Goldman v. Coppola

• Citation: 179 A.2d 817,149 Conn. 317
• Court: Connecticut Supreme Court
• Decision Date: 06 February 1962
• Parties: Maurice J. GOLDMAN, Trustee in Bankruptcy of the Estate of A. Coppola Motor Sales, Inc. v. Anthony COPPOLA et al. (two cases). Supreme Court of Errors of Connecticut

Page 817

179 A.2d 817

149 Conn. 317

Maurice J. GOLDMAN, Trustee in Bankruptcy of the Estate of A. Coppola Motor Sales, Inc. v. Anthony COPPOLA et al. (two cases).

Supreme Court of Errors of Connecticut.

Feb. 6, 1962.

Joseph Weiner, New Haven, for appellant (plaintiff) in each case.

Irwin E. Friedman, Bridgeport, with whom were Arthur Levy, Jr., and Charles Weingarten, Bridgeport, for appellees (defendants) in each case.

Before BALDWIN, C. J., and KING, MURPHY, SHEA and ALCORN, JJ.

KING, Associate Justice.

The defendants, Donald and Anthony Coppola, were brothers. For some years prior to 1955, they had owned a corporation known as Dan's Auto Sales, Inc., which was engaged in the used-car business. In 1955, Anthony purchased the stock of Clare Motors, Inc., which held the Chrysler franchise in New Haven. The name of this corporation was changed to A. Coppola Motor Sales, Inc. Thereafter, Dan's Auto Sales, Inc., was merged into A. Coppola Motor Sales, Inc. The details of these corporate maneuvers were complex and not all are clearly disclosed in the finding. At and after the merger, both brothers were stockholders in A. Coppola Motor Sales, Inc. The trial court accepted the defendants' claim that the motivation of some of these transactions was a desire to avoid paying a capital gains tax on a contemplated sale of a piece of real estate in Bridgeport.

A. Coppola Motor Sales, Inc., went into receivership on January 10, 1958, and on March 17, 1958, an involuntary petition in bankruptcy was filed. Adjudication followed on April 2, 1958, and the plaintiff was appointed the trustee in bankruptcy. He seeks to recover damages for which, on a number of grounds, he claims the defendants are liable. Two actions were instituted, each against both defendants. The actions were tried together, and the court filed a single memorandum of decision. It was stipulated that the appeals should be combined and that a single record should be printed. One action, hereinafter referred to as the first action, primarily sought recovery of damages from both defendants. The other, hereinafter referred to as the second action, primarily sought recovery of damages from Anthony Coppola, alone, and the apparent reason for joining Donald Coppola as a defendant was that the final (eighth) count sought to set aside a claimed fraudulent conveyance, by Anthony to Donald, of an undivided one-half interest in certain real estate in Stratford. A similar final (fourth) count in the first action sought the same equitable relief. It was stipulated at the trial that any judgment rendered against Anthony in either action could be satisfied out of this real estate. This obviates the necessity of consideration of either of these counts on the partial retrial hereinafter ordered.

The first count in the first action included a claim based on Donald's transfers to A. Coppola Motor Sales, Inc., of stock in that corporation. This claim we consider first. On March 2, 1956, the records of the corporation indicate that Donald, then a director, donated to it 250 shares of its stock of the par value of $200 each. Subsequently, on December 31, 1956, a correcting entry was made in the corporate books in which the donation was treated as a sale to the corporation, by Donald, of 250 shares of its stock in return for a cancelation of approximately $50,000 of the total indebtedness owed the corporation by Donald and Anthony. On March 23, 1956, the corporate records recite a sale by Donald to the corporation of 250 shares of its stock in return for its cancelation of $50,000 of the total indebtedness then owed by Donald and Anthony to it. In October, 1957, Anthony consummated the sale of the balance of the stock in the corporation to a group of three persons and severed his connection with it. Previously, on January 22, 1957, Donald had resigned as a director.

The plaintiff attacked the court's finding that the minutes showing the donation of 250 shares of stock by Donald were written through ignorance and error, and that the correcting entry treating the transaction as a sale of stock to the corporation in return for the cancelation of indebtedness was a bona fide correction of an honest mistake. This presented a question of fact, and while there was strong evidence to the contrary, we cannot say that the court was not entitled to accept the defendants' claim of mistake with respect to this entry.

