Porter v. C.O. Porter Machinery Co.

• Citation: 58 N.W.2d 135,336 Mich. 437
• Decision Date: 13 April 1953
• Docket Number: No. 64,64
• Parties: PORTER et al. v. C. O. PORTER MACHINERY CO. et al.
• Court: Michigan Supreme Court

Page 135

58 N.W.2d 135

336 Mich. 437

PORTER et al. v. C. O. PORTER MACHINERY CO. et al.

No. 64.

Supreme Court of Michigan.

April 13, 1953.

Harrington, Waer, Cary & Servaas, Grand Rapids, for appellants.

Warner, Norcross & Judd, George S. Norcross, and Conrad E. Thornquist, Grand Rapids, for appellees.

Before the Entire Bench.

BUTZEL, Justice.

The facts are set forth in Mr. Justice SHARPE'S opinion for reversal. I believe that the trial court's order dismissing plaintiff's bill of complaint should be affirmed. The sale of the assets and business of the old corporation to the new corporation was strictly in accordance with law. There was nothing malum in se or malum prohibitum in the action of the appellees. Appellants, however, claim that the constitutional provision limiting the term of corporation to 30 years was violated by defendants by indirection and circumvention. The term of the old corporation was about to expire. Its franchise has never been renewed. There is no claim that the new corporation was not organized strictly in accordance with law. The sale of the assets and business also was legally made, after approval by the directors and the majority of the stockholders. Notwithstanding the fact that the old corporation paid but few dividends, its business had grown and a very large surplus accumulated and invested in the rapidly growing business. Liquidation proceedings frequently entail large expense, damage to the good will of the corporation and possibly other losses. The minority stockholders are entitled to their proportionate share of the net proceeds from the sale of the corporate assets, after due provision has been made for the payment of debts. This they are offered in an equivalent number of shares of stock in the new corporation, or, at their option, payment in cash for their shares of stock in the old corporation after a fair appraisal in manner provided by law. As the trial court held, this assessment would take into consideration all of the assets of the corporation, including good will, as well as the liabilities; that the proposed sale was legal and in the absence of fraud cannot be prevented by the minority stockholders, particularly when there is no showing of an irreparable injury to them in the event of such sale. Appellants contend that they were entitled to insist upon the corporation continuing to exist until the end of its term, and then the assets be offered at a sale at which all parties can bid and the highest bidder acquire the business. There is no assurance of what the majority or minority stockholders would bid, if at all. There seems to have been a quarrel between the two branches of the family and the parties desired to purchase each other's shares, but no agreement could be reached. Appellees further contend that a sale of stock in the new corporation will result in an exchange of stock and that this would be a tax free transaction, while a sale through liquidation, however, might result in a heavy Capital Gains tax under the Federal law. We shall not discuss this phase of the case.

Minority stockholders, particularly in a closely held corporation, have certain disadvantages. They have not the right to prevent a sale of the assets, if authorized by the directors and the majority of the stockholders, unless there is fraud. The statute, fully set forth in the opinion for reversal, C.L.1948, § 450.57, Stat.Ann. § 21.57, distinctly provides that the consideration for the sale may also be stock in another corporation. This has become common practice and has resulted in the growth and development of many of the larger corporations. It has met with judicial approval. In Voigt v. Remick, 260 Mich. 198, 244 N.W. 446, the sale of assets to another corporation formed by members of the selling corporation was upheld. See also, Hill v. Page & Hill Co., 198 Minn. 30, 268 N.W. 705, 927, in which the right to sell the assets of a corporation whose term was about to expire to a new corporation, formed by a group of stockholders of the old corporation, resulting in an exchange of stock, was upheld. To like effect, see Greene v. Stevenson, 295 Ky. 832, 175 S.W.2d 519; Tenison v. Wilson, Tex.Civ.App., 151 S.W.2d 327; Topkis v. Delaware Hardware Co., 23 Del.Ch. 125, 2 A.2d 114.

In Weckler v. Valley City Milling Co., D.C., 93 F.Supp. 444, 456, affirmed 6 Cir., 188 F.2d 367, so heavily relied upon by appellants herein, the court in holding that the reorganization there in question was in fraud of the rights of holders of preferred stock on which a very large amount of accrued dividends were unpaid, added the statement 'This is not to say that a corporation may not, under appropriate circumstances and in good faith, sell its assets to another corporation which has been formed at the instigation of the former.'

