Plaintiff and defendants were stockholders in a corporation known as the Farmers’ Elevator Company, of Pinconning, Michigan, organized and incorporated under the laws of this State in July, 1911, with an authorized capitalization of $12,000. It was in its inception a local promotion by certain citizens of Pinconning and vicinity, optimistically inaugurated with a view to building a large elevator at Pinconning as headquarters and acquiring control of the business in that vicinity and adjacent points,
There was an elevator at Pinconning in active operation when this gompany was organized, which had capacity to handle the naturally tributary business of the village and proved an active competitor. The project to develop feeders for the company’s elevator by organizing buying stations and building small elevators at surrounding towns and stations to control the larger territory did not materialize. With all its capital invested in a plant, the company borrowed money from the beginning with which to run its business. It obtained loans from banks in Pinconning, Saginaw and Detroit, secured by indorsements of defendants and plaintiff. Whether it at any time during its career was run at a profit is a matter in dispute. In the fall of 1915, its outstanding stock amounted to $25,300, its plant had cost over $25,000 and its indebtedness amounted to approximately $16,-000, about $15,000 being bank paper upon which payment was urged. That the company was involved in debt and its financial condition a subject of solicitous discussion, particularly with defendants and plaintiff who were the principal stockholders and indorsers of its paper, is undisputed.
■ — “taking action to relieve certain of the stockholders of said corporation from their personal liability of said corporation. It is the opinion of the officers and directors of said corporation that the only way in which the debts of the corporation can be paid will be by the sale of the property. You are hereby notified that this meeting is called for the purpose of taking such corporate action as may be necessary to dispose of and sell the property of said corporation, in order to pay its debts.”
A meeting was held pursuant to notice, on November 2, 1915, at which 15 stockholders were present representing $22,060 of the capital stock. The record of that meeting shows that after it was called to order by the president and the notice stating its purpose read, free discussion was invited and several projects to relieve the situation were proposed and discussed. Amongst other things the record contains the following:
“Mr. Reardon and Mr. Naumes also stated that the persons individually liable for the debts of the corporation held more than 80% of the stock and that they were willing to enter into any arrangement to continue the businqss<;of said corporation whereby they would be relieved from their personal liability for the debts. Mr. Reardon, Mr. John Klumpp, Mr. Fred. Klumpp and Mr. Naumes and Mr. Charles Marcoux, each offered to surrender their stock without cost if they could be relieved from their liability on the notes.”
Plaintiff does not deny the correctness of this record as to his making such offer, which is sustained by other witnesses, but says:
“I might have said it myself for all I know, but itPage 510was simply a general discussion among the large body of men.”
During that discussion Mr. G. C. Leibrand, who represented 50 shares of stock, after suggesting a receiver, further suggested the propriety of auditing the books of the company to determine how the losses had arisen, but on a motion that he be made chairman of a committee for that purpose declined to act on such committee and that subject was not pursued further.
After full discussion the following resolution was finally adopted:
“Whereas, the said Farmers’ Elevator Company, a corporation, is largely in debt, with no money with which to pay the same, therefore be it—
“Resolved, that the property of said corporation, including all real and personal property of whatsoever nature, be conveyed to William Reardon, as trustee, to sell and dispose of same to pay the debts of said corporation, said debts amounting to $14,775.00, hereby authorizing said trustee to dispose of and sell said property for a sum to pay said debts or any amount in excess of same. Be it further—
“Resolved, that the officers of said corporation are hereby authorized and empowered to make, execute and deliver to said William Reardon, as trustee, prop-' er conveyances to carry out the purpose of this resolution.”
' Of the 15 stockholders voting the recorded vote of members and • shares shows, voting “yes”: George Barie 60, Charles Bock 10, William' Fleis 5, Gilbert W. Hand 1, F. W. Klumpp 400, J. C. Klumpp 270, V. B. Klumpp 155, E. H. Klumpp 120, Charles Marcoux 451, E. C. Marcoux 68, Martin Naumes 81, William Reardon 515, making 2,136 shares, of $21,360 par value; while G. C. Leibrand voted 50 shares and two other stockholders 10 shares each, total number of shares 70, par value $700, against the resolution.
