Chapter 15
"Perfectly legal," replied Mr. Chippingham conclusively. "A corporation has a perfect right to dispose of its entire assets for a proper consideration and if any minority stockholder feels aggrieved he can take the matter to the Delaware courts and get his equity assessed. Besides, everybody is treated alike--all the stockholders in Horse's Neck can subscribe pro rata for Lallapaloosa."
"Only they won't," grinned Scherer.
"And so, as they are wiped out--the new corporation--that is us--in fact gets their equity, just as much as if they had deeded it to us."
"That is, we get for nothing about one-half the value of the property," agreed Elderberry. "Now, I've been over the list and I don't think you'll hear a peep from any of them."
"He's got 'em on the list--he's got 'em on the list; And they'll none of 'em be missed--they'll none of 'em be missed!"
hummed Mr. Beck. "It looks good to me! I'll take a hundred thousand."
"Mr. Chippingham has the papers drawn already," continued Elderberry. "Of course you've got to give the old stockholders notice, but we can rush the thing through and before anybody wakes up the thing will be done. Then they can holler all they want."
"Well, I'll come in," announced Hunn complacently.
"So will I," echoed Scherer. "And the firm can underwrite the last hundred thousand, and that will clean it up."
"Is it all right for us to underwrite the stock ourselves at half price?" inquired Mr. Beck. "I mean--is it legal?"
"Sure!" reiterated Mr. Chippingham. "Somebody's got to underwrite it; why not us?"
"Move we adjourn," said Mr. Greenbaum. "Elderberry--the usual."
Mr. Elderberry removed from his change pocket five glittering gold pieces and slid one across the glass sheet to each director.
"Second motion. Carried! All up--seventh inning!" smiled Mr. Scherer; and the directors, pocketing their gold pieces, arose.
If, as it has been defined, ethics consists of a "system of principles and rules concerning moral obligations and regard for the rights of others," it may be interesting to speculate as to whether or not these gentlemen had any or not, and, if so, what it may have been. But in considering this somewhat nice question it should be borne in mind that Messrs. Scherer, Hunn, Greenbaum & Beck were bankers of standing, and were advised by a firm of attorneys of the highest reputation. On its face, and as it was about to be represented to the stockholders of Horse's Neck, the proposition appeared fair enough.
The circular, shortly after sent out to all the names upon the list, stated succinctly that financial and labor conditions had been such that it had been found impossible to operate the mine profitably for several years, that it had depreciated greatly in value owing to the water which had accumulated in its lower levels, that it had exhausted its surplus, that a heavy indebtedness had accumulated, that the corporation's outstanding notes had been protested and that the property would be sold under foreclosure unless money was immediately raised to pay them, the interest due and taxes; that half a million dollars was needed to put the property in operation and that there was no way to secure it, as nobody was willing to loan money to a bankrupt mining concern. That under these circumstances no practical method had been proposed except to organize a new corporation capitalized at one million instead of ten, to the stock of which each shareholder in Horse's Neck might subscribe in proportion to his holdings, at par, and to which the assets of the old corporation should be transferred practically for its debts. That this, in a word, was the only way to save the situation and possibly make a go of a bad business, and that it was a gamble in which the old stockholders had a right, up to a certain date, to participate if they saw fit. Those that did not would find their stock in Horse's Neck entirely valueless as it would have no assets left which had not been transferred to Lallapaloosa. Stockholders who were dissatisfied could protest against the enabling resolution to be offered at the annual meeting of the stockholders of Horse's Neck to be held the following week at Wilmington, Delaware, and could avail themselves of the right to have their equity assessed under the laws of Delaware, but as the liabilities practically equaled the present value of the property that equity would naturally be highly problematical.
Now, as a matter of morals or of law the only thing that made the proposed reorganization unethical or inequitable was the single trifling fact that those responsible for it were the only ones who knew of the existence and proximity of the Amphalula vein. When a mining company, a railroad, an oil well or any other enterprise is down and out it is only fair that the majority stockholders, who are obliged to protect their investment, should have the right to call upon the rest to come forward and do their share or else drop out. A minority stockholder cannot appeal to any canon of fair play whereby he should be entitled to sit back and let the majority take all the risks and then claim his share of the profits.
