Macgill v. Macgill

Burke, J., delivered the opinion of the Court. The appeal in this case is from an order overruling a demurrer to the bill of complaint. The bill is a long one — - covering fifty-one pages of the record. We do not find it necessary to enter upon a minute examination and analysis of all its allegations.

It will be sufficient to refer to the fol ³⁸⁵ lowing facts, conceded by the demurrer, which make applicable the principles which, in our judgment, should control the case. The case is one in which it is charged that two directors of a corporation wrongfully induced the plaintiffs, who were stockholders in the corporation, to transfer and deliver to them individually for their own use and benefit certain shares of common stock of the corporation. The relief sought is the return of the stock and for an accounting. A more specific reference to the relief prayed for will he presently made.

The C. A. Gambrill Manufacturing Company is a Maryland corporation. For many years it had been engaged in the business of milling and the production of cereal foods. Prior to October 1916 its capital stock had consisted of three thousand shares of the par value of $100 each. The appellants, the defendants below, were officers and directors of the corporation — one of whom, Charles C. Macgill, being its president.

They owned and controlled a majority of the stock and dominated the corporation, and are charged to be “the controlling interests” in the corporation. The appellees, the plaintiffs below, held certain shares of the common stock. It. Ruskell Macgill had one hundred shares; M. Blanche Sencindiver held one hundred shares, and William S. Macgill held nineteen shares.

For a period of about nine years preceding July 1st, 1916, the average annual dividends upon the stock were less than four per cent, per annum. In 1911 there was a loss of $59,668.96, and in 1912 a loss, of $47,-721.51. There was no dividend paid in 1913 and 1914, and in 1915 a dividend of three per cent, was paid. In the report of the president to the stockholders on July 24th, 1916, he stated: “We have handled the largest business, the company has ever done, with gross profits, of $125,825.08, from which we have charged off $8,845.47 for improvement and $87,506.66 for depreciation, leaving a net profit of $29,-473.95, which added to balance carried forward last year, makes our credit balance $60,064.69, from which a dividend ³⁸⁶ of 4 % was declared, leaving $48,064.68 balance to the credit of Profit and Loss Account.” On August 12th, 1916, the corporation, through its secretary, addressed the following letter to its stockholders: “At the annual meeting of the stockholders of July 24th, 1916, the advisability of converting part of the common stock of the company into 1 % cumulative preferred was discussed.

Some of the stockholders present were desirous that the.following offer be made to stockholders : “That an amount of stock not to exceed $150,000 be changed to 7% cumulative preferred, the preferred stock retaining the same voting rights as the common and to be a first lien on the property of the company. Dividends, if earned, to be paid semi-annually in January and July on the preferred stock, and no dividend to be declared on the common stock until all accrued dividends on the preferred stock have been satisfied, the company to have the option of retiring the preferred stock on 30 days’ notice at $110 per' share and interest. “In making this proposition it is to be understood that the controlling interests agree not to take any of the preferred stock until the minority interests have first subscribed to the amount they desire. “We would like to hear from you as to whether you would like to change your stock under this plan. If the majority wish to do so, we will call a meeting of the stockholders and ratify the change. “A prompt reply requested.” On September 28, 1916, Charles C. Macgill addressed the following letter to the stockholders: “To the Stockholders of the C. A. Gambrill Mfg. Co. ‘Dear Sirs: My object in this letter is to give our reasons for the proposed change of one-half of our common stock to preferred. “Our mill at Ellicott City was destroyed by fire in April last.

