On certified appeal from the Appellate Division of the Superior Court.
For modification -- Chief Justice Vanderbilt and Justices Heher, Wachenfeld, Jacobs and Brennan. For affirmance -- Justices Oliphant and Burling. The opinion of the court was delivered by Heher, J. Burling, J. (dissenting). Mr. Justice Oliphant authorizes me to state that he joins in the views expressed in this opinion.
The inquiry here concerns the ownership of one share of the capital stock of Fiedler & Hollister, Inc., a New Jersey corporation, determinative of majority control; and the decisive point is whether evidence adduced from the plaintiff Hollister of an asserted transaction with the deceased Fiedler bearing upon the issue transgresses the policy of N.J.S. 2 A:81-2, formerly R.S. 2:97-2.
At the outset, plaintiff held as his own title to 11 of the issued shares of the corporate capital stock; the deceased Fiedler then held ten shares in his own name and an additional share, it is conceded, in the name of his wife, Martha, to qualify her for service as a director of the corporation, the now disputed share that later, upon the death of Martha Fiedler, was placed in the name of the plaintiff Hollister's wife, for the same purpose. Hollister and Fiedler had provided for continuing equal interests in the outstanding capital
stock. The judgment of the Superior Court determined that the particular share of stock "was originally held by Jean Hollister to qualify her as a director" of the corporation, "and was held by her in behalf of William C. Fiedler," but it was also adjudged that during his lifetime Fiedler "did surrender and deliver to the plaintiff, Robinson G. Hollister, said share of stock for the beneficial ownership of the plaintiff in order to induce" him "to remain in business with" Fiedler, and that ownership of the share was then in the plaintiff. This is the crux of the controversy.
The Appellate Division of the Superior Court affirmed the judgment in this regard, 30 N.J. Super. 203 (1954); and the case is here by certification at the instance of the defendant executor.
Fiedler died August 29, 1950. The original complaint in this cause sought from his executor specific performance of a mutual option formulated by Hollister and Fiedler, exercisable by either in the event of the death of the other, for the survivor's purchase of the deceased's shares of the corporate capital stock at "book value," if the survivor be "still in the employ of the Company," and his assumption of an undertaking to pay the widow of the deceased shareholder 25% of the company's net profits during her life "or until the death of the surviving party, whichever shall first occur." The option agreement recited that Fiedler and Hollister each was the owner of 11 shares of the corporate capital stock. Of this, more hereafter. There was also a separate agreement in writing for the employment of the plaintiff Hollister as general manager of the corporation for a term of five years. The complaint did not specify the number of shares held by Fiedler; it demanded judgment that defendant be directed to "endorse and deliver" to plaintiff the "shares of stock formerly owned" by the deceased Fiedler, and to answer in damages "for the breach of the agreement." The defendant executor answered denying plaintiff's continued employment by the corporation and tender of the book value of the shares, and by counterclaim alleged that plaintiff had "unlawfully retained possession and control" of the
company's "business and affairs, property, moneys and profits," and prayed for an accounting and restraint against plaintiff's "continuance" of the corporate business, and the appointment of a receiver for the corporation.
The Chancery Division of the Superior Court ruled that in "determining book value, good will is not considered as an element, unless the agreement so provides," and here "no mention is made of good will," and there is provision only for "book value"; that the shares of stock in question "had no book value at the time of Fiedler's death," and "the purpose of the parties to the agreement was that the survivor should have the decedent's shares of stock." There was judgment for plaintiff. The counterclaim was dismissed. Hollister v. Fiedler, 18 N.J. Super. 171 (Ch. Div. 1952).
The Appellate Division reversed and remanded the cause for an assessment of the book value of the stock as reflected by the worth of the "list of (insurance) expirations" and "other assets," taking account of liabilities. And it was also held that while the judgment awarded to plaintiff the share of stock standing in the name of his wife, Jean, who was not then a party to the suit, and "there is some testimony concerning it," the question of title was not raised by the pleadings, and "neither the complaint nor the pretrial order was amended to comprehend that issue," and so "it was error for the court to include it in the judgment." 22 N.J. Super. 439 (1952).
After the remission of the cause, the defendant executor was given leave to amend the counterclaim to include a count alleging that the share of stock in question was issued to Jean Hollister "for voting purposes only and the legal ownership of the certificate of stock was and continued to be in" Fiedler and, upon his death, passed to his estate, but that ownership is now claimed by the plaintiff Robinson G. Hollister, and also to interpose a cross-claim against Jean Hollister as a "third party defendant," praying that the estate be adjudged the "legal owner" of ...