184 A. 258 | Pa. | 1936
Argued March 23, 1936. Defendants appeal from an order appointing a temporary receiver for a solvent business corporation, Gum, Incorporated. The appointment was made after preliminary hearing on a bill,1 filed by a shareholder owning one-half the capital stock, alleging a conspiracy on the part of defendants2 to conduct the affairs of the corporation in their own, instead of the corporate, interest.
The plaintiff, J. Warren Bowman, on and prior to December, 1930, trading as By-Gum Company, was engaged in the manufacture and sale of chewing gum. The insoluble chewing gum base, or principal ingredient used in manufacturing his product, he purchased from one of the defendants, Sweets Laboratories, Incorporated, hereafter called Sweet. On December 3, 1930, a somewhat informal agreement in writing was signed by the plaintiff, and by Franklin V. Canning, acting on behalf of Sweet, the effect of which was that for $15,000, paid by Sweet, it became the owner of a half interest in the business theretofore conducted by Bowman, with the understanding that the enterprise should be incorporated, each interest to receive one-half the capital stock; it was also agreed that the new company would execute obligations and deliver them to Sweet for money then owed for material purchased by Bowman. They agreed *519 that each interest should have equal representation on the board of directors. Instead of incorporating immediately, the business appears to have been conducted informally until May, 1932, when the contemplated corporation was formed and the business transferred. The name of the corporation is Gum, Incorporated, hereafter called Gum. It took over the business May 15, 1932, with a capital contribution by plaintiff of $2,826.52 and by Sweet of $15,000. At that time the corporation assumed the indebtedness of By-Gum to Sweet in a sum in excess of $70,000, incurred, as Mr. Bowman testified, for "money advanced by Sweet for the use of the business." The plaintiff was made president of the company and he and his wife were elected directors. At the same time, on behalf of Sweet, Messrs. Barker and Ryan were elected directors. For each year from 1932 to the time the bill was filed, the business increased and became very profitable. By the consent of both interests in January, 1935, the number of directors was increased to six.
The bill avers and the evidence shows that at a corporate meeting held June 7, 1932, it was provided that all the chewing gum base to be used by Gum should be purchased from Sweet.3 Pursuant thereto, Gum purchased its base from Sweet. The bill also avers and the answer admits that, as of December 31, 1935, the assets of Gum "(after full allowance for depreciation, obsolescense, bad debts and losses) was the sum of $261,293.68 as against total liabilities of $100,290.34" and that, of the liabilities, $86,059 was due to Sweet. It also appears that $56,000 of that indebtedness is represented by a demand note for part of the account assumed by Gum at the time of the organization in 1932. Defendant, Sweet, from time to time demanded payment of Gum's debt, but the plaintiff, Bowman, as president and *520 in charge of the operations of Gum, was of opinion that the corporation was unable to pay. By the end of 1935 Mr. Bowman thought "a better chewing gum base was available from another manufacturer at a cost of 20 1/4, cents per pound" instead of 34 cents then being paid to Sweet; the price was reduced to 34 cents from 36 cents in November, 1935, as we understand the record. Bowman began experimenting with other bases; Sweet objected to the experiments. The ground of objection was the threat to Sweet's outlet for the sale of base manufactured by it. These differences between the two interests — the nonpayment of Gum's debt and the threat to Sweet's market — seem to be the ostensible causes of this litigation.
We have, then, a solvent corporation conducting a manufacturing business that has been very successful. Half the shares are held by the plaintiff and half by Sweet. If each half-interest continues to oppose the other, the business will of course stop. It has been said that such corporations may be regarded as having provided their own legislatures,4 and to these the parties *521
now resorted. The plaintiff began by giving notice for a special meeting of the stockholders to be held February 11, 1936, at 3 o'clock. His intention (as subsequently carried out) was to remove the then existing board of directors and to elect a new board by the vote of his half-interest in accord with a section of the by-laws so permitting. His move was countered by the Sweet interest by the written request of three directors desiring Bowman, as president, to call a special meeting of the board to be held on February 10, 1936; when they concluded that he would not comply with their request, they themselves, under a provision of the by-laws, called a special meeting of the board to be held on that date. This meeting was held at the time and place designated in defendant's manufacturing plant and was attended by five of the six directors, the only absentee being the plaintiff. Instead of attending, he set up a dictograph in the meeting room with an arrangement by which he, in another room in the same building, hoped to hear the discussion.5 At that meeting the plaintiff was removed from the presidency by the unanimous vote of the other five directors who then elected Hamilton to that office.6 The special meeting of the stockholders called at plaintiff's instance was held the next day at the time and place specified, though after plaintiff's bill was filed, and a new board of directors was elected, each half shareholding interest *522
electing three directors. The action of the board and that of the stockholders, in the respects indicated, will, for purposes of reviewing this record, be accepted: Barber v. Horstman,
The evidence received at the preliminary hearing does not sustain the averment of conspiracy made in the bill on which the prayer for the appointment of a temporary receiver was based and granted; indeed, as to one of the defendant directors, against whom particular charges of conspiracy were made, the plaintiff specifically stated at the trial that he was satisfied that this defendant had acted in good faith. The bill makes no pretense of stating a case within the Business Corporation Law of 1933, P. L. 364, sections 1101 et seq. After this appeal was taken, the plaintiff filed a petition in this court for leave to amend the bill by adding a number of averments, some of them specifically designed to bring the case within provisions of the Business Corporation Law; as the proposed amendment would have resulted in such radical departure from what the defendants had been asked to meet and, in fact, had met in the first instance, we could not allow the amendment.
The Business Corporation Law is, in part, a declaration and codification of, and, in part, a supplement to, the prior law on the subject. The equitable jurisdiction over corporations in this Commonwealth depends largely upon statute, the scope of which was referred to in Whyte v. Faust,
While the evidence is not sufficient to support the averments of unlawful conspiracy made by the plaintiff, it would seem to disclose a case within the terms of the statute. The Act of March 21, 1806, 4 Sm. L. 326, section 13, providing that "in all cases where a remedy is provided or duty enjoined, or any thing directed to be done by any act or acts of Assembly of this Commonwealth, the directions of the said acts, shall be strictly pursued, and no penalty shall be inflicted or any thing *524
done agreeably to the provisions of the common law, in such cases, further than shall be necessary for carrying such act or acts into effect" has been construed to require resort to the statutory remedy provided for any particular case: Taylor v.Moore,
The record does not support a finding of fraudulent conduct on the part of defendants or of mismanagement of the business of Gum. It does appear that plaintiff, who, as president of Gum, was in executive charge of its business, became dissatisfied with the base supplied by Sweet under the contract referred to and that Sweet gave inadequate consideration to plaintiff's complaint at the end of 1935, save as the price was reduced, if we correctly understand the evidence, to 34 cents a pound. On the other hand, Sweet was within its rights in continuing to call for payment of Gum's demand note and other accounts due it. There is no evidence of agreement that the debt should not be paid as specified in the note. But (apart now from the Business Corporation Law) in the absence of fraud, mismanagement of the corporate property, or like wrongful conduct, equity will not, at the instance of a stockholder appoint a temporary receiver *525
for a solvent corporation: Hlawati v. Maeder-Hlawati Co.,
The pleadings determine the relief that may be afforded: "Neither allegations without proof nor proof without allegations, nor allegations and proof which do not substantially correspond, will entitle complainant to relief, unless the defect be remedied by amendment": Spangler BrewingCo. v. McHenry,
The decree is reversed and the record is remitted for further proceedings, costs to abide the final decree.