251 F. 696 | D. Del. | 1918
This suit was instituted by John .Beitz against the Great Western Read Manufacturing Company, a corporation of Delaware, hereinafter referred to as the company, to obtain, among other things, certain relief touching capital stock of the company claimed by him together with dividends declared thereon. In 1905 the complain ant and some associates acquired a lease of a tract of land containing 104 acres in Jo Daviess County, Illinois, and began prospecting on it for lead and zinc ore. In October, 1908, the lead company was incorporated, with a capital of $500,000, divided into 10,000 shares of the par value of $50 each, and in November, 1908, by action of its hoard of directors and its stockholders the company purchased the above lease by issuing to the complainant and his associates its entire capital stock, full paid and non-assessable. Prior to April 10, 1912, the complainant acquired title to all the shares of the other stockholders, and $36,000 had been spent upon the leased tract, partly in the drilling of test wells to learn whether lead and zinc ore existed on the property, resulting in the discovery that such ore did exist there, hut the limits of the ore deposit had not been definitely ascertained. The complainant had interested George H. Fritch and, Samuel Garrison, two of the defendants, in the property, and an independent investigation had been made by or in behalf of those two defendants which disclosed the existence of a valuable deposit of ore. Finally, April 10, 1912, the complainant, F. E. McGillick, Fritch and Garrison, entered into an agreement, under seal, bearing that date, as follows:
“Memorandum of Agreement, made this 10th day o£ April, A. 1). 1912, between John Beitz, F. E. McGillick, George IT. Fritch and Samuel Garrison,'all or the city of Pittsburgh, Pennsylvania.
Whereas, said Beliz is the owner of all the capital stock of the Great Western Lead. Manufacturing Company, a corporation organized under the laws of the State of Delaware, having its principal office in the town of Dover, in said state, which said corporation holds a lease on certain partially developed ore lands iu Jo Daviess County in the State of Illinois — and whereas, the parties hereto have agreed to further develop said ore lands and, it ore is found in paying quantities, to operate the same, ui>on terms and conditions hereinafter set forth:
“Now this agreement witnesseth — First. That said Beitz shall and will deliver to the treasurer of the corporation all of the capital stock, Second. That of said capital stock, 2,000 shares shall remain in the treasury and be known as treasury stock, to be hereafter sold when and as ordered by the board of directors. Third. Three shares of stock shall be forthwith issued to each o£ the parties hereto, and three shares to M. J. Dain and ,T. MeF. Carpenter, as required by the laws of Delaware — the shares issued to M. J. Dain and J. MeF. Carpenter to be surrendered on request to the other parties hereto. Fourth. 'That when the development work has been completed, and if ore is found sufficient in quantity and quality to justify the erection o£ a mill, the remaining stock shall he issued in equal amounts to each o£ the parties hereto. Fifth. That upon signing this agreement each of the parties hereto shall pay io the treasurer of the corporation the sum o£ two hundred and fifty (v-lídO-OO) dollars, and a like sum, if necessary — -to complete said develop*698 ment work and pay incidental expenses, said payment to be made within 30 days after notice that said sum, or any less sum is necessary to complete said work; it being distinctly understood that failure to make said payment as herein provided be deemed and taken as a surrender and cancellation of all right, title and interest of said defaulting party arising out of this agreement.
“It is further agreed, that if ore is found in paying quantities a mill for the reduction of said ore shall he erected, and that if sufficient stock has not been sold or cannot then he marketed, to pay the cost of constructing said mill, an assessment may be levied upon the stock issued, none of the parties hereto shall sell or pledge his stock or any part thereof, until he shall have offered same to the other parties hereto at such price as the proposed purchaser has offered in good faith to pay.
