustee in bankruptcy of Sarah Hughes, and was filed January 27, 1904. The defendants wer...
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