Smith v. Smith, Sturgeon & Co.

• Decision Date: 13 November 1900
• Citation: Smith v. Smith, Sturgeon & Co., 125 Mich. 234, 84 N.W. 144 (Mich. 1900)
• Parties: SMITH v. SMITH, STURGEON & CO. et al.
• Court: Michigan Supreme Court

84 N.W. 144

125 Mich. 234

SMITH v. SMITH, STURGEON & CO. et al.

Supreme Court of Michigan

November 13, 1900

Appeal from circuit court, Wayne county, in chancery; Byron S Waite, Judge.

Action by Mira J. Smith against Smith, Sturgeon & Co. and others.From a judgment dismissing a complaint, complainant appeals.Reversed.

William B. Deniels(Frank E. Robson, of counsel) for appellant.

Warner Codd & Warner, for appellees.

HOOKER J.

Mira J Smith, the complainant, was a creditor of F. G. Smith & Sons to the amount of $5,206.29, upon a promissory note, upon which there was due $6,638.01 at the time of the hearing of this cause in the circuit court.Frank G. Smith and Martin S Smith, 2d, gave her in pledge, to secure the payment of this note, 750 shares of the capital stock of a corporation named Smith, Sturgeon & Co., which was formed by a consolidation of the business of F. G. Smith & Sons and Sturgeon & Co., both of which concerns had been theretofore engaged in the jewelry business at Detroit.The stock remained in their names upon the books of the company.The new corporation (Smith, Sturgeon & Co.) was capitalized at $100,000, but only 7,500 shares, of $10 each, were issued.These 7,500 shares were divided between the two old firms as follows: The F. G. Smith & Co. stock was turned in at $86,588.25, upon which Frank G. Smith and Martin S. Smith, 2d, received 2,500 shares of stock.The remainder of the $86,588.25 was paid by the promissory notes of Smith, Sturgeon & Co.The stock of Sturgeon & Co. was put in at $59,154.53, and wass paid for by 5,000 shares of stock in the new company, and its promissory notes for the remainder.Said 5,000 shares were issued, 4,250 shares to Charles F. Hammond, and 750 shares to W. A. Sturgeon.Two thousand five hundred shares remained in the treasury of Smith, Sturgeon & Co.When organized, Smith, Sturgeon & Co. had a board of four directors,--Hammond, Sturgeon, F. G. Smith, and M. S. Smith, 2d.Among the obligations outstanding against Smith, Sturgeon & Co. was one of $42,000, represented by promissory notes given to M. S. Smith, 1st. Hammond relieved the company from embarrassment by the purchase of this paper, and raised money for it upon his credit to the amount of $20,000.His claims aggregated $74,000 on October 4, 1897.Among its other liabilities was one to the Gorham Manufacturing Company, of which company Holbrook was later, and possibly at the time, president, and Dorr was an employ�; i. e. a traveling salesman.Hammond sold his interest to Dorr, and their agreement, dated October 4, 1897, to which the company was a party, provided, in substance, that Dorr should purchase Hammond's 4,250 shares of stock for the sum of $12,500 in cash; 3,000 of said shares to be retained by Hammond in trust for Dorr.Smith, Sturgeon & Co. promised to execute to Hammond its promissory note or notes amounting to $74,000, which notes Dorr and Sturgeon agreed to indorse; and it was further agreed that, upon the delivery of said notes, Hammond should surrender to Smith, Sturgeon & Co. its then outstanding obligations, amounting to $74,000.The 3,000 shares of stock were to be held by Hammond as security for the payment of the new notes, which were to be indorsed by Dorr, and the stock was to be transferred to Dorr upon such payment being made.It was also agreed that Hammond should have such representation upon the board as he should see fit during the time that said indebtedness should exist.The Smiths retired from the board of directors in January, 1896.Mr. North Wilcox then became a director, and remained so until 1898, when Mr. Hayes took his place.Hammond retired in 1898, and Dorr took his place.During 1899, until July of that year, Dorr, Sturgeon, and Hayes constituted the board of directors.In March, 1899, the directors and Holbrook, whose company, the Gorham Manufacturing Company, was a creditor to a large amount of Smich, Sturgeon & Co., began negotiations with a view to the purchase by Holbrook of the assets of Smith, Sturgeon & Co. Hammond was a party to the transaction.On July 19, 1899, the deal was closed.Holbrook was to receive all of the assets and pay all of the debts of Smith, Sturgeon & Co.This arrangement was made under a resolution alleged to have been adopted at a directors' meeting, and ratified subsequently by meeting of the stockholders of Smith, Sturgeon & Co.This arrangement between the directors and Holbrook hinged upon an agreement between Hammond and Holbrook whereby Hammond agreed to transfer to Holbrook the M. S. Smith notes, said to amount at that time to $54,000, and to reassign to Dorr the 3,000 shares of stock held in trust, and Holbrook agreed that after the proposed deal should be ratified by the stockholders he would pay to Hammond $18,000 in cash, and cause to be issued and delivered to Hammond the sum of $4,000 in the stock of the reorganized company, which was contemplated, and would pay two notes of Smith, Sturgeon & Co., of $5,000...