Summary
holding that defendant was not estopped from asserting statute of frauds because plaintiff could not show detrimental reliance on defendant's alleged oral promise
Summary of this case from Trident Construction Co. v. Austin CompanyOpinion
14133
August 28, 1935.
Before SHIPP, J., and GRIMBALL, J., Florence, March, 1934. Affirmed.
Action by the Florence Printing Company against W.B. Corbin and Monroe J. Parnell, in which J.M. O'Dowd petitioned for leave to be made a party plaintiff and alleged a cause of action for specific performance against J.B. Parnell. From an adverse decree, defendants appeal.
The decree of Judge Shipp is as follows:
This was an action in equity commenced March 20, 1934, by the plaintiff, Florence Printing Company, against the defendants for an injunction restraining and enjoining W. B. Corbin and Monroe J. Parnell from interfering with the conduct of plaintiff's corporate business. A temporary restraining order was granted, and, pending a hearing to show cause why it should not be dissolved. J.M. O'Dowd petitioned the Court to be allowed to be made a party plaintiff herein anl file an amended complaint alleging a cause of action for specific performance of a contract wherein he alleged that the defendant J.B. Parnell had agreed to sell him so much of his stock as would make both of them equal as to the number of shares they would hold in the said corporation. An order of Court granting the petition was made.
A demurrer was interposed by the defendants on the ground of misjoinder of causes of action, but was subsequently withdrawn and then defendants answered, pleading the statute of frauds (Code 1932, §§ 7044, 7045), both as to the amount involved being over $50.00 and the time in which it was to be performed being more than one year. After a hearing to show cause why the injunction should not be dissolved, Judge Grimball ordered the injunction continued pendente lite and required the plaintiff O'Dowd to file a bond in the sum of $3,000.00. On defendant's motion, an order of reference was granted to take the testimony and report same to this Court. Defects in pleadings were waived, the testimony taken by the master and reported. A final hearing was had on the record and arguments of counsel on both sides heard.
I have given careful consideration to the testimony and arguments of counsel. I confess that during my long career as a Circuit Judge I have had few cases which have caused me more concern. If it were a law case and I attempted to unravel the intricate major and minor issues herein involved, I frankly admit it would be a task beyond by ability, but inasmuch as it is an equity case, and my duty compels me to seek for the substance rather than the form, the way opens to me most clearly for to do substantial justice in this case. I have no alternative than to carry out the original objects and designs and intentions of the parties hereto, and these are perfectly clear and certain throughout. I do not remember any case involving more irregularities and illegalities than appear in this case from the very beginning of the creation of the corporation plaintiff to this date. However, one fact is clear and certain that from the date of the contract entered into between J.B. Parnell, J.A. Zeigler, and J.M. O'Dowd to the date of this hearing it has been understood that it should be an organization which could not be conducted in a manner not agreeable to the desires of J.B. Parnell, J.A. Zeigler, and J.M. O'Dowd, until Zeigler sold out, and after that it was to be a concern subject to the concurrent and joint desires of Parnell and O'Dowd.
But, to go into the matter more in detail. Let us first consider the so-called meeting of stockholders on March 17, 1934, wherein W.B. Corbin and Monroe J. Parnell appeared for the first time in the role of stockholders. O'Dowd who owned a considerable amount of stock, in round numbers perhaps 35 or 40 per cent., had about eleven hours' notice, and the notice he got was not signed by an officer of the corporation, nor even by a director; yea, not even by a stockholder, but by a firm of lawyers, and they do not make it appear in the notice that they are attorneys for anybody in particular — this is ample evidence of the illegality of the meeting, but it is useless to dwell upon the illegality of this meeting for the defendants themselves virtually admit its illegality and attempt to remedy the situation by giving notice of a second meeting, but this meeting is clearly illegal, null, and void too, for how is this notice given and by whom? It is dated March 17, 1934. The notice is to appear in three days — that is on March 20, 1934, for what purpose? To elect officers. To elect any particular officer? No. It is for the purpose of removing J.M. O'Dowd from the office of secretary and treasurer and to elect his successor. By whom is this notice signed? By J.B. Parnell, president, and W.B. Corbin and Monroe Parnell, for the board of directors. They were not even stockholders, yet between the 17th of March, when the admitted illegal meeting occurred, and the 20th day of March, they have forsooth elected themselves directors and hold themselves out as representing the board of directors. And when the date for the meeting comes, these self-elected directors, who are not even stockholders, make certain rules, regulations, and by-laws, the principal one of which is found in Article 7, which reads as follows: "That the President of the Corporation shall be the Chairman of the Board of Directors, but he shall not have the privilege of voting upon any question presented to the Directors for their consideration," signed by J.B. Parnell, president, attested ___, secretary.
