Western Industries v. Vilter Mfg. Co.

• Decision Date: 30 June 1950
• Citation: 257 Wis. 268,43 N.W.2d 430
• Parties: WESTERN INDUSTRIES, Inc. v. VILTER MFG. CO.
• Court: Wisconsin Supreme Court

Page 430

43 N.W.2d 430

257 Wis. 268

WESTERN INDUSTRIES, Inc. v. VILTER MFG. CO.

Supreme Court of Wisconsin.

June 30, 1950.

Dissenting opinion June 30, 1950.

Gold & McCann, Milwaukee, Wilkie, Toebaas, Hart, Kraege & Jackman, Madison, for appellant.

Sullivan & Nelson, Milwaukee, for respondent.

FAIRCHILD, Justice.

The owners of the stock in a corporation, while engaged in lawful acts which affect the corporation may commit the corporation to certain obligations, assuming that the rights of the creditors are properly respected. Hamilton v. Menomonee Falls Quarry Co., 106 Wis. 352, 81 N.W. 876; Hoberg v. John Hoberg Co., 170 Wis. 50, 173 N.W. 639, 952; Jesse v. Four Wheel Drive Auto Co., 177 Wis. 627, 189 N.W. 276; Davies v. Meisenheimer, 254 Wis. 419, 37 N.W.2d 93. The rule as read out of the cases is expressed in 3 Thompson, Corporations (3d Ed.) sec. 2301, page 989: 'Undoubtedly a private corporation may * * * even without consideration * * * give away its assets, or mortgage its property for the benefit of individual stockholders or officers, where all the stockholders assent to any such transaction, and where there are no corporate creditors and there is no statute expressly forbidding such transaction.'

See also 5 Fletcher, Cyc. Corp., (Perm Ed.) sec. 2099, p. 347; Cook on Corporations (8 Ed.), Vol. 1, sec. 3. The circumstances under which the transaction occurs will determine the propriety of the acts and establish the binding effect thereof upon the corporate entity, when an all-inclusive stockholder interest has given its approval.

The Vilter Manufacturing Company was, prior to the important dates here involved, a 'close corporation.' The stock in that corporation was owned and controlled by members of the Vilter family, either individually or in trust. Prior to April 1945, the owners, for reasons appealing to them, had considered selling their interest. They were the owners of the common and preferred stock. During the period here in question the defendant was engaged in the production of heavy armament for the armed services. It had been engaged in the manufacture of ice machines and refrigeration equipment. In January 1942, Earl B. Tilton was employed to act as executive vice-president and general manager to take effect November 1, 1943, and it appears that he was, under the control of the directors, to have final executive authority in respect to business policies, and the contract was to continue until October 31, 1947. We quote from the statement of facts in respondent's brief that 'At the inception of the transactions hereinafter discussed, all of defendant's outstanding common and preferred stock was owned by the members of the Vilter family, either directly or in trust. Commencing in 1943, the stockholders conducted a series of negotiations for the sale of their stock, but none of these negotiations reached fruition because of the inability of the stockholders to decide on the price they were willing to take. These negotiations, however, precipitated rumors which had an adverse effect upon defendant's business, and Mr. Tilton finally called the stockholders together and told them that they were ruining the business; that they should decide among themselves whether they wanted to sell; and if they decided to sell they should agree upon the price which they would take, and if this price were not forthcoming within a limited time, they should abandon their efforts to sell.' As a result of his urging, on March 9, 1945, all the stockholders, with one exception, entered into an agreement to sell their stock at a stipulated price, provided that 'the sale could be concluded not later than April 30.' The issues lead into many incidental transactions resulting in a long trial. Some were thoroughly explained, but much of the testimony in relation thereto is not necessary to a review here. We are concerned directly with whether the defendant by reason of being the responsible party to a contract through acts of its agent or by ratification has assumed it. Our decision will therefore be the result of application of the law to the facts material and relevant to those questions.

