Masterton v. Lenox Realty Co.

• Decision Date: 16 July 1940
• Docket Number: 1832
• Citation: 15 A.2d 11,127 Conn. 25
• Court: Connecticut Supreme Court
• Parties: MASTERTON et al. v. LENOX REALTY CO.

15 A.2d 11

127 Conn. 25

MASTERTON et al. v. LENOX REALTY CO.

No. 1832

Supreme Court of Errors of Connecticut.

July 16, 1940

Appeal from Superior Court, New Haven County; Edward J. Daly, Judge.

Action by James A. Masterton, executor, and others against the Lenox Realty Company (1832) for the appointment of a receiver. The action was tried to the court, and from a judgment for plaintiffs appointing a receiver, defendant appeals.

No error.

Frederick H. Wiggin, Frank E. Callahan and Harrison F. Turnbull, all of New Haven, for appellant.

Thomas R. Robinson James E. Connor, Jr., and Vincent P. Dooley, all of New Haven, for appellees.

Argued before MALTBIE, C.J., and AVERY, BROWN, JENNINGS, and ELLS JJ.

JENNINGS, Judge.

The plaintiffs, holders of 10 per cent of the stock of the defendant, applied for the appointment of a receiver of the defendant under General Statutes, § 3467 printed in part in the footnote.^[1] As is not infrequently the case, the hearing on the appointment of a temporary receiver was, by stipulation, made a full trial on the merits. Sufficient cause was found and a receiver was appointed. The questions raised by the appeal are: Did the plaintiffs properly represent the required 10 per cent of the stock, should an appraisal of the minority interest have been made, is the finding supported by the evidence and was prejudicial error committed in any rulings incorporated in the appeal?

The finding, summarized for present purposes, is as follows: The defendant, the Lomas and Nettleton Company and the Lomas and Nettleton Mortgage Company are all Connecticut corporations. The Lomas and Nettleton Company was originally engaged in the business of mortgage investments but has for some time been changing to that of the management of real estate, from which it derives a substantial profit. In connection with its business it collected commissions on insurance and made a small profit in supplying materials and supplies for properties under its management. Such commissions as were collected and profits made on property owned by the defendant were not credited to the latter. The defendant was organized by the Lomas and Nettleton Company and its officers and directors to make second mortgages on properties on which the latter held first mortgages. The Lomas and Nettleton Mortgage Company was organized by the same parties to engage in the same business as the Lomas and Nettleton Company and the defendant but more particularly to acquire, hold and deal in mortgage notes secured by mortgages of the defendant and the Lomas and Nettleton Company and otherwise to act as depository for various forms of property.

Kenneth E. Nettleton, Sydney W. Gould and Donald E. Nettleton were officers and directors of all three companies. They also owned or controlled all of the common stock of each. Only the common stock had voting power. The Lomas and Nettleton Company owns 60 per cent of the preferred stock of the defendant. The business of each of these corporations and all of their corporate acts were done through the same individuals as officers and directors and practically all of their agents and employees were paid by the Lomas and Nettleton Company whether the agent or employee was acting for one corporation or the other. Thus all three occupy the same offices in a building owned by the defendant. Only the Lomas and Nettleton Company pays rent. The amount is fixed by Nettleton, Gould and Nettleton, acting as officers of the Lomas and Nettleton Company and is agreed to by the same individuals as officers of the defendant.

The defendant has outstanding 4450 shares of preferred and 100 shares of common stock, each of the par value of $100. The plaintiffs own 655 shares of the preferred stock. Certain of the plaintiffs owning 221 shares, included above, signed proxies which were voted to place the defendant in voluntary dissolution prior to the bringing of this action but thereafter elected to proceed with the present action to terminate the existence of the defendant by means of a receivership. The dissolution proceedings voted by the stockholders and directors were in progress up to the time of the appointment of the receiver. The trustees in dissolution were the same three individuals named above.

Since 1929, the defendant has become the owner of the equity in thirty-five separate properties. It was the general policy of Nettleton, Gould and Nettleton, acting for the defendant, to turn the management of the property acquired, with an assignment of rents, over to the Lomas and Nettleton Company, Trustee, as soon as title was secured. Since 1936, twenty-six of these properties have been conveyed to the Lomas and Nettleton Company, Trustee, and two to the Lomas and Nettleton Company, without substantial consideration. The other seven properties were foreclosed by the Lomas and Nettleton Company, Trustee, in which cases no attempt was made by impartial appraisal or the employment of counsel to protect the equity of the defendant. In one case Gould signed an affidavit of debt on behalf of the Lomas and Nettleton Company and a stipulation on behalf of the defendant calling for a redemption period of eleven days. There were substantial equities in some of these properties.

In January, 1938, Nettleton, Gould and Nettleton determined to dissolve the defendant and began to depreciate the assets and preferred stock of the defendant. Extensive repairs at an expense of approximately $20,000 were made on the office building owned by the defendant and it was then, for the first time in seven years, depreciated on its books. They also used the defendant as a convenience in creating a market for their operations in the stock of the defendant and of the Lomas and Nettleton Company. Gould, called by the plaintiffs, testified evasively, frequently withholding information called for by the questions propounded to him. Nettleton, Gould and Nettleton acted throughout in the interest of the Lomas and Nettleton Company from which they received large salaries and dividends.

Many facts have been omitted from this summary as unnecessary to support the conclusion of the trial court that the interests of the defendant so conflict with those of Nettleton, Gould and Nettleton that they are unfit and improper persons to act as trustees in liquidation of the defendant.

Two of the numerous claims of the defendant relate to conditions precedent to the maintenance of this action by the plaintiffs. It was admitted that in order to make up the 10 per cent of stock required to bring the action, it was necessary to include shares of stock held by stockholders who had previously signed proxies to be voted for voluntary dissolution under General Statutes, § 3470. The defendant claims that this was a binding election of remedies and that the stockholders in question waived their right and are estopped to ask for the appointment of a receiver. There was no evidence or finding that these stockholders knew of the situation disclosed by the allegations of their complaint in this action when they signed the proxies. A choice between two remedies in ignorance of the true state of facts does not constitute a binding election. National Transportation Co., Inc. v. Toquet, 123 Conn. 468, 480, 196 A. 344. Under these circumstances these stockholders neither waived their rights nor were they estopped to assert them.

Shortly before the trial of the case was started the Lomas and Nettleton Company, as owner and holder of shares of the preferred capital stock of the defendant, made application under § 3469...