The Chicago Corp. v. Munds

• Decision Date: 25 April 1934
• Citation: 172 A. 452,20 Del.Ch. 142
• Parties: THE CHICAGO CORPORATION, a corporation of the State of Delaware, v. JAMES THEUS MUNDS, FRANCIS D. WINSLOW, CLINTON T. REVERE, LOUIS DE L'AIGLE MUNDS, LOUIS L. ALLEN, HENRY T. DUMBELL, WARREN ACKERMAN, DORLAND DOYLE, HOWARD P. INGELS, JOHN W. FULLER POTTER, PHILIP LYNDON DODGE, ROSWELL C. TRIPP, HAROLD W. DAVIS, FRANK S. THOMAS, GUY M. STANDIFER AND HAROLD FITZGERALD, a co-partnership trading under the firm name of Munds, Winslow & Potter
• Court: Court of Chancery of Delaware

172 A. 452

20 Del.Ch. 142

THE CHICAGO CORPORATION, a corporation of the State of Delaware, v. JAMES THEUS MUNDS, FRANCIS D. WINSLOW, CLINTON T. REVERE, LOUIS DE L'AIGLE MUNDS, LOUIS L. ALLEN, HENRY T. DUMBELL, WARREN ACKERMAN, DORLAND DOYLE, HOWARD P. INGELS, JOHN W. FULLER POTTER, PHILIP LYNDON DODGE, ROSWELL C. TRIPP, HAROLD W. DAVIS, FRANK S. THOMAS, GUY M. STANDIFER AND HAROLD FITZGERALD, a co-partnership trading under the firm name of Munds, Winslow & Potter

Court of Chancery of Delaware, New Castle

April 25, 1934

BILL TO COMPEL A TRANSFER OF STOCK. The complainant is a Delaware corporation which came into existence as the result of a merger, under Sections 59 and 60 of the General Corporation Law (Revised Code 1915, § 1973 as amended by 36 Del Laws, c. 135, § 18; § 1974, as amended by 35 Del Laws, c. 85, § 19), of Continental Chicago Corporation and Chicago Investors Corporation, both Delaware corporations. The defendants are members of a co-partnership trading under the name of Munds, Winslow & Potter. At the time of the merger they held fifty shares of the convertible preference stock of Continental Chicago Corporation. Before the meeting of the stockholders of Continental Chicago Corporation was held at which a vote upon the proposed merger was to be taken, the defendants objected thereto in writing and voted against the same. The merger was duly consummated and within twenty days after the agreement of consolidation between the two corporations was filed and recorded, the defendants made demand in writing for the payment to them of the value of their stock at the date of the consolidation. In response to this demand, the complainant offered to pay for the stock of the defendants at the rate of seventeen dollars per share. The defendants refused to accept payment on that basis. Thereupon appraisers were selected as provided by the statute. The appraisers valued the stock at seventeen dollars and twenty-five cents a share, which the complainant offered to pay. The defendants rejected the offer, claiming that the appraisers had accepted for their guidance in making their appraisement a wrong principle of law. They insisted that if the appraisers had adopted the correct legal principle, the stock would have shown a value of thirty-two dollars and eleven cents per share.

The parties being thus in disagreement, the complainant filed the pending bill in which it seeks to compel the defendants to transfer to it the stock held by them upon payment therefor by the complainant at the rate of seventeen dollars and twenty-five cents per share, being the value fixed by the appraisers.

The defendants answered the bill admitting the material allegations of fact and averring the additional facts which are relied upon as revealing the impropriety in law of the principle adopted by the appraisers in the making the appraisement.

The complainant thereupon moved under Rule 44 of this court for a decree notwithstanding answer.

Aaron Finger, of the firm of Richards, Layton & Finger, and Robert H. O'Brien, of the firm of Simpson, Thacher & Bartlett of New York City, for complainant.

Clarence A. Southerland, of the firm of Ward & Gray, for defendants.

OPINION

THE CHANCELLOR:

The defendants hold shares of convertible, preference stock of Continental Chicago Corporation which merged with Chicago Investors Corporation into a corporation called The Chicago Corporation, the complainant in this cause. Continental Chicago Corporation appears to have been an investment corporation. Its assets totalled $ 21,658,694.02, consisting of cash amounting to over three million dollars, short term securities and notes receivable of nearly three million dollars, investments in the form of stocks and bonds of over fifteen million dollars and a few other smaller assets. The defendants objected to the merger and made demand for payment of the value of their stock.