On the same day, November 2, 1915, the following agreement was signed by the parties to this suit:
Page 511“Pinconning, Mich., November 2, 1915.
“We, the undersigned, for and in consideration of the mutual promise to pay the sum of $500 by each of the undersigned, for the purpose of forming the initial capital for the organization of a new corporation to take over the assets of the Farmers’ Elevator Company and pay the debts of the Farmers’ Elevator Company, do hereby severally subscribe and agree to pay the sum of $500 to William Reardon, as trustee for the purposes above set forth, on or before .... days from the date hereof, all on condition and with the promise that said Farmers’ Elevator Company take proper and necessary corporate action, conveying the assets of said Farmers’ Elevator Company to said William Reardon, trustee.
“Martin Naumes,
“William Reardon,
“John G. Klumpp,
“Charles Marcoux,
“Fred. H. Klumpp,
“EDward H. Klumpp,
“George Barie,
“Val B. Klumpp.”
The property was conveyed to Reardon as trustee pursuant to the resolution adopted at the stockholders’ meeting and efforts were made by h|m to sell the same to various outside parties interested in the elevator' business without success and he then tried to sell it by auction. Notice of a public sale to the highest bidder was advertised in the Bay City Times-Press, which had a circulation of from eight to ten thousand copies, and the property was offered at public sale at the time and place noticed, but no buyers appeared, nor were bids made except by Mr. Hand, the attorney for the company since its organization, who there stated he was bidding the property in for the eight men who signed the $500 agreement of November 2, 1915. It was struck off to him for the amount of the indebtedness, but he paid no money upon his bid and nothing was done to relieve the situation. Reardon
“November 28, 1915.
“In consideration of the assumption and payment of the debts in full of the above company, whereby the undersigned are relieved from all liabilities on the indorsements and obligations of said company, and fully understanding that Fred. W. Klumpp is the party who has advanced the necessary money to pay the said debts, and relieved the undersigned from liability as aforesaid, particularly hereby referring to those persons who are liable on said indorsements, we hereby waive any and all rights growing out of the foregoing writing, as the result of which William Reardon, trustee, on November 16, 1915, conveyed all the property of said company to Gilbert W. Hand, attorney for said above named parties, hereby authorizing William Reardon, as trustee, to execute and deliver the necessary instruments to convey said property to *Fred. W. Klumpp, or any person that he may name, all subject to the agreements and obligations, whereby said Fred. W. Klumpp advances the necessary money to pay the debts of said company.
“In witness whereof the said parties before above named have hereunto subscribed their names for the purposes and intents herein set forth.
“Martin Naumes,
“William Reardon,
“Fred. W. Klump,
“Val B. Klumpp,
“George Barie,
“John G. Klumpp,
“Edward H. Klumpp.”
Plaintiff refused to join with defendants in the execution of this instrument at a meeting to which he
Acting as trustee under the resolution adopted at the stockholders’ meeting of. November 2, 1915, and the consent of all indorsers of the company’s paper except plaintiff, Reardon transferred the property to Val B. Klumpp' by direction of his father Fred. W. Klumpp, who paid to Reardon $15,845.44 in cash for the same. The money was thereupon put in the Pin-conning bank to the latter’s credit and he drew checks to that amount with which he paid all indebtedness of the Farmers’ Elevator Company in full, receiving no compensation for his services as trustee in the proceeding.
Fred. Klumpp testified that he then offered plaintiff an interest in the property “half or more if he wanted it,” and told Mr. Hand to write him. Hand wrote plaintiff, on November 27, 1915, reviewing the situation and claimed conditions which necessitated and justified the sale, stating that Fred. Klumpp was perfectly willing to have plaintiff go in with him if he desired to, and he could take on the same basis of cost a half, or a quarter, or an eighth interest in the investment. Of this plaintiff said:
“I would not go in that way. I wanted a controlling interest or none at all after the kind of a deal they were giving me.”
