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agreement of the defendant corporations is such that it cannot conscionably be ratified against the objection of a dissenting stockholder. The terms of the proposed merger agreement must be examined in the light of the principle above stated.
The capital, surplus, and undivided profits of the Equitable Trust Company aggregate $13,212,117.50. According to the proposed merger agreement, $1,000,000 of the capital stock must be retired in order to effect the merger. It is understood that the retirement of such stock is assured by the announced intention of the Equitable Life Assurance Society to retire $1,000,000 of stock which it now holds. The payment for the stock thus retired will diminish the aggregate capital and surplus above mentioned in the sum of $1,350,000. For the purposes of the merger, therefore, the capitalization of the Equitable Trust Company may be regarded as approximately $9,000,000. The capital, surplus, and undivided profits of the Mercantile Trust Company aggregate $8,986,861.85. For the purposes of the merger, therefore, the capitalization of the Mercantile Trust Company may be regarded as substantially equal to the capitalization which the Equitable Trust Company proposes to contribute to the merged company. The present book value of the stock of the Equitable Trust Company is conceded by Mr. Krech to be $440 per share. The stockholders of that company who exchange two of their shares for one of the merged company will give up two shares of the aggregate book value of $880 and receive in exchange therefor one share in the merged company of a book value, estimated by Mr. Krech, of $600. At the outset, therofore, there appears to be an apparent loss in book value of $140 for each share of stock which the stockholders of the Equitable Trust Company exchange pursuant to the merger agreement.
The argument in favor of the merger which is made to the stockholders of the Equitable Trust Company by the Mercantile Trust Company and by the promoters of the proposed merger may be stated substantially as follows: The Equitable Trust Company upon its capitalization has been able during the last four years to earn only 6.06 per cent. per annum.
The Mercantile Trust Company upon its capitalization has been able during the same period to earn 11.52 per cent. per annum. The amount of capitalization which each company purposes to contribute to the merged company is approximately the same. The Mercantile Trust Company, however, has been able to earn upon its capitalization almost double the per cent. that the Equitable Trust Company has earned. For this reason the stockholders of the Equitable Trust Company are offered for their contribution to the merged company only $1,000,000 of stock, while the stockholders of the Mercantile Trust Company, for an equal contribution, are offered $2,000,000 of stock. In bald terms, the promoters of the merger announce that the money of the Equitable Trust Company is only half as valuable as an equal amount of money of the Mercantile Trust Company, and propose a partnership upon the basis of equal contributions of money, but a division of the interest of the business in the ratio of one to two.
and 140 New York State Reporter Such an arrangement, it is conceded, is not uncommon between individuals, where the skill, experience, and good will of one is deemed equal to the amount of the capital of the other, and both contribute an equal amount of capital. Good will is an asset, a piece of property. People ex rel. Johnson Co. v. Roberts, 159 N. Y. 70, 53 N. Ē. 685, 45 L. R. A. 126; Lindemann v. Rusk, 125 Wis. 210, 104 N. W. 119, 126; Washburn v. Nat. Wall Paper Co., 81 Fed. 17, 26 C. C. A. 312. Furthermore, good will is an element of the property of a corporation which contributes to the value of a share of the corporate stock. Compare People ex rel. Union Trust Co. v. Coleman, 126 N. Y. 433, 438, 27 N. E. 818, 12 L. R. A. 762.
It is not inconceivable that two corporations having equal amounts of capital might be so situated that the item of good will in the case of one equaled its capital, while the other corporation really had no good will and no asset other than its actual capital. In the instance of such corporations it might well be held that a merger upon terms similar to those proposed in the present case might be entirely fair to the stockholders of both corporations, provided that the merged corporation seemed likely to earn more upon the capital contributed by the less prosperous corporation than that corporation had hitherto earned. The justification for such a merger, from the standpoint of the stockholders of the less prosperous corporation, would consist in the probability of a greater return upon their capital, when combined with that of the more prosperous corporation; and the greater return thus attained night overbalance the inconvenience and disadvantage which the stockholders of the less prosperous corporation would suffer by yielding up the control over their capital to the stockholders of the more prosperous corporation and assuming the position of a minority interest in the merged corporation, outnumbered two to one by the stockholders of the more prosperous corporation. Such an arrangement, it is repeated, might well be held proper and fair to all parties.
