33 Barb. 578 | N.Y. Sup. Ct. | 1861
“ I think the sale and transfer by the four directors, Judson, Ropes, Horton and Henry B. Goodyear, to Poppenhusen, Konig and Funcke, of the entire prop
The corporation, as originally organized, in May, 1852, with a capital of $25,000, composed of 1000 shares of $25 each, was called the Beacon Dam Company, and would appear to have been organized for the object and purpose of building and maintaining a water power on the Naugatuck river, in Connecticut, and for carrying on a manufacturing business generally. The name was subsequently changed to “ American Hard Rubber Company," and in January, 1853, the capital stock was increased from 1000 shares of $25 each, to 4000 shares of $25 each; the plaintiff subscribing for and taking the 3000 additional shares, retaining 1000 of them, and distributing the other 2000 among different parties. This increase of capital stock took place solely with reference to the business of manufacturing India rubber goods under the Goodyear’s patents, and all the stockholders agreed, from that time, to enter upon and prosecute exclusively the business of manufacturing articles of the patented compounds of India rubber; and from that time until the sale by the directors to Poppenhusen, Konigand Funcke, in February, 1860,
I think, therefore, that, as between these parties, and for the purposes of this decision, I must consider the sole and only object and purpose for which the company was organized, the business which it carried on, and which the directors who made the sale were elected to direct and manage, to have been the manufacturing and selling of goods or articles of India rubber, or of one or more of its compounds, under the Goodyear’s patent. That being so, I think the sale in question was void as to the plaintiff and other stockholders not consenting, because its effect was, and must necessarily have been, to discontinue all business of the corporation; in effect, to dissolve it ’ and I must presume, on the conceded facts of this case, that the parties to the sale knew or anticipated that such would be the effect and consequences of the sale. The directors sell in one lump not only all the stock of the corporation, manufactured and unmanufactured, but all rights of the corporation under the patent to manufacture any more, and all its property of every description, except the water pówer and real estate, with its machinery and fixtures, in Connecticut, which they at the same time lease to Poppenhusen and Konig for one year; thus, by this sale, discontinuing or destroying all business of the corporation for a term at léast; and by the sale of the patent rights or of the corporation’s right to manufacture under the patent rights, for ever putting it out of his power, without repurchasing the right to do so, to further prosecute the only object, and purpose, and business, for which it had been organized and which it had prosecuted; and thus leaving the corporation a mere skeleton, with a name and perhaps legal technical existence by the statute book, but without real life, or business, or usefulness.
I do not think the directors, even with the consent of a majority of the stockholders, had a right as against stockholders not consenting, thus in effect to discontinue its exist
I cite the following authorities as supporting or illustrating the principle on which I hold the sale in question void for want of authority, as to the plaintiff and other stockholders not consenting, assuming it to have been made by a majority of the stockholders: Livingston v. Lynch, (4 John. Ch. 573;) Conro v. Port Henry Iron Company, (12 Barb. 62, 63, dec.;) Ward v. The Sea Ins. Co., (7 Paige, 294;) Hartford and New Haven R. R. Co. v. Croswell, (5 Hill, 384;) In the matter of Niagara Ins. Co., (1 Paige, 259;) Slee v. Bloom, (19 John. 456;) Robbins v. Clay, (33 Maine, 132;) Smith v. Smith, (3 Des. [S. C.] Ch. Rep. 557;) Kean v. Johnson, (1 Stock. 401;) New Orleans, Jackson and Gt. N. R. R. Co. v. Harris, (27 Miss. Rep. 517;) Hare v. Society of Attorneys, (1 Collyer, 370;) Bagshaw v. Eastern Co. R. R. Co., (7 Hare’s Ch. 114;) Bank of Com. v. Bank of Brest, (Harrington’s Ch. [Mich.] 106, 1011;) Town v. Bank of River Raisin, (2 Doug. [Mich.] 530;) Angell & Ames on Corp. §§ 499, 500, 391 et seq.
The sale and transfer in question was not, and did not purport to be, a sale of the property of the corporation for the benefit of its creditors. If the property was sold for its full value, the creditors would have a right to complain, for it was not a sale for money, but for promissory notes, payable at a future day, and although the notes may be good, and the makers abundantly responsible, yet the corporation or its directors had no right to compel the creditors to wait until the notes were paid.
