Court Opinion

ID: 7814525
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:30:40.512765+00
Date Added: 2024-06-11T16:30:33.193392
License: Public Domain

Ed. F. MoFaddin, Justice, dissenting. I would affirm the Chancellor’s decree dissolving the corporation. The evidence clearly shows that the corporation has failed of its purpose and that inevitable ruin will result from continued existence. Bypassing all matters of (a) fraud, (b) value of the land and (c) the preferred stock as a debt in order to make the corporation insolvent, we are nevertheless face to face with the hard fact that this corporation has never functioned and never can function if the present impasse continues. There is no evidence that a love-feast will ever take place between the rival factions. In such a situation the Chancery Court decreed that the assets should be sold, the debts paid, and the balance distributed to the stockholders. The majority opinion of this Court in reversing the Chancellor concludes with this language: “At least we do not believe the evidence justifies a holding that the corporation cannot proceed with its business and put an out-door theater into operation. Perhaps all parties concerned have not proceeded with the caution that prudence would dictate but, be that as it may, there does not appear to have been any fraud, and the object of the corporation does not appear to be unattainable.” I maintain that the corporation has failed of its purpose and that inevitable ruin will result from continued existence. Notice these dates and events: (1) The corporation was organized in June, 1952, and Mr. Traylor received all of the common stock (100,000 shares of no par value stock) for the land. (2) In July, 1952, Mr. Traylor went to Mr. Jones and asked if he would be interested in becoming associated with the corporation; and on July 23, 1952, the corporation entered into a contract with Mr. Jones which provided, inter alias: “The Company and Jones agree that Jones shall be the exclusive managing director of the Company for the period of five (5) years from the date of the opening of the Drive-In Theater of the Company, which shall be known as the Bose Drive-In Theater . . . For his services to be performed under this management contract the Company will pay Jones 4% of the net gross of dollar volume done by the Company ...” Notice that Jones was not to be the manager until the operations commenced; so during all the time involved in this litigation Jones was only a director along with the two Traylors, and the Traylors constituted a majority of the Board. (3) Jones started buying preferred and common stock in the corporation so that at the time of the trial Jones had $74,400.00 of preferred stock and 38,400 shares of common stock. At the time of the trial the total of preferred stock was $127,500.00 and the total of common stock was 100,000 shares. (4) The Traylors and their Company, Arkansas Beal Estate Company, had altogether only $3,000.00 invested in preferred stock and a total of 49,100 shares of common stock. Jones and his associates had put up a great majority of the cash invested in the preferred stock whereas Traylor and his company owned almost 50% of the common stock. (5) Jones tried unsuccessfully to get Traylor to buy for himself, or to sell to others, the preferred stock in amounts equal to Jones’ preferred stock so that the corporation would have money with which to complete its building program. (6) By February, 1953, the corporation was out of money; and the record shows that it would cost at least $123,500.00 to complete the building program and put the theater into operation. (7) Matters rocked along from February to May, 1953, with Traylor neither buying any of the preferred stock himself nor selling any to his friends: so that on May 21, 1953, Jones filed this suit to have the corporation dissolved, its assets sold and the proceeds distributed. (8) The decree was rendered on June 22, 1954, more than one year after the suit was filed; and Traylor superseded the decree so that matters still remain at a standstill. Thus more than two years have passed since February, 1953, when the corporation ran out of money; and nearly two years have passed since the suit was filed; and yet the majority opinion says that “the object of the corporation does not appear to be unattainable.” The effect of the majority opinion is to say to the litigants: ‘We leave you where we find you: work out your own salvation between yourselves or both perish’. I do not believe that a court of equity should treat litigants in this manner when neither side has been guilty of fraud and the only fault is that the parties are unable to accomplish the purpose for which the corporation was organized. There is ample precedent to support the decree rendered by the Chancery Court. In 43 A. L. R. 305 there is an Annotation on the inherent power of a court of equity at the instance of a stockholder to wind up a corporation when it is made to appear that there is a failure of the corporate pur-, pose and inevitable ruin will result from continued existence. The holdings are summarized in this language: “There are a number of decisions which support, by their holdings or at least by their recognition of the rule, the doctrine that a court of equity may wind up the affairs of a solvent corporation at the instance of a stockholder, and for that purpose appoint a receiver, if it has become impossible for the corporation to fulfill the purposes of its creation, or inevitable ruin will result from continued operation. In some of these cases, as will be observed from the statement of the decisions below, the corporation had ceased to be a going concern, and the doctrine possibly originated in this class of cases. But it has been recognized in some cases where the corporation had not apparently entirely ceased to be a going concern. ’ ’ To sustain the text cases are cited from. Alabama, Kentucky, Maine, Michigan, Minnesota, New Jersey, Tennessee and the Federal Courts. In 61 A. L. E. 1223 and again in 91 A. L. E. 679 the Annotation is extended and cases are cited from the additional States of Pennsylvania, Indiana and Nebraska, as well as from other Federal Courts. Then in 13 A. L. E. 2d 1260 there is an Annotation entitled: “Dissolution of corporation on the ground of intra-corporate deadlock or dissension”; and on page 1263 in discussing circumstances authorizing dissolution the holdings are summarized in this language: “The view that a court of equity has the power to order dissolution of a corporation which is practically paralyzed in the use of its corporate functions or can no longer operate to the advantage of the stockholders as a whole, because of dissension prevailing between opposing factions of stockholders, at least where such a measure is the only adequate relief available, finds support in the following cases: ...” Cases from Alabama, Delaware, Kansas, Kentucky, Michigan, Minnesota, Oklahoma, Pennsylvania, Tennessee and Texas are cited to support the last quoted statement. In 4 Ark. Law Eeview 228 there is a ease note entitled : ‘ ‘ Corporations — Internal Dissension as a Ground for Equity Appointing a Eeceiver for a Solvent Corporation.” After listing and discussing cases from many jurisdictions, the conclusion is stated in this language: “No case has been found in Arkansas in which the general power of equity to appoint a receiver for a going, solvent corporation has been considered. The State’s corporation law makes no provision for receivership except in cases of insolvency. Ark. Stats. (1947) § 64-802. But the absence of affirmative statutory authorization does not necessarily rule out the possibility of such proceedings in Arkansas based on the inherent power of equity, as demonstrated by many of the foreign decisions discussed herein.” The majority opinion entirely ignores the basis on which I think the Chancery decree should be affirmed. The evidence here clearly shows that the corporation has failed of its purpose and inevitable ruin will result. Therefore equity should act just as the Chancellor decreed.