United States Gypsum Co. v. Mackey Wall Plaster Co.

199 P. 249, 60 Mont. 132, 1921 Mont. LEXIS 102

Opinions

MR. JUSTICE REYNOLDS

delivered the opinion of the court.

[1] United States Gypsum Company, a corporation, commenced action against defendants in order to have it judicially determined that it is a stockholder in the Mackey Wall Plaster Company, a corporation, and that the Mackey Company became and was dissolved. Complaint prayed that the present trustees, acting by virtue of the statute, be removed and other persons be appointed in their stead; that the affairs of the company be wound up and its property and assets distributed among those entitled thereto, including plaintiff. Plaintiff also asked for the appointment of a receiver to take- charge of the property and assets of the company pending final determination of the suit, which receiver was appointed. Judgment was entered in favor of defendants. Motion for new trial was made and overruled. Appeals have been taken from the judgment, the order overruling motion for new trial, and from order denying motion of plaintiff to strike '’from the memorandum of costs the compensation and expenses of the receiver. The appeal from the latter order is superfluous, as any error in taxation of costs is reviewable on appeal from the judgment.

Upon the fifteenth day of June, 1909, the Mackey Company possessed certain gypsum mining properties and a mill at or near Great Falls. Upon that date it leased to plaintiff for one year all its properties at a rental of $3,000. The lease provided that it might be renewed for a further period of five years at the option of plaintiff, and contained a provision giving plaintiff the privilege of purchasing the leased properties for $50,000 of which $15,000 was to be paid in cash and the balance in notes to mature at fixed intervals. On July 1, 1910, the lease was renewed for a further period of five years. On July 6, 1915, another agreement was made extending the lease for an additional year upon the same terms as before, except that the option feature of the agreement was modified whereby it was provided that plaintiff should purchase the premises for $50,000 upon terms above mentioned, unless plaintiff gave to the Mackey Company at least sixty days’ written notice prior to July 1, 1916, that it would not purchase the same. The property so leased constituted all of the properties of the Mackey Company. A. D. Mackey and Myra Post Mackey, his wife, were the owners of all of the capital stock of the Mackey Company, but one share was held in the name of Ransom Cooper and one share in the name of Margaret Innes. Nothing was paid by Margaret Innes and Ransom Cooper for the stock held by them respectively, sneh stock being issued to them presumably for the purpose of maintaining the organization.

On the nineteenth day of April, 1916, O. M. Knode, then manager of the gypsum company, wrote to A. D. Mackey, informing him: “That conditions in Montana at this time are such that it will be necessary for us to cancel our arrangement with you at the time of its expiration, which is July 5.” In the same letter he stated that the gypsum company would give formal notice of its intention not to purchase the plant upon the fifth day of May. No further written notice, however, was ever given prior to the sixty days’ limit. On the 14th of July, 1915, A. D. Mackey and Myra Post Mackey made a loan of $8,000 of the gypsum company and assigned to the latter 198 shares of the capital stock of the Mackey Company as security for payment of the loan. The note evidencing the loan contained the pledge agreement reading as follows:

“$8,000.

July 14, 1915.

“On or before one year after date, for value received, we promise to pay to the order of the United States Gypsum Company the sum of eight thousand dollars at the office of the United States Gypsum Company, in Chicago, Illinois, with interest at the rate of six per cent per annum after July 14, 1915, and we have deposited with the said United States Gypsum Company as collateral security one hundred ninety-eight (198) shares of the capital stock of the Mackey Wall Plaster Company, a Montana corporation, which we hereby give the United States Gypsum Company, its agent or assignees, authority to sell, or any part thereof, on the maturity of this note, or at any time thereafter, upon first giving to us five days’ notice in writing of the intention to sell said securities, such notice to be given by depositing the same in the United States mails addressed to us at the city of Great Falls, county of Cascade, state of Montana; that after such notice shall have been given, and at the end of the time therein stated, the said United States Gypsum Company, its agents or assignees, without advertising the same or demanding payment thereof, or giving any further notice, may sell said collateral or any part thereof, and apply so much of the proceeds thereof to the payment of this note as may be necessary to pay the same, with all interest due thereon, and also to the payment of all expenses attending the sale of said collateral, including attorneys’ fees, and in ease the proceeds of the sale of said collateral shall not cover the principal, interest and expenses, as aforesaid, we promise to pay the deficiency forthwith after such sale. And at any sale of said collaterals, or any part thereof, made by virtue hereof, it shall be optional with the legal owner or holder of this note to bid for and purchase said collaterals or any part thereof.”

