Tyler v. Savage

• Decision Date: 01 February 1892
• Citation: 12 S.Ct. 340,36 L.Ed. 82,143 U.S. 79
• Parties: TYLER v. SAVAGE
• Court: U.S. Supreme Court

143 U.S. 79

12 S.Ct. 340

36 L.Ed. 82

TYLER v. SAVAGE.

February 1, 1892.

This is a suit in equity, brought in the circuit court of the United States for the eastern district of Virginia, by Sarah C. Savage, a citizen of Pennsylvania, who sues for herself 'and all others, creditors of the Virginia Oil Company, who will make themselves parties to this suit on the usual terms,' against the Virginia Oil Company, a Virginia corporation; John Tyler, president of said company, and in his own right; John W. Otley, C. W. Tanner, Isaac Davenport, Jr., J. H. Montague, C. E. Belvin, late directors in said company, and citizens of Virginia; and Joseph D. Evans and J. F. Crane, citizens of New York.

The bill, which was filed December 11, 1885, so far as it is material to give its contents, set forth that the plaintiff, being anxious to secure a business position for her son, H. C. Savage, was referred by William E. Tanner, of Richmond, Va., with whom she had business transactions, to John Tyler, president of the Virginia Oil Company, of which company C. W. Tanner, a son of William E. Tanner, was a member; that through William E. Tanner she opened negotiations with Tyler, and was informed that she could secure for her son a position equivalent to that of assistant secretary in the company, by the investment of $10,000; that she was willing to make that investment in the shape of a loan well secured, but Tyler declined to take the sum as a loan, and required that she should purchase of the company that amount of its capital stock at its par value; that, to induce her to purchase the stock, Tyler, as president of the company, sent to her the following letter:

'Virginia Oil Company, Richmond, Va., April 10th, 1884. Mrs. S. C. Savage—My Dear Madam: Your favor of the 9th is rec'd. During the short interview I had with your son I concluded that he could easily undertake the duties that would be required of him in the employ of this company. With regard to the nature of the investment conveyed in the proposition thro' Col. Tanner, I would say that we have no trouble in borrowing all the money necessary for the conduct of the business upon its present basis, but the proposition to you embraced the idea (which we had been considering) of permanently enlarging the scope of our business by increasing our capital stock and getting additional office help. You will readily appreciate the difference to a man'f'g business between borrowing money, which may be called for at the pleasure of the lender, and having the same am't in the shape of a permanent investment; so we concluded that whatever arrangement was made in this direction must be upon a stock basis. As to the condition of our Co., the capital stock is at present $18,300 with authority from the stockholders to increase it to $30,000. The last dividend that was declared was a 7% semi-annual. The fiscal year ends on the first of June. The prospects of our Co. I consider flattering. We have in the past few months decreased our expenses, and the outlook for business is better than ever before. Our products are sold north, south, & west, and the field we are working is so wide that we could without much risk double our business by adding moderately to our capital. Our manufactures pay a large profit, and are favorably known throughout the territory we have traveled. As to your chances of selling your stock at par whenever you might wish, I can only say that a gentleman of New York has bought 30 shares at par within the last ten days, but a sale of stock in any M'f'g Co. would depend on its profitableness at the time the sale was made. Should our negotiations result in your son's coming with us, I shall personally try to make his position a pleasant one. Very resp'y, JOHN TYLER, Prest.'

That the plaintiff relied upon the statements made in the letter, and had a right to rely on them, as a basis for the investment of her money; and that the important statements made therein were as follows: (1) The then capital stock of the company was $18,300, with authority from the stockholders to increase it to $30,000; (2) the last dividend declared was 7 per cent. semi-annual, and the current fiscal year would end June 1st; (3) the manufactures of the company were paying a large profit, and were favorably known throughout a wide territory, north, south, and west; (4) there had been a late decrease of expenses, and the outlook for business was better than ever before; (5) by adding moderately to their capital, they could, without much risk, double their business; and (6) a gentleman of New York had bought 30 shares of the stock at par within the last 10 days.

