211 Wis. 584 | Wis. | 1933
The following opinion was filed April 11, 1933 :
As stated by respondent, the nature of the action is on contract under which the appellant, holding an option on the respondent’s stock in a corporation, and which option he was about to exercise, agreed that the respondent might comply therewith and make a sale without waiver of a claim of fraud, a question as to which had arisen in her mind, and that in the event her claim of fraud was established he would pay her a sum of money to be determined in the manner set out in the contract, referred to in the statement of facts. On March 22, 1929, respondent signed an option on 304 shares of stock held by her in the Line Material Company, fixing the price at $425 per share. The negotiations leading up to the securing of this option are therefore the subject of investigation in conjunction with the agreement just referred to. In stating her cause of action respondent alleges inexperience in business matters, unfamiliarity with the true value of the stock, the condition of the business, and the opportunities for disposing of it. She further alleges that the appellant falsely and fraudulently represented to her that the stock was worth no more than $425 per share; that that was a very high price; that he thought he could sell all of the stock or the business of said company at such high price; that such sale would be possible only if all the stock
Did the appellant make misrepresentations to respondent as to his desire to retire from active management of the business ? The finding of the trial court on this point is: “The defendant informed the plaintiff that he intended and expected to retire from the business. He did not then intend or expect to retire. ...” In his opinion concerning appellant’s desire to retire the court said: “Either was untrue, or, if he actually expected to retire, he concealed from her the fact that all the negotiations he had previously been conducting absolutely required that he was obliged to continue as the managing head of the corporation.” The evidence upon which the court reached that conclusion is found in the testimony of the respondent and her mother, the material portions of which in substance follow. Respondent testified:
“He told me that father had done a great deal for him in the early days of the Line Material Company with money, advice, with time in going down there; . . . that he was more grateful than he could tell mother or myself; . . . that he was extremely sorry to hear of his accident (which resulted in his death) ; that he had come over to talk with me and explain it to me; inasmuch as there was no man in the family*590 he would advise us to do this as the best thing to do; he advised his mother-in-law to do the same thing; he thought it was best if I did this, took the money and put it into government securities; ... he told me he was going to refinance and reorganize the company, that he had worked hard, worked nights, and worked Sundays; that he would like to get out of the concern, he had plenty of money and that he thought he would like to get out. ... It was a good price, $425 a share, for which he was going to have me sign the option; but he felt it was the thing for me to do. There really didn’t seem very much alternative.” "Q. Do you remember when you first saw counsel with reference to this case? A. Towards the end of April. ... I had received information from somebody coming in mother’s office down town commenting on the fact that Mr. Kyle had bought this stock at $425 and sold it at something' over $600; that was the first I knew of anything of that nature. It was about two weeks, I think, after that when I went to your office.”
She further testified that he was not a social friend, had never been at her house before, she had never had any dealings with him prior to March, 1929. In a deposition before trial she testified that Mr. Kyle said he was trying to get an option on all the stock except that of himself; that she did not know whether he was going to keep the stock, he did not tell her he was going to sell it; she did not recall anything as to whether he was going to sell or what he was going to do with it. Her recollection was that he simply said he wanted the option on the stock for that amount of money because he was going to refinance and reorganize the company. The evidence of the other member of the family who was present at the conversation between appellant and respondent at the time the giving of the option was discussed is in substance as outlined in respondent’s testimony. This witness was respondent’s mother and she testified that appellant explained about the stock, that he would do what he could for them, spoke of his affection for respondent’s father, saying that he, the appellant, expected to get out of the company, that he
After the signing of the option and on or about April 29, 1929, the appellant found it necessary to secure from the respondent the proxy and waiver for a stockholders’ meeting to be held on April 29th, referred to in the agreement of that day. He was then advised of the suspicions of the respondent as to the fairness of his transaction. He then agreed that she might have the benefit of the sale without waiving any claim of fraud; that in the event her claim of fraud was established he would pay her a sum of money to be determined upon under the terms set forth in the letter or agreement of April 29th. If determined that respondent
The representation that appellant desired to retire from the business does not appear to have been a controlling factor in inducing the giving of the option. There is evidence of discussions of plans by appellant with brokers and bankers which contemplated a refinancing and reorganization of the Line Material Company. In the history of the inception of the idea of a reorganization on lines which would lead to the possibility of appellant’s retirement from active management, it appears that Mr. Donaldson, a representative of a New York firm, first became interested through a broker who was endeavoring to sell some shares belonging to Mr. Hendee, a stockholder in the same company. Interviews between Donaldson and appellant occurred frequently thereafter, resulting in proposals of plans none of which contemplated
In passing upon the question as to the influence upon her of appellant’s intention to retire from business the decision must be influenced by the same considerations which were present in the case of McDermott v. O'Neil Oil Co. 200 Wis. 423, 228 N. W. 481, in which a statement made by a purchaser of stock of a company in which he was a dominating factor, that he intended to retire, was claimed to be fraudulent because it induced certain stockholders to sell their stock, and as a matter of fact he had not retired at the time of the litigation. In the opinion of the court it is said:
“It is true that up to the time of the trial he had not retired from the active management of the business of the Duro Company, but the announcement of his desire to retire*594 cannot be made the ground for setting aside this sale, because the stockholders knew when they voted to sell the property to Mr. O’Neil that he would be obliged to manage it until such time as he could make other disposition of it.”
