Pietsch v. Milbrath

• Decision Date: 15 November 1904
• Citation: 123 Wis. 647,101 N.W. 388
• Parties: PIETSCH ET AL. v. MILBRATH ET AL.
• Court: Wisconsin Supreme Court

123 Wis. 647

101 N.W. 388

PIETSCH ET AL.

v.MILBRATH ET AL.^a1

Supreme Court of Wisconsin.

Nov. 15, 1904.

Appeal from Superior Court, Milwaukee County; J. C. Ludwig, Judge.

Action by Ferdinand Pietsch and others against Charles W. Milbrath and others. From a judgment for plaintiffs, defendants appeal. Reversed.

Action by stockholders of a corporation to enforce an alleged promoter's liability. The complaint was held sufficient in that regard upon two previous appeals. 112 Wis. 418, 88 N. W. 223, and 116 Wis. 344, 93 N. W. 9. In the report of the first appeal a full statement thereof will be found.

The issues raised by the pleadings were decided substantially to this effect: Plaintiffs are members of defendant corporation, becoming such by taking stock therein on or about the time of its organization or purchasing stock thereafter. They commenced this action for its benefit. July 15, 1892, one Thomas and one Textor,--the latter being now deceased and represented in this action by Clinton Textor, administrator of his estate,--planned to obtain control of two certain farms, to cause a corporation to be organized to purchase the same from them at a price yielding them a large profit without the knowledge of such persons as they might induce to take stock in such corporation. July 15, 1892, pursuant thereto they secured the right to purchase one of said farms for $17,300, paying down a trifling sum, a few days thereafter assigning a quarter interest therein to defendants, Mueller, Okershauser and Thomas, who at that time were parties to the venture. July 21st thereafter Thomas, in further execution of such plan, secured the right to purchase the other farm for $46,584, paying down $1,000, and on the same day assigning a one-fourth interest in such right for a nominal consideration to his associates. August 10th, defendants Charles W. Milbrath on behalf of himself and defendants Lindenmann, Kretschmar and Hanson paid $2,000, on one of the purchase contracts taking in consideration thereof Thomas' interest therein. Part, if not all, defendants prior to August 26, 1892, agreed upon the details of the corporation to be organized, the same being that the capital stock should be 2,034 shares, of the par value of $203,400; that the members of the combine should have 1,472 shares, ostensibly for $34 per share cash, but really without consideration; that 562 shares should be sold to outside parties for $34 cash per share; that the 1,472 shares should be distributed in proportions specified, to the members of the combine, and that all money contributed by them should be returned out of that paid in by outsiders. August 26th thereafter Textor contracted to sell to one Bird 10 shares of the prospective stock for $340. September 22d thereafter defendant Krause succeeded to the interest of Ramsey, refunding to the latter the amount of his investment. September 22, 1892, the articles of organization of the contemplated corporation were duly filed, the incorporators being said Kretschmar, Milbrath, Lindenmann, Textor and Hanson. September 23d in advance of action by such corporation in respect to the matter, Milbrath, Kretschmar, Lindenmann, Textor and Thomas caused the title to the land by two deeds to be vested in Textor, the stated consideration in each deed being “$1, and other good and valuable considerations.” Said Textor thereupon conveyed the land to the corporation at a stated consideration of $116,000. The deeds were duly recorded. When the title was so vested in Textor, mortgages were given back for $46,238. When he deeded to the corporation, it, in form, assumed and agreed to pay the mortgage indebtedness. The difference between such mortgage indebtedness and the cost of the land to the promoters was paid by them and they were thereafter reimbursed, in the main, pursuant to the aforesaid plan, out of $6,630, paid for stock to the corporation by plaintiffs. To aid in executing such plan a subscription paper was prepared,--in form, obligating the signers to take the number of shares in the corporation to be formed set opposite their respective names at $34 cash per share. The amount of the proposed capital stock and the purpose of the corporation were stated in such paper, in harmony with the foregoing. The promoters in the main, in order to disguise the real transaction signed the paper. Names of some of the plaintiffs were signed thereon, but whether by them or by their authority, does not clearly appear. At a meeting of subscribers to stock held October 4, 1892, no one being present but participants in the aforesaid profits, a board of directors was elected from their number. No record of the meeting was made for several months thereafter. October 6, 1892, a meeting of such board was held, no one being present but the said interested parties, when that which had theretofore been done as to acquiring the land was approved, and 562 shares of stock unsubscribed for was ordered set apart, to be known as “treasury stock” and sold at $34 cash per share, $2 per share to be allowed as a commission to persons placing the same. The result was that $1,050, was paid out of the corporate treasury as commissions. Many of the plaintiffs became purchasers of the so-called “treasury stock” and others bought stock that had theretofore been taken by some of the defendants, the former supposing themselves to be original takers thereof. In all cases they took the stock upon the faith of representations made to them that defendants had paid, or were to pay, the full sum of $116,000 for the land, and that all stock was taken on the basis of yielding $34 per share cash to the corporation. The total of 1,472 shares planned to be taken by the promoters, as aforesaid, was issued to them, but no stock was issued to any one prior to October 18, 1902. Each year, for several years after the organizationof the corporation, for the purpose of keeping plaintiffs in ignorance of the facts aforesaid, misleading reports were sent to them by its officers as to its condition. They did not learn of facts rendering defendants liable for the profits made by them as aforesaid until a few months prior to the commencement of this action. The fair market value of the land sold to the corporation, at the time of the conveyance thereof, was $250 per acre. Further facts were found exonerating defendant Ramsey.

