St. Johns Mfg. Co. v. Munger

• Citation: 106 Mich. 90,64 N.W. 3
• Parties: ST. JOHNS MANUF'G CO. v. MUNGER.
• Decision Date: 02 July 1895
• Court: Michigan Supreme Court

64 N.W. 3

106 Mich. 90

ST. JOHNS MANUF'G CO. v. MUNGER.

Supreme Court of Michigan

July 2, 1895

Error to circuit court, Clinton county; Peter F. Dodds, Judge.

Action by the St. Johns Manufacturing Company against Orrin W Munger. There was a judgment for plaintiff, and defendant brings error. Affirmed.

Fedewa & Walbridge, for appellant.

Spaulding Norton & Weimer, for appellee.

HOOKER J.

The plaintiff recovered a judgment against the defendant upon an assessment on the capital stock of the corporation to which the defendant was a subscriber. Upon the trial the plaintiff's counsel objected to evidence in support of the notice accompanying the plea, which objection was sustained, and the case turns upon the sufficiency of the facts stated in the notice as a defense. These facts are substantially as follows: Prior to January 1, 1893, R. M Steel, of St. Johns, and others, had been carrying on a manufacturing business in that city, under the name of the St. Johns Manufacturing Company. Some time before the date mentioned, a proposition had been made by Steel to a number of the citizens of St. Johns to incorporate said business with a capital of $300,000, of which $200,000 was to be preferred stock, and $100,000 common stock; and some time in 1891 the defendant subscribed for 50 shares of common stock by signing an agreement of which the following is a copy, viz.: "Whereas, the St. Johns Manufacturing Company is to be incorporated as a stock company, with a capital stock of $300,000, we do each of us severally subscribe and agree to pay for the number of shares of said stock set opposite our respective names, the par value of said shares to be $10 each. The stock hereby subscribed to be paid in twenty equal monthly installments, commencing October 20, 1891, with seven per cent. interest on unpaid portions after January 1, 1892, or all or any part in excess thereof may be paid at any time at the option of the subscriber." Prior to said subscription, the defendant had no knowledge of the extent or profits of said business carried on by Steel and others. Prior to the time that the defendant subscribed as aforesaid, a meeting was held at St Johns, which was attended by Steel and a great number of citizens of the place, for the purpose of considering the advisability of forming a corporation to carry on said business, and a committee was appointed by said meeting for the purpose of soliciting subscriptions for stock in the proposed corporation. Said committee consisted of citizens of St. Johns, who proposed to and did subscribe for part of the stock of said company. Said committee, "in order to induce" defendant to subscribe for stock, represented to him that the said business had for a series of years been a very prosperous and money-making one, and that during the period it had manufactured tables it had never paid less than 10 per cent. a year on capital invested of $300,000, and had paid as high as 17 or 18 per cent. a year on said amount of capital. Said committee further represented to the defendant that the business was to be capitalized in the sum of $300,000, of which $200,000 was to be preferred stock, and $100,000 common stock; that the former was to be paid an annual dividend of 6 per cent. from the earnings of the company, and the common stock was to be paid the balance of the profits, which would be at least 14 to 20 per cent. per year. The machinery was to be invoiced and appraised at its cost value by disinterested persons, and turned in as part of the capital, and the common stock was to have "such representation on the board of directors, so that they could protect their interests." It was further stated that the practice of the former company of issuing to its workmen and others coupons payable at the St. Johns Mercantile Company (an institution in which said Steel had a large interest) should be discontinued, and that such coupons should thereafter be made payable at all the stores in St Johns. The notice alleges, further, that the defendant "relied upon" each of such representations, and was thereby induced to subscribe for such stock. The notice states that preferred stock to the amount of $199,000 is owned by Steel; that the new company has continued to issue coupons payable as before, and not at the stores of St. Johns generally; that Steel's stock was paid for by him by turning over to the new company the plant, machinery, stock, and material connected with the business before the incorporation of plaintiff; and that such property was not invoiced and appraised by disinterested persons, but was turned in at more than its cost value; and that each representation made by said committee to the defendant, and by which he was induced to subscribe for said stock, was untrue; and that he had no knowledge of its falsity, either at the time he subscribed or at the time of his payment of $100 upon said subscription. The notice asserts further that the by-laws adopted by said corporation are antagonistic to the right of the holders of the common stock, and unjustly prefer the holders of the preferred stock, to an extent that renders the common stock worthless, and that such by-laws were adopted by the votes of the holders of the preferred stock, to the detriment of the holders of the common stock, and against the protest of some of the latter; that the majority of the directors have been selected by the holders of the preferred stock, and the board has ignored the interests of the holders of...