290 Mass. 414 | Mass. | 1935
These are two actions at law and a suit in equity which were tried together in the Superior Court. Each action at law is in contract on a promissory note and was brought by the payee thereof, Edwin J. Scriggins, against the alleged maker, Thomas Dalby Company, a Massachusetts corporation, herein referred to as the corporation. One action was commenced September 23, 1931, the other March 2, 1932. The judge made specific findings of fact and a general finding for the plaintiff in each action. The judge in each action refused to rule as requested by the defendant that on all the evidence the finding should be for the defendant, and the defendant excepted. All the evidence material to this question is reported.
The suit in equity was begun by a bill of complaint filed October 17, 1932, by The Union Market National Bank of Watertown, a creditor of the corporation, herein referred to as the bank, against the parties to the actions at law and
The facts found by the judge, both in the actions at law and in the suit in equity, include the following: By a contract made March 21, 1928, the plaintiff in the actions at law agreed to sell and the corporation to buy two hundred and forty shares of stock in the corporation for the sum of $25,000. The contract was duly authorized by the board of directors of the corporation. By this contract it was agreed that the stock should be “endorsed and deposited” with the bank, that the corporation should pay for the stock from time to time by cash or notes and that upon a payment of cash or a payment on a note shares of stock so paid for should be “released from escrow and delivered” to the corporation. From time to time payments were made in accordance with the contract and stock was delivered to the corporation. On February 15, 1930, a note for one year for $4,000 was given and on February 16, 1931, a renewal note for six months, and on February 16, 1931, another note for $4,000 was given. These notes have not been paid and no stock has been delivered in exchange therefor. They are the notes upon which the actions at law are brought. The “contract was entered into by both parties in good
The bank is a creditor of the corporation for money lent to the corporation after the contract was made between the plaintiff in the law actions and the corporation. And on June 28, 1932, the bank took a mortgage on the corporation’s real estate as security for the corporation’s indebtedness. The bank “knew of the Scriggins agreement when
First. The bill in equity was dismissed rightly.
1. The principal contention of the bank in this suit is that the contract between the plaintiff in the actions at law and the corporation for the purchase by the corporation of its own stock is not enforceable because such purchase “by a corporation, except out of surplus, amounts to an impairment of its capital and as a matter of law prejudices and impairs the rights of creditors.” While the material facts reported do not show that this stock could not have been purchased out of surplus, the refusal of the judge to report facts bearing on the question because not material presents this question for decision. But the contention cannot be sustained.
It is settled in this Commonwealth that a corporation, though not expressly authorized, if not forbidden by statute, may purchase shares of its own stock, and that an agreement to do this is enforceable, subject, at least, to the limitations that the purchase must be made in good faith and without prejudice to creditors and stockholders. Dustin v. Randall Faichney Corp. 263 Mass. 99, 102. Barrett v. W. A. Webster Lumber Co. 275 Mass. 302, 307-309, and cases cited. Crimmins & Peirce Co. v. Kidder Peabody Acceptance Corp. 282 Mass. 367, 376. No decision here has added the further limitation, independent of these limitations, that such a purchase can be made legally only out of surplus. Indeed the case of Barrett v. W. A. Webster Lumber Co. 275 Mass. 302, indicates that there is no such limitation upon the power of a corporation where the purchase by it of its own stock is not in conflict with any of the limitations above stated. In that case it was said that the “contention of the plaintiff that a corporation cannot purchase its own' stock except out of surplus profits cannot be sustained” (page 308), and the plaintiff in that case, a holder of preferred
The contract for the purchase by the corporation of its own stock from the plaintiff in the actions at law was not prohibited by any statute unless such purchase was a reduction of the capital stock of the corporation in violation of the statutory provisions regulating such reductions. G. L. (Ter. Ed.) c. 156, §§ 41, 45. But it is not shown that the purchase in the present case amounted to such a reduction. It does not appear that there was any attempt or intention to retire the stock purchased — whatever would be the effect of such attempt or intention. And ordinarily a purchase by a corporation of its own stock is not a reduction
The report of material facts shows no special circumstance, existing before the trial of the actions at law, which rendered the contract for the purchase by the corporation of its own stock unenforceable. On the contrary, there were findings that the contract was made in good faith, and that, prior to the trial of the actions at law, the transaction was not prejudicial to creditors. No facts are reported which are inconsistent with these conclusions. And, for reasons already indicated, prejudice to creditors would not have followed as matter of law from the fact that no surplus was available for the purchase of the stock if on other facts found creditors would not be prejudiced. In the absence of proof that the bank, a creditor of the corporation, was prejudiced by the contract, the suit cannot be maintained. Barrett v. W. A. Webster Lumber Co. 275 Mass. 302, 309. Whether, if there was such proof, the bank would be precluded from maintaining its suit by the fact that it became a creditor after the contract was made and with knowledge thereof (see Sarna v. American Bosch Magneto Corp., ante, 340, 343 need not be decided. See, however, First Trust Co. v. Illinois Central Railroad, 256 Fed. Rep. 830; Cross v. Beguelin, 252 N. Y. 262, 266.
2. The bank makes the further contention- that even if it cannot maintain its suit on the ground already considered it can maintain the suit on the ground that at the time of the trial the corporation was insolvent. This contention cannot be sustained.
On the findings in this suit the contract for the purchase by the corporation of its own stock and the notes given in
Second. There was no error in the refusal of the judge in each action at law to rule that on all the evidence the finding should be for the defendant.
This request presents in each of these actions the question of law whether the general finding for the plaintiff therein can be supported. The special findings and the general
It is not argued that the evidence did not warrant the special findings except as it is argued that the findings that as of the time the contract of purchase was made and all times thereafter up to, at least, March 16, 1932 • — ■ after the commencement of the actions at law — the rights of creditors were not prejudiced by the contract, so far as such prejudice would result from impairment of capital, were not warranted. It is not argued that the findings were not warranted that the defendant corporation at all these times was solvent, in the ordinary sense of the term, which does not take into account the liability of the corporation to its stockholders. Calnan v. Guaranty Security Corp. 271 Mass. 533, 542. Crimmins & Peirce Co. v. Kidder Peabody Acceptance Corp. 282 Mass. 367, 377.
For the reasons already stated in connection with the suit in equity the special findings warranted findings for the plaintiff in the actions at law. Proof that at the time the contract for the purchase by the corporation of its own stock was made, or at any later time, the stock could be paid for out of surplus was not an essential element of the plaintiff’s case, nor was proof that the corporation was solvent at the time of the trial. Whether all the grounds on which the bank in the suit in equity relies to enjoin enforcement of the contract by actions on notes given in pursuance thereof were available to the corporation in defence to the actions at law on such notes need not be decided since, even if they were so available, findings for the plaintiff in those actions were warranted. Nothing is relied on as a ground of defence to these actions at law which is not relied on by the bank in the suit in equity as a ground for relief therein.
In the actions at law exceptions overruled.
In the suit in equity decree affirmed with costs.