Opinion
September 11, 1946. —
October 22, 1946.
APPEAL from a judgment of the circuit court for Brown county: HENRY GRAASS, Circuit Judge. Affirmed.
For the appellant there was a brief by Kehoe Flatley of Green Bay, and oral argument by John D. Kehoe.
For the respondent there was a brief by Kaftan, Rahr Kaftan of Green Bay, attorneys, and Drill Drill of St. Paul, Minnesota, of counsel, and oral argument by Frank Drill and J. R. Kaftan.
Action commenced September 2, 1942, by Salvatore Santarsiero, plaintiff and respondent, against Green Bay Transport, Inc., defendant and appellant, for specific performance of a contract to convey the assets of the corporation to the plaintiff. The case was tried to the court on January 14 to 18, 1944, and judgment entered for the plaintiff on February 23, 1945. From this judgment defendant appeals.
August 24, 1939, at the time the contract in question was entered into, plaintiff-respondent, Salvatore Santarsiero, was interested in a trucking business at St. Paul, Minnesota, and defendant-appellant, Green Bay Transport, Inc., a corporation, formerly Jules Peters Transportation Company, Inc., operated a trucking line between Green Bay, Wisconsin, and St. Paul, Minnesota, with certain franchise rights. Peter H. Dorsers was president, treasurer, and manager of the Green Bay Transport, Inc., which will hereinafter be referred to as "Transport Company," and owned thirty-four shares of the thirty-six shares of stock of said company outstanding. Genevieve Dunbar Peters owned one share, and was secretary and bookkeeper, and Al J. Schneider owned one share and was vice-president. The three officers constituted the board of directors and sole shareholders. Nineteen shares of this stock owned by Dorsers were pledged to Minnie Guerin, his sister, in 1935, and fourteen shares in 1937, to secure a loan which he obtained from her in 1933, and she continued to hold this collateral until January 30, 1942, at which time Dorsers assigned the stock to her in settlement of his obligation which had not been paid.
In 1937, the company was having financial difficulties, and the board of directors, which included all of the stockholders, passed a resolution authorizing the president and secretary of the company to sell the assets of the corporation, including the permit or permits to operate as a common carrier and all other rights to operate as a carrier by motor vehicle to any responsible purchaser who would pay or assume to pay all debts and obligations of the corporation in consideration of the transfer of such assets, or to enter into any other contract at least as favorable. The resolution then provided that before the contract should become effective it would have to be ratified by the stockholders, and transfer of the carrier permits authorized by proper state and federal authorities to make them effective.
No purchaser was obtained until July 15, 1939, when the Transport Company, by Peter Dorsers, its president, entered into a written agreement selling all of the property of the Transport Company to the Moore Motor Freight Lines of St. Paul, Minnesota, for the sum of $6,000, of which $500 was paid at that time and the balance was to be paid at $100 or more per month, beginning on the 1st of September, 1939, until the full amount was paid, together with interest at five per cent per annum. The Moore Motor Freight Lines did not have the necessary funds to make the $500 down payment on the contract with the Transport Company and obtained this money from Santarsiero. Shortly thereafter it was agreed by Dorsers, on behalf of the Transport Company, Moore Motor Freight Lines, and Santarsiero that Santarsiero would complete the purchase of the Transport Company, and a new contract in writing was entered into by Santarsiero, the Transport Company by Dorsers as president, and Dorsers as an individual, on August 24, 1939, whereby the Transport Company sold to Santarsiero all of its property, tractors, trailers, franchises, operating rights and permits, reserving its bills receivable. Dorsers personally agreed to obtain the transfer of all of the outstanding stock of the corporation to Santarsiero, and to personally pay all the debts and obligations of the Transport Company, and provision was made in the contract for the employment of Dorsers by Santarsiero for a period of three years. The contract provided that Dorsers was to release any claim he had against the Transport Company and to obtain the release of any claim which any officer of the company had against it. In consideration of the foregoing, Santarsiero agreed to pay therefor the sum of $6,000, $2,500 in cash and the balance at $100 per month beginning September 1, 1939, with interest at five per cent per annum on unpaid balances. It was also agreed that the sum of $2,500 was to be used in settlement of an action pending against the Transport Company in the circuit court for Brown county in favor of James H. Lusha in the sum of $4,000, for which Lusha had agreed in writing to accept the sum of $2,500 if the same was paid on or before August 24, 1939.
In Lusha's action against the Transport Company demand was made for the appointment of a receiver. Prior to the time this contract was entered into, and in April, 1937, the Transport Company sold to Schneider two trailers, constituting its only rolling stock, to apply on an obligation due to him from the Transport Company. At the time the contract was entered into the Transport Company was indebted in a sum exceeding $8,400, with no assets except its franchise and permit rights, as its accounts receivable had been transferred to Dorsers prior thereto to apply on his claim against the company.
The sum of $2,500 paid by Santarsiero was used to settle the Lusha action. Santarsiero took over the operation of the Transport Company, and Dorsers started to work for him. Genevieve Dunbar Peters, as secretary of the company, executed this contract two days after it was drafted. Immediately thereafter Dorsers informed both Peters and Schneider, the remaining two stockholders, of the terms of the agreement which he had entered into. Peters refused to surrender her share of stock until she received payment of her claim against the company, and Schneider refused to surrender his share of stock.
