Marks v. Merrill Paper Co.

KOHESAAT, Circuit Judge (after stating the facts as above). The findings of fact made by the trial judge are, in substance, supported by the evidence. The record conclusively establishes the fact that, at the date of the sale by the Merrill Company of its entire plant to the Grandfather Falls Company, the former was in desperate financial straits, without power of- recuperation. Through what at this time seems to have been deplorable lack of foresight, its substance had been expended in securing a vast factory- equipped with every facility for [19] doing business, except the means for putting it in motion. In so doing, and in its various attempts to remedy this fearful neglect, its ability to provide a remedy was, for all practical purposes, exhausted. Ordinarily, the promoters of such an undertaking, finding themselves hopelessly involved, would have abandoned the enterprise. From the record, it appears that among the stockholders were a number of men who were unwilling to carry the stigma of failure and were therefore disposed to make further sacrifice, and thereby supply the missing-means of propulsion and other needed features. Strenuous effort was made to exdist the co-operation of all the Merrill Company’s stockholders. The action taken was effected without any apparent opposition. [1] Delay, such as is shown in the present action of complainants, instituted as it was about one year after the sale, and at a time when the success of the enterprise seemed likely, and when rights of innocent bondholders and other creditors had intervened, has been held to bar the minority stockholder from his remedy through rescission. Johnson v. Railway Co., 227 Mo. 423, 127 S. W. 63; City Bank v. Merchants’ Bank, 105 S. W. (Tex. Civ. App.) 338; Thompson on Corporations (2d Ed.) §§ 4511, 4512; Mechem on Modern Law of Corporations, § 1582; McCann v. Welch, 106 Wis. 149, 81 N. W. 996; Badger v. Badger, 2 Wall. 87, 17 L. Ed. 836; Sullivan v. Ry. Co., 94 U. S. 806, 811, 24 L. Ed. 324. “Laches is not like limitations, but is a question of the inequity of permitting a claim to be enforced, and it depends on whether, under all the circumstances, the plaintiff is chargeable with a want of due diligence in failing to institute proceedings before he did.” Venner v. Ry. Co., 236 Ill. 349. 86 N. E. 266; Townsend v. Vanderwerker, 160 U. S. 171, 16 Sup. Ct. 258, 40 L. Ed. 383. [2] If, however, there was fraud in effecting the sale, or if the majority took such means for doing an inequity to the minority stockholders, and thereby gained an advantage over them, other remedies may be decreed. Leavenworth County v. R. I. & P. R. Co., 134 U. S. 688, 10 Sup. Ct. 708, 33 L. Ed. 1064; Jones v. Missouri Edison Electric Co., 144 Fed. 765, 75 C. C. A. 631 (the later case citing many other cases). Indeed, this rule is too well established to need citation of authority. But under the facts of this case no such condition existed. There was no property right of complainants to be destroyed, unless a pro rata interest in a deficit can be called .such. It is of no consequence in such a case as was there presented that the plant had cost more than the actual indebtedness — if that were true. The bald proposition was that, with money and credit exhausted, there was no hope of saving it without the advance of further and very considerable funds. Had the minority stockholders joined in the plan to save the investment, there would have been no need of a sale. The majority volunteered to make provision for those who were financially unable to meet the requirements of the new scheme. It would have been unconscionable to compel the majority to advance funds for the benefit of the minority, who were able to pay their proportion and would not. The latter seem to have rested supinely upon what they conceived the [20] majority would have been compelled to do for them in order to protect their own interests. Their attitude was justified neither by the law nor good business sense. From all that appears, the price paid was fair. No other likely scheme was presented. It seemed to be literally that or nothing. Under the circumstances, we are of the opinion that no advantage was taken of complainants or of any other stockholder, or attempted. If that be so, it makes no difference that the sale was to another corporation, composed of practically the same directors and stockholders. The only question involved is that of fairness and good faith. The Wisconsin statute under which the Merrill Company was organized has been construed by the Wisconsin Court in Werle v. N. F. & S. Co., 125 Wis. 534, 104 N. W. 743, to place no other limitation on the power of a corporation to sell its property to pay its debts under like circumstances to those here presented. There, the sale was made to a stockholder, and the property was conveyed by him to another corporation organized by him and other stockholders for the