Court Opinion

ID: 5209277
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:09:07.167041+00
Date Added: 2024-06-11T08:27:20.516933
License: Public Domain

Soott, J. (dissenting):
The plaintiff appeals from an interlocutory judgment overruling his demurrer to two separate defenses contained in the answer. The court below searching the record for the first error in pleading held that the complaint did not state a cause of action, and upon the principle that a bad answer is good enough for a bad complaint, overruled the demurrer. The sufficiency of the complaint "is, therefore, called in question by this appeal. The complaint alleges that the defendant E. G. Potter Company is a domestic corporation with an authorized capital stock of $350,000, of which only $300,000 has been issued. The plaintiff is a minority stockholder. Among the assets of the company is a piece of real property in the city of New York, upon which there is a mortgage of $350,000. On December 31, 1907, at a meeting of the stockholders of the corporation, a resolution was adopted by a stock vote, the holders of 2,450 shares voting in favor of it, and the owners of 550 shares (among whom was this plaintiff) voting against it. The resolution is as follows:
“ Resol/oed: That the Board of Directors of this Company be and they hereby are authorized, empowered and directed to cause to be organized a corporation at the expense of this Company under the Laws of the State of New York, with a capital stock of $100,000, with the name ‘ Library Realty Company/ or such other name as may be satisfactory to the officers of this Company, for the purpose of acquiring the real estate of this Company, No. 477 Fifth Avenue, in consideration of the issuance to this Company of all the capital stock of said new corporation ; and further
“ Hesol/oed: That the Board of Directors be and they hereby are authorized, empowered and directed to transfer to said new corporation when formed the equity in the real estate of this Company known as 477 Fifth Avenue, subject to the existing mortgage thereon, amounting to $350,000, and to receive in exchange for said equity in said real estate all the capital stock of said new corporation to be formed, viz., capital stock of the par value of $100,000; and further
“ Hesol/oed: That the Board of Directors of this Company be and they hereby are authorized, empowered and directed to cause the said $100,000 par value of stock of said new corporation when *43acquired by this Company to be offered by proper notice to the stockholders of this Company for subscription at /par, each stockholder of this Company to have the right to subscribe for an amount of the stock of the new corporation at par equal to one-third of the par value of said stockholder’s holdings of this Company, each stockholder not wishing to subscribe to have the right to assign his rights to so subscribe, and, in the event of failure of any stockholder or his assignee to so subscribe, his rights to subscribe to terminate and the Company to have the right to receive subscriptions for all or any part of such unsubscribed for stock in the new corporation from stockholders of this Company or from outside parties, the time in which to subscribe to be limited as the directors may deem best, and the said subscriptions to be ¡laid in cash as follows :
“ 25 per cent of the subscription on or before the day on which the right to subscribe terminates ; 25 per cent 'of the subscription five months after such date; 25 per cent of the subscription ten months after such date ; 25 per cent of the subscription fourteen months after such date; and further
“ Resolved: That the Board of Directors be and they hereby are authorized, empowered and directed to do or cause to be done all acts that may be necessary, convenient or desirable in order to carry out the foregoing resolutions and to properly safeguard the rights of this Company and of the subscribers to the stock of the new Company.”
The plaintiff alleges that the real estate in question is carried on the books of the corporation at a valuation of $498,000 or $48,000 more than the price at which it is proposed to sell it, and that he has been informed by competent and reputable real estate dealers that said property is worth $525,000 or $75,000 more than it is proposed to sell it for. It is not alleged that the defendant corporation is insolvent, or that it is other than a solvent going concern. The relief sought is that the defendants be restrained from carrying out the proposed sale, which is alleged to be favored by the directors of the corporation, a majority of whom have expressed their intention to carry it out unless restrained. The plaintiff professes to see in the proposed plan and method of sale a covert attempt to levy indirectly upon his stock an assessment under penalty of losing a proportionate share of his interest in the assets of *44the company. We do not so understand it. On the contrary, we find nothing more in the proposed plan than a purpose to sell the real estate of the corporation for $100,000 in cash, with an equal opportunity to each stockholder to participate in the purchase, if he desires to do so, in the proportion in which he holds stock in the defendant corporation. If the proposed sale were to be one outright for the sum of $100,000 in cash it would be perfectly plain that the complaint does not state sufficient facts to justify the interposition of the court. As has been said, there is no allegation of insolvency ; it does not appear that the sale of the real estate will prevent the corporation from pursuing its usual business, and there is no allegation of fraud. All that is charged is that the price is inadequate, if, indeed, the vague and uncertain allegation of the complaint can fairly be said to be an allegation of inadequacy. But mere inadequacy of price, uncoupled with fraud or ultra vires, or unless it is so apparent as to compel the inference of fraud, is not sufficient to justify the court in interfering with the action of the directors and the majority stockholders. (Gamble v. Queens County Water Co., 123 N. Y. 91; Continental Ins. Co. v. N. Y. & H. R. R. Co., 103 App. Div. 282; 187 N. Y. 225; Hennessy v. Muhleman, 40 App. Div. 175 ; Colby v. Equitable Trust Co., 124 id. 262.) We think that it may, therefore, he safely said that if the proposition had been to sell the real estate to some stranger for • $100,000 in cash, the insufficiency of the allegations of the complaint to support the demand for an injunction to prevent the sale would be so obvious that no debatable question would be presented. Such a sale would not waste the assets of the corporation, or lessen the value of plaintiff’s interest in these assets. It would simply transform an item of real estate assets to one of cash assets. Precisely this result will be arrived at by carrying out the plan approved by the directors and stockholders. The corporation will part with this particular piece of real property, and in exchange therefor will receive $100,000 in cash, so that when the transaction is completed the assets represented by the capital stock will be of precisely the same value, and will consist of precisely the same class of property that would be the case if the real estate had been sold outright to a stranger. So the plaintiff will be left in the same position, and his stock will be of the same value, if the plan be carried out, as it *45would be in case of an outright sale. The method devised for bringing about this result seems to us to be not only unobjectionable, but really one very advantageous to the present stockholders. It may be that the real estate has a considerable prospective value, the advantage of which would be lost to the present stockholders by an outright sale to a stranger. By the proposed plan each stockholder is afforded an opportunity to become a purchaser, and to participate in the prospective increase in value, but he is under no obligation so to do. If he declines, he will be, in no worse position than he would be if the property were to be sold outright. Indeed, so far as concerns the value of his stock and the assets represented by it, he will be in precisely the same position. If he thinks that the property is now worth more than it is proposed to sell it for, or that it will presently increase in value, he can participate proportionately in the expected enhancement in value. We find nothing alleged which is unfair to the minority stockholders, or beyond the power of the corporation, or which implies fraud or bad faith on the part of the directors and the majority stockholders.
The judgment appealed from should, therefore, be affirmed, with costs.
HoLaughlin, J., concurred.
Judgment reversed, with costs, and demurrer sustained, with costs, with leave to defendants to amend on payment of costs.