Fuller v. McCormick

Corporations — Appointment op Receivers — Equity Jurisdiction. Bill in equity examined, and held, to set out no ground for the appointment of a receiver to wind up the affairs of defendant corporation at the suit of a stockholder.

Appeal from Kalamazoo; Adams, J. Bill by Horace J. Fuller against Hiram W. McCormick, Frank D. McCormick, and the Olympic for the appointment of a receiver for defendant corporation. From an order overruling a demurrer, defendants McCormick appeal. Complainant, a minority stockholder in, and creditor of, a corporation named “The Olympic,” organized under Act No. 232 of the Public Acts of 1903, filed his bill, in which he charges, among other things, that the corporation is insolvent, and in which he prays that a receiver be appointed to take charge of and to close its affairs. The bill purports to set out inducements to complainant to embark in the business and in the corporation, a history of the corporation and of the dealings of the defendant stockholders with the corporation and with complainant, and expressly refers to chapter 269, 3 Comp. Laws, as affording sanction for the proceeding and the right to relief. The other stockholders and the corporation are made defendants. The defendant stockholders demurred to the bill upon the grounds that: (a) Complainant is not a judgment creditor of either defendant. (b) Chapter 289, 3 Comp. Laws, does not confer jurisdiction in the case made by the bill. (c) A court of equity has no jurisdiction. (d) The bill states no case for equitable relief against defendants. (e) The bill is multifarious. From an order overruling the demurrer, defendants McCormick have appealed. As complainant asserts in his brief that he filed the bill as a stockholder, and not as a creditor (see McKee v. Garbage Co., 140 Mich. 497;, Smith v. Manufacturing Co., 119 Mich. 11), the question presented is whether the bill states a case for equitable interference at the suit of a stockholder. To quote from the brief for complainant: “The question in this case is simply this: Whether two men can induce another to put his money into a corporation, and allow the corporation to handle property that he is interested in, and that after such persons have become officers of the corporation they can refuse to pay their stock subscriptions and abandon the whole business.” Complainant’s grievances arising out of the conduct of defendants in inducing him to embark in the corporate undertaking, and in inducing him to employ his property and money in reliance upon promises to pay for stock, must be separated from his grievances as a stockholder. For the purposes of this case, the corporation is to be regarded as insolvent. It appears that', of the 1,000 shares of capital stock, defendants McCormick hold 667 shares, that they with complainant are the directors, that Hiram W. McCormick is president, Frank D. McCormick is vice president and secretary, and complainant is treasurer. The articles of association recite that $6,000, in cash, has been paid in, and that nothing has been paid in in other property. But one meeting of stockholders and directors was ever held, which was on May 1, 1907. Defendants have paid in but $750 each, in cash, and have together contributed for the equipment of a small theater personal property worth no more than $500. The corporation has rented for five years from September 1, 1907, property at an annual rental of $2,000, agreeing also to reconstruct the premises. Complainant has rented in his own name, but for the corporation, certain premises for five years, at a monthly rental of $112.50, has expended in refitting and remodeling the premises $1,500, and has opened an amusement place, which, up to December 24, 1907, had yielded no net return. He has paid out some $6,000. He has advised his co-directors of the situation, and— “At these respective interviews, said defendants and each of them would promise to make good and fix their part of the obligations up in a few days, and promised to meet your orator in Kalamazoo for that purpose, and your orator would return home with such agreement and understanding ; but at no time did said defendants or either of them come to Kalamazoo, and finally your orator became advised that they nor either of them could pay for their stock subscriptions, or go on with their part of the enterprise and business entered into, as hereinbefore shown, with your orator, and said defendants so notified your orator. And your orator shows and avers that said defendants and each of them have wholly deserted and abandoned said company and your orator in the same, and have failed, neglected, and refused, and still fail, neglect, and refuse, to make good their and each of their part in the premises, and because of such failure, neglect, and refusal on the part of said defendants and each of them to keep their part to the said agreement with your orator, your orator has suffered great pecuniary loss, and been damaged to a very large extent, to wit, to the extent of $15,000, or thereabouts.” There are other creditors of the corporation. “Your orator further shows that the said corporation, The Olympic, is now in such a situation financially that its property is insufficient to discharge its debts, and that said corporation is insolvent, and that, as herein shown, your orator is a creditor of such corporation in the amounts in this, his said bill, stated, and that in and by his said bill he expressly charges that the other two defendants, Hiram W. McCormick and Frank D. McCormick, are liable for unpaid stock subscriptions to said corporation, The Olympic, and for other sums of money in damages, as in this bill set forth.” Alleging fear that defendants will dispose of certain fixtures and penny slot machines, an injunction restraining them from in any way disposing of the same is asked for.