In following out the suggestions made by Mr. Tilton, an agreement providing for disposition of the assets of the corporation and for the payment of a broker's fee was drawn. It reads:

'In consideration of One Dollar ($1.00) and other valuable consideration in hand paid by each of the undersigned to the others, the receipt whereof is hereby acknowledged, each of the undersigned agrees as follows:

'1. To sell or otherwise dispose of his or her interest in the preferred and common stock of the Vilter Manufacturing Company (hereinafter called the 'Company') for a consideration measured by a proportionate share of One Million Two Hundred Thousand Dollars ($1,200,000) for all of the preferred and common stock of the Company. It is understood that the acquisition price or consideration may consist of Nine Hundred Thousand Dollars ($900,000) in cash and a mortgage upon the real and fixed properties of the Company in the amount of Three Hundred Thousand Dollars ($300,000) securing notes payable in installments of Thirty Thousand Dollars ($30,000) every six months, with final maturity at the end of five years, the unpaid balance from time to time to bear interest at four per cent (4%) per annum, payable semi-annually. The form of the mortgage shall be such as is approved by the holders of a majority of the common and preferred stock of the Company prior to disposition as herein provided.

'2. Each of the undersigned authorizes the payment of a broker's commission of five per cent (5%) on One Million Two Hundred Thousand Dollars ($1,200,000) out of the proceeds received for the stock of the Company.

'3. In case the undersigned is a beneficiary of an estate or trust holding common and/or preferred stock in the Company the undersigned will use his or her best efforts to cause such estate or trust to join in any disposition of stock hereunder upon the terms hereinabove indicated.

'4. It is understood that reference herein to disposition of the stock of the Company shall include acquisition thereof by the Company or sale of the assets of the Company for a price which will net to the stockholders the same amount as would be the case if the stock were sold as herein described. No stockholder shall be obligated hereuner to sell or otherwise dispose of less than all of his stock in the Company.

'5. This agreement shall continue in force until April 30, 1945, and shall be enforcible by any one of the undersigned who produces a purchaser or purchasers or develops or desires to proceed with a plan which will comply with the terms hereof.

'6. This agreement may be executed in any number of counterparts and all of such counterparts shall constitute but one instrument.

'Dated March 9th, 1945

'First Wisconsin Trust Co.

By W. I. Barth, Vice President

Fred D. Trubshaw

Trustees for Theo Vilter, dead

Fred C. Trubshaw

W. I. Barth

Waldimer R. Kramer

Ernest. F. Vilter

William B. Vilter

Elfrieda B. Vilter'

John Narilyn Goes

By ________ Trustee

Diana G. Markham

By ________ Agent

From the beginning of this matter and consistently through all the negotiations leading up to the controversy between the plaintiff and defendant the Vilter Manufacturing Company was involved by the action of its owners, and we are to determine on this appeal whether or not the plaintiff, under the circumstances, is to have the benefit of the agreement described in its complaint appearing in the statement of facts. The plaintiff's right exists if it appears that a contractual relation was created between the plaintiff and defendant by reason of plaintiff's dealings with the attorneys for Vilter, including Mr. Foley and Mr. Rapkin, whose firm represented the original owners of the stock in the Vilter Company and who for some time had been attorneys for the Vilter Company. The plaintiff was not an intermeddler or a volunteer. Its services were solicited by the attorneys who had been commissioned to accomplish a desired result. In view of the terms of the stockholders' agreement, it is considered that the attorneys representing the defendant's interests then involved were acting within the aforesaid scope of their authority. They solicited the services of plaintiff. In compliance with their request the plaintiff produced a purchaser whose offer met the requirements of defendant and at the same time provided for a fee to plaintiff to be paid by the customer. Had that plan been followed, plaintiff's fee of $30,000 in addition to the purchase price of $1,300,000 would have been paid. As we have suggested, there is also, the point that, in addition to this contractual relation, the obligations arising out of that agreement were in any event assumed eventually by the defendant because of its ratification of the acts of those representing it.

With respect to the facts which show a contractual relation between the plaintiff and the defendant with reference to the amount sought to be recovered in this action, the defendant now insists that it is not indebted by reason of anything which has occurred. It is urged in its behalf as the reasons for there being no liability that prior to May 1, when Foundation, Inc. came into existence, there actually had been no hiring of the plaintiff to render any service for which the defendant is responsible. This contention is based upon the proposition that Mr. Rapkin had no authority, either actual or apparent, to hire the plaintiff under any circumstances which can in any way involve the defendant. The solution of the problem then requires a determination from the testimony of all concerned of the effect of the relation of the firm of attorneys, of which Rapkin was a representative, to the defendant at the time the arrangement with the plaintiff was made and its authority under the agreement between the stockholders in the effort to find a...