Now what is the situation? Two rank outsiders, owning no stock, so far as the records of the corporation are concerned, have elected themselves directors in a pretended meeting of stockholders and then at the same so-called meeting they disqualify their president from voting when he has, as the books of the corporation show, a majority of the stock. I can conceive of nothing more high-handed, illegal, and farcical.
The plaintiff corporation publishes the only newspaper in Florence and runs in connection therewith a job-printing business. The active general management of this business has been for a number of years in the hands of plaintiff J.M. O'Dowd, and J.B. Parnell was in charge of the mechanical department. Up until the summer of 1929, Parnell was rendering effective service to the company, but about that time he commenced drinking hard and until June, 1931, was absent from the business for increasingly long periods of time. In June, 1931, his condition had become such that it was necessary for a committee to be appointed, and Sam J. Royall, esquire, acted for him in that capacity until March, 1934.
The main issue in the case relates to stock ownership in the corporation. The corporation was organized in 1922 with a capital stock of $10,000.00, and early in 1923 the capital stock was increased to $30,000.00. The principal stockholders at first were J.B. Parnell and J.A. Zeigler. In June, 1923, O'Dowd agreed to purchase a considerable portion of their stock, and from that time forward, although there were a number of other small stockholder, Zeigler, Parnell, and O'Dowd ran the business practically as joint owners, sharing equally in the profits, which were accounted for in salaries. Parnell's stock ownership was 1160 shares; O'Dowd 780 shares; and Zeigler 500 shares, on September 13, 1926. On that date a written contract was entered into among the three (Exhibit 5) under which it was agreed that O'Dowd and Zeigler should have the right to purchase treasury stock or stock from J.B. Parnell at par to equalize the stock interest of each of the three, within a period of two years from that date. The last paragraph of the body of that contract provides: "That the Florence Printing Company, a Corporation, shall issue to J.A. Zeigler and J.M. O'Dowd within the next two years the unsubscribed stock in said Corporation at par value of $10.00 a share, so as to equalize the interest of the parties hereto in said Corporation." In March, 1928, Parnell and O'Dowd bought out Zeigler's shares of stock, and agreed to pay for same out of the profits of the business over a period of time. To finance this purchase, the stock was deposited with First National Bank in Florence under a written contract setting out the manner in which the stock should be paid for. As the stock was paid for from company funds, the amounts were charged against the accounts of Parnell and O'Dowd on the corporate books. In connection with this purchase, the first important issue of fact arises. O'Dowd claims that it was understood between himself and Parnell that he would have the right to equalize his stock holdings with Parnell under the tri-party agreement (Exhibit 5), after completing the purchase of the Zeigler stock. He says that Parnell stated he was willing to extend the time two or three years, and that he would not have gone into the transaction at all, or that he would have demanded compliance with the stock purchase agreement within the time mentioned in the contract, except for the fact that Parnell extended the time.
After the stock was purchased, Parnell and O'Dowd began to divide the profits of the business equally, which was according to the admission of both of them the agreement between them at the time the Zeigler stock was purchased. The method was to draw certain amounts during the year, and at the close of the year's business, after setting aside certain reserve, the balance of the profits would be divided between them in equal proportions. Mr. O'Dowd's version of the matter is supported by all of the circumstances surrounding the transaction, and I am forced to the conclusion that his statements in regard thereto are true. In March, 1930, and continuously since that date, O'Dowd has offered and has been ready and willing to comply with his agreement with Parnell in regard to equalization of the stock. While Parnell denies the agreement, he admits that O'Dowd undertook to purchase sufficient of his stock for this purpose and that he refused to sell to him. Sam J. Royall, esquire, his committee, confirmed O'Dowd's statement that O'Dowd made numerous efforts to comply with the stock arrangement while he was committee, and at his instance and request the matter was continued from time to time in the hope that Parnell would get in such mental condition as would enable him to transact his own business personally.
