Cole v. Wells
| Decision Date | 21 June 1916 |
| Citation | 113 N.E. 189,224 Mass. 504 |
| Parties | COLE v. WELLS et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
OPINION TEXT STARTS HERE
Report from Superior Court, Worcester County; Marcus Morton, Judge.
Suit by Alfred E. Cole, administrator, against Channing M. Wells and others. From interlocutory decrees overruling defendant's demurrer to the original bill on all grounds except that of multifariousness, plaintiff appealed, but subsequently amended, to which defendants filed a demurrer and plea. On report from the superior court. Order on demurrer to bill and amended bill affirmed, and plea adjudged insufficient.
Bill in equity by a stockholder in the American Optical Company to set aside certain transactions of defendants, a majority of the officers and shareholders of the corporation, and for an accounting. In the superior court, the case was reported to the Supreme Judicial Court.
G. L. Mayberry, of Boston, E. H. Vaughan, of Worcester, and J. C. F. Wheelock, of Southbridge, for plaintiff.
Chas. F. Choate, Jr., of Boston, and Jas.
Garfield, of Cambridge, for respondents.
The bill, as originally framed, charged the defendants as directors with having wrongfully appropriated funds of the corporation to a large amount for their own personal benefit, and also that at a meeting of the stockholders duly called to take action on a plan proposed by the directors to transfer all the assets of the corporation to themselves as trustees to hold under the declaration of trust, a copy of which is annexed to the bill, the plaintiff representing a minority of the capital stock having voted against the transfer thereafter made a demand in writing upon the corporation in accordance with the provisions of St. 1903, c. 437, § 44, which read as follows:
But having as he further alleges made the demand before he had any knowledge of the misappropriation by and fraudulent management of the directors, he also sought to maintain the suit as a minority stockholder.
The defendants having demurred, the demurrer was sustained on the sole ground of multifariousness. While the plaintiff appealed from the interlocutory decree he subsequently amended by striking out the twenty-fourth and modifying the twenty-fifth paragraphs relating to the demand for an appraisal and omitting the corresponding prayer for relief. By the allowance of this amendment he waived his appeal. It related back to the filing of the bill, and the amended bill became the original bill. Hurd v. Everett, 1 Paige (N. Y.) 124. The defendants, however, demurred to the amended bill and also filed a plea. We first consider the plea. It is a pure or affirmative plea, relating only to proceedings to be taken by a dissenting stockholder under St. 1903, c. 437, § 44, and states matters not apparent on the face of the bill as amended. Story, Eq. Pl. (8th Ed.) § 660. The object being to defeat the bill without resort to a general answer, and the plaintiff not having filed a replication, the facts stated in the plea are admitted, but their sufficiency as matter of law to bar recovery is denied. Farley v. Kittson, 120 U. S. 303, 7 Sup. Ct. 534, 30 L. Ed. 684.
[3] A minority stockholder if he votes against the action taken by the corporation is entitled under the statute ‘to payment for his stock.’ If the corporation and the stockholder cannot agree, the value is to be ascertained by disinterested arbitrators. It is obvious that ‘the value of the stock’ means not merely the market price if the stock is traded in by the public, but the intrinsic value, to determine which all the assets and liabilities must be ascertained. The stockholder as well as the arbitrators, if arbitrators are appointed, ordinarily must resort to the books of the corporation for information, although a condition of affairs may exist where the books of themselves would fail to exhibit the true financial condition of corporate affairs. It is specifically alleged that the directors holding nearly four-fifths of the capital stock, while the plaintiff held the remaining shares, in violation of the by-laws voted themselves salaries ‘grossly exorbitant and greatly in excess of the fair value of the services rendered,’ and that not only were such misappropriations concealed from the stockholders including the plaintiff, but being in complete control of the corporation, they managed its affairs for their own personal profit, and the books of the company were so manipulated and falsified, that it was ‘difficult, if not impossible, to determine from the accounts of the concern the amounts so overdrawn’ or appropriated.
A further and important allegation appears, that ‘because of such acts your complainant did not know what the profits of the company were and was totally ignorant of the fact that these enormous salaries had been taken from the profits of the concern and remained in ignorance thereof until some time after the attempted sale,’ meaning the transfer under the declaration of trust. And these allegations not being contradicted by the plea are admitted to be true. French v. Shotwell, 5 Johns. Ch. (N. Y.) 555; 10 R. C. L. Equity, § 223.
[6] The statutory option given to a dissatisfied stockholder is either to acquiesce or accept the fair value of his stock and retire from the corporation. If he retires the valuation on which payment is to be made is not what the majority stockholders may be willing the corporation should pay, but is to be ascertained as if liquidation had been...
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