Lassallette v. Parisian Baking Co.

WOOD (Fred B.), J.

The answer to the sole question upon this appeal depends upon the meaning of “book value” as used in a by-law of the defendant corporation.

The by-law requires the holder of any of the corporate shares, desiring to sell them, first to offer them to the corporation ‘ ‘ at the net book value of the assets, that is, plant investment, inventories, accounts receivable, cash and other assets, less debts and liabilities and suitable reserves for depreciation or otherwise, plus $25,000.00 for the good will of the business. ...”

The trial court found that the “book value of the shares of stock of said company as determined” by the by-law “is that set forth on the books of the Corporation,” and that in accordance with the by-law the “book value of each share of stock of said Corporation is to be determined by adding the par value of all of the outstanding shares of stock to the surplus of the Corporation as shown on its financial statement and dividing the total so obtained by the number of shares of stock outstanding.”

Plaintiff has appealed from the judgment which was based upon this finding. He claims that the court’s interpretation is against the evidence and against the law. He contends that the by-law requires that the “book value” of each share be determined by taking the “market value of the assets” of the corporation, “deducting its liabilities,” and dividing the remainder by the number of shares.

Our reading of the by-law and consideration of the evidence adduced upon the trial convinces us that the trial court’s interpretation is correct.

The problem is that of ascertaining the intent of the shareholders when they formulated and adopted this by-law, ascertained by an analysis of the words they wrote into the document and aided by consideration of the significant surrounding

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circumstances and the construction, if any, which they put upon it before the controversy arose. In conducting this inquiry we must bear in mind the fact that the law does not define “book value” as denoting a particular method of arriving at the value of fixed or other assets of a corporation. -It may be market value, cost less depreciation, or other concept of value recognized by sound accounting practice and used by the particular corporation in recording its financial transactions. (See discussion in Ballantine, California Corporation Laws, 1949 ed., p. 185, § 137, and authorities cited.)