Walsh v. Goulden
| Decision Date | 19 May 1902 |
| Citation | 130 Mich. 531,90 N.W. 406 |
| Court | Michigan Supreme Court |
| Parties | WALSH v. GOULDEN et al. |
Appeal from circuit court, St. Clair county, in chancery; James G Tucker, Judge.
Bill by Robert Walsh against James Goulden and others, alleging that defendants, as directors of a corporation in which plaintiff was a stockholder, had made illegal profits from a sale of the corporation. From a decree for defendants, plaintiff appeals. Affirmed.
Complainant was a stockholder in the Port Huron Gaslight Company. The defendants were stockholders and directors. The capital stock was $40,000, in shares of $50 each. A rival company had existed for some time in the city, and both companies had been making little or no profits for some time. Efforts had been made to consolidate, and thus prevent a disastrous rate war, and place the companies upon a reasonably paying basis. They did not succeed. In 1897 efforts were made to dispose of both properties to a new company, and an option was given by the stockholders to sell out at $84 per share. This project failed. Subsequently the defendants and officers of the rival company opened negotiations with certain parties for a sale of the properties. The defendants carried on these negotiations, and the result was the execution of an agreement with each stockholder. They were all alike. The one made by the complainant reads as follows: 'Articles of agreement made and entered into this 18th day of November 1897, by and between Junius E. Beal, a resident of the city of Ann Arbor, in the county of Washtenaw and state of Michigan, party of the first part, and Robert Walsh, a resident of the city of Port Huron, party of the second part Witnesseth, that whereas the said party of the second part is the owner of 105 shares of stock in the corporation known and designated as the Port Huron Gaslight Company, a corporation organized and existing under and by virtue of the laws of this state; and whereas, the said party of the first part is desirous of purchasing the right to purchase said shares of stock at any time within ninety days from the date of this contract, at and for the price of two dollars for every dollar's worth of stock so held by the said party of the second part as aforesaid: Now, therefore, for and in consideration of the sum of five dollars to him in hand paid by the said party of the first part to the said party of the second part at the time of the ensealing and delivery of these presents, the receipt whereof is hereby confessed and acknowledged, it is hereby stipulated and agreed by and between said parties to this contract that the said party of the second part, for and in consideration of the sum of two dollars for every one dollar of stock so held and owned by him in said corporation aforesaid, hereby agrees to sell assign, and deliver the same to said party of the first part at any time within ninety days after date of this contract.' For a further statement, we adopt the following from the finding of the circuit judge: 'At or about the time of procuring the options from the stockholders to Beal, the three defendants gave to Lynn and Baxter what purported to be an option to purchase the entire plant of the Port Huron Gaslight Company at $80,000; the concern to be taken subject to all its outstanding liabilities. Just previous to the expiration of this option, Lynn and Baxter paid $500 to defendants for an extension of it. That $500 was paid into the treasury of the company, and divided among the stockholders. In the spring of 1898, arrangements between the defendants, Goulden, Bennett, and Beal, for a sale of the company to Lynn and Baxter, of Detroit, seem to have been perfected; and Mr. Bennett and Mr. Beal secured from the several stockholders (the complainant among others) their stock in the company, assigned in blank. This stock was all obtained within a few days prior to March 27, 1898, and was taken to Detroit by Bennett, to be turned over to the new concern. At the time the stockholders delivered their stock assigned in blank, receipts were given to each of them except complainant, in the following form: 'Received from _____ shares of the Port Huron Gaslight Company stock, for which I agree to pay ___ dollars on or before April 1st, 1898;' the number of shares in each receipt being filled in according to the number of shares held by the party signing the receipt, and also the amount of each receipt corresponding to two dollars for every dollar, par value, of the stock so receipted for. The receipts given to the Port Huron stockholders were all signed by A. D. Bennett personally, and receipts given to the Ann Arbor stockholders were all signed by Beal personally. Complainant insisted upon his stock being paid for before it was delivered to Bennett; and Bennett, on the date of the delivery to him of the stock by complainant, paid for the same in full, at $100 per share, in accordance with the terms of the option. The arrangements for a sale of the company to Lynn and Baxter provided that $80,000 was to be paid by them for the stock and assets of the company, and that they were to take care of its liabilities. They declined to take the assets and liabilities as they existed, and settle for themselves, and insisted that the defendants should provide for the same for a specified sum to be agreed upon, and the sum of $16,000 in cash was paid to the defendants by the new company for the purpose of taking care of its outstanding indebtedness. They were also to have and use for that purpose whatever might be collected or gotten from the outstanding accounts due the Port Huron Gaslight Company and its plumbing department.
The total outstanding indebtedness of the concern amounted to approximately, $19,000. The defendants gave a bond to take care of all liabilities of the concern. The $16,000 in cash received, and the proceeds of the outstanding accounts due the concern, were insufficient to take care of those outstanding liabilities; and there can be no liability upon the part of the defendants, or either of them, on account of any moneys received by them with which to care for the liabilities of the concern. The first arrangement of the defendants for a deal with Lynn and Baxter had fallen through; and about ten days prior to the consummation of the final deal, which was on March 27, 1898, the gentlemen interested in the formation of the company concluded that it would be essential to the success of the new concern that some of the old stockholders resident in Port Huron should remain or become members of the new company, the franchise of which required a majority of the directors of the company to be residents of Port Huron, and as a consideration for the defendants remaining in the new company and giving it the benefit of their experience, business standing in Port Huron, etc., offered them bonds in the new company in the sum of $5,000 each and $1,200 in stock. This proposition was, after some demur, accepted, so that each of the defendants received from the new company $1,200 of stock, face value, and $5,000 in bonds. This stock and these bonds received by the defendants were no part of the consideration for the sale of the plant, and the sole consideration therefor was the agreement on the part of the defendants to continue their connection with the new company. The said defendants received the $80,000 provided to be paid by Lynn and Baxter for the total stock of the Port Huron Gaslight Company, out of which they paid to the several stockholders the amounts called for by their options,--$100 per share for the stock held by each. They also paid all...
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