Schultz v. Schultz

• Decision Date: 23 August 1982
• Docket Number: No. 63434,63434
• Citation: 637 S.W.2d 1
• Parties: 34 UCC Rep.Serv. 1350 A. Y. SCHULTZ, et al., Appellants, v. Sol SCHULTZ, et al., Respondents. Edmund C. ROGERS, Intervenor, Appellant, v. Sol SCHULTZ, et al., Respondents. A. Y. SCHULTZ, et al., Respondents, v. Sol SCHULTZ, et al., Appellants. A. Y. SCHULTZ, et al., Respondents, v. Allan MOLASKY, et al., Appellants.
• Court: Missouri Supreme Court

Page 1

637 S.W.2d 1

34 UCC Rep.Serv. 1350

A. Y. SCHULTZ, et al., Appellants, v. Sol SCHULTZ, et al., Respondents.

Edmund C. ROGERS, Intervenor, Appellant, v. Sol SCHULTZ, et al., Respondents.

A. Y. SCHULTZ, et al., Respondents, v. Sol SCHULTZ, et al., Appellants.

A. Y. SCHULTZ, et al., Respondents, v. Allan MOLASKY, et al., Appellants.

No. 63434.

Supreme Court of Missouri.

Aug. 23, 1982.

Jim J. Shoemake, J. Richard McEachern, St. Louis, for A. Y. and Jack schultz.

Curtis, Crossen, Hensley, Allen, Curtis & Altman, Thomas B. Curtis, Thomas E. Allen, St. Louis, for intervenor-appellant.

Theodore D. Ponfil, Blumenfeld, Mary & Tureen, P. C., St. Louis, for respondents.

SEILER, Judge.

This is an equitable action to determine ownership of fourteen shares, and ultimately control, of the Chemical Dynamics Co., d/b/a The Schultz Company, in St. Louis. The cause was transferred from the court of appeals, eastern district, after opinion. ¹ We will determine the case as if on original appeal. Rule 83.09.

To understand the ownership issues, a brief history of Chemical Dynamics Co., d/b/a the Schultz Company (hereinafter the Schultz Co.), is necessary. The principal are the Schultz brothers: A. Y. (Abe), Jack, and Sol Schultz (hereinafter Abe, Jack, and Sol).

In 1947, the Schultz Co. was first incorporated and was known as the Schultz Shoe Co. Its principal business was shoe repairing and was conducted by Abe and his father. The company now makes liquid fertilizer and plant food. At the time of the senior Schultz's death, there were ten shares outstanding and held as follows: father-three shares; Abe-three shares; Harry Schultz (another brother)-two shares; and Marvin Saks (a brother-in-law)-two shares. The company paid $15,000 to the mother for her husband's three shares. Harry Schultz left the company and St. Louis in the early 1950's and Abe bought his shares for $5,000. When Marvin Saks left the company in the early 1960's nothing was done with his shares. In 1967, the company was sold to Tama Packing Co. in Tama, Iowa. As part of this deal, 200,000 shares of Tama were issued, all in Abe's name, in exchange for the 10 shares of Schultz Co. stock. Shortly thereafter, this deal was rescinded largely through the personal and financial efforts of Jack and the company returned to St. Louis. ² The original ten shares of Schultz Co. all came back in Abe's name. Subsequently, to raise money, twenty additional shares were issued. Ownership of fourteen of these shares is at issue.

In 1968 Jack bought ten of the newly issued shares and Ben Fixman, a family friend, bought ten (hereinafter the Fixman shares) for which each man paid a total of $100,000 to the company ($80,000 cash and $20,000 loan). Although not an active participant in the company, Jack was asked to help the company, this time by arranging marketing of the company's products through the Cupples Co. To interest Cupples, Jack sold five of his shares at $14,000 each to representatives of Cupples. He then sold one share to Larry Newfeld, a Schultz Co. employee, for $11,000. As part of this sale, Jack prepared and Newfeld signed an agreement whereby Abe was to vote this share. The voting rights of this share are also disputed. At this point in 1968, Jack, who was undergoing personal and marital problems, which he blamed at least partly on his involvement with the company, moved to California and stated he wanted no further contact with the Schultz Co. Jack turned over the remaining four shares to Sol who, as secretary of the company, reissued certificates in his own name. ³ In his letter to Sol, Jack explained including the stock by writing, "The Schultz Company has requested that its stock be returned...." Ownership of these four shares is at issue. Shortly thereafter Sol sold one share for $25,000 to non-family members Robert Wolff and Gilbert Kopolow and went to Hawaii with the proceeds. ⁴ This sale precipitated an argument between Sol and Jack which ended with Sol throwing the remaining three certificates on Jack's desk with the instruction "to stick them ...." Jack has had physical possession of the three certificates since that time and claims ownership of these shares.

