241 Mo. 73 | Mo. | 1912
— This is a snit in equity wherein the plaintiffs are the minority stockholders and the minority directors, and the individual defendants are the majority stockholders and the majority directors of the defendant corporation the Electric Railway Express Company; the other defendants are the East St. Louis and Suburban Railway Company and the Illinois Traction Company, both of which are Illinois corporations. The object of the suit is to cancel certain contracts whereby a previous contract between the East St. Louis & Suburban Railway Company ancl another corporation called the Electric Express Company, of date August 16, 1904, which contract had been duly assigned by the Electric Express Company to the defendant the; Electric Railway Express Company, was modified or changed in certain important particulars. The ground on which the plaintiffs seek to have the contracts of which they complain set aside is that they were the result of fraud and conspiracy on the part of the individual defendants assuming to represent the Express Company on the one hand, and the East St. Louis & Suburban Railway on the other.
The East St. Louis & Suburban Railway Company at the time referred to owned and operated certain lines of railroad which extended from East St. Louis east and southeast, over which lines cars were propelled by electricity. That railroad company, August 16, 1904, entered into a contract with a corporation called the Electric Express Company, whereby the latter company, in consideration of a certain per cent of its earnings to be paid to the railroad company, was granted the exclusive right to do an express business over the lines that that railroad company then owned or might thereafter acquire, and the railroad
The petition alleges that the exclusive right to do an express business over the lines of the East St. Louis & Suburban Railroad Company (which we will hereinafter call the Suburban Company) was of great value and the chief asset of the Electric Railway Express Company which will hereinafter be called the Express Company). It is further alleged that the individual defendants as officers and directors of the Express Company “fraudulently and covinously” for their personal profit and to the injury of the Express Company, entered into “three pretended contracts” with the Suburban Company of dates respectfully July 18, August 10 and November 6, 1906, whereby the valuable right held by the Express Company under the contract of August 16, 1904, was attempted to be annulled.
At a special meeting of the board of directors of the Express Company, held July 31, 1906, defendant Allen presented to the board for its approval a paper then unsigned, dated July 16, 1906, in form of a proposed contract to be made between the Express Company and the Suburban Company, in which the Express Company was to agree, for the consideration therein expressed, to relinquish the exclusive feature of its contract of date August 16, 1904, and to authorize the Suburban Company to make a contract with the Illinois Traction Company allowing the latter to pass its cars carrying through-express freight over certain lines of the Suburban Company. A full board
The contract of August 10,1906, above mentioned, was an agreement between the Suburban Company, represented by its vice-president, and the Express Company, by its president, agreeing to submit the draft of the proposed contract of July 16th to their respective attorneys,'to decide “whether it clearly expresses its intent,” and the attorneys were to draft a new form if the one presented was not- clear in its meaning, or. draft a supplement thereto, interpreting any clause of uncertain meaning. Then came the above mentioned contract of November 6, 1906, drawn by those attorneys, in which it is .recited' that there were some uncertainties or ambiguities in the language of the draft of July 16th, and these were interpreted and
A charge is made in the'petition that the attorney intrusted with the matter of interpreting the draft of the contract of July 16th on the part of the Express Company was really an attorney for the Suburban Company, but that charge went no farther in specification than asserting that he was employed by the Suburban Company to represent it in certain other matters of litig-ation. There is no suggestion that the draft of the contract of November 6th is an unfair exposition of the meaning of that of July 16th.
The petition charges that on August 6, 1906, that is, six days after the special meeting of the directors of July 31, 1906, at which the contract in question was approved and authorized to be executed, there was a regular meeting of the board of directors held, at which a resolution was adopted disapproving that contract and forbidding the officers to execute it unless a majority of the stockholders at a duly called meeting should approve it. It is alleged that that meeting was composed of three directors who constituted a majority of the board, to-wit, the director who had voted against the proposition to approve the contract at the meeting of July 31, 1906, and the director who had voted in favor of it at the meeting but who afterwards notified Mr. Allen, the president, that he had changed his mind; the resolution of disapproval is alleged to have been adopted'by the vote of those two directors who constituted a majority of those present; the other director who is alleged to have been present, Mr. Allen, did not vote. The legality of that meeting is denied by the defendants; we will return to it herein later. The business of the Express Company was conducted under the new contract until the collapse of the company after this suit was instituted.
