McMillen v. Strange

• Decision Date: 12 January 1915
• Citation: 159 Wis. 271,150 N.W. 434
• Parties: MCMILLEN v. STRANGE ET AL.
• Court: Wisconsin Supreme Court

159 Wis. 271

150 N.W. 434

MCMILLEN

v.STRANGE ET AL.

Supreme Court of Wisconsin.

Jan. 12, 1915.

Appeal from Circuit Court, Winnebago County; W. B. Quinlan, Judge.

Action by Alice A. McMillen against John Strange and another. From judgment for plaintiff, the defendant named appeals. Reversed and remanded, with directions to dismiss.

This action was brought to set aside a sale by the plaintiff to the defendant John Strange of 250 shares of the capital stock of the Fox River Paper Company, of the par value of $25,000, on the ground of alleged fraud on the part of the defendant Strange. The Fox River Paper Company is a Wisconsin corporation engaged in the manufacture and sale of paper at Appleton, Wis. The complaint charges that the plaintiff was induced to make the contract of sale by the false and fraudulent representations of the defendant Strange by undue influence exercised by him upon the plaintiff. The material allegations of the complaint are put in issue by the answer of the defendant Strange. The court below rendered a decision in writing reviewing the evidence and giving its conclusions respecting the facts, and also made findings of fact and conclusions of law.

The contract of sale between the plaintiff and the defendant Strange, dated August 4, 1913, provided that the plaintiff sell and deliver her stock in the Fox River Paper Company for $25,000, and that the defendant Strange agreed to pay therefor $25,000 on or before eight years from the date of the contract, with interest at 6 per cent. per annum, payable quarterly annually, and contained the following provisions, designated in the decision of the court as paragraphs 7 and 8:

“It is further agreed that all dividends accruing and declared upon such capital stock while same shall be held in escrow as aforesaid shall be payable to said John Strange or his legal representatives, heirs, or assigns, but shall be applied by him or them, first, to the payment of the interest accruing and due upon the sums owing and to be paid as aforesaid, and any surplus thereof as he or they shall direct.”

“And it further is agreed that in case of default in the payment of such interest at the times herein stated, or in default in the payment of said principal sum as agreed herein or in any of the agreements hereof, this agreement shall be and become void, and said deposit shall thereupon be terminated, and said certificates of stock and the instruments of assignment thereof shall become void, and shall be surrendered to said Alice McMillen, her legal representatives, heirs, or assigns.”

The contract further provided that the purchase price, principal, and interest was secured by the holding of the stock in escrow by the Oshkosh Savings & Trust Company, defendant herein; that upon the execution of the contract of sale the plaintiff was to make and execute instruments of assignment and transfer of the shares of the capital stock and deposit the same in escrow with said Oshkosh Savings & Trust Company, defendant herein, together with a duplicate of the contract of sale, to be held by said trust company until the full amount specified in the contract of sale, with interest, had been paid, and, upon payment, the stock, with the instruments of assignment, were to be delivered to the defendant Strange, and said Strange be thereafter fully discharged of all claims of the plaintiff on account of said purchase money and interest; that the plaintiff was also to execute and deposit with the stock certificates and instruments of assignment proxies authorizing the defendant Strange or his legal representatives to vote the shares of stock so deposited at all meetings of the stockholders of said Fox River Paper Company, and that said proxies should not be revokable during such period of escrow, and that a duplicate of such proxies be delivered to defendant Strange and a like duplicate to the Fox River Paper Company.

The court below found:

