Duncan v. Kelly

• Decision Date: 02 December 1968
• Docket Number: No. 24888,24888
• Citation: 435 S.W.2d 29
• Court: Missouri Court of Appeals
• Parties: Gilford R. DUNCAN, Plaintiff-Respondent, v. E. Lynn KELLY, Defendant-Appellant.

Page 29

435 S.W.2d 29

Gilford R. DUNCAN, Plaintiff-Respondent, v. E. Lynn KELLY, Defendant-Appellant.

No. 24888.

Kansas City Court of Appeals, Missouri.

Dec. 2, 1968.

J. H. Birmingham, Jr., Birmingham & Furry, Kenneth E. Bigus, Kansas City, for appellant.

John I. Moran, Mason, Gant & Moran, Kansas City, for respondent.

CROSS, Judge.

Plaintiff pleads in this action that defendant offered to sell him twenty-five percent of the outstanding shares of common stock in a small corporation for the price of $3,000.00, that plaintiff accepted the offer and paid defendant that agreed sum, that defendant thereafter failed and refused to deliver to plaintiff any certificate of stock, and that plaintiff was thereby damaged to the extent of $3,000.00. Trial to a jury resulted in a verdict and judgment awarding plaintiff damages in the sum of $2,800.00. Defendant has appealed.

The corporation involved bears the name Triangle Texaco Service, Incorporated, and was created for the purpose of operating a neighborhood filling station. It was organized in January of 1963 by three original subscribers, namely, defendant Kelly, Mrs. Kelly and a Mr. Disney. A total of one hundred shares of common stock was issued--forty-nine shares to Disney, twenty-six shares to Kelly and twenty-five shares to Mrs. Kelly. On behalf of the Triangle corporation, Kelly had negotiated with Texaco, Incorporated, and obtained a lease of one of its filling station properties. The lease was taken in Kelly's name because of Texaco's policy that it would deal only with an individual directly responsible for the lease obligations. With that arrangement, Triangle proceeded to conduct a filling station business at the leased premises.

Plaintiff Duncan became acquainted with defendant Kelly in January of 1963, soon after Triangle began to operate the station, while patronizing it as a gasoline customer. Thereafter, according to Kelly, Duncan indicated that he would like to participate in 'the business'. 'His interest was mild at first' and became 'more emphatic as time went on.' Finally, on July 31st, 1963, after indicating to Kelly and the other shareholders that he would like to 'acquire an interest' Duncan entered into an agreement with Kelly for that purpose. Meanwhile, and prior to that transaction, Disney and Mrs. Kelly had sold their respective share interests to other persons, thereby effecting a substantial change in the stock ownership. At the time the transaction was entered into, the corporate ownership was vested solely in defendant Kelly, a Mr. Schauble, a Mr. Anderson and a Mr. Abel.

On the last stated date, Duncan entered into an oral contract with Kelly to purchase twenty-five shares of stock in Triangle Texaco Service, Inc., for which he agreed to pay Kelly the sum of $3,000.00 in cash or check as the purchase price. Forthwith, Duncan delivered his check for $3,000.00 to Kelly, payable to Triangle Texaco Service, Inc. Before the agreement was made and the transaction consummated, Duncan had examined a profit and loss statement at Kelly's home, and Kelly had advised him of the 'financial situation' of the corporation. The check was deposited to Triangle's credit, and paid out as follows: $966.60 to station creditors; $1,800.00 to shareholder Anderson as partial payment on a $2,000.00 loan he had made to the corporation; $233.40 to Kelly, also as partial payment on loan of personal funds to the corporation he had previously made in the approximate amount of $4,000.00. Duncan admitted that such disposition of the purchase price increased the value of his 'interest in the business' for which he had bargained.