Dorsers continued to work for Santarsiero at St. Paul for about three months, and then left his employment, and later started an action in federal court in Minnesota to set aside the contract, which was not successful. In the meantime, Santarsiero paid obligations of the Transport Company in the sum of $900.77, which he had a right to do under the terms of the contract if they were not paid by Dorsers. Dorsers had represented to the purchaser that the Transport Company owned the two trailers that had been sold to Schneider. The United States district court, in the action between Dorsers and Santarsiero, held that if Dorsers performed his part of the contract within thirty days he was to have judgment for $1,416.39; that upon his failure to do so Santarsiero was to have judgment against Dorsers for a specified amount. Dorsers did not perform his part of the contract. Santarsiero offered to pay the sum of $1,416.39 to Mrs. Guerin, who had then taken an assignment of Dorsers' stock which she formerly held as collateral to her loan, if the stock was turned over and the Transport Company carried out its part of the contract. Mrs. Guerin refused to do so.
On February 27, 1942, a stockholders' meeting was held, with Mrs. Guerin then as the majority stockholder, and the stockholders repudiated the contract which had been entered into between the Transport Company, Dorsers, and Santarsiero, and on May 27, 1942, another stockholders' meeting was held, at which the stockholders again repudiated the contract, and authorized the sale of the franchise and permits to another company for the sum of $5,000.
During all the time from August 24, 1939, up to the present time; the Transport Company has been operated by Santarsiero, and all reports made by him. Application was made by Santarsiero and Dorsers, on behalf of the Transport Company, to the interstate commerce commission for transfer of the certificate of convenience and necessity of the Transport Company between Green Bay and St. Paul, which application has been held in abeyance. Santarsiero brought this action for specific performance by the Transport Company of the transfer of its franchise and permits. Additional facts will be set forth in the opinion.
Defendant contends that the contract of the Transport Company cannot be enforced because it was not approved by the stockholders as required by the resolution of August 21, 1937, but was in fact repudiated by the stockholders. This position might have some merit if it were not for the fact that the board of directors, consisting of all the stockholders, had full knowledge of the terms and conditions of the contract entered into with the purchaser immediately after it was executed, and at no time prior to 1942 did they object to or in any way disapprove of it so far as the Transport Company is concerned. The stockholders were well aware of the financial condition of the company. In April, 1939, Schneider, who was a stockholder and officer of the Transport Company, sued the company on a claim of $6,080, and alleged that the company was insolvent and asked for the appointment of a receiver. This claim was adjusted to the satisfaction of Schneider by the sale to him of two trailers, being the only rolling stock of the company by which it could carry on its business, together with other settlement terms which are not material here. Shortly thereafter James Lusha sued the defendant Transport Company in the circuit court for Brown county on a claim of $4,000, and alleged that the company was insolvent and asked for the appointment of a receiver. Dorsers represented the company in making settlement with Schneider and conveyed the trailers to him, and also acted on behalf of the company in the Lusha case and in all other business transactions of the company without any special authorization. The stockholders sat by for a period of more than two and one-half years without making any objection to the contract and permitted the plaintiff to operate under the company's franchise and permits. This brings them within the rule laid down in Indianapolis Rolling Mill v. St. Louis, F. S. W. Railroad, 120 U.S. 256, 7 Sup. Ct. 542, 30 L. Ed. 639, and Pittsburgh, Cincinnati St. Louis Railway Co. v. Keokuk Bridge Co. 131 U.S. 371, 381, 9 Sup. Ct. 770, 33 L. Ed. 157, where the court said:
"When the president . . . executes . . . a contract which requires the concurrence of the board of directors, and the board, knowing that he has done so, does not dissent within a reasonable time, it will be presumed to have ratified his act."
It was held in the first case above cited that delay in disaffirmance for a period of six months after knowledge of the act is unreasonable delay. Defendant justifies the failure of its stockholders to act at an earlier date by reason of the action pending between Dorsers and this plaintiff. That was a personal action in which the Transport Company was not a party, and in no way excuses the stockholders for their failure to act within a reasonable time.
There is a further reason why the contention of the defendant has no merit. The plaintiff at the time of the execution of the contract paid the sum of $2,500, which was used for the benefit of the Transport Company, and later paid $900.77 of claims against defendant, which is undisputed. The defendant had the benefit of this during the entire period from the time the payments were made in 1939 until this action was tried in 1944, and at no time did it offer to repay this money until the action was tried, and then only at the close of the trial did it state to the court that it was ready and willing to refund this money to the plaintiff. This brings it within the rule of law held by this court in American Express Co. v. Citizens State Bank (1923), 181 Wis. 172, 183, 194 N.W. 427, where it was said:
"It is so well settled that in general a corporation cannot commit the rank injustice of enriching itself by retaining the fruits of a contract and then repudiate it that it is hardly necessary to cite authorities on the subject."
The above statement was quoted with approval in Lindsley v. Farmers Exchange Investment Co. (1937) 223 Wis. 565, 271 N.W. 364.
It is also argued that the equities are in favor of the defendant corporation, and that equity and justice demand protection of innocent parties lawfully holding stock. We cannot agree with this contention. The defendant was wholly insolvent at the time it entered into the contract and had no equipment with which to operate. It had nothing except its franchise and permits. Reference is again made to the action pending between Dorsers and this plaintiff. Again we must state that was an action to determine the rights of individual parties under the contract, in which the Transport Company was not a party. The fact that Mrs. Guerin became a stockholder at a later date does not give her any rights greater than the rights of the stockholder from whom she received her stock.
Other contentions of the defendant have been carefully examined, but we find no merit in them, and feel that no useful purpose will be served by extending this opinion. It is considered the plaintiff is entitled to judgment as ordered by the trial court.
By the Court. — Judgment affirmed.