Zohrlaut v. Mengelberg ( 1911 )

Tbe following opinion was filed January 11, 1910:

BaeNes, J.

There is ample evidence in tbe record to support tbe finding of tbe referee to tbe effect that if tbe stock certificate for $174,000 bad ever been issued it was surrendered and canceled prior to December 1, 1899. Whether there was any valuable consideration to support such a transaction is more debatable. Tbe argument of defendant’s counsel, that tbe cancellation of a debt amounting to about $48,000 and tbe assumption of certain interest obligations by tbe corporation constituted a good consideration, is not convincing in. view of tbe fact that tbe plaintiff turned over $326,000 worth of other property to tbe corporation and assumed an indebtedness to bis father of over $38,000, for which no consideration was paid except tbe settlement of tbe account referred to and tbe interest agreement. However, tbe question is not particularly material. Tbe plaintiff might make a donation of' a portion of bis stock to tbe corporation in this case if be saw fit, and tbe important fact is that be did surrender tbe stock and that it ceased to be a corporate liability on tbe date named.

'We find little in tbe way of evidence, or of inference to be drawn therefrom, to justify tbe contention that defendant took a decaying business and built it up. Tbe evidence fails-to show insolvency or anything approaching it when tbe defendant bought in, and it is difficult to discover wherein, after bis five-year term of service, be left tbe business in much better condition than be found it. Tbe only thing to indicate that be found nominal book assets and left actual ones is tbe fact that some bad accounts were charged off tbe books, but tbe amount was inconsiderable, and tbe net assets declined some $43,000 during tbe period of bis service. Tbe charging •off of tbe account standing on tbe books against tbe plaintiff, •and tbe assumption by tbe corporation of interest charges on tbe individual debt of tbe plaintiff, affected tbe showing made by tbe business while defendant bad charge of it, but, considering its magnitude, about all that can be said for it is that it held its own.

It seems clear that when tbe parties made tbe contract of August 22d, by which plaintiff agreed, on tbe happening of a certain contingency, to repurchase tbe stock which defendant agreed to buy, tbe parties contemplated that if tbe business proved to be profitable and tbe surplus was increased by legitimate earnings during tbe term of defendant’s employment, tbe latter should be paid bis pro raía share of tbe increase, and that if loss resulted be should suffer his pro rata share of such loss. Tbe net surplus of tbe corporation was increased on November 30, 1899, $213,774.98 by entries made in tbe books of account. This increase did not add a single dollar to tbe financial strength of tbe corporation, unless tbe wiping out of tbe account of $38,917.22 in favor of Herman Zohr-laut reduced its indebtedness to that extent, and it is not at all certain that Mr. Zohrlaut ever agreed to forego bis claim against tbe corporation for this sum. It seems highly improbable that tbe plaintiff understandingly signed tbe agreement of December 1st with a full realization of tbe consequences that might result from such action. Tbe defendant paid par for $25,000 of the capital stock of tbe company. Had be been taken ill with some malady that would prevent bis performing tbe work required of him by tbe contract, tbe next day after its execution, be would be entitled to recover from tbe plaintiff not only tbe purchase price, but also about $17,000 in addition thereto. His heirs might do tbe same bad be died. Tbe recovery at such time would have amounted to about $2,700 more than tbe damages awarded in this action, because tbe book value of tbe stock bad declined over $43,000 in tbe meantime. Tbe improbability of a party making such a contract, as well as tbe manifest inequity of it, .'has led the court to scrutinize with great care the two written •contracts, as well as the evidence in the case, to ascertain whether relief could not be afforded to the plaintiff against a .judgment founded upon what appears to have been ah improvident contract.

The only rational explanation of how this contract of De•cember 1st came to be made is suggested by the referee in his -decision, where he expresses the belief that when the second •contract was signed the parties ovérlooked the fact that the :stoek liability of the corporation, as shown on its books, had been reduced $174,000 between the dates of the two contracts, ■and that neither realized that in the meantime the book value •of the stock had been enhanced over forty per cent. It seems to us that this conclusion is correct, at least as to the plaintiff, ■•and that the contrary finding made by the referee is incorrect.

In order to properly construe a contract susceptible of more than one construction, the court should place itself as nearly as it may in the position of the parties who made it, by considering the surrounding facts and circumstances, the nature 'of the subject matter, the relation of the parties to the contract, and the objects sought to be accomplished thereby. 2 Page, Cont. § 1123; Mayer v. Goldberg, 116 Wis. 96, 92 N. W. 556, and cases cited. When the language used in a -contract is susceptible of more than one meaning, it is essential that the court should understand the conditions that existed when the contract was made, in order to adopt that construction which would express the true intent and meaning -of the parties.

