Court Opinion

ID: 3865224
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:58:56.271357+00
Date Added: 2024-06-11T07:41:31.547666
License: Public Domain

In view of the fact that the decisions of the court heretofore made in this matter have been announced orally, and without assignment of reasons, and inasmuch as my opinion of the merits of the pending motion differs in some respects from that of the majority of the court, I think it useful, not only to state the reasons which constrain me, but also briefly to review the history of this motion up to the present time. *Page 84 
This cause came on to be heard January 20, 1883, on motion for an interlocutory decree appointing a receiver of the Quidnick Company, one of the respondents. Before the hearing was begun a request and assent was made by all parties that all the justices of the court should hear the motion, although it was understood that two of our number were disqualified by reason of having an interest in the event of the suit. To this request we all assented and the hearing proceeded accordingly. The matter was heard upon the evidence solely of the bill of complaint and the affidavit verifying the same; and was argued mainly upon the question whether or not the possession and management of the property of the respondent corporation by the officers thereof was to the disadvantage of the complainants, who claim to be interested in a very large number of shares of the capital stock, and without reference to the question of the general equity of the bill. A decree appointing Mr. Farnsworth as receiver was thereupon passed in consequence of the opinion of the majority of the court; one of the justices, however, finding himself then unable to see in the bill any equity upon which such a decree could properly be based.
When the parties requested that this motion should be heard by all the members of the court, there was undoubtedly implied a promise between themselves that they, and each of them, would undertake the execution of such decision as might be made, and would supply, by their own voluntary concessions, any lack of legal force which might exist, or be supposed to exist, in the decree which might be made. It is not, perhaps, too much to say, that all the justices had the right to rely upon the faithful performance of this implied agreement, since they were requested, presumably for the advantage of the parties, to place themselves in the position of making a decree whose execution might depend solely on the will of the persons against whom it should be directed.
This agreement, so far as we know, was carried out until January 27, when counsel for the Quidnick Company moved before the whole court to dissolve the decree: on the ground, first,
that it was invalid because made by justices not qualified thereto; and second, that it was not justified by the merits of the case; and they at *Page 85 
the same time withdrew their request that the disqualified justices should sit in the hearing of the cause. These justices then withdrew.
On consideration of the cause, as it then stood, it seemed right to all of us who remained that the respondents should then be heard, if they desired, upon the merits of the application, but that they should not be permitted to place themselves in any different position from that required by their own agreement, or to gain any advantage by attacking the validity of the tribunal which they had, in some sort, established by their own act. Decrees were therefore entered pro forma, vacating the decree made on the 20th of January, and making another order in the same words.
The hearing then proceeded on the motion of the Quidnick Company to vacate the order just entered appointing a receiver. On the hearing of that motion the complainants relied, as before, entirely on the allegations and formal verification of the bill.
The bill, as modified or sought to be modified by the amendments and supplement, is brought by Zechariah Chafee and other persons describing themselves as "creditors of the A.  W. Sprague Manufacturing Company, and of the other defendants hereinafter named, as hereinafter stated," and who sue as well for all other like creditors, against the Quidnick Company, the A.  W. Sprague Manufacturing Company, Fanny Sprague, Mary Sprague, Amasa Sprague, William Sprague, Benjamin G. Chace, and Claudius B. Farnsworth. The bill alleges that on the first day of November, 1873, the A.  W. Sprague Manufacturing Company was insolvent, and that the respondents Sprague were stockholders therein and liable for the debts thereof; that they and their said company held 4,022 shares of the stock of the Quidnick Company; that all the remaining shares of said company now outstanding numbered 327, and were then of Edwin Hoyt, and are now of the respondent Farnsworth, as administrator on his estate; that on the day aforesaid the Sprague Company and the respondents Sprague conveyed to Chafee all their estates except stocks in corporations, to secure the payment of certain notes issued by the company for the purpose of retiring their obligations; that immediately thereafter, and in pursuance of an agreement contained in the deed of conveyance, the grantors therein transferred *Page 86 
to Chafee, on the books of the Quidnick Company, all their shares in that company, "by way of pledge and collateral security . . . to secure the "performance of the conditions" of said deed; that thereafter the equity of redemption in said shares was transferred to Fanny Sprague and Mary Sprague in trust for the benefit of the creditors of all said parties; that all the stock so pledged will be needed for payment of the debts so secured; that William Sprague has wrongfully taken into his possession, and he or some of the respondents retain the stock transfer book and record book of the Quidnick Company; that the creditors secured by the deed are the same as those secured by the transfers above referred to; that many persons, including the Quidnick Company, accepted the notes issued in pursuance of said deed, and that the complainants other than Chafee are holders of such notes; that thereafter the Sprague Company and the respondents Sprague made to Chafee general assignments for creditors; that Chafee was elected treasurer of the Quidnick Company, William Sprague being president; that there was made by the Quidnick Company and the Sprague Company an agreement in writing which is fully set forth, and whereby the Quidnick Company was to stock the Sprague mills and print works, sell the goods, and pay the proceeds, over advances, charges, and commissions, to the Sprague Company, which agreement was to terminate at the expiration of thirty days' notice from either party; that under said agreement the mills and print works were run until July 21, 1881, when Chafee was notified by William Sprague as president that the office of treasurer of the Quidnick Company had been declared vacant, and by J.O. Brigham as secretary that the company had voted to terminate the contract above referred to, and that the respondent Chace had been elected treasurer; that Chafee received no notice of the meetings at which such votes were passed, and the complainant believes "the estate of Edwin Hoyt" was not so notified; that Brigham is not secretary of the Quidnick Company; that such meetings were not properly notified, and the proceedings thereat were void and were fraudulently contrived by the respondents Sprague and their counsel, in order to impede Chafee in the execution of his duty to sell the trust property for the purpose of distributing the proceeds thereof among the creditors; that Chafee, *Page 87 
under advice of the creditors, advertised for sale certain parts of said trust property, not including the Quidnick stock; that he afterwards, though claiming such offer to be unnecessary, offered said stock for sale to the company under the provisions of the charter at the price of $300 a share; that such offer was accepted in writing signed by said Brigham as secretary, but payment for the same was not made at the time appointed in writing for that purpose by Chafee, whereupon Chafee advertised the same for sale by auction; that said Spragues made sundry propositions to Chafee for a full settlement with the creditors, which were declined, whereupon William Sprague threatened that he would do all in his power, by litigation and otherwise, to embarrass the sales of the trust estate; that one John Rooney, of Brooklyn, alleged to be a person of small financial ability, offered to purchase all the trust estate upon terms stated in his offer, which is believed to be in the handwriting of William Sprague's counsel, and of which offer, as the bill alleges, "your orators, of course, took no notice whatever;" that Thomas A. Doyle, the brother in law of William Sprague, made in writing to Nelson W. Aldrich, one of the complainants, a proposition for the settlement of the indebtedness of the Spragues, which is fully set forth in the bill; that the respondents Sprague, "acting in collusion with their legal advisers," and for the purpose of impeding the sales of the trust estates, brought actions at law in the name of the Quidnick Company against the Sprague Company, wherein they attached the trust estates, and also filed in this court two bills in equity praying for injunctions against sales of the trust estates, and thereupon applied for and obtained injunctions ex parte and without notice to Chafee, although he and his counsel were easily accessible; that thereby and by reason of the fact that the respondents had widely notified the removal of Chafee as treasurer, he was obliged to stop the business of manufacturing, to the great loss of the trust estate; that Fanny Sprague has commenced a vexatious suit against the Quidnick Company by attachment; that William Sprague and Chace have "pretendedly appointed one Henry T. Sisson as so called agent or manager" of the business of the Quidnick Company, "and under the color and pretence of said Fanny Sprague attachment the said Henry T. Sisson, as your orators *Page 88 
believe, accompanied by said William Sprague and Benjamin G. Chace, have recently taken forcible and armed possession of said mills, ejecting the former superintendents therefrom, and substituting others of their own appointment in their stead, are now threatening and preparing to run said mills on their own account and for their own benefit, regardless of the claims of creditors aforesaid upon the same, and have already, as your orators are informed and believe, got into their hands moneys and other property of said company, which they have converted into money and applied to their own uses, business, and affairs, and have been and are seeking by other modes to get the estates and property of said company into their hands and possession; . . . that since the filing of said bill the said William Sprague, and others acting by his direction and for him, have been and still are in the possession and control of all the real estate, mills, machinery, and manufacturing property of said Quidnick Company, and are running the same for his or their own benefit, without paying the said Quidnick Company or any one on behalf of said company any rent for use and occupation of said premises; that he or they are renting and receiving rent for large numbers of tenement houses and other property of said company; and further your orators believe, and on belief aver, that the said Sprague and his agents are allowing the said estate and property to deteriorate by neglect and want of care and repairs; that the said Quidnick Company, while receiving no rent, income, or benefit from its said property as aforesaid, has paid and is paying the taxes and insurance on all of said property out of a fund held for its benefit by Claudius B. Farnsworth, receiver of said personal property, appointed in this original suit;" that the respondents Spragues and Chace have only a nominal interest in the stock of the Quidnick Company, and that they are insolvent and irresponsible.
The bill prays: first, for an answer; second, "that a receiver may be appointed of all the estate and property of said Quidnick Company, to take, hold, and manage the same under the authority and direction of this court;" third, that the respondents Sprague and Chace be enjoined from meddling with or attaching the property of the company or voting on said stock, and that they be ordered to deliver to the receiver or to impound the books and papers of *Page 89 
the company; fourth, that the respondents be enjoined from prosecuting their actions at law against the Sprague Company, and to dissolve their attachments; fifth, that Fanny Sprague be enjoined from prosecuting her action at law against the Quidnick Company or to dissolve her attachment; sixth, that the respondents be enjoined from meddling with or attaching the Sprague trust estates; and seventh, for general relief.
On the motion to vacate the decree, the respondent, the Quidnick Company, causes to be read the affidavit of William Sprague, who deposes in substance that the property of the company is in good condition and well cared for, and that the mills are at present operated by himself with funds furnished to him by certain persons, whose names do not appear, under a contract that all the profits of the business if any there be, over expenses and interest for the use of money, shall go to the use of the stockholders of the company. The affidavit of Appleton Sturgis is also read, wherein he claims to be the owner of the Edwin Hoyt stock, by virtue of purchase from Charles G. Francklyn, who is executor of the will of Hoyt appointed in New York. In the view I take of the case it is unnecessary to consider this last affidavit.
The question, then, is whether here is any case upon which the decree appointing a receiver should have been made, or upon which it should longer stand. I am clearly of the opinion that upon the allegations of the bill alone there is no such ground. In thus concluding that a decree already made ought to be vacated, it has been necessary to review, not only the ground on which alone the complainants contend that the decree should stand, but also all other considerations, so far as I am able, by which, in any view, it may be defended.
The frame of the bill suggests that the complainants may claim as creditors. They do not allege themselves creditors of the company, but they do say that they are creditors of those who hold nearly the whole of the stock, and hence are substantially entitled to apply, indirectly at least, nearly the whole property of the company to the payment of their debts. To this suggestion three answers, among others, may be made: first, the property out of which they are entitled to be paid, and against which the decree should go under a creditor's bill, is the stock of the company and not the *Page 90 
property of the company; second, they have a sufficient remedy by foreclosure of their pledge, without an appeal to the extraordinary remedy here sought to be maintained, and the remedy by foreclosure has certainly been open to them without objection on any account since July, 1881, when Chafee received notice of the vote removing him from the office of treasurer; third, the relief here asked is not ancillary to any relief prayed in the bill by way of foreclosure of the pledge against the stock, or, even if that were possible, against the company's property, so that the appointment of the receiver is not even a preliminary step toward the payment of the creditors. A bill which does not pray the application of the property of the debtor to the payment of debts can hardly be maintained as a creditor's bill.
But the complainants may be considered, in another view, to claim as stockholders of the company. In this view it is to be noticed that the respondent Farnsworth joins in the application for the appointment of a receiver. Assuming, on the one hand, that those who moved for this decree are all the stockholders, and disregarding, as only nominal, the title of the Spragues to the stock held by them; or considering, on the other hand, that this application was made by the beneficial owners of part of the stock joining with the owner of the remainder against persons who hold a bare legal title to a controlling share; in either view, the case presented is that of a corporation embarrassed in its business and threatened with disaster in consequence of the wrongful action of those who have held that bare legal title, and misused their power thereunder for eighteen months, to the knowledge of all the complainants, without any application to the court for the purpose of enforcing the pledge thereon, which was forfeited six years ago, and since has been held in trust for creditors by the chief complainant in this bill. I do not think such a case appeals strongly to the court for the application of this most stringent remedy.
