Opinion
September 9, 1965 —
October 5, 1965.
APPEAL from a judgment of the circuit court for Waukesha county: WILLIAM E. GRAMLING, Circuit Judge. Affirmed.
For the appellant there were briefs and oral argument by Herman M. Knoeller of Milwaukee.
For the respondent there was a brief by Donald C. Haberman, attorney, and Fredric Mendelsohn of counsel, both of Milwaukee, and oral argument by Mr. Haberman.
This action is brought by the plaintiff-appellant, Columbia Stamping Manufacturing Company, Inc. (hereinafter Columbia) against the defendant-respondent, Edwin A. Reich, upon the unpaid balance of a promissory note. The note was given to the corporation as a part of a subscription agreement to purchase stock of the corporation. The defense is payment.
If the statement of facts that follows seems incomplete or confused it is because, insofar as the record reveals, the parties and persons involved in the various transactions conducted their financial business affairs in an inept manner without adequate records or adherence to commercial-law standards.
It appears that one Victor Nohl had conducted a business the manufacture and sale of steel oil tanks, jack assemblies, and wire tires in the village of Menomonee Falls under various business names. Prior to February, 1959, the defendant, Edwin A. Reich, became associated with Nohl as a partner and used the name V E Manufacturing Company. During this association the company borrowed funds from the First Wisconsin National Bank at various times and in various amounts. Each partner signed joint and several guarantees for these obligations to the bank. In February, 1959, Nohl and Reich incorporated and operated under the names of V E Manufacturing Corporation and V E Manufacturing Company, Inc. The Walker Company of Racine was the principal purchaser of goods sold.
On October 5, 1959, Nohl and Reich entered into an agreement to dissolve the corporation and disassociate themselves. This agreement divided the assets and liabilities of the corporation and Nohl gave Reich a bill of sale for the assets on October 8, 1959. It does not appear that any statutory dissolution was ever attempted or that there was any transfer of stock. On the same day, October 8, 1959, Reich gave substantially an identical bill of sale to Louis R. Davanzo. Davanzo incorporated the business on November 12, 1959, as the Columbia Stamping Manufacturing Company, Inc., the plaintiff in this action. The business was carried on in substantially the same manner.
In December of 1959, Davanzo sued Reich for fraud in the sale of October 8th. This action was compromised and settled by the parties February 19, 1960. Davanzo gave to Reich a bill of sale and Davanzo took a chattel mortgage on much of the machinery and equipment. By the terms of the bill of sale Reich received all of the assets and agreed to assume all the liabilities of Davanzo and Columbia, including the liabilities of V E Manufacturing Company. Davanzo represented he owned all of the stock of Columbia (100 shares of no-par stock) and agreed to assign it to Reich.
The record is not clear as to just when Mr. Robert J. Reinders, as the owner of Comet Welding Company, started doing business with the V E and Columbia as a subcontractor. In any event it was prior to the settlement between Davanzo and Reich. Reinders had $4,000 due him from Columbia and discussed it with Reich. Reich testified that Reinders wanted to protect his account and maintain the business he had with the company, and that he suggested that Reich and he buy Columbia.
Several conferences were had between Reich and Reinders concerning the accounts payable of Columbia and the acquisition of the business. Attorney Pedersen and Attorney Murray were present at several of the discussions.
Out of these meetings arose the disputed oral agreement and a stock-subscription agreement. It was determined $30,000 was needed to reactivate Columbia. This money was needed primarily to pay or adjust accounts payable. Under a written stock-subscription agreement dated February 18, 1960, both Reinders and Reich agreed to purchase $10,000 worth of stock within thirty days and each gave his personal note of $10,000 to assure performance. The additional $10,000 was to be obtained by borrowing it from Victor Nohl.
Reinders paid in $10,000 in cash before the expiration of thirty days. At the time of the negotiations there was still due and owing to First Wisconsin National Bank the sum of $5,000 upon a note. This was the balance due from V E Manufacturing Company which Reich and Nohl had personally guaranteed.
Reich testified that this note was discussed and Reinders understood and agreed it had to be paid; that Reinders told Reich to pay it and he would be given credit on the stock-subscription agreement; and that Nohl had advised that he would not lend the $10,000 unless the V E note was paid.
On February 22, 1960, right after the final meeting of the parties, Reich purchased a cashier's check in the amount of $5,193.33 in the presence of Reinders and the others and paid the V E note. Reich then paid $4,800 on his stock subscription.
Reinders testified he knew nothing of the note, the oral agreement, or the bank transaction. Pedersen, on the other hand, verified Reich's testimony as to these transactions.
The stock of Columbia consisted of 1,000 shares. Both Reinders and Reich received 498 shares. Pedersen was issued four shares. (At a time some months later and not material here, Reich assigned some of his shares to Durovy). Reich was president and Reinders was vice-president. Reich resigned from Columbia February 1, 1962, and Reinders became president. On November 20, 1964, Columbia, through Reinders, took judgment on the note. The trial was had after judgment was reopened.
The trial court found Reinders orally agreed that Reich should be credited on his stock subscription by payment of the V E note and that the V E note was an obligation that had been assumed by Columbia.
Upon these findings and conclusions judgment was entered dismissing the action. Columbia appeals.
The issues are: (1) Was there an oral agreement between Reich and Reinders that the payment of the V E note by Reich was to be credited toward the stock subscription, and (2) was the V E note assumed by Columbia and a liability of Columbia?
