13

BARD V.BANIGAN.

(Circuit Court, D. Connecticut.

June 17.1889.)

1.

PRJKCIPAL AND AGE'KT-COMPENSATION OF AGENT.

Defendant, an experienced and successful rlibber manufacturer, was employed by plaintiff's company. which was then in financial difficulties, 'and not succeeding well with its rubber business. to take charge of the business as managing agent. and as a part of the transaction he purchased 4,000 sbares of its capital stock at a low price. He devoted bis attention and active services to tbe business for ,over four years, when the company became in. solvent. FrequenUy during the first year or two,h,e stated that he was serving witbout compensation, but in tbis action. involving his right to a salary, he testified that he supposed his salary would be determined at tbe proper time, when the company became more prosperous. and that he would then be paid what was right for the past. There was no evidence.of a contrary agreement. Held, that he was entitled to a reasonable salary ($2,500 per year) from the beginning of his employment.
A purchaser of preferred stock issued without express statutory authority, who voluntarily subscribed and paid for it for the purpose of promoting the scheme under wbicb it was issued, and wbo was a promoter of tbe 'scbeme, cannot bold it for 28 months after the conditl0ns upon wbich it was issued have been fulfilled. and then, on the insolvency of the company, assert the invalidity of the stock, and recover back his money.

2.

CORPORATIONS-PREFERRED STOCK-UNAU'I'HOIUZED ISSUE.

At Law. Action by Charles Bard, receiver of the Hayward Rubber Company, against Joseph Banigan, for money had and n:ceived. Hnlsey & Briscoe, for plaintiff. Doolittle & Bennett, for defendant.
SHIPMAN, J. This is an action at law which was tried by the court, the parties having by a duly signed written stipUlation waived a jury trial, and agreed, to a trial by the court. The first count' of the complaint was tor money had and received by the defendant for the use of the Hayward Rubber Company, before tbe appointment of a receiver. The second count was for money had and received for the use of the plaintiff, after his appointment receiver. A stipulation between said parties is as follows: "It is stipulated and agreed by and bet\veen the plaintiff and in the above-entitled action that the balance due to the plaintiff frOm the defendant under the first count of the substitnted complaint. exclusive of ,the disputed items of $21.808.40 claimed by the defendant for services as general manager, and of $17.550 had and recei ved by, Hayward Hubber. Company in paym,ent of .preferred stock, is the sum of $10,494.96, with thereon from December 15, 1887, and that the balance dUll to the plaintiff .from the defendant under the second count of the sllbstituted complaint is the sum of $24,011, with interest from January 15, 1888." .

The facts which upon such trial were found to be true, and which are true, are as fqllqw8: , . The RubberCompany was a joint-stock corporation, for the manufacture of India,rubber shqes, duly ,incorporated whh the statutes ofConnectic,ut, and located iI;lCqlcl:l!Js,ter, .state:. ,.It!>

FEDERAL' :REPORTER,

vel. 39.

