Veenstra v. Associated Broad. Corp., s. 70

• Decision Date: 29 June 1948
• Docket Number: Nos. 70,71.,s. 70
• Citation: 321 Mich. 679,33 N.W.2d 115
• Parties: VEENSTRA v. ASSOCIATED BROADCASTING CORPORATION et al. FOX v. ASSOCIATED BROADCASTING CORPORATION et al.
• Court: Michigan Supreme Court

321 Mich. 679

33 N.W.2d 115

VEENSTRA

v.ASSOCIATED BROADCASTING CORPORATION et al.

FOX

v.ASSOCIATED BROADCASTING CORPORATION et al.

Nos. 70, 71.

Supreme Court of Michigan.

June 29, 1948.

Appeal from Curcuit Court, Kent County; Dale Souter, Circuit judge.

Actions, consolidated for trial, by Ray M. Veenstra, and by Martin Fox against the Associated Broadcasting Corporation, and another, to recover moneys paid for stock sold in violation of the Michigan blue sky law. From judgments for defendants notwithstanding verdicts in favor of plaintiffs, the plaintiffs appeal.

Reversed and cases remanded with directions.

Before the Entire Bench.

Warner, Norcross & Judd, George S. Norcross, and Leonard D. Verdier, Jr., all of Graud Rapids, for appellants, Ray M. Veenstra and Martin Fox.

Earl Waring Dunn, of Grand Rapids (Paul E. Cholette, of Grand Rapids, of counsel), for appellees.

REID, Justice.

These two cases were separately begun to recover moneys paid for stock sold in violation of the Michigan blue sky law. The pleadings are separate but the two cases were consolidated for purposes of trial and are submitted together on appeal. In the Veenstra case, the jury rendered a verdict for plaintiff in the sum of $4,236, and in the Fox case, a verdict in the sum of $6,354. Defendants moved for a directed verdict at the conclusion of plaintiffs' case and again at the conclusion of all testimony. The court reserved decision under the Empson act, Comp.Laws 1929, § 14531 et seq. Later, on motion of defendants, the court rendered judgment for defendants notwithstanding the verdict. Plaintiffs appeal.

The verdicts of the jury seem to have determined in favor of plaintiffs all facts which were essential to plaintiffs' case.

Defendant Associated Broadcasting Corporation is a Michigan corporation. The incorporators were Roy C. Kelley and defendant Leonard A. Versluis. The principal objective of the corporation was the development and operation of a national radio network. A directors' meeting August 6, 1945, authorized the sale of 50 remaining shares of treasury stock at $2,000 per share. Defendant Versluis made known to plaintiff Fox that some of the stock was for sale. Plaintiff Fox purchased through Versluis three shares for $6,000 and plaintiff Veenstra, to whom defendant Versluis made recommendation of the purchase, Purchased two shares for $4,000. The purchases were made on or about September 12, 1945. Defendant Versluis was the agent of the defendant corporation in making the sales. No stock certificates were ever delivered to plaintiffs. For the amounts of the purchase price with interest, plaintiffs brought suit.

After the plaintiffs had made their purchases, defendants made application to the Michigan corporation and securities commission for authority to sell the stock. The commission refused to accept the stock for filing and with the consent of the commission the corporation withdrew the application. The stock was never authorized for sale by the Michigan corporation and securities commission, of which fact neither plaintiff was advised until late in 1945. Plaintiff Fox was advised of the non-validation of the stock on November 21, 1945.

In November, 1945, the corporation was losing money and was in dire need of additional capital. Versluis, the president and treasurer, went to New York and made an arrangement for a loan of $150,000, in return for an option to the Atlas Corporation for a period of 30 days to purchase for $350,000 a two-thirds interest in a new corporation to be formed. The $150,000 loan was to be applied on the purchase. The option required, among other things, the procuring of releases from the stockholders of the Michigan corporation of their claims against the corporation and provided that a successor new corporation should be formed under the laws of Delaware.

On November 21, 1945, a meeting was held in Versluis' office at which Versluis, Kelley, Fox, Van Houtum, Dunn, Wagemaker, Kozak, Peters, Dr. Snyder and possibly others were present. Most of those present were stockholders. It was not an official directors or stockholders meeting and there were no minutes of that meeting as a meeting of stockholders or directors. Plaintiff Fox is not shown to have taken any part except as a listener; plaintiff Veenstra was not even present. Mr. Versluis stated at the meeting that the Atlas Corporation required extinguishment of all liabilities of the Michigan corporation on account of stock subscriptions. To obtain compliance with that requirement, the management of the corporation, Versluis and Kelley, and their attorney Dunn, had called the beforementioned stockholders together and at the meeting, urged upon them a cancellation of causes of action for moneys paid by them for purchase of unlisted stock. From all the testimony, the jury had good grounds for believing that then, theretofore and thereafter, Versluis and Kelley, and their attorney Dunn, were not acting as agents for plaintiffs, although defendants claim they were agents for plaintiffs.

