Crimmins & Peirce Co. v. Kidder Peabody Acceptance Corp.

• Citation: 185 N.E. 383,282 Mass. 367
• Court: United States State Supreme Judicial Court of Massachusetts
• Decision Date: 04 April 1933
• Parties: CRIMMINS & PEIRCE CO. et al. v. KIDDER PEABODY ACCEPTANCE CORPORATION et al.

282 Mass. 367

185 N.E. 383

CRIMMINS & PEIRCE CO. et al.

v.KIDDER PEABODY ACCEPTANCE CORPORATION et al.

Supreme Judicial Court of Massachusetts, Suffolk.

April 4, 1933.

Case reserved from Supreme Judicial Court, Suffolk County; George A. Sanderson, Justice.

Suit by Crimmins & Peirce Company and others against the Kidder Peabody Acceptance Corporation and others, reserved for determination by the Supreme Judicial Court upon the bill of complaint and the answers.

Decree dismissing bill.R. G. Dodge and H. S. Davis, both of Boston, for plaintiffs.

T. Hunt, of Boston, for defendants Kidder Peabody Acceptance Corp. and others.

J. Noble and W. J. Kelleher, both of Boston, for defendants Gaston and others.

S. R. Jones, of Boston, for defendant Stearns.

G. P. Drury, of Boston, for defendant Drury, executor.

G. R. Stobbs, H. H. Hartwell, and L. E. Stockwell, all of Worcester, for defendants George Crompton, Jr., and others.

RUGG, Chief Justice.

This suit in equity has been reserved for determination by this court upon the substitute bill of complaint and the answers, including the special matter embodied in the answers in the nature of demurrer. The case will be considered on its merits and it is unnecessary to discuss the demurrer, since in any event the ultimate decision must be adverse to the plaintiffs. Commonwealth v. McNary, 246 Mass. 46, 48, 140 N. E. 255, 29 A. L. R. 483. In these circumstances, the facts alleged in the bill and not denied in the answers and all additional facts well pleaded in the answers must be accepted as true. Joslin v. Boston & Maine Railroad, 274 Mass. 551, 552, 175 N. E. 156, and cases collected. Willson v. Laconia Car Co., 275 Mass. 435, 436, 176 N. E. 182;City of Boston v. Curley, 276 Mass. 549, 555, 177 N. E. 557.

The suit is brought by certain holders of class A preferred stock of the Kidder Peabody Acceptance Corporation against that corporation, its directors, and certain holders of its class B preferred stock alleged to be representative of such holders, they being so numerous that it is not practicable to join all of them as defendants. Wilkinson v. Stitt, 175 Mass. 581, 584, 56 N. E. 830;Pickett v. Walsh, 192 Mass. 572, 590, 78 N. E. 753,6 L. R. A. (N. S.) 1067, 116 Am. St. Rep. 272,7 Ann. Cas. 638. The object of the suit is to restrain the defendants from redeeming shares of class B preferred stock.

The material facts are these: The several plaintiffs are holders of a substantial number of shares of class A preferred stock in the corporation. The corporation is organized under the laws of this Commonwealth; it has outstanding capital stock of the par value of $13,500,000, divided into shares of the par value of $100 each and classified as follows:

Class A preferred (including 1726 shares in the treatury) 60,000 shares.

Class B preferred (including 251 shares in the treasury) 40,000 shares.

Second preferred 30,000 shares.

Common 5,000 shares.

The rights of the respective classes of stock are defined in the agreement of association, and articles of organization of the corporation in substance as follows:

Dividends: Class A preferred stock and class B preferred stock are entitled out of net profits to preferential cumulative dividends payable semiannually, class A at the rate of five per cent and no more per annum and class B at such rate as shall be fixed by the board of directors at the time of its issuance. Second preferred stock is entitled to preferential cumulative dividends at the rate of six per cent payable out of net profits, strictly subject, however, to all prior dividend rights of class A preferred stock and class B preferred stock. No dividends can be paid upon common stock until all dividends due on class A, class B, and second preferred stock have been paid.

At the time of the issue of class B preferred stock, the directors fixed six per cent per annum as its rate of dividend.

Liquidation or Dissolution Rights: In case of liquidation or dissolution, the holders of class A preferred stock and class B preferred stock shall be paid in full without distinction. Subject to this preference, holders of the second preferred stock shall be paid. The remaining proceeds of liquidation shall be paid to holders of common stock.