The Express Company failed to pay the Suburban
The petition states that defendant Allen was a stockholder in the Suburban Company and others of the defendants were also interested in that company, and were moved in their conduct in this matter by a desire to promote the interest of the Suburban Company at the expense of the Express Company.
The answers of all the defendants are in effect general denials, except that of the Suburban Company, which in addition to the general denial states,
To this the plaintiffs replied that the Suburban Company had no right to declare the forfeiture when it did so, because it had never demanded strict compliance with that part of the contract as to prompt payments, but the custom had been to let the payment be made within a reasonable time after the 15th of each month, and that custom had -been a practical waiver of the strict letter of the contract; the reply also stated that the alleged notice that payment would be required on January 15th was not given to the plaintiffs or the other stockholders, but to Mr, Allen, the president.
The finding of the court was in favor of the defendants on the charges of fraud made against them and on all the issues.' The decree was that the order of the court requiring the defendant the Suburban Company to furnish ears to the Express Company be dissolved, and that the plaintiff’s bill be dismissed. It was also ordered that the receivers should make a report to the court showing the amount of money in their hands, that out of such fund they pay the expenses of the receivership and apply the balance towards payment of the certificates issued by order of court, and turn over all the rest of the property, in their hands to the defendant the Electric Railway Express Company.
From that decree the plaintiffs have prosecuted this appeal.
On the part of the plaintiffs there was evidence tending to show that, depriving the Express Company of the exclusive feature of the contract of August 16', 1904, and authorizing the Suburban Company to make a contract with the Illinois Traction Company, allowing it to run express cars carrying through freight over the Suburban road from Edwardsville to East St. Louis, introduced a competitor in the business destructive of the rights of the Express Company. On the other hand the testimony on the part of the defendants tended to show that the Illinois Traction Company was a corporation owning a large system of already completed interurban electric railroads coming from Springfield, Illinois, towards St. Louis, and was then engaged in the construction of a line which when completed would reach from Edwardsville to East St. Louis, and that it had ample means to complete the line and when completed it could carry not only through but local express freight between those points. But the Traction Company wanted to
Upon those grounds- it was said by witnesses for the defendants that it was to the interest of the three interested parties, the Express Company, the Suburban Company and the Traction Company, that the contract of July 18, 1906, should be made. The evidence for the defendants also tended to show that by this contract of July 18th the Express Company acquired the right to run express ears between East St. Louis and Alton, and East St. Louis and Edwards-ville. The Express Company claims that it had the right before the contract of July 18th was entered into, but the evidence shows that the claim was disputed and the Express Company had not been able to exercise it. There were other features of 'less importance in the contract of July 18th that, according to defendant’s testimony, were of advantage to the Express Company.
The testimony as to the conditions that confronted the Express Company was undisputed and it shows that the charge of fraud against the defendants was unfounded. There being no fraud in the conduct
Let us now see by what authority they acted in making this contract.
• a. It is contended that the board of directors had no authority to make a contract to modify the contract of August 16> 1904, but that it could only be done by the stockholders.
The proposition is that the exclusive feature of ■ the contract of August 16, 1904, constituted fully ninety per cent of the assets of the company and therefore represented ninety per cent of the capital stock, and when that feature is eliminated from the contract it reduces the capital stock of the corporation ninety per cent, and authorities are cited to show that a board of directors cannot increase or reduce the capital stock of a corporation. The proposition of law that a board of directors cannot increase or reduce the capital stock of the corporation is correct, but it is not applicable to the action of this board of directors in authorizing the making of the contract in question. This contract does not reduce the capital stock of this company, although it may affect the value of its shares, as any business contract may. It is also true that the “directors of a corporation cannot, unless thereto authorized by the shareholders, put an end to its business and defeat the objects of its creation by selling out en masse all its property and goodwill.” [10 Cyc. 764.] But this contract had no such purpose or effect; if the managers of the company had been left alone to carry on its business under the new contract there is nothing in the record to show but that it might have entered on a more successful business career with the extended field of operation afforded by the new contract than it had theretofore enjoyed. But when these plaintiffs instituted this suit (which was before the Suburban Company had declared the contract forfeited), with their charges of
When the suit was filed one of the city newspapers, as the evidence shows, gave it a conspicuous notice, with head lines directing attention to the alleged fraudulent conspiracy of the officers of the Express Company with the officers of the Suburban Company. A publication of that kind is likely to arouse resentment on the part of the men whose integrity is assailed. In his letter to the president of the Express Company, who had written a conciliatory letter to him, the vice-president of the Suburban Company, giving as one of the reasons for insisting on prompt payment of the amount due, made reference to the “recent receivership proceedings and other public statements affecting the credit of your company.”
