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John Hancock Mutual Life Insurance Co. v. Webcor Inc.

December 17, 1962

JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, A MASSACHUSETTS CORPORATION, PLAINTIFF-APPELLANT,
v.
WEBCOR, INC., AN ILLINOIS CORPORATION, DEFENDANT-APPELLEE



Author: Schnackenberg

Before HASTINGS, Chief Judge, and SCHNACKENBERG and KILEY, Circuit Judges.

SCHNACKENBERG, Circuit Judge.

In a diversity suit brought by John Hancock Mutual Life Insurance Company, a Massachusetts corporation, plaintiff, its complaint seeking a declaratory judgment against Webcor, Inc., an Illinois corporation, defendant, was on motion of defendant dismissed. Plaintiff has appealed.

The only facts presented in this case are those contained in the complaint, which asks for an adjudication that the termination date of a warrant delivered by Webcor (defendant) to Hancock (plaintiff) and entitling the holder to purchase 15,750 shares of Webcor stock, was extended to July 31, 1968 and the purchase price therefor was reduced from $13 to $11 a share, pursuant to a letter agreement between the parties.

The facts alleged in the complaint and the exhibits attached to it, which have all been admitted by the motion to dismiss, follow:

On October 21, 1958 Hancock and Webcor entered into a "note agreement" in which Hancock agreed to buy a $700,000 note and a stock purchase warrant to be issued by Webcor. Under the note agreement Hancock agreed to accept Webcor's 5 1/2% note for the principal sum of $700,000 due July 1, 1967 together with a warrant entitling it to purchase 15,750 shares of Webcor common stock.

The note agreement provided for prepayment of the note and imposed obligations on Webcor to maintain its properties, keep them insured, maintain modern accounting systems for itself and its subsidiaries, etc. Paragraph 8.4 of the agreement provided in effect that Webcor should not pay dividends on its capital stock in excess of $400,000 except out of earnings accrued since December 31, 1957. The agreement stated that it was delivered and intended to be performed in Illinois and should be construed, enforced and governed by Illinois law.

The $700,000 note was issued by Webcor and delivered to Hancock on October 28, 1958 pursuant to the note agreement. The note was payable on July 1, 1967, but subject to earlier prepayment, and provided for interest at 5 1/2% until maturity. At the same time Webcor delivered to Hancock an instrument entitled "Common Stock Purchase Warrant". The warrant stated that Hancock was entitled to purchase 15,750 shares of Webcor's common stock from Webcor at $13 per share. The period for exercising the warrant was stated in the first paragraph as

"* * * on or before the later of August 23, 1961, or the Termination Date (as hereinafter defined), but not thereafter, * * *."

The second paragraph stated,

"The 'Termination Date' shall be the later of, the date of the final payment of the 5 1/2% Notes of the Company due July 1, 1967, or if prior to the date of final payment of the Notes, holders of Warrants shall elect to proceed * * *."*fn1

Webcor at various times committed breaches of the note agreement by paying cash dividends to stockholders in excess of the amounts permitted by the agreement, thereby entitling Hancock to declare the note due and payable forthwith. As a result, Webcor's ability to obtain its customary credit in the normal course of its business was threatened with impairment. If Hancock had declared the note due and payable forthwith, Webcor's ability to obtain credit would have been severely impaired. Instead of declaring the note due, Hancock agreed to waive the defaults if Webcor would agree to changes in the interest rate on the note, the term and exercise price of the warrant, and certain provisions of the note agreement. These changes were incorporated in an agreement which took the form of a letter dated March 1, 1960 from Hancock to Webcor. It was signed by Hancock by an assistant treasurer. It was also signed by Webcor by its executive vice-president, John H. Ihrig, with the authority of Webcor's board of directors.

We fully reproduce this letter:

"March 1, 1960

"Webcor, Inc. 5610 West Bloomingdale Avenue Chicago 39, Illinois

"Attention: Mr. John H. Ihrig, Executive Vice President

"Gentlemen:

"On March 1, 1960 the Committee of Finance of this company voted to authorize certain amendments to the Note Agreement dated October 21, 1958, the 5 1/2% Note due 1967, and the Common Stock Purchase Warrants of Webcor, Inc., all of which we hold. This vote is contingent on similar amendments, to the extent applicable, to the Note ...


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