Spaulding v. N. Milwaukee Town-Site Co.

• Decision Date: 27 February 1900
• Citation: 106 Wis. 481,81 N.W. 1064
• Parties: SPAULDING ET AL. v. NORTH MILWAUKEE TOWN-SITE CO. ET AL.
• Court: Wisconsin Supreme Court

106 Wis. 481

81 N.W. 1064

SPAULDING ET AL.

v.NORTH MILWAUKEE TOWN-SITE CO. ET AL.

Supreme Court of Wisconsin.

Feb. 27, 1900.

Appeal from superior court, Milwaukee county; George E. Sutherland, Judge.

Action by E. M. Spaulding and another against the North Milwaukee Town-Site Company and others. From the judgment all parties except defendant William H. Momsen appeal. Reversed.

In this case the active defendants are Willis A. Meyer and Otto Finck, together, as the firm of Meyer & Finck; Charles A. Maynard and A. D. Agnew, together, as the firm of Maynard & Agnew; and Win J. Morgan. They will be designated as the “defendants” hereinafter. The Milwaukee Town-Site Company will be designated as the “corporation.” Momsen is not a party to the appeal, the judgment dismissing the complaint as to him not being complained of.

The overwhelming preponderance of the evidence establishes, though in many respects the court found otherwise: That the defendants on October 19, 1892, consummated the purchase of the two tracts of land from Spuhl and Wasserburger in the name of Meyer & Finck, but owned by all of them in common, as follows: Meyer & Finck, one-half; Maynard & Agnew, one-fourth; and Morgan, one-fourth. That there was great excitement and activity in real estate in the locality at the time. That they purchased it for purposes of speculation and resale. That they considered various methods of disposal, either by resale in bulk, by platting and offering individual lots for sale, or by “syndicating.” They finally decided on the latter plan, and decided to organize a corporation as a method of disposing of the shares to others, and decided to fix the value of the property for the purposes of capitalization at $1,500 per acre, each to contribute his undivided share at that price; it having originally cost them $900 and $1,000 per acre for the respective tracts. Meanwhile, and before the corporation was organized, Meyer & Finck, without the knowledge or approval of the other defendants, sold portions of their interest to some half dozen persons at various prices, upon the understanding that the shares so sold were, when the property was turned over to the corporation, to be compensated by stock at the rate of $1,500 per acre. These sales were made at prices ranging from $1,200 to $1,500 per acre. The plaintiff Spaulding purchased from the defendants Meyer & Finck an undivided one-sixteenth, for which it was agreed he was to receive 62 1/2 shares, 50 per cent. paid, of the stock of the new corporation, which should be one-sixteenth of its total stock. The corporation was formed, and the real estate conveyed to it at the rate of $1,500 per acre (which did not exceed its fair value), in accordance with a resolution of the board of directors; amounting to $92,632.50, of which $45,275 was secured by mortgage, and the rest of the price satisfied by the defendants. The method of bookkeeping pursued was by charging the cash account with 50 per cent. of the amount of each share of stock (total, $50,000), and crediting the cash account with the purchase price of the land above said mortgages, or $47,357.50, leaving in treasury $2,642.50. Some three months after the corporation had been organized, the defendants Maynard & Agnew sold 34 shares of their stock to the plaintiff Bishop, representing to him that the land of the corporation had been syndicated to it at $1,500 per acre. No representations are proved to have been made to any of the original subscribers for stock, except Spaulding, inconsistent with the facts as they exist, and no others complain of the transaction, but have all, with full knowledge of the facts, settled, surrendered their stock, and received their share of the company's real estate in severalty. The plaintiff Spaulding claims that he was induced to make his purchase from Meyer & Finck by their assertion to him that the land had cost them $1,300 per acre, and that they would sell one-sixteenth to him for $25 advance, or $1,325 per acre, preliminary to incorporating. This is strenuously denied, but the findings are in accordance with the plaintiff's statement. No knowledge of this transaction is brought home to the other defendants, either as to Meyer & Finck's purpose to sell, the price paid, or any representations made, nor did they in any way share in the proceeds of such sale.

