Beaufort Transfer Co. v. Fischer Trucking Co.

• Citation: 451 S.W.2d 40
• Decision Date: 09 February 1970
• Docket Number: No. 54176,No. 2,54176,2
• Parties: BEAUFORT TRANSFER COMPANY, a Corporation, Plaintiff-Respondent, v. FISCHER TRUCKING COMPANY, a Corporation, and Harry Morris, Defendants-Appellants, and Philipp Transit Lines, Inc., a Corporation, Intervenor Defendant-Appellant
• Court: United States State Supreme Court of Missouri

Page 40

451 S.W.2d 40

BEAUFORT TRANSFER COMPANY, a Corporation, Plaintiff-Respondent, v. FISCHER TRUCKING COMPANY, a Corporation, and Harry Morris,

Defendants-Appellants,

and

Philipp Transit Lines, Inc., a Corporation, Intervenor

Defendant-Appellant.

No. 54176.

Supreme Court of Missouri, Division No. 2.

Feb. 9, 1970.

Motion for Rehearing or to Transfer to Court En Banc Denied

March 9, 1970.

Husch, Eppenberger, Donohue, Elson & Cornfeld, Myron Gollub, St. Louis, for plaintiff-respondent, Beaufort Transfer Co.

Thompson, Mitchell, Douglas, Neill & Guerri, Donald J. Stohr, Gary T. Nelms, St. Louis, for intervenor defendant-appellant, Philipp Transit Lines, Inc.

Flynn & Parker, Norman C. Parker, St. Louis, for defendants-appellants, Fischer Trucking Co. and Harry Morris.

MORGAN, Judge.

Beaufort Transfer Company, a corporation, sought specific performance of what was alleged to have been a binding contract of Fischer Trucking Company, a corporation, and Harry Morris, its president, to sell certain intrastate and interstate common carrier operating rights to Beaufort. The Philipp Transit Lines, Inc., alleged it had purchased the same operating rights from Fischer and was allowed to intervene as a party defendant. The trial court decreed sprcific performance of the contract as prayed by Beaufort and the three defendants have appealed.

It is agreed that Fischer was having financial difficulties which became critical during the year 1966. Its assets were encumbered by a chattel mortgage in addition to liens for delinquent taxes filed by the Internal Revenue Service. Negotiations for sale culminated in the two contracts now in dispute.

On September 8, 1966, Harry Morris, in the office of an attorney, signed what was entitled an 'Earnest Money Receipt,' individually, and as the president of Fischer. It recited a sale price of $33,000, payable by an initial payment of $250, payment of which was acknowledged, and the balance of $32,750 within thirty days after the Interstate Commerce Commission and the Missouri Public Service Commission had approved the transfer of the operating rights. Fees and expenses in connection with the transfer were to be divided equally; certain debts were to be liquidated in accordance with a disbursement letter; and, in consideration of the purchase, Fischer and Harry Morris, individually, agreed to 'enter into an agreement not to compete with Buyer (Beaufort) as to the operating rights transferred herein containing terms satisfactory to Buyer.' The attorney prepared proposed corporate resolutions for adoption by the boards of directors of Beaufort and Fischer, and they were to be returned to the attorney the next day. However, those of Fischer were not returned, and the attorney later received a letter from Harry Morris, dated September 14, returning the $250 down payment and expressing regret 'we were unable to get our board of directors to ratify the contract between Fischer Trucking Company and Beaufort Transfer Company.'

Philipp, intervenor-defendant, declares in its brief that, 'On September 14, 1966, Fischer and Philipp substantially agreed on terms of sale of the same operating rights to Philipp.' The agreed sale price was $40,000, but the contract was not formalized until September 20. The validity of this contract has not been challenged, but obviously its effectiveness depends on whether or not Fischer had any carrier rights to sell on September 20. Clearly, it did not if the agreement to sell to Beaufort, dated September 8, was binding on Fischer.

Fischer denies any obligation under the purported contract of sale to Beaufort, because:

(1) The sale, being for substantially all the corporation's assets, was not approved by the board of directors as required by Section 351.400, RSMo 1959, V.A.M.S.

(2) The parties did not intend that there would be a binding agreement until the proposal was approved by the boards of directors of Beaufort and Fischer.

(3) The contract is not susceptible of specific performance for the reasons: (a) The Interstate Commerce Commission and the Public Service Commission, not being parties to this action, need not comply with the decree as entered by the trial court, and (b) The terms of the noncompeting obligation of Harry Morris and Fischer were left, by the contract, to future agreement of the parties.

Philipp, intervenor, adopts the arguments of Fischer and further submits:

(1) Specific performance of the Beaufort-Fischer Contract will cause unreasonable and disproportionate hardship and loss to Philipp, because it has made substantial expenditures for road equipment and docking facilities in reliance on its contract of September 20.

Admittedly, with respect to the Beaufort contract, the specific procedure outlined in Section 351.400, was not followed. It, in part, provides:

'A sale * * * of all, or substantially all, the property and assets * * * of a corporation, if not made in the usual and regular course of its business * * * may be authorized in the following manner:

(1) The board of directors may adopt a resolution recommending such sale * * * and directing the submission thereof to a vote at a meeting of shareholders * * * except that such proposed sale * * * need not be adopted by the board of directors and may be directly submitted to any meeting of shareholders;

(2) (Notice of Meeting.)

(3) * * * the shareholders may authorize such sale * * * (by) * * * the affirmative vote of the holders of at least three-fourths of the outstanding shares entitled to vote * * *;

(4) After such authorization * * * the board of directors * * * in its discretion * * * may abandon such sale * * * subject to the rights of third parties under any contracts relating thereto * * *.' (Emphasis added in each instance.)

The italicized portions of the statute would compel these conclusions: (1) holders of three-fourths of the shares outstanding may approve such a sale without prior approval of the board of directors, but (2) the board, in its discretion, may abandon the sale 'subject to the rights of third parties under any contracts relating thereto.' As such a third party, Beaufort contends its contractual rights are not defeated by the absence of a formal approval by the board of directors, since Harry Morris owned one hundred percent of the outstanding shares and had complete control and ownership of the corporation. The argument is not new nor novel. In the early case of Union National Bank v. Shoemaker, 68 Mo.App. 592 (1897), three shareholders, owning all outstanding shares of a corporation, transferred corporate property in disregard of regulatory statutes and the court held: 'They were in fact the corporation, and whatever all these shareholders did or consented to must be treated as the act of the corporation.' See Land Clearance For Redevelopment Auth. v. Zitko, Mo., 386 S.W.2d 69, 81(26). The purpose of Section 351.400 was fully considered by this court in the late case of Still v. Travelers Indemnity Company, Mo., 374 S.W.2d 95, wherein it was concluded that, 'The statute on the sale of corporate assets is designed primarily for the protection of stockholders of the corporation.' As to the effect of noncompliance with this section, the court determined that no public policy consideration was created, and that a transaction which does not follow the prescribed procedure is not, of necessity, unlawful or void. In reliance on the Still case, this court again declared in Flarsheim v. Twenty Five Thirty Two Broadway Corp., Mo., 432 S.W.2d 245 at 250, that: 'There is a considerable number of instances where corporate officers dispose of the corporate assets in good faith but with little or no regard for the methods of sale and dissolution procedures provided...