Berry v. Benner

• Decision Date: 07 January 1966
• Docket Number: Nos. 10161,10162,s. 10161
• Citation: 139 N.W.2d 285,81 S.D. 610
• Parties: Geraldine W. BERRY, Plaintiff and Respondent, v. Donald G. BENNER and Northwest Wood Preserving Company, a Corporation, Defendants and Appellants.
• Court: South Dakota Supreme Court

Page 285

139 N.W.2d 285

81 S.D. 610

Geraldine W. BERRY, Plaintiff and Respondent, v. Donald G. BENNER and Northwest Wood Preserving Company, a Corporation, Defendants and Appellants.

Nos. 10161, 10162.

Supreme Court of South Dakota.

Jan. 7, 1966.

Bangs, McCullen, Butler & Foye, Rapid City, for defendants and appellants.

Whiting, Lynn, Freiberg & Shultz, Rapid City, and Hayes & Richards, Deadwood, for plaintiff and respondent.

ROBERTS, Judge.

Northwest Wood Preserving Company was engaged in the processing and sale of wood products, principally posts, in the City of Deadwood, South Dakota. On March 8, 1961, when a written contract for the sale of all the authorized and autstanding stock was entered into, Geraldine W. Berry, her three sons and A. W. Thornton were owners of all the outstanding stock. Prior to the commencement of the present action, the other stockholders assigned their rights to plaintiff.

W. Del Clinton, a resident of Minneapolis, Minnesota, was engaged as a consultant in May, 1959, to design and oversee a system of records and accounts and to make recommendations in the field of management. The original records were kept at the plant under the supervision of Warner Berry who allocated expenditures to the various accounts and transmitted to Clinton copies of each check with the account allocation shown thereon.

On September 8, 1959, the plant at Deadwood was destroyed by fire. Clinton was consulted along with an engineer regarding a new plant to be located at Whitewood, South Dakota. The company had obtained a Small Business Administration loan of $110,000 in December, 1957. Another loan from that agency in the sum of $257,000 was with the assistance of Clinton negotiated for the purpose of constructing the new plant. Construction of the plant at Whitewood was commenced in December, 1959, and salvaged and repaired equipment and machinery were utilized or installed at the new and enlarged plant. The plant became operational on April 1, 1960, but was not then complete and construction continued throughout 1960. The proper allocation of payroll and other expenditures as between operational expenses and capital costs of the new plant is here involved.

On January 20, 1961, the stockholders of Northwest Wood Preserving Company received an offer from Donald G. Benner, Minneapolis, Minnesota, to buy all the common capital stock of the company at the 'net worth of the corporation as of January 31, 1961, plus the sum of $120,000.' It contained the terms and condition that net worth be based on the balance sheet of the company as it appeared in its financial report of December 31, 1959, then determined as of January 31, 1961, in accordance with the practices permissible under the provisions of the Internal Revenue Code. There was to be deducted the amount owing on account of an outstanding liquidation agreement and the book value of land and guildings in Deadwood. The stockholders submitted a qualified offer of acceptance. The original offer was never accepted as submitted.

The parties thereafter entered into negotiations and worked out the terms and conditions of an agreement as evidenced by their contract of March 8, 1961. The contract contains these terms of purchase and sale:

'The Sellers shall sell and the Purchaser shall purchase the entire capital stock of the Company for the sum of $120,000.00 subject to the adjustments of the purchase price hereinafter set forth.

'A. Reductions: There shall be deducted from the purchase price referred to in the foregoing paragraph the sum of $26,013.06 which represents:

1. The sum of $16,452.00 representing a liability by reason of an an outstanding stock liquidation agreement made and entered into July 18, 1951 by and between the said Company and a number of its stockholders.

2. The sum of $9,561.06 representing the book value on January 31, 1961 of certain lands and buildings located in Deadwood, South Dakota, depreciated, which are not included in the assets of the corporation subject to this agreement.

'B. Purchase Price: The purchase price as hereinbefore determined shall be the sum of $93,986.94 or such adjusted purchase price as shall result from the determination of the arbitration hereinbefore referred to in Paragraph I C above. * * *

'The Sellers warrant and represent that if there are any legally enforceable claims against the Company which arise after the closing of this transaction which are not disclosed in the statement of financial condition prepared by W. Del Clinton hereinbefore referred to and there is liability on the part of the Company by reason thereof, said amounts shall be deducted from the balance of the purchase price hereinbefore described * * *.'

Paragraph I C referred to provides:

'That the Company is the owner of certain assets which are subject to certain encumbrances, all of which are described in the statement of financial condition of W. Del Clinton heretofore made and delivered to each of the parties hereto, the receipt of which statement of financial condition is acknowledged by each of the parties hereto; and that said statement of financial condition as of January 31, 1961 represents, according to the Company's books and records, a statement of the affairs of the Company. Said statement of financial condition as the same has been prepared by W. Del Clinton indicates that the Company has no net worth and has, in fact, a negative net worth in an amount so stated in said report of financial condition. The Sellers desire that said statement of financial condition be examined by an accountant of their own choosing, and to that end, have selected one, Donald Dunmire, a certified public accountant of Rapid City, South Dakota to make an examination into said statement of financial condition. Such examination by said Donald Dunmire shall be at the sole expense of the Sellers.

'If upon such examination, the said Donald Dunmire shall agree substantially with the statement of financial condition as the same has been determined by said W. Del Clinton, there shall be no further need for any examination into the financial affairs of the Company. If there shall be substantial disagreement between the report and examination of said Donald Dunmire and the report of said W. Del Clinton, then and in that...