Zohrlaut v. Mengelberg

• Decision Date: 11 January 1910
• Citation: 144 Wis. 564,124 N.W. 247
• Parties: ZOHRLAUT v. MENGELBERG.
• Court: Wisconsin Supreme Court

144 Wis. 564

124 N.W. 247

ZOHRLAUT

v.MENGELBERG.

Supreme Court of Wisconsin.

Jan. 11, 1910.

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

Action by Edward Zohrlaut against Rudolf Mengelberg. Judgment for defendant, and plaintiff appeals. Affirmed.

The Herman Zohrlaut Leather Company was incorporated in 1891 under the laws of Wisconsin, and with an authorized capital stock of $500,000. Prior to the incorporation of the company Herman Zohrlaut had been engaged for many years in the tannery business, which the corporation was organized to carry on, and had been the principal, if not the sole, owner of such business. The corporation was practically a family affair. Prior to June 19, 1899, Herman Zohrlaut had never transferred to the corporation the real estate, machinery, and buildings used in connection with the business. The value of these three items of property, as shown on the balance sheet of the corporation for November 30, 1899, was $508,885.01. It appears that an appraisal of the buildings and factories had been made by the American Appraisal Company, which did not agree with the book values, but was in excess thereof. Entries were made in the books of account under date of November 30th to make the book values of these properties correspond with the values placed thereon by the appraisal company. On the other hand, the real estate values as carried on the books were somewhat reduced. These changes resulted in increasing the book value of these items of property $857.76. It further appeared that the corporation was a large borrower, and that in the statement which it made to banks as a basis for credit the real estate, buildings, and machinery were listed as part of the assets of the corporation.

On June 19, 1899, a meeting of the stockholders of the company was held at its office, and minutes were made of what transpired at such meeting, which minutes were subsequently changed, as will be hereafter indicated. It appeared from such minutes that Herman Zohrlaut was given permission to sell his stock in the corporation to Edward Zohrlaut, and it was further provided that the books of subscription of the capital stock of the company be opened and kept open long enough to receive subscriptions to the amount of the unsold stock, to wit, the sum of $174,000, and the board of directors was authorized to issue such stock in its discretion. The directors were authorized and empowered to purchase from Herman Zohrlaut the tannery, real estate, property, buildings, and machinery for the sum of $500,000, to be paid for by issuing to said Herman Zohrlaut $174,000 of the capital stock of the company and the balance in cash, upon his conveying said property by warranty deed to the corporation. At a meeting of the directors of the corporation held immediately thereafter a motion was carried to the effect that the purchase of the tannery property, pursuant to the resolution of the stockholders passed at their meeting, be ratified, and the vice president and secretary were authorized to issue to Herman Zohrlaut, in payment of the purchase referred to in said resolution, the sum of $500,000, of which sum $174,000 was to be paid by the issue of the capital stock of the company to that amount, and the balance in cash. It is fairly apparent from the testimony that the company's financial condition at this time was such that it could with difficulty, if at all, make the cash payment. A warranty deed of the real estate, buildings, and machinery in question, bearing date January 1, 1899, was executed by Herman Zohrlaut and wife to Edward Zohrlaut as grantee. This deed appears to have been acknowledged as to Herman Zohrlaut on June 19th, and as to his wife on July 5, 1899.

The next meeting of the board of directors of the corporation was held on August 18th. The entries relating to what transpired at that meeting were substantially changed, as were the entries relating to the meeting of June 19th. The original entries noted the fact that the sale of the property from Herman Zohrlaut to the corporation, as contemplated by previous resolutions, had been consummated, but it was discovered that the deed was made by Herman Zohrlaut to Edward Zohrlaut instead of to the company, and recited that it was thereupon agreed that Edward and his wife should quitclaim to the company. Edward Zohrlaut and wife did in fact execute a quitclaim deed to the corporation of the property conveyed to him by his father; such deed bearing date August 16, 1899.

