McCormick v. Frisch

Delaplaine, J., delivered the opinion of the Court. Charles P. McCormick, of Baltimore, executed a deed of trust on October 25, 1943, in accordance with a separation agreement entered into with his wife, Marion H. McCormick, in contemplation of divorce. Paul T. Frisch and Frederick J. Singley, Jr., the trustees, brought this suit in equity to obtain the instructions of the Court regarding Mr. McCormick’s right to purchase certain shares of stock held by the trustees. In the separation agreement, executed September 20, 1943, Mr. McCormick agreed to pay certain sums of money to Mrs. McCormick as alimony and for the support ¹⁸⁴ of their minor son, Charles P. McCormick, Jr., and to pay all of the son’s school and college bills.

He also agreed to convey the title to their residence in Baltimore to Mrs. McCormick as her sole and separate property. He further agreed to give 500 shares of common stock in McCormick & Company to Mrs. McCormick, and to deliver his remaining 1,757 shares of common stock and 5 shares of preferred stock to the trustees as security for the payments which he agreed to make. The agreement further provided: “It is further understood and agreed that the husband shall at all times during the existence of this agreement or the existence of the trust have the option to purchase any or all of said stock, at and for the price of $25 per share for the common stock and $100 per share for the preferred stock.” The deed of trust provides that the income from the 1,757 shares of common stock and the 5 shares of preferred stock shall be paid to Mr. McCormick as long as he makes the payments to Mrs. McCormick, but in the event of default the trustees are authorized to transfer the stock to their own names and collect the dividends and apply them as far as necessary to carry out the covenants. The trustees are authorized to dispose of the stock, if necessary.

Our attention is particularly directed to the reservation of the right to purchase any or all of the common stock at $25 per share. On July 5, 1949, the board of directors of McCormick 6 Company voted to amend the charter of the corporation by providing that the authorized capital stock shall be as follows: (1) 30,000 shares of 5 per cent preferred stock of the par value of $100 each, making the aggregate value of the preferred stock $3,000,000; (2) 50,000 shares of common stock without par value; and (3) 150,000 shares of non-voting common stock without par value. The proposed charter amendment was approved by the stockholders on July 20, 1949. Upon approval of the amendment by the State Tax Commission on July 29, 1949, the corporation divided each share of common stock into one share of common ¹⁸⁵ stock and three shares of non-voting common stock.

The trustees turned in the 1,757 shares, and received in exchange therefor 1,757 shares of common stock and 5,271 shares of non-voting common stock. Mr. McCormick subsequently notified the trustees of his intention to exercise his right to purchase this stock. As the trustees were not certain how the option had been affected, they instituted this suit in the Circuit Court of Baltimore City to obtain the advice of the Court. Mr. McCormick answered that he was entitled to purchase the 1,757 shares of common stock and the 5,271 shares of non-voting common stock at the price agreed upon in the agreement and deed of trust.

Mrs. McCormick contested that right. On May 28, 1951, the chancellor entered a decree ordering the trustees to deliver both the common stock and the non-voting common stock to Mr. McCormick for $43,925. Mrs. McCormick, appealing from that decree, contends that the recapitalization of McCormick & Company, under which the old common stock was exchanged for two classes of new common stock, destroyed the option. She claims that, inasmuch as the stock split-up was never contemplated by the