Jolin v. Oster

• Decision Date: 25 November 1969
• Docket Number: No. 170,170
• Citation: 44 Wis.2d 623,172 N.W.2d 12
• Parties: Gerald JOLIN, Marion Jolin, individually, Stephen T. Jolin, Michael G. Jolin, Peter G. Jolin and Marion Jolin as Trustee for William J. Jolin, a minor, Plaintiff-Appellants, v. John OSTER, Jr., Marshall & Ilsley Bank, a Wisconsin corporation, and Deltrol Corporation, a Delaware corporation, Defendant-Respondents.
• Court: Wisconsin Supreme Court

Page 12

172 N.W.2d 12

44 Wis.2d 623

Gerald JOLIN, Marion Jolin, individually, Stephen T. Jolin Michael G. Jolin, Peter G. Jolin and Marion Jolin as Trustee for William J. Jolin, a minor, Plaintiff-Appellants, v. John OSTER, Jr., Marshall & Ilsley Bank, a Wisconsin corporation, and Deltrol Corporation, a Delaware corporation, Defendant-Respondents.

No. 170.

Supreme Court of Wisconsin.

Nov. 25, 1969.

Rehearing Denied Feb. 3, 1970.

This is an appeal by Gerald Jolin, the plaintiff, from a judgment dismissing the complaint. The complaint states three causes of action for damages; one grounded on the breach of contract by the defendant John Oster, Jr.; another for breach of fiduciary obligations by Oster; and the third for conspiracy by Oster and the other defendants Deltrol Corporation and Marshall & Ilsley Bank. The case was tried to the jury but only the questions of conspiracy and breach of contract were submitted. By its verdict the jury found in favor of the defendants and found no damages. Upon motion of the defendants, the complaint was dismissed on its merits.

Whyte, Hirschboeck, Minahan, Harding & Harland, Milwaukee, for plaintiff-appellants; Victor M. Harding and George P. Kersten, Milwaukee, of counsel.

Ray T. McCann, Milwaukee, for Oster and Deltrol Corp.; John T. McCann, Milwaukee, of counsel.

Grootemaat, Cook & Franke, Churchill, Duback & Smith, Milwaukee, for M & I Bank; Francis R. Croak, Milwaukee, of counsel.

HALLOWS, Chief Justice.

On this appeal many issues are raised but most of them need not be discussed in view of the necessity for a new trial to determine the issues of the existence of a jointventure, breach and damages.

In 1958 Gerald Jolin formed a family partnership called 'Gerald Jolin and Sons' and engaged in the recreational land development business for the next three years. This business consisted of purchasing raw land, developing, and subdividing it, and then selling it on land contracts to retail customers. The method of operation was for Jolin to borrow moneys, purchase the land, and to use the individual land contracts as collateral for new loans from which he would pay overhead, salaries and purchase additional land for development.

The business was severely hampered because the money which was generally borrowed from Thorp Finance Corporation carried 12 percent interest. In 1961 Jolin met Oster, whom he was led to believe had financial resources and banking connections by which better credit terms could be obtained for the business. Jolin and Oster on November 17, 1961, signed an agreement which is the foundation of this lawsuit.

Briefly, this agreement recited the parties would form a corporation for the purpose of carrying on an expanded recreational land business; and that they were aware the 'close corporation vehicle' being used by them and the nature of the business required that many rules of association of a partnership must necessarily prevail in the actual operations of the business. It was agreed that a corporation called Campfire Land Company, Inc. (Campfire) would be organized and the Jolin partnership would convey all its assets for one half of the stock; and Oster and members of his family would purchase the other one half of the stock for $120,000. Oster also agreed to loan the corporation $30,000 for five years at six percent interest. It was agreed that Jolin would be executive vice-president and manage the affairs of the corporation except for the financing aspects of the business which Oster was to 'be in charge of.' The directors were agreed upon and other provisions provided for.

The complaint alleged this contract created a joint venture between Jolin and Oster. The answer denies the allegation. The complaint alleges Oster breached his fiduciary obligations by:

(a) Failing to secure financing for Campfire at the best terms obtainable, and loaning borrowed funds to Campfire at high rates of interest and at a secret profit to himself and his family;

(b) using his control of the Marshall & Ilsley Bank (M & I Bank) loan (through the Deltrol Corporation (Deltrol) guaranty) and his creditor position to cut off Campfire's credit and force Jolin to turn over to Oster the management of Campfire;

(c) using his management position to divert profits to himself to the detriment of his joint venturer, Jolin.

The answer denies a breach of any fiduciary obligation by Oster.