capital stock was $400,000. The par value ofits shares was $25. Before 1879 it had been It very profitablecoll1pany, and had paid large dividends. Its last dividend was made in 1881. Thereafter its business deteriorated, and became unprofitable. In January, 1$83, some of the principal stockholders endeavored to find a skilled rubber manufacturer, who would become interested in the company,' and would oversee or direct its management, and would take the charge of selling its goods. ,Negotiations were entered into with the defendant, Joseph Banigan, who was president and general agent of the Woonsocket Rub)Jer Company, and was a well-known and E'ucoessfulrubber manufacturer, which resulted in their agreeIng to furnish him, and his agreement on January 12, 1883, to purchase, 4,000 shares of the capital stock of said company, at $12.50 per share. The agreement was carried out, and on January 1883, Mr. Bl1nigan was appointed general agent by the directors, who defined his duties, which were, in general; that he was to have full control of the manufacturing, subject to their approval. No salary was of ever designated, nor w;tsanY vote passed on the subject. :Mr. Banigan s,tillattended to his duties and business at Providence. He went to Colchester once ina week or fortnight. remaining there one, two, or three days, as the case might be. He entered actively upon the oversight of the business; laid out and arranged for new buildings; bought new machinery; ordered new lasts, tools, rolls. and cutting machinery; had automatic sprinklers put inthemill,-all at ;an expense of some $120.000; inspected the new goods; secured the dismissal of old officers, appointed a new superintendent; causlld a saving in the management of the business; nnd reduced the pay-roll, while not reducing the quantity of manulacturedgoQds; and Ol}.correspondence with the new superintendent an,d .the treasurer.. He also Pt!rchased the su ppJies, except for three months, wherihe was in. EUJ;ope. In April, 1883, the Woonsocket Rubber Company, 40 or 50 per cent. of the stock of which Mr. Banigan owned, became agents of the Haywar<;l Rubber Com,pany, and so conthlUeduntil 1886. At.that time the various rubber manufacturing companies formed a corporation called the Rubber Boot & Shoe Selling Company, in which each company took stock, and which was to sell all th.eproduction of all the stockholders. The Hayward Rubber Company took about $24,000 of stock. 'I'he agency continued a year, with disastrous results, particularly to the Hayward Rubber Company. The Woonsocket Rubber Company then declining to be its selling agent, Mr. Banigan hecamesuch agent, and sold all the goods therealter, upon the salne commission which had been paid to the Woonsocket Company. The amount of pummissions was paid. In March, 1885, a committee of the directors, of which committee Mr. Banigan was a member, sent a circular to the stockholders, recommending an increase of the capital; by the issue of preferred stock toihe amount of $100,000, saying that it was desirable to have a unanimous vote in favor of the proposition, asking for proxies, and the proposed resolutions, which were to' be submitted toastockholders' meeting to be held on March 25, 1885. At said meeting the stock was increased $100,000,

15
by the authorization of the issue of preferrEld stock: entitled to C11IIlula-, tive.divi4tlnds ;of 8 per cent. per annum, which should precedence of all dividendsQn the stock and any futureallqitions thereto, and which preferred stock could be retired when condition of t)le company would warrant,in such amounts and at such times as might be determined on by vote of the stockholders, at par and accrued dividends, and such retirement should be pro rata. 'the votes in regard to the issue ofpreferred stock were passed by a unanimous vote of the shares present or represented at said meeting at a time when said votes were taken; being 13,404 shares. The whole number of shares was 16,000. One stockholder of record holding stock hypothecated to it, subsequently brought to the proper state ..court a petition for an injunction against the issue of said preferred stock, but discontinued or withdrew said petition. Eac:h stockholder had the.privilege of subscribing to said preferred stock in proportion to the number of shares of existing stock by him owned. If any stockholder neglected, fora specified time, to subscribe for his portion of preferred stock, the same.coul<,l. be disposed of by the treasurer, for the use of the company, at not less than par. Mr. Banigan subscribed for 702 shares of the prefer:red stock, and on April 2, 1885, paid the company therefor $17,550, and received a certificate for said shares, which contained, in substance, the provisions of said Shares to the amount of $25,000 in all were subgcribed for. The subscription agreement which Mr. Banigan and the other subscribers signed was as follows: "We, the undersigned, herewith subscribe for the number of shares of the preferred stock of the Hayward Rubber Company affixed opposite our names." The defendant voted upon his stock at one or two annual thereafter. On June 26, 1885, he wrote to Potter, Lovell & Co., note brokers of Boston, inclosing a statement of the company's affairs, and saying that it had arranged to issue $100,000 preferred stock, but" only one-quarter of it has yet been sued, which I have taken principally." No claim for the repayment of this $17,550 was made until 1888. No certificate of the increase of capital stock was filed in the office of the secretary of state, or of the town-clerk of Colchester. Mr. Bamgan continued to be the agent until the company went into the hands of a receiver, on August 9, 1887. No charge was made by him on the books of the company and no claim was made for salary until after the appointment of the receiver. At the annual meeting of the stockholders in January, 1884, he said to them that he was serving the company without compensation. At another subsequent meeting of the stockholders. when his management was criticised, he justified it, and said that he was not receiving compensation for his services. On May 26, 1887, he wrote to tpe treasurer criticising a neglect to receive the company's goods from the selling company, and said: "I am n,Ot under pay ,by the Hayward Rubber Company, and I should not be expected to look after. such business,but, if no one gives it any attention, I feel it incumbent on myself.to protllct the company." He testified, upon. cross-examination, that pc s\lpposed his salary would be

16

REP<>RTElt', vol. 39.

