Bodkin v. Silveira

This suit in equity was instituted by certain stockholders of the Marin Dairymen’s Milk Co., Ltd., to impress a trust on a block of the company’s stock sold by F. P. Grady and wife to the defendants, and to compel the defendants to transfer to plaintiffs the proportion thereof to which plaintiffs claimed to be entitled. The cause of action is based mainly on allegations to the effect that the sale and purchase of the Grady stock was in violation of the terms of a voting trust agreement which granted to each party thereto the option to purchase his proportion of the stock of any party intending to sell. The parties to the agreement included the plaintiffs, the Gradys, several of the defendants, and two persons now deceased. At the time the agreement was entered into the parties thereto were the owners of all but 108 of the 4125 outstanding shares of stock in said company. The

The respective parties' filed most comprehensive briefs, and consideration has been given to the numerous points and extensive arguments made therein. However, there is little if any dispute as to the essential facts, and in the final analysis the determinative legal issues are comparatively few. The major question presented involves the soundness of the construction placed by the trial court upon the sixth clause of the voting trust agreement. The important facts of the case may be stated as follows: In May, 1933, or thereabouts, plaintiffs and defendants and Grady succeeded in gaining control of the corporation from another group, which appears to have been eliminated from the stock ownership. At that time and on May 6, 1933, plaintiffs, all of the defendants who then owned stock in the corporation, and Grady and his wife, entered into a written agreement denominated a “voting trust agreement.” Thereby, hi consideration of the mutual promises therein made, plaintiffs T. P. Bodkin and A. D. Corda, and the defendants E. B. McNear, R. Ghisletta, M. A. Nunes and A. F. Silveira, and said F. P. Grady, were constituted voting trustees; and the parties to said agreement agreed to transfer to said voting trustees all stock of the corporation then owned or thereafter to be acquired by them (save that each might retain 5 shares free of said voting trust), to be held by the voting trustees until March 1, 1938, and the voting trustees agreed to issue to each party to the agreement voting trust certificates evidencing his beneficial interest in the stock, legal title to which was to be held by the trustees. Furthermore, it was agreed that the voting trustees should possess all the rights of stockholders with respect to the stock so transferred to them, including the right to vote the stock; but that

According to plaintiffs, the purpose of the sixth clause and of the voting trust was to maintain the same proportions of the ownership of stock as existed at the time the agreement was made; and defendants say that the purpose was to prevent hostile competing interests in the dairy industry from insinuating themselves into the corporation. Whatever may have been the purpose, all of the parties to the agreement, in conformity with its provisions, transferred all of their stock to the voting trustees (each party retaining five shares free and clear of the agreement), and received voting trust certificates therefor. Sometime after May 6, 1933, the stockholders fell into two groups, a minority group, consisting of plaintiffs and the Gradys, and the majority, consisting of the defendants who then held stock. (Some of the defendants have died and their representatives have been substituted; the other defendants who were not parties to the agreement are those to whom the Grady stock was also distributed.) At that time the total outstanding stock was 4125 shares. The plaintiffs—the minority group—owned 1191 shares of the stock, and the principal defendants—the majority group—owned 2358 shares. Grady and his wife were aligned with the minority group. They were the largest single stockholders, owning together 463 shares (plus the five they, like the other stockholders, retained free of the voting trust). According to plaintiffs, early in May, 1934, the differences between the majority and minority groups reached such a breaking point that the minority group, including the Gradys, agreed to act as a unit, and as such either to buy out the entire majority or sell their stock to the majority. In pursuance of this plan they consulted attorney Gregory Harrison, and informed him what they wished to do. In this regard the trial court found on sufficient evidence that the members of the minority group then and there agreed and so instructed their attorney that any sale of their stock must be made through him alone and only as a block; that if they could neither sell their stock as a block to the majority, nor buy out the majority, said attorney was authorized to sell their stock elsewhere, but even then only as a block; furthermore, that in any event none of the minority would dispose of his stock individually at any time without first informing the entire minority group of his intention so to do. Thereupon said attorney prepared the nee