When the resolution of November 2, 1915, was adopted authorizing Reardon to sell the property as trustee plaintiff owned 451 shares of stock in the company and his son Ezra 68, which they voted in favor of said resolution. He filed this bill of complaint, on July 22, 1916. In it he states that he has acquired by assignment his son’s stock, 100 shares previously
The substance of his grievances as set out in his bill with detail of facts as he claims them is that he was misled and deceived by “misrepresentations which were made to him by defendants, and from statutory reports of the financial condition of the company and the reports made at meetings of the stockholders and directors of the condition of the company” and was by them “induced from time to time to subscribe for more of the company’s stock in order that money might be procured for the purpose of enlarging and improving the elevator company’s plant and adding new machinery”; that he relied upon such representations and believed the financial condition of the company was good until shortly before November 2, 1915, when he received notice from the secretary of a meeting to be held on that date “for the purpose of selling the elevator and all of its property to pay its indebtedness,” and was about that time informed by defendants that the company was in bad straits financially and heavily indebted, for which reason it was necessary in order to continue the business “to form a new company which would take over the assets of the old, company and which would make it necessary for the stockholders to put into the business about $500 each of ready cash to put the business again upon its feet”; and believing the representations made by defendants as to the bad financial condition of the company he signed the agreement of November 2d relative to a
“but nevertheless said defendants conveyed and caused said property to be conveyed to Val B. Klumpp mentioned in the paper aforesaid, thereby finally absorbing and disposing of all of the assets of said corporation, and that they thereby converted the stock of your orator and that recently assigned to him by Father Langlais and G. C..Leibrand, and have appropriated the same to their own use. That said defendants are now in control of said elevator and property and are operating the same and that they have placed the title thereon in the name of Val B. Klumpp in trust for said defendants.”
He further alleges that the property of the company was worth much more than represented by defendants, or the amount of indebtedness for which it was sold; that defendants fraudulently conspired together to and, by the course pursued, did in effect and fact deprive him and those he represents of their stock; and thus converted the same to their own use. The relief asked is for an accounting, an injunction and a de
Defendants by their answers make denial of all wrong-doing charged, traverse the various allegations of plaintiff’s bill in detail with their versions of transactions mentioned, allege that plaintiff was actively connected with the company as a director throughout its career, was conversant with and as a director participated in its general management and the things of which he now complains, except the final sale, was familiar with its financial embarrassment and with defendants became an indorser liable for its indebtedness, had offered his stock to any one who would relieve him of liability, as did defendants, and voted for the resolution authorizing a trustee’s sale for sufficient to pay the indebtedness and release them; that none of the defendants have any interest whatever in the property sold, or former assets of the company, except Fred. Klumpp and his son, to whom it was sold and transferred by the trustee for the best procurable price, with which the indebtedness was liquidated; and denying any fraud, deceit, concealment or conversion, defendants ask dismissal of plaintiff’s bill.
The case was heard upon testimony taken in open court, which went very fully into the history of this unfortunate business venture from the viewpoint and facts claimed by the respective sides. An advisory jury on the proposed issues of fact was at first called, but after listening to the evidence the court dispensed with its services and dismissed plaintiff’s bill, saying in part:
“There was a resolution passed by a majority of the stockholders in number and amount and the plaintiff in this case was present at that meeting in which that resolution was passed, took part in it, enteredPage 517into the discussions, signed the agreement between the parties. If there was anything at all that was illegal in this matter or oppressive to the minority stockholders it was the feature of it that provided for the disposal of that property and re-organizing and putting it into the hands of the parties by the payment of $500. It was later sold without that requirement being carried out and entered into. There was no action taken by the plaintiff till he had been relieved of his liability as guarantor and indorser on paper of that company to the extent of several thousand dollars. The entire condition had changed^ and it appears to the court that he is not in a position to come into this court at this time and complain; that he ought to be estopped from coming in. There was a time to provide for the best interests of all the stockholders, himself included, when the property was not being sold, on application to this court or it could have been disposed of any time as pointed out by the statute. He failed to do that. At that time the rights of all the parties could have been taken care of, and these several parties that rely on it, for these large amounts of paper of the company as indorsers and guarantors of the several banks. He had an opportunity not only to protect himself but the rights of the stockholders and he failed to take that step until he had been released and relieved of that large liability that stood against him, neither does it appear in this case by any proof that that property ought to or could have brought more under any circumstances or conditions that existed, and that being true it does not appear that even the assignors with their small claims put into the hands of Mr. Marcoux have met with loss and damage, and that being true I think in this case that the bill ought to be dismissed,” * * *
Appellant’s counsel say in their brief that the three controlling points in the case which the court erroneously decided adversely to their contention are as follows:
“1. Did plaintiff’s stock have a substantial value?
