Buchhalter v. Myers

• Decision Date: 01 April 1929
• Docket Number: 12063.
• Citation: 85 Colo. 419,276 P. 972
• Parties: BUCHHALTER v. MYERS et al.
• Court: Colorado Supreme Court

276 P. 972

85 Colo. 419

BUCHHALTER v. MYERS et al.

No. 12063.

Supreme Court of Colorado, En Banc.

April 1, 1929

Rehearing Denied April 22, 1929.

Error to District Court, Adams County; Samuel W. Johnson, Judge.

Suit by Charles B. Myers against Joseph Buchhalter and the Colorado Pulp & Paper Company. Judgment for plaintiff and defendant company against defendant Buchhalter, who brings error.

Reversed.

Davis & Wallbank and Blount, Silverstein & Rosner all of Denver (Henry E. Lutz, of Denver, of counsel), for plaintiff in error.

Ernest Morris and C. E. Wampler, both of Denver, for defendant in error Myers.

Charles Ginsberg and R. H. Walker, both of Denver, for defendant in error Beck.

ADAMS J.

This suit was commenced in the district court on May 21, 1926. Final judgment was entered on December 12, 1927, and it was argued before this court at the present term. It was brought by Charles B. Myers against Joseph Buchhalter and Colorado Pulp & Paper Company, a corporation (hereinafter called the company or the pulp company). There were also a large number of other defendants, including all of the directors of the company. The final judgment and decree was entered against Buchhalter in favor of the pulp company. The only judgment in favor of the plaintiff, Myers, was for costs; he sought no other judgment in his own favor. Buchhalter brings error. The only parties to the writ of error are Buchhalter Myers, and the pulp company, but George W. Beck, receiver of the pulp company, has voluntarily appeared by his attorneys and adopted the Myers brief. When not otherwise designated, we shall refer to Myers as plaintiff and Buchhalter as defendant.

The pulp company is a Colorado corporation, with an authorized capital stock of $600,000, with shares of the par value of $1 each, 250,000 of which are preferred and 350,000 common stock. The company was organized June 2, 1925. There are seven directors. Myers and Buchhalter are directors. They are also holders of all outstanding capital stock, except 5 shares issued to qualify the other directors. The total stock is about evenly divided, but Myers claims to own a majority over Buchhalter and the other directors. At the time this suit was started, the company was engaged in a paper business, and the manufacture of paper products, in Adams county. An understanding of this opinion requires the recital of certain matters that led up to the formation of the pulp company, little of which history has any bearing on the complaint, but, paradoxically most of which forms the basis of the final judgment and decree.

In the year 1923, or thereabouts, Myers organized the Myers Pulp & Paper Company (hereinafter called the Myers Paper Company, or Myers Company), to carry on a paper business similar to that of the defendant pulp company. The Myers Company is not a party to this suit. It had a short life; the business was a failure; it became hopelessly involved and culminated in a receivership in the district court of the city and county of Denver. Its property was ordered to be sold at a receiver's sale on May 27, 1925. Myers wanted a reorganization but lacked capital, and he and Buchhalter evolved a plan of purchase. This plan was reduced to contract in writing between Myers and Buchhalter. The first is dated March 31, 1925, Exhibit A, the original contract. The second is dated June 1, 1925, Exhibit 1, a supplementary contract, modifying Exhibit A. They are both in the form of letters from Myers to Buchhalter, with the latter's approval and acceptance indorsed thereon. Together they form the written agreement of the parties. Exhibit 1 changed the terms of purchase of the Myers assets and also of the manner of division of mutual profits. When Exhibit A was made, it was estimated that it might take $300,000, more or less, to acquire the Myers Paper Company property and assets, but it developed later that it would take about $70,000 more. Because of this, the supplementary agreement, Exhibit 1, was made. Both contracts were made before the formation of the pulp company. Myers and his mother held claims against the Myers Paper Company, and Buchhalter purchased other claims.