The imponderable element of injustice in the situation consisted in the suppression of a fact which the directors concealed but concerning which, however, they made no representation, false or otherwise. They were going to risk half a million dollars of their own money and they wanted the whole gamble for themselves. They sincerely felt that nobody else was entitled to take that risk with them. Once they had floated Horse's Neck they had come to look upon it as their own private affair. The minority had no rights which they, the majority, were bound to respect. The minority were nothing but a lot of piking gamblers, anyway, who bought or sold for a rise or fall of a few cents. They knew nothing of the property and cared less for its real value. They were merely traders and if they lost they forgot it or tried to. On the other hand Scherer, Hunn, Greenbaum & Beck were promoters, who contributed something to the economic advancement of the nation.
* * * * *
"Regarding my hat, which you suggested this morning should be pressed at a cost of fifty cents," remarked Mr. Tutt to Miss Wiggin when he returned to the office upon the adjournment of court in the afternoon and replaced that ancient object in its accustomed resting-place --"regarding that precious hat of mine"--he eyed it affectionately --"I can only say that I would as soon send myself to a dry-cleaning establishment as to permit its profanation by the iron of a haberdasher."
Miss Wiggin laughed lightly.
"That doesn't explain your cryptic statement that it would probably cost you a hundred thousand dollars," she replied. "Still--"
Mr. Tutt turned suddenly upon his heel and held her with an upraised hand, the bony wrist of which was encircled, after an intervening space of some five inches, by a frayed cuff confined with a black onyx button the size of a quarter.
"Behold," he cried in the deep resonant voice that he used in addressing juries at the climax of a peroration, "the integuments of my personality--the ancient habiliments of an honorable profession--the panoply of the legal warrior. Here, my corslet"--he touched his dingy waistcoat with his left hand; "my greaves"--he brushed the baggy legs of his pantaloons; "my halberd"--he raised his old mahogany cane with its knot of yellow ivory; "my casque"--he indicated his ruffled stove-pipe "Arrayed in these I am Mr. Ephraim Tutt, attorney and counselor at law--the senior partner in Tutt & Tutt--a respected member of the bar duly accredited and authorized to practise before the Supreme Court of the State of New York, the Court of Appeals, the District Court of the United States, the Circuit Court of Appeals, the Supreme Court of the United States, the Court of Claims--"
"--the Police Court and the Coroner's Court," concluded Miss Wiggin, making him a mock curtsy.
"Without these indicia of my profession and my individuality I should be like David without his sling or Samson without his hair. I should be merely Tutt, a criminal lawyer--one of a multitude--regarded perhaps as a shyster. But in these robes of my high office I am a high priest of the law; just as you, my dear girl, are one of its many devoted and worthy priestesses. Can you imagine me going to court in a bowler hat or arguing to the jury in a cutaway coat or bobtail business suit? Can you picture Ephraim Tutt with his hair cut short or in an Ascot tie, any more than you can envisage him in riding breeches or wearing lilacs? No! There is but one Mr. Tutt, and these are his only garments. He who steals my hat may steal trash, but without it I should be like a disembodied spirit unable to return to my earthly dwelling-place.
"A paltry hundred thousand?
"Nay, without my hat--my helmet!--I should be valueless to myself and everybody else; so estimate my worth and you can assay the value of my hat. What am I worth in your opinion?"
And then Miss Wiggin, having glanced cautiously if quickly round, made a most astonishing declaration.
"Just about a million times more than anybody else in the whole world, you old dear!" she whispered and rising upon her toes she kissed his wrinkled cheek.
"Dear me! You really mustn't do that!" gasped Mr. Tutt.
"Well," she retorted, "you can discharge me if you like. But first sit down, light a cigar and let me tell you something."
Mr. Tutt did as he was bid, chuckling.
"Well," said Miss Wiggin, "there is such a thing as Horse's Neck Extension after all!"
"Um--you don't say?" he answered, struggling to make his stogy draw.