During the time that Zeigler, Parnell and O'Dowd were in charge, and since Parnell and O'Dowd have been in charge and dividing the profits, there were some other stockholders in the corporation. Prior to the Zeigler purchase, O'Dowd and Parnell had been buying up this miscellaneous outstanding stock, and after the purchase a few other shares were acquired, representing all of the outstanding stock with the exception of 20 shares owned by Mrs. Edith B. Clarke. O'Dowd claims, and I find it to be true, that that miscellaneous stock was acquired by him and Parnell for their joint benefit to be used in equalizing their stock holdings.
Under this arrangement, Parnell acquired 88 shares of stock and O'Dowd 28 shares of stock. New stock certificates for the larger part of these shares were written but have never been delivered. There are 294 shares of treasury stock which includes the Wall and Laughlin stock which was acquired by the company on April 11, 1931.
The defendants contend that the agreement between Parnell and O'Dowd about equalizing their stock-holdings, if it existed, is within the statute of frauds and unenforceable. As to the stock acquired by Parnell and O'Dowd from miscellaneous holders, I find that the purchase was made for the benefit of both, and their agreement concerning it is not within the statute. The theory being that such a transaction is not a sale by one party to the other, but that it amounts to a trust or partnership therein, as to which no written agreement would be required. In so far as any agreement relating to treasury stock is concerned, it is the law of this State that a contract for the sale of stock thereafter to be issued by a corporation is not within the statute. Gadsden v. Lance, McMullan's Equity 87, 37 Am. Dec., 548.
Another position taken by counsel for defendants is that inasmuch as the number of shares specified in equalizing the contract are not fixed, the contract is void. It is a maxim in equity, " Id certum est quod certum reddi potest," which is a complete answer to that argument.
Under the written agreement (Exhibit 5) O'Dowd was given the right to purchase from Parnell, at par, an amount of stock sufficient to equalize their holdings. This agreement met every requirement of the statute of frauds. Parnell waived the provision of the agreement in regard to the time of compliance. Furthermore, that by reason of the fact that Parnell told O'Dowd expressly that he would not insist on the time of performance he is estopped now from doing so. O'Dowd acted thereon and permitted the time to pass, in reliance upon Parnell's representation that it would be agreeable to comply thereafter in the future. It is not a question of Parnell and O'Dowd having an additional agreement not to be performed within the space of a year, but a question of waiver and estoppel. Equity will not allow the statute of frauds to be used as an instrument of fraud, and where a party to a contract within the statute induces the other to waive some provision thereof upon which he is entitled to insist and to change his position to his disadvantage with respect thereto, the party so acting will be estopped to claim the benefit of the statute. This principle of law is peculiarly applicable to oral extensions for performance of written contracts, where one party has acted upon the extension and failed to exercise rights as provided by the written contract. Scheerschmidt v. Smith, 74 Minn., 224, 77 N.W., 34; Thomson v. Poor, 147 N.Y., 402, 42 N.E., 13; Vogel v. Shaw, 42 Wyo., 333, 294 P., 687, 75 A.L.R., 639. See other cases cited 17 A.L.R., 55 et seq. However, the statute does not apply except in such cases where the contract cannot possibly be performed within the year. In this matter it could very easily have been performed within the year for the contract itself (see Exhibit 9) provides at the end of the first paragraph: "The privilege is and shall be extended to J.B. Parnell to pay the entire balance due or any part thereof in multiples of $300.00 at any time he may see fit before the maturity dates of said notes."
