*1 January 11, En 35397. Banc. 1962.] [No.

In Company the Matter the West Waterway Lumber

et al. * (2d) *Reported in 367 P.

Allen, DeGarmo & for Leedy, appellant. Maxwell,

Kumm, Petersen & Lee, for respondents. Douglas Export Company Fir in- C. J. was Finley, corporated bylaws on 1913. state that the December Its corporation was

“ stimulating purpose primary . . . formed enlarging the market for Pacific and use of Coast forest products foreign world, in the the asso- countries ciating together many Coast lumber of as of the Pacific join same, manufacturers as view of will handling foreign cargo shipments manufacturers such large brokerage sufficiently for a enable commission energetic carry corporation earnings out of its net on foreign increasing comprehensive plan for trade and in such ” products, . Pacific Coast lumber corporation the arti- The duration was declared in fifty incorporation years, maximum then cles of general under statute. allowed this state’s (It argument suggested § at Bah, Rem. oral & Douglas have in- been that the Fir *3 chapter corporated provisions the Laws of under of carrying provided on of co- and which for “the formation carefully operative have 23.86. We associations.” RCW Cf. appellant’s compared provisions articles the of that act general (which only incorporation incor- to “the of refer bylaws. Washington”) poration and laws the state of striking, are suf- concept there The are but similarities chapter 19 that restrictions of ficient deviations from the incorporation say a that the we cannot matter of law Company Douglas is to be con- Export under or Fir and that “co-operative statute, associations” trolled allows bylaws than statute that are more liberal those futilities.) are par value, are stock, at

Two thousand shares $100 except qualifying held shares, All authorized. assigned by the share- corporate directors, must be himto entrusted votes the shares trustee, to a who holders majority the direction of accordance with as a block arrangement, voting each trust Under of shareholders. owned, has regardless number of shares of the shareholder, “actually engaged Only manu- persons only one vote. eligible to own Coast” are on the Pacific of lumber facture one that no Further, shares. are restricted “so sales through individually interests, manufacturer, affiliated majority able shall ever become a owner or holder or be corporation. dominating to exercise a control” over paid The on the maximum annual dividend that per par Dividends shares of stock is seven cent of value. regularly years. paid have directors are been in recent The brokerage authorized to set the rate of commissions shippers charged. Earnings of the au- are to in excess export operation thorized dividend are used for including enlarged company, development of new or markets. the income for When directors feel given year enough pay is more than dividends cover expenses, they are make all com- authorized to rebates on during year. missions received

Petitioners in the instant action are four lumber com- panies liquidation and the trustee in of a fifth. All five lum- companies Douglas Export ber are shareholders of the Fir Company, owning peti- each ten Four of the five shares. during tioners discontinued the manufacture of lumber period February from November 1957 to 1959. The fifth petitioner, Waterway Company, the West Lumber con- tinues to manufacture lumber. majority September 29, 1958,

On a two-thirds Douglas Fir voted shareholders of the provide incorporation perpetual amend the articles of petitioners dissented and followed the duration. The five appraisal procedure prescribed in RCW 23.01.450for portions pertinent their RCW 23.01.450 shares. as follows:

“(1) corporation . . . authorized If a has an amend- corpora- . . extends the duration of the ment which . who not tion ... a did vote favor of shareholder paid corporate . . . shall be the value of such his shares as porate action the date the authorization such cor- of . . . interest thereon action with “ (2) thirty days corporate If, after such action was within any corporation . . . and such shareholder taken, the agree upon the at the time the value of shares such cannot corporation any corporate authorized, the or action was may by petition superior court filed in the

such shareholder pe- expiration ., . after the of said . within four months thirty days, a determination of the value riod of demand the all such as of the date of of the shares of authorization of such shareholders by appraiser corporate to action an hearing excep- appointed . After said court. . . be tions to by report appraiser], [of shall, the the the court said the share- decree, determine the value of the shares of ” (Italics payment . entitled to therefor holders ours.) (1952), Greyhound Lines Wn. In In re Northwest (2d) (2d) purpose and 672, 607, 251 P. we described history dissenting appraisal statute as shareholders’ follows: expediency policy contem- has dictated the