“The net profits derived from the operations contemplated shall be applied and distributed as follows: First, to the repayment to said parties of the sums severally advanced by them herein provided. Second after said sums have been repaid fifty per cent. (50i%) of the net profits shall then be applied to the repayment of the sum of thirty six thousand ($36,000.00) dollars, which the said Beltz has already expended upon the leased premises above mentioned, and fifty per cent, (50%) shall be applied as dividends upon the stock of the corporation, until said Beltz has been paid in full. It is also agreed, that the parties hereto shall pay, if required, the sum of six hundred ($600.00) dollars in settlement of present debts against said corporation — said Beltz agreeing to pay any additional amount necessary to fully pay said outstanding claims. Said Beltz also agrees to protect his associates against any demands or claims of persons heretofore associated or interested with him in said lease.
“Witness our hands and seals the day and year aforesaid.
“John Beltz. [Seal.]
“F. E. McGillick. [Seal.]
“Geo. H. Fritch. [Seal.]
“S. Garrison. [Seal.]
“Witness: John H. McCloskey.”
The complainant claims that he performed all things necessary to be performed on his part and that all necessary conditions had been complied with to entitle him to the relief he seeks in this suit. He charges that the company has appropriated to itself and refuses to deliver to him one equal fifth part of its capital stock, which fifth part he contends was held for his benefit or in trust for him by it under the terms of the agreement of April 10, 1912; and prays that the company be compelled to deliver to him the said one-fifth part of capital stock under and in accordance with the provisions of that agreement, and also to account to him for any and all dividends which have become payable thereon.
It appears that the complainant in November, 1914, brought a suit in equity in the court of common pleas of Allegheny County, Pennsylvania, against Garrison, McGillick, Eritch and the company, and also H. L. Williams, J-. E. McGinnis and William I. N. Lofland. In that suit the complainant, to use the language employed by the counsel for the defendant, sought to do two things, namely:
“(1) To compel the defendant corporation to pay to the complainant 50% of the net earnings of the company declared in dividends until he had received $36,000, as provided in the contract of April 10, 1912, known as Exhibit B.
“(2) To compel an accounting by the individual defendants with respect to stock and to compel them to deliver to complainant the stock they unjustly withheld from him.”
“After due consideration of all the assignments of error filed by the appellant, and the argument of learned counsel in support of them, we have not been convinced that any of them ought to be sustained, and the decree is, therefore, affirmed at appellant’s, costs on the facts found and the legal conclusions reached by the learned trial judge.”
"T\'o made no finding relative to lieliz’s right to stock, arising out of the agreement testified to by him that he was to receive a salary as superintendent so that we might not make any finding with reference to holding’s of stock, which is a question of internal management.”
It is insisted on behalf of the defendants that the proceedings in .Pennsylvania preclude the granting to the complainant in this suit of relief touching any part of the .subject-matter covered by tlie agreement of April 10, 1912. It is not asserted that the claim now made by him with respect to stock and dividends was passed upon by the Pennsylvania courts, by way either of allowance or disallowance. But it is contended that the two matters touching which relief was there prayed, namely, his right to recover the $36,000, and his right to receive stock and dividends, were practically, for the purposes of suit, one and indivisible, and that those courts, while establishing his right as to the $36,000, having failed to act upon his claim to stock and dividends, it is impossible to sustain in this suit any claim in that behalf. But neither the court of common pleas nor the supreme court of Pennsylvania regarded the two claims strictly as indivisible or inseparable; for, though both were disclosed in the pleadings, favorable action was taken upon one of them, while the other was simply ignored as involving a question of internal administration of a foreign corporation as to which there was lack of jurisdiction. On the part of the defend-' ants attention is drawn to the fact that in the Pennsylvania suit the
“The plaintiff withdrew that part of his case, and we have not considered or adjudicated it.”
Consequently the complainant brought the present suit. Under these circumstances a decision by this court sitting in equity that the complainant is by reason of the proceedings in Pennsylvania barred or precluded from enforcing here whatever claim he has to stock of the company and dividends thereon under and by virtue of the agreement of April 10, T912, would fall little short of a travesty upon the administration of justice. Further, there is no inflexible, cast iron rule in equity against the splitting of demands. It may be done under special circumstances to avoid injustice; and this case presents such circumstances.