Differt tract: Shortly after the organization of the corporation, the defendants other than Momsen purchased in the name of Meyer & Finck a tract of land of one Differt at the price, as fixed in negotiation, of $1,000 per acre. He, however, declined to submit to a survey, and insisted that his statement of the quantity of the land be taken, which was acceded to, and he paid on the basis of about 6 1/2 acres, viz. $6,540. At that time four of the defendants were members of the board of directors of the defendant corporation. After this purchase Meyer & Finck submitted to the plaintiff Spaulding, who was engineer for the company, the advisability of the corporation buying this tract, to add to what it already had; represented that it cost them $1,000 per acre, and that they would sell it to the corporation for $1,100 per acre, although they had received higher offers. The other directors, upon a favorable report by the plaintiff, made after examining the land, approved the purchase from Meyer & Finck, and it was accordingly made; but meanwhile, a survey having been made by the defendants, it was found that the property contained 8.09 acres, and they accordingly received from the corporation $8,900 for it. The fact of Meyer & Finck's ownership, and of their profit of $100 per acre, was disclosed, but the discrepancy in quantity was not, nor the interest of the other defendants. There is no evidence to establish that the defendants had made the survey, and ascertained the discrepancy as to area, at the time of making the representations to Spaulding, though they had at the time of the resolution for its purchase. If allowed 10 per cent. advance on the cost to them, the defendants still made a profit of $1,706.

While substantially all of the original subscribers to stock are still owners to some extent, the capital stock has been very largely sold and transferred, so that their proportions are very different, and a large share of the capital stock is held by those who are not incorporators or original subscribers, with no evidence as to price paid. After the incorporation the property was platted' and thrown upon the market in lots, and considerable sales were made at prices in the neighborhood of $4,000 per acre up to the time of the panic, when sales practically ceased. In February, 1895, after calls, additional to the original 50 per cent., amounting to 27 per cent., had been made, and mainly paid, the corporation was in straitened circumstances; owing a considerable amount of interest on mortgages which contained options giving the privilege of declaring the whole principal due for nonpayment of interest, and for moneys borrowed to pay previous installments of interest, aggregating apparently about $6,500. At that time the plaintiff, with some other stockholders, had agitated the question of the defendants' liability to account for profits made on the Spuhl and Wasserburger tracts, which was resisted by them; they claiming that they were the owners of the land, and had sold without misrepresentation to the corporation, and were entitled to their profits. The facts were fully set forth before a meeting of the stockholders, which had been called at the instance of plaintiffs for the purpose of devising means to carry the corporation without further calls on the stockholders. At that meeting, held February 14, 1895, a stockholder offered a resolution proposing to these defendants that if they would carry the corporation over the next year, protecting it against defaults by the loan of their credit, such financial service should be accepted in full satisfactionof any claims the corporation might have against them by reason of the making of such profits. This resolution was adopted by a reasonably close vote, requiring the vote of the stock represented by those defendants to make a majority. The proposition was accepted by the defendants, and carried out by them. At a directors' meeting in July the defendant Finck, who was treasurer, reported that he had paid certain of the pressing liabilities, which were among those the defendants were to take care of; but the directors might have inferred from the financial condition of the corporation that such payment had been accomplished by the defendants in performance of their agreement. A resolution was offered to ratify that action, which, according to the minutes of the meeting, was carried unanimously. Plaintiff Spaulding testifies that he did not vote in favor of it, but remained silent, and that he supposed the report referred to old indebtedness, which the treasurer ought to pay in any event. In November, 1895, a proposition was made to disband the corporation, and divide its remaining assets, including an assessment of 23 per cent. upon the capital stock to bring it up to par, among the stockholders. Plans of division were made, and in 1896 a division was made; lots and land contracts being transferred to individual stockholders, and their stock surrendered in payment. Neither of the plaintiffs has acted under that resolution, and neither surrendered his stock, nor received a share of the property; but all of the other original subscribers and all the other stockholders, except the holders of 12 shares, have done so. The corporation has been legally terminated, and its affairs are now being wound up by the directors as administrators.

The trial court rendered judgment against the several defendants, except Momsen, for his proportionate share of $34,275 profit made by them on the original tracts, and of $2,359 profit on the Differt tract, with interest from February...