On appeal the findings of fact of the trial court must be adopted unless they are against the great weight and clear preponderance of the evidence. The evidence must be viewed from the standpoint most favorable to the findings of the trial court. Guinther v. Schucht (1965), 26 Wis.2d 97, 99, 101, 131 N.W.2d 861; Klapps v. American Ins. Co. (1965), 26 Wis.2d 664, 668, 133 N.W.2d 248; Hope Acres, Inc., v. Harris (1965), 27 Wis.2d 285, 290, 134 N.W.2d 462.
The trial court held that the oral agreement did exist. Reich so testified. Attorney Pedersen who was present at several conferences between Reich and Reinders testified to the same effect. Daniel Durovy testified Reinders told him in December of 1960 that all the stock had been paid for. An accountant's balance sheet on Columbia, dated April 30, 1961, does not show any stock-subscription account receivable. Clearly there is ample credible evidence in the record to support the finding that the oral contract existed. In no sense can it be said that this finding is against the great weight and clear preponderance of the evidence.
Having approved the finding that the oral agreement did exist, we must decide whether or not it was effective. Columbia argues that Reinders had no authority to make the agreement; the board of directors must act. Columbia further argues that it never assumed the V E liability and that it remained personal to Reich.
At the time of the oral agreement the directors of Columbia were Edwin A. Reich, Robert J. Reinders, and Kenneth F. Pedersen. The court does take judicial notice of this fact verified by annual reports in the office of the Wisconsin secretary of state under the rule announced in Fringer v. Venema (1965), 26 Wis.2d 366, 372, 373, 132 N.W.2d 565.
Sec. 180.13 (2), Stats., provides that the terms of payment for stock subscriptions shall be determined by the board of directors. Sec. 180.91 provides that any informal action by the board may be taken only if all persons entitled to vote at such meeting give consent in writing. No written consent was given here. However, sec. 180.37 (2) provides that notice is waived if the director attends unless he objects. Here all directors and shareholders were present at the meeting in Mr. Pedersen's office. Reinders voiced no objection to lack of notice nor the informality. The meeting was for the purpose of discussing the financial problems of Columbia. This meeting constitutes a valid board meeting. Columbia's contention that the oral agreement is invalid because of no official board action is not well taken. All directors and shareholders were present at the meeting at which the oral agreement was consummated. See 19 Am.Jur.2d, Corporations, pp. 555, 558, secs. 1119-1121.
Finally, the court must determine whether or not the V E note became a liability of Columbia so that payment of it would constitute a financial benefit to Columbia.
V E was originally a partnership between Victor Nohl and Reich. Later they incorporated. They desired to dissolve V E. Instead of filing dissolution papers the parties entered into an agreement whereby Nohl would assume certain liabilities and Reich would assume certain liabilities existing before October 1, 1959. Reich was to get the business and the machinery and equipment. This agreement is dated October 5, 1959. There were certain outstanding liabilities to the First Wisconsin National Bank at this date, and Reich was to assume them.
On October 8, 1959, the deal was consummated by a bill of sale. On the same day Reich gave a bill of sale to Davanzo, identical to the one received from Nohl except for very minor changes — mostly names. Then, on February 19, 1960, Reich took back the business. Davanzo had, in the meantime, operated as Columbia Stamping Manufacturing Company, Inc. Reich indemnified Davanzo for all liabilities. Davanzo took a chattel mortgage on the machinery and equipment transferred. At this point Reich owned all the stock of Columbia.
Courts are generally divided as to whether or not a corporation may assume the liabilities of a partnership or sole proprietorship by implication. See 18 Am. Jur.2d, Corporations, pp. 568, 569, sec. 19, wherein Ziemer v. C. G. Bretting Mfg. Co. (1911), 147 Wis. 252, 256, 257, 133 N.W. 139, is cited for holding that such liabilities may be assumed by implication. See also Chicago, M., St. P. P. R. Co. v. Bluemound Oil Co. (1957), 275 Wis. 410, 82 N.W.2d 205. These cases hold that assumption of liabilities may be implied.
"We have a case where a sole trader incorporates and the corporation takes over all his assets, continues the same business at the same place with substantially the same name and under substantially the same ownership equitably. Under such circumstances a strong inference arises that it assumes the liabilities of the sole trader." Blumenthal v. Schneider (1925), 186 Wis. 588, 590, 203 N.W. 393.
In this case we had a partnership incorporate. Then there were several transfers of the assets and stock and a change in name. However, the business remained substantially the same. The machinery and equipment was substantially the same. The business was operated in the same building. The Walker Manufacturing Company was the main customer of the business at all times pertinent. The business maintained the same accountant, with one interrupted period. The V E note in question appeared on the Columbia books as a liability. Apparently the same books were used by various entities. The parties treated the V E note as a liability of Columbia. Otherwise the oral agreement would not have been made.
These facts are sufficient to support the finding that Columbia assumed the V E note.
It is quite apparent from the testimony in the record and the documents in evidence that the people involved treated the corporations involved more as partnerships or sole proprietorships. The transfers were made in a slipshod and haphazard manner. They were in the form of sales of assets rather than stock. The corporate modes of operation were ignored. The dispute in this action is really between Reinders and Reich. On the basis of this record it would appear to be unjust enrichment to suddenly impose strict corporation regulations when the evidence indicates that the parties conducted their business differently.
By the Court. — Judgment affirmed.