Section 61 of the General Corporation Law (Revised Code 1915, § 1975, as amended by 35 Del. Laws, c. 85, § 20) provides that in case of a merger, any stockholder of a merging company who objects to the merger and complies with the procedure prescribed by the section shall be paid by the consolidated corporation "the value of his stock at the date of consolidation." Appraisers were duly appointed in accordance with the terms of the section referred to, who valued the stock of the defendants at seventeen dollars and twenty-five cents per share. The price per share was based by the appraisers, as shown by their report, on the sole consideration that on December 20, 1932, "the date of the consolidation," the convertible preference stock of Continental Chicago Corporation which the defendants hold was traded in on the Chicago Stock Exchange and the closing price was seventeen and one-quarter. The appraisers stated in their report that while they had examined the balance sheet and portfolio of Continental Chicago Corporation, they were of the opinion that value as the term is used in Section 61 of the act should be deemed market value and not the asset value of the stock appraised. They therefore considered the closing market quotation of the stock as the sole element in appraising its value.

The defendants insist that the appraisers appraised the value of their stock upon an improper basis and that they are therefore not bound to accept payment on that basis. They contend that their stock should be appraised on the basis of the value of the assets and that when so appraised it will have a value much larger than that shown by the market on December 20, 1932.

The question therefore is whether or not the "value" which Section 61 declares shall be paid to an objecting stockholder for his stock means value as shown by market transactions on the consolidation date. The complainant contends that it does, when there is a market. It concedes that in cases where the stock has no market, other indices of value must be resorted to. If "value" as used in the statute means "market value," the contention and the concession amount to this, that the opinion of buyers and sellers of stock is a sure indication of a stock's value, but if there is no such opinion available because of a lack of purchases and sales all other elements that may be legitimately considered for the ascertainment of a stock's value should be taken into account in order to ascertain what the market value ought to be if transactions of purchase and sale occurred. This is so, if as is contended the Legislature intended "value" to mean the same thing as "market value." On that hypothesis, the result would be that when there is no market divers elements could be taken into account in arriving at a calculated market value, but, if there is a market, none of those same divers elements could be consulted.

The complainants rely on two New Jersey cases in support of their contention that when the statute speaks of value the measure thereof is determined exclusively by market transactions when such are available. These cases are In re Capital Stock of Morris Canal & Banking Co., 104 N.J.L. 526, 141 A. 784; Prall v. U. S. Leather Co., 143 A. 382, 6 N.J. Misc. 967. Those cases arose under two different statutes. In each, however, the requirement was that the stockholder should be paid the "full market value" of his stock. Obviously cases that fall under a statute which defines the full market value as the amount which the stockholder shall be paid are distinguishable from a case such as the one sub judice which falls under a statute which requires that "value" be paid.

Special interpretative significance is to be deduced from the difference in phraseology between the New Jersey and the Delaware statutes. Section 108 of the General Corporation Act of New Jersey of 1896 (P. L. 1896, p. 312 [2 Comp. St. 1910, p. 1661]) provided that a dissenter in the case of a merger should have his stock appraised and be paid the "full market value" thereof. This appears to have been the New Jersey law since 1883. Dill on New Jersey Corporations, (5th Ed.) pp. 230, 231. The original of the present General Corporation Law of Delaware was enacted in 1899 (21 Del. Laws, Ch. 273). The section of the act which provided for the appraisement of the stock of an objector to a merger was numbered 56. It now bears the section number 61. The language in the original, like the language in the present section, provided that the objector should be paid the "value of the stock at the date of consolidation." Thus the Delaware act in its original form in the matter of valuation of stock in cases of merger constituted a material variance from the language of the then existing general act of New Jersey. Instead of "the full market value" prescribed by New Jersey, the Delaware Legislature prescribed simply "value."

This circumstance is emphasized because it is common knowledge that the general act of this State adopted in 1899 was modeled after the then existing New Jersey act (2 Comp St. N. J. 1910, p. 1595, § 1 et seq.) Chancellor Nicholson expressed judicial recognition of what is thus commonly known in Wilmington City Ry. Co. v. People's Ry. Co., (Del. Ch.) 38 Del.Ch. 1, 47 A. 245. See, also, Slaughter, Rec'r., v. Moore, et al., 9 Del.Ch. 350, 373, 82 A. 963; Cooney Co. v. Arlington Hotel Co., 11 Del.Ch. 430, 434, 106 A. 39, 7 A. L. R. 955; Wittenberg v. Federal Mining & Smelting Co., 15 Del.Ch. 147, 162, 133 A. 48. So far is recognition accorded to the New Jersey Act in the form in which it existed on about March 10, 1899, when our General act was approved, as the pattern on which the latter was drawn. that Chancellor Nicholson in the Wilmington City Railway Case, supra, indicated that the rule of construction was applicable to our act in its relation to the New Jersey...