Garbe v. Excel Mold, Inc.
| Decision Date | 05 December 1979 |
| Docket Number | No. 1-878-A-221,1-878-A-221 |
| Citation | 397 N.E.2d 296 |
| Parties | Charles J. GARBE, Ralph Holloway, Appellants (Plaintiffs Below), v. EXCEL MOLD, INC., Moldcraft Tools, Inc., and Harold B. Bruhn, Appellees(Defendants Below). |
| Court | Indiana Appellate Court |
Clifford G. Antcliff, Antcliff & Brown, Greenwood, for appellants.
Mark A. Pope, Ben J. Weaver, Johnson & Weaver, Indianapolis, for appellees.
This action is a suit by two minority shareholders, Charles J. Garbe (Garbe) and Ralph Holloway (Holloway) against the promoter and majority shareholder of the Excel Mold, Inc. (Excel) corporation, Harold B. Bruhn (Bruhn), and against the corporation itself to set aside a stock transfer between Bruhn and Excel. The trial court, without the intervention of a jury, ruled in favor of the defendants. We affirm.
The factual background to this case is that a previous corporation with the same name as the one involved in this suit was owned by N. L. Industries. "Old" Excel Mold, Inc. was a mold and diemaking business in Indianapolis. In the early part of 1974, Bruhn, who at the time was vice-president and general manager of the concern, was informed that N. L. Industries intended to dispose of the business. Bruhn was asked if he was interested in purchasing it. After consulting an accountant and an attorney on August 16, 1974, Bruhn and N. L. Industries entered into a purchase agreement whereby Bruhn was to purchase the assets of old Excel Mold, Inc. These assets included the land, building, equipment, goodwill, accounts receivable, prepaid expenses and inventory. In short, Bruhn agreed to buy the whole business as a going concern. In exchange for these assets, Bruhn was to pay $300,000 in cash from funds generated by a Small Business Administration loan administered by a bank, sign an approximately $60,000 note, sign an $80,000 mortgage and note on the land and building, and assume various liabilities of old Excel Mold, Inc. The purchase agreement provided for last minute adjustments of the accounts receivable and payable and the inventory on hand.
In order to get the $300,000 loan, Bruhn became personally liable, obtained second mortgages on his personal residence and the business, had an Article 9 lien placed on the equipment, pledged his stock as collateral, and insured his life and assigned the policy to the bank. It would not be an exaggeration to state that Bruhn bought the assets totally with borrowed sums.
A requirement for obtaining the loan was to appraise the machinery equipment of the business, which was its major asset. The equipment was allocated in the purchase agreement at a value of $244,200 but was appraised by a third party expert at $395,800. In other words, the appraisal suggested that Bruhn had struck a favorable bargain, other assets aside, a bargain of $151,600.
It was at this stage that the plaintiffs Garbe and Holloway entered the transaction. They were employees of old Excel Mold, Inc. and during the summer or fall of 1974 were questioned by Bruhn as to whether they wished to invest in the business. The two met with Bruhn and his accountant on August 6, 1974. The accountant then outlined to Garbe and Holloway the following plan. Garbe was to invest $15,000 and Holloway $10,000 in the form of $100 shares in a new corporation, Moldcraft Tool, Inc. to be set up by Bruhn. 1 Bruhn would assign all his interest in the purchase agreement to Moldcraft, except the land and building which he would retain individually. Most liabilities, including the $300,000 loan, would be assumed by the new corporation except the liabilities relating to the land and building.
The accountant proposed that Bruhn would invest only $5,000 but would receive slightly over 80% Of the outstanding stock. The reason for this large share was because Bruhn would receive stock for the amount of the benefit of his bargain, that is: the difference between the fair market or appraisal value of the equipment ($395,800) and the allocated purchase agreement value ($244,200), a difference of $151,600. In other words, exclusively for purposes of valuing Bruhn's contribution of property to the corporation, the transaction would be treated as if Bruhn had "sold" the equipment to the new corporation at fair...
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...must be raised on an assignment that the verdict is contrary to law. Graves, supra, at 361, 264 N.E.2d 607, 608; Garbe v. Excel Mold, Inc., (1979) Ind.App., 397 N.E.2d 296. In the case at bar, the jury heard conflicting evidence on the issue of appellant's mental capacity. One psychologist ......
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