Opinion
No. 40707.
May 9, 1949. Rehearing Denied, June 13, 1949.
The facts and holding of the case are adequately summarized by the two headnotes.
1. PUBLIC UTILITIES: Corporations: Dissolution of Corporation: Claim of Preferred Stockholders: Federal Statute Not Applicable. The Securities and Exchange Commission ordered the parent company of plaintiff to sever its relation with plaintiff, and said parent company complied by selling all of the common stock of plaintiff company to the City of Springfield, which thereafter caused plaintiff company to be dissolved. The rights of the preferred stockholders upon such dissolution are not controlled by the Public Utility Holding Company Act.
2. ACTIONS: Public Utilities: Corporations: Contracts: Dissolution of Corporation: Premium Claim of Preferred Stockholders: No Contractual Obligation to Pay: Declaratory Judgment Entered. Where plaintiff's charter provided that preferred stockholders should receive $100 per share upon either voluntary or involuntary dissolution but provided that the preferred stock might be called at $115 per share, a contract between plaintiff's parent company and the City of Springfield designed to give protection against the claims of the preferred stockholders did not require the payment of a premium of $15 per share. A declaratory judgment should be entered limiting the preferred stockholders to $100 per share.
Appeal from Greene Circuit Court: Hon. Walter E. Bailey, Special Judge.
REVERSED AND REMANDED ( with directions).
A.P. Stone, Jr., and Wm. C. Cockrill for appellant; Stone Smith of counsel.
(1) Articles of agreement of plaintiff company and pertinent statutes of State of Missouri constitute the contract between plaintiff and its preferred stockholders. Rights of preferred stockholders are fixed and limited by articles of agreement of Springfield Company. Murphy v. Richardson Dry Goods Co., 326 Mo. 1, 31 S.W.2d 72; Powell v. Craddock-Terry Co., 175 Va. 146, 7 S.E.2d 143; 12 Fletcher's "Cyclopedia of Corporations" (Perm. Ed.), sec. 5449, p. 199; 18 C.J.S. 1147, sec. 477. (2) Statutes of Missouri, under whose laws plaintiff was incorporated, are read into, and become a part of, plaintiff's charter. Dorris Motor Car Co. v. Colburn, 307 Mo. 137, 270 S.W. 339; Hohenshell v. Savings Loan Assn., 140 Mo. 566; Tennant v. Epstein, 356 Ill. 26, 189 N.E. 864; Mercantile Trust Co. v. San Joaquin Agri. Corp., 89 Cal.App. 558, 265 P. 583. (3) Ordinary rules of construction are applicable to contract between plaintiff company and its preferred stockholders; and, said contract is not ambiguous. 7 Fletcher's "Cyclopedia of Corporations," sec. 3640, p. 766. (4) Unequivocal language must be given its plain, ordinary and usual meaning; and, when the language of a contract is clearly unequivocal, there is no room for judicial construction. State ex rel. Prudential Ins. Co. v. Bland, 353 Mo. 956, 185 S.W.2d 654; State ex rel. Natl. Life Ins. Co. v. Allen, 301 Mo. 631, 256 S.W. 737; Chicago, R.I. P. Ry. Co. v. Maryland Cas. Co., 75 F.2d 596; 17 C.J.S. 683, sec. 294. (5) Contract must be construed as a whole, giving effect to every part, if fairly and reasonably possible. Swinney v. Continental Bldg. Co., 340 Mo. 611, 102 S.W.2d 111; Fancher v. Prock, 337 Mo. 1119, 88 S.W.2d 179; 17 C.J.S. 707, sec. 297. (6) Courts' duty is to interpret and enforce contracts, not to make them. Tant v. Gee, 348 Mo. 633, 154 S.W.2d 745; 17 C.J.S. 695, sec. 