Court Opinion

ID: 7163681
Source: CourtListenerOpinion
Date Created: 2022-07-24 16:18:42.131109+00
Date Added: 2024-06-11T16:15:27.486387
License: Public Domain

On the Merits.
Plaintiffs seek to have a receiver appointed to take charge of the defendant company. The defendant company was organized in 1892 for the purpose of building and operating water works and electric lights in the City of Monroe, and since that year they have been operated by that company. Stock was issued based on the asserted value of the franchise granted by the City Council of Monroe to construct and operate a system of water works and electrict lights for the term of thirty years. The capital stock of the company was fixed at one hundred and twenty-five thousand dollars. No amount having been paid by the stockholders, it became necessary to issue bonds secured by mortgage on the plant, in favor of the Manhattan Trust Co., of New York, trustee for the holders of the bonds. They bear six per cent, interest and are payable in thirty years from their date.
These bonds were sold, and the amount they brought, less discount and commission, was used in paying for the defendant company’s water works and electric light plant.
*149The Board of Directors, elected at a meeting of a majority of the stockholders, consisted of three members. In January, 1893, W. E. Hawks and Samuel B. Hawks, being a quorum of the Board of Directors, met and elected the former as president and the latter as secretary. Irving E. Gibson was elected vice-president. At this meeting it was voted that the Manhattan Trust Company of New York deliver to W. E. Hawks the issue of one hundred thousand dollars, to which we have before referred. It was also voted by these two members at this meeting to pay to the President and Treasurer a salary of two thousand dollars per annum, and all expenses incurred while acting in his official capacity. The following May a majority of the stockholders met at the office of the company to elect a board of directors for the year. The same directors were re-elected and they re-elected the same officers. A resolution was adopted at this meeting of the stockholders ratifying every action taken by the directors, W. E. Hawks and S. B. Hawks, at the meeting held by the directors, to which we have just referred. In November, 1896, at a special meeting of the Board of Directors the President said that during the past three years it became necessary to make extensive .improvements, additions, and extensions tfo the plant at a cost exceeding the revenues; that the floating debt of the company, in consequence, amounted to the sum of sixty thousand three hundred and fifty 45-100 dollars. He, it is stated in the minutes of the meeting, presented an itemized statement and account of the company’s expenditures, which was discussed, and the amount approved, and measures were taken to liquidate the debt.
A large majority of the stockholders met, after notice tfo interested parties. It was voted to approve and ratify the action of the Board of Directors in having authorized the President to issue bonds to an amount not exceeding one hundred thousand dollars, maturing in thirty years, secured by a second mortgage on the company’s property. This was the second issue of bonds. We understand that the bonds were issued and negotiated. The selling price of the bonds, as ordered by the Board of Directors, was to be not less than eighty cents on the dollar.
In the year 1900, at a meeting of the Board of Directors, the advisability of selling the plant was discussed and resolutions adopted to that'end. The year following'the subject of selling was again taken up, and the price and the terms of sale were agreed upon, with the town of Monroe, which was to become the vendee of the defendant *150company. Commissioners were appointed and other steps taken looking to a final liquidation of the company’s affairs.
The same day that this meeting was held, and before it was held, plaintiffs’ injunction was duly served, enjoining the company from selling the property as proposed. Among the grounds of complaint urged by plaintiffs they specially charge that the President has mis-’ managed the affairs of the company, and that he has neglected the plant; that he has misapplied the funds, and that he has made no statement of the business; that he has kept the books of the company at his home, in a distant State, and was conducting the affairs of the company there; that he has committed a number of acts ultra the charter, and that their interests as a minority of the stockholders are in imminent danger.
Defendants and intervenors controvert the allegations of plaintiffs’ petition and aver that the management of the President and other officers was proper and affords no ground for criticism; that the sale proposed was in the interest of all concerned; that the sole idea was to liquidate the affairs of the company in the manner provided in the charter, and pay the debts; and that the city caused -the plant to be appraised by an expert engineer and offered eight thousand dollars more than the value fixed by the expert.
The Judge of the District Court annulled all the proceedings of the stockholders and directors held on April 1st, 1901, looking to the sale of the property and at which commissioners were elected. He appointed a receiver to take charge of the property and business of the company, and directed ithe receiver to hold, administer, and operate the plant for the benefit of the creditors and stockholders. He dismissed the intervention in question. It is from this judgment that the intervenors appeal.
