Opinion
September 14, 1955 —
October 11, 1955.
APPEAL from an order of the circuit court for Douglas county: CARL H. DALEY, Circuit Judge. Affirmed in part; reversed in part.
For the appellants there was a brief by Johnson, Fritschler, Barstow Witkin of Superior, and oral argument by Barney B. Barstow.
For the respondent there was a brief by Crawford, Crawford Cirilli of Superior, and oral argument by Raymond A. Crawford.
Plaintiff's complaint recited that the defendant corporation had contracted to buy plaintiff's stock in the corporation and, if it could not or did not, defendant Kopito had contracted to do so or to enable the corporation to do so. The complaint demanded judgment for $35,545.90, the estimated value of plaintiff's stock. The defendants demurred on the ground that the complaint did not state a cause of action. The court overruled the demurrer and defendants appeal.
The complaint identifies the parties and alleges: (Our summary.) On January 30, 1947, there were only three stockholders of Superior Auto Parts, Inc. These were Anderson, defendant Kopito, and plaintiff Larson. On that day the stockholders and the corporation entered into the following agreement:
It is hereby resolved and agreed that the following, Edw. A. Anderson, Joseph Kopito, and Andrew C. Larson, and the Superior Auto Parts, Inc., OK., E. A. Anderson, L. R. McPherson, secy., for the protection of their individual interests in the Superior Auto Parts, Inc., that in the event of severance of connections from said company by any member or members either by death or otherwise, the Superior Auto Parts, Inc., shall arrange to pay such member or members or their estate his full interest in the company as shall appear on the books of the company at time of such severance, the books of the company having been brought up to date in all respects. The method of payment to the severing member or members shall be to the amount of one third of his interest in the company within thirty days of severance, the balance of the amount owing to him or to his estate to be paid in full within ninety days of first payment made to him or to his estate. After full payment has been made to severing member or to his estate, his stock shall be surrendered to, and revert to the Superior Auto Parts, Inc., or as another alternative, his stock may be purchased by the remaining members in such proportion that they will then become equal shareholders in the Superior Auto Parts, Inc.
[Method of computing book value of stock is described.]
"In the event that the company has not the funds or ready cash to liquidate member's interest, it shall become the duty and obligation of remaining member or members to negotiate a loan for the company, or arrange to personally advance funds to the company which in either case shall become a notes payable obligation of the company to the party furnishing said funds. This agreement shall be binding primarily on the Superior Auto Parts, Inc., supplemented as well by each individual personally or collectively signing this document.
"It is also agreed that any life insurance taken out on any member by the Superior Auto Parts, Inc., and premiums paid by the company, that in the event of death of such member insured, the insurance moneys received from the insurance company by the Superior Auto Parts, Inc., shall be used in full amount in the first payment to the deceased member's estate in purchasing his stock.
"In the event that the insurance moneys exceed one third of said member's interest in the company, the Superior Auto Parts, Inc., shall only be liable for the balance of the deceased member's interest in the company as it appears on its books as to the final payment to this estate."
Each stockholder signed the agreement and the corporation signed it by its president and secretary. All stockholders and directors assented to it individually and officially.
On the 30th day of June, 1938, the corporation with the assent of all of the stockholders adopted the following by-law:
"If at any time any of the stockholders of this corporation desire to sell and dispose of their stock, said stockholder or stockholders shall first offer it in writing to the board of directors at its book value and give the board of directors sixty (60) days in which to place it with the stockholders. At the expiration of said sixty (60) days, if no stockholder has purchased and settled for the same said stockholder or stockholders shall have the right to sell to whomever will purchase."
Pursuant to the agreement of January 30, 1947, the corporation purchased life insurance on the lives of Anderson and the plaintiff. It was unable to purchase any on the life of Kopito. Anderson died and the corporation collected the insurance. Kopito is an employee of the corporation and plaintiff was employed likewise until June 1, 1954, when he was discharged. On that day plaintiff owned sixty-five shares of company stock of the book value of approximately $35,545.90.