“2.-Was there a conversion of the stock?
“3. Is plaintiff estopped from maintaining this suit?”
It is undisputed that this pretentious project to center the elevator business in Pinconning was unsuccessful and all stockholders lost the money they, paid
The logic of his grievance as to the agreement of November 2d being abandoned would seem to be that it was a conversion to sell the property, for the amount of the company’s debts, to the seven stockholders or to one of them for the use and benefit of himself and six others, but it would not be a conversion if all the eight stockholders who signed the agreement had bought it for the amount of the debts. He testified that he would not have voted at the stockholders’ meeting as he did, authorizing Reardon as trustee to sell the property for the amount of the debts, “if it had not been for that previous agreement” and says that, after the property was bid in by Hand,—
“I went into the bank at Pinconning and asked Mr. Naumes what the reason was that the transaction didn’t go through. He had lots of reasons, didn’t have the money was one, and told me to see Fred. Klumpp, so I went to Fred. Klumpp’s store and stated that to him. Mr. Klumpp and I went to the bank. We went into the back room, he and I and Mr. Naumes. Mr. Klumpp seemed to be very anxious to put the matter through and so was I”;
“We want the record to show that the $500 agreement was entered into by these parties for the purpose of restricting any open competition at the sale.”
The claim and testimony of defendants as to this agreement is that the parties to it were all liable for a large amount as indorsers and it was signed with a view of protecting themselves by taking the plant for its debts provided they could not find a buyer who, would pay the amount of the debts of the company for its property and relieve them of it. But, whatever was intended, it was a crude and imperfect instrument purporting to obligate the signers to pay $500 on or before an unstated time, for a purpose no one is designated or obligated to carry out, including payment of the company’s debts amounting to nearly four times the total sum they were to pay Reardon as trustee. Failure of the signers to act under it, of which plaintiff complains, is not evidence either of fraud or conversion of the company’s stock by defendants.
The record does not bear out plaintiff’s claim that he was misled and deceived by defendants as to the
Plaintiff strenuously argues that the trial court erroneously found it was not shown that the “property ought to or could have brought more under any circumstances or conditions that existed.” Upon the question of value the conditions that existed were the important consideration. That the property was openly offered at public and private sale and no one was found who would pay more than it was sold for is undisputed. The testimony is at variance as to the value of the property at the time and place it was sold. That it was a large and good elevator, well adapted to the purpose for which it was built, and capable of handling a large business, if the business was available and the company financed to handle it, is conceded, but the testimony is convincing of the deterrent condition that both were wanting.. The situation is well stated in the report of an insurance adjuster named Wardwell, introduced by plaintiff to show the cost and value of the property, made after examining the plant to determine a basis for fixing insurance.
It is fairly shown that this corporation had proved unprofitable, was in a failing condition, had no money to pay its maturing debts and was without credit to renew the same or obtain means to conduct its business, unless defendants or other acceptable stockholders became personally responsible. Previous indorsers for its indebtedness to a large amount, who were not only its directors but most interested in its successful continuance if possible, refused to assume further liability, and at different times offered their stock gratis to be relieved of liability; doing so at the meeting of stockholders called to consider the financial condition of the company with no one indicating any inclination to accept the offer. That meeting authorized, by a large majority of members and amount of stock, what is now complained of.