The opinion of the parties differed whether the corporation made or lost money because one view was based on the tax returns and the other on balance sheets using accrual accounting. But whatever the case, the high interest rates continued to hamper the operation of the business although Oster did arrange for some loans at less than 12 percent interest. Thorp Finance Corporation continued to provide the bulk of the capital at 12 percent interest. In 1961 Oster made the $30,000 loan at six percent and in 1963 obtained a $150,000 line of credit from the defendant M & I Bank at nine percent by giving a $100,000 guaranty from the Oster controlled Deltrol. This line of credit was gradually increased to $350,000 in 1966 and the collateral requirement liberalized. Further, Oster, either directly or indirectly, arranged for the borrowing of money by members of his family or by family-owned corporations from the M & I Bank at four and one-half percent interest and the loaning of this money to Campfire at 12 percent interest.

In the spring of 1965 Jolin attempted to remedy the high cost of capital by selling collateral-trust notes. These notes were to be secured by placing the land contracts in trust under a trust indenture. It was planned the proceeds of the sale of these six-percent-interest securities would be used to retire the high-interest loans.

Jolin claimed the M & I Bank agreed to be the trustee and to purchase $100,000 of these notes for its own account. Jolin also claimed that Oster, Deltrol, and the M & I Bank entered into an agreement which caused this plan to fail. In proof thereof he relies in part on the refusal of the M & I Bank to buy $100,000 of the notes and Oster's statement at a meeting of potential investors that the company was losing money. In the summer of 1966 the breakup between Jolin and Oster occurred. Oster offered to have Jolin buy him out and subsequently revoked Deltrol's guaranty of Campfire's line of credit at the M & I Bank. Jolin then resigned as an officer and director of Campfire and commenced this suit.

At the trial, both sides moved for a directed verdict. This led t some confusion because the trial court at first indicated it would submit only the issue of conspiracy to the jury and would reserve the other questions. The issues of whether the contract of November 17, 1961, created a joint venture and whether Oster breached his fiduciary obligations were not submitted. On motions after verdict, Jolin submitted findings of fact on the issues not submitted to the jury. But the court then stated that the jury verdict was sustained by credible evidence and the issue of joint venture was not in the case. The trial court held a joint venture could not involve a continuing business but only a single transaction and the agreement could not regulate the conduct of the parties beyond the time of the creation of Campfire Land Company. The trial court also instructed the jury to disregard all testimony relating to the collateral trust notes because it would be illegal for the M & I Bank as trustee to purchase them.

On this appeal Jolin argues it was error for the ocurt not to submit the joint-venture question to the jury and it was error to instruct the jury to disregard the evidence concerning the collateral-trust notes.

The trial court relied on Barry v. Kern (1924), 184 Wis. 266, 199 N.W. 77, and Reinig v. Nelson (1929), 199 Wis. 482, 227 N.W. 14, in holding that the joint-venture issue was not in the case because a joint venture could not involve more than a single transaction. As we read Barry, it does not hold that a joint venture must be so limited in all cases. Barry addressed itself to whether the agreement constituted a partnership or a joint venture. The question of a joint venture using a corporation as a vehicle of operation was not before the court. The agreement in Barry, held to be a joint venture, was between an owner of two lots and a carpenter for the building of two dwellings and the selling of the lots and the houses. The court pointed out there was little difference between a partnership and a joint venture excepting that the latter was 'more limited, and confined in its scope principally to a single transaction.' The court also stated, 184 Wis. at p. 269, 199 N.W. at p. 78 'Such an arrangement, if it related to a continuous business, and if it contemplated numerous transactions, would clearly constitute a partnership. Being confined to one transaction, it comes in the class of joint adventures.'

In Reinig v. Nelson, again the court had to decide whether a syndicate agreement created a joint venture or a joint-stock company. The court relied on Barry and held the agreement created a joint venture. To the extent these cases imply a joint venture cannot exist for a course of business carried on through a corporation, they do not represent the modern view and do not control this appeal.

Jurisdictions are divided on the question of whether a joint adventure will continue to exist after the business is incorporated. The key commercial state of New York holds that a joint-venture agreement does not survive incorporation. Weisman v. Awnair Corp. of America (1957), 3 N.Y.2d 444, 449, 165 N.Y.S.2d 745, 144 N.E.2d 415, Loverdos v. Vomvouras (1960), 23 Misc.2d 464, 200 N.Y.S.2d 921. In Weisman, the court of appeals affirmed the dismissal of the complaint and stated, 'the rule is well settled that a joint venture may not be carried on by individuals through a corporate form. * * * The two forms of business are mutually exclusive,...