212 F. 19 | 6th Cir. | 1914
(after stating the facts as above). We concur in large measure in certain of the conclusions of fact reached by the learned trial judge, but we are not able to affirm his ultimate conclusion or the decree. The basis of the decree is that at the time of the transfer the assets of the old company were worth nothing in excess of its debts. The implication is that, if there had been a material excess in value, complainants would have been entitled to recover their respective shares in the form of a money decree. It is true that, in spite of the unusual quantity of evidence offered,
The old company was incorporated in January, 1900, for the purposes of the “manufacture and sale of wheelbarrows, trucks, and
It is needless to set out all the steps taken to bring about the sale subsequently made. The testimony is in conflict touching the methods adopted by the majority interest, that is, whether sufficient efforts were made to sell the property to strangers, whether the nominal buyers were the real purchasers, whether the purchase price was as much as might with reasonable effort have been obtained; in short, whether the sale was not in truth the execution of a scheme arbitrarily to eliminate the non-consenting minority interest. It is not worth while to try to reconcile all the phases of this conflict. It is certain that, within a few months after Stebbins was replaced by Jackson as manager, the corporate property was conveyed and transferred by the Michigan Company to Harker W. Jackson and Alfred A. Alderton, the former the son, as stated, of the manager of that company and the latter the son of one of its directors and principal stockholders; and it is not pretended that these grantees were either financially able or that they expected to make the purchase upon their own account. The sale was at last based upon an affirmative vote representing 3,100 shares, while the negative vote represented 1,300 shares.
Three days later (January 6th), articles of association of the Saginaw Wheelbarrow Company were signed by Thomas Jackson and the two purchasers of the property of the old company. On the same day these purchasers conveyed to the new company the realty which they had received from the old company; the consideration named here, like that in the deed of the old company, being nominal. We do not find in the record any instrument transferring the personalty to the new company, but it certainly was delivered to that company. Harker W. Jackson having his attention called to the notes given as stated to the old company, in the aggregate sum of $73,-884.91, testified in respect of them: • *
“It was understood between tbe stockholders of the wheelbarrow company and Alfred Alderton and myself that these notes would be surrendered after the new company was organized on condition that the stockholders of the new company, the Saginaw Wheelbarrow Company, would assume the debts of the old company.”
One of the articles of association of the new company states the amount of its capital stock ($50,000) and the fact that it was paid, one half in cash and the other half in property. This property is classified and described and is the property so conveyed and transferred by the old company; and immediately succeeding the description and the total value affixed, this appears: “Hess an indebtedness which this company assumes, * * * $73,884.91.” The new company seems to have obtained credit immediately upon its organization, and it might be inferred from some of the testimony that this was through the financial standmg of some of its stockholders. Its capital stock consists
“It is quite clear that this plan of financing the new company was worked out before its actual organization was completed, and that some, at least, of the stockholders (indorsers) of the Michigan Company’s notes expected to become indorsers for and stockholders in the new company.”
However, the degree of credit before alluded to which the new company at once obtained is not attempted to be explained upon the theory, certainly not alone upon the theory, that it was able to secure indorsements of its commercial paper; and granting its ability in this behalf, still the reason for this is hardly to be accounted for by the cash it received upon stock subscriptions, if in truth the company derived no profit through the purchase of the property of the old company. And this brings us to a consideration of the value of the old company’s assets.