“That the plaintiff, when the contract was made, owned the stock in question, which was of the par value of $100 a share, and had owned it since 1901; that in 1899 Katherine, daughter of defendant John Strange, married Robert McMillen, Jr., son of plaintiff, and thereafter the plaintiff and her said son and daughter-in-law lived together as members of one family in the plaintiff's home for seven years, and, because of said family ties, there grew up between plaintiff and the defendant John Strange close confidential relations; that, as a result thereof, defendant Strange became the confidential adviser and trusted friend of the plaintiff and her son, Robert McMillen, Jr., and plaintiff acted upon defendant Strange's advice in making the investment in said 250 shares of stock, and thereafter she depended upon him for information concerning the affairs of the Fox River Paper Company; that the defendant Strange, before he became stockholder in the Fox River Paper Company, attended the meetings of the stockholders with his son-in-law, Robert McMillen, Jr., who was an officer and director of the company, and in an advisory capacity took part in the affairs of the company; that after the death of said Robert McMillen, Jr., and about the year 1906, the defendant Strange became a stockholder and director of the Fox River Paper Company, and continued as such director until July, 1913, and during said time plaintiff depended upon him for information relating to the affairs of the company; that said company was engaged in the manufacture and sale of paper at Appleton, Wis., and doing a profitable business, and for more than ten years immediately preceding the commencement of this action had declared and paid quarterly dividends to its stockholders out of the net earnings; that plaintiff received and was paid annually upon her 250 shares of stock between 1901 and 1912, inclusive, dividends ranging from $1,500, to $3,000 a year, or about on an average of approximately 10 per cent. a year; that the Fox River Paper Company, during the time that defendant Strange was a director, maintained a policy to pay out of the net earnings to its stockholders quarterly dividends amounting in the aggregate to not less than 8 per cent. per annum, and during all of said time there was paid annually to its stockholders in quarterly dividends a sum in excess of 8 per cent. per annum; that the affairs of the company were so arranged as to keep on hand out of the net earnings a surplus sufficient to declare at least a quarterly 2 per cent. dividend, regardless of business conditions which for any particular quarter might show a loss, or little, if any, profit, all of which defendant Strange knew at and prior to August 4, 1913; that the authorized capital stock was $550,000, divided into 5,500 shares of the par value of $100 per share; that 5,406 shares have been issued and are outstanding, and the remaining 94 shares are held in the treasury; that the value of the assets and property of said company as shown by the books is $1,175,000; that the company is solvent; that it has an enviable reputation in the business world; that the good will is valuable; that the mills belonging to the company are being operated profitably; that since the commencement of this action the regular quarterly dividend of 2 per cent. has been paid; that in July, 1913, and prior thereto, and on August 4, 1913, and since the shares of stock had a book value of $166 per share, and at said times the cash sale value of said stock was not less than $120 per share, all of which was known to the defendant Strange; that prior to July, 1913, annual meeting of the stockholders there arose some matters of difference between employés, superintendent, and officers; that defendant Strange, as director, advocated changes in the management and policy of the company, and at the July, 1913, annual stockholders' meeting he was by vote of a majority of the stockholders defeated as a director; that the changes in directorate at the July, 1913, annual meeting had up to the time of making the findings in no manner injured the company or the value of its stock.

That the defendant John Strange and W. D. Whorton, a director, had been on friendly and intimate terms, and, upon the solicitation and request of the defendant John Strange, the said Whorton wrote to the plaintiff, Alice A. McMillen, the letter of July 15, 1913, identified as Exhibit A.

That on August 1, 1913, and at a time when the plaintiff, because of illness, was in a weakened physical and mental condition, and susceptible of the defendant's influence, he took occasion to call at her home, his object and purpose being to secure, by personal solicitation and persuasion, from this plaintiff her said shares of stock in the Fox River Paper Company, he well knowing that plaintiff regarded said stock as a safe investment, and that she had faith and confidence in the business of said company and in the treasurer and general manager of said company, Mr. H. G. Freeman, and well knowing that plaintiff had no desire to sell the same, and that it was not for sale; that plaintiff desired to keep said stock for her three daughters; and that provision had been made that it should ultimately go to plaintiff's said daughters.

That defendant then and there, in order to induce the plaintiff to surrender said stock to him, and with full knowledge that if he succeeded he would prevent said shares of stock from going where the plaintiff had ultimately designed it should go, took advantage of the friendly and confidential relations then existing, and by overpersuasion and by overreaching on his part, and by reason of the trust and confidence which the plaintiff had reposed in him, induced the plaintiff to agree to let defendant have her said shares of stock.

That by reason of the defendant's overreaching conduct, and by reason of such confidential relations, he succeeded in producing in plaintiff's mind impressions concerning the condition of the Fox River Paper...