Winchell v. Plywood Corp.
| Citation | 324 Mass. 171,85 N.E.2d 313 |
| Parties | THOMAS R. WINCHELL v. PLYWOOD CORPORATION (and a companion case [1]). |
| Decision Date | 07 April 1949 |
| Court | United States State Supreme Judicial Court of Massachusetts |
November 1, 3 1948.
Present: QUA, C.
J., RONAN, WILKINS SPALDING, & WILLIAMS, JJ.
Corporation Purchase by corporation of its own stock, Officers and agents, Contracts. Contract, Validity, For purchase of corporate stock, Construction. Agency, Ratification. Interest.
A contract in writing for the purchase by a Massachusetts corporation of shares of its stock from one of its directors was valid although executed by its president in its behalf without authority and without a previous formal meeting and vote by its board of directors where it appeared that the subject matter was within the control of the directors, that when the contract was made there were three directors, the president the seller and the corporation's attorney, who drafted the contract, that they acted in good faith, and that at a subsequent meeting they formally ratified "all the acts of the officers of the corporation in connection with the business."
The fairness of a contract in writing, made in good faith and setting forth mutual obligations of a corporation and one of its directors with respect to a purchase by the corporation of the director's shares on a tender of them by him at an indefinite date in the future and at a price to be ascertained from their book value at the time of the tender, must be tested by the circumstances existing at the time the contract was made; the mere fact that, at the time of a tender by the director nearly seven years later, shortly before a liquidation of the corporation, he would receive more for his shares under the contract than would the other stockholders through the liquidation, did not render the contract unenforceable by him.
A contract in writing, made in behalf of a Massachusetts corporation whose stock was closely held and acquiesced in by all its three directors, acting in good faith, under which one of the directors agreed not to dispose of any of his stock (including that which he might thereafter acquire) without first tendering it to the corporation at book value as shown on the last day of the preceding month and the corporation agreed that "upon the tender of said stock to it by" the director it would purchase the stock at that value, when tested by circumstances existing when it was made, was fair and mutually advantageous to the corporation and the director and was enforceable without its having been ratified by all the stockholders.
A contract in writing between a director of a corporation and the corporation, reciting that "the corporation desires to obtain the [director's] stock [in the corporation] in case of the termination of . . . [his] employment and . . . [he] desires to assure himself of a market for his stock," and providing that he would not dispose of his stock "without first tendering it to the corporation," that, "upon his death or termination of his employment by the corporation for any reason, the corporation shall have the right to purchase" his stock, and that "upon the tender of said stock to it by . . . [him] or upon . . . [his] death or termination of [his] employment . . . by the corporation it will acquire" the stock, was enforceable by him upon a tender within its terms, and not merely in case of his death or termination of his employment.
A decree in a suit in equity enforcing a contract in writing by a corporation to purchase stock of a director at book value on a specified day on a tender by him should have included interest from the date of the tender on an unpaid balance of such purchase price.
TWO BILLS IN EQUITY, filed in the Superior Court respectively on September 30, 1946, and September 26, 1947.
The suits were heard together by O'Brien, J.
C. C. Worth, (F.
N. Flaschner with him,) for Plywood Corporation and others.
J. P. Rooney, (P.
V. Power with him,) for Winchell.
These are two suits in equity. The first was brought by Thomas R Winchell against the Plywood Corporation, hereinafter sometimes called Plywood, to compel specific performance of a contract for the purchase of his stock in the defendant corporation; and the second was brought by Joseph A. Grimes, Gordon M. Antworth and Samuel J. Antworth, stockholders of Plywood, to enjoin Winchell from prosecuting the first suit. The cases were tried together. The judge made voluntary findings and rulings in the first case and ordered a decree for specific performance of the agreement, but without interest on the sum ordered to be paid. In the second suit, the judge, after adopting the findings and rulings made in the first suit, ordered the entry of a decree dismissing the bill. Decrees were entered in accordance with these orders. From the decree in the first case both parties appealed; from the decree in the second case the plaintiffs appealed. The evidence is reported.
