Armstrong v. Stiffler

Markell, J., delivered the opinion of the Court. This is the second case in this court, and at least the third in the lower court, between appellees Llewellyn and England and Queen City Dairy, Inc., or one or more of its stockholders. In Llewellyn v. Queen City Dairy, 187 Md. 49 , 48 A. 2d 322 , we sustained a demurrer to a bill, and dismissed the bill, of Queen City and two of its stockholders against Llewellyn and England to enjoin any transfer of shares covered by options alleged to have been obtained from other stockholders (presumably including the present appellant) by fraud. The bill was dismissed for the reason, among others, that a corporation cannot maintain suit on account of a fraud ⁶³² practice upon one of its stockholders in purchasing, or obtaining an option on, his shares.

The instant case is a bill by Llewellyn and England and their principal, Stiffler, against a stockholder for specific performance of his option agreement to sell and transfer, “as of February 1, 1946”, all his stock (ten shares) for $300 per share. The option agreement, signed by appellant, provides: “In case of default I promise to pay $300 per share * * * as liquidated damages”. From an order overruling a demurrer to the bill defendant appeals. The bill alleges that: Plaintiffs on December 29, 1945, secured the option agreement and on February 1, 1946, tendered $3000 and requested transfer and delivery of the stock, which defendant refused; about the same time plaintiffs secured identical option agreements from the holders of more than a majority of the 376 shares outstanding; the “sole plan and purpose” of plaintiffs was to purchase “a majority or controlling interest” so that Stiffler and his associates could “improve” the corporation and “operate it more efficiently”; ten optionors have sold and transferred their stock (109 shares) to Stiffler for $32,700; all the other optionors, including defendant, have refused to sell their stock optioned to plaintiffs; it is impossible for plaintiffs to buy other stock, not optioned; “under the circumstances” defendant’s stock “has a peculiar unique value” to Stiffler and the option agreement with defendant “was made for the specific purpose of helping” him “to acquire a majority interest” in the corporation; acting in reliance upon performance by defendant, Stiffler “has expended large sums * * * as aforesaid”, and “if his plans in regard to the purchase of a majority of stock * * * are thwarted and defeated” by defendant’s breach of his contract, “will suffer irreparable loss * * * and it will be impossible to calculate accurately the amount of damages” he would suffer because of defendant’s breach of contract.

Defendant contends that a contract to acquire control of a qmsi-public corporation is not specifically enforce ⁶³³ able, citing Ryan v. McLane, 91 Md. 175 , 46 A. 340, 343 , 50 L. R. A. 501, 80 Am. St. Rep. 438 . In that case the late Thomas F. Ryan sought specific performance of an alleged contract by a “pool” to sell him just enough stock of the Seaboard and Roanoke Railroad Company to give him (together with stock already owned by him) control of nine allied Seaboard Companies. The pool refused to sell unless Ryan also bought other stock which had been put in the pool after the alleged contract was made.

This court said such a course was “demanded by the plainest dictates of ordinary fair dealing. In short, the course which the plaintiff is here contending the defendants are bound to pursue would have resulted in selling their own stock, and at the same time in selling out the minority stockholders”. The court said the plaintiff’s position in this respect “may be legal, but it is certainly far from equitable”, 91 Md. at pages 185, 186, 46 A. at page 343 , 50 L. R. A. 501, 80 Am. St. Rep. 438 ; cf. Clowes v. Miller, 74 Conn. 287 , 50 A. 728 .

The decision was that the contract, properly construed, was not a contract to sell, but an unaccepted option, and included not only stock already in the pool but also stock later put in the pool. The court suggested doubt whether a contract to purchase stock control of a qwm-public corporation was specifically enforceable, quoting Foll’s Appeal, 91 Pa. 434, 436 , 36 Am. Rep. 671 , but nevertheless said, “we do not wish to be understood as saying that never, under any circumstances, will a