Western Industries, Inc. v. Vilter Manufacturing Co. , 257 Wis. 268 ( 1950 )

Fairchild, J.

The owners of the stock in a corporation, while engaged in lawful acts which affect the corporation, may commit the corporation to certain obligations, assuming that the rights of the creditors are properly respected. Hamilton v. Menominee Falls Quarry Co. 106 Wis. 352, 81 N. W. 876; Hoberg v. John Hoberg Co. 170 Wis. 50, 173 N. W. 639; Jesse v. Four Wheel Drive Auto Co. 177 Wis. 627, 189 N. W. 276; Davies v. Meisenheimer, 254 Wis. 419, 37 N. W. (2d) 93. The rule as read out of the cases is expressed in 3 Thompson, Corporations (3d ed.), p. 989, sec. 230T:

“Undoubtedly a private corporation may . . . even without consideration . . . give away its assets, or mortgage its property for the benefit of individual stockholders or officers, where all the stockholders assent to any such transaction, and where there are no corporate creditors and there is no statute expressly forbidding such transaction.” See also 5 Fletcher, Cyc. Corp. (perm, ed.), p. 347, sec. 2099; 1 Cook, Corporations (8th ed.), p. 15, sec. 3.

The circumstances under which the transaction occurs will determine the propriety of the acts and establish the binding effect thereof upon the corporate entity, when an all-inclusive stockholder interest has given its approval.

The Vilter Manufacturing Company was, prior to the important dates here involved, a “close corporation.” The stock in that corporation was owned and controlled by members of the Vilter family, either individually or in trust. Prior to April, 1945, the owners, for reasons appealing to them, had considered selling their interest. They were the owners of the common and preferred stock. During the period here in question the defendant was engaged in the production of heavy armament for the armed services. It had been engaged in the manufacture of ice machines and refrigeration equipment. In January, 1942, Earl B. Tilton was employed to act as executive vice-president and general manager to take effect November 1, 1943, and it appears that he was, under the control of the directors, to have final executive authority in respect to business policies, and the contract was to continue until October 31, 1947. We quote from the statement of facts in respondent’s brief that, “At the inception of the transactions hereinafter discussed, all of defendant’s outstanding common and preferred stock was owned by the members of the Vilter family, either directly or in trust. Commencing in 1943, the stockholders conducted a series of negotiations for the sale of th'éir stock, but none of these negotiations reached fruition because of the inability of the stockholders to decide on the price they were willing to take. These negotiations, however, precipitated rumors which had an adverse effect upon defendant’s business, and Tilton finally called the stockholders together and told them that they were ruining the business; that they should decide among themselves whether they wanted to sell; and if they decided to sell, they should agree upon the price which they would take, and if this price were not forthcoming within a limited time they should abandon their efforts to sell. As a result of his urging, on March 9, 1945, all the stockholders,' with one exception, entered into an agreement to sell their stock at a stipulated price provided the sale could be concluded not later than April 30th.” The issues lead into many incidental transactions resulting in a long trial. Some were thoroughly explained, but much of the testimony in relation thereto is not necessary to a review here. We are concerned directly with whether the defendant by reason of being the responsible party to a contract, through acts of its agent or by ratification, has assumed it. Our decision will therefore be the result of application of the law to the facts material and relevant to those questions.

In following out the suggestions made by Mr. Tilton, an agreement providing for disposition of the assets of the corporation and for the payment of a broker’s fee was drawn. It reads:

In consideration of one dollar ($1) and other valuable consideration in hand paid by each of the undersigned to the others, the receipt whereof is hereby acknowledged, each of the undersigned agrees as follows:

1. To sell or otherwise dispose of his or her interest in the preferred and common stock of the Vilter Manufacturing Company (hereinafter called the “company”) for a consideration measured by a proportionate share of one million two hundred thousand dollars ($1,200,000) for all of the preferred and common stock of the company. It is understood that the acquisition price or consideration may consist of nine hundred thousand dollars ($900,000) in cash and a mortgage upon the real and fixed properties of the company in the amount of three hundred thousand dollars ($300,000) securing notes payable in instalments of thirty thousand dollars ($30,000) every six months, with final maturity at the end of five years, the unpaid balance from time to time to bear interest at four per cent (4%) per annum, payable semiannually. The form of the mortgage shall be such as is approved by the holders of a majority of the common and preferred stock of the company prior to disposition as herein provided.