The pertinent facts are these: On July 25, 1938, Winchell entered into a written agreement with Plywood in which he agreed not to dispose of or to sell any of his Plywood stock (including that which he might thereafter acquire) without first tendering it to Plywood at the book value as shown on the books of account on the last day of the month preceding such tender. Winchell further agreed that "upon his death or termination of his employment by . . . [Plywood] for any reason" Plywood should have the right to repurchase the stock. Plywood agreed that "upon the tender of said stock to it by the said Winchell or upon the death or termination of employment of the said Winchell by . . . [Plywood]" it would purchase the stock at "the book value as shown on the books of account . . . [of Plywood] on the last day of the month preceding the said tender, death or termination of employment." [1] This agreement was executed on behalf of Plywood by Ralph M. Buck, its president. At that time Winchell owned three hundred shares of Plywood stock, which he had acquired in 1937. In 1941 this was split up on the basis of thirty-two for one, so that he then had ninety-six hundred shares. During 1944 Winchell acquired five thousand four hundred four additional shares from Buck which brought the number of his shares to a total of fifteen thousand four, or 9.88 per cent of Plywood's outstanding stock.
The stock of Plywood is closely held. At the time of the agreement the sole stockholders were Ralph M. Buck, his wife Mabel S. Buck, and Winchell. In 1942 Gordon M. and Samuel J. Antworth (plaintiffs in the second suit) became stockholders, and in 1943 Joseph A. Grimes, also a plaintiff in that suit, became a stockholder. [2] The shares acquired by them had previously stood in the name of Mrs. Buck.
On May 24, 1945, at a special meeting of the stockholders called for the purpose of considering and acting upon an offer of Atlas Plywood Corporation to purchase the assets of Plywood, it was voted to accept the offer. Winchell, who at that time was treasurer of Plywood and knew of the Atlas offer prior to the meeting just referred to, attended the meeting and voted to accept the offer. Earlier that day he had made a tender of his stock to Plywood for repurchase. The tender was formally rejected by Plywood in a letter signed by Samuel J. Antworth, its vice-president. [1]
At about this time the stockholders of Plywood, including Winchell, voted to make a complete distribution of Plywood's assets as a preliminary step to dissolving the corporation. Subsequently a partial liquidating dividend of $30,008 was paid to Winchell by Plywood under a stipulation that it was to be paid and received without prejudice to the rights of either party. The judge found, as he could have on the evidence, that the book value of Winchell's shares as of the last day of the month preceding the tender (April 30, 1945) was $46,467. Ruling that the contract of July 25, 1938, between Winchell and Plywood was valid and enforceable and that the action of Winchell in voting to dissolve Plywood did not operate as a waiver of his rights under the agreement, he ordered a decree to be entered ordering Plywood to accept Winchell's tender and to pay him the sum of $16,459 (but without interest) which represented the difference between the amount he had received and the book value of the shares as of April 30, 1945.
Since the case of Dupee v. Boston Water Power Co. 114 Mass. 37 , it has been the law of this Commonwealth that a Massachusetts corporation, unless forbidden by statute, may purchase its own stock. Dustin v. Randall Faichney Corp. 263 Mass. 99 , 102. Brown v. Little, Brown & Co. (Inc.) 269 Mass. 102, 110. Barrett v. W. A. Webster Lumber Co. 275 Mass. 302 , 307. Spiegel v. Beacon Participations. Inc. 297 Mass. 398 , 429. And agreements to do this are enforceable "subject, at least, to the limitations that the purchase must be made in good faith and without prejudice to creditors and stockholders." Scriggins v. Thomas Dalby Co. 290 Mass. 414 , 418. See Barrett v. W. A. Webster Lumber Co. 275 Mass. 302 , 307-309; Spiegel v. Beacon Participations, Inc. 297 Mass. 398 , 430-433.
We assume, as the defendant corporation has argued, that Buck as its president had no authority to bind it in a contract such as the one under consideration. See Horowitz v. State Street Trust Co. 283 Mass. 53 , 58-59; Kelly v. Citizens Finance Co. of Lowell, Inc. 306 Mass. 531 , 532-533. Whether Winchell's stock should be purchased by Plywood, and upon what terms, was a matter within the control of its directors in the exercise of their sound judgment. [1] Barrett v. W. A Webster Lumber Co. 275 Mass. 302, 307-308. Spiegel v. Beacon Participations, Inc. 297 Mass. 398 , 433. While there was no vote of Plywood expressly authorizing...
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