Newman Machine Co. v. Newman

166 S.E.2d 63 (N.C. 1969)

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Nature of the Case

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Facts

D owned 64.77% of all the issued and outstanding shares of capital stock of P corporation. In March 1950, he made a gift of certain of his shares to himself as trustee for his children. Thereafter and until February 6, 1959, he owned individually 53.299% of the capital stock and owned as trustee for his children 11.477% of said shares. In addition, he also owned individually 65% of the outstanding shares of capital stock of three affiliated corporations. On February 6, 1959, D sold to P corporation at $135.25 per share all of its shares of stock which he owned. This included both the 53.299% he owned individually and the 11.477% he owned as trustee. The total purchase price was $785,802.50. At all times prior to December 31, 1960, D., had access to all the financial records of P corporation, was in position to know the fair market value of its assets, business, and business potential so that he knew the fair market value of the corporate stock when he sold it to the plaintiff on February 6, 1959. D then entered into an employment contract dated February 7, 1959, under the terms of which it was agreed that the said D should continue to serve P corporation as its president at a salary of $100,000.00 per year for the years 1959 and 1960 and at a salary of $50,000.00 per year for the years 1961, 1962, 1963 and 1964. D terminated this contract voluntarily as of December 31, 1963, and, at his request, served P corporation in a very limited capacity during 1964 and 1965. On February 5, 1965, D notified P by letter that D's attorneys were investigating the transaction involving the sale of the stock. D then wrote a letter threatening to disaffirm the stock sale. D did nothing but continued to make demands on P and to threaten legal action against P, including threat of receivership. These threats have seriously jeopardized P’s corporate existence, hampered long-range planning, and seriously affected plaintiff in the conduct of its business affairs. The trial court held that William M. York, Sr., President of P corporation, is 70 years of age and will be a material witness in any litigation. His evidence should be preserved. The threats constituted a cloud on the title to the shares of stock purchased by P from D, and this action is brought for the purpose of settling the controversy and removing the cloud on plaintiff's title to the stock in question. The sale and purchase of said stock was an arms-length transaction with both parties having full knowledge of the facts. P paid fair market value for the shares of stock and obtained a good title to them. D has no further rights arising out of said transaction, and P has no further obligations to the defendant by reason of it. P prays the court for judgment declaring that it has good title to the 11.477% of its shares of stock purchased from D and for costs of the action.