Upon such facts the court held, in effect, that the corporation was defrauded out of $34 per share on 1,472 shares of stock issued to the promoters, amounting to $50,048, and that defendants, except Ramsey, were liable therefor with interest. Judgment was accordingly ordered and rendered, requiring them to pay such sum and interest into court, or to the treasurer of the corporation upon a contingency named, for the benefit of the corporation, and judgment was also ordered and rendered against defendants, except Ramsey, for costs.

Julius E. Roehr (Timlin & Glicksman, of counsel), for all appellants except Max. C. Krause.

Quarles, Spence & Quarles, for appellant M. C. Krause.

Geo. L. Williams and Bohmrich & Williams, for respondents.

MARSHALL, J. (after stating the facts).

As indicated in the statement, this court has twice held in this case that by rules in previous decisions made here the circumstances alleged to have occurred constitute a good cause of action in favor of the corporation against the defendants, enforceable at the suit of the plaintiffs as stockholders, to recover of the former the profits obtained in buying the land at one price and selling it to the corporation at another. The cases where the controlling principles have been proclaimed and applied are numerous, the most significant being Pittsburg Mining Co. v. Spooner et al., 74 Wis. 307, 42 N. W. 259, 17 Am. St. Rep. 149;Fountain Spring Park Co. v. Roberts et al., 92 Wis. 345, 66 N. W. 399, 53 Am. St. Rep. 917;Franey v. Warner et al., 96 Wis. 222;Hebgen v. Koeffler, 97 Wis. 313, 72 N. W. 745;Milwaukee Cold Storage Co. v. Dexter et al., 99 Wis. 214, 74 N. W. 967, 40 L. R. A. 837;Zinc Carbonate Co. v. First National Bank, etc., 103 Wis. 125, 79 N. W. 229, 74 Am. St. Rep. 845;Spaulding et al. v. North Milwaukee Townsite Co., 106 Wis. 481, 81 N. W. 1064;Forest Land Co. v. Bjorkquist et al., 110 Wis. 547, 86 N. W. 183. It follows that the sufficiency of the complaint to support a judgment is res judicata. Case v. Hoffman et al., 100 Wis. 314, 72 N. W. 390, 74 N. W. 220, 75 N. W. 945, 44 L. R. A. 728.

While, as counsel for appellants claim, the findings are indefinite, being so framed at some points that they might be taken one way or another, they follow the complaint in that regard. Why this indefiniteness, we need not go far to discover. A misunderstanding by counsel of language used in Spaulding v. North Milwaukee Townsite Co. et al., supra, or inability of counsel to satisfactorily gather the purport thereof is very plainly portrayed in both complaint and findings. It is probable the learned trial court allowed counsel to phrase the decision as it appears in the records, and if it were not for that which, though sanctioned by practice, in the judgment of the writer, cannot be too strongly condemned,--if the court had responded fully to the commands of the statute to state in writing its decision, instead of permitting the stating thereof to be done by one viewing the case from a one-sided standpoint,--the uncertainty complained of would not exist, and we would not have before us a decision as to facts, under any circumstances requiring careful consideration to determine its meaning in advance of pronouncing the legal effect thereof.

It is of course conceded that if the findings will reasonably admit of a construction harmonizing with and responding to the allegations of the complaint, as it was viewed here on the former occasion, on their face they will support the judgment. The view that we take of this case renders unnecessary any examination in detail of the numerous...