Horning v. Louis Peters & Co.

Brooke, J. (after stating the facts). It is, we think, apparent that all the contracts above outlined or set forth must be construed together to ascertain the intention of the parties. A consideration of their contents and the testimony introduced leads to the conclusion that in December, 1910, the Gustav A. Moebs Co. was in such financial straits that it was impossible for it to continue in business unless immediate relief was forthcoming. While the nominal assets at that time slightly exceeded the liabilities it cannot be doubted that a liquidation of the concern at that time would not have produced funds sufficient in amount to have cared for the liabilities. Had it been possible at that time to have secured practically the full amount of the indebtedness through liquidation, it is inconceivable that creditors representing upwards of $100,000 would have consented to accept two-thirds of the amount of their several debts in new preferred stock of the corporation and long-time notes for the balance. Confronted, then, with the alternative of furnishing a large amount of additional capital or taking an immediate loss, the creditors chose the former. Construing all the contracts together, we think it is plain that such agreements as were entered into were made with the corporation, the Gustav A. Moebs Co.; that the money to be advanced by the defendants or any of them was to be advanced to the corporation, for its benefit and in the hope that with the additional capital and the advice and co-operation of the individual defendants representing the large creditors, the in [151] debtedness might ultimately be paid. The contract, then, having been made primarily for the benefit of the corporation and only secondarily or indirectly for the benefit of its stockholders, such stockholders including plaintiff cannot prosecute a claim based upon its breach without first making a demand upon the receiver (in this case the trustee in bankruptcy), to commence suit. Talbot v. Scripps, 31 Mich. 268. The evidence is undisputed that no such demand was ever made. Coming to the second question raised by counsel for appellant, i.e., whether there was a breach of the contract to furnish, “moneys necessarily required for the operation and conduct of .the business,” we find that this undertaking on the part of the three corporate defendants appears in the so-called plan for reorganization and is executed by Gustav A. Moebs only. It is true that the underwriting attached to said plan and executed by each of the defendants recites that the signer of the underwriting “does hereby assent to the plan for reorganization of the affairs of the company as outlined in a written instrument dated December 8, 1910, hereto attached,” but this underwriting also contains the stipulation heretofore set forth to the effect that no personal liability is to be imposed upon the signer in undertaking to accomplish the plan. We have no difficulty in reaching the conclusion that it was the intention of the signers to limit their liability strictly to the investment they proposed to make in the preferred stock of the corporation and to the extension of the time granted the corporation upon the balance of their several claims, but even assuming that the contract in question was made directly with the plaintiff and that the limitation of liability referred, as contended, by plaintiff, simply to the initial steps of carrying out the reorganization and had no bearing upon the continuing obligation of the defendants [152] to furnish, capital to the corporation, there is in our opinion no competent evidence either introduced or offered tending to support the contention that there was a breach of such obligation. Upon the completion of the reorganization, the Hoffman Leaf Tobacco Company accepted paper for approximately $31,000. At the time of the insolvency this indebtedness had increased to approximately $84,000. In the meantime Hoffman had indorsed the paper of the Moebs Company for $10,000, and the money for the conduct of the business had been secured thereon. Peters & Company furnished credit additional to that existing at the time of reorganization to the amount of approximately $1,000 so that during the three years the corporation was operated after its reorganization additional credit was furnished by one or other of the defendants to the amount of approximately $64,000. This was a sum nearly equal in amount to the entire common capital stock of the corporation. The only instance pointed out by plaintiff in which a suggestion was made for additional capital, which was not complied with, occurred in January or February, 1911. At that time it was. suggested by Mr. Moebs and Mr. Myers, the secretary, that $25,000 should be made available for corporate uses. It was finally determined that $10,000 should be raised through the indorsement of defendant Hoffman. It is claimed by plaintiff that the failure of the defendants to furnish this additional capital worked to the injury of the corporation. Mr. Myers, the secretary, was asked: “Q. Now, Mr. Myers, will you state in what way was the business handicapped through a lack of money during that period of thirteen months? “A. We did not have sufficient traveling men and we could not do the missionary work necessary to spread out the business, take chances in our cigars, repeat in different localities.” [153] The same witness testified: “A. Yes, that business was done with a pretty sick company and it was going to require a long period of convalescence before we could get it on its feet.” Mr. Moebs while on the stand being interrogated as to the value of the missionary work in the business testified: “Q. Can it be made so that you will know that it is or is not profitable in the future? “A. It is a chance you take; it is a matter of judgment. “Q. It is a matter, that you can try oilt? “A. You try out; yes. “Q. And you tried Lavine out in that territory and it did not prove successful? “A. Hardly. It might have been a success if the necessary advertising and specialty work was done and carried out.” In view of the fact that the plan of reorganization recited that it was not the intention or purpose to extend the business but rather to reduce it, and inasmuch as the only complaint made by plaintiff is that additional money was not furnished for the purpose of expansion or so-called missionary work, it would seem that by no stretch of the imagination can the defendants be charged with a breach of their obligation to furnish necessary additional capital. The affairs of this corporation were at all times under the control of a board of directors of whom Gustav A. Moebs was one. The obligation of the defendants to furnish necessary additional capital was, of course, in any event, limited to furnishing it as and when in the judgment of the board of directors, acting in good faith and without fraud, the same became necessary. There is no evidence in the record of a demand upon the defendants for more capital or credit made by the board of directors and refused by defend [154] ants, nor is there any evidence of fraud or bad faith on the part of the board. We are of opinion that a verdict for the defendants was properly directed and the judgment is therefore affirmed. Ostrander, C. J., and Bird, Moore, Steere, Fellows, Stone, and Kuhn, JJ., concurred.