Fred G. Clark Co. v. E. C. Warner Co., 29097.
| Decision Date | 24 February 1933 |
| Docket Number | No. 29097.,No. 29098.,29097.,29098. |
| Parties | FRED G. CLARK CO. v. E. C. WARNER CO. et al. E. C. WARNER CO. v. FRED G. CLARK CO. |
| Court | Minnesota Supreme Court |
Appeal from District Court, Hennepin County; W. W. Bardwell, Judge.
Action by the Fred G. Clark Company against the E. C. Warner Company and others; and action by the E. C. Warner Company against the Fred G. Clark Company, The actions were consolidated for the purpose of trial. Decision in favor of the defendants in the first case, and decision in favor of the plaintiff in the second case. From an order denying its motions for a new trial, the plaintiff in the first case and the defendant in the second case appeals.
Order reversed, and a new trial granted in each case.
Elliott, Coursolle & Kelly, of Minneapolis, for appellant.
Claude Krause and Cobb, Hoke, Benson, Krause & Faegre, all of Minneapolis, for respondents.
The Fred G. Clark Company, a Minnesota corporation, sued E. C. Warner Company, a corporation, E. C. Warner, and Harold L. Warner, to cancel on the ground of usury six promissory notes given by plaintiff to the E. C. Warner Company dated and in the amounts as follows:
March 19, 1928................ $ 5,000
March 28, 1928................ 10,000
April 20, 1928................ 10,000
April 24, 1928................ 4,000
April 25, 1928................ 12,000
March 14, 1929................ 22,000
_______
Total ..................... $63,000
Upon this indebtedness $1,000 had been paid. The action also sought to cancel certificate No. 9 for 37 shares of the capital common stock of plaintiff corporation which had been issued to H. L. Warner, and certificate No. 10 for 115 shares of such stock issued to E. C. Warner.
E. C. Warner Company prosecuted another action against the Fred G. Clark Company, the plaintiff in the action above mentioned, to recover the amount due on said notes.
The two actions were consolidated for the purpose of trial. Throughout the trial the Fred G. Clark Company was called the plaintiff, and E. C. Warner Company and the individual defendants were called the defendant. We will follow this. Defendant offered no testimony. It apparently rested on the theory of a failure in plaintiff's proof. The decision was for defendant in both cases, and plaintiff has appealed from an order denying its motions for new trials.
The Fred G. Clark Company, an Ohio corporation, herein referred to as the Cleveland company, dealing extensively throughout the United States in petroleum products, has its principal office at Cleveland, Ohio. In about 1912 it established a branch in Minneapolis. One William E. Smith had been in the employ of the Cleveland company as a salesman for a number of years, and became manager of its Minneapolis branch in 1926.
In February, 1927, plaintiff corporation was created. There was an issue of 600 shares of common stock. There was some preferred stock. All stock had a par value of $50 per share. This corporation, the plaintiff, became effective July 1, 1927, at which time the Cleveland company turned over its equipment and assets in the Minneapolis branch to plaintiff. Plaintiff paid therefor in cash or preferred stock, which was subsequently converted into cash, the sum of $64,200. In addition to such assets, the Cleveland company transferred the existing good will and business in this territory, which included Minnesota, North Dakota, South Dakota, Montana, Idaho, and the Provinces of Saskatchewan, Alberta, and Manitoba; also all road signs and other advertising matter shipped into or used in said territory prior to April 1, 1927; also all business represented by contracts procured in 1926 for the sale and delivery of oil and oil products to jobbers and dealers in this territory and unfilled after April 1, 1927, representing substantially 1,200,000 gallons; also the exclusive right of handling and marketing HyVis motor and lubricating oils in this territory.
Fred G. Clark, the president and principal owner of the Cleveland company, became the president of the plaintiff, and Mr. Smith its vice president and general manager.
The plan was that Smith would ultimately control plaintiff corporation. The Cleveland company owned 49 per cent. of the common stock. Smith was to receive 51 per cent. of the issued common stock, or 306 shares, on condition that he do whatever was necessary to finance the new corporation. This was to be done at least in part by sale of preferred stock. Pursuant to such requirement, he induced one Frazer to purchase 600 shares of the preferred stock and to pay therefor $30,000, which was the par value thereof. Smith gave Frazer as a bonus 153 shares of said 306 shares, as a part of that transaction, and Frazer agreed to provide credit for the plaintiff by guaranteeing its notes at a certain bank to the extent of $30,000; and by the agreement he was required to devote one-half of his time to the interests of plaintiff receiving a salary of $250 per month. Frazer, however, reserved the option to withdraw, and in case of such withdrawal the Cleveland company agreed to repurchase the preferred stock, and with it Frazer agreed to deliver the 153 shares of common stock. Frazer, Smith, and the Cleveland company signed the contract for this arrangement. Frazer became the treasurer of plaintiff, and later its secretary. He devoted the greater part of each working day to the business. He looked after the finances, and in a measure took charge of the office, handling the details under the direction of Smith.
In September, 1927, Frazer, for reasons of his own, chose to withdraw, and the Cleveland company was required by the terms of said contract to repurchase the preferred stock, and this was later done, entitling it to again become the owner of said 153 shares of common stock. Frazer's withdrawal threw the burden back to Smith to arrange to finance plaintiff or lose the right to have 51 per cent. of the common stock.
Smith then turned to E. C. Warner, a man of financial and business prestige, and solicited him to buy the Frazer stock and to finance plaintiff. Warner listened. He became interested, and apparently considered the matter. He had his auditor make an examination of plaintiff's books.
On December 21, 1927, Clark, who lives at Cleveland, appeared in Minneapolis, and he and Smith called at the office of E. C. Warner Company, and discussed the subject with Mr. E. C. Warner, the president and principal owner of E. C. Warner Company. Mr. Warner was apparently cordial. He asked these men to see Frazer and ascertain and submit to him the best price at which the Frazer stock could be acquired, and he also suggested that they see the lessor of the premises where plaintiff's plant and office are located and arrange for an extension of the lease. This was done. Thereafter, and in the afternoon of that day, they returned to the office of E. C. Warner Company. Smith was called away, and he testified that he left before anything was then said between Clark and E. C. Warner. No one disputes this. Mr. Clark and Mr. Warner then talked. Mr. Clark only has testified as to the talk then had between them. Our statement here is based upon his testimony, which is undisputed. Mr. Warner then and there told Mr. Clark that he had changed his mind, and was not interested in buying the Frazer stock.
Up to this time the plan was to have some one step into Frazer's shoes. Up to this moment no idea or thought of borrowing money from Mr. Warner or his company had been suggested. That theory seems to have come from Mr. Warner. Some arrangement was then made between Clark and Warner at that time and place, and what that arrangement was must here be determined by Clark's sole version thereof, aided by all the circumstances disclosed by the record. Clark testified:
This testimony was given on the first day of the trial. Clark continued on the stand into the second day of the trial. There were an unusually large number of objections which would seemingly tend to confuse a witness. By too much altercation truth is lost. On redirect examination on the second day Clark was asked to state anything further that was said between him and Mr. Warner at said time, and he answered:
"I will give two additions just in case they didn't appear in the record before. I wasn't sure whether they did or not. First, that before leaving the office of E. C. Warner I told Mr. Warner that I would carry out the instruction, I mean that I would instruct Mr. Smith to carry out the arrangement which we had made that afternoon. The other point which I am not sure of whether it got in the record, was that Mr. Warner...
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