105 F. 787 | 7th Cir. | 1901
After the foregoing statement of the case, GEOSSOUP, Circuit Judge, delivered the opinion of the court, as follows:
- The' proceedings below were irregular, and possibly present no question for review. At most we can consider the appeal as upon a final hearing below upon bill, answer and affidavits; this is, properly, the effect of the waiver of the technical error embraced, in the dismissal, •
The effect of appointing a receiver over a corporation is to take the property out of the control of its officers, to whom it has been entrusted by its stockholders. Courts proceed with extreme caution in the exercise of so summary a power; and this is true, not only in cases where the jurisdiction of the court is invoked upon general equity powers, but, also, where such powers have been extended by legislation with reference to the winding up of a corporation. ' Cessation of business, alone, does not make a fit case for the appointment of á receiver of the remaining assets of the company; it must be shown, in addition, that the officers have been guilty of mismanagement of its affairs, or that there exists some need to preserve the property, through a receivership, for the benefit of the creditors and stockholders. High, Rec. (3d Ed.) 292.
Applying these rules to the first proposition upon which the mo= tion for .a receivership is pressed — that the appellee has abandoned its business — it will be seen that the order of the court below is justified. The loss of the company’s property, and its failure to eon: tinue doing business, independently of any causal mismanagement by its officers, is not ground sufficient for the appointment of a receiver; nor will a general averment of negligence and bad management on the part of its officers make good such insufficiency; nor will the mere belief of affiants that great frauds have been committed be sufficient, when it is not clearly shown in what the frauds consist.
Coming, then, to the averment of specific misdeeds, we greatly doubt if the hearing is not'to be treated as upon bill and answer alone, in which event, the answer constituting a complete denial, there is no ground left for the appointment of a receiver. But, in our opinion, tie/, same result follows, if .we treat ,the bill as the. affidavit of the'
Paragraph VIII. of the bill, in substance, charges that Euston entered into a contract with the London 'Share & Debenture Company for the purchase of six thousand shares of its stock at about thirty dollars per share; that the market price of such stock soon began to decline; and that, after such decline, Euston, with the consent of some of the directors, caused the contract to be assumed by the appellee as its own obligation, reimbursing Euston for the margins put up by him on account of the purchase; and resulting, in the end, in a loss to the appellee of one hundred and thirteen thousand dollars. The answer admits these facts, but avers, in substance, that the purchase was made originally, by direction of the directors, in the name of Euston, but for (lie benefit of the appellee, so as to secure the retirement of certain short time paper. On this state of the proof no misconduct is, with anything like certainty, shown. It is true that the transaction is denominated a speculation, but the court does not accept names; it must look to facts, as to such averment. It is true, also, that the bill avers that the contract was not an advantageous one, and that Euston, and those joining him, acted therein with the sole end in view of assisting Euston to shift upon the company the liability and the loss the purchase had entailed; but the averment is not made upon the knowledge of the affiants, but only upon their information and belief.
Paragraph X, in substance, charges that Euston, with the knowledge and consent of a majority of the directors, bought, upon the Board of Trade, many thousand bushels of flaxseed, in excess of the then needs of the appellee, borrowing therefor, to margin said purchases, sums amounting to many thousands of dollars. The answer avers that the purchase was upwards of two millions of bushels; that it was much less than appellee’s then manufacturing requirement; and that, owing to intervening financial difficulties, alone, the appellee was unable to take the flaxseed, whereby the loss occurred. No effort is made, on the part of the bill, to show the appellee’s manufacturing need, in the. way of flaxseed supply; nor, indeed, any of the particulars of the transaction, presumably accessible, through the books of the company. Such general averment, respecting a business transaction that should be put in evidence in detail, if at all, as also the general averment that the deal was in the nature of a speculation, are, to say the least, unsatisfactory. As a general charge in a pleading they are probably sufficient, for there the requirement is the ultimate fact; but as parts of an affidavit they violate the requirement that, in the matter of evidence, the court must have, not the ultimate, but the primary facts. The additional averment that Euston’s motive was to corner the market, to his own personal advantage, is only upon information and belief.
.The contention respecting the improper .declaration of a dividend is left, as to the primary facts, equally obscure; except that,, whether
These strictures upon the bill, as an affidavit, would be cogent, had all the stockholders, or a large proportion of them joined the appellants in their attack upon the president and directors; but they are still more cogent, when it is borne in mind that ninety-seven per cent, of the stockholders refuse such an alliance. Is it not probable that the ninety-seven knew, as well as the three, the details of these transactions? Is it probable that they would acquiesce in the misconduct alleged — misconduct so harmful to their interests? Under circumstances like these, there should’be the clearest and most convincing presentation, in the affidavit, of the facts — each material one within the personal knowledge of the witness — to justify the court in disregarding the judgment of the ninety-seven, in an effort to meet the wishes of the three.
The purpose underlying the bill is plain. It is to get control, through a receivership, of the appellee’s alleged right of action against the directors, so that such suit can be prosecuted in the name of the appellee, and at its expense. It is admitted that the appellants; as individual stockholders, have already a remedy against the directors for whatever loss they have suffered through the supposed frauds and misconduct; but the court is asked, preliminary to such suit, and as a preparation for it, to transfer the control of the corporation from the accused to the accuser, together with the corporation’s cash assets available for the sinews of war. The court is, in effect, asked to prejudge the contest, and upon the bill as an affidavit, to give to the appellants the substantial fruits of victory, before the real contest has begun. We are not satisfied that there is a sufficient showing for so important an order.
The order of the court below will be affirmed.