The plaintiff further claims that even if the correcting entry was bona fide the two sales of stock, of 250 shares each, by Donald to the corporation were invalid for a number of reasons and seeks in effect to rescind or disaffirm the transactions and recover, on the return of the stock to Donald, the consideration given by the corporation for the stock. There is no claim by the defendants that their indebtedness to the corporation, which was surrendered by the corporation in return for its stock, would not have been collectible or was not worth its face value. One ground of invalidity relied on by the plaintiff and dispositive of this aspect of the appeal is the failure to comply with the statutory provisions requiring the filing of a certificate to set forth the purchase by the corporation of its stock.

Connecticut has certain statutory provisions regarding the purchase by a corporation of its own stock. These provisions were drastically changed (General Statutes, § 33-358) by the Stock Corporations Act (General Statutes, c. 599) which took effect January 1, 1961, but the instant case is governed by our prior law, contained in § 33-63, repealed by Public Acts 1959, No. 618, § 137. One of the provisions of § 33-63 is that '[t]he president and treasurer of each corporation acquiring its own stock * * * shall, within six months thereafter, make, sign and swear to and file in the office of the secretary of the state a certificate stating the number of shares of its own stock so acquired, and the secretary shall thereupon record such certificate in a book kept by him for that purpose.' It is undisputed that no such certificate covering either sale here was, or ever has been, made out or filed.

We have held that the purchase by a corporation of its own stock is ultra vires if the provisions of § 33-63 are not complied with. Pothier v. Reid Air Spring Co., 103 Conn. 380, 389, 130 A. 383; Martin Tire & Rubber Co. v. Kelley Tire & Rubber Co., 101 Conn. 534, 539, 126 A. 697. The defendants are forced to, and do, attempt to overthrow this rule. While admitting that the omission to file the certificate constituted an irregularity, they deny that it had any effect on the validity of the transactions or gave the plaintiff, as trustee in bankruptcy and the representative of creditors, any right of disaffirmance or rescission. They based this claim on the case of Barrows v. Natchaug Silk Co., 72 Conn. 658, 663, 45 A. 951. That case does not support their position. Rather, it is an authority to the contrary. It makes clear that the purpose of a statutory provision requiring the filing of a certificate is 'primarily for the benefit of the public; that is, of those persons who way desire to do business with the corporation.' Id., 664, 45 A. 953. It also clearly recognizes that the equities of creditors are superior to those of stockholders where there is a failure to file the certificate required by statute. Id., 665, 45 A. 954; see Butler v. Beach, 82 Conn. 417, 423, 74 A. 748; Canfield v. Gregory, 66 Conn. 9, 22, 33 A. 536.

Nor is this all. The decision in the Barrows case, in 1900, antedated the enactment of chapter 157 of the Public Acts of 1901, which was a virtually complete new corporation law. After that decision, § 33-14 of the General Statutes was first enacted as § 34 of chapter 157 of the Public Acts of 1901, amended, in a manner immaterial to this aspect of the present controversy, by § 60 of chapter 194 of the Public Acts of 1903. Section 33-14 (repealed Public Acts 1959, No. 618, § 137; see § 33-285) provides that '[e]ach certificate required to be filed by corporations * * * shall be signed and sworn to by the persons required to file it, and shall be filed in the office of the secretary of the state, who shall examine the same, and, if he finds that it conforms to law * * *, shall endorse thereon the word 'Approved,' with his name and official title, and shall thereupon record such certificate in a book kept by him for that purpose. No act required to be set forth in any such certificate shall be valid until such certificate has been approved as aforesaid, but this provision shall not relieve the corporation, its officers, directors or stockholders from any liability which might otherwise be enforceable against them or any of them, or invalidate any of the stock of such corporation in the hands of bona fide holders without notice.' Any possible doubt as to the effect of a failure to file a proper certificate as required by § 33-63 was removed by the enactment of § 33-14. Substantially the same claim as is made by the defendants here--that the failure to file a certificate was a mere irregularity of no real consequence to anyone--was advanced and rejected in Taylor v. Lounsbury-Soule Co., 106 Conn. 41, 137 A. 159. It is unnecessary to repeat the detailed explanation given there (p. 54, 137 A. 159) of the scope of the decision in the Barrows case, supra, and (p. 55, 137 A. 159) of the reinforcement, by the legislative changes made subsequent to the Barrows case, of the principle that when a certificate setting forth a given corporate action is required to be filed, a failure to file it, in the absence of superior equities, renders the action at least voidable under the provisions of §§ 33-14 and 33-63.

The transactions attacked took place while the defendants, the attorney who represented them and the corporation, and Donald DiCarlo constituted all of the stockholders and the entire board of directors. The attorney was merely a nominal stockholder,...