Opinion
No. 30712
Decided February 28, 1947.
Corporations — Dissenting shareholders — Action to determine fair cash value of shares — Section 8623-72, General Code — "Fair cash value" is intrinsic value, which is determined, how — Error to instruct appraisers that market value basic test, when.
1. The "fair cash value" which a dissenting shareholder in a corporation is entitled to receive for his shares in a proceeding brought pursuant to Section 8623-72, General Code, is the intrinsic value of the shares determined from the assets and liabilities of such corporation, upon consideration of every factor bearing on value.
2. In such a proceeding an instruction by the court to the appraisers, that "the term 'fair cash value' means a sum equal to the price which it is reasonably probable would have resulted from a sale of said shares for cash, after fair negotiations between a bona fide purchaser, able and willing to buy for cash, but under no compulsion to buy, and an owner willing to sell, but under no compulsion to sell, after fair and reasonable efforts to obtain the purchaser who would pay the highest price," is erroneous, and where an inference arises from the evidence before the appraisers or from the findings of fact made by them, that the intrinsic value of the shares exceeded the amount fixed by the appraisers, such instruction is prejudicial.
APPEAL from the Court of Appeals for Cuyahoga county.
On June 24, 1943, The Security Savings Loan Company, an Ohio corporation, at a special shareholders meeting, authorized a merger with The Ohio Mutual Savings Loan Company. The plaintiffs, Samuel J. and Anna Roessler, who at that time owned 1741/2 shares of the stock of the defendant, The Security Savings Loan Company, dissented in writing, pursuant to Section 8623-72, General Code, and demanded the fair cash value of their shares, which was set by them at $160 per share. The defendant company refused to pay such amount but made a counteroffer of $25 per share. Since no agreement could be reached, the plaintiffs, on September 4, 1943, filed a petition in the Court of Common Pleas of Cuyahoga county, as provided for by Section 8623-72, General Code. The court found the plaintiffs were dissenting shareholders, and that they were entitled to be paid the fair cash value of their shares as of June 23, 1943.
Thereupon the court appointed three appraisers who, after being instructed by the court, heard evidence as to the value of the plaintiffs' shares and submitted a written report, finding the value of the plaintiffs' shares to be $43.50 each. The appraisement was confirmed by the court and judgment was entered in favor of the plaintiffs based on such value.
On appeal on questions of law, the Court of Appeals affirmed the judgment.
Thereafter this court allowed a motion to certify the record and the cause is here for review.
Messrs. McFadyen Swisher, for appellants.
Messrs. M.B. H.H. Johnson and Mr. John T. Scott, for appellee.
This case involves the construction of the term "fair cash value" as used in Section 8623-72, General Code, and the validity of an instruction to appraisers appointed under that section as to what basis they should use in determining "fair cash value." That section provides, in part, that "if the court shall find and order that such shareholder [dissenting shareholder] is entitled to be paid the fair cash value of any number of shares, the court shall appoint, three appraisers to determine the fair cash value of such number of shares as of a day to be named in such order, * * * and said court shall instruct said appraisers respecting their duties in making such determination." Nowhere in the statutes is the term "fair cash value" defined.
However, many states have statutes similar to the one in question and, where such statutes have come before the courts, the term "fair cash value" and similar terms have been so construed as to allow dissenting shareholders the intrinsic value of their shares. Adams v. United States Distributing Corp., 184 Va. 134, 34 S.E.2d 244; American General Corp. v. Camp, 171 Md. 629, 190 A. 225; Chicago Corp. v. Munds, 20 Del. Ch. 142, 172 A. 452; Winfree v. Riverside Cotton Mills, 113 Va. 717, 75 S.E. 309; 13 Fletcher Cyclopedia Corporations (Perm. Ed.), 256, Section 5899; 19 Corpus Juris Secundum, 1378, Section 1615. See, also, Republic Finance Investment Co. v. Fenstermaker, 211 Ind. 251, 6 N.E.2d 541; Jackson Co. v. Gardiner Inv. Co., 200 F., 113; Cole, Admr., v. Wells, 224 Mass. 504, 113 N.E. 189.
We believe that to be the correct interpretation of this phrase. Intrinsic value is the true interest and essential value; it is not synonymous with market value. Market value may be considered in proper cases in determining intrinsic value, but market value is not the sole or basic test, unless it is provided as such by statute. Certainly it would not be just to allow the shareholder the market value when such value is less than the intrinsic worth.
The full rule may be stated thus: "Fair cash value" of the shares of a dissenting shareholder in a corporation means the intrinsic value of such shares determined from the assets and liabilities of such corporation, considered in the light of every factor bearing on value.
The meaning of fair cash value having been determined, did the court commit prejudicial error in its instruction to the appraisers?
