Kennedy Bros., Inc. v. Bird

• Decision Date: 17 September 1934
• Citation: 287 Mass. 477,192 N.E. 73
• Parties: KENNEDY BROS., Inc., v. BIRD et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

287 Mass. 477

192 N.E. 73

KENNEDY BROS., Inc.,

v.BIRD et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Sept. 17, 1934.

Exceptions from Superior Court, Suffolk County; McLeod, Judge.

Action of contract by Kennedy Bros., Inc., against Adriel U. Bird and others. From a judgment of the superior court on a hearing, without a jury, where there was a finding for the plaintiff in the sum of $3,561.25, defendants bring exceptions.

Exceptions overruled.W. F. Rideout and J. A. Plummer, both of Boston, for plaintiff.

John Wentworth and R. W. Barrett, both of Boston, for defendants.

RUGG, Chief Justice.

This is an action of contract to recover $3,500 and interest alleged to be due as accrued dividends upon two thousand shares of the preferred stock of Kennedy & Co., Inc., a corporation organized under the laws of this commonwealth and hereafter called the corporation. That corporation was owned and managed by three brothers. It operated about sixty retail grocery stores, dealing in about six or seven articles, in and around Boston and extending from Manchester, New Hampshire, to Providence, Rhode Island, and Springfield in this commonwealth. This business had been profitable over a period of years. Dividends of eight per cent. had been regularly paid on its preferred stock and dividends varying from $5 to $10 a year per share on the common stock. Just before the execution of the contract out of which this controversy arises the plaintiff was organized and the three brothers transferred to it their stock in the corporation. The contract between the parties was dated on December 27, 1929, consisted of thirty-two articles and two supplementary agreements of the same date, together constituting a single transaction. These instruments covered in considerable detail the immediate sale of the common stock in the corporation by the plaintiff to the defendants and the ultimate sale of its preferred stock, the amounts to be paid and the terms of payment. The price of the transfer was figured as of December 31, 1929, and the actual transfer was made in February, 1930. The defendant Bird in October, 1929, made an offer to the three brothers who owned the stock in the corporation. They made a counter offer shortly afterwards. Considerable negotiation and numerous interviews took place between the parties, and several drafts of contracts were prepared before the terms of sale were settled. The provisions of the contract material to this action are these: The capital structure of the corporation which theretofore consisted of five thousand shares, each of the par value of $100, of eight per cent cumulative preferred stock and thirty thousand shares of common stock of no par value, was to be changed so as to substitute for the existing preferred stock ten thousand shares, each of the par value of $100, of seven per cent cumulative preferred stock, fixed dividends at that rate to be paid on the first days of January, April, July and October in each year. This preferred stock was redeemable at $105 a ‘share and accrued dividends.’ In the event of dissolution, liquidation or winding up of the corporation, the holders of this preferred stock were to be paid the amount thereof at par ‘plus all accumulated unpaid dividends and the accrued portion of the current semi-annual [quarterly] dividends and no more.’ This preferred stock was not to be transferred to the defendants as buyers and then retransferred to the plaintiff but was retained by the plaintiff. Owners of the preferred stock had no voting rights here relevant. Holders of common stock had the voting rights. The common stock was to be transferred at once to the defendants and therefore the management of the corporation would pass to them. The defendants later were to purchase the preferred stock in amounts, at intervals and upon conditions specified. These were in brief that the defendantsbeginning with 1931 and continuing to and including 1935 were to buy on or before December 31 in each year $200,000 of the par value at $100 ‘per share plus accrued dividends.’ Dividends were paid regularly upon the preferred stock up to and including October 1, 1931. On December 31, 1931, the defendants paid to the plaintiff $200,000, being the first payment for two thousand shares of cumulative seven per cent preferred stock of the corporation. Certificate transferring that number of shares was handed to the representative of the defendants. At the interview when this transaction took place, nothing was said by the plaintiff or by the defendants touching the dividend due the next day on these shares. On January 2, 1932, check was sent to the plaintiff in payment of the dividend due the day before on eight thousand shares of preferred stock. Immediately the plaintiff made demand for the accrued dividend due on the two thousand shares delivered to the defendants on December 31, 1931. Payment was refused.

At the trial before a judge sitting without a jury evidence was received subject to the exception of the defendants of conversations during the negotiations preceding the execution of the contract to the effect that the representative of the defendants was told that the stockholders of the plaintiff would not leave its money in the business permanently with the common stock and management in the control of the defendants, but wanted the money as soon as practicable and wanted seven per cent interest on it until paid and that both sides understood that the plaintiff was to receive seven per cent on the money left in the business until it was paid. Subject to like exception evidence was introduced from dealers in securities that the words ‘plus accrued dividends' when used in naming the price on a sale of preferred stock with a fixed dividend rate have a definite meaning; that they signify that the stipulated price per share of the stock is to be increased by a sum equivalent to the dividend rate from the date of the last dividend date to the date when the sale takes place; that this interest is figured in the same way as in the sale of bonds; and that this interest rate applies to contracts to sell unlisted securities ‘plus accrued dividends' and that such a contract imposes on the buyer the obligation to pay such dividend rate to the time of sale in addition to the price specified.

The defendants filed numerous requests for rulings of law, all of which were denied. The trial judge made a general finding in favor of the plaintiff for the amount claimed. He found that there was no waiver by the plaintiff of any of its rights to recover. He found further: ‘1. The words ‘plus accrued dividends,’ in a contract of purchase and sale of cumulative preferred stock at a designated price per share, interpreted in their normal and ordinary meaning and as commonly understood in business transactions, rather than in their technical sense with relation to the rights of a stockholder between himself and the corporation under the agreement of association, import that the purchase price shall include a sum equivalent to a pro rata share, computed at the dividend rate, of any unexpired dividend period. 2. From the antecedent negotiations, the tenor of the whole instrument and the underlying...