Equity Investors, Inc. v. Ammest Group, Inc.
| Decision Date | 29 April 1977 |
| Docket Number | No. 48299,48299 |
| Parties | EQUITY INVESTORS, INC., a corporation, Appellant, v. AMMEST GROUP, INC., formerly Ammest, Inc., formerly Liberty Investors, Inc., a corporation, Appellee. |
| Court | Kansas Court of Appeals |
Syllabus by the Court
1. At common law a member of a corporate governing body who abstains is counted as voting with the majority, or at least as acquiescing in their action. A majority of a quorum is sufficient to take corporate action.
2. In Kansas the common law rule as to abstainers applies both to private corporations and to public bodies.
3. The common law rule may be modified by statute, but the provisions of former K.S.A. 17-3101 as to quorums and votes of corporate directors was a codification and not a modifiction of the common law.
4. An ostensible or apparent agent is one whom the principal has intentionally or by want of ordinary care induced and permitted third parties to believe to be his agent even though no authority, either express or implied, has been conferred upon him.
5. Ratification is the adoption or confirmation by a principal of an act performed on his behalf by an agent which act was performed without authority.
6. Upon acquiring knowledge of his agent's unauthorized act, the principal should promptly repudiate the act; otherwise it will be presumed he has ratified and affirmed the act.
7. Where the directors of a corporation unanimously announce to a seller that they have authorized the corporation's chief executive officer to execute a contract to purchase the seller's property, they thereby clothe that officer with apparent authority to contract upon the seller is entitled to rely.
8. Even if a contract is in fact unauthorized, the failure of the buying corporation's directors to repudiate it promptly after learning it has been executed amounts to a ratification of the contract.
9. Where a buyer leads a seller for almost two months to believe a sales contract is valid and binding, and the seller reasonably relies on that belief to its detriment, the buyer is estopped to deny the validity of the contract.
10. If it is clear that one party to a contract is going to be unable to perform it, the other party need not wait for the date when performance is due. He is entitled to treat the contract at an end and pursue his remedies.
11. In an action for specific performance, or alternatively for damages for breach, of a written contract under which the plaintiff corporation agreed to sell all its assets to the defendant corporation in return for shares of defendant's stock it is held: the trial court erred in finding the contract was not valid and binding and in entering judgment for the defendant.
Lawrence McDonough and Emmet A. Blaes, of Jochems, Sargent & Blaes, Wichita, for appellant.
Paul B. Swartz and James A. Walker, of Martin, Pringle, Schell & Fair, Wichita, for appellee.
Before FOTH, P. J., and ABBOTT and PARKS, JJ.
This is an action for specific performance, or alternatively for damages for breach, of a written contract under which the plaintiff corporation agreed to sell all its assets to the defendant corporation in return for shares of defendant's stock. Trial was to the court, which rendered judgment for the defendant on a finding that the defendant's officers had not been properly authorized by its board of directors to execute the contract on its behalf.
The deficiency found was that only three of the defendant's six directors voted to authorize the contract, two voted against the contract, while one abstained. Plaintiff has appealed, contending that the vote was sufficient to authorize the contract, and that even if it was not defendant ratified the vote, clothed its officers with apparent authority to execute the contract, and is estopped to deny its validity.
Plaintiff Equity Investors, Inc., is a New Mexico real estate holding and operating company. In 1971 its assets consisted primarily of two motels and a nursing home worth around $4,000,000, subject to outstanding liabilities of around $2,300,000. Victor E. Katt was its president, charirman of the board, and controlling stockholder. The defendant, then known as Liberty Investors, Inc., was a Kansas holding company with real estate and insurance interests. In 1971 James Ford was the chairman of its board of directors and its cheif executive officer.
In the spring of 1971 Katt was approached by Ford and by Ray Hodge, another director of Liberty and former chairman of its board, to see if Katt was interested in selling Equity's assets. Katt's reaction was cautious, because prior negotiations along the same line in 1970 had been unproductive and Katt felt he had been 'jacked around' by the Liberty group. In addition, Equity was having cash flow problems which would be aggravated by lengthy negotiations if they proved unfruitful. Katt was assured that Liberty was serious about the proposition and that a committee of its directors was updating its 1970 investigaton of Equity's assets. On the strength of these assurances Katt entered into negotiations culminating in a crucial meeting of Liberty's board of directors on July 13, 1971.