Of course the company might.have gone to the wall when trying to do business under the new contract even if there had been no suit, no one knows what might have been, but the fact is, as plaintiffs themselves say, that up to that time the Suburban Company had not insisted on prompt payment for the service rendered, but had indulged the Express Company reasonable time in which to make its payments after the same became due according to the contract, but within four days after the institution of this suit the Suburban Company served notice on the Express Company that thereafter prompt payment would be required, and unless made on the 15th of January, 1907, the contract would be declared forfeited, as the contract itself authorized; on January 16th the Suburban Company did declare the contract forfeited and
Whilst it is *the law that the directors of a corporation have no authority to put an end to- its life, yet if this corporation came to its death in consequence of the action of the Suburban Company in declaring the contract forfeited and refusing to furnish cars to carry on the business of the Express Company, who is to blame?
“The directors are merely the managers of the property and business of the corporation, and cannot therefore perform constituent acts, by which expression is meant acts which involve fundamental changes in the constitution of the corporation. ” [10 Cyc., p. 762.] But they are the managers of its business, and have authority to make contracts binding the corporation in the conduct of its business, and the contracts they make cannot be set aside at the suit of stockholders on the ground that they do not promote the best interest of the corporation.
We hold that the contract of July 18, 1906 (which includes also the construing contract of November 6, 1906), was within the legitimate scope of the powers of the board of directors in this case.
b. The meeting of the directors July 31, 1906, at which the contract in question was approved and the officers were authorized to execute it, was a special meeting and the objection which the plaintiffs fake to its action is on the ground that the notice of the meeting did not specify the purpose of the call; but that is a mistake. The notice was: “ This is to notify you that there will be a special meeting of the board of directors of the Electric Railway Express Company at this office at ten o’clock a. m. on Tuesday, July 31, 1906, for the purpose of then and there authorizing the president of this -company to sign and enter into a certain contract with the East St. Louis and Suburban Railway Company bearing date July 16, 1906. And
c. The plaintiffs claim that there was a meeting of the board of directors' on August 6, 1906, at which it was resolved that the contract bearing date July 16, 1906, which was presented “at a special meeting of the board of directors July 31, 1906, be disapproved, and the officers of this company be and are hereby forbidden to execute and deliver said contract unless the majority of the stockholders at a duly called meeting shall approve the same.”
By the laws of the company it is provided: “Regular meetings of the board of directors shall be held at the office of the company on the first Monday of every month at ten o ’clock a. m. ’ ’ On August 6, 1906, which was the first Monday in that month, at ten
The other one of these two directors was also a witness for plaintiffs on this point. He testified that he went there at the request of his companion, “Well, he said we would go down and pass these two motions. Q. He said if you went down Mr. Allen would be the only other director there and you could carry anything you wanted, didn’t he? A. He didn’t say that, but I guess he meant that. Q. And you knew that when you went down there neither Dr. Starkel nor Mr.
Mr. Allen’s testimony was to the effect that when these two gentlemen came to his office he did not understand that they came to hold a directors ’ meeting, they talked in a conversational way about the contract, then one of them made a motion and the other seconded it; then Mr. Allen understood for the first time that they were trying to hold a meeting, he went to the telephone and communicated with his attorney and after getting his advice left the room. He denied that he said that he recognized that there was a quorum present, and would have to put any motion they made.
There is no legál process by which a director of a private business corporation can be forced to attend a meeting, and he cannot lawfully be compelled by physical force to attend, nor can he be trapped into an attendance against his will. It happened to be the
d. At a special meeting of the board on November 8, 1906, the minutes of the meeting of July 31st, approving the contract' in question, were adopted.
At a meeting held November 27th the director who had voted no at the meeting of July 31st, offered a resolution to the effect that the company employ counsel to bring suit to set aside the contract of July 18th; and the contracts of subsequent dates, on the ground that they were entered into without authority and were void. The resolution was lost by a vote of three-to two, the two being the two who attempted to hold a meeting on August 6th. Then the same director offered a resolution of like effect with the addition that the officers of the company had fraudulently conspired with the Suburban Company and others to enter into the contracts in violation of the rights of the stockholders of the company. Another director then moved to adjourn, stating as a reason therefor that he declined to sit in a meeting with a member who would offer such an insulting resolution; the motion was carried by a vote of three to two.