“Business plated v. Warehouse In Voeller Neilston the statute. court 376, the Co., 531, 535, 85 L. Ed. 61 S. Ct. 311 U. S. upon as follows: comments a similar Ohio statute “ right permitting objective ‘The of the Ohio statute dissenting appraisal elimination shareholders to long of cor- in the field had a fixture of porate holder consent was been abuses law, share- unanimous finance. ... At common changes prerequisite fundamental a This made to arbitrary possible corporation. in minority fusal to re- value for its a nuisance establish legislatures au- cooperate. situation, meet the To changes by majority This, making vote. thorized the minority. opened victimization of however, the door to dissenting permitting mi- dilemma, solve the statutes To nority appraised shares, were value of its recover the ” widely adopted.’ must purpose statute, “value” be

To effect pro if the worth the shares would be mean what taken to It change had not occurred. posed change illogical to which unfair to allow they compensation are petitioners affect the dissent corporate enter of a share If the value receive. proposed prise appreciates diminishes because or participate in the should amendment, the dissenters against they the act that voted loss, because benefit bought they demanding out. it and caused (1952), Corp. Mayflower Del. Ch. Sterling Hotel v.

315 (2d) Republic (2d) Finance & 425; A. 38 A. L. R. (2d) (1937), 211 E. Ind. 6 N. v. Fenstermaker Inv. Co. dissenting of stock of stock- 541; Annotation: Valuation merger corporation, or of holders in case of consolidation (2d) Comment, assets, like, 442; 38 A. L. R. of its or sale Corporations—Standard of of Valuation Dissenters’ Stock Appraisal Statutes, Mich. L. 713. under Rev.

Appellant excepted superior court to the value by appraiser. superior arrived at The court received evidence and made its determination of the value of dissenting companies’ Export Company shares. The has appealed assigning court, to this error to a number of “findings of fact.”

As of the date the amendment of the incor- articles of poration Douglas authorized, was the net asset value of Fir $423,489.29, was $419,761.20 of which sixty (all fully paid was cash. One of hundred stock for) outstanding. appraiser were Both the and the trial judge that the value each concluded of share held quo- dissenting group precisely $2,646.80, which is tient $423,489.29 divided assignments appellant’s

The essence of several of error is according weight sig- that the trial erred court in not or emphasized by appellant. nificance to a number factors Appellant urges strenuously provisions most corporate bylaws disregarded. Article VI of cannot be eligibility assign- requires Art. shareholders, defines VI prohibits trustee, ment to the of shares unilateral control corporation, following: concludes with the “ any . . in case of the death of Stockholder or any corporate insolvency dissolution of Stockholder or the any bankruptcy any Stockholder, such or Stockholder or in case such voluntarily, period year, for the of one ceases lumber, in the manufacture of then and in to continue right shall have the to call in, event retire capital stock held Stockholder, and cancel so such upon payment in interest to the heirs, executors, trustees or successors person corporation, equal of an amount of such exceeding par value but not value of such book stock.” (Italics ours.) finding respect of the trial court Art. VI was

as follows:

“ . . The absence of a market value does not detract from purposes the value of the stock for the 23.01- RCW .450. None of the facts or outlined in Article conditions VI *6 by-laws petitioners any was not of the existed as to these or one September by-law of them on 29, and 1958 said any application intended to nor does it have to the valua- tion of stock under RCW 23.01.450.” quoted

We think the first sentence correct. above is We cannot see how the absence an market established price Douglas Export Company for shares of the Fir can detract from the value of shares, the whatever it be. price If a market were available, it no doubt would have process some influence on the of valuation; the absence of a price simply market guides means that the court has fewer provide determining or standards to assistance in the value corporate shares. arguments Respondents’ support quoted in of the second finding may the sentence of be summarized as follows: bylaw (1) (a) The is void because its restrictions on (b) alienation, the not authorized to (c) purchase purchase shares, and such a would in own redemption stock; fact an unauthorized of common and be (2) any applicable event, the restrictions are in the not instant case. (a), rely support argument (1) respondents

In of their Olympia heavily on State ex rel. Howland v. Veneer most (1926), 244 Pac. in which restric- Co. Wash. bylaw invalid. The restrictions on tive was held to be could sold unless first alienation were no shares corporation, and no sale to another would offered to the ap- the directors for be valid unless submitted to board of bylaws agreement proval. supplemented an were corporation at market value. that sales the would be to invalidity bylaw given the were Three reasons for (1) interpreted opinion: as if the restriction were purchase authorizing corporation its own shares it to upheld at that time such an act was because could meaning (2) that the interpreted unlawful; if it were corporation corporation eligible buyer, an would find refusing pay rejected or had the offer made to it payment than a share worth $1,500 obtain of more (3) bylaw, interpreted it, over $2,500; as the court attempt subject “the unre- to make alienation support strained will” of In of the third the directors. ground, language quoted following the court from R. L.C. 263: “ by-law provides . a a transfer of which stock approved