296. (7) Incorporators of plaintiff company had right and duty to state, define and fix definitely, as they did in articles of agreement, preferences, priorities, rights, limitations, and restrictions of preferred and common stock of plaintiff company. Sec. 10144, R.S. 1919; Laws 1927, p. 392; Sec. 10163, R.S. 1919; Sec. 12, The Genl. and Bus. Corp. Act of Mo.; Laws 1943, p. 421. (8) Provision for "call" of preferred stock was for benefit of plaintiff company and was exercisable at option of plaintiff's board of directors; and, preferred stockholders could not compel such call. Fox v. Johnson and Wimsatt, Inc., 127 F.2d 734; Hackett v. Northern Pac. Ry. Co., 73 N.Y.S. 1087. (9) Plaintiff company was subject, at all times, to dissolution under Missouri statutes which became part of corporate charter; and, preferred stockholders of plaintiff company were charged with such knowledge. Secs. 9756-9759, R.S. 1919; as amended, Laws 1921, p. 264; Secs. 80-83, The General and Business Corporation Act of Missouri, Laws 1943, pp. 454-456; 16 Fletcher's Cyclopedia on Corporations (Perm. Ed.), sec. 7972, p. 661; sec. 8006, p. 716; and sec. 8022, p. 735; In re Doe Run Lead Co., 283 Mo. 646, 223 S.W. 600; Jersey Boulevard Corp. v. Lerner Stores Corp., 168 Md. 532, 178 A. 707. (10) Springfield Company has never been a utility holding company, no plan for simplification of a holding company system is under consideration in this case, and Public Utility Holding Company Act of 1935 has no relevancy or application to this case. However, even under Holding Company Act, retirement of preferred stock would not constitute a call and preferred stockholders would not be entitled to call premium. Springfield Company has been an operating company and has never been a utility holding company. Par. 11. Stipulation of Facts. (11) Sale of common stock of Springfield Company by Federal to City of Springfield was not submitted to or approved by Securities and Exchange Commission; and, no plan for simplification of holding company system under Holding Company Act is under consideration here. Par. 22, Stipulation of Facts; Rule U-44(b) (3) of General Rules and Regulations of SEC. (12) SEC. simply directed Federal to "sever its relationship" with Springfield Company. Par. 15, Stipulation of Facts. (13) Even under Holding Company Act, retirement of preferred stock would not constitute a call and preferred stockholders would not be entitled to call premium. In re Standard Gas Electric Co., 151 F.2d 326, certiorari denied 327 U.S. 796, 66 S.Ct. 820, 90 L.Ed. 1022; Massachusetts Mut. Life Ins. Co. v. SEC, 151 F.2d 424, affirming In re Laclede Gas Light Co., 57 F. Supp. 997; certiorari denied 327 U.S. 795, 66 S.Ct. 817, 90 L.Ed. 1022; In re New England Pub. Service Co., 73 F. Supp. 452. (14) In formulating or considering simplification plans for holding companies under Holding Company Act, practice has been to deny premium to preferred stockholders and holders of prior liens. In re Illinois Power Co., 74 F. Supp. 317; In re Electric Bond Share Co., 73 F. Supp. 426: In re Interstate Power Co., 71 F. Supp. 164; In re Community Gas Power Co., 71 F. Supp. 171. (15) To confer rights upon alleged third-party beneficiaries, contract must be made for direct benefit of such third-party beneficiaries, as its object and they must be the parties intended to be benefited. Howsmon v. Trenton Water Co., 119 Mo. 304, 24 S.W. 784; Gate City Natl. Bk. v. Chick, 