Layng v. A. French Spring Co.

Opinion by

Mb,. Justice Stebbett,

Both specifications are of the most general character. The first complains of the decree dismissing plaintiff’s bill. The second charges error in,not granting the relief prayed for, viz., a decree restraining the defendants, managers of “ The A. French Spring Co., Limited,” from any further appropriation of said company’s money to the payment of the notes given for purchase of the interest in the Bolton Iron and Steel Co., and ordering said managers to account, and pay back into defendant company’s treasury all sums of money paid out by them for the purchase of said interest.

Neither of the specifications alleges any error in the learned master’s findings of fact, nor in the approval of those findings by the court. The facts embodied in his report must therefore be accepted as correct. It is unnecessary to notice them in detail. Brief reference to a few of the more important will be sufficient.

One of the facts thus established is, that the purchase of 501 shares in the Bolton Iron and Steel Co. was made, on or about Sept. 1, 1888, by Aaron French, on behalf of the defendant company. That purchase was made in conjunction with a similar one made by J. J. Young, whereby the two purchasers secured a controlling interest in the Bolton Iron and Steel Co. The purchase was made in good faith, for the purpose of securing protection for the defendant company against the combination or association of steel makers, which operated against the company by requiring them to pay more for their steel than it cost other competitors who manufactured their own steel supply.

The consideration of the purchase thus made by Mr. French was $50,100, of which $12,600 was paid in cash, and the residue in three notes of $12,500 each, in one, two and three years from Sept. 1, 1888. Only one of the notes was outstanding and unpaid when the hearing before the master was concluded. The payments were made out of the general surplus assets of the defendant company, consisting of money, etc., which, prior to that time, had been credited to the profit and loss account. In the language of one of the witnesses, “ the surplus account consisted of the amount of money which, prior to that date, had been credited to the profit and loss account, plus the amount that had been made during the year up to that time. ... In other words, it was the balance of the assets of the concern after deducting the capital stock, bills payable and all other liabilities.”

It thus appears that the investment complained of did not, in any manner, impair the fixed capital of the defendant company. The purchase of the 501 shares in question required only a portion of its then surplus profits. The integrity of the transaction, in a business point of view, is unimpeached.

The investment was made in good faith, and, so far as appears, for the sole purpose of advancing the pecuniary interests of defendant company. The plaintiff appears to think it will have a different effect, but in that opinion he evidently differs in judgment with the managers and other stockholders.

It was alleged by defendants that plaintiff knew and acquiesced in the purchase of the stock in question for such a length of time as should estop him from now questioning either its regularity or legality; but the learned master, upon full consideration of the evidence on that subject, found as a fact that he was not fully informed as to the purchase until April, 1889 ; and, after being so informed, he protested against it, and filed his bill without unnecessary delay. He is therefore in a position to question the legality of the investment, on the ground that it was ultra vires. In view of the facts found by the master, and approved by the court, that appears to be the only ground on which there is any room for even a doubt. It is equally clear that the purchase was carefully made, in the exercise of a sound business discretion, and after full consideration of its propriety and expediency. All necessary precautions for the protection of the defendant company and its stockholders were taken; and, as the master found, “ the result appears to have justified the judgment of the managers.”

To hold that such an investment of surplus earnings, made under the circumstances, and for the purpose shown in this” case, is ultra vires, would greatly and unnecessarily cripple and interfere with the successful management of limited partnership associations. There appears to be nothing in the law of their being that requires us to do so. Considered either as a judicious investment of surplus earnings, or as the acquisition of an interest in an iron and steel company, from which supplies of those materials may be procured on more favorable terms than elsewhere, or as both combined, the transaction complained of is not in conflict with defendant company’s articles of association. One of these provides that the business to be conducted by the company shall be, as its name indicates, “ the manufacture of springs of every description.” There appears to be nothing in any of the articles that, in express terms, or by necessary implication, prohibits the company from preparing or manufacturing its own supplies of steel, etc., or otherwise procuring the same.

After considering the facts, in connection with the authorities bearing on the subject, the master reached the conclusion that the purchase in question was not ultra vires, but, on the contrary, it was a matter within the sound discretion of the board of managers. Without reviewing the authorities cited by him in support of this conclusion or further consideration of the facts, we think the master was right in recommending the dismissal of plaintiff’s bill, and that the court committed no error in decreeing accordingly.

Decree affirmed and appeal dismissed, with costs to be paid by appellant.