Robertson v. First National Bank of Twin Falls

• Decision Date: 22 April 1922
• Docket Number: District Court 3337. District Court 3377. District Court 3443
• Citation: 206 P. 689,35 Idaho 363
• Parties: THOMAS M. ROBERTSON, Appellant, v. FIRST NATIONAL BANK OF TWIN FALLS, a Corporation, and H. W. COWLING, Respondents. THOMAS M. ROBERTSON, Appellant, v. FIRST NATIONAL BANK OF TWIN FALLS, a Corporation, and A. L. HOUGHTELIN, and H. W. COWLING, Respondents. H. W. COWLING, Respondent, v. TWIN FALLS HOTEL COMPANY, a Corporation, and THOMAS M. ROBERTSON, Secretary, Appellants
• Court: Idaho Supreme Court

206 P. 689

35 Idaho 363

THOMAS M. ROBERTSON, Appellant, v. FIRST NATIONAL BANK OF TWIN FALLS, a Corporation, and H. W. COWLING, Respondents.

THOMAS M. ROBERTSON, Appellant, v. FIRST NATIONAL BANK OF TWIN FALLS, a Corporation, and A. L. HOUGHTELIN, and H. W. COWLING, Respondents.

H. W. COWLING, Respondent, v. TWIN FALLS HOTEL COMPANY, a Corporation, and THOMAS M. ROBERTSON, Secretary, Appellants

District Court No. 3337. District Court No. 3377. District Court No. 3443

Supreme Court of Idaho

April 22, 1922

APPEAL from the District Court of the Fourth Judicial District, for Twin Falls County. Hon. H. F. Ensign, Judge.

No 3337--Affirmed. Nos. 3377 and 3443--Reversed.

Judgment in the first action affirmed, with costs to respondent; judgments in the second and third actions reversed, with costs to appellants.

Jas. R Bothwell, W. Orr Chapman and Richards & Haga, for Appellants.

The so-called pooling agreement is against public policy, in that its actuating and stated purpose is to acquire control of the corporation. (7 R. C. L., sec. 362; Wheeler v. Abilene Nat. Bank Bldg. Co., 159 F. 391, 89 C. C. A. 477; 14 Ann. Cas. 917, and note, 16 L. R. A., N. S., 892; Koehler v St. Mary's Brewing Co., 228 Pa. 648, 139 Am. St. 1024, 77 A. 1016.)

In disposing of corporate assets majority stockholders are in the position of trustees, whose sales to themselves, even though fair, are voidable at the election of the cestuis que trustent. (7 R. C. L., sec. 286; Mason v. Pewabic Min. Co., 133 U.S. 50, 10 S.Ct. 224, 33 L.Ed. 524; Chicago Hansom Cab Co. v. Yerkes, 141 Ill. 320, 33 Am. St. 315, 30 N.E. 667.)

In making sales of corporate property by exercising their power to control the affairs of the corporation, the majority stockholders must act in the interest of all of the stockholders. (7 R. C. L., sec. 287; Wheeler v. Abilene Nat. Bank Bldg. Co., 159 F. 391, 14 Ann. Cas. 917, 89 C. C. A. 477, 16 L. R. A., N. S., 892; Sparrow v. E. Bennett & Sons, 142 Mich. 441, 105 N.W. 881, 10 L. R. A., N. S., 725.)

A voting agreement, where the arrangement is made for the sole benefit of the parties to the agreement and not for the general welfare of the corporation and all of its stockholders, is ordinarily held invalid. (7 R. C. L., secs. 329-331; Clarke v. Central R. R. & Bkg. Co. of Georgia, 50 F. 338, 15 L. R. A. 683; Morel v. Hoge, 130 Ga. 625, 14 Ann. Cas. 935, 61 S.E. 487, 16 L. R. A., N. S., 1136; Gage v. Fisher, 5 N.D. 297, 65 N.W. 809, 31 L. R. A. 557.)

It seems that an agreement to pool stock and vote it as a unit for a certain length of time, without power to withdraw from the agreement, and without any consideration in connection with the purchase of the stock, falls within the prohibition of the law, as being against public policy. (1 Thompson on Corporations, secs. 898-904, incl.; 3 Fletcher's Cyc. Corp., sec. 1711; 14 C. J., sec. 1422.)

Specific performance will not lie to compel transfer of the stock under the agreement. (Gage v. Fisher, 5 N.D. 297, 65 N.W. 809, 31 L. R. A. 557; 3 Fletcher's Cyc. Corp., sec. 7321; Ryan v. McLane, 91 Md. 175, 80 Am. St. 438, 46 A. 340, 50 L. R. A. 501.)

Walters, Hodgin & Bailey and R. P. Parry, for Respondents.

The "pool" agreement is not void as against public policy. (10 Cyc. 341; Smith v. San Francisco etc. Ry. Co., 115 Cal. 584, 56 Am. St. 119, 47 P. 582, 35 L. R. A. 309; Boyer v. Nesbitt, 227 Pa. 398, 136 Am. St. 890, 76 A. 103; Windsor v. Commonwealth Coal Co., 63 Wash. 62, 114 P. 908, 33 L. R. A., N. S., 63; Clark v. Foster, 98 Wash. 241, 167 P. 908; Bowditch v. Jackson Co., 76 N.H. 351, Ann. Cas. 1913A, 366, 82 A. 1014, L. R. A. 1917A, 1174; Thompson v. J. D. Thompson Carnation Co., 279 Ill. 54, Ann. Cas. 1917E, 591, 116 N.E. 648; Ramsey v. W. M. Welch Co., 163 Iowa 324, 144 N.W. 323; Brightman v. Bates, 175 Mass. 105, 55 N.E. 809; Weber v. Della Mountain Min. Co., 14 Idaho 404, 94 P. 441; Hey v. Dolphin, 92 Hun, 230, 36 N.Y.S. 627; Faulds v. Yates, 57 Ill. 416, 11 Am. Rep. 24; Borland v. Prindle etc. Co., 144 F. 713; Havemeyer v. Havemeyer, 43 N.Y.S.Ct. 506; Williams v. Montgomery, 148 N.Y. 519, 43 N.E. 57; note, 16 L. R. A., N. S., 1140, and cases cited.)