2. Each of the undersigned authorizes the payment of a broker’s commission of five per cent (5%) on one million two hundred thousand dollars ($1,200,000) out of the proceeds received for the stock of the company.

3. In case the undersigned is a beneficiary of an estate or trust holding common and/or preferred stock in the company the undersigned will use his or her best efforts to cause such estate or trust to join in any disposition of stock hereunder upon the terms hereinabove indicated.

4. It is understood that reference herein to disposition of the stock of the company shall include acquisition thereof by the company or sale of the assets of the company for a price which will net to the stockholders the same amount as would be the case if the stock were sold as herein described. No stockholder shall be obligated hereunder to sell or otherwise dispose of less than all of his stock in the company.

5. This agreement shall continue in force until April 30, 1945, and shall be enforceable by any one of the undersigned who produces a purchaser or purchasers or develops or desires to proceed with a plan which will comply with the terms hereof.

6. This agreement may be executed in any number of counterparts and all of such counterparts shall constitute but one instrument.

Dated March 9th, 1945.

First Wisconsin Trust Co. By W. I. Barth, Vice-President

Fred D. Trubshaw Trustees for Theo. Vilter, dead

Fred C. Trubshaw

W. I. Barth

Waldimer R. Kramer

Ernest F. Vilter

William B. Vilter

Elfrieda B. Vilter

John Narilyn Goes By Trustee

Diana G. Markham By Agent.

From the beginning of this matter and consistently through all the negotiations leading up to the controversy between the plaintiff and defendant the Vilter Manufacturing Company was involved by the action of its owners, and we are to determine on this appeal whether or not the plaintiff, under the circumstances, is to have the benefit of the agreement described in its complaint appearing in the statement of facts. The plaintiff’s right exists if it appears that a contractual relation was created between the plaintiff and defendant by reason of plaintiff’s dealings with the attorneys for Vilter, including Mr. Foley and Mr. Rapkin, whose firm represented the original owners of the stock in the Vilter Company and who for some time had been attorneys for the Vilter Company. The plaintiff was not an intermeddler or a volunteer. Its services were solicited by the attorneys who had been commissioned to accomplish a desired result. In view of the terms of the stockholders’ agreement, it is considered that the attorneys representing the defendant’s interests then involved were acting within the aforesaid scope of their authority. They solicited the services of plaintiff. In compliance with their request the plaintiff produced a purchaser whose offer met the requirements of defendant and at the same time provided for a fee to plaintiff to be paid by the customer. Had that plan been followed, plaintiff’s fee of $30,000 in addition to the purchase price of $1,300,000 would have been paid. As we have suggested, there is also the point that, in addition to this contractual relation, the obligations arising out of that agreement were in any event assumed eventually by the defendant because of its ratification of the acts of those representing it.

