Weisbecker v. Hosiery Patents, Inc.

• Decision Date: 25 March 1947
• Docket Number: 3276
• Citation: 51 A.2d 811,356 Pa. 244
• Parties: Weisbecker, Appellant, v. Hosiery Patents, Inc., et al
• Court: Pennsylvania Supreme Court

51 A.2d 811

356 Pa. 244

Weisbecker, Appellant, v. Hosiery Patents, Inc., et al

No. 3276

Supreme Court of Pennsylvania

March 25, 1947

Argued January 10, 1947

Appeal, No. 34, Jan. T., 1947, from decree of C.P Montgomery Co., Feb. T., 1946, No. 6, in case of Frank G Weisbecker v. Hosiery Patents, Inc. et al. Decree reversed.

Bill in equity.

Preliminary objections to bill sustained, order entered dismissing bill opinion by CORSON, J. Plaintiff appealed.

Decree dismissing bill reversed. Bill Reinstated, costs to abide the event.

William H. Seyfert, with him Mabel B. Ditter and John A. Boyle, for appellant.

Leonard J. Schwartz, with him John E. Flynn, David W. Neisenbaum and High, Swartz, Flynn & Roberts, for appellees.

Before MAXEY, C.J., DREW, LINN, STERN, PATTERSON, STEARNE and JONES, JJ.

OPINION

MR. CHIEF JUSTICE MAXEY

This is an appeal from the order of the court below sustaining defendants' preliminary objections to a bill in equity filed by the appellant, Frank G. Weisbecker, and dismissing the bill. Appellant was the inventor of certain improvements on hosiery knitting machinery. In consideration of providing funds for the procurement of several patents upon his inventions and for developing, exploiting and marketing them, appellant assigned a two-thirds interest in his inventions to David L. Subin and Benjamin Subin, party defendants. As a result of an oral agreement among the respective parties, a corporation was organized under the laws of Pennsylvania on September 20, 1935, known as Hosiery Patents, Inc. and the patents in question were thereupon assigned to it. The corporation issued 30 shares of stock and distributed 10 shares to each of the defendants, David L. Subin and Benjamin Subin, and 10 shares to plaintiff. Subsequently, Benjamin Subin transferred nine shares to David L. Subin and one share to Emanuel A. Lerman, a co-defendant in the present proceedings. At a special meeting of the stockholders of Hosiery Patents, Inc., held on July 19, 1945, David L. Subin and Emanuel A. Lerman voted their stock in favor of a resolution adopted by the board of directors proposing the dissolution of the corporation and the liquidation of its assets. Plaintiff voted his 10 shares against it. On July 20, 1945, the plaintiff filed a bill for a special injunction to enjoin the defendants, David L. Subin and Emanuel A. Lerman, from proceeding to dissolve the corporation and from selling its assets and obtained a restraining order prohibiting the sale of the corporation's assets until the date set for hearing, July 26, 1945. Prior to the date of hearing, the plaintiff and defendants agreed, on July 25, that the patents be offered for public sale on August 17th or 24th and, as a result, the parties filed a stipulation of counsel vacating the restraining order issued. Plaintiff avers that he agreed to this stipulation because defendants' counsel represented to him that the improvements covered by the patents could not be produced at a profit and that the defendants desired to have no further interest in the patents, from which plaintiff and his counsel were led to believe that neither the defendants nor their agents would bid for or purchase the same at their own sale.

The patents were sold at an auction on August 17, 1945. Bids reaching a maximum of $4,900 were entered by outside interests. Plaintiff bid $20,000 while defendant corporation, Flexy Carriers, Inc., a corporation controlled by David L. Subin, bid $20,100 and thereby secured the patents. Flexy Carriers, Inc., is a Pennsylvania corporation chartered August 24, 1945, in which defendant, David L. Subin, owns a majority of the stock. The machinery and equipment of Hosiery Patents, Inc. were sold at public auction on October 18 and November 15, 1945 under conditions approved by the plaintiff. A portion of the machinery was purchased by David Subin while the remainder was sold to outside interests.