However, it is the duty of courts “simply to enforce contracts, unexceptionable on other grounds, precisely as the par-lies have made them, instead of making new contracts for them to meet the emergencies of a particular case, or to avoid some supposed inconvenience or hardship arising from the •natural import of the written engagement. And the written Instrument furnishes the best possible evidence of the intention, and determines the liabilities of tbe parties.” Heath v. Van Cott, 9 Wis. 516, 522.

“In construing a contract it must be observed that, while the office of judicial construction is to give effect to the intention of the parties, and that words and sentences should be so construed as to subserve such intention, this does not mean that violence may be done to the words the parties see fit to employ, but only that it is the duty of courts to look at the whole and every part of the contract, and to give that construction to it which will make it effectual to carry out the real intention of the parties so far as the words they see fit to employ will permit, without doing violence to the rules of language or the rules of law.” Braun v. Wis. R. Co. 92 Wis. 245, 247, 66 N. W. 196, 197.

And in construing contracts the courts “cannot give effect to the intention, however manifest, which plainly violates the rules of language or of law.” Mississippi River L. Co. v. Wheelihan, 94 Wis. 96, 98, 68 N. W. 878, 879; 2 Parsons, Cont. 494. '

Words may not be added to a contract unless obviously implied. ' Where the language used is not ambiguous the apparent import of the words must govern. .Where the words used! are of uncertain meaning, within certain limitations, that construction should be adopted which will best effectuate the intention; but words should not be constructively put into a contract that are not there. Mississippi River L. Co. v. Wheelihan, supra. When plain language is used in such a-connection as to leave no room to say reasonably that the parties may have intended either of two meanings, the apparent import of the words as generally understood must govern. Thurston v. Burnett & B. D. F. M. F. Ins. Co. 98 Wis. 476, 479, 74 N. W. 131; Wells v. M. & St. P. R. Co. 30 Wis. 605; 1 Story, Cont. (5th ed.) § 780.

In speaking of an improvident provision made in a conveyance this court in another case said:

“But so long as the parties saw fit to insert in the grant plain words of limitation, pointing to particular instruments for measuring the water, we must hold to such plain meaning,. and not, for the purpose of relieving parties from difficulties which were not properly provided against at the proper time, put words into the grant by construction. That would be a violation of rules of law by judicial construction, and courts are not permitted to do that.” Appleton P. & P. Co. v. Kimberly & C. Co. 100 Wis. 195, 201, 75 N. W. 889, 891.

In answer to the contention of counsel that testimony of the circumstances surrounding and leading up to the making of a written contract are always admissible for the purpose of putting the court in the position of the parties at the time the contract was made, this court has said:

“Not so! Where there is no ambiguity in the contract, either in its literal sense or when it is applied to the subject thereof, it must speak for itself entirely unaided by extrinsic matters. Where such ambiguity does exist, then evidence of the circumstances under which the contract was made is proper to enable the court in the light thereof to read the instrument in the sense the parties intended, if that can be done without violence to the rules of language or of law.” Johnson v. Pugh, 110 Wis. 167, 170, 85 N. W. 641, 642.

Parties cannot use terms with a fixed and certain meaning and then disclaim such meaning; at least not without reformation of the contract. Murphey v. Weil, 92 Wis. 467, 473, 66 N. W. 532.

Under cover of construction a court cannot reform a written contract to make it express the real intention of the parties, which, by mistake, is not expressed in the words thereof. Robbins v. Rollins, 127 U. S. 622, 8 Sup. Ct. 1339; Te Poel v. Shutt, 57 Neb. 592, 78 N. W. 288; Sinclair v. Hicks, 116 N. C. 606, 21 S. E. 395; 2 Page, Cont. § 1130. Courts of equity may reform contracts for mistake or fraud when the modicum of proof required by the established rules of law is furnished to warrant reformation. Braun v. Wis. R. Co. 92 Wis. 245, 248, 66 N. W. 196, and cases cited.

Applying the foregoing rules of law to the facts in this case, is the plaintiff entitled to relief ? His contention is that the ■contract of August -22d provided for a sale of twenty-five of tbe five hundred shares of the capital stock of the corporation, ■or a one-twentieth interest therein, and that for the purposes of this case the subsequent contract should also be treated as a sale of a one-twentieth interest in the corporation, and that the ■decrease in the capitalization of the company in the interim between the execution of the preliminary and final contracts should not be held to affect the rights of the parties.

