Hartley v. Pioneer Iron Works

Woodward, J.: In October, 1896, William L. Bass, Samuel H. Millildn and. James Hartley were the directors of the Pioneer Iron Works, the 480 shares of stock being owned as follows: Alexander Bass, 122 shares; William L. Bass, 101 shares; Mrs. William L. Bass, 51 shares; Samuel H. Millikin, 92 shares,; James Hartley, the plaintiff, 39 shares;- Alfred Mecke, 5 shares, and the Pioneer Iron Works,, in its corporate capacity, 70 shares. .It is conceded that “in or about October and November, 1896, it was agreed among the shareholders and directors of defendant that these seventy shares should be sold, forty-eight thereof to Samuel H. Millikin, twenty thereof to James Hartley, and two thereof to Alfred Mecke, at the price of two hundred and fifty-seven dollars per share,” but there is nothing said as to an agreement by the interested parties whether these shares of stock, which had been purchased by the corporation,, should carry dividends or not. On the 22d day of October, 1896, the directors above named met and adopted a resolution: “ That the company sell to Messrs. Millikin, Hartley and Mecke the seventy shares finally purchased from the estate of Henry Frank© for the sum of $257.17 per share, with the understanding that the company declare a dividend to allow them to pay for the same.” Messrs. Millikin and Hartley, two of the proposed purchasers, voted in favor of this resolution, and Mr. Bass voted against it.i This was likewise true, of the subsequent resolution, adopted on the same day, which provided that “ we declare a dividend of $87.38 per share só as to allow Messrs. Millikin, Hartley and Mecke to pay for the seventy shares. Messrs. Alexander Bass, W. L. Bass and Mrs. W. L. Bass to apply their dividend toward liquidating the debt of Mr. W. L. Bass, Consuelo mortgage.” It thus appears that Messrs. Millikin. and Hartley, occupying a fiduciary relation to the other [109] stockholders of the defendant corporation, were voting dividends to themselves to pay for the stock which belonged to all in common, and this, so far as the evidence goes, without any consent on the part of the stockholders generally, except as to the price which was to be paid for the stock. At the time thé consent to the sale of the stock was given no dividends had been declared, and the natural presumption would seem to be that the sale contemplated the stock as it stood, not with dividend's declared at the option of the purchasing parties and added to the stock, but the stock as it existed at the time of the agreement. The rule is well established that no man can be a vendor and a purchaser at the same time (Hill Trustees [4th Am. ed.], *160), nor will it permit him, as a director of a corporation, to be beneficially interested in transactions which are against the common interests of the corporation. (Redhead v. Parkway Driving Club, 148 N. Y. 471, 474, and authority there cited.) It is true that contracts of this nature, in a purely private corporation, are not void, but voidable at the election of those who are affected by the fraud. (Skinner v. Smith, 134 N. Y. 240, 242, and authorities there cited.) In the case now before us Mr. Bass, as one of the interested parties, not only refused to acquiesce in the vote, but he offered a resolution, which was defeated by the votes of the two interested directors, that the company “ declare a dividend for an amount suitable for Messrs. Millikin, Hartley and Mecke, to take over the seventy shares, and what may be to the credit of Mr. Alexander Bass, Mr. W. L. Bass and Mrs. W. L. Bass to be credited to the Consuelo account.” The interpretation of this resolution, as afforded by the subsequent action of the corporation, was that it was proposed that a dividend be declared upon the active stock sufficient to enable the plaintiff and the other proposed purchasers to pay for the seventy shares out of the dividends upon the shares that they then held, and that this enlarged dividend to the other stockholders should be used in discharging an individual indebtedness to the corporation owed by W. L. Bass. That is, if the dividend had been fixed at $132 per share, it would have resulted in $17,952 upon the 136 shares owned by Messrs. Millikin, Hartley and Mecke, while, the agreed price of the seventy shares, $257.17, would have aggregated a trifle over $18,000, and the other stockholders, instead of making the plaintiff and his fel [110] low-purchasers a present of $87.38 per share upon seventy shares of stock,, would have realized a considerable sum of money or credit in the discharge of the obligation -of W. L. Bass. However this may be, no transfer of the stock appears to have been made under the-resolutions adopted as above set forth, but on the 25th day of November, 1896, at a meeting of the directors, it was moved by W. L. Bass “ that with the various letters at hand from Mr. Alex.. Bass affording his approval, and with Mr. W. L. Bass’s letter of November 25, 1896, at hand, affording his approval, a dividend be declared, so that the seventy shares at present unissued can be taken, up by Messrs. Millikin, Hartley and Mecke, and that the annual report will show all stock outstanding in full, that portion of dividend accruing from Messrs. Milliken, Hartley and Mecke’s interests to go towards paying for the seventy shares; that portion of dividend accruing from Mrs. Bass and Mr. W. L. Bass’s interests to be credited to the Consuelo indebtedness, while that portion of the dividend accruing from Mr. Alexander Bass’s interest be held in suspense awaiting more definite instructions prior to crediting Consuelo account,” etc. This resolution appears to have been accepted unanimously, though the record does not declare it to have been adopted, and must be deemed to have superseded the resolutions, of October twenty-second, under which no action had been taken.. This resolution, in its essential particulars, so far as this controversy is concerned, is to the same effect as the defeated resolution of October twenty-second; it does not name the amount of the dividend, nor does it declare any intention of extending the dividend to-the shares of stock which were about to be issued. The language-of the resolution is that “that portion of dividend accruing from. Messrs. Milliken, Hartley and Mecke’s interests (the interests which belonged to them when the resolution Was adopted) to go towards.' paying for the seventy shares.” It seems, however,, that Alfred. Mecke, one of the purchasers, acting under the directions of Mr.. Millikin, credited each, of the stockholders with a dividend of' $87.39 upon the books of the corporation, including the seventy shares which had been transferred to Messrs. Millikin, Hartley and Mecke under date of December 1, T896. Things appear to have-remained in this situation until July, 1898, when a settlement took place between W. L. Bass and the defendant corporation, and the I [111] bookkeeper, under the orders of the president and Mr. Millikin, secretary and treasurer, amended the dividend of December, 1896, making it $132 and some cents per share upon the stock which was actually issued at the time of the declaring of the dividend of November 25, 1896, thus conforming the transaction to the theory of W. L. Bass and to the requirements of justice. The resolutions of October 22, 1896, in view of the manner, of their adoption and what, subsequently transpired, are without any force or effect,; they could not afford the basis of any action on the part of Mr. Mecke in making the entries of credit to himself and liis fellow-purchasers in December, 1896, and the dividend directed in November was upon the interests of the several stockholders as they appeared before the transfer of the seventy shares of stock to the plaintiff and others, and was purely a matter of mathematics. The dividend was to provide a sum of money, based uj>on the interests of Messrs. Millikin, Hartley and Mecke, to enable them to purchase these seventy shares of stock, not to make them á present. The determination of the learned trial court that the plaintiff had failed to establish his right to share in the dividend upon the twenty shares of stock which were transferred to him in December, 1896, is justified by the evidence, and the judgment appealed from should not be disturbed. The judgment appealed from should be affirmed, with costs. Bartlett and Hirschberg, JJ., concurred; Hooker, J., read for reversal, with whom Jenks, J., concurred.