Court Opinion

ID: 4936044
Source: CourtListenerOpinion
Date Created: 2021-09-24 01:15:26.760884+00
Date Added: 2024-06-11T08:14:41.286261
License: Public Domain

SAYAGE, J.
Action to recover the sum of two thousand dollars, the balance claimed to be due on defendant’s subscription for thirty shares of the capital stock of the New England Milk Company, a corporation organized under the laws of this state. The plaintiff alleges that this claim has been assigned to him by the corporation. The defendant sets up several defenses, technical and substantial, only one of which, however, do we find it necessary to consider.
An examination of the evidence i-eveals the following material facts. The corporation in question was organized in June, 1895. The plaintiff and defendant were both among its promoters and incorporators, and they, with one O’Bierne, constituted its first board of directors. The purposes of the corporation were to carry on a general dairy business, and to buy and sell milk and cream. The par value of the shares was one hundred dollars each, and the capital stock was fixed at one hundred shares.
At the organization, the plaintiff and the defendant each subscribed for thirty shares, and O’Bierne, ten. The plaintiff paid his subscription in full, three thousand dollars. The defendant paid one thousand dollars on his subscription, and this suit is brought to recover the balance, which it is admitted has not been paid. Subsequently other shares of stock were issued and paid for. And on November 9, 1896, the date of the alleged assignment of this claim by the corporation to the plaintiff, there had been issued in all seventy shares of stock, all of which had been paid for, and all of which were then owned by the plaintiff, O’Bierne and one W. H. Cusick. The only other interest in the capital stock, at that time, was the defendant’s interest, by virtue of his subscription for thirty shares of the stock, and his payment of one thousand dollars upon his subscription. But no certificate of stock had ever been issued to the defendant for any amount.
After the corporation was organized, it engaged in the milk business, buying milk in Connecticut, transporting it to Boston, *167and there selling it to milk dealers. By contract with a railroad company, it had a special car for the transportation of its milk. The business was continued up to the date of the assignment, and the plaintiff testified that it amounted to $75,000 a year. During all the time that the corporation was engaged in business, the plaintiff owned and operated a private milk route, for the sale and distribution of milk in Boston, on his own account, and he purchased part of his milk from the New England Milk Company. The defendant continued to be a director of the corporation until July 21, 1896, when a new board of directors was elected, consisting of the plaintiff, O’Bierne and W. H. Cusick. These gentlemen continued to be directors until the assignment of this claim was made in the following November. Dissensions arose between the plaintiff and defendant respecting the management of the corporation, which fact is only important as throwing some light upon the transactions which followed.
In September or October, 1896, negotiations were entered into between the directors of the New England Milk Company and the managers of the Elm Farm Milk Company, a rival milk company, doing business in Boston, looking to a withdrawal of the former from business.
This result was accomplished by a series of contracts entered into by the interested parties, November 9, 1896, to take effect as of November 1. The plaintiff, O’Bierne and W. H. Cusick were all the directors of the New England Milk Company, and owned all the capital stock of the company which had been issued, and which was all of the capital stock except the defendant’s interest. O’Bierne and W. H. Cusick transferred their thirty-five shares of stock to the plaintiff, (but whether as the result of a sale or for convenience merely does not appear), and the plaintiff sold and transferred these with his own thirty-five shares, seventy shares in all, to the Elm Farm Milk Company for seven thousand dollars. The plaintiff, who was general manager of the New England Milk Company, delivered all of its tangible assets, consisting of a milk shed, cans, separator, boiler and' other articles used by it to the Elm Farm Milk Company; the plaintiff also sold his private milk *168route in Boston to the same purchaser for six thousand dollars; the plaintiff assumed the liabilities of the New England Milk Company, and gave an indemnifying bond; and the New England Milk Company, in pursuance to a vote of the plaintiff, O’Bierne and W. H. Cusick, as directors, assigned to the plaintiff all debts and claims due to the corporation. It is under this assignment that the plaintiff derives his title to the claim in suit. The defendant contends that this assignment is void, because it was not executed in conformity to the by-laws of the corporation; he further contends that it is void as to him, because it is fraudulent. For the purposes of this case, we assume, but do not decide, that the execution of the assignment was legal.
This brings us directly to a consideration of the other, defense, which raises the simple question whether this assignment gave the plaintiff a good title to the claim sued, so as to enable him to enforce it against the defendant.
The various contracts of November 9th were all component parts of one transaction, one trade, and were all contrived and agreed upon to accomplish one purpose. We cannot consider the assignment alone. We must look to all parts of the transaction, as well as to its purpose. In form, the principal trade was a sale of all the issued stock of the New England Milk Company; in substance, it was the sale of all the business and property of the corporation, except the choses in action assigned to the plaintiff. Nothing was left for the corpoi'ation. Even its good will was lost. Such we cannot doubt was the real intention of the parties. Such was the purpose of the purchaser, and that purpose, we think, was understood, and its accomplishment aided, by the plaintiff.
The plaintiff claims, indeed, that the transaction was in this respect merely a sale of stock. But the evidence satisfies us that it was adopted as a- convenient, though perhaps not a strictly lawful mode of transferring to the purchaser the property of the corporation. We think this was intended by the parties. The purchaser understood that it was buying all the stock of the corporation in which any one had an interest, and as sole stockholder, it took and used the property of the corporation. It took possession of the property, *169as directed by tbe plaintiff; it carried out tbe contracts with tbe milk producers; it continued to run tbe special car; it obtained the good-will and trade of tbe corporation. Tbe plaintiff, wbo was its treasurer, and after tbe sale of stock, tbe only officer of tbe corporation, ceased to exercise any care or control over its property, and claimed at tbe trial of tbis case that be did not know, of his own knowledge, what bad become of it. Tbe purpose of tbe transfer of tbe stock is evident. It was to wind up tbe business affairs of tbe corporation, and take it out of tbe field of competition. Tbe New England Milk Company was merged in,—or rather was swallowed tip by—tbe Elm Farm Milk Company, its competitor. Since then tbe former has possessed only a theoretical existence. It has possessed no assets. It has had no good-will. It has transacted no business. It has kept no books of account. It has bad no directors, and no corporate meetings. It has apparently descended to tbe realm of shades of departed corporations. Tbe purchasers of its capital stock bad no use for tbe corporation after it bad been sold out of business.