But the complainants in their argument concede that they cannot maintain the propriety of this decree by reason of any position which they occupy, either as creditors or as stockholders, and they claim that the decree was properly made on consideration of certain facts which they state as follows: They say that immediately after the delivery of the Sprague trust conveyances there was *Page 91 
made a certain contract, whether orally or in writing they do not say, between the Quidnick Company, the A.  W. Sprague Manufacturing Company, and Chafee, acting on behalf of the Sprague creditors, whereby the Quidnick Company, in consideration that the creditors would accept the trust notes, so called, and thereby extend the time for payment of their debts, agreed with the Sprague Company and Chafee that they, the Quidnick Company, for the purpose of securing the best possible settlement of the Sprague debts, would furnish means to operate the Sprague mills so long as such operation should be necessary or convenient for that purpose; and that under the provisions of that contract, and as among the things necessary to be done for the purpose of carrying that contract into full effect, Chafee was elected treasurer of the Quidnick Company, and the written agreement, which is set out in the bill, was made between the Quidnick Company and the Sprague Company. The complainants further say that the respondents Sprague, although they as well as all the other stockholders assented to and approved this contract, have caused votes to be passed by the company violating this agreement by expelling Chafee from his office, and by terminating the written agreement for stocking the mills.
To this claim of the complainants there are, as it seems to me, several sufficient answers. In the first place, the contract which is said to have been broken is not alleged in the bill, and no proof is tendered that it was ever made. Assuming, however, as the complainants insist we should, that we may act on the common knowledge that such a contract does exist, and assuming further that there is such common knowledge, although it has never come to my ears until detailed by the counsel in this hearing, there are still objections which seem to me conclusive against the propriety of this decree. The remedy by action at law for breach of contracts of this nature is ordinarily thought to be the only remedy; the complainants do not pray specific performance of the contract, and if they did it could hardly be granted; and so far as I can see they can have no valuable remedy under this bill for the injury they say they have suffered, unless their prayers be construed to be in substance an application for the appointment of an officer who shall, under direction of the court, specifically perform the *Page 92 
contract in the behalf and at the cost of the Quidnick Company. I am not willing to share the responsibility of directing such an officer.
In fact, it seems to be evident that no decree which could be made under this bill would afford the complainants relief from the embarrassments under which they suppose themselves to labor. If we should allow this decree to stand, and the respondents should thereupon at once answer, admitting all the allegations of the bill and joining in the prayers thereof, we could do nothing further, so far as I can see, than to make a decree enjoining the respondents as prayed and discharging the receiver. It would hardly be claimed that the court should retain possession of the property indefinitely for the convenience of the complainants. In justice to the complainants, however, it is right to state that they explained at the argument that they hope, before this bill shall be finally heard, to set on foot or prosecute such measures, whether by litigation or otherwise, as will effectually relieve their present difficulties and enable them, without apprehension of further danger, to discontinue this bill.
The evidence, moreover, is by no means clear that the respondents are doing any injury to the company property. The respondents claim that the personal property of the company being in the hands of a custodian, and the company being, upon proceedings in this court, enjoined from contracting any debt, and by consequence prevented from doing any business, the president of the company has been able to make an agreement with some persons of substance by which he continues the business, keeps the property in good order, and keeps the rates of insurance at the lowest point, retains the operatives in employment at the mills, and pays the profit of the business, if any there be, to the use of the stockholders, without involving them in liability for any losses which may be made. The affidavit of William Sprague to this effect is not contradicted, save by the general allegations of misconduct contained in the bill. If we should retain the receiver in office, and advise him to the best of our ability as to the management of the mills, I could not venture to hope that the condition of the property would be more favorable to the complainants.
I am of opinion, therefore, that the decree should be vacated.
Order accordingly. *Page 93