It has been held that a contract to furnish a man with board and lodging for thirteen months comes within the provisions of the statute, for it is impossible to furnish him thirteen months board within twelve months, but a contract to furnish him board for his lifetime is not within the statute, because the man might die at any moment, thereby enabling him to perform the contract within the year.
The situation in this case most aptly calls for the application of estoppel mentioned. There is only one reasonable inference from the testimony which is to the effect that O'Dowd would, in the first place, not have entered into the agreement for the purchase of the Zeigler stock, and in the second place, having entered into the agreement, would have insisted upon equalization of the stock interests within the time provided by the original contract of September, 1926, but for the promises and agreements of Parnell that the stock equalization could be effected within any reasonable length of time after he and O'Dowd completed the purchase of the Zeigler stock. His position was substantially altered when he began to rely upon Parnell's agreement to extend the time, and the law will not now permit Parnell to disavow that agreement. Furthermore, the very fact that as soon as Zeigler sold out, they at once began to divide the profits into two equal parts, is conclusive evidence of their mutual recognition of an equalization of stock between them and as between them the stock was recognized as having already vested in O'Dowd, for why else would he be now entitled to half the profits? This of itself part performance is sufficient to take it out of the statute of frauds, if it ever was within it.
It appears from the testimony that in the past three or four years Parnell has enjoyed equal benefits with O'Dowd from the operation of the business although he has been practically incapacitated during that time from performing any duties in connection with it. This is an additional reason for believing that the profits were shared according to the amount of stock owned and not as salaries. The testimony shows that O'Dowd has managed the business well during this period of time. When this suit was instituted, the injunction was modified at the request of the plaintiffs so as to put J.B. Parnell in a position to fully enjoy and exercise his rights in the business. It was represented that he was at that time able to do his share of the work. The testimony, however, shows that with the exception of one or two days he has not been near the business and O'Dowd has had to shoulder the whole burden of its operation. There is no testimony to support the charges in the answer of mismanagement on the part of O'Dowd. On the contrary, the whole success of the business is due almost exclusively to O'Dowd's efforts.
I am satisfied from a study of the whole record that if the defendants had been permitted to carry out their plans and O'Dowd had been ousted from his office in the plaintiff corporation, that it, J.B. Parnell, and O'Dowd would have suffered irreparable loss and injury. I am further persuaded that J.B. Parnell would not be benefited by the policies and program of his co-defendants, for as I have already pointed out, the seventh article of the by-laws adopted by these pretended directors absolutely exclude J.B. Parnell from participation in the management of the business, of which he is one of the principal stockholders and president. How could this be construed as meaning anything but that they would take the complete control of the business in which they had no financial interest? And the fact that J.B. Parnell's signature appears subscribed to those same articles which excluded himself from any participation in the affairs of the corporation, raises a strong presumption that he is either still mentally incapacitated or else he took so little notice of what was going on about him as to make him guilty of such unpardonable negligence as would prove his incapacity to take care of himself.
It is true that the business has been operated first by Zeigler, Parnell, and O'Dowd, and later by Parnell and O'Dowd, as if it were a partnership instead of a corporation, but these parties have at all times had a controlling stock interest, and no other stockholders except Parnell and O'Dowd are now interested, except Mrs. Edith B. Clarke, who as an employee had 20 shares of stock given to her. The acts of Zeigler, Parnell and O'Dowd and of Parnell and O'Dowd looking to equalization of their stock interest should be ratified as acts of the corporation and as binding upon themselves as stockholders. In fact, as I have already pointed out, in the equalization contract of September 13, 1926 (Exhibit 5), the three of them, J.B. Parnell, J.A. Zeigler, and J.M. O'Dowd, agreed that the Florence Printing Company shall issue to J.A. Zeigler and J.M. O'Dowd unsubscribed stock in order to effect the equalization among them. This agreement was signed by all three of them, and was clearly intended to bind the corporation. It was as near to a corporate act as anything else the corporation has ever attempted to do.