With respect to the facts which show a contractual relation between the plaintiff and the defendant with reference to the amount sought to be recovered in this action, the defendant now insists that it is not indebted by reason of anything which has occurred. It is urged in its behalf as the reasons for there being no liability that prior to May 1st, when Foundation, Inc., came into existence, there actually had been no hiring of the plaintiff to render any service for which the defendant is responsible. This contention is based upon the proposition that Mr. Rapkin had no authority, either actual or apparent, to hire the plaintiff under any circumstances which can in any way involve the defendant. The solution of the problem then requires a determination from the testimony of all concerned of the effect of the relation of the firm of attorneys, of which Rapkin was a representative, to the defendant at the time the arrangement with the plaintiff was made and its authority under the agreement between the stockholders in the effort to find a buyer of Vilter Manufacturing Company. The trial court in his opinion said: “In the court’s opinion, if he [Boheim] has a claim for services of any kind against any of the persons connected with Vilter, it may be against the original stockholders, but certainly not against the Vilter Manufacturing Company.” The trial court was of the opinion that the transaction so far as plaintiff is concerned should be held to be against public policy. This only brings to the fore the questions as to whether a legal obligation to pay a broker’s fee to plaintiff was created in connection with the matter, and whether that obligation was assumed by the defendant, for certainly if such a contract was made it is not against public policy. 12 Am. Jur., Contracts, p. 666, sec. 169. A broker’s fee was among the expenses provided for by the stockholders’ agreement set out above. The amount in plaintiff’s claim is larger than that referred to in the agreement. Other services and accommodations were granted. The fact that a larger amount was fixed upon does not control the plaintiff’s rights. The validity of a contract does not necessarily depend upon the weight of the balance between the amount going to one of the parties in exchange for what the other party received. If fairly made, disproportion in those respects is of little concern, and in the absence of fraud or overreaching by deception or other unlawful means, the contract remains good. 7 Am. Jur., Bills and Notes, p. 927, sec. 234.

From a study of the testimony, which extends over many pages, we are of the opinion that the evidence tends to show that the defendant is responsible to plaintiff under the terms of the agreement, and also that there was a valid assumption through ratification of the obligations of that contract. The stock in Vilter Manufacturing Company was, in fact, completely the property of the Vilter family, the members of which signed the agreement set out above. These stockholders, as we have said, finally reached a time when they determined to sell. They decided, on the advice of Mr. Tilton, to secure if possible within a given time certain results in the payment to them of what they considered the value of their holdings. They instructed their lawyers, Miller, Mack & Fairchild, of which firm Mr. Leon Foley was a member and Mr. Rapkin an associate, to proceed in accomplishing for the Vilter owners their desired results. The work was undertaken, and as a charter for the plan under which they were to proceed the agreement already referred to was drawn. Different proposals were considered. It is evident that the first idea was to sell the property to someone willing to buy. As will appear from what may be said later, another plan for securing a satisfactory result was considered. During the consideration of plans the plaintiff, by its representative, Mr. Boheim, who is the practical owner of the plaintiff and operated for it, was brought into the matter by Mr. Rapkin. As the conferences with plaintiff’s representative continued, different steps were taken, and at first the plaintiff, through Mr. Boheim, was to secure a purchaser. Different concerns had manifested an interest in buying. One group, referred to in the evidence as the Coon group, had a plan to buy the assets, but there was never any definite offer in any way accepted, and nothing came out of this proposal. Another group known as the Aerodynamics group became interested in negotiating on the basis of the price fixed, but was dropped as a buyer for sufficient reasons. Finally, the plaintiff was called in, and through its efforts a group described as the Abbell group made a written offer accompanied by a $50,000 deposit to buy on terms within, and as to amount better than, those stipulated in the agreement set forth above. As we have said, by the production of this purchaser, had that sale been made, the plaintiff would have been entitled to his share of a finder’s fee in the sum of $30,000, to be paid by the purchaser.

The plan of creating a charitable organization which would take over the common stock of the Vilter Company and call the preferred stock at a sum which would give to the Vilter stockholders the amount of money they desired was then studied. However, the representatives of the stockholders and of Vilter Manufacturing Company did not immediately decide to reject the Abbell offer which the plaintiff had produced. And to keep the plaintiff interested and to hold the prospect of the Abbell purchase, Mr. Rapkin, representing his firm, under the circumstances agreed to pay the plaintiff the sum which it considered it had earned by producing a purchaser for the property. Mr. Rapkin frankly stated that he did ask the plaintiff’s representative to keep the Abbell offer open until it was certain there would be no failure to find an outlet through the plan of creating the charitable organization and having it take over the stock of Vilter Manufacturing Company, and to continue to give the benefit of his familiarity with financing and organization to defendant. Due consideration was given to the fact that plaintiff, under the circumstances, was in a position where it might in good faith claim to have earned its broker’s commission or fee. It was with those conditions in mind, including Mr. Boheim’s continued assistance, that Mr. Rapkin concluded he was warranted as a representative of the stockholders and of the Vil-ter Manufacturing Company in agreeing to pay the plaintiff an amount equal to that fee. This was agreed to, and the matter proceeded from one development to another, clearly with the expectation on plaintiff’s part that it would be paid the amount, including consideration for further services, agreed upon as a compromise between the claim for the finder’s fee and the adjustment on the part of the defendant through its attorneys. The representative of the plaintiff agreed to assist in every way he could the working out of the “transition” from the Vilter stockholders to the charitable foundation which was to become the owner of the common stock.

