Werle v. Northwestern Flint & Sandpaper Co.

Cassodat, C. J. 1. It is found by the court, and is undisputed, ' that the plaintiff was one of the directors of the defendant company, and as such acted with the board of directors continuously from the time the company was first organized down to the commencement of this action, being a period of more than twenty-one months. During that time he had full knowledge of the several meetings of the stockholders mentioned in the foregoing statement, and the proceedings and action of such meetings, and the several meetings and actions of the board of directors. There is no ground for claiming any fraud, or deceit, or circumvention, or undue influence practiced by the defendants, or any of them, on the plaintiff in any of the transactions mentioned in the foregoing statement. After a year’s experience the company was found to be greatly embarrassed for want of funds to pay its debts and continue the business. The pressure for the- payment of debts by the creditors of the company was such as to result in the holding of several meetings by the stockholders of the company to devise ways and means for-paying the debts of the company and continuing its business. The raising of money for such purposes under such circumstances by levying an assessment upon the stockholders of the-company could not be resorted to, for the simple reason that none of the stock was assessable. After repeated consultations the attempt was made to raise the requisite amount of money by borrowing the same and pledging the property of the company as security; but it was found that no more than [540] about two thirds of the amount of the indebtedness could he thus raised, to say nothing about working capital. Einally, to “avoid judgment” in favor of the creditors, “or bankruptcy proceedings,” at a special stockholders’ meeting called for the purpose and held October 21, 1901, the resolution mentioned in the foregoing statement was adopted by a vote of 315 to 50; the plaintiff being the only person voting in the negative. The question presented is not whether the management and administration of the affairs of the company were the wisest possible. It is enough to know that the pi’oceedings had, the conclusions reached, and the subsequent action of the board of directors in obeying and giving effect to such resolutions seem to have been free from any and all fraud, deceit, circumvention, or undue influence, and made in good faith and with the purpose of safeguarding the rights and interests of all the stockholders. The principal contention seems to be that the conveyance -of the entire property of the company, pursuant to the authority, power, and direction thus given by the stockholders, to one of their number, Euclculc, and by him conveyed to a new corporation, the Wausau Sandpaper Company, organized by him and other stockholders for the purpose, was in legal effect a conveyance directly to themselves, and hence void in law. The right to make such conveyance, when so authorized, empowered, and directed, cannot be seriously doubted. Stripped of verbiage not applicable here, the statute declares that: “Every such corporation . . . shall have the powers of a corporation conferred by these statutes necessary or proper to conduct the business or accomplish the purposes prescribed by its articles, . . . and may, by a vote of a majority of the •stock given at any regular meeting or'at any special meeting •duly called for the purpose, sell and convey or authorize to be conveyed all or any portion of the property owned by it, •whether real, personal or mixed.” Sec. 1775, Stats. 1898. [541] Tbis court bas bad occasion from time to time to consider tbe language thus quoted, but bas never questioned tbe power to so convey when so authorized. Shoemaker v. Washburn L. Co. 97 Wis. 585, 594, 595, 73 N. W. 333; Consolidated W. P. Co. v. Nash, 109 Wis. 490, 498, 85 N. W. 485; Marvin v. Anderson, 111 Wis. 387, 392, 393, 87 N. W. 226. 2. It is contended, moreover, tbat tbe transaction was void as a matter of law, because tbe sale and conveyance was made to a stockholder of tbe corporation. But, as indicated, it was in good faith and with tbe knowledge of all tbe stockholders, each one of whom was at liberty to bid on tbe sale and become a purchaser if be saw fit to do so. Tbe company could only sell to some one willing to purchase. In tbis last case (Marvin v. Anderson, 111 Wis. 387, 87 N. W. 226) it was held tbat “a solvent, going corporation bas tbe same right to sell its property in tbe regular course of business, regardless of whether tbe vendee is a stockholder of the corporation, as a natural person.” So it has been held that a corporation-may make a valid assignment of all its property and assets for the payment of its debts in the manner and form and to' the effect prescribed by the statute. Garden City B. & T. Co. v. Geilfuss, 86 Wis. 612, 616, 57 N. W. 349. So it has been held that “the board of directors of an insolvent corporation has power to make a voluntary assignment of all its property for the benefit of its creditors, without the authority or consent of its stockholders, unless restrained by its charter or other legal enactment.” Goetz v. Knie, 103 Wis. 366, 369, 79 N. W. 401, 402. So it has been held that “an officer and director of a going corporation may purchase its outstanding obligations at a discount for his own benefit, and enforce them in full, where he owes no duty to the corporation, inconsistent with such purchase, to act for its benefit.” Glenwood Mfg. Co. v. Syme, 109 Wis. 356, 362, 85 N. W. 432, 434. No creditor is here complaining, but only a stock542 bolder, wbo bad tbe same right and opportunity to purchase as any other stockholder. The result of the transaction was to pay and satisfy all the debts of the corporation. It was, in effect, for the benefit of the creditors of the corporation. The case presented fails to show any unlawful diversion of the property of the corporation by the majority of the stockholders which entitles the plaintiff, as a minority stockholder, to any relief in equity. Rothwell v. Robinson, 44 Minn. 538, 47 N. W. 255; Skinner v. Smith, 134 N. Y. 240, 31 N. E. 911. 3. Nor do we think the sale and conveyance should be set aside merely because there was a delay of about ten months in recording the amendment to the articles of incorporation wíhich authorized the increase of the capital stock and the number of directors from three to five. The amendment was recorded on the day the conveyance was made. The delay was a mere inadvertence. The five directors were all chosen by the stockholders and acted as such, apparently without any objection from any one or any question being made as to their right to so act; and they acted in pursuance of authority, power, and direction expressly given by the stockholders themselves. No one questions their eligibility to hold the office. It is well settled that even “where a person not eligible to the office is declared elected, and no stockholder objects or takes legal proceedings to test the right to the office, and such person is allowed to perform the duties of his office, he becomes ah officer de facto. As such his acts cannot be objected to on the ground that he was not a legally elected director. Neither corporate creditors, nor the corporation, nor the stockholders, nor the director himself is allowed to raise this objection in that manner. The remedy is to oust him by quo warranto or to enjoin him as a usurper. But after he is allowed to become a de facto director his title to office cannot be attacked collaterally, nor can his acts be repudiated on that ground. A director, as a de facto director, may bind the company by his acts, if allowed to continue in his position.” 2 Cook, Corporations (5th ed.) § 623. [543] This is in' harmony with the rulings of this court. Heinze v. South G. B. L. & D. Co. 109 Wis. 99, 105, 85 N. W. 145; Barthell v. Hencke, 99 Wis. 660, 662, 75 N. W. 952; Badness v. Braunborg, 73 Wis. 257, 282-286, 41 N. W. 84. It is conceded that the company was legally incorporated and ■organized and continued as such corporation during all tbe time in question. We find no ground for disturbing the judgment. By the Gowrt. — The judgment of the circuit court, appealed from, is affirmed.