The construction placed by the .trial court on the sixth clause of the voting trust agreement is embodied in paragraph XXV of its findings, and is as follows: “. . . if an owner of voting trust certificates issued under the voting trust agreement gives to the others notice of intention to sell his stock and the parties notified do not exercise their first right to buy within ten days thereafter, the owner is permitted to dispose of his stock elsewhere, but is permitted to do so only for a reasonable period of time, and that if he does not sell his voting trust certificates to others within such a reasonable period of time, the said voting trust certificates again are subject to all the provisions of the voting trust agreement and Paragraph Sixth thereof, the preference rights and equities of all other parties to the said voting trust agreement again attach, and it again becomes necessary for the owner of voting trust certificates before selling them to give to the other parties to said agreement notice of intention to sell, giving to them for a period of ten days thereafter a further first right and option to purchase said voting trust certificates.” And in giving application to such construction the trial court found that the lapse of approximately fourteen months from the expiration of the option in May, 1934, to the date of the sale of the Grady stock in July, 1935, was more than a reasonable time; and that the notices of intention to sell, issued in May, 1934, were abandoned by all parties concerned in the year 1934. As shown

It is a well established principle of law that when the construction given an instrument by a trial court appears to be reasonable and consistent with the intent of the parties making it, courts of appellate jurisdiction will not substitute another interpretation, even though it seems equally tenable. (Estate of Bourn, 25 Cal. App. (2d) 590 [ 78 Pac. (2d) 193 ]; Adams v. Petroleum Midway Co., Ltd., 205 Cal. 221 [ 270 Pac. 668 ]; Kautz v. Zurich Gen. A. & L. Ins. Co., 212 Cal. 576 [ 300 Pac. 34 ]; Estate of Boyd, 24 Cal. App. (2d) 287 [ 74 Pac. (2d) 1049 ]; Estate of Burnett, 42 Cal. App. (2d) 427 [ 109 Pac. (2d) 26 ]; Coviello v. Moco Fruit Co., Inc., 42 Cal. App. (2d) 637 [ 109 Pac. (2d) 765 ].) And after considering all parts of the voting trust agreement in the light of each other and the circumstances under which the agreement was entered into, we are convinced that the trial court’s construction of the sixth clause of said agreement is not only reasonable, but entirely consistent with the intent of the parties thereto; furthermore, that the findings of fact made in connection therewith and on the other controlling issues find ample evidentiary support. With respect to the changes that took place in the conditions of said company and the value of its stock during the fourteen months which elapsed between the expiration of the option and the sale of the stock, the record discloses these facts: In May, 1934, the company had a cash balance of $73,610, but by July, 1935, this had more than doubled to $156,777. In May, 1934, its assets were $276,453, but by July, 1935, they had increased by nearly $100,000 to $370,166. Meanwhile its liabilities had decreased from $95,937 to $92,579. In May, 1934, it had a surplus of $98,016, but by July, 1935, this had increased by roughly 153% to $171,448. And all this happened with a capital of only $82,500, or 4125 shares. In May of 1934 the surplus behind each share of stock was about $23. In July, 1935, it had increased to over $41.50 or nearly double. The earning power of the company had likewise increased tremendously. In the five months preceding May 31, 1934, the company’s net profits averaged $4,000 per month. For the first seven months of

Defendants contend that the notice of intention to sell executed by the Gradys permanently “freed” their stock from the terms of the voting trust agreement; and that therefore the Gradys were entitled to sell and the defendants entitled to buy the Grady stock in July, 1935, regardless of the lapse of approximately fifteen months after the giving of said notice. But according to the voting trust agreement, stock covered by voting trust certificates issued pursuant thereto is always subject to its provisions, even though sold after the expiration of the option period to a person not a party to the agreement. To this end the sixth clause of the agreement provides in effect that in the event the option to buy is not exercised by a party to the agreement, the certificate holder may do one of two things: he “may hold such certificates . . . subject to this agreement, or sell said certificates ... to any person whatsoever” (italics ours); and the eleventh clause provides that “Any person accepting a trust certificate hereunder, whether through transfer or otherwise, shall become a party to this instrument, bound by all of the terms, covenants and conditions hereof.” In other words, fairly construed, the above provisions mean that after the expiration of the option period the certificates remain open for sale to any person, but, as held by the trial court, for only a reasonable time; and if not sold within a reasonable time, then, as provided by the sixth clause, the owner of the certificates holds the same subject to said agreement; or if after the expiration of the option period and within a reasonable time the stock is disposed of at open sale, then under the eleventh clause the purchaser holds the certificate subject to the terms of said agreement. In either event, therefore, certificates issued pursuant to such agreement are not, by the giving of notice of intention to sell, permanently freed or freed at all from the operation of the restrictive clauses of the voting trust agreement.