In passing the resolution relied upon by the defendants as ,an authority, by a majority of the stockholders, to make the sale and transfer, it would appear that a majority of shares voted on were voted on by proxy. I must presume, in the absence of any thing to show the contrary, that these proxies were ordinary proxies, given with reference to the transaction of the ordinary legitimate business of the corporation, and
A similar remark may be made as to the' Connecticut statutes referred to by the counsel for the defendants, authorizing a majority of the stockholders to transact business, and not less than three directors to manage the affairs and business of the corporation; these statutes must be presumed to have been intended to apply to the ordinary and legitimate business and affairs of corporations, and not to so extraordinary a proceeding as the sale and transfer in question,
The purchasers cannot be considered Iona fide purchasers for value without notice, for they did not give money or value, but their notes or promises to pay; and I must assume, from the conceded facts of this case, that they knew the purpose and object for which the corporation was organized, and the only business which it had prosecuted; and as they must also be presumed to know the law, I must assume that they knew that directors) with or without the consent of a majority of the stockholders, had no right or authority to make the sale and transfer in question to them.
It is not necessary to pass upon the other two grounds upon which the counsel for the plaintiff insist that the sale was void, to wit, fraud in fact, and as being in contravention of the equitable principle or rule that a trustee cannot directly or indirectly become the purchaser of the trust property for his own benefit; for if the sale in question was void as to the plaintiff, and other stockholders not consenting, on the ground that it was made without their consent or authority, the other two grounds, however well taken, could not make a void thing valid.
The sale being void as to the plaintiff and other stockhold- . efs not consenting, it follows, I think, that the temporary injunction should be continued; and that a receiver is
I shall accordingly continue the injunction, and make a reference to the Hon. William Mitchell to appoint a suitable and proper person as receiver, with the usual powers, and take and approve of the necessary and usual security for the faithful performance of his trust.”
By the Court,
The history of the origin, rise and progress of “ The American Hard Eubber Company,” and of the connection of the plaintiff with it, and of his dealings with and relations to the Goodyears and his other associates in the corporation, and the several patents referred to, is curious and instructive. The facts alleged are all important as bearing upon a question of fraud in fact involved in the case, and which will have to be met, unless the case upon a final hearing shall be disposed of upon the legal questions presented upon the indisputed facts. But upon this appeal, in the view I take of the legal rights of the parties, it will not be necessary to consider the question of actual fraud, and therefore I am relieved from the necessity of examining very critically the various and somewhat complicated and multifarious transactions stated with great detail in the complaint and answer. A very brief statement will suffice to present the questions which I deem essential to consider upon this appeal.
1. The “American Hard Eubber Company” of Connecticut, as distinguished from the “ Beacofi Dam Company,” to
2. Between December, 1850, and February, 1860, mainly through the instrumentality of the plaintiff, the property and corporate franchises of the “Beacon Dam Company” were acquired; the name of the corporation changed, more clearly to indicate the new purpose and object of the corporators; its capital increased from $25,000 to $300,000; valuable and-exclusive rights under the letters patent for making the hard compound of India rubber, including the right to make and vend, and sell to others the right to make and vend the compound, and to use it for the different purposes, and in the manufacture of the various articles for which it is valuable, were secured to the company; large additions were made to the real property and water-privileges of the corporation, and extensive manufactories and shops for making the compound and bringing it into use in every variety of form, and for every variety of purpose, with machinery adapted to the design, were erected and put in op elation.
3. The rights and franchises were acquired, the capital stock of the corporation increased, the additional real estate purchased, and the manufactories erected, and other expensive improvements made, solely for the purpose of making the interests and rights under the letters patent available and profitable to the associates, by manufacturing and using the compound under the patents. Except as connected with the manufacturing and bringing into use the hal’d compound of India rubber, the increased capital cannot be employed, and would not have been subscribed; the real property is, so far as the case shows, comparatively valueless to the company, and not essential to the carrying into execution the original purposes and objects of the “ Beacon Dam Company;" and
' In briefer terms, the increased capital, the additional real estate acquired, and the manufactories and machinery thereon, are valuable with the rights under the letters patent, but of comparatively little, if of any, value without such rights. Without the rights no prudent man would think of investing a dollar in the property and franchises, or looking after or caring for an investment already made, in the hope or expectation of getting any return from it,
4. At the time of the transaction complained of, the plaintiff was a stockholder in the company to the amount of $62,500, a creditor to the amount of $12,500, and under liabilities for the company to a large amount. He was also a trustee or director of the corporation, and had been from an early period in its history, if not from the commencement of the enterprise.