This acquiring company, the Foundation, was lawfully organized under the name of “Foundation for Wisconsin Charities.” It became a legal corporate entity. There was neither violation of law nor transgressing of public policy in the creation. Mr. Foley, Mr. Drechsler, Mr. Hendricks, and Mr. Rapkin, as incorporators, had charge of Foundation’s affairs. The business or enterprise of the defendant thus coming under the control of the new corporation continued in a direct line as the Vilter Manufacturing Company. It continued under these plans and negotiations for maintaining its existence, with the plaintiff assisting in the efforts of the attorneys to bring about a result which was desired by the owners of the Vilter Manufacturing Company and consistently with the agreement made between themselves as set forth in this opinion.

The contention of the respondent is, and the decision below in its favor holds, that Vilter Manufacturing Company is not responsible in any way for the contract made by the firm represented by Mr. Rapkin. However, the findings of fact on which that conclusion is based are against the great weight and clear preponderance of the evidence, for, as appears from the evidence, the defendant, an existing corporate entity, did, by act of those lawfully empowered to negotiate for it, assume and undertake to protect the plaintiff against the loss which would have resulted to it by reason of rejecting the offer to purchase which it procured and for services rendered. This appears clearly from the proceedings disclosed by excerpts from the minutes which follow:

Waiver of Notice and Consent to Holding of Special Meeting of Board of Directors of Vilter, on May 1, 1945.

“We, . . . the board of directors in the Vilter Manufacturing Company, a Wisconsin corporation, do hereby .. . consent to the holding of a special meeting of the board of directors . . . for the purpose of considering and taking action with respect to the following: . . .

“5. The incurring of obligations for and assumption of all expenses that may be incident or involved in connection with carrying out any of the matters determined upon at said meeting.”

Minutes of a Special Meeting of Board of Directors of the Vilter Manufacturing Company, held May 1, 1945.

“Be it further resolved, that the company’s president or a vice-president and its secretary or any of them be and they hereby are authorized and directed to take all steps and do all things which in their judgment may appear necessary in order to carry out the terms and provisions of the foregoing resolutions.” [Acceptance of resignations of old officers and election of new officers; redemption and cancellation of preferred stock.]

Minutes of Special Meeting of Board of Directors of the Vilter Manufacturing Company, on May 8, 1945.

“Detailed report was further made concerning action taken by the officers in carrying out all resolutions adopted by the stockholders and by the directors at their respective meetings of May 1, 1945, which resolutions appear in the respective minutes of said meetings. . . .

“Mr. Rapkin particularly indicated the action taken by the officers in carrying out the loan agreement of May 1, 1945, with Commercial Discount Corporation and detailed the manner in which the company’s receipts and assignment of accounts receivable were being handled. In the course of this explanation he reported that a statement, dated April 30, 1945, addressed to the company, had been delivered to him by Western Industries, Inc., in the sum of $30,000. The statement was for services previously rendered to the company and in an amount agreed upon by Mr. Foley as president and Mr. Rapkin as vice-president, with the board’s approval. Mr. Rapkin stated that he believed that payment of the amount of this statement could be arranged for over a period of time. . . .'

