Opinion
No. 34602
Decided May 16, 1956.
Corporations — Sales of shares of stock by corporation — Rights of seller — Right or title of purchaser — Subject to shareholders' pre-emptive rights — Failure to offer to shareholders — Effect as to shares sold.
APPEAL from the Court of Appeals for Cuyahoga County.
When this cause was previously before this court, it was "remanded to the Court of Appeals with instructions to modify its judgment and for further proceedings in accordance with this opinion." Barsan v. Pioneer Savings Loan Co., 163 Ohio St. 424, 438, 127 N.E.2d 614.
Thereafter, on July 12, 1955, the Court of Appeals made the following order (to enable ready reference to the various parts of this order, we have indicated in brackets a number for each paragraph of the order):
"[1] This cause came on for further consideration upon the mandate of the Supreme Court and the instructions to this court therein contained. Upon due consideration, and in obedience to said mandate and the instructions therein contained to modify the judgment of this court in accordance with the opinion rendered by the Supreme Court, the court hereby modifies its judgment heretofore entered on the 7th day of September, 1954, to read as follows, to wit:
"[2] The court finds that the evidence herein requires the conclusion, as a matter of law, and the court therefore so finds, that the subscriptions for 511 shares of the stock of the appellant corporation, The Pioneer Savings Loan Company, authorized in the April 14, and July 14, 1948, resolutions of the board of directors of appellant corporation were only for running stock, which was legally subject to redemption and cancellation by appellant corporation, and not for permanent stock of appellant corporation; that, except with respect to 97 of those shares, which were subsequently paid for in full and thereafter issued as permanent stock prior to the end of October, 1950, all the shares of stock so authorized by said 1948 resolutions were legally redeemed and cancelled and the subscriptions therefor cancelled by mutual agreement between the subscribers therefor and appellant corporation prior to the end of October 1950; that the shares of permanent stock subsequently paid for by appellees and issued to them in December, 1952, were first authorized by the board of directors at its meeting on December 11, 1952, notwithstanding the references in its minutes at that time to its April and July 1948, resolutions with respect to subscriptions for running stock and notwithstanding the statements in those minutes that the shares being issued in December, 1952, were being issued pursuant to said earlier 1948 resolutions; and that, except for those shareholders who participated in the issuance of said 1952 shares or those who may have known all about what was going on with respect to their issuance at that time, the shareholders of appellant corporation generally had no reasonable notice or opportunity to subscribe for the shares of permanent stock so authorized by the board and issued to the appellees in December, 1952.
"[3] It is therefore ordered, adjudged and decreed, that the appellant corporation, The Pioneer Savings Loan Company, through its directors and officers, should reinstate, in the names of the appellees, but subject to the rights of other shareholders as hereinafter set forth, the 370 shares of permanent stock of said corporation in the petition described.
"[4] It is further ordered, adjudged and decreed, that the appellees shall hold said 370 shares subject to the pre-emptive rights of holders (except as noted below), other than the appellees, of the permanent stock of appellant corporation, to purchase from the appellees, through the appellant corporation, such part of said 370 shares as shall be in the same proportion as the respective number of shares of permanent stock owned by said other shareholders immediately prior to the action of the board of directors on December 11, 1952, authorizing the issuance of said 370 shares, represents of all of the permanent shares issued and outstanding immediately prior to said action of the board of directors on December 11, 1952.
"[5] It is further ordered that those shareholders who are estopped to assert, or have waived their pre-emptive rights to subscribe for shares issued in December, 1952, and also to the extent that other shareholders do not elect to exercise their rights to subscribe for such stock, some or all shares held by plaintiff-appellees will be relieved from such pre-emptive rights.
"[6] Plaintiff-appellees in effect are the owners of these shares subject to an option (except as set out in the preceding paragraph), in other shareholders to purchase some of such shares from plaintiff-appellees, through the defendant-appellant corporation, by exercising their pre-emptive rights granted by the statute.
"[7] It is further ordered, adjudged and decreed, that if the board of directors of The Pioneer Savings Loan Company shall fail promptly to determine reasonable terms and conditions and a reasonable time for those, other than appellees, who were shareholders of appellant corporation on December 11, 1952, to purchase such part of said 370 shares issued to appellees which such other shareholders are respectively entitled to purchase in accordance with their pre-emptive rights (except as noted herein), and shall fail promptly to notify such other shareholders as to their rights to subscribe thereto as aforesaid, then the appellees may apply to the Common Pleas Court of Cuyahoga County for an order requiring the board of directors of appellant corporation to make the aforesaid determinations and to give the aforesaid notice.