On August 9, 1954, plaintiff made demand upon the corporation and Kopito that they purchase and pay for his stock as provided in the agreement of January 30, 1947. The assets of the corporation exceed its liabilities and its surplus is more than sufficient for it to purchase the stock at book value without prejudicing the rights of its creditors. The corporation and Kopito have failed to comply with the demand and the complaint demands judgment against the corporation, in the first instance, and against Kopito in the alternative, for the book value of plaintiff's stock as above stated.
Appellants submit that the trial court erred in holding that the complaint states a cause of action against each defendant. Their first contention is that the so-called contract by which the corporation is bound to buy the stock of a severing shareholder contains no agreement binding that shareholder to sell; — therefore, the contract is void for lack of mutuality. The first paragraph of the 1947 agreement states that when a shareholder severs his connection with the corporation the latter will pay him the value of his interest in the company. It then provides: "After full payment has been made to severing member or to his estate, his stock shall be surrendered to, and revert to the Superior Auto Parts, Inc." We think that is a satisfactory expression of a promise or obligation of a severing shareholder to deliver his stock to the corporation as soon as he has been paid for it. There seems to us to be no lack of mutuality of obligation in the agreement.
Lack of mutuality, however, arises from a source outside the agreement itself. Sec. 183.14, Stats., reads:
"LIENS OF CORPORATION. There shall be no lien in favor of a corporation upon the shares represented by a certificate issued by such corporation and there shall be no restriction upon the transfer of shares so represented by virtue of any by-laws of such corporation, or otherwise, unless the right of the corporation to such lien or the restriction is stated upon the certificate."
It has been suggested that the purpose of the section is to make it certain that stockholders are informed of all restrictions which are binding upon them and actual notice is as effective to bind them as notice printed on the certificate. The legislature did not make such an exception. In construing the section, Magnetic Mfg. Co. v. Manegold (1930), 201 Wis. 154, 229 N.W. 544, we did not suggest that the parties' knowledge or the lack of it was material. The supreme court of Minnesota in Costello v. Farrell (1951), 234 Minn. 453, 48 N.W.2d 557, has determined that a restriction on the sale or transfer of shares of stock imposed by by-laws of the corporation but not stated on the stock certificate is not binding on a purchaser regardless of whether he is a purchaser for value in good faith without notice of the restriction. We think this complies with the legislative command, especially as in other sections of ch. 183, Stats., where the legislature deemed notice to be material, it said so. Secs. 183.04, 183.08, 183.09, Stats. The omission of a reference to the shareholder's knowledge in sec. 183.14 is significant.
It is also suggested that the present restriction on transfers of stock is not made by a by-law but is made by a purported contract between the corporation and its shareholders, and sec. 183.14, Stats., is not meant to apply to such bilateral matters. We consider, though, that the words "or otherwise" appearing in the statute, described restrictions on transfer created by mutual agreement, as here. We conclude, then, that in spite of Larson's knowledge of the restriction he was not bound by it because it was not indorsed on his stock certificate. The corporation, then, could not have compelled him to surrender his stock when he left its employ. If he is not bound to perform his promise, because sec. 183.14, Stats., has relieved him, there is a lack of mutuality of obligation and the purported contract is void for that reason.
But this does not dispose of the matter. Corporations have the right to acquire their own stock, certain conditions being met. Sec. 180.385, Stats. We said, in Farmers' M. S. Co. v. Laun (1911), 146 Wis. 252, 253, 131 N.W. 366, and repeated in Rychwalski v. Baranowski (1931), 205 Wis. 193, 196, 236 N.W. 131:
"It is sometimes necessary and often desirable that a corporation protect itself against the acquisition of shares of its stock by rivals in business or other disturbers, who might purchase shares merely for the purpose of acquiring information which might thereafter be used against the interests of the company. Similar restrictions upon the transfer of shares are generally recognized and held valid where they form part of the charter or articles of organization of the corporation and are matters of contract between the shareholders."