Foremost among the evidential features which tend to show such value is the admitted fact that in organizing the new company the value of the old 'assets was fixed at $25,000 in excess of the indebtedness. We have seen that the new company’s capital stock of $50,000 was declared in its articles of association to have been “actually paid in”; that is, $25,000 had been paid in cash, and the rest ($25,000) by the excess in value of its property over its indebtedness. This representation was made specific by stating the total value of the prop
Furthermore, the representation as to value contained in the articles of association is strengthened by the fact that the directors and stockholders of the old company, who either carried out or sanctioned the preconcerted plan of a new company, became stockholders in that company and the larger holders officially connected with its management. Also, pursuant to statutory requirement the old company made annual reports to the Secretary of State, in 1901 and to and including 1905, showing its condition on the 1st day. of January of each year. These reports were each signed by a majority of the directors and sworn to by one o'f their number as secretary. Moreover, in 1902 and to and including 1905, reports were made to the old company itself, showing its condition on July 1st of each year. In each of the foregoing reports, the net value of the company’s assets was reported to be more, some years much more, than the net value represented in the articles of association of the new company. In 1904 the Ameri
It must be conceded, in respect of the reports to the Secretary of State and the old company, that much forceful criticism has been made by counsel. We are bound under the evidence to recognize a tendency in companies, for purposes of credit, to exaggerate their financial conditions in making their annual reports to the Secretary of State. We are not so much impressed, however, concerning the reports made to the old company, which, until after the rupture that culminated in the present suit, were apparently considered by some of the principal stockholders and directors. It is difficult to conceive of either motive or reason on the part of such men to deceive themselves. We cannot attach much importance to the report made by Harker W. Jackson. That report .was' made at the stockholders’ meeting of November 30, 1905, within a month of the sale; and it must be said of it that Jackson failed in his testimony to give any convincing reason for the large reduction he made in the value of the assets. His valuation was, moreover, fatally inconsistent with the estimate, which, in the articles of association of the new company, he shortly afterward represented to be the true value; and his valuation of November 30th cannot be explained except through his apparent zeal to exclude Steb-bins and secure an interest in the business through the plan now under review. And in spite of objections urged against the appraisement of the American Appraisal Company respecting some mistakes it seems to have made, its agencies engaged in the work were at least disinterested, and allowance for these mistakes cannot change the result.
The company never paid but one dividend, and the profit so implied was for the most part rather artificial than real; and although losses were suffered, yet they were incurred under circumstances that render them of little aid in determining the value of the assets. Some of those who took part in bringing about the transfer of the old company’s property, among them Alfred A. Alderton, succeeded later in purchasing a number of shares of the old stock at prices varying from 10 cents to 33% cents on the dollar; but naturally sales made under the conditions' then existing would not reflect the true value of the stock; and the evidence does not show that the stock ever had a mar-,
“But the majority shareholders will not be permitted to use this power of control for the purpose of obtaining advantages for themselves at the expense of the minority, and, when an unfair and oppressive contract is shown, a case is made which will'authorize interference on behalf of the injured minority.”
It follows that, in accordance with the issue and theory upon which the case was presented and tried touching a money decree, the complainants are entitled to recover sums equal to 50 per cent, of the par value of their several shares in the Michigan Wheelbarrow & Truck Company, with interest thereon at 5 per cent, per annum from January 6, 1906 (the date of taking over the property), until the date of the allowance of the decree; that is to say, Bliss Stebbins upon 940 shares, Richard S. Woodliff upon 300 shares, and Earl D. Card upon 60 shares — the face value of the shares being $10 each. We are disposed to believe, however, that a decree should not go against the defendants Fox and Smart. While it is true, as stated, that they voted in favor of the sale, yet they do not appear to have participated
The decree below is reversed, with costs, save that Earl L. Card will, under the order allowing his intervention, be denied recovery of costs “incurred up to and including the final decree” entered below and now under review; and the cause is remanded, with direction-to enter a decree against ail the appellee-defendants, except Fred J. Fox and James S. Smart, in conformity with this opinion.
The printed record alone comprises 2938 pages, and there are besides a large number of exhibits not printed.
Tire stockholders voting and their shares were as follows: A. C. Melze, 1,000 shares; G. A. Alderton, 500 shares; J. S. Stewart (Smart),‘100 shares;
Wheeler v. Abilene Nat. Bank Bldg. Co., 159 Fed. 391, 89 C. C. A. 477, 479, 485, and note, 16 L. R. A. (N. S.) 892, 14 Ann. Cas. 917; Backus v. Brooks, 195 Fed. 452, 454, 115 C. C. A. 334 (C. C. A. 2d Cir.); Jones v. Missouri-Edison Electric Co., 144 Fed. 765, 771, 75 C. C. A. 631 (C. C. A. 8th Cir.); Jackson v. Ludeling, 21 Wall. 616, 622, 624, 22 L. Ed. 492; Smith v. Smith, Sturgeon & Co., 125 Mich. 234, 239, 84 N. W. 144; Chicago Hansom Cab Co. v. Yerkes, 141 Ill. 320, 333, 30 N. E. 667, 33 Am. St. Rep. 315; Cook v. Berlin Woolen Mill Co., 43 Wis. 433, 439, 445; Goodin v. Cin. & Whitewater Canal Co., 18 Ohio St. 169, 182, 98 Am. Dec. 95; Hallam v. Indianola Hotel, 56 Iowa, 178, 180, 9 N. W. 111; Maas v. Lonstorf, 194 Fed. 577, 584, 114 C. C. A. 419 (C. C. A. 6th Cir.).