Roberts v. W. H. Hughes Co.

Citation83 A. 807,86 Vt. 76
PartiesROBERTS et al. v. W. H. HUGHES CO. et al.
Decision Date10 June 1912
CourtUnited States State Supreme Court of Vermont

[Copyrighted material omitted.]

Watson and Powers, JJ., dissenting.

Appeal In Chancery, Rutland County; Eleazer Waterman, Chancellor.

Suit by Robert J. Roberts and others against the W. H. Hughes Company and others. Heard on the pleadings, master's report, and defendants' exceptions thereto, and the exceptions were overruled and a decree entered for all of the orators, and defendants appeal. Reversed and remanded.

Argued before ROWELL, C. J., and MUNSON, WATSON, HASELTON, and POWERS, JJ.

T. W. Moloney, H. L. Clark, and S. E. Everts, for orators.

O. M. Barber and J. B. McCormick, for defendants.

MUNSON, J. 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 24 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 27th 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 2d 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 3 other directors. The officers of the corporation were elected at a meeting of the directors held April 6th, W. H. Hughes being chosen president. At a meeting of the stockholders held April 9th, Hughes offered his property for 2,430 shares of stock and $7,000 in cash, with possession from May 1st; 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 15 months later is put at $95,000. A warranty deed of the property was executed to the W. H. Hughes Company April 10, 1903, and was recorded in the clerk's office of Pawlet May 2, 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 2d. 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 employÁes; 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 2d were the remaining directors—H. J. Stevens, the treasurer, W. C. Clark, the secretary, who was Hughes' clerk, and E. C. Whittemore. There was an original issue of 10 shares to Stevens, and one of 5 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 Whittemore, of which 10 shares and 5 shares were transferred to Stevens and Clark, respectively, on the following day. In connection with this issuance and transfer, Whittemore 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, 2, 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 50 shares. From May 4th to July 7th Hughes made about 50 transfers of stock, covering nearly all his holding. Four hundred and forty-seven shares went to about 35 different persons in amounts ranging from 1 to 50. Five hundred shares were transferred to Sarah Hughes May 6th, and 760 shares July 7th. The Farmers' National Bank received 250 shares May 11th as collateral on notes indorsed by Hughes, and July 7th it received 100 shares to secure an overdraft. There was a further transfer on July 7th 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 16 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 20th. 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 16th, 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 were Ellis Williams as receiver of the W. H. Hughes Company, C. C. Van Kirk as trustee of W. H. Hughes, bankrupt, the administrator of W. H. Hughes then deceased, the Security Trust Company, the Farmers' National Bank, and many others, holders of the bonds or stock of the W. H. Hughes Company. The W. H. Hughes Company and Eugene R. Norton and James E. Norton were brought in by a supplemental bill filed July 12, 1904. Sarah Hughes was admitted as an oratrix on her supplemental bill filed January 20, 1908. The only parties now defending are the W. H. Hughes Company, the Norton brothers, and the Farmers' National Bank. The bill sets up that the W. H. Hughes Company took its conveyance with notice of the rights of the orators, and prays for a foreclosure of the equities of all persons entitled to redeem the premises from the mortgages of the orators, or that the property be sold, and the proceeds distributed among the parties entitled thereto. The answers of the contesting defendants deny the priority of the orators' lien, claim that the orators are estopped from asserting it, and...

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