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Welchman v. Koschwitz

Decided: September 1, 1952.

CHARLES G. WELCHMAN, SUING AS A STOCKHOLDER OF GUSTAV GLASER CO., INC., FOR THE BENEFIT OF HIMSELF AND ALL OTHER STOCKHOLDERS SIMILARLY SITUATED, PLAINTIFF, AND ALSO ON BEHALF AND IN THE RIGHT OF GUSTAV GLASER CO., INC., DEFENDANT,
v.
FREDERICK H. KOSCHWITZ AND MALCOLM G. PECK, DEFENDANTS



Grimshaw, J.s.c.

Grimshaw

[21 NJSuper Page 306] This action was filed by the plaintiff on behalf of and for the benefit of the defendant corporation

Gustav Glaser Co., Inc. It is essentially a controversy between the two majority stockholders.

Various charges of misconduct on the part of the defendants Peck and Koschwitz, directors of the Glaser Company, are set forth in the complaint. Most of the actions to which exception is taken were matters within the powers of the corporation and in furtherance of its objects. As to them there is no proof that the directors acted in bad faith or that they failed to exercise honest judgment. Under such circumstances this court will not interfere. Ellerman v. Chicago Junction Railways, etc., Co. , 49 N.J. Eq. 217 (Ch. 1891).

There are, however, two corporate actions to which further consideration must be given, namely, a resolution of the board of directors, dated July 13, 1951, purporting to cancel a stock purchase agreement, and another resolution of the board, dated September 25, 1951, purporting to cancel an option agreement between the defendant Koschwitz and the company.

The defendant corporation was originally wholly owned by the man whose name it bears. Upon his death the plaintiff Welchman, the defendant Peck and one Carl Larson, all employees of the company, bought it from the Glaser estate. The company was originally incorporated under the laws of the State of New York. In 1944 the business activities were transferred to New Jersey and a New Jersey corporation bearing the same name was formed and took over the assets of the New York company.

Welchman, Peck and Larson were very anxious to retain control of the company. In furtherance of their desire they executed several agreements under the terms of which the corporation was to purchase and place in its treasury the stock of any of the three who might die or retire.

On December 30, 1948, Welchman, Peck and Larson, together with the Glaser Company, executed the last of a series of stock purchase agreements. In brief, this agreement provided for the assignment to themselves, as trustees, of all

of the stock held by Welchman, Peck and Larson. It also provided for the assignment to the trustees by the corporation, of policies of insurance in the amount of $100,000, held by the company upon the lives of each of the principals. The corporation was to pay the premium upon the policies. Upon the death of any one of the three principals, the stock held by his estate was to be purchased, the proceeds of the policy upon his life being used for that purpose. The purchase price was $105 per share or such other amount as might be agreed on by the stockholders. The stock holdings of Welchman, Peck and Larson were listed as 934 shares each. The agreement provided that it was to cover any additional shares which might thereafter be acquired. The other provisions of the contract need not concern us at this time.

Carl Larson died in November of 1949. His executor sought payment for his stock at the rate of $105 per share in accordance with the provisions of the contract. At first, payment was resisted by Welchman, who wanted to pay less for the stock. However, upon threat of suit, he agreed to abide by the terms of the contract. The stock was purchased and retired.

After the Larson stock was obtained and placed in the treasury, the stockholders were Peck, with 934 shares, Welchman with 934 shares, and Koschwitz with six shares. Koschwitz has been the attorney for the company since its beginning, except for a brief period. He is one of the directors. In February of 1944 he received three shares of stock of the Glaser Company in part payment of a claim for legal services. In 1946 Koschwitz executed and delivered to the defendant corporation an option agreement under the terms of which he gave the company an option to purchase his three shares of stock within two months following his death or the death or retirement of any of the majority stockholders.

Thereafter, as a result of the payment of a stock dividend, the number of shares held by ...


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