The evidence thus received does not make the expression of the appellant’s desire to retire, in the light of his subsequent agreement to remain with the business for a limited time, ground for holding him guilty of misrepresentation and does not therefore constitute ground for actionable fraud. It is of that class of statements which may be described as the expression of a hope, seriously entertained, relating to a future course of action, and therefore subject to changes which circumstances beyond his control might force upon him. Under the law this does not amount to a fraud. McDermott v. O’Neil Oil Co., supra; James Music Co. v. Bridge, 134 Wis. 510, 114 N. W. 1108; Milwaukee B. & C. Co. v. Schoknecht, 108 Wis. 457, 84 N. W. 838.
Appellant’s negotiations with the Milwaukee Company resulted in the plan of reorganization finally put into effect, under which respondent agreed to remain with the business for three years, to hold a large portion of the stock, and to refrain from offering any of it for sale for six months while the balance of the stock was being marketed. The practical effect of this arrangement was to bind effectively his fortune for the time being to that of the company’s. Considerable significance attaches to the fact that no underwriter would negotiate a plan predicated on appellant’s leaving the company, and it is true that when the negotiations were over he was the owner of stock in the new company in excess of his ownership of stock in the old company. But the carrying out of the plan in a way that would, after several years, permit him to get out of the business is not inconsistent with a present desire to retire, especially when, in order to get a value for his minority stockholders in the old company, and a portion of the value of his ownership in it, he was obliged to postpone his retirement for a period of at least three years.
As already suggested, the evidence does not show that any material and influential details of future plans were fraudulently withheld from the respondent. Even if the limitations on a fiduciary dealing with an individual stockholder were present and the appellant could not purchase the stock from respondent without giving her the benefit of knowledge possessed by him which might have some influence upon the value of the stock, before we can find him failing in his fiduciary relation we must find him withholding something of substantial consequence. He told of his hope to refinance, reorganize, or sell the business of the company. The plan under which the business was sold had not been considered at the time he secured the option for her. But he frankly told her of his desire to reorganize the company, told her that he was buying all of the minority stock for a deal he wanted to consummate; and the plan finally adopted was laid before the respondent and her attorneys at the time she delivered the waiver and proxy essential to the consummation of the deal. It is difficult to discover any inference to be drawn from the evidence other than that in acquiring the option on the minority stock he was securing the entire ownership in himself for the purpose of effecting a reorganization which would enable him to accomplish his purpose.
Another claim of misrepresentation relates to the worth of the shares of stock in the old company. The only basis for the inference that this representation was false is that some stock in the reorganized company was sold at a price warranting that assumption. Standing alone that fact might reasonably sustain the inference. However, it is to be pointed out that the portion of the stock which came on to the market was that acquired by the underwriters, and sold in a market, artificial or stimulated, by virtue of agreement with Kyle that stock which constituted upwards of seventy-five
The trial court, among other facts, found:
“Pie (appellant) was to be given in one form or another a large reward or profit in addition to the profit on his own shares of stock, which, it was explained in the testimony, was to be by way of compensation for his continuance in the management of the newly organized corporation. His continuance as such manager was an absolute essential to the consummation of every one of the plans presented. . . . In the course of his negotiations with Donaldson without consulting any other stockholders, he and Donaldson had tentatively determined the amount of the profit the defendant was to receive as a result of the sale of the company and the amount that he was to receive in addition by way of compensation for his remaining as general manager of the successor company which was to be organized.”
In fixing upon the price of $425 a share to be paid the minority stockholders, appellant, in conjunction with Mr. Piereck, an accountant, and Mr. Hendee, the vice-president and sales manager of the company, who controlled about one-half of the minority stock, concluded that that amount would
We find it impossible to conclude that the price obtained for small blocks of this stock in an artificially maintained
It is unnecessary to discuss the segregation of the amount of stock assigned to appellant as an inducement to take the management of the new company. He was induced to remain with the company and some stock was assigned to him for that purpose. Such stock, given to assure the continuation of a capable management that had built an industry from a $5,000 to a $2,975,000 concern, to induce the appellant to postpone his retirement therefrom for a period of three years, and to keep him from selling any of the 155,000 shares allotted to him for his interest in the business, the respondent having no control over the services of the appellant, was compensation flowing to him for those considerations and would be his and his alone.
The evidence negatives fraud on the part of appellant, actual or constructive, and can only sustain findings that respondent was not misled and that she was paid a full price for her stock.
By the Court. — Judgment reversed, and cause remanded with directions to dismiss plaintiff’s complaint.
A motion for a rehearing was denied, with $25 costs, on June 6, 1933.