On the fifth day of July, 1916, the Mackey Company, by A. D. Mackey, assuming that the gypsum company had elected to purchase the plant, wrote to the latter company forwarding a deed, fully executed, conveying the Mackey properties to plaintiff and forwarding an assignment of all the stock of the Mackey Company except the 198 shares above mentioned, then in the possession of the gypsum company; the contract giving the gypsum company the option of taking either the property or the stock. In this letter it was expressly stated that plaintiff should deduct the amount of the indebtedness of A. D. Mackey and Myra Post Mackey due plaintiff upon their note, from the cash payment of $15,000 due on purchase price. The deed and assignment were returned by plaintiff, with letter under date of July 11, 1916, in which plaintiff denied any obligation to purchase the property, made reference to the note of A. D. Mackey and Myra Post Mackey, and stated that payment of same would be expected at maturity. On the fifteenth day of July, 1916, being the day following the maturity of the note, the gypsum company mailed a notice to A. D. Mackey and Myra Post Mackey, addressed to them at Great Falls, Mon tana, notifying them that the 198 shares of stock would be sold upon the twenty-second day of July, 1916, in Chicago, and the proceeds thereof applied in accordance with the terms of the note. By reason of the fact that the Mackeys were not at Great Falls at the time, they did not receive notice of the proposed sale until after the time mentioned for the sale. On July 22, in pursuance of the notice, the sale was held, and there being no other bidders, the gypsum company made a sale of the stock to itself for the sum of fifty cents a share, or a total consideration of $99. On July 26, 1916, the gypsum company mailed a letter to the Mackeys advising them that the sale had been made of the stock for the sum of $99, and making demand for the payment of the deficiency upon the note. On the 1st of August, 1916, Mackey Wall Plaster Company brought suit in the federal court to enforce specific performance of the contract to purchase the properties of the company, resulting in a decree in favor of the Mackey Company in the district court, which was affirmed by the circuit court of appeals June 10, 1918, the case being reported in 252 Fed. 397, 164 C. C. A. 321. Thereafter this suit was brought to establish the rights of the gypsum company as owner of the 198 shares of capital stock.

The defendants contend that the sale of stock to the gypsum company was void for several reasons, and that, even if not void, its conduct in the matter of forcing the sale was so inequitable and unconscionable that it is not in a position to receive the aid of a court of equity in establishing its ownership to the stock.

[2] The pledge agreement as contained in the note is clear and unambiguous in its terms, although it might be harsh in its operation. We have carefully examined the several contentions made by defendants as to the validity of the sale, and we are unable to find that the manner of conducting the sale was not in conformity with the contract or in fulfillment of the obligations of the gypsum company as pledgee. However, we are satisfied that under the circumstances of the case the sale was unnecessary and inequitable. The note beld by tbe gypsum company was given by A. D. Mackey and Myra Post Mackey, his wife, who owned all the stock of the Mackey Wall Plaster Company. Tbe business of tbe company was in fact tbe business of tbe Mackeys, and vice versa. Tbe corporation, although maintaining the form of legal existence, was, in effect, merely the name under which A. D. Mackey and Myra Post Mackey were doing business. This fact was evidently known to the gypsum company, for at the time tbe note was given to tbe gypsum company, tbe Mackeys offered to secure it by tbe entire capital stock of tbe Mackey Company; but tbe gypsum company being satisfied with only 198 shares of stock as collateral, no more stock was pledged. It has been beld by this court that where tbe stock of a corporation is owned by one person, whereby tbe corporation functions only for tbe benefit of such individual owner, tbe corporation and tbe individual should be deemed to be tbe same. (Edwards v. Plains Light & Water Co., 49 Mont. 535, 143 Pac. 962; Barnes v. Smith, 48 Mont. 309, 137 Pac. 541; Hanson Sheep Co. v. Farmers’ & Traders’ State Bank, 53 Mont. 324, 163 Pac. 1151.) In tbe Hanson Sheep Company Case, above mentioned, it was beld that under ownership of tbe capital stock similar to that involved in this case it is proper for tbe individual to use tbe corporate assets in discharge of bis individual indebtedness. Such a case is an exception to tbe general rule that an officer of a corporation cannot use the corporate funds in payment of bis personal obligations. Thus the Mackeys bad tbe right to use tbe corporate funds to pay their personal obligations, for they were tbe corporation.