Jack had negotiated for purchase of eight shares of the Fixman stock for $80,000 in late 1968 but no sale resulted. Later, in August, 1969, within a year of saying he wanted no further contact with the Schultz Co., Jack was called off a California golf course for a telephone call from Sol. Sol was in the office of Tom Igoe, an officer of the Clayton Bank. Sol told Jack that they could buy all ten Fixman shares for $50,000 which would give the family control again, but Sol had neither the money nor credit to buy them. The bank would lend neither Sol nor the Schultz Co. money on the stock, but would be happy to lend the money if Jack, who had a good business reputation, would guarantee the loan (a demand note). The loan officer testified that it was his understanding that the stock was to go in the "family pot" for the benefit of the Schultz family. This Jack agreed to over the telephone, an agreement formally signed when Jack was in St. Louis. The bank held the ten Fixman shares and Abe put up his ten shares as collateral in addition to Jack's guarantee. Jack paid the interest and principal with the exception of a few interest payments made by the company. When the bank called the note, it looked only to Jack for payment. Upon payment, Jack received Sol's note endorsed to him and the envelope containing the twenty shares which he handed to Sol saying, "Take these out to Abe and go to work." Sol gave Abe his ten shares and again as secretary, reissued certificates in his name for the other ten shares. At no time did Sol make an attempt to repay Jack.

For the first time, the company in 1973 or 1974 began to make money. In the spring of 1976 Abe and Jack learned that Sol was negotiating to sell his stock to Allan and Mark Molasky (hereinafter the Molaskys). As a result, this action was brought to determine ownership rights in the stock. Edmund Rogers, an attorney who had represented the company and was a minority shareholder, obtained leave to intervene. While the action was pending, a contract was entered into for Sol to sell, for $1,000,000.00, the thirteen shares to the Molaskys, who took with full knowledge of the pending lawsuit and disputed claims. (See fn. 8.) The Molaskys were joined in the litigation. The Molaskys then transferred ownership to Melanjo, Inc., a Florida corporation, wholly owned by a Molasky daughter. Melanjo and the daughter were also joined. ⁵

The plaintiffs' group had control of 193/4 shares while the Molaskeys had control of 61/4 shares with ownership disputed in 14 shares. There was a total of 40 shares issued and outstanding.

The plaintiffs' primary theory is that ownership of the disputed stock is in the Schultz family for the benefit of the Schultz family.

Trial was held on several days over a period from February to September, 1977. Merle Silverstein (Jack's attorney), Jack, Abe, Thomas Igoe, and Edmund Rogers (the company attorney and intervenor), testified for the plaintiffs. Only Sol testified for the defendants. The trial court entered its findings of fact and conclusions of law and judgment on March 16, 1978. After motion for rehearing, the court entered amended findings and conclusions of law on June 29, 1978, which included appointment of a receiver. This was the subject of a prohibition action. ⁶ The trial court found that since its inception, the Schultz Co. "has always been operated as a family venture for the benefit of the Schultz family, namely, A. Y., Jack, Sol and Harry Schultz, ('The Schultz Brothers') and Marvin Saks (a brother-in-law of the Schultz Brothers)." It found that Jack had given financial support to the company over the years. Furthermore, it found that Sol had "been financially dependent on, or has been supported by his brother Jack Schultz by the means of cash gifts, use of apartment facilities and the use of an automobile."

The trial court's findings as to ownership of the stock were as follows:

1. Jack is the owner of the three shares in his possession for the benefit of the Schultz family;

2. Wolff and Kopolow, who paid $25,000 to Sol for the one share, owned the equitable interest and the Schultz family owned the legal interest and voting rights;

3. Sol had equitable title to the ten Fixman shares which are subject to "an implied equitable trust vesting all voting rights and legal title in such ten shares in The Schultz Family", ⁷ and his attempted transfer to the Molaskys conveyed only the equitable interest;

4. Lawrence Newfeld had only equitable title to the one share, the legal title and voting rights being in the Schultz family, and thus was able to convey only equitable title to the Molaskys.

All parties, plaintiffs, defendants, and intervenor, appealed the judgment of the trial court in some respect.

This court must sustain the judgment of the trial court "unless there is no substantial evidence to support it, unless it is against the weight of the evidence, unless it erroneously declares the law, or unless it erroneously applies the law." Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976) (construing Rule 73.01(c)).

Plaintiffs and intervenor appeal only the trial court's ruling that Sol, as equitable trustee, conveyed equitable title to the Molaskys. They do not challenge the findings of fact from which the trial court concluded that Sol held the ten Fixman shares as an equitable trustee for the benefit of the Schultz family. They do, however, allege that the trial court misapplied the law of constructive trusts. Defendants argue that the trial court's findings were not supported by substantial evidence and were confusing and should be set aside.

Constructive trusts are technically not trusts at all, but rather, are equitable devices employed by courts of equity to remedy a situation where a party...