170 Mo. App. 343, 156 S.W. 743; German Alliance Ins. Co. v. Home Water Supply Co., 226 U.S. 220, 57 L.Ed. 195, 33 S.Ct. 32; Robins Dry Dock Repair Co. v. Flint, 275 U.S. 303, 72 L.Ed. 290, 48 S.Ct. 134; Chicago, R.I. P. Ry. Co. v. Maryland Cas. Co., 75 F.2d 596; Hicks v. Hamilton, 144 Mo. 495, 46 S.W. 432; Metz v. Cape Girardeau Waterworks Elec. Light Co., 202 Mo. 324, 100 S.W. 651. (16) That a contract may confer indirect or incidental benefits upon third-party beneficiaries is insufficient to confer any rights or cause of action. Uhrich v. Globe Surety Co., 191 Mo. App. 111, 166 S.W. 845; State v. St. L. S.F. Ry. Co., 125 Mo. 596, 28 S.W. 1074; Kansas City Life Ins. Co. v. Rainey, 353 Mo. 477, 182 S.W.2d 624: Howsmon v. Trenton Water Co., supra, l.c. 308. (17) To confer benefits on third-party beneficiary, there must be some obligation or duty, legal or equitable, owing to third-party beneficiary. City of St. Louis v. G.H. Wright Contracting Co., 202 Mo. 451, 101 S.W. 6; Uhrich v. Globe Surety Co., supra; Devers v. Howard, 144 Mo. 671, 46 S.W. 625. (18) City of Springfield owed no obligation or duty, legal or equitable, to preferred stockholders of Springfield Company. Powers of municipal corporations are limited and strictly construed. State ex rel. Curators of University of Missouri v. McReynolds, 354 Mo. 1199, 193 S.W.2d 611; Taylor v. Dimmitt, 336 Mo. 330, 78 S.W.2d 841. (19) All persons are charged with knowledge of the limited rights and powers of municipal corporations. Peters v. St. Louis, 226 Mo. 62, 125 S.W. 1134; Lively v. Webb City, 106 S.W.2d 517. (20) City of Springfield would have had no power, either express or implied, to enter into contract purporting to enlarge rights of preferred stockholders of Springfield Company. Sec. 3349, R.S. 1939; Arts. 3, 11. Chapter 38, R.S. 1939; Sec. 6609, R.S. 1939. (21) If City had attempted to enlarge rights of preferred stockholders of Springfield Company, contract would have been, in that respect, ultra vires, void and unenforceable. Donovan v. Kansas City, 352 Mo. 430, 175 S.W.2d 874, as modified and adopted in banc, 352 Mo. 430, 179 S.W.2d 108, appeal dismissed 322 U.S. 707, 88 L.Ed. 1551, 64 S.Ct. 1049: Howsmon v. Trenton Water Co., supra, l.c. 313. (22) It is presumed that parties intended valid contract; and, if contract is fairly and reasonably open to two constructions, construction making it valid must be adopted. Wiggins Ferry Co. v. C. A. Ry. Co., 128 Mo. 224; Natl. Bank of Commerce v. Flanagan Mills Elevator Co., 268 Mo. 547, 188 S.W. 117; Rogers v. Union Iron Foundry Co., 167 Mo. App. 228, 150 S.W. 100; Great Northern Ry. Co. v. Delmar Co., 283 U.S. 686, 75 L.Ed. 1349, 51 S.Ct. 579. (23) Parties asserting rights as third-party beneficiaries must accept contract as made, and are not entitled to benefits by implication or interpolation. Noles v. Terminal Ry. Assn., 154 S.W.2d 606; Kingsland v. Mo. State Life Ins. Co., 228 Mo. App. 198, 66 S.W.2d 959; Chicago, R.I. P. Ry. Co. v. Maryland Cas. Co., supra, l.c. 599. (24) Interpretation placed upon sale agreement by Federal and City, as evidenced by escrow agreement, should be adopted. Barnes v. Boatmen's Bank of St. Louis, 348 Mo. 1032, 156 S.W.2d 597; Thomson v. Thomson, 156 F.2d 581; First Natl. Bank in St. Louis v. West End Bank, 344 Mo. 834, 129 S.W.2d 879; Zeppenfeld v. Morgan, 168 S.W.2d 971. Sam M. Wear, Wm. A. Wear, Arch A. Johnson and W.D. Tatlow for respondents.
