Gonseth v. K & K Oil Co.

• Citation: 439 S.W.2d 18
• Decision Date: 24 February 1969
• Docket Number: No. 8830,8830
• Court: Court of Appeal of Missouri (US)
• Parties: Dolores GONSETH and Frances Gaston, Individually and as Shareholders of K & K Oil Company, a Corporation, suing on behalf of themselves and all other shareholders, and for the benefit of the Corporation, Plaintiffs-Appellants, v. K & K OIL COMPANY, a Corporation, Charles Knorpp, Mildred Knorpp and Max Patten, Defendants-Respondents.

Page 18

439 S.W.2d 18

Dolores GONSETH and Frances Gaston, Individually and as Shareholders of K & K Oil Company, a Corporation, suing on behalf of themselves and all other shareholders, and for the benefit of the Corporation, Plaintiffs-Appellants, v. K & K OIL COMPANY, a Corporation, Charles Knorpp, Mildred Knorpp and Max Patten, Defendants-Respondents.

No. 8830.

Springfield Court of Appeals, Missouri.

Feb. 24, 1969.

Henry Warten, Warten & Wells, Joplin, for plaintiffs-appellants.

Ralph Baird, Max Patten, Joplin, for defendants-respondents.

TITUS, Judge.

The Circuit Court of Jasper County entered judgment for defendants on plaintiffs' amended petition in equity. Plaintiffs appealed when their post-trial motion was overruled, and by their brief entreat us to reverse and remand with directions to the trial court to (1) enter a decree declaring plaintiff Dolores Gonseth (Gonseth) and defendant Charles Knorpp (Knorpp) to be the sole and equal owners of the assets of the K & K Oil Company, a Missouri corporation, and (2) appoint a receiver to take charge of and wind up the corporation's business and distribute its net assets between Gonseth and Knorpp.

We need not recast all the testimony and exhibits in detail, for many of the viable issues at trial have been abandoned on appeal because not preserved in the 'Points Relied On' in plaintiffs' brief. Hastings v. Coppage, Mo., 411 S.W.2d 232, 235(3); Sup.Ct. Rules 83.05(a)(3) and (e). As in other equity suits, we review the record de novo for the purpose of ascertaining to what relief, if any, plaintiffs are entitled, bearing in mind that unless we conclude the trial court's findings on disputed testimony are clearly erroneous, we are to defer to the findings of the chancellor who observed the witnesses and heard them testify. Ramacciotti v. Joe Simpkins, Inc., Mo., 427 S.W.2d 425, 426(2), 433(11).

Gonseth and Knorpp, acquaintances for many years, had some business dealings together prior to 1954 and were fairly equal in their exposure to formal education. Knorpp and one A. L. Kissinger, partners doing business as the K and K Oil Company, rented a truck stop owned by Gonseth. At Knorpp's suggestion Gonseth purchased Kissinger's interest for $10,000 and, according to a written agreement dated August 21, 1954, prepared by attorney Max Patten (Patten), Gonseth and Knorpp became equal partners in the K and K Oil Company. Knorpp managed the business. Gonseth took no part in the affairs of the partnership, except that she was consulted on matters which were more than routine in nature. The business flourished, and Knorpp suggested a corporation be formed to limit their liability in the event a serious accident should occur. On June 6, 1956, Gonseth, Knorpp and Patten executed articles of association (prepared by Patten) for the purpose of forming the K and K Oil Company, a Missouri corporation. Certificates of incorporation and authority to commence business were thereafter duly issued. The articles have never been amended.

At the time of incorporation Missouri law (§ 351.050, RSMo 1949) required that three or more subscribers to the shares act as incorporators and that 'the number of directors of a corporation shall not be less than three.' § 351.315, RSMo 1949. The articles, inter alia, authorized the K and K Oil Company to issue $5,000 in capital stock divided into 50 shares of common stock with a par value of $100 each, and required there be three directors of the corporation each of whom was to be a shareholder. The subscribers listed were Gonseth--24 shares, Knorpp--24 shares, and Patten--2 shares. The incorporators swore and acknowledged 'the fifty shares have been subscribed and actually paid up in lawful money.' Patten and his office were respectively designated as the registered agent and registered office of the corporation.