The true purport of the agreement under which J. M. O'Dowd and J.B. Parnell acquired control of Florence Printing Company, and under which it has been operated by them, was that each was to have an interest equal to that of the other, and that neither was to acquire the right through the ownership of stock by him alone, or through the combination of his stock with that of another, to exclude the other from the right to have the corporation controlled by the two jointly. This was considered to be a valuable right and was recognized by both until recently. In the interest of the corporation and J.M. O'Dowd, this right should be protected, and the testimony indicates that protection of this right will promote the best interest of J. B. Parnell also. It is a significant fact that J.B. Parnell in open Court, at the hearing admitted that he had always been willing for O'Dowd to have an equal share in the profits of the business with him, and that he was still willing for this. That statement alone should settle this case.
Therefore, I order and direct and decree that the defendant J.B. Parnell shall, within thirty-five days from the filing of this decree, transfer so many shares of the corporate stock in said corporation, as may be necessary, to J.M. O'Dowd so that both of them shall hold thereafter an equal number of shares of stock in said corporation, unless the corporation with thirty days from the date of the filing of this decree shall have transferred to the said J.M. O'Dowd a sufficient number of shares of stock so as to make the said O'Dowd's holdings equal to the said Parnell's holdings therein. In either event, whether the stock be transferred to O'Dowd by the corporation or by the said Parnell, that O'Dowd shall pay for same at the price agreed upon in the contract hereinbefore mentioned, namely at $10.00 per share par value thereof upon the transfer to him of same.
It is further ordered, adjudged, and decreed that J.B. Parnell be, and he is hereby, restrained and enjoined from disposing of transferring, or assigning shares of stock of Florence Printing Company, or from causing shares of treasury stock to be issued, which will prevent the equalization of the stock as herein adjudged.
It is further ordered, adjudged, and decreed that W.B. Corbin and Monroe J. Parnell have no interest in the plaintiff Florence Printing Company, or in the corporate stock thereof, and the injunction as to them, heretofore issued, be, and it is hereby made permanent, for the only thing in this record which tends to show ownership of any shares of stock in this corporation by W.B. Corbin is in the allegation of the complaint and in the testimony of O'Dowd that he presented a certificate of stock for registration, but his own testimony conclusively shows that all of the stock is vested in J.B. Parnell, J.M. O'Dowd, and Mrs. Clarke. As to the stock of Monroe J. Parnell, there is nothing in the testimony to show his ownership, legal or equitable, in any shares of stock of the corporation.
Messrs. McEachin Townsend and Preston B. Thames, for appellants, cite: Admission of evidence: Sec. 492, Code 1932; 3 S.C. 401; 40 F.2d 228; 93 S.E., 995; 162 S.C. 332; 160 S.E., 844. As to statute of frauds: 14 A.L. R., 394; 141 S.C. 56; 139 S.E., 182; 54 S.E., 939; 10 L.R.A. (N.S.), 381; 167 S.C. 380; 166 S.E., 409; 47 S.C. 430; 25 S.E., 303. Subsequent oral agreements to written contract: 14 C.J., 687; 8 S.C. Eq., 271; 17 A.L. R., 19; 29 A.L.R., 1095; 80 A.L.R., 539; 68 S.W.2d 297; 51 N.E., 599; 277 S.W. 286; 284 S.W. 535; 159 N.E., 815. Consideration: 21 L.R.A., 127; 135 S.C. 138; 133 S.E., 202; 45 A.L.R., 1192; 4 A.L.R., 77; 6 R.C. L., 686; 24 A.L.R., 1352; 137 S.C. 366; 135 S.E., 363; 170 S.E., 179; 165 S.C. 238; 163 S.E., 649. Option to purchase stock does not vest equitable title to stock: 14 C. J., 687; 120 S.E., 522; 163 N.Y.S., 626; 200 N.Y.S., 279; 144 N.E., 900; 171 N.Y.S., 619; 57 A., 853; 206 P., 620; 127 So., 624; 80 Ne., 450; 119 N.E., 559; Ann. Cas., 1918-E., 247. Specific performance: 14 C.J., 682; 75 A., 568; 27 L.R.A. (N.S.), 658; 181 N.W., 102; 12 A.L.R., 1010; 25 Minn., 72; 4 N.W., 623; 17 L.R.A., 96; 52 N.W., 860; 23 L.R.A. (N.S.), 510; 122 N.W., 1; 17 Ann. Cas., 687. Ratification by stockholders of act of directors which is ultra vires the corporation: 236 F., 454; L.R.A., 1915-D, 1128.
