Morris v. Stevens

178 Pa. 563 | Pa. | 1897

Lead Opinion

Opinion bv

Mr. Chiee Justice Stereett,

We are not convinced that any harm can come to this appellant from permitting the interlocutory decree appealed from to stand and the cause to proceed to final hearing and decree in ‘the court below; nor, are we satisfied that there is anything in •the record as presented that would justify us in sustaining either of the specifications of erroio'

In general, the present holders of stock have a primary right to subscribe in proportion to their holdings for any new issue. The stockholders themselves certainly may determine otherwise and order a sale to the public, and payment of-the proceeds into the treasury. But this is exceptional and the exercise of a reserve power which should not be permitted unless' there is a clear intent of the stockholders to do so.

The issue of stock in the present case was not within this power. It was made by a de facto board on the heels of a disputed election followed by quo warranto proceedings which resulted in ousting them. No opportunity was given the other party or the public to subscribe until after Stevens had taken three hundred and fifty shares which was not only a majority of the new issue but gave him a majority of the whole. The effect was to enable him to control future elections, and thus by his own act, while his party were wrongfully filling office, to change the balance of power and the control of the corporation. There can be no reasonable doubt that this was the intent, though the court did not specifically find that fact, being of opinion that as such was the effect the intent was not material.

A ratification by the stockholders would have made the new issue valid, but the acts of the meeting on July 4, 1894, were not a ratification, because they were not a fair expression of the stockholders’ will on the subject. No one was present but the de facto officers themselves, who knew their acts were objected to. The other stockholders were absent-in consequence of an injunction issued by the court against holding the election which was.the chief ■ purpose of the meeting.' It is true the injunction did not in terms prohibit the meeting for other purposes, but as every stockholder knew that' the main business was the election which would terminate the long standing contest for control, they had fair justification for supposing that when the election was enjoined there remained nothing to do at the meeting but the formal routine to which no one attached any importance, and therefore for staying away. In view of the circumstances, a court of equity should not hold them bound-by action sprung upon them, without notice, by the opposition who were thus accidentally in control of the meeting.

lleddig being apparently a bona fide purchaser without notice, the acts of the de facto board are binding on the corporation as to him, but his vendor, Stevens, was rightly prevented from obtaining any advantage by his sale of the stock illegally issued to himself, by enjoining a corresponding number of votes on his old stock until the status of the new issue should be finally determined.

Inasmuch as the case goes back for such further proceedings as to the court below may appear to be just and equitable, it is neither necessary nor desirable that we should express any further opinion as to the merits of the controversy, or make any suggestion as to what further action should be taken.

As the case progresses to final hearing, questions that now appear to be worthy of notice may be eliminated from the case, and others of controling effect may arise. What we have said in justification of the interlocutory decree is predicated of the facts as they now appear from the record before us.

The appeal is therefore dismissed with costs to be paid by appellant; and it is ordered that the record be remitted to the court below for further proceedings.

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Dissenting Opinion

' Mr. Justice Dean,

dissenting.

I most respectfully dissent from the opinion of the chief justice in this case. It assumes the decree is not final, but only has the effect of continuing the preliminary injunction, and deferring final judgment to be entered after further proceedings in the court below. This is a mistake; dismissing defendants’ appeal now has, so far as concerns them, all the force of a final decree; ousts them from any control of the corporate property in which they have invested their money and hold a majority of stock, and places practically the whole in possession of plaintiffs, without the rights of stockholders on part of defendants. And so both parties in the oral argument before us admitted, and both assumed our decree would be in its effect, the end of the contention. Therefore, it seems to me, our duty now clearly is, to end the strife by reviewing the case on its merits, and passing on the questions which determine the parties’ rights.

Aside from the purely technical question as to the legal ownership of the new issue of stock, no corporate mismanagement by defendants is found by the court below. The evidenceo clearly indicates, the property was wisely and economically managed to. the best interests of all the stockholders, including plaintiffs; they refunded the debt of the corporation by the issue and sale of 350 additional shares of stock. Assuming defendants were but managers de facto, plaintiffs had full information of the proposed corporate action on the 27th of September, 1892. I do not see how they could have had more particular or fuller information than that contained in the affidavit of A. A. Stevens, which it is admitted was read to A. G. Morris that day. Yet the first legal proceedings begun by plaintiffs after the notice were on the 27th of July, 1893, and the second, the filing of this bill, June 28, 1894, and this last is the only one which questions the legality of the additional issue of stock. It appears from the record, that plaintiffs waited more than twenty-one months after notice of the action of the de facto managers before they invoked the restraining power of the court. By that time, all the plans for refunding the corporate debt had been fully carried out; the corporation not only had received defendants’ money for the new stock, but had spent it for the benefit of the corporation and these complaining stockholders. Plaintiffs now claim the issue of the stock and expenditure of the money were illegal, and ask a court of equity to restore the status. In my opinion the bill cannot be maintained, and this court ought, without hesitation, to so say. To do other than this, it seems to me, is to disregard well settled equitable principles. Ashhurst’s Appeal, 60 Pa. 290, and Watt’s Appeal, 78 Pa. 370, as well as numerous other cases, hold that as to an act of corporate directors, done with a bona fide intent of benefiting the corporation, the assent of the shareholders who knew of the act will be presumed if they do not gainsay it within a reasonable time; further, when the act involves a large expenditure of money the complaining shareholder must not only dissent, but is bound to promptly follow that up with active preventive measures. He must invoke the power of the courts; he cannot wait until the corporation has reaped the benefit of the alleged illegal act, and then call the officers of the corporation to account, for it is against good conscience that one having power to prevent, should stand by and see corporate managers spend money which may result to his benefit, and afterwards charge them with it. His neglect to act at the proper time effectually bars his right.

C. A. Morris, one of these plaintiffs, a director, was present at several meetings of tbe board and dissented, but that was all; the others did not even dissent. After the stock is issued the money paid, and the corporation largely benefited, the plaintiffs ask that the holders of the stock be restrained from exercising under it the rights of bona fide stockholders, and our decree, in its effect, grants their prayer. In my opinion the only just decree we can make is to say they are too late, and direct the dismissal of their bill.