The proposed merger of the defendant corporations, however, is not analogous to the arrangement just mentioned. The prospective earnings of the merged corporation, as announced by Mr. Krech in the letter to the stockholders of the Equitable Trust Company recommending the merger, are as follows: The average annual net earnings of the Mercantile Company for the years 1903, 1904, 1905, and 1906 were.
.$ 956,858 45 Estimated earnings of 4 per cent, on approximately $9,000,000 of
additional capital and surplus to be acquired from the Equitable Trust Company.
360,000 00 Estimated profits on deposits and other business to be taken over (say) ...
Total estimated annual net earnings of the merged company....$1,466,858 45
Upon analysis it appears that the promoters of the merger hope to earn upon a capitalization contributed by the Mercantile Trust Company the same per cent. that that company has earned during the past four years; but upon the capitalization contributed by the Equitable Trust Company they hope to earn somewhat less than that company
has proved itself able to earn during the past four years without the assistance of the Mercantile Trust Company. In other words, the merged corporation does not pretend to be able to earn upon the capitalization contributed by the Equitable Trust Company as much as that company, under the management of its own stockholders, has earned upon an average during the past four years. Nevertheless, the promoters of the merger ask that the stockholders of the Equitable Trust Company give up to the merged corporation their control over their investment, and forego once and forever the possibility of ever receiving upon their investment more than half of what the stockholders of the Mercantile Trust Company receive upon an equal investment, and accept, in place of the earnings which the experience of the past four years has proved that the Equitable Trust Company can earn, a somewhat less amount of potential, prophesied, and estimated earnings, based, not upon fact or experience, but upon the prophecy and estimate of the promoters of the merger.
Thus far the examination of the proposed merger agreement has been confined to the prospect held out to the plaintiff and his fellow stockholders of the Equitable Trust Company. They are promised no more than their investment has earned while in their own control, and that promise is made payable in earnings based upon expectation, rather than upon experience. In consideration of this exchange of earnings based upon past performance for an equal amount of earnings based only upon future contingencies the stockholders of the Equitable Trust Company are further asked to give over the complete control, which they now exercise over their investment, to a new corporation in which they will be a hopeless minority, outnumbered two to one. It is not difficult for the court to perceive that the latter end of the stockholders of the Equitable Trust Company may, in such an event, be worse than their present condition.
The considerations above mentioned are sufficient to characterize the proposed merger agreement as apparently unfair. The obvious advantage to the present stockholders of the Mercantile Trust Company is clear. They will receive, as an addition to their capital, an amount equal to their present capitalization. They will control the increased amount of capital by a majority of two_to one, and will receive, as compared with the stockholders of the Equitable Trust Company, a return upon their investment in the proportion of two to one. Under certain circumstances the court would be justified in shutting its eyes to the advantage which the other party to a merger might receive and consider merely whether the plaintiff and his fellow stockholders actually suffered a positive disadvantage by the merger. In this case, however, the disadvantage to one party is so apparent and the advantage to the other party is so clear that the court is obliged to give some weight to this circumstance.
The examination to which the court has subjected the proposed merger has been especially close, and the strictures which it has made upon it have been particularly definite, because of the close interrelation of the defendant corporations, having nine directors in common, and also because of the virtual domination of both corporations by a single stockholder, the Equitable Life Assurance Society. Under the
and 140 New York State „Reporter authority of the decisions above mentioned it is the duty of a court of equity under such circumstances to scrutinize with vigilant care a contract between two corporations, especially when the contract has the effect of extinguishing the corporate life of one of the contracting parties. The court is not convinced that the proposed merger agreement was conceived in fraud. It is not prepared to say that the agreement is one which, if entered into by two corporations not so interrelated as the defendants or dominated by a single interest, would necessarily and as a matter of course be held so unfair as to be unconscionable. It holds, however, that under all the circumstances here presented an agreement is proposed which is so unfair to the interests of the plaintiff and his fellow stockholders that a court of equity may well hesitate before denying a prayer for interposition.
