Howeth v. Coulbourne Bros.

Pearce, J., delivered the opinion of the Court. This is an appeal from a decree of the .Circuit Court of Baltimore City dismissing the bill of complaint of the appellant filed August 25th, 1909, as a stockholder of Coulbourne Bros. Company, of Baltimore City, a corporation, against said corporation, and also against William T. Coulbourne, ,T. Erton Coulbourne and Eoland E. Marchant, directors of said corporation. The bill alleges, and the certificates of incorporation filed as Exhibit A, shows, that on August 10th,. 1901, Wm.

T. Coulbourne, Samuel H. Coulbourne, E. Weldon Howeth (the appellant"), Wm. J". Whittington and T. Erton Coulbourne, formed a corporation under the laws of Maryland, under the name of Coulbourne Bros. Company, of Baltimore City, for the purpose of conducting a wholesale and retail trading and commission business in oysters, fish, crabs, fruit, vegetables and general merchandise.

A few days later, these same persons executed a written agreement reciting the formation of said corporation, and the fact that Wm. T. Coulbourne and Samuel H. Coulbourne, copartners, trading as Coulbourne Brothers, were then the owners of the property known as Ho. Ill West Pratt St., ¹¹⁰ Baltimore City, in which said Coulbourne Brothers were conducting a general commission business; also stating that the capital stock of said corporation was fixed at $20,000, divided into 200 shares of the- par value each of $100, and that each of the above named five incorporators had subscribed to 40 shares of the capital stock of said corporation, in consideration of which said Coulbourne Brothers had duly conveyed to said corporation the said property Ho. Ill West Pratt St., and had by that conveyance and by the assignment of other property thereafter mentioned, fully paid for 40 shares of stock issued to each of them; also that the appellant had fully paid in cash for five shares of stock issued to him, and that Win.

J. Whittington and E. Erton Coulbourne had each paid cash for 1 share of stock issued to each of them, and that it had been agreed between the parties thereto that the unpaid shares of stock subscribed for by the appellant, and by said Wm. J\ Whittington and T. Erton Coulbourne, should be paid for out of the earnings of the company, and dividends payable to each of them on their holdings, until said shares should be fully paid, with interest from August 1st, 1904. This agreement then set forth that in consideration of the premises, it was mutually agreed' between the parties thereto that all dividends from the earnings of said company which should become due to said R Weldon Howeth, Wm. J. Whittington and T. Erton Coulbourne, should be applied to the payment of their respective shares of unpaid stock until the same were fully paid; that the three last named parties bound, themselves to work exclusively for said corporation at salaries to be fixed by a majority of the board of directors; that William T. Coulbourne and Samuel H. Coulbourne should pay off and liquidate a mortgage then outstanding on Ho.

Ill West Pratt St., and any ether liens or incumbrances thereon, either in cash or out of the dividends that should become due to them upon their said shales of stock; and that said Wm. T. and Samuel IT. Coulbourne should assign, transfer and set over to said corporation all the goods and merchandise then, on hand at Ho. ¹¹¹ Ill West Pratt St., office furniture, stationery, safe and fixtures of every description, with the horse and wagon then used in the business, all book accounts, and all monies to the credit of Coulbourne Brothers in the L. E. Mumford Banking Co., of Virginia; Farmers and Merchants’ Rational Bank, and Citizens’ Rational Bank, of Baltimore, and this agreement it is admitted was fulfilled by making the necessary conveyances and assignments by Wm. T. and Samuel II.

Coidboume. It is also admitted that all the assets of Coulbourne Bros, were taken over, by said corporation, and paid for in the stock of the corporation as follows: The appellant paid for six shares in cash at par, and gave his note for $3,400 to Wm. T. and Samuel H. Coulbourne assigning his stock as collateral. Wm.

J. Whittington and T. Erton Coulbourne each paid for one share in cash at par., and each gave his note for $3,900 to Wm. T. and Samuel H. Coulbourne and each assigned his stock as collateral. Wm. T. and Samuel H. Coulbourne each paid for the 40 shares of stock subscribed for by them respectively, by their remaining two-fifths in all the- assets of Coulbourne Bros, and at the same time, as provided in the agreement before mentioned, assumed and agreed to pay the mortgage on 111 West Pratt street the amount of which was $5,000.

That mortgage is not in the record, but it appears from the testimony that it was not payable until about the month of March, 1909. The bill alleges that the appellant has fully paid for his 40 shares of stock, and this is sustained by the testimony. The bill further alleges that the appellant was a director of said' corporation until the annual meeting of stockholders on August 2d, 1909. That on that day there were present at the meeting Wm.

T. Coulbourne representing or claiming to represent 79 shares; T. Erton Coulbourne, representing or claiming to represent 40 shares; and the appellant representing 40 shares; also Roland E. Marehant, the personal attorney of Wm. T. Coulbourne, and that the two Coulbournes named, and Roland ¹¹² E. Mm*chant, against the protest of the appellant undertook to pass a resolution amending the by laws, whereby the number of directors was reduced from five to three, and that after the passage of said resolution Wm. T. Ooulbourne, T. Erton Ooulbourne and Koland E. Marchant were elected directors upon the vote of said Marchant, and the said two Coulbournes; the said M'archant voting one share of stock when he was not a stockholder at all in said corporation, and that said election was illegal. That upon the adjournment of the stockholders meeting there was a meeting of said directors, all three being present, at which a statement of assets and liabilities was filed in which was embraced among assets, as accounts receivable $19,419.20, of which the appellant was informed and believed that not more than fifty per cent, was collectible; and also real estate of the amount of $20,000 which he was informed and believed was not worth more than $15,000; and that the liabilities exceeded the assets and the corporation was in fact insolvent.

That at a directors’ meeting on the first Monday in August, 1908, a dividend of six per cent, upon the capital stock was declared when there was no surplus either in money or property out of which to pay the same, and they were then and still are unable to pay their general creditors. That no proper steps have been taken by the directors or officers of the corporation for the collection of the accounts receivable and alleged by them to be $19,419.20. That on March 13th, 1909, the corporation by Wm. T. Ooulbourne, its president, and T. Erton Ooulbourne, its secretary, executed a mortgage upon Bo.

Ill W. Pratt street for $8,000, which amount, or a large part thereof, the appellant believed and charged Wm. T. Ooulbourne had applied to his personal use; that the president and secretary were so conducting the business of the corporation as to apply the profits to their personal use and were otherwise grossly , mismanaging its affairs, and that the only tangible property of the corporation was Bo. Ill West Pratt street, and the stock of goods and ¹¹³ fixtures therein, all of which is in imminent clanger of loss and waste unless a receiver is appointed. The prayer of the bill was for a dissolution of the corporation; the appointment of a receiver; an accurate account of all assets and liabilities; an injunction to prevent the disposing of any property of the corporation, and for general relief.

The defendants filed a joint and several answer specifically denying that the corporation ever had been, or then was, insolvent, or that the affairs of the company had in any manner been mismanaged, or that there was any danger of loss or waste of the property of the company, and’ denying all charges of fraudulent or improper conduct in voting any stock, or in amending the by-laws, or in any other act done by the defendants or by any of its directors or other officers; and Roland E. Marchant in his own behalf alleged that before the meeting of August 2, 1909, he was the bona fide owner for a valuable consideration, of one share of stock of said corporation, and entitled to vote the same. Issue being joined, testimony was taken in open Court on the part of the plaintiff, the defendants offering no testimony on their part. The evidence discloses that the appellant, upon the formation of the corporation, became its manager and so continued until the annual meeting of 1906, when he resigned that position, but continued to act as a director until August, 1909, when the number of directors was reduced to three and he was not re-elected. He testified that as Wm.

T. Coulbourne had then resigned as president of the Atlantic Fruit Co., he thought Coulbourne should naturally run the Coulbourne Co. and he offered to resign as manager if he could get back the money he had put in, and that Coulbourne accepted his proposition and promised to pay him after he did resign, but when called on next day refused to fulfill his promise. Mr. Coulboume when testifying, was not interrogated on that subject and did not volunteer any information. It also appeared from the evidence that about 1906 Wm. T. Coulbourne purchased the 10 shares of stock his brother, Samuel H. Coulbourne, agreeing with him to assume the whole of the $5,000 ¹¹⁴ mortgage on Ho.

Ill West Pratt street, and that before the meeting of 1909, Mr. Marchant purchased from him in good faith and for value,- one share of stock, and that at that meeting 199 shares were voted upon every subject- acted upon, and that statements of the condition of the company were submitted at every annual meeting of the stockholders and directors, and that at the meeting of 1908 the following statement was submitted and was accepted by the vote of all the directors, the appellant being present, as representing the true condition of the company at that time. ASSETS-JULY 31, 1908. Accounts receivable..................$15,100.28 Ho tes or bills receivable............. 56.31 Cash.............................. 114.54 Packages and utensils................ 1,605.00 Fixtures and stationery.............. 1,050.00 Stock on hand...................... 110.50 Eeal estate......................... 20,000.00 $38,036.63 Assets carried over ..........$38,036.63 Liabilities. Accounts payable for merchandise.....$3,577.51 Hue for borrowed money............. 6,879.98 ■-Gaptial stock........................ 20,000.00 Surplus............................ 7,579.14 - $38,036.63 It was at that meeting that the appellant testified he .objected to the declaring of the dividend which he after-wards accepted, but he does not claim to have made any criticism of the statement then submitted, which has been transcribed above for the purpose of comparison with the statement submitted in 1909, upon which he was cross-examined in detail when on th'e stand.

The $5,000 mortgage on the store house which Wm. T. Coulbourne had assumed, became ¹¹⁵ due sometime in the spring of 1909, and was paid out of the proceeds of the mortgage made by the company to the Provident Savings Bank, March 13th, 1909, for $8,000. The appellant testified that when the corporation was formed the real estate went in at a valuation of $12,000, the book accounts $3,000, and the stock and good will at $5,000 making up the $20,000 of stock, but it appears from the statement of 1905 and the subsequent statements that the real estate has since been carried at $20,000. The two questions presented on the record are: 1st.

Is the plaintiff, upon the testimony in the case entitled to a decree for dissolution; 2nd. If not, is he entitled to a decree for a receiver. The appellant’s counsel concedes that apart from statutory power a Court of Equity cannot dissolve a corporation, and that under the statute in force in this state, it is necessary to prove that the corporation is insolvent before it can be dissolved. Mr. France in his Elements of Corporation Law, defines insolvency as “the inability to pay debts in the ordinary course of business”, section 163.

In Clark v. Colton, 91 Md. 229 , Chief Judge McSherry, in his dissenting opinion said: “The meaning of insolvency in'its legal sense is not now open to debate in Maryland. Following the definition laid down by the Supreme Court in Toof v. Martin, 13 Wall. 40 , this Court distinctly and categorically adjudged that insolvency must be taken to mean ‘an inability of the debtor to pay his debts as they become due, in the ordinary course of business.’ Castleberg v. Wheeler, 68th Md. 277.” There was no conflict between the opinion of the Court in Clark v. Colton , and the dissenting opinion as to the legal meaning of insolvency. That had been settled by the emphatic language of Chief Judge Alvey, in Castleberg v.