Koehler v. St. Mary's Brewing Co.

• Decision Date: 01 July 1910
• Docket Number: 49
• Citation: 77 A. 1016,228 Pa. 648
• Parties: Koehler et al., Appellants, v. St. Mary's Brewing Company, et al
• Court: Pennsylvania Supreme Court

77 A. 1016

228 Pa. 648

Koehler et al., Appellants, v. St. Mary's Brewing Company, et al

No. 49

Supreme Court of Pennsylvania

July 1, 1910

Argued May 18, 1910

Appeal, No. 49, Jan. T., 1910, by plaintiffs, from decree of C.P. Elk Co., April T., 1909, No. 1, dismissing bill in equity in case of Fred Koehler; Fred Koehler, guardian of Anna Belle Blass; Fred Koehler and E. W. King, trustees for Ida B. Clover, Florence M. Magenau, Ida S. King, and Anna Belle Blass; C. M. Conrad, F. A. Brevillier and Adolph L Curtze v. St. Mary's Brewing Company, William Kaul, John Kaul, J.K.P. Hall and George C. Simons. Affirmed on condition.

Bill in equity to enjoin sale of corporate property. Before ORVIS P.J., specially presiding.

The facts appear in the opinion of the Supreme Court.

Errors assigned were refusal to admit testimony, and decree dismissing bill.

On the reargument of this appeal counsel for appellees stated that, while they still insisted that the appellants should be compelled to take the bonds of the Elk County Brewing Company, they were willing to have the decree dismissing the bill affirmed upon condition that the appellants be paid cash for their proportionate shares of the purchase price. This was very prudent, and the decree is affirmed, upon condition that the appellees pay, or cause to be paid, to the appellants within sixty days, cash for their respective interests in the purchase price of $250,000, for the sale and transfer to the Elk County Brewing Company of the franchises and corporate property of the St. Mary's Brewing Company, the costs below and on this appeal to be paid by the appellees.

Alex. Simpson, Jr., with him Paul Benson, J. A. Gleason, Louis Rosenzweig, Gunnison, Rilling & Fish and Fred H. Ely, for appellants. -- The act overruling the common law should be strictly construed: Esterley's App., 54 Pa. 192; McMullen v. McCreary, 54 Pa. 230; 1 Weimer on Penna. Corp. Law, 390.

Governed by the rule of strict construction, sec. 5 of the Act of 1876, P.L. 30, should be construed to require cash to be paid to dissenting stockholders where the corporate assets are sold to another corporation: Williamson v. Berry, 49 U.S. 495; Bigley v. Risher, 63 Pa. 152; Carr v. Tumbler Co., 207 Pa. 392; Barnett v. Phila. Market Co., 218 Pa. 649; Mason v. Pewabic Mining Co., 133 U.S. 50 (10 S.Ct. Repr. 224); Lauman v. Lebanon Valley R.R. Co., 30 Pa. 42; Miners' Ditch Co. v. Zellerbach, 37 Cal. 543; Farmers' Loan & Trust Co. v. R.R. Co., 54 Fed. Repr. 759.

John G. Johnson and William A. Stone, with them E. H. Baird and Scandrett & Barnett, for appellees. -- The payment at the time of sale of the consideration in cash, is not a prerequisite to a valid exercise of a power to sell: Mackaness v. Long, 85 Pa. 158; Huthmacher v. Harris, 38 Pa. 491; Williamson v. Berry, 49 U.S. 495; Bigley v. Risher, 63 Pa. 152; Perin v. Megibben, 53 Fed. Repr. 86; Farmers' Loan & Trust Co. v. Toledo, etc., R.R. Co., 54 Fed. Repr. 759.

Before FELL, C.J., BROWN, MESTREZAT, POTTER, ELKIN and MOSCHZISKER, JJ.

OPINION

MR. JUSTICE BROWN:

On December 22, 1908, the Elk County Brewing Company, a Pennsylvania corporation, proposed to the St. Mary's Brewing Company, a like corporation, to purchase from it all of its franchises and property, real, personal and mixed, for the sum of $250,000. This was not to be paid in money, but in bonds of the purchasing company, running for thirty years and secured by a first mortgage on all of its property, rights and franchises. It further agreed to assume all the liabilities of the St. Mary's Brewing Company and that said company should retain from its cash assets $35,000 for the payment of dividends to its stockholders. On or about the date that the proposition was made the board of directors of the St. Mary's Brewing Company accepted it, subject to the approval of the stockholders, who were duly notified to meet on February 27, 1909, for the purpose of taking action upon the proposed sale. On February 26 -- the day before the meeting -- this bill was filed by the appellants, minority stockholders, for the purpose of enjoining the sale. No preliminary injunction was issued, and the meeting was held, at which 2,365 votes were cast, resulting in a majority of 535 in favor of the sale. The bill avers fraud on the part of the majority stockholders and board of directors of the St. Mary's Brewing Company and collusion between them and the Elk County Brewing Company, to deprive the complainants and other minority stockholders of the St. Mary's Brewing Company of their holdings in that company and to defraud them of their interest in the property and assets thereof. These allegations are denied in the answer, and the finding of the court is that the proposed sale is for a sufficient consideration and that there was no fraud or collusion between the defendants themselves, or any of them, or between the defendants, or any of them, and the incorporators, officers and directors of the Elk County Brewing Company. As this finding was warranted by the evidence, it is not to be disturbed.

Complaint is made of the court's refusal to allow the appellants to show, in support of their allegation of fraud, that the price offered was inadequate. Gross inadequacy of price is at times a badge of fraud in connection with a sale, but in a sale like this, made by one corporation to another, in accordance with the provisions of the Act of April 17, 1876, P.L. 30 inadequacy of price, standing alone, with nothing else to support the charge of fraud and collusion, is not in itself any evidence of fraud and is not sufficient to enjoin or set aside the sale. In the absence of fraud or collusion on the part of the majority stockholders, the minority stockholders of the St. Mary's Brewing Company are not to be heard to complain of inadequacy of price, for they knew when they became stockholders that the board of directors of the company could, with the consent of a majority of the stockholders, sell for such price as they might in good faith agree to take for the corporate property. They knew that, as to this, they would at all times be compelled to bend to the will of the majority. There is no complaint that the election of the stockholders was irregularly held or that any statutory requirement in connection with the action of the board of directors or stockholders in agreeing to sell was disregarded; and, therefore, upon a mere naked allegation of inadequacy of price, the court below could not have entertained the appellants' bill. The disallowance of the offer to show inadequacy of price was for the following correct reason given by the court at the time of its exclusion: "As we conceive the law to be, the legislature by the act of 1876 has vested absolutely in the corporation itself the power to sell and convey its franchises and assets for a price or consideration fixable by the corporation as exercised through the votes of the majority of its stockholders. The power of reviewing such corporate action has not been given by the legislature to the courts and they will not set aside such sale for mere inadequacy of price or enjoin the same unless it be shown affirmatively that the majority of the stockholders acted fraudulently or collusively to deprive the minority stockholders of a fair distributive share of the proceeds of the sale. As we now view the testimony, so far produced by the plaintiffs, they have failed to show facts or to produce testimony from which we could infer fraud or collusion;...