Court Opinion

ID: 4010374
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:12:01.414104+00
Date Added: 2024-06-11T07:44:42.757762
License: Public Domain

I am not in disagreement with the majority opinion as to the rules of law applicable to this case, but feel that the facts, which are largely undisputed, sustain the decision of the trial court and that his decision was not against the great weight and clear preponderance of the evidence.
Just prior to the proposed refinancing plan Earl M. Hale, president, director, and majority stockholder of Hale-Haas Corporation, was the owner of 5,370 shares of common stock of the Hale-Haas Corporation, which was pledged as security for a loan of $50,000 with Pedee Investment Company and Drummond Investment Company.  He also had voting control of 3,392 shares of the common stock which he had purchased from the Haas estate on a long-term contract, on which he still owed approximately $37,000, the unpaid balance being payable in monthly instalments of $350 per month. If the value of this stock was $10 per share it is evident that he had little or no equity at that time.
The trial court found that at this point Pedee Investment Company was interested in becoming an owner of the common *Page 234 
stock of Hale-Haas Corporation to the extent of $300,000 to $350,000 if the price per share could be agreed upon.
In January, June, and July, 1943, Hale purchased from others 2,183 additional shares of common stock and 1,062 shares of preferred stock of Hale-Haas Corporation.  Pedee Investment Company loaned Hale all the money necessary to make such purchases, which were in the total sum of $100,208.75. On October 15, 1943, all of Hale's loans were consolidated into one promissory note for $150,208.75 to Pedee Investment Company secured by all of his stock except the stock purchased on the long-term contract.  At the same time Hale executed and delivered his note to Pedee Investment Company for $1,713.10, covering accrued interest on his indebtedness to date.  The court found that at the time these notes were given and the stock pledged for security Hale had no other plan or means of paying these obligations.
The preferred stock of Hale-Haas Corporation was callable at $105 per share, and was purchased by Hale at $75 per share.  It is evident the plan was that the preferred stock purchased by Hale was to be called at $105, he being in position to call it, and that in order to call this stock Pedee Investment Company would purchase common stock of Hale-Haas Corporation at $10 per share, thus making a profit to Hale of between $30,000 and $35,000.  In fact, a resolution providing for the calling of the Hale-Haas Corporation stock was adopted by the board of directors on October 18, 1943, but the plan was subsequently abandoned when the plaintiff instituted injunctional proceedings.
In the meantime, and on July 22, 1943, the board of directors of Eau Claire Book  Stationery Company, a subsidiary of Hale-Haas Corporation, authorized the retirement of its preferred stock and resolved to borrow from Pedee Investment Company $120,000 payable in six months, for the purpose of calling the preferred stock of Eau Claire Book 
Stationery Company, totaling $117,300. *Page 235 
On December 9, 1943, the board of directors of Hale-Haas Corporation authorized the sale of the unissued common stock of the corporation, amounting to 12,460 shares, to Pedee Investment Company at $10 per share, subject to pre-emptive rights, the proceeds to be used to pay the note held by Pedee Investment Company against Eau Claire Book  Stationery Company in the sum of $120,000.  At that time plaintiff and other responsible citizens offered to purchase the entire stock issue at $15 per share, which was refused by Hale and other directors, who at that time and at all times thereafter were ready and willing to waive their pre-emptive rights and sell the stock to Pedee Investment Company for $10 per share. Thus we have Pedee Investment Company, which was desirous during this entire period of time to obtain 30,000 or more shares of the common stock of Hale-Haas Corporation, furnishing the funds with which to purchase the outstanding common stock and outstanding preferred stock of Hale-Haas Corporation, which indebtedness it was ready and willing to liquidate by accepting common stock of Hale-Haas Corporation at $10 per share.  It would receive 15,000 shares of common stock in liquidation of the Hale indebtedness and 12,000 shares of common stock in liquidation of the Eau Claire Book  Stationery Company indebtedness if the entire plan were carried out.  In addition to this Pedee Investment Company, according to the testimony, had agreed to take over the 3,392 shares of stock held by Hale on a long-term contract, for which it would pay $10 per share, thus giving it an additional 3,392 shares.
As a net result of these various transactions Hale would pay his entire indebtedness to Pedee Investment Company and his indebtedness on the instalment purchase of the Hale-Haas common stock from the Haas estate, and would retain a small amount of the common stock of Hale-Haas Corporation. Without the profit made from the purchase of Hale-Haas Corporation preferred stock at $75 and its subsequent calling at *Page 236 
$105 Hale at best could only have liquidated his indebtedness. There can be no doubt that the evidence clearly supports the finding of the trial court that Hale was interested in helping Pedee Investment Company to acquire common-stock ownership in Hale-Haas Corporation, and that his own interests were served in doing so.
With reference to the question of price at which the stock was authorized to be sold, the evidence as to the value of this stock was discussed in the majority opinion.  The trial court found the value of the stock to be issued to Pedee Investment Company was in excess of $10 per share.  I feel this finding by the trial court means that the excess value was a substantial amount, and the evidence fully sustains this conclusion.
When Hale became majority stockholder and in control of the board of directors, which was only a short time prior to the plan now proposed to be carried out, he advised the stockholders and the board of directors that the preferred stock then outstanding should not be called.  When the opportunity presented itself to make a substantial profit by purchasing the preferred stock of Hale-Haas Corporation he apparently changed his mind.
However considered, these facts, in my opinion, constitute a lack of good faith and abuse of discretion by the directors and managing officers of the corporation, which in fact is Hale, as found by the trial court, and the judgment should therefore be affirmed.
I am authorized to state that Justice FAIRCHILD and Justice RECTOR concur in this dissent. *Page 237