Opinion ID: 1825740
Heading Depth: 1
Heading Rank: 12

Heading: The Actual Value of Alesch, Inc. Stock.

Text: Of vital importance in deciding if a premium was paid for Alesch, Inc. stock is a determination of what the value of the stock was at the time of the sale. The total purchase price was $516,176.16 of which $116,176.16 represented liquid assets consisting of stocks, bonds, cash, and guaranteed accounts. The remaining $400,000.00 was for the outstanding stock of the corporation. Plaintiffs argue this was a gross overpayment which can be explained in no other way except by attributing it to a premium for Mr. Alesch for delivery to Iowa Mutual of control of Le Mars. Defendants, on the other hand, insist this was the fair value of the stock. All parties agree that directorships in a corporation are not for sale and that a contract for that purpose is illegal and unenforceable. Our task is to decide if the Le Mars' directors renounced their positions as directors in return for financial gain. The fact that the financial gain may have gone to John H. Alesch instead of to them individually would not save the contract. Directors may resign at any time and for any reason if they act in good faith and without personal gain. Modern Heat & Power Co. v. Bishop Steamotor Corp., 239 Iowa 1267, 1273, 34 N.W.2d 581, 585 (1948); Goode v. Powers, 97 Ariz. 75, 397 P.2d 56, 59-60 (1964); Raines v. Toney, 313 S.W.2d at 809; Gerdes v. Reynolds, 28 N.Y.S.2d 622, 649 (S.Ct.1941); Insuranshares Corporation v. Northern Fiscal Corp., 35 F.Supp. 22 (E.D.Pa.1940); McClure v. Law, 55 N.E. at 389. If, as defendants claim, the directors resigned without financial considerations as an inducement and only because they no longer wanted to serve, they could have done so without incurring liability. However, we do not believe that is what happened. Under this record, the value of Alesch, Inc. stock could vary from one to three times the annual premiums. This was established by witnesses whose qualifications the defendants vigorously contest but who gave testimony which we deemed to be credible and entitled to consideration. The annual premium figure used by the witnesses (about which there was little, if any, dispute) was $37,000.00. Under this formula the value would lie somewhere between $37,000.00 and $111,000.00. The amount paid by Iowa Mutual is grossly in excess of even the highest figure. In addition, the testimony shows that the value of Alesch, Inc. would be greatly enhanced with control of Le Mars Mutual. One witness in factthe former insurance commissioner of the statetestified that without such control Alesch, Inc. stock would be worthless. We have not overlooked defendants' testimony concerning value. Their witness, David A. Bakst, stated that in his opinion the amount paid for the corporation was not excessive and that there were other factors to be taken into consideration in addition to the annual premium formula, although he conceded that this was one way in which insurance agencies are commonly valued for sale purposes. As far as this record is concerned, we believe the only other factor was the control of Le Mars, and we believe, too, that the evidence confirms the trial court's finding that Iowa Mutual paid a sum substantially greater than the value of Alesch, Inc. as a premium in return for Mr. Alesch's delivery of control of the board of directors of Le Mars Mutual. We find, however, that the actual value of Alesch, Inc. arrived at by the trial court is low. The trial court fixed the value at $50,000.00 (over and above the liquid assets). We recognize that it is impossible to decide under this record the exact value of the agency, but we find it is more than $50,000.00. Using the $37,000.00 annual premium figure, we set the value of the stock at two-and-one-half times that amount or $92,500.00. Certainly a sale for that amount could not have been held excessive. This, of course, reduces the amount of the premium paid by Iowa Mutual for control of Le Mars but it does not change the result. The trial court found the amount paid for the stock was $400,000.00 and the actual value was $50,000.00. It fixed the illegal premium at $350,000.00. By increasing the value of the stock to $92,500.00, we reduce the amount of the premium to $307,500.00. This is the amount for which Le Mars must be reimbursed. Rosenfeld v. Black, 445 F.2d at 1350; Moulton v. Field, 179 F. 673, 675 (7th Cir. 1910); Gordon v. Fundamental Investors, Inc., 362 F.Supp. 41, 45 (S.D.N.Y.1973); Perlman v. Feldmann, 219 F.2d at 178; Porter v. Healy, 244 Pa. 427, 91 A. 428, 431 (1914); McClure v. Law, 55 N.E. at 389.