An interim injunction has already been granted herein. Under the circumstances above outlined the duty of the court is plain. The rule was stated by Judge Finch, in Young v. Rondout & Kingston Gaslight Co., 129 N. Y. 57–60, 29 N. E. 83, 84, as follows:
"To dissolve an injunction, with the inevitable result of defeating plaintiff's remedy without a trial, we must be entirely satisfied that the case is one in which by settled adjudication the plaintiff upon the facts stated, is not entitled to final relief. We cannot say that of this plaintiff's complaint in advance of a trial.
These are grave and serious questions. On this motion we ought not to decide them.”
See, also, Hudson River Telephone Co. v. Watervliet Turnpike & R. R. Co., 121 N. Y. 397, 24 N. E. 832; Weston v. Goldstein, 39 App. Div. 661, 57 N. Y. Supp. 311; Cornwall v. Sachs, 69 Hun, 283, 23 N. Y. Supp. 500; Hart v. Ogdensburgh & L. C. R. Co., 20 N. Y. Supp. 918, 66 Hun, 628; Litchfield v. City of Brooklyn, 10 Misc. Rep. 74, 31 N. Y. Supp. 151.
Unless the statu quo of this case can be preserved, the relief which the plaintiff prays for, and which upon the trial he may prove to be entitled to, will be irrevocably lost by reason of the merger of the defendant corporations and the extinction of the Equitable Trust Company. Since the reasons hereinbefore discussed seem controlling upon this motion, it becomes unnecessary to discuss the other points raised by the plaintiff. Accordingly the motion for an injunction is granted.
VALOIS V. GARDNER.
(Supreme Court, Appellate Division, Third Department. November 13, 1907.)
1. HUSBAND AND WIFE-FAMILY NECESSARIES--WIFE'S LIABILITY-PRESUMP
While a wife living with her husband may by agreement charge her. self personally for family necessaries, the presumption is that she purchases such necessaries as her husband's agent and that he alone is lialle therefor.
(Ed. Note.-For cases in point, see Cent. Dig. vol. 26, Husband and Wife, &$ 131, 133.]
In an action against a wife for family necessaries purchased by her while living with her husband, evidence held insufficient to show an agreement to charge herself personally therefor.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 26, Husband and Wife, $ 848.)
Appeal from St. Lawrence County Court.
Action by Alfred Valois against Frances Gardner. From so much of a judgment of the St. Lawrence County Court as reversed a justice's judgment on one of two causes of action in favor of plaintiff, he appeals. Affirmed.
Argued before SMITH, P. J., and CHESTER, KELLOGG, COCHRANE, and SEWELL, JJ.
F. K. Moreland, for appellant.
CHESTER, J. The appellant recovered judgment in the justice's court upon two causes of action, each for goods alleged to have been sold to the defendant. The County Court reversed the judgment as to the first cause of action, and the plaintiff appeals.
The defense is coverture. The plaintiff swore that he sold and delivered meats to the defendant at various times, that at different dates she made payments, and that the goods were all charged to her and not to her husband. He swore on cross-examination that he knew the defendant was a married woman, and that she and her husband were living together as man and wife, with their children, during this time. Where a married woman, living with her husband and children, purchases necessaries for the family use, the presumption is that the purchases were made as the agent of the husband, and that he alone is liable. Lindholm v. Kane, 92 Hun, 369, 36 N. Y. Supp. 665; Wenz v. McCann, 107 App. Div. 557, 95 N. Y. Supp. 462: The wife may nevertheless, by an agreement to that effect, charge herself personally for necessaries purchased by her for the family while living with her husband. Tiemeyer v. Turnquist, 85 N. Y. 516, 39 Am. Rep. 674; Ruhl v. Heintze, 97 App. Div. 442, 89 N. Y. Supp. 1031.
It is claimed that the defendant so charged herself in this case. All there is upon which this claim is founded is the evidence of the plaintiff that at the time the account was started, or at some time while it was running, he had a conversation with the defendant, and that she said she owned the property where she lived and another place, and also that about a year before the trial she told the plaintiff she owned real estate. The account appears to have been running from some time in 1904 to June, 1906. The case was tried in September, 1906, so we have the fact that about a year before this the defendant told the plaintiff she owned real estate and at some indefinite time she told him what it was. This falls far short of sufficient evidence upon which to base the conclusion that she at any time made an agreement to charge herself with the payment of these goods. The plaintiff also swore that they were charged to her;