Now, it needs no argument to show that by these combined transactions in which the plaintiff participated, and by which be gets bis title to tbis claim, tbe value of tbe capital stock which tbe defendant is asked to pay for here, was utterly destroyed.
Although tbe tangible corporate assets of tbe New England Milk Company all passed into the possession of the Elm Farm Milk Company, and although tbe business and good-will of tbe former company passed to the latter, tbe New England Milk Company received nothing out of tbe trade. But the plaintiff was enabled thereby to sell his stock at par, and to sell bis private milk route for six thousand dollai’s; and in addition be now seeks to recover two thousand dollars on a subscription for stock in tbe wrecked corporation, which was rendered worthless by tbe acts of the directors, in which be participated. By resorting to tbe sale of stock as a means of transferring tbe corporate property,— and that is what was really done,-—-the proceeds of tbe sale went into tbe pockets of tbe plaintiff, wbo then also held tbe stock of bis associates, and not into tbe treasury of tbe corporation. Tbe plaintiff *170received the entire benefit of tbe trade, whatever it was, and the defendant has got nothing. On the other hand, if the corporate property had been sold, in form, as it was in effect, to the Elm Farm Milk Company, the proceeds would have gone into the treasury of the New England Milk Company, and would have inured to the benefit of all the stockholders proportionately, to the defendant as well as to the plaintiff. For the defendant, though he held no certificate, was a stockholder. Chaffin v. Cummings, 37 Maine, 76.
An examination of the actual results of the transaction show this in even a clearer light.
The book-keeper of the corporation, a witness for the plaintiff, testified that on November 1, 1896, the cash on hand was $349.79; bills considered good amounted to $4,781.94. These items, amounting to $5,131.73, came to.the plaintiff by assignment. The proceeds of the sale to the Elm Farm Milk Company were $7000, and if the unpaid subscription of the defendant, $2000, was an asset, as the plaintiff claims it was, the total assets of the corporation amounted to $14,131.73. There is besides an item of doubtful accounts, $2,547.87, which we do not take into account. Prior to November 9, 1896, all of these assets belonged to the corporation, and the defendant had a right to have their value, which it seems amounted to the sum of $14,131.73, if he paid the balance of his subscription, or $12,131.73, if he did not, applied to the purposes of the corporation. The liabilities amounted to $8,529.72. After payment of the debts, there would have remained, in the one case $5,602.01 for all the stockholders, or $3,602.01 in the other case. The defendant would have been entitled to thirty-hundredths of the former sum or ten-eightieths of the latter, according to whether he- had paid the balance of his subscription or not. The defendant not having pa,id, the plaintiff received the net sum of $3,602.01. The defendant, although he had contributed one-eighth of the capital stock, received nothing. So far as the defendant is concerned, it is immaterial in what proportions the retiring stockholders received the money, relatively to each other, if the plaintiff was acting for *171them, nor whether the plaintiff by assuming the bills payable and taking the bills receivable was a gainer or loser. We have only to consider the nature and effect of the plaintiff’s acts so far as they affect the defendant’s rights. The plaintiff now seeks to recover $2000 more of the assets for his own use, and this, if allowed, will make a total amount of $5,602.01 received, in one way and another, by the plaintiff, out of the trade; while the defendant will have a minority holding of thirty shares in a corporation which the plaintiff and his associate directors have stripped and made derelict.
In view of the circumstances of this case, may the plaintiff be permitted to recover? We think not. The acts of the plaintiff on November 9, the sale of his stock, the delivery of the corporate property to the purchaser of the stock, the obliteration of the business and good-will of the corporation, were all for his personal benefit, and in entire disregard of the rights of the defendant as a stockholder. These acts were a breach of the trust duties which the plaintiff as a director owed to the defendant as a stockholder; as to the defendant, they were fraudulent. The plaintiff did not use towards the defendant that good faith which the law, as well as good morals, requires of a director of a corporation. A director may sell his stock freely. That is his right. But a board of directors may not sell all the property and business of the corporation under the guise of a sale of their stock, and thereby receive the entire proceeds of the sale of the corporate property to their own private use. Nothing can be plainer than this. The proposition is elemental that a director in dealing with corporate matters must exercise the power with which he is intrusted for the common interest of all the stockholders, and not for his private interest. To hold, in this case, that the plaintiff may recover on a subscription for stock which he himself has rendered of no value, would be as much as to say that a director may stab a stockholder with one hand, and at the same time pluck him with the other.
The plaintiff claims that the defendant was cognizant of the trade proposed with the Elm Farm Milk Company, and with full knowledge of the facts allowed the corporation to receive the bene*172fits of the contract, and that therefore he is estopped to avoid the assignment. But the evidence fails to show that 'the defendant was informed of all the facts, or how his rights were affected, until weeks after the trade was consummated. Besides, he is not seeking to avoid anything the plaintiff has done under the assignment. He is simply resisting the attempt of the plaintiff to enforce it against him. This is the first opportunity he has had to resist. He is not estopped. The plaintiff gained no rights against the defendant by virtue of the assignment.
As the plaintiff cannot recover as assignee, we do not consider the account in set-off filed by the defendant, which is against the assignor, the New England Milk Company.

Judgment for defendant.