Erny v. G. W. Schmidt Co. ( 1901 )

Opinion by

Mr. Chirp Justice McCollum,

The bill in equity was filed on December 5, 1898, and the answers of the defendants thereto were filed on the 19th of the same month. The replication was filed February 25,1899, and on April 4, 1899, Brown and Arrott on application to the court were allowed to become plaintiffs in the suit. On the same day the Iron City National Bank, City Savings Bank, James Callery & Company, Mary A. Schmidt, Ellen J. Schmidt, Mary T. Führer, J. M. Schoonmaker, City Insurance Company and Wilhelmina Laurer petitioned the court for leave to intervene as defendants. Their request in this particular was promptly complied with. The G. W. Schmidt Company was incorporated on October 20, 1896, under the laws of- Pennsylvania with a capital stock of $150,000 divided into 1,500 shares of the par value of $100 each. G. W. Schmidt was the registered owner of 1,325 shares, of which 254 shares were nob held by any other party to the suit. The total number of shares represented by defendants was 1,340, and the total number of shares represented by the plaintiffs was 160. The number of shares held as unregistered pledges of G. W. Schmidt was 961. The plaintiff, J. F. Erny, was at the time he acquired his stock in the defendant company, the cashier of the German Savings and Deposit Bank which held a certificate for fifty shares of the G. W. Schmidt stock standing in the name of G. W. Schmidt, on the defendant company’s books, and pledged by him to said bank as collateral security for the payment of a certain promissory note. On or about October 20, 1898, the bank officials without notice to Schmidt of their intention to sell his stock, pledged as aforesaid, privately sold it to Erny for $100. On November 22, 1898, Erny’s attorney in a letter of that date notified the G. W. Schmidt Company that its president was insolvent, and had been unlawfully permitted by the board of directors to obtain from the company about $55,000. He also accompanied with the notification a request that the company take immediate steps to bring suit against G. VV. Schmidt and all the directors, to compel them to make good the amounts which Schmidt had unlawfully obtained. No effort appears to have been made by .Erny or his attorney to secure a meeting of the stockholders at any time, and apart from the letter we have referred to, no evidence or other communication between them appears prior to Erny’s institution of this suit. Erny appears to have been the instigator of the suit, and previous thereto to have avoided communication with the stockholders who subsequently became the defendants in it. He testified that ho purchased the fifty shares of the G. W. Schmidt stock which the bank held as collateral to the promissory note; that he paid for it the sum of $100; that it then belonged exclusively to him, and there was no understanding or agreement between him and the bank by which the latter claimed any interest in the stock. As Erny had no interest in the G. W. Schmidt stock except such as he acquired by the sale of the collateral by the bank to him, it wnuld seem that his investment of $100 was intended as a speculation. As cashier of the bank he was probably cognizant of Schmidt’s financial condition and of his drafts upon the company of which he was president. Brown held a certificate of 100 shares as unregistered pledges of G. W. Schmidt. From the time of the incorporation of the G. W. Schmidt Company until the fall of 1898, he was the company’s attorney, familiar with its affairs and adviser in all of its transactions. It was three montjis after the institution of the suit by Erny before Brown and Arrott petitioned the court for leave to become plaintiffs therein. It had the appearance of an afterthought, and this was especially so in view of the fact that with full knowledge of the transactions which they had for a long time acquiesced in and approved, they became plaintiffs in this suit.

The essential charge in the plaintiff’s bill is that the president and directors of the G. W. Schmidt Company, the secretary and treasurer and all the directors of said company during their incumbency “ have been guilty of fraud, gross neglect and inattention, palpable breach of trust, wilful and fraudulent mismanagement and malfeasance in the control of the affairs and transactions of said corporation in this, to wit: that the secretary and treasurer and the directors have fraudulently and unlawfully permitted George W. Schmidt, one of the directors and the president of said corporation, unlawfully and fraudulently to secure from and appropriate moneys of the said corporation amounting in all to the sum of $50,000 or thereabouts for his own use without security, for his own personal gain, aggrandizement and benefit, and in fraud of the plaintiff’s rights; the said secretary and treasurer and the said directors well knowing at the time the said moneys were secured and appropriated by said George William Schmidt that he was insolvent.”

The averments in the bill which charged the G. W. Schmidt Company, its president, secretary and treasurer and all its directors with fraud were met by a positive denial, and the issue thus joined necessarily called for the production of the testimony relied on by the litigating parties to enforce their respective claims. The witnesses called by the plaintiffs to sustain their contention were Erny, who testified to the purchase of the stock as hereinbefore stated, and G. W. Schmidt who was called to testify as on cross-examination. On the part of the defendants, G. W. Schmidt was called to testify in chief. His testimony occupied more than sixty pages of the plaintiff’s paper-book. The other witnesses who testified in support of the defendant’s claim were Baxter, Speck, Kelly, Jr., Bennett Howley and Wescott. The witnesses called by the plaintiff in rebuttal were Brown and Marrón. The testimony thus presented was carefully reviewed and considered by the learned judge of the court below. His findings of fact based on the testimony submitted to him by the contending parties were fatal to the plaintiff’s elaim and resulted in a dismissal of their bill. A careful scrutiny of the testimony and of the findings of fact founded upon it, has convinced us that no tangible error was committed by the court in the conclusions arrived at. The fact that Brown held a certificate for 100 shares, and Arrott held a certificate for ten shares, as unregistered pledges of G. W. Schmidt, was not sufficient under the circumstances shown, to enable them to sustain the bill to which they became parties. It is sufficient to say of Erny that as he purchased his stock after the alleged mismanagement had been acquiesced in by the company for a period of nearly two years, he has no just cause to complain. The assignments of error are overruled.

Decree affirmed and bill dismissed at the cost of the plaintiff.