“Resolved that all action of the company’s officers with respect to any and all matters reported at this meeting and with respect to any resolutions adopted by and matters reported to the stockholders and the directors of the corporation at their respective meetings of May 1, 1945, be and the same are hereby approved, ratified, and confirmed in all respects.”

Minutes of Special Meeting of Stockholders of Vilter Manufacturing Company, held May 16, 1945.

“. . . resolved that all action determined upon or taken by the board of directors at its meetings of May 1, 1945, and May 8, 1945, as revealed by the minutes of said meetings and all action taken by the officers of the company with respect or pursuant to any of the resolutions adopted by and matters reported to the stockholders or the directors or both at their respective meetings held May 1, 1945, and May 8, 1945, should be and the same were ratified, confirmed, and approved in all respects.”

Minutes of Special Meeting of Board of Directors of the Vilter Manufacturing Company, held May 16, 1945.

“The secretary read the minutes of the special meeting of the board of directors held on May 8, 1945, . . . the minutes were unanimously approved as read. . . .

“Resolved that all action of the company’s officers with respect to any and all matters reported at this meeting and with respect to any resolutions adopted by and matters reported to the directors of the corporation at their meeting of May 8, 1945, be and the same are hereby approved, ratified, and confirmed in all respects.

Minutes of Special Meeting of Board of Directors of the Vilter Manufacturing Company, held May 23, 1945.

“The secretary read the minutes of the special meeting of the board held on May 16, 1945, . . . the minutes were approved as read and all action taken thereat confirmed and approved.”

Minutes of Special Meeting of the Members of Vilter Manufacturing Company, held May 28, 1945.

“The secretary read the minutes of the special meeting of the stockholders held on May 16, 1945, and the minutes were unanimously approved as read.

“The secretary then read the minutes of the meetings of the board of directors held on May 16 and May 23, 1945, respectively, and, ... all action taken at said meetings by the directors and all action of the company’s officers taken pursuant to any resolutions adopted at said meetings by said board of directors or reported to said board were ratified, approved, and confirmed in all respects.”

The learned trial judge, in an effort to confine the issues to those essential to a determination of the real controversy between the plaintiff and the defendant, excluded some testimony which would have had a tendency to show more fully the amount of the additional services rendered by plaintiff during what is styled in the evidence as the “transition period.” We do not consider the ruling there of a prejudicial nature, for it is unnecessary in this case to determine to a nicety the exact adequacy of the work performed in its relation to the amount to be paid in order to establish a consideration for the agreement. Evidence shows that plaintiff was in a position to assume that he had earned $30,000 when the shift from an outside sale to placing the matter under the control of a charitable organization was made. Sargent v. Palace Cafe Co. 175 Cal. 737, 167 Pac. 146; National Bank v. Pingree, 62 Utah, 259, 218 Pac. 552; MacQueen v. Bank, 133 Ohio St. 579, 15 N. E. (2d) 529.

In 1 Williston, Contracts (1st ed.), p. 294, sec. 134, that author says:

“Somewhat analogous to consideration void in part is the case of a promise based partly on moral obligation or motive of generosity, as where a sum is promised in return for past as well as present consideration; or partly in return for services and, confessedly, partly as a gift. If one undivided sum is thus promised, the promise is supported by valid consideration.” See Restatement, 1 Contracts, p. 438, sec. 295.

The nature of the services rendered by brokers entitling them to their fees is well understood, and while the time actually consumed in finding a purchaser might not be great, under the general practice in those instances, it is not unusual for the amount of the fee to be determined on the basis of the amount involved, ability to find a market and to conclude a transaction. Here upwards of $1,300,000 was being dealt with under circumstances which included the plan of keeping the business going and paying to the owners of the stock that amount of money. The decision on this appeal does not rest, as we say, upon the rulings as to that particular evidence or that phase of the case. A valid contract between competent parties was made. The conclusion that plaintiff is entitled to judgment is fortified also by a valid ratification of the contract by a lawfully organized and existing board of directors representing the defendant. Their acts are sufficient to impose upon the defendant in that respect the liability claimed by the plaintiff.

