Burnett v. Word, Inc., 4593
| Citation | 412 S.W.2d 792 |
| Decision Date | 23 February 1967 |
| Docket Number | No. 4593,4593 |
| Parties | C. C. BURNETT, Appellant, v. WORD, INC., et al., Appellees. . Waco |
| Court | Texas Court of Appeals |
D. B. Kultgen, Waco, for appellant.
Naman, Howell, Smith & Chase, Waco, for appellees.
This is an appeal by defendant Burnett from a summary judgment declaring a contract between Burnett and other original stockholders of Work Records, Inc. invalid; and declaring the merger of Word Records, Inc. and Word Distributing Company valid.
Word Records, Inc., Word Records Distributing Company and certain of their stockholders, as plaintiffs, sued defendant Burnett for declaratory judgment that a contract made in December, 1958 between Burnett and other shareholders of Word Records, Inc. and Word Records Distributing Company was void. By intervention, Word, Inc. alleged that Word Records, Inc. and Word Records Distributing Company had merged, and that it was the surviving corporation. It sought declaratory judgment that the 1958 contract was void; and that the merger of Word Records, Inc. and Word Distributing Company was valid. Burnett, by answer and cross-action, asserted the contract was valid, and that the merger of the two corporations was void.
The trial court rendered summary judgment that the 1958 contract was void; and that the merger of the two corporations was valid.
Defendant Burnett appeals, contending the trial court erred in rendering summary judgment that: 1) the merger was valid; and 2) that the 1958 contract was void.
Word Records, Inc. and Word Distributing Company were two small corporations owned principally by the same stockholders and principaly by the directors (who were the same in each company). Word Records was organized in 1954 and manufactured religious records. Word Distributing was organized in 1955 and marketed the products of Word Records, Inc. McCracken and associates were the managment team of both companies. Defendant Burnett and Messrs. Burch, Howell, Tabb and Fentress purchased 50% Of the stock of both corporations (10% Each). Burnett would not have purchased stock except that the above group had 50% And could prevent control by the McCracken group. Burnett, Burch, Howell, Tabb, Fentress and the McCracken group, in 1956, entered into written agreements that if any party to the agreements should desire to sell his stock, he would offer same to the corporation or alternately to the remaining shareholders in the proportion to each's ownership interest in the corporation. In 1958 Fentress, Burch and Tabb wanted to sell their stock to McCracken. This could not be done without Burnett's consent. Burnett did not want to be a minority stockholder in corporations controlled by McCracken, and desired that borrowing be restricted.
McCracken and associates, and Burnett and Howell, (stockholders and directors of both corporations) entered into the December, 1958 agreements, wherein, in consideration of the Fentress-Burch-Tabb stock being permitted to be purchased by the McCracken group, the parties to the contract agreed (in part): that 'Each binds himself to vote as stockholders and directors in such a manner as to carry out bona fide the purposes and intent of this contract as herein expressed.'
a) That Burnett and Howell remain as directors of the Corporations for the duration of the contract.
b) That Word Records, Inc. not incur any new financial obligation in excess of $10,000, and Word Distributing not incur any new financial obligation in excess of $40,000, except by unanimous approval of all directors.
c) The contract to remain in effect for 10 years.
In 1966 the McCracken group desired to expand and to borrow $200,000 from Prudential Insurance Company. Burnett, who held 27% Of the preferred stock, opposed borrowing the money. Prudential required a merger of the two companies as a prerequisite to making the loan. On May 28, 1966, the shareholders of Word Records, Inc. voted to issue 800 shares of treasury preferred stock to one of its employees, Kurt Kaiser. The effect of the issuance of such 800 shares to Kaiser was to dilute Burnett's ownership to below 20%. Article 5.03 Texas Business Corporation Act, V.A.T.S. provides a corporate merger must be approved by a vote of 80% Of the stock; and Article 4.03 provides for stock class voting where the value of the stock (as here) will be changed by the merger. The issuance of the stock to Kaiser destroyed Burnett's power to block the merger. Burnett called attention to this at the meeting at which the shareholders voted to issue Kaiser the stock, and made various proposals by which stock could be issued to Kaiser without a dilution of his interest. All were rejected. Kaiser voted for the merger and only by virtue of his vote, the necessary 80% For merger was carried. Article 2.22, subd. D Business Corporation Act, gives a corporation the right to issue Treasury stock to its officers or employees by a vote of two-thirds of the shareholders.
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...he can proceed to do so without fear of legal consequences, even though he may have acted through bad motives. Burnett v. Word, Inc., Tex.Civ.App., W/E Dism'd, 412 S.W.2d 792; Chapman v. Pollock, D.C., 148 F.Supp. The judgment is correct. Defendants are not liable as a matter of law. Plaint......
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