In addition to the foregoing, the bill avers that the price of $20,100 paid for the patents by Flexy Carriers, Inc., is a grossly inadequate one and that the corporation, Flexy Carriers, Inc., has been formed and is controlled by the defendant, David L. Subin, and is operating and conducting the same business formerly conducted by Hosiery Patents, Inc., upon the same premises formerly used by Hosiery Patents, Inc., at Fifth and Maple Streets, Lansdale, Pa. The bill also states that the machinery and equipment of Hosiery Patents, Inc., as set forth in Exhibit C, were thereupon sold at public auction on October 18, 1945, and the defendants have refused to disclose to the plaintiff the amounts paid for the same and the names of the purchasers. Plaintiff "believes and avers that a substantial part of the machinery and equipment was sold to the defendants or their agents or nominees for a grossly inadequate price." On November 15, 1945, other parts of machinery, as set forth in Exhibit D, were sold at public auction and the defendants refused to disclose to the plaintiff the amounts paid for them and the name of the purchasers. The plaintiff avers that a substantial part thereof was sold to the defendants or to their agents or nominees at a grossly inadequate price, and that the acts of the defendants, David L. Subin, Benjamin Subin and Emanuel A. Lerman, in selling the assets, including the patents, were a fraud upon the corporation, Hosiery Patents, Inc., and upon the plaintiff as a minority stockholder therein, and that the acts of the defendants, David L. Subin, Benjamin Subin and Emanuel A. Lerman, were planned, devised and executed for the purpose of effecting a confiscation of all the corporation's assets for the individual use, benefit and wrongful profit of the defendants, David L. Subin, Benjamin Subin and Emanuel A. Lerman, who, as officers and directors of Hosiery Patents, Inc., stood in a fiduciary relationship thereto.

The bill prays that the sale of the patents by Hosiery Patents, Inc. to Flexy Carriers, Inc., on August 17, 1945, be set aside and declared void; that the defendant, Hosiery Patents, Inc., be compelled to make a full disclosure of the names of the purchasers of its machinery and equipment and the amounts paid therefor at the sale on October 18, 1945, and at the sale on November 15, 1945, as the property of the Arcadia Hosiery Company, and that the sale of so much as may have been purchased by any of the defendants or their agents or nominees, or which has subsequently been transferred to any of the defendants, be set aside and declared void; that the defendants, Flexy Carriers, Inc., David L. Subin, Benjamin Subin and Emanuel Lerman be decreed constructive trustees for Hosiery Patents, Inc., with respect to the profits derived from any or all property or assets obtained from Hosiery Patents, Inc., and that they be compelled to account for such profits; that they, their agents, servants and employees, be enjoined from using in any manner the patents, machinery, equipment and other assets and property of Hosiery Patents, Inc., including the name "Flexy Carriers." That Flexy Carriers, Inc., be enjoined from selling or leasing any of the patents, and from manufacturing, selling or leasing any machinery, equipment, parts or other articles covered by the patents. That the defendants make full discovery of all matters herein charged and that a receiver be appointed to take immediate possession of all books, records, money, choses in action, patents, machinery, equipment, and all other property and assets of Hosiery Patents, Inc., for the benefit of the plaintiff and all other parties in interest. "Further relief" is also prayed for.

The court below in its opinion said, inter alia: "Under the Act of 1933, P.L. 364, section 1102, the corporation had the right to dissolve and the plaintiff does not question the legality of the proceedings to dissolve except to allege generally that such action was a fraud upon the plaintiff and done with the intent to deprive him of his patents. However, the exercise by a corporation in a legal manner of rights given to it under a statute, cannot be said to be fraud." This statement is an over-simplification of the question involved. Courts have often held that an act which by itself may be entirely legal yet, if it is part of a scheme whose object is the invasion of another's right, it may be enjoined. Sometimes an act takes its character from its motive, for example, the act of an insolvent debtor in conveying away his property.

It is true that section 1102 of the Act of 1933, 15 PS 2852-1102 referred to provides that, "Any business corporation which has commenced business and which has issued shares may elect to dissolve voluntarily, and wind up its affairs, by a written agreement signed by all the shareholders of record of the corporation consenting to its dissolution, or after the board of directors shall have adopted a resoltion recommending that the corporation be dissolved voluntarily, and directing that the question of dissolution be submitted to a vote of the shareholders at a meeting which may be either an annual meeting of the shareholders, or a special meeting of the shareholders entitled to vote on the question.... The resolution shall be declared adopted upon receiving the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on the resolution...." But it is equally true that section 408 of Article IV, 15 PS 2852-408, of this same act, provides as follows: "Officers and directors shall be deemed to stand in a fiduciary relation to the corporation, and shall discharge the duties of their respective positions in good faith and with that diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in their...