26 Del. Ch. 69 | New York Court of Chancery | 1941
The complainants seek a decree against the defendants for the payment of $1,176,765.16, with interest. The amount claimed to be due is made up of numerous items, with interest from various dates, mostly in April and May of 1928. The case grows out of certain alleged transactions between the Vicksburg Bridge & Terminal Company and the defendants at a time when Byllesby & Company is alleged to have occupied the position of a promoter toward the Bridge Company, and to have controlled its actions through nominees on its corporate board. All of these transactions are alleged to have been grossly unfair
Through the efforts of one Harry E. Bovay, Congress granted to an Arkansas corporation a franchise to erect a bridge across the Mississippi River, at Vicksburg, Mississippi, to a designated point in the State of Louisiana. Bovay was the president of the Arkansas corporation, and owned all of its capital stock. He subsequently interested the defendants in financing the construction of the proposed bridge, and, as the result of a series of agreements and subsequent modifications thereof, the franchise was finally transferred by the Arkansas corporation to the Vicksburg Bridge & Terminal Company of Delaware. By the various agreements and subsequent modifications thereof, Bovay ultimately received one-third of the stock issued by the Delaware corporation and $123,666.00 in cash; of which sum $23,-666.00 was to cover certain promotional expenses. The whole of this sum was paid to Bovay in the first instance either by Byllesby & Company or by Federal Securities Corporation, but later the Bridge & Terminal Company reimbursed Byllesby & Company for the amount so paid.
Pursuant to contract, and as a part of the transaction accompanying the assignment of the bridge franchise, the defendants, on the other hand, agreed to purchase for $6,-299,000.00 in cash, $7,000,000.00, principal amount of the bonds and debentures issued by the Delaware corporation and the remaining two-thirds of its stock. Under one of the prior agreements, it had been provided that the stock of' the Bridge & Terminal Company should be issued in such manner that Bovay’s one-third part would have sixty percent of the voting power; but, by a subsequent agreement, he relinquished that special right, and only one class of
On April 3rd, 1928, a contract dated March 1st of that year was also entered into between the Bridge Corporation and the Chicago Bank which provided precisely how the fund so deposited should be disbursed. Bovay, though a director of the corporation, was not present at that meeting. The other directors present were all employees of, and are alleged to have been under the control of the defendants, or of one of them. It seems, however, that Federal Securities Corporation was more or less subject to the control of Byllesby & Company, its more active associate, and in fact retired from business in June of 1929.
The bill also alleges that the amount paid by the defendants to the Bridge Corporation represented ninety percent of the face value of the bonds and debentures purchased; that nothing was paid for the stock issued to the defendants, though it had been previously valued by the corporation at $5.00 per share; that the sum of $123,666.00 paid to Bovay, when he relinquished his right to sixty percent of the voting power of the corporation, should have been paid by the defendants, or by one of them, and not from the funds of the Vicksburg Bridge & Terminal Company of Delaware ; and that the various amounts disbursed, under the authority of the disbursement agreement, should not have been paid out of corporate funds.
1. April 12th, 1928—$700,000 alleged to be discount on the bonds and debentures of the Vicksburg Bridge & Terminal Company of Delaware, purchased by the defendants from that corporation at ninety percent of their face value.
2. April 12th, 1928—$123,666.00, paid by one of the defendants to Bovay to secure control of the Delaware corporation, and which was repaid to Byllesby & Company from the funds of the Bridge & Terminal Company.
3. April 12th, 1928—$199,000.00, being the alleged fixed value of 39,800 shares of no par stock of the Bridge & Terminal Company; the certificates for which were issued to the defendants, and which sum represented the value of that stock at $5.00 per share.
4. May 1st, 1928—$22,644.38, reimbursement of promotion and preorganization expenses incurred by said defendants, and consisting of salaries and expenses paid to Bovay and McCuing under the agreement of June 7th, 1926.
5. May 1st, 1928—$1,051.09, for traveling expenses of representatives of the defendants prior to the organization of the Delaware corporation, but in connection with the bridge project.
6. May 1st, 1928—$11,543.33, expended by the defendants, prior to the organization of the corporation, for highway and railway traffic reports for their own use and benefit in the investigation of the proposed bridge project, and in subsequently marketing the said securities.
7. May 1st, 1928—$27,225.53, paid to defendants to reimburse them for legal opinions on, and approval of, the
8. May 1st, 1928—$18,301.67, to reimburse the defendants for expenditures made in connection with the project for the possible construction of a bridge at Natchez, Mississippi, and in no way connected with the business of the Vicksburg Bridge & Terminal Company.
9. $10,833.16, paid to Byllesby & Company on the representation that the same was due William G. Pohl, secretary-treasurer of the corporation, and an employee of Byllesby & Company, as a salary for his services at the rate of $416.66 per month, for the months beginning with March 28th, 1928; such salary was never fixed by corporate authority, and, as a matter of fact, was never received by the said Pohl, but was appropriated by Byllesby & Company to its own use.
10. $5,250.00, representing checks drawn for various corporate salaries, for several months, beginning about February or March, 1931, fixed by appropriate corporate action, but which were endorsed by the payees therein, and delivered to Byllesby & Company, and cashed by it. All of these persons were also employees of the defendants, or one of them.
11. $7,250.00, representing monthly checks of the corporation, for several months beginning with and subsequent to September 1st, 1932, drawn to the order of Mord M. Bogie, as chairman of the financial adjustment committee, and also an employee of Byllesby & Company, which checks were, however, turned over to that company, and cashed by it.
12. May -1st, 1928—$50,000.00, paid to Byllesby & Company to reimburse it for alleged further expenses incurred in the promotion and preorganization activities of the Bridge Corporation, and in marketing its securities.