(1) The city had no power to purchase the stock and could only do so as a mere step in the purchase of the physical properties of the Springfield Gas and Electric Company. Stipulation Par. 23-24. City of Springfield v. Monday, 353 Mo. 981, 185 S.W.2d 788. (2) It is not necessary that a party should deliberately or expressly agree to be bound by the terms of a contract to which it is a stranger. If having knowledge of such contract it deliberately adopts and undertakes to and does perform it at least in part, it makes the contract its own with the same legal effect as if it had signed it. Wiggins Ferry Co. v. Ohio Miss. R. Co., 142 U.S. 396, 35 L.Ed. 1055; Consolidated, etc., Co. v. Hickman. 212 F. 813; Swift Co. v. Detroit Rock Salt Co., 233 F. 201; Self v. Prairie Oil Co., 28 F.2d 590; Wilson Co. v. The American, etc., Co., 33 F.2d 812; Lehigh v. Zanes, 46 F.2d 848; Sunbury v. Aaron, 136 Mo. App. 222, 116 S.W. 431; American etc., Co. v. Walker, 87 Mo. 503: Stone v. Pennoch, 31 Mo. App. 544. (3) The Federal Light and Traction Company was the beneficial owner of the property. It had the right and authority to convey such beneficial interest. It treated the Springfield Gas and Electric Company merely as a department of its own. It ignored entirely the officers and directors of the Springfield Gas and Electric Company in making the contract. Under the authorities the separate entity of the Springfield Gas and Electric Company cannot now be injected into the transaction in order to enable the Federal Light and Traction Company to receive the $15 premium instead of the preferred stockholders receiving it, as is expressly provided in the second paragraph of Exhibit B. Kingston Dry Dock Co. v. Lake Champlain Tr. Co., 31 F.2d 265; Consolidated Rock Products Co. v. DuBois, 312 U.S. 510, 85 L.Ed. 982. (4) Exhibit B was made pursuant to the Public Utility Holding Company Act and is governed thereby. Public Utility Holding Co. Act of 1935; Title 15, U.S.C.A. Sec. 79; Otis Co. Petitioners v. Securities Exchange Commission, 323 U.S. 624, 89 L.Ed. 511, 65 S.Ct. 483; North American Co. v. Securities Exchange Comm., 327 U.S. 686, 90 L.Ed. 945. (5) The law of dissolution cannot be used as a law of consolidation. In re: Doe Run Lead Co., 283 Mo. 646, 223 S.W. 600. (6) The second paragraph of Exhibit B — the contract between the City and Federal — fixed the value of the preferred stock on the closing date at $115 per share. This is so whether it be considered as merely evidencial rather than a contract obligation upon which the preferred stockholders are entitled to sue to enforce it. (7) The rule has been long settled in this state that a third party for whose benefit a contract is made may enforce it notwithstanding he is neither named therein nor in privity to the consideration. It is equally true that a person for whose benefit an expressed provision is made in a contract between other parties may sue thereon. Motley v. Callaway, 347 Mo. 1088, 149 S.W. 875; Crone v. Stinde, 156 Mo. 262; Crow v. Knapp. 50 S.W.2d 995; Binswanger v. Employers' Liability Assur. Corp., 224 Mo. App. 1025, 28 S.W. 448; Bank of Corning v. Consolidated School Dist. No. 6, 225 Mo. App. 821, 37 S.W.2d 982; Adair v. Mo. State Life Ins. Co., 66 S.W.2d 962: Kingland v. Mo. State Life Ins. Co., 228 Mo. App. 198, 66 S.W.2d 959; Buck v. Kleiber Motor Co., 97 F. 257. (8) Under the second paragraph of Exhibit B, the city of Springfield could not retain the property and refuse to pay the preferred stockholders $115 per share on the closing date when the contract became unconditional. What the law implies in an express contract is as much a part of the contract as if it was stated in the contract in direct terms. State ex rel. City of St. Louis v. Laclede County, 102 Mo. 472; Chouteau v. Mo. Pac. Ry. Co., 122 Mo. 375; Ellis v. Neff, 220 Mo. App. 1074; Home Ins. Co. v. Mercantile Trust Co., 219 Mo. App. 645; Brumley v. McCormack, 17 S.W.2d 597; Greene v. American Ry. Express Co., 34 S.W.2d 1039; Bisesi v. Farm Home Savings Loan Assn., 231 Mo. App. 897.