5. The direction of the company was, from June, 1855, committed to seven directors or trustees, of whom, in F ebruary, 1850, the plaintiff and the defendants Judson, Eopes, Horton and Henry B. Goodyear, were five, and by law it required four to constitute a quorum for the transaction of business. On the third day of February, 1860, the four defendants last named met as trustees at the office of Judson, in Hew York; but whether a meeting of the board of trustees had been- adjourned to, or legally called, for that time and at that place, so as to give efficacy to their acts as a board, does not very satisfactorily appear from the allegations of the answer, The four trustees then resolved to sell to the firm of Poppenhusen & Konig, composed of the defendants Poppenhusen, Konig and Funcke, all the personal property, tools, dies, machinery, fixtures, stock manufactured
6. On or after the pinth day of February, 1860, the resolution was carried into effect, and the sale consummated upon the terms mentioned.
7. The resolution was passed and the sale effected without the consent and against the wishes of the plaintiff, and against his protest and remonstrance. His objections were well known to his co-trustees, and there is reason to believe were also known to the purchasers before the consummation of the sale.
8. On the thirteenth day of February, 1860, the defendants Poppenhusen, Konig, Judson, Horton and Ropes associated themselves together, and became incorporated under the general laws of this state, under the name of “The American Hard Rubber Company,” for the manufacture of articles, compounds, goods and substances, composed in whole or in- part of India rubber, &c. &c.; that is, for the same purpose and under the same name as the Connecticut corporation named defendant in this action. The defendants last named were the five trustees named in the certificate of organization.
9. Poppenhusen & Konig immediately transferred to the new corporation all the property, rights and effects transferred to them a few days before by the old corporation.
Upon the undisputed facts of the case, thus fairly but imperfectly stated, the transactions complained of and the sale to Poppenhusen & Konig, cannot be permitted to stand. A bare statement of the case shows as conclusively as an elaborate argument could establish it, that the transfer was "with
1. It was ultra vires. It would be strong evidence of fraudulent intent, under the circumstances, that a bare quorum of the body should undertake, by their acts, so seriously and radically to affect the future of the company and the interests of the stockholders; but waiving that question, and conceding that their acts stand as the acts of the whole board, I am of the opinion they were invalid for want of power. By the transfer, if allowed to- stand, although the corporation still remained in form, with property which might be applied to some lawful purpose, the existence of the corporation was nominal, its substance was taken from it, and its property was valueless; as a “Hard Rubber Company” it had no rights, no .franchises,, and no existence. Its very title was a misnomer and a false pretense. Its stockholders, who had invested largely for' the manufacturing of the hard rubber compound, under patent rights transferred to and vested in the company, have, by the acts of their agents, been deprived of these valuable rights, and of all connection with the manufacturing of rubber; and it will hardly satisfy them or satisfy the law, to say that the name of the corporation is left to them, with a water power and real property which they can, if they so agree, apply to the making of shoe pegs or calico, or any manufactured article other than that for which, and for - which only, they associated together. It needs no expert to testify that machinery and fixtures adapted to the manufacture of the hard rubber compound cannot, to any great extent, be used for any other purpose. Ho matter how we may refine in argument, the fact is patent, that “ The American Hard Rubber Company” was as effectually wound up, and its affairs closed, as practically as could have been done by a dissolution of the company by legal process. In the event of a legal dissolution, the associates could reunite for some other purpose; so now, if this transfer stands, they can, if they can bring their minds together, engage "in some
2. The transfer was a violation of trust and an abuse of the power vested in the directors to manage the affairs of the company, for the benefit of the corporators. As before suggested, I do not propose to consider the question of frauduulent intent orvfraud in fact, involved in the case.
Ho principle is better settled than that a person having a duty to perform for others cannot act in the same matter for his own benefit. A trustee cannot, directly or indirectly, by himself or through the agency of another, become the purchaser of the trust estate. Heither can he purchase an interest in property, and hold it for his own benefit, when, in respect to such property, he has a duty to perform, inconsistent with the character of a purchaser on his own account. (Van Epps v. Van Epps, 9 Paige, 237. Hawley v. Cramer, 4 Cowen, 717. Slade v. Van Vechten, 11 Paige, 21. De Caters v. Le Ray de Chaumont, 3 id. 178.) It requires no authority to establish the fact, that the directors of the “ American Hard Rubber Company” could pot have trans
Clerke, Sutherland and Allen, Justices.]
The order of the court made at the special term should he affirmed, with costs.