It is true that our statute authorizes a method for winding up the affairs of a corporation when in failing condition by appointment of a receiver and it is argued that the course pursued here was irregular and unauthorized. While the statutory method would
“It is not sought by this suit to recover the property or to set aside the sale, but merely to recover the value of the stock.”
“The right of the majority stockholders of a corporation established for manufacturing or trading purposes to wind up its affairs, and dispose of its assets, even against the objections of the minority stockholders, whenever it appears that the business can be no longer advantageously carried on, is well recognized. Treadwell v. Manufacturing Co., 7 Gray (Mass.), 393; Wilson v. Proprietors, 9 R. I. 590; Lauman v. Railroad Co., 30 Pa. St. 42.” Hayden v. Directory Co., 42 Fed. 875.
The general rule is stated as follows in 10 Cyc. p. 1302:
“In corporations organized for business purposes and for the private gain of their members, the principle of the rule of the majority obtains to the extent that if the majority conclude that the business cannot be carried on with profit or advantage to all, they may, against the will of the minority, elect to wind it up. So if. in the exercise of a sound discretion, a majority of the stockholders deem it expedient to do so, they may sell out the whole property of the corporation.”
To discontinue a failing business and proceed to sell the property and pay the debts is not a breach of trust. Rothwell v. Robinson, 44 Minn. 538 (47 N. W. 255).
“If, however, the corporation is an unprofitable and failing enterprise, then a sale of all corporate property with a view to dissolution may be made.” 2 Cook on Corporations (6th Ed.), § 670.
The case of Thoman v. Mills, 159 Mich. 402, is somewhat analogous to this in the particular that defendants also took what the trial court termed a “short cut to the inevitable result” and did not approve that course, but, finding that the sale was made in good faith and the result would have been the same if legal formalities had been observed, awarded only nominal damages. In the controlling opinion approving the result and affirming the decree this court said:
“It is not believed a case can be found where relief was granted to a stockholder in a prior corporation which was sold to a later corporation under the circumstances disclosed by this record.”
That case, however, differs from this in various material particulars. There the assets of a prior corporation were sold to a later corporation in which defendants were interested; complainants did not vote in favor of the sale at the stockholders’ meeting authorizing it, nor was the property offered at public sale, or equal opportunity given to them and other stockholders to purchase.
At conclusion of the hearing, after intimation from the court that the bill should be dismissed, defendants’ counsel moved the court that the corporation be made a party plaintiff, and defendant Val B. Klumpp have permission to file an amended answer asking for confirmation of his title to the property, - which was objected to by counsel for the plaintiff, and the court intimated that course would be permitted, an order of that kind would be made and a decree to that effect granted. We find no record of any order making the corporation a party to the suit, bill of complaint by it or amended answer as proposed, but the decree dis
It is charged as one of the grievances in plaintiff’s bill that for the purpose of completing the conversion of his stock in' the corporation defendants filed with the secretary of State, on December 18, 1915, a notice of dissolution of said corporation effected by sale of all its property, corporate rights and franchises. Defendants admit this in their answer, but deny that it was done for the purpose of converting plaintiff’s stock, alleging that it was in the interest of plaintiff and all other stockholders. While defendants could not technically dissolve the corporation by such proceeding, neither they nor the corporation as such are in an equitable position to insist upon its being made an active participant as plaintiff in this suit, and then ■in behalf of one of defendants ask to amend his answer by adding a cross-bill for the purpose of quieting his title under a conveyance it gave through a trustee which neither the corporation nor plaintiff has questioned, the theory and purpose of this suit being to recover from defendants the value of plaintiff’s converted stock,' not to set aside or attack the sale as such nor recover the property sold.
We agree with the conclusion of the trial court that plaintiff has failed to establish his right to recover under the allegations in his bill, which should be dismissed, but find nothing under the circumstances dis
The decree of the lower court should be limited to dismissing plaintiff’s bill, and so modified will stand affirmed without costs to either party.