Duncan testified that when he gave Kelly the $3,000.00 check he inquired about 'the stock', and that Kelly said he'd take care of it in a day or two. Since Kelly held a certificate for twenty-six shares of stock, it was impossible for him to have delivered Duncan a certificate or certificates representing twenty-five shares (reserving a single share to himself) without the issuance of new stock certificates. Kelly testified that he informed Duncan that the corporate minute book, the stock transfer book and the corporate seal were in the possession of Mr. Cohn, the 'corporate lawyer', who had originally been employed 'to organize this business' and that he had not been paid for those services. Kelly testified 'I told him (Duncan) that I didn't feel that we should call upon him (Cohn) to perform any further services until we were in a position to pay for service already rendered', and that he offered to sign over his stock certificate for twenty-six shares to Duncan to hold as evidence of his good faith in the transaction that had just been completed, but that Duncan said that would not be necessary. Duncan denied that such offer was made by Kelly and testified that in ensuing months he asked for 'the stock' some five or six times but that he had never received it from Kelly. (Four days prior to trial defendant Kelly filed in the pending action the original certificate for twenty-six shares, duly assigned in blank, and during trial tendered it to plaintiff, who refused the tender.) After the transaction previously described was completed, it was understood that Kelly's remaining interest in the business amounted to a nine and one-third percent share, (represented by the single share reserved, together with additional stock acquired subsequent to organization of the corporation). Thereafter Kelly took no part in the operation of the business except to attend shareholders' meetings. In August, following the transaction consummated on July 31st, 1963, plaintiff was employed by Triangle as a part-time station attendant at a stated salary, and worked in that capacity until he became station manager under circumstances here noted.

Duncan testified that in February of 1964, when 'the business was good', he purchased additionally the stock interest of Mr. Schauble amounting to thirty-seven and one-half percent of the total interest and thereby increased his 'interest in the business' to sixty-two and a half percent. He received no stock certificate from Schauble to evidence the transaction, and admitted that he bought Schauble's interest 'under these circumstances which you are complaining about now.' Following that transaction, sometime later in February or early in March of 1964, a stockholders' meeting was held. Prior thereto other changes had been made in ownership of the stock interests held, so that at the time of the meeting, the roster of stockholders included Duncan, Kelly, Schauble, a Mr. Hunter and a Mr. Rankin. At the meeting new corporate officers were named, including Duncan who was elected president 'since he held the largest part'. Thereafter Duncan assumed management of the station and operated it until it was finally closed. During that time all company records were available at the station except the corporate minute books, seal, and transfer book which the corporate lawyer still held. Records kept at the station included those showing daily sales and purchases, and charges and receipts. Duncan testified that as principal officer of the corporation and manager of its station property, he was signing documents as president of Triangle Texaco Service, Inc., that he had access to the bank account, that he deposited and withdrew money from it, and had authority to draw checks upon it. Duncan 'continued to operate it (the business) until it went broke'. On April 3, 1964, approximately forty-five days after he became president, Duncan finally closed and locked the station. According to Duncan, the stock 'is worth nothing now after it went broke'.

Duncan admitted that 'all of the parties involved * * * recognized your (his) interest'; 'that nobody ever contested your (his) interest in the corporation', that neither Kelly, Schauble, nor any one else ever interfered with his operation of the business, and that Kelly and Schauble assisted him if he asked for assistance.

It was explained by Kelly that all of the transactions between the various individuals involving the sale and transfer of corporate ownership were done without any actual transfer or delivery of stock certificates, but by mutual understanding of the parties involved. Kelly stated that the three original certificates issued to himself, his wife, and Mr. Disney, were the only certificates ever issued, and that he still had them in his possession. Kelly stated that 'at any meetings, the percentages of ownership were clearly understood by all individuals involved; never any question raised.' Duncan declined to say that it was Mr. Kelly's fault 'because he lost money in the business.' No person had ever offered to purchase Duncan's stock interest and there is no evidence that he had tried to sell it. Duncan makes no claim that Kelly practiced any fraud to induce the transaction between the parties. It is not shown that any dividend or profit was ever distributed to any shareholder.

As appellant, Kelly now contends that the trial court erred in refusing to direct a verdict in his favor because (1) the evidence established that Duncan did in fact receive a 25% interest in the corporation even though he received no certificate and (2) he 'failed to allege or prove how he was damaged by not receiving a stock certificate.' Secondarily, the appealing defendant submits that the trial court erred in giving instructions submitting the issue of damages to the jury 'because plaintiff has not alleged or proven either the amount or nature of such damage.'

An understanding of the issues requires that we distinguish between a 'share of stock' in a corporation and a 'stock certificate', as those terms are understood by the courts. A 'share' of stock connotes actual, beneficial, participating...