On December 15, 1906, a stockholders’ meeting was held, at which a resolution was offered ratifying and approving the action of the officers in executing the contract of July 18th and November 6, 1906. Thereupon canvassers were appointed to collect the votes of the stockholders on the resolution and report at the regular annual meeting of the stockholders January 8, 1907. At that regular meeting the canvassers appointed reported, showing that there were 600
At the stockholders’ meeting January 8, 1907, Mr. Allen stated that the Suburban Company had given notice that unless the car rental was paid on the 15th the contract would be declared cancelled, and he urged that action be taken to raise the money. After a full discussion the matter was referred to a meeting of the board of directors to be held on the 15th inst. That meeting was held and various ways and means were discussed, but the money was not raised. Mr. Allen offered to indorse the note of the company for the amount required, provided the director who had opposed the execution of the contract of July 18th would join him in the indorsement, but that director refused to do so, saying that plenty of money could be raised if the contract of July 18 and November 6, 1906, were cancelled, and the old contract of August 16', 1904, restored.
The evidence amply sustains the chancellor’s findings of the facts and justifies the decree discharging the receivers and dismissing the plaintiff’s bill.
II. By the decree in this case the contracts between the Express Company and the Suburban Company, under which the latter was to furnish to the former express cars to be carried over its road, are declared to be “canceled, forfeited and of no effect.” On this the appellants make the point that a court of equity has not jurisdiction to declare a forfeiture. It is true the question of forfeiture is one to be dealt with by courts of law. A court of equity never interferes with the subject unless to prevent a forfeiture when conditions are such as to render it inequitable to allow it to be enforced. But that clause may be stricken out of this decree without changing its effect. The fact is, that part of the answer of the Suburban Com
III. On June 17,1907, the court rendered the final decree, finding all the issues in favor of the defendants and dismissing the plaintiffs’ bill; in the decree was the following: “And it is further ordered that said receivers pay out of the funds in their hands such other expenses and obligations incurred by such receivers in the management and conduct of the business of said Electric Railway Express Company that are unpaid. And it is further ordered that any balance that may be in their hands shall be applied to the payment of the receivers ’ certificates heretofore issued
"Without passing on the question of whether, under the facts of this case, the plaintiffs would have been entitled to have the personal property of the Express Company sold to reimburse them for the money they claim to have advanced, it is sufficient to say there is no such question now before us. In their motions for a new trial they did not assign that the court had erred in ordering the property turned back to the Express Company and there is no general assignment in the motion that covers, the point. The motion for new trial was filed June 20, 1907, overruled October 7, 1907, appeal prayed and granted November 12, 1907, but it was not until January 31, 1908, that the plaintiffs filed a motion in the court asking that the order discharging the receivers be set aside and that the Express Company and its president be ordered to turn over to the receivers the proceeds of the sale of the property; that was several months after the final judgment had been rendered and more than two 'months after this appeal had been taken.
A final decree determines the rights of the parties on all the points in issue; when there is a receiver in the case it is proper that in the final decree he should be directed to make disposition of funds and property in his hands and report subsequently what he has done in obedience to the decree. If his report filed at a subsequent term .shows that he has acted contrary to the decree parties have a right then to except to his action, but if he has acted in accordance with the decree the party deeming himself aggrieved can be heard in an appellate court only on appeal from the decree. In this case the final report of the receivers was made at a subsequent term, but that report is not in this bill.of exceptions, therefore we cannot take notice of it; there is no bill of exceptions covering that term, therefore we do not know what evidence if any was before the court; we do not know that there were at that time outstanding certificates or for what amount or who owned them; we have statements on those points in what purports to be the motion of plaintiffs filed at that subsequent term, but even that motion is not authenticated by a bill of exceptions, and is not a legitimate part of this record. Appellants in their brief say that when the motion was overruled they excepted, but the record does not so show.
If appellants should now take the position that there was no final decree until the order of the court approving the final report of the receivers and discharging them (which position would not be tenable)
We find no error in the record. The judgment is affirmed.