Nichol v. Sensenbrenner

• Decision Date: 03 December 1935
• Citation: 220 Wis. 165,263 N.W. 650
• Parties: NICHOL v. SENSENBRENNER.
• Court: Wisconsin Supreme Court

220 Wis. 165

263 N.W. 650

NICHOL

v.SENSENBRENNER.^a1

Supreme Court of Wisconsin.

Dec. 3, 1935.

Appeal from a judgment of the Circuit Court for Winnebago County; Fred Beglinger, Circuit Judge.

Action by Lois Thom Nichol against F. J. Sensenbrenner. From a judgment for plaintiff, defendant appealed, and plaintiff gave notice of review on the appeal.--[By Editorial Staff.]

Modified and affirmed.

This appeal is from a judgment of the circuit court for Winnebago county, entered December 29, 1934, in favor of the respondent and against appellant in the sum of $23,638.39, damages and costs. Action commenced December 28, 1931. Respondent seeks to recover damages for loss on 100 shares of stock in the Kimberly-Clark Company procured by appellant from respondent on a purchase through a broker, under circumstances claimed by respondent to constitute a fraud and deception on her and a breach of appellant's duty to deal with her honestly and with good faith in said transaction by making an adequate disclosure of facts affecting the value of the stock. Case was tried to the court and jury, resulting in a special verdict consisting of fifteen questions, all answered favorably to the plaintiff and respondent.

The questions of the special verdict divide into two main groups. The first six questions pertain to the purchase of the 100 shares of stock in question on or about November 8, 1926. A summary of the findings to the first six questions of the special verdict is as follows:

(1) The defendant concealed from plaintiff his identity as the person inquiring whether her stock in the Kimberly-Clark Company was for sale, and, if so, the price she wanted for the same, in bad faith, with the dishonest purpose of taking advantage of any lack of knowledge on her part of facts then known to him affecting its value, in order to obtain her said stock at substantially less than its fair cash value.

(2) His omission to disclose his identity materially influenced the plaintiff in negotiating and making a sale thereof to the representative of Paine-Webber & Co. without further inquiry respecting its value.

(3) The defendant, in bad faith, before directing the purchase of said stock from the plaintiff, dishonestly concealed from her substantial and material information affecting the value of said stock relating to pending negotiations for the sale of an interest in the Kotex Company.

(4) His omission to disclose such information materially influenced the plaintiff in negotiating and making a sale thereof to the representative of Paine-Webber & Co. without further inquiry respecting its value.

(5) Defendant did, in bad faith, before directing the purchase of said stock from the plaintiff, dishonestly conceal from her substantial and material information affecting the value of said stock relating to pending negotiations for the reorganization of the Kotex Company.

(6) His omission to disclose such information relating to such reorganization materially influenced the plaintiff in negotiating and making a sale thereof to the representative of Paine-Webber & Co. without further inquiry respecting its value.

In answer to question 9 of the special verdict, the jury found the fair cash value of plaintiff's common stock in the Kimberly-Clark Company to be $476 per share on November 8, 1926. Defendant and appellant, through Paine-Webber & Co., purchased 100 shares of the plaintiff's common stock on the basis of $250 per share, such purchase being made on November 8, 1926.

The second group of questions in the special verdict, including questions 7, 8, 10, 11, 12, and 13, deals primarily with the incidents of an interview between the defendant and one Edgar Thom, also a stockholder of the company, a brother of the plaintiff, which occurred in January, 1926, at the time of the annual stockholders' meeting of the Kimberly-Clark Company. It is not necessary here to make reference to questions 14 and 15 of the special verdict.

On motions after verdict the trial court filed a written opinion in which it said:

“It is considered that the findings of the jury on the first six questions of the verdict are sustained by the evidence and are supported by the rule of law, that a director and principal officer of a corporation, having an intimate knowledge of facts bearing directly upon the value of its stock, cannot purchase the stock of another stockholder known to be ignorant of such facts and by active concealment of such facts take an unfair advantage of such ignorance, but that he owes to such stockholder the active duty of making an honest disclosure of such facts materially affecting the value of the stock which he is trying to buy. * * * In the transaction covered by the first six questions the defendant himself initiated the negotiations for obtaining the plaintiff's stock, through keeping his identity concealed, and omitting to disclose any of the important pending transactions relating to the Kotex Products Company of which the plaintiff testified she was ignorant.”