"And it has an office with about a hundred other corporations of various kinds--most of them with names that sound like the zoo--Yellow Wildcat, Jumping Leapfrog, and that sort of thing. It seems Horse's Neck is played out and they are going to reorganize it--"
"Who are?" demanded her employer, suddenly sitting erect.
"Scherer, Hunn, Greenbaum & Beck."
"The dickens they are!" he ejaculated. "That bunch of pirates? Not if I know it!"
"Why not?"
"Reorganize! Reorganize? Reorganization is my middle name!" cried Mr. Tutt. "So Scherer, Hunn, Greenbaum & Beck are going to reorganize something, are they? Let 'em try! Not so long as I've got my hat!"
"This is all very enigmatical to me," replied Miss Wiggin. "But then, I'm only a woman. Aren't they all right? Why shouldn't they reorganize a mine if it's exhausted?"
"If it's exhausted why do they want to reorganize it?" he demanded, climbing to his feet. "Let me tell you something, Minerva! All my life I've been fighting against tyranny--the tyranny of the law, the tyranny of power, the tyranny of money."
He drew fiercely on his stogy, which being desiccated flared like a Roman candle.
"You don't need to tell me what this plan of reorganization is; because they wouldn't propose one unless it was going to benefit them in some way, and the only way it can be made to benefit them is at the expense of the other stockholders. _Quod erat demonstrandum_."
Mr. Tutt seemed to have become distended somehow and to have spread over the entire wall surface of his office like the genie which the fisherman innocently permitted to escape from the bottle.
"There isn't one reorganization scheme in a hundred that isn't crooked somewhere."
"According to that, if a business is unsuccessful it ought to be allowed to go to pot for fear that somebody might make a profit in putting it on its feet," she countered. "I think you're a violent, irascible, prejudiced old man!"
"All the same," he retorted, "show me a reorganization scheme and I'll show you a flimflam! What's this one? Bet you anything you like it's as crooked as a ram's horn. I don't have to hear about it. Don't want to read the plan. But I'll bust it--higher than Hades. See if I don't!"
He spat the remaining filaments of his stogy from the window and fished out another.
"How do we come into it, anyhow?" he demanded.
"Doctor--I mean Mister Barrows," replied Miss Wiggin.
"Oh, yes. Of course. Well, you send for him to come down here and sign the papers."
"What papers?"
"The complaint and order to show cause."
"But there isn't any."
"There will be, all right, by the time he gets here."
Miss Wiggin looked first puzzled and then pained.
"I don't understand," she said rather stiffly. "Do you mean that the firm of Tutt & Tutt is going to engage in the enterprise of trying to break up a plan of reorganization without knowing what it is? Won't you lay us all open to the accusation of being strikers?"
Mr. Tutt's ordinarily brown complexion became slightly tinged with purple.
"Let the court decide!" he cried hotly. "You say Scherer, Hunn, Greenbaum & Beck are proposing to reorganize a mining company? You admit we hold some of the stock? Well--as the natural-born and perennial champion of the outraged minority--I'm going to attack it, and bust it, and raise heck with it--on general principles. I'm going to throw that damned old hat of mine into the ring, my child, and play hell with everything."
And with a cluck Mr. Tutt leaned over, produced a dingy bottle wrapped in a coat of many colors and poured himself out a glass of malt extract.
* * * * *
When Mr. Greenbaum was summoned to the telephone and informed by Mr. Elderberry in disgruntled tones that somebody had just served upon him an order to show cause why the proposed reorganization of Horse's Neck should not be set aside and enjoined, he not only became instantly annoyed but highly excited.
"What!" he almost screamed.
"I'll read it to you, if you don't believe it!" said Mr. Elderberry.
"'United States District Court, Southern District of New York, Edward V. Barrows, Complainant against Horse's Neck Extension Mining Company, Defendant.
"'Upon the subpoena herein and the complaint duly verified the nineteenth day of February, 1919, and the affidavit of Ephraim Tutt and--'"
"Who in hell is Tutt?" shouted Greenbaum, interrupting.
"I don't know," retorted Elderberry; "or Barrows either."