purpose. The objecting stockholder raised the point that it was in effect a sale by stockholders to themselves. To this contention the court said: “But, as indicated, it was in good faith and with the knowledge of all the stockholders, each of whom was at liberty to bid on the sale and become a purchaser if he saw fit to do so. The company could only sell to some one willing to purchase. * * * No .creditor is here complaining, but only a stockholder who had the 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.” In Leavenworth County v. Ry. Co., supra, the court says of a similar state of facts: “Notwithstanding this commingling of officers, the corporations were distinct corporations. They had a right to make contracts with each other in their own corporate capacity, and they could sue and be sued by each other in regard to these contracts, and the question is not, could they do these things, but, have the relations of the parties, the trust relation, if indeed such exist, been abused to the injury of the Southwestern Company?” [3] The authorities are numerous and controlling to the effect that the mere fact that the sale of property of one corporation to a new corporation, the majority of whose governing officers are the same, will not per se vitiate the sale. The question is always one of good faith and fairness, except in cases where public policy intervenes. The facts in the present case bring it within the language of the court in Harts v. Brown, 77 Ill. 226: “The stockholders had been called together, and they were urged to make advances in proportion to the stock they severally held, and thus relieve the company and preserve its existence, but this they refused to do; and as it could not be preserved, and must come to an end by a sale under the power in the trust deed, no reason is perceived why appellants might not become the purchasers at the sale. “They were under no moral or legal obligation to advance their own means, pay the debts, and preserve the property for the use of the other shareholders, who had declined to join in making pro rata advances to relieve it from debt. Appellants seem to have acted fairly, as they purchased at a sum sufficient to pay all the debts of the company. They chose to do so rather [21] than make an effort to obtain all of the property for the debts secured by the trust deed and the certificate of purchase. On the contrary, they gaye many thousand dollars more, that honest creditors might he fairly paid, and the company wrong no one. This does not have the appearance of fraud. Appellants had faith that the enterprise could be carried out with success, and that they could thus save the means they had advanced; but appellees, by the course they adopted, manifested an entire want of confidence in its ultimate success. They were even offered the opportunity to come in, for a considerable period afterwards, and share in the new enterprise, by advancing a ratable portion of the means, but they ail declined; but, when success was achieved, they then saw the advantages they had lost and then sought to set aside the sale and have the property restored to the old company, and thus reap the benefits arising from the enterprise and means advanced by others. To do so, they should show fraud or a want oí power to make tho sale or the purchase by appellants, neither of which has been done.” [4] So far, we find no error in the decree of the trial court. With reference, however, to the taxing of costs, we deem the rule laid down by Judge Jenkins in Eastman et al. v. Sherry (C. C.) 37 Fed. 844, to be the correct one. In that case the witness also presented himself without a subpoena. The court held he was in attendance “pursuant to law”; that he was entitled to mileage only to the extent of the running of the writ of subpoena, viz., 100 miles, and disallowed mileage for the distance traveled by the witness in attending in excess of 100 miles. So here, we are of the opinion that the amount of mileage taxed in excess of $10 was improperly taxed. We see no error in allowing witness fees to the two nominal defendants. They were compelled to attend by the command of the several subpoena, when their own interests did not make it necessary; and have the right to be indemnified to the extent of the regular witness fees. No error was assigned to the allowance of items for postage, telephoning, telegraphing, and express charges aggregating $8.65. We are unable to say on the record that the trial judge abused the discretion vested in him in such case. Further assignments of error to the taxing of costs, we do not deem well taken.' The amount of mileage taxed and allowed to Brazeau in excess of 5 cents per mile for 100 miles and return, to wit, $166.10, may be deducted from the allowance of costs, on the authority of Pine River Logging Company v. U. S., 186 U. S. 279-297, 22 Sup. Ct. 920, 46 L. Ed. 1164. Otherwise the decree of the trial court is affirmed.