The bill further averred that, with those statements from the president of the company, she concluded that its stock was a safe investment, and consented to take the stock instead of loaning the money, which was her preference, but which the letter assured her would not suit the company; that thereupon, on May 19, 1884, she paid into the treasury of the company $10,000, and received a certificate for 100 shares of stock, which she still holds; that, in accordance with her understanding with Tyler, her son was given a position at a salary of $800 per annum, and performed the duties assigned to him until the suspension of the office work; that when the 1st of December, 1884, arrived she was not informed of the declaration of the semi-annual dividend she had been led to expect, and on the 5th of that month she wrote to Tyler a letter of inquiry concerning it; that in reply she received a letter from him, as follows:

'Virginia Oil Company, Richmond, Va., Dec. 8th, 1884. Mrs. S. C. Savage—Dear Madam: Your favor of the 5th is rec'd. Our company have tho't it wise,—as many other M'f'g Co.'s who have not a large surplus of capital have also,—in view of the depression in business which causes payments to come in very slowly, to omit a semi-annual declaration of dividend. You are mistaken in supposing that the general condition of the finances of the country does not affect our business. It has caused R. R'ds to be months behind in their payments, as well as slack in their orders. on whom the business is largely dependent; but in spite of this the business of the last six months shows a profit over and above expenses. You will see, therefore, it is in the interest of all the stockholders that we have prudently determined to avoid weakening our treasury by withdrawing a dividend at this season. Hoping this explanation will be satisfactory, I remain, very resp'y, JOHN TYLER, Prest.'

That when the 1st of June, 1885, arrived she received no notice of dividend, and some weeks later received a statement of the business of the company for the fiscal year from June 1, 1884, to June 1, 1885, showing a loss of $3,602.47 for the year; and a circular, signed by Tyler, as president, making suggestions in regard to reducing expenses, and giving reasons for the depression of business, the reduction of expenses to involve the striking from the pay-roll of a son of Tyler, whose salary was $480 a year, and of the plaintiff's son, whose salary was $800; and that she also received from Tyler a letter dated August 4, 1885, stating that the company owed him between $5,000 and $6,000, borrowed money, and proposing that, if the plaintiff would assume that debt to Tyler, he would resign his position as president, and allow her son to remain in the employment of the company.

The bill also alleged that, for some time before 1881, Tyler and Otley, under the firm name of John Tyler & Co., conducted at Richmond a business in oils, railroad grease, etc and with Tanner, Montague, Davenport, and Belvin formed a corporation under the laws of Virginia, known as the 'Virginia Oil Company,' with a capital of not less than $15,000 and not more than $30,000, the stock to be divided into shares of the value of $100 each, to pursue the business of refining and wholesale and retail dealing in petroleum oils, the manufacture and sale of illuminating and lubricating oils and compounds, including animal, mineral, and vegetable oils, the right of prospecting and boring for oils, and the privilege of buying and selling on commission or otherwise crude petroleum and other materials used either separately or in combination for illuminating and lubricating purposes, of which company Tyler was named as president and the other five corporators as directors; that certificates of paid-up stock in the company were issued May 21, 1881, to Tyler, Otley, and Tanner, respectively, for 50 shares each, and to Davenport, Montague, and Belvin, respectively, for 1 share each, aggregating 153 shares, or $15,300; that on November 12, 1881, 30 shares were issued to Evans making in all 183 shares; that the books show that no money was paid by Tyler and Otley for their shares, but that the $10,000 of their shares and $1,647.15 due by John Tyler & Co. to Tyler, making in all $11,647.15, was balanced by the following items, namely: Amount of inventory turned over, $2,450.51; merchandise, balances, $267.55, and cash, $46.50; machinery and fixtures, $395.75; amount of stock allowed Tyler and Otley in consideration of good will, formulas, etc., of John Tyler & Co., $8,486.84; total, $11,647.15; that Tyler, as president, Otley, as suprintendent, and Tanner, as secretary and treasurer, were each paid a salary, believed to be as much as $1,500 per annum apiece, and on June 1, 1882, at the end of the first year, dividends of 20 per cent. upon the original capital stock and 7 per cent. on the shares of Evans were declared and paid, amounting to $3,270; that since that date no dividend had been paid, and now the company was admitted to be insolvent; that on April 3, 1884, Otley's stock was surrendered to the company, and he was paid therefor $2,500, being at the rate of 50 cents on the dollar, and his duties and salary as superintendent ceased that if that purchase of stock, and the original payments of Tyler and...