We are not in accord with defendants' claim that plaintiffs were in pari delicto with defendants, under the case of Schrier v. B & B Oil Co., 311 Mich. 118, 18 N.W.2d 392. In that case Schrier did not complete his purchase of stock until after he had been elected director and vice president of the corporation; he attended every meeting of directors and stockholders after his purchase of stock and before his rescission approximately 14 months later and had much to do with determining the corporation's policies; he participated in the authorization of increases of capital stock; it was as much his duty as that of any other officer to see that the increased issue was approved by the State commission.

On the contrary, in the case at bar plaintiffs were not officers or directors of defendant company and took no part in management of the company or determining the policy as to reorganization. The management leading up to reorganization was handled entirely by Versluis and Kelley and their attorney Dunn.

As hereinafter set forth, plaintiff two days after the meeting of November 21, 1945, signed agreements designated as Exhibits No. 32 and 33. They did not sign any other agreement. Versluis and Kelley signed said Exhibits No. 32 and 33 as ‘sole stockholders' and as directors of Associated Broadcasting Company and were the opposite parties to plaintiffs.

Two days after the meeting above referred to and on November 23, 1945 (Thanksgiving day), Kelley and defendant Versluis prepared a form of agreement of the general form of exhibits introduced in evidence, being Exhibits No. 32 and 33. On that evening Mr. Kelley called at the residence of Mr. Fox and explained the extreme urgency of the situation of the Michigan corporation. Between 10 and 11 o'clock the same night Mr. Veenstra also came to Mr. Fox's residence in pursuance to a call from Mr. Fox. Mr. Kelley stated to plaintiffs that Exhibits No. 32 and 33 must be signed that night in order that the Atlas Corporation should make its investment of $150,000 and that it was essential that the agreements should be placed in the air mail on the airplane leaving Grand Rapids at midnight. Mr. Kelley told plaintiffs that with the additional capital the business would have a better opportunity of success. Mr. Veenstra and Mr. Fox asked for further time but Mr. Kelley said it would be impossible, that he had to get other agreements that same night and get them out on the airplane, so that neither plaintiff Fox nor plaintiff Veenstra had an opportunity to discuss with their attorney, Mr. Norcross, the matter of signing the agreement. Exhibit No. 33 is as follows:

‘Agreement

‘This Agreement made this 23rd day of November, A. D. 1945, by and between Leonard A. Versluis and Roy C. Kelley, of the City of Grand Rapids, Michigan, herein called first parties, and Ray M. Veenstra of the City of Graud Rapids, Michigan, herein called second party, witnesseth,

‘Whereas first parties are the sole stockholders of the Associated Broadcasting Corporation, organized and doing business under the laws of the State of Michigan, and are also directors of said corporation, said corporation being hereinafter referred to as ‘Associated’,

‘Whereas Associated did heretofore file with the Michigan Corporation and SecuritiesCommission an application to sell certain of its treasury stock under the provisions of Subsec. 3, of Sec. 19.753 of Michigan Statutes Ann. [Comp.Laws Supp. 1945, § 9781(3)], as amended, and did accept subscriptions to said stock from certain persons, among whom was second party,

‘Whereas, after second party had paid Associated the amount of his subscription but before any stock was issued by said corporation, said Securities Commission did refuse to accept said securities for filing under said section of said statute,

‘Whereas it is now proposed to reorganize said corporation to enable it to finance its operations more adequately, by the organization of a new corporation and the sale to it of the entire business and assets of said corporation, subject to its outstanding debts and liabilities, except for the liability of Associated to second party and said other subscribeds, which liability it is necessary that first parties adjust directly with second party,

‘Therefore, It Is Agreed As Follows:

‘1. After first parties shall have transferred a certain share, hereinafter designated, to their attorneys, of the stock received in the new corporation upon reorganization, the remaining stock shall be divided as follows:

‘a. Each of first parties shall retain a one-third share of said stock.

‘b. The remaining one-third of said stock shall be divided into thirty-one equal parts to correspond with the thirty-one shares of stock of Associated subscribed and paid for, and one of said thirty-one parts shall be transferred to second party for each share of stock subscribed for and...