The question is now presented whether the complainant did not become entitled under and by virtue of the agreement of April 10, 1912,
“The important question is whether the corporation is bound by the ierras of the contract. At the moment when it was signed the 1’oar individuals could not bind the corporation but, having settled the terms upon which the property was to be operated they immediately took their places in the corporation, through which the contract was to be performed, and being- all of the directors (except one nominal director) and all of the stockholders, the contract was carried out so far as it could be done, that is, the corporation purchased Beltz’s stock and the four individuals paid into the treasury the agreed price. It was one transaction. It was for the benefit of the corporation. It was without funds and had no assets, except the property, and could not raise any money. The stgck which Beltz delivered was ultimately sold for $23,525. The fact that the capital was later decreased and then increased does not affect this conclusion. 15 0 =>• The promise to pay was not renewed after Garrison and Ifriteh became directors and. did not appear upon the minutes, but the transfers of stock were upon the records of the company. The adoption of a contract may be inferred from acts done, although no resolution is passed. Bagaley v. Iron Co., 146 Pa. 478 [28 Atl. 837]. The company received the benefits and cannot be relieved of the burden. The principle upon which a corporation is held liable for the acts of it« promoters is, that it cannot receive benefits without assuming the burdens: Bell's Gap R. R. Co. v. Christy, 79 Pa. 54 [21 Am. Rep. 39]; Girard v. Case Co., 225 Pa. 327 [74 Atl. 201]. There is more reason for applying this to a contract by individuals about to become the directors and the holders of all of the stock of a corporation in existence than there is for applying it to a case of promoters.”
f 3] The bill in this case was originally brought only against the company, but, March 14, 1917, before final hearing, by leave of the court, Garrison, Williams, McGinness and Pritch intervened as co-defendants with the company, the four intervenors together with ihe company being parties defendant in the suit brought by the complainant in the .Pennsylvania court of common pleas. The defendants in this suit are concluded by the decision in Pennsylvania on the question of the binding force of the contract upon the company.
The agreement of April 10, 1912, provides that:
“Said Beltz shall and will deliver to the Treasurer of the corporation all of the capital stock.”
The defendants claim that he never owned and never delivered to the company all of the shares of its capital stock. The court of common pleas found as a fact that:
“Soon after April 23, 1913, Beltz assigned and delivered to the treasurer of the corporation for cancellation all of the stock called for by the contract.”
The agreement did not limit the time within which the stock should be delivered. The court of common pleas in. its opinion on exceptions said:
“Beltz was to deliver to the treasurer all of the stock, and he did so.”
“The agreement of April 10th, 1912, was- abandoned and abrogated, and the agreement as to starting anew on the basis of a capital of $10,000 and getting in new men, and more money, was substituted.”
The court in its opinion on exceptions said:
“Beltz was to deliver to the treasurer all of the stock, and he did so. 2,000 shares, or one-fifth, were to be treasury stock to be sold. The capital was reduced to $10,000, and there was sold to Williams- and McGinness $2,000, or one-fifth. If ore is found sufficient to justify a mill, the remaining four-fifths of the stock were to be divided. If sufficient stock has not been sold to erect a mill, an assessment may be levied. An assessment, as such, was not made, but each of the four subscribed for $1,000 of stock. This was a substantial compliance with the plan outlined in the contract. The reduction in the capital was not a departure, as the proportionate interests remained the same. The contract made no provision for raising additional capital except by assessment. The sale of stock and the increase in capital found in the eighth finding, are not a departure from the spirit of the contract and do not indicate an abandonment. The agreement made, when the parties subscribed to $1,000 stock (seventh finding) that they were to receive credit for the amount paid in under Exhibit B is more consistent with its continued existence than with an abandonment.”"
The defendants further claim that the agreement of April 10, 1912, was abandoned January 2, 1913, and a new agreement entered into by the parties. In the answer it is alleged that on the latter date a new agreement essentially different from the original was entered into by Garrison, Fritch, McGillick and Beltz, consisting of the earlier agreement subject to a marginal modification, as follows:
“Pittsburgh, Jany. 2nd, 1913.