"[8] It is further ordered, adjudged and decreed, that the appellees shall sell back to the corporation, at the price per share which the appellees paid the corporation therefor, plus interest on such amount for the period from and after the date of the payment thereof by the appellees to said corporation and at the rate from time to time paid during said period by The Pioneer Savings Loan Company upon its savings accounts, such part of said 370 shares as shall be sufficient to enable appellant corporation to provide for issuance, from the shares so authorized to be sold on December 11, 1952, of shares to which such other shareholders (except as noted herein) shall be respectively entitled on exercise of their pre-emptive rights.
"[9] It is further ordered, adjudged and decreed that said other shareholders (except as noted herein) who shall so exercise their pre-emptive rights in said shares to which they are respectively entitled, shall also be entitled to receive any dividends on said shares which have been declared thereon and paid or set aside at any time from and after December 12, 1952.
"[10] It is further ordered, adjudged and decreed that until appellees shall have so sold back to the corporation such part of said 370 shares as shall be sufficient to enable the corporation to provide for issuance to the other shareholders, as aforesaid, of the shares to which they shall be respectively entitled upon exercise of their pre-emptive rights, or until said pre-emptive rights in said 370 shares shall have expired without being exercised in accordance with the reasonable terms and conditions for the exercise thereof as established by the board of directors of The Pioneer Savings Loan Company as aforesaid, the appellees and each of them are hereby enjoined from transferring any of said 370 shares except to the appellant corporation for the purpose of enabling said corporation to issue the same to other shareholders in accordance with their pre-emptive rights as aforesaid; and The Pioneer Savings Loan Company and its officers are hereby for a like period enjoined from holding an election of directors.
"[11] It is the intention and purpose of this journal entry to abide strictly with the mandate of the Supreme Court and to comply with the instructions therein contained.
"[12] It is further adjudged and decreed that the costs, both on the petition and the cross-petition, including the costs in the Common Pleas Court, the Court of Appeals and the Supreme Court, be assessed one-half against the appellant, The Pioneer Savings Loan Company, and one-half against the appellees; and for such costs judgment is hereby awarded. Exceptions.
"[13] It is further ordered that this cause be remanded to the Common Pleas Court of Cuyahoga County for execution and all further proceedings herein."
From this order, the parties, therein referred to as appellees and who were plaintiffs in the Common Pleas Court and who are herein referred to as plaintiffs, appealed to this court. The cause is now before this court on that appeal, pursuant to allowance of a motion to certify the record.
Mr. A.L. Kearns, Mr. A.R. Roman and Mr. David Perris, for appellants.
Messrs. Roth Pollack and Messrs. Mooney, Hahn, Loeser, Keough Freedheim, for appellees.
As the last paragraph of our opinion ( 163 Ohio St., at 438) indicates, it was not the intention of this court to disturb the September 7, 1954, judgment of the Court of Appeals any more than necessary. Otherwise, we would have reversed that judgment. We believe that an order of the Court of Appeals containing only the paragraphs of its above-quoted order of July 12, 1955, numbered for identification as paragraphs 1, 2, 7, 12 and 13, probably would have represented a modification of its judgment of September 7, 1954, which would have been in accordance with our opinion if it had also contained the following between such numbered paragraphs 2 and 7:
"It is therefore ordered, adjudged and decreed that The Pioneer Savings Loan Company, through its directors and officers, should reinstate, in the names of the appellees (plaintiffs) the 370 shares of permanent stock of said corporation described in the petition.
"It is further ordered, adjudged and decreed that said The Pioneer Savings Loan Company shall do nothing to interfere with the rights of appellees (plaintiffs) with respect to such permanent stock, except to the extent necessary to provide for any pre-emptive rights of other shareholders pursuant to Section 8623-35, General Code, with respect to some of those 370 shares, if and when any such rights may be admitted by appellees (plaintiffs) to be valid, or may hereafter be established as still enforceable, or otherwise protected pendente lite. in appropriate legal proceedings of such other shareholders against The Pioneer Savings Loan Company and against these appellees (plaintiffs)."
It appears that the order of July 12, 1955, of the Court of Appeals was made largely pursuant to the efforts of The Pioneer Savings Loan Company and over the opposition of plaintiffs. In view of that fact, which substantially contributed to the necessity of this appeal, and in view of the limited relief to which we decided the company was entitled on its previous appeal, we believe that the paragraph of the order of July 12, 1955, identified as No. 12 should also be modified to provide for assessment of three-fourths of the costs against said company and one-fourth thereof against plaintiffs.
Judgment accordingly.
MATTHIAS, HART, ZIMMERMAN, STEWART, BELL and TAFT, JJ., concur.