Pendleton v. Harris-Emery Co.

• Decision Date: 13 June 1904
• Citation: 124 Iowa 361,100 N.W. 117
• Parties: PENDLETON v. HARRIS-EMERY CO. ET AL.
• Court: Iowa Supreme Court

124 Iowa 361

100 N.W. 117

PENDLETON

v.HARRIS-EMERY CO. ET AL.

Supreme Court of Iowa.

June 13, 1904.

Appeal from District Court, Polk County; A. H. McVey, Judge.

The issue finally determined in this case by the lower court arose on cross-petition of M. Frankel against Jacob S. Emery and Arthur Reynolds, in which it was alleged that, in connection with a purchase by Frankel from Emery of 782 shares of common stock in the Harris-Emery Company, the sum of $1,600 of the amount to be paid to Emery was deposited with Reynolds, awaiting the determination of the question whether certain other outstanding stock of the corporation was preferred stock--that question being material in determining the price to be paid by Frankel for the stock purchased by him--and that said outstanding stock was in fact preferred stock, contrary to the representations of Emery, and it is asked that Frankel have judgment against Emery and Reynolds for the payment to Frankel of the $1,600 so deposited. The substantial allegations of the cross-petition were denied by Emery, and a decree was rendered awarding $527.36 of the sum in controversy to Frankel, and the balance to Emery. Each of these two parties appeals. Modified and affirmed.N. T. Guernsey, for S. Frankel.

Charles L. Powell, for Jacob S. Emery and Arthur Reynolds.

McCLAIN, J.

The action was originally brought by Pendleton, as trustee for Manix & Co., to compel the Harris-Emery Company to treat certain shares of stock held by Pendleton for the benefit of Manix & Co. as preferred stock, rather than common stock. But before a decision was rendered, it was shown to the court that the Pendleton stock had been taken up and canceled by the Harris-Emery Company, and the sole question left for decision was that arising on Frankel's cross-petition against Emery and Reynolds, as set out in the above statement. The important facts bearing upon the question finally determined are as follows: In January, 1900, Pendleton was the owner of the legal title of 125 shares of preferred stock, of the par value of $100 per share, in the Harris-Emery Company, a corporation carrying on a dry goods business in the city of Des Moines; the characteristics distinguishing such preferred stock from common stock being that it was issued to employés of the Harris-Emery Company, that it could be retired at par by the company whenever the owner ceased to be an employé of the company, that the holder was guarantied a dividend of 8 per cent. per annum, and that the holder was not entitled to vote it at the stockholders' meetings. At this time the capital of the corporation was somewhat impaired, chiefly by reason of a recent loss by fire, and it was represented by Pendleton, who was about to quit the service of the company, that the stockholders were about to make good this loss, and that it was considered desirable not to continue the plan of having preferred stock outstanding; and thereupon this following instrument was executed, signed by Pendleton and by the Harris-Emery Company, by its treasurer, which instrument will hereafter be referred to as the waiver.

“Whereas, Harris-Emery Company, a corporation of Polk County, Iowa, desires to retire all of the preferred stock of said corporation now outstanding, as it may do under its said articles of incorporation; and,

Whereas, E. S. Pendleton holds in his own right and name one hundred and twenty-five (125) shares of Class ‘A’ of the preferred stock, represented by certificates as follows: Certificate No. 33, five shares; Certificate No. 16, five shares; Certificate No. 45, ten shares; Certificate No. 56, ten shares; Certificate No. 57, five shares; Certificate No. 61, sixty shares, and Certificate No. 71 thirty shares.

Now therefore: In Consideration of said Pendleton waiving all rights as the holder of said stock to said stock as preferred over the common stock of this corporation, and said Harris-Emery Company hereby agree to allow said stock to stand as it now is and not to retire the same as long as held and owned by said Pendleton.”

In March, 1901, Frankel and Emery entered into an agreement by which the former secured an option on the purchase of 782 shares of common stock, constituting a majority of the common stock of the corporation; the price to be the book value on January 15, 1901, and a bonus of a specified sum. During the negotiations leading up to the execution of the instrument of option, the status of the Pendleton stock as common or preferred was discussed as bearing on the question of the book value, and the facts were disclosed to Frankel on which Emery based his claim that this stock was common, and not preferred, in view of the waiver. In the option contract this clause is found:

“Fifth. The said Emery in order to induce the sale of said stock has represented and guaranteed. * * * (c) That the capital stock of said company now outstanding is sixteen hundred and twelve shares, and not more, of which fourteen hundred and eighty-two shares are common stock, and the remainder preferred stock.”

It is conceded that in this guaranty the Pendleton stock was considered common stock, and that, if in fact it was preferred stock, the guaranty was to that extent untrue. When Frankel exercised his option of purchase under this contract, the following instrument was executed, and the sum of $1,600 was paid to Reynolds as therein provided:

“Whereas. Jacob S. Emery has this day sold to the Frankels Seven hundred and eighty-two shares of common stock of the Harris-Emery Company under a guaranty that the whole amount of common stock in said corporation is fourteen hundred and eighty-two shares, and

Whereas, some question has arisen as to whether or not the stock owned by E. S. Pendleton is common or preferred stock, and

Whereas, in said guaranty said stock of E. S. Pendleton is guaranteed to be common stock.

Now, it is agreed that said Jacob S. Emery shall deposit with Arthur Reynolds $1,600 to be held by said Reynolds, for the benefit of the persons who may ultimately be entitled thereto under the contracts between the parties when it is determined whether said stock is common or preferred.

M. Frankel,

Jacob S. Emery.

Received $1,600 above referred to April 16, 1901. Arthur Reynolds.”

It is the contention of the counsel for Frankel that, notwithstanding the waiver, and for reasons hereafter to be...