The trial court permitted the answers to the first six questions of the special verdict to stand; also permitted the answer to the ninth question of the special verdict as to the fair cash value of the stock on November 8, 1926, to stand. Except as to the questions mentioned, the trial court either set aside the answers thereto or disregarded same. The trial court denied defendant's motion to change the answers to the several questions of the special verdict; also denied defendant's motion for a new trial and thereupon ordered judgment in favor of the plaintiff and against the defendant for the sum of $22,600, with interest thereon at 6 per cent. from June 29, 1934, with costs, in accordance with which judgment was entered and defendant appeals.

Other material facts will be stated in the opinion.

Quarles, Spence & Quarles, of Milwaukee (J. V. Quarles and Arthur Wickham, both of Milwaukee, and Frank B. Keefe, of Oshkosh, of counsel), for appellant.

Benton, Bosser, Becker & Parnell, of Appleton, and Harold M. Wilkie, of Madison (D. K. Allen, of Oshkosh, of counsel), for respondent.

MARTIN, Justice.

Appellant's first, fourth, fifth, and sixth assignment of error will be considered collectively. They are:

(1) The court erred in failing to direct a nonsuit.

(4) The court erred in failing to direct a verdict in favor of defendant.

(5) The court erred in failing to order judgment for defendant non obstante veredicto.

(6) The court erred in failing to set aside the verdict and grant a new trial.

The issues thus raised are simple questions of fact and the proper application of the legal principles involved. It may be helpful both as to a better understanding of the facts and the legal questions involved to supplement the foregoing summary of the findings to the questions of the special verdict which the trial court permitted to stand.

The plaintiff's father, Peter R. Thom, prior to his death in 1920, had been for many years a personal friend of and closely associated with the defendant in the Kimberly-Clark Company. He was a substantial stockholder, a director, and general superintendent of said company. The plaintiff inherited from her father 468 shares of the common stock of no par value and 234 shares of the preferred stock of the Kimberly-Clark Company. Shortly after her father's death, she left Appleton and later went to live in Detroit, Mich., where she and her husband resided at the time of the sale of the stock in question.

The defendant for upwards of forty years was connected with the Kimberly-Clark Company and in 1926 and prior he was a director, the executive vice president, and general manager. He was personally acquainted with the members of Peter Thom's family, knew that the plaintiff and her brother Edgar had each inherited substantial amounts of Kimberly-Clark Company stock from their father. The business of Kimberly-Clark Company, which had its beginning in 1872, grew from a small business to a very large organization which in 1926 had an authorized capital stock issue outstanding of 50,000 shares of preferred stock of a par value of $100 per share, and 100,000 shares of common stock of no par value. It owned and maintained, either directly or through subsidiary companies which it controlled, other enterprises consisting of, and among others, different mills and timber holdings. There are only fifty-four stockholders, nearly all living within a radius of twenty-five miles of Neenah. The shares of the company were largely held by those immediately connected with the management of the company. The stock had never been listed on any exchange. No dividends were declared or paid on the common stock from 1922 to May 1, 1926, on which latter date a dividend of 1 1/2 per cent. was declared and paid.

It was the practice of the officers not to give out to the stockholders any printed statement of the financial affairs of the company, but such statements were furnished, read, and commented upon at the annual meeting.

Among the subsidiary companies controlled by the Kimberly-Clark Company was Cellucotton Products Company (later changed to Kotex Company), a Wisconsin corporation, organized in 1920 with an authorized capital stock of 5,000 shares, par value $100 each, of which 3,000 shares were issued and outstanding. The Kimberly-Clark Company owned 2,685 shares of this outstanding stock. Six individuals, all connected with the Kimberly-Clark Company, owned the remaining 315 outstanding shares. The value of Kimberly-Clark's interest in Kotex Company was carried on the books at $268,500. The Cellucotton Company's (Kotex) earnings were promoted by extensive advertising. During the years 1921, 1922, and 1923, this company showed a total loss of $132,061.96. The profits for the years 1924, 1925, and 1926 amounted to $2,599,912.19. The earnings did not appear from the Kimberly-Clark books or statements, nor was the proportionate part of these earnings belonging to Kimberly-Clark...