shall other straint be invalid of directors unless board representatives corporation is an invalid re- upon corporate stock.” alienation of the Although language, quoted abstract, is unde- sirably support broad, it does reached in the conclusion Olympia give attempt Veneer Co. case: that an power directors of a uncontrolled over alienation of re- its shares is invalid as an unreasonable *7 personal property. straint on alienation of frequently On the hand, other it has been held corporate that reasonable restraints on alienation of shares objectionable. are not A restraint is reasonable for corporation may one another; restric unreasonable be may pass tions that the test of reasonableness when em ployed closely totally corporation a small, held be justification attempted by large, widely without if a held corporation. following requirement In the cases a closely corporations transfers of held involved approved be the directors or a certain number other upheld: People ex shareholders have been v. rel. Rudaitis (1924), App. 414; Galskis 233 Ill. Mason v. Mallard Tel. Co. (1932), 213 1076, 671; St., Iowa 240N. Beacon v. W. 68 Inc. (1934), Longyear 303; Sohier E. 354, 289 Mass. 194 N. v. (1914), 1012; Hardman Mass. E. 405, 219 106 N. v. Weisner (1958), (2d) Corp. App. 75, 180 791Park Ave. 7 Div. N. Y. S. (2d) Wright (1921), 308, 734; v. Iredell Tel. Co. 182 N. C. See, Cataldo, E. 744. also Stock Transfer 108S. Restrictions Corporation. O’Neal, 229; and the Closed 37 L. Rev. Va. Closely Corpora- in Held Restrictions on Transfer Stock 318 Drafting, Planning and Harv. L. Rev. 773.

tions: 65 continually Propositions emphasized that are in the above are that the must reasonable in authorities restrictions corporation nature of and that the involved, view the approval required good persons faith whose must act in authority. their and within the limits of commonly that, It is on ali- also held restrictions where expressly impliedly statute, enation are not authorized they may upheld part as contract between actually and the or construc- shareholders if tively made known Lawson v. House- shareholder. Corp. (1929), 1, 312, hold Finance 17 Atl. Del. Ch. 147 (1930), 343, 152 Atl. Mason 723; affirmed Del. Ch. v. supra; Cooney Co., Tel. State ex rel. Normile v. Mallard (2d) (1935), 391, Mont. 47 P.

Applying foregoing reasoning to the facts think case, instant we it is clear that the on restrictions per public against not, se, alienation Art. in VI invalid policy.

Until the enactment what is now RCW 23.01- (2) corporations repurchase .120 in could not shares of (1957), Colagrossi (2d) v. their own stock. Jackson 50 Wn. (2d) part, reads, as fol P. 697. RCW 23.01.120 lows:

“(2) organized Every corporation hereunder shall have power purchase, hold, the own sell and transfer shares ” capital . stock: only argument applies Respondents’ is that the statute organized subsequent corporations passage to the Corporations Appellant, Act in 1933. Private Business *8 points turn, to RCW 23.01.900: expressly herein, “Except otherwise stated this where any existing corporation chapter applicable to shall be general incorporation of for a laws this state formed under might purposes

purpose a for which or chapter.” formed under suggested

Respondents reason, no and we have have legislature why thought have intended none, of corporations. only post-1933 apply to to the amendment justification classifying corporations logical no for There is buy-back incorporation respect pro- to the date of phrase “organized Therefore, that the vision. we conclude expressly pre-1933 corpora- not exclude hereunder” does inapplicable provisions of 23.01- tions and make RCW may an at .900. limitations have been in effect Whatever passage time, earlier of the amendment to RCW empowered Export Company repurchase 23.01.120 own shares.

Respondents suggest quoted portion bylaw that the provision redemption is in a fact of common stock and redemption as such is invalid. RCW 23.01.440authorizes of preferred shares, but no mention is made in the of statute redeeming Starring common American stock. v. (1937), Hair & Felt Co. Ch. 380, Del. 191 Atl. held impliedly prohibited redemption that the Delaware statute by expressly authorizing redemption only of common shares preferred. bylaw may properly We not do believe the be con attempt redemption. strued as purpose to authorize provision, bylaws when taken with the rest incorporation, enough. Only with the articles of is clear persons “legitimate defined manufacturers of on lumber the Pacific Export Coast” entitled own shares of Company. goes A shareholder who dies out of business longer qualifies. implement no In order to the reasonable eligibility, Export restriction of it is that the essential Com pany have available to it some means of enforcement. The power reacquire its shares continuing only upon not a one; indeed, it arises events Redemption power, within exists, its control. it where usually enjoys significantly different characteristic—aside may imposed from law, the controls at exercised corporation, subject only will such restrictions regarding impersonal status, current financial selection group redeemed if than whole class is to be less other limitations as have been ex called, and such pressly stated.