"Well, skip all the legal rot and get to the point," directed Greenbaum.
"'Ordered--ordered, that the defendant, Horse's Neck Extension Mining Company, show cause at a stated term to be held in and for--'"
"I said to cut the legal rot!"
"Um--um--'why an injunction order should not be issued herein pending the trial of this action and enjoining the defendant from disposing of its assets and for the appointment of a receiver of the assets of the defendant corporation; and why the complainant should not have such other, further and different relief as may be equitable.'"
There was a long pause during which Mr. Elderberry was under a convincing delusion that he could actually hear the thoughts that were rattling round in Mr. Greenbaum's brain.
"You there?" he inquired presently.
"Oh, yes, I'm here!" retorted Greenbaum. "This is the devil of a note! Have you spoken to Chippingham?"
"Yes."
"What does he say?"
"He says it's awkward. They have got hold somewhere of one of our old circulars of 1914 in which the property is described as worth about ten million dollars--that was during the boom, you remember--and they claim we are selling it to ourselves for less than one million and that on its face it's a fraud on the minority stockholders who can't afford to buy stock in the new corporation--as of course it would be if the mine was really worth ten million or anything like it."
"Did we really ever get out any circular like that?" demanded Greenbaum in a protesting voice. "I don't recall any."
"That was when we were making a market for the stock," Elderberry reminded him. "We couldn't say enough. Honestly, to look at the thing now is enough to make you sick!"
"Well, it's just a hold-up--that's what it is. Some crook like this Tutt or this Barrows has found out about Amphalula and is bringing a strike suit. You'll have to call a meeting right away. I'd like to strangle all these shyster lawyers!"
And it never occurred to Mr. Greenbaum that the possible existence of the Amphalula vein was what in fact made the order to show cause justifiable--his actual ground of complaint being that anybody should, as he assumed, have found out about it in defiance of his plans.
* * * * *
"Yeronner," said Attendant Mike Horan as he helped Judge Pollak into his black bombazine gown in his chambers in the old Post-Office Building on the morning of the return day, "there's a great bunch out there in the court room waitin' for ye, an' no mistake!"
"Indeed!" remarked His Honor. "And who are they? What is the case?"
"Hanged if I know," answered Mike, snipping a piece of fluff off his judgeship's shoulder. "There's a white-bearded old guy, two or three swell gents with tall hats, Counselor Tutt and an attorney named Chippingham, besides that pretty Miss Wiggin; and they ain't speakin' none to one another, neither."
"It must be that mining-reorganization case," answered the judge. "Well, it's time to go in."
They walked down the dirty marble corridor and entered the court room, while the clerk rapped on the railing.
"Hear ye! Hear ye! Hear ye! All persons having any business to do with the District Court of the United States draw near, give your attention and you will be heard," he intoned with unctuous authority.
The "bunch" rose and made obeisance.
"Good morning," said the judge pleasantly, sitting down with a side switch of the bombazine. "Barrows against the--er--er--Horse's Neck Mining Company. Do you represent the complainant, Mr. Tutt?"
"I do," answered Mr. Tutt with great dignity. "Your Honor, this is a motion for an order to show cause why an injunction _pendente lite_ should not issue restraining the sale of the assets, of this corporation to another in fraud of its minority stockholders--and for a receiver. My client, an aged man living upon his farm in the northern part of the state, is the owner of one hundred thousand shares in the Horse's Neck Mining Company of the par value of one hundred thousand dollars. He has owned these securities for many years. They represent his entire capital. He is a bona fide stockholder--"
"May I be pardoned for interrupting?" sneered Chippingham, springing to his feet. "I think the court should be informed at the outset that this man, Barrows, is a notorious ex-convict."
Judge Pollak raised his eyebrows.
"This is an outrage!" thundered Mr. Tutt, his form rising ceilingward. "My client--like all of us--has had his misfortunes, but they are happily a thing of the past; he has the same rights as if he were an archbishop, the president of a university or--a judge of this honorable court."
"We are sitting in equity," remarked His Honor. "The question of _bona fides_ is a vital one. _Is_ the complainant an ex-convict?"
