Geiger v. Seeding Mach. Co.

• Decision Date: 03 June 1931
• Docket Number: 22646,22648
• Parties: Geiger v. The American Seeding Machine Co. Et Al.
• Court: Ohio Supreme Court

177 N.E. 594

124 Ohio St. 222

Geiger v. The American Seeding Machine Co. Et Al.

Nos. 22646 , 22648

Supreme Court of Ohio

June 3, 1931

Appeal and error - Limitation - Order granting further pleading after decision, equivalent to rehearing - New decision stays period of limitation, when - Individual stockholder may prosecute error in action involving distribution of corporate assets - Corporations - Stock certificate constitutes contract between corporation and shareholders of all classes - Sale of corporate assets - Distribution of proceeds governed by articles of incorporation and stock certificates - Sale and distribution are separate matters - Consent to one cannot be compelled as condition to concurrence in other - Minority stockholders' remedy on sale, inapplicable to distribution of proceeds - Sections 5628-65 and 8629-72 General Code.

1. Where the trial court enters a decree in a chancery case, and thereafter grants leave to the unsuccessful party to file further pleadings, and gives further consideration to the issues of law or fact, and after such reconsideration again enters the same judgment upon the journal, the order granting leave to further plead is equivalent to granting a rehearing and the further consideration of the case is in fact a rehearing and a new decision which stays the period of limitation for error proceedings, and the rule is the same whether or not the new pleadings raise new issues.

2. Where a corporation is making a distribution of corporate assets among preferred and common stockholders and questions of priority arise between the two classes, it is not error to permit the individual stockholders to become parties, and to plead their claims and to prosecute error proceedings as such, independently of the corporation.

3. A stock certificate issued by a corporation is a contract between the corporation and the holders of certificates of all classes of stock. By subscription to stock of any class the subscriber consents to conditions of the articles of incorporation and becomes a party to the contracts of each class.

4. Section 8623-65, General Code, as it existed prior to July 23, 1929, made provision for sale of all or substantially all the assets of a corporation with the consent of two-thirds of the voting power of the corporation, but neither that section nor any other gave the authority to make distribution of the proceeds of such sale among different classes of stockholders in any manner other than in accordance with the articles of incorporation and the contracts with stockholders as evidenced by the terms of stock certificates.

5. The sale of the entire assets of a corporation and the distribution of the proceeds of such sale among stockholders are separate matters between separate parties and based upon separate considerations; stockholders of different classes cannot be compelled to give their consent to one as a condition to their concurrence in the other.

6. The procedure outlined by Section 8623-72 is an exclusive remedy for minority stockholders in reference to a sale, but as that section stood in May, 1929, had no application to the distribution of the proceeds of such sale among different classes of shareholders.

These are separate error proceedings prosecuted from the same judgment entered in the Court of Appeals of Clark county. The cause originated in the court of common pleas of Clark county, an appeal was taken from the judgment in that court and the cause was heard on appeal in the Court of Appeals.

On April 3, 1929, the American Seeding Machine Company, an Ohio corporation, having its principal place of business in Clark county, through its executive officers, by authority of its board of directors, entered into a contract with the Oliver Farm Equipment Company, a Delaware corporation, by the terms of which it was agreed that the Ohio corporation sold to the Delaware corporation all of its assets of every kind and character, and the Del- aware company assumed all of the obligations of the Ohio company and agreed to deliver to the Ohio company 21,440 shares of the "convertible participating stock" and 22,044 shares of the common stock of the Delaware company.

It so happens that there were outstanding at the time of said contract 21,440 shares of preferred stock in the Ohio company and 44,088 shares of the common stock. The agreement contained the stipulation that the sale and transfer should be subject to the approval of the holders of three-fourths in amount of the outstanding capital stock of the Ohio company and that in the event such approval should not be given the contract should be canceled.

Pursuant to that agreement, a formal and special meeting of all of the stockholders of the Ohio company was called, to be held on May 14, 1929, and all stockholders, common and preferred, were legally notified. At that meeting the owners of 17,995 shares of preferred stock and 40,783 shares of the common stock voted to approve and ratify the contract.

That contract was between the Ohio company on the one part and the Delaware company on the other. Necessarily it had nothing to do with the distribution of the stock of the Delaware company transferred to the Ohio company in payment for its property. Immediately following the execution of that contract, and prior to the time of the meeting on May 14th, the Ohio company mailed to each of the stockholders what has been called a circular or prospectus of the proposed sale, and another inclosure called a deposit agreement, asking all of the stockholders not only to approve the proposed sale and transfer of the property of the Ohio company and the receipt and exchange of certain capital stock, but also asking the stockholders to agree upon a distribution of the stock so received among the common and preferred stockholders of the Ohio company. This proposal was that for each share of preferred stock in the Ohio company the holder would receive one share of convertible participating stock, and that for each two shares of common stock in the Ohio company the holder would receive in exchange one share of the common stock of the Delaware company.

A committee chosen in some manner by the Ohio company, called the "Depositors' Committee," declared among other things in the prospectus: "While the committee will endeavor in good faith to carry out the merger plan, it assumes no responsibility therefor." Subjoined to the prospectus was the following form of consent, which the stockholders were requested to sign: "I hereby become a party to the above agreement and will deposit with the depositary therein namedshares of the common stock andshares of the preferred stock of The American Seeding Machine Company."

The shares of the preferred stock, as well as the articles of incorporation which authorized the issuance of the preferred stock, contained the following stipulation: "Preferred stock bearing six per cent. cumulative dividend per annum payable quarterly out of the surplus profits of the company for each year, in preference to all other stockholders, and such dividends shall be cumulative, and upon distribution of the assets of said corporation such stock shall be entitled to payment of its par value and the amount of such cumulative dividends then unpaid in preference to all other stock, but to no other dividends or payment."

Said preferred stock certificates carried other stipulations which are not necessary to be repeated. The market value of the preferred shares of the Ohio company at the time of the contract of sale, and for some time prior thereto, is a matter of conjecture, and yet it is conceded by the common stockholders that the preferred stock was not worth par and that dividends had not been paid thereon for several years.

This action was begun by Ralph Gerber, a preferred stockholder seeking an injunction against distributing any of the proceeds of the sale to the common stockholders, unless and until the preferred stockholders were paid the par value of their stock and accrued and accumulated dividends, and praying that the corporation pay to the preferred stockholders such par value and dividend. Gerber filed his suit on behalf of himself and other stockholders similarly situated, and thereafter other preferred stockholders filed cross-petitions making the same allegations and praying the same relief. None of the stockholders making such objections appeared at the meeting on May 14th, and did not in any way voice an objection to the proposed sale. And none of the preferred stockholders, except William W. Keifer, as trustee under the will of David West, deceased, made any demand within twenty days after said meeting for the payment of the fair cash value of shares of preferred stock, pursuant to the provisions of Section 8623-72 of the General Code (112 Ohio Laws, 37). The other preferred stockholders who assert that their claims be paid in full made their demands subsequent to the expiration of twenty days after the stockholders' meeting of May 14th. An answer was filed by the corporation to the petition of Gerber and replies were filed to the cross-petitions of other preferred stockholders, which in substance alleged the failure to appear at the stockholders' meeting and object to the sale, and the failure to make demand within twenty days-except in the case of William W. Keifer, as trustee-for the payment of the fair cash value of the stock. The corporation further claimed that the proposed distribution of one share of the convertible participating stock of the Delaware corporation for each share of preferred stock in the Ohio corporation, and one share of common stock in the Delaware corporation for each two shares of common stock in the Ohio corporation, was a part of the contract of sale, and that...