The "pool" agreement is supported by a sufficient consideration. (Carnagie Trust Co. v. Security Life Ins. Co., 111 Va. 1, 21 Ann. Cas. 1287, 68 S.E. 412, 31 L. R. A., N. S., 1186; American Agricultural Chemical Co. v. Kennedy etc., 103 Va. 171, 48 S.E. 868; Smith v. San Francisco etc. R. Co., 115 Cal. 584, 56 Am. St. 119, 47 P. 582, 35 L. R. A. 309; Warren v. Pim, 66 N.J. Eq. 353, 59 A. 773.)

Whether or not specific performance of the "pool" agreement would lie is no test of its validity in this action. (Pomeroy, 3d ed., par. 1401; 25 R. C. L. 206.)

After the "pool" agreement was made and the stock deposited in escrow, the members thereof could not withdraw their stock. (16 Cyc. 569, 570; McDonald v. Huff, 77 Cal. 279, 19 P. 499; Doran v. Bunker Hill etc. Min. Co., 23 Cal.App. 644, 139 P. 93; Fitzgerald v. Allen, 240 Ill. 80, 88 N.E. 240; Gammon v. Bunnell, 22 Utah 421, 64 P. 958; Tharaldson v. Everts, 87 Minn. 168, 91 N.W. 467; Gaston v. City of Portland, 16 Ore. 255, 19 P. 127.)

A bill in equity will lie to compel the transfer of stock on the books of the corporation. (6 Fletcher on Corporations, 6387; Ellsworth v. National Home & Town Bldrs., 33 Cal.App. 1, 164 P. 14.)

DUNN, J. Rice, C. J., and McCarthy, J., concur.

OPINION

DUNN, J.

The three actions above mentioned were consolidated for trial in the district court of Twin Falls county and are brought here on appeal under a stipulation of the parties that the three actions shall be heard and determined in this court on the record made in the consolidated trial. All of these actions grow out of the following contract:

"WHEREAS, The TWIN FALLS HOTEL COMPANY is a corporation organized and existing under and by virtue of the laws of the State of Idaho, and having its principal office and place of business in the City of Twin Falls, County of Twin Falls, State of Idaho, and having a capital stock of one thousand shares of the par value of one hundred dollars each, and of which said capital stock there is now outstanding six hundred and fifteen shares of the par value of $ 61,500, and of which issued and outstanding stock the following named persons of Twin Falls, Idaho, are the owners and holders of the number of shares set opposite their respective names, as follows, to wit:

W. A. Babcock

37.5

shares

A. B. Colwell

37.5

shares

R. M. Spargur

37.5

shares

A. L. Houghtelin

60.

shares

George Herriott

82.5

shares

Total

255

shares and

"WHEREAS It is the purpose and desire of the above named stockholders to purchase or obtain control of enough additional shares to give the above named stockholders the control of the corporation, to the end that the property belonging to the said corporation may be sold for a price not less than $ 125,000 or that the control of the corporation may be sold upon a basis of not less than the above named price, and

"WHEREAS, It is the desire of the said W. A. Babcock, A. B. Colwell, R. M. Spargur and George Herriott to make a deal with the said A. L. Houghtelin to the end that he purchase enough additional shares to give the above named persons the control, now, therefore, in evidence of such understanding,

"THIS AGREEMENT, Made and entered into this 21st day of June, A. D. 1919, by and between the said W. A. Babcock, A. B. Colwell, R. M. Spargur and George Herriott, the parties of the first part, and A. L. Houghtelin, the party of the second part, WITNESSETH:

"1. That the said party of the second part is hereby authorized and directed to advance the money and purchase enough shares of the above named corporation, not to exceed 82.5 shares, which, added to the said 255 shares above named will give the control of said corporation to the persons above named, at such price as the said A. L. Houghtelin may find necessary, not to exceed one hundred and fifty dollars per share.

"Upon the purchase of said additional shares, the said A. L. Houghtelin shall be entitled to the additional shares so purchased at par, and the balance of the purchase price over and above par (which shall hereinafter be designated as the premium), together with interest on the same at ten per cent per annum from date of purchase until paid, shall be repaid to the said A. L. Houghtelin, by assessing each share of stock in said pool equally, said pool to be composed of the 255 shares above named and the additional stock purchased as aforesaid, and it is further agreed that a lien shall attach to the stock in said pool for the repayment of the premium so paid and the interest thereon.

"It is agreed that any portion of the stock in said pool may be released from said lien by the payment of its portion of the premium and interest assessed against the same to the time of such payment, at any time the owner and holder may desire.

"2. It is agreed between each of the persons above named, to and with each and all of the other persons named, that the 255 shares of stock above mentioned shall be assigned in blank and placed with First National Bank of Twin Falls in escrow to be held under the terms of this agreement, as trustee, to carry out the terms thereof (the name of such trustee to be filled in later), and the additional stock purchased to give control shall also be assigned in blank by the said A. L. Houghtelin and placed with the above named trustee to become a part of said pool, to accomplish the purpose above mentioned.

"3. It is agreed that if the property of said corporation or the stock in said pool is not sold within six months from the date of this agreement, then the premium and interest above mentioned shall become due and payable to...