“We and each of us hereby agree that we will return to the treasury of the Great Western Lead Mfg. Co. out of the two thousand (2,000) shares of stock in said Co. allotted under this agreement to each of us the amount of twelve hundred (1,200) shares, to be sold so as to bring the treasury the sum of six thousand ($6,000) dollars. We also agree that each of us will pay in addition to the six hundred and fifty dollars already paid in by us the sum of three hundred and fifty ($350) dollars.”
With respect to this marginal modification the court of common pleas in its findings of fact said:
*703 “On January 2, 1913, they executed a.n amendment, to the contract, Exhibit B, that they would return to the treasurer of the corporation out of the 2,000 shares of the stock allotted to each of lliem 1200 shares to be sold so as to bring the treasury stock to the amount of $6,000 and agreed that they would paj in addition to the $650 already paid in by them the sum of $350. This agreement was not performed and was abandoned.”
In the answer it is alleged:
“A new agreement was entered into by said Garrison, Friteh, McGillick and Beltz, the complainant, sometime in February or the first part of March, 1913. by which it was provided that the agreement as made January 2, 1913, * * * was abrogated and rescinded.”
The specific findings in the Pennsylvania suit that “the corporation is -bound by the contract, Exhibit B,” and that “the subsequent modifications in the distribution and sale of stock is not an abandonment” are a sufficient answer to the claim of abandonment, abrogation or rescission now made by the defendants.
“We made no finding relative to Beltz’s right to'stock, arising out of the agreement, testified to by him, and that ho was to receive a salary as superintendent, so that we might not make any finding with reference'to holdings of stock, which is a question of internal management.”
In the agreement of April 10, 1912, it was provided that upon signing it each of the parties thereto should pay to the treasurer of the company $250, and also a further like sum “if necessary to complete said development work and pay incidental expenses, said payment to he made within 30 days after notice that said sum, or any less sum, is necessary to complete said work.” And it was further provided, that failure to make such payment, should he “deemed and taken as a surrender and cancellation of all light, title and interest of said defaulting party arising out of this agreement.” It was further provided “that if ore is found in paying quantities a mill for the reduction of said ore shall he erected, and that if sufficient stock has not been sold or cannot then be marketed, to pay the cost of constructing said mill, an assessment may be levied upon the stock issued;” and further, that “none of the parties hereto shall sell or pledge his stock or any part thereof, until he shall have offered same to the other parties hereto at such price as the proposed purchaser has offered in good faith to pay.” It was also further provided that “when the develop
“We are willing to dó anything we can to help and we are not asking yon to contribute to the money that we have to raise here,” etc. °
Both the weight of the evidence and the probabilities of the case support the conclusion that the complainant was to receive from the company as superintendent a salary of $125 a month, and was also to be credited for any outlays or expenses made or incurred by him in that capacity. His duties as superintendent clearly were not embraced among those he owed as director. I shall not undertake to enter by way of discussion into the labyrinth of details involved in the ascertainment of the amount to which the complainant became entitled as a credit upon the part or proportion of stock he might have a right to claim under' the agreement of April 10, 1912, by reason of his services as superintendent and his outlay of moneys while acting in that capacity. I am satisfied by the evidence, oral and documentary, direct and circumstantial, that such amount is, as claimed by the complainant, $3,195.92, of which $1,375 consisted of his salary for eleven months.
The defendants further contend that pursuant to various resolutions of the directors and stockholders of the company its shares of stock
The prime cause of difficulty’'in this case was the wrongful departure by the defendant and its directors from an observance of the plain and unmistakable provisions of the contract of April 10, 1912. This action on their part necessarily introduced into the case confusion and complication and has resulted in an adoption by them of an arbitrary and oppressive course toward the complainant.
A decree in accordance with this opinion may be prepared and submitted.