The burned property was insured for about $110,000.00, and in addition to this we had ‘Use and ³⁸⁷ Occupancy’ insurance for twelve months at the rate of $5,000.00 per month, for such length of time as would be required to rebuild the property, but not, of course, exceeding twelve months. The purpose of this latter insurance was to cover the probable loss in the business pending rebuilding. “Due to the increased cost of all machinery and building operations, brought on by the war, it was quite impossible to erect a new mill at anywhere near the amount of insurance collected on the burned mill. “At a meeting of the directors held in June to consider the future of the business, and plans and cost of a new mill, the controlling interest of the company, believing in its future, and actuated by a desire to continue the business which had been so long established, and with which they had been so long associated, and at the same time to give the minority stockholders a greater degree of security with a largor and more staple return than in the past upon their investment in the company, suggested the exchange of common for preferred shares as already outlined, leaving the common shareholders to take their chances with the resulting advantages and disadvantages in the future prosperity of the company, after dividends had been paid to the preferred shareholders. “At the regular annual meeting of the stockholders in July, we were asked to submit this suggestion to the stockholders. This has been done, and we have so far received replies from nearly all the minority holders in favor of the exchange. It is understood that there will be no expense to shareholders in making the exchange. “In changing one-half of the stock of the company to preferred, each stockholder would receive one-half of his present holdings in preferred stock, but realizing that many of the present stockholders will prefer to exchange all their holdings for preferred stock, the controlling interest have agreed to accept from any stockholder the remaining one-half of his common shares, and give him in exchange an equal number of preferred ³⁸⁸ shares, provided this offer is availed of prior to November 1st, 1916. “I am enclosing the last report of the company.” At a meeting of the Board of Directors held on the 27th day of September, 1916, the following resolution was adopted: “Resolved, That the following amendment to the charter of the O. A. Gambrill Manufacturing Company of Baltimore City is advisable, to wit: The total amount of the capital stock of the corporation, which at present amounts to $300,000.00, consisting of 3,000 shares of common stock of the par value of $100.00 each, shall be changed by reducing the common stock to 1,500 shares of the par value of $100.00 each, and by the issuing of 1,500 shares of preferred stock of the par value of $100.00 each, so that the capital stock of said corporation in the future shall consist of $300,-000.00, represented by 1,500 shares of common stock of the par value of $100.00 each, and 1,500 shares of the preferred stock of the value of $100.00 each. “Each stockholder of each class of stock being entitled to one vote for every share of. stock standing in his name. “The holders of the preferred stock shall receive and the said corporation shall be bound to pay (out of the profits) fixed annual dividends of seven per centum per annum on the par value of the preferred stock, so held by them, payable in equal semi-annual instalments of three and one-half per cent, each on the 25th day of January and July in each year, the first instalment being payable January 25th, 1917, before any dividends shall be set apart for or paid to holders of the common stock, and such dividends so to be paid to the holders of the preferred stock shall be cumulative, and if not earned and paid in any year they shall be paid out of the profits before any dividend is paid on the common stock, but without interest, and in case of liquidation, dissolution or distribution of the assets of the corporation, the holders of the preferred stock shall be entitled ³⁸⁹ to receive in full payment the par amount of their preferred shares, together with any unpaid dividends thereon, before any amount shall be payable to the holders of the common stock; the preferred stock shall he redeemable at any time by the corporation upon 30 days’ notice, at the rate of $110.00 per share and interest on the par value thereof at the rate of seven per centum per annum from the date of the payment of the last dividend thereon.

Each of the present stockholders shall surrender one-half of the shares of the common stock now held by him and shall receive in lieu thereof preferred shares of stock equal in number to the shares of common stock so surrendered by him. “A meeting of the stockholders of the C. A. Gambrill Manufacturing Company of Baltimore City is hereby called for Monday, the 9th day of October, 1916, at the company’s office, Eo. 110 Commerce street, Baltimore, Maryland, at 3 o’clock P. M., to take action on the aforegoing resolution. “It is especially important that you attend this meeting. If you do not expect to be present, kindly sign the enclosed proxy, let someone sign as witness to your signature and return the same to us. “This will enable your proxy to vote on the proposed amendment. “Yours truly, “O. A. Gambrill Mfg. Co., “H. M. Blinn, “Secretary.” The amendment to the charter, set forth in the resolution, was adopted bv the stockholders at their meeting on October 9th, 1917, and on the following