Messrs. Willcox, Hardee Wallace and W. Stokes Houck, for respondents, cite: Contracts: Sec. 490, Code 1932; 145 S.C. 155; 3 S.C. 401. Tender: 138 S.C. 439; 136 S.E., 762; 111 S.C. 381; 117 S.C. 480. Statute of frauds: 26 S.C. 88; 57 S.C. 576. Partial performance: 141 S.C. 59; 25 R.C.L., 607; 54 S.E., 939. Estoppel and waiver: 141 S.C. 451; 6 R.C.L., 914; 22 C.J., 1273; 79 S.C. 141; 96 S.C. 286; 118 S.C. 430; 110 S.C. 421; 162 S.E., 65; 17 A.L.R., 1; 80 A.L.R., 534.
August 28, 1935. The opinion of the Court was delivered by
The action herein by Florence Printing Company, a corporation, as plaintiff, against J.B. Parnell, W.B. Corbin, and Monroe Parnell, as defendants, was commenced in the Court of Common Pleas for Florence County March 20, 1934, by service of the summons and complaint on the defendants together with an order restraining the defendants from interfering with the business of the plaintiff, Florence Printing Company. The said restraining order required the defendants to show cause, at a given time and place stated in the order, why the temporary restraining order should not be continued. The said order was subsequently modified so as to permit J.B. Parnell, the president of the said Florence Printing Company, to carry on the duties as discharged by him previous to the commencement of the action. J.M. O'Dowd at that juncture of the case served upon counsel for the defendants his petition for intervention and a notice of motion to be made a party plaintiff to the action.
The matter first came before his Honor, Judge William H. Grimball, for a hearing upon the return of the defendants to the said restraining order, and upon the petition of the said J.M. O'Dowd to be made a party plaintiff. Upon hearing the matter his Honor, Judge Grimball, issued an order making the said J.M. O'Dowd a party plaintiff to the action, and in said order his Honor continued the said restraining order, and, also, required the said J.M. O'Dowd to file a bond in the cause in the sum of $3,000.00.
From the said order of his Honor, Judge Grimball, the defendants served due notice of intention to appeal. It also appears from the record that an amended complaint was then served and to this amended complaint the defendants filed a demurrer, upon the ground of misjoinder of causes of action. However, by permission of the Court, the demurrer was withdrawn and the defendants served their answer in the cause.
It appears that both parties, plaintiffs and defendants, treated the action as an action in equity, and, we may add, properly so. In due course the plaintiffs, to whom we shall hereinafter refer as respondents, made a motion before the Court to frame issues for trial by jury, and the defendants, to whom we shall hereinafter refer as appellants, moved for an order of reference. The motion for an order of reference was heard before his Honor, Judge S.W.G. Shipp, who, after consideration, referred the matter to Hon. C. W. Muldrow, master in equity, for the purpose of taking testimony and reporting the same to the Court. The issues came before his Honor, Judge Shipp, upon the pleadings and the testimony reported by the master. At that time counsel for appellants moved to strike out all of the testimony, with reference to the extension of the 1926 contract, which was referred to in the pleadings and in the testimony, as not being responsive to the allegations of the complaint, which motion his Honor, Judge Shipp, overruled. By decree, dated August 8, 1934, his Honor, Judge Shipp, sustained the contention of the respondents. In due time appellants served notice of intention to appeal from said decree.
Having carefully considered appellants' exceptions, in connection with the testimony and entire record of the case, it is our opinion that the record amply supports the finding and holding of the Circuit Judge, as set forth in his decree. It is, therefore, the judgment of this Court that the decree of the Circuit Judge be and the same is hereby affirmed.
NOTE: The decree of the Circuit Judge will be incorporated in the report of the case.
MR. CHIEF JUSTICE STABLER and MESSRS. JUSTICES BONHAM and FISHBURNE concur.