The partnership had assets of $42,802.91 at the time of incorporation, all of which were transferred to the corporation via a 'venture' account and thereafter distributed to various accounts on its books. Upon the transfer of such assets the partnership became functus officio and ceased to exist. Schneider v. Schneider, 347 Mo. 102, 109, 146 S.W.2d 584, 589(12); 68 C.J.S. Partnership § 344, p. 851. The corporation paid for the transferred assets by (1) issuing $5,000 in capital stock, (2) assuming liabilities of $13,771.81, and (3) giving Gonseth and Knorpp each a promissory note for $12,015.55. The initial capital stock account entry was 'Chas Knorpp 24 sh ($ ) 2400, Dolores Gonseth 24 sh ($ ) 2400, Max Patten 2 sh ($ ) 200.' Under date of July 16, 1956, certificate number 1 for 24 shares was issued to Knorpp, certificate number 2 for 24 shares was issued to Gonseth, and Patten was issued certificate number 3 for 2 shares. Each certificate bore the corporate seal, was signed by Knorpp as president and Gonseth as secretary, and was physically delivered to the shareholders. The parties in a gathering at Patten's office had agreed that Gonseth, Knorpp and Patten would constitute the board of directors, that Knorpp would be president, and that Gonseth would be vice president and secretary.

Plaintiffs' petition alleges (and we hasten to note averments of a pleading unsupported by proof are unavailing) ¹ Gonseth consented to the incorporation 'in reliance upon the representations and assurances made by * * * Knorpp * * * this move would not change the partnership relation between the parties, that the parties would be equal owners of the corporation to be formed, and would continue to carry on their business * * * in the same manner as they were then carrying it on as partners. * * * Knorpp explained to * * * Gonseth that issuance of the 2 shares (to) Patten would not give * * * Patten any interest in the corporation (but) were to be issued * * * to qualify (Patten) as one of the three incorporators as then required by law and also to qualify (Patten) as a director of the corporation.'

Concerning these allegations, Gonseth testified Knorpp 'explained to me what incorporating was, what it meant, and I asked him * * * if it would change our agreement of partnership the way we were doing before, that we would still have the same interest and everything and if Mildred, his wife, would be another party in it, and he said 'No,' it was just him and I, it would be just the same as it was before. We would each own an equal part in it.' (Our emphasis.) Knorpp, according to Gonseth, told Patten 'that he had explained to me that we were equal partners, but that if we incorporated' it was necessary to have three shareholders to act as incorporators but 'that it didn't mean that there would be any change, that he (Patten) didn't have any part in the business, that we were still equal partners.' Although Gonseth professed to be wholly unfamiliar with corporate maters at the time she agreed to incorporation, she testified with professional knowledge at the trial that 'I understood Mr. Patten was just a qualifying shareholder.'

Knorpp said Patten was employed to do the legal work in forming the corporation either in Gonseth's presence or with her knowledge, and that he had an agreement with Patten 'that he was to get two shares for doing this work for the K and K Oil Company.' Patten asseverated he received the two shares in payment of his services, that he 'never did take any qualifying shares,' and that Gonseth 'knew I had two shares of stock, and that two shares means a joint interest in the company.' Aside from Gonseth's testimony as to what she 'understood,' there is no evidence in the record anyone had stated that Patten would be only 'a qualifying shareholder.' Knorpp vowed that until he had heard the expression used during the trial, 'I had never in my life * * * heard about qualifying shares. Mrs. Gonseth in no way could have been told about qualifying shares. I knew nothing in my life about qualifying shares. (It was my understanding) when shares were issued, they were yours forever * * * unless you sold them.' It is undisputed that Patten received no money for the legal services he performed, and no testimony was offered to overcome the evidence that a reasonable fee for such services was $200, the value of the two shares when issued to Patten. The parties tacitly agree a corporation may issue stock for 'labor done' (V.A.M.S.Const. art. 11, § 7) and 'that stock in a business corporation may be paid for by services rendered' (Vogeler v. Punch, 205 Mo. 558, 573, 103 S.W. 1001, 1005).

The gist of Knorpp's testimony regarding pre-incorporation discussions was that he had several conversations with Gonseth concerning the matter, and that the decision to incorporate was mutual as Gonseth had to give her 'authority the same as I did. She had as much invested as I did.' When asked if anyone explained to Gonseth 'that she wasn't going to own half of this (corporation) when this was completed,' Knorpp answered, 'I did (and I also told her) that we would own equal shares, which we do own equal shares.'

After formation of the corporation Knorpp continued to manage and operate the business and consult with Gonseth as he had done previously. There were no meetings held of the shareholders until January 22, 1966, but this omission did not 'work a forfeiture or dissolution of the corporation.' § 351.225, RSMo 1949 and V.A.M.S., RSMo 1959. Patten took no part in the affairs of the corporation, except in a legal capacity, until January 1966, and was paid no dividends until that time. The corporation prospered, as evidenced by the fact the book value of each share increased from $100 at the time of incorporation to $3,029.72 as of December 31, 1966. Gonseth and Knorpp also fared well personally. Each received a salary, bonuses and dividends. Knorpp's salary as manager increased from $125 to $350 a week between 1956 and 1965 and his gross income from the corporation was $19,200 in 1965. Gonseth's weekly salary as secretary was $75. Before...