Baxter v. Lancer Industries, Inc.

• Decision Date: 11 January 1963
• Docket Number: No. 62C655.,62C655.
• Citation: 213 F. Supp. 92
• Parties: Clarence E. BAXTER, Plaintiff, v. LANCER INDUSTRIES, INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

213 F. Supp. 92

Clarence E. BAXTER, Plaintiff, v. LANCER INDUSTRIES, INC., Defendant.

No. 62C655.

United States District Court E. D. New York.

January 11, 1963.

Grossman & Grossman, New York City, for plaintiff; Louis Grossman, Herman Cahn, New York City, of counsel.

Levy & Nevins, New York City, for defendant; Saul S. Nevins, New York City, of counsel.

ZAVATT, Chief Judge.

This is a motion by the plaintiff for summary judgment in an action to enforce a written agreement between the parties entered into on August 29, 1961 and providing as follows:

"Lancer Industries Inc. "22 Jericho Turnpike "Mineola, N. Y "Executive Offices Pioneer 7-8255 "August 29, 1961 "Dr. Clarence E. Baxter "Maple and East Street "Coudersport, Pennsylvania

"Dear Dr. Baxter:

"In accordance with our understanding we have agreed to sell and you have agreed to purchase, 16,500 shares of the Common Stock of Lancer Industries, Inc. at $3.50 per share. We have advised you that we have a Registration Statement currently pending before the Securities and Exchange Commission and that we will amend said statement to include the 16,500 shares purchased hereunder and, in addition, the 3,000 shares previously purchased from Mr. George Langley.

"It is the consensus of opinion of corporate counsel that this Registration Statement will become effective within ninety days of this date, thereby making the stock registered and free trading.

"In the event that this Registration Statement is not effective within the time set forth above, we guarantee, at your request, to repurchase the above mentioned shares of stock from you at your cost. You acknowledge that the shares purchased by you are unregistered shares and simultaneously with the purchase thereof, you have agreed to execute the enclosed investment letter.

"Yours very truly "LANCER INDUSTRIES, INC. "s/ Benjamin Tessler President. "ACCEPTED "s/ Clarence E. Baxter "Clarence E. Baxter" On November 17, 1961 plaintiff received the following letter from defendant's President:

"Lancer Industries Inc. "22 Jericho Turnpike, "Mineola, N. Y. "Executive Offices PIoneer 7-8255 "November 17, 1961 "Mr. Clarence E. Baxter "Maple & Goett St. "Coudersport, Penna.

"Dear Mr. Baxter:

"Please be advised that although the Registration Statement covering the shares of stock listed in your name had become effective, the Securities and Exchange Commission has requested the company to file a Post-effective Amendment. This Amendment will be filed in the immediate future and you are advised via this letter that none of the shares of stock owned by you may be transferred across the books and records of the company. Notice of the blocking of the transfer of such shares has been forwarded to our Transfer Agent.

"You will be advised immediately when the Post-effective Amendment becomes effective, at which time you may dispose of your shares of stock as you see fit.

"Sincerely yours, "s/ Peter A. Cattano, Sr. "Peter A. Cattano, Sr. "President"

The plaintiff alleges that as of November 20, 1962 the defendant had failed to register the 19,500 shares of Lancer stock mentioned in the agreement. A formal demand for compliance with the agreement was made by plaintiff on June 1, 1962 and this suit was commenced on June 14, 1962. In regard to the registration of the shares in question the SEC has expressed itself as follows:

"November 20, 1962 "Grossman & Grossman "545 Fifth Avenue "New York 17, New York "Re: Strato Industries, Inc. (formerly "Lancer Industries, Inc. "File No. 2-18028

"Gentlemen:

"This will refer to your letter of November 15, 1962 with respect to the Corporation's registration statement referred to above.

"Supplementing our letter of June 20, 1962, we wish to advise that the registration statement as amended on September 15, 1961 and March 21, 1962 covers 19,500 shares to be offered by Dr. Clarence E. Baxter as a selling stockholder. The registration statement as thus amended does not meet the requirements of the Securities Act of 1933 and this Commission was advised by letter from Myron E. Barg, counsel in this matter, that the Corporation will not offer or sell, or permit the selling stockholders to offer or sell any of the common stock covered by the registration statement until such time as it has been amended to meet the requirements of the Securities Act of 1933.

"Since the registration statement, as of this date, does not meet such requirements, any public offering of the shares covered thereby prior to the filing of an appropriate amendment to the registration statement would constitute a violation of the Act.

"Very truly yours, "Joseph Bernstein "Assistant Director "Division of Corporation Finance "By ____________________ "G. K. Scully, Branch Chief"

In opposition to the motion the defendant asserts that there are present substantial questions of fact which preclude the granting of summary judgment and, further, that as a matter of law the plaintiff cannot enforce the agreement at this time. As to the presence of questions of fact defendant contends: (1) that the 3,000 shares purchased by plaintiff from George Langley are not now in plaintiff's possession, having been pledged in some sort of loan transaction, and that plaintiff is unable to return them to the corporation; (2) that 6,500 of the shares purchased by plaintiff from Lancer have been hypothecated with various banks and are not now in plaintiff's possession and that plaintiff is unable to secure their return; (3) that the repurchase agreement does not cover the 3,000 shares purchased by plaintiff from George Langley. It would thus appear that, as to the 9,500 shares above referred to, substantial questions of fact are presented which preclude the granting of summary judgment. While the plaintiff would have the court now decide that the 3,000 shares purchased from Langley were in fact covered by the repurchase agreement this question appears to devolve on the intention of the parties. The question of the intentions of the parties to a contract may not properly be resolved on a motion for summary judgment. Empire Electronics Inc. v. United States, 311 F.2d 175 (2d Cir., 1962). Defendant further contends that, as to all of the 19,500 shares involved, it cannot at this time fulfill its obligation to repurchase since it is precluded from doing so by the governing Florida Law, Fla.Stat.Ann. § 608.13(9) (b), Lancer being a Florida corporation. Section 608.13(9) (b) provides that every corporation unless otherwise provided by law or by its certificate of incorporation, shall have power to:

"Purchase, hold, sell and transfer shares of its own capital stock, provided that no corporation shall purchase any of its own capital stock except from the surplus of its assets over its liabilities including capital. * * *"

Defendant has annexed to its affidavits a financial statement dated February 28, 1962, from which it appears that the defendant has no earned surplus as defined by statute available for repurchase of stock, although assets do exceed liabilities. The affidavit of Lancer's treasurer states that as of November 9, 1962 defendant's liabilities exceed its assets. Plaintiff strongly contests the validity and accuracy of both the financial statements and the treasurer's assertion and asserts that in fact there is sufficient surplus from which the corporation may repurchase its own stock. This, of course, presents a question of fact which the court cannot resolve on a motion for summary judgment.

The existence or non-existence of adequate surplus is not to be determined solely upon the defendant's financial statements. Were the issue to be so limited, a trial would be a sterile playlet. What little authority there is suggests that actual values, albeit...