Also see, Havender v. Federal United Corp., 23 Del.Ch. 104, 2 A.2d 143; Id., 24 Del.Ch. 96, 6 A.2d 618; Id., 24 Del.Ch. 318, 11 A.2d 331; Hottenstein v. York Ice Machinery Corp., 3 Cir., 136 F.2d 944; McNulty v. W. & J. Sloane, 184 Misc. 835, 54 N.Y.S.2d 253; Porges v. Vadsco Sales Corp., 27 Del.Ch. 127, 32 A.2d 148.

A dissenting shareholder has no vested right to object to a sale of total corporate assets when authorized by the directors and a majority of the stockholders, a right which the majority had many years prior to the incorporation of the old company, also a defendant herein. For a full discussion, see Wilgus & Hamilton, Michigan Corporation Law, 1950, p. 330. The rights of dissenting minority stockholders has been further protected in many States by laws similar to that of Michigan, which provides in C.L.1948, § 450.44, Stat. § 21.44, that a stockholders who objects to the sale of the corporate assets shall, by proper action, be entitled to receive the fair cash value of his shares, either as agreed upon, or, in the event of disagreement, by three disinterested parties appointed by the circuit judge of the county where the corporation has its registered office. The true value of assets includes the good will of the vendor corporation. Plaintiffs cannot claim that they have been defrauded or that there is any bad faith when they are offered the equivalent number of shares in the same proportion in the new corporation as that they held in the old one, the same as the majority will receive, or at their option receive the full cash value of their shares in the old corporation. No bad faith or fraud whatsoever has been shown. The term of the old corporation is ended. The new corporation is not an extension of the term of the old corporation.

C.L.1948, § 450.44, Stat.Ann. § 21.44, further provides that the 'Objection by any such shareholder to any action of the corporation provided in this section and his rights thereafter under this section shall be his exclusive remedy.' In New York, where the question of exclusive remedy has arisen, the courts have held that the appraisal remedy provided by the New York stock corporation law is the exclusive remedy. Anderson v. International Minerals & Chemical Corp., 295 N.Y. 343, 67 N.E.2d 573; Beloff v. Consolidated Edison Co. of New York, 300 N.Y. 11, 87 N.E.2d 561. Were there any fraud or lack of good faith shown, a different question would be presented, but there is not such showing here. In the opinion for reversal, several cases of other jurisdictions and over 50 years old, and one 49 years old, are cited. The right to appraisal is comparatively new. The concept of the law of corporations and its limitations has changed very materially in the last half century. The Constitution is a living instrument and should be interpreted in such manner that it will remain adaptable to the necessities of a changing law. John Hancock Mutual Life Insurance Co. v. Ford Motor Co., 322 Mich. 209, 33 N.W.2d 763. We shall not further discuss these cases. The defendants acted fully within their rights.

The order of dismissal is affirmed, with costs to appellees. In order to avoid any possible question, the time for demanding the appraisal shall begin from the day this opinion is handed down.

ADAMS, BUSHNELL, BOYLES, and REID, JJ., concurred with BUTZEL, J.

SHARPE, Justice (dissenting).

This is a suit by the minority stockholders of the C. O. Porter Machinery Company Incorporated against the company and Clare O. Porter and Dale G. Porter, as officers and directors, to restrain a contemplated sale of all of the assets of the company. The facts necessary to a decision are as follows. The C. O. Porter Machinery Company was incorporated in 1923, for a thirty year period. Its charter expired January 10, 1953. Plaintiffs are the owners of 42% of the capital stock of the company while defendants own or control 55% of the stock of the company. The company owns and operates two woodworking machinery plants in Grand Rapids located about two miles apart. On May 20, 1952, at the annual stockholders' meeting, a resolution was offered to extend the corporate term. This resolution required a two-thirds vote and failed to pass. It is apparent that both groups of stockholders wished to acquire control of the company, and, if necessary, to purchase the entire stock of the company. The following letter was written by plaintiffs' attorney to defendants' attorney:

'June 30, 1952

Mr. George S. Norcross

Michigan Trust Building

Grand Rapids 2, Michigan

In re: C. O. Porter Machinery Co.

Dear Mr. Norcross:

The offer of $215,000 for the 410 shares of stock owned by Mrs. T. Earl Porter, Mrs. Kathlyn Collins and Burke E. Porter is declined, and in that connection your attention is called to the fact that the book value alone of the 410 shares on May 31st was approximately $230,000.00.

The feeling of you clients that they wish to continue in the management and operation of the business is quite understandable, but it is no stronger than is the feeling of Burke Porter that he would like to obtain control of a business in which he and his family have...