Langer v. Fargo Mercantile Co.

• Decision Date: 05 December 1921
• Citation: 186 N.W. 104,48 N.D. 545
• Parties: LANGER et al. v. FARGO MERCANTILE CO. et al.
• Court: North Dakota Supreme Court

48 N.D. 545

186 N.W. 104

LANGER et al.

v.FARGO MERCANTILE CO. et al.

Supreme Court of North Dakota.

Dec. 5, 1921.

Syllabus by the Court.

In an action for an accounting brought by two stockholders in a dissolved corporation against the directors as trustees, where it appeared that the charter of the corporation had expired by limitation; that without actual knowledge of this fact the business was conducted for more than three years in the same manner as before; that dividends were declared and paid from time to time; that upon discovery of the fact that the charter had expired, and that the directors were liable as trustees under section 4567 of the Compiled Laws for 1913, three of the directors, to avoid the expense and sacrifice incident to liquidation, agreed to and did form a new corporation under substantially the same name; that, without notice to the plaintiff stockholders, they caused the assets to be appraised and purchased by the new corporation; that the stock of the new corporation was allotted to stockholders in the old, other than the plaintiffs; and that the defendants caused to be deposited in payment for plaintiffs' stock par value, plus 6 per cent. interest from the date of last dividend, which plaintiffs refused to accept-it is held:

Under section 4567 of the Compiled Laws of North Dakota for 1913 the defendant directors became trustees for the stockholders of all the assets of the dissolved corporation.

Where a corporate business is conducted for a period of time after the expiration of the charter without knowledge of that fact, and dividends are declared and distributed in the usual course, such dividends are the property of the stockholders, and are not, by operation of law, applied on liquidation claims to reduce the res of the trust.

Good will attaches to a corporate business to the same extent as to a partnership business and upon dissolution the trustees must account to the stockholders for its value.

Where the charter of a corporation expires after a long period of prosperity in the conduct of its business, and where for a period of years prior to its termination dividends had been earned and paid greatly in excess of a reasonablerate of interest on the capital invested, the good will has a substantial value, capable of being measured in money.

Where trustees, without notice to the stockholders or to the cestuis que trustent, appoint appraisers to appraise the assets in their hands, and where they dispose of the same for an inadequate consideration to a new corporation in which they are the principal stockholders, the transaction is voidable at the election of the stockholders not notified.

Where, after the termination of the charter, arrangements are made by the trustees whereby the business is continued without interruption by a new corporation, which reaps all of the benefits attaching to the good will, a stockholder, whose liquidation claim has not been satisfied and who is excluded from the new corporation, may follow his property into such new corporation, or, at his option, recover a money judgment for the value of the interest in the old corporation as represented by a like interest in the new.

Where the good will is not accounted for by the trustees, and the court, in an action for accounting, is compelled to value it, it must be valued as “if it had been sold in the most advantageous manner and under such circumstances that it would have produced the largest sum for all of the parties interested.”

Fees paid to a certified accountant will not be allowed as part of the costs, where his services were principally valuable to one of the parties, and where the facts gathered by him were at all times available to such party from the books, which are not shown to have been complex.

Appeal from District Court, Cass County; Cole, Judge.

Action by Frank J. Langer and another, as stockholders, against the Fargo Mercantile Company, a corporation dissolved, and T. A. Quirk and others, directors and trustees of such dissolved corporation, and from a judgment for the plaintiffs both parties have appealed. Affirmed.

Robinson, J., dissenting in part.

W. S. Lauder, of Wahpeton, for plaintiffs.

Young, Conmy & Young, of Fargo, for defendants.

BIRDZELL, J.

