Opinion
October 15, 1947. —
November 18, 1947.
APPEAL from a judgment of the circuit court for Brown county: GERALD J. BOILEAU, Circuit Judge, Presiding. Reversed, with directions.
For the appellant there was a brief by Everson, Ryan, Whitney O'Melia of Green Bay, and oral argument by E.L. Everson.
For the respondents there was a brief by North, Bie, Welsh, Trowbridge Wilmer of Green Bay, and oral argument by F. N. Trowbridge.
This is an action for specific performance of a contract to sell certain real estate situated in the city of Green Bay. On March 31, 1941, the plaintiff Mayme Fontaine and the defendant Brown County Motors Company entered into a written lease and option agreement whereby plaintiff leased to the defendant certain real estate consisting of a corner lot for a period of five years commencing June 15, 1941. At that time the motor company owned lots adjoining the leased property on either side. The lease contained an option to the plaintiff to purchase the adjacent property for a price of $35,000 during the term of the lease.
The lease and option agreement was negotiated in behalf of the company by its president and general manager, James J. Stathas, who was the owner of five-sixths of its corporate stock outstanding and entitled to vote. It was executed by Stathas, as president, and E.C. Peterson, as secretary. There was no formal vote of the stockholders of the corporation, approving the agreement.
The company entered into possession of the plaintiff's property pursuant to the terms of the lease. In 1942 plaintiff instituted an action against defendant in the Brown county circuit court to collect rents claimed to be due her. The litigation was the cause of strained relations between the plaintiff and Stathas thereafter.
In November of 1945 the company began the construction of a one-story warehouse building on its adjacent property. Stathas authorized the commencement of the construction. While he was aware of the option agreement at the time of its execution, he had completely forgotten it at the time he authorized the construction of the building. In February of 1946 the plaintiff observed the construction work then in progress. At that time the concrete foundation had been laid and three walls erected to a height appropriate for the building of a roof. Plaintiff discussed the matter with her attorney. He did not advise her immediately but sometime later, upon his return from a vacation, they discussed the matter further and on April 30, 1946, a notice exercising the option to purchase the company's property was duly served. At that time the building was substantially complete and the defendant had expended approximately $20,000 in its construction. The company refused to convey the property and the plaintiff filed this suit for specific performance. The defendants John J. Stathas, George J. Stathas, and Alwin Kriescher, stockholders of the defendant company, intervened. The trial court entered judgment dismissing the complaint, from which plaintiff appeals.
The questions are:
1. Was the option agreement invalid because it was not authorized at a corporate meeting by a majority of the stockholders?
2. May a court of equity refuse specific performance upon the ground that it would be harsh and oppressive and, if so, was it properly refused under the facts of this case?
The company relies upon sec. 180.11, Stats., to establish that it could not validly enter into the option agreement without a vote of a majority of its stockholders authorizing such action. The statute reads:
"(2) Transfers of property. Every corporation may, by a vote of a majority of the stock entitled to vote, sell and convey or authorize to be conveyed, all or any portion of the property owned by it, or mortgage or lease any such property whenever it shall be necessary for its business or the protection or benefit of its property.
"(3) Same; exceptions. But any corporation organized to deal in real property or in fixtures, improvements or chattels real, or to mortgage, pledge or dispose of the same in any manner whatsoever, may sell, mortgage, pledge or otherwise dispose of the same by instruments executed in the manner provided by section 235.19 or in such manner as shall be provided in the articles of incorporation, without further authorization by the members of any such corporation."
There was no action by the stockholders authorizing execution of the agreement.