This is a proceeding under the Declaratory Judgment Act in which is sought a determination as to the amount per share the holders of the preferred stock of plaintiff-appellant corporation are entitled to receive upon dissolution, liquidation, or winding up effected in the manner and under the circumstances here involved. The named defendants are the owners of 1226 shares of such stock, and they were sued individually as well as a class representing the holders of all of the preferred stock (11,286 shares). Plaintiff-appellant contended in the trial court, and urges here that the dissolution provisions of its charter govern the matter, under which it is conceded the limit of liability is $100.00 per share. Defendants-respondents say they are entitled to a premium of at least $15.00. per share, plus interest, and the trial court so found. Its judgment and decree was entered accordingly, and plaintiff appealed. The amount in controversy gives this court jurisdiction.
The facts are stipulated. Prior to March 26, 1945, plaintiff-appellant (hereinafter referred to as Springfield Company) owned and operated public utility properties in the City of Springfield (hereinafter referred to as City), consisting of an electric generating plant and distribution system, a gas distribution system, a steam heating system, and a bus transportation system. Springfield Company was an operating company, and a subsidiary in the Cities Service Power Light Company holding company system. Federal Light Traction Company (hereinafter referred to as Federal), a holding company, was also a subsidiary of, and controlled by Cities Service Power Light Company, Federal owned all of the common stock of Springfield Company. Both Federal and Cities Service Power Light Company were registered holding companies under the Public Utility Holding Company Act of 1935. 15 U.S.C.A., § 79.
On August 17, 1943, in a proceeding pending before the Securities and Exchange Commission (entitled "In the Matter of Cities Service Power Light Company and its Subsidiary Companies, Respondents") to bring about compliance with the provisions of § 11 (b) (1) of the Public Utility Holding Company Act [limiting operations of public utility holding companies engaged in interstate commerce to a single integrated public utility system], Securities and Exchange Commission (hereinafter referred to as SEC) ordered, among other things: "It Is Ordered that Federal Light Traction Company shall sever its relationship with the companies named hereafter by disposing or causing the disposition, in any appropriate manner not in contravention of the applicable provisions of the said Act or the Rules and [199] Regulations promulgated thereunder, of its direct and indirect ownership, control, and holding of securities issued and properties owned, controlled, or operated by the following companies: Springfield Gas and Electric Company (and other companies named)." In its finding and opinion handed down with the foregoing order, SEC further stated: "Sale is only one of the many means of divestiture which may be used in compliance with orders of disposition." By appropriate order of SEC, Federal was granted an additional period of one year from August 17, 1944, within which to comply with the order of August 17, 1943. Thereafter, and on September 14, 1944. City and Federal entered into a written contract whereby City agreed to purchase (subject to certain conditions) Springfield Company with its properties as existing on July 31, 1944, for the sum of $6,750.000, for which City agreed to issue revenue bonds. The contract provided (among other things) that on the date of closing, Springfield Company would be the sole and exclusive owner, in fee simple, free and clear of all claims, liens, incumbrances and indebtedness, except its bonds in the amount of $4,014,000, of all the property so to be acquired by City, and that at the time of closing all of the 50,000 shares of common stock of Springfield Company would be delivered, together with the resignations of all officers and directors of Springfield Company.
It transpired that March 26, 1945, became the closing date contemplated by the contract, at which time the purchase of the properties in question was consummated. Accordingly, all of the 50,000 shares of the common stock of Springfield Company were assigned, transferred and delivered to City, and at the same time Federal executed and delivered to City a bill of sale conveying said common stock. Whereupon, said 50,000 shares of common stock were reissued to City, and a stock certificate for such common stock was issued by Springfield Company and delivered to City immediately. It is conceded that such sale by Federal was in order to enable it to comply with the August 17, 1943, order of SEC.
