Gesell v. Tomahawk Land Co.

• Citation: 200 N.W. 550,184 Wis. 537
• Parties: GESELL ET AL. v. TOMAHAWK LAND CO.
• Decision Date: 14 October 1924
• Court: United States State Supreme Court of Wisconsin

184 Wis. 537

200 N.W. 550

GESELL ET AL.

v.TOMAHAWK LAND CO.

Supreme Court of Wisconsin.

Oct. 14, 1924.

Appeal from Circuit Court, Lincoln County; A. H. Reid, Judge.

Action by Egbert G. Gesell and others, special administrators, against the Tomahawk Land Company. From an order overruling a demurrer to the complaint, defendant appeals. Reversed and remanded, with directions.

The action was originally brought by Marie H. Kelley. After her death the plaintiffs as special administrators were substituted. The parts of the complaint, many allegations being upon information and belief, material for its disposition are in substance as follows:

Defendant is a Wisconsin corporation. It never has been engaged in mercantile or manufacturing enterprises, except as may appear from later recitals. It has engaged in no other business than the sale of lands which it owns and “is, and for some time past has been, in the ostensible process of liquidation.” That 5,190 of the 6,000 shares of its capital stock, of the par value of $100 each, have been issued and are outstanding. That Marie H. Kelley owned 245 shares thereof. That certain of the stockholders had shares issued to them solely for the purpose of qualifying them to act as directors. That R. B. Tweedy, though having some 2,500 of said shares in his name, is not the real owner thereof, and is one of the directors and president, and to all practical intents and purposes has the sole and complete direction of the affairs of said corporation, though there are other directors and officers. That defendant on December 31, 1922, was possessed of property valued on the company books approximately as follows:

+------------------------------------------------------------+
                ¦Cash                                          ¦$ 30,356 19  ¦
                +----------------------------------------------+-------------¦
                ¦Outside farm and cattle loans                 ¦59,106 50    ¦
                +----------------------------------------------+-------------¦
                ¦Timber contracts                              ¦184,780 27   ¦
                +----------------------------------------------+-------------¦
                ¦Land contracts                                ¦61,214 04    ¦
                +----------------------------------------------+-------------¦
                ¦Option lease sale contracts                   ¦501,636 67   ¦
                +----------------------------------------------+-------------¦
                ¦Live stock and other personal property        ¦64,539 56    ¦
                +----------------------------------------------+-------------¦
                ¦70,073 acres of land                          ¦485,731 51   ¦
                +----------------------------------------------+-------------¦
                ¦Stumpage and timber                           ¦106,177 28   ¦
                +----------------------------------------------+-------------¦
                ¦Buildings and improvements                    ¦22,989 59    ¦
                +----------------------------------------------+-------------¦
                ¦Riverside farm, buildings and improvements    ¦79,966 12    ¦
                +----------------------------------------------+-------------¦
                ¦Office building                               ¦50,135 95    ¦
                +----------------------------------------------+-------------¦
                ¦Logging railroad account                      ¦7,300 00     ¦
                +----------------------------------------------+-------------¦
                ¦City real estate                              ¦6,987 76     ¦
                +----------------------------------------------+-------------¦
                ¦Book accounts                                 ¦4,737 21     ¦
                +----------------------------------------------+-------------¦
                ¦Sundries (including about $5,000 in mortgages)¦7,644 21     ¦
                +----------------------------------------------+-------------¦
                ¦Total assets                                  ¦$1,669,302 86¦
                +------------------------------------------------------------+
                

That the liabilities exclusive of capital stock and book surplus are not in excess of $100,000. That at least $200,000 of said assets, consisting in part of timber contracts, outside farm and cattle loans, and cash, could be readily converted into money without loss and be available for payment of dividends. That despite protests often made by the original plaintiff no dividends have been paid subsequent to 1919. That defendant has received, as interest, dividends, and from the sales of its capital stock assets for five years subsequent to January 1, 1918, $824,815.13. That of the capital stock assets sold in 1920 two certain water power sites and flowage brought $50,000 more than the inventory value, which profit was available for dividends. That as shown by the books of the defendant for the years 1918 to 1920, inclusive, the gross profit from the sale of the capital assets and other sources was $450,598.64. That the only dividend paid during said period was in 1919 of $55,580.00, and that the total dividends paid since the time of its organization in 1901 is less than $85,000. That on account of the failure and refusal by defendant to pay dividends the capital stock owned by the original plaintiff is of no market value, although the book value thereof is approximately 300 per cent. of its par value, and that the said stock cannot be disposed of, except at a very great financial sacrifice, unless the court compels said corporation to pay reasonable dividends.

