Stockholders at the special meeting of June 25, 1945.
On October 18, 1945, the Registration Statement authorized by the Board of Directors at its meeting of June 25, 1945, was filed with the Securities and Exchange Commission. This Registration Statement did not become effective and no Registration Statement ever became effective with respect to the proposed exchanges of stock set forth in the Plan of Recapitalization.
On December 3, 1945, the Board of Directors resolved to abandon the Plan of Recapitalization adopted by the stockholders; the resolution of the Board being as follows:
'Resolved, that the Plan of Recapitalization approved by the stockholders at a special meeting held on June 25, 1945, be abandoned.'
On December 5, 1945, notice was given by mail by the Company to each of its stockholders of the aforesaid abandonment of the Plan.
Plaintiffs contend that they are entitled to a judgment of specific performance of the Plan of Recapitalization adopted by the stockholders June 25, 1945, for several reasons; the first reason being that the stockholders did not authorize the Board of Directors to abandon the Plan.
The resolution adopted by the stockholders at its meeting June 25, 1945, adopted the resolution containing the Plan of Recapitalization approved by the Board of Directors at its meeting held on April 9 and 10, 1945. This resolution provided that the Board of Directors 'may abandon the Plan at any time.' This language being clear, it follows that the stockholders at its special meeting of June 25, 1945, conferred upon the Board of Directors, the authority to abandon the Plan of Recapitalization at any time.
The second reason of the plaintiffs is, that the Company cannot make operative part of the Plan approved by the stockholders and abandon the remainder.
Beginning September 7, 1945, the Company issued certificates for new $ 1 par value Common Stock on a share for share basis, in exchange for old certificates of the Company's Common Stock without par value and on the same date, the Company ceased to issue certificates for no par value Common Stock, and all certificates for Common Stock issued thereafter were $ 1 par value Common Stock.
After the Amendments to the Articles of Incorporation, the new Common Stock issued would properly be at the par value of $ 1 per share. If the exchange of no par value Common Stock for par value Common Stock was within the Plan, the Board of Directors had the right to abandon the Plan so far as it had not become effective under the authority conferred upon the Board of Directors to abandon the Plan at any time.
The third reason of the plaintiffs is that the action of the Board of Directors in abandoning the Plan of Recapitalization December 3, 1945, is void because 'Director Mooney and the other Directors did not act in good faith in adopting the resolutions to abandon the portion of the Plan which was favorable to the Convertible Preference Stockholders.'
Rule 9(b) of the Federal Rules of Civil Procedure provides that 'in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.'
Plaintiffs, in their complaint, aver:
'James D. Mooney was elected as a Director of Car Company September 24, 1945, and on September 26, 1945, an option was given to him by Car Company whereby he could buy from it 50,000 shares of common stock of Car Company any time within two years thereafter at $ 4 per share. At that time the stock was selling on the market at $ 4 per share. * * * Plaintiffs aver, therefore, that James D. Mooney and the Directors of Car Company did not act in good faith in attempting to abandon the Plan of Recapitalization because said James D. Mooney would be greatly enriched by the increase in value of the common stock if and when he exercised his option to buy 50,000 shares.'
Mooney, at the time he was elected a Director of the Company, was one of the Vice-Presidents and a director of General Motors Corporation and President of General Motors Export Corporation. At the meeting at which he was elected a Director, the Directors voted him an option to buy 50,000 shares of the Company's Common Stock. The enrichment of Mooney by the abandonment of the Plan of Recapitalization did not make the action of the Board of Directors a fraud and, consequently, it did not make the action of the Board at its meeting December 3, 1945, void wherein it abandoned the aforesaid Plan of Recapitalization.
The plaintiffs' fourth reason is that the Company, by the actions of its President and authorized officer, estopped itself from abandoning the Plan and taking from its Convertible Preference Stockholders and others, any advantage they obtained in reliance upon those actions.
The acts of Estoppel are alleged acts of the President of the Company relating to delay in the plan becoming effective and particularly a letter of the President to the stockholders dated July 17, 1945. In this letter it is set forth, inter alia:
At the special directors meeting immediately following the special stockholders meeting, the directors declared the plan operative twenty days after the date upon which the registration statement is filed with the United States Securities and Exchange Commission as required by the Securities Act of 1933 (15 U.S.C.A. § 77 et seq.).
'As matters stand today we expect to complete the closing of our books for the fiscal year 1945 approximately August 10th which should enable us to file our registration statement with the Securities and Exchange Commission within approximately twenty days of that date or September 1st. If no difficulties are encountered, therefore, we shall be in a position to make stock exchanges to those who desire to avail themselves of the plan on approximately September 30th.'
The defendant Car Company was not estopped from abandoning the Plan of Recapitalization (as was done by its Board of Directors at its meeting of December 3, 1945), for several reasons. There was no contractual relation between the plaintiffs and the defendant by reason of the adoption by the stockholders of the Plan of Recapitalization with authority in the Board of Directors at any time, to abandon the same. There was no offer from the defendant Company to the plaintiffs. The President did not act within the scope of his authority when he stated that said Plan would be operative twenty days after the filing of the statement with the Securities and Exchange Commission. The plaintiffs are presumed to know the law that Plans of Recapitalization do not become effective until twenty days after approval by the Securities and Exchange Commission. The plaintiffs knew that the Plan of Recapitalization contemplated the Car Company would register the new stock with the Securities and Exchange Commission. The law of estoppel does not apply under the facts and the relationship of the parties as they exist in this case.
The Board of Directors at its meeting, April 9 and 10, 1945, approved the aforesaid amendments to its Articles of Incorporation, and Plan of Recapitalization, and provided for its submission to the stockholders at a special meeting to be held June 25, 1945. The stockholders, after due notice, approved the aforesaid action of the Board of Directors. The action of the stockholders conferred power upon the Board of Directors to abandon the Plan of Recapitalization at any time. The Board of Directors abandoned the Plan without fraud or estoppel December 3, 1945. It follows that judgment should be rendered forthwith for the defendant for the reason that the pleadings, admissions of fact as contained in the stipulation filed herewith, together with affidavits show that there is no genuine issue as to any material fact, and that the defendant, American Bantam Car Company, is entitled to judgment as a matter of law.
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