In the other cause, where the Myers Paper Company matter was pending, the decree provided that creditors would be allowed to use their claims on their bids for the Myers Company property. Buchhalter bought claims at a discount against the Myers Company. He also interested capital to furnish cash for the purchase of the Myers Paper Company assets. Myers and Buchhalter combined their claims, and these, together with the cash capital provided by Buchhalter, constituted the purchase price paid the Myers Company receiver for such assets. Myers asserts that Buchhalter should account to the pulp company for his profits on the purchase of the Myers Paper Company claims. Buchhalter denies the assertion, and refused to do it, but the court allowed it. All of the assets of the Myers Paper Company were acquired by the pulp company, and corporate stocks and bonds of the latter company were distributed between the two men as provided in Exhibits A, and as modified by Exhibit 1. The purchase of the Myers Paper Company mill and other assets at the price agreed upon was unanimously ratified in the usual form, at a pulp company organization meeting held on June 2, 1925, in which Buchhalter and Myers participated. The delivery of pulp company stock and $250,000 bonds was the consideration approved by the directors.

Exhibit 1 provides, among other things, that 'all of said bonds shall be delivered and paid to you [Buchhalter].' This was done. In addition to profits on old Myers Paper Company claims, Myers asserts that Buchhalter should account for the value of a portion of the $250,000 bond issue. Buchhalter denies this, and refused to do it, but the court allowed it. Myers does not claim that there should be an accounting to him personally, nor to the old Myers Paper Company or its representatives, but sought and obtained it in favor of the pulp company. The Myers Paper Company is mentioned only incidentally, to explain the basis of the judgment and decree in the present cause. The court held Exhibit 1 void for lack of consideration, and further held that this made Exhibit A the contract of the two parties, Myers and Buchhalter, and that a trust resulted in favor of the pulp company.

In Myers' complaint he asked for a cancellation of a certain voting trust agreement, dated June 2, 1925, between the stockholders of the pulp company, whereby certain voting trustees, consisting of Buchhalter, Myers, and Harry C. Davis, were empowered to vote such stock at corporate meetings in place of the legal holders of the stock. It was signed by all of them, and by the International Trust Company as trust officer. Plaintiff complained that the voting trust agreement was obtained by Buchhalter's 'overreaching' him; also by promises not kept, nor intended to be kept; and that it is void as against public policy. Plaintiff also complained of various acts of fraud, mismanagement, extravagance, and waste, contrary to his interest as a stockholder, committed by Buchhalter and one Morris H. Block, for about eight months before the suit was brought. This period of time was about four months after the formation of the pulp company on June 2, 1925. Block was the pulp company manager. A conspiracy between Buchhalter and Block to wreck the pulp company is charged. Without further detail, and to quote from the statement of Myers' counsel in their brief as to the purposes of the suit, they were:

'(1) For the appointment of a receiver; (2) to restrain further mismanagement and squandering the assets of the company; (3) to cancel the voting trust agreement; (4) to require the defendants 'to account for all moneys, profits and property fraudulently or unlawfully received by them or any of them.'' Also for general relief.

Motions and demurrers were overruled; the defendants answered, and admitted the execution of the voting trust agreement and certain formal allegations, but denied all of the wrongful acts charged, and alleged, among other things, in effect that the pulp company's financial troubles were attributable to Myers by his interference and impairment of its credit by his suit for a receiver. The court appointed George W. Beck receiver on May 16, 1927, who is now in charge of the property. A referee was also appointed to take testimony under an accounting ordered by the court. The case was tried to the court, which resulted in a judgment and decree as follows:

First. Cancellation of written contract, Exhibit 1, between the plaintiff Myers and defendant Buchhalter. Second. Cancellation of the voting trust agreement. Third. Cancellation of 2,500 shares of preferred stock issued to Buchhalter, decree made conditional that, upon his surrender of the stock, $2,500 would be credited on the money judgment. Fourth. Judgment in favor of the pulp company, against Buchhalter, for $17,512.22, together with all costs of the receiver, including the expenses of the reference upon the accounting. Fifth. That plaintiff Myers have and recover from Buchhalter all his costs, including any costs of the reference. Sixth. Retention of jurisdiction in the district court for the purpose of carrying out the order of May 16, 1927, wherein Beck was appointed receiver, and defendant Buchhalter was declared guilty of a breach of trust as trustee.

1. We might have set out the terms of Exhibits A and 1 in full, if we had regarded a construction of their terms as germane to the issues; but we do not so look upon it. Neither of the agreements was pleaded, a breach thereof was not alleged cancellation of Exhibit 1 was not sought, nor any grounds pleaded why it should be canceled. Defe...