Anderson v. Anderson, 42161

• Decision Date: 19 May 1972
• Docket Number: No. 42161,42161
• Citation: 197 N.W.2d 720,293 Minn. 209
• Parties: Walter R. ANDERSON et al., Respondents, v. James E. ANDERSON et al., Defendants, Lecon Properties, Inc., Defendant, Lakeland Development Corporation, Respondent, David W. Anderson, Defendant, William B. Korstad, Appellant.
• Court: Minnesota Supreme Court

Page 720

197 N.W.2d 720

293 Minn. 209

Walter R. ANDERSON et al., Respondents, v. James E. ANDERSON et al., Defendants Lecon Properties, Inc., Defendant Lakeland Development Corporation, Respondent David W. Anderson, Defendant William B. Korstad, Appellant.

No. 42161.

Supreme Court of Minnesota.

May 19, 1972.

Syllabus by the Court

1. An agent vested with discretionary authority cannot represent two parties having conflicting interests without the principal's prior consent or subsequent ratification after full disclosure of all the facts.

2. Where an agent representing both seller and buyer negotiates a sale of land, the principal ignorant of the double agency may rescind the sale as well as recover any compensation paid the agent for his services without proof of actual injury or intentional fraud.

3. In plaintiffs' derivative shareholders' action to recover fees paid by a corporation to its agent for negotiating a sale of its land, findings by the trial court of the agent's wrongful duplicity, and of the time when plaintiffs gained knowledge thereof, under the peculiar facts of plaintiffs' interest in the corporation known to the agent at the time of the sale, Held not clearly erroneous.

William B. Korstad, pro se, Byron McCullagh, Minneapolis, for appellant.

Harry H. Peterson, Minneapolis, for respondents.

Heard before KNUTSON, C.J., and MURPHY, OTIS, ROGOSHESKE and PETERSON, JJ.

ROGOSHESKE, Justice.

This appeal by defendant William B. Korstad arises out of a derivative shareholders' action brought by Walter and Theodore Anderson on behalf of Lakeland Development Corporation (Lakeland) to rescind a sale of land owned by Lakeland to defendant Lecon Properties, Inc., (Lecon) and to recover from defendant Korstad, an officer and director of, and legal counsel for, both corporations, $17,500 in fees paid to him by Lakeland for effecting the sale. Prior to trial, Lakeland, by cross-complaint against defendant Korstad, also sought recovery of the fees paid. This claim was consolidated for trial with plaintiffs' derivative action against both Lecon and Korstad. The court, upon findings that defendant Korstad 'wrongfully and fraudulently' participated in violation of fiduciary obligations owed to plaintiffs and Lakeland, granted rescission, ordering Lecon to reconvey the land to Lakeland, and awarded judgment against defendant Korstad for $17,500 in favor of Lakeland. Defendant Korstad alone appeals from the judgment. ¹ We affirm.

Although innumerable issues are suggested, our examination of the voluminous district court file and the four briefs of the parties reveals two essential issues: (1) Whether the critical findings of the trial court concerning defendant Korstad's duplicitous representation of both Lakeland and Lecon without full disclosure to plaintiffs are clearly erroneous; and (2) whether, upon the court's finding as to the time of eventual disclosure, plaintiffs' derivative action to recover the fees paid is barred by the statute of limitations.

The preliminary and substantially undisputed facts may be abbreviated. Eugene Anderson, the incorporator and sole owner of Lakeland, represented by 20 shares of stock, died intestate March 18, 1960. His surviving heirs are four sons: James, then age 26; David, 24; Walter, 19; and Theodore, 17. The two minor sons were then in the custody of decedent's former wife under a 1957 divorce decree. She also was a potential claimant against the estate for unpaid alimony. The sole asset of substantial value in decedent's estate was the 20 shares of stock in Lakeland, of which corporation the decedent, so far as the evidence reveals, was the sole director and managing officer. Lakeland's principal assets consisted of three tracts of land in Anoka County potentially adaptable for commercial development as a shopping center. One tract of approximately 18 acres of an estimated unencumbered value of over $100,000 was owned in fee. In one of the two other tracts comprising a total of approximately 64 acres, Lakeland held a vendee's interest in a contract for deed having a balance of about $42,000 owing at the time of decedent's death. As to the remaining tract, Lakeland held an option to purchase for $160,000. To keep the option open to March 15, 1963, Lakeland was required to pay two annual payments of $500 on March 15, 1961, and March 15, 1962. ² Five days after decedent's death, a purported meeting of the shareholders and directors of Lakeland was held in the office of James T. Knutson, who had long acted as decedent's attorney. James, David (who was on leave from military service), and Knutson were present and elected themselves president-treasurer, vice president, and secretary, respectively. Shortly thereafter, James contacted defendant Korstad, an attorney experienced in commercial land development. Presumably with attorney Knutson's consent, defendant Korstad then took over as attorney for Lakeland to advise James, who, after his appointment as administrator of decedent's estate on July 27, 1960, undertook to vote all of the shares of Lakeland stock. ³