determined ll.tthe proper time, wbed the conipany:wasin funds; further, that he supposed When the company got in good condition he was to have a 'salary. rrherewas!iiounderstanding, express or impli{,d, that he was to hi-we no salary inconsideration of the sale of 4,000 shates at $12.50 per share. Nobody testifies to that effect. He made a large investment in the stock, at'aprice supposed to be cheap, in the expectation that it would be a profitable one. The stockholders wanted him to become pecuniarily interested in the company, and so be stimulated to render it valuable services and assistance. He thought that the company was not in a conditidn to pay large salaries, and was out of funds, and therefore took tlOmoiley and made no charge. When it became prosperous, he expected to have a large salary for the future, if he remained in the company, and that he would be paid something that was in the way towards compf'nsation for the past. He trusted that future success would enable him to be compensated. He thus truthfully said that he Was serving without pay He was not at that time receiving, and it might be that he would never receive, pay. I find no agreement between the partif'E1 for service without compensation, and ho abandonment on the part of Banigan of a claim for sonle compensation for the current service, but the subject was one to be determined at a future time, when the company was pecuniarily able to determine it. He was serving upon a contract that he should have payment in the Juture, and his conduct and testimony show that the time ahd amount of payment were to be contingent upon the time when, and the sum which, the conlpanyshould be able to pay. In now ascertaining the proper amount, the contract is tocontTol and relerence is to be had to the financial ability or the company, as well as to the amount of se.l'vices, and what ,,;ould have been the market value under other and different circumstances. The company is now insolvent, and unableto pay its creditofsin full. !\Ir., Baniganactllally served from Jan:oary 13, 1883, tbAugust 9, 1887, except an absence of about three months, and is entitled tocOlnpen"ation for the period of four years and four'll1onths at the lite of $2,500 per annum, being $10,833.33. The claim f()r $17,550 rests upon a question of law. The contention of the defendant'is that,inaslnllch as the statutes of Connecticut sim ply a.llow a 'company to increase its capitalstock, and the articles '6f as"oeiation gave no authorit? to make prelPl'rerl stock, it was heyond the power orthe Hayward Rubber Company to such a class of stock, and there' 'was It total tailureol COil"lueratIun lOr tne contract; thatnO estoppel can exist against the assertion of the invalidity of the stock; and that the 'defe'r.idant is pntitled ill recover the amount paid by him'fronrthe corporation. The text-books announce the doctrine that, in the absence of ailthority in the charter or statutes or articles of assoto make a 'preferred6r a special stock',ai1il iIi the absence of tlnani)1lous consent on the part' of the stockholders preferred stock canl'i,tWbe breated.' Mr Beach,wh'ose learning on the subject of corporamade any utterance of his on that subject valuable, said, in his treatise on the joint-stock act'Of Oonnecticut, (page 25:) "It seems to

BARt>

V. BANIGAN.

17

be a valid objection. to the issue of preferred shares that it impairs the existing equality amcmg the stockholders, but no good reason can be assigned why the articles of association may not lawfully provide for the issuing of such preferred shares, and probably the issue of such shares by the unanimOlls consent of all the stockholders of an existing company would be held valid." For the purposes of this case I shall assume that, the unanimous consent of all the stockholders not having been affirmatively expressed by vote or by equivalent act, the preferred stock was invalid. If so, the acquiescence of the stockholder cannot give it va.lidity, and he is not estopped from asserting that it is invalid. Scovill v Thayer, 105 U. S. 143. If a stockholder could be estopped, Bauigan would necessarlly' be, because he was one of the promoters of the scheme, urged his co-stockholdE'rs to buy, voted upon it, and, for the purpose of favorably explaining the company's position to the firm which was to take and negotiate its paper, asserted that it could issue preferred stock, and had done so, to the amount of $25,000. Notwithstanding the :MaRsachusetts authorities to the contrary, (Tv,beWorks v. Machine Co., 139 Mass. 5, Reed v.1vIrtchine Co., 141 Mass. 4/54, 5 N. E. Rep. 852,) I am not favorably impressed with the doctrine that, as against the assignee or receiver of an insolvent corporation, the owner of preferred stock, who has voluntarily subscribed and paid for it for the purpose of promoting the scheme, and has recl'ived his certificate therefor, and the terms and conditions upon which the subscription was made have been fully complied with by the corporation, can recover' the amount paid. In Winters v. Armstrong, 37 Fed. Rep. 508, Judge JACKSON guards against such a broad principle, and it is not in accordnnce with the teaching of Scovill v. Thayer, sttpra. If he can recover the amount tl'om the insolvent estate, in a case where there is no claim of an unfulfilled conditioll, it is upon the theory of a rescission of the contract, because the stockholders had received nothing of value. Tltbe-lVork8 v. Machine Co., stt]Jra; Allen v. Herrick, 15 Gray, 274. This rescission must be made within.a reasonable time. In this case Mr. Banigan paid for his stock, April 2; 188.5, and was still a stockholder when the receiver was appointed, August 9, 1887. I do not think that the preferred stockholder who voluntarily creates stock of this kind, for this Mr Banigan virtually did, can hold it for 28 months in the hope of dividends; and then, upon finding the company insolvent, corne in as a creditor and receive back his money. Let judgment be entered for the plaintiff for the sum admitted in the stipulation to be due upon the second count, with interest from January 15, 1888; to Jmie 15, 1889; the amount being $26,051.93. The amount admitted to be due upon the first count is $10,494.96, and with interest from December 15,1887 ,to June 15, 1889, is $11 ,439.50. The amount due from the corporatioQ to the defendlllltfor his salary, and a proper set-off against the last-liamed sum, is $10,833.33, which with interest from Augtist 9; 1887, to June 15, 1889, is $12,033.83. The excess, being $5\:16.33, is a proper claim for a dividend against the insolvent estate. ' v.39F.no.1-2