We do not agree with the contention that an ordinary business corporation may not transfer real property without a majority vote of its stockholders. At the common law a business corporation other than a real-estate corporation was not permitted to dispose of its entire property except by unanimous consent of the stockholders, if the corporation were a solvent going concern. The same was true of the conveyance of any part of the corporate property which was essential to the continuance of the corporate enterprise. The basis for the limitation of authority was that such a conveyance was a substantial abandonment of the business enterprise and contrary to the implied agreement of the stockholders that the corporate property would be devoted to the prosecution of corporate purposes. Consolidated Water Power Co. v. Nash (1901), 109 Wis. 490, 85 N.W. 485; Gottschalk v. Avalon Realty Co. (1946) 249 Wis. 78, 23 N.W.2d 606; 6 Thompson, Corp. (3d ed.) 380; 13 Fletcher, Cyc. Corp. (perm. ed.) 109. The purpose. of sec. 180.11 (2), Stats., was to change the common-law rule. New York has so construed a similar statute. Cf. Matter of Timmis (1910), 200 N.Y. 177, 93 N.E. 522. The subsection applies only to those conveyances for which unanimous consent was required at the common law. To the extent that corporate conveyances at the common law did not require unanimous consent, the statute is inapplicable and the common law remains in effect. Matter of Timmis, supra. Compare also, Marvin v. Anderson (1901), 111 Wis. 387, 87 N.W. 226.
Execution of the option agreement by the president and secretary of the company was in accordance with statutory requirements. Secs. 235.50, 235.19, Stats. A presumption that the agreement was authorized arose from the regularity of its execution. Marvin v. Anderson, supra. The presumption was not rebutted by proof that the stockholders had not authorized it. A majority vote would be required only if the property involved were the entire property of the corporation or a part essential to the continuance of the corporate enterprise. There is no such showing. The directors of a corporation may authorize conveyances in the ordinary pursuit of the corporate business. 14 A C.J., p. 415. The option agreement purports to carry the authorization of the directors. There is no showing that they did not authorize it.
Should specific performance have been denied upon the ground that it would be harsh, oppressive, and inequitable? The trial court was of the opinion that when the appellant first observed the construction of the building she must have inferred that the company's officers had forgotten the option. It said that, possessing such knowledge, she could not sit by, permit the company to proceed with the improvement, and invoke the aid of a court of equity to compel performance of the agreement.
We agree with the rule applied by the trial court, but we disagree with its application to the facts. It is established in this state and in equitable jurisprudence generally that specific performance will not be granted where the result would be oppressive, harsh, or unjust. Mulligan v. Albertz (1899), 103 Wis. 140, 78 N.W. 1093; Gloede v. Socha (1929), 199 Wis. 503, 226 N.W. 950. While facts establishing the injustice of the remedy generally arise out of the inception of the contract sought to be enforced, it is not necessary that such be the case. Subsequent events or a change of circumstances may so alter the situation as to render specific performance inequitable. Pomeroy, Spec. Perf. (3d ed.) sec. 186; Willard v. Tayloe (1869), 75 U.S. 557, 19 L.Ed. 501. But any inequity that would result from specific performance of the agreement under consideration would not, in our opinion, arise out of the failure of the appellant to communicate with the company upon learning of the construction. The relations between the parties were strained by reason of litigation arising out of the lease, and she may well have supposed that the officers of the company had found some method calculated to defeat her rights under the option agreement. The inequity — and we think there would be inequity — in ordering performance of the contract according to its terms arises out of other factors. Performance would give the appellant the benefit of a bargain which she did not make and inflict upon the company a substantial loss. The loss, to be sure, would be occasioned by lack of proper diligence on the part of the company's officials, but equity may nonetheless take the result into consideration in determining whether the contract will be enforced. Woldenberg v. Riphan (1918), 166 Wis. 433, 166 N.W. 21.
It is a corollary of the rule to which we have referred that if the plaintiff is not guilty of inequitable conduct and if the granting of equitable relief can be framed in such a way as to avoid injustice to the defendant, specific performance should be decreed. Willard v. Tayloe, supra. Appellant may have elected to exercise her option even though construction of the building had not been commenced. The property, exclusive of the improvement, may have appreciated in value. She is entitled to the benefit of any such appreciation.
We are of the opinion that specific performance should be granted upon condition that appellant pay the option price plus such appreciation in value to the appellant as the court may determine resulted from the improvement, not exceeding its cost, but reserving to the company the option of removing the improvement within a specified time. The decree should be so framed as to dismiss the complaint if the appellant elects not to pay any increased amount.
By the Court. — Judgment reversed, and cause remanded for further proceedings in accordance with the opinion.