"This is the complainant, sir," cried Mr. Tutt, indicating old Doc, now for the first time in his life smartly arrayed in a new checked suit, red tie, patent-leather shoes and suède gloves, and with his beard neatly trimmed. "This is the unfortunate man whose honest savings of a lifetime are being wrested from him by an unscrupulous group of manipulators who--in my opinion--are more deserving of confinement behind prison walls than he ever was."
The gentlemen with the tall hats bit their lips and showed signs of poorly suppressed agitation.
"But _is_ your client an ex-convict, Mr. Tutt?" repeated the judge quietly.
"Yes, Your Honor, he is."
"When and how did he become possessed of his stock?"
Mr. Tutt turned to Doc with an air of ineffectually striving to master his righteous indignation.
"Tell the court, Mr. Barrows," he cried, "in your own words."
Doc Barrows wonderingly rose.
"If you please, sir," he began, "it's quite a long story. You see, I was the owner of all the stock of The Chicago Water Front and Terminal Company--there was a flaw in the title deed which I can explain to you privately if you wish--and when I was--er--visiting--up on the Hudson--I met a man there who was the owner of a hundred thousand shares of Horse's Neck, and we agreed to exchange."
The judge tried to hide a slight smile.
"I see," he replied pleasantly. "And what was the man's name?"
"Oscar Bloom, sir."
The gentlemen with the tall hats exchanged agitated glances.
"Do you know how he got his stock?"
"No, sir."
"That is all. Go on, Mr. Tutt."
Doc sat down while Mr. Tutt again unhooked his lank form.
"To resume where I was interrupted, Your Honor, the directors controlling a majority of the stock of this corporation, the capital of which is ten millions of dollars, have made a contract to sell all of its properties to another corporation, organized by themselves and capitalized for one million, for the sum of one hundred and twenty-five thousand dollars!
"It is true that in their plan of reorganization they offer to permit any stockholder in the old corporation to subscribe for stock in the new at par--thus at first glance placing all upon what seems to be an equality; but any stockholder who does not see fit to subscribe or cannot afford to do so is wiped out, for there will be nothing left in the way of assets in Horse's Neck after the transfer is completed.
"Now these gentlemen have underwritten the stock in the new Lallapaloosa Company at fifty cents upon the dollar, and if this nefarious deal is permitted to go through they will thus acquire a property worth ten millions for five hundred thousand dollars, of which they will use only one hundred and twenty-five thousand in payment of old indebtedness. In effect, they confiscate the equity of all the minority stockholders in Horse's Neck who cannot afford to subscribe for stock in Lallapaloosa." He turned upon the uncomfortable tall hats with an arraigning eye.
"In the criminal courts, Your Honor, such a conspiracy would be properly described as grand larceny; in Wall Street perchance it may be viewed as high finance. But so long as there are courts of equity such a wrong upon a helpless stockholder will not go unrebuked. Have I made myself clear to Your Honor?"
Judge Pollak looked interested. He was a man famous for his protection of helpless minorities and his court had been selected by Mr. Tutt on this account.
"If the facts are as you state them, Mr. Tutt," he answered seriously, "the plan on its face would seem to be inequitable. If the property is worth ten million the consideration is palpably inadequate. Your client's equity, worth on that basis at least one hundred thousand dollars, would be entirely destroyed without any redress."
"Your Honor," burst out Mr. Chippingham, whose bald head had been bobbing about in excited contiguity with the tall hats, "this is a most misleading statement. The assets of Horse's Neck aren't worth a hundred thousand dollars. And if any of the minority don't want to come into the reorganization--and I assure Your Honor that we would welcome their participation--they can have their equity appraised under the laws of Delaware and the finding becomes a lien on the assets even after they have been transferred."
"What relief does that give a man like Mr. Barrows?" shouted Mr. Tutt. "He can't afford to go down to Wilmington with a carload of books and a corps of experts to prove the value of Horse's Neck. It would cost him more than his stock is worth!"
"That remedy is not exclusive, in any event," declared the judge. "If this complainant is going to be defrauded I will enjoin this contract _pendente lite_ and appoint a receiver."