Redemption Rights: ‘The whole or any part of the Class A preferred stock and the whole or any part of the Class B preferred stock may be redeemed at the option of the Board of Directors on any semi-annual dividend date upon thirty (30) days' notice by the payment therefor of the par value plus accrued and unpaid dividends to date of redemption. * * * The Class B preferred stock may also, at the option of the holder, be retired at the said redemption price under such conditions as the Board of Directors may prescribe at the time or times of issue, but upon not less than eighteen (18) months' notice thereof. The whole or any part of the Second preferred stock may be redeemed at the option of the Board of Directors on any semiannual dividend date upon thirty (30) days' notice by the payment therefor of the par value thereof and twelve and one-half per cent. (12 1/2%) premium ($112.50 per share) plus accrued and unpaid dividends at the 6% rate to date of redemption. * * *’

No conditions respecting the retirement of class B preferred stock at the option of the holder have been prescribed by the directors except that, prior to offering it for sale, they determined that any such retirement should take place on a dividend date and that a person desiring to exercise the privilege of having his stock retired must give a notice in writing of at least eighteen mounths.

The voting rights are vested exclusively in holders of the common stock, except that in certain conditions not material to any issue here raised holders of Class A preferred stock and class B preferred stock may vote.

There is a further provision that class B preferred stock shall be reserved for sale for cash at not less than par, but must first be offered pro rata to class A preferred stockholders.

The corporation was organized to take over the business and assets of a pre-existing corporation as a going concern. It issued the sixty thousand shares of its class A preferred stock to that pre-existing corporation in exchange for all its assets subject to its liabilities. That pre-existing corporation distributed this class A preferred stock to its own stockholders in liquidation, each receiving one share of such stock for each share of the old stock held by him. Previous to this exchange the directors of that corporation sent a circular letter to its stockholders outlining a plan for the organization of a new corporation describing class A preferred stock as stock to be issued in exchange for old stock or in payment for its assets, and class B preferred stock as stock to be reserved for sale for cash at not less than par on a parity as to security with class A preferred stock, ‘except that it will be redeemable by the Company or at the option of the holder, at par and accrued dividends.’ The directors of the defendant corporation sent a circular letter to all stockholders in 1922 announcing their vote to issue 24,000 shares of class B preferred stock, which among other matters recited in substance the provision that such shares of stock might at the option of the holder be retired upon any dividend date at the price of par plus accrued and unpaid dividends upon required notice in writing. Pursuant to this vote 21,250 shares of such stock were issued for cash at par and the balance outstanding at later dates upon the same conditions. The plaintiffs contend that the circumstances of the issuance of the stock are not well pleaded. These facts are regarded as showing the emphasis at all material times placed upon the preferences established for class B preferred stock over class A preferred stock. To that extent they are not impertinent to the issues here raised, because they show that the provisions as to preference were set before the holders both of class A preferred stock and of class B preferred stock.

The respective dividends due upon the several classes of preferred stock have not been paid for the two dividend periods next prior to the filing of the bill; total dividends approximating $720,000 were then in arrears.

The holders of 22,927 shares of class B preferred stock have in accordance with the above previsions notified the corporation that they desire to have their stock retired at par plus accrued and unpaid dividends. It is probable that the holders of additional shares of such stock will give similar notices in the near future. The defendants who are directors of the corporation have announced their intention of complying with these several notices and of redeeming such shares.

The corporation has largely discontinued its acceptance business, although that has never constituted its principal activity, and there has been no change in the nature of the business which it is authorized to do. Its financial report shows that on July 15, 1931, its assets were $10,440,908.88, its liabilities (exclusive of capital stock) $2,836,439.41, leaving as surplus $7,604,649.47, and that on November 14, 1931, the same items were assets $7,974,501.36, liabilities $222,408.74, surplus $7,752,092.62. In each instance certain contingent liabilities and the capital stock are omitted. The par value of the outstanding capital stock, after deducting that in the treasury, is as follows: class A preferred, $5,896,600; class B preferred, $3.996,700; second preferred, $3,000,000; common, $500,000.

There are no allegations to the effect that compliance by the corporation with the asserted rights of the holders of class B preferred stock for retirement of their stock at the redemption price of par value plus accrued and unpaid dividends will work wrong to any one except to holders of class A preferred stock. No question arises as to proposed liquidation of the corporation. The utmost extent of the...