It must be remembered, however, that the plaintiff, by the contract dated December 1st, did sell and convey to the defendant, subject to his lien to secure the payment of the purchase money, twenty-five shares of the capital stock of the company as it then was, without any reference being made in the contract to the fact that any particular fractional interest in the corporation was sold, and that nothing was done by the plaintiff for a period of more than five years thereafter to indicate that he had in fact intended to sell but a one-twentieth interest instead of the much greater interest that he did in fact sell. No implication can be drawn from the contract that it was intended to sell any other or different interest from that expressly provided for. By said contract the plaintiff agreed, “in accordance with the terms of the agreement entered into between the parties heretofore on August 21, 1899 [meaning, no doubt, August 22d], to sell to said Mengelberg twenty-five (25) shares of the capital stock of said Herman Zohrlaut Leather Company at par.” This provision can only be held to mean that the twenty-five shares of stock provided for in the former contract were to be sold by plaintiff to defendant. It cannot mean that the provisions of the former contract as to price should govern, because the parties specifically stated otherwise. If the amount of stock remained unchanged, the plaintiff would be entitled under the preliminary contract to receive about $2/700 above par for the stock sold, on the basis of any calculation, and over $2,000 more than that sum if there had been no change made in the stock liability of tbe company, and if tbe other entries on tbe books under date of November 30th were taken into account. Tbe contract of August 22d called for tbe sale of twenty-five shares of stock, and by tbe contract of December 1st that number of shares were sold and transferred to tbe defendant; and, without doing violence to tbe language used by tbe parties in making their contract, we fail to see bow we can bold that a smaller number of shares were sold, or bow we can say that a settlement should be made on any other basis than that provided by tbe parties themselves in their contract.

We are impressed with tbe belief that tbe evidence and tbe reasonable inferences to be drawn therefrom satisfactorily show that plaintiff mistakenly either sold a greater amount of stock than be would have sold bad be comprehended tbe effect of tbe book entries of November 30th, or that be sold tbe amount of stock which he did at a less price than be would have sold it bad be realized tbe extent to which tbe book value of tbe stock bad been so suddenly and so materially enhanced. It may be that, bad be seasonably applied to a court of equity for a reformation of tbe contract, be would have been entitled to relief. Tbe plaintiff, however, has brought an action at law on tbe note given in payment for tbe stock, and, if relief is given at all, it must be by a construction of tbe contract, which is not permissible as it stands. In other words, we see no escape from tbe conclusion that by tbe terms of tbe written contract tbe plaintiff did, on December 1st, sell twenty-five shares of tbe capital stock of tbe corporation, and obligated himself to repurchase it in tbe event of a certain contingency arising, and which did arise in this case, and to purchase tbe stock at its book value at tbe time tbe contingency arose.

We do not think tbe defendant bad done anything to forfeit bis right to insist that tbe plaintiff purchase bis stock under tbe terms and conditions provided in tbe contract between tbe parties. Neither do we think any error was committed in refusing to allow interest on tbe note sued upon. No divi-lends were declared by the corporation after defendant purchased the stock, and the contract of August 22d, which was referred to in the one later made, clearly provided that interest should not be charged in excess of the dividends declared.

The evidence offered was directed to the book value of the stock of the corporation on December 1, 1904. The defendant continued in the employ of the company until January 1, 1905. It is argued that the evidence offered did not establish the book value of the stock of the corporation as of the proper date. The date of December 1st was selected, presumably, because the corporation closed its books on that date. The variance in time between the two dates is slight, and it is highly improbable that there was any substantial difference between the value of the assets between December 1st and January 1st, or that the assets were less on the latter date than on the former. The books were within the immediate control of the plaintiff, and if any substantial difference existed it might readily have been shown by him. Technically the plaintiff was entitled to recover on the basis of the book value of the stock on January 1st. But we think the evidence offered substantially proved that value, and that no good purpose would be served by prolonging this litigation in order to determine whether there was a slight variation in the surplus of the company between these two dates.

By the Court. — Judgment affirmed.

Timlin, J., took no part.

A motion by the appellant for a rehearing was granted on April 5, 1910, and the cause was again argued on October 29, 1910.

For the appellant there was a brief by Nath. Pereles & Sons, attorneys, and Quarles, Spence & Quarles and Glicksman, Gold & Corrigan, of counsel, and a separate brief by T. W. Spence, of counsel; and the cause was argued orally by Mr. IF. L. Gold and Mr. Spence.

Eor tbe respondent there was a brief by 'Winkler, Flanders, Bottum & Fawsett, and oral argument by James 0. Flanders.

Tbe following opinion was filed November 15, 1910:

Pee CuexaM.

A motion for a rehearing was granted in this case and tbe same has been reargued. Chief Justice WiNslow and Justices BaeNes and Vietje are agreed that tbe former decision was correct. Justices Marshall, Sie-becKee, and KeewiN reach a contrary conclusion. Justice TimliN, having been of counsel in the case, did not sit. This situation results in an affirmance of the judgment.

By the Oourt. — Judgment affirmed.

The following opinion was filed November 19, 1910: