Wheeler v. Abilene Nat. Bank Bldg. Co.

• Decision Date: 14 March 1908
• Docket Number: 2,602.
• Citation: 159 F. 391
• Parties: WHEELER et al. v. ABILENE NAT. BANK BLDG. CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

159 F. 391

WHEELER et al. v. ABILENE NAT. BANK BLDG. CO. et al.

No. 2,602.

United States Court of Appeals, Eighth Circuit.

March 14, 1908

Syllabus by the Court.

The holder of a majority of the stock of a corporation stands in a fiduciary relation to the holders of the minority of the stock, because he has a community of interest with them in the same property, and because they can act and contract in relation to the corporate property only through him.

The power of a single holder of a majority of the stock of a corporation devolves upon him the correlative duty to the holders of the minority of the stock to exercise good faith care, and diligence to make the corporate property produce the largest possible amount, to protect the interests of the minority stockholders, and to secure and deliver to them their just proportion of the income and of the proceeds of the property.

Any sale of the corporate property by a single holder of the majority of the stock by the use of the meetings of the board of directors and the meetings of the stockholders in legal form for its fair value, but for a smaller amount than he could have obtained for it from another, is voidable at the election of the minority stockholders.

Such a sale is voidable, not void; and a court of equity may condition its decree of avoidance by a requirement that the complainant shall bid and deposit an amount equal to the amount paid at the sale and the expenses of a master's sale, to be applied in payment for the property in case no one bids more, or in case the depositor is the highest bidder.

The holder of the majority of the stock of a corporation was its president, its creditor, and one of its board of directors. The four other members of the board were qualified by his transfer of one share of stock to each. After one of the holders of a minority of the stock had offered him $3,500 for the property of the corporation, and had notified the secretary that he desired to bid for it, that property was sold to the owner of the majority of the stock for $2,500 which was its fair value, by means of regular action of the meeting of the directors and of the meeting of the stockholders, at which the purchaser's stock was voted for the sale.

Held the sale was voidable at the election of the minority stockholders.

The master's finding of facts upon evidence taken before him cannot be impeached, in the absence from the record of his certificate, or other competent proof, either that the evidence presented is the entire evidence that was before him, or that it was all the evidence which was before him, relative to the specific finding or findings challenged.

Ross B. Gilluly and Elijah Robinson (William H. England and Arthur E. Lybolt, on the brief), for appellants.

G. W. Hurd (H. Southworth and J. H. Austin, on the brief), for appellees.

Before SANBORN, HOOK, and ADAMS, Circuit Judges.

SANBORN Circuit Judge.

Two holders of the minority of the stock of the Abilene National Bank Building Company, a corporation, brought a suit in the court below to avoid a sale of all the property of the corporation to Hiland Southworth, who was the president of the corporation, its creditor, one of its board of directors, and the holder of the majority of its stock. After the issues had been joined the case was referred to a master to find the facts. He found them, exceptions to his finding were filed and overruled, and the court dismissed the bill. A portion of the testimony taken before the master appears to be printed in the transcript of the record before us, but no order of the court below that the master should return into court the evidence he obtained, and no certificate of the master that he has done so, or that the record contains that evidence, or a correct transcript of it, can be found. For this reason, and because the facts essential to a determination of the case appear on the face of the master's finding, the exceptions to his report and the evidence printed will not be farther noticed. A master's finding of facts upon evidence taken by him cannot be impeached, in the absence from the record of his certificate, or other competent proof, either that the evidence presented is the entire evidence taken by him, or that it contains all the evidence which was before him relative to the specific finding or findings challenged. Sheffield, etc., Ry. Co. v. Gordon, 151 U.S. 285, 293, 14 Sup.Ct. 343, 38 L.Ed. 164; Greene v. Bishop, 1 Cliff. 186, Fed. Cas. No. 5,763; Donnell v. Columbian Ins. Co., Fed. Cas. No. 3,987; McCourt v. Singers-Bigger, 145 F. 103, 112, 76 C.C.A. 73, 82; Scotten v. Sutter, 37 Mich. 526; Nay v. Byers, 13 Ind. 412; Fellenzer v. Van Valzah, 95 Ind. 128.

The following facts appear from the pleadings and the finding of the master: The only property of the corporation was a lot and building in Abilene, which was sold to Southworth, the holder of the majority of the stock of the company, in June, 1904. The fair value of this property was $2,500. The corporation had power to buy, sell, and deal in real estate, and it had issued 173 shares of stock. The complainants, who lived in the state of Vermont, owned 46 shares. The defendant Southworth, who resided in Abilene, in the state of Kansas, owned 101 shares. The defendants Humphrey, Malott, Ella M. Southworth, the wife of Southworth, and Stella Duckworth, his stenographer, held 1 share each which Southworth had transferred to them to qualify them to act as directors. Southworth was the president. Stella Duckworth was the secretary. Southworth, Mrs. Southworth, Stella Duckworth, Humphrey, and Malott constituted the board of directors. The corporation owed Southworth, but its property was of greater value than the amount of its debts. Malott and Humphrey inquired, and found that $2,500 was a fair price for the property, and the board sold and the corporation conveyed it to Southworth for that amount, paid the debts of the corporation, declared a dividend on its stock, and remitted the proper amount to each stockholder; but the complainants refused to accept their dividends. In July, 1904, Wheeler, one of the complainants, objected to this sale and told Southworth he would give $3,500 for the property. In August, 1904, Southworth and wife conveyed the lot and building to the corporation. On August 29, 1904, Wheeler sent a letter to Stella Duckworth, the secretary of the corporation, which she received, wherein he wrote that if the property was offered for sale he desired an opportunity to bid upon it; but this letter was never brought to the attention of any meeting of the stockholders or of any meeting of the directors. On November 10, 1904, the board of directors accepted the reconveyance of the property. Malott said he had made diligent inquiry regarding its value, and that he could find no one who would place a higher value than $2,500 upon it. Southworth offered $2,500, the board unanimously voted to sell it to him for that price, and the corporation again conveyed it to him. Legal notice that there would be an annual meeting of the stockholders on December 6, 1904, to elect a board of directors and to transact such other business as might come before the meeting, was given. There were present at that meeting Hurd, Humphrey, Malott, Stella Duckworth, and Southworth, who together represented 111 shares of stock, and they voted unanimously to confirm the sale to Southworth for $2,500. Southworth and the other directors acted in good faith. Upon these facts the court below dismissed the bill, and the complainants appealed.

The question which this case presents is: May the holder of the majority of the stock of a corporation make a sale to himself, unassailable in equity, of all the property of the corporation for its fair value, when he knows that that value is only five-sevenths of the amount which the corporation can obtain for it. It is not material to the determination of this issue whether the notice of the stockholders' meeting specified, or failed to state, that the question of the confirmation of the sale to Southworth...