This is an action by two stockholders against a dissolved corporation and the directors as trustees thereof. The relief sought is a judgment that the individual defendants, the directors, be charged as trustees of the property and assets of the old corporation; that they be required to account for the same; that a sale of the property and assets of the dissolved corporation to a new corporation of similar name be adjudged to be null and void; that the affairs of the old corporation be liquidated according to law; that a receiver, trustee, or trustees, be appointed to conserve the property; that the plaintiffs be permitted to follow their interests in the old corporation by requiring the purchasing corporation to issue to them stock in proportion to their property interests in the old corporation; and for general relief. Upon a motion for the appointment of a receiver the district court denied the application, and from the order an appeal was taken to this court, where the order was affirmed. Langer v. Fargo Mercantile Co. et al., 174 N. W. 90. After the conclusion of the trial on the merits, findings and conclusions were made by the district judge to the effect that the individual defendants became trustees; that no valid sale of the property and assets had been made by them; that the affairs of the dissolved corporation had never been lawfully liquidated; that the plaintiffs might elect, on or before May 20, 1921, whether they would take stock in the new corporation with an accounting for dividends earned after the formation of the new corporation, or take a money judgment for the value of their stock on August 13, 1918, the day of the formation of the new corporation, at $275 per share, with an accounting for profits and earnings to the date of the entry of judgment. The latter option was accepted, and judgment entered accordingly in favor of the plaintiffs for $39,873.10. From this judgment both parties have appealed, and the action is here for trial de novo.

Avoiding, for the present, the statement of any controverted facts, the following statement is sufficient to convey the situation giving rise to the litigation: In 1895, the Fargo Mercantile Company was organized under the laws of this state with a capital stock of $50,000, for the purpose of conducting a wholesale grocery business at Fargo. The time fixed for the existence of the corporation was 20 years from March 15, 1895, but for all purposes of this litigation the corporation came into existence on April 1, 1895, as evidenced by the corporate seal. The organizers and directors were J. C. Hunter, T. A. Quirk, and C. H. Reineke. Of these, J. C. Hunter retained his connection with the business until his death in October, 1916. T. A. Quirk is still connected with the business, but in 1903 Reineke sold his interest to the defendant C. O. Follett, who succeeded him as director, later becoming vice president and manager. From time to time the stock was increased until the capitalization reached $250,000. The board of directors was also increased in number, and on April 1, 1915, the date of the expiration of the charter, the directors were J. C. Hunter, T. A. Quirk, C. O. Follett, and Croil Hunter. The plaintiff F. J. Langer became a stockholder in March, 1903, purchasing 50 shares at par. He later transferred a portion of this stock to the other plaintiff, William Langer. This stock subsequently shared ratably in increases of the capitalization, whether effected through stock dividends or cash. At dissolution, William Langer owned 100 shares and F. J. Langer 25 shares, the other stock being owned as follows: J. C. Hunter, 1,202 shares, Croil Hunter, 50 shares, H. F. Hunter, 50 shares, T. A. Quirk, 700 shares, and C. O. Follett, 373 shares.

The business was successful from the beginning. The first year it paid a dividend of 8 per cent. During the period of its existence it never paid less than that, and it ran as high as 50 per cent. It averaged for the entire period down to and including 1915 18.39 per cent. The most active managers of the business during the period of its growth were J. C. Hunter and C. O. Follett. After the expiration of the charter, April 1, 1915, the business was conducted the same as it had been before, without knowledge, apparently, on anybody's part, that the charter had expired. Knowledge of this fact was first acquired in the latter part of July, 1918, when the Secretary of State returned the corporation report and check for the filing fee, with the information that the charter had expired. Upon receipt of this information, the defendants Quirk and Follett took steps to organize a new corporation, adopting the name Fargo Mercantile Co. in lieu of Fargo Mercantile Company. Croil Hunter, who was in a military camp at the time, was consulted, and co-operated in the organization of the new corporation. At this time a memorandum agreement in triplicate was entered into between Quirk, Follett, and Croil Hunter, binding them by mutual promises to form a new corporation for the purpose indicated in the agreement. The agreement recites that the parties had just learned of the expiration of the charter and of their obligations under section 4567 of the Complied Laws, following which it contains these recitals:

“And whereas the assets of said defunct corporation consists of miscellaneous stock such as is usually carried by a wholesale grocery, and various notes and accounts, all of which could be sold and moneys collected only at some sacrifice and considerable expense by the ordinary process of liquidation; and whereas the parties hereto are desirous of avoiding this sacrifice for themselves and all other stockholders who are entitled to participate...