On March 26, 1945, a special meeting of the Board of Directors of Springfield Company was held, at which the directors resigned, and a new board and a new set of officers (both consisting of city officials) were elected. Under the ordinance authorizing the issuance of $6,750,000 of revenue bonds for the purchase of the properties in question, it was provided that City would "immediately upon the delivery of the stock of such Company [Springfield Company], and simultaneously therewith, cause said Company to be dissolved and all of its utility properties to be conveyed and transferred immediately to the City to be owned and operated exclusively by the City." See City of Springfield v. Monday, 353 Mo. 981, 987, 185 S.W.2d 788, 789, in which was entered a pro forma decree authorizing the issuance, and declaring the validity of the revenue bonds just mentioned.
In conformity with the ordinance, City on March 26, 1945, caused appropriate steps to be taken toward voluntary dissolution of Springfield Company, which resulted in the execution and subsequent filing in the office of the Secretary of State, and in the office of the Recorder of Deeds of Greene County, of "Articles of Dissolution by Voluntary Action . . . of Springfield Gas and Electric Company." However, Articles of Liquidation have not been filed with the Secretary of State and no certificate of dissolution has been issued by the Secretary of State. In connection with such steps, a final liquidating dividend of $100 per share on the preferred stock was declared (as provided by the charter). Provision was also made for retiring or redeeming the $4,014,000 of outstanding bonds at 102 and accrued interest.
On the same day, an escrow agreement and receipt were entered into between Federal, Springfield Company, City, and First National Bank of Kansas City (the latter as escrow agent), whereby Federal agreed to and did deposit with the escrow agent the sum of $169,290, an amount sufficient to pay the premium of $15.00 per share upon the 11,286 shares of preferred stock, the same to be held in escrow, and to be paid to those determined by a court [200] of competent jurisdiction to be entitled thereto. The fund is now so held. Pending the determination of that question, the preferred stockholders have surrendered their certificates and received the liquidating dividend of $100 per share without prejudice to their right to claim the premium herein sought.
The institution of the present action was specifically authorized by resolution of the Board of Directors adopted at a special meeting held April 7, 1945, reciting that it had elected to dissolve voluntarily and wind up its affairs, and that certain owners and holders of the company's preferred stock claimed they were entitled to receive $115 per share for each share of said preferred stock, and that it appeared advisable and necessary to secure an adjudication by a court of competent jurisdiction as to the rights of such owners.
No declaration or application for approval of the contract between Federal and the City, dated September 14, 1944, or for approval of the proposed sale of the common stock of the Springfield Company thereunder, was filed with SEC at any time, no such declaration or application for approval being necessary by reason of the exemption granted by Rule U-44(b) (3) of the General Rules and Regulations of SEC.
The dissolution provisions of the charter of Springfield Company provide that: "In the event of the dissolution, liquidation or winding up of the corporation, whether voluntary or involuntary, the holders of the Preferred Stock shall be entitled to be paid One Hundred Dollars ($100.00) per share, together with an amount equal to all dividends accrued thereon or in arrears (but without interest), before any amount shall be paid to the holders of the Common Stock and the holders of the Preferred Stock shall be entitled to no further payments or distribution. After such payment on the Preferred Stock the remaining assets shall be distributed pro rata among the holders of the Common Stock."
The "call" provision of the same instrument in relation to the preferred stock reads as follows: "At any time and from time to time, at the opinion of the Board of Directors, the Preferred Stock may be redeemed in whole or in part, on any date fixed for the payment of dividends on the Preferred Stock at the redemption price of One Hundred and Fifteen Dollars ($115.00) for each share of Preferred Stock redeemed (unless a less amount shall be specified in the certificate evidencing any shares of said stock as hereinafter provided) together with the amount, if any, by which Seven Dollars ($7.00) per annum (or such less rate of dividend as shall be specified in the certificate evidencing any shares of said stock as hereinafter provided) upon each such share from the date after which dividends thereon became cumulative to the date fixed for redemption exceeds dividends actually paid thereon from such date to the date of redemption." This provision was invoked by defendants' answer and counterclaim, but it has been abandoned on appeal as a theory of recovery.