The critical findings of the court follow:

'That on July 29, 1960, upon the advice and at the direction of Korstad, a meeting purporting to be a meeting of shareholders of Lakeland was held at Korstad's office, at which meeting James, as representative of the Estate of Eugene, voted the 20 shares of stock in Lakeland and elected himself, Korstad, and one Lloyd M. Severson directors. Immediately thereafter a special meeting of the directors was held electing James president, Severson vice-president, and Korstad secretary-treasurer. The minutes of this meeting and subsequent minutes dated August 11, September 2, and December 8, 1960, indicate Severson was present but there is no evidence or claim that he actively participated in the operation of the company.

'That as of July 29, 1960, Korstad was aware of the equitable interest of David, Walter and Theodore Anderson as heirs of Eugene in Lakeland. That David, Walter and Theodore had no notice of the July 29, 1960, meeting.

'That the July 29 shareholders meeting was held by James and Korstad for the purpose of depriving David, Walter and Theodore of their right to control the management of Lakeland and was in violation of the fiduciary duty James owed his said three brothers as administrator of the estate of Eugene.

'That on August 11, 1960, James E. Anderson and Korstad signed an agreement prepared by Korstad whereby Korstad would be paid seven percent of the gross sales price received from the sale of land owned by Lakeland. That none of the other brothers knew of this agreement.

'That in August of 1960 Korstad also represented one H. Stanley Wessin, who, with others, engaged Korstad to incorporate Lecon Properties, Inc. This company was incorporated to purchase and develop land. Korstad in addition to being attorney of Lecon and paid a retainer by it was also its secretary. Korstad along with James negotiated a sale of Lakeland's interest in Tracts B and C with Lecon for $250,000 which represented a net profit of $48,000 to Lakeland. Walter and Theodore had no notice of this sale. James told David of the sale by phone as David was then in military service stationed in Kansas. David disapproved of the sale. James and Korstad proceeded in spite of David's objections and executed an option contract on behalf of Lakeland on September 2, 1960, which was subsequently exercised by Lecon. Lakeland was paid $48,000 of which Korstad received $17,500.

That Korstad was not a stockholder of Lecon. That Wessin and his associates had no knowledge of the status of the estate of Eugene Anderson or who the actual owners of Lakeland were and relied upon Korstad as their attorney in connection with their purchase of the land. Lecon took an assignment of the Lakeland contract on Tract B and an assignment of Lakeland's option interest in Tract C. That Lecon has made payments on the contract on Tract B and exercised the option of Tract C and entered into a contract to purchase the same and has made all the required payments thereon. Lecon has also paid all taxes, assessments, et cetera, as required on both Tracts B and C.

'That though the cash position of Lakeland was not good in August of 1960, the corporation owned Tract A free of mortgage, affording Lakeland ample security for loans if needed, to make contract and option payments on Tracts B and C.

'That Lecon paid Lakeland $6,000 at the time the option was executed on September 2, 1960, and on the same day James Anderson wrongfully and without authority and without the knowledge of his three brothers, took $1925.00 thereof for his own personal use. That subsequently as additional money was paid by Lecon, he wrongfully took and used Lakeland funds for his own personal use. That Korstad was aware of the fact that James wrongfully took and used Lakeland funds and advised him to execute notes therefor which James did at a later date.

'That James and Korstad wrongfully and fraudulently consummated the said sale to Lecon for the purpose of making cash paid to Lakeland available to James for his own personal use and to enable Korstad to collect a fee of $17,500 based on the agreement dated August 11, 1960.

'That James as Administrator of the Estate of Eugene wrongfully and fraudulently allowed an inventory and appraisal (to) be filed in the estate in which the 20 shares of Lakeland stock was valued at $5,000 which was only a small fraction of its actual value in view of the admitted value of Tract A and the sale of Lakeland's interest in Tracts B and C.

'That in December, 1960, James with the knowledge of David and upon the advice of Korstad, wrongfully and fraudulently arranged to purchase the 20 shares of stock of Lakeland from the Estate for $7,000.00. The stock was thereafter transferred by James as administrator, with Probate Court approval, to David, and David pursuant to prior agreement then transferred 10...