Larson v. Superior Auto Parts

• Decision Date: 11 October 1955
• Citation: 270 Wis. 613,72 N.W.2d 316
• Parties: Andrew C. LARSON, Respondent, v. SUPERIOR AUTO PARTS, Inc., a Wis. corporation, et al., Appellants.
• Court: Wisconsin Supreme Court

Page 316

72 N.W.2d 316

270 Wis. 613

Andrew C. LARSON, Respondent, v. SUPERIOR AUTO PARTS, Inc., a Wis. corporation, et al., Appellants.

Supreme Court of Wisconsin.

Oct. 11, 1955.

Johnson, Fritschler, Barstow & Witkin, Superior, for appellants.

Crawford, Crawford & Cirilli, Superior, for respondent.

BROWN, Justice.

Appellants submit that the trial court erred in holding that the complaint states a cause of action against each defendant. Their first contention is that the so-called contract by which the corporation is bound to buy the stock of a severing shareholder contains no agreement binding that shareholder to sell;--therefore, the contract is void for lack of mutuality. The first paragraph of the 1947 agreement states that when a shareholder severs his connection with the corporation the latter will pay him the value of his interest in the company. It then provides: 'After full payment has been made to severing member or to his estate, his stock shall be surrendered to, and revert to the Superior Auto Parts, Inc., * * *' We think that is a satisfactory expression of a promise or obligation of a severing shareholder to deliver his stock to the corporation as soon as he has been paid for it. There seems to us to be no lack of mutuality of obligation in the agreement.

Lack of mutuality, however, arises from a source outside the agreement itself. Sec. 183.14, Stats., reads:

'Liens of corporation. There shall be no lien in favor of a corporation upon the shares represented by a certificate issued by such corporation and there shall be no restriction upon the transfer of shares so represented by virtue of any by-laws of such corporation, or otherwise, unless the right of the corporation to such lien or the restriction is stated upon the certificate.'

It has been suggested that the purpose of the section is to make it certain that stockholders are informed of all restrictions which are binding upon them and actual notice is as effective to bind them as notice printed on the certificate. The legislature did not make such an exception. In construing the section, Magnetic Mfg. Co. v. Manegold, 1930, 201 Wis. 154, 229 N.W. 544, we did not suggest that the parties' knowledge or the lack of it was material. The Supreme Court of Minnesota in Costello v. Farrell, 1951, 234 Minn. 453, 48 N.W.2d 557, 29 A.L.R.2d 890, has determined that a restriction on the sale or transfer of shares of stock imposed by bylaws of the corporation but not stated on the stock certificate is not binding on a purchaser regardless of whether he is a purchaser for value in good faith without notice of the restriction. We think this complies with the legislative command, especially as in other sections of ch. 183, Stats., where the legislature deemed notice to be material, it said so. Secs. 183.04, 183.08, 183.09, Stats. The omission of a reference to the shareholder's knowledge in sec. 183.14 is significant.

It is also suggested that the present restriction on transfers of stock is not made by a by-law but is made by a purported contract between the corporation and its shareholders, and sec. 183.14, Stats. is not meant to apply to such bilateral matters. We consider, though, that the words 'or otherwise' appearing in the statute, described restrictions on transfer created by mutual agreement, as here. We conclude, then, that in spite of Larson's knowledge of the restriction he was not bound by it because it was not endorsed on his stock certificate. The corporation, then, could not have compelled him to surrender his stock when he left its employ. If he is not bound to perform his promise, because sec. 183.14, Stats. has relieved him, there is a lack of mutuality of obligation and the purported contract is void for that reason.

But this does not dispose of the matter. Corporations have the right to acquire their own stock, certain conditions being met. Sec. 180.385, Stats. We said, in Farmers' Mechanics & Supply Co. v. Laun, 1911, 146 Wis. 252, 131 N.W. 366, and repeated in Rychwalski v. Baranowski, 1931, 205 Wis. 193, 196, 236 N.W. 131, 132:

'* * * It is sometimes necessary and often desirable that a corporation protect itself against the acquisition of shares of its stock by rivals in business, or other disturbers, who might purchase shares merely for the purpose of acquiring information which might thereafter be used against the interests of the company. Similar restrictions upon the transfer of shares are generally recognized and held valid, where they form part of the charter or articles of organization of the corporation, and are matters of contract between the shareholders.' * * *'

As the corporation may reasonably consider it desirable to keep its shares out of hostile hands its promise to buy a severing shareholder's stock, while unenforceable as an executory contract...