That the original plaintiff repeatedly offered to sell her stock to the defendant at a price very much less than the real value thereof, but that defendant has refused to purchase the same except at a price hardly more than nominal. That the original plaintiff offered to dispose of her shares to the defendant in exchange for an equitable proportion of the assets of said company including the lands, but that the management of said company refused to entertain such proposition.

“That as plaintiff is informed and believes said defendant corporation, with the approval, assistance, and connivance of certain of its other stockholders has for several years past purposely so managed the affairs of said corporation as to make it appear contrary to the actual fact that it was unable to pay dividends to its stockholders, including plaintiff, and for the purpose of rendering the stock of plaintiff therein of practically no market value, and of forcing her to dispose of her said interest in said corporation at great financial sacrifice and loss. That as plaintiff is informed and believes the management of said corporation by said defendant R. B. Tweedy as such president and chief executive has been and is grossly inefficient, incompetent, and detrimental to the interests of said company. That as plaintiff is informed and believes, the said R. B. Tweedy, as such president, chief executive, and virtual sole manager, has, regardless of the interests of said plaintiff, managed the affairs of said corporation as a family affair, and apparently for the primary purpose of furnishing him amusement and recreation and to enable him to carry on the visionary and chimerical ‘option lease’ scheme hereinafter more specifically referred to and to carry into effect his individual notions as to the proper methods of selling northern Wisconsin lands and developing lands and farms in the same locality of said defendant's lands.”

That although said defendant was able to rent suitable offices at a reasonable rental to conduct its business, yet for the purpose, among others, of covering up the funds of said corporation and making them unavailable for the payment of dividends, and for the further purposes of discouraging the plaintiff and of inducing her to sell to said company at a great financial sacrifice, purchased at a cost of about $50,000 a so–called office building in the city of Tomahawk, where said corporation is located and conducts its business. That under the supervision and direction of said Tweedy the aforesaid building was constructed for the offices of defendant and others of the so–called “Bradley allied companies” and for offices of the so–called community nurse and community or agricultural agent and for living apartments for said Tweedy and certain of the employés of said allied companies, and that such building cannot be disposed of on the market, except for a sum very much less than the cost thereof.

That defendant and its management, for the purpose, among others, of freezing and covering up the available funds and making them unavailable for the payment of dividends, loaned large sums of money to various persons, on such terms as to make the same not readily available. That defendant is now carrying loans to farmers and others exceeding $60,000, which moneys under capable, efficient, and proper management should have been distributed as dividends, and can now be so distributed. That a considerable portion of the moneys so loaned on outside farm and cattle lands were made without excuse or justification, were and are inadequately secured or altogether unsecured. That defendant is continuing to make such loans, and threatens that they will so continue for an indefinite period, and that unless restrained from so doing such threat will be carried out to the great damage of the defendant and its stockholders.

As an instance of wasteful extravagance, mismanagement, and incompetency it is recited that the defendant, under the management of said Tweedy, has caused to be converted into farm lands and cleared the so–called Riverside farm near the city of Tomahawk, and has conducted farm operations thereon at a great loss and expense for several years last past. That over $75,000 has been expended for clearing, buildings, ditches, etc., in addition to $5,000 charged off to profit and loss on said farm, and that said farm, including its buildings and improvements, is worth not to exceed $25,000, and that defendant, in conjunction with one of the so–called allied companies has attempted to operate the said farm as a demonstration farm and as an object lesson to farmers. That the loss in the operation of said farm as shown by the books of the company during the years 1918 to 1922...