The defendants point out that Section 4367 of the Revised Code of 1935, in part, provides:
«* * * that the Chancellor shall not have power to determine any matter wherein sufficient remedy may be had by common law or statute, before any other Court, or jurisdiction, of this State; but that where matters, determinable at common law, shall be brought before him in equity, he shall remit the parties to the common law; * *
But that statutory provision is merely declaratory of the old English equity practice. Kahn v. Orenstein, 12 Del. Ch. 344, 114 A. 165. The fact that none of the cases cited by the court in Bovay, et al., v. H. M. Byllesby & Co., supra, involve similar statutory provisions would, therefore, seem to be a matter of no moment.
Ordinarily, though a fraud has been perpetrated on a corporation by persons occupying a fiduciary relation toward it, if all of its stockholders consented to the transaction, with full knowledge of the facts, the corporate right cannot be enforced. Old Dominion Copper, etc., Co. v. Lewisohn, 210 U.S. 206, 28 S. Ct. 634, 52 L. Ed. 1025; Henderson, et al., v. Plymouth Oil Co., 16 Del. Ch. 347, 141 A. 197; Bovay, et al., v. H. M. Byllesby & Co., supra. This is- because in equity the stockholders of a corporation are ordinarily its real owners. But a somewhat different situation may arise when the corporation is insolvent. There creditors, rather than stockholders, are primarily interested in its assets.
Nor are the complainants’ rights as representatives of creditors of the bankrupt corporation barred by loches, either before or after the appointment of the receiver. The rules governing loches were considered at some length in the opinion filed at a prior stage of this case. Bovay, et al., v. H. M. Byllesby & Co., supra. That defense is based on the elementary rule that “he who seeks equity must do equity.” Ordinarily, therefore, mere delay in asserting even a known right does not constitute loches. Some change in position to the disadvantage of another is essential. Statutes of limitations as such, are not binding on a court of equity. But when there is a concurrent remedy at law, in the absence of unusual circumstances, the analogous statutory period is frequently, and perhaps usually, applied in determining whether the complainant has been guilty of such unreasonable and prejudicial delay in bringing suit as to prevent any possible recovery. See Bush v. Hillman Land Co., 22 Del. Ch. 374, 2 A. 2d 133; Wright v. Scotten, 13 Del. Ch. 402, 121 A. 69, 31 A. L. R. 1162; 4 Pomeroy’s Eq. Juris. (4th Ed.) § 1441. In such cases, when a longer delay appears, prejudice is usually presumed (Bovay, et al., v. H. M. Byllesby & Co., supra; 4 Pomeroy’s Eq. Jur., §§ 1441, 1457) ; but the application of the general rule necessarily depends on the particular circumstances. Bay Newfoundland Co. v. Wilson & Co., 24 Del. Ch. 30, 4 A. 2d 668; Wright v. Scotten, 13 Del. Ch. 402, 121 A. 69, 31 A. L. R. 1162; Bovay, et al., v.
The most important of the transactions complained of occurred in 1928, though some were in, and several months after, March of 1931 and September of 1932. The complainants were appointed receivers of the corporation January 30th, 1934, and this suit was brought February 1st, 1939. The payments of interest on the debentures and bonds did not cease until March of 1932 and September of 1933, respectively. Until then creditors neither knew, nor had reason to suspect, that any such fraud as is alleged had been committed on them by the defendants. Bovay, et al., v. H. M. Byllesby & Co., supra. Bovay, though one of the complainants in the action, is merely acting in a representative capacity; and conceding that he knew all of the facts at a much earlier date, his knowledge could not be imputed to creditors.
On March 1st, 1934, or one month after their appointment, the receivers applied to the court for authority to bring suit against the defendants “upon one or more of the items covered by the present action”; and also requested that an audit of'the books of the corporation be made. The audit was authorized, but no authority was given to bring suit. A financial adjustment committee and a bondholders protective committee, organized by Byllesby & Company, and of which Shinners, one of its officers, was chairman, intervened in the receivership proceedings. On motion of these committees, the order of the court of March 1st, 1934, directing an audit was suspended. An auditor was, however, finally appointed in August of 1934, but his report was not filed until November of that year. The receivers were harrassed and delayed in bringing suit against the defendants by litigation fomented by them which subsequently caused reorganization proceedings in the bankruptcy court.
A reorganization plan was finally prepared by one, or both, of the Shinners’ committees, and presented to the court in December of 1937. In subsequent decrees of the court, dated March 30th and May 3rd, 1938, the reorganization plan was finally approved, though jurisdiction was reserved “to determine whether or not to permit and direct the trustees of the debtor to institute action against H. M. Byllesby & Company and/or Federal Securities Corporation * * * and if such suit is brought, to control and supervise the conduct of the trustees of the Debtor therein.”
Shinners, the vice-president of H. M. Byllesby & Company and chairman of the bondholders committee,- which had participated in both the receivership proceedings and the subsequent reorganization proceedings, “was at all times aware that the receivers, and later their successors, the trustees, contemplated institution of the action when, as and if authorized to do so by the Court which appointed them.”
Moreover, the amended bill alleges:
“Upon information and belief, that there has been no change of position on the part of either of the defendants herein, pending the delay in bringing suit, and neither has suffered any prejudice by reason of any such delay.
“Alternatively, any change of position by either defendant herein was made with full notice and knowledge on its part that suit was contemplated and was likely to be instituted to procure the relief prayed for in this suit.”
In view of the facts alleged, it would be unfair to creditors of the corporation to apply the analogous statutory period of limitations, governing actions at law, in determining whether the complainants are guilty of loches in this case. The apparent delay in bringing suit was caused by a variety of circumstances, over which the complainants had
For these reasons, the demurrer to the complainants’ amended bill is overruled. An order will be entered accordingly.