Each preferred stock certificate carried on its face the following statement: "At any time and from time to time at the option of the Board of Directors of the Company, the Preferred Stock. Series A. of the Company is redeemable in whole or in part on any dividend payment date at One Hundred and Fifteen Dollars ($115.00) per share, plus accrued and unpaid dividends thereon. A statement from the Articles of Agreement of the Company in regard to the preferences, rights limitations, privileges and restrictions of the Preferred Stock and Common Stock of the Company is printed on the back hereof and made a part hereof. The holder hereof hereby consents and agrees to be bound by said statement and by all of the provisions of the Articles of Agreement of the Company and any and all amendments thereto." On the back of each such preferred stock certificate appeared a "Statement from the Articles of Agreement of the Company in regard to the preferences, rights, limitations, privileges and restrictions of the Preferred Stock and Common Stock of Springfield Gas and Electric Company"; and all of the provisions of the Articles of Agreement hereinbefore quoted were [201] quoted in full in said "Statement" on the back of each such preferred stock certificate.
Defendants' chief reliance is upon the contract of September 14, 1944, between Federal and City (herein referred to as Exhibit B), and particularly the second paragraph thereof. That contract recites:
"Whereas the City has offered to Federal the sum of Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000) for the Springfield Gas and Electric Company, a Missouri corporation, with its properties as existing on July 31, 1944: and
"Whereas Federal has accepted said offer; and
"Whereas, it is desired to provide for the conditions which may arise pending the completion of such purchase and to make provision for the contingencies connected with said offer;"
The second paragraph reads as follows:
". . . At the time of closing there shall be deducted from such purchase price of $6,750.000 an amount equal to the preferred stock then outstanding and the first mortgage bonds then outstanding at the par or principal amounts thereof, respectively, together with the applicable additional call prices unless prior thereto an order shall have been made by a competent authority permitting or requiring redemption of such securities or a part thereof without the payment of a premium, in which latter case the deduction shall be in an amount in accordance with such order. There shall also be deducted from such purchase price all other items of expense incident to calling and retiring such preferred stock and such first mortgage bonds, including all accrued dividends and interest, cost of publishing any call notices that may be required and trustees' fees."
Other facts, if deemed pertinent, will be stated in the course of the opinion in connection with the points to which they relate.
Defendants contend that they have two separate, distinct and consistent causes of action entitling them to the $15.00 premium: One a federal cause of action based on the Public Utility Holding Company Act of 1935 and Exhibit B (the contract between Federal and City dated September 14, 1944), and the other a state cause of action based on the provisions of the second paragraph of Exhibit B as made for their use and benefit. The following cases are cited in support of the first proposition: Otis Co. v. SEC, 323 U.S. 624, 89 L.Ed. 528, 65 S.Ct. 483, and North American Co. v. SEC, 327 U.S. 686, 90 L.Ed. 945. The Otis case (mainly relied on) involved the review of a plan for liquidation and dissolution of a holding company ordered by SEC under § 11 (b) (2) of the Holding Company Act, wherein the enforcing court approved the plan and the Circuit Court of Appeals affirmed. The Supreme Court granted certiorari and the question presented was whether in such a liquidation, the participation by junior security holders in the assets was permissible before preferred security holders had received the entire liquidating preference secured to them by the company's charter. It was held that a provision of the corporate charter granting the preferred stock specified preferences upon liquidation, adopted six years prior to the enactment of the Public Utility Holding Company Act of 1935, was inoperative in the simplification (of a holding company system) by liquidation under § 11 (b) (2) of the Act. The North American case likewise involved the review of orders of SEC, which limited North American's properties to those which, in the Commission's judgment, complied with the standards of § 11 (b) (1), and compelled it to sever relationships with all its other properties. Defendants emphasize the following from the opinion (l.c. 709): "The Act does not contemplate or require the dumping or forced liquidation of securities on the market for cash. Under §§ 11 (d) and 11 (e) of the Act, any divestment or reorganization plan must meet the standards of fairness and equitableness. . . . Any plan of divestment or reorganization, moreover, must be carefully scrutinized by both the Commission and the enforcing court, thus enabling the assertion and protection of all shareholders' rights. See Otis Co. v. [202] Securities Exchange Commission, 323 U.S. 624."
