Keneco v. Cantrell

• Decision Date: 12 October 1977
• Docket Number: No. 13551,13551
• Parties: KENECO, a corporation and Raymond Kenik and Betty Kenik, Plaintiffs and Respondents, v. Clyde CANTRELL and Helen Cantrell, Defendants and Appellants.
• Court: Montana Supreme Court

Page 1225

568 P.2d 1225

174 Mont. 130

KENECO, a corporation and Raymond Kenik and Betty Kenik, Plaintiffs and Respondents, v. Clyde CANTRELL and Helen Cantrell, Defendants and Appellants.

No. 13551.

Supreme Court of Montana.

Submitted June 6, 1977.

Decided Sept. 16, 1977.

Rehearing Denied Oct. 12, 1977.

Jardine, Stephenson, Blewett & Weaver, Great Falls, K. Dale Schwanke (argued), Great Falls, for defendants and appellants.

Cure & Borer, Great Falls, Orin R. Cure (argued), Great Falls, for plaintiffs and respondents.

W. W. LESSLEY, District Judge. ^*

This litigation arises from a conflict of brothers-in-law in the creation and operation of a family corporation.

Keneco is the family corporation; it sells, installs, and repairs service station equipment. From 1965 to 1970 the only directors and stockholders were Kenik, his wife Elizabeth, and Cantrell and his wife Helen; Helen Cantrell is Raymond Kenik's sister. The wives did not actually participate in the corporation's business.

In 1962 Kenik purchased Marketing Specialties and operated it selling, installing and repairing service station equipment. From 1962 to 1964 Kenik and Cantrell talked of Cantrell becoming an owner with Kenik of the Marketing Specialties business. Before this Cantrell had lived in Great Falls and served as a comptroller in a large department store; he had left that position, purchased and ran a sporting goods store.

Finally, Cantrell sold his sporting goods store and joined Kenik in his business. Cantrell was to, and did run the bookkeeping and all business phases of the corporation. Kenik did actually manage and labor in the day to day operation of the business.

Articles of Incorporation were filed May 12, 1964 and Kenik's small business became Keneco, a corporation on that day. The corporation operated with Kenik as president and Cantrell as vice-president until May 1970, when Cantrell left the corporation.

August 31, 1970, Cantrell filed suit to liquidate Keneco because of a claimed management deadlock. September, 1970, Kenik on behalf of Keneco and himself filed suit against Cantrell for damage alleging fraud and malfeasance by Cantrell. The district court consolidated the two actions for trial.

The court referred the matter to a certified public accountant as referee. The referee's findings of fact and conclusions with amendments are 88 in number and cover 27 legal pages.

The district court adopted the referee's findings of fact and conclusions of law and made the following conclusions:

(1) That Raymond Kenik is not indebted to Keneco;

(2) That Raymond Kenik is the owner of 19,825 shares of stock of Keneco and Clyde Cantrell is the owner of 12,675 shares of stock of Keneco and that the total is 32,500 shares which is the total number of shares of Keneco stock issued;

(3) That Keneco is indebted to Clyde Cantrell in the sum of $7,432.25 and Clyde Cantrell is indebted to Keneco in the amount of $7,948.28, and that the interest on both of said amounts would approximately offset each other and said total amounts shall be paid without interest;

(4) That Raymond Kenik is the owner of 19,825 shares of stock of Keneco and Clyde Cantrell is the owner of 12,675 shares of stock of Keneco and all stock in excess thereof issued to either Raymond Kenik or Clyde Cantrell shall be cancelled and all stock in excess of such amount shall be by the holder surrendered to Keneco for cancellation;

(5) That Keneco shall pay to Clyde Cantrell the sum of $7,432.25 without interest;

(6) That Clyde Cantrell shall pay to Keneco the sum of $7,948.28 without interest;

(7) That each of the parties hereto shall pay their own costs and attorney's fees;

(8) That Keneco shall pay the costs and expenses of Mack J. Hamilton, referee, with the provision that the same would be apportioned and charged to the parties as determined by the Court;

(9) That the costs and expenses of Mack J. Hamilton, referee, are allowed and approved in the amount of $3,980, which amount has been paid to him by Keneco, and Raymond Kenik shall pay to Keneco one-half thereof and Clyde Cantrell shall pay to Keneco one-half thereof.

Appellant appeals from both the findings and conclusions and judgment and the cross-appellant appeals only from the conclusions.

The task of the referee and the district court was to determine an equitable and fair redistribution of the issued stock in Keneco in proportion to the correct total owner's equity or ownership of both Kenik and Cantrell. Before the referee or district court could redistribute the stock, they had first to determine Kenik's and Cantrell's correct ownership of that stock.

In this determination the referee and the district court were really involved in an accounting of the operations of this small corporation and the valid, many, and conflicting claims of Kenik and Cantrell. The referee and the lower court approached the factual problem in a two-step process. They first determined what Kenik's and Cantrell's equity or ownership were as of January 1, 1975. Second, they determined for both Kenik and Cantrell which of the ten stock issuances which took place in issue from November 1, 1965, until February 28, 1969, were valid stock issuances in that they were stock issuances supported by adequate consideration for the issuances of that stock. Kenik's 1965 equity or ownership in Marketing Specialties was then added to the value of the issued stock validly issued to him to determine Kenik's total equity or ownership. A small addition of the 1965 equity or ownership plus the value of the validly issued stock was made on behalf of Cantrell to determine the ownership or equity.

To determine the owners' equities as of January 1, 1965, the referee first calculated the assets transferred to Keneco as of January 1, 1965. He then calculated the liabilities assumed by Keneco as of the same date. By subtracting the liabilities from the assets ($44,626.00-$33,191.31) the total owners' equities as of January 1, 1965 were determined to be $11,434.69. By determining Cantrell's January 1, 1965 equity to have been $1,040 and by subtracting the $1,040 from the 1965 total owners' equity of $11,434.69, the referee was able to determine Kenik's equity to have been $10,394.69, as of January 1, 1965.

The second step in determining total owners' equities was to determine which of the ten stock issuances were valid stock issuances supported by adequate consideration. The referee determined that $1,200 worth of shares (1,200 shares at $1 per value per share) had been validly issued to Kenik. This $1,200 combined with his 1965 equity of $10,394.69 gave Kenik a total equity of $11,594.69.

Cantrell was found to have had $6,353.06 worth of shares validly issued to him. This $6,353.06 combined with his 1965 equity of $1,040 gave Cantrell a total equity of $7,393.06.

In conclusion III the referee reapportioned the 32,500 shares in the same proportions as the total equities determined in conclusion II. As a result of the reapportionment, Kenik was awarded 61 percent or 19,825 of the total 32,500 shares of stock; Cantrell was awarded the remaining 39 percent or 12,675 shares.

In substance the district court adopted all of the referee's findings and amendments to his findings.

Two peripheral questions of law are argued by the appellants. We look at them before considering the basic issue presented us on this appeal. First, they argue Kenik's acceptance and retention of the stock issuances was ratification. Second, they contend Kenik's claim of fraud (if proven) is barred by the two year statute of limitations, section 93-2607(4), R.C.M.1947. We disagree and find no merit in those positions.

Cantrell argues that because Kenik signed, accepted and retained the stock issuances that this amounted to ratification by acceptance of the benefits ...