At that meeting all six incumbent members of Liberty's board were present; a seventh seat was vacant. Also present was Fred Beaty, general counsel for Liberty. Katt, representing Equifty, was standing by in a separate room.
The four directors constituting the committee to investigate the proposed purchase of Equity recommended it. The proposal, as tentatively agreed upon with Katt, called for payment through the issuance of 501,-200 shares of Liberty's stock. After some discussion a lesser offer was conveyed to the waiting Katt, who rejected it. Finally a vote was taken on a motion to authorize the officers to carry out the purchase on the original terms. The vote was three in favor and two opposed. One director, although a member of the recommending committee, abstained from voting.
At the conclusion of the vote the chairman announced that the motion had carried. No one took exception to that announcement. The abstaining director then suggested that Mr. Beaty, the company's counsel, go out and tell Katt that his propesal had been accepted. Before doing so, however, Beaty polled the six members of the board individually to see if there were any objections. All six told him to go ahead.
At this point Beaty ushered in Mr. Katt. He was told in the presence of all directors that the deal was on, and there was a general discussion about their future working relationship (under which, among other things, Katt was to become an employee of Liberty).
There was testimony that Katt was advised at that time of the outcome of the vote, but no suggestion was made that it was insufficient. One of the dissenting directors, Paul Wunsch, indicated that he wanted to see the written contract before it was signed. He gave no indication, however, that he regarded the proposed contract as unauthorized.
Mr. Beaty announced that drafting of the written contract would begin at his office at 10:00 a. m. the next day, and that all interested individuals were welcome to participate. On this note the meeting broke up.
The next day Ford and Beaty, on behalf of Liberty, met with Katt and Equity's counsel to formalize the contract. Drafting consumed some two days, and on July 16, 1971, the contract was formally executed by the officers of each corporaton. Mr. Wunsch apparently did not avail himself of the opportunity to participate in the drafting process. There is, however, no evidence that he objected to any provision of the contract as finally drawn, or that any provision he would have suggested was omitted.
Two features of the contract become important in this case. First, pending closing rather severe limitations were put on Equity's right to hire or fire personnel, spend or borrow money, or dispose of property. Second, it was agreed that the contract would be submitted to the Kansas securities commissioner 'as provided by Kansas statutes pertaining to exempt transactions.' Closing was to take place 'at a time not more than fifteen (15) days after completion of the necessary filings and action required by the Statutes of the State of Kansas governing exempt transactions in securities.'
Accordingly the contract was submitted to the securities commissioner to secure a ruling from him that the proposed issue of Liberty stock was exempt from the registration requirements of the Kansas securities act. The commissioner conducted a hearing on Augest 12, 1971, at which Liberty appeared by Fred Beaty, Equity appeared by its counsel, and several individual interveners appeared by counsel. Among the latter was one of the two dissenting Liberty directors, Paul Wunsch, who appeared by his son, attorney Robert Wunsch. There is no indication that any question was raised at that time about the validity of the contract.
At the conclusion of the hearing the commissioner took under advisement the question of whether the proposed issue was exempt as an 'isolated transaction' under K.S.A. (then 1970 Supp.) 17-1262(a). Pending his determination he ordered that no offer, sale or transfer of Liberty's stock be made. There is some dispute over the distribution of that order: certain of Liberty's directors (including Paul Wunsch) came into possession of it, while neither its counsel nor the chairman of its board of directors saw it until some two weeks later. On the part of Equity, Mr. Katt's testimony was that he was unaware of the order until after it had been superseded by an order granting the exemption on August 26, 1971.
After the August 12 hearing before the securities commissioner Katt began pressing Ford to close the sale. His demands were both formal and informal. Ford, on behalf of Liberty, was willing and eager to close but was unable to deliver any Liberty stock. This was because Mr. Wunsch, as secretary, would not sign the...
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