Defendant urge that, under these cases, the sale of the stock as a step to enable City to acquire the properties and assets of Springfield Company is governed and controlled by the Federal Act. We do not agree. The circumstance that Federal was enabled to comply with SEC's order by selling the stock to City (instead of pursuing other permissible means of divestiture) is not sufficient to bring the case within the Federal Act. For aught that appears, no objection or complaint was made concerning SEC's order for divestment by Federal of its holdings in Springfield Company, which is as far as that order goes. So the case, unlike those relied on, does not involve the review of a plan of liquidation of a holding company, nor the review of a plan of divestment of securities held by such a company. Moreover, under the stipulated facts. SEC had no jurisdiction to pass on a declaration or application for approval of the contract. Exhibit B, and none was ever filed with SEC because exempted under SEC's rules. Certainly it cannot be thought that the trial court, or this court on appeal, is vested with the same authority and discretion in this type of case as SEC would have in a proceeding properly before it under the Holding Company Act. We think the cited cases are without application in the case at bar, and that there is no question of a federal cause of action here involved.
Turning now to the asserted state cause of action based on the provisions in the second paragraph of the contract, Exhibit B, as one made for the use and benefit of the preferred stockholders, it is defendants' position, which is argued with much vehemence, that the "second paragraph of the contract plainly, unequivocally, and without the slightest doubt as to its meaning, provides that the preferred stockholders on the closing date were to be paid $115 per share, `unless prior thereto an order shall have been made by a competent authority permitting or requiring redemption of such securities or a part thereof without the payment of a premium;'" that Federal having failed to secure such order, "under the plain terms of the contract, the duty to pay the $115 per share by its express terms became unconditional, and with the identical legal effect as if no condition had been attached." A great many of the legal propositions urged in connection with this point will not require discussion because, in the view we take of the matter, the following will be assumed for present purposes: That Exhibit B, the contract, was admissible as against the objection that neither plaintiff nor defendants were parties thereto, and notwithstanding the further fact that neither of the parties to the contract, Federal and City, are parties to this action; that Springfield Company is bound by the contract the same as if it had signed it, because, having knowledge of the contract, it adopted and undertook to and did perform it, at least in part. So assuming, we think there are still insurmountable obstacles to the sanctioning of the recovery awarded by the trial court. Witness the language in question: "At the time of closing there shall be deducted from such purchase price of $6,750,000 an amount equal to the preferred stock . . . at the par or principal amounts thereof . . . together with the then applicable additional call prices, unless," etc. We are unable to read into the foregoing an obligation to pay to the preferred stockholders the amount so authorized to be withheld.
We agree with plaintiff that the contract does not, in terms, provide what disposition the City should or would make of the funds so deducted, nor for the payment of any specified sum per share to the preferred stockholders. As a matter of fact, under the stipulation, Springfield Company did on the closing date deposit with the dividend paying agent of its preferred stock the sum of $1,128,000 in special trust for the account of the holders of the preferred stock, that amount being $100 per share upon the outstanding shares. On the same day, $169,290 was deposited with First National Bank of Kansas City in escrow to provide a fund for the payment of a premium of $15.00 per share to the preferred stockholders "in the event that a court having jurisdiction shall make a final determination" to that effect. These actions [203] were consistent with the declared purpose of the contract. Exhibit B, namely, the "desire to provide for the conditions which may arise pending the completion of such purchase and to make provision for the contingencies connected with said offer." We think the parties to the contract had a right to protect themselves against the very contingency which arose, that is, the claim of certain preferred stockholders for the payment of a premium on their stock, and that the language employed is more consistent with this view than that asserted by defendants.
The judgment is reversed, and the cause remanded with directions to enter judgment for plaintiff as prayed. All concur.