Crimmins & Peirce Co. v. The Kidder Peabody Acceptance Corp.
| Decision Date | 30 March 1933 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
| Parties | CRIMMINS & PEIRCE CO. & others v. THE KIDDER PEABODY ACCEPTANCE CORPORATION & others. |
March 8, 1932.
Present: RUGG, C.
J., CROSBY, PIERCE WAIT, DONAHUE, & LUMMUS, JJ.
Corporation, Rights of stockholders, Classes of stock. Equity Pleading and Practice, Hearing on bill and answer. Contract, What constitutes, Validity, Construction.
Where a suit in equity is reserved for determination by this court upon the bill of complaint and the answer, the facts alleged in the bill and not denied in the answer and all additional facts well pleaded in the answer must be accepted as true.
By the provisions of the agreement of association and articles of organization subject to which a certain corporation came into existence four classes of stock with par value of $100 per share were established and denominated class A preferred, class B preferred, second preferred and common. The common stock alone had voting power except that in certain conditions holders of the class A stock and the class B stock might vote. The holders of both class A stock and class B stock were entitled to preferential cumulative dividends; and, upon dissolution of the corporation, holders of both classes of stock were entitled to be paid in full without distinction. There was a provision that the whole or any part of class A stock or of class B stock might be redeemed by vote of the directors at par plus accrued and unpaid dividends, and immediately after such provision, the following: "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." There was no provision as to the source from which the funds should be derived to redeem the class B stock when demanded by the holders. Holders of over half of the shares of class B stock duly notified the corporation that they desired to have their stock retired at the specified redemption price and the directors stated that they intended to comply with the demand. Holders of class A stock sought to enjoin such redemption in a suit in equity against the corporation, its directors and the holders of class B stock.
The suit was reserved for determination by this court upon the bill and answers, from which it appeared that dividends due upon the several classes of preferred stock had not been paid for the two dividend periods next prior to the filing of the bill, and that the redemption proposed would further seriously impair the capital of the corporation and would leave a surplus in the assets of the corporation considerably less in amount than the par value of the class A stock; but it did not appear that the corporation thereby would be rendered insolvent, or that any injury to its creditors had arisen or was threatened, or that it would not be left with sufficient assets to continue in business, or that there had been fraud, bad faith, or breach of trust on the part of any of the defendants. It further appeared that the class A stock had been issued at the organization of the corporation in exchange for a transfer of all the assets of a preexisting corporation subject to its liabilities and had been distributed to the former corporation's stockholders in liquidation thereof; and that the class B stock had been sold for cash at not less than par after the distributing of a circular letter of which the holders of class A stock had full knowledge. Held, that
(1) The preferences given to the class B stock and the class A stock were well within the terms of enabling statutes;
(2) The rights established with respect to the different classes of stockholders among themselves and between the stockholders and the corporation were contractual;
(3) There was no implied qualification of the right of holders of class B stock to redeem their stock to the effect that the capital structure of the corporation should remain proportionately equal as between class B stock and class A stock;
(4) There was no implied restriction upon such right of redemption to the effect that it should not be permissible if the net assets thereby would be reduced to an amount less than the aggregate amount payable to holders of other classes of stock having equal claim to assets upon dissolution or liquidation of the corporation;
(5) The history of the organization of the corporation in the circumstances disclosed had a bearing upon the question of implied limitations to be read into the agreement of association and the articles of organization establishing the relative rights of holders of different classes of stock;
(6) No reason appeared why the rights of retirement and redemption given the holders of class B stock should not be recognized;
(7) The bill was ordered dismissed.
In general and unless restrained by valid statutes, competent persons have the utmost liberty of making contracts; and an agreement voluntarily made between such persons is to be held sacred and enforced by the courts, and is not lightly to be set aside on the ground of public policy or because as events have turned out it may be unfortunate for one party. Per RUGG, C.J.
BILL IN EQUITY, filed in the Supreme Judicial Court for the county of Suffolk on October 30, 1931, and on January 5, 1932, amended by the filing of a substituted bill, described in the opinion.
Material facts appearing in the pleadings are described in the opinion.
The suit was reserved by Sanderson, J., upon the bill and answers for determination by the full court.
The case was argued at the bar in March, 1932, before Rugg, C.J., Crosby, Wait, & Sanderson, JJ., and, after the death of Sanderson, J., was submitted on briefs to all the Justices except Field, J.
R. G. Dodge & H.
S. Davis, for the plaintiffs.
T. Hunt, for The Kidder Peabody Acceptance Corporation and others.
J. Noble, (W.
J. Kelleher with him,) for other defendants.
S. R. Jones, for the defendant Stearns.
G. P. Drury, for the defendant G.
P. Drury, executor.
G. R. Stobbs, H.
H. Hartwell & L.
E. Stockwell, for George Crompton, Jr., and others, submitted a brief.
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. 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, and cases collected. Willson v. Laconia Car Co. 275 Mass. 435 , 436. Boston v. Curley, 276 Mass. 549 , 555.
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. Pickett v. Walsh, 192 Mass. 572 , 590. 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 1,726 shares in the treasury). . . . . . . . . . . . . . . . . . . . . 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...
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