320

Upon bylaw in con- of the consideration terms of light bylaws and the text of and the articles as a whole they particular corporation upon cast the nature of the in that Article VI case, we conclude involved instant redemption provision. called not We are not does contain a upon, Starring Hair & v. American therefore, to if decide supra, in this state. Co., Felt should be followed argument (2), respondents’ We turn now to number by parties as we it labeled above. It that is conceded all upon acquires Export Company none the events which the power repurchase respect to occurred, shares had with respondents, September on 29, 1958. We not do believe repurchase provision fact this makes consideration of the inappropriate proceedings. potential in the valuation The any ineligibility of to continue shares shareholder to hold owned, seems to us certain to affect the value of the interest respect going pros with to both the concern value and liqui pect participating upon in the distribution of assets in The dation which we think should be considered this case. possible importance characteristic of defeasible may by represented interest of the shares years in recent of the number be illustrated the decrease outstanding. 1949, In held 290 shares were figure manufacturers; this reduced various lumber in 1953; 1955; to 180 in and to 1950; 280 in involuntary that were number of withdrawals may in record. have been However, is not shown expect September with further on reasonable appellant corporation. The interest of from drawals remaining value would increase while shareholders withdrawing be shareholders of the interest fixed. come determining the value formula

No universal corporations No can two be stated. a shares of very may precisely that be alike, consideration and meaning may evaluating of one the shares influential many Appellant cited has another. reference to with less (1) propositions in “value” support cases (a) generalized market many factors volves (which necessarily price); value the same as market (b) (c) (2) value; net asset and value, and investment single unduly no factor set of factors should be agree respect, emphasized. appellant in We *10 past have said that

“Generally speaking, we believe that the word ‘value’ contemplates a consideration of all the facts and circum- pertinent particular stances to a case in an effort to arrive compromise at a fair and reasonable or arbitration which may or degree lacking in some in mathematical exactness Greyhound supra. In certitude.” re Lines, Northwest point problems But we out that one of the critical tois point emphasis unduly light determine the where becomes heavy. Corporations, § 13 Fletcher, See Private fn. 95.

Appellant unduly that the court em insists trial phasized liquidation agree. value. We are inclined Suc findings corpo cessive describe the value of the net asset outstanding ration, and recite the fact that 160 shares were September on 29, 1958, and the court concluded that finding the $2,646.80. value each was fact, Another (No. 17) so called, states: fixing

“That court in the the value took into consideration corporation, the dividend record of the the fact that stock not been on had the the market, traded nature of the cor- poration’s business, the character and nature of the assets corporation, prospects the fact future business good, corporation pursuant were the fact that the to the Washington statutes of State of under which it was incorporated expire would in 1963.” notwithstanding, The recital the record not does show how “considerations” listed affected the trial court’s final determination. We think the conclusion is inevitable appraiser court, that the trial and the well, accorded weight only liquidation to the current value of the shares. that, We convinced under the circumstances of this by overemphasizing the trial court case, erred current by dismissing liquidation value and other factors con- importance. siderable (but necessarily only) sig-

thinkWe that a most respondents’ nificant factor in the valuation shares is they corporation, represent the fact in a an interest but for the amendment articles that which, to the touched liquidated years. lawsuit, off in five would have been appearances, From all net asset value of future time recourse to at that can be estimated without provide prefer- speculation. for Since the articles do not payment upon surplus, after of debts dissolution, ences equally liquidation allocated to costs, have to 23.01.130(3), outstanding. 23- RCW then RCW Company, Douglas Export there- Fir A .01.560. share of prospective represented interest a substantial fore, of assets. distribution ten-year average year-end net asset value1