Plaintiffs have arraigned the management -of the company from the beginning of the term of office of the President, in 1893, to date. The salary of the President, and the amounts expended by him, for which he charged the company, although he was at his own home and not rendering service to the corporation at its domicile, are grounds for plaintiffs’ attack. ,,
The salary of the absent President, on the one hand, for his services, though an absentee, were surely ample enough. The indebtedness increasing annually suggests that there were no net revenues. The *151President had just such control as he chose to have. Each stockholder, however limited may have been his interest, had the right to look to him for favorable results. Meeting, with disappointment in this respect, it created some dissatisfaction on the part of plaintiffs, who now not only complain of the salary charged, but stoutly criticise the President for charging lump sums for traveling and other expenses incurred, he avers, in the interest' of the company.
Among the items of charges are amounts for traveling and other expenses from his northern home to Monroe once a year to remain only a few weeks, although, in view of the salary, he owed careful supervision and personal attention for at least the greater portion of his time.
The President, from all appearances, controlled or owned the first of the issues of bonds made by the company. We infer that he was its creditor for a large amount. There was no progressive decrease of the indebtedness. The interest and the capital remained unchanged until 1896. In that year an issue of bonds as large as the first was voted by the Board of Directors and approved at the meeting of the stockholders. True, under the charter of the. company, the Board of Directors, with the approval of the stockholders, had the authority to issue bonds. This authority we do not understand plaintiffs to question, but the amount of the issue is the cause of. plaintiffs’ complaint.
Plaintiffs also inveigh against the President’s management on the ground that he has neglected to keep up the plant; that in consequence of the neglect of the works it has greatly decreased in value. The testimony on this point is conflicting, yet it must be concluded that the machinery and other property of the company was not in a first-class condition-. The testimony of an expert who had closely inspected the plant sets forth that part of the works was not in good order or condition.
Plaintiffs also charge that there was a neglect in supplying wafer and light, and that in consequence the consumers were considerably fewer in number than they would have been had the service been better.
Plaintiffs call attention -to the fact that although the bonded indehC edness amounts to two hundred thousand dollars, yet it was proposed to sell the whole plant for about seventy-five thousand dollars.
An agreement was entered into about the year 1892, between the defendant company and the City of Monroe, by which the latter secured an option to become the owner of the plant at its value -to be ascertained *152in the manner set forth in the agreement. The time fixed for the exercise of this option is not far distant. It is said that the City of Monroe is taking steps looking forward to availing itself of this option. Besides, a statute of the State grants power to municipalities to expropriate property such as that owned by the defendant company. Plaintiffs urge that the statute is not one that can possibly confer a right of expropriation, as, it contends, defendants have acquired a vested right. None the less, defendants are apprehensive that there will be expensive litigation, which they desire to avoid and to the possibility of which they point as a reason for justifying the sale. Be this as it will, we will not anticipate issues which, perhaps, in the interest of all concerned, will be avoided. To our minds, a point has been reached rendering it necessary to change the present situation.
Whether the settlement should be made in accordance with the term3 of the charter by the commissioner and the President, or the settlement and liquidation should be conducted by a receiver, gives rise to questions not free from difficulty in the solving. We are confronted by a condition, we think, recognizing the rights of the one or the other to act. We understand that the receiver is virtually in charge. In view of this fact and for the reason that, under proper and economical administration of its affairs by the receiver, and none other should be contemplated, and we have no reason to infer that any other is in contemplation, justice will be done to all the claims. The day of receiver’s extravagance and of ill-advised steps in liquidating property in their charge is of the past. We believe that the spirit of the law requires the utmost circumspection and care on the part of all those placed in the management of business which is, we may say, placed directly under the eye of the court.
We take it that no one will dispute tjie proposition that property of a corporation is not to remain in the hands of a receiver after there is no reasonable ground to believe that the property of the corporation cannot be so administered as to pay its debts. Sec. 10 of Statute 159 of 1898. This section is imperative in its terms and is not to be defeated by injunction or other proceedings instituted to place the property in the hands of a receiver or to enjoin a contemplated sale. In other words, the administration must be temporary, if, at the instance of creditors, the case is brought within the terms of the section of the cited statute.
*153The shareholders, however their interests may be limited, are entitled to an accounting, and that is about ithe extent of the possibility of the judgment appealed from, should it be made to appear that the property should be disposed of and a final settlement made. To ascertain ithis, the order of sale of the property and the distribution of the assets cannot give rise to damaging expense.
Eor reasons assigned, the judgment appealed from is affirmed at appellants’ costs.
Provosty, J., dissents from the judgment on -the merits.