The respective parties have devoted considerable portions of their briefs to a discussion of the effect of two additional findings upon which plaintiffs rely as further supporting the trial court’s decree. One relates to the failure of Grady to

On the last day of the trial defendants were permitted by the trial court to file an amendment to their answer whereby they sought to invoke the benefit of the doctrine of estoppel. The additional defense so pleaded is founded on subdivision 3 of section 1962 of the Code of Civil Procedure which provides: “Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.” The contention defendants make in this behalf is based upon the claim that plaintiffs themselves considered that by the giving of the notice of intended sale in May, 1934, the Grady stock was free of the terms of the voting trust agreement; that plaintiffs “knew that defendants would believe” that the no

Nor is there any merit in defendants’ claim of laches. The evidence adduced in behalf of plaintiffs shows that in accordance with the oral agreement made by the minority group in Attorney Harrison’s office in May, 1934, plaintiffs believed that Grady would not at any time thereafter sell the Grady stock individually without giving plaintiffs previous notice of his intention so to do; that in August, 1935, immediately upon learning that Grady had obligated himself to sell the Grady- stock to defendants, plaintiffs sent written notice to defendants protesting against the consummation of the sale and stating that they were ready then and there to take their proportion of the stock and pay their share therefor. However, despite the written protest and offer, defendants proceeded to consummate the purchase and divided the Grady stock among themselves and to the exclusion of plaintiffs in the manner already stated. True, the complaint herein was filed November 6, 1936, but during the interim negotiations were carried on for a settlement of all controversies, and up to the time the complaint was filed, the defendants were still the owners of the Grady stock. On this issue the trial court found that the situation of the defendants had not been changed materially or otherwise by reason of the fact that plaintiffs did not file their suit at an earlier date. As held in the following cases, the question of the existence of laches is one to be determined primarily by, and must be left largely to, the trial court; and reviewing courts will not interfere with the exercise of the trial court’s decision in the matter unless it appears that manifest injustice has been done or its decision cannot reasonably be held to find support in the

Likewise without merit is defendants’ contention that plaintiffs should have sought recourse against the Gradys rather than these defendants. The suit is in effect one to enforce the terms of the voting trust agreement, and for the recovery of plaintiffs’ proportion of the stock purchased and sold in violation thereof, and it is apparent that the Gradys could not have complied with the relief sought or granted because they had parted with their stock; and even though the law may have afforded plaintiffs a remedy against the Gradys by way of an action for damages, such was not their exclusive remedy. They were entitled also to enforce their rights under the voting trust agreement through the medium of a suit in equity.

The final contention of defendants requiring special notice is that at best plaintiffs’ proportion of the Grady stock was 140 shares; whereas they were awarded 207.22 shares. It appears that this criticism is made for the first time on appeal. The mode of calculation adopted by the trial court, stated briefly, was this: since 463 of the total 4000 shares were divided, and since 951 shares thereof held by the parties to the voting trust agreement did not elect to participate in the division of the Grady stock, the number participating was 4000 minus 463, minus a further 951, or 2586 shares. Plaintiffs owned 1156 shares, constituting 44.7% of the 2586 shares, and that percentage of the Grady 463 shares is 206.96 plus shares. As will be noted, the trial court fixed plaintiffs’ proportion at 207.22, but the discrepancy arises from the fact that the decree necessarily calculated the interest of each of the seven plaintiffs individually and did not carry the calculations to an infinite number of decimal places. Defendants seek to determine the ratio as of the date before the sale of the Grady stock, and in doing so they fail to deduct the Grady stock from the total of 4000 shares. But if the Grady stock is not eliminated, it would leave a percentage to which neither plaintiffs nor defendants would be entitled on the basis of proportional ownership before the Grady sale. Furthermore,, defendants fail to deduct the 951 shares belonging to the parties to the voting trust agreement who did not elect to partici

The remaining points presented by the appeal are either incidental to those already considered or are not controlling. Consequently discussion of those points would be of no value to the disposal of the appeal.

The judgment is affirmed.

Peters, P. J., and Ward, J., concurred.

Appellants’ petition for a hearing by the Supreme Court was denied March 6, 1942. Carter, J., voted for a hearing.