18
HALL

v.

&

S. A;

'I,

'

RY,Co, et al.

;, '

"',

(Ci?'cuit Court, W. D. Texas, Si:tnAnton'io Division. May 25, 1889.) 1.
2.

MASTER AND SERVANT-;-FEJ,LOW-SERVANT!i., SAME-RAILROAD COMPANIES-RuLES.

A telegraph operator is not a fellow,servant with a brakeman.

Under rules requiring a telegraph operator "to report defects In roads and bridges, or of ap.y kind., wherever met, to the superintendent, and. if possible, to the nearest section master or bridge foreman." it is the operator's duty to report such defects, etc., when they come to his knowledge, whether he is requested to do so by another employe or not.

3.

DEATH BY WRONGFUL ACT-DAMAGES.

In an action by a father for dar,nages for the negligent killing of his son, uncleI' Rev. St. Tex. art. 2909, limiting the damages in such cases to pecuniary loss only, the jury may consider tl:ie circumstances of the son, his occupation, age. health. habits of industry. sobriety. and economy. his annual earnings, and his probable duration of life at the time of the accident; also the amount of property, age, health, and probable duration of plaintiff's life, and the amount of assistance he had a reasonable expectation of receiving from the son.

At Law. Action for damages for negligent killing. McLeary &: King and H. H. Boone, for plaintiff. Columbus Upson, for defendants.
MAXEY, J., jury.) ,The plaintiff, Lemnel H. Hall, as the surviving father of Lemuel R. Hall, deceased, brings this suit against the Galveston, Harrisburg & San Antonio Railway Company and the Southern Pacific Company, to recover damages resulting from the death of his son, Lemuel R., growing out of injuries received by the son at Hondo river bridge while in the service of defendants as a brakeman. The cause of the disaster, as claimed by the plaintiff, and the death of his son, will be stated to you partially in the language of the petition, as follows: "That the proximate cause of the said injury done to the said Lemuel R. Hall, 'resulting in his death, was the defective and unsafe condition of the said defendants' railroad bridge across the Hondo river, and the track laid thereon; that the said bridge was at the time of the said disaster so broken and damaged .as to be wholly unfit fortmins to pass over, and incapable of bearing,the weight of an and train of cars." The petitio1;l of plaintiff further alleges that the son of plaintiff was ignorant of the unsafe condition of the bridge, and believed it to .be perfectly safe, and sufficient to support the weight of the train on he was riding; "and although the defendants well knew that saidbriclge WaS unsafe. insufficient to. support the weight of ]0· comotives and trains crossing the sawe, yet they wholly failed and neglected tore,pair the said bridge and track thereupon, and to put the same in good anqsafe condition for the use of their employes, and wholly failed a1;ld,liwgJected to warn the said I,em.uel R. Hall and their other employes oithe unsound, unsafe, and. dangerous condition of the said bridge, but suffered them unawa.res, the discharge of their duty to the defendants, to rush'headlong upon certain death."

in