The stock book of the corporation shows that on June 18, 1899, a certificate for 174 shares of the capital stock was made out to Herman Zohrlaut, he signing it as president, and that such certificate remained in existence until September 14, 1899, at which time the court found that it was canceled. Entries had also been made in the books of the corporation showing that the outstanding capital stock thereof was $500,000, in lieu of the $326,000 that had been outstanding prior to the issue of the last-named certificate. Whether there had been any delivery to or acceptance by Herman Zohrlaut of the certificate in question, as part payment of the purchase price of the property sold, there is no dispute that the cash part of the payment never was paid. The referee and the court found that, concurrently with the stockholders' meeting of June 19th, Edward Zohrlaut purchased from his father the latter's entire holdings in the corporation, and also purchased from him the property covered by the warranty deed dated July 1st, and that such deed was executed and delivered in pursuance of such agreement to purchase, and not for the purpose of carrying out the alleged agreement with the corporation, and that no mistake had been made in naming Edward Zohrlaut as grantee in such deed instead of the corporation. Under date of August 22, 1899, the following contract was made and entered into between the plaintiff and defendant:

“Edward Zohrlaut, president of the Herman Zohrlaut Leather Company, and Rudolf Mengelberg agree to the following:

(1) As soon as the books of the Herman Zohrlaut Leather Company are closed for the year ending November 30, 1899, Edward Zohrlaut sells to Rudolf Mengelberg twenty-five shares of the five hundred shares of the capital stock of the Herman Zohrlaut Leather Company at a price based on the showing of the Herman Zohrlaut Leather Company's books on November 30, 1899.

(2) Rudolf Mengelberg secures the payment of said shares by his notes. These notes shall bear interest at the rate of four per cent. per annum, provided that the yearly dividend earned and declared on said shares be larger than the yearly interest due on said notes. If the yearly dividend earned and declared on said shares be less than the yearly interest due on said notes, then the notes shall earn said dividend in place of interest for such year. Such stock to be held by said Zohrlaut as collateral for the payment of such notes.

(3) All money earned and declared as yearly dividends on said shares in excess of the yearly interest due on said notes shall be applied towards paying off the principal of said notes.

(4) If at any time Rudolf Mengelberg should not be re-elected as director and officer of the Herman Zohrlaut Leather Company, or for other unforeseen reasons be compelled to resign his position, Edward Zohrlaut agrees to purchase from Rudolf Mengelberg said twenty-five shares at a price based on the showing of the Herman Zohrlaut Leather Company's books at that time, deducting therefrom any unpaid principal and interest on such notes.”

An informal meeting was held in the office of the legal adviser of the corporation on October 4, 1899, at which meeting plaintiff and defendant were present. The plaintiff at that time held a large majority of the capital stock of the corporation, and habitually represented some of the other stockholders by proxy, and it was found by the referee and by the court that the proceedings taken at such meeting amounted to corporate action, and that at such meeting it was concluded to reduce the outstanding capital stock of the corporation from $500,000 to $326,000, and to cancel the certificate of stock issued to Herman Zohrlaut for $174,000, and to transfer such sum to the surplus account of the company instead of carrying it as a stock liability. It was also found that it was agreed at said meeting that the minutes of the two former meetings should be changed in so far as it might be necessary to meet the situation, and changes were made therein, either by the attorney for the corporation or by his clerk.

The minutes of the meeting of June 19th were changed so as to show that, instead of partial consideration for the purchase of real estate, buildings, and machinery being the issuance of $174,000 of the capital stock of the corporation, such consideration was the cancellation of the indebtedness, amounting to $48,415.84, against Edward Zohrlaut. A pencil mark was drawn through the portion of the resolution providing for the issuance of $174,000 of the capital stock to Herman Zohrlaut, and in lieu thereof the vice president and secretary were authorized to cancel the $48,415.84 account against Edward Zohrlaut in consideration of his conveying the tannery property to the corporation, and in further consideration of the company's assuming payment of interest on the note, or notes, of Edward Zohrlaut to Herman Zohrlaut. It appeared at this time that Edward Zohrlaut had purchased the stock of Herman Zohrlaut in the company, and had given his note to Herman Zohrlaut for $100,000 in whole or partial payment therefor.

The minutes of the meeting of August 18th were changed so as to strike out the recital therein that it was discovered that the deed given by Herman Zohrlaut to Edward Zohrlaut was given by mistake, and that it was intended that the corporation should be named as grantee therein. At the time the meeting of October 4th was held one share of...