[3] At tbe time of tbe maturity of tbe note, tbe gypsum company was indebted to tbe Mackey Company in the sum of $50,000, of which $15,000 was immediately due, more than enough to satisfy the note. Tbe Mackeys bad tbe right to authorize tbe gypsum company to deduct from tbe payment due from it to tbe Mackey Wall Plaster Company tbe amount due upon tbe note. This offer was not a legal tender, nor did it constitute payment of the note; nevertheless, it did afford to the gypsum company an opportunity of receiving full payment for the note without the necessity of making a sale of the stock. The two obligations constituted counter demands, and, in a proper action in court, one could have been offset as against the other. The fact that the gypsum company denied its obligation is immaterial upon this phase of the case, inasmuch as the obligation existed regardless of such denial. However, without waiting to find out by decree of the court whether or not it was liable to purchase the plant, it chose to proceed forthwith under the power of sale contained in the pledge contract. It is obvious that in such proceeding no opportunity whatever was given to the Mackeys to offset their claim. It has been held that where there has been no opportunity to make offset of claim by reason of the act of the other party, equity will intervene in order that justice may be done. (84 Cyc. 634; Garvin v. Squires, 9 Ark. 533, 50 Am. Dec. 224.)

Not only did the Mackeys offer to permit the note to be offset against the purchase price, but they kept their offer good by the allegations of their complaint in the federal court action, and by deposit of funds with the clerk of the court in this action, sufficient to satisfy the amount due on the note exclusive of the $99 credit given on the sale. Under these circumstances, it seems to us unconscionable to permit the gypsum company to hold the stock, of a value of over $19,000, and also collect the note against the Mackeys with a nominal indorsement of $99 upon it, when the interest of all parties could have been conserved if the gypsum company had either acknowledged its debt or given the Mackeys an opportunity to litigate their claim as an offset against the note. The maxim, “He who seeks equity must do equity,” applies. A court of equity cannot aid a litigant in establishing a claim based upon inequitable, unfair and unconscionable conduct, and therefore this court must refuse to assist the plaintiff in establishing its title secured through a sale under circumstances as above set forth. The sale having been made by plaintiff to itself, the situation should be deemed the same as though no sale had been made, and defendants should have the privilege of redemption with the moneys deposited in court for that purpose.

[4] It is contended by plaintiff that the costs of the receivership were improperly taxed against it by the trial court. The rule governing the taxation of such costs is clearly set forth in Ervin v. Collier, 2 Mont. 605, and has been followed by numerous cases since. In that case the rule is stated as follows: “This is a case in equity and the taxation of the costs rests in the sound discretion of the court. * * * There are no exceptional facts in this case which require the court, in the exercise of a legal discretion, to tax the costs of the receiver against the party in whose favor all the equities were found. It does not matter how or why the receiver was appointed. He is entitled to his costs, which were taxable in this action. No application was made for his removal and no exception, was taken to his report and we presume that he was appointed legally and performed his duty faithfully. His compensation should come from the party whose wrongful acts made his appointment necessary in order to preserve the property during the litigation.” Plaintiff recognizes the rule above mentioned, but insists that in its application to this case, the costs should be taxed against defendants. However, by reason of the view we take of the equities involved in this case, it is our opinion that the trial court exercised the proper discretion in taxing the costs of the receivership against plaintiff.

Several other alleged errors are assigned but in view of the disposition of the issues already discussed, it becomes unnecessary to consider any other assignments.

The judgment and order overruling motion for new trial are affirmed.

Affirmed.

Mr. Chief Justice Brantly and Associate Justices Cooper and Galen concur.