As the corporation may reasonably consider it desirable to keep its shares out of hostile hands its promise to buy a severing shareholder's stock, while unenforceable as an executory contract with that shareholder may, nevertheless, be treated as an offer so to buy, which, when accepted by such a shareholder before the offer is revoked, ripens into a binding contract. We regard the corporation's promise to buy as such a continuing offer. It was never withdrawn by the corporation and was accepted by the respondent when his employment was terminated and he demanded the stipulated price for his stock. Appellants cite Pessin v. Fox Head Waukesha Corp. (1939), 230 Wis. 277, 282 N.W. 582; Strauss v. Eulberg Brewing Co. (1947), 250 Wis. 579, 27 N.W.2d 723, and other decisions of similar import to support their contention that there is no contract because there is no mutuality of obligations. This contention is well answered by Halvorson v. Tarnow (1950), 258 Wis. 11, 44 N.W.2d 577, in which we discussed the authorities relied on by appellants and adhered to the principle of a continuing offer which, until revoked, might be accepted and a valid contract thereby created.
Appellants urge, further, that the directors who dealt for the corporation in making the agreement (or offer) were personally interested in it and benefited personally by it and no valid contract may result. But the complaint alleges that all the stockholders approved and ratified the agreement.
"The general rule is that a contract or other transaction between a corporation and its directors or other officers is merely voidable at the option of the corporation, and not absolutely void. It follows that in those jurisdictions, where it is so held, the transaction, if within the powers of the corporation, may be consented to, ratified, or acquiesced in by the stockholders, or by the board of directors, if it could be authorized by them. If it is consented to or ratified, with full knowledge of the facts, it is finally and absolutely binding, and neither the corporation nor individual stockholders nor strangers can afterwards sue to set it aside, or otherwise attack its validity." 3 Fletcher, Cyc. Corp. (perm. ed.), p. 460, sec. 979, quoted in Davies v. Meisenheimer (1949), 254 Wis. 419, 427, 37 N.W.2d 93.
This disposes of appellants' contention, also, that the agreement is void or voidable as a possible fraud on subsequent stockholders.
Appellants' last contention which we propose to discuss is that the agreement is void for indefiniteness and they invent a variety of situations which they say are not adequately provided for. There is no lack of certainty in it respecting the situation at hand and that, it seems to us, is sufficient for the purposes of this action.
It may well be that facts developed at a trial will throw a different light on some of the propositions advanced by appellants but those are matters of pleading and proof which the demurrer does not reach. We conclude that in so far as appellant corporation is concerned the demurrer was properly overruled.
Respecting appellant Kopito, we reach a different result. Respondent is mistaken in stating that "The contract provided that in the event of the severance of connections with the corporation by any member that the corporation would buy his stock, or in the alternative it would be purchased by the remaining members." Reference to the contract, printed, supra, shows that its terms are that "as another alternative, his stock may be purchased by the remaining members." The only obligation to buy, if there is one, is on the part of the corporation. The members may buy, and this will satisfy any right the respondent has to have his stock taken off his hands, but, as concerns the remaining shareholders, purchase is permissive and optional with them. They do not promise or agree to buy. The contract obliges them only to provide funds to the corporation for the purchase of stock by the corporation, "in the event that the company has not the funds or ready cash to liquidate member's interest." Since the complaint alleges that the surplus and undivided profits of the corporation are more than sufficient for the purchase of respondent's stock, it is evident that the condition upon which Kopito had agreed to raise money for the corporation's use is not here. Kopito has promised nothing under the facts pleaded, and the complaint states no cause of action against him. His demurrer should have been sustained.
By the Court. — Order overruling Kopito's demurrer reversed. Order overruling demurrer of Superior Auto Parts, Inc., sustained. Cause remanded for further proceedings according to law and to this opinion.