The court used the following language in its instruction to the appraisers:
" The term 'fair cash value' means a sum equal to the price which it is reasonably probable would have resulted from a sale of said shares for cash, after fair negotiations between a bona fide purchaser, able and willing to buy for cash, but under no compulsion to buy, and an owner willing to sell, but under no compulsion to sell, after fair and reasonable efforts to obtain the purchaser who would pay the highest price, excluding from said price, however, any appreciation or depreciation therein in consequence of the merger hereinbefore mentioned. It is not possible for the court to enumerate all of the possible factors to be considered in determining said fair cash value of said shares, but as illustrative of the factors that may be considered, the court mentions the following factors to which consideration may be given as they were as of June 23, 1943, to wit: the business of the defendant and the prospects of its business for the future; the nature of its property; its financial condition; the value of its assets; the amount and nature of its fixed and contingent liabilities; its earnings in the past and its prospects of earnings in the future; the dividends paid by it in the past and its prospects for paying dividends in the future; its management and reputation; the value of its good will; the market value of its shares; and its future prospects in a financial way." (Italics ours.)
Upon consideration of that instruction, this court concludes that the italicized part amounts to an instruction to the appraisers to finally fix the value of the shares, according to what they would bring on the market under the conditions enumerated in the instruction. By that part of the instruction, the court made market value the basic test in determining fair cash value of the shares, and all the subsequent parts of the instruction as to the factors which might be considered in determining such value did not cure the error of the court in making market value the basic test in determining the fair cash value of such shares instead of intrinsic value.
Was such erroneous instruction prejudicial to the plaintiffs in this case? We think it was.
It appears from the report of the appraisers that they "deemed the fair cash value of said 174 1/2 shares of stock to be 'a sum equal to the price which it is reasonably probable would have resulted from a sale of said shares for cash, after fair negotiations between a bona fide purchaser, able and willing to buy for cash, but under no compulsion to buy, and an owner willing to sell, but under no compulsion to sell, after fair and reasonable efforts to obtain a purchaser who would pay the highest price, excluding from said price, however, any appreciation or depreciation therein in consequence' of said merger"; that the stock had a book value of $150 per share; that the assets, each and all, as of June 23, 1943, had sound values; that the stock had the same sound value; that the stock was not listed on any stock exchange; that the prices obtained from over-the-counter sales from 1937 to 1943, inclusive, in which a limited number of shares were sold, varied from $15 to $23.50 per share; that the average annual earnings from 1920 to 1942, inclusive, amounted to $9.21 per share, there being a deficit in only two years, $3.34 in 1932 and $5.13 in 1933; that the earnings for the year 1942 were $11.73 per share; and that for the first six months of 1943 the earnings were substantially at the rate of $9 per year. The findings of the appraisers are founded on substantial evidence. Therefrom an inference arises that the market value, as fixed, is substantially less than the intrinsic value. The erroneous part of the charge was therefore prejudicial.
This court, finding that the term "fair cash value" means intrinsic value and that the instruction to the appraisers erroneously defined fair cash value as market value to the prejudice of the plaintiffs herein, reverses the judgments of the courts below and remands the case to the Court of Common Pleas for further proceedings not inconsistent with this opinion.
Judgment reversed and cause remanded.
TURNER, HART and BELL, JJ., concur.
WEYGANDT, C.J., MATTHIAS and ZIMMERMAN, JJ., dissent.
I concur in the reasons given for the decision in the majority opinion but I place my concurrence in the judgment on the further ground that inasmuch as the appellee corporation was one incorporated prior to the enactment of the General Corporation Act and inasmuch as there was no provision in the articles of incorporation or otherwise to the contrary, a dissenting shareholder is entitled to the intrinsic value of his shares in the absence of an agreement when the majority of the shareholders authorize a consolidation of the corporation with another corporation. To hold otherwise would be to impair the obligation of contract between the shareholder and the corporation and to deprive the shareholder of due process of law.
Our conclusion is that the judgment of the Court of Appeals should be affirmed.
It is elementary that all the instructions of the court should be considered and construed together. The same rule should be applied here.
In our opinion the Common Pleas Court, in its comprehensive instructions to the appraisers, included all the elements and factors essential to a determination of the "fair cash value" of the shares of stock involved. The report of the appraisers discloses that all such elements and factors were considered and applied by them after affording the parties interested full opportunity to present all relevant evidence bearing upon the issue.
It is significant that, as found by the appraisers, at least 12 1/2 per cent of defendant's entire stock actually changed hands in over-the-counter transactions between January 25, 1937, and June 11, 1943 (only 12 days prior to the date as of which the "fair cash value" was to be determined) at prices ranging from $15 to $22.50 per share, the last sale having been on June 11, 1943 for $19.50. The finding of the appraisers of the "fair cash value" of the appellants' shares as of June 23, 1943 and judgment of the court based thereon is $43.50 per share.