period $428,617.24;for the last five from 1949-1958 nothing years period There is $428,961.58. it was *11 years succeeding suggest in five the in the record to that change sustain losses sufficient would capital comparatively significantly structure.2 level that in the record business evidence is substantial There Making assumptions good. favorable the future will be in by respondents, 1963 sufficient conceivable it is $430,000 to leave for dis- surplus have accumulated would ending ending Net Assets Year Assets Net 1Year $430,643.67 $409,726.14* .. ... 12/31/53 12/31/58 432,711.56 440,798.66 .. ... 12/31/52 12/31/57 456,663.01 431,612.73 .. ... 12/31/51 12/31/56 410,381.41 431,658.16 .. ... 12/31/50 12/31/55 410,964.84 431,012.22 .. .. . 12/31/49 12/31/54 (Total $4,286,172.40) (Sub-total 2,144,807.91) ...... .. trust dis- $10.00 *The balance does not balance. We sheet Respond- crepancy upset parties than disturbs us. no more will ents, such, doubt. are entitled to benefit presented factor, upon possible 2A insufficient which evidence trial, reduce or abolish at the is the likelihood that the directors would thereby substantially years, during bene the last five commissions corporation. fiting greatest who use of the services make those surplus and the distributive shares would retained eventual correspondingly reduced. liquidation, tribution after or $2,687.50allocable to each of $2,687.50, shares. The commuted value at low rate per five-year period, of three cent over a If $2,318.24. is years we were to add a dividend each of the five $7.00 compound per cent, and assume interest six a total of (not troubling present at to calculate a commuted $39.46 value), only

the value each share be raised substantially $2,357.70,which is less than the found value imply the trial court. We do not intend to figures, employed interest, or discount rates above should simply have been the trial court. selected We demon- why many important we believe strate given were factors emphasis process. valuation

sufficient reversed, The decree of the trial court is and cause is remanded with instructions all of to reconsider the rele- vant factors established the evidence before it and findings make new of fact and of law. The conclusions costs abide the final result of the shall action. It is so ordered. JJ., Hill,

Mallery, Donworth, Foster, Hunter, concur. (dissenting)—I agree

Weaver, J. with the conclusion, in- majority opinion, herent respondents are en- titled to the value September of their stock as of 29, 1958. agree, I implication do not however, with the that the valu- high. ation of the stock is too I dissent, therefore, from necessary the conclusion that it to reverse and remand this case. “. with instructions to all reconsider of the rele-

vant factors established the evidence before it and to findings make new of fact and of law.” conclusions corporation “buying This is not a situation where is corporate back” its stock; nor is one in which the cor- poration redeeming question pre- is its common stock. The respondents’ rights, sented is determination of as dissenting minority stockholders, under 23.01.450, RCW provides: which

“(1) If a has . . . authorized amend- corpora- .

ment which . tion . extends the duration in not vote favor of ... a shareholder who did corporate paid . such shall be the value action . . of corpo- the date the authorization such his shares as of of of ” (Italics mine.) rate action . many The connotations, word “value” used but, has synonymous monetary in the statute, it is The worth. problem phrase crux of the is the “value of shares.” his money In short, what is the amount United of States equivalent respondents’ September 29, stock as of many many types “value”; There are of there are methods determining many of value; there are different elements determination; in that must be but all must considered its relationship being particular have a definite instance considered. unique. Sep-

The situation of the instant case is factual appellant corporation had net tember assets in Other $423,489.29, $419,781.20 of which cash. assets receivable and office $22,100.29 accounts consisted per words, In 99.119 furniture valued at other $746.15. corporate in cash. Each the one cent assets was monetary outstanding sixty had a shares of stock hundred corporate equivalent in cash. $2,623.50 assets appraiser court-appointed court valued and the trial The per more than cash share its $2,646.86—$23.30 the stock at equivalent. might theory or method of evaluation no

Under applicable can I conceive of case to this considered per being $2,623.50 share unless than less of the stock value money. States United are to discount we given may a value to have The court trial court office furniture. and the receivable accounts however, found, fixing into value took considera- the court “That corporation, the fact that record the dividend

tion market, the nature of traded on been had not stock the nature of the corporation’s business, the character and corporation, future business the fact assets of corporation pursuant good, prospects fact that the were *13 to the statutes of the Washington State under which would incorporated 1963.” expire

It is true court’s valuation per share computed by dividing net assets number of out- stock; but, standing under the circumstances of case, mind, trial court did not, my “unduly emphasize liquidation value.”

There nothing the remand or- accomplished dered I affirm majority opinion. judg- ment of the trial court. J. JJ., Ott, Weaver,

Rosellini concur January En 35489. Banc. [No. 1962.] The State John Washington, v. Francis Appellant,

Costello, Respondent. * *Reported (2d) in 367 P.