The differences which seem to have arisen and prompted those presently in control of Vilter Manufacturing Company to challenge this claim are not of determining importance in this litigation. Factions may have developed, and more consideration might have been shown by one to another. The suggestion that for a time Mr. Tilton’s rights were being interfered with and he was likely to be placed at a disadvantage if certain events occurred does not weigh here. The fact that Mr. Tilton was kept in ignorance of what was going on during these negotiations is not of significance now, except as it may show the background of discord. Mr. Tilton objected when he did learn of the matter. He did not want the officers of the Foundation to attempt to run the Vilter Manufacturing Company “from a law office uptown.” He protested that the plaintiff’s claim was unjust, and that due regard had not been given by the officers of the Foundation to their fiduciary relation to the matters in hand. There is evidence that he thought the claim would not exceed in value $6,000.

The trial court’s expression indicated belief on its part that when the Vilter stockholders decided to organize a charitable corporation to own Vilter, that that charity immediately became vested with superior rights to all Vilter assets and the new owners of Vilter had become trustees of the assets for the benefit of the charity, so that any action taken which was improvident from the charity’s point of view was a breach of trust and could be repudiated when control came into the hands of new trustees. This again overlooks an important element. The original owners of Vilter had the right to keep for themselves the proceeds of their stock when liquidating their holdings. If such were not the rule and one to the contrary could be invoked here, it would permit a court to determine how much of Vilter’s value its original owners could keep out of their holdings without being accused of unlawfully taking it from their donee. It would result in a requirement to disgorge such part of the proceeds of their stock as the court might think equitable. It would take away from them the rights which they have of ownership over their own property. There has been no action at law by those now controlling the defendant against the former representatives, if occasion ever did exist for beginning one. No effort by means of quo warranto under the facts disclosed would seem to be warranted. The defendant retains the avails of the transaction.

The stockholders were prompted by a desire to conserve their interests. Some of the actions taken were decidedly for the benefit of the stockholders, but in this connection it must be borne in mind that they were the owners of all the stock and it was their interest that was being served, although the Vilter Manufacturing Company was involved and controlled by these actions. The Vilter Manufacturing Company’s existence was preserved, either through the wisdom of the planners or by good fortune. Mr. Tilton is now in a position of importance. The Foundation was organized. It was later abandoned, but in the meantime the original stockholders turned over their common stock and gave up the control to the officers of the Foundation. Its officers became the responsible governing body for a time.

Sec. 180.15, Stats., provides: “Stock held by one corporation in another shall be voted by the president of the former, unless its board of directors, by resolution, designate some other person for that purpose; and the officers of the former corporation may be chosen, qualify and act as directors and officers of the latter corporation.”

There were other developments with relation to the corporate nature of the defendant, but it never parted with or lost its character as a corporation engaged in business. The Foundation became dormant, but the defendant at all times acted in its own interest as directed, first, by the stockholders, and later by succeeding directorates.

The contention that defendant’s stockholders, its agents, its officers, and directors, as one set succeeded another, had no authority to promise that the defendant would pay plaintiff, or to ratify that promise, and that the action is for “$30,000 finder’s fee in masquerade” does not take into consideration all the facts and circumstances; and any findings of fact that can be so construed are against the great weight and clear preponderance of the evidence. The contract set out at the beginning of this opinion shows the authority which the then owners gave to their agents, and this is sufficient to bring it under the rule of such cases as Johnson v. Associated Seed Growers, Inc., 240 Wis. 278, 283, 3 N. W. (2d) 332, where the doctrine is recognized that “the creation of an agency carries with it the usual and appropriate means of accomplishing its objects and clothes the agent with such authority as is proper and necessary to effectuate its purposes.” Voell v. Klein, 184 Wis. 620, 200 N. W. 364. This is not a case where the apparent authority is established by acts of the agent. The contract speaks for itself. Other